FINANCIAL STATEMENTS STATUTORY BASIS
AND SUPPLEMENTARY INFORMATION
Transamerica Life Insurance Company
Years Ended December 31, 2022, 2021 and 2020
Transamerica Life Insurance Company
Financial Statements Statutory Basis
and Supplementary Information
Years Ended December 31, 2022, 2021 and 2020
Contents
1 | ||||
Audited Financial Statements |
||||
3 | ||||
4 | ||||
Statements of Changes in Capital and Surplus Statutory Basis |
5 | |||
7 | ||||
9 | ||||
2. Basis of Presentation and Summary of Significant Accounting Policies |
9 | |||
25 | ||||
26 | ||||
36 | ||||
58 | ||||
75 | ||||
78 | ||||
85 | ||||
87 | ||||
88 | ||||
89 | ||||
96 | ||||
97 | ||||
15. Sales, Transfer, and Servicing of Financial Assets and Extinguishments of Liabilities |
102 | |||
104 | ||||
105 | ||||
106 | ||||
Summary of Investments Other Than Investments in Related Parties |
109 | |||
110 | ||||
111 |
Report of Independent Auditors
To the Board of Directors of Transamerica Life Insurance Company
Opinions
We have audited the accompanying statutory basis financial statements of Transamerica Life Insurance Company (the Company), which comprise the balance sheets statutory basis as of December 31, 2022 and 2021, and the related statements of operations - statutory basis, of changes in capital and surplus - statutory basis, and of cash flow - statutory basis for each of the three years in the period ended December 31, 2022, including the related notes and schedules of supplementary insurance information and reinsurance for each of the three years in the period ended December 31, 2022 and summary of investments other than investments in related parties as of December 31, 2022 listed in the accompanying index (collectively referred to as the financial statements).
Unmodified Opinion on Statutory Basis of Accounting
In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in accordance with the accounting practices prescribed or permitted by the Iowa Insurance Division described in Note 2.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles section of our report, the accompanying financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2022 and 2021, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2022.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Iowa Insurance Division, which is a basis of accounting other than accounting principles generally accepted in the United States of America.
The effects on the financial statements of the variances between the statutory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.
PricewaterhouseCoopers LLP, One North Wacker, Chicago, IL 60606
T: (312) 298 2000, www.pwc.com/us
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Iowa Insurance Division. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Companys ability to continue as a going concern for one year after the date the financial statements are available to be issued.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with US GAAS, we:
| Exercise professional judgment and maintain professional skepticism throughout the audit. |
| Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, no such opinion is expressed. |
| Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Companys ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
April 19, 2023
2
Transamerica Life Insurance Company
Balance Sheets Statutory Basis
(Dollars in Millions)
December 31 | ||||||||
2022 | 2021 | |||||||
|
|
|||||||
Admitted assets |
||||||||
Cash, cash equivalents and short-term investments |
$ | 2,420 | $ | 2,126 | ||||
Bonds |
51,131 | 49,942 | ||||||
Preferred stocks |
61 | 120 | ||||||
Common stocks |
3,251 | 3,527 | ||||||
Mortgage loans on real estate |
9,270 | 9,153 | ||||||
Real estate |
44 | 52 | ||||||
Policy loans |
2,028 | 1,986 | ||||||
Securities lending reinvested collateral assets |
2,115 | 2,073 | ||||||
Derivatives |
2,339 | 1,760 | ||||||
Receivable for derivative cash collateral |
981 | 217 | ||||||
Other invested assets |
2,964 | 2,837 | ||||||
|
|
|||||||
Total cash and invested assets |
76,604 | 73,793 | ||||||
Accrued investment income |
716 | 694 | ||||||
Premiums deferred and uncollected |
169 | 181 | ||||||
Net deferred income tax asset |
739 | 825 | ||||||
Variable annuity reserve hedge offset deferral |
380 | | ||||||
Other assets |
1,596 | 1,211 | ||||||
Separate account assets |
91,494 | 126,088 | ||||||
|
|
|||||||
Total admitted assets |
$ | 171,698 | $ | 202,792 | ||||
|
|
|||||||
Liabilities and capital and surplus |
||||||||
Aggregate reserves for policies and contracts |
$ | 57,956 | $ | 51,983 | ||||
Policy and contract claim reserves |
1,098 | 1,177 | ||||||
Liability for deposit-type contracts |
766 | 824 | ||||||
Other policyholders funds |
42 | 38 | ||||||
Transfers from separate accounts due or accrued |
(510 | ) | (658) | |||||
Funds held under reinsurance treaties |
3,042 | 3,043 | ||||||
Asset valuation reserve |
1,111 | 1,250 | ||||||
Interest maintenance reserve |
407 | 1,382 | ||||||
Derivatives |
3,629 | 2,360 | ||||||
Payable for collateral under securities loaned and other transactions |
2,271 | 2,312 | ||||||
Borrowed money |
3,107 | 3,870 | ||||||
Variable annuity reserve hedge offset deferral |
| 250 | ||||||
Other liabilities |
1,622 | 1,596 | ||||||
Separate account liabilities |
91,494 | 126,088 | ||||||
|
|
|||||||
Total liabilities |
166,035 | 195,515 | ||||||
|
|
|||||||
Total capital and surplus |
5,663 | 7,277 | ||||||
|
|
|||||||
Total liabilities and capital and surplus |
$ | 171,698 | $ | 202,792 | ||||
|
|
See accompanying notes.
3
Transamerica Life Insurance Company
Statements of Operations Statutory Basis
(Dollars in Millions)
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Revenues |
||||||||||||
Premiums and other considerations |
$ | 19,813 | $ | 14,482 | $ | 16,723 | ||||||
Net investment income |
3,297 | 3,191 | 3,361 | |||||||||
Commissions and expense allowances on reinsurance ceded |
1,075 | 187 | 661 | |||||||||
Reserve adjustment on reinsurance ceded |
(147 | ) | (260 | ) | (273) | |||||||
Consideration received on reinsurance recapture and novations |
210 | 963 | 2,958 | |||||||||
Fee revenue and other income |
1,982 | 2,259 | 2,096 | |||||||||
|
|
|||||||||||
Total revenue |
26,230 | 20,822 | 25,526 | |||||||||
Benefits and expenses |
||||||||||||
Death benefits |
2,650 | 2,928 | 2,863 | |||||||||
Annuity benefits |
1,552 | 1,798 | 1,528 | |||||||||
Accident and health benefits |
1,021 | 945 | 1,120 | |||||||||
Surrender benefits |
20,498 | 18,145 | 15,352 | |||||||||
Other benefits |
244 | 292 | 234 | |||||||||
Net increase (decrease) in reserves |
6,563 | 942 | 4,985 | |||||||||
Commissions |
1,688 | 1,375 | 1,435 | |||||||||
Taxes, licenses and fees |
153 | 180 | 163 | |||||||||
Funds withheld ceded investment income |
98 | 131 | 144 | |||||||||
Net transfers to (from) separate accounts |
(10,952 | ) | (8,881 | ) | (4,850) | |||||||
IMR adjustment due to reinsurance |
(432 | ) | (43 | ) | | |||||||
General insurance expenses and other |
1,198 | 1,107 | 1,473 | |||||||||
|
|
|||||||||||
Total benefits and expenses |
24,281 | 18,919 | 24,447 | |||||||||
|
|
|||||||||||
Gain (loss) from operations before dividends and federal income taxes |
1,949 | 1,903 | 1,079 | |||||||||
Dividends to policyholders |
10 | 10 | 10 | |||||||||
|
|
|||||||||||
Gain (loss) from operations before federal income taxes |
1,939 | 1,893 | 1,069 | |||||||||
Federal income tax (benefit) expense |
(80 | ) | (185 | ) | (109) | |||||||
|
|
|||||||||||
Net gain (loss) from operations |
2,019 | 2,078 | 1,178 | |||||||||
Net realized capital gains (losses), after tax and amounts transferred to interest maintenance reserve |
(4,211 | ) | (1,924 | ) | 113 | |||||||
|
|
|||||||||||
Net income (loss) |
$ | (2,192 | ) | $ | 154 | $ | 1,291 | |||||
|
|
See accompanying notes.
4
Transamerica Life Insurance Company
Statements of Changes in Capital and Surplus Statutory Basis
(Dollars in Millions)
Common Stock |
Surplus Notes |
Paid-in Surplus |
Special Surplus Funds |
Unassigned Surplus |
Total Capital and Surplus |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at January 1, 2020 |
$ | 7 | $ | 60 | $ | 3,857 | $ | 197 | $ | 5,230 | $ | 9,351 | ||||||||||||
Net income (loss) |
| | | | 1,291 | 1,291 | ||||||||||||||||||
Change in net unrealized capital gains/losses, net of taxes |
| | | (342 | ) | 216 | (126) | |||||||||||||||||
Change in net deferred income tax asset |
| | | | (126 | ) | (126) | |||||||||||||||||
Change in nonadmitted assets |
| | | | 201 | 201 | ||||||||||||||||||
Change in reserve on account of change valuation basis |
| | | | 14 | 14 | ||||||||||||||||||
Change in asset valuation reserve |
| | | | 69 | 69 | ||||||||||||||||||
Change in surplus as a result of reinsurance |
| | | | (51 | ) | (51) | |||||||||||||||||
Change in surplus notes |
| (60 | ) | | | | (60) | |||||||||||||||||
Change in letter of credit |
| | | | (1,870 | ) | (1,870) | |||||||||||||||||
Capital contribution |
| | 700 | | | 700 | ||||||||||||||||||
Dividends to stockholders |
| | | | (1,200 | ) | (1,200) | |||||||||||||||||
Other changes - net |
| | 5 | | (88 | ) | (83) | |||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2020 |
$ | 7 | $ | | $ | 4,562 | $ | (145 | ) | $ | 3,686 | $ | 8,110 | |||||||||||
Net income (loss) |
| | | | 154 | 154 | ||||||||||||||||||
Change in net unrealized capital gains/losses, net of taxes |
| | | (105 | ) | 555 | 450 | |||||||||||||||||
Change in net deferred income tax asset |
| | | | 123 | 123 | ||||||||||||||||||
Change in nonadmitted assets |
| | | | (73 | ) | (73) | |||||||||||||||||
Change in reserve on account of change valuation basis |
| | | | (60 | ) | (60) | |||||||||||||||||
Cumulative effect of changes in accounting principle |
| | | | (15 | ) | (15) | |||||||||||||||||
Change in asset valuation reserve |
| | | | (52 | ) | (52) | |||||||||||||||||
Change in surplus as a result of reinsurance |
| | | | (256 | ) | (256) | |||||||||||||||||
Dividends to stockholders |
| | | | (761 | ) | (761) | |||||||||||||||||
Distribution of affiliate stock |
| | | | (339 | ) | (339) | |||||||||||||||||
Other changes - net |
| | 3 | | (7 | ) | (4) | |||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2021 |
$ | 7 | $ | | $ | 4,565 | $ | (250 | ) | $ | 2,955 | $ | 7,277 | |||||||||||
|
|
Continued on next page.
5
Transamerica Life Insurance Company
Statements of Changes in Capital and Surplus Statutory Basis
(Dollars in Millions)
Common Stock |
Surplus Notes |
Paid-in Surplus |
Special Surplus Funds |
Unassigned Surplus |
Total Capital and Surplus |
|||||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2021 |
$ | 7 | $ | | $ | 4,565 | $ | (250 | ) | $ | 2,955 | $ | 7,277 | |||||||||||
Net income (loss) |
| | | | (2,192 | ) | (2,192) | |||||||||||||||||
Change in net unrealized capital gains/losses, net of taxes |
| | | 630 | 384 | 1,014 | ||||||||||||||||||
Change in net deferred income tax asset |
| | | | 702 | 702 | ||||||||||||||||||
Change in nonadmitted assets |
| | | | (834 | ) | (834) | |||||||||||||||||
Change in reserve on account of change valuation basis |
| | | | 641 | 641 | ||||||||||||||||||
Change in asset valuation reserve |
| | | | 139 | 139 | ||||||||||||||||||
Change in surplus as a result of reinsurance |
| | | | (871 | ) | (871) | |||||||||||||||||
Capital contribution |
| | 100 | | | 100 | ||||||||||||||||||
Dividends to stockholders |
| | | | (425 | ) | (425) | |||||||||||||||||
Other changes - net |
| | (1 | ) | | 113 | 112 | |||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2022 |
$ | 7 | $ | | $ | 4,664 | $ | 380 | $ | 612 | $ | 5,663 | ||||||||||||
|
|
See accompanying notes.
6
Transamerica Life Insurance Company
Statements of Cash Flow Statutory Basis
(Dollars in Millions)
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Operating activities |
||||||||||||
Premiums and annuity considerations |
$ | 14,606 | $ | 15,975 | $ | 16,785 | ||||||
Net investment income |
3,146 | 3,105 | 2,758 | |||||||||
Other income |
2,251 | 2,025 | 2,311 | |||||||||
Benefit and loss related payments |
(26,105 | ) | (24,040 | ) | (20,629) | |||||||
Net transfers from separate accounts |
11,122 | 9,042 | 4,958 | |||||||||
Commissions and operating expenses |
(2,771 | ) | (2,799 | ) | (3,002) | |||||||
Dividends paid to policyholders |
(6 | ) | (6 | ) | (7) | |||||||
Federal income taxes (paid) received |
204 | 148 | 37 | |||||||||
|
|
|||||||||||
Net cash provided by (used in) operating activities |
2,447 | 3,450 | 3,211 | |||||||||
Investing activities |
||||||||||||
Proceeds from investments sold, matured or repaid |
$ | 10,356 | $ | 12,231 | $ | 12,107 | ||||||
Costs of investments acquired |
(10,957 | ) | (14,040 | ) | (16,438) | |||||||
Net change in policy loans |
(35 | ) | 51 | 25 | ||||||||
|
|
|||||||||||
Net cash provided by (used in) investing activities |
$ | (636 | ) | $ | (1,758 | ) | $ | (4,306) | ||||
Financing and miscellaneous activities |
||||||||||||
Repayment of surplus notes |
$ | | $ | | $ | (60) | ||||||
Capital and paid in surplus received (returned) |
101 | 2 | 705 | |||||||||
Dividends to stockholders |
(425 | ) | (761 | ) | (1,200) | |||||||
Net deposits (withdrawals) on deposit-type contracts |
(67 | ) | (143 | ) | (34) | |||||||
Net change in borrowed money |
(777 | ) | 385 | 783 | ||||||||
Net change in funds held under reinsurance treaties |
41 | 74 | (105) | |||||||||
Net change in payable for collateral under securities lending and other transactions |
(42 | ) | (443 | ) | 65 | |||||||
Other cash (applied) provided |
(348 | ) | (512 | ) | 331 | |||||||
|
|
|||||||||||
Net cash provided by (used in) financing and miscellaneous activities |
(1,517 | ) | (1,398 | ) | 485 | |||||||
Net increase (decrease) in cash, cash equivalents and short-term investments |
294 | 294 | (610) | |||||||||
Cash, cash equivalents and short-term investments: |
||||||||||||
Beginning of year |
2,126 | 1,832 | 2,442 | |||||||||
|
|
|||||||||||
End of year |
$ | 2,420 | $ | 2,126 | $ | 1,832 | ||||||
|
|
See accompanying notes.
7
Transamerica Life Insurance Company
Statements of Cash Flow (supplemental) Statutory Basis
(Dollars in Millions)
Year Ended December 31 | ||||||||||||
Supplemental disclosures of cash flow information | 2022 | 2021 | 2020 | |||||||||
|
|
|||||||||||
Non-cash activities during the year not included in the Statutory Statements of Cash Flows: | ||||||||||||
Receipt of bonds, other invested assets and interest related to affiliated reinsurance treaty | $ | 4,706 | $ | | $ | | ||||||
Release of funds withheld related to affiliated reinsurance recaptures |
42 | 963 | 500 | |||||||||
Release of reinsurance payable related to affiliate reinsurance recapture |
22 | | | |||||||||
Assets transfer in for amended reinsurance treaty |
| 47 | | |||||||||
Distribution of affiliate stock |
| (339 | ) | | ||||||||
Receipt (transfer) of assets related to nonaffiliated reinsurance |
| (1,527 | ) | 310 | ||||||||
Transfer of bonds, mortgage loans and interest related to affiliated reinsurance recapture | | | 2,121 | |||||||||
Increase of funds withheld related to affiliated reinsurance agreement |
| | (76) |
See accompanying notes.
8
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2022
1. Organization and Nature of Business
Transamerica Life Insurance Company (the Company) is a stock life insurance company owned by Commonwealth General Corporation (CGC). CGC is an indirect, wholly-owned subsidiary of Aegon N.V., a holding company organized under the laws of The Netherlands.
On October 1, 2020, the Company completed mergers with Transamerica Premier Life Insurance Company (TPLIC), an Iowa-domiciled affiliate and MLIC Re I, Inc. (MLIC Re), a Vermont-domiciled subsidiary. On December 31, 2020, the Company completed a merger with Pine Falls Re, Inc. (PFRe), a Vermont-domiciled subsidiary.
The mergers were accounted for in accordance with the Statement of Statutory Accounting Principles (SSAP) No. 68, Business Combinations and Goodwill, as statutory mergers. As such, financial statements for periods prior to the mergers were combined and the recorded assets, liabilities and surplus of TPLIC, MLIC Re and PFRe on a US statutory basis were carried forward to the merged company. The common capital stock of TPLIC, MLIC Re and PFRe was deemed cancelled by operation of law under the Plans of Merger. Each share of the Companys capital stock issued and outstanding immediately before the mergers continues to represent one share of the capital stock. The business the Company previously assumed from TPLIC and the business previously ceded from the Company to TPLIC, MLIC Re and PFRe is no longer reflected as assumed and ceded risks in the restated merged financials.
Nature of Business
The Company sells individual life insurance, including index universal life, whole life, term life, and final expense life. It also sells variable and registered index-linked annuities. In addition, the Company offers supplemental health insurance, group life insurance, group annuity contracts and stable value solutions. The Company is licensed in 49 states and the District of Columbia, Guam, Puerto Rico, and US Virgin Islands. Sales of the Companys products are primarily through a network of independent agents and broker-dealers, affiliated agencies, and financial institutions.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Iowa Insurance Division (IID), which differ from accounting principles generally accepted in the United States of America (GAAP).
The IID recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company, and for determining its solvency under the Iowa Insurance Law. The National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual (NAIC SAP) has been adopted as a component of prescribed practices by the State of Iowa. Prescribed statutory accounting practices include state laws and regulations. Permitted statutory accounting practices encompass accounting practices that are not prescribed. The Commissioner of Insurance has the right to permit specific practices that deviate from prescribed practices.
9
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following is a summary of the accounting practices permitted and prescribed by the IID and reflected in the Companys financial statements which differs from NAIC SAP:
The State of Iowa has adopted a prescribed accounting practice that differs from that found in the NAIC SAP related to credit for reinsurance. As prescribed by Iowa Administrative Code 191-5.33 (10)(d), the Commissioner has deemed the book value of assets held in a comfort trust as acceptable security for purposes of taking reserve credit for liabilities ceded to an unauthorized reinsurer while it seeks reciprocal jurisdiction status. Under Statement of Statutory Accounting Principles No. 61R, Life, Deposit-Type and Accident and Health Reinsurance, the market value of trust assets is considered allowable security.
The State of Iowa has adopted a prescribed accounting practice that differs from that found in the NAIC SAP related to the reported value of the assets supporting the Companys guaranteed separate accounts. As prescribed by Iowa Administrative Code 508A.1.4, the Commissioner found that the Company is entitled to value the assets of the guaranteed separate account at amortized cost, whereas the assets would be required to be reported at fair value under SSAP No. 56, Separate Accounts, of the NAIC SAP. There is no impact to the Companys income or surplus as a result of utilizing this prescribed practice.
The State of Iowa has adopted a prescribed accounting practice that differs from that found in the NAIC SAP related to the reported value of assets supporting the Companys registered index linked annuity (RILA). In accordance with Iowa Administrative Code 508A.1.4, the Commissioner found that the Company is entitled to use book value accounting treatment for separate account investments backing the Companys RILA, whereas the assets would be required to be reported at fair value under SSAP No. 56, Separate Accounts of the NAIC SAP. There is no impact to the Companys income or surplus as a result of utilizing this prescribed practice.
Pursuant to Iowa Administrative Code 521A.5(1)c, the State of Iowa has allowed a permitted accounting practice that differs from that found in NAIC SAP related to the valuation of a foreign insurance subsidiary, controlled and affiliated (SCA) entity. With the explicit permission of the Iowa Insurance Division, the Company values Transamerica Life (Bermuda) Ltd. (TLB), a foreign SCA, in accordance with Statement of Statutory Accounting Principles (SSAP) No 97, Subsidiary, Controlled and Affiliated Entities, paragraph 8.b.i, as a U.S. insurance SCA entity at its underlying audited U.S. statutory equity. In addition, for Risk Based Capital (RBC) calculation purposes, this entity is categorized on page LR042 with Category 2 Direct U.S. Life Subsidiaries. Absent this permitted practice, TLB would be valued in accordance with SSAP No. 97, paragraph 8.b.iv, as a foreign insurance SCA at its audited foreign statutory basis financial statements with certain adjustments.
A reconciliation of the Companys net income (loss) and capital and surplus between NAIC SAP and practices prescribed and permitted by the State of Iowa is shown below:
10
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
SSAP # | F/S Page | F/S Line | 2022 | 2021 | 2020 | |||||||||||||||||||
|
|
|||||||||||||||||||||||
Net income (loss), State of Iowa basis |
XXX | XXX | XXX | $ | (2,192 | ) | $ | 154 | $ | 1,291 | ||||||||||||||
State prescribed practices that are an increase(decrease) from NAIC SAP: | ||||||||||||||||||||||||
None |
| | | |||||||||||||||||||||
State permitted practices that are an increase(decrease) from NAIC SAP: | ||||||||||||||||||||||||
None |
| | | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net income (loss), NAIC SAP |
XXX | XXX | XXX | $ | (2,192 | ) | $ | 154 | $ | 1,291 | ||||||||||||||
|
|
| ||||||||||||||||||||||
Statutory surplus, state of Iowa basis |
XXX | XXX | XXX | $ | 5,663 | $ | 7,277 | $ | 8,110 | |||||||||||||||
State prescribed practices that are an increase(decrease) from NAIC SAP: | ||||||||||||||||||||||||
Comfort trust |
61 | 3 | 1 | 263 | | | ||||||||||||||||||
State permitted practices that are an increase(decrease) from NAIC SAP: | ||||||||||||||||||||||||
TLB valuation |
97 | 2 | 2.2 | 72 | | | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Statutory surplus, NAIC SAP |
XXX | XXX | XXX | $ | 5,328 | $ | 7,277 | $ | 8,110 | |||||||||||||||
|
|
|
The IID issued a no objection letter from the year 2020 for the Company to present historical permitted practices that differ from that found in the NAIC SAP related to the admission of letters of credit as admitted assets and as an element of capital surplus. Prior to merging with the Company, MLIC Re and PFRe, with the explicit permission of the Deputy Commissioner of the Captive Insurance Division of the Vermont Department of Financial Regulation, included as admitted assets the value of letters of credit serving as collateral for reinsurance credit taken by affiliates in connection with reinsurance agreements. These historical permitted practices were included on a merged entity basis for periods prior to the effective date of the mergers. The letters of credit were for the benefit of the Company and TPLIC. The permitted practice terminated upon the merger of MLIC Re and PFRe into the Company and had no impact at December 31, 2020.
Use of Estimates
The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.
11
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The effects of the following variances from GAAP on the accompanying statutory-basis financial statements have not been determined by the Company, but are presumed to be material. Significant accounting policies and variances from GAAP are as follows:
Investments
Investments in bonds, except those to which the Securities Valuation Office (SVO) of the NAIC has ascribed a NAIC designation of 6, are reported at amortized cost using the interest method. Bonds containing call provisions, except make-whole call provisions, are amortized to the call or maturity value/date which produces the lowest asset value, often referred to as yield-to-worst method. Bonds ascribed a NAIC designation of 6 are reported at the lower of amortized cost or fair value with unrealized gains and losses reported in changes in capital and surplus. Prepayment penalty or acceleration fees received in the event a bond is liquidated prior to its scheduled termination date are reported as investment income.
Hybrid securities, as defined by the NAIC, are securities designed with characteristics of both debt and equity and provide protection to the issuers senior note holders. These securities meet the definition of a bond, in accordance with SSAP No. 26R, Bonds, and therefore, are reported at amortized cost or fair value based upon their NAIC rating.
For GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in earnings for those designated as trading and as a separate component of other comprehensive income (OCI) for those designated as available-for-sale.
Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method, including anticipated prepayments, except for those with an initial NAIC designation of 6, which are valued at the lower of amortized cost or fair value. These securities are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium using either the retrospective or prospective methods. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. For statutory reporting, the retrospective adjustment method is used to value all such securities, except principal-only and interest-only securities, which are valued using the prospective method.
For GAAP, all securities purchased or retained that represent beneficial interests in securitized assets, other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If high credit quality securities are adjusted, the retrospective method is used.
The Company closely monitors below investment grade holdings and investment grade issuers where the Company has concerns to determine if an other-than-temporary impairment (OTTI) has occurred. The Company also regularly monitors industry sectors. The Company considers relevant facts and circumstances in evaluating whether the impairment is other-than-temporary including: (1) the probability of the Company collecting all amounts due according to the contractual terms of the security in effect at the date of acquisition; (2) the Companys decision to
12
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
sell a security prior to its maturity at an amount below its carrying amount; and (3) the Companys ability to hold a structured security for a period of time to allow for recovery of the value to its carrying amount. Additionally, financial condition, near term prospects of the issuer and nationally recognized credit rating changes are monitored. Non-structured securities in unrealized loss positions that are considered other-than-temporary are written down to fair value. The Company will record a charge to the Statements of Operations for the amount of the impairment.
For structured securities, cash flow trends and underlying levels of collateral are monitored. An OTTI is considered to have occurred if the fair value of the structured security is less than its amortized cost basis and the entity intends to sell the security or the entity does not have the intent and ability to hold the security for a period of time sufficient to recover the amortized cost basis. An OTTI is also considered to have occurred if the discounted estimated future cash flows are less than the amortized cost basis of the security and the security is in an unrealized loss position. Structured securities considered other-than-temporarily impaired are written down to discounted estimated cash flows if the impairment is the result of cash flow analysis. If the Company has an intent to sell or lack of ability to hold a structured security, it is written down to fair value. The Company will record a charge to the Statements of Operations for the amount of the impairments.
For GAAP, if it is determined that a decline in fair value is other-than-temporary and the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the amortized cost basis and its fair value at the impairment date. If the entity does not intend to sell the security or the entity will likely not be required to sell the security before recovery, the OTTI should be separated into a) the amount representing the credit loss, which is recognized in earnings, and b) the amount related to all other factors, which is recognized in OCI, net of applicable taxes.
Investments in both affiliated and unaffiliated redeemable preferred stocks in good standing (those with NAIC designations 1 to 3), are reported at cost or amortized cost, depending on the characteristics of the securities. Investments in both affiliated and unaffiliated redeemable preferred stocks not in good standing (those with NAIC designations 4 to 6), are reported at the lower of cost, amortized cost, or fair value, depending on the characteristics of the securities. Investment in perpetual preferred stocks are reported at fair value, not to exceed any currently effective call price. Investment in mandatory convertible preferred stocks (regardless if the preferred stock is redeemable or perpetual) are reported at fair value, not to exceed any currently effective call price, in the periods prior to conversion. For preferred stocks reported at fair value, the related net unrealized capital gains and losses for all NAIC designations are reported in accordance with SSAP No. 7, Asset Valuation Reserve and Interest Maintenance Reserve.
Common stocks of affiliated noninsurance subsidiaries are reported based on underlying audited GAAP equity. The net change in the subsidiaries equity is included in net unrealized capital gains or losses and are reported in changes in capital and surplus.
Common stocks of unaffiliated companies, which include shares of mutual funds, are reported at fair value and the related net unrealized capital gains or losses are reported in changes in capital and surplus.
13
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Company owns stock issued by the Federal Home Loan Bank (FHLB), which is only redeemable at par, and its fair value is presumed to be par, unless other-than-temporarily impaired.
If the Company determines that a decline in the fair value of a common stock or a preferred stock is other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the Statements of Operations. The Company considers the following factors in determining whether a decline in value is other-than-temporary: (a) the financial condition and prospects of the issuer; (b) whether or not the Company has made a decision to sell the investment; and (c) the length of time and extent to which the value has been below cost.
