(Mark one)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Connecticut
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06-1045829
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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One American Row, Hartford, Connecticut
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06102-5056
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(Address of principal executive offices)
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(Zip Code)
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(860) 403-5000
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(Registrant’s telephone number, including area code)
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Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer þ |
Smaller reporting company ¨
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(Do not check if smaller reporting company) |
TABLE OF CONTENTS
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PART I
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FINANCIAL INFORMATION
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Page
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Item 1.
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Financial Statements (unaudited)
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4
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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58
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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74
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Item 4.
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Controls and Procedures
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74
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PART II
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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76
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Item 1A.
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Risk Factors
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76
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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76
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Item 3.
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Defaults Upon Senior Securities
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76
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Item 4.
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Mine Safety Disclosures
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76
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Item 5.
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Other Information
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77
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Item 6.
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Exhibits
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77
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Signature
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78
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Sept 30,
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Dec 31,
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|||||||
2012
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2011
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|||||||
As restated
and amended
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||||||||
ASSETS:
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||||||||
Available-for-sale debt securities, at fair value (amortized cost of $2,802.5 and $2,460.9)
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$ | 2,966.2 | $ | 2,512.1 | ||||
Limited partnerships and other investments
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6.3 | 4.7 | ||||||
Policy loans, at unpaid principal balances
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60.5 | 62.5 | ||||||
Derivative investments
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185.8 | 103.8 | ||||||
Fair value investments
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44.1 | 41.8 | ||||||
Total investments
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3,262.9 | 2,724.9 | ||||||
Cash and cash equivalents
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117.2 | 49.5 | ||||||
Accrued investment income
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25.9 | 18.6 | ||||||
Receivables
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451.3 | 413.6 | ||||||
Deferred policy acquisition costs
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434.6 | 489.1 | ||||||
Deferred income taxes, net
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18.7 | 29.4 | ||||||
Receivable from related parties
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23.4 | 4.8 | ||||||
Other assets
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145.4 | 108.6 | ||||||
Separate account assets
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2,110.7 | 2,546.8 | ||||||
Total assets
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$ | 6,590.1 | $ | 6,385.3 | ||||
LIABILITIES:
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||||||||
Policy liabilities and accruals
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$ | 1,813.7 | $ | 1,601.3 | ||||
Policyholder deposit funds
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2,217.7 | 1,724.4 | ||||||
Payable to related parties
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13.8 | 30.0 | ||||||
Other liabilities
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143.8 | 58.8 | ||||||
Separate account liabilities
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2,110.7 | 2,546.8 | ||||||
Total liabilities
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6,299.7 | 5,961.3 | ||||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
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||||||||
STOCKHOLDER’S EQUITY:
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||||||||
Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued
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2.5 | 2.5 | ||||||
Additional paid-in capital
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802.2 | 802.2 | ||||||
Accumulated other comprehensive income
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4.2 | 2.6 | ||||||
Accumulated deficit
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(518.5 | ) | (383.3 | ) | ||||
Total stockholder’s equity
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290.4 | 424.0 | ||||||
Total liabilities and stockholder’s equity
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$ | 6,590.1 | $ | 6,385.3 |
Three Months Ended
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Nine Months Ended
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|||||||||||||||
September 30,
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September 30,
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|||||||||||||||
2012
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2011
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2012
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2011
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|||||||||||||
As restated and amended
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As restated and amended
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|||||||||||||||
REVENUES:
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||||||||||||||||
Premiums
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$ | 0.8 | $ | 1.1 | $ | 3.2 | $ | 1.4 | ||||||||
Insurance and investment product fees
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92.3 | 96.9 | 280.5 | 299.8 | ||||||||||||
Net investment income
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33.3 | 25.0 | 96.5 | 70.7 | ||||||||||||
Net realized investment gains (losses):
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||||||||||||||||
Total other-than-temporary impairment (“OTTI”) losses
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(0.7 | ) | (4.7 | ) | (4.4 | ) | (7.0 | ) | ||||||||
Portion of OTTI losses recognized in
other comprehensive income (“OCI”)
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(0.3 | ) | 3.7 | 1.8 | 4.7 | |||||||||||
Net OTTI losses recognized in earnings
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(1.0 | ) | (1.0 | ) | (2.6 | ) | (2.3 | ) | ||||||||
Net realized investment gains (losses), excluding OTTI losses
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4.8 | (3.2 | ) | (10.1 | ) | (5.8 | ) | |||||||||
Net realized investment gains (losses)
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3.8 | (4.2 | ) | (12.7 | ) | (8.1 | ) | |||||||||
Total revenues
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130.2 | 118.8 | 367.5 | 363.8 | ||||||||||||
BENEFITS AND EXPENSES:
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||||||||||||||||
Policy benefits
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157.4 | 93.9 | 310.8 | 239.2 | ||||||||||||
Policy acquisition cost amortization
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24.3 | 28.9 | 92.6 | 90.3 | ||||||||||||
Other operating expenses
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24.8 | 24.1 | 75.7 | 69.7 | ||||||||||||
Total benefits and expenses
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206.5 | 146.9 | 479.1 | 399.2 | ||||||||||||
Loss before income taxes
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(76.3 | ) | (28.1 | ) | (111.6 | ) | (35.4 | ) | ||||||||
Income tax expense (benefit)
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4.3 | (18.0 | ) | 23.6 | (16.8 | ) | ||||||||||
Net loss
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$ | (80.6 | ) | $ | (10.1 | ) | $ | (135.2 | ) | $ | (18.6 | ) | ||||
COMPREHENSIVE INCOME (LOSS):
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||||||||||||||||
Net loss
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$ | (80.6 | ) | $ | (10.1 | ) | $ | (135.2 | ) | $ | (18.6 | ) | ||||
Other comprehensive income (loss), before income taxes:
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||||||||||||||||
Net unrealized investment gains (losses), before income taxes
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0.3 | (5.4 | ) | 14.6 | 21.5 | |||||||||||
Non-credit portion of OTTI losses recognized in OCI,
before income taxes
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1.7 | (3.7 | ) | 4.1 | (3.9 | ) | ||||||||||
Other comprehensive income (loss), before income taxes
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2.0 | (9.1 | ) | 18.7 | 17.6 | |||||||||||
Less: Income tax expense (benefit) related to:
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||||||||||||||||
Net unrealized investment gains (losses)
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6.5 | (0.8 | ) | 15.7 | 5.6 | |||||||||||
Non-credit portion of OTTI losses recognized in OCI
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0.6 | (1.3 | ) | 1.4 | (1.4 | ) | ||||||||||
Total income tax expense (benefit)
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7.1 | (2.1 | ) | 17.1 | 4.2 | |||||||||||
Other comprehensive income (loss), net of income taxes
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(5.1 | ) | (7.0 | ) | 1.6 | 13.4 | ||||||||||
Comprehensive income (loss)
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$ | (85.7 | ) | $ | (17.1 | ) | $ | (133.6 | ) | $ | (5.2 | ) |
Nine Months Ended
September 30,
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||||||||
2012
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2011
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|||||||
As restated
and amended
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||||||||
OPERATING ACTIVITIES:
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||||||||
Net loss
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$ | (135.2 | ) | $ | (18.6 | ) | ||
Net realized investment losses
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12.7 | 8.1 | ||||||
Policy acquisition costs deferred
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(63.7 | ) | (71.5 | ) | ||||
Amortization of policy acquisition costs deferred
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92.6 | 90.3 | ||||||
Interest credited
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49.7 | 46.5 | ||||||
Equity in earnings of limited partnerships and other investments
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(0.1 | ) | (0.3 | ) | ||||
Change in:
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||||||||
Accrued investment income
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(10.6 | ) | (9.6 | ) | ||||
Deferred income taxes, net
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(6.4 | ) | (6.0 | ) | ||||
Receivables
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(37.7 | ) | 16.2 | |||||
Policy liabilities and accruals
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(36.9 | ) | (111.5 | ) | ||||
Due to/from affiliate
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(22.9 | ) | 6.5 | |||||
Other operating activities, net
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(4.5 | ) | (55.4 | ) | ||||
Cash used for operating activities
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(163.0 | ) | (105.3 | ) | ||||
INVESTING ACTIVITIES:
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||||||||
Purchases of:
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||||||||
Available-for-sale debt securities
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(915.7 | ) | (1,036.7 | ) | ||||
Derivative instruments
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(93.3 | ) | (23.0 | ) | ||||
Fair value investments
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(2.9 | ) | (29.8 | ) | ||||
Sales, repayments and maturities of:
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||||||||
Available-for-sale debt securities
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592.9 | 393.7 | ||||||
Derivative instruments
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16.2 | 50.3 | ||||||
Fair value investments
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4.2 | 6.2 | ||||||
Contributions to limited partnerships
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(1.6 | ) | (0.9 | ) | ||||
Distributions from limited partnerships
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0.3 | 0.1 | ||||||
Policy loans, net
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3.7 | (3.1 | ) | |||||
Other investing activities, net
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(1.0 | ) | (0.6 | ) | ||||
Cash used for investing activities
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(397.2 | ) | (643.8 | ) | ||||
FINANCING ACTIVITIES:
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||||||||
Policyholder deposit fund deposits
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812.3 | 883.6 | ||||||
Policyholder deposit fund withdrawals
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(381.7 | ) | (357.9 | ) | ||||
Net transfers to/from separate accounts
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197.3 | 242.9 | ||||||
Cash provided by financing activities
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627.9 | 768.6 | ||||||
Change in cash and cash equivalents
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67.7 | 19.5 | ||||||
Cash and cash equivalents, beginning of year
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49.5 | 34.1 | ||||||
Cash and cash equivalents, end of year
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$ | 117.2 | $ | 53.6 | ||||
Non-Cash Transactions During the Year
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||||||||
Investment exchanges | $ | 25.6 | $ | 12.0 |
Nine Months Ended
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||||||||
September 30,
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||||||||
2012
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2011
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|||||||
As restated
and amended(1)
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||||||||
COMMON STOCK:
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||||||||
Balance, beginning of period
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$ | 2.5 | $ | 2.5 | ||||
Balance, end of period
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$ | 2.5 | $ | 2.5 | ||||
ADDITIONAL PAID-IN CAPITAL:
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||||||||
Balance, beginning of period
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$ | 802.2 | $ | 802.2 | ||||
Capital contributions from parent
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— | — | ||||||
Balance, end of period
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$ | 802.2 | $ | 802.2 | ||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
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||||||||
Balance, beginning of period
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$ | 2.6 | $ | (12.9 | ) | |||
Other comprehensive income
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1.6 | 13.4 | ||||||
Balance, end of period
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$ | 4.2 | $ | 0.5 | ||||
ACCUMULATED DEFICIT:
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||||||||
Balance, beginning of period
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$ | (383.3 | ) | $ | (363.3 | ) | ||
Net loss
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(135.2 | ) | (18.6 | ) | ||||
Balance, end of period
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$ | (518.5 | ) | $ | (381.9 | ) | ||
TOTAL STOCKHOLDER’S EQUITY:
|
||||||||
Balance, beginning of period
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$ | 424.0 | $ | 428.5 | ||||
Change in stockholder’s equity
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(133.6 | ) | (5.2 | ) | ||||
Balance, end of period
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$ | 290.4 | $ | 423.3 |
(1)
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Amounts reflect the cumulative impact of the retrospective adoption of amended guidance to ASC 944, Financial Services Insurance (ASU 2010-26), as detailed more fully within Footnote 2 to these financial statements.
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●
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Accounting for Certain Universal Life Type Products: Certain of the Company’s universal life products have benefit features that are expected to produce profits in earlier periods followed by losses in later periods. Under U.S. GAAP accounting, the Company is required to establish reserves for the anticipated benefits that exceed the projected contract value and arise from these features. The Company did not properly evaluate certain benefit features and, therefore, did not properly establish the required reserves. The resulting changes in the reserve accruals had a secondary impact on gross profits used to amortize deferred acquisition costs and unearned revenue reserves.
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●
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Shadow Accounting: Under U.S. GAAP accounting, assets and liabilities that are backed by a portfolio of assets classified as available-for-sale must be adjusted to reflect the amount of unrealized gains or unrealized losses “as if the amounts were realized” with a corresponding offset to other comprehensive income (loss) in a process commonly referred to as “shadow accounting”. The Company failed to recognize all of the relationships between the available-for-sale assets and the supported assets and liabilities in calculating these adjustments. During the restatement, the shadow accounting policy and valuation process were corrected to ensure all interrelated assets and liabilities were being properly identified and to ensure that the impacts of these unrealized gains or losses were properly recorded. The impact of the correction of these errors on the financial statements is presented in the “Summary of Correction of Actuarial Finance Errors” table within the “Actuarial Finance” section of this Note below.
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●
|
Loss Recognition: Under U.S. GAAP accounting, the Company must periodically assess the net liability (net of deferred policy acquisition costs) to ensure it is sufficient to provide for the expected policyholder benefits and related expenses. Upon analysis, the Company determined that for certain lines of business the “locked-in” historical estimates used to calculate the policyholder liabilities were insufficient prior to, and also as a result of, entering into a new reinsurance treaty (as discussed within the “Reinsurance Accounting” section below) and in light of the current interest rate environment. Upon identification of loss recognition events, the Company reduced its deferred policy acquisition cost asset and established additional liabilities to rectify the insufficiency in the net liability which was identified for certain lines of business. The impact of the correction of these errors on the financial statements is presented in the “Summary of Correction of Actuarial Finance Errors” table within the “Actuarial Finance” section of this Note below.
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●
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Fixed Indexed Annuities (“FIA”): During the Company’s analysis of the fixed indexed annuity valuation process, errors associated with the actuarial modeling of certain fixed indexed annuity product features which were modeled beginning in 2011 were identified. These errors related to incomplete or inaccurate data and inappropriate approximations of product features which resulted in the incorrect calculation for the policyholder liabilities including the related embedded derivatives associated with certain benefits for the product. The impact of the correction of these errors on the financial statements is presented in the “Summary of Correction of Actuarial Finance Errors” table within the “Actuarial Finance” section of this Note below.
|
●
|
Other Actuarial Errors: Included within these amounts are all actuarial out-of-period errors as well as other individually immaterial errors which were identified during the restatement process in conjunction with management’s comprehensive balance sheet review and relating to the Company’s actuarial assumptions, approximations and valuation methods/models for its life and annuity business. The impact of the correction of these errors on the financial statements is presented in the “Summary of Correction of Actuarial Finance Errors” table within the “Actuarial Finance” section of this Note below.
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Increase (decrease)
|
Summary of Correction of Actuarial Finance Errors – December 31, 2011 Balance Sheet Impacts (1)
|
|||||||||||||||||||||||
($ in millions)
|
Actuarial Finance
|
|||||||||||||||||||||||
Accounting
for UL Type
Products
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Shadow
Accounting
|
Loss
Recognition
|
FIA
|
Other
Actuarial
|
Total
Actuarial
Finance
Errors (2)
|
|
||||||||||||||||||
ASSETS:
|
||||||||||||||||||||||||
Available-for-sale debt securities, at fair value
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$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Limited partnerships and other investments
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— | — | — | — | — | — | ||||||||||||||||||
Policy loans, at unpaid principal balances
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— | — | — | — | — | — | ||||||||||||||||||
Derivative investments
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— | — | — | — | — | — | ||||||||||||||||||
Fair value investments
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— | — | — | — | — | — | ||||||||||||||||||
Total investments
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— | — | — | — | — | — | ||||||||||||||||||
Cash and cash equivalents
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— | — | — | — | — | — | ||||||||||||||||||
Accrued investment income
|
— | — | — | — | — | — | ||||||||||||||||||
Receivables
|
1.1 | — | — | — | 1.9 | 3.0 | ||||||||||||||||||
Deferred policy acquisition costs
|
70.9 | (13.4 | ) | (1.4 | ) | (3.4 | ) | (2.6 | ) | 50.1 | ||||||||||||||
Deferred income taxes, net
|
— | — | — | — | — | — | ||||||||||||||||||
Receivables from related parties
|
— | — | — | — | — | — | ||||||||||||||||||
Other assets
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— | — | 39.6 | — | 4.7 | 44.3 | ||||||||||||||||||
Separate account assets
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— | — | — | — | — | — | ||||||||||||||||||
Total assets
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$ | 72.0 | $ | (13.4 | ) | $ | 38.2 | $ | (3.4 | ) | $ | 4.0 | $ | 97.4 | ||||||||||
LIABILITIES:
|
||||||||||||||||||||||||
Policy liabilities and accruals
|
$ | 195.1 | $ | (13.6 | ) | $ | 10.3 | $ | — | $ | 11.3 | $ | 203.1 | |||||||||||
Deferred income tax, net
|
— | — | — | — | — | — | ||||||||||||||||||
Policyholder deposit funds
|
— | — | — | 0.8 | 2.4 | 3.2 | ||||||||||||||||||
Deferred income tax, net
|
||||||||||||||||||||||||
Payable to related parties
|
— | — | — | — | — | — | ||||||||||||||||||
Other liabilities
|
— | — | — | — | — | — | ||||||||||||||||||
Separate account liabilities
|
— | — | — | — | — | — | ||||||||||||||||||
Total liabilities
|
195.1 | (13.6 | ) | 10.3 | 0.8 | 13.7 | 206.3 | |||||||||||||||||
STOCKHOLDER’S EQUITY:
|
||||||||||||||||||||||||
Common stock
|
— | — | — | — | — | — | ||||||||||||||||||
Additional paid-in capital
|
— | — | — | — | — | — | ||||||||||||||||||
Accumulated other comprehensive loss
|
4.5 | (19.8 | ) | — | — | — | (15.3 | ) | ||||||||||||||||
Accumulated deficit
|
(77.8 | ) | — | (0.8 | ) | (4.1 | ) | (12.2 | ) | (94.9 | ) | |||||||||||||
Treasury stock
|
— | — | — | — | — | — | ||||||||||||||||||
Total stockholder’s equity (3)
|
(73.3 | ) | (19.8 | ) | (0.8 | ) | (4.1 | ) | (12.2 | ) | (110.2 | ) | ||||||||||||
Total stockholder’s equity - cumulative impact (4)
|
(49.8 | ) | 20.0 | 28.7 | (0.1 | ) | 2.5 | 1.3 | ||||||||||||||||
Total stockholder’s equity - impact
|
(123.1 | ) | 0.2 | 27.9 | (4.2 | ) | (9.7 | ) | (108.9 | ) | ||||||||||||||
Total liabilities and stockholder’s equity
|
$ | 72.0 | $ | (13.4 | ) | $ | 38.2 | $ | (3.4 | ) | $ | 4.0 | $ | 97.4 |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Actuarial Finance Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
(3)
|
Amounts represent restatement changes made to the 2011 and 2010 periods as presented within the 2012 Form 10-K.
|
(4)
|
Amounts represent cumulative impact of restatement changes to periods prior to 2010.
