As Filed with the Securities and Exchange Commission on November 27, 2017
Registration File No. 333-52215
811-7337
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 o
Pre-Effective Amendment No. o
Post-Effective Amendment No. 28 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 o
Amendment No. 74 x
(Check appropriate box or boxes)
Protective Variable Life Separate Account
(Exact name of registrant)
Protective Life Insurance Company
(Name of depositor)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of depositor's principal executive offices)
(800) 265-1545
Depositor's Telephone Number, including Area Code
MAX BERUEFFY, Esq.
2801 Highway 280 South
Birmingham, Alabama 35223
(Name and address of agent for service)
Copy to:
STEPHEN E. ROTH, Esquire
THOMAS E. BISSET, Esquire
Eversheds Sutherland (US) LLP
700 Sixth Street, N.W., Suite 700
Washington, DC 20001-3980
It is proposed that this filing will become effective:
x Immediately upon filing pursuant to paragraph (b) of Rule 485
o On May 1, 2017 pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a)(1) of Rule 485
o On __________ pursuant to paragraph (a)(1) of Rule 485
Title of Securities Being Registered: Interests in Individual
Flexible Premium Variable and Fixed Life Insurance Policies
Supplement Dated December 4, 2017 to
Prospectus dated May 1, 2017 for
Protective Premiere III
Individual Flexible Premium Variable and Fixed Life Insurance Policy
Issued by
Protective Life Insurance Company
Protective Variable Life Separate Account
This Supplement amends certain information in your variable product prospectus (the "Prospectus"). Please read this Supplement carefully and keep it with your Prospectus for future reference.
For Premiere III individual flexible premium variable and fixed life insurance policies (the "Policy") applied for on or after May 1, 2017, as of December 4, 2017, the following seven Funds of the DFA Investment Dimensions Group Inc. are available as investment options under the Policy.
• VA U.S. Large Value Portfolio
• VA U.S. Targeted Value Portfolio
• VA International Value Portfolio
• VA International Small Portfolio
• VA Short-Term Fixed Portfolio
• VA Global Bond Portfolio
• VIT Inflation-Protected Securities Portfolio
This Supplement further amends the following disclosures in your Prospectus:
1. On the cover page of your Prospectus, DFA Investment Dimensions Group Inc. has been added to the list of variable investment options.
2. In the Table of Contents, DFA Investment Dimensions Group Inc. has been added to the list of variable investment options under "THE VARIABLE ACCOUNT AND THE FUNDS."
3. On pages 28 and 29 of your Prospectus, the first paragraph under "THE VARIABLE ACCOUNT AND THE FUNDS-The Funds" section has been revised to include the following information: "DFA Investment Dimensions Group Inc. managed by Dimensional Fund Advisors LP and the VA International Value, VA International Small, VA Short-Term Fixed, VA Global Bond and VIT Inflation-Protected Securities Portfolios sub-advised by Dimensional Fund Advisors Ltd. and DFA Australia Limited."
4. On page 30 of your Prospectus, "THE VARIABLE ACCOUNT AND THE FUNDS-The Funds" section has been revised to include the following information:
|
Fund |
Fund Manager/Investment Advisor |
Subadvisors |
|||||||||
|
VA U.S. Large Value Portfolio
VA U.S. Targeted Value Portfolio |
Dimensional Fund Advisors LP |
||||||||||
|
VA International Value Portfolio
VA International Small Portfolio VA Short-Term Fixed Portfolio VA Global Bond Portfolio VIT Inflation-Protected Securities Portfolio |
Dimensional Fund Advisors LP |
Dimensional Fund Advisors Ltd. and DFA Australia Limited |
|||||||||
5. On page 31 of your Prospectus, "THE VARIABLE ACCOUNT AND THE FUNDS-The Funds" section has been revised to include the following information:
DFA Investment Dimensions Group Inc.
VA U.S. Large Value Portfolio
The investment objective of the VA U.S. Large Value Portfolio is to achieve long-term capital appreciation.
VA U.S. Targeted Value Portfolio
The investment objective of the VA U.S. Targeted Value Portfolio is to achieve long-term capital appreciation.
VA International Value Portfolio
The investment objective of the VA International Value Portfolio is to achieve long-term capital appreciation.
VA International Small Portfolio
The investment objective of the VA International Small Portfolio is to achieve long-term capital appreciation.
VA Short-Term Fixed Portfolio
The investment objective of the VA Short-Term Fixed Portfolio is to achieve a stable real return in excess of the rate of inflation with a minimum of risk.
VA Global Bond Portfolio
The investment objective of the VA Global Bond Portfolio is to provide a market rate of return for a fixed income portfolio with low relative volatility of returns.
VIT Inflation-Protected Securities Portfolio
The investment objective of the VIT Inflation-Protected Securities Portfolio is to provide inflation protection and earn current income consistent with inflation-protected securities.
* * * *
If you have any questions regarding this Supplement or if you wish to receive prospectuses for the DFA Investment Dimensions Group Inc. Funds or other variable investment options available under the Policy, you may contact us by writing Protective Life at P.O. Box 1928, Birmingham, AL 35201-1928 or calling toll free at 800-456-6330.
EXPLANATORY COMMENT
The Prospectus and the statement of additional information for Premiere III included in the Post-Effective Amendment No. 27 of the Registration Statement on Form N-6 (333-52215 and 811-7337) Filed April 27, 2017 pursuant to paragraph (b) to Rule 485 are incorporated herein by reference.