Mortgage loans are reported at unpaid principal balances, less an allowance for impairment. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage agreement. When management determines the impairment is other-than-temporary, the mortgage loan is written down to realizable value and a realized loss is recognized. Prepayment penalty or acceleration fees received in the event a loan is liquidated prior to its scheduled termination date are reported as investment income.
Valuation allowances are established for mortgage loans, if necessary, based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loans effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral.
The initial valuation allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus as part of the change in asset valuation reserve (AVR), rather than being included as a component of earnings as would be required under GAAP.
Land is reported at cost. Real estate occupied by the Company is reported at depreciated cost net of encumbrances. Real estate held for the production of income is reported at depreciated cost net of related obligations. Real estate the Company classifies as held for sale is measured at lower of carrying amount or fair value less cost to sell. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. The Company recognizes an impairment loss if the Company determines that the carrying amount of the real estate is not recoverable and exceeds its fair value. The Company deems that the carrying amount of the asset is not recoverable if the carrying amount exceeds the sum of undiscounted cash flows expected to result from the use and disposition. The impairment loss is measured as the amount by which the assets carrying value exceeds its fair value.
Investments in real estate are reported net of related obligations rather than on a gross basis as for GAAP. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses for statutory reporting include rent for the Companys occupancy of those properties. Changes
14
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
between depreciated cost and admitted amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP.
The Company has interests in joint ventures and limited partnerships. The Company carries these investments based on its interest in the underlying GAAP equity of the investee.
For a decline in the fair value of an investment in a joint venture or limited partnership which is determined to be other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the Statements of Operations. The Company considers an impairment to have occurred if it is probable that the Company will be unable to recover the carrying amount of the investment or if there is evidence indicating inability of the investee to sustain earnings which would justify the carrying amount of the investment.
Investments in Low Income Housing Tax Credit (LIHTC) properties are valued at amortized cost. Tax credits are recognized in operations in the tax reporting year in which the tax credit is utilized by the Company. The carrying value is amortized over the life of the investment. Amortization is calculated as a ratio of the current year tax credits and tax benefits compared to the total expected tax credits and tax benefits over the life of the investment.
Cash equivalents are short-term highly liquid investments with original maturities of three months or less (principally stated at amortized cost) or money market mutual funds which are reported at fair value.
Short-term investments include investments with remaining maturities of one year or less at the time of acquisition and are principally stated at amortized cost.
Other invested assets consist of surplus notes which are valued at cost, as required or permitted by Iowa Insurance Laws.
Policy loans are reported at unpaid principal balances.
Realized capital gains and losses are determined using the specific identification method and are recorded net of related federal income taxes. Changes in admitted asset carrying amounts of bonds, mortgage loans, common and preferred stocks are credited or charged directly to unassigned surplus.
Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Income is also not accrued when collection is uncertain. Due and accrued amounts determined to be uncollectible are written off through the Statements of Operations.
Valuation Reserves
Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, primarily bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals into net
15
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
investment income over the remaining period to maturity of the bond or mortgage loan based on groupings of individual securities sold in five year bands. The net deferral is reported as the interest maintenance reserve (IMR) in the accompanying Balance Sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses are reported in the Statements of Operations on a pre-tax basis in the period that the assets giving rise to the gains or losses are sold.
The AVR provides a valuation allowance for invested assets. The AVR is determined by a NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP.
Derivative Instruments
Overview: The Company uses various derivative instruments (options, caps, floors, swaps, forwards, and futures) to manage risks related to its ongoing business operations. On the transaction date of the derivative instrument, the Company designates the derivative as either (A) hedging (fair value, foreign currency fair value, cash flow, foreign currency cash flow, forecasted transactions, or net investment in a foreign operation), (B) replication, (C) income generation, or (D) held for other investment/risk management activities, which do not qualify for hedge accounting under SSAP No. 86, Derivatives.
(A) | Derivative instruments used in hedging transactions that meet the criteria of an effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability (amortized cost or fair value). Embedded derivatives are not accounted for separately from the host contract. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value, and the changes in the fair value are recorded in unassigned surplus as unrealized gains and losses. Under GAAP, the effective and ineffective portions of a single hedge are accounted for separately, and the change in fair value for cash flow hedges is credited or charged directly to a separate component of OCI rather than to income as required for fair value hedges, and an embedded derivative within a contract that is not clearly and closely related to the economic characteristics and the risk of the host contract is accounted for separately from the host contract and valued and reported at fair value. |
(B) | Derivative instruments are also used in replication (synthetic asset) transactions (RSAT). A replication transaction is a derivative transaction entered into in conjunction with a cash instrument to reproduce the investment characteristics of an otherwise permissible investment. In these transactions, the derivative is accounted for in a manner consistent with the cash instrument and replicated asset. For GAAP, the derivative is reported at fair value, with the changes in fair value reported in income. |
(C) | Derivative instruments used in income generation relationships are accounted for on a basis that is consistent with the associated covered asset or underlying interest to which the derivative relates (amortized cost or fair value). |
(D) | Derivative instruments held for other investment/risk management activities are measured at fair value with value adjustments recorded in unassigned surplus. |
16
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Derivative instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. The Company uses derivatives as hedges, consequently, when the value of the hedged asset or liability changes, the value of the hedging derivative is expected to move in the opposite direction. Market risk is a consideration when changes in the value of the derivative and the hedged item do not completely offset (correlation or basis risk) which is mitigated by active measuring and monitoring.
The Company is exposed to credit-related losses in the event of non-performance by counterparties to derivative instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit rating of BBB or better. The credit exposure of interest rate swaps and currency swaps is represented by the fair value of contracts, aggregated at a counterparty level, with a positive fair value at the reporting date. The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets on the Companys behalf. The posted amount is equal to the difference between the net positive fair value of the contracts and an agreed upon threshold that is based on the credit rating of the counterparty. Inversely, if the net fair value of all contracts with this counterparty is negative, then the Company is required to post assets instead.
Instruments:
Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process to modify the interest rate characteristics of the underlying asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating rate amounts based on an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds equal to the fair value of the contract are exchanged. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.
Cross currency swaps are utilized to mitigate risks when the Company holds foreign denominated assets or liabilities; therefore, converting the asset or liability to a U.S. dollar denominated security. These cross currency swap agreements involve the exchange of two principal amounts in two different currencies at the prevailing currency rate at contract inception. During the life of the swap, the counterparties exchange fixed or floating rate interest payments in the swapped currencies. At maturity, the principal amounts are again swapped at a pre-determined rate of exchange. Each asset or liability is hedged individually where the terms of the swap must meet the terms of the hedged instrument. For swaps qualifying for hedge accounting, the premium or discount is amortized into income over the life of the contract and the foreign currency translation adjustment is recorded as unrealized gain/loss in capital and surplus. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the hedged instrument receives that treatment.
17
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Total return swaps are used in the asset/liability management process to mitigate the market risk on minimum guarantee insurance contracts linked to an index. These total return swaps generally provide for the exchange of the difference between fixed leg (tied to the Standard & Poors (S&P) or other global market financial index) and floating leg (tied to the London Interbank Offered Rate (LIBOR)) amounts based on an underlying notional amount (also tied to the underlying index). Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, in the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.
Variance swaps are used in the asset/liability management process to mitigate the gamma risk created when the Company has issued minimum guarantee insurance contracts linked to an index. These variance swaps are similar to volatility options where the underlying index provides for the market value movements. Variance swaps do not accrue interest. Typically, no cash is exchanged at the outset of initiating the variance swap, and a single receipt or payment occurs at the maturity or termination of the contract. Variance swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.
Bond forwards are used to hedge the interest rate risk that future liability claims increase as rates decrease, leading to higher guarantee values. Bond return swaps are also used to hedge interest rate risk of the underlying liability by exchanging performance and interest of a treasury asset for a funding level plus spread.
Futures contracts are used to hedge the liability risk when the Company issues products providing the customer a return based on various global market indices. Futures are marked to market on a daily basis whereby a cash payment is made or received by the Company. These payments are recognized as realized gains or losses in the financial statements.
The Company issues products providing the customer a return based on the various global equity market indices. The Company uses options to hedge the liability option risk associated with these products. Options are marked to fair value in the Balance Sheets and fair value adjustments are recorded as capital and surplus in the financial statements. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment.
Caps are used in the asset/liability management process to mitigate the interest rate risk created due to a rapidly rising interest rate environment. The caps are similar to options where the underlying interest rate index provides for the market value movements. The caps do not accrue interest until the interest rate environment exceeds the caps strike rate. Cash is exchanged at the onset, and a single receipt or payment occurs at the maturity or termination of the contract. Caps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If terminated prior to maturity, proceeds
18
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Caps that do not meet hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.
The Company uses zero cost collars to hedge the interest rate risk associated with rising short term interest rates, whereby the exposure would otherwise adversely impact the Companys capital generation. The collar position(s) help range bound the floating rate by combining a cap and floor position.
The Company may sell products with expected benefit payments extending beyond investment assets currently available in the market. Because assets will have to be purchased in the future to fund future liability cash flows, the Company is exposed to the risk of future investments made at lower yields than what is assumed at the time of pricing. Forward-starting interest rate swaps are utilized to lock-in the current forward rate. The accrual of income begins at the forward date, rather than at the inception date. These forward-starting swaps meet hedge accounting rules and are carried at cost in the financial statements. Gains and losses realized upon termination of the forward-starting swap are deferred and used to adjust the basis of the asset purchased in the hedged forecasted period. The basis adjustment is then amortized into income as a yield adjustment to the asset over its life.
The Company issues fixed liabilities that have a guaranteed minimum crediting rate. The Company uses receiver swaptions, whereby the swaption is designed to generate cash flows to offset lower yields on assets during a low interest rate environment. The Company pays a single premium at the beginning of the contract and is amortized throughout the life of the swaption. These swaptions are marked to fair value in the Balance Sheets and the fair value adjustment is recorded in unassigned surplus. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment.
The Company replicates investment grade corporate bonds or sovereign debt by combining a highly rated security as a cash component with a written credit default swap which, in effect, converts the high quality asset into an investment grade corporate asset or a sovereign debt. The benefits of using the swap market to replicate credit include possible enhanced relative values as well as ease of executing larger transactions in a shortened time frame. Generally, a premium is received by the Company on a periodic basis and recognized in investment income. In the event the representative issuer defaults on its debt obligation referenced in the contract, a payment equal to the notional amount of the contract will be made by the Company and recognized as a capital loss.
Securities Lending Assets and Liabilities
The Company loans securities to third parties under agent-managed securities lending programs accounted for as secured borrowings. Cash collateral received which may be sold or repledged by the Company is reflected as a one-line entry on the Balance Sheets (Securities lending reinvested collateral assets) and a corresponding liability is established to record the obligation to return the cash collateral. Non-cash collateral received which may not be sold or repledged is not recorded on the Companys Balance Sheets. Under GAAP, the reinvested collateral is included within invested assets and is not reported as a single line item.
19
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Repurchase Agreements
For dollar repurchase agreements accounted for as secured borrowings, the Company receives cash collateral in an amount at least equal to the fair value of the securities transferred by the Company in the transaction as of the transaction date. The securities transferred are not removed from the Balance Sheets, and the cash received as collateral is invested as needed or used for general corporate purposes of the Company. A liability is established to record the obligation to return the cash collateral and included in borrowed money on the Balance Sheets.
Other Assets and Other Liabilities
Other assets consist primarily of cash surrender value of company owned life insurance, receivable from parent, subsidiaries and affiliates, general insurance accounts receivable, and reinsurance receivable.
Other liabilities consist primarily of amounts withheld by the Company, accrued expenses, reinsurance payable, unearned investment income, remittances, payable for securities, custody offset, and municipal repurchase agreements. Municipal repurchase agreements are investment contracts issued to municipalities that pay either a fixed or floating rate of interest on the guaranteed deposit balance. The floating interest rate is based on a market index. The related liabilities are equal to the policyholder deposit and accumulated interest. These municipal repurchase agreements require a minimum of 95% of the fair value of the securities transferred to be maintained as collateral.
Separate Accounts
The majority of separate accounts held by the Company, primarily for individual policyholders as well as for group pension plans, do not have any minimum guarantees, and the investment risks associated with fair value changes are borne by the policyholder. The assets in the accounts, carried at estimated fair value, consist of underlying mutual fund shares, common stocks, long-term bonds and short-term investments.
Certain other separate accounts held by the Company provide a minimum guaranteed return of 3% of the average investment balance to policyholders. The assets consist of long-term bonds and short-term investments which are carried at amortized cost.
Certain other non-indexed guaranteed separate accounts represent funds invested by the Company for the benefit of the contract holders who are guaranteed certain returns as specified in the contracts. Separate account asset performance different than the guaranteed requirements is either transferred to or received from the general account and reported in the Statements of Operations. Non-indexed guaranteed separate account assets and liabilities are carried at fair value. These guarantees are included in the general account due to the nature of the guaranteed return.
Assets held in trust for purchases of variable life, variable universal life, variable annuity, and modified guaranteed annuity contracts and the Companys corresponding obligation to the
20
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
contract owners are shown separately in the Balance Sheets. The assets in the separate accounts are valued at fair value.
Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the contract owners and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The investment risks associated with fair value changes of the separate accounts are borne entirely by the policyholders except in cases where minimum guarantees exist.
Income and gains and losses with respect to the assets in the separate accounts supporting modified guaranteed annuity contracts are included in the statements of operations as a component of net transfers from separate accounts.
Surplus funds transferred from the general account to the separate accounts, commonly referred to as seed money, and earnings accumulated on seed money are reported as surplus in the separate accounts until transferred or repatriated to the general account. The transfer of such funds between the separate account and the general account is reported as surplus contributed or withdrawn during the year.
Aggregate Reserves for Policies and Contracts
Life, annuity and accident and health benefit reserves are calculated by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed cash value, or the amount required by law. For direct business issued after October 1964, the Company waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium for periods beyond the month of death. For policies assumed during 1992 from former affiliates, Monumental General Insurance Company and Monumental Life Insurance Group, Inc., and for all business from company mergers occurring in 1998, the Company waives deduction of deferred fractional premium upon death of the insured and returns any portion of the final premium paid beyond the month of death. For fixed premium life insurance business resulting from company mergers occurring in 2004 and 2007, the Company waives deduction of deferred fractional premiums upon death of the insured and refunds portions of premiums unearned after the date of death. Where appropriate, the Company holds a non-deduction and/or refund reserve. The reserve for these benefits is computed using aggregate methods. The reserves are equal to the greater of the cash surrender value and the legally computed reserve.
For GAAP, policy reserves are calculated based on estimated expected experience or actual account balances.
Surrender values are not promised in excess of the legally computed reserves. For annual premium variable life insurance there is an extra premium charged to the policyholder before the premium is transferred to the Separate Accounts. An additional reserve for this policy is held in the General Account that is a multiple of the reserve that would otherwise be held. For interest sensitive whole life, the reserves held in the General Account are equal to the cash surrender value.
21
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
In accordance with SSAP No. 51R, Life Contracts, and No. 54R, Individual and Group Accident and Health Contracts, the Company reports the amount of insurance, if any, for which the gross premiums are less than the net premiums according to the valuation standards and any related premium deficiency reserve established. Anticipated investment income is included as a factor in the health contract premium deficiency calculation.
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the Balance Sheets date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available.
Deposit-Type Contracts
Deposit-type contracts do not incorporate risk from the death or disability of policyholders. These types of contracts may include guaranteed investment contracts (GICs), funding agreements and other annuity contracts. Deposits and withdrawals on these contracts are recorded as a direct increase or decrease, respectively, to the liability balance and are not reported as premiums, benefits or changes in reserves in the Statements of Operations. Interest on these policies is reflected in other benefits.
Premiums and Annuity Considerations
Revenues for life and annuity policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received. Benefits incurred represent surrenders and death benefits paid and the change in policy reserves. Under GAAP, for universal life policies, premiums received in excess of policy charges would not be recognized as premium revenue and benefits would represent interest credited to the account values and the excess of benefits paid over the policy account value. Under GAAP, for all annuity policies without significant mortality risk, premiums received and benefits paid would be recorded directly to the reserve liability using deposit accounting.
Policyholder Dividends
Policyholder dividends are recognized when declared rather than over the term of the related policies as would be required under GAAP.
Reinsurance
Coinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of in force blocks of business are included in unassigned surplus and amortized into income as earnings emerge on the reinsured block of business. Premiums ceded and recoverable losses have been
22
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
reported as a reduction of premium income and benefits, respectively. Policy liabilities and accruals are reported in the accompanying financial statements net of reinsurance ceded.
Any reinsurance amounts deemed to be uncollectible have been written off through a charge to operations. In addition, a liability for reinsurance balances would be established for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to the liability are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings.
Losses associated with an indemnity reinsurance transaction are reported within income when incurred rather than being deferred and amortized over the remaining life of the underlying reinsured contracts as would be required under GAAP.
Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP.
Commissions allowed by reinsurers on business ceded are reported as income when incurred rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP.
Under GAAP, for certain reinsurance agreements whereby assets are retained by the ceding insurer (such as funds withheld or modified coinsurance) and a return is paid based on the performance of underlying investments, the assets and liabilities for these reinsurance arrangements must be adjusted to reflect the fair value of the invested assets. The NAIC SAP does not contain a similar requirement.
Deferred Income Taxes
The Company computes deferred income taxes in accordance with SSAP No. 101, Income Taxes. Unlike GAAP, SSAP No. 101 does not consider state income taxes in the measurement of deferred taxes. SSAP No. 101 also requires additional testing to measure gross deferred tax assets. The additional testing limits gross deferred tax asset admission to 1) the amount of federal income taxes paid in prior years recoverable through hypothetical loss carrybacks of existing temporary differences expected to reverse during a timeframe corresponding with the Internal Revenue Service tax loss carryback provisions, not to exceed three years, plus 2) the amount of remaining gross deferred tax assets expected to be realized within three years limited to an amount that is no greater than 15% of current periods adjusted statutory capital and surplus, plus 3) the amount of remaining gross deferred tax assets that can be offset against existing gross deferred tax liabilities after considering character (i.e. ordinary versus capital) and reversal patterns. The Companys reported deferred tax asset or liability is the sum of gross deferred tax assets admitted through this three-part test plus the sum of all deferred tax liabilities.
Policy Acquisition Costs
The costs of acquiring and renewing business are expensed when incurred. Under GAAP, incremental costs directly related to the successful acquisition of insurance and investment contracts are deferred. For traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, acquisition costs are deferred
23
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality and expense margins.
Value of Business Acquired
Under GAAP, value of business acquired (VOBA) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future contracts and contract changes, premiums, mortality and morbidity, separate account performance, surrenders, operation expenses, investment returns, nonperformance risk adjustment and other factors. VOBA is not recognized under the NAIC SAP.
Subsidiaries and Affiliated Companies
Investments in subsidiaries, controlled and affiliated companies (SCA) are stated in accordance with the Purposes and Procedures Manual of the NAIC SVO, as well as SSAP No. 97, Investments in Subsidiary, Controlled and Affiliated Entities (SSAP No. 97).
The accounts and operations of the Companys subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP. Dividends or distributions received from an investee are recognized in investment income when declared to the extent that they are not in excess of the undistributed accumulated earnings attributable to an investee. Changes in investments in SCAs are recorded as a change to the carrying value of the investment with a corresponding amount recorded directly to unrealized gain/loss (capital and surplus).
Surplus Notes
Surplus notes are reported as surplus rather than as liabilities as would be required under GAAP.
Nonadmitted Assets
Certain assets designed as nonadmitted, primarily net deferred tax assets and other assets not specifically identified as an admitted asset within the NAIC SAP, are excluded from the accompanying Balance Sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the Balance Sheets to the extent that they are not impaired.
Statements of Cash Flow
Cash, cash equivalents and short-term investments in the Statements of Cash Flow represent cash balances and investments with initial maturities of one year or less and money market mutual funds. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less.
24
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
3. Accounting Changes and Correction of Error
The Companys policy is to disclose recent accounting pronouncements, adopted, with a current year effective date, that have been classified by the NAIC as a new statutory accounting principle (SAP) concept change, as well as items classified by the NAIC as SAP clarification changes that have been adopted and have had a material impact on the financial position or results of operations of the Company.
Recent Accounting Pronouncements
There were no new accounting pronouncements during the period to disclose, based upon the criteria specified above.
Change in Valuation Basis
During 2022, the Company converted its Actuarial Guideline 36 reserve calculation for the Indexed Universal Life block of business to a new actuarial valuation system. At the same time, as a result of increased functionality to allow for more precision and to ensure consistency, the Company refined its statutory valuation rate for specific states to utilize the maximum standard valuation interest rate. This resulted in a reserve decrease of $641 as of January 1, 2022, which has been reported in the Statement of Changes in Capital and Surplus.
Correction of Error
During 2022, the Company identified an error in the way in which it recognized the receipt of certain affiliated distributions in prior years. This error resulted in prior periods net investment income being understated by a total of $145, with a corresponding overstatement of the change in unrealized gains/losses. This was corrected as of December 31, 2022 in accordance with SSAP No. 3, Accounting Changes and Corrections of Errors, with the correction reflected in the Statements of Changes in Capital and Surplus in other changes, offset by a corresponding change in net unrealized capital gains/losses. There was no net impact to ending capital or surplus as a result of this error in any period.
During 2020, management identified an error in the Companys prior year statutory AG38 8C cash flow testing reserves. The error resulted in an understatement of aggregate reserves for life contracts of $116 net of tax at December 31, 2019 which was corrected in accordance with SSAP No. 3 with the income correction reflected in Other changes - net in the Statements of Changes in Capital and Surplus.
In addition to the above, there were additional balances misstated in prior year financial statement balances that have been corrected within the current year financial statements in accordance with SSAP No. 3. These do not have a material impact on the financial statements and therefore have not been separately disclosed
Reclassifications
Certain amounts in prior year financial statement balances and footnote disclosures have been reclassified to conform to the current year presentation.
25
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
4. Fair Values of Financial Instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Determination of Fair Value
The fair values of financial instruments are determined by management after taking into consideration several sources of data. When available, the Company uses quoted market prices in active markets to determine the fair value of its investments. The Companys valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
To understand the valuation methodologies used by third-party pricing services, the Company reviews and monitors their applicable methodology documents. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, the Company performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate the Company can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.
Each month, the Company performs an analysis of the information obtained from indices, third-party services, and brokers to ensure the information is reasonable and produces a reasonable estimate of fair value. The Company considers both qualitative and quantitative factors as part of this analysis, including but not limited to, recent transactional activity for similar securities, review of pricing statistics and trends, and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities.
Fair Value Hierarchy
The Companys financial assets and liabilities carried at fair value are classified, for disclosure purposes, based on a hierarchy defined by SSAP No. 100R, Fair Value. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An assets or a liabilitys classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:
26
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Level 1 - | Unadjusted quoted prices for identical assets or liabilities in active markets accessible at the measurement date. |
Level 2 - | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following: |
a) | Quoted prices for similar assets or liabilities in active markets |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets |
c) | Inputs other than quoted market prices that are observable |
d) | Inputs that are derived principally from or corroborated by observable market data through correlation or other means |
Level 3 - | Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect the Companys own assumptions about the assumptions a market participant would use in pricing the asset or liability. |
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash Equivalents and Short-Term Investments: The carrying amounts reported in the accompanying Balance Sheets for these financial instruments is either reported at fair value or amortized cost (which approximates fair value). Cash is not included in the below tables.
Short-Term Notes Receivable from Affiliates: The carrying amounts reported in the accompanying Balance Sheets for these financial instruments approximate their fair value.
Bonds and Stocks: The NAIC allows insurance companies to report the fair value determined by the SVO or to determine the fair value by using a permitted valuation method. The fair values of bonds and stocks are reported or determined using the following pricing sources: indices, third-party pricing services, brokers, external fund managers and internal models.
Fair values for fixed maturity securities (including redeemable preferred stock) actively traded are determined from third-party pricing services, which are determined as discussed above in the description of Level 1 and Level 2 values within the fair value hierarchy. For fixed maturity securities (including redeemable preferred stock) not actively traded, fair values are estimated using values obtained from third-party pricing services, or are based on non-binding broker quotes or internal models. In the case of private placements, fair values are estimated by discounting the expected future cash flows using current market rates applicable to the coupon rate, credit and maturity of the investments.
Mortgage Loans on Real Estate: The fair values for mortgage loans on real estate are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans.
27
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Real Estate: Real estate held for sale is typically valued utilizing independent external appraisers in conjunction with reviews by qualified internal appraisers. Valuations are primarily based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the propertys net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property.
Other Invested Assets: The fair values for other invested assets, which include investments in surplus notes issued by other insurance companies and fixed or variable rate investments with underlying characteristics of bonds, are determined primarily by using indices, third-party pricing services and internal models.
Derivative Financial Instruments: The fair value of futures and forwards are based upon the latest quoted market price and spot rates at the Balance Sheets date. The estimated fair values of equity and interest rate options (calls, puts, caps) are based upon the latest quoted market price at the Balance Sheets date. The estimated fair values of swaps, including equity, interest rate and currency swaps, are based on pricing models or formulas using current assumptions. The estimated fair values of credit default swaps are based upon active market data, including interest rate quotes, credit spreads, and recovery rates, which are then used to calculate probabilities of default for the fair value calculation. The Company accounts for derivatives that receive and pass hedge accounting in the same manner as the underlying hedged instrument. If that instrument is held at amortized cost, then the derivative is also held at amortized cost.
Policy Loans: The book value of policy loans is considered to approximate the fair value of the loan, which is stated at unpaid principal balance.
Securities Lending Reinvested Collateral: The cash collateral from securities lending is reinvested in various short-term and long-term debt instruments. The fair values of these investments are determined using the methods described above under Cash Equivalents and Short-Term Investments and Bonds and Stocks.
Separate Account Assets and Annuity Liabilities: The fair value of separate account assets are based on quoted market prices when available. When not available, they are primarily valued either using third-party pricing services or are valued in the same manner as the general account assets as further described in this note. However, some separate account assets are valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilizes input that are not market observable. The fair value of separate account annuity liabilities is based on the account value for separate accounts business without guarantees. For separate accounts with guarantees, fair value is based on discounted cash flows.
Investment Contract Liabilities: Fair value for the Companys liabilities under investment contracts, which include deferred annuities and GICs, are estimated using discounted cash flow calculations. For those liabilities that are short in duration, carrying amount approximates fair value. For investment contracts with no defined maturity, fair value is estimated to be the present surrender value.
28
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Deposit-Type Contracts: The carrying amounts of deposit-type contracts reported in the accompanying Balance Sheets approximate their fair values. These are included in the investment contract liabilities.
Fair values for the Companys insurance contracts other than investment-type contracts (including separate account universal life liabilities) are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Companys overall management of interest rate risk, such that the Companys exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.
The Company accounts for its investments in affiliated common stock in accordance with SSAP No. 97, as such, they are not included in the following disclosures.