|
Increase (decrease)
|
Summary of Correction of Actuarial Finance Errors – Three months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1)
|
|||||||||||||||||||||||
($ in millions)
|
Actuarial Finance
|
|||||||||||||||||||||||
Accounting
for UL Type
Products
|
Shadow
Accounting
|
Loss
Recognition
|
FIA
|
Other
Actuarial
|
Total
Actuarial
Finance
Errors (2)
|
|||||||||||||||||||
REVENUES:
|
||||||||||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Insurance and investment product fees
|
(2.4 | ) | — | — | — | (0.6 | ) | (3.0 | ) | |||||||||||||||
Net investment income
|
— | — | — | — | (0.5 | ) | (0.5 | ) | ||||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||||||
Total OTTI losses
|
— | — | — | — | — | — | ||||||||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | — | — | ||||||||||||||||||
Net realized investment gains (losses), excluding OTTI losses
|
— | — | — | — | 8.0 | 8.0 | ||||||||||||||||||
Net realized investment gains (losses)
|
— | — | — | — | 8.0 | 8.0 | ||||||||||||||||||
Total revenues
|
(2.4 | ) | — | — | — | 6.9 | 4.5 | |||||||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||||||||||
Policy benefits
|
32.5 | — | 0.8 | 4.0 | 7.2 | 44.5 | ||||||||||||||||||
Policy acquisition cost amortization
|
(18.6 | ) | — | — | 1.5 | (0.8 | ) | (17.9 | ) | |||||||||||||||
Other operating expenses
|
— | — | — | — | 3.7 | 3.7 | ||||||||||||||||||
Total benefits and expenses
|
13.9 | — | 0.8 | 5.5 | 10.1 | 30.3 | ||||||||||||||||||
Income (loss) from before income taxes
|
(16.3 | ) | — | (0.8 | ) | (5.5 | ) | (3.2 | ) | (25.8 | ) | |||||||||||||
Income tax expense (benefit)
|
— | — | — | — | — | — | ||||||||||||||||||
Net income (loss)
|
$ | (16.3 | ) | $ | — | $ | (0.8 | ) | $ | (5.5 | ) | $ | (3.2 | ) | $ | (25.8 | ) | |||||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||||||||||
Net income (loss)
|
$ | (16.3 | ) | $ | — | $ | (0.8 | ) | $ | (5.5 | ) | $ | (3.2 | ) | $ | (25.8 | ) | |||||||
Other comprehensive income (loss) before income taxes:
|
||||||||||||||||||||||||
Net unrealized investment gains before income taxes
|
0.1 | (20.8 | ) | — | — | — | (20.7 | ) | ||||||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes
|
— | — | — | — | — | — | ||||||||||||||||||
Other comprehensive income (loss) before income taxes
|
0.1 | (20.8 | ) | — | — | — | (20.7 | ) | ||||||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||||||||||
Net unrealized investment gains (losses)
|
— | — | — | — | — | — | ||||||||||||||||||
Non-credit portion of OTTI losses recognized in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | — | — | ||||||||||||||||||
Other comprehensive income, net of tax
|
0.1 | (20.8 | ) | — | — | — | (20.7 | ) | ||||||||||||||||
Comprehensive income (loss)
|
$ | (16.2 | ) | $ | (20.8 | ) | $ | (0.8 | ) | $ | (5.5 | ) | $ | (3.2 | ) | $ | (46.5 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Actuarial Finance Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
Increase (decrease)
|
Summary of Correction of Actuarial Finance Errors – Nine months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1)
|
|||||||||||||||||||||||
($ in millions)
|
Actuarial Finance
|
|||||||||||||||||||||||
Accounting
for UL Type
Products
|
Shadow
Accounting
|
Loss
Recognition
|
FIA
|
Other
Actuarial
|
Total
Actuarial
Finance
Errors (2)
|
|||||||||||||||||||
REVENUES:
|
||||||||||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Insurance and investment product fees
|
(1.9 | ) | — | — | — | (1.4 | ) | (3.3 | ) | |||||||||||||||
Net investment income
|
— | — | — | — | (0.5 | ) | (0.5 | ) | ||||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||||||
Total OTTI losses
|
— | — | — | — | — | — | ||||||||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | — | — | ||||||||||||||||||
Net realized investment gains (losses), excluding OTTI losses
|
— | — | — | — | 10.9 | 10.9 | ||||||||||||||||||
Net realized investment gains (losses)
|
— | — | — | — | 10.9 | 10.9 | ||||||||||||||||||
Total revenues
|
(1.9 | ) | — | — | — | 9.0 | 7.1 | |||||||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||||||||||
Policy benefits
|
43.6 | — | 2.5 | 4.0 | 9.4 | 59.5 | ||||||||||||||||||
Policy acquisition cost amortization
|
(7.9 | ) | — | — | 2.1 | (8.4 | ) | (14.2 | ) | |||||||||||||||
Other operating expenses
|
— | — | — | — | 10.5 | 10.5 | ||||||||||||||||||
Total benefits and expenses
|
35.7 | — | 2.5 | 6.1 | 11.5 | 55.8 | ||||||||||||||||||
Income (loss) from before income taxes
|
(37.6 | ) | — | (2.5 | ) | (6.1 | ) | (2.5 | ) | (48.7 | ) | |||||||||||||
Income tax expense (benefit)
|
— | — | — | — | — | — | ||||||||||||||||||
Net income (loss)
|
$ | (37.6 | ) | $ | — | $ | (2.5 | ) | $ | (6.1 | ) | $ | (2.5 | ) | $ | (48.7 | ) | |||||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||||||||||
Net income (loss)
|
$ | (37.6 | ) | $ | — | $ | (2.5 | ) | $ | (6.1 | ) | $ | (2.5 | ) | $ | (48.7 | ) | |||||||
Other comprehensive income (loss) before income taxes:
|
||||||||||||||||||||||||
Net unrealized investment gains before income taxes
|
(0.4 | ) | (14.2 | ) | — | — | — | (14.6 | ) | |||||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes
|
— | — | — | — | — | — | ||||||||||||||||||
Other comprehensive income (loss) before income taxes
|
(0.4 | ) | (14.2 | ) | — | — | — | (14.6 | ) | |||||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||||||||||
Net unrealized investment gains (losses)
|
— | — | — | — | — | — | ||||||||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | — | — | ||||||||||||||||||
Other comprehensive income, net of tax
|
(0.4 | ) | (14.2 | ) | — | — | — | (14.6 | ) | |||||||||||||||
Comprehensive income (loss)
|
$ | (38.0 | ) | $ | (14.2 | ) | $ | (2.5 | ) | $ | (6.1 | ) | $ | (2.5 | ) | $ | (63.3 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Actuarial Finance Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
●
|
Available-for-Sale Securities – The Company did not have an adequate process over: (1) the valuation and recording of private placement debt, private equity securities, and certain publicly traded securities; and (2) utilizing an appropriate model for identifying impairments related to these securities. The errors identified were related to: (i) inaccurate inputs used in the valuation models; (ii) and inappropriate valuation methodologies used to value certain instruments; and (iii) ineffective review of internally developed (matrix or manual) prices. The Company also failed to maintain an adequate process over the leveling and disclosure of fair value measurements. In the course of correcting these valuation errors, the Company also reassessed the presentation of the fair value hierarchy as disclosed within “Note 10: Fair Value of Financial Instruments.” This resulted in the determination in the leveling classification of $1,296.7 million of securities to Level 3 in the fair value hierarchy. The classification in Level 3 had no impact on the fair value of these securities.
|
●
|
Derivative Valuation – The Company did not appropriately apply U.S. GAAP accounting standards regarding the valuation of certain derivative instruments. Specifically, the Company did not properly recognize and measure counterparty non-performance risk on non-collateralized derivative assets. The impact of the correction of these errors on the financial statements is presented in the “Summary of Correction of Investments Errors” table within the “Investments” section of this Note below.
|
●
|
Structured Securities – The Company did not appropriately maintain a process over the assessment of accounting methodologies used to determine the appropriate interest income models. This resulted in improper income recognition and impairments for certain structured securities. In addition, the Company did not properly assess securitized financial assets for potential embedded derivatives which, when properly assessed, resulted in the reclassification of assets to fair value investments. The reclassification of these assets results in the recognition of the change in fair value of these assets in net investment income. The impact of the correction of these errors on the statements of comprehensive income is presented in the “Summary of Correction of Investments Errors” table within the “Investments” section of this Note below.
|
Increase (decrease)
|
Summary of Correction of Investments Errors – December 31, 2011 Balance Sheet Impacts (1)
|
|||||||||||||||
($ in millions)
|
Investments
|
|||||||||||||||
AFS Valuation
|
Derivative Valuation
|
Structured Securities
|
Total Investment Errors (2)
|
|
||||||||||||
ASSETS:
|
||||||||||||||||
Available-for-sale debt securities, at fair value
|
$ | 0.9 | $ | — | $ | (35.1 | ) | $ | (34.2 | ) | ||||||
Limited partnerships and other investments
|
— | — | — | — | ||||||||||||
Policy loans, at unpaid principal balances
|
— | — | — | — | ||||||||||||
Derivative investments
|
— | (9.4 | ) | — | (9.4 | ) | ||||||||||
Fair value investments
|
(0.5 | ) | — | 35.1 | 34.6 | |||||||||||
Total investments
|
0.4 | (9.4 | ) | — | (9.0 | ) | ||||||||||
Cash and cash equivalents
|
— | — | — | — | ||||||||||||
Accrued investment income
|
— | — | — | — | ||||||||||||
Receivables
|
— | — | — | — | ||||||||||||
Deferred policy acquisition costs
|
— | (13.1 | ) | — | (13.1 | ) | ||||||||||
Deferred income taxes, net
|
— | — | — | — | ||||||||||||
Receivables from related parties
|
— | — | — | — | ||||||||||||
Other assets
|
— | — | — | — | ||||||||||||
Separate account assets
|
— | — | — | — | ||||||||||||
Total assets
|
$ | 0.4 | $ | (22.5 | ) | $ | — | $ | (22.1 | ) | ||||||
LIABILITIES:
|
||||||||||||||||
Policy liabilities and accruals
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Deferred income taxes, net
|
— | — | — | — | ||||||||||||
Policyholder deposit funds
|
— | — | — | — | ||||||||||||
Deferred income tax, net
|
— | — | — | — | ||||||||||||
Payable to related parties
|
— | — | — | — | ||||||||||||
Other liabilities
|
— | — | — | — | ||||||||||||
Separate account liabilities
|
— | — | — | — | ||||||||||||
Total liabilities
|
— | — | — | — | ||||||||||||
STOCKHOLDER’S EQUITY:
|
||||||||||||||||
Common stock
|
— | — | — | — | ||||||||||||
Additional paid-in capital
|
— | — | — | — | ||||||||||||
Accumulated other comprehensive loss
|
14.4 | — | (0.4 | ) | 14.0 | |||||||||||
Accumulated deficit
|
0.9 | (8.0 | ) | 1.1 | (6.0 | ) | ||||||||||
Treasury stock
|
— | — | — | — | ||||||||||||
Total stockholder’s equity (3)
|
15.3 | (8.0 | ) | 0.7 | 8.0 | |||||||||||
Total stockholder’s equity - cumulative impact (4)
|
(14.9 | ) | (14.5 | ) | (0.7 | ) | (30.1 | ) | ||||||||
Total stockholder’s equity - impact
|
0.4 | (22.5 | ) | — | (22.1 | ) | ||||||||||
Total liabilities and stockholder’s equity
|
$ | 0.4 | $ | (22.5 | ) | $ | — | $ | (22.1 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Investments Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
(3)
|
Amounts represent restatement changes made to the 2011 and 2010 periods as presented within the 2012 Form 10-K.
|
(4)
|
Amounts represent cumulative impact of restatement changes made to periods prior to 2010.
|
Increase (decrease)
|
Summary of Correction of Investments Errors – Three months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1) | |||||||||||||||
($ in millions)
|
Investments
|
|||||||||||||||
AFS Valuation
|
Derivative Valuation
|
Structured Securities
|
Total Investment
Errors (2)
|
|||||||||||||
REVENUES:
|
||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Insurance and investment product fees
|
— | — | — | — | ||||||||||||
Net investment income
|
— | — | (0.1 | ) | (0.1 | ) | ||||||||||
Net realized investment gains (losses):
|
||||||||||||||||
Total OTTI losses
|
— | — | — | — | ||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | ||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | ||||||||||||
Net realized investment gains (losses), excluding OTTI
|
— | (5.8 | ) | (0.4 | ) | (6.2 | ) | |||||||||
Net realized investment gains (losses)
|
— | (5.8 | ) | (0.4 | ) | (6.2 | ) | |||||||||
Total revenues
|
— | (5.8 | ) | (0.5 | ) | (6.3 | ) | |||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||
Policy benefits
|
— | — | — | — | ||||||||||||
Policy acquisition cost amortization
|
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
Other operating expenses
|
— | — | — | — | ||||||||||||
Total benefits and expenses
|
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
Income (loss) from before income taxes
|
— | (5.4 | ) | (0.5 | ) | (5.9 | ) | |||||||||
Income tax expense (benefit)
|
— | — | — | — | ||||||||||||
Net income (loss)
|
$ | — | $ | (5.4 | ) | $ | (0.5 | ) | $ | (5.9 | ) | |||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||
Net income (loss)
|
$ | — | $ | (5.4 | ) | $ | (0.5 | ) | $ | (5.9 | ) | |||||
Other comprehensive income (loss) before income taxes:
|
||||||||||||||||
Net unrealized investment gains before income taxes
|
— | — | 0.5 | 0.5 | ||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes
|
— | — | — | — | ||||||||||||
Other comprehensive income (loss) before income taxes
|
— | — | 0.5 | 0.5 | ||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||
Net unrealized investment gains
|
— | — | — | — | ||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
— | — | — | — | ||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | ||||||||||||
Other comprehensive income, net of tax
|
— | — | 0.5 | 0.5 | ||||||||||||
Comprehensive income (loss)
|
$ | — | $ | (5.4 | ) | $ | — | $ | (5.4 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Actuarial Finance Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
Increase (decrease)
|
Summary of Correction of Investments Errors – Nine months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1)
|
|||||||||||||||
($ in millions)
|
Investments
|
|||||||||||||||
AFS Valuation
|
Derivative Valuation
|
Structured Securities
|
Total Investment Errors (2)
|
|
||||||||||||
REVENUES:
|
||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Insurance and investment product fees
|
— | — | — | — | ||||||||||||
Net investment income
|
0.2 | — | (0.2 | ) | — | |||||||||||
Net realized investment gains (losses):
|
||||||||||||||||
Total OTTI losses
|
— | — | — | — | ||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | ||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | ||||||||||||
Net realized investment gains (losses), excluding OTTI
|
— | (5.6 | ) | (0.7 | ) | (6.3 | ) | |||||||||
Net realized investment gains (losses)
|
— | (5.6 | ) | (0.7 | ) | (6.3 | ) | |||||||||
Total revenues
|
0.2 | (5.6 | ) | (0.9 | ) | (6.3 | ) | |||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||
Policy benefits
|
— | — | — | — | ||||||||||||
Policy acquisition cost amortization
|
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
Other operating expenses
|
— | — | — | — | ||||||||||||
Total benefits and expenses
|
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
Income (loss) from before income taxes
|
0.2 | (5.2 | ) | (0.9 | ) | (5.9 | ) | |||||||||
Income tax expense (benefit)
|
— | — | — | — | ||||||||||||
Net income (loss)
|
$ | 0.2 | $ | (5.2 | ) | $ | (0.9 | ) | $ | (5.9 | ) | |||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||
Net income (loss)
|
$ | 0.2 | $ | (5.2 | ) | $ | (0.9 | ) | $ | (5.9 | ) | |||||
Other comprehensive income (loss) before income taxes:
|
||||||||||||||||
Net unrealized investment gains before income taxes
|
5.4 | — | 0.9 | 6.3 | ||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes
|
— | — | — | — | ||||||||||||
Other comprehensive income (loss) before income taxes
|
5.4 | — | 0.9 | 6.3 | ||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||
Net unrealized investment gains
|
— | — | — | — | ||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
— | — | — | — | ||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | ||||||||||||
Other comprehensive income, net of tax
|
5.4 | — | 0.9 | 6.3 | ||||||||||||
Comprehensive income (loss)
|
$ | 5.6 | $ | (5.2 | ) | $ | — | $ | 0.4 |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Amounts represent the total “Summary of Correction of Actuarial Finance Errors” which is further aggregated into the “Summary of Correction of Errors” in the following pages.
|
●
|
Statement of Cash Flows – The Company identified errors within its previously issued statement of cash flows which primarily consisted of: (i) the incorrect classification of deposits and withdrawals of universal life products as cash flows used for operating activities; (ii) the incorrect classification of capitalized interest on policy loans as an investing activity; (iii) certain other classification errors within cash flows from investing activities primarily related to investment purchases and sales; and (iv) the net impact of all other errors previously and separately described within this Note. The impact of the correction of these errors is summarized below and included in detail within the restated and amended statement of cash flows within this Note.
|
Increase (decrease)
|
For the period ended
|
|||
($ in millions)
|
September 30,
|
|||
2011
|
||||
Statement of Cash Flows
|
||||
Cash provided by (used for) operating activities
|
$ | (160.0 | ) | |
Cash provided by (used for) investing activities
|
23.4 | |||
Cash provided by (used for) financing activities
|
138.1 |
●
|
Changes in Classifications – The Company made certain corrections to: (i) present outstanding checks and cash held as collateral by a third party related to our derivative transactions in order to appropriately reflect the legal right of offset and to properly reclassify certain suspense accounts; (ii) reflect direct and ceded reinsurance liabilities gross in the balance sheets as described above in “Reinsurance Accounting” section; and (iii) reclassify sales inducements assets from deferred policy acquisition costs to other assets. These corrections had no impact to net income or total stockholder’s equity. The impact of the changes in classification are reflected in the correction of errors column in the “Summary of Correction of Errors” table within this Note.
|
Increase (decrease)
|
Summary of Correction of Errors – December 31, 2011 Balance Sheet Impacts (1)
|
|||||||||||||||||||||||||||||||||||
Reinsurance Accounting
|
Changes in Classification
|
|||||||||||||||||||||||||||||||||||
($ in millions)
|
Total
Actuarial
Finance (2)
|
Total
Investments(3)
|
Third-party reinsurance
|
Related party reinsurance
|
||||||||||||||||||||||||||||||||
Cash and
Suspense
|
Reinsurance
|
Sales Inducement
|
Other
Restatement
Adjustments
|
|||||||||||||||||||||||||||||||||
Total
Correction
of Errors (4)
|
||||||||||||||||||||||||||||||||||||
ASSETS:
|
||||||||||||||||||||||||||||||||||||
Available-for-sale
debt securities, at fair value
|
$ | — | $ | (34.2 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (0.1 | ) | $ | (34.3 | ) | |||||||||||||||
Limited partnerships and
other investments
|
— | — | — | — | — | — | — | (0.3 | ) | (0.3 | ) | |||||||||||||||||||||||||
Policy loans,
at unpaid principal balances
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Derivative investments
|
— | (9.4 | ) | — | — | — | — | — | — | (9.4 | ) | |||||||||||||||||||||||||
Fair value investments
|
— | 34.6 | — | — | — | — | — | (0.1 | ) | 34.5 | ||||||||||||||||||||||||||
Total investments
|
— | (9.0 | ) | — | — | — | — | — | (0.5 | ) | (9.5 | ) | ||||||||||||||||||||||||
Cash and cash equivalents
|
— | — | — | — | (18.0 | ) | — | — | — | (18.0 | ) | |||||||||||||||||||||||||
Accrued investment income
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Receivables
|
3.0 | — | — | (40.9 | ) | 9.2 | 58.1 | — | 1.8 | 31.2 | ||||||||||||||||||||||||||
Deferred policy acquisition costs
|
50.1 | (13.1 | ) | — | (3.6 | ) | — | — | (42.3 | ) | (0.1 | ) | (9.0 | ) | ||||||||||||||||||||||
Deferred income taxes, net
|
— | — | — | — | — | — | — | 29.4 | 29.4 | |||||||||||||||||||||||||||
Receivables from related parties
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other assets
|
44.3 | — | (38.6 | ) | — | 9.1 | — | 42.3 | — | 57.1 | ||||||||||||||||||||||||||
Separate account assets
|
— | — | — | — | — | — | — | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||
Total assets
|
$ | 97.4 | $ | (22.1 | ) | $ | (38.6 | ) | $ | (44.5 | ) | $ | 0.3 | $ | 58.1 | $ | — | $ | 30.4 | $ | 81.0 |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Represents “Summary of Correction of Actuarial Finance Errors” from the previous pages of this Note.
|
(3)
|
Represents “Summary of Correction of Investments Errors" from the previous pages of this Note.
|
(4)
|
Amounts represent total correction of errors which is also presented in the “Statement of Comprehensive Income” reflected in the tables on the following pages.