INDEX TO FINANCIAL STATEMENTS
|
THE PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT |
|
|
Report of Independent Registered Public Accounting Firm |
FSA-2 |
|
Statement of Assets and Liabilities as of December 31, 2016 |
FSA-4 |
|
Statement of Operations for the year ended December 31, 2016 |
FSA-14 |
|
Statement of Changes in Net Assets for the year ended December 31, 2016 |
FSA-24 |
|
Statement of Changes in Net Assets for the year ended December 31, 2015 |
FSA-34 |
|
Notes to Financial Statements |
FSA-44 |
|
|
|
|
PROTECTIVE LIFE INSURANCE COMPANY |
|
|
Report of Independent Registered Public Accounting Firm |
F-1 |
|
Consolidated Statements of Income For The Year Ended December 31, 2016 (Successor Company), For The Periods of February 1, 2015 to December 31, 2015 (Successor Company) and January 1, 2015 to January 31, 2015 (Predecessor Company), and For The Year Ended December 31, 2014 (Predecessor Company) |
F-3 |
|
Consolidated Statements of Comprehensive Income (Loss) For The Year Ended December 31, 2016 (Successor Company), For The Periods of February 1, 2015 to December 31, 2015 (Successor Company) and January 1, 2015 to January 31, 2015 (Predecessor Company), and For The Year Ended December 31, 2014 (Predecessor Company) |
F-4 |
|
Consolidated Balance Sheets as of December 31, 2016 and 2015 (Successor Company) |
F-5 |
|
Consolidated Statements of Shareowner’s Equity For The Year Ended December 31, 2016 (Successor Company), For The Periods of February 1, 2015 to December 31, 2015 (Successor Company) and January 1, 2015 to January 31, 2015 (Predecessor Company), and For The Year Ended December 31, 2014 (Predecessor Company) |
F-7 |
|
Consolidated Statements of Cash Flows For The Year Ended December 31, 2016 (Successor Company), For The Periods of February 1, 2015 to December 31, 2015 (Successor Company) and January 1, 2015 to January 31, 2015 (Predecessor Company), and For The Year Ended December 31, 2014 (Predecessor Company) |
F-8 |
|
Notes to Consolidated Financial Statements |
F-10 |
|
Financial Statement Schedules: |
|
|
Schedule III — Supplementary Insurance Information |
S-1 |
|
Schedule IV — Reinsurance |
S-3 |
|
Schedule V — Valuation Accounts |
S-4 |
All other schedules to the consolidated financial statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.
Report of Independent Registered Public Accounting Firm
To the Contract Owners of the Protective Variable Life Separate Account and the Board of Directors of Protective Life Insurance Company:
In our opinion, for each of the subaccounts of Protective Variable Life Separate Account indicated in the table below, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the subaccounts of Protective Variable Life Separate Account as of the date indicated in the table and the results of each of their operations and the changes in each of their net assets for each of the periods indicated in the table, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Protective Life Insurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments at December 31, 2016 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion.
|
American Funds Asset Allocation Class 2 (2) |
|
Invesco VI Global Real Estate II (1) |
|
American Funds Blue Chip Income and Growth Class 2 (2) |
|
Invesco VI Government Securities II (1) |
|
American Funds Global Growth Class 2 (2) |
|
Invesco VI Growth & Income I (1) |
|
American Funds Global Small Capitalization Class 2 (2) |
|
Invesco VI International Growth II (1) |
|
American Funds Growth Class 2 (2) |
|
Invesco VI Mid-Cap Growth II (1) |
|
American Funds International Class 2 (2) |
|
Invesco VI Small Cap Equity II (1) |
|
American Funds New World Class 2 (2) |
|
Lord Abbett Bond Debenture VC (1) |
|
Calvert VP SRI Balanced (1) |
|
Lord Abbett Calibrated Dividend Growth VC (1) |
|
ClearBridge Variable Mid Cap Portfolio II (1) |
|
Lord Abbett Classic Stock VC (1) |
|
ClearBridge Variable Small Cap Growth II (1) |
|
Lord Abbett Growth & Income VC (1) |
|
Fidelity Contrafund Portolio SC (1) |
|
Lord Abbett Growth Opportunities VC (1) |
|
Fidelity Equity Income SC (1) |
|
Lord Abbett International Opportunities VC (1) |
|
Fidelity Freedom Fund - 2015 Maturity SC (1) |
|
Lord Abbett Mid Cap Stock VC (1) |
|
Fidelity Freedom Fund — 2020 Maturity SC (1) |
|
Lord Abbett Series Fundamental Equity VC (1) |
|
Fidelity Growth Portfolio SC (1) |
|
MFS Growth Series IC (1) |
|
Fidelity Index 500 Portfolio SC (1) |
|
MFS Investors Growth Stock IC (3) |
|
Fidelity Investment Grade Bonds SC (1) |
|
MFS Investors Trust IC (1) |
|
Fidelity Mid Cap SC (1) |
|
MFS New Discovery IC (1) |
|
Franklin Flex Cap Growth VIP CL 2 (1) |
|
MFS Research IC (1) |
|
Franklin Income VIP CL 2 (1) |
|
MFS Total Return IC (1) |
|
Franklin Mutual Shares VIP CL 2 (1) |
|
MFS Utilities IC (1) |
|
Franklin Rising Dividend VIP CL 2 (1) |
|
MFS VIT Total Return Bond SC (1) |
|
Franklin Small Cap Value VIP CL 2 (1) |
|
MFS VIT Value SC (1) |
|
Franklin Small-Mid Cap Growth VIP CL 2 (1) |
|
MFS VIT II Emerging Markets Equity SC (1) |
|
Franklin US Government Securities VIP CL 2 (1) |
|