29
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables set forth a comparison of the estimated fair values and carrying amounts of the Companys financial instruments, including those not measured at fair value in the Balance Sheets, as of December 31, 2022 and 2021, respectively:
December 31, 2022 | ||||||||||||||||||||
Aggregate Fair Value |
Admitted Value |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
|
|
|||||||||||||||||||
Admitted assets |
||||||||||||||||||||
Cash equivalents and short-term investments, other than affiliates |
$ | 2,348 | $ | 2,346 | $ | 557 | $ | 1,791 | $ | | ||||||||||
Bonds |
45,427 | 51,131 | 5,621 | 39,639 | 167 | |||||||||||||||
Preferred stocks, other than affiliates |
61 | 61 | | 61 | | |||||||||||||||
Common stocks, other than affiliates |
151 | 151 | 12 | 6 | 133 | |||||||||||||||
Mortgage loans on real estate |
8,185 | 9,270 | | | 8,185 | |||||||||||||||
Other invested assets |
393 | 441 | | 388 | 5 | |||||||||||||||
Derivative assets: |
||||||||||||||||||||
Options |
86 | 86 | | 86 | | |||||||||||||||
Interest rate swaps |
2,073 | 2,073 | | 2,073 | | |||||||||||||||
Currency swaps |
139 | 67 | | 139 | | |||||||||||||||
Credit default swaps |
28 | 38 | | 28 | | |||||||||||||||
Equity swaps |
65 | 65 | | 65 | | |||||||||||||||
Interest rate futures |
1 | 1 | 1 | | | |||||||||||||||
Equity futures |
9 | 9 | 9 | | | |||||||||||||||
Derivative assets total |
2,401 | 2,339 | 10 | 2,391 | | |||||||||||||||
Policy loans |
2,028 | 2,028 | | 2,028 | | |||||||||||||||
Securities lending reinvested collateral |
1,738 | 1,738 | 1,096 | 642 | | |||||||||||||||
Separate account assets |
89,800 | 89,891 | 84,453 | 5,321 | 26 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Investment contract liabilities |
15,026 | 14,781 | | 237 | 14,789 | |||||||||||||||
Derivative liabilities: |
||||||||||||||||||||
Options |
47 | 47 | | 47 | | |||||||||||||||
Interest rate swaps |
3,903 | 3,460 | | 3,903 | | |||||||||||||||
Currency swaps |
2 | 1 | | 2 | | |||||||||||||||
Credit default swaps |
(2 | ) | 5 | | (2 | ) | | |||||||||||||
Equity swaps |
99 | 99 | | 99 | | |||||||||||||||
Interest rate futures |
5 | 5 | 5 | | | |||||||||||||||
Equity futures |
12 | 12 | 12 | | | |||||||||||||||
Derivative liabilities total |
4,066 | 3,629 | 17 | 4,049 | | |||||||||||||||
Dollar repurchase agreements |
95 | 95 | | 95 | | |||||||||||||||
Payable for securities lending |
2,115 | 2,115 | | 2,115 | | |||||||||||||||
Payable for derivative cash collateral |
156 | 156 | | 156 | | |||||||||||||||
Separate account liabilities |
81,449 | 81,494 | | 81,440 | 9 |
30
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2021 | ||||||||||||||||||||
Aggregate Fair Value |
Admitted Value |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
|
|
|||||||||||||||||||
Admitted assets |
||||||||||||||||||||
Cash equivalents and short-term investments, other than affiliates |
$ | 1,885 | $ | 1,885 | $ | 1,790 | $ | 95 | $ | | ||||||||||
Bonds |
57,192 | 49,942 | 9,557 | 47,265 | 370 | |||||||||||||||
Preferred stocks, other than affiliates |
120 | 120 | | 120 | | |||||||||||||||
Common stocks, other than affiliates |
198 | 198 | 16 | | 182 | |||||||||||||||
Mortgage loans on real estate |
9,786 | 9,153 | | | 9,786 | |||||||||||||||
Other invested assets |
485 | 421 | | 466 | 19 | |||||||||||||||
Derivative assets: |
||||||||||||||||||||
Options |
188 | 188 | | 188 | | |||||||||||||||
Interest rate swaps |
1,491 | 1,487 | | 1,491 | | |||||||||||||||
Currency swaps |
33 | 17 | | 33 | | |||||||||||||||
Credit default swaps |
69 | 44 | | 69 | | |||||||||||||||
Equity swaps |
17 | 17 | | 17 | | |||||||||||||||
Interest rate futures |
3 | 2 | 3 | | | |||||||||||||||
Equity futures |
5 | 5 | 5 | | | |||||||||||||||
Derivative assets total |
1,806 | 1,760 | 8 | 1,798 | | |||||||||||||||
Policy loans |
1,986 | 1,986 | | 1,986 | | |||||||||||||||
Securities lending reinvested collateral |
1,942 | 1,942 | | 1,942 | | |||||||||||||||
Separate account assets |
123,841 | 123,767 | 117,183 | 6,658 | | |||||||||||||||
Liabilities |
||||||||||||||||||||
Investment contract liabilities |
16,881 | 15,019 | | 247 | 16,634 | |||||||||||||||
Derivative liabilities: |
||||||||||||||||||||
Options |
114 | 114 | | 114 | | |||||||||||||||
Interest rate swaps |
2,254 | 1,970 | | 2,254 | | |||||||||||||||
Currency swaps |
6 | 17 | | 6 | | |||||||||||||||
Credit default swaps |
3 | 12 | | 3 | | |||||||||||||||
Equity swaps |
235 | 235 | | 235 | | |||||||||||||||
Interest rate futures |
7 | 7 | 7 | | | |||||||||||||||
Equity futures |
4 | 4 | 4 | | | |||||||||||||||
Derivative liabilities total |
2,623 | 2,359 | 11 | 2,612 | | |||||||||||||||
Dollar repurchase agreements |
872 | 872 | | 872 | | |||||||||||||||
Payable for securities lending |
2,073 | 2,073 | | 2,073 | | |||||||||||||||
Payable for derivative cash collateral |
239 | 239 | | 239 | | |||||||||||||||
Separate account liabilities |
112,613 | 112,667 | 1 | 112,601 | 11 |
31
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables provide information about the Companys financial assets and liabilities measured at fair value as of December 31, 2022 and 2021:
2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Bonds |
||||||||||||||||
Government |
$ | | $ | 1 | $ | | $ | 1 | ||||||||
Industrial and miscellaneous |
| 53 | 1 | 54 | ||||||||||||
Hybrid securities |
| 35 | | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
| 89 | 1 | 90 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Preferred stock |
||||||||||||||||
Industrial and miscellaneous |
| 60 | | 60 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total preferred stock |
| 60 | | 60 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Common stock |
||||||||||||||||
Mutual funds |
1 | | | 1 | ||||||||||||
Industrial and miscellaneous |
11 | 7 | 132 | 150 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total common stock |
12 | 7 | 132 | 151 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash equivalents and short-term investments |
||||||||||||||||
Industrial and miscellaneous |
| 2 | | 2 | ||||||||||||
Money market mutual funds |
531 | 1,729 | | 2,260 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and short-term investments |
531 | 1,731 | | 2,262 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets |
10 | 2,220 | | 2,230 | ||||||||||||
Separate account assets |
84,377 | 4,689 | | 89,066 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 84,930 | $ | 8,796 | $ | 133 | $ | 93,859 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | 17 | $ | 2,957 | $ | | $ | 2,974 | ||||||||
Separate account liabilities |
| 2 | | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 17 | $ | 2,959 | $ | | $ | 2,976 | ||||||||
|
|
|
|
|
|
|
|
32
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Bonds |
||||||||||||||||
Government |
$ | | $ | 2 | $ | | $ | 2 | ||||||||
Industrial and miscellaneous |
| 41 | 7 | 48 | ||||||||||||
Hybrid securities |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
| 43 | 7 | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Preferred stock |
||||||||||||||||
Industrial and miscellaneous |
| 120 | | 120 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total preferred stock |
| 120 | | 120 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Common stock |
||||||||||||||||
Mutual funds |
3 | | | 3 | ||||||||||||
Industrial and miscellaneous |
13 | | 182 | 195 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total common stock |
16 | | 182 | 198 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash equivalents and short-term investments |
||||||||||||||||
Industrial and miscellaneous |
| | | | ||||||||||||
Money market mutual funds |
1,790 | | | 1,790 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and short-term investments |
1,790 | | | 1,790 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative assets |
8 | 1,685 | | 1,693 | ||||||||||||
Separate account assets |
117,083 | 6,010 | | 123,093 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 118,897 | $ | 7,858 | $ | 189 | $ | 126,944 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | 11 | $ | 1,929 | $ | | $ | 1,940 | ||||||||
Separate account liabilities |
1 | | | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 12 | $ | 1,929 | $ | | $ | 1,941 | ||||||||
|
|
|
|
|
|
|
|
Bonds classified as Level 2 are valued using inputs from third party pricing services or broker quotes. Bonds classified as Level 3 are primarily those valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilize significant inputs that are not market observable.
Preferred stock classified as Level 2 are valued using inputs from third party pricing services or broker quotes.
Common stock classified as Level 2 are valued using inputs from third party pricing services or broker quotes. Common stock classified as Level 3 are comprised primarily of shares in the FHLB of Des Moines, which are valued at par as a proxy for fair value as a result of restrictions that allow redemptions only by FHLB.
Money market mutual funds and other cash or cash equivalents classified as Level 2 are valued using inputs from third party pricing services.
Derivatives classified as Level 2 represent over-the-counter (OTC) contracts valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services.
33
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Other long-term classified as Level 2 are comprised of surplus debentures, which are valued using inputs from third party pricing services or broker quotes.
Securities lending reinvested collateral is valued and classified in the same way as the underlying collateral, which is primarily composed of cash equivalents and short-term investments.
Separate account assets and liabilities are valued and classified in the same way as general account assets and liabilities (described above).
The following tables summarize the changes in assets classified as Level 3 for 2022 and 2021:
Beginning Balance at January 1, 2022 |
Transfers in (Level 3) |
Transfers out (Level 3) |
Total Gains (Losses) Included in Net income (a) |
Total Gains (Losses) Included in Surplus (b) |
||||||||||||||||
|
|
|||||||||||||||||||
Bonds |
||||||||||||||||||||
RMBS |
$ | | $ | | $ | | $ | 1 | $ | (1) | ||||||||||
CMBS |
| | | | | |||||||||||||||
Other |
7 | | 4 | | | |||||||||||||||
Common stock |
182 | | | (8 | ) | (42) | ||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | 189 | $ | | $ | 4 | $ | (7 | ) | $ | (43) | |||||||||
|
|
Purchases | Issuances | Sales | Settlements | Ending Balance at December 31, 2022 |
||||||||||||||||
|
|
|||||||||||||||||||
Bonds |
||||||||||||||||||||
RMBS |
$ | | $ | | $ | | $ | | $ | | ||||||||||
CMBS |
| | | | | |||||||||||||||
Other |
| | 2 | | 1 | |||||||||||||||
Common stock |
| | | | 132 | |||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | | $ | | $ | 2 | $ | | $ | 133 | ||||||||||
|
|
(a) | Recorded as a component of Net Realized Capital Gains (Losses) on Investments in the Statements of Operations |
(b) | Recorded as a component of Change in Net Unrealized Capital Gains (Losses) in the Statements of Changes in Capital and Surplus |
Beginning Balance at January 1, 2021 |
Transfers in (Level 3) |
Transfers out (Level 3) |
Total Gains (Losses) Included in Net income (a) |
Total Gains (Losses) Included in Surplus (b) |
||||||||||||||||
|
|
|||||||||||||||||||
Bonds |
||||||||||||||||||||
RMBS |
$ | | $ | 1 | $ | | $ | | $ | (1) | ||||||||||
CMBS |
| 1 | | | (1) | |||||||||||||||
Other |
7 | | | | 1 | |||||||||||||||
Common stock |
160 | | | (1) | 3 | |||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | 167 | $ | 2 | $ | | $ | (1) | $ | 2 | ||||||||||
|
|
34
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Purchases | Issuances | Sales | Settlements | Ending Balance at December 31, 2021 |
||||||||||||||||
|
|
|||||||||||||||||||
Bonds |
||||||||||||||||||||
RMBS |
$ | | $ | | $ | | $ | | $ | | ||||||||||
CMBS |
| | | | | |||||||||||||||
Other |
| | | 1 | 7 | |||||||||||||||
Common stock |
20 | | | | 182 | |||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | 20 | $ | | $ | | $ | 1 | $ | 189 | ||||||||||
|
|
(a) | Recorded as a component of Net Realized Capital Gains (Losses) on Investments in the Statements of Operations |
(b) | Recorded as a component of Change in Net Unrealized Capital Gains (Losses) in the Statements of Changes in Capital and Surplus |
Transfers between fair value hierarchy levels are recognized at the beginning of the reporting period.
Nonrecurring Fair Value Measurements
As indicated in Note 2, real estate held for sale is measured at the lower of carrying amount or fair value less cost to sell. As of December 31, 2022 and 2021, the Company held no properties as held-for-sale, where fair value was less than its carrying value. As of December 31, 2022 and 2021, the Company held one property as held-for sale, where carrying amount of $1 and $7, respectively, was equal to fair value.
Fair value was determined by utilizing an external appraisal following the sales comparison approach. The fair value measurements are classified as Level 3 as the comparable sales and adjustments for the specific attributes of these properties are not market observable inputs.
35
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
5. | Investments |
Bonds and Stocks
The carrying amounts and estimated fair value of investments in bonds and stocks are as follows:
Book Adjusted Carrying Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
|
|
|||||||||||||||
December 31, 2022 |
||||||||||||||||
Bonds: |
||||||||||||||||
United States Government and agencies |
$ | 6,180 | $ | 53 | $ | 1,010 | $ | 5,223 | ||||||||
State, municipal and other government |
3,005 | 7 | 545 | 2,467 | ||||||||||||
Hybrid securities |
396 | 16 | 32 | 380 | ||||||||||||
Industrial and miscellaneous |
35,212 | 446 | 4,183 | 31,475 | ||||||||||||
Mortgage and other asset-backed securities |
6,338 | 203 | 659 | 5,882 | ||||||||||||
|
|
|||||||||||||||
Total unaffiliated bonds |
51,131 | 725 | 6,429 | 45,427 | ||||||||||||
Unaffiliated preferred stocks |
61 | | | 61 | ||||||||||||
|
|
|||||||||||||||
$ | 51,192 | $ | 725 | $ | 6,429 | $ | 45,488 | |||||||||
|
|
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
|
|
|||||||||||||||
Unaffiliated common stocks |
$ | 144 | $ | 7 | $ | | $ | 151 |
Book Adjusted Carrying Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
|
|
|||||||||||||||
December 31, 2021 |
||||||||||||||||
Bonds: |
||||||||||||||||
United States Government and agencies |
$ | 7,140 | $ | 2,004 | $ | 13 | $ | 9,131 | ||||||||
State, municipal and other government |
2,477 | 257 | 22 | 2,712 | ||||||||||||
Hybrid securities |
267 | 65 | 1 | 331 | ||||||||||||
Industrial and miscellaneous |
33,840 | 4,663 | 163 | 38,340 | ||||||||||||
Mortgage and other asset-backed securities |
6,218 | 500 | 40 | 6,678 | ||||||||||||
|
|
|||||||||||||||
Total unaffiliated bonds |
49,942 | 7,489 | 239 | 57,192 | ||||||||||||
Unaffiliated preferred stocks |
120 | | | 120 | ||||||||||||
|
|
|||||||||||||||
$ 50,062 | $ 7,489 | $ 239 | $ 57,312 | |||||||||||||
|
|
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
|
|
|||||||||||||||
Unaffiliated common stocks |
$ | 151 | $ | 47 | $ | | $ | 198 | ||||||||
|
|
36
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The carrying amount and estimated fair value of bonds at December 31, 2022 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
2022 | ||||||||
December 31: | Carrying Value | Fair Value | ||||||
|
|
|||||||
Due in one year or less |
$ | 780 | $ | 774 | ||||
Due after one year through five years |
6,838 | 6,696 | ||||||
Due after five years through ten years |
9,579 | 8,840 | ||||||
Due after ten years |
27,596 | 23,235 | ||||||
|
|
|||||||
Subtotal |
44,793 | 39,545 | ||||||
Mortgage and other asset-backed securities |
6,338 | 5,882 | ||||||
|
|
|||||||
Total |
$ | 51,131 | $ | 45,427 | ||||
|
|
The estimated fair value of bonds, preferred stocks and common stocks with gross unrealized losses at December 31, 2022 and 2021 is as follows:
2022 | ||||||||||||||||
Equal to or Greater than 12 Months |
Less than 12 Months | |||||||||||||||
Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
|||||||||||||
United States Government and agencies |
$ | 149 | $ | 70 | $ | 4,489 | $ | 940 | ||||||||
State, municipal and other government |
330 | 120 | 1,992 | 425 | ||||||||||||
Hybrid securities |
79 | 16 | 223 | 16 | ||||||||||||
Industrial and miscellaneous |
3,475 | 1,312 | 21,368 | 2,871 | ||||||||||||
Mortgage and other asset-backed securities |
1,034 | 210 | 4,143 | 449 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
5,067 | 1,728 | 32,215 | 4,701 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Preferred stocks-unaffiliated |
16 | | 44 | | ||||||||||||
Common stocks-unaffiliated |
| | 138 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,083 | $ | 1,728 | $ | 32,397 | $ | 4,701 | |||||||||
|
|
|
|
|
|
|
|
37
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
2021 | ||||||||||||||||
Equal to or Greater than 12 Months |
Less than 12 Months | |||||||||||||||
Estimated Fair Value |
Gross Unrealized Losses |
Estimated Fair Value |
Gross Unrealized Losses |
|||||||||||||
United States Government and agencies |
$ | 118 | $ | 11 | $ | 106 | $ | 2 | ||||||||
State, municipal and other government |
64 | 10 | 318 | 12 | ||||||||||||
Hybrid securities |
14 | 1 | 3 | | ||||||||||||
Industrial and miscellaneous |
553 | 41 | 4,609 | 122 | ||||||||||||
Mortgage and other asset-backed securities |
299 | 15 | 1,907 | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total bonds |
1,048 | 78 | 6,943 | 161 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Preferred stocks-unaffiliated |
| | 10 | | ||||||||||||
Common stocks-unaffiliated |
| | 3 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,048 | $ | 78 | $ | 6,956 | $ | 161 | |||||||||
|
|
|
|
|
|
|
|
During 2022, 2021 and 2020, respectively, there were $2, $62 and $0, of loan-backed or structured securities with a recognized OTTI due to intent to sell or lack of intent and ability to hold for a period of time to recover the amortized cost basis.
For loan-backed and structured securities with a recognized OTTI due to the Companys cash flow analysis, in which the security is written down to estimated future cash flows discounted at the securitys effective yield, in 2022, 2021 and 2020, the Company recognized OTTI of $1, $7 and $4, respectively.
The following loan-backed and structured securities were held at December 31, 2022, for which an OTTI was recognized during the current reporting period:
CUSIP | Amortized Cost Before Current Period OTTI |
Present Value of |
Recognized OTTI |
Amortized Cost After OTTI |
Fair Value at Time of |
Date of Financial Statement Where Reported | ||||||||||||||||
| ||||||||||||||||||||||
026935AC0 |
$ | 2 | $ | 1 | $ | | $ | 1 | $ | 1 | 3/31/2022 | |||||||||||
026935AC0 |
1 | 1 | | 1 | 1 | 6/30/2022 | ||||||||||||||||
126670FC7 |
2 | 2 | | 2 | 2 | 6/30/2022 | ||||||||||||||||
78449KAD2 |
2 | 2 | | 2 | 2 | 6/30/2022 | ||||||||||||||||
12667GCH4 |
1 | 1 | | 1 | 1 | 9/30/2022 | ||||||||||||||||
126670FC7 |
2 | 2 | | 2 | 2 | 9/30/2022 | ||||||||||||||||
12667GCH4 |
1 | 1 | | 1 | 1 | 12/31/2022 | ||||||||||||||||
|
|
|||||||||||||||||||||
$ | | |||||||||||||||||||||
|
|
38
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The unrealized losses of loan-backed and structured securities where fair value is less than cost or amortized cost for which an OTTI has not been recognized in earnings as of December 31, 2022 and 2021 is as follows:
2022 | 2021 | |||||||||||||||
Losses 12 Months or More |
Losses Less Than 12 Months |
Losses 12 Months or More |
Losses Less Than 12 Months |
|||||||||||||
|
|
|||||||||||||||
Year ended December 31: |
||||||||||||||||
The aggregate amount of unrealized losses |
$ | 224 | $ | 449 | $ | 14 | $ | 44 | ||||||||
The aggregate related fair value of securities with unrealized losses |
1,034 | 4,121 | 299 | 1,942 |
At December 31, 2022 and 2021, respectively, for bonds and preferred stocks that have been in a continuous loss position for greater than or equal to twelve months, the Company held 1,012 and 180 securities with a carrying amount of $6,809 and $1,126, and an unrealized loss of $1,728 and $78. Of this portfolio, at December 31, 2022 and 2021, 92.0% and 82.5% were investment grade with associated unrealized losses of $1,621 and $56, respectively.
At December 31, 2022 and 2021, respectively, for bonds and preferred stocks that have been in a continuous loss position for less than twelve months, the Company held 3,939 and 978 securities with a carrying amount of $36,960 and $7,114, and an unrealized loss of $4,701 and $161. Of this portfolio, at December 31, 2022 and 2021, 95.8% and 93.9% were investment grade with associated unrealized losses of $4,520 and $144, respectively.
At December 31, 2022, for common stocks that have been in a continuous loss position for greater than or equal to twelve months, the Company held 7 securities with an insignificant unrealized loss. At December 31, 2021 , there were no common stocks that have been in a continuous loss position for greater than or equal to twelve months.
At December 31, 2022 and 2021, for common stocks that have been in a continuous loss position for less than twelve months, the Company held 30 and 13 securities with a cost of $139 and $3 and an unrealized loss of $1 and $0, respectively.
The following table provides the number of 5GI securities, aggregate book adjusted carrying value and aggregate fair value by investment type:
Number of 5GI Securities |
Book / Adjusted Carrying Value |
Fair Value | ||||||||||
December 31, 2022 |
||||||||||||
Bond, amortized cost |
3 | $ | 4 | $ | 4 | |||||||
|
|
|
|
|
|
|||||||
Total |
3 | $ | 4 | $ | 4 | |||||||
|
|
|
|
|
|
|||||||
December 31, 2021 |
||||||||||||
Bond, amortized cost |
3 | $ | 9 | $ | 9 | |||||||
|
|
|
|
|
|
|||||||
Total |
3 | $ | 9 | $ | 9 | |||||||
|
|
|
|
|
|
39
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Company did not have any offsetting assets and liabilities at December 31, 2022 and 2021.
During 2022 and 2021, respectively, the Company sold, redeemed or otherwise disposed of 75 and 153 securities as a result of a callable feature which generated investment income of $28 and $100 as a result of a prepayment penalty and/or acceleration fee.
Proceeds from sales and other disposals of bonds and preferred stock and related gross realized capital gains and losses are reflected in the following table. The amounts exclude maturities and include transfers associated with reinsurance agreements, if applicable.
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Proceeds |
$ | 8,218 | $ | 10,570 | $ | 8,747 | ||||||
|
|
|||||||||||
Gross realized gains |
$ | 69 | $ | 437 | $ | 232 | ||||||
Gross realized losses |
(624 | ) | (108 | ) | (37) | |||||||
|
|
|||||||||||
Net realized capital gains (losses) |
$ | (555 | ) | $ | 329 | $ | 195 | |||||
|
|
The Company had gross realized losses, which relate to losses recognized on other-than-temporary declines in the fair value of bonds and preferred stocks, for the years ended December 31, 2022, 2021 and 2020 of $54, $15 and $161, respectively.
At December 31, 2022 and 2021, the Company had no investments in restructured securities.
40
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Mortgage Loans
The credit quality of mortgage loans by type of property for the years ended December 31, 2022 and 2021 were as follows:
December 31, 2022 | ||||||||||||
Farm | Commercial | Total | ||||||||||
AAA - AA |
$ | 1 | $ | 5,139 | $ | 5,140 | ||||||
A |
31 | 3,389 | 3,420 | |||||||||
BBB |
7 | 653 | 660 | |||||||||
BB |
| 50 | 50 | |||||||||
$ | 39 | $ | 9,231 | $ | 9,270 | |||||||
December 31, 2021 | ||||||||||||
Farm | Commercial | Total | ||||||||||
AAA - AA |
$ | 4 | $ | 5,342 | $ | 5,346 | ||||||
A |
36 | 3,136 | 3,172 | |||||||||
BBB |
5 | 567 | 572 | |||||||||
BB |
8 | 54 | 62 | |||||||||
$ | 53 | $ | 9,099 | $ | 9,152 | |||||||
The above tables exclude residential mortgage loans.
The credit quality for commercial and farm mortgage loans was determined based on an internal credit rating model which assigns a letter rating to each mortgage loan in the portfolio as an indicator of the credit quality of the mortgage loan. The internal credit rating model was designed based on rating agency methodology, then modified for credit risk associated with the Companys mortgage lending process, taking into account such factors as projected future cash flows, net operating income and collateral value. The model produces a credit rating score and an associated letter rating which is intended to align with S&P ratings as closely as possible. Information supporting the credit risk rating process is updated at least annually.
During 2022, the Company issued mortgage loans with a maximum interest rate of 6.05% and a minimum interest rate of 2.80% for commercial loans. The maximum percentage of any one admitted loan to the value of the security (exclusive of insured or guaranteed or purchase money mortgages) originated or acquired during the year ending December 31, 2022 at the time of origination was 65%. During 2021, the Company issued mortgage loans with a maximum interest rate of 5.88% and a minimum interest rate of 2.58% for commercial loans. The maximum percentage of any one admitted loan to the value of the security (exclusive of insured or guaranteed or purchase money mortgages) originated or acquired during the year ending December 31, 2021 at the time of origination was 81%.
41
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
During 2022, the Company issued agricultural mortgage loans with a maximum interest rate of 5.55% and a minimum interest rate of 5.55%. During 2021, the Company issued agricultural mortgage loans with a maximum interest rate of 4.45% and a minimum interest rate of 4.45%.
During 2022 and 2021, the Company did not reduce the interest rate on any outstanding mortgage loans.
The age analysis of mortgage loans and identification in which the Company is a participant or co-lender in a mortgage loan agreement is as follows for December 31, 2022 and 2021:
Residential | Commercial | |||||||||||||||
Farm | All Other | All Other | Total | |||||||||||||
December 31, 2022 |
||||||||||||||||
Recorded Investment (All) |
||||||||||||||||
Current |
$ | 39 | $ | | $ | 9,231 | $ | 9,270 | ||||||||
30-59 Days Past Due |
| | | | ||||||||||||
Participant or Co-lender in Mortgage Loan Agreement |
||||||||||||||||
Recorded Investment |
$ | 14 | $ | | $ | 854 | $ | 868 |
Residential | Commercial | |||||||||||||||
Farm | All Other | All Other | Total | |||||||||||||
December 31, 2021 |
||||||||||||||||
Recorded Investment (All) |
||||||||||||||||
Current |
$ | 53 | $ | | $ | 9,099 | $ | 9,152 | ||||||||
30-59 Days Past Due |
| 1 | | 1 | ||||||||||||
Participant or Co-lender in Mortgage Loan Agreement |
||||||||||||||||
Recorded Investment |
$ | 14 | $ | | $ | 871 | $ | 885 |
At December 31, 2022 and 2021, the Company held no mortgage loans that were non-income producing for the previous 180 days. There was no accrued interest related to these mortgage loans at December 31, 2022 and 2021. The Company has a mortgage or deed of trust on the property thereby creating a lien which gives it the right to take possession of the property (among other things) if the borrower fails to perform according to the terms of the loan documents. The Company requires all mortgaged properties to carry fire insurance equal to the value of the underlying property. At December 31, 2022 and 2021, there were no taxes, assessments and other amounts advanced and not included in the mortgage loan total.
42
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
At December 31, 2022 and 2021, the Company held no impaired loans with or without a related allowance for credit losses. There were no impaired mortgage loans held without an allowance for credit losses as of December 31, 2022 and 2021, respectively, that were subject to participant or co-lender mortgage loan agreement for which the Company is restricted from unilaterally foreclosing on the mortgage loans. There were no average recorded investments in impaired loans during 2022 and 2021.
The following table provides a reconciliation of the beginning and ending balances for the allowance for credit losses on mortgage loans:
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Balance at beginning of period |
$ | | $ | | $ | | ||||||
Additions, net charged to operations |
| | 1 | |||||||||
Recoveries in amounts previously charged off |
| | (1 | ) | ||||||||
Balance at end of period |
$ | | $ | | $ | | ||||||
As of December 31, 2022 and 2021, the Company had no mortgage loans derecognized as a result of foreclosure.
The Company accrues interest income on impaired loans to the extent deemed collectible (delinquent less than 91 days) and the loan continues to perform under its original or restructured contractual terms. Interest income on nonperforming loans generally is recognized on a cash basis. For the years ended December 31, 2022, 2021 and 2020, the Company has recognized no interest income on impaired loans or on a cash basis.
At December 31, 2022 and 2021, the Company held a mortgage loan loss reserve in the AVR of $98 and $97, respectively.
43
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Companys mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:
Geographic Distribution | Property Type Distribution | |||||||||||||||||||||
December 31 | December 31 | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Pacific |
29 | % | 30 | % | Apartment |
53 | % | 53 | % | |||||||||||||
South Atlantic |
22 | 21 | Office |
16 | 17 | |||||||||||||||||
Middle Atlantic |
12 | 13 | Retail |
14 | 15 | |||||||||||||||||
E. North Central |
10 | 9 | Industrial |
17 | 13 | |||||||||||||||||
W. South Central |
8 | 8 | Medical |
| 1 | |||||||||||||||||
Mountain |
8 | 8 | Agricultural |
| 1 | |||||||||||||||||
W. North Central |
6 | 6 | ||||||||||||||||||||
E. South Central |
3 | 3 | ||||||||||||||||||||
New England |
2 | 2 |
At December 31, 2022 and 2021, the Company had mortgage loans with a total net admitted asset value of $2 and $14, respectively, which had been restructured in accordance with SSAP No. 36, Troubled Debt Restructuring. There were no realized losses during the years ended December 31, 2022, 2021 and 2020 related to such restructurings. At December 31, 2022 and 2021, there were no commitments to lend additional funds to debtors owing receivables.