|
(Continued from previous page)
|
Summary of Correction of Errors – December 31, 2011 Balance Sheet Impacts (1)
|
|||||||||||||||||||||||||||||||||||
Reinsurance Accounting
|
Changes in Classification
|
|||||||||||||||||||||||||||||||||||
Increase (decrease)
|
Total
Actuarial
Finance(2)
|
Total
Investments(3)
|
Third-party reinsurance
|
Related party
reinsurance
|
||||||||||||||||||||||||||||||||
($ in millions)
|
Cash and
Suspense
|
Reinsurance
|
Sales Inducement
|
Other
Restatement
Adjustments
|
Total
Correction
of Errors (4)
|
|||||||||||||||||||||||||||||||
LIABILITIES:
|
||||||||||||||||||||||||||||||||||||
Policy liabilities and accruals
|
$ | 203.1 | $ | — | $ | — | $ | 37.8 | $ | — | $ | 58.1 | $ | — | $ | 1.8 | $ | 300.8 | ||||||||||||||||||
Policyholder deposit funds
|
3.2 | — | — | — | — | — | — | — | 3.2 | |||||||||||||||||||||||||||
Deferred income taxes, net
|
— | — | — | — | — | — | — | (6.8 | ) | (6.8 | ) | |||||||||||||||||||||||||
Payable to related parties
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other liabilities
|
— | — | — | — | 0.3 | — | — | (30.6 | ) | (30.3 | ) | |||||||||||||||||||||||||
Separate account liabilities
|
— | — | — | — | — | — | — | (0.2 | ) | (0.2 | ) | |||||||||||||||||||||||||
Total liabilities
|
206.3 | — | — | 37.8 | 0.3 | 58.1 | — | (35.8 | ) | 266.7 | ||||||||||||||||||||||||||
STOCKHOLDER’S EQUITY:
|
||||||||||||||||||||||||||||||||||||
Common stock
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Additional paid-in capital
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Accumulated other
comprehensive loss
|
(15.3 | ) | 14.0 | — | — | — | — | — | — | (1.3 | ) | |||||||||||||||||||||||||
Accumulated deficit
|
(94.9 | ) | (6.0 | ) | 3.0 | (40.6 | ) | — | — | — | 12.4 | (126.1 | ) | |||||||||||||||||||||||
Treasury stock
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total stockholder’s equity –
periods presented (5)
|
(110.2 | ) | 8.0 | 3.0 | (40.6 | ) | — | — | — | 12.4 | (127.4 | ) | ||||||||||||||||||||||||
Total stockholder’s equity –
cumulative impact (6)
|
1.3 | (30.1 | ) | (41.6 | ) | (41.7 | ) | — | — | — | 53.8 | (58.3 | ) | |||||||||||||||||||||||
Total stockholder’s equity –impact
|
(108.9 | ) | (22.1 | ) | (38.6 | ) | (82.3 | ) | — | — | — | 66.2 | (185.7 | ) | ||||||||||||||||||||||
Total liabilities and
stockholder’s equity
|
$ | 97.4 | $ | (22.1 | ) | $ | (38.6 | ) | $ | (44.5 | ) | $ | 0.3 | $ | 58.1 | $ | — | $ | 30.4 | $ | 81.0 |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Represents “Summary of Correction of Actuarial Finance Errors” from the previous pages of this Note.
|
(3)
|
Represents “Summary of Correction of Investments Errors” from the previous pages of this Note.
|
(4)
|
Amounts represent total correction of errors which is also presented in the “Statement of Comprehensive Income” reflected in the tables on the following pages.
|
(5)
|
Amounts represent restatement changes made to the 2011 and 2010 periods as presented within the 2012 Form 10-K.
|
(6)
|
Amounts represent cumulative impact of restatement changes made to periods prior to 2010.
|
Increase (decrease)
|
Summary of Correction of Errors – Three months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1)
|
|||||||||||||||||||||||
($ in millions)
|
||||||||||||||||||||||||
Reinsurance Accounting
|
||||||||||||||||||||||||
Total
Actuarial
Finance (2)
|
Total
Investments (3)
|
Third-party reinsurance
|
Related party reinsurance
|
Other
Restatement
Adjustments
|
Total
Correction
of Errors (4)
|
|||||||||||||||||||
REVENUES
|
||||||||||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Insurance and investment product fees
|
(3.0 | ) | — | — | 1.8 | 0.1 | (1.1 | ) | ||||||||||||||||
Net investment income
|
(0.5 | ) | (0.1 | ) | — | — | (0.1 | ) | (0.7 | ) | ||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||||||
Total OTTI losses
|
— | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | (0.4 | ) | (0.4 | ) | ||||||||||||||||
Net realized investment gains (losses), excluding OTTI losses
|
8.0 | (6.2 | ) | — | — | 0.4 | 2.2 | |||||||||||||||||
Net realized investment gains (losses)
|
8.0 | (6.2 | ) | — | — | — | 1.8 | |||||||||||||||||
Total revenues
|
4.5 | (6.3 | ) | — | 1.8 | — | — | |||||||||||||||||
BENEFITS AND EXPENSES
|
||||||||||||||||||||||||
Policy benefits
|
44.5 | — | (1.0 | ) | (12.3 | ) | — | 31.2 | ||||||||||||||||
Policy acquisition cost amortization
|
(17.9 | ) | (0.4 | ) | — | 13.0 | (0.2 | ) | (5.5 | ) | ||||||||||||||
Other operating expenses
|
3.7 | — | — | — | 0.7 | 4.4 | ||||||||||||||||||
Total benefits and expenses
|
30.3 | (0.4 | ) | (1.0 | ) | 0.7 | 0.5 | 30.1 | ||||||||||||||||
Income (loss) before income taxes
|
(25.8 | ) | (5.9 | ) | 1.0 | 1.1 | (0.5 | ) | (30.1 | ) | ||||||||||||||
Income tax expense (benefit)
|
— | — | — | — | — | — | ||||||||||||||||||
Net income (loss)
|
$ | (25.8 | ) | $ | (5.9 | ) | $ | 1.0 | $ | 1.1 | $ | (0.5 | ) | $ | (30.1 | ) | ||||||||
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||||||||||
Net income (loss)
|
$ | (25.8 | ) | $ | (5.9 | ) | $ | 1.0 | $ | 1.1 | $ | (0.5 | ) | $ | (30.1 | ) | ||||||||
Other comprehensive income (loss) before income taxes (5):
|
||||||||||||||||||||||||
Net unrealized investment gains before income taxes (5)
|
(20.7 | ) | 0.5 | — | — | 0.1 | (20.1 | ) | ||||||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes (5)
|
— | — | — | — | 0.1 | 0.1 | ||||||||||||||||||
Other comprehensive income (loss) before income taxes
|
(20.7 | ) | 0.5 | — | — | 0.2 | (20.0 | ) | ||||||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||||||||||
Net unrealized investment gains (losses) (5)
|
— | — | — | — | (15.3 | ) | (15.3 | ) | ||||||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | (15.3 | ) | (15.3 | ) | ||||||||||||||||
Other comprehensive income, net of tax
|
(20.7 | ) | 0.5 | — | — | 15.5 | (4.7 | ) | ||||||||||||||||
Comprehensive income (loss)
|
$ | (46.5 | ) | $ | (5.4 | ) | $ | 1.0 | $ | 1.1 | $ | 15.0 | $ | (34.8 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Represents “Summary of Correction of Actuarial Finance Errors” from the previous pages of this Note.
|
(3)
|
Represents “Summary of Correction of Investments Errors” from the previous pages of this Note.
|
(4)
|
Amounts represent total correction of errors which is also presented in the “Statement of Comprehensive Income” reflected in the tables on the following pages.
|
(5)
|
In addition to adjustments described within this footnote the correction of errors column contains reclassifications related to changes in presentation of components of other comprehensive income.
|
Increase (decrease)
|
Summary of Correction of Errors – Nine months ended September 30, 2011 Income Statement and Comprehensive Income Impacts (1)
|
|||||||||||||||||||||||
($ in millions)
|
||||||||||||||||||||||||
Reinsurance Accounting
|
||||||||||||||||||||||||
Total
Actuarial
Finance (2)
|
Total
Investments (3)
|
Third-party reinsurance
|
Related party reinsurance
|
Other
Restatement
Adjustments
|
Total
Correction
of Errors (4)
|
|||||||||||||||||||
REVENUES
|
||||||||||||||||||||||||
Premiums
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Insurance and investment product fees
|
(3.3 | ) | — | — | 1.4 | — | (1.9 | ) | ||||||||||||||||
Net investment income
|
(0.5 | ) | — | — | — | (0.1 | ) | (0.6 | ) | |||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||||||
Total OTTI losses
|
— | — | — | — | (0.8 | ) | (0.8 | ) | ||||||||||||||||
Portion of OTTI losses recognized in OCI
|
— | — | — | — | — | — | ||||||||||||||||||
Net OTTI losses recognized in earnings
|
— | — | — | — | (0.8 | ) | (0.8 | ) | ||||||||||||||||
Net realized investment gains (losses), excluding OTTI losses
|
10.9 | (6.3 | ) | — | — | 0.8 | 5.4 | |||||||||||||||||
Net realized investment gains (losses)
|
10.9 | (6.3 | ) | — | — | — | 4.6 | |||||||||||||||||
Total revenues
|
7.1 | (6.3 | ) | — | 1.4 | (0.1 | ) | 2.1 | ||||||||||||||||
BENEFITS AND EXPENSES
|
||||||||||||||||||||||||
Policy benefits
|
59.5 | — | (4.1 | ) | (10.2 | ) | (0.1 | ) | 45.1 | |||||||||||||||
Policy acquisition cost amortization
|
(14.2 | ) | (0.4 | ) | — | 17.9 | (0.1 | ) | 3.2 | |||||||||||||||
Other operating expenses
|
10.5 | — | — | — | 2.5 | 13.0 | ||||||||||||||||||
Total benefits and expenses
|
55.8 | (0.4 | ) | (4.1 | ) | 7.7 | 2.3 | 61.3 | ||||||||||||||||
Income (loss) before income taxes
|
(48.7 | ) | (5.9 | ) | 4.1 | (6.3 | ) | (2.4 | ) | (59.2 | ) | |||||||||||||
Income tax expense (benefit)
|
— | — | — | — | (6.2 | ) | (6.2 | ) | ||||||||||||||||
Net income (loss)
|
$ | (48.7 | ) | $ | (5.9 | ) | $ | 4.1 | $ | (6.3 | ) | $ | 3.8 | $ | (53.0 | ) | ||||||||
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||||||||||
Net income (loss)
|
$ | (48.7 | ) | $ | (5.9 | ) | $ | 4.1 | $ | (6.3 | ) | $ | 3.8 | $ | (53.0 | ) | ||||||||
Other comprehensive income (loss) before income taxes (5):
|
||||||||||||||||||||||||
Net unrealized investment gains before income taxes (5)
|
(14.6 | ) | 6.3 | — | — | 0.5 | (7.8 | ) | ||||||||||||||||
Non-credit portion of OTTI losses recognized in OCI before income taxes (5)
|
— | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||
Other comprehensive income (loss) before income taxes
|
(14.6 | ) | 6.3 | — | — | 0.3 | (8.0 | ) | ||||||||||||||||
Less: Income tax expense (benefit) related to:
|
||||||||||||||||||||||||
Net unrealized investment gains (losses) (5)
|
— | — | — | — | (4.7 | ) | (4.7 | ) | ||||||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
— | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||
Total income tax expense (benefit)
|
— | — | — | — | (4.9 | ) | (4.9 | ) | ||||||||||||||||
Other comprehensive income, net of tax
|
(14.6 | ) | 6.3 | — | — | 5.2 | (3.1 | ) | ||||||||||||||||
Comprehensive income (loss)
|
$ | (63.3 | ) | $ | 0.4 | $ | 4.1 | $ | (6.3 | ) | $ | 9.0 | $ | (56.1 | ) |
(1)
|
All amounts are shown before income taxes, unless otherwise noted.
|
(2)
|
Represents “Summary of Correction of Actuarial Finance Errors” from the previous pages of this Note.
|
(3)
|
Represents “Summary of Correction of Investments Errors” from the previous pages of this Note.
|
(4)
|
Amounts represent total correction of errors which is also presented in the “Statement of Comprehensive Income” reflected in the tables on the following pages.
|
(5)
|
In addition to adjustments described within this footnote the correction of errors column contains reclassifications related to changes in presentation of components of other comprehensive income.
|
Balance Sheet
|
||||||||||||||||||||
($ in millions)
|
As of December 31, 2011
|
|||||||||||||||||||
As previously
reported
|
Correction
of errors (1)
|
Adjusted
prior to theAdoption
|
Retrospective
Adoption (2)
|
As restated
and amended
|
||||||||||||||||
ASSETS:
|
||||||||||||||||||||
Available-for-sale debt securities, at fair value
|
$ | 2,546.4 | $ | (34.3 | ) | $ | 2,512.1 | $ | — | $ | 2,512.1 | |||||||||
Limited partnerships and other investments
|
5.0 | (0.3 | ) | 4.7 | — | 4.7 | ||||||||||||||
Policy loans, at unpaid principal balances
|
62.5 | — | 62.5 | — | 62.5 | |||||||||||||||
Derivative investments
|
113.2 | (9.4 | ) | 103.8 | — | 103.8 | ||||||||||||||
Fair value investments
|
7.3 | 34.5 | 41.8 | — | 41.8 | |||||||||||||||
Total investments
|
2,734.4 | (9.5 | ) | 2,724.9 | — | 2,724.9 | ||||||||||||||
Cash and cash equivalents
|
67.5 | (18.0 | ) | 49.5 | — | 49.5 | ||||||||||||||
Accrued investment income
|
18.6 | — | 18.6 | — | 18.6 | |||||||||||||||
Receivables
|
382.4 | 31.2 | 413.6 | — | 413.6 | |||||||||||||||
Deferred policy acquisition costs
|
576.6 | (9.0 | ) | 567.6 | (78.5 | ) | 489.1 | |||||||||||||
Deferred income taxes, net
|
— | 29.4 | 29.4 | — | 29.4 | |||||||||||||||
Receivables from related parties
|
4.8 | — | 4.8 | — | 4.8 | |||||||||||||||
Other assets
|
52.5 | 57.1 | 109.6 | (1.0 | ) | 108.6 | ||||||||||||||
Separate account assets
|
2,547.0 | (0.2 | ) | 2,546.8 | — | 2,546.8 | ||||||||||||||
Total assets
|
$ | 6,383.8 | $ | 81.0 | $ | 6,464.8 | $ | (79.5 | ) | $ | 6,385.3 | |||||||||
LIABILITIES:
|
||||||||||||||||||||
Policy liabilities and accruals (3)
|
$ | 1,343.9 | $ | 300.8 | $ | 1,644.7 | $ | (43.4 | ) | $ | 1,601.3 | |||||||||
Policyholder deposit funds
|
1,721.2 | 3.2 | 1,724.4 | — | 1,724.4 | |||||||||||||||
Deferred income taxes
|
6.8 | (6.8 | ) | — | — | — | ||||||||||||||
Payable to related parties
|
30.0 | — | 30.0 | — | 30.0 | |||||||||||||||
Other liabilities
|
89.1 | (30.3 | ) | 58.8 | — | 58.8 | ||||||||||||||
Separate account liabilities
|
2,547.0 | (0.2 | ) | 2,546.8 | — | 2,546.8 | ||||||||||||||
Total liabilities
|
5,738.0 | 266.7 | 6,004.7 | (43.4 | ) | 5,961.3 | ||||||||||||||
STOCKHOLDER’S EQUITY:
|
||||||||||||||||||||
Common stock, $5,000 par value:
1,000 shares authorized; 500 shares issued
|
2.5 | — | 2.5 | — | 2.5 | |||||||||||||||
Additional paid-in capital
|
802.2 | — | 802.2 | — | 802.2 | |||||||||||||||
Accumulated other comprehensive loss
|
6.2 | 0.2 | 6.4 | (3.8 | ) | 2.6 | ||||||||||||||
Accumulated deficit
|
(165.1 | ) | (185.9 | ) | (351.0 | ) | (32.3 | ) | (383.3 | ) | ||||||||||
Total stockholder’s equity
|
645.8 | (185.7 | ) | 460.1 | (36.1 | ) | 424.0 | |||||||||||||
Total liabilities and stockholder’s equity
|
$ | 6,383.8 | $ | 81.0 | $ | 6,464.8 | $ | (79.5 | ) | $ | 6,385.3 |
(1)
|
Adjustments related to the correction of errors reflect amounts prior to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance. See footnote 2 below for additional information regarding these amounts and the retrospective adoption.
|
(2)
|
Adjustments related to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance, have been updated from those originally disclosed in the 2012 first quarter Form 10-Q filing to reflect the correction of errors identified related to the adoption of the amended guidance as well as indirect impact of the correction of errors associated with the restatement.
|
(3)
|
Included within policyholder liabilities and accruals is the post-ASU gross profits followed by losses reserve of $207.8 million. The corresponding net post-ASU amount of $193.6 million reported within the financial statements includes $(14.2) million of shadow profits followed by losses, both of which are discussed further within the “Actuarial Finance” section of this Note.
|
Statement of Comprehensive Income
|
||||||||||||||||||||
($ in millions)
|
Three months ended September 30, 2011
|
|||||||||||||||||||
Adjusted
|
||||||||||||||||||||
prior to the
|
||||||||||||||||||||
As previously
|
Correction
|
retrospective
|
Retrospective
|
As restated
|
||||||||||||||||
reported
|
of errors(1)
|
adoption
|
adoption(2)
|
and amended
|
||||||||||||||||
REVENUES:
|
||||||||||||||||||||
Premiums
|
$ | 1.1 | $ | — | $ | 1.1 | $ | — | $ | 1.1 | ||||||||||
Insurance and investment product fees
|
98.0 | (1.1 | ) | 96.9 | — | 96.9 | ||||||||||||||
Net investment income
|
25.7 | (0.7 | ) | 25.0 | — | 25.0 | ||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||
Total OTTI losses
|
(4.5 | ) | (0.2 | ) | (4.7 | ) | — | (4.7 | ) | |||||||||||
Portion of OTTI losses recognized in OCI
|
3.9 | (0.2 | ) | 3.7 | — | 3.7 | ||||||||||||||
Net OTTI losses recognized in earnings
|
(0.6 | ) | (0.4 | ) | (1.0 | ) | — | (1.0 | ) | |||||||||||
Net realized investment gains (losses),
excluding OTTI losses
|
(5.4 | ) | 2.2 | (3.2 | ) | — | (3.2 | ) | ||||||||||||
Net realized investment losses
|
(6.0 | ) | 1.8 | (4.2 | ) | — | (4.2 | ) | ||||||||||||
Total revenues
|
118.8 | — | 118.8 | — | 118.8 | |||||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||||||
Policy benefits
|
61.8 | 31.2 | 93.0 | 0.9 | 93.9 | |||||||||||||||
Policy acquisition cost amortization
|
39.8 | (5.5 | ) | 34.3 | (5.4 | ) | 28.9 | |||||||||||||
Other operating expenses
|
19.4 | 4.4 | 23.8 | 0.3 | 24.1 | |||||||||||||||
Total benefits and expenses
|
121.0 | 30.1 | 151.1 | (4.2 | ) | 146.9 | ||||||||||||||
Income (loss) before income taxes
|
(2.2 | ) | (30.1 | ) | (32.3 | ) | 4.2 | (28.1 | ) | |||||||||||
Income tax expense (benefit)
|
(13.8 | ) | — | (13.8 | ) | (4.2 | ) | (18.0 | ) | |||||||||||
Net income (loss)
|
$ | 11.6 | $ | (30.1 | ) | $ | (18.5 | ) | $ | 8.4 | $ | (10.1 | ) | |||||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||||||
Net income (loss)
|
$ | 11.6 | $ | (30.1 | ) | $ | (18.5 | ) | $ | 8.4 | $ | (10.1 | ) | |||||||
Other comprehensive income (loss)
before income tax (3):
|
||||||||||||||||||||
Net unrealized investment gains before income tax
|
13.4 | (20.1 | ) | (6.7 | ) | 1.3 | (5.4 | ) | ||||||||||||
Non-credit portion of OTTI losses recognized
in OCI before income tax
|
(3.8 | ) | 0.1 | (3.7 | ) | — | (3.7 | ) | ||||||||||||
Other comprehensive income (loss)
before income taxes
|
9.6 | (20.0 | ) | (10.4 | ) | 1.3 | (9.1 | ) | ||||||||||||
Less: Income tax expense (benefit) related to (3):
|
||||||||||||||||||||
Net unrealized investment gains
|
10.3 | (15.3 | ) | (5.0 | ) | 4.2 | (0.8 | ) | ||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
(1.3 | ) | — | (1.3 | ) | — | (1.3 | ) | ||||||||||||
Total income tax expense (benefit)
|
9.0 | (15.3 | ) | (6.3 | ) | 4.2 | (2.1 | ) | ||||||||||||
Other comprehensive income, net of tax
|
0.6 | (4.7 | ) | (4.1 | ) | (2.9 | ) | (7.0 | ) | |||||||||||
Comprehensive income (loss)
|
$ | 12.2 | $ | (34.8 | ) | $ | (22.6 | ) | $ | 5.5 | $ | (17.1 | ) |
(1)
|
Adjustments related to the correction of errors reflect amounts prior to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance. See footnote 2 below for additional information regarding these amounts and the retrospective adoption.