MFS VIT II International Value SC (1) |
|
Goldman Sachs Large Cap Value (1) |
|
MFS VIT II MA Investors Growth Stock IC (4) |
|
Goldman Sachs Large Cap Value Fund SC (1) |
|
Oppenheimer Capital Appreciation Fund/VA (1) |
|
Goldman Sachs Mid Cap Value (1) |
|
Oppenheimer Discovery Mid Cap Growth Fund/VA (1) |
|
Goldman Sachs Mid Cap Value SC (1) |
|
Oppenheimer Global Fund /VA (1) |
|
Goldman Sachs Small Cap Equity Insights (1) |
|
Oppenheimer Global Strategic Income Fund/VA (1) |
|
Goldman Sachs Small Cap Equity Insights SC (1) |
|
Oppenheimer Government Money Market Fund/ VA (1) |
|
Goldman Sachs Strategic Growth (1) |
|
Oppenheimer Main Street Fund/ VA (1) |
|
Goldman Sachs Strategic Growth SC (1) |
|
PIMCO VIT All Asset Advisor (1) |
|
Goldman Sachs Strategic International Equity (1) |
|
PIMCO VIT Long-Term US Government Advisor (1) |
|
Goldman Sachs Strategic International Equity SC (1) |
|
PIMCO VIT Low Duration Advisor (1) |
|
Goldman Sachs US Equity Insights (1) |
|
PIMCO VIT Real Return Advisor (1) |
|
Goldman Sachs US Equity Insights SC (1) |
|
PIMCO VIT Short-Term Advisor (1) |
|
Goldman Sachs VIT Core Fixed Income SC (2) |
|
PIMCO VIT Total Return Advisor (1) |
|
Goldman Sachs VIT Growth Opportunities SC (1) |
|
Royce Capital Fund Micro-Cap SC (1) |
|
Invesco VI American Franchise I (1) |
|
Royce Capital Fund Small-Cap SC (1) |
|
Invesco VI American Value II (1) |
|
Templeton Developing Markets VIP CL 2 (1) |
|
Invesco VI Balanced Risk Allocation II (1) |
|
Templeton Foreign VIP CL 2 (1) |
|
Invesco VI Comstock I (1) |
|
Templeton Global Bond VIP Fund CL 2 (1) |
|
Invesco VI Equity and Income II (1) |
|
Templeton Growth VIP CL 2 (1) |
|
|
|
UIF Global Real Estate II (1) |
(1) Statement of assets and liabilities as of December 31, 2016, statement of operations for the year ended December 31, 2016, and statements of changes in net assets for the years ended December 31, 2016 and 2015
(2) Statement of assets and liabilities as of December 31, 2016, statement of operations for the year ended December 31, 2016, and statements of changes in net assets for the year ended December 31, 2016 and the period from June 29, 2015 (commencement of operations) through December 31, 2015
(3) Statement of changes in net assets for the period from January 1, 2015 through March 28, 2015 (date of expiration)
(4) Statement of assets and liabilities as of December 31, 2016, statement of operations for the year ended December 31, 2016, and statements of changes in net assets for the year ended December 31, 2016 and the period from March 28, 2015 (commencement of operations) through December 31, 2015
|
/s/ PricewaterhouseCoopers LLP |
|
|
|
|
|
Birmingham, Alabama |
|
|
April 24, 2017 |
|
The Protective Variable Life Separate Account
Statement of Assets and Liabilities
As of December 31, 2016
|
|
|
American Funds Insurance Series |
|
Calvert Variable
|
|
||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
Calvert VP SRI
|
|
||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Investments in sub-accounts at fair value |
|
$ |
598 |
|
$ |
1,240 |
|
$ |
276 |
|
$ |
1,038 |
|
$ |
1,530 |
|
$ |
1,101 |
|
$ |
109 |
|
$ |
58 |
|
|
Receivable from Protective Life Insurance Company |
|
— |
|
— |
|
— |
|
— |
|
5 |
|
— |
|
— |
|
— |
|
||||||||
|
Total assets |
|
598 |
|
1,240 |
|
276 |
|
1,038 |
|
1,535 |
|
1,101 |
|
109 |
|
58 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Payable to Protective Life Insurance Company |
|
— |
|
— |
|
— |
|
— |
|
5 |
|
— |
|
— |
|
— |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net assets |
|
$ |
598 |
|
$ |
1,240 |
|
$ |
276 |
|
$ |
1,038 |
|
$ |
1,530 |
|
$ |
1,101 |
|
$ |
109 |
|
$ |
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Units Outstanding |
|
55 |
|
110 |
|
28 |
|
114 |
|
139 |
|
122 |
|
11 |
|
2 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Shares Owned in each Portfolio |
|
28 |
|
93 |
|
12 |
|
53 |
|
23 |
|
66 |
|
6 |
|
28 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Fair Value per Share |
|
$ |
21.49 |
|
$ |
13.39 |
|
$ |
23.85 |
|
$ |
19.72 |
|
$ |
66.92 |
|
$ |
16.76 |
|
$ |
19.54 |
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
587 |
|
$ |
1,192 |
|
$ |
291 |
|
$ |
1,064 |
|
$ |
1,499 |
|
$ |
1,136 |
|
$ |
108 |
|
$ |
62 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Fidelity Variable Insurance Products |
|
Franklin Templeton
|
|
|||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Fidelity Contrafund
|
|
Fidelity Equity
|
|
Fidelity Freedom
|
|
Fidelity Freedom
|
|
Fidelity Growth
|
|
Fidelity Index 500
|
|
Fidelity Investment
|
|
Fidelity Mid Cap SC |
|
Franklin Flex Cap
|
|
|||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investments in sub-accounts at fair value |
|
$ |
25,515 |
|
$ |
2,352 |
|
$ |
326 |
|
$ |
623 |
|
$ |
1,697 |
|
$ |
14,178 |
|
$ |
7,502 |
|
$ |
14,618 |
|
$ |
3,061 |
|
|
Receivable from Protective Life Insurance Company |
|
11 |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
5 |
|
— |
|
|||||||||
|
Total assets |
|
25,526 |
|
2,352 |
|
326 |
|
623 |
|
1,697 |
|
14,179 |
|
7,502 |
|
14,623 |
|