Real Estate
The fair value of property is determined based on an appraisal from a third-party appraiser, along with information obtained from discussions with internal asset managers and a listing broker regarding recent comparable sales data and other relevant property information. Impairment losses of $1, $9 and $1 were taken on real estate in 2022, 2021 and 2020, respectively, to write the book value down to the current fair value, and included in net realized capital gains (losses), within the Statements of Operations, for the year ended December 31, 2022.
As of December 31, 2022, there was one property classified as held for sale. As of December 31, 2021, there were seven properties classified as held for sale. The Company is working with an external commercial real estate advisor firm to actively market the property and negotiate with potential buyers. During 2022, seven properties classified as held for sale were disposed, resulting in a net realized gain of $2. During 2021, one property classified as held for sale was disposed. Any associated gains and losses from these held for sale disposals were included in net realized capital gains (losses) within the Statements of Operations.
On October 28, 2020, the Company sold the Transamerica Pyramid Property located in San Francisco, CA, resulting in a realized gain of $255. As part of the sale transaction, the Company issued mortgage loans supporting the property at commercial rates in the amount of $427. The Company also disposed of other properties during 2022, 2021 and 2020 resulting in net realized gains of $0, $0 and $3, respectively. These gains and losses were included in net realized capital gains (losses) within the Statements of Operations.
44
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The carrying value of the Companys real estate assets at December 31, 2022 and 2021 was as follows:
2022 | 2021 | |||||||
|
|
|||||||
Home office properties |
$ | 43 | $ | 45 | ||||
Properties held for sale |
1 | 7 | ||||||
|
|
|||||||
$ | 44 | $ | 52 | |||||
|
|
|||||||
|
|
Accumulated depreciation on real estate at December 31, 2022 and 2021, was $29 and $29, respectively.
Other Invested Assets
The Company recorded impairments of $4, $13 and $19 throughout years 2022, 2021 and 2020, respectively. These impairments were primarily related to private equity funds. The impairments were taken because the decline in fair value of the funds were deemed to be other than temporary and a recovery in value from the remaining underlying investments in the funds were not anticipated. These write-downs are included in net realized capital gains (losses) within the Statements of Operations.
Tax Credits
At December 31, 2022, the Company had ownership interests in 52 LIHTC investments with a carrying value of $88. The remaining years of unexpired tax credits ranged from one to eleven, and the properties were not subject to regulatory review. The length of time remaining for holding periods ranged from one to fifteen years. The amount of contingent equity commitments expected to be paid during the years 2023 to 2029 is $4. Tax credits recognized in 2022 were $33 and other tax benefits recognized in 2022 were $2. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.
At December 31, 2021, the Company had ownership interests in fifty-five LIHTC investments with a carrying value of $87. The remaining years of unexpired tax credits ranged from two to twelve, and the properties were not subject to regulatory review. The length of time remaining for holding periods ranged from one to sixteen years. The amount of contingent equity commitments expected to be paid during the years 2022 to 2029 is $21. Tax credits recognized in 2021 were $28 and other tax benefits recognized in 2021 were $4. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.
45
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables provide the carrying value of transferable state tax credits gross of any related tax liabilities and total unused transferable tax credits by state and in total as of December 31, 2022 and 2021:
December 31, 2022 | ||||||||||
Description of State Transferable and Non- transferable Tax Credits |
State | Carrying Value | Unused Amount* | |||||||
Low-Income Housing Tax Credits |
MA | $ | | $ | | |||||
Economic Redevelopment and Growth Tax Credits |
NJ | 10 | 34 | |||||||
Total |
$ | 10 | $ | 34 | ||||||
December 31, 2021 | ||||||||||
Description of State Transferable and Non- transferable Tax Credits |
State | Carrying Value | Unused Amount | |||||||
Low-Income Housing Tax Credits |
MA | $ | | $ | 2 | |||||
Economic Redevelopment and Growth Tax Credits |
NJ | 7 | 35 | |||||||
Total |
$ | 7 | $ | 37 | ||||||
*The unused amount reflects credits that we deem will be realizable in the period 2022-2030.
The Company did not have any non-transferable state tax credits.
The Company estimated the utilization of the remaining state transferable tax credits by projecting a future tax liability based on projected premium, tax rates and tax credits, and comparing the projected future tax liability to the availability of remaining state transferable tax credits. The Company had no impairment losses related to state transferable tax credits.
Derivatives
Amounts disclosed in this Derivatives section do not include derivatives utilized in the hedging of variable annuity guarantees in accordance with SSAP No. 108. Please see the subsequent section Derivatives Hedging Variable Annuity Guarantees for results associated with those derivatives.
The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets (cash or securities) on the Companys behalf in an amount equal to the difference between the net positive fair value of the contracts and an agreed upon threshold based on the credit rating of the counterparty. If the net fair value of all contracts with this counterparty is negative, then the Company is required to post similar assets (cash or securities). Fair value of derivative contracts, aggregated at a counterparty level at December 31, 2022 and 2021 was as follows:
2022 | 2021 | |||||||
Fair value - positive |
$ | 409 | $ | 2,171 | ||||
Fair value - negative |
(1,324 | ) | (2,988 | ) |
At December 31, 2022, 2021 and 2020, the Company has recorded unrealized gains (losses) of ($23), ($173) and ($334), respectively, for the component of derivative instruments utilized for
46
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
hedging purposes that did not qualify for hedge accounting. This has been recorded directly to unassigned surplus as an unrealized gain (loss). The Company did not recognize any unrealized gains or losses during 2022, 2021 and 2020 that represented the component of derivative instruments gain or loss that was excluded from the assessment of hedge effectiveness.
The maximum term over which the Company is hedging its exposure to the variability of future cash flows is approximately 22 years for forecasted hedge transactions. At December 31, 2022 and 2021, none of the Companys cash flow hedges have been discontinued as it was probable that the original forecasted transactions would occur by the end of the originally specified time period documented at inception of the hedging relationship. As of December 31, 2022 and 2021, the Company has no accumulated deferred gains related to the termination of swaps that were hedging forecasted transactions. It is expected that these gains will be used as basis adjustments on future asset purchases expected to transpire throughout 2023.
Summary of realized gains (losses) by derivative type for the years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Options: |
||||||||||||
Calls |
$ | | $ | 6 | $ | (805 | ) | |||||
Puts |
| (6 | ) | (299 | ) | |||||||
Collars |
| | (62 | ) | ||||||||
|
|
|||||||||||
Total options |
$ | | $ | | $ | (1,166 | ) | |||||
|
|
|||||||||||
Swaps: |
||||||||||||
Interest rate |
$ | (1 | ) | $ | 87 | $ | | |||||
Credit |
| | (6 | ) | ||||||||
Total return |
1,054 | (1,752 | ) | (851 | ) | |||||||
|
|
|||||||||||
Total swaps |
$ | 1,053 | $ | (1,665 | ) | $ | (857 | ) | ||||
|
|
|||||||||||
Futures - net positions |
(376 | ) | 110 | 480 | ||||||||
|
|
|||||||||||
Total realized gains (losses) |
$ | 677 | $ | (1,555 | ) | $ | (1,543 | ) | ||||
|
|
The average estimated fair value of derivatives held for other than hedging purposes is presented in the following table for the years ended December 31, 2022 and 2021:
Asset(1) | Liability(1) | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Derivative component of RSATs |
||||||||||||||||||||
Credit default swaps |
$ | 29 | $ | 67 | $ | | $ | (8 | ) | |||||||||||
Interest rate swaps |
6 | 6 | | | ||||||||||||||||
(1) Asset and liability classification is based on the positive (asset) or negative (liability) book/adjusted carrying value of each derivative. |
|
47
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The estimated fair value of derivatives held for other than hedging purposes is presented in the following table for the years ended December 31, 2022 and 2021:
Asset(1) | Liability(1) | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Derivative component of RSATs |
||||||||||||||||||||
Credit default swaps |
$ | 24 | $ | 69 | $ | (2 | ) | $ | (7 | ) | ||||||||||
Interest rate swaps |
6 | 7 | | | ||||||||||||||||
Total |
$ | 30 | $ | 76 | $ | (2 | ) | $ | (7 | ) | ||||||||||
(1) | Asset and liability classification is based on the positive (asset) or negative (liability) book/adjusted carrying value of each derivative. |
The net realized gains (losses) on the derivatives held for other than hedging purposes is presented in the following table for the years ended December 31, 2022, 2021 and 2020:
2022 | 2021 | 2020 | ||||||||||
Derivative component of RSATs |
||||||||||||
Credit default swaps |
$ | | $ | | $ | (6 | ) | |||||
Interest rate swaps |
| | | |||||||||
Total |
$ | | $ | | $ | (6 | ) | |||||
As stated in Note 2, the Company replicates investment grade corporate bonds, sovereign debt, or commercial mortgage backed securities by writing credit default swaps. As a writer of credit swaps, the Company actively monitors the underlying asset, being careful to note any events (default or similar credit event) that would require the Company to perform on the credit swap. If such events would take place, a payment equal to the notional amount of the contract, less any potential recoveries as determined by the underlying agreement, will be made by the Company to the counterparty to the swap.
48
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables present the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at December 31, 2022 and 2021:
2022 | ||||||||||||||
Rating Agency Designation of Referenced Credit Obligations (1) |
NAIC Designation |
Estimated Fair Value of Credit Default Swaps |
Maximum Amount of Future Payments under Credit Default Swaps |
Weighted Average Years to Maturity (2) | ||||||||||
AAA/AA/A |
1 | |||||||||||||
Single name credit default swaps (3) |
$ | 9 | $ | 948 | 3.2 | |||||||||
Credit default swaps referencing indices |
| 45 | 30.6 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
9 | 993 | 4.4 | |||||||||||
|
|
|
|
|
|
|||||||||
BBB |
2 | |||||||||||||
Single name credit default swaps (3) |
6 | 1,801 | 2.4 | |||||||||||
Credit default swaps referencing indices |
13 | 1,717 | 2.4 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
19 | 3,518 | 2.4 | |||||||||||
|
|
|
|
|
|
|||||||||
BB |
3 | |||||||||||||
Single name credit default swaps (3) |
(1 | ) | 120 | 2.2 | ||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
(1 | ) | 120 | 2.2 | ||||||||||
|
|
|
|
|
|
|||||||||
B |
4 | |||||||||||||
Single name credit default swaps (3) |
| 15 | 1.0 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
| 15 | 1.0 | |||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 27 | $ | 4,646 | 2.8 | |||||||||
|
|
|
|
|
|
(1) | The rating agency designations are based on availability and the blending of the applicable ratings among Moodys Investors Service (Moodys), Standard and Poors Rating Services (S&P), and Fitch Ratings. If no rating is available from a rating agency, then an internally derived rating is used. |
(2) | The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. |
(3) | Includes corporate, foreign government and state entities. |
49
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
2021 | ||||||||||||||
Rating Agency Designation of Referenced Credit Obligations (1) |
NAIC Designation |
Estimated Fair Value of Credit Default Swaps |
Maximum Amount of Future Payments under Credit Default Swaps |
Weighted Average Years to Maturity (2) | ||||||||||
AAA/AA/A |
1 | |||||||||||||
Single name credit default swaps (3) |
$ | 15 | $ | 770 | 3.4 | |||||||||
Credit default swaps referencing indices |
| 45 | 31.6 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
15 | 815 | 4.9 | |||||||||||
|
|
|
|
|
|
|||||||||
BBB |
2 | |||||||||||||
Single name credit default swaps (3) |
33 | 1,914 | 3.0 | |||||||||||
Credit default swaps referencing indices |
24 | 1,736 | 2.1 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
57 | 3,650 | 2.6 | |||||||||||
|
|
|
|
|
|
|||||||||
BB |
3 | |||||||||||||
Single name credit default swaps (3) |
2 | 135 | 1.2 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
2 | 135 | 1.2 | |||||||||||
|
|
|
|
|
|
|||||||||
B |
4 | |||||||||||||
Single name credit default swaps (3) |
1 | 37 | 1.1 | |||||||||||
|
|
|
|
|
|
|||||||||
Subtotal |
1 | 37 | 1.1 | |||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | 75 | $ | 4,637 | 3.0 | |||||||||
|
|
|
|
|
|
(1) | The rating agency designations are based on availability and the blending of the applicable ratings among Moodys Investors Service (Moodys), Standard and Poors Rating Services (S&P), and Fitch Ratings. If no rating is available from a rating agency, then an internally derived rating is used. |
(2) | The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. |
(3) | Includes corporate, foreign government and state entities. |
The Company may enter into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table above. At December 31, 2022, there were not any potential future recoveries available to offset the $4,646 from the table above. At December 31, 2021, there were not any potential future recoveries available to offset the $4,637 from the table above.
50
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
At December 31, 2022 and 2021, the Companys outstanding derivative instruments, shown in notional or contract amounts and fair value, are summarized as follows:
Contract or Notional Amount* | Fair Value | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Derivative assets: |
||||||||||||||||||||
Credit default swaps |
$ | 4,445 | $ | 4,020 | $ | 28 | $ | 69 | ||||||||||||
Currency swaps |
747 | 641 | 139 | 34 | ||||||||||||||||
Equity futures |
| | 9 | 5 | ||||||||||||||||
Equity swaps |
2,169 | 1,294 | 65 | 17 | ||||||||||||||||
Interest rate futures |
| | | | ||||||||||||||||
Interest rate swaps |
35 | 81 | 8 | 11 | ||||||||||||||||
Options |
1,859 | 3,724 | 86 | 188 | ||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||
Credit default swaps |
733 | 1,411 | (2 | ) | 3 | |||||||||||||||
Currency swaps |
44 | 664 | 2 | 6 | ||||||||||||||||
Equity futures |
| | 12 | 4 | ||||||||||||||||
Equity swaps |
3,785 | 6,885 | 99 | 235 | ||||||||||||||||
Interest rate futures |
| | | | ||||||||||||||||
Interest rate swaps |
7,096 | 6,677 | 1,091 | 684 | ||||||||||||||||
Options |
(2,078 | ) | (1,724 | ) | 47 | 114 |
*Futures are presented in contract format. Swaps and options are presented in notional format.
Derivatives Hedging Variable Annuity Guarantees
The hedged obligation consists of guaranteed benefits on variable annuity contracts and resembles a long dated put option where claim payment is made whenever account value is less than a guaranteed amount, adjusted for applicable fees. Changes in interest rates impact the present value of future product cash flows (discount rate) as well as the value of investments comprising the account value to be assessed against the guarantee. Under this VM-21 compliant clearly defined hedging strategy, interest rate risk may be hedged by a duration matched portfolio of interest sensitive derivatives such as treasury bond forwards, treasury futures, interest rate swaps, interest rate swaptions or treasury future options. Retroactive to January 1, 2020, the Company re-designated the portfolio of contracts giving rise to the hedged item. The re-designation will more acutely reflect alignment between hedge performance and reserve valuations pertaining to the hedged item on a forward-looking basis. Also retroactive to January 1, 2020, the Company also elected to immediately amortize the full $195 SSAP No. 108 asset balance associated with the former designated portfolio through realized loss. The Company received approval from the IID for the redesignation and application of this accounting treatment on June 26, 2020. Effective October 1, 2021 the guaranteed benefits included was expanded to include variable annuity contracts with Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit riders, excluding contracts assumed via reinsurance along with the originally included Guaranteed Minimum Withdrawal Benefit and Guaranteed Minimum Account Benefit riders. The Company received approval from the IID on September 28, 2021 for the expansion of the program. Total return on the designated portfolio of derivatives remains highly effective in covering the interest rate risk (rho) of the hedged obligation. Hedge effectiveness is measured in accordance with the requirements outlined under SSAP No. 108 and
51
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
entails assessment of the total return on the designated portfolio of derivatives against changes in the fair value of the hedged obligation due to interest rate movements on a cumulative basis.
The Company accelerated the amortization of its SSAP 108 variable annuity deferred interest rate position reported on December 31, 2021. The Company fully amortized the $250 unamortized liability balance as of December 31, 2021 to zero, in 2022. The acceleration of the amortization of the SSAP 108 deferral is consistent with SSAP 108, Paragraph 14 Section c. i. that allows the accelerating of amortization of the deferral, if consistently done between deferred assets and deferred liabilities within its hedging strategy. The Company did not change any accounting practices under SSAP 108. The Companys Clearly Defined Hedge Strategy is not being revised.
Scheduled amortization for SSAP No. 108 derivatives as of December 31, 2022 is as follows:
Amortization Year | Deferred Assets | Deferred Liabilities | ||||||
|
||||||||
2023 |
$ | (40 | ) | $ | | |||
2024 |
(40 | ) | | |||||
2025 |
(40 | ) | | |||||
2026 |
(40 | ) | | |||||
2027 |
(40 | ) | | |||||
2028 |
(40 | ) | | |||||
2029 |
(40 | ) | | |||||
2030 |
(40 | ) | | |||||
2031 |
(40 | ) | | |||||
2032 |
(20 | ) | | |||||
|
|
|||||||
Total |
$ | (380 | ) | $ | | |||
|
|
The following table is a reconciliation of the total deferred balance (net of tax) of SSAP No. 108 derivatives:
Total Deferred Balance |
||||
1. Balance at January 1, 2021 |
$ | (145) | ||
2. Amortization |
(14) | |||
3. Deferred Recognition |
119 | |||
|
|
|||
4. Balance at December 31, 2021 [1-(2+3)] |
$ | (250) | ||
5. Amortization |
(230) | |||
6. Deferred Recognition |
(400) | |||
|
|
|||
7. Balance at December 31, 2022 [4-(5+6)] |
$ | 380 | ||
|
|
The following tables provide information regarding SSAP No. 108 hedging instruments:
2022 | 2021 | |||||||
Amortized cost |
$ | | $ | 1 | ||||
Fair value |
(750 | ) | (95 | ) |
52
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2022 |
||||||||||||||||
Net Investment Income |
Realized Gain (Loss) |
Unrealized Gain (Loss) |
Total* | |||||||||||||
Derivative performance |
$ | (34 | ) | $ | (3,736 | ) | $ | (654 | ) | $ | (4,424 | ) | ||||
SSAP No. 108 Adjustments |
||||||||||||||||
Portion of the derivative performance attributed to natural offset |
84 | 2,275 | 1,559 | 3,918 | ||||||||||||
Deferred |
(50 | ) | 1,461 | (905 | ) | 506 | ||||||||||
*Totals shown are pre-tax |
December 31, 2021 |
||||||||||||||||
Net Investment Income |
Realized Gain (Loss) |
Unrealized Gain (Loss) |
Total* | |||||||||||||
Derivative performance |
$ | 6 | $ | (504 | ) | $ | (41 | ) | $ | (539 | ) | |||||
SSAP No. 108 Adjustments |
||||||||||||||||
Portion of the derivative performance attributed to natural offset |
(4 | ) | 338 | 355 | 689 | |||||||||||
Deferred |
(2 | ) | 166 | (314 | ) | (150 | ) | |||||||||
*Totals shown are pre-tax |
Year Ended December 31 | ||||||||
2022 | 2021 | |||||||
Prior year fair value of hedged item |
$ | (3,847 | ) | $ | (3,778 | ) | ||
Current year fair value of hedged item |
938 | (3,026 | ) | |||||
Change in fair value attributable to interest rates |
$ | 4,785 | $ | 752 | ||||
Portion of the fair value change attributed to the hedged risk | $ | 4,785 | $ | 753 | ||||
53
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Restricted Assets
The following tables show the pledged or restricted assets as of December 31, 2022 and 2021, respectively:
Gross Restricted (Admitted & Nonadmitted) | ||||||||||||||||||||
2022 | ||||||||||||||||||||
Restricted Asset Category | Total General Account (G/A) |
G/A Supporting Separate Account (S/A) Activity |
Total S/A Restricted Assets |
S/A Assets Supporting G/A Activity |
Total | |||||||||||||||
|
||||||||||||||||||||
Collateral held under security lending agreements |
$ | 2,115 | $ | | $ | | $ | | $ | 2,115 | ||||||||||
Subject to repurchase agreements |
251 | | | | 251 | |||||||||||||||
Subject to dollar repurchase agreements |
96 | | | | 96 | |||||||||||||||
FHLB capital stock |
130 | | | | 130 | |||||||||||||||
On deposit with states |
38 | | | | 38 | |||||||||||||||
Pledged as collateral to FHLB (including assets backing funding agreements) |
5,335 | | | | 5,335 | |||||||||||||||
Pledged as collateral not captured in other categories |
2,268 | | | | 2,268 | |||||||||||||||
Other restricted assets |
5,983 | | | | 5,983 | |||||||||||||||
|
|
|||||||||||||||||||
Total restricted assets |
$ | 16,216 | $ | | $ | | $ | | $ | 16,216 | ||||||||||
|
|
Gross (Admitted & Nonadmitted) Restricted | Percentage | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Restricted Asset Category | Total From Prior Year (2021) |
Increase/ (Decrease) |
Total Nonadmitted Restricted |
Total Admitted Restricted |
Gross Restricted |
Admitted Total |
||||||||||||||||||
|
||||||||||||||||||||||||
Collateral held under security lending agreements |
$ | 2,073 | $ | 42 | $ | | $ | 2,115 | 1.22% | 1.23% | ||||||||||||||
Subject to repurchase agreements |
187 | 64 | | 251 | 0.15% | 0.15% | ||||||||||||||||||
Subject to dollar repurchase agreements |
878 | (782 | ) | | 96 | 0.06% | 0.06% | |||||||||||||||||
FHLB capital stock |
130 | | | 130 | 0.08% | 0.08% | ||||||||||||||||||
On deposit with states |
38 | | | 38 | 0.02% | 0.02% | ||||||||||||||||||
Pledged as collateral to FHLB (including assets backing funding agreements) |
4,226 | 1,109 | | 5,335 | 3.08% | 3.11% | ||||||||||||||||||
Pledged as collateral not captured in other categories |
1,818 | 450 | | 2,268 | 1.31% | 1.32% | ||||||||||||||||||
Other restricted assets |
1,392 | 4,591 | | 5,983 | 3.46% | 3.48% | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Total restricted assets |
$ | 10,742 | $ | 5,474 | $ | | $ | 16,216 | 9.38% | 9.45% | ||||||||||||||
|
|
The amounts reported as other restricted assets in the table above represent assets held in trust related to reinsurance.
54
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables show the pledged or restricted assets in other categories as of December 31, 2022 and 2021, respectively:
Gross Restricted (Admitted & Nonadmitted) | ||||||||||||||||||||
2022 | ||||||||||||||||||||
Description of Assets | Total General Account (G/A) |
G/A Supporting Separate Account (S/A) Activity |
Total S/A Restricted Assets |
S/A Assets Supporting G/A Activity |
Total | |||||||||||||||
|
||||||||||||||||||||
Derivatives |
$ | 2,251 | $ | | $ | | $ | | $ | 2,251 | ||||||||||
Secured funding agreements |
17 | | | | 17 | |||||||||||||||
AMBAC |
| | | | | |||||||||||||||
|
|
|||||||||||||||||||
Total |
$ | 2,268 | $ | | $ | | $ | | $ | 2,268 | ||||||||||
|
|
Gross (Admitted & Nonadmitted) Restricted | Percentage | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Description of Assets | Total From Prior Year (2021) |
Increase/ (Decrease) |
Total Nonadmitted Restricted |
Total Admitted Restricted |
Gross Restricted |
Admitted Total |
||||||||||||||||||
|
||||||||||||||||||||||||
Derivatives |
$ | 1,800 | $ | 451 | $ | | $ | 2,251 | 1.30% | 1.31% | ||||||||||||||
Secured funding agreements |
17 | | | 17 | 0.01% | 0.01% | ||||||||||||||||||
AMBAC |
1 | (1 | ) | | | 0.00% | 0.00% | |||||||||||||||||
|
|
|||||||||||||||||||||||
Total |
$ | 1,818 | $ | 450 | $ | | $ | 2,268 | 1.31% | 1.32% | ||||||||||||||
|
|
55
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables show the collateral received and reflected as assets within the financial statements as of December 31, 2022 and 2021:
2022 |
||||||||||||||||
Collateral Assets | Carrying Value | Fair Value | % of CV to Total Assets (Admitted and Nonadmitted) |
% of CV to Total Admitted Assets |
||||||||||||
|
||||||||||||||||
Cash |
$ | 249 | $ | 243 | 0.31 % | 0.31 % | ||||||||||
Securities lending collateral assets |
2,115 | 2,115 | 2.59 | 2.64 | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|||||||||||||||
Total collateral assets |
$ | 2,364 | $ | 2,358 | 2.90 % | 2.95 % | ||||||||||
|
|
Amount | % of Liability Liabilities |
|||||||
|
|
|||||||
Recognized obligation to return collateral asset |
$ | 2,367 | 3.17% |
2021 |
||||||||||||||||
Collateral Assets | Carrying Value | Fair Value | % of CV to Total Assets (Admitted and Nonadmitted) |
% of CV to Total Admitted Assets |
||||||||||||
|
||||||||||||||||
Cash |
$ | 1,094 | $ | 1,094 | 1.42 % | 1.43 % | ||||||||||
Securities lending collateral assets |
2,073 | 2,073 | 2.69 | 2.70 | ||||||||||||
Other |
17 | 17 | 0.02 | 0.02 | ||||||||||||
|
|
|||||||||||||||
Total collateral assets |
$ | 3,184 | $ | 3,184 | 4.13 % | 4.15 % | ||||||||||
|
|
Amount | % of Liability Liabilities |
|||||||
|
|
|||||||
Recognized obligation to return collateral asset |
$ | 3,186 | 4.59 % |
56
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Net Investment Income
Detail of net investment income is presented below:
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Income: |
||||||||||||
Bonds |
$ | 2,029 | $ | 2,151 | $ | 2,025 | ||||||
Preferred stocks |
3 | 4 | 9 | |||||||||
Common stocks |
343 | 228 | 57 | |||||||||
Mortgage loans on real estate |
415 | 483 | 378 | |||||||||
Real estate |
13 | 25 | 40 | |||||||||
Policy loans |
108 | 112 | 116 | |||||||||
Cash, cash equivalents and short-term investments |
26 | 1 | 24 | |||||||||
Derivatives |
273 | 89 | 606 | |||||||||
Other invested assets |
180 | 155 | 214 | |||||||||
|
|
|||||||||||
Gross investment income |
3,390 | 3,248 | 3,469 | |||||||||
Less: investment expenses |
178 | 167 | 210 | |||||||||
|
|
|||||||||||
Net investment income before amortization of IMR |
3,212 | 3,081 | 3,259 | |||||||||
Amortization of IMR |
85 | 110 | 102 | |||||||||
|
|
|||||||||||
Net investment income |
$ | 3,297 | $ | 3,191 | $ | 3,361 | ||||||
|
|
Realized Capital Gains (Losses)
Net realized capital gains (losses) on investments, including OTTI, are summarized below:
Realized | ||||||||||||
|
|
|||||||||||
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Bonds |
$ | (614 | ) | $ | 311 | $ | 53 | |||||
Preferred stocks |
| 2 | (20) | |||||||||
Common stocks |
56 | 11 | (13) | |||||||||
Mortgage loans on real estate |
| | (1) | |||||||||
Real estate |
1 | (9 | ) | 257 | ||||||||
Cash, cash equivalents and short-term investments |
| | (1) | |||||||||
Derivatives |
(4,555 | ) | (2,474 | ) | 249 | |||||||
Variable annuity reserve hedge offset |
229 | 15 | (192) | |||||||||
Other invested assets |
169 | 488 | 43 | |||||||||
|
|
|||||||||||
Change in realized capital gains (losses), before taxes |
(4,714 | ) | (1,656 | ) | 375 | |||||||
Federal income tax effect |
45 | (122 | ) | (128) | ||||||||
Transfer from (to) interest maintenance reserve |
458 | (146 | ) | (134) | ||||||||
|
|
|||||||||||
Net realized capital gains (losses) on investments |
$ | (4,211 | ) | $ | (1,924 | ) | $ | 113 | ||||
|
|
57
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Unrealized Capital Gains (Losses)
The changes in net unrealized capital gains and losses on investments, including the changes in net unrealized foreign capital gains and losses were as follows:
Change in Unrealized | ||||||||||||
|
|
|||||||||||
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Bonds |
$ | 197 | $ | 150 | $ | 53 | ||||||
Preferred stocks |
(11 | ) | 15 | 9 | ||||||||
Common stocks |
(40 | ) | 2 | 22 | ||||||||
Affiliated entities |
(278 | ) | (46 | ) | 182 | |||||||
Derivatives |
1,142 | 262 | (364) | |||||||||
Other invested assets |
51 | 139 | 3 | |||||||||
|
|
|||||||||||
Change in unrealized capital gains (losses), before taxes |
1,061 | 522 | (95) | |||||||||
Taxes on unrealized capital gains (losses) |
(47 | ) | (72 | ) | (31) | |||||||
|
|
|||||||||||
Change in unrealized capital gains (losses), net of tax |
$ | 1,014 | $ | 450 | $ | (126) | ||||||
|
|
6. | Policy and Contract Attributes |
Insurance Liabilities
Policy reserves, deposit-type contracts and policy claims at December 31, 2022 and 2021 were as follows:
Year Ended December 31 | ||||||||
2022 | 2021 | |||||||
|
|
|||||||
Life insurance reserves |
$ | 33,013 | $ | 26,749 | ||||
Annuity reserves and supplementary contracts with life contingencies |
17,894 | 18,289 | ||||||
Accident and health reserves (including long term care) |
7,049 | 6,945 | ||||||
|
|
|||||||
Total policy reserves |
$ | 57,956 | $ | 51,983 | ||||
Deposit-type contracts |
766 | 824 | ||||||
Policy claims |
1,098 | 1,177 | ||||||
|
|
|||||||
Total policy reserves, deposit-type contracts and claim liabilities |
$ | 59,820 | $ | 53,984 | ||||
|
|
58
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Life Insurance Reserves
The aggregate policy reserves for life insurance policies are based upon the 1941, 1958, 1980, 2001 and 2017 Commissioners Standard Ordinary Mortality Tables, the 1912, 1941 and 1961 Standard Industrial Mortality Tables, the 1960 Commissioners Standard Group Mortality Table, the American Men, Actuaries and American Experience Mortality Tables. The reserves are calculated using interest rates ranging from 0.75 to 6.50 percent and are computed principally on the Net Level Premium Valuation and the Commissioners Reserve Valuation Method. Reserves for universal life policies are based on account balances adjusted for the Commissioners Reserve Valuation Method or Actuarial Guideline XXXVIII. Effective July 1, 2017, term insurance issued follows Valuation Manual section 20 (VM-20) reserve requirements.