|
(2)
|
Adjustments related to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance, have been updated from those originally disclosed in the 2012 first quarter Form 10-Q filing to reflect the correction of errors identified related to the adoption of the amended guidance as well as indirect impact of the correction of errors associated with the restatement.
|
(3)
|
In addition to adjustments described within this footnote the correction of errors column contains reclassifications related to changes in presentation of components of other comprehensive income.
|
Statement of Comprehensive Income
|
||||||||||||||||||||
($ in millions)
|
Nine months ended September 30, 2011
|
|||||||||||||||||||
Adjusted
|
||||||||||||||||||||
prior to the
|
||||||||||||||||||||
As previously
|
Correction
|
retrospective
|
Retrospective
|
As restated
|
||||||||||||||||
reported
|
of errors(1)
|
adoption
|
adoption(2)
|
and amended
|
||||||||||||||||
REVENUES:
|
||||||||||||||||||||
Premiums
|
$ | 1.4 | $ | — | $ | 1.4 | $ | — | $ | 1.4 | ||||||||||
Insurance and investment product fees
|
301.7 | (1.9 | ) | 299.8 | — | 299.8 | ||||||||||||||
Net investment income
|
71.3 | (0.6 | ) | 70.7 | — | 70.7 | ||||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||||||
Total OTTI losses
|
(6.2 | ) | (0.8 | ) | (7.0 | ) | — | (7.0 | ) | |||||||||||
Portion of OTTI losses recognized in OCI
|
4.7 | — | 4.7 | — | 4.7 | |||||||||||||||
Net OTTI losses recognized in earnings
|
(1.5 | ) | (0.8 | ) | (2.3 | ) | — | (2.3 | ) | |||||||||||
Net realized investment gains (losses),
excluding OTTI losses
|
(11.2 | ) | 5.4 | (5.8 | ) | — | (5.8 | ) | ||||||||||||
Net realized investment losses
|
(12.7 | ) | 4.6 | (8.1 | ) | — | (8.1 | ) | ||||||||||||
Total revenues
|
361.7 | 2.1 | 363.8 | — | 363.8 | |||||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||||||
Policy benefits
|
186.3 | 45.1 | 231.4 | 7.8 | 239.2 | |||||||||||||||
Policy acquisition cost amortization
|
107.8 | 3.2 | 111.0 | (20.7 | ) | 90.3 | ||||||||||||||
Other operating expenses
|
55.8 | 13.0 | 68.8 | 0.9 | 69.7 | |||||||||||||||
Total benefits and expenses
|
349.9 | 61.3 | 411.2 | (12.0 | ) | 399.2 | ||||||||||||||
Income (loss) before income taxes
|
11.8 | (59.2 | ) | (47.4 | ) | 12.0 | (35.4 | ) | ||||||||||||
Income tax expense (benefit)
|
(9.2 | ) | (6.2 | ) | (15.4 | ) | (1.4 | ) | (16.8 | ) | ||||||||||
Net income (loss)
|
$ | 21.0 | $ | (53.0 | ) | $ | (32.0 | ) | $ | 13.4 | $ | (18.6 | ) | |||||||
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||||||
Net income (loss)
|
$ | 21.0 | $ | (53.0 | ) | $ | (32.0 | ) | $ | 13.4 | $ | (18.6 | ) | |||||||
Other comprehensive income (loss)
before income tax (3):
|
||||||||||||||||||||
Net unrealized investment gains before income tax
|
25.4 | (7.8 | ) | 17.6 | 3.9 | 21.5 | ||||||||||||||
Non-credit portion of OTTI losses recognized
in OCI before income tax
|
(3.7 | ) | (0.2 | ) | (3.9 | ) | — | (3.9 | ) | |||||||||||
Other comprehensive income (loss)
before income taxes
|
21.7 | (8.0 | ) | 13.7 | 3.9 | 17.6 | ||||||||||||||
Less: Income tax expense (benefit) related to (3):
|
||||||||||||||||||||
Net unrealized investment gains
|
8.8 | (4.7 | ) | 4.1 | 1.5 | 5.6 | ||||||||||||||
Non-credit portion of OTTI losses recognized
in OCI
|
(1.2 | ) | (0.2 | ) | (1.4 | ) | — | (1.4 | ) | |||||||||||
Total income tax expense (benefit)
|
7.6 | (4.9 | ) | 2.7 | 1.5 | 4.2 | ||||||||||||||
Other comprehensive income, net of tax
|
14.1 | (3.1 | ) | 11.0 | 2.4 | 13.4 | ||||||||||||||
Comprehensive income (loss)
|
$ | 35.1 | $ | (56.1 | ) | $ | (21.0 | ) | $ | 15.8 | $ | (5.2 | ) |
(1)
|
Adjustments related to the correction of errors reflect amounts prior to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance. See footnote 2 below for additional information regarding these amounts and the retrospective adoption.
|
(2)
|
Adjustments related to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance, have been updated from those originally disclosed in the 2012 first quarter Form 10-Q filing to reflect the correction of errors identified related to the adoption of the amended guidance as well as indirect impact of the correction of errors associated with the restatement.
|
(3)
|
In addition to adjustments described within this footnote the correction of errors column contains reclassifications related to changes in presentation of components of other comprehensive income.
|
Statement of Cash Flows
|
||||||||||||||||||||
($ in millions)
|
For the period ended September 30, 2011
|
|||||||||||||||||||
Adjusted
|
||||||||||||||||||||
prior to the
|
||||||||||||||||||||
As previously
|
Correction
|
retrospective
|
Retrospective
|
As restated
|
||||||||||||||||
reported
|
of errors(1)
|
adoption
|
adoption(2)
|
and amended
|
||||||||||||||||
OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net income (loss)
|
$ | 21.0 | $ | (53.0 | ) | $ | (32.0 | ) | $ | 13.4 | $ | (18.6 | ) | |||||||
Net realized investment losses
|
12.7 | (4.6 | ) | 8.1 | — | 8.1 | ||||||||||||||
Policy acquisition costs deferred
|
(3.2 | ) | (69.2 | ) | (72.4 | ) | 0.9 | (71.5 | ) | |||||||||||
Amortization of policy acquisition costs
|
— | 111.0 | 111.0 | (20.7 | ) | 90.3 | ||||||||||||||
Interest credited
|
— | 46.5 | 46.5 | — | 46.5 | |||||||||||||||
Equity in earnings of
limited partnerships and other investments
|
— | (0.3 | ) | (0.3 | ) | — | (0.3 | ) | ||||||||||||
Change in:
|
||||||||||||||||||||
Accrued investment income
|
(7.9 | ) | (1.7 | ) | (9.6 | ) | — | (9.6 | ) | |||||||||||
Deferred income taxes
|
(0.6 | ) | (3.9 | ) | (4.5 | ) | (1.5 | ) | (6.0 | ) | ||||||||||
Receivables
|
0.4 | 15.8 | 16.2 | — | 16.2 | |||||||||||||||
Policy liabilities and accruals
|
36.4 | (155.8 | ) | (119.4 | ) | 7.9 | (111.5 | ) | ||||||||||||
Due to/from affiliate
|
— | 6.5 | 6.5 | — | 6.5 | |||||||||||||||
Other operating activities, net
|
(4.1 | ) | (51.3 | ) | (55.4 | ) | — | (55.4 | ) | |||||||||||
Cash provided by (used for) operating activities
|
54.7 | (160.0 | ) | (105.3 | ) | — | (105.3 | ) | ||||||||||||
INVESTING ACTIVITIES:
|
||||||||||||||||||||
Purchases of:
|
||||||||||||||||||||
Available-for-sale debt securities
|
(2,008.2 | ) | 971.5 | (1,036.7 | ) | — | (1,036.7 | ) | ||||||||||||
Derivative instruments
|
— | (23.0 | ) | (23.0 | ) | — | (23.0 | ) | ||||||||||||
Fair value investments
|
— | (29.8 | ) | (29.8 | ) | — | (29.8 | ) | ||||||||||||
Sales, repayments and maturities of:
|
— | |||||||||||||||||||
Available-for-sale debt securities
|
1,345.7 | (952.0 | ) | 393.7 | — | 393.7 | ||||||||||||||
Derivative instruments
|
— | 50.3 | 50.3 | — | 50.3 | |||||||||||||||
Fair value investments
|
— | 6.2 | 6.2 | — | 6.2 | |||||||||||||||
Contributions to limited partnerships
|
— | (0.9 | ) | (0.9 | ) | — | (0.9 | ) | ||||||||||||
Distributions from limited partnerships
|
— | 0.1 | 0.1 | — | 0.1 | |||||||||||||||
Policy loans, net
|
(4.7 | ) | 1.6 | (3.1 | ) | — | (3.1 | ) | ||||||||||||
Other investing activities, net
|
— | (0.6 | ) | (0.6 | ) | — | (0.6 | ) | ||||||||||||
Cash provided by (used for) investing activities
|
(667.2 | ) | 23.4 | (643.8 | ) | — | (643.8 | ) | ||||||||||||
FINANCING ACTIVITIES:
|
||||||||||||||||||||
Policyholder deposit fund deposits
|
697.7 | 185.9 | 883.6 | — | 883.6 | |||||||||||||||
Policyholder deposit fund withdrawals
|
(67.2 | ) | (290.7 | ) | (357.9 | ) | — | (357.9 | ) | |||||||||||
Net transfers to/from separate accounts
|
— | 242.9 | 242.9 | — | 242.9 | |||||||||||||||
Cash provided by financing activities
|
630.5 | 138.1 | 768.6 | — | 768.6 | |||||||||||||||
Change in cash and cash equivalents
|
18.0 | 1.5 | 19.5 | — | 19.5 | |||||||||||||||
Cash and cash equivalents, beginning of year
|
51.1 | (17.0 | ) | 34.1 | — | 34.1 | ||||||||||||||
Cash and cash equivalents, end of year
|
$ | 69.1 | $ | (15.5 | ) | $ | 53.6 | $ | — | $ | 53.6 | |||||||||
Non-Cash Transactions During the Year
|
||||||||||||||||||||
Investment exchanges
|
$ | — | $ | 12.0 | $ | 12.0 | $ | — | $ | 12.0 |
(1)
|
Adjustments related to the correction of errors reflect amounts prior to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance. See footnote 2 below for additional information regarding these amounts and the retrospective adoption.
|
(2)
|
Adjustments related to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance, have been updated from those originally disclosed in the 2012 first quarter Form 10-Q filing to reflect the correction of errors identified related to the adoption of the amended guidance as well as indirect impact of the correction of errors associated with the restatement.
|
Statement of Changes in Stockholder’s Equity
|
||||||||||||||||||||
($ in millions)
|
For the period ended September 30, 2011
|
|||||||||||||||||||
Adjusted
|
||||||||||||||||||||
prior to the
|
||||||||||||||||||||
As previously
|
Correction
|
retrospective
|
Retrospective
|
As restated
|
||||||||||||||||
reported
|
of errors(1)
|
adoption
|
adoption(2)
|
and amended
|
||||||||||||||||
COMMON STOCK:
|
||||||||||||||||||||
Balance, beginning of period
|
$ | 2.5 | $ | — | $ | 2.5 | $ | — | $ | 2.5 | ||||||||||
Balance, end of period
|
$ | 2.5 | $ | — | $ | 2.5 | $ | — | $ | 2.5 | ||||||||||
ADDITIONAL PAID-IN CAPITAL:
|
||||||||||||||||||||
Balance, beginning of period
|
$ | 802.2 | $ | — | $ | 802.2 | $ | — | $ | 802.2 | ||||||||||
Capital contributions from parent
|
— | — | — | — | — | |||||||||||||||
Balance, end of period
|
$ | 802.2 | $ | — | $ | 802.2 | $ | — | $ | 802.2 | ||||||||||
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
|
||||||||||||||||||||
Balance, beginning of period
|
$ | (12.5 | ) | $ | 7.4 | $ | (5.1 | ) | $ | (7.8 | ) | $ | (12.9 | ) | ||||||
Adjustment for initial application of
accounting changes
|
— | — | — | — | — | |||||||||||||||
Other comprehensive income
|
14.1 | (3.1 | ) | 11.0 | 2.4 | 13.4 | ||||||||||||||
Balance, end of period
|
$ | 1.6 | $ | 4.3 | $ | 5.9 | $ | (5.4 | ) | $ | 0.5 | |||||||||
RETAINED EARNINGS (ACCUMULATED
DEFICIT):
|
||||||||||||||||||||
Balance, beginning of period
|
$ | (182.1 | ) | $ | (133.8 | ) | $ | (315.9 | ) | $ | (47.4 | ) | $ | (363.3 | ) | |||||
Adjustment for initial application of
accounting changes
|
— | — | — | — | — | |||||||||||||||
Net income (loss)
|
21.0 | (53.0 | ) | (32.0 | ) | 13.4 | (18.6 | ) | ||||||||||||
Balance, end of period
|
$ | (161.1 | ) | $ | (186.8 | ) | $ | (347.9 | ) | $ | (34.0 | ) | $ | (381.9 | ) | |||||
TOTAL STOCKHOLDER’S EQUITY:
|
||||||||||||||||||||
Balance, beginning of period
|
$ | 610.1 | $ | (126.4 | ) | $ | 483.7 | $ | (55.2 | ) | $ | 428.5 | ||||||||
Change in stockholder’s equity
|
35.1 | (56.1 | ) | (21.0 | ) | 15.8 | (5.2 | ) | ||||||||||||
Balance, end of period
|
$ | 645.2 | $ | (182.5 | ) | $ | 462.7 | $ | (39.4 | ) | $ | 423.3 |
(1)
|
Adjustments related to the correction of errors reflect amounts prior to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance. See footnote 2 below for additional information regarding these amounts and the retrospective adoption.
|
(2)
|
Adjustments related to the retrospective adoption of amended guidance to ASC 944, Financial Services – Insurance, have been updated from those originally disclosed in the 2012 first quarter Form 10-Q filing to reflect the correction of errors identified related to the adoption of the amended guidance as well as indirect impact of the correction of errors associated with the restatement.
|
Direct Business and Reinsurance:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
($ in millions)
|
September 30,
|
September 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Direct premiums
|
$ | 16.7 | $ | 18.0 | $ | 52.8 | $ | 54.1 | ||||||||
Premiums ceded to non-affiliate reinsurers(1)
|
(15.9 | ) | (16.9 | ) | (49.6 | ) | (52.7 | ) | ||||||||
Premiums
|
$ | 0.8 | $ | 1.1 | $ | 3.2 | $ | 1.4 | ||||||||
Direct policy benefits incurred
|
$ | 75.0 | $ | 28.2 | $ | 214.4 | $ | 117.5 | ||||||||
Policy benefits assumed from non-affiliate reinsureds
|
1.0 | 0.9 | 2.5 | 2.9 | ||||||||||||
Policy benefits ceded to:
|
||||||||||||||||
Affiliate reinsurers
|
(6.9 | ) | — | (9.2 | ) | (0.3 | ) | |||||||||
Non-affiliate reinsurers
|
(20.4 | ) | (20.2 | ) | (94.1 | ) | (60.1 | ) | ||||||||
Policy benefits ceded to reinsurers
|
(27.3 | ) | (20.2 | ) | (103.3 | ) | (60.4 | ) | ||||||||
Premiums paid to:
|
||||||||||||||||
Affiliate reinsurers
|
5.5 | 5.1 | 15.0 | 10.9 | ||||||||||||
Non-affiliate reinsurers
|
18.7 | 19.4 | 42.4 | 28.4 | ||||||||||||
Premiums paid to reinsurers(2)
|
24.2 | 24.5 | 57.4 | 39.3 | ||||||||||||
Policy benefits(3)
|
$ | 72.9 | $ | 33.4 | $ | 171.0 | $ | 99.3 |
(1)
|
Primarily represents premiums ceded to reinsurers related to traditional life and term insurance policies.
|
(2)
|
For universal life and variable universal life contracts, premiums paid to reinsurers are reflected within policy benefits. See Note 3 to these financial statements for additional information regarding significant accounting policies.
|
(3)
|
Policy benefit amounts above exclude changes in reserves, interest credited to policyholders and withdrawals, which total $84.5 million and $60.5 million, net of reinsurance, for the three months ended September 30, 2012 and 2011, respectively, and $139.8 million and $139.9 million, net of reinsurance, for the nine months ended September 30, 2012 and 2011, respectively.
|
Deferred Policy Acquisition Costs:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
($ in millions)
|
September 30,
|
September 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Policy acquisition costs deferred
|
$ | 20.4 | $ | 31.1 | $ | 63.7 | $ | 71.5 | ||||||||
Costs amortized to expenses:
|
||||||||||||||||
Recurring costs
|
(5.1 | ) | (33.8 | ) | (78.2 | ) | (94.4 | ) | ||||||||
Assumption unlocking
|
(1.2 | ) | (1.2 | ) | (1.2 | ) | (1.2 | ) | ||||||||
Realized investment gains (losses)
|
(18.0 | ) | 6.1 | (13.2 | ) | 5.3 | ||||||||||
Offsets to net unrealized investment gains or losses included in AOCI (1)
|
5.8 | (17.7 | ) | (25.6 | ) | (30.1 | ) | |||||||||
Change in deferred policy acquisition costs
|
1.9 | (15.5 | ) | (54.5 | ) | (48.9 | ) | |||||||||
Deferred policy acquisition costs, beginning of period
|
432.7 | 501.9 | 489.1 | 535.3 | ||||||||||||
Deferred policy acquisition costs, end of period
|
$ | 434.6 | $ | 486.4 | $ | 434.6 | $ | 486.4 |
(1)
|
An offset to deferred policy acquisition costs and accumulated other comprehensive income (“AOCI”) is recorded each period to the extent that, had unrealized holding gains or losses from securities classified as available-for-sale actually been realized, an adjustment to deferred policy acquisition costs amortized using gross profits or gross margins would result.