3,061 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Payable to Protective Life Insurance Company |
|
12 |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
5 |
|
— |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net assets |
|
$ |
25,514 |
|
$ |
2,352 |
|
$ |
326 |
|
$ |
623 |
|
$ |
1,697 |
|
$ |
14,178 |
|
$ |
7,502 |
|
$ |
14,618 |
|
$ |
3,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Units Outstanding |
|
848 |
|
103 |
|
21 |
|
41 |
|
97 |
|
629 |
|
441 |
|
431 |
|
173 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Shares Owned in each Portfolio |
|
772 |
|
108 |
|
26 |
|
50 |
|
29 |
|
63 |
|
600 |
|
434 |
|
520 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Fair Value per Share |
|
$ |
33.04 |
|
$ |
21.86 |
|
$ |
12.37 |
|
$ |
12.53 |
|
$ |
59.10 |
|
$ |
226.70 |
|
$ |
12.50 |
|
$ |
33.70 |
|
$ |
5.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
21,054 |
|
$ |
2,509 |
|
$ |
259 |
|
$ |
478 |
|
$ |
937 |
|
$ |
10,808 |
|
$ |
7,573 |
|
$ |
13,627 |
|
$ |
4,643 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Franklin Templeton Variable Insurance Products Trust |
|
||||||||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Franklin Income VIP
|
|
Franklin Mutual
|
|
Franklin Rising
|
|
Franklin Small Cap
|
|
Franklin Small-Mid
|
|
Franklin US
|
|
Templeton
|
|
Templeton Foreign
|
|
Templeton Global
|
|
Templeton Growth
|
|
||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investments in sub-accounts at fair value |
|
$ |
16,807 |
|
$ |
37,679 |
|
$ |
15,341 |
|
$ |
2,968 |
|
$ |
3,064 |
|
$ |
10,447 |
|
$ |
787 |
|
$ |
8,509 |
|
$ |
10,147 |
|
$ |
14,430 |
|
|
Receivable from Protective Life Insurance Company |
|
8 |
|
8 |
|
2 |
|
— |
|
— |
|
12 |
|
— |
|
1 |
|
8 |
|
1 |
|
||||||||||
|
Total assets |
|
16,815 |
|
37,687 |
|
15,343 |
|
2,968 |
|
3,064 |
|
10,459 |
|
787 |
|
8,510 |
|
10,155 |
|
14,431 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payable to Protective Life Insurance Company |
|
13 |
|
19 |
|
4 |
|
2 |
|
3 |
|
15 |
|
— |
|
1 |
|
31 |
|
8 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net assets |
|
$ |
16,802 |
|
$ |
37,668 |
|
$ |
15,339 |
|
$ |
2,966 |
|
$ |
3,061 |
|
$ |
10,444 |
|
$ |
787 |
|
$ |
8,509 |
|
$ |
10,124 |
|
$ |
14,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Units Outstanding |
|
908 |
|
2,155 |
|
737 |
|
120 |
|
164 |
|
772 |
|
92 |
|
632 |
|
562 |
|
1,025 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Shares Owned in each Portfolio |
|
1,093 |
|
1,876 |
|
616 |
|
153 |
|
188 |
|
854 |
|
107 |
|
625 |
|
624 |
|
1,053 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Fair Value per Share |
|
$ |
15.38 |
|
$ |
20.08 |
|
$ |
24.89 |
|
$ |
19.36 |
|
$ |
16.27 |
|
$ |
12.24 |
|
$ |
7.36 |
|
$ |
13.61 |
|
$ |
16.25 |
|
$ |
13.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
16,452 |
|
$ |
33,824 |
|
$ |
12,756 |
|
$ |
2,717 |
|
$ |
3,739 |
|
$ |
10,924 |
|
$ |
846 |
|
$ |
9,234 |
|
$ |
10,938 |
|
$ |
13,200 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Goldman Sachs Variable Insurance Trust |
|
||||||||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs Mid
|
|
Goldman Sachs Mid
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investments in sub-accounts at fair value |
|
$ |
13,371 |
|
$ |
2,655 |
|
$ |
2,578 |
|
$ |
3,676 |
|
$ |
7,817 |
|
$ |
467 |
|
$ |
10,104 |
|
$ |
3,423 |
|
$ |
6,081 |
|
$ |
1,768 |
|
|
Receivable from Protective Life Insurance Company |
|
3 |
|
— |
|
— |
|
5 |
|
— |
|
— |
|
7 |
|
— |
|
3 |
|
— |
|
||||||||||
|
Total assets |
|
13,374 |
|
2,655 |
|
2,578 |
|
3,681 |
|
7,817 |
|
467 |
|
10,111 |
|
3,423 |
|
6,084 |
|
1,768 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payable to Protective Life Insurance Company |
|
7 |
|
— |
|
1 |
|
5 |
|
14 |
|
— |
|
20 |
|
2 |
|
22 |
|
— |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net assets |
|
$ |
13,367 |
|
$ |
2,655 |
|
$ |
2,577 |
|
$ |
3,676 |
|
$ |
7,803 |
|
$ |
467 |
|
$ |
10,091 |
|
$ |
3,421 |
|
$ |
6,062 |
|
$ |
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Units Outstanding |
|
387 |
|
167 |
|
87 |
|
194 |
|
134 |
|
20 |
|
222 |
|
179 |
|
309 |
|
178 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Shares Owned in each Portfolio |
|
1,316 |
|
261 |
|
159 |
|
226 |
|
567 |
|
34 |
|
638 |
|
217 |
|
695 |
|
201 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Fair Value per Share |
|
$ |
10.16 |
|
$ |
10.16 |
|
$ |
16.23 |
|
$ |
16.25 |
|
$ |
13.79 |
|
$ |
13.70 |
|
$ |
15.83 |
|
$ |
15.79 |
|
$ |
8.75 |
|
$ |
8.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
14,352 |
|
$ |
2,514 |
|
$ |
2,548 |
|
$ |
3,619 |
|
$ |
7,681 |
|
$ |
314 |
|
$ |
8,306 |
|
$ |
2,840 |
|
$ |
8,891 |
|
$ |
1,727 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Goldman Sachs Variable Insurance Trust |
|
Invesco Variable Insurance Funds |
|
||||||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Goldman Sachs US
|
|
Goldman Sachs US
|
|
Goldman Sachs VIT
|
|
Goldman Sachs VIT
|
|
Invesco VI American
|
|
Invesco VI American
|
|
Invesco VI Balanced
|
|
Invesco VI
|
|
Invesco VI Equity
|
|
Invesco VI Global
|
|