Tabular interest, tabular less actual reserves released and tabular cost have been determined by formula.
The Company waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium for periods beyond the date of death.
Additional premiums are charged or additional mortality charges are assessed for policies issued on substandard lives according to underwriting classification. Generally, reserves are determined by computing the regular reserve for the plan at the true age and holding, in addition, the unearned portion of the extra premium charge for the year. Effective July 1, 2017, for substandard term insurance policies, per VM-20 requirements, the substandard rating is applied to the reserve mortality. For certain flexible premium and fixed premium universal life insurance products, reserves are calculated utilizing the Commissioners Reserve Valuation Method for universal life policies and recognizing any substandard ratings.
As of December 31, 2022 and 2021, the Company had insurance in force aggregating $39,639 and $48,379, respectively, in which the gross premiums are less than the net premiums required by the valuation standards established by the IID. The Company established policy reserves of $1,506 and $1,549 to cover these deficiencies as of December 31, 2022 and 2021, respectively.
Participating life insurance policies were issued by the Company in prior years which entitle policyholders to a share in the earnings of the participating policies, provided that a dividend distribution, which is determined annually based on mortality and persistency experience of the participating policies, is authorized by the Company. Participating insurance constituted less than 0.05% of ordinary life insurance in force at December 31, 2022 and 2021.
Annuity Reserves and Supplementary Contracts Involving Life Contingencies
Deferred annuity reserves are calculated according to the Commissioners Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest.
59
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Reserves for immediate annuities and supplementary contracts with and without life contingencies are equal to the present value of future payments assuming interest rates ranging from 2.50 to 11.75 percent and mortality rates, where appropriate, from a variety of tables.
Annuity reserves also include GICs and funding agreements classified as life-type contracts as defined in SSAP No. 50, Classifications of Insurance or Managed Care Contracts. These liabilities have annuitization options at guaranteed rates and consist of floating interest rate and fixed interest rate contracts. The contract reserves are carried at the greater of the account balance or the value as determined for an annuity with cash settlement option, on a change in fund basis, according to the Commissioners Annuity Reserve Valuation Method.
For variable annuities with guaranteed living benefits and variable annuities with minimum guaranteed death benefits the Company complies with VM-21. VM-21 specifies statutory reserve requirements for variable annuity contracts with benefit guarantees (VACARVM) and without benefit guarantees and related products. The VM-21 reserve calculation covers all variable annuity products. Examples of covered guaranteed benefits include guaranteed minimum accumulation benefits, return of premium death benefits, guaranteed minimum income benefits, guaranteed minimum withdrawal benefits and guaranteed payout annuity floors. The aggregate reserve for contracts falling within the scope of VM-21 is equal to the stochastic reserves plus the additional standard projection amount. During 2022, the Company established a voluntary reserve in addition to the reserve required under VM-21 to help manage volatility associated with unhedged base contract cashflows. The VA voluntary reserve totaled $507 as of December 31, 2022.
Both the stochastic reserves and the standard projection are determined as the conditional tail expectation (CTE)-70 of the scenario reserves. To determine the CTE-70 values, the Company used 1,000 of the pre-packaged scenarios developed by the American Academy of Actuaries (AAA) and Society of Actuaries. The stochastic reserves uses prudent estimate assumptions based on Company experience, while the standard projection uses the assumptions prescribed in VM-21 for determining the additional standard projection amount.
Accident and Health Liabilities
Accident and health policy reserves are equal to the greater of the gross unearned premiums or any required mid-terminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims.
At December 31, 2022 and 2021, the Company had no premium deficiency reserve related to accident and health policies.
The Companys primary method utilized to estimate premium adjustments for contracts subject to redetermination is to review experience periodically and to adjust premiums for differences between the experience anticipated at the time of redetermination and that underlying the original premiums. The Company has not limited its degree of discretion contractually; however, in some states it has agreed not to raise premiums in order to recoup past losses. The Company forgoes premium changes on existing policies at its option if the administrative cost and other business issues associated with the change outweigh the direct financial impact of the change. Also, the Company has extra-contractually guaranteed the current premium scale for certain policies.
60
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
For indeterminate premium products, a full schedule of current and anticipated premium rates is developed at the point of issue. Premium rate adjustments are considered when anticipated future experience foretells deviations from the original profit standards. The source of deviation (mortality, persistency, expense, etc.) is an important consideration in the re-rating decision as well as the potential effect of a rate change on the future experience of the existing block of business.
The Company does not write any accident and health business that is subject to the Affordable Care Act risk sharing provisions.
Liabilities for losses and loss/claim adjustment expenses for accident and health contracts are estimated using statistical claim development models to develop best estimates of liabilities for medical expense business and using tabular reserves employing mortality/morbidity tables and discount rates meeting minimum regulatory requirements for other business. Unpaid claims include amounts for losses and related adjustment expenses and are estimates of the ultimate net costs of all losses, reported and unreported. These estimates are subject to the impact of future changes in claim severity, frequency and other factors.
Activity in the liability for unpaid claims and related processing costs net of reinsurance is summarized as follows:
Unpaid Claims Liability Beginning of Year |
Claims Incurred |
Claims Paid |
Unpaid Claims Liability End of Year |
|||||||||||||
|
|
|||||||||||||||
Year ended December 31, 2022 |
||||||||||||||||
2022 |
$ | | $ | 1,141 | $ | 444 | $ | 697 | ||||||||
2021 and prior |
1,941 | (49 | ) | 598 | 1,294 | |||||||||||
|
|
|||||||||||||||
1,941 | $ | 1,092 | $ | 1,042 | 1,991 | |||||||||||
|
|
|||||||||||||||
Active life reserve |
$ | 5,442 | $ | 5,476 | ||||||||||||
|
|
|
|
|||||||||||||
Total accident and health reserves |
$ | 7,383 | $ | 7,467 | ||||||||||||
|
|
|
|
Unpaid Claims Liability Beginning of Year |
Claims Incurred |
Claims Paid |
Unpaid Claims Liability End of Year |
|||||||||||||
|
|
|||||||||||||||
Year ended December 31, 2021 |
||||||||||||||||
2021 |
$ | | $ | 1,122 | $ | 430 | $ | 692 | ||||||||
2020 and prior |
1,995 | (165 | ) | 581 | 1,249 | |||||||||||
|
|
|||||||||||||||
1,995 | $ | 957 | $ | 1,011 | 1,941 | |||||||||||
|
|
|||||||||||||||
Active life reserve |
$ | 5,342 | $ | 5,442 | ||||||||||||
|
|
|
|
|||||||||||||
Total accident and health reserves |
$ | 7,337 | $ | 7,383 | ||||||||||||
|
|
|
|
The change in the Companys unpaid claims reserve was ($49) and ($165) for the years ended December 31, 2022 and 2021, respectively, for health claims that were incurred prior to those Balance Sheets date. The change in 2022 and 2021 was due to better than expected experience primarily due to reduced medical claims and accidental deaths.
61
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Activity in the liability for unpaid claims adjustment expense is summarized as follows:
Liability Beginning of Year |
Incurred | Paid | Liability End of Year |
|||||||||||||
|
|
|||||||||||||||
Year ended December 31, 2022 |
||||||||||||||||
2022 |
$ | | $ | 25 | $ | 10 | $ | 15 | ||||||||
2021 and prior |
37 | 8 | 18 | 27 | ||||||||||||
|
|
|||||||||||||||
$ | 37 | $ | 33 | $ | 28 | $ | 42 | |||||||||
|
|
|||||||||||||||
Year ended December 31, 2021 |
||||||||||||||||
2021 |
$ | | $ | 22 | $ | 9 | $ | 13 | ||||||||
2020 and prior |
43 | (2 | ) | 17 | 24 | |||||||||||
|
|
|||||||||||||||
$ | 43 | $ | 20 | $ | 26 | $ | 37 | |||||||||
|
|
The Company increased the claim adjustment expense provision for insured events of prior years during 2022.
Premium and Annuity Considerations Deferred and Uncollected
Reserves on the Companys traditional life insurance products are computed using mean and interpolated or mid-terminal reserving methodologies. The mean methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policys paid-through date to the policys next anniversary date. The interpolated methodologies do not require the establishment of such assets, however, it is required to hold unearned premium liabilities. At December 31, 2022 and 2021, the gross premiums and net of loading amounts related to these assets (which are reported as premiums deferred and uncollected), are as follows:
2022 | 2021 | |||||||||||||||
Gross | Net of Loading | Gross | Net of Loading | |||||||||||||
Life and annuity: |
||||||||||||||||
Ordinary first-year business |
$ | 1 | $ | | $ | 1 | $ | | ||||||||
Ordinary renewal business |
142 | 115 | 154 | 126 | ||||||||||||
Group life direct business |
15 | 11 | 16 | 11 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 158 | $ | 126 | $ | 171 | $ | 137 | |||||||||
|
|
|
|
|
|
|
|
Deposit-type Contracts
Tabular interest on funds not involving life contingencies has been determined primarily by formula.
The Company issues certain funding agreements with well-defined class-based annuity purchase rates defining either specific or maximum purchase rate guarantees. However, these funding agreements are not issued to or for the benefit of an identifiable individual or group of individuals. These contracts are classified as deposit-type contracts in accordance with SSAP No. 50.
62
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Included in the liability for deposit-type contracts at December 31, 2022 and 2021 are approximately $11 and $11, respectively, of funding agreements issued to special purpose entities in conjunction with non-recourse medium-term note programs. Under these programs, the proceeds from each note series issuance are used to purchase a funding agreement from the Company which secures that particular series of notes. In general, the payment terms of the note series match the payment terms of the funding agreement that secures that series. Claims for the principal and interest for these funding agreements are afforded equal priority as other policyholders.
Withdrawal Characteristics of Annuity Reserves and Deposit Funds
A portion of the Companys policy reserves and other policyholders funds (including separate account liabilities) relates to liabilities established on a variety of the Companys annuity, deposit fund and life products. There may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on annuity and deposit fund products, by withdrawal characteristics, is summarized as follows:
December 31 2022 |
||||||||||||||||||||
|
|
|||||||||||||||||||
Individual Annuities: | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 368 | $ | 137 | $ | | $ | 505 | 1 % | |||||||||||
At book value less surrender charge of 5% or more |
1,193 | | | 1,193 | 1 | |||||||||||||||
At fair value |
6 | | 56,032 | 56,038 | 83 | |||||||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
1,567 | 137 | 56,032 | 57,736 | 85 | |||||||||||||||
At book value without adjustment |
7,190 | | | 7,190 | 11 | |||||||||||||||
Not subject to discretionary withdrawal provision |
2,484 | | 408 | 2,892 | 4 | |||||||||||||||
|
|
|||||||||||||||||||
Total individual annuity reserves |
11,241 | 137 | 56,440 | 67,818 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
2,736 | | | 2,736 | ||||||||||||||||
|
|
|||||||||||||||||||
Net individual annuities reserves |
$ | 8,505 | $ | 137 | $ | 56,440 | $ | 65,082 | ||||||||||||
|
|
|||||||||||||||||||
Amount included in book value less surrender charge above that will move to book value without adjustment in the year after the statement date |
$ | 2 | $ | | $ | | $ | 2 | ||||||||||||
|
|
63
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 | ||||||||||||||||||||
2022 | ||||||||||||||||||||
Group Annuities: | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 3,641 | $ | 16 | $ | | $ | 3,657 | 11 % | |||||||||||
At book value less surrender charge of 5% or more |
20 | | | 20 | | |||||||||||||||
At fair value |
| | 24,776 | 24,776 | 71 | |||||||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
3,661 | 16 | 24,776 | 28,453 | 82 | |||||||||||||||
At book value without adjustment (minimal or no charge or adjustment) |
4,116 | | | 4,116 | 12 | |||||||||||||||
Not subject to discretionary withdrawal provision |
1,946 | | 58 | 2,004 | 6 | |||||||||||||||
|
|
|||||||||||||||||||
Total group annuities reserves |
9,723 | 16 | 24,834 | 34,573 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
334 | | | 334 | ||||||||||||||||
|
|
|||||||||||||||||||
Net group annuities reserves |
$ | 9,389 | $ | 16 | $ | 24,834 | $ | 34,239 | ||||||||||||
|
|
December 31 | ||||||||||||||||||||
2022 | ||||||||||||||||||||
Deposit-type contracts (no life contingencies): | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 5 | $ | | $ | | $ | 5 | 1 % | |||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
5 | | | 5 | 1 | |||||||||||||||
At book value without adjustment (minimal or no charge or adjustment) |
237 | | | 237 | 28 | |||||||||||||||
Not subject to discretionary withdrawal provision |
533 | 53 | 14 | 600 | 71 | |||||||||||||||
|
|
|||||||||||||||||||
Total deposit-type contracts |
775 | 53 | 14 | 842 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
9 | | | 9 | ||||||||||||||||
|
|
|||||||||||||||||||
Net deposit-type contracts |
$ | 766 | $ | 53 | $ | 14 | $ | 833 | ||||||||||||
|
|
64
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Reconciliation to the Annual Statement: | Amount | |||
Life & Accident & Health Annual Statement: |
||||
Exhibit 5, Annuities section, total (net) |
$ | 16,961 | ||
Exhibit 5, Supp contracts with life contingencies section, total (net) |
933 | |||
Exhibit 7, Deposit-type contracts, net balance at the end of the current year after reinsurance |
766 | |||
|
|
|||
Subtotal |
18,660 | |||
Separate Accounts Annual Statement: |
||||
Exhibit 3, Annuities section, total |
80,995 | |||
Exhibit 3, Supp contracts with life contingencies section, total |
432 | |||
Other contract deposit funds |
67 | |||
|
|
|||
Subtotal |
81,494 | |||
|
|
|||
Combined total |
$ | 100,154 | ||
|
|
December 31 | ||||||||||||||||||||
2021 | ||||||||||||||||||||
Individual Annuities: | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 390 | $ | 7 | $ | | $ | 397 | % | |||||||||||
At book value less surrender charge of 5% or more |
1,531 | | | 1,531 | 2 | |||||||||||||||
At fair value |
5 | | 74,491 | 74,496 | 86 | |||||||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
1,926 | 7 | 74,491 | 76,424 | 88 | |||||||||||||||
At book value without adjustment (minimal or no charge or adjustment) |
7,413 | | | 7,413 | 8 | |||||||||||||||
Not subject to discretionary withdrawal provision |
2,710 | | 575 | 3,285 | 4 | |||||||||||||||
|
|
|||||||||||||||||||
Total individual annuity reserves |
12,049 | 7 | 75,066 | 87,122 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
2,968 | | | 2,968 | ||||||||||||||||
|
|
|||||||||||||||||||
Net individual annuity reserves |
$ | 9,081 | $ | 7 | $ | 75,066 | $ | 84,154 | ||||||||||||
|
|
65
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 | ||||||||||||||||||||
2021 | ||||||||||||||||||||
Group Annuities: | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 2,373 | $ | 20 | $ | | $ | 2,393 | 5 % | |||||||||||
At book value less surrender charge of 5% or more |
21 | | | 21 | | |||||||||||||||
At fair value |
| | 37,440 | 37,440 | 80 | |||||||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
2,394 | 20 | 37,440 | 39,854 | 85 | |||||||||||||||
At book value without adjustment (minimal or no charge or adjustment) |
5,128 | | | 5,128 | 11 | |||||||||||||||
Not subject to discretionary withdrawal provision |
2,029 | | 46 | 2,075 | 4 | |||||||||||||||
|
|
|||||||||||||||||||
Total group annuity reserves |
9,551 | 20 | 37,486 | 47,057 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
343 | | | 343 | ||||||||||||||||
|
|
|||||||||||||||||||
Net group annuity reserves |
$ | 9,208 | $ | 20 | $ | 37,486 | $ | 46,714 | ||||||||||||
|
|
December 31 | ||||||||||||||||||||
2021 | ||||||||||||||||||||
Deposit-type contracts (no life contingencies): | General Account |
Separate Account with Guarantees |
Separate Guaranteed |
Total | Percent | |||||||||||||||
|
|
|||||||||||||||||||
Subject to discretionary withdrawal with adjustment: |
||||||||||||||||||||
With fair value adjustment |
$ | 5 | $ | | $ | | $ | 5 | 1 % | |||||||||||
|
|
|||||||||||||||||||
Total with adjustment or at fair value |
5 | | | 5 | 1 | |||||||||||||||
At book value without adjustment (minimal or no charge or adjustment) |
246 | | | 246 | 27 | |||||||||||||||
Not subject to discretionary withdrawal provision |
583 | 66 | 21 | 670 | 72 | |||||||||||||||
|
|
|||||||||||||||||||
Total deposit-type contracts |
834 | 66 | 21 | 921 | 100 % | |||||||||||||||
|
|
|||||||||||||||||||
Less reinsurance ceded |
10 | | | 10 | ||||||||||||||||
|
|
|||||||||||||||||||
Net deposit-type contracts |
$ | 824 | $ | 66 | $ | 21 | $ | 911 | ||||||||||||
|
|
66
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Reconciliation to the Annual Statement: | Amount | |||
Life & Accident & Health Annual Statement: |
||||
Exhibit 5, Annuities section, total (net) |
$ | 17,324 | ||
Exhibit 5, Supp contracts with life contingencies section, total (net) |
965 | |||
Exhibit 7, Deposit-type contracts, net balance at the end of the current year after reinsurance |
824 | |||
|
|
|||
Subtotal |
19,113 | |||
Separate Accounts Annual Statement: |
||||
Exhibit 3, Annuities section, total |
112,005 | |||
Exhibit 3, Supp contracts with life contingencies section, total |
574 | |||
Other contract deposit funds |
87 | |||
|
|
|||
Subtotal |
112,666 | |||
|
|
|||
Combined total |
$ | 131,779 | ||
|
|
The amount of reserves on life products, by withdrawal characteristics, is summarized as follows:
December 31 | ||||||||||||
2022 | ||||||||||||
General Account | ||||||||||||
Account Value | Cash Value | Reserve | ||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Term policies with cash value |
$ | 313 | $ | 313 | $ | 442 | ||||||
Universal life |
14,590 | 13,706 | 14,639 | |||||||||
Universal life with secondary guarantees |
5,822 | 5,760 | 13,570 | |||||||||
Indexed universal life with secondary guarantees |
6,612 | 4,539 | 5,344 | |||||||||
Other permanent cash value life insurance |
4,698 | 4,698 | 7,148 | |||||||||
Variable universal life |
672 | 673 | 1,491 | |||||||||
Not subject to discretionary withdrawal or no cash values |
||||||||||||
Term policies without cash value |
| | 8,085 | |||||||||
Accidental death benefits |
| | 50 | |||||||||
Disability - active lives |
| | 37 | |||||||||
Disability - disabled lives |
| | 163 | |||||||||
Miscellaneous reserves |
| | 1,573 | |||||||||
|
|
|||||||||||
Total (gross) |
32,707 | 29,689 | 52,542 | |||||||||
Reinsurance ceded |
4,620 | 4,621 | 20,036 | |||||||||
|
|
|||||||||||
Total (net) |
$ | 28,087 | $ | 25,068 | $ | 32,506 | ||||||
|
|
67
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 | ||||||||||||
2022 | ||||||||||||
|
|
|||||||||||
Separate Account - Guaranteed | ||||||||||||
|
|
|||||||||||
Account Value | Cash Value | Reserve | ||||||||||
|
|
|||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Variable universal life |
$ 677 | $ 677 | $ 677 | |||||||||
|
|
|||||||||||
Total (net) |
$ 677 | $ 677 | $ 677 | |||||||||
|
|
|||||||||||
|
|
December 31 | ||||||||||||
2022 | ||||||||||||
|
|
|||||||||||
Separate Account - Nonguaranteed | ||||||||||||
|
|
|||||||||||
Account Value | Cash Value | Reserve | ||||||||||
|
|
|||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Variable universal life |
$ 6,989 | $ 6,983 | $ 8,072 | |||||||||
|
|
|||||||||||
Total (net) |
$ 6,989 | $ 6,983 | $ 8,072 | |||||||||
|
|
|||||||||||
|
|
Reconciliation to the Annual Statement: | Amount | |||
|
|
|||
Life & Accident & Health Annual Statement: |
||||
Exhibit 5, Life insurance section, total (net) |
$ 31,686 | |||
Exhibit 5, Accidental death benefits section total (net) |
26 | |||
Exhibit 5, Disability - active lives section, total (net) |
17 | |||
Exhibit 5, Disability - disabled lives section, total (net) |
142 | |||
Exhibit 5, Miscellaneous reserves section, total (net) |
635 | |||
|
|
|||
Subtotal |
32,506 | |||
Separate Accounts Annual Statement: |
||||
Exhibit 3, Life insurance section, total |
8,749 | |||
|
|
|||
Subtotal |
8,749 | |||
|
|
|||
Combined total |
$ 41,255 | |||
|
|
68
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 | ||||||||||||
2021 | ||||||||||||
|
|
|||||||||||
General Account | ||||||||||||
|
|
|||||||||||
Account Value | Cash Value | Reserve | ||||||||||
|
|
|||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Term policies with cash value |
$ 291 | $ 291 | $ 425 | |||||||||
Universal life |
9,159 | 8,738 | 9,629 | |||||||||
Universal life with secondary guarantees |
5,763 | 5,626 | 13,350 | |||||||||
Indexed universal life with secondary guarantees |
5,803 | 3,953 | 5,328 | |||||||||
Other permanent cash value life insurance |
4,640 | 4,640 | 7,094 | |||||||||
Variable universal life |
656 | 722 | 1,496 | |||||||||
Not subject to discretionary withdrawal or no cash values |
||||||||||||
Term policies without cash value |
| | 8,140 | |||||||||
Accidental death benefits |
| | 51 | |||||||||
Disability- active lives |
| | 40 | |||||||||
Disability- disabled lives |
| | 164 | |||||||||
Miscellaneous reserves |
| | 1,871 | |||||||||
|
|
|||||||||||
Total (gross) |
26,312 | 23,970 | 47,588 | |||||||||
Reinsurance ceded |
4,592 | 4,592 | 20,839 | |||||||||
|
|
|||||||||||
Total (net) |
$ 21,720 | $ 19,378 | $ 26,749 | |||||||||
|
|
|||||||||||
|
|
December 31 | ||||||||||||
2021 | ||||||||||||
|
|
|||||||||||
Separate Account - Guaranteed | ||||||||||||
|
|
|||||||||||
Account Value | Cash Value | Reserve | ||||||||||
|
|
|||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Variable universal life |
$ 669 | $ 669 | $ 669 | |||||||||
|
|
|||||||||||
Total (net) |
$ 669 | $ 669 | $ 669 | |||||||||
|
|
|||||||||||
|
|
December 31 | ||||||||||||
2021 | ||||||||||||
|
|
|||||||||||
Separate Account - Nonguaranteed | ||||||||||||
|
|
|||||||||||
Account Value | Cash Value | Reserve | ||||||||||
|
|
|||||||||||
Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||
Variable universal life |
$ 8,979 | $ 8,969 | $ 10,471 | |||||||||
|
|
|||||||||||
Total (net) |
$ 8,979 | $ 8,969 | $ 10,471 | |||||||||
|
|
|||||||||||
|
|
69
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Reconciliation to the Annual Statement: | Amount | |||
|
|
|||
Life & Accident & Health Annual Statement: |
||||
Exhibit 5, Life insurance section, total (net) |
$ 25,835 | |||
Exhibit 5, Accidental death benefits section total (net) |
26 | |||
Exhibit 5, Disability - active lives section, total (net) |
20 | |||
Exhibit 5, Disability - disabled lives section, total (net) |
144 | |||
Exhibit 5, Miscellaneous reserves section, total (net) |
724 | |||
|
|
|||
Subtotal |
26,749 | |||
Separate Accounts Annual Statement: |
||||
Exhibit 3, Life insurance section, total |
11,140 | |||
|
|
|||
Subtotal |
11,140 | |||
|
|
|||
Combined total |
$ 37,889 | |||
|
|
Separate Accounts
Certain separate and variable accounts held by the Company relate to individual variable life insurance policies. The benefits provided on the policies are determined by the performance and/or fair value of the investments held in the separate account. The net investment experience of the separate account is credited directly to the policyholder and can be positive or negative. The assets of these separate accounts are carried at fair value. The life insurance policies typically provide a guaranteed minimum death benefit.