|
Changes in Deferred Sales Inducement Activity:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
($ in millions)
|
September 30,
|
September 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Deferred asset, beginning of period
|
$ | 47.3 | $ | 40.1 | $ | 49.6 | $ | 20.4 | ||||||||
Sales inducements deferred
|
2.9 | 12.2 | 12.6 | 38.1 | ||||||||||||
Amortization charged to income
|
(2.3 | ) | (0.5 | ) | (6.2 | ) | (6.7 | ) | ||||||||
Offsets to net unrealized investment gains or losses
included in AOCI
|
10.2 | (11.1 | ) | 2.1 | (11.1 | ) | ||||||||||
Deferred asset, end of period
|
$ | 58.1 | $ | 40.7 | $ | 58.1 | $ | 40.7 |
Fair Value and Cost of Securities:
|
September 30, 2012
|
|||||||||||||||||||
($ in millions)
|
Gross
|
Gross
|
OTTI
|
|||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Recognized
|
||||||||||||||||
Cost
|
Gains(1)
|
Losses
|
Value
|
in AOCI(2)
|
||||||||||||||||
U.S. government and agency
|
$ | 168.2 | $ | 5.1 | $ | (0.4 | ) | $ | 172.9 | $ | — | |||||||||
State and political subdivision
|
98.7 | 10.3 | (0.6 | ) | 108.4 | — | ||||||||||||||
Foreign government
|
44.4 | 6.5 | — | 50.9 | — | |||||||||||||||
Corporate
|
1,605.3 | 141.6 | (26.7 | ) | 1,720.2 | (1.5 | ) | |||||||||||||
Commercial mortgage-backed (“CMBS”)
|
245.0 | 25.9 | (1.4 | ) | 269.5 | (0.6 | ) | |||||||||||||
Residential mortgage-backed (“RMBS”)
|
442.8 | 19.1 | (10.1 | ) | 451.8 | (24.1 | ) | |||||||||||||
CDO/CLO
|
63.5 | 1.4 | (6.0 | ) | 58.9 | (6.8 | ) | |||||||||||||
Other asset-backed
|
134.6 | 5.8 | (6.8 | ) | 133.6 | 1.2 | ||||||||||||||
Available-for-sale debt securities
|
$ | 2,802.5 | $ | 215.7 | $ | (52.0 | ) | $ | 2,966.2 | $ | (31.8 | ) |
(1)
|
Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI. The table above presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI).
|
(2)
|
Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.
|
Fair Value and Cost of Securities:
|
December 31, 2011
|
|||||||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||||||
Gross
|
Gross
|
OTTI
|
||||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Recognized
|
||||||||||||||||
Cost
|
Gains(1)
|
Losses
|
Value
|
in AOCI(2)
|
||||||||||||||||
U.S. government and agency
|
$ | 162.2 | $ | 12.4 | $ | (0.5 | ) | $ | 174.1 | $ | — | |||||||||
State and political subdivision
|
78.3 | 5.7 | (0.5 | ) | 83.5 | — | ||||||||||||||
Foreign government
|
30.5 | 1.8 | (0.4 | ) | 31.9 | — | ||||||||||||||
Corporate
|
1,157.4 | 84.8 | (37.5 | ) | 1,204.7 | (1.5 | ) | |||||||||||||
CMBS
|
273.3 | 12.1 | (3.9 | ) | 281.5 | (5.1 | ) | |||||||||||||
RMBS
|
538.6 | 13.3 | (20.4 | ) | 531.5 | (21.6 | ) | |||||||||||||
CDO/CLO
|
74.0 | 0.7 | (12.2 | ) | 62.5 | (8.4 | ) | |||||||||||||
Other asset-backed
|
146.6 | 3.1 | (7.3 | ) | 142.4 | 0.7 | ||||||||||||||
Available-for-sale debt securities
|
$ | 2,460.9 | $ | 133.9 | $ | (82.7 | ) | $ | 2,512.1 | $ | (35.9 | ) |
(1)
|
Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI. The table above presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI).
|
(2)
|
Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.
|
Maturities of Debt Securities:
|
September 30, 2012
|
|||||||
($ in millions)
|
Amortized
|
Fair
|
||||||
Cost
|
Value
|
|||||||
Due in one year or less
|
$ | 176.0 | $ | 177.0 | ||||
Due after one year through five years
|
325.8 | 349.9 | ||||||
Due after five years through ten years
|
832.4 | 905.8 | ||||||
Due after ten years
|
582.4 | 619.7 | ||||||
CMBS/RMBS/ABS/CDO/CLO(1)
|
885.9 | 913.8 | ||||||
Total
|
$ | 2,802.5 | $ | 2,966.2 |
(1)
|
CMBS, RMBS, ABS, CDO and CLO are not listed separately in the table as each security does not have a single fixed maturity.
|
Sales of Available-for-Sale Securities:
|
As of
September 30,
|
As of
December 31,
|
||||||
($ in millions)
|
2012
|
2011
|
||||||
As restated
and amended
|
||||||||
Fixed maturities, available-for-sale
|
||||||||
Proceeds from sales
|
$ | 344.4 | $ | 325.8 | ||||
Proceeds from maturities/repayments
|
275.7 | 213.8 | ||||||
Gross investment gains from sales, prepayments and maturities
|
21.4 | 2.5 | ||||||
Gross investment losses from sales and maturities
|
(0.2 | ) | (0.7 | ) |
Aging of Temporarily Impaired
|
As of September 30, 2012
|
|||||||||||||||||||||||
Debt Securities:
|
Less than 12 months
|
Greater than 12 months
|
Total
|
|||||||||||||||||||||
($ in millions)
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Debt Securities
|
||||||||||||||||||||||||
U.S. government and agency
|
$ | — | $ | — | $ | 3.5 | $ | (0.4 | ) | $ | 3.5 | $ | (0.4 | ) | ||||||||||
State and political subdivision
|
4.8 | (0.2 | ) | 1.0 | (0.4 | ) | 5.8 | (0.6 | ) | |||||||||||||||
Foreign government
|
— | — | — | — | — | — | ||||||||||||||||||
Corporate
|
49.9 | (1.5 | ) | 67.4 | (25.2 | ) | 117.3 | (26.7 | ) | |||||||||||||||
CMBS
|
— | — | 13.1 | (1.4 | ) | 13.1 | (1.4 | ) | ||||||||||||||||
RMBS
|
16.5 | (0.3 | ) | 73.0 | (9.8 | ) | 89.5 | (10.1 | ) | |||||||||||||||
CDO/CLO
|
1.2 | (0.1 | ) | 42.4 | (5.9 | ) | 43.6 | (6.0 | ) | |||||||||||||||
Other asset-backed
|
3.2 | — | 10.7 | (6.8 | ) | 13.9 | (6.8 | ) | ||||||||||||||||
Total temporarily impaired securities
|
$ | 75.6 | $ | (2.1 | ) | $ | 211.1 | $ | (49.9 | ) | $ | 286.7 | $ | (52.0 | ) | |||||||||
Below investment grade
|
$ | 15.3 | $ | (1.5 | ) | $ | 52.9 | $ | (29.0 | ) | $ | 68.2 | $ | (30.5 | ) | |||||||||
Number of securities
|
24 | 104 | 128 |
Aging of Temporarily Impaired Securities
|
As of December 31, 2011
|
|||||||||||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||||||||||
Less than 12 months
|
Greater than 12 months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses |
Fair
Value
|
Unrealized
Losses |
|||||||||||||||||||
Debt Securities
|
||||||||||||||||||||||||
U.S. government and agency
|
$ | — | $ | — | $ | 3.5 | (0.5 | ) | $ | 3.5 | $ | (0.5 | ) | |||||||||||
State and political subdivision
|
15.4 | — | 0.9 | (0.5 | ) | 16.3 | (0.5 | ) | ||||||||||||||||
Foreign government
|
7.2 | (0.4 | ) | — | — | 7.2 | (0.4 | ) | ||||||||||||||||
Corporate
|
113.4 | (3.5 | ) | 69.3 | (34.0 | ) | 182.7 | (37.5 | ) | |||||||||||||||
CMBS
|
50.3 | (1.2 | ) | 6.9 | (2.7 | ) | 57.2 | (3.9 | ) | |||||||||||||||
RMBS
|
78.0 | (3.3 | ) | 91.1 | (17.1 | ) | 169.1 | (20.4 | ) | |||||||||||||||
CDO/CLO
|
4.8 | (0.4 | ) | 40.6 | (11.8 | ) | 45.4 | (12.2 | ) | |||||||||||||||
Other asset-backed
|
24.4 | (0.2 | ) | 16.5 | (7.1 | ) | 40.9 | (7.3 | ) | |||||||||||||||
Total temporarily impaired securities
|
$ | 293.5 | $ | (9.0 | ) | $ | 228.8 | $ | (73.7 | ) | $ | 522.3 | $ | (82.7 | ) | |||||||||
Below investment grade
|
$ | 25.3 | $ | (1.6 | ) | $ | 74.8 | $ | (50.2 | ) | $ | 100.1 | $ | (51.8 | ) | |||||||||
Number of securities
|
129 | 139 | 268 |
Credit Losses Recognized in Earnings on Debt Securities for
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
which a Portion of the OTTI Loss was Recognized in OCI:
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Balance, beginning of period
|
$ | (20.0 | ) | $ | (20.0 | ) | $ | (21.3 | ) | $ | (19.9 | ) | ||||
Add: Credit losses on securities not previously impaired (1)
|
(0.2 | ) | — | (0.5 | ) | (0.5 | ) | |||||||||
Add: Credit losses on securities previously impaired (1)
|
(0.4 | ) | (0.7 | ) | (1.4 | ) | (0.8 | ) | ||||||||
Less: Credit losses on securities impaired due to intent to sell
|
— | — | — | — | ||||||||||||
Less: Credit losses on securities sold
|
1.0 | 0.3 | 3.6 | 0.8 | ||||||||||||
Less: Increases in cash flows expected on
previously impaired securities
|
— | — | — | — | ||||||||||||
Balance, end of period
|
$ | (19.6 | ) | $ | (20.4 | ) | $ | (19.6 | ) | $ | (20.4 | ) |
(1)
|
Additional credit losses on securities for which a portion of the OTTI loss was recognized in AOCI are included within net OTTI losses recognized in earnings on the statements of comprehensive income.
|
Sources of Net Investment Income:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
($ in millions)
|
September 30,
|
September 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Debt securities
|
$ | 31.7 | $ | 25.2 | $ | 92.7 | $ | 68.9 | ||||||||
Policy loans
|
0.7 | 0.8 | 2.3 | 2.3 | ||||||||||||
Limited partnerships and other investments
|
0.8 | (0.3 | ) | 1.8 | 0.3 | |||||||||||
Fair value investments
|
0.4 | (0.2 | ) | 0.6 | 0.4 | |||||||||||
Cash and cash equivalents
|
— | — | — | — | ||||||||||||
Total investment income
|
33.6 | 25.5 | 97.4 | 71.9 | ||||||||||||
Less: Investment expenses
|
0.3 | 0.5 | 0.9 | 1.2 | ||||||||||||
Net investment income
|
$ | 33.3 | $ | 25.0 | $ | 96.5 | $ | 70.7 |
Sources and Types of
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
Net Realized Investment Gains (Losses):
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Total other-than temporary debt impairment losses
|
$ | (0.7 | ) | $ | (4.7 | ) | $ | (4.4 | ) | $ | (7.0 | ) | ||||
Portion of loss recognized in OCI
|
(0.3 | ) | 3.7 | 1.8 | 4.7 | |||||||||||
Net debt impairment losses recognized in earnings
|
$ | (1.0 | ) | $ | (1.0 | ) | $ | (2.6 | ) | $ | (2.3 | ) | ||||
Debt security impairments:
|
||||||||||||||||
U.S. government and agency
|
$ | — | $ | — | $ | — | $ | — | ||||||||
State and political subdivision
|
— | — | — | — | ||||||||||||
Foreign government
|
— | — | — | — | ||||||||||||
Corporate
|
— | (0.2 | ) | — | (0.4 | ) | ||||||||||
CMBS
|
— | — | (0.1 | ) | — | |||||||||||
RMBS
|
(0.8 | ) | (0.8 | ) | (2.1 | ) | (1.8 | ) | ||||||||
CDO/CLO
|
(0.1 | ) | — | (0.1 | ) | — | ||||||||||
Other asset-backed
|
(0.1 | ) | — | (0.3 | ) | (0.1 | ) | |||||||||
Net debt security impairments
|
(1.0 | ) | (1.0 | ) | (2.6 | ) | (2.3 | ) | ||||||||
Limited partnerships and other investment impairments
|
— | — | — | — | ||||||||||||
Impairment losses
|
(1.0 | ) | (1.0 | ) | (2.6 | ) | (2.3 | ) | ||||||||
Debt security transaction gains
|
20.8 | 0.2 | 21.4 | 2.4 | ||||||||||||
Debt security transaction losses
|
(0.1 | ) | — | (0.2 | ) | (0.6 | ) | |||||||||
Limited partnerships and other investment transaction gains
|
— | — | — | 0.1 | ||||||||||||
Limited partnerships and other investment transaction losses
|
(0.3 | ) | — | (0.4 | ) | — | ||||||||||
Net transaction gains
|
20.4 | 0.2 | 20.8 | 1.9 | ||||||||||||
Derivative instruments
|
(18.0 | ) | 34.8 | (33.5 | ) | 23.2 | ||||||||||
Embedded derivatives (1)
|
6.6 | (48.3 | ) | 6.1 | (41.0 | ) | ||||||||||
Related party reinsurance derivatives
|
(4.2 | ) | 10.1 | (3.5 | ) | 10.1 | ||||||||||
Net realized investment gains (losses), excluding impairment losses
|
$ | 4.8 | $ | (3.2 | ) | $ | (10.1 | ) | $ | (5.8 | ) | |||||
Net realized investment gains (losses), including impairment losses
|
$ | 3.8 | $ | (4.2 | ) | $ | (12.7 | ) | $ | (8.1 | ) |
(1)
|
Includes the change in fair value of embedded derivatives associated with variable annuity GMWB, GMAB and COMBO riders. See Note 8 to these financial statements for additional disclosures.
|
Sources of Changes in
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
Net Unrealized Investment Gains (Losses):
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Debt securities
|
$ | 51.0 | $ | 22.3 | $ | 112.5 | $ | 58.6 | ||||||||
Equity securities
|
— | (0.1 | ) | — | 0.1 | |||||||||||
Other investments
|
— | 0.1 | — | 0.1 | ||||||||||||
Net unrealized investment gains
|
$ | 51.0 | $ | 22.3 | $ | 112.5 | $ | 58.8 | ||||||||
Net unrealized investment gains
|
$ | 51.0 | $ | 22.3 | $ | 112.5 | $ | 58.8 | ||||||||
Applicable deferred policy acquisition cost
|
(5.8 | ) | 17.7 | 25.6 | 30.1 | |||||||||||
Applicable other actuarial offsets | 54.8 | 13.7 | 68.2 | 11.1 | ||||||||||||
Applicable deferred income tax expense
|
7.1 | (2.1 | ) | 17.1 | 4.2 | |||||||||||
Offsets to net unrealized investment gains
|
56.1 | 29.3 | 110.9 | 45.4 | ||||||||||||
Net unrealized investment gains (losses) included in OCI
|
$ | (5.1 | ) | $ | (7.0 | ) | $ | 1.6 | $ | 13.4 |
Separate Account Investments of Account Balances of Variable Annuity Contracts with Guarantees:
|
Sept 30,
|
Dec 31,
|
||||||
($ in millions)
|
2012
|
2011
|
||||||
As restated
and amended
|
||||||||
Debt securities
|
$ | 377.6 | $ | 395.5 | ||||
Equity funds
|
1,553.9 | 1,537.7 | ||||||
Other
|
52.5 | 58.3 | ||||||
Total
|
$ | 1,984.0 | $ | 1,991.5 |
|
●
|
Liabilities associated with the guaranteed minimum death benefit (“GMDB”) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the expected life of the contract based on total expected assessments. The assumptions used for calculating the liabilities are consistent with those used for amortizing deferred policy acquisition costs.
|
|
●
|
Liabilities associated with the guaranteed minimum income benefit (“GMIB”) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.
|
Changes in Guaranteed Insurance Benefit Liability Balances:
|
As of
|
|||||||
($ in millions)
|
September 30, 2012
|
|||||||
Annuity
GMDB
|
Annuity
GMIB
|
|||||||
Liability balance as of January 1, 2012
|
$ | 10.8 | $ | 17.2 | ||||
Incurred
|
— | 3.6 | ||||||
Paid
|
(0.9 | ) | — | |||||
Assumption unlocking
|
— | (0.2 | ) | |||||
Liability balance as of September 30, 2012
|
$ | 9.9 | $ | 20.6 |
Changes in Guaranteed Insurance Benefit Liability Balances:
|
Year Ended
|
|||||||
($ in millions)
|
December 31, 2011
|
|||||||
As restated and amended
|
||||||||
Annuity
GMDB
|
Annuity
GMIB
|
|||||||
Liability balance as of January 1, 2011
|
$ | 11.2 | $ | 17.5 | ||||
Incurred
|
1.5 | (0.7 | ) | |||||
Paid
|
(1.9 | ) | — | |||||
Assumption unlocking
|
— | 0.4 | ||||||
Liability balance as of December 31, 2011
|
$ | 10.8 | $ | 17.2 |
GMDB and GMIB Benefits by Type:
|
NAR
|
Average
|
||||||||||
($ in millions)
|
Account
|
after
|
Attained Age
|
|||||||||
Value
|
Reinsurance
|
of Annuitant
|
||||||||||
September 30, 2012
|
||||||||||||
GMDB return of premium
|
$ | 776.0 | $ | 7.1 | 62 | |||||||
GMDB step up
|
1,444.5 | 26.0 | 62 | |||||||||
GMDB earnings enhancement benefit (“EEB”)
|
38.9 | 0.1 | 63 | |||||||||
GMDB greater of annual step up and roll up
|
27.5 | 7.5 | 66 | |||||||||
Total GMDB at September 30, 2012
|
2,286.9 | $ | 40.7 | |||||||||
Less: General account value with GMDB
|
318.2 | |||||||||||
Subtotal separate account liabilities with GMDB
|
1,968.7 | |||||||||||
Separate account liabilities without GMDB
|
142.0 | |||||||||||
Total separate account liabilities
|
$ | 2,110.7 | ||||||||||
GMIB (1) at September 30, 2012
|
$ | 413.4 | 63 | |||||||||
December 31, 2011 as restated and amended
|
||||||||||||
GMDB return of premium
|
$ | 795.6 | $ | 20.7 | 61 | |||||||
GMDB step up
|
1,450.6 | 91.2 | 62 | |||||||||
GMDB earnings enhancement benefit (“EEB”)
|
39.7 | 0.4 | 62 | |||||||||
GMDB greater of annual step up and roll up
|
27.1 | 8.8 | 66 | |||||||||
Total GMDB at December 31, 2011
|
2,313.0 | $ | 121.1 | |||||||||
Less: General account value with GMDB
|
336.9 | |||||||||||
Subtotal separate account liabilities with GMDB
|
1,976.1 | |||||||||||
Separate account liabilities without GMDB
|
570.7 | |||||||||||
Total separate account liabilities
|
$ | 2,546.8 | ||||||||||
GMIB (1) at December 31, 2011
|
$ | 428.1 | 63 |
(1)
|
Policies with a GMIB also have a GMDB. The NAR for each benefit is shown in the table above, however these benefits are not additive. When a policy terminates due to death, any NAR related or GMIB is released. Similarly, when a policy goes into benefit status on a GMIB, its GMDB NAR is released.