||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investments in sub-accounts at fair value |
|
$ |
9,760 |
|
$ |
166 |
|
$ |
131 |
|
$ |
1,598 |
|
$ |
4,676 |
|
$ |
2,969 |
|
$ |
432 |
|
$ |
37,242 |
|
$ |
23,826 |
|
$ |
542 |
|
|
Receivable from Protective Life Insurance Company |
|
9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
— |
|
||||||||||
|
Total assets |
|
9,769 |
|
166 |
|
131 |
|
1,598 |
|
4,676 |
|
2,969 |
|
432 |
|
37,244 |
|
23,826 |
|
542 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payable to Protective Life Insurance Company |
|
66 |
|
— |
|
— |
|
— |
|
11 |
|
— |
|
— |
|
22 |
|
5 |
|
— |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net assets |
|
$ |
9,703 |
|
$ |
166 |
|
$ |
131 |
|
$ |
1,598 |
|
$ |
4,665 |
|
$ |
2,969 |
|
$ |
432 |
|
$ |
37,222 |
|
$ |
23,821 |
|
$ |
542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Units Outstanding |
|
224 |
|
8 |
|
13 |
|
76 |
|
438 |
|
129 |
|
28 |
|
1,063 |
|
816 |
|
41 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Shares Owned in each Portfolio |
|
553 |
|
9 |
|
12 |
|
238 |
|
87 |
|
176 |
|
38 |
|
1,993 |
|
1,348 |
|
35 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Fair Value per Share |
|
$ |
17.65 |
|
$ |
17.71 |
|
$ |
10.60 |
|
$ |
6.73 |
|
$ |
53.58 |
|
$ |
16.90 |
|
$ |
11.22 |
|
$ |
18.69 |
|
$ |
17.68 |
|
$ |
15.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
8,479 |
|
$ |
96 |
|
$ |
132 |
|
$ |
1,651 |
|
$ |
3,505 |
|
$ |
3,068 |
|
$ |
441 |
|
$ |
25,033 |
|
$ |
19,162 |
|
$ |
548 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Invesco Variable Insurance Funds |
|
Legg Mason Partners Variable Equity
|
|
Lord Abbett Series Fund, Inc. |
|
||||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Invesco VI
|
|
Invesco VI Growth
|
|
Invesco VI
|
|
Invesco VI Mid-Cap
|
|
Invesco VI Small
|
|
ClearBridge Variable
|
|
ClearBridge Variable
|
|
Lord Abbett Bond
|
|
Lord Abbett
|
|
Lord Abbett Classic
|
|
||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investments in sub-accounts at fair value |
|
$ |
4,601 |
|
$ |
36,818 |
|
$ |
5,819 |
|
$ |
3,115 |
|
$ |
1,324 |
|
$ |
1,486 |
|
$ |
698 |
|
$ |
22,061 |
|
$ |
10,004 |
|
$ |
854 |
|
|
Receivable from Protective Life Insurance Company |
|
1 |
|
12 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
9 |
|
— |
|
— |
|
||||||||||
|
Total assets |
|
4,602 |
|
36,830 |
|
5,819 |
|
3,115 |
|
1,324 |
|
1,486 |
|
698 |
|
22,070 |
|
10,004 |
|
854 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payable to Protective Life Insurance Company |
|
1 |
|
27 |
|
— |
|
15 |
|
— |
|
— |
|
— |
|
23 |
|
6 |
|
— |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net assets |
|
$ |
4,601 |
|
$ |
36,803 |
|
$ |
5,819 |
|
$ |
3,100 |
|
$ |
1,324 |
|
$ |
1,486 |
|
$ |
698 |
|
$ |
22,047 |
|
$ |
9,998 |
|
$ |
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Units Outstanding |
|
409 |
|
1,154 |
|
499 |
|
283 |
|
89 |
|
63 |
|
29 |
|
777 |
|
300 |
|
49 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Shares Owned in each Portfolio |
|
406 |
|
1,749 |
|
179 |
|
645 |
|
75 |
|
78 |
|
34 |
|
1,848 |
|
691 |
|
68 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Fair Value per Share |
|
$ |
11.33 |
|
$ |
21.05 |
|
$ |
32.44 |
|
$ |
4.83 |
|
$ |
17.58 |
|
$ |
18.97 |
|
$ |
20.58 |
|
$ |
11.94 |
|
$ |
14.47 |
|
$ |
12.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
4,732 |
|
$ |
32,604 |
|
$ |
5,915 |
|
$ |
2,557 |
|
$ |
1,532 |
|
$ |
1,356 |
|
$ |
692 |
|
$ |
21,668 |
|
$ |
9,820 |
|
$ |
813 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Lord Abbett Series Fund, Inc. |
|
MFS Variable Insurance Trust |
|
||||||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Lord Abbett Growth
|
|
Lord Abbett Growth
|
|
Lord Abbett
|
|
Lord Abbett Mid
|
|
Lord Abbett Series
|
|
MFS Growth Series
|
|
MFS Investors Trust
|
|
MFS New Discovery
|
|
MFS Research IC |
|
MFS Total Return
|
|
||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investments in sub-accounts at fair value |
|
$ |
16,801 |
|
$ |
3,460 |
|
$ |
1,238 |
|
$ |
16,967 |
|
$ |
5,595 |
|
$ |
10,533 |
|
$ |
9,585 |
|
$ |
5,496 |
|
$ |
8,460 |
|
$ |
18,188 |
|
|
Receivable from Protective Life Insurance Company |
|
— |
|
— |
|
— |
|
2 |
|
5 |
|
— |
|
— |
|
— |
|
8 |
|
7 |
|
||||||||||
|
Total assets |
|
16,801 |
|
3,460 |
|
1,238 |
|
16,969 |
|
5,600 |
|
10,533 |
|
9,585 |
|
5,496 |
|
8,468 |
|
18,195 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payable to Protective Life Insurance Company |
|
59 |
|
— |
|
— |
|
10 |
|
5 |
|
15 |
|
20 |
|
13 |
|
22 |
|
43 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net assets |
|
$ |
16,742 |
|
$ |
3,460 |
|
$ |
1,238 |
|
$ |
16,959 |
|
$ |
5,595 |
|
$ |
10,518 |
|
$ |
9,565 |
|
$ |
5,483 |
|
$ |
8,446 |
|
$ |
18,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Units Outstanding |
|
714 |
|
111 |
|
92 |
|
613 |
|
261 |
|
273 |
|
302 |
|
137 |
|
253 |
|
510 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Shares Owned in each Portfolio |
|
458 |
|
289 |
|
159 |
|
665 |
|
306 |
|
272 |
|
375 |
|
340 |
|
325 |
|
785 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Fair Value per Share |
|
$ |