70
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Certain separate accounts held by the Company represent funds which are administered for pension plans. The assets consist primarily of fixed maturities and equity securities and are carried at fair value. The Company provides a minimum guaranteed return to policyholders of certain separate accounts. Certain other separate accounts do not have any minimum guarantees and the investment risks associated with fair value changes are borne entirely by the policyholder. Information regarding the separate accounts of the Company as of and for the years ended December 31, 2022, 2021 and 2020 is as follows:
Nonindexed | Nonindexed | |||||||||||||||||||
Guarantee | Guarantee | Nonguaranteed | ||||||||||||||||||
Guaranteed | Less Than or | Greater | Separate | |||||||||||||||||
Indexed | Equal to 4% | Than 4% | Accounts | Total | ||||||||||||||||
|
|
|||||||||||||||||||
Premiums, deposits and other considerations for the year ended December 31, 2022 |
$ | | $ | | $ | 10 | $ | 7,663 | $ | 7,673 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts as of December 31, 2022 with assets at: |
||||||||||||||||||||
Fair value |
$ | 132 | $ | 75 | $ | | $ | 89,360 | $ | 89,567 | ||||||||||
Amortized cost |
| 677 | | | 677 | |||||||||||||||
|
|
|||||||||||||||||||
Total as of December 31, 2022 |
$ | 132 | $ | 752 | $ | | $ | 89,360 | $ | 90,244 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts by withdrawal characteristics as of December 31, 2022: |
||||||||||||||||||||
With fair value adjustment |
$ | 132 | $ | 22 | $ | | $ | | $ | 154 | ||||||||||
At fair value |
| | | 88,880 | 88,880 | |||||||||||||||
At book value without fair value adjustment and with current surrender charge of less than 5% |
| 677 | | | 677 | |||||||||||||||
|
|
|||||||||||||||||||
Subtotal |
132 | 699 | | 88,880 | 89,711 | |||||||||||||||
Not subject to discretionary withdrawal |
| 53 | | 479 | 532 | |||||||||||||||
|
|
|||||||||||||||||||
Total separate account reserve liabilities at December 31, 2022 |
$ | 132 | $ | 752 | $ | | $ | 89,359 | $ | 90,243 | ||||||||||
|
|
71
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Nonindexed | Nonindexed | |||||||||||||||||||
Guarantee | Guarantee | Nonguaranteed | ||||||||||||||||||
Guaranteed | Less Than or | Greater | Separate | |||||||||||||||||
Indexed | Equal to 4% | Than 4% | Accounts | Total | ||||||||||||||||
|
|
|||||||||||||||||||
Premiums, deposits and other considerations for the year ended December 31, 2021 |
$ | | $ | | $ | 11 | $ | 8,076 | $ | 8,087 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts as of December 31, 2021 with assets at: |
||||||||||||||||||||
Fair value |
$ | | $ | 93 | $ | | $ | 123,046 | $ | 123,139 | ||||||||||
Amortized cost |
| 669 | | | 669 | |||||||||||||||
|
|
|||||||||||||||||||
Total as of December 31, 2021 |
$ | | $ | 762 | $ | | $ | 123,046 | $ | 123,808 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts by withdrawal characteristics as of December 31, 2021: |
||||||||||||||||||||
With fair value adjustment |
$ | | $ | 26 | $ | | $ | | $ | 26 | ||||||||||
At fair value |
| | | 122,404 | 122,404 | |||||||||||||||
At book value without fair value adjustment and with current surrender charge of less than 5% |
| 669 | | | 669 | |||||||||||||||
|
|
|||||||||||||||||||
Subtotal |
| 695 | | 122,404 | 123,099 | |||||||||||||||
Not subject to discretionary withdrawal |
| 66 | | 643 | 709 | |||||||||||||||
|
|
|||||||||||||||||||
Total separate account reserve liabilities at December 31, 2021 |
$ | | $ | 761 | $ | | $ | 123,047 | $ | 123,808 | ||||||||||
|
|
72
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Nonindexed | Nonindexed | |||||||||||||||||||
Guarantee | Guarantee | Nonguaranteed | ||||||||||||||||||
Guaranteed | Less Than or | Greater | Separate | |||||||||||||||||
Indexed | Equal to 4% | Than 4% | Accounts | Total | ||||||||||||||||
|
|
|||||||||||||||||||
Premiums, deposits and other considerations for the year ended December 31, 2020 |
$ | | $ | 1 | $ | 12 | $ | 9,402 | $ | 9,415 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts as of December 31, 2020 with assets at: |
||||||||||||||||||||
Fair value |
$ | | $ | 80 | $ | 2 | $ | 119,013 | $ | 119,095 | ||||||||||
Amortized cost |
| 665 | | | 665 | |||||||||||||||
|
|
|||||||||||||||||||
Total as of December 31, 2020 |
$ | | $ | 745 | $ | 2 | $ | 119,013 | $ | 119,760 | ||||||||||
|
|
|||||||||||||||||||
Reserves for separate accounts by withdrawal characteristics as of December 31, 2020: |
||||||||||||||||||||
With fair value adjustment |
$ | | $ | 30 | $ | | $ | | $ | 30 | ||||||||||
At fair value |
| | | 118,457 | 118,457 | |||||||||||||||
At book value without fair value adjustment and with current surrender charge of less than 5% |
| 665 | | | 665 | |||||||||||||||
|
|
|||||||||||||||||||
Subtotal |
| 695 | | 118,457 | 119,152 | |||||||||||||||
Not subject to discretionary withdrawal |
| 50 | 2 | 556 | 608 | |||||||||||||||
|
|
|||||||||||||||||||
Total separate account reserve liabilities at December 31, 2020 |
$ | | $ | 745 | $ | 2 | $ | 119,013 | $ | 119,760 | ||||||||||
|
|
A reconciliation of the amounts transferred to and from the Companys separate accounts is presented below:
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
|||||||||||
Transfer as reported in the Summary of Operations of the separate accounts statement: |
||||||||||||
Transfers to separate accounts |
$ 7,757 | $ 8,164 | $ 9,484 | |||||||||
Transfers from separate accounts |
(18,692) | (17,029) | (14,305) | |||||||||
|
|
|||||||||||
Net transfers from separate accounts |
(10,935) | (8,865) | (4,821) | |||||||||
Miscellaneous reconciling adjustments |
(17) | (16) | (29) | |||||||||
|
|
|||||||||||
Net transfers as reported in the Summary of Operations of the life, accident and health annual statement |
$ (10,952) | $ (8,881) | $ (4,850) | |||||||||
|
|
73
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The legal insulation of separate account assets prevents such assets from being generally available to satisfy claims resulting from the general account. At December 31, 2022 and 2021, the Companys separate account statement included legally insulated assets of $91,338 and $126,074, respectively. The assets legally insulated from general account claims at December 31, 2022 and 2021 are attributed to the following products:
2022 | 2021 | |||||||
|
|
| ||||||
Group annuities |
$ | 22,949 | $ | 35,216 | ||||
Variable annuities |
58,923 | 78,162 | ||||||
Fixed universal life |
717 | 700 | ||||||
Variable universal life |
7,584 | 10,366 | ||||||
Variable life |
1,105 | 1,526 | ||||||
Modified separate accounts |
47 | 79 | ||||||
Registered market value annuity product - SPL |
6 | 13 | ||||||
WRL asset accumulator |
7 | 12 | ||||||
|
|
| ||||||
Total separate account assets |
$ | 91,338 | $ | 126,074 | ||||
|
|
|
At December 31, 2022 and 2021, the Company held separate account assets not legally insulated from the general account in the amount of $156 and $14, respectively.
Some separate account liabilities are guaranteed by the general account. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account. To compensate the general account for the risk taken, the separate account paid risk charges of $584, $579, $565, $552 and $550, to the general account in 2022, 2021, 2020, 2019 and 2018, respectively. During the years ended December 31, 2022, 2021, 2020, 2019 and 2018 the general account of the Company had paid $56, $45, $75, $75 and $69 respectively, toward separate account guarantees.
At December 31, 2022 and 2021, the Company reported guaranteed separate account assets at amortized cost in the amount of $705 and $674, respectively, based upon the prescribed practice granted by the State of Iowa as described in Note 2. These assets had a fair value of $617 and $748 at December 31, 2022 and 2021, respectively, which would have resulted in an unrealized gain/(loss) of $(87) and $74, respectively, had these assets been reported at fair value.
The Company does not participate in securities lending transactions within the separate account.
74
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The Company reinsures portions of the risk on certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligation under the reinsurance treaty.
Premiums and annuity considerations include the following reinsurance amounts:
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
| ||||||||||
Direct premiums |
$ | 15,957 | $ | 17,591 | $ | 19,191 | ||||||
Reinsurance assumed - non affiliates |
1,017 | 1,272 | 1,248 | |||||||||
Reinsurance assumed - affiliates |
5,366 | (1 | ) | 2 | ||||||||
Reinsurance ceded - non affiliates |
(1,819 | ) | (3,594 | ) | (2,612 | ) | ||||||
Reinsurance ceded - affiliates |
(708 | ) | (786 | ) | (1,106 | ) | ||||||
|
|
| ||||||||||
Net premiums earned |
$ | 19,813 | $ | 14,482 | $ | 16,723 | ||||||
|
|
|
The Company received reinsurance recoveries in the amount of $3,764, $3,824 and $4,316 during 2022, 2021 and 2020, respectively. At December 31, 2022 and 2021, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $987 and $1,053, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2022 and 2021 of $34,508 and $36,616, respectively, of which $12,465 and $13,078 were ceded to affiliates, respectively.
During 2022, 2021 and 2020, amortization of deferred gains associated with previously transacted reinsurance agreements was released into income in the amount of $869 ($574 after tax), $195 ($127 after tax) and $274 ($179 after tax), respectively.
On October 31, 2022, the Company executed an affiliated coinsurance arrangement, effective July 1, 2022, under which it assumes the remaining in force universal life business from TLB net of third-party reinsurance. The Company received consideration of $4,974 in the form of cash and invested assets and assumed $5,543 in policy and contract reserves along with $6 in policy loans. After establishing a $432 interest maintenance reserve deferral related to the asset transfers, this transaction resulted in a pre-tax loss of $131 which has been included in the Summary of Operations. This transaction is secured by a comfort trust equal to 100% of the Companys U.S. statutory reserves.
Effective April 1, 2022, LIICA Re II, an affiliate, executed a recapture of a specific list of policies to the Company. The Company received consideration of $186 in the form of cash and recaptured policyholder reserves of $838. The transaction resulted in a pre-tax loss of $652 which has been included in the Statements of Operations.
Effective December 31, 2021, the Company ceded universal life with secondary guarantee insurance business to an unaffiliated entity. The Company paid considerations of $1,738 in assets
75
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
and cash, ceded $1,470 of reserves and $13 of policy loans. After a $55 realized gain release, the transaction resulted in a pre-tax loss of $243 which has been included in the Statement of Operations. There was a reversal of tax timing differences and release of risk based capital required that offset the pre-tax loss resulting in a neutral impact to the Risk Based Capital ratio.
Effective October 1, 2021, the Company recaptured a block of universal life business from an affiliate, TLIC Oakbrook Reinsurance, Inc. (TORI). The Company received consideration of $963 in the form of released funds withheld and recaptured policyholder reserves of $1,229 and claims reserves of $7. The transaction resulted in a pre-tax loss of $272 which has been included in the Statements of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cessions of this business to TORI in the amount of $173 with a corresponding charge to unassigned surplus.
Effective May 31, 2021, the Company amended and restated the Military Life and Affinity reinsurance agreements with Ironwood Re Corp, an affiliate, which changed the funds withheld calculation from a GAAP reserve valuation to a Gross Premium Valuation. As a result, the Company increased the funds withheld liability by $43. The transaction resulted in no pre-tax gain or loss.
Effective December 31, 2020, the Company ceded certain term insurance business to an unaffiliated entity. The Company paid cash consideration of $201, ceded $439 of reserves and $2 of due and deferred premium. The transaction resulted in a pre-tax gain of $236 which has been recorded directly to unassigned surplus. Recognition of the surplus increase as income shall be reflected on a net of tax basis as earnings emerge from the business reinsured.
Effective October 1, 2020, the Company recaptured several blocks of life insurance business from an affiliate, Ironwood Re Corp. The Company released funds withheld of $313 and recaptured policyholder reserves of $385 and claims reserves of $4. The transaction resulted in a pre-tax loss of $76 which has been included in the Statements of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cessions of this business to Ironwood in the amount of $125 with a corresponding charge to unassigned surplus.
Also effective October 1, 2020, an amendment was made to the military life reinsurance agreement with Ironwood Re Corp. to increase the cession percentage to 100%. As a result of this amendment, the Company ceded additional policyholder reserves of $201 and due premiums of $7 and provided net consideration of $76 which was retained as funds withheld by the Company. The transaction resulted in a pre-tax gain of $118 which was charged directly to unassigned surplus. Recognition of the surplus increase as income shall be reflected on a net of tax basis as earnings emerge from the business reinsured.
Effective October 1, 2020, the Company recaptured term insurance business from Ironwood Re Corp. The Company received consideration of $206 in the form of released funds withheld and a cash payment, recaptured $445 of policy holder and claim reserves and $2 of due premiums. The transaction resulted in a pre-tax loss of $237 which has been included in the Statements of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cessions of this business to Ironwood in the amount of $106 with a corresponding charge to unassigned surplus.
76
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
On June 30, 2020, the Company, Transamerica Pacific Re, Inc. (TPRe), and Transamerica Pacific Insurance Company (TPIC) entered into a novation agreement whereby the Company consented to TPICs assignment and transfer of its rights and obligations under the universal life coinsurance agreements to TPRe. The novation resulted in no gain or loss. Also on June 30, 2020, the Company recaptured certain universal life policy risks not associated with the secondary guarantee from TPRe for consideration of $2,124 equal to the statutory reserves recaptured resulting in no gain loss and amended and restated the universal life coinsurance agreements to cede only certain universal life secondary guarantee risks to TPRe.
In January 2018, Scottish Re Group announced a sale and restructuring plan and commenced Chapter 11 (reorganization) procedures for some of its subsidiaries. In December 2018, the Delaware Department of Insurance began oversight procedures of Scottish Re (U.S.), Inc. (SRUS), with whom the Company is a counterparty for some of its reinsurance activities. SRUS was ordered into receivership for the purposes of rehabilitation on March 6, 2019. On May 16, 2019, the IID suspended the certificate of authority for SRUS but later clarified that reserve credit could be taken on reinsurance agreements entered into prior to the revocation date if a recovery analysis could be illustrated. Now, with the continued delays of the reorganization legal proceedings and with no reliable financial information being provided by the receiver or SRUS, the Company has determined it is unable to support a favorable recovery analysis. Therefore, the Company did not take statutory reserve credit and established a loss contingency allowance for doubtful recoveries of billed and unbilled claims in its December 31, 2022 financial statements. The impact was a $125 charge reported in the Statements of Operations.
77
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The net deferred income tax asset at December 31, 2022 and 2021 and the change from the prior year are comprised of the following components:
December 31, 2022 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
|
|
| ||||||||||
Gross Deferred Tax Assets |
$ | 2,487 | $ | 191 | $ | 2,678 | ||||||
Statutory Valuation Allowance Adjustment |
| | | |||||||||
|
|
| ||||||||||
Adjusted Gross Deferred Tax Assets |
2,487 | 191 | 2,678 | |||||||||
Deferred Tax Assets Nonadmitted |
1,006 | | 1,006 | |||||||||
|
|
| ||||||||||
Subtotal (Net Deferred Tax Assets) |
1,481 | 191 | 1,672 | |||||||||
Deferred Tax Liabilities |
642 | 291 | 933 | |||||||||
|
|
| ||||||||||
Net Admitted Deferred Tax Assets (Liabilities) |
$ | 839 | $ | (100 | ) | $ | 739 | |||||
|
|
|
December 31, 2021 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
|
|
| ||||||||||
Gross Deferred Tax Assets |
$ | 1,915 | $ | 181 | $ | 2,096 | ||||||
Statutory Valuation Allowance Adjustment |
11 | | 11 | |||||||||
|
|
| ||||||||||
Adjusted Gross Deferred Tax Assets |
1,904 | 181 | 2,085 | |||||||||
Deferred Tax Assets Nonadmitted |
264 | | 264 | |||||||||
|
|
| ||||||||||
Subtotal (Net Deferred Tax Assets) |
1,640 | 181 | 1,821 | |||||||||
Deferred Tax Liabilities |
701 | 295 | 996 | |||||||||
|
|
| ||||||||||
Net Admitted Deferred Tax Assets (Liabilities) |
$ | 939 | $ | (114 | ) | $ | 825 | |||||
|
|
|
Change | ||||||||||||
Ordinary | Capital | Total | ||||||||||
|
|
| ||||||||||
Gross Deferred Tax Assets |
$ | 572 | $ | 10 | $ | 582 | ||||||
Statutory Valuation Allowance Adjustment |
(11) | | (11 | ) | ||||||||
|
|
| ||||||||||
Adjusted Gross Deferred Tax Assets |
583 | 10 | 593 | |||||||||
Deferred Tax Assets Nonadmitted |
742 | | 742 | |||||||||
|
|
| ||||||||||
Subtotal (Net Deferred Tax Assets) |
(159) | 10 | (149 | ) | ||||||||
Deferred Tax Liabilities |
(59) | (4 | ) | (63 | ) | |||||||
|
|
| ||||||||||
Net Admitted Deferred Tax Assets (Liabilities) |
$ | (100) | $ | 14 | $ | (86 | ) | |||||
|
|
|
78
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The main components of deferred income tax amounts are as follows:
Year Ended December 31 | ||||||||||||
2022 | 2021 | Change | ||||||||||
|
|
| ||||||||||
Deferred Tax Assets: |
||||||||||||
Ordinary |
||||||||||||
Policyholder reserves |
$ | 830 | $ | 745 | $ | 85 | ||||||
Investments |
257 | 208 | 49 | |||||||||
Deferred acquisition costs |
702 | 574 | 128 | |||||||||
Policyholder dividends accrual |
4 | 4 | | |||||||||
Compensation and benefits accrual |
34 | 40 | (6 | ) | ||||||||
Receivables - nonadmitted |
58 | 37 | 21 | |||||||||
Net operating loss carry-forward |
269 | 50 | 219 | |||||||||
Tax credit carry-forward |
231 | 166 | 65 | |||||||||
Contingent experience rate refunds |
| 22 | (22 | ) | ||||||||
Bad debt allowance |
| 23 | (23 | ) | ||||||||
Litigation reserve |
| 19 | (19 | ) | ||||||||
Other |
102 | 27 | 75 | |||||||||
|
|
| ||||||||||
Subtotal |
2,487 | 1,915 | 572 | |||||||||
Statutory valuation allowance adjustment |
| 11 | (11 | ) | ||||||||
Nonadmitted |
1,006 | 264 | 742 | |||||||||
|
|
| ||||||||||
Admitted ordinary deferred tax assets |
1,481 | 1,640 | (159 | ) | ||||||||
Capital |
||||||||||||
Investments |
191 | 181 | 10 | |||||||||
Other |
| | | |||||||||
|
|
| ||||||||||
Subtotal |
191 | 181 | 10 | |||||||||
Statutory valuation allowance adjustment |
| | | |||||||||
Nonadmitted |
| | | |||||||||
|
|
| ||||||||||
Admitted capital deferred tax assets |
191 | 181 | 10 | |||||||||
|
|
| ||||||||||
Admitted deferred tax assets |
$ | 1,672 | $ | 1,821 | $ | (149 | ) | |||||
|
|
|
Year Ended December 31 | ||||||||||||
2022 | 2021 | Change | ||||||||||
|
|
| ||||||||||
Deferred Tax Liabilities: |
||||||||||||
Ordinary |
||||||||||||
Investments |
$ | 420 | $ | 521 | $ | (101 | ) | |||||
Policyholder reserves |
216 | 168 | 48 | |||||||||
Other |
6 | 12 | (6 | ) | ||||||||
|
|
| ||||||||||
Subtotal |
642 | 701 | (59 | ) | ||||||||
Capital |
||||||||||||
Investments |
291 | 295 | (4 | ) | ||||||||
Other |
| | | |||||||||
|
|
| ||||||||||
Subtotal |
291 | 295 | (4 | ) | ||||||||
|
|
| ||||||||||
Deferred tax liabilities |
933 | 996 | (63 | ) | ||||||||
|
|
| ||||||||||
Net admitted deferred tax assets (liabilities) |
$ | 739 | $ | 825 | $ | (86 | ) | |||||
|
|
|
79
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
As a result of the 2017 Tax Cuts and Jobs Act (TCJA), the Companys tax reserve deductible temporary difference decreased by ($396). This change results in an offsetting $396 deductible temporary difference that will be amortized into taxable income evenly over the eight years subsequent to 2017. The remaining amortizable balance is included within the Policyholder Reserves line items above.
At December 31, 2022, the Company recorded no valuation allowance. The Companys valuation allowance decreased by ($11) in 2022 from adjustments to prior year tax returns which reduced the Companys foreign tax credit carryover as of 2022. Additionally, the Company expects an increase in future foreign source income driven by a 2022 reinsurance transaction increasing its ability to utilize its foreign tax credit carryovers.
The Inflation Reduction Act was enacted during the third quarter reporting period on August 16, 2022. The act included a provision which subjects high earning corporate taxpayers to the Corporate Alternative Minimum Tax (CAMT). The Company is part of an affiliated group that has not determined if it will be liable for CAMT in 2023 and has not included any estimated impacts of the CAMT in the financial statements, due to the inability to create a reasonable estimate, as of December 31, 2022.
As discussed in Note 2, for the years ended December 31, 2022 and 2021, the Company admits deferred income tax assets pursuant to SSAP No. 101. The amount of admitted adjusted gross deferred income tax assets under each component of SSAP No. 101 is as follows:
December 31, 2022 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
|
|
| ||||||||||
Admission Calculation Components SSAP No. 101 |
||||||||||||
2(a) Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks |
$ | | $ | | $ | | ||||||
2(b) Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below) |
717 | 22 | 739 | |||||||||
1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date |
1,129 | 22 | 1,151 | |||||||||
2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold |
XXX | XXX | 739 | |||||||||
2(c) Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities |
764 | 169 | 933 | |||||||||
|
|
| ||||||||||
2(d) Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c)) |
$ | 1,481 | $ | 191 | $ | 1,672 | ||||||
|
|
|
80
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2021 | ||||||||||||||
Ordinary | Capital | Total | ||||||||||||
|
|
| ||||||||||||
Admission Calculation Components SSAP No. 101 |
||||||||||||||
2(a) |
Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks | $ | | $ | 3 | $ | 3 | |||||||
2(b) |
Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below) | 777 | 44 | 821 | ||||||||||
1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date |
777 | 44 | 821 | |||||||||||
2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold |
XXX | XXX | 968 | |||||||||||
2(c) |
Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities | 862 | 134 | 996 | ||||||||||
|
|
| ||||||||||||
2(d) |
Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c)) | $ | 1,639 | $ | 181 | $ | 1,820 | |||||||
|
|
|
Ordinary | Change Capital |
Total | ||||||||||||
|
|
| ||||||||||||
Admission Calculation Components SSAP No. 101 |
||||||||||||||
2(a) |
Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks | $ | | $ | (3 | ) | $ | (3 | ) | |||||
2(b) |
Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below) | (60 | ) | (22 | ) | (82 | ) | |||||||
1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date |
352 | (22 | ) | 330 | ||||||||||
2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold |
XXX | XXX | (229 | ) | ||||||||||
2(c) |
Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities | (98 | ) | 35 | (63 | ) | ||||||||
|
|
| ||||||||||||
2(d) |
Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c)) | $ | (158 | ) | $ | 10 | $ | (148 | ) | |||||
|
|
|
81
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 | ||||||||||||
2022 | 2021 | Change | ||||||||||
|
|
| ||||||||||
Ratio Percentage Used To Determine Recovery Period and Threshold Limitation Amount | 726 | % | 709 | % | 17 | % | ||||||
|
|
| ||||||||||
Amount of Adjusted Capital and Surplus Used To Determine Recovery Period and Threshold Limitation in 2(b)2 Above | $ | 4,924 | $ | 6,452 | $ | (1,528 | ) | |||||
|
|
|
The impact of tax planning strategies at December 31, 2022 and 2021 was as follows:
December 31, 2022 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Percent | Percent | Percent | ||||||||||
|
|
| ||||||||||
Impact of Tax Planning Strategies: |
||||||||||||
(% of Total Adjusted Gross DTAs) |
0 | % | 0 | % | 0 | % | ||||||
|
|
| ||||||||||
(% of Total Net Admitted Adjusted Gross DTAs) |
0 | % | 0 | % | 0 | % | ||||||
|
|
|
December 31, 2021 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Percent | Percent | Percent | ||||||||||
|
|
| ||||||||||
Impact of Tax Planning Strategies: |
||||||||||||
(% of Total Adjusted Gross DTAs) |
0 | % | 0 | % | 0 | % | ||||||
|
|
| ||||||||||
(% of Total Net Admitted Adjusted Gross DTAs) |
12 | % | 0 | % | 12 | % | ||||||
|
|
|
The Companys tax planning strategies include the use of reinsurance-related tax planning strategies.
Current income taxes incurred consist of the following major components:
Year Ended December 31 | ||||||||||||
2022 | 2021 | Change | ||||||||||
|
|
| ||||||||||
Current Income Tax |
||||||||||||
Federal |
$ | (80 | ) | $ | (185 | ) | $ | 105 | ||||
|
|
| ||||||||||
Subtotal |
(80 | ) | (185 | ) | 105 | |||||||
Federal income tax on net capital gains |
(45 | ) | 122 | (167 | ) | |||||||
|
|
| ||||||||||
Federal and foreign income taxes incurred |
$ | (125 | ) | $ | (63 | ) | $ | (62 | ) | |||
|
|
|
82
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Year Ended December 31 | ||||||||||||
2021 | 2020 | Change | ||||||||||
|
|
| ||||||||||
Current Income Tax |
||||||||||||
Federal |
$ | (185 | ) | $ | (109 | ) | $ | (76 | ) | |||
|
|
| ||||||||||
Subtotal |
(185 | ) | (109 | ) | (76 | ) | ||||||
Federal income tax on net capital gains |
122 | 128 | (6 | ) | ||||||||
|
|
| ||||||||||
Federal and foreign income taxes incurred |
$ | (63 | ) | $ | 19 | $ | (82 | ) | ||||
|
|
|
The Companys current income tax incurred and change in deferred income tax differs from the amount obtained by applying the federal statutory rate to income before tax as follows:
Year Ended December 31 | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
|
|
| ||||||||||
Current income taxes incurred |
$ | (125 | ) | $ | (63 | ) | $ | 19 | ||||
Change in deferred income taxes |
(702 | ) | (123 | ) | 126 | |||||||
(without tax on unrealized gains and losses) |
||||||||||||
|
|
| ||||||||||
Total income tax reported |
$ | (827 | ) | $ | (186 | ) | $ | 145 | ||||
|
|
| ||||||||||
Income before taxes |
$ | (3,207 | ) | $ | 194 | $ | 1,444 | |||||
Federal statutory tax rate |
21.00 | % | 21.00 | % | 21.00 | % | ||||||
|
|
| ||||||||||
Expected income tax expense (benefit) at statutory rate |
$ | (673 | ) | $ | 41 | $ | 303 | |||||
Increase (decrease) in actual tax reported resulting from: |
||||||||||||
Pre-tax income of disregarded subsidiaries |
$ | 24 | $ | 15 | $ | 17 | ||||||
Dividends received deduction |
(98 | ) | (94 | ) | (59 | ) | ||||||
Tax-exempt income |
(3 | ) | (74 | ) | (3 | ) | ||||||
Nondeductible expenses |
5 | 5 | 6 | |||||||||
Pre-tax items reported net of tax |
(201 | ) | (77 | ) | (35 | ) | ||||||
Tax credits |
(29 | ) | (38 | ) | (40 | ) | ||||||
Prior period tax return adjustment |
22 | 3 | (11 | ) | ||||||||
Change in statutory valuation allowance |
(11 | ) | 11 | (14 | ) | |||||||
Change in uncertain tax positions |
| (3 | ) | | ||||||||
Deferred tax change on other items in surplus |
140 | 24 | (20 | ) | ||||||||
Other |
(3 | ) | 1 | 1 | ||||||||
|
|
| ||||||||||
Total income tax reported |
$ | (827 | ) | $ | (186 | ) | $ | 145 | ||||
|
|
|
The Companys federal income tax return is consolidated with other includible affiliated companies. Please see the listing of companies in Appendix A. The method of allocation between the companies is subject to a written tax allocation agreement. Under the terms of the tax allocation agreement, allocations are based on separate income tax return calculations. The Company is entitled to recoup federal income taxes paid in the event the future losses and credits reduce the greater of the Companys separately computed income tax liability or the consolidated groups income tax liability in the year generated. The Company is also entitled to recoup federal
83
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
income taxes paid in the event the losses and credits reduce the greater of the Companys separately computed income tax liability or the consolidated groups income tax liability in any carryback or carryforward year when so applied. Intercompany income tax balances are settled within thirty days of payment to or filing with the Internal Revenue Service. A tax return has not been filed for 2022.