|
Changes in Guaranteed Liability Balances:
|
Fixed Indexed Annuity
|
|||||||
($ in millions)
|
GMWB & GMDB
|
|||||||
Sept 30,
|
Dec 31,
|
|||||||
2012
|
2011
|
|||||||
As restated
and amended
|
||||||||
Liability balance, beginning of period
|
$ | 5.6 | $ | 0.5 | ||||
Incurred
|
32.3 | 5.1 | ||||||
Paid
|
— | — | ||||||
Liability balance, end of period
|
$ | 37.9 | $ | 5.6 |
Changes in Guaranteed Liability Balances:
|
Universal Life
|
|||||||
($ in millions)
|
Secondary Guarantees
|
|||||||
Sept 30,
|
Dec 31,
|
|||||||
2012
|
2011
|
|||||||
As restated
and amended
|
||||||||
Liability balance, beginning of period
|
$ | 98.2 | $ | 88.5 | ||||
Incurred
|
12.4 | 16.0 | ||||||
Paid
|
(7.2 | ) | (6.3 | ) | ||||
Assumption unlocking
|
— | — | ||||||
Liability balance, end of period
|
$ | 103.4 | $ | 98.2 |
Non-Insurance Guaranteed Product Features:
|
Average
|
|||||||
($ in millions)
|
Account
|
Attained Age
|
||||||
Value
|
of Annuitant
|
|||||||
September 30, 2012
|
||||||||
GMWB
|
$ | 559.7 | 63 | |||||
GMAB
|
386.1 | 58 | ||||||
COMBO
|
9.8 | 61 | ||||||
Total at September 30, 2012
|
$ | 955.6 | ||||||
December 31, 2011 as restated and amended
|
||||||||
GMWB
|
$ | 541.9 | 62 | |||||
GMAB
|
374.4 | 57 | ||||||
COMBO
|
9.8 | 60 | ||||||
Total at December 31, 2011
|
$ | 926.1 |
Variable Annuity Embedded Derivative Liabilities:
|
Sept 30,
|
Dec 31,
|
||||||
($ in millions)
|
2012
|
2011
|
||||||
As restated
and amended
|
||||||||
GMWB
|
$ | 18.0 | $ | 22.0 | ||||
GMAB
|
16.8 | 24.7 | ||||||
COMBO
|
(0.4 | ) | (0.3 | ) | ||||
Total variable annuity embedded derivative liabilities
|
$ | 34.4 | $ | 46.4 |
Derivative Instruments:
|
Fair Value as of
|
|||||||||||||||
($ in millions)
|
Notional
|
September 30, 2012
|
||||||||||||||
Maturity
|
Amount
|
Assets
|
Liabilities (1)
|
|||||||||||||
Interest rate swaps
|
2017-2027 | $ | 180.0 | $ | 16.8 | $ | 8.2 | |||||||||
Variance swaps
|
2015-2017 | 0.9 | — | 3.1 | ||||||||||||
Swaptions
|
2024 | 25.0 | — | — | ||||||||||||
Put options
|
2015-2022 | 391.0 | 77.4 | — | ||||||||||||
Call options
|
2012-2017 | 1,261.6 | 74.0 | 48.7 | ||||||||||||
Equity futures
|
2012 | 182.1 | 17.6 | — | ||||||||||||
Total derivative instruments
|
$ | 2,040.6 | $ | 185.8 | $ | 60.0 |
(1)
|
Derivative liabilities are included in other liabilities on the balance sheets.
|
Derivative Instruments:
|
Fair Value as of
|
|||||||||||||||
($ in millions)
|
December 31, 2011
|
|||||||||||||||
Notional
|
As restated and amended
|
|||||||||||||||
Maturity
|
Amount
|
Assets
|
Liabilities (1)
|
|||||||||||||
Interest rate swaps
|
2017-2026 | $ | 101.1 | $ | 9.3 | $ | 3.5 | |||||||||
Variance swaps
|
2015-2017 | 0.9 | 2.8 | — | ||||||||||||
Swaptions
|
2024 | 25.0 | 0.2 | — | ||||||||||||
Put options
|
2015-2022 | 200.0 | 47.3 | — | ||||||||||||
Call options
|
2012-2016 | 700.4 | 28.0 | 19.0 | ||||||||||||
Equity futures
|
2012 | 66.3 | 16.2 | — | ||||||||||||
Total derivative instruments
|
$ | 1,093.7 | $ | 103.8 | $ | 22.5 |
(1)
|
Derivative liabilities are included in other liabilities on the balance sheets.
|
Derivative Instrument Gains (Losses) Recognized in
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
Realized Investment Gains (Losses):
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated and amended
|
As restated and amended
|
|||||||||||||||
Derivative instruments by type
|
||||||||||||||||
Interest rate swaps
|
$ | (1.1 | ) | $ | 6.3 | $ | (0.3 | ) | $ | 7.1 | ||||||
Variance swaps
|
(1.8 | ) | 5.1 | (6.4 | ) | 3.5 | ||||||||||
Swaptions
|
— | (0.4 | ) | (0.2 | ) | (0.8 | ) | |||||||||
Put options
|
(11.8 | ) | 18.0 | (13.7 | ) | 13.3 | ||||||||||
Call options
|
7.5 | (10.6 | ) | 7.5 | (10.5 | ) | ||||||||||
Equity futures
|
(10.8 | ) | 16.4 | (20.4 | ) | 10.6 | ||||||||||
Embedded derivatives
|
6.6 | (48.3 | ) | 6.1 | (41.0 | ) | ||||||||||
Related party reinsurance derivatives
|
(4.2 | ) | 10.1 | (3.5 | ) | 10.1 | ||||||||||
Total derivative instrument losses recognized in
realized gains (losses)
|
$ | (15.6 | ) | $ | (3.4 | ) | $ | (30.9 | ) | $ | (7.7 | ) |
|
●
|
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 securities include highly liquid government bonds and exchange-traded equities.
|
|
●
|
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of such instruments include government-backed mortgage products, certain collateralized mortgage and debt obligations and certain high-yield debt securities.
|
|
●
|
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs reflect management’s own assumptions about inputs in which market participants would use in pricing these types of assets or liabilities. Level 3 financial instruments include values which are determined using pricing models and third-party evaluation. Additionally, the determination of some fair value estimates utilizes significant management judgments or best estimates.
|
Fair Values of Financial Instruments by Level:
|
As of September 30, 2012
|
|||||||||||||||
($ in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||
U.S. government and agency
|
$ | 130.0 | $ | 14.3 | $ | 28.6 | $ | 172.9 | ||||||||
State and political subdivision
|
— | 15.0 | 93.4 | 108.4 | ||||||||||||
Foreign government
|
— | 43.1 | 7.8 | 50.9 | ||||||||||||
Corporate
|
— | 987.5 | 732.7 | 1,720.2 | ||||||||||||
CMBS
|
— | 251.5 | 18.0 | 269.5 | ||||||||||||
RMBS
|
— | 206.2 | 245.6 | 451.8 | ||||||||||||
CDO/CLO
|
— | — | 58.9 | 58.9 | ||||||||||||
Other asset-backed
|
— | 50.2 | 83.4 | 133.6 | ||||||||||||
Derivative assets
|
17.6 | 168.2 | — | 185.8 | ||||||||||||
Related party reinsurance derivative asset
|
— | — | — | — | ||||||||||||
Fair value investments
|
— | 15.8 | 28.3 | 44.1 | ||||||||||||
Separate account assets
|
2,110.7 | — | — | 2,110.7 | ||||||||||||
Total assets
|
$ | 2,258.3 | $ | 1,751.8 | $ | 1,296.7 | $ | 5,306.8 | ||||||||
Liabilities
|
||||||||||||||||
Derivative liabilities
|
$ | — | $ | 60.0 | $ | — | $ | 60.0 | ||||||||
Embedded derivatives
|
— | — | 83.1 | 83.1 | ||||||||||||
Total liabilities
|
$ | — | $ | 60.0 | $ | 83.1 | $ | 143.1 |
Fair Values of Financial Instruments by Level:
|
As of December 31, 2011
|
|||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||
U.S. government and agency
|
$ | 96.0 | $ | 46.4 | $ | 31.7 | $ | 174.1 | ||||||||
State and political subdivision
|
— | 34.8 | 48.7 | 83.5 | ||||||||||||
Foreign government
|
— | 28.8 | 3.1 | 31.9 | ||||||||||||
Corporate
|
— | 690.9 | 513.8 | 1,204.7 | ||||||||||||
CMBS
|
— | 246.1 | 35.4 | 281.5 | ||||||||||||
RMBS
|
— | 263.5 | 268.0 | 531.5 | ||||||||||||
CDO/CLO
|
— | — | 62.5 | 62.5 | ||||||||||||
Other asset-backed
|
— | 61.2 | 81.2 | 142.4 | ||||||||||||
Derivative assets
|
16.2 | 87.6 | — | 103.8 | ||||||||||||
Related party reinsurance derivative asset
|
— | — | 3.5 | 3.5 | ||||||||||||
Fair value investments
|
— | 14.3 | 27.5 | 41.8 | ||||||||||||
Separate account assets
|
2,546.8 | — | — | 2,546.8 | ||||||||||||
Total assets
|
$ | 2,659.0 | $ | 1,473.6 | $ | 1,075.4 | $ | 5,208.0 | ||||||||
Liabilities
|
||||||||||||||||
Derivative liabilities
|
$ | — | $ | 22.5 | $ | — | $ | 22.5 | ||||||||
Embedded derivatives
|
— | — | 82.3 | 82.3 | ||||||||||||
Total liabilities
|
$ | — | $ | 22.5 | $ | 82.3 | $ | 104.8 |
Fair Values of Corporates by Level and Sector:
|
As of September 30, 2012
|
|||||||||||||||
($ in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Corporates
|
||||||||||||||||
Consumer
|
$ | — | $ | 301.0 | $ | 364.1 | $ | 665.1 | ||||||||
Energy
|
— | 66.5 | 18.9 | 85.4 | ||||||||||||
Financial services
|
— | 339.4 | 157.1 | 496.5 | ||||||||||||
Technical/communications
|
— | 43.1 | 4.9 | 48.0 | ||||||||||||
Transportation
|
— | 9.4 | 25.8 | 35.2 | ||||||||||||
Utilities
|
— | 119.5 | 127.2 | 246.7 | ||||||||||||
Other
|
— | 108.6 | 34.7 | 143.3 | ||||||||||||
Total corporates
|
$ | — | $ | 987.5 | $ | 732.7 | $ | 1,720.2 |
Fair Values of Corporates by Level and Sector:
|
As of December 31, 2011
|
|||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Corporates
|
||||||||||||||||
Consumer
|
$ | — | $ | 205.3 | $ | 245.9 | $ | 451.2 | ||||||||
Energy
|
— | 29.8 | 13.2 | 43.0 | ||||||||||||
Financial services
|
— | 247.5 | 117.5 | 365.0 | ||||||||||||
Technical/communications
|
— | 33.4 | 3.5 | 36.9 | ||||||||||||
Transportation
|
— | 6.1 | 25.5 | 31.6 | ||||||||||||
Utilities
|
— | 111.1 | 82.0 | 193.1 | ||||||||||||
Other
|
— | 57.7 | 26.2 | 83.9 | ||||||||||||
Total corporates
|
$ | — | $ | 690.9 | $ | 513.8 | $ | 1,204.7 |
Level 3 Financial Assets:
|
Three Months Ended September 30, 2012
|
|||||||||||||||||||||||||||
($ in millions)
|
Realized &
|
|||||||||||||||||||||||||||
unrealized
|
Unrealized
|
|||||||||||||||||||||||||||
Purchases,
|
gains
|
gains
|
||||||||||||||||||||||||||
Balance,
|
sales
|
Transfers
|
Transfers
|
(losses)
|
(losses)
|
|||||||||||||||||||||||
beginning
|
issuances &
|
into
|
out of
|
included
|
included
|
|||||||||||||||||||||||
of period
|
settlements
|
Level 3
|
Level 3
|
in income
|
in OCI
|
Total
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||||||||||||||
U.S. government and agency (1)
|
$ | 27.7 | $ | 0.6 | $ | — | $ | — | $ | — | $ | 0.3 | $ | 28.6 | ||||||||||||||
State and political subdivision
|
90.1 | 4.7 | — | — | — | (1.4 | ) | 93.4 | ||||||||||||||||||||
Foreign government
|
7.2 | — | — | — | — | 0.6 | 7.8 | |||||||||||||||||||||
Corporate
|
664.5 | 58.7 | — | (6.1 | ) | — | 15.6 | 732.7 | ||||||||||||||||||||
CMBS
|
17.8 | — | — | — | — | 0.2 | 18.0 | |||||||||||||||||||||
RMBS
|
247.3 | (5.8 | ) | — | — | (0.4 | ) | 4.5 | 245.6 | |||||||||||||||||||
CDO/CLO
|
57.3 | (1.9 | ) | — | — | 0.2 | 3.3 | 58.9 | ||||||||||||||||||||
Other asset-backed
|
71.1 | 0.3 | 13.2 | — | — | (1.2 | ) | 83.4 | ||||||||||||||||||||
Related party reinsurance derivative
|
4.2 | — | — | — | (4.2 | ) | — | — | ||||||||||||||||||||
Fair value investments
|
28.9 | (0.7 | ) | — | — | 0.1 | — | 28.3 | ||||||||||||||||||||
Total assets
|
$ | 1,216.1 | $ | 55.9 | $ | 13.2 | $ | (6.1 | ) | $ | (4.3 | ) | $ | 21.9 | $ | 1,296.7 |
(1)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Level 3 Financial Assets:
|
Three Months Ended September 30, 2011
|
|||||||||||||||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||||||||||||||
Realized &
|
||||||||||||||||||||||||||||
unrealized
|
Unrealized
|
|||||||||||||||||||||||||||
Purchases,
|
gains
|
gains
|
||||||||||||||||||||||||||
Balance,
|
sales
|
Transfers
|
Transfers
|
(losses)
|
(losses)
|
|||||||||||||||||||||||
beginning
|
issuances &
|
into
|
out of
|
included
|
included
|
|||||||||||||||||||||||
of period
|
settlements
|
Level 3
|
Level 3
|
in income
|
in OCI
|
Total
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||||||||||||||
U.S. government and agency (1)
|
$ | 23.8 | $ | (0.3 | ) | $ | — | $ | — | $ | — | $ | 1.3 | $ | 24.8 | |||||||||||||
State and political subdivision
|
12.4 | — | 2.5 | — | — | 6.4 | 21.3 | |||||||||||||||||||||
Foreign government
|
2.0 | — | — | — | — | (0.5 | ) | 1.5 | ||||||||||||||||||||
Corporate
|
396.0 | 0.2 | 24.1 | (2.0 | ) | (0.2 | ) | 22.8 | 440.9 | |||||||||||||||||||
CMBS
|
20.5 | 4.1 | — | — | — | (5.5 | ) | 19.1 | ||||||||||||||||||||
RMBS
|
288.2 | 2.9 | — | — | (0.5 | ) | (16.3 | ) | 274.3 | |||||||||||||||||||
CDO/CLO
|
57.0 | 7.8 | — | — | — | (11.5 | ) | 53.3 | ||||||||||||||||||||
Other asset-backed
|
84.4 | 2.8 | — | — | 0.1 | (4.9 | ) | 82.4 | ||||||||||||||||||||
Related party reinsurance derivative
|
(5.5 | ) | — | — | — | 10.1 | — | 4.6 | ||||||||||||||||||||
Fair value investments
|
25.8 | — | — | — | (1.1 | ) | — | 24.7 | ||||||||||||||||||||
Total assets
|
$ | 904.6 | $ | 17.5 | $ | 26.6 | $ | (2.0 | ) | $ | 8.4 | $ | (8.2 | ) | $ | 946.9 |
(1)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Level 3 Financial Assets:
|
Nine Months Ended September 30, 2012
|
|||||||||||||||||||||||||||
($ in millions)
|
Realized &
|
|||||||||||||||||||||||||||
unrealized
|
Unrealized
|
|||||||||||||||||||||||||||
Purchases,
|
gains
|
gains
|
||||||||||||||||||||||||||
Balance,
|
sales
|
Transfers
|
Transfers
|
(losses)
|
(losses)
|
|||||||||||||||||||||||
beginning
|
issuances &
|
into
|
out of
|
included
|
included
|
|||||||||||||||||||||||
of period
|
settlements
|
Level 3
|
Level 3
|
in income
|
in OCI
|
Total
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||||||||||||||
U.S. government and agency (1)
|
$ | 31.7 | $ | (1.2 | ) | $ | — | $ | — | $ | — | $ | (1.9 | ) | $ | 28.6 | ||||||||||||
State and political subdivision
|
48.7 | 19.2 | 12.9 | — | — | 12.6 | 93.4 | |||||||||||||||||||||
Foreign government
|
3.1 | 3.5 | — | — | — | 1.2 | 7.8 | |||||||||||||||||||||
Corporate
|
513.8 | 208.6 | 20.0 | (14.2 | ) | — | 4.5 | 732.7 | ||||||||||||||||||||
CMBS
|
35.4 | (0.5 | ) | — | (18.0 | ) | — | 1.1 | 18.0 | |||||||||||||||||||
RMBS
|
268.0 | (25.6 | ) | — | — | (0.9 | ) | 4.1 | 245.6 | |||||||||||||||||||
CDO/CLO
|
62.5 | (3.5 | ) | — | — | 0.2 | (0.3 | ) | 58.9 | |||||||||||||||||||
Other asset-backed
|
81.2 | 3.6 | — | (1.8 | ) | — | 0.4 | 83.4 | ||||||||||||||||||||
Related party reinsurance derivative
|
3.5 | — | — | — | (3.5 | ) | — | — | ||||||||||||||||||||
Fair value investments
|
27.5 | (0.8 | ) | — | — | 1.6 | — | 28.3 | ||||||||||||||||||||
Total assets
|
$ | 1,075.4 | $ | 203.3 | $ | 32.9 | $ | (34.0 | ) | $ | (2.6 | ) | $ | 21.7 | $ | 1,296.7 |
(1)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Level 3 Financial Assets:
|
Nine Months Ended September 30, 2011
|
|||||||||||||||||||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||||||||||||||||||
Realized &
|
||||||||||||||||||||||||||||
unrealized
|
Unrealized
|
|||||||||||||||||||||||||||
Purchases,
|
gains
|
gains
|
||||||||||||||||||||||||||
Balance,
|
sales
|
Transfers
|
Transfers
|
(losses)
|
(losses)
|
|||||||||||||||||||||||
beginning
|
issuances &
|
into
|
out of
|
included
|
included
|
|||||||||||||||||||||||
of period
|
settlements
|
Level 3
|
Level 3
|
in income
|
in OCI
|
Total
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||
Available-for-sale debt securities
|
||||||||||||||||||||||||||||
U.S. government and agency (1)
|
$ | 24.0 | $ | 0.4 | $ | 2.0 | $ | — | $ | — | $ | (1.6 | ) | $ | 24.8 | |||||||||||||
State and political subdivision
|
13.3 | 2.9 | — | — | — | 5.1 | 21.3 | |||||||||||||||||||||
Foreign government
|
1.4 | — | — | — | — | 0.1 | 1.5 | |||||||||||||||||||||
Corporate
|
337.3 | 97.7 | 22.8 | (14.1 | ) | (0.9 | ) | (1.9 | ) | 440.9 | ||||||||||||||||||
CMBS
|
13.4 | 0.6 | 3.7 | — | 0.1 | 1.3 | 19.1 | |||||||||||||||||||||
RMBS
|
216.1 | 84.3 | — | — | (0.6 | ) | (25.5 | ) | 274.3 | |||||||||||||||||||
CDO/CLO
|
59.6 | (0.7 | ) | — | — | — | (5.6 | ) | 53.3 | |||||||||||||||||||
Other asset-backed
|
57.7 | 26.2 | — | (4.8 | ) | — | 3.3 | 82.4 | ||||||||||||||||||||
Related party reinsurance derivative
|
(5.5 | ) | — | — | — | 10.1 | — | 4.6 | ||||||||||||||||||||
Fair value investments
|
13.8 | 10.8 | — | — | 0.1 | — | 24.7 | |||||||||||||||||||||
Total assets
|
$ | 731.1 | $ | 222.2 | $ | 28.5 | $ | (18.9 | ) | $ | 8.8 | $ | (24.8 | ) | $ | 946.9 |
(1)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Level 3 Financial Liabilities:
|
Embedded Derivative Liabilities
|
|||||||||||||||
($ in millions)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Balance, beginning of period
|
$ | 87.5 | $ | 45.6 | $ | 82.4 | $ | 29.5 | ||||||||
Net purchases/(sales)
|
2.2 | (8.9 | ) | 6.8 | 14.5 | |||||||||||
Transfers into Level 3
|
— | — | — | — | ||||||||||||
Transfers out of Level 3
|
— | — | — | — | ||||||||||||
Realized (gains) losses (1)
|
(6.6 | ) | 48.3 | (6.1 | ) | 41.0 | ||||||||||
Balance, end of period
|
$ | 83.1 | $ | 85.0 | $ | 83.1 | $ | 85.0 |
(1)
|
Realized gains and losses are included in net realized investment gains on the statements of comprehensive income.