36.72 |
|
$ |
11.96 |
|
$ |
7.79 |
|
$ |
25.52 |
|
$ |
18.30 |
|
$ |
38.76 |
|
$ |
25.57 |
|
$ |
16.18 |
|
$ |
26.00 |
|
$ |
23.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
10,691 |
|
$ |
3,923 |
|
$ |
1,289 |
|
$ |
12,861 |
|
$ |
5,531 |
|
$ |
8,609 |
|
$ |
8,373 |
|
$ |
5,380 |
|
$ |
6,872 |
|
$ |
15,283 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
MFS Variable Insurance Trust |
|
MFS Variable Insurance Trust II |
|
Oppenheimer Variable Account Funds |
|
|||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
MFS Utilities IC |
|
MFS VIT Total
|
|
MFS VIT Value SC |
|
MFS VIT II
|
|
MFS VIT II
|
|
MFS VIT II MA
|
|
Oppenheimer
|
|
Oppenheimer
|
|
Oppenheimer Global
|
|
|||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investments in sub-accounts at fair value |
|
$ |
4,447 |
|
$ |
11,094 |
|
$ |
12,426 |
|
$ |
414 |
|
$ |
4,766 |
|
$ |
3,669 |
|
$ |
10,041 |
|
$ |
3,838 |
|
$ |
19,662 |
|
|
Receivable from Protective Life Insurance Company |
|
5 |
|
1 |
|
1 |
|
— |
|
1 |
|
— |
|
7 |
|
1 |
|
5 |
|
|||||||||
|
Total assets |
|
4,452 |
|
11,095 |
|
12,427 |
|
414 |
|
4,767 |
|
3,669 |
|
10,048 |
|
3,839 |
|
19,667 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Payable to Protective Life Insurance Company |
|
27 |
|
9 |
|
7 |
|
— |
|
1 |
|
— |
|
23 |
|
46 |
|
33 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net assets |
|
$ |
4,425 |
|
$ |
11,086 |
|
$ |
12,420 |
|
$ |
414 |
|
$ |
4,766 |
|
$ |
3,669 |
|
$ |
10,025 |
|
$ |
3,793 |
|
$ |
19,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Units Outstanding |
|
105 |
|
837 |
|
550 |
|
49 |
|
315 |
|
347 |
|
296 |
|
130 |
|
501 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Shares Owned in each Portfolio |
|
166 |
|
862 |
|
668 |
|
33 |
|
214 |
|
239 |
|
208 |
|
53 |
|
561 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Fair Value per Share |
|
$ |
26.81 |
|
$ |
12.87 |
|
$ |
18.59 |
|
$ |
12.41 |
|
$ |
22.23 |
|
$ |
15.38 |
|
$ |
48.36 |
|
$ |
72.65 |
|
$ |
35.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
3,885 |
|
$ |
11,294 |
|
$ |
10,920 |
|
$ |
467 |
|
$ |
4,547 |
|
$ |
4,202 |
|
$ |
9,217 |
|
$ |
3,747 |
|
$ |
17,269 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Oppenheimer Variable Account Funds |
|
PIMCO Variable Insurance Trust |
|
|||||||||||||||||||||||
|
($ in thousands, except Fair Value per Share) |
|
Oppenheimer Global
|
|
Oppenheimer
|
|
Oppenheimer Main
|
|
PIMCO VIT All
|
|
PIMCO VIT Long-
|
|
PIMCO VIT Low
|
|
PIMCO VIT Real
|
|
PIMCO VIT Short-
|
|
PIMCO VIT Total
|
|
|||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investments in sub-accounts at fair value |
|
$ |
12,731 |
|
$ |
8,389 |
|
$ |
9,322 |
|
$ |
144 |
|
$ |
290 |
|
$ |
1,468 |
|
$ |
6,064 |
|
$ |
941 |
|
$ |
16,324 |
|
|
Receivable from Protective Life Insurance Company |
|
— |
|
1 |
|
1 |
|
— |
|
— |
|
— |
|
10 |
|
— |
|
3 |
|
|||||||||
|
Total assets |
|
12,731 |
|
8,390 |
|
9,323 |
|
144 |
|
290 |
|
1,468 |
|
6,074 |
|
941 |
|
16,327 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Payable to Protective Life Insurance Company |
|
25 |
|
1 |
|
4 |
|
— |
|
— |
|
— |
|
10 |
|
— |
|
8 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net assets |
|
$ |
12,706 |
|
$ |
8,389 |
|
$ |
9,319 |
|
$ |
144 |
|
$ |
290 |
|
$ |
1,468 |
|
$ |
6,064 |
|
$ |
941 |
|
$ |
16,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Units Outstanding |
|
448 |
|
5,332 |
|
290 |
|
13 |
|
19 |
|
127 |
|
478 |
|
85 |
|
1,266 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Shares Owned in each Portfolio |
|
2,577 |
|
8,389 |
|
328 |
|
14 |
|
25 |
|
143 |
|
494 |
|
91 |
|
1,534 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Fair Value per Share |
|
$ |
4.94 |
|
$ |
1.00 |
|
$ |
28.41 |
|
$ |
10.12 |
|
$ |
11.49 |
|
$ |
10.24 |
|
$ |
12.27 |
|
$ |
10.30 |
|
$ |
10.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investment in Portfolio shares, at Cost |
|
$ |
12,863 |
|
$ |
8,389 |
|
$ |
7,322 |
|
$ |
159 |
|
$ |
303 |
|
$ |
1,510 |
|
$ |
6,383 |
|
$ |
938 |
|
$ |
17,084 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Assets and Liabilities, continued
As of December 31, 2016
|
|
|
Royce Capital Fund |
|
The Universal
|
|
|||||
|
($ in thousands, except Fair Value per Share) |
|
Royce Capital Fund
|
|
Royce Capital Fund
|
|
UIF Global Real
|
|
|||
|
ASSETS |
|
|
|
|
|
|
|
|||
|
Investments in sub-accounts at fair value |
|
$ |
868 |
|
$ |
5,053 |
|
$ |
593 |
|
|
Receivable from Protective Life Insurance Company |
|
— |
|
5 |
|
— |
|
|||
|
Total assets |
|
868 |
|
5,058 |
|
593 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
LIABILITIES |
|
|
|
|
|
|
|
|||
|
Payable to Protective Life Insurance Company |
|
— |
|
5 |
|
— |
|
|||
|
Net assets |
|
$ |
868 |
|
$ |
5,053 |
|
$ |
593 |
|
|
|
|
|
|
|
|
|
|
|||
|
Units Outstanding |
|
55 |
|
256 |
|
42 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Shares Owned in each Portfolio |
|
79 |
|
616 |
|
57 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Fair Value per Share |
|
$ |
10.93 |
|
$ |
8.20 |
|
$ |
10.36 |
|
|
|
|
|
|
|
|
|
|
|||
|
Investment in Portfolio shares, at Cost |
|