The amounts, origination dates and expiration dates of operating loss and tax credit carryforwards available for tax purposes:
Description | Amount | Origination Dates | Expiration Dates | |||||
Operating Loss |
$ | 126 | 12/31/2021 | N/A | ||||
Operating Loss |
1,156 | 12/31/2022 | N/A | |||||
|
|
|
||||||
Operating Loss Total |
$ | 1,282 | ||||||
|
|
|
||||||
Foreign Tax Credit |
$ | 14 | 12/31/2022 | 12/31/2032 | ||||
|
|
|
||||||
Foreign Tax Credit Total |
$ | 14 | ||||||
|
|
|
||||||
General Business Credit |
$ | 19 | 12/31/2012 | 12/31/2032 | ||||
General Business Credit |
40 | 12/31/2013 | 12/31/2033 | |||||
General Business Credit |
25 | 12/31/2014 | 12/31/2034 | |||||
General Business Credit |
56 | 12/31/2015 | 12/31/2035 | |||||
General Business Credit |
7 | 12/31/2016 | 12/31/2036 | |||||
General Business Credit |
10 | 12/31/2017 | 12/31/2037 | |||||
General Business Credit |
7 | 12/31/2018 | 12/31/2038 | |||||
General Business Credit |
8 | 12/31/2019 | 12/31/2039 | |||||
General Business Credit |
14 | 12/31/2020 | 12/31/2040 | |||||
General Business Credit |
17 | 12/31/2021 | 12/31/2041 | |||||
General Business Credit |
15 | 12/31/2022 | 12/31/2042 | |||||
|
|
|
||||||
General Business Credit Total |
$ | 218 | ||||||
|
|
|
The following is income tax expense for current year and preceding years that is available for recoupment in the event of future losses:
Total | ||||
2020 |
$ | 29 | ||
2021 |
$ | | ||
2022 |
$ | |
The total amount of the unrecognized tax benefits that if recognized would affect the effective income tax rate:
84
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Unrecognized Tax Benefits |
||||
Balance at January 1, 2021 |
$ | 21 | ||
Tax positions taken during prior period |
(3) | |||
|
|
|||
Balance at December 31, 2021 |
$ | 18 | ||
Tax positions taken during prior period |
| |||
|
|
|||
Balance at December 31, 2022 |
$ | 18 | ||
|
|
The Company classifies interest and penalties related to income taxes as income tax expense. The amount of interest and penalties accrued on the Balance Sheets as income taxes includes the following:
Interest | Penalties | Total payable (receivable) |
||||||||||
|
|
|||||||||||
Balance at January 1, 2020 |
$ | 9 | $ | | $ | 9 | ||||||
Interest expense (benefit) |
| | | |||||||||
Cash received (paid) |
| | | |||||||||
|
|
|||||||||||
Balance at December 31, 2020 |
$ | 9 | $ | | $ | 9 | ||||||
Interest expense (benefit) |
1 | | 1 | |||||||||
Cash received (paid) |
(9) | | (9) | |||||||||
|
|
|||||||||||
Balance at December 31, 2021 |
$ | 1 | $ | | $ | 1 | ||||||
Interest expense (benefit) |
1 | | 1 | |||||||||
Cash received (paid) |
| | | |||||||||
|
|
|||||||||||
Balance at December 31, 2022 |
$ | 2 | $ | | $ | 2 | ||||||
|
|
The Internal Revenue Service (IRS) completed its examination for 2009 through 2013 for which an appeals conference is in process. The IRS opened an exam for the 2014 through 2018 amended tax returns. Federal income tax returns filed in 2019 through 2021 remain open, subject to potential future examination. The Company believes there are adequate defenses against, or sufficient provisions established related to any open or contested tax positions.
The Company has authorized 1,000,000 common stock shares at $10 per share par value of which 676,190 shares were issued and outstanding at December 31, 2022 and 2021.
The Company has 42,500 Series A preferred shares authorized, of which 0 shares were issued and outstanding at December 31, 2022 and 2021. The Company repurchased its Series A preferred shares for $58,000 on December 26, 2006 and previously reported 42,500 shares of Series A preferred stock outstanding at $10 par, carried as treasury stock. It was determined that these shares were cancelled by operation of law as they were not stipulated by the Board of Directors to be treasury shares at the time they were repurchased. The cancellation and removal of the preferred stock had no impact to capital and surplus of the Company. The Company also has 250,000 Series B preferred non-voting shares authorized at $10 per share par value, of which 0 shares were issued and outstanding at December 31, 2022 and 2021.
The Company is subject to limitations, imposed by the State of Iowa, on the payment of dividends to its stockholders. Generally, dividends during any twelve-month period may not be paid, without prior regulatory approval, in excess of the greater of (a) 10 percent of the
85
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
Companys statutory surplus as of the preceding December 31 or (b) the Companys statutory gain from operations before net realized capital gains (losses) on investments for the preceding year. Subject to the availability of earned surplus at the time of such dividend, the maximum payment which may be made in 2023, without the prior approval of insurance regulatory authorities, is $2,019.
On December 15, 2022, the Company paid an ordinary common stock dividend of $275 to CGC.
On June 30, 2022, the Company received a return of contributed surplus of $165 from LIICA Re II, Inc.
On June 21, 2022, the Company paid an ordinary common stock dividend of $150 to CGC.
On March 29 2022, the Company received a capital contribution of $100 from CGC.
On December 15, 2021, the Company paid an ordinary dividend of $411 to CGC.
On December 13, 2021, the Company paid a common stock dividend of stock ownership of $339 to CGC.
On June 21 2021, the Company paid an ordinary common stock dividend of $350 to CGC.
On December 7, 2020, the Company paid an ordinary common stock dividend of $500 to CGC.
On May 13, 2020, TPLIC paid a dividend to its parent company, CGC, in the amount of $700. CGC then contributed this amount to the Company. The dividend and contribution included $77 in cash and $623 in securities. This transaction occurred prior to the merger of TPLIC and the Company. This transaction had no overall impact to capital and surplus of the merged Company.
Life and health insurance companies are subject to certain RBC requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life or health insurance company is to be determined based on various risk factors. At December 31, 2022 and 2021, the Company met the minimum RBC requirements.
The Companys surplus notes were held by CGC and Transamerica Corporation (TA Corp). These notes were due 20 years from the date of issuance at an interest rate of 6% and were subordinate and junior in right of payment to all obligations and liabilities of the Company. In the event of liquidation of the Company, full payment of the surplus notes was to be made before the holders of common stock become entitled to any distribution of the remaining assets of the Company.
On June 22, 2020, the Company repaid in full its $60 surplus note with CGC. The Company received approval from IID for this transaction as well as prior to making quarterly interest payments.
86
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Company participates in an agent-managed securities lending program in which the Company primarily loans out US Treasuries and other bonds. The Company receives collateral equal to 102% of the fair value of the loaned government or other domestic securities as of the transaction date. If the fair value of the collateral is at any time less than 102% of the fair value of the loaned securities, the counterparty is mandated to deliver additional collateral, the fair value of which, together with the collateral already held in connection with the lending transaction, is at least equal to 102% of the fair value of the loaned government or other domestic securities. In the event the Company loans a foreign security and the denomination of the currency of the collateral is other than the denomination of the currency of the loaned foreign security, the Company receives and maintains collateral equal to 105% of the fair value of the loaned security.
At December 31, 2022 and 2021, respectively, securities with a fair value of $2,141 and $1,919 were on loan under securities lending agreements. At December 31, 2022 and 2021, the collateral the Company received from securities lending activities was in the form of cash and on open terms. This cash collateral is reinvested and is not available for general corporate purposes. The reinvested cash collateral has a fair value of $2,115 and $2,073 at December 31, 2022 and 2021, respectively.
The contractual maturities of the securities lending collateral positions are as follows:
Fair Value | ||||||||
2022 | 2021 | |||||||
|
|
|||||||
Open |
$ | 2,115 | $ | 2,073 | ||||
Securities received |
| | ||||||
|
|
|||||||
Total collateral received |
$ | 2,115 | $ | 2,073 | ||||
|
|
The Company receives primarily cash collateral in an amount in excess of the fair value of the securities lent. The Company reinvests the cash collateral into higher yielding securities than the securities which the Company has lent to other entities under the arrangement.
87
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The maturity dates of the reinvested securities lending collateral are as follows:
2022 | 2021 | |||||||||||||||
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value | |||||||||||||
|
|
|
|
|
| |||||||||||
Open |
$ | 99 | $ | 99 | $ | 123 | $ | 123 | ||||||||
30 days or less |
661 | 661 | 675 | 675 | ||||||||||||
31 to 60 days |
375 | 375 | 511 | 511 | ||||||||||||
61 to 90 days |
242 | 242 | 208 | 208 | ||||||||||||
91 to 120 days |
217 | 217 | 100 | 100 | ||||||||||||
121 to 180 days |
521 | 521 | 356 | 356 | ||||||||||||
181 to 365 days |
| | 100 | 100 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total |
2,115 | 2,115 | 2,073 | 2,073 | ||||||||||||
Securities received |
| | | | ||||||||||||
|
|
|
|
|
| |||||||||||
Total collateral reinvested |
$ | 2,115 | $ | 2,115 | $ | 2,073 | $ | 2,073 | ||||||||
|
|
|
|
|
|
For securities lending, the Companys source of cash used to return the cash collateral is dependent upon the liquidity of the current market conditions. Under current conditions, the Company has securities with a par value of $2,124 (fair value of $2,115) that are currently tradable securities that could be sold and used to pay for the $2,115 in collateral calls that could come due under a worst-case scenario.
11. Retirement and Compensation Plans
Defined Contribution Plans
The Companys employees participate in a contributory defined contribution plan sponsored by TA Corp which is qualified under Section 401(k) of the Internal Revenue Code. Generally, employees of the Company who customarily work at least 20 hours per week and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to 100% of eligible earnings, subject to government or other plan restrictions for certain key employees. The Company will contribute an amount up to four percent of the participants eligible earnings per the plans matching formula. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. Benefits expense of $18, $13 and $14 was allocated to the Company for the years ended December 31, 2022, 2021 and 2020, respectively.
Defined Benefit Plans
The Companys employees participate in a qualified defined benefit pension plan sponsored by TA Corp. Generally, employees of the Company who customarily work at least 20 hours per week and complete six months of continuous service and meet the other eligibility requirements are participants of the plan. The Company has no legal obligation for the plan. The benefits are based on the employees eligible compensation. The plan provides benefits based on a cash balance formula. The plan is subject to the reporting and disclosure requirements of the ERISA.
88
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
TA Corp sponsors supplemental retirement plans to provide the Companys senior management with benefits in excess of normal pension benefits. The Company has no legal obligation for the plan. The plans are noncontributory. The benefits are based on the employees eligible compensation. The plans provide benefits based on a cash balance formula. The plans are unfunded and nonqualified under the Internal Revenue Code.
The Company recognizes pension expense equal to its allocation from TA Corp. The pension expense related to both the qualified defined pension plan and the supplemental retirement plans is allocated among the participating companies based on International Accounting Standards 19 (IAS 19), Accounting for Employee Benefits, and based upon actuarial participant benefit calculations, which is within the guidelines of SSAP No. 102, Pensions. Pension expenses were $17, $28 and $27 for the years ended December 31, 2022, 2021 and 2020, respectively.
In addition to pension benefits, TA Corp sponsors unfunded plans that provide health care and life insurance benefits to retired Company employees meeting certain eligibility requirements. The Company has no legal obligation for the plan. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans are allocated among the participating companies based on IAS 19 and based upon actuarial participant benefit calculations which is within the guidelines of SSAP No. 92, Postretirement Benefits Other Than Pensions. The Companys allocation of postretirement expenses was $4, $5 and $5 for the years ended December 31, 2022, 2021 and 2020, respectively.
Other Plans
TA Corp has established deferred compensation plans for certain key employees of the Company. The Companys allocation of expense for these plans for each of the years ended December 31, 2022, 2021 and 2020 was insignificant.
12. Related Party Transactions
The Company shares certain officers, employees and general expenses with affiliated companies.
The Company is party to a shared services and cost sharing agreement among and between the Transamerica companies, under which various affiliated companies may perform specified administrative functions in connection with the operation of the Company, in consideration of reimbursement of actual costs of services rendered. Effective August 1, 2020, the Company, and an affiliate, Transamerica Financial Life Insurance Company, entered into a Shared Services and Cost Sharing Agreement for both parties to provide accounting, administrative, and other advisory services in accordance with the agreement. The agreement, filed and approved by the IID, replaces prior agreements between the entities. The amount received by the Company as a result of being a party to these agreements was $564, $690 and $703 during 2022, 2021 and 2020, respectively. The amount paid as a result of being a party to these agreements was $605, $679 and $698 during 2022, 2021 and 2020, respectively. Fees charged between affiliates approximate their cost.
The Company is party to a Management and Administrative and Advisory agreement with AEGON USA Realty Advisors (AURA), LLC whereby AURA serves as the administrator and
89
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
advisor for the Companys mortgage loan operations. The Company paid $31, $29 and $20 for these services during 2022, 2021 and 2020, respectively.
The Company is party to an Investment Management Agreement with AEGON USA Investment Management (AUIM), LLC whereby AUIM acts as a discretionary investment manager for the Company. The Company paid $89, $89 and $89 for these services during 2022, 2021 and 2020, respectively.
The Company has an administration service agreement with Transamerica Asset Management (TAM) to provide administrative services to the Transamerica Series Trust. The Company received $130, $168 and $149 for these services during 2022, 2021 and 2020, respectively.
Transamerica Capital, Inc. provides wholesaling distribution services for the Company under a distribution agreement. The Company incurred expenses under this agreement of $6, $9 and $43 for the years ended December 31, 2022, 2021 and 2020, respectively.
Receivables from (payables to) affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate. During 2022, 2021 and 2020, the Company received (paid) net interest of ($5), $0 and $0 from (to) affiliates, respectively. At December 31, 2022 and 2021, respectively, the Company reported net receivables (payables) from (to) affiliates of $466 and $118. Terms of settlement require that these amounts are settled within 90 days of quarter-end per the requirements of SSAP No. 25, Affiliates and Other Related Parties.
In accordance with SSAP No. 25, the Company reports short-term intercompany notes receivable as short-term investments. At December 31, 2022, the Company has one short-term intercompany notes receivable. On December 30, 2022, the Company issued a variable funding promissory note valued at $97 to ULI Funding LLC. The terms of the loan include a 5.20% annual interest rate and maturity date at December 30, 2023. At December 31, 2021, the Company had no short-term intercompany notes receivable.
On December 20, 2022, the Company purchased all 2,520 common shares held by Aegon International B.V. of TLB at its economic value for a total of $61. The Company now has 100% ownership of TLB.
On June 23, 2020, the Company provided $5 to TPRe in consideration for 5,000 shares of its stock becoming the sole shareholder of TPRe. The Company provided an additional capital contribution of $70 to TPRe on June 26, 2020.
90
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Company utilizes the look-through approach in valuing its investment in the following entities.
Book Adjusted Carrying Value | ||||
Real Estate Alternatives Portfolio 2, LLC |
$ | 19 | ||
Real Estate Alternatives Portfolio 3, LLC |
162 | |||
Real Estate Alternatives Portfolio 4 HR, LLC |
231 | |||
Real Estate Alternatives Portfolio 4 MR, LLC |
49 | |||
Aegon Workforce Housing Fund 2, L.P. |
203 | |||
Aegon Workforce Housing Fund 3, L.P. |
20 | |||
Natural Resources Alternatives Portfolio I, LLC |
293 | |||
Natural Resources Alternatives Portfolio II, LLC |
62 | |||
Natural Resources Alternatives Portfolio 3, LLC |
261 | |||
TA Private Equity Assets LLC |
255 | |||
Zero Beta Fund, LLC |
21 | |||
TA-APOP I, LLC |
86 | |||
TA-APOP II, LLC |
137 |
These entitys financial statements are not audited and the Company has limited the value of its investment in these entities to the value contained in the audited financial statements of the underlying LP/LLC investments, including adjustments required by SSAP No. 97 entities and/or non-SCA SSAP No. 48, Joint Ventures, Partnerships and Limited Liability Companies, entities owned by these entities. All liabilities, commitments, contingencies, guarantees or obligations of these entities which are required to be recorded as liabilities, commitments, contingencies, guarantees or obligations under applicable accounting guidance, are reflected in the Companys determination of the carrying value of the investment in these entities.
91
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables show the disclosures for all SCA investments, except 8bi entities, Balance Sheets value (admitted and nonadmitted) and the NAIC responses for the SCA filings as of December 31, 2022 and 2021:
December 31, 2022
|
||||||||||||||||
|
||||||||||||||||
SCA Entity
|
Percentage of SCA Ownership |
Gross Amount |
Admitted Amount |
Nonadmitted Amount |
||||||||||||
|
||||||||||||||||
SSAP No. 97 8a Entities |
||||||||||||||||
None |
% | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8a Entities |
XXX | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(ii) Entities |
||||||||||||||||
None |
% | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(ii) Entities |
XXX | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(iii) Entities |
||||||||||||||||
AEGON Direct Marketing Services, Inc. |
73 % | $ | | $ | | $ | | |||||||||
AEGON Financial Services Group, Inc. |
100 | | | | ||||||||||||
Garnet Assurance Corporation |
100 | | | | ||||||||||||
Garnet Assurance Corporation III |
100 | | | | ||||||||||||
Life Investors Alliance LLC |
100 | | | | ||||||||||||
Real Estate Alternatives Portfolio 3A, Inc. |
91 | | | | ||||||||||||
Transamerica Asset Management, Inc. |
77 | 124 | 124 | | ||||||||||||
Transamerica Fund Services, Inc. |
44 | | | | ||||||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(iii) Entities |
XXX | $ | 124 | $ | 124 | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(iv) Entities |
||||||||||||||||
Transamerica Bermuda Re, Ltd. |
100 % | $ | 10 | $ | 10 | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(iv) Entities |
XXX | $ | 10 | $ | 10 | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b Entities (except 8bi entities) |
XXX | $ | 134 | $ | 134 | $ | | |||||||||
|
|
|||||||||||||||
Aggregate Total |
XXX | $ | 134 | $ | 134 | $ | | |||||||||
|
|
92
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2021
|
||||||||||||||||
|
||||||||||||||||
SCA Entity
|
Percentage of SCA Ownership |
Gross Amount |
Admitted Amount |
Nonadmitted Amount |
||||||||||||
|
||||||||||||||||
SSAP No. 97 8a Entities |
||||||||||||||||
None |
% | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8a Entities |
XXX | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(ii) Entities |
||||||||||||||||
None |
% | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(ii) Entities |
XXX | $ | | $ | | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(iii) Entities |
||||||||||||||||
AEGON Direct Marketing Services, Inc. |
73 % | $ | | $ | | $ | | |||||||||
AEGON Financial Services Group, Inc. |
100 | | | | ||||||||||||
Garnet Assurance Corporation |
100 | | | | ||||||||||||
Garnet Assurance Corporation III |
100 | | | | ||||||||||||
Intersecurities Insurance Agency, Inc. |
100 | | | | ||||||||||||
Life Investors Alliance LLC |
100 | | | | ||||||||||||
Real Estate Alternatives Portfolio 3A, Inc. |
91 | | | | ||||||||||||
Transamerica Asset Management, Inc. |
77 | 121 | 121 | | ||||||||||||
Transamerica Fund Services, Inc. |
44 | | | | ||||||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(iii) Entities |
XXX | $ | 121 | $ | 121 | $ | | |||||||||
|
|
|||||||||||||||
SSAP No. 97 8b(iv) Entities |
||||||||||||||||
Transamerica Life (Bermuda) Ltd. |
94 % | $ | 1,358 | $ | 1,358 | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b(iv) Entities |
XXX | $ | 1,358 | $ | 1,358 | $ | | |||||||||
|
|
|||||||||||||||
Total SSAP No. 97 8b Entities (except 8bi entities) |
XXX | $ | 1,479 | $ | 1,479 | $ | | |||||||||
|
|
|||||||||||||||
Aggregate Total |
XXX | $ | 1,479 | $ | 1,479 | $ | | |||||||||
|
|
93
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following table shows the NAIC responses for the SCA filings (except 8bi entities):
December 31, 2022
SCA Entity | Type of NAIC Filing* |
Date of Filing to the NAIC |
NAIC Valuation Amount |
NAIC Response Received Y/N |
NAIC Disallowed Entities Valuation Method, Submission Required Y/N |
Code** | ||||||||
SSAP No. 97 8a Entities |
||||||||||||||
None |
$ | | | | | |||||||||
|
|
|||||||||||||
Total SSAP No. 97 8a Entities |
| | $ | | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(ii) Entities |
||||||||||||||
None |
$ | | | | | |||||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(ii) Entities |
| | $ | | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(iii) Entities |
||||||||||||||
AEGON Direct Marketing Services, Inc. |
NA | $ | | I | ||||||||||
AEGON Financial Services Group, Inc. |
NA | | I | |||||||||||
Garnet Assurance Corporation |
NA | | I | |||||||||||
Garnet Assurance Corporation III |
NA | | I | |||||||||||
Life Investors Alliance LLC |
NA | | I | |||||||||||
Real Estate Alternatives Portfolio 3A, Inc. |
NA | | I | |||||||||||
Transamerica Asset Management, Inc. |
S2 | 12/5/2022 | 121 | Y | N | I | ||||||||
Transamerica Fund Services, Inc. |
NA | | I | |||||||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(iii) Entities |
| | $ | 121 | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(iv) Entities |
||||||||||||||
Transamerica Bermuda Re, Ltd. |
S1 | 4/6/2023 | $ | | Y | N | I | |||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(iv) Entities |
| | $ | | | | | |||||||
|
|
|||||||||||||
Total SSAP No. 97 8b Entities (except 8bi entities) |
| | $ | 121 | | | | |||||||
|
|
|||||||||||||
Aggregate Total |
| | $ | 121 | | | | |||||||
|
|
*S1 - Sub1, S2 - Sub2 or RDF - Resubmission of Disallowed Filing
** I - Immaterial or M - Material
(1) NAIC Valuation Amount is as of the Filing Date to the NAIC
94
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2021
SCA Entity | Type of NAIC Filing* |
Date of Filing to the NAIC |
NAIC Valuation Amount |
NAIC Response Received Y/N |
NAIC Disallowed Entities Valuation Method, Submission Required Y/N |
Code** | ||||||||
SSAP No. 97 8a Entities |
||||||||||||||
None |
$ | | | | | |||||||||
|
|
|||||||||||||
Total SSAP No. 97 8a Entities |
| | $ | | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(ii) Entities |
||||||||||||||
None |
$ | | | | | |||||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(ii) Entities |
| | $ | | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(iii) Entities |
||||||||||||||
AEGON Direct Marketing Services, Inc. |
NA | $ | | | | I | ||||||||
AEGON Financial Services Group, Inc. |
NA | | | | I | |||||||||
Garnet Assurance Corporation |
NA | | | | I | |||||||||
Garnet Assurance Corporation III |
NA | | | | I | |||||||||
Intersecurities Insurance Agency, Inc. |
NA | | | | I | |||||||||
Life Investors Alliance LLC |
NA | | | | I | |||||||||
Real Estate Alternatives Portfolio 3A, Inc. |
NA | | | | I | |||||||||
Transamerica Asset Management, Inc. |
S2 | 12/16/2021 | 99 | Y | N | I | ||||||||
Transamerica Fund Services, Inc. |
NA | | | | I | |||||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(iii) Entities |
| | $ | 99 | | | | |||||||
|
|
|||||||||||||
SSAP No. 97 8b(iv) Entities |
||||||||||||||
Transamerica Life (Bermuda) Ltd. |
S2 | 2/15/2022 | $ | 1,187 | Y | N | I | |||||||
|
|
|||||||||||||
Total SSAP No. 97 8b(iv) Entities |
| | $ | 1,187 | | | | |||||||
|
|
|||||||||||||
Total SSAP No. 97 8b Entities (except 8bi entities) |
| | $ | 1,286 | | | | |||||||
|
|
|||||||||||||
Aggregate Total |
| | $ | 1,286 | | | | |||||||
|
|
*S1 - Sub1, S2 - Sub2 or RDF - Resubmission of Disallowed Filing
** I - Immaterial or M - Material
(1) NAIC Valuation Amount is as of the Filing Date to the NAIC
The Company reports an investment in the following insurance SCAs for which the reported statutory equity reflects a departure from NAIC SAP. Each of the insurance SCAs listed in the table below reflects an admitted asset, equal to the value of the excess of loss reinsurance asset provided by an unaffiliated company, whereas this would not be an admitted asset recognized by SSAP No. 4, Assets and Non Admitted Assets.
LIICA Re II, Inc. |
|
Excess of loss reinsurance asset | ||||
Transamerica Pacific Reinsurance, Inc. | Excess of loss reinsurance asset |
95
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The Company has two Limited Purpose Subsidiaries (LPS) with prescribed practices whereby under Iowa Administrative Code 191-99.11(3), the LPS are entitled to admit the following assets that would not be admissible under the NAIC SAP:
TLIC Oakbrook Reinsurance, Inc. |
|
Credit linked note | ||||
TLIC Watertree Reinsurance, Inc. |
Excess of loss reinsurance asset |
The monetary effect on net income and surplus as a result of using an accounting practice that differed from NAIC SAP, the amount of the investment in the insurance SCA per reported statutory equity, and amount of the investment if the insurance SCA has completed statutory financial statements in accordance with the NAIC SAP. The SCAs are valued in the Companys financial statements at zero in accordance with SSAP No. 97.
Monetary Effect on NAIC SAP |
Amount of Investment | |||||||||||||||
SCA Entity (Investments in Insurance SCA Entities) |
Net Income |
Surplus Increase |
Per Reported |
If the Insurance SCA Had Completed Statutory Financial Statements* |
||||||||||||
LIICA Re II** |
$ | | $ | (1,828) | $ | | $ | | ||||||||
Transamerica Pacific Reinsurance, Inc.** |
| (1,330) | | | ||||||||||||
TLIC Oakbrook Reinsurance, Inc. |
| (3,384) | 1,165 | | ||||||||||||
TLIC Watertree Reinsurance, Inc. |
| (1,157) | 589 | |
*Per AP&P Manual (without permitted or prescribed practices)
**The SCA is valued at zero in the Companys financial statements
Had the above SCA entities not been permitted to recognize the excess of loss reinsurance assets or the credit linked note as admitted assets in the financial statements, the risk-based capital would have been below the mandatory control level which would have triggered a regulatory event.
Information regarding the Companys affiliated reinsurance transactions is available in Note 7. Reinsurance.
Information regarding the Companys affiliated guarantees is available in Note 14. Commitments and Contingencies.
13. Managing General Agents and Third-Party Administrators
The Company utilizes managing general agents (MGA) and third-party administrators (TPA) in its operation. There were no MGAs/TPAs that wrote premiums in excess of 5% of the Companys surplus.
96
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
14. Commitments and Contingencies
At December 31, 2022 and 2021, the Company has mortgage loan commitments of $110 and $284, respectively.
The Company has contingent commitments of $1,038 and $832, as of December 31, 2022 and 2021, respectively, to provide additional funding for joint ventures, partnerships and limited liability companies, which includes LIHTC commitments of $4 and $21, respectively.
The Company leases office buildings and equipment under various non-cancelable operating lease agreements. Rental expense for the years 2022 and 2021 was $13 and $22, respectively.
Private placement commitments outstanding as of December 31, 2022 and 2021 were $141 and $174, respectively.
The Company sold ($63) and ($26) of to-be-announced (TBA) securities as of December 31, 2022 and 2021, respectively. Due to different counterparties, the receivable related to these TBAs was not reclassed.
The Company may pledge cash as collateral for derivative transactions. When cash is pledged as collateral, it is derecognized and a receivable is recorded to reflect the eventual return of that cash by the counterparty. The amount of cash collateral pledged by the Company as of December 31, 2022 and 2021, respectively, was $981 and $217.
At December 31, 2022 and 2021, securities in the amount of $27 and $76, respectively, were posted to the Company as collateral from derivative counterparties. The securities were not included on the Companys Balance Sheets as the Company does not have the ability to sell or repledge the collateral.
The Company has provided back-stop guarantees for the performance of non-insurance affiliates or subsidiaries that are involved in the guaranteed sale of investments in low-income housing tax credit partnerships. The nature of the obligation is to provide third party investors with a minimum guaranteed annual and cumulative return on their contributed capital which is based on tax credits and tax losses generated from the low income housing tax credit partnerships. Guarantee payments arise if low income housing tax credit partnerships experience unexpected significant decreases in tax credits and tax losses or there are compliance issues with the partnerships. A significant portion of the remaining term of the guarantees is between 13-18 years. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Companys financial statements as a decrease in net investment income. No payments are required as of December 31, 2022 and 2021. The current assessment of risk of making payments under these guarantees is remote.
The Company has guaranteed to the Hong Kong Insurance Authority that it will provide the financial support to TLB for maintaining TLBs solvency at all times so as to enable TLB to promptly meet its obligations and liabilities. If at any time the value of TLBs assets do not exceed its liabilities by the prevailing acceptable level of solvency, the Company will increase the paid up share capital of TLB or provide financial assistance to TLB to maintain the acceptable level of solvency. An acceptable level of solvency is net assets at one hundred and fifty percent of
97
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
the required margin of solvency as stipulated under the Insurance Companies (Margin of Solvency) Regulation. As of December 31, 2022 and 2021, there is no payment or performance risk because TLB is able to meet its obligations and has assets in excess of its liabilities by the prevailing level of solvency as of this date.