|
Level 3 Assets: (1)
|
As of September 30, 2012
|
||||||||
($ in millions)
|
|||||||||
Fair
|
Valuation
|
Unobservable
|
|||||||
Value
|
Technique(s)
|
Input
|
Range (Weighted Average)
|
||||||
U.S. government and
agency
|
$
|
28.6
|
Discounted cash flow
|
Yield
|
1.54% - 3.21% (2.40%)
|
||||
State and political
subdivision
|
$
|
35.8
|
Discounted cash flow
|
Yield
|
1.90% - 3.41% (2.73%)
|
||||
Corporate
|
$
|
586.2
|
Spread matrix
|
Yield
|
1.53% - 6.56% (2.99%)
|
||||
Discounted cash flow
|
Yield
|
1.57% - 6.68% (3.20%)
|
|||||||
CDO/CLO
|
$
|
3.8
|
Discounted cash flow
|
Prepayment rate
|
20% (CLOs)
|
||||
Default rate
|
2.55% (CLOs)
|
||||||||
Recovery rate
|
65% (Loans), 35% (High yield bonds),
45% (Investment grade bonds)
|
||||||||
Reinvestment spread
|
3 mo LIBOR + 400bps (CLOs)
|
||||||||
Other asset-backed
|
$
|
2.9
|
Discounted cash flow
|
Yield
|
2.53% - 2.54% (2.54%)
|
||||
Discounted cash flow
|
Prepayment rate
|
5%
|
|||||||
Default rate
|
2.53% for 48 mos then .33% thereafter
|
||||||||
Recovery rate
|
10% (TRUPPS)
|
||||||||
Fair value
investments
|
$
|
0.8
|
Discounted cash flow
|
Default rate
|
0.24%
|
||||
Recovery rate
|
45%
|
||||||||
(1)
|
Excludes Level 3 assets which are valued based upon non-binding independent third-party valuations for which unobservable inputs are not reasonably available to us.
|
Level 3 Liabilities:
|
As of September 30, 2012
|
||||||||
($ in millions)
|
Fair Value
|
Valuation Technique(s)
|
Unobservable Input
|
Range
|
|||||
Embedded derivatives
|
$
|
48.7
|
Budget method
|
Swap curve
|
0.25% - 2.32%
|
||||
(EIA VED)
|
Mortality rate
|
75% of A2000 basic table
|
|||||||
Lapse rate
|
1.00% - 35.00%
|
||||||||
CSA
|
4.75%
|
||||||||
Embedded derivatives
(GMAB / GMWB)
|
$
|
34.4
|
Risk neutral stochastic
valuation methodology
|
Volatility surface
|
11.75% - 48.97%
|
||||
Swap curve
|
0.24% - 2.98%
|
||||||||
Mortality rate
|
75% of A2000 basic table
|
||||||||
Lapse rate
|
0.00% - 60.00%
|
||||||||
CSA
|
4.75%
|
||||||||
Total Level 3 liabilities
|
$
|
83.1
|
|||||||
Level 3 Assets and Liabilities by Pricing Source:
|
As of September 30, 2012
|
|||||||||||
($ in millions)
|
Internal(1)
|
External (2)
|
Total
|
|||||||||
Assets
|
||||||||||||
Available-for-sale debt securities
|
||||||||||||
U.S. government and agency (3)
|
$ | 28.6 | $ | — | $ | 28.6 | ||||||
State and political subdivision
|
35.8 | 57.6 | 93.4 | |||||||||
Foreign government
|
— | 7.8 | 7.8 | |||||||||
Corporate
|
586.2 | 146.5 | 732.7 | |||||||||
CMBS
|
— | 18.0 | 18.0 | |||||||||
RMBS
|
— | 245.6 | 245.6 | |||||||||
CDO/CLO
|
3.8 | 55.1 | 58.9 | |||||||||
Other asset-backed
|
2.9 | 80.5 | 83.4 | |||||||||
Fair value investments
|
0.8 | 27.5 | 28.3 | |||||||||
Total assets
|
$ | 658.1 | $ | 638.6 | $ | 1,296.7 | ||||||
Liabilities
|
||||||||||||
Embedded derivatives
|
$ | 83.1 | $ | — | $ | 83.1 | ||||||
Total liabilities
|
$ | 83.1 | $ | — | $ | 83.1 |
(1)
|
Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.
|
(2)
|
Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.
|
(3)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Level 3 Assets and Liabilities by Pricing Source:
|
As of December 31, 2011
|
|||||||||||
($ in millions)
|
As restated and amended
|
|||||||||||
Internal(1)
|
External (2)
|
Total
|
||||||||||
Assets
|
||||||||||||
Available-for-sale debt securities
|
||||||||||||
U.S. government and agency (3)
|
$ | 31.7 | $ | — | $ | 31.7 | ||||||
State and political subdivision
|
10.4 | 38.3 | 48.7 | |||||||||
Foreign government
|
— | 3.1 | 3.1 | |||||||||
Corporate
|
411.6 | 102.2 | 513.8 | |||||||||
CMBS
|
— | 35.4 | 35.4 | |||||||||
RMBS
|
— | 268.0 | 268.0 | |||||||||
CDO/CLO
|
61.0 | 1.5 | 62.5 | |||||||||
Other asset-backed
|
3.6 | 77.6 | 81.2 | |||||||||
Related party reinsurance derivative asset
|
3.5 | — | 3.5 | |||||||||
Fair value investments
|
10.6 | 16.9 | 27.5 | |||||||||
Total assets
|
$ | 532.4 | $ | 543.0 | $ | 1,075.4 | ||||||
Liabilities
|
||||||||||||
Embedded derivatives
|
$ | 82.3 | $ | — | $ | 82.3 | ||||||
Total liabilities
|
$ | 82.3 | $ | — | $ | 82.3 |
(1)
|
Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.
|
(2)
|
Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.
|
(3)
|
Includes securities whose underlying collateral is an obligation of a U.S. government entity.
|
Carrying Amounts and Fair Values
|
As of September 30, 2012
|
As of December 31, 2011
|
|||||||||||||||
of Financial Instruments:
|
Fair Value
|
As restated and amended
|
|||||||||||||||
($ in millions)
|
Hierarchy
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||
Level
|
Value
|
Value
|
Value
|
Value
|
|||||||||||||
Financial assets:
|
|||||||||||||||||
Policy loans
|
Level 3
|
$ | 60.5 | $ | 60.0 | $ | 62.5 | $ | 62.1 | ||||||||
Cash and cash equivalent
|
Level 1
|
$ | 117.2 | $ | 117.2 | $ | 49.5 | $ | 49.5 | ||||||||
Financial liabilities:
|
|||||||||||||||||
Investment contracts
|
Level 3
|
$ | 2,217.7 | $ | 2,223.5 | $ | 1,724.4 | $ | 1,732.2 |
Accumulated Other Comprehensive Income (Loss)
|
Non-Credit
|
|||||||||||
($ in millions)
|
Net
|
portion of
|
||||||||||
unrealized
|
OTTI losses
|
|||||||||||
investment gains
|
recognized
|
|||||||||||
(losses)
|
in OCI
|
Total
|
||||||||||
As restated and amended (1)
|
||||||||||||
Balance, December 31, 2010
|
$ | 6.5 | $ | (19.4 | ) | $ | (12.9 | ) | ||||
Change in component during the year
|
15.9 | (2.5 | ) | 13.4 | ||||||||
Balance, September 30, 2011
|
$ | 22.4 | $ | (21.9 | ) | $ | 0.5 | |||||
Balance, December 31, 2011
|
$ | 25.9 | $ | (23.3 | ) | $ | 2.6 | |||||
Change in component during the year
|
(1.1 | ) | 2.7 | 1.6 | ||||||||
Balance, September 30, 2012
|
$ | 24.8 | $ | (20.6 | ) | $ | 4.2 |
(1)
|
Except for the change in component during 2012 and the balance as of 2012.
|
Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
●
|
Fees on life and annuity products consist primarily of: (i) COI charges, which are based on the difference between policy face amounts and the account values (referred to as the NAR); (ii) asset-based fees (including mortality and expense charges for variable annuities) which are calculated as a percentage of assets under management within our separate accounts; (iii) premium-based fees to cover premium taxes and renewal commissions; and (iv) surrender charges.
|
|
●
|
Policy benefits include death claims net of reinsurance cash flows, including ceded premiums and recoverables, interest credited to policyholders and changes in reserves for future claims payments. Certain universal life reserves are based on management’s assumptions about future COI fees and interest margins which, in turn, are affected by future premium payments, surrenders, lapses and mortality rates. Actual experience can vary significantly from these assumptions, resulting in greater or lesser changes in reserves. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes to these reserves.
|
|
●
|
Interest margins consist of net investment income earned on universal life, fixed indexed annuities and other policyholder funds, gains on options purchased to fund index credits less the interest or index credits applied to policyholders on those funds. Interest margins also include investment income on assets supporting the Company’s surplus.
|
|
●
|
Non-deferred operating expenses are expenses related to servicing policies, premium taxes, reinsurance allowances, non-deferrable acquisition expenses and commissions and general overhead. They also include pension and other benefit costs which involve significant estimates and assumptions.
|
|
Deferred policy acquisition cost amortization is based on the amount of expenses deferred, actual results in each quarter and management’s assumptions about the future performance of the business. The amount of future profit or margin is dependent principally on investment returns in our separate accounts, interest and default rates, reinsurance costs and recoveries, mortality, surrender rates, premium persistency and expenses. These factors enter into management’s estimates of gross profits or margins, which generally are used to amortize deferred policy acquisition costs. Actual equity market movements, net investment income in excess of amounts credited to policyholders, claims payments and other key factors can vary significantly from our assumptions, resulting in a misestimate of gross profits or margins, and a change in amortization, with a resulting impact to income. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes in amortization.
|
|
●
|
Net realized investment gains or losses related to investments and hedging programs include transaction gains and losses, OTTIs and changes in the value of certain derivatives. Certain of our variable and fixed annuity contracts include guaranteed minimum withdrawal and accumulation benefits which are classified as embedded derivatives. The change in fair value related to the embedded derivative liability is also included in net realized gains or losses. The fair value of the embedded derivative liability is calculated using significant management estimates. Depending on the product, these estimates may include: (i) the expected value of index credits on the next policy anniversary dates; (ii) the interest rate used to project the future growth in the contract liability; (iii) the discount rate used to discount future benefit payments, which includes an adjustment for our credit worthiness; (iv) the expected costs of annual call options that will be purchased in the future to fund index credits beyond the next policy anniversary; and (v) cash flow projections based on actuarial and capital market assumptions, which include benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. These factors can vary significantly from period to period.
|
●
|
Income tax expense/benefit consists of both current and deferred tax provisions. The computation of these amounts is a function of pre-tax income and the application of relevant tax law and U.S. GAAP accounting guidance. In assessing the realizability of our deferred tax assets, we make significant judgments with respect to projections of future taxable income, the identification of prudent and feasible tax planning strategies and the reversal pattern of the Company’s book-to-tax differences that are temporary in nature. We also consider the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits. Based on our assessment, we have recorded a valuation allowance against a significant portion of our deferred tax assets based upon our conclusion that there is insufficient objective positive evidence to overcome the significant negative evidence from our cumulative losses in recent years. This assessment could change in the future, resulting in a release of the valuation allowance and a benefit to income.
|
|
●
|
Fees on life and annuity products. Fees on our life and annuity products decreased $19.3 million in the nine months ended September 30, 2012 compared with the nine months ended September 30, 2011. Lower fees were primarily a result of a decrease in cost of insurance charges related to declining life insurance in force and a decrease in surrender charges consistent with lower policy surrenders.
|
|
●
|
Policy benefits. Policy benefits increased $71.6 million for the nine months ended September 30, 2012 compared with the nine months ended September 30, 2011. The increase in policy benefit expense was driven by adverse mortality and significant claim expenses, primarily related to universal life. Fluctuations in mortality are inherent in our lines of business. Annuity benefits increased due to changes in reserves on fixed indexed annuities associated with minimum death and income benefit guarantees, which were driven by increased annuity sales during the period. Policy benefits expenses incurred during the quarter due to reserve unlocking adjustments as a result of our annual comprehensive review of actuarial assumptions in the third quarter of 2012.
|
|
●
|
Interest margins. Universal life interest margins declined slightly in 2012 compared to 2011 primarily as a result of lower interest credited consistent with declining funds under management. Annuity interest margins increased primarily as a result of higher investment income attributable to growth in fixed indexed annuity funds under management.
|
|
●
|
Operating expenses. Non-deferred operating expenses increased $6.0 million to $75.7 million in the nine months ended September 30, 2012, compared to $69.7 million in the nine months ended September 30, 2011. The increase in operating expenses was a result of higher professional fees and outside services and an increase in commissions.
|
|
●
|
Deferred policy acquisition cost. Policy acquisition cost amortization increased $2.3 million in the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. Excluding the impact of the unlocking, amortization related to universal life decreased as a result of negative mortality experience during the year. Amortization related to annuities decreased primarily as a result of improved market performance. This decrease in amortization was partially offset by the unlocking of assumptions as a result the annual comprehensive review of assumptions in the third quarter of 2012.
|
|
●
|
Net realized investment losses. Net realized investment losses of $12.7 million were recognized for the nine months ended September 30, 2012 compared to net realized investment losses of $8.1 million for the nine months ended September 30, 2011. Realized investment losses were due to an impairment loss of $2.6 million on long-term debt securities and a net loss of $27.4 million on derivative assets and embedded derivative liabilities. The derivative loss was attributable to a loss of $21.1 million due to valuation and net transaction losses on derivative positions related to variable annuity and FIA guarantees. An additional $12.4 million loss was related to our surplus hedge which utilizes futures and options to hedge against declines in equity markets and the resulting statutory capital and surplus impact. These derivative losses were offset by gains of $6.1 million on our embedded derivative liabilities associated with variable and fixed indexed annuity guarantees. A loss of $0.7 million related to the non-performance risk factor was included in the total derivative loss.
|
|
●
|
Income taxes The Company recorded income tax expense of $23.6 million for the nine months ended September 30, 2012 compared with $16.8 million income tax benefit for the nine months ended September 30, 2011. The decrease was driven by a benefit related to the exception to intraperiod allocation rules in accordance with ASC 740-20, Accounting for Income Taxes – Intraperiod Tax Allocation, partially offset by an increase in current tax expense accrued.
|
|
●
|
Balance sheet strength;
|
|
●
|
Policyholder service;
|
|
●
|
Operational efficiency; and
|
|
●
|
Profitable growth.
|
Summary Financial Data:
|
Three Months Ended
|
Increase (decrease) and
|
||||||||||||||
($ in millions)
|
September 30,
|
percentage change
|
||||||||||||||
2012
|
2011
|
2012 vs. 2011
|
||||||||||||||
As restated
|
||||||||||||||||
and amended
|
||||||||||||||||
REVENUES:
|
||||||||||||||||
Premiums
|
$ | 0.8 | $ | 1.1 | $ | (0.3 | ) | (27%) | ||||||||
Insurance and investment product fees
|
92.3 | 96.9 | (4.6 | ) | (5%) | |||||||||||
Net investment income
|
33.3 | 25.0 | 8.3 | 33% | ||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||
Total OTTI losses
|
(0.7 | ) | (4.7 | ) | 4.0 | 85% | ||||||||||
Portion of OTTI losses recognized in OCI
|
(0.3 | ) | 3.7 | (4.0 | ) |
NM
|
||||||||||
Net OTTI losses recognized in earnings
|
(1.0 | ) | (1.0 | ) | — | 0% | ||||||||||
Net realized investment gains (losses), excluding OTTI losses
|
4.8 | (3.2 | ) | 8.0 |
NM
|
|||||||||||
Net realized investment gains (losses)
|
3.8 | (4.2 | ) | 8.0 |
NM
|
|||||||||||
Total revenues
|
130.2 | 118.8 | 11.4 | 10% | ||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||
Policy benefits
|
157.4 | 93.9 | 63.5 | 68% | ||||||||||||
Policy acquisition cost amortization
|
24.3 | 28.9 | (4.6 | ) | (16%) | |||||||||||
Other operating expenses
|
24.8 | 24.1 | 0.7 | 3% | ||||||||||||
Total benefits and expenses
|
206.5 | 146.9 | 59.6 | 41% | ||||||||||||
Loss before income taxes
|
(76.3 | ) | (28.1 | ) | (48.2 | ) |
NM
|
|||||||||
Income tax expense (benefit)
|
4.3 | (18.0 | ) | 22.3 |
NM
|
|||||||||||
Net loss
|
$ | (80.6 | ) | $ | (10.1 | ) | $ | (70.5 | ) |
NM
|
|
Not meaningful (NM)
|
Summary Financial Data:
|
Nine Months Ended
|
Increase (decrease) and
|
||||||||||||||
($ in millions)
|
September 30,
|
percentage change
|
||||||||||||||
2012
|
2011
|
2012 vs. 2011
|
||||||||||||||
REVENUES:
|
||||||||||||||||
Premiums
|
$ | 3.2 | $ | 1.4 | $ | 1.8 |
NM
|
|||||||||
Insurance and investment product fees
|
280.5 | 299.8 | (19.3 | ) | (6%) | |||||||||||
Net investment income
|
96.5 | 70.7 | 25.8 | 36% | ||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||
Total OTTI losses
|
(4.4 | ) | (7.0 | ) | 2.6 | 37% | ||||||||||
Portion of OTTI losses recognized in OCI
|
1.8 | 4.7 | (2.9 | ) | (62%) | |||||||||||
Net OTTI losses recognized in earnings
|
(2.6 | ) | (2.3 | ) | (0.3 | ) | (13%) | |||||||||
Net realized investment gains, excluding OTTI losses
|
(10.1 | ) | (5.8 | ) | (4.3 | ) | (74%) | |||||||||
Net realized investment losses
|
(12.7 | ) | (8.1 | ) | (4.6 | ) | (57%) | |||||||||
Total revenues
|
367.5 | 363.8 | 3.7 | 1% | ||||||||||||
BENEFITS AND EXPENSES:
|
||||||||||||||||
Policy benefits
|
310.8 | 239.2 | 71.6 | 30% | ||||||||||||
Policy acquisition cost amortization
|
92.6 | 90.3 | 2.3 | 3% | ||||||||||||
Other operating expenses
|
75.7 | 69.7 | 6.0 | 9% | ||||||||||||
Total benefits and expenses
|
479.1 | 399.2 | 79.9 | 20% | ||||||||||||
Loss before income taxes
|
(111.6 | ) | (35.4 | ) | (76.2 | ) |
NM
|
|||||||||
Income tax expense (benefit)
|
23.6 | (16.8 | ) | 40.4 |
NM
|
|||||||||||
Net loss
|
$ | (135.2 | ) | $ | (18.6 | ) | $ | (116.6 | ) |
NM
|
|
Not meaningful (NM)
|
Debt Securities by Type and Credit Quality:
|
As of September 30, 2012
|
|||||||||||||||
($ in millions)
|
Investment Grade
|
Below Investment Grade
|
||||||||||||||
Fair Value
|
Cost
|
Fair Value
|
Cost
|
|||||||||||||
U.S. government and agency
|
$ | 172.9 | $ | 168.2 | $ | — | $ | — | ||||||||
State and political subdivision
|
107.4 | 97.4 | 1.0 | 1.3 | ||||||||||||
Foreign government
|
43.2 | 38.1 | 7.7 | 6.3 | ||||||||||||
Corporate
|
1,644.2 | 1,517.7 | 76.0 | 87.6 | ||||||||||||
CMBS
|
266.0 | 240.4 | 3.5 | 4.6 | ||||||||||||
RMBS
|
417.1 | 403.6 | 34.7 | 39.2 | ||||||||||||
CDO/CLO
|
34.0 | 35.8 | 24.9 | 27.7 | ||||||||||||
Other asset-backed
|
125.1 | 120.1 | 8.5 | 14.5 | ||||||||||||
Total debt securities
|
$ | 2,809.9 | $ | 2,621.3 | $ | 156.3 | $ | 181.2 | ||||||||
Percentage of total debt securities
|
94.7% | 93.5% | 5.3% | 6.5% |
Fair Value of Eurozone Exposure by Country:
|
As of September 30, 2012
|
|||||||||||||||||||
($ in millions)
|
Sovereign
|
Financial
|
All
|
% of Debt
|
||||||||||||||||
Debt
|
Institutions
|
Other
|
Total
|
Securities
|
||||||||||||||||
Spain
|
$ | — | $ | 1.0 | $ | 8.7 | $ | 9.7 | 0.3 | % | ||||||||||
Italy
|
— | — | 2.2 | 2.2 | 0.1 | % | ||||||||||||||
Total
|
— | 1.0 | 10.9 | 11.9 | 0.4 | % | ||||||||||||||
All other Eurozone (1)
|
— | 9.5 | 66.3 | 75.8 | 2.6 | % | ||||||||||||||
Total
|
$ | — | $ | 10.5 | $ | 77.2 | $ | 87.7 | 3.0 | % |
(1)
|
Includes Finland, France, Germany, Luxembourg and Netherlands.