$ |
867 |
|
$ |
6,071 |
|
$ |
464 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations
For the year ended December 31, 2016
|
|
|
American Funds Insurance Series |
|
Calvert Variable
|
|
||||||||||||||||||||
|
($ in thousands) |
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
Calvert VP SRI
|
|
||||||||
|
INVESTMENT INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Dividend income |
|
$ |
7 |
|
$ |
20 |
|
$ |
2 |
|
$ |
3 |
|
$ |
9 |
|
$ |
14 |
|
$ |
1 |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net realized gain (loss) on redemption of investment shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
||||||||
|
Capital gain distributions |
|
4 |
|
56 |
|
15 |
|
7 |
|
69 |
|
8 |
|
— |
|
1 |
|
||||||||
|
Net realized gain (loss) on investments |
|
4 |
|
56 |
|
15 |
|
7 |
|
69 |
|
8 |
|
— |
|
1 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
12 |
|
54 |
|
(13 |
) |
(26 |
) |
29 |
|
(29 |
) |
1 |
|
2 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net realized and unrealized gain (loss) on investments |
|
16 |
|
110 |
|
2 |
|
(19 |
) |
98 |
|
(21 |
) |
1 |
|
3 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
23 |
|
$ |
130 |
|
$ |
4 |
|
$ |
(16 |
) |
$ |
107 |
|
$ |
(7 |
) |
$ |
2 |
|
$ |
4 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
|
|
|
Franklin Templeton Variable Insurance Products Trust |
|
|||||||||||||||||||||||||||||
|
($ in thousands) |
|
Franklin Income VIP
|
|
Franklin Mutual
|
|
Franklin Rising
|
|
Franklin Small Cap
|
|
Franklin Small-Mid
|
|
Franklin US
|
|
Templeton
|
|
Templeton Foreign
|
|
Templeton Global
|
|
Templeton Growth
|
|
|||||||||||
|
INVESTMENT INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Dividend income |
|
$ |
779 |
|
$ |
685 |
|
$ |
198 |
|
$ |
20 |
|
$ |
— |
|
$ |
243 |
|
$ |
2 |
|
$ |
154 |
|
$ |
— |
|
$ |
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net realized gain (loss) on redemption of investment shares |
|
(15 |
) |
3 |
|
18 |
|
9 |
|
(4 |
) |
— |
|
1 |
|
4 |
|
(1 |
) |
25 |
|
|||||||||||
|
Capital gain distributions |
|
— |
|
2,823 |
|
1,698 |
|
375 |
|
357 |
|
— |
|
— |
|
138 |
|
7 |
|
518 |
|
|||||||||||
|
Net realized gain (loss) on investments |
|
(15 |
) |
2,826 |
|
1,716 |
|
384 |
|
353 |
|
— |
|
1 |
|
142 |
|
6 |
|
543 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
1,320 |
|
1,675 |
|
207 |
|
290 |
|
(232 |
) |
(195 |
) |
36 |
|
295 |
|
272 |
|
477 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net realized and unrealized gain (loss) on investments |
|
1,305 |
|
4,501 |
|
1,923 |
|
674 |
|
121 |
|
(195 |
) |
37 |
|
437 |
|
278 |
|
1,020 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
2,084 |
|
$ |
5,186 |
|
$ |
2,121 |
|
$ |
694 |
|
$ |
121 |
|
$ |
48 |
|
$ |
39 |
|
$ |
591 |
|
$ |
278 |
|
$ |
1,289 |
|
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
|
|
|
Invesco Variable Insurance Funds |
|
Legg Mason Partners Variable Equity
|
|
Lord Abbett Series Fund, Inc. |
|
||||||||||||||||||||||||
|
($ in thousands) |
|
Invesco VI
|
|
Invesco VI Growth
|
|
Invesco VI
|
|
Invesco VI Mid-Cap
|
|
Invesco VI Small
|
|
ClearBridge Variable
|
|
ClearBridge Variable
|
|
Lord Abbett Bond
|
|
Lord Abbett
|
|
Lord Abbett Classic
|
|
||||||||||
|
INVESTMENT INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Dividend income |
|
$ |
83 |
|
$ |
371 |
|
$ |
66 |
|
$ |
— |
|
$ |
— |
|
$ |
5 |
|
$ |
— |
|
$ |
969 |
|
$ |
161 |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net realized gain (loss) on redemption of investment shares |
|
1 |
|
28 |
|
(1 |
) |
8 |
|
— |
|
(1 |
) |
2 |
|
(2 |
) |
39 |
|
1 |
|
||||||||||
|
Capital gain distributions |
|
— |
|
3,068 |
|
— |
|
306 |
|
90 |
|
33 |
|
29 |
|
— |
|
607 |
|
31 |
|
||||||||||
|
Net realized gain (loss) on investments |
|
1 |
|
3,096 |
|
(1 |
) |
314 |
|
90 |
|
32 |
|
31 |
|
(2 |
) |
646 |
|
32 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(34 |
) |
2,654 |
|
(92 |
) |
(290 |
) |
50 |
|
89 |
|
8 |
|
1,345 |
|
551 |
|
55 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net realized and unrealized gain (loss) on investments |
|
(33 |
) |
5,750 |
|
(93 |
) |
24 |
|
140 |
|
121 |
|
39 |
|
1,343 |
|
1,197 |
|
87 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
50 |
|
$ |
6,121 |
|
$ |
(27 |
) |
$ |
24 |
|
$ |
140 |
|
$ |
126 |
|
$ |
39 |
|
$ |
2,312 |
|
$ |
1,358 |
|
$ |
95 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Operations, continued
For the year ended December 31, 2016
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets
For the year ended December 31, 2016
|
|
|
American Funds Insurance Series |
|
Calvert Variable
|
|
||||||||||||||||||||
|
($ in thousands) |
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
Calvert VP SRI
|
|
||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net investment income (loss) |
|
$ |
7 |
|
$ |
20 |
|
$ |
2 |
|
$ |
3 |
|
$ |
9 |
|
$ |
14 |
|
$ |
1 |
|
$ |
1 |
|
|
Net realized gain (loss) on investments |
|
4 |
|
56 |
|
15 |
|
7 |
|
69 |
|
8 |
|
— |
|
1 |
|
||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
12 |
|
54 |
|
(13 |
) |
(26 |
) |
29 |
|
(29 |
) |
1 |
|
2 |
|