The Company has guaranteed that TLB will (1) maintain tangible net worth of at least equal to the greater of 165% of Standard & Poors Risk-Based Capital and the minimum required by regulatory authorities in all jurisdictions in which TLB operates, (2) have, at all times, sufficient cash to pay all contractual obligations in a timely manner and (3) have a maximum operating leverage ratio of 20 times. The Company can terminate this agreement upon thirty days written notice, but not until TLB attains a rating from Standard & Poors the same as without the support from this agreement, or the entire book of TLB business is transferred provided that it is transferred to an entity with a rating from S&P that is the same as or better than the Companys then current rating or AA, whichever is lower. As of December 31, 2022 and 2021, there is no payment or performance risk because TLB has adequate tangible net worth, sufficient cash to meet its obligations and an operating leverage ratio not in excess of 20 times as of this date.
The Company is not able to estimate the financial statement impact or the maximum potential amount of future payments it could be required to make under these two guarantees as they are considered to be unlimited under the provisions of SSAP No. 5R.
The Company has provided a guarantee to TLBs (Singapore Branch) policyholders. If TLB fails to pay a valid claim solely by reason of it becoming insolvent as defined by Bermuda law, then the Company shall pay directly to the policy owner or named beneficiary the amount of the valid claim. At December 31, 2022 and 2021, TLB holds related statutory-basis policy and claim reserves of $55 and $2,328, respectively, which would be the maximum potential amount of future payments the Company could be required to make under this guarantee. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Companys financial statements as an increase to incurred claims. As of December 31, 2022 and 2021, there is no payment or performance risk because TLB is not insolvent as of this date.
The Company has provided a guarantee to TLBs (Hong Kong Branch) policyholders. If TLB fails to pay a valid claim solely by reason of it becoming insolvent as defined by Bermuda law, then the Company shall pay directly to the policy owner or named beneficiary the amount of the valid claim. At December 31, 2022 and 2021, TLB policies covered by this guarantee would have resulted in US statutory policy and claim reserves of $125 and $3,504, respectively, which would represent a fair measure of the maximum potential amount of future payments the Company under this guarantee based on the US statutory reserve requirements. TLB is a subsidiary of the Company and TLB has invested assets supporting these policies which mitigates this risk. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Companys financial statements as an increase to incurred claims. As of December 31, 2022 and 2021, there is no payment or performance risk because TLB is not insolvent as of this date.
The Company did not recognize a liability for any of the TLB guarantees due to the adoption of SSAP No. 5R, as a liability is not required for guarantees to or on behalf of a wholly-owned subsidiary. Management monitors TLBs financial condition, and there are no indications that
98
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
TLB will become insolvent. As such, management feels the risk of payment under these guarantees on behalf of TLB is remote.
The Company is a party to a fee agreement with TLB whereby the Company continues to provide the guarantees with respect to TLB described in the paragraphs above. The Company received $1 and $1 under this agreement in 2022 and 2021, respectively.
The Company has provided guarantees for the obligations of noninsurance third party assignment companies who have accepted assignments of structured settlement payment obligations from the Company and have purchased structured settlement insurance policies issued by the Company that match those obligations. The guarantees made by the Company are specific to each structured settlement contract and vary in date and duration of the obligation. These are numerous and are backed by the reserves established by the Company to represent the present value of the future payments for those contracts. The direct statutory reserve established at December 31, 2022 and 2021 for the total payout block is $4,880 and $4,990, respectively. As this reserve is already recorded on the Balance Sheets of the Company, there was no additional liability recorded due to the adoption of SSAP No. 5R.
During 2019, the Company entered into an agreement with Aegon USA Realty Advisors, LLC to commit to purchase certain tax credit investments up to a maximum of $100,000. Under the terms of the agreement, the Company provides certain commitments to purchase tax credit investments that are part of tax credit funds in the event certain conditions are met. The Company did not acquire any tax credit investments during 2022 or 2021 under this agreement. As of December 31, 2022 and 2021, there is no amount committed to these purchases.
The following table provides an aggregate compilation of guarantee obligations as of December 31, 2022 and 2021:
December 31 | ||||||||
2022 | 2021 | |||||||
|
|
|||||||
Aggregate maximum potential of future payments of all guarantees (undiscounted) |
$ | 179 | $ | 5,832 | ||||
|
|
|||||||
Current liability recognized in financial statements: |
||||||||
Noncontingent liabilities |
| | ||||||
|
|
|||||||
Contingent liabilities |
| | ||||||
|
|
|||||||
Ultimate financial statement impact if action required: |
||||||||
Incurred claims |
179 | 5,832 | ||||||
Other |
| | ||||||
|
|
|||||||
Total impact if action required |
$ | 179 | $ | 5,832 | ||||
|
|
The Company is a member of the FHLB of Des Moines. Through its membership, the Company has conducted business activity (borrowings) with the FHLB. It is part of the Companys strategy to utilize these funds for asset and liability management and spread lending purposes. The Company has determined the actual/estimated long-term maximum borrowing capacity as $5,585 and $5,674 at December 31, 2022 and 2021, respectively. The Company calculated this amount in accordance with the terms and conditions of agreement with FHLB of Des Moines.
99
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
At December 31, 2022 and 2021, the Company purchased/owned the following FHLB stock as part of the agreement:
Year Ended December 31 | ||||||||
2022 | 2021 | |||||||
|
|
|||||||
Membership Stock: |
||||||||
Class A |
$ | | $ | | ||||
Class B |
10 | 10 | ||||||
Activity Stock |
120 | 120 | ||||||
Excess Stock |
| | ||||||
|
|
|||||||
Total |
$ | 130 | $ | 130 | ||||
|
|
At December 31, 2022 and 2021, Membership Stock (Class A and B) Eligible for Redemption and the anticipated timeframe for redemption was as follows:
Less Than 6 Months |
6 Months to Less Than 1 Year |
1 to Less Than 3 Years |
3 to 5 Years | |||||||||||||
|
|
|||||||||||||||
December 31, 2022 |
||||||||||||||||
Membership Stock |
||||||||||||||||
Class A |
$ | | $ | | $ | | $ | | ||||||||
Class B |
| | | 10 | ||||||||||||
|
|
|||||||||||||||
Total |
$ | | $ | | $ | | $ | 10 | ||||||||
|
|
Less Than 6 Months |
6 Months to Less Than 1 Year |
1 to Less Than 3 Years |
3 to 5 Years | |||||||||||||
|
|
|||||||||||||||
December 31, 2021 |
||||||||||||||||
Membership Stock |
||||||||||||||||
Class A |
$ | | $ | | $ | | $ | | ||||||||
Class B |
| | | 10 | ||||||||||||
|
|
|||||||||||||||
Total |
$ | | $ | | $ | | $ | 10 | ||||||||
|
|
At December 31, 2022 and 2021, the amount of collateral pledged and the maximum amount pledged to the FHLB was as follows:
Fair Value | Carry Value | |||||||
|
|
|||||||
December 31, 2022 |
||||||||
Total Collateral Pledged |
$ | 4,704 | $ | 5,335 | ||||
Maximum Collateral Pledged |
4,704 | 5,335 |
Fair Value | Carry Value | |||||||
|
|
|||||||
December 31, 2021 |
||||||||
Total Collateral Pledged |
$ | 4,575 | $ | 4,226 | ||||
Maximum Collateral Pledged |
4,893 | 4,486 |
100
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
At December 31, 2022 and 2021, the borrowings from the FHLB were as follows:
December 31, 2022 | December 31, 2021 | |||||||||||||||
General Account |
Funding Agreements Reserves Established |
General Account |
Funding Agreements Reserves Established |
|||||||||||||
|
|
|
|
|||||||||||||
Debt 1 |
$ | 2,995 | $ | | $ | 2,995 | $ | | ||||||||
Funding agreements 2 |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 2,995 | $ | | $ | 2,995 | $ | | ||||||||
|
|
|
|
1 The maximum amount of borrowing during 2022 was $2,995
2 The maximum amount of borrowing during 2022 was $0
As of December 31, 2022, the weighted average interest rate on FHLB advances was 4.550% with a weighted average term of 2.5 years. As of December 31, 2021, the weighted average interest rate on FHLB advances was 0.409% with a weighted average term of 2.3 years.
At December 31, 2022 and 2021, the borrowings from the FHLB were not subject to prepayment penalties.
The Company has issued synthetic GIC contracts to benefit plan sponsors totaling $55,298 and $53,440 as of December 31, 2022 and 2021, respectively. A synthetic GIC is an off-balance sheet fee-based product sold primarily to tax qualified plans, where the plan sponsor retains ownership and control of the related plan assets and the Company provides book value benefit responsiveness to qualified participant withdrawals, in the event withdrawals requested exceeds plan cash flows. In certain contracts, the Company agrees to make advances to meet benefit withdrawal needs and earns a market interest rate on these advances. A periodically adjusted contract-crediting rate is a means by which investment and benefit responsiveness experience is passed through to participants. In return for the book value benefit responsiveness guarantee, the Company receives a premium that varies based on such elements as benefit responsiveness exposure and contract size. The Company underwrites the plans for the possibility of having to make benefit payments and also must agree to the investment guidelines ensuring the appropriate credit quality and cash flow. Funding requirements to date have been minimal and management does not anticipate any future material funding requirements to have a material impact on the reported financial results. In compliance with statutory guidelines, related reserves of $10 and $0 were recorded at December 31, 2022 and 2021, respectively.
The Company is party to legal proceedings involving a variety of issues incidental to its business, including class action lawsuits. Lawsuits may be brought in any federal or state court in the United States or in an arbitral forum. In addition, there continues to be significant federal and state regulatory activity relating to financial services companies. The Companys legal proceedings are subject to many variables, and given their complexity and scope, outcomes cannot be predicted with certainty. Although legal proceedings sometimes includes substantial
101
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
demands for compensatory and punitive damages, and injunctive relief, damages arising from such demands are typically not material to the Companys financial position.
The Company had been named in two class actions, as well as several individual lawsuits, relating to increases in monthly deduction rates (MDR) on universal life products. The Company settled the two class actions, one in January 2019 and one in April 2020. In connection with the class actions, the Company continues to defend against lawsuits by opt out class members. In October 2022, the Company was named in a putative class action relating to rolling MDR increases initiated in 2022 and continuing on a rolling basis. The Company held provisions totaling $53 and $69 for these lawsuits as of December 31, 2022, and December 31, 2021, respectively.
The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company, except where right of offset against other taxes paid is allowed by law. Amounts available for future offsets are recorded as an asset on the Companys Balance Sheets. The future obligation for known insolvencies has been accrued based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Associations. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The Company has established a reserve of $8 and $8 and an offsetting premium tax benefit $6 and $6 at December 31, 2022 and 2021, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund (benefit) expense was $3 for the years ended December 31, 2022, 2021 and 2020.
15. Sales, Transfer, and Servicing of Financial Assets and Extinguishments of Liabilities
The Company is party to municipal repurchase agreements which were established via bilateral trades and accounted for as secured borrowings. For municipal repurchase agreements, the Company rigorously manages asset/liability risks via an integrated risk management framework. The Companys liquidity position is monitored constantly, and factors heavily in the management of the asset portfolio. Projections comparing liquidity needs to available resources in both adverse and routine scenarios are refreshed monthly. The results of these projections on time horizons ranging from 16 months to 24 months are the basis for the near-term liquidity planning. This liquidity model excludes new business (non applicable for the spread business), renewals and other sources of cash and assumes all liabilities are paid off on the earliest dates required. Interest rate risk is carefully managed, in part through rigorously defined and monitored derivatives programs.
102
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
The following tables provide information on the securities sold under the municipal repurchase agreements for four quarters of 2022 and 2021:
December 31, 2022 |
||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
|
|
|||||||||||||||
Maximum Amount |
||||||||||||||||
BACV |
XXX | XXX | XXX | $ | 256 | |||||||||||
Fair Value |
$ | 167 | $ | 245 | $ | 250 | $ | 252 | ||||||||
Ending Balance |
||||||||||||||||
BACV |
XXX | XXX | XXX | $ | 256 | |||||||||||
Fair Value |
$ | 167 | $ | 245 | $ | 250 | $ | 251 |
December 31, 2021 |
||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
|
|
|||||||||||||||
Maximum Amount |
||||||||||||||||
BACV |
XXX | XXX | XXX | $ | 204 | |||||||||||
Fair Value |
$ | 230 | $ | 204 | $ | 231 | $ | 227 | ||||||||
Ending Balance |
||||||||||||||||
BACV |
XXX | XXX | XXX | $ | 187 | |||||||||||
Fair Value |
$ | 220 | $ | 204 | $ | 227 | $ | 208 |
2022 | 2021 | |||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
NAIC 1 | NAIC 2 | Total | NAIC 1 | NAIC 2 | Total | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Bonds - BACV |
$ | 217 | $ | 39 | $ | 256 | $ | 140 | $ | 47 | $ | 187 | ||||||||||||
Bonds - FV |
211 | 40 | 251 | 159 | 49 | 208 |
These securities have maturity dates that range from 2022 to 2097.
The following table provides information on the cash collateral received and liability to return collateral under the municipal repurchase agreements for four quarters of 2022 and 2021:
December 31, 2022 |
||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
|
|
|||||||||||||||
Maximum Amount |
||||||||||||||||
Cash |
$ | 141 | $ | 177 | $ | 199 | $ | 106 | ||||||||
Ending Balance (1) |
||||||||||||||||
Cash |
$ | 141 | $ | 177 | $ | 199 | $ | 106 |
(1) The remaining collateral held was greater than 90 days from contractual maturity.
103
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31, 2021 |
||||||||||||||||
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
|
|
|||||||||||||||
Maximum Amount |
||||||||||||||||
Cash |
$ | 136 | $ | 169 | $ | 190 | $ | 103 | ||||||||
Ending Balance (1) |
||||||||||||||||
Cash |
$ | 136 | $ | 169 | $ | 79 | $ | 103 |
(1) The remaining collateral held was greater than 90 days from contractual maturity.
The Company enters into dollar repurchase agreements in which securities are delivered to the counterparty once adequate collateral has been received. At December 31, 2022 and 2021, the Company had dollar repurchase agreements outstanding in the amount of $95 and $873, respectively, which is included in borrowed money on the Balance Sheets. Those amounts include accrued interest of $1 and $2, at December 31, 2022 and 2021, respectively. At December 31, 2022, securities with a book value of $96 and a fair value of $88 were subject to dollar repurchase agreements. These securities have maturity dates that range from October 14, 2025 to November 1, 2052. At December 31, 2021, securities with a book value of $878 and a fair value of $872 were subject to dollar repurchase agreements. The Company does not have the legal right to recall or substitute the underlying assets prior to the transactions scheduled termination. Upon scheduled termination, the counterparty is obligated to return substantially similar assets.
The contractual maturities of the dollar repurchase agreement positions are as follows:
Fair Value | ||||||||
|
|
|||||||
2022 | 2021 | |||||||
|
|
|||||||
Open |
$ | 93 | $ | 872 | ||||
Securities received |
| | ||||||
|
|
|||||||
Total collateral received |
$ | 93 | $ | 872 | ||||
|
|
In the course of the Companys asset management, securities are sold and reacquired within 30 days of the sale date to enhance the Companys yield on its investment portfolio. The details by NAIC designation 3 or below of securities sold during 2022 and reacquired within 30 days of the sale date are:
Number of Transactions |
Book Value of Securities Sold |
Cost of Securities Repurchased |
Gains (Losses) | |||||||||||||
|
|
|||||||||||||||
Bonds: |
||||||||||||||||
NAIC |
| $ | | $ | | $ | | |||||||||
Common stocks |
| $ | | $ | | $ | |
16. Reconciliation to Statutory Statement
The following is a reconciliation of amounts previously reported to the Iowa Department of Financial Regulation in the 2020 Annual Statement, to those reported in the accompanying statutory-basis financial statements. There are no reconciling items for 2022 or 2021.
104
Transamerica Life Insurance Company
Notes to Financial Statements Statutory Basis
(Dollars in Millions, Except per Share amounts)
December 31 2020 |
||||
Statements of Operations |
||||
Statutory net income as reported in the Companys Annual Statement |
$ | 1,291 | ||
Increase in commissions and expense allowances on reinsurance ceded |
(69) | |||
Increase in reserve adjustment on reinsurance ceded |
193 | |||
Decrease in fee revenue and other income |
3 | |||
Increase in commissions |
69 | |||
Increase in general insurance expenses and other |
(196) | |||
|
|
|||
Total net income as reported in the accompanying audited statutory basis statement of operations |
$ | 1,291 | ||
|
|
The reconciling differences to the Annual Statement for 2020 is driven by elimination of affiliated activity for the merged entities in 2020.
The financial statements are adjusted to reflect events that occurred between the Balance Sheets date and the date when the financial statements are available to be issued, provided they give evidence of conditions that existed at the Balance Sheets date (Type I). The Company has not identified any Type 1 subsequent events for the year ended December 31, 2022 through April 19, 2023.
Events that are indicative of conditions that arose after the Balance Sheets dates are disclosed, but do not result in an adjustment of the financial statements themselves (Type II). The Company has identified a Type II subsequent event for the year ended December 31, 2022. On January 6, 2023, the Company repaid advances of $252 and $323 to FHLB of Des Moines. On January 11, 2023, the Company repaid a net of $133 for multiple advances to the FHLB of Des Moines. The pay down of these FHLB advances reduces the amount borrowed from FHLB to approximately $2,300 in aggregate.
105
Transamerica Life Insurance Company
Appendix A Listing of Affiliated Companies
Transamerica Corporation EIN: 42-1484983 AFFILIATIONS SCHEDULE YEAR ENDED DECEMBER 31, 2022
|
||||
Entity Name | FEIN | |||
Transamerica Corporation |
42-1484983 | |||
AEGON Asset Management Services Inc |
39-1884868 | |||
AEGON Direct Marketing Services Inc |
42-1470697 | |||
AEGON Financial Services Group Inc |
41-1479568 | |||
AEGON Institutional Markets Inc |
61-1085329 | |||
AEGON Management Company |
35-1113520 | |||
AEGON USA Real Estate Services Inc |
61-1098396 | |||
AEGON USA Realty Advisors of CA |
20-5023693 | |||
AUSA Properties Inc |
27-1275705 | |||
Commonwealth General Corporation |
51-0108922 | |||
Creditor Resources Inc |
42-1079584 | |||
CRI Solutions Inc |
52-1363611 | |||
Financial Planning Services Inc |
23-2130174 | |||
Garnet Assurance Corporation |
11-3674132 | |||
Garnet Assurance Corporation II |
14-1893533 | |||
Garnet Assurance Corporation III |
01-0947856 | |||
Ironwood Re Corp |
47-1703149 | |||
LIICA RE II |
20-5927773 | |||
Massachusetts Fidelity Trust |
42-0947998 | |||
Money Services Inc |
42-1079580 | |||
Monumental General Administrators Inc |
52-1243288 | |||
Pearl Holdings Inc I |
20-1063558 | |||
Pearl Holdings Inc II |
20-1063571 | |||
Real Estate Alternatives Portfolio 3A Inc |
20-1627078 | |||
River Ridge Insurance Company |
20-0877184 | |||
Stonebridge Benefit Services Inc |
75-2548428 | |||
TLIC Oakbrook Reinsurance Inc. |
47-1026613 | |||
TLIC Watertree Reinsurance, Inc. |
81-3715574 | |||
Transamerica Affordable Housing Inc |
94-3252196 | |||
Transamerica Asset Management |
59-3403585 | |||
Transamerica Capital Inc |
95-3141953 | |||
Transamerica Casualty Insurance Company |
31-4423946 | |||
Transamerica Corporation (OREGON) |
98-6021219 |
106
Transamerica Life Insurance Company
Appendix A Listing of Affiliated Companies
Transamerica Corporation EIN: 42-1484983 AFFILIATIONS SCHEDULE YEAR ENDED DECEMBER 31, 2022
|
||||
Entity Name | FEIN | |||
Transamerica Finance Corporation |
95-1077235 | |||
Transamerica Financial Advisors |
59-2476008 | |||
Transamerica Financial Life Insurance Company |
36-6071399 | |||
Transamerica Fund Services Inc |
59-3403587 | |||
Transamerica International Re (Bermuda) Ltd |
98-0199561 | |||
Transamerica Investors Securities Corp |
13-3696753 | |||
Transamerica Life Insurance Company |
39-0989781 | |||
Transamerica Pacific Re, Inc. |
85-1028131 | |||
Transamerica Resources Inc |
52-1525601 | |||
Transamerica Stable Value Solutions Inc |
27-0648897 | |||
United Financial Services Inc |
52-1263786 | |||
World Fin Group Ins Agency of Massachusetts Inc |
04-3182849 | |||
World Financial Group Inc |
42-1518386 | |||
World Financial Group Ins Agency of Hawaii Inc |
99-0277127 | |||
World Financial Group Insurance Agency of WY Inc |
42-1519076 | |||
Zahorik Company Inc |
95-2775959 | |||
Zero Beta Fund LLC |
26-1298094 |
107
Statement Schedules
108
Transamerica Life Insurance Company
Summary of Investments Other Than
Investments in Related Parties
(Dollars in Millions)
December 31, 2022
SCHEDULE I
Type of Investment | Cost (1) | Fair Value |
Amount at Which Shown in the Balance Sheet (2) |
|||||||||
|
||||||||||||
Fixed maturities |
||||||||||||
Bonds: |
||||||||||||
United States government and government agencies and authorities |
$ | 5,483 | $ | 5,235 | $ | 6,193 | ||||||
States, municipalities and political subdivisions |
2,541 | 2,079 | 2,541 | |||||||||
Foreign governments |
762 | 662 | 762 | |||||||||
Hybrid securities |
399 | 379 | 395 | |||||||||
All other corporate bonds |
41,329 | 37,070 | 41,240 | |||||||||
Preferred stocks |
63 | 61 | 61 | |||||||||
|
|
|||||||||||
Total fixed maturities |
50,577 | 45,486 | 51,192 | |||||||||
Equity securities |
||||||||||||
Common stocks: |
||||||||||||
Industrial, miscellaneous and all other |
144 | 150 | 150 | |||||||||
|
|
|||||||||||
Total equity securities |
144 | 150 | 150 | |||||||||
Mortgage loans on real estate |
9,270 | 9,270 | ||||||||||
Real estate |
44 | 44 | ||||||||||
Policy loans |
2,028 | 2,028 | ||||||||||
Other long-term investments |
1,437 | 1,437 | ||||||||||
Receivable for securities |
7 | 7 | ||||||||||
Receivable for derivative cash collateral posted to counterparty |
| | ||||||||||
Securities lending |
2,115 | 2,115 | ||||||||||
Cash, cash equivalents and short-term investments |
2,420 | 2,420 | ||||||||||
|
|
|
|
|||||||||
Total investments |
$ | 68,042 | $ | 68,663 | ||||||||
|
|
|
|
(1) | Equity securities are reported at original cost. Fixed maturities are reported at original cost reduced by repayments and adjusted for amortization of premiums and accrual of discounts. |
(2) | Bonds of $50 are held at fair value rather than amortized cost. Preferred stock of $120 are held at fair value. |
109
Transamerica Life Insurance Company
Supplementary Insurance Information
(Dollars in Millions)
SCHEDULE III
Future Policy Benefits and Expenses |
Unearned Premiums |
Policy and Contract Liabilities |
Premium Revenue |
Net Investment Income* |
Benefits, Claims Losses and Settlement Expenses |
Other Operating Expenses* |
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Year ended December 31, 2022 |
||||||||||||||||||||||||||||
Individual life |
$ | 30,960 | $ | | $ | 580 | $ | 8,576 | $ | 1,626 | $ | 9,716 | $ | 1,201 | ||||||||||||||
Individual health |
5,993 | 112 | 327 | 710 | 406 | 822 | 226 | |||||||||||||||||||||
Group life and health |
2,469 | 21 | 128 | 806 | 170 | 509 | 360 | |||||||||||||||||||||
Annuity |
18,401 | | 63 | 9,721 | 1,095 | 21,481 | (10,034) | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
$ | 57,823 | $ | 133 | $ | 1,098 | $ | 19,813 | $ | 3,297 | $ | 32,528 | $ | (8,247) | |||||||||||||||
|
|
|||||||||||||||||||||||||||
Year ended December 31, 2021 |
||||||||||||||||||||||||||||
Individual life |
$ | 25,206 | $ | | $ | 664 | $ | 1,673 | $ | 1,600 | $ | 4,243 | $ | 1,086 | ||||||||||||||
Individual health |
5,871 | 115 | 342 | 737 | 441 | 703 | 220 | |||||||||||||||||||||
Group life and health |
2,480 | 22 | 134 | 801 | 166 | 530 | 320 | |||||||||||||||||||||
Annuity |
18,289 | | 37 | 11,271 | 984 | 19,574 | (7,757) | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
$ | 51,846 | $ | 137 | $ | 1,177 | $ | 14,482 | $ | 3,191 | $ | 25,050 | $ | (6,131) | |||||||||||||||
|
|
|||||||||||||||||||||||||||
Year ended December 31, 2020 |
||||||||||||||||||||||||||||
Individual life |
$ | 24,275 | $ | | $ | 685 | $ | 2,264 | $ | 1,460 | $ | 5,342 | $ | 1,388 | ||||||||||||||
Individual health |
5,760 | 112 | 401 | 750 | 423 | 908 | 405 | |||||||||||||||||||||
Group life and health |
2,468 | 23 | 138 | 841 | 159 | 496 | 347 | |||||||||||||||||||||
Annuity |
18,328 | | 33 | 12,868 | 1,319 | 19,336 | (3,775) | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
$ | 50,831 | $ | 135 | $ | 1,257 | $ | 16,723 | $ | 3,361 | $ | 26,082 | $ | (1,635) | |||||||||||||||
|
|
*Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied.
110
Transamerica Life Insurance Company
(Dollars in Millions)
SCHEDULE IV
Gross Amount |
Ceded to Other Companies |
Assumed From Other Companies |
Net Amount |
Percentage of Amount Assumed to Net |
||||||||||||||||
|
|
|||||||||||||||||||
Year ended December 31, 2022 |
||||||||||||||||||||
Life insurance in force |
$ | 776,124 | $ | 616,800 | $ | 319,443 | $ | 478,767 | 67% | |||||||||||
|
|
|||||||||||||||||||
Premiums: |
||||||||||||||||||||
Individual life |
$ | 4,547 | $ | 2,316 | $ | 6,345 | $ | 8,576 | 74% | |||||||||||
Individual health |
758 | 60 | 12 | 710 | 2% | |||||||||||||||
Group life and health |
927 | 135 | 14 | 806 | 2% | |||||||||||||||
Annuity |
9,725 | 16 | 12 | 9,721 | 0% | |||||||||||||||
|
|
|||||||||||||||||||
$ | 15,957 | $ | 2,527 | $ | 6,383 | $ | 19,813 | 32% | ||||||||||||
|
|
|||||||||||||||||||
Year ended December 31, 2021 |
||||||||||||||||||||
Life insurance in force |
$ | 760,949 | $ | 700,434 | $ | 367,342 | $ | 427,857 | 86% | |||||||||||
|
|
|||||||||||||||||||
Premiums: |
||||||||||||||||||||
Individual life |
$ | 4,460 | $ | 4,016 | $ | 1,229 | $ | 1,673 | 73% | |||||||||||
Individual health |
787 | 62 | 12 | 737 | 2% | |||||||||||||||
Group life and health |
920 | 136 | 17 | 801 | 2% | |||||||||||||||
Annuity |
11,424 | 166 | 13 | 11,271 | 0% | |||||||||||||||
|
|
|||||||||||||||||||
$ | 17,591 | $ | 4,380 | $ | 1,271 | $ | 14,482 | 9% | ||||||||||||
|
|
|||||||||||||||||||
Year ended December 31, 2020 |
||||||||||||||||||||
Life insurance in force |
$ | 739,067 | $ | 736,338 | $ | 397,134 | $ | 399,863 | 99% | |||||||||||
|
|
|||||||||||||||||||
Premiums: |
||||||||||||||||||||
Individual life |
$ | 4,173 | $ | 3,106 | $ | 1,197 | $ | 2,264 | 53% | |||||||||||
Individual health |
797 | 61 | 14 | 750 | 2% | |||||||||||||||
Group life and health |
948 | 133 | 26 | 841 | 3% | |||||||||||||||
Annuity |
13,273 | 418 | 13 | 12,868 | 0% | |||||||||||||||
|
|
|||||||||||||||||||
$ | 19,191 | $ | 3,718 | $ | 1,250 | $ | 16,723 | 7% | ||||||||||||
|
|
111