|
Residential Mortgage-Backed Securities:
|
||||||||||||||||||||||||||||||||||||
($ in millions)
|
As of September 30, 2012
|
|||||||||||||||||||||||||||||||||||
NAIC Rating
|
||||||||||||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||||||||||||
AAA/
|
CCC
|
In or
|
||||||||||||||||||||||||||||||||||
Amortized
|
Market
|
% General
|
AA/
|
And
|
Near
|
|||||||||||||||||||||||||||||||
Cost (1)
|
Value(1)
|
Account (2)
|
A |
BBB
|
BB
|
B |
Below
|
Default
|
||||||||||||||||||||||||||||
Collateral
|
||||||||||||||||||||||||||||||||||||
Agency
|
$ | 206.7 | $ | 220.0 | 6.5 | % | 100.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||
Prime
|
99.1 | 100.6 | 3.0 | % | 74.0 | % | 19.8 | % | 5.8 | % | 0.0 | % | 0.0 | % | 0.4 | % | ||||||||||||||||||||
Alt-A
|
106.8 | 106.3 | 3.1 | % | 57.9 | % | 25.9 | % | 13.8 | % | 2.4 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||
Sub-prime
|
52.6 | 47.2 | 1.4 | % | 68.9 | % | 6.7 | % | 13.3 | % | 4.3 | % | 5.6 | % | 1.2 | % | ||||||||||||||||||||
Total
|
$ | 465.2 | $ | 474.1 | 14.0 | % | 81.9 | % | 10.7 | % | 5.6 | % | 1.0 | % | 0.6 | % | 0.2 | % |
(1)
|
Individual categories may not agree with the Debt Securities by Type table on previous page due to nature of underlying collateral. In addition, RMBS holdings in this exhibit include $22.4M classified as fair value investments on the balance sheet. For these fair value investments, there is no impact to OCI as carrying value is equal to market value.
|
(2)
|
Percentages based on market value.
|
Prime Mortgage-Backed Securities:
|
||||||||||||||||||||||||||||||||||||||||
($ in millions)
|
As of September 30, 2012
|
|||||||||||||||||||||||||||||||||||||||
Year of Issue
|
||||||||||||||||||||||||||||||||||||||||
Rating
|
S&P Equivalent
Designation |
Amortized
Cost |
Market
Value |
% General
Account (1) |
Post-
2007 |
2007
|
2006
|
2005
|
2004
|
2003 and
Prior |
||||||||||||||||||||||||||||||
NAIC-1
|
AAA/AA/A
|
$ | 73.3 | $ | 74.5 | 2.2 | % | 0.0 | % | 1.2 | % | 6.3 | % | 22.3 | % | 44.2 | % | 26.0 | % | |||||||||||||||||||||
NAIC-2
|
BBB
|
19.4 | 19.9 | 0.6 | % | 0.0 | % | 0.0 | % | 1.2 | % | 70.0 | % | 28.8 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-3
|
BB
|
5.7 | 5.8 | 0.2 | % | 0.0 | % | 0.0 | % | 32.8 | % | 23.1 | % | 35.7 | % | 8.4 | % | |||||||||||||||||||||||
NAIC-4
|
B | — | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-5
|
CCC and below
|
— | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-6
|
In or near default
|
0.7 | 0.4 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 23.3 | % | 4.5 | % | 72.2 | % | |||||||||||||||||||||||
Total
|
$ | 99.1 | $ | 100.6 | 3.0 | % | 0.0 | % | 0.9 | % | 6.8 | % | 31.8 | % | 40.4 | % | 20.1 | % |
(1)
|
Percentages based on market value
|
Alt-A Mortgage-Backed Securities:
|
||||||||||||||||||||||||||||||||||||||||
($ in millions)
|
As of September 30, 2012
|
|||||||||||||||||||||||||||||||||||||||
Year of Issue
|
||||||||||||||||||||||||||||||||||||||||
Rating
|
S&P Equivalent
Designation |
Amortized
Cost |
Market
Value |
% General
Account (1) |
Post-
2007 |
2007
|
2006
|
2005
|
2004
|
2003 and
Prior |
||||||||||||||||||||||||||||||
NAIC-1
|
AAA/AA/A
|
$ | 62.6 | $ | 61.6 | 1.8 | % | 6.0 | % | 4.9 | % | 11.6 | % | 28.8 | % | 24.9 | % | 23.8 | % | |||||||||||||||||||||
NAIC-2
|
BBB
|
27.5 | 27.4 | 0.8 | % | 0.0 | % | 0.0 | % | 0.0 | % | 31.7 | % | 56.9 | % | 11.4 | % | |||||||||||||||||||||||
NAIC-3
|
BB
|
14.3 | 14.7 | 0.4 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 79.8 | % | 20.2 | % | |||||||||||||||||||||||
NAIC-4
|
B | 2.4 | 2.6 | 0.1 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-5
|
CCC and below
|
— | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-6
|
In or near default
|
— | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
Total
|
$ | 106.8 | $ | 106.3 | 3.1 | % | 3.5 | % | 2.8 | % | 6.7 | % | 24.9 | % | 40.2 | % | 21.9 | % |
(1)
|
Percentages based on market value.
|
Sub-Prime Mortgage-Backed Securities:
|
||||||||||||||||||||||||||||||||||||||||
($ in millions)
|
As of September 30, 2012
|
|||||||||||||||||||||||||||||||||||||||
Year of Issue
|
||||||||||||||||||||||||||||||||||||||||
Rating
|
S&P Equivalent
Designation |
Amortized
Cost |
Market
Value |
% General
Account (1) |
Post-
2007 |
2007
|
2006
|
2005
|
2004
|
2003 and
Prior |
||||||||||||||||||||||||||||||
NAIC-1
|
AAA/AA/A
|
$ | 33.0 | $ | 32.5 | 0.9 | % | 0.0 | % | 7.2 | % | 14.9 | % | 23.9 | % | 14.7 | % | 39.3 | % | |||||||||||||||||||||
NAIC-2
|
BBB
|
3.2 | 3.2 | 0.1 | % | 0.0 | % | 25.3 | % | 0.0 | % | 69.4 | % | 0.0 | % | 5.3 | % | |||||||||||||||||||||||
NAIC-3
|
BB
|
9.4 | 6.3 | 0.2 | % | 0.0 | % | 92.6 | % | 7.4 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-4
|
B | 2.5 | 2.0 | 0.1 | % | 0.0 | % | 0.0 | % | 0.0 | % | 50.4 | % | 0.0 | % | 49.6 | % | |||||||||||||||||||||||
NAIC-5
|
CCC and below
|
2.9 | 2.6 | 0.1 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
NAIC-6
|
In or near default
|
1.6 | 0.6 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | |||||||||||||||||||||||
Total
|
$ | 52.6 | $ | 47.2 | 1.4 | % | 0.0 | % | 19.0 | % | 11.3 | % | 28.9 | % | 10.1 | % | 30.7 | % |
(1)
|
Percentages based on market value.
|
Commercial Mortgage-Backed Securities:
|
||||||||||||||||||||||||||||||||||||
($ in millions)
|
As of September 30, 2012
|
|||||||||||||||||||||||||||||||||||
Year of Issue
|
||||||||||||||||||||||||||||||||||||
S&P Equivalent
|
Amortized
|
Market
|
% General
|
Post-
|
2004 and
|
|||||||||||||||||||||||||||||||
Rating
|
Designation
|
Cost (1)
|
Value(1)
|
Account (2)
|
2007
|
2007
|
2006
|
2005
|
Prior
|
|||||||||||||||||||||||||||
NAIC-1
|
AAA/AA/A
|
$ | 247.1 | $ | 272.8 | 8.1 | % | 53.0 | % | 8.4 | % | 15.7 | % | 12.3 | % | 10.6 | % | |||||||||||||||||||
NAIC-2
|
BBB
|
3.4 | 3.1 | 0.1 | % | 0.0 | % | 0.0 | % | 86.6 | % | 13.4 | % | 0.0 | % | |||||||||||||||||||||
NAIC-3
|
BB
|
3.6 | 3.2 | 0.1 | % | 0.0 | % | 51.5 | % | 48.5 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||
NAIC-4
|
B | — | — | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||
NAIC-5
|
CCC and below
|
1.8 | 1.3 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | |||||||||||||||||||||
NAIC-6
|
In or near default
|
0.9 | 0.3 | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 100.0 | % | |||||||||||||||||||||
Total
|
$ | 256.8 | $ | 280.7 | 8.3 | % | 51.6 | % | 8.7 | % | 16.8 | % | 12.1 | % | 10.8 | % |
(1)
|
Includes commercial mortgage-backed CDOs with amortized cost and market values of $2.3 million and $1.7 million, respectively. CMBS holdings in this exhibit include $9.5 million classified as fair value investments on the balance sheet. For these fair value investments, there is no impact to OCI as carrying value is equal to market value.
|
(2)
|
Percentages based on market value.
|
Sources and Types of
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
Net Realized Investment Gains (Losses):
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Total other-than temporary debt impairment losses
|
$ | (0.7 | ) | $ | (4.7 | ) | $ | (4.4 | ) | $ | (7.0 | ) | ||||
Portion of loss recognized in OCI
|
(0.3 | ) | 3.7 | 1.8 | 4.7 | |||||||||||
Net debt impairment losses recognized in earnings
|
$ | (1.0 | ) | $ | (1.0 | ) | $ | (2.6 | ) | $ | (2.3 | ) | ||||
Debt security impairments:
|
||||||||||||||||
U.S. government and agency
|
$ | — | $ | — | $ | — | $ | — | ||||||||
State and political subdivision
|
— | — | — | — | ||||||||||||
Foreign government
|
— | — | — | — | ||||||||||||
Corporate
|
— | (0.2 | ) | — | (0.4 | ) | ||||||||||
CMBS
|
— | — | (0.1 | ) | — | |||||||||||
RMBS
|
(0.8 | ) | (0.8 | ) | (2.1 | ) | (1.8 | ) | ||||||||
CDO/CLO
|
(0.1 | ) | — | (0.1 | ) | — | ||||||||||
Other asset-backed
|
(0.1 | ) | — | (0.3 | ) | (0.1 | ) | |||||||||
Net debt security impairments
|
(1.0 | ) | (1.0 | ) | (2.6 | ) | (2.3 | ) | ||||||||
Limited partnerships and other investment impairments
|
— | — | — | — | ||||||||||||
Impairment losses
|
(1.0 | ) | (1.0 | ) | (2.6 | ) | (2.3 | ) | ||||||||
Debt security transaction gains
|
20.8 | 0.2 | 21.4 | 2.4 | ||||||||||||
Debt security transaction losses
|
(0.1 | ) | — | (0.2 | ) | (0.6 | ) | |||||||||
Limited partnerships and other investment transaction gains
|
— | — | — | 0.1 | ||||||||||||
Limited partnerships and other investment transaction losses
|
(0.3 | ) | — | (0.4 | ) | — | ||||||||||
Net transaction gains
|
20.4 | 0.2 | 20.8 | 1.9 | ||||||||||||
Derivative instruments
|
(18.0 | ) | 34.8 | (33.5 | ) | 23.2 | ||||||||||
Embedded derivatives(1)
|
6.6 | (48.3 | ) | 6.1 | (41.0 | ) | ||||||||||
Related party reinsurance derivatives
|
(4.2 | ) | 10.1 | (3.5 | ) | 10.1 | ||||||||||
Net realized investment gains (losses), excluding impairment losses
|
$ | 4.8 | $ | (3.2 | ) | $ | (10.1 | ) | $ | (5.8 | ) | |||||
Net realized investment gains (losses), including impairment losses
|
$ | 3.8 | $ | (4.2 | ) | $ | (12.7 | ) | $ | (8.1 | ) |
(1)
|
Includes the change in fair value of embedded derivatives associated with variable annuity GMWB, GMAB and COMBO riders. See Note 8 “Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives” to our financial statements contained herein for additional disclosures.
|
Credit Losses Recognized in Earnings on Debt Securities for
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
which a Portion of the OTTI Loss was Recognized in OCI:
|
September 30,
|
September 30,
|
||||||||||||||
($ in millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
As restated
and amended
|
As restated
and amended
|
|||||||||||||||
Balance, beginning of period
|
$ | (20.0 | ) | $ | (20.0 | ) | $ | (21.3 | ) | $ | (19.9 | ) | ||||
Add: Credit losses on securities not previously impaired (1)
|
(0.2 | ) | — | (0.5 | ) | (0.5 | ) | |||||||||
Add: Credit losses on securities previously impaired (1)
|
(0.4 | ) | (0.7 | ) | (1.4 | ) | (0.8 | ) | ||||||||
Less: Credit losses on securities impaired due to intent to sell
|
— | — | — | — | ||||||||||||
Less: Credit losses on securities sold
|
1.0 | 0.3 | 3.6 | 0.8 | ||||||||||||
Less: Increases in cash flows expected on
previously impaired securities
|
— | — | — | — | ||||||||||||
Balance, end of period
|
$ | (19.6 | ) | $ | (20.4 | ) | $ | (19.6 | ) | $ | (20.4 | ) |
(1)
|
Additional credit losses on securities for which a portion of the OTTI loss was recognized in AOCI are included within net OTTI losses recognized in earnings on the statements of comprehensive income.
|
Fixed Maturity Non-Credit OTTI Losses in AOCI, by Security Type:
|
Sept 30,
|
Dec 31,
|
||||||
($ in millions)
|
2012 (1)
|
2011 (1)
|
||||||
As restated and amended
|
||||||||
U.S. government and agency
|
$ | — | $ | — | ||||
State and political subdivision
|
— | — | ||||||
Foreign government
|
— | — | ||||||
Corporate
|
(1.5 | ) | (1.5 | ) | ||||
CMBS
|
(0.6 | ) | (5.1 | ) | ||||
RMBS
|
(24.1 | ) | (21.6 | ) | ||||
CDO/CLO
|
(6.8 | ) | (8.4 | ) | ||||
Other asset-backed
|
1.2 | 0.7 | ||||||
Total fixed maturity non-credit OTTI losses in AOCI
|
$ | (31.8 | ) | $ | (35.9 | ) |
(1)
|
Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.
|
Duration of Gross Unrealized Losses on Securities:
|
As of September 30, 2012
|
|||||||||||||||
($ in millions)
|
0 – 6 | 6 – 12 |
Over 12
|
|||||||||||||
Total
|
Months
|
Months
|
Months
|
|||||||||||||
Debt securities
|
||||||||||||||||
Total fair value
|
$ | 286.7 | $ | 61.2 | $ | 14.4 | $ | 211.1 | ||||||||
Total amortized cost
|
338.7 | 62.0 | 15.7 | 261.0 | ||||||||||||
Unrealized losses
|
$ | (52.0 | ) | $ | (0.8 | ) | $ | (1.3 | ) | $ | (49.9 | ) | ||||
Number of securities
|
128 | 19 | 5 | 104 | ||||||||||||
Investment grade:
|
||||||||||||||||
Unrealized losses
|
$ | (21.5 | ) | $ | (0.5 | ) | $ | (0.1 | ) | $ | (20.9 | ) | ||||
Below investment grade:
|
||||||||||||||||
Unrealized losses
|
$ | (30.5 | ) | $ | (0.3 | ) | $ | (1.2 | ) | $ | (29.0 | ) |
Duration of Gross Unrealized Losses on Securities:
|
As of September 30, 2012
|
|||||||||||||||
($ in millions)
|
0 – 6 | 6 – 12 |
Over 12
|
|||||||||||||
Total
|
Months
|
Months
|
Months
|
|||||||||||||
Debt securities
|
||||||||||||||||
Unrealized losses over 20% of cost
|
$ | (38.6 | ) | $ | (0.4 | ) | $ | (2.0 | ) | $ | (36.2 | ) | ||||
Number of securities
|
27 | 1 | 2 | 24 | ||||||||||||
Investment grade:
|
||||||||||||||||
Unrealized losses over 20% of cost
|
$ | (13.7 | ) | $ | (0.4 | ) | $ | (1.7 | ) | $ | (11.6 | ) | ||||
Below investment grade:
|
||||||||||||||||
Unrealized losses over 20% of cost
|
$ | (24.9 | ) | $ | — | $ | (0.3 | ) | $ | (24.6 | ) |
Financial Strength Ratings of
|
||||
Rating Agency
|
Phoenix Life and PHL Variable Life
|
Outlook
|
||
A.M. Best Company, Inc.
|
B
|
Stable
|
||
Standard & Poor’s
|
BB-
|
Negative
|
(a)
|
Not applicable.
|
(b)
|
Not applicable.
|
(c)
|
Not applicable.
|
Exhibit
|
||
31.1
|
Certification of James D. Wehr, President, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Bonnie J. Malley, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
Certification by James D. Wehr, President and Bonnie J. Malley, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
Dated: April 30, 2014
|
By:
|
/s/ Bonnie J. Malley
|
Bonnie J. Malley
|
||
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
|
Date:
|
April 30, 2014
|
/s/ James D. Wehr
|
|
Name:
|
James D. Wehr
|
||
Title:
|
President
|
Date:
|
April 30, 2014
|
/s/ Bonnie J. Malley
|
|
Name:
|
Bonnie J. Malley
|
||
Title:
|
Executive Vice President,
|
||
Chief Financial Officer
|
/s/ James D. Wehr
|
/s/ Bonnie J. Malley
|
||
Name:
|
James D. Wehr
|
Name:
|
Bonnie J. Malley
|
Title:
|
President
|
Title:
|
Executive Vice President,
|
Chief Financial Officer
|
|||
Date:
|
April 30, 2014
|
Date:
|
April 30, 2014
|
7. Investing Activities (Details 5) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended |
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2012
|
Sep. 30, 2011
As restated and amended [Member]
|
Sep. 30, 2011
As restated and amended [Member]
|
|
Debt securities | $ 31.7 | $ 92.7 | $ 25.2 | $ 68.9 |
Policy loans | 0.7 | 2.3 | 0.8 | 2.3 |
Limited partnerships and other investments | 0.8 | 1.8 | (0.3) | 0.3 |
Fair value investments | 0.4 | 0.6 | (0.2) | 0.4 |
Cash and cash equivalents | ||||
Total investment income | 33.6 | 97.4 | 25.5 | 71.9 |
Less: Investment expenses | 0.3 | 0.9 | 0.5 | 1.2 |
Net investment income | $ 33.3 | $ 96.5 | $ 25.0 | $ 70.7 |
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