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Certain Nontraditional Long-Duration Contracts
12 Months Ended
Dec. 31, 2014
Certain Nontraditional Long-Duration Contracts
10. Certain Nontraditional Long-Duration Contracts

The Company offered traditional variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also offered variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than total deposits made to the contract less any partial withdrawals (“return of net deposits”). In certain of these variable annuity contracts, the Company also contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals plus a minimum return (“minimum return”), and/or (2) the highest contract value on a specified date adjusted for any withdrawals (“contract value”). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. The Company also issues annuity contracts with market value adjusted investment options (“MVAs”), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a “market adjusted value” if surrendered prior to maturity or if funds are allocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable. The Company also issues fixed deferred annuity contracts without MVA that have a guaranteed credited rate and annuity benefit. All of the risks associated with the Company’s variable annuity contracts are reinsured with external reinsurers.

In addition, the Company issues certain variable life, variable universal life and universal life contracts where the Company contractually guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges, whereas otherwise the contract would typically lapse (“no lapse guarantee”). Variable life and variable universal life contracts are offered with general and separate account options similar to variable annuities.

 

The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as Separate Account assets with an equivalent amount reported as Separate Account liabilities. Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in fee income from policyholders and changes in liabilities for minimum guarantees are generally included in policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) (Successor) and Statements of Operations and Comprehensive Income (Predecessor).

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, benefit utilization, timing of annuitization, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility or contractholder behavior used in the original pricing of these products.

 

The Company’s contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. The liabilities related to the net amount at risk are reflected within Future policy benefits and other policyholder liabilities or Policyholders’ account balances. As of December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:

 

     Successor  
     December 31, 2014  

($ in millions)

   In the Event of
Death
     At
Annuitization/

Accumulation(1)
     For Cumulative
Periodic Withdrawals
     Accumulation
at Specified
Dates
 

Variable Annuity Contracts

           

Separate Account value

   $ 742.7       $ 151.9       $ 16.6       $ 118.4   

Net amount at risk

   $ 57.2       $ 15.2       $ 0.1       $ 6.2   

Average attained age of contractholders

     60 years         N/A         N/A         N/A   

Weighted average waiting period until guarantee date

     N/A         None         N/A         6 years   

Variable Life, Variable Universal Life and Universal Life Contracts

           

No Lapse Guarantees:

           

Separate Account value

   $ 325.1            

General account value

   $ 31518.3            

Net amount at risk

   $     89,942.8            

Average attained age of contractholders

     51 years            

As of December 31, 2013, the Company had the following guarantees associated with these contracts, by product and guarantee type:

 

     Predecessor  
     December 31, 2013  

($ in millions)

   In the Event of
Death
     At
Annuitization/

Accumulation(1)
     For Cumulative
Periodic Withdrawals
     Accumulation
at Specified
Dates
 

Variable Annuity Contracts

           

Separate Account value

   $ 877.0       $ 170.5       $ 21.8       $ 151.1   

Net amount at risk

   $ 63.2       $ 16.6       $ 0.1       $ 7.3   

Average attained age of contractholders

     59 years         N/A         N/A         N/A   

Weighted average waiting period until guarantee date

     N/A         None         N/A         6 years   

 

Liabilities for Guarantee Benefits

The table below summarizes the changes in general account liabilities for guarantees on variable contracts. The liabilities for guaranteed minimum death benefits (“GMDB”) and secondary guarantees on interest-sensitive life and fixed annuities are included in Future policy benefits and other policyholder liabilities on the Consolidated Balance Sheet (Successor) and the related changes in the liabilities are included in policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the Successor Period from April 1, 2014 through December 31, 2014. In the Predecessor Period, secondary guarantees on interest-sensitive life and fixed annuities are included in policyholders’ account balances. Guaranteed minimum income benefits (“GMIB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) features are accounted for as bifurcated embedded derivatives and are recorded at fair value within Policyholders’ account balances on the Consolidated Balance Sheet (Successor).

 

     GMDB      GMIB      GMWB/
GMAB
     Secondary
Guarantees
       

($ in thousands)

   Variable
Annuity
     Variable
Annuity
     Variable
Annuity
     Interest-
Sensitive
Life and
Fixed
Annuities
    Total  

Predecessor

             

Balance as of December 21, 2012

   $ 9,390       $ 19,484       $ 19,621       $ 200,688      $ 249,183   

Less: reinsurance recoverable

     9,390         19,484         19,621         200,688        249,183   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net balance as of December 31, 2012

  —        —        —        —        —     

Incurred guarantee benefits

  —        —        —        —        —     

Paid guarantee benefits

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net change

  —        —        —        —        —     

Net balance as of December 31, 2013

  —        —        —        —        —     

Plus reinsurance recoverable

  8,444      8,743      9,444      281,771      308,402   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance as of December 31, 2013

$ 8,444    $ 8,743    $ 9,444    $ 281,771    $ 308,402   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Less: reinsurance recoverable

  8,444      8,743      9,444      281,771      308,402   

Net balance as of December 31, 2013

  —        —        —        —        —     

Incurred guarantee benefits

  —        —        —        —        —     

Paid guarantee benefits

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net change

  —        —        —        —        —     

Net balance as of March 31, 2014

  —        —        —        —        —     

Plus reinsurance recoverable

  8,057      7,122      8,499      293,704      317,382   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance as of March 31, 2014

$ 8,057    $ 7,122    $ 8,499    $ 293,704    $ 317,382   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
                           

Successor

Balance as of April 1, 2014

$ 8,057    $ 7,122    $ 8,499    $ 552,163    $ 575,841   

Less: reinsurance recoverable

  8,057      7,122      8,499      67,288      90,966   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net balance as of April 1, 2014

  —        —        —        484,875      484,875   

Incurred guarantee benefits

  —        —        —        159,104      159,104   

Paid guarantee benefits

  —        —        —        (108,252   (108,252
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net change

  —        —        —        50,852      50,852   

Net balance as of December 31, 2014

  —        —        —        535,727      535,727   

Plus reinsurance recoverable

  8,358      8,240      6,733      83,733      107,064   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance as of December 31, 2014

$ 8,358    $ 8,240    $ 6,733    $ 619,460    $ 642,791