||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
23 |
|
130 |
|
4 |
|
(16 |
) |
107 |
|
(7 |
) |
2 |
|
4 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Policy owners’ net payments |
|
7 |
|
108 |
|
34 |
|
13 |
|
107 |
|
13 |
|
5 |
|
— |
|
||||||||
|
Policy maintenance charges |
|
(15 |
) |
(60 |
) |
(9 |
) |
(3 |
) |
(79 |
) |
(5 |
) |
(4 |
) |
(2 |
) |
||||||||
|
Policy owners’ benefits |
|
— |
|
(5 |
) |
— |
|
— |
|
(4 |
) |
— |
|
— |
|
— |
|
||||||||
|
Net policy loan repayments (withdrawals) |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
— |
|
— |
|
||||||||
|
Transfer (to) from other portfolios |
|
516 |
|
794 |
|
121 |
|
1,016 |
|
1,029 |
|
1,032 |
|
81 |
|
— |
|
||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
508 |
|
837 |
|
146 |
|
1,026 |
|
1,054 |
|
1,040 |
|
82 |
|
(2 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total increase (decrease) in net assets |
|
531 |
|
967 |
|
150 |
|
1,010 |
|
1,161 |
|
1,033 |
|
84 |
|
2 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Beginning of period |
|
67 |
|
273 |
|
126 |
|
28 |
|
369 |
|
68 |
|
25 |
|
56 |
|
||||||||
|
End of period |
|
$ |
598 |
|
$ |
1,240 |
|
$ |
276 |
|
$ |
1,038 |
|
$ |
1,530 |
|
$ |
1,101 |
|
$ |
109 |
|
$ |
58 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2016
|
|
|
Fidelity Variable Insurance Products |
|
Franklin Templeton
|
|
|||||||||||||||||||||||
|
($ in thousands) |
|
Fidelity Contrafund
|
|
Fidelity Equity
|
|
Fidelity Freedom
|
|
Fidelity Freedom
|
|
Fidelity Growth
|
|
Fidelity Index 500
|
|
Fidelity Investment
|
|
Fidelity Mid Cap SC |
|
Franklin Flex Cap
|
|
|||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net investment income (loss) |
|
$ |
178 |
|
$ |
49 |
|
$ |
5 |
|
$ |
9 |
|
$ |
— |
|
$ |
189 |
|
$ |
170 |
|
$ |
59 |
|
$ |
— |
|
|
Net realized gain (loss) on investments |
|
1,732 |
|
146 |
|
9 |
|
20 |
|
171 |
|
— |
|
2 |
|
723 |
|
422 |
|
|||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(72 |
) |
163 |
|
4 |
|
6 |
|
(163 |
) |
875 |
|
22 |
|
724 |
|
(505 |
) |
|||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
1,838 |
|
358 |
|
18 |
|
35 |
|
8 |
|
1,064 |
|
194 |
|
1,506 |
|
(83 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Policy owners’ net payments |
|
1,642 |
|
107 |
|
4 |
|
15 |
|
90 |
|
655 |
|
308 |
|
1,187 |
|
212 |
|
|||||||||
|
Policy maintenance charges |
|
(1,046 |
) |
(104 |
) |
(10 |
) |
(18 |
) |
(85 |
) |
(428 |
) |
(246 |
) |
(610 |
) |
(107 |
) |
|||||||||
|
Policy owners’ benefits |
|
(808 |
) |
(152 |
) |
— |
|
(40 |
) |
(72 |
) |
(287 |
) |
(65 |
) |
(420 |
) |
(46 |
) |
|||||||||
|
Net policy loan repayments (withdrawals) |
|
(88 |
) |
(9 |
) |
— |
|
15 |
|
(14 |
) |
(120 |
) |
(40 |
) |
(38 |
) |
(12 |
) |
|||||||||
|
Transfer (to) from other portfolios |
|
1,726 |
|
14 |
|
— |
|
25 |
|
(18 |
) |
3,828 |
|
3,355 |
|
1,276 |
|
63 |
|
|||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
1,426 |
|
(144 |
) |
(6 |
) |
(3 |
) |
(99 |
) |
3,648 |
|
3,312 |
|
1,395 |
|
110 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total increase (decrease) in net assets |
|
3,264 |
|
214 |
|
12 |
|
32 |
|
(91 |
) |
4,712 |
|
3,506 |
|
2,901 |
|
27 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning of period |
|
22,250 |
|
2,138 |
|
314 |
|
591 |
|
1,788 |
|
9,466 |
|
3,996 |
|
11,717 |
|
3,034 |
|
|||||||||
|
End of period |
|
$ |
25,514 |
|
$ |
2,352 |
|
$ |
326 |
|
$ |
623 |
|
$ |
1,697 |
|
$ |
14,178 |
|
$ |
7,502 |
|
$ |
14,618 |
|
$ |
3,061 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2016 |
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Changes in Net Assets, continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goldman Sachs Variable Insurance Trust |
|
||||||||||||||||||||||||||||
|
($ in thousands) |
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs Mid
|
|
Goldman Sachs Mid
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
Goldman Sachs
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
277 |
|
$ |
48 |
|
$ |
33 |
|
$ |
40 |
|
$ |
82 |
|
$ |
4 |
|
$ |
63 |
|
$ |
14 |
|
$ |
128 |
|
$ |
32 |
|
|
Net realized gain (loss) on investments |
|
160 |
|
26 |
|
(8 |
) |
2 |
|
224 |
|
13 |
|
(4 |
) |
— |
|
(110 |
) |
— |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
974 |
|
197 |
|
276 |
|
368 |
|
1,199 |
|
72 |
|
134 |
|
46 |
|
(201 |
) |
(76 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
1,411 |
|
271 |
|
301 |
|
410 |
|
1,505 |
|
89 |
|
193 |
|
60 |
|
(183 |
) |
(44 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
524 |
|
147 |
|
99 |
|
261 |
|
304 |
|
30 |
|
452 |
|
296 |
|
366 |
|
172 |
|
||||||||||
|
Policy maintenance charges |
|
(534 |
) |
(86 |
) |
(92 |
) |
(194 |
) |
(285 |
) |
(18 |
) |
(480 |
) |
(171 |
) |
(311 |
) |
(76 |
) |
||||||||||
|
Policy owners’ benefits |
|
(858 |
) |
(27 |
) |
(85 |
) |
(38 |
) |
(347 |
) |
(3 |
) |
(759 |
) |
(103 |
) |
(563 |
) |
(28 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(77 |
) |
(8 |
) |
(29 |
) |
(1 |
) |
(9 |
) |
(4 |
) |
(87 |
) |
(14 |
) |
(8 |
) |
(14 |
) |
||||||||||
|
Transfer (to) from other portfolios |
|
(83 |
) |
(7 |
) |
(121 |
) |
821 |
|
(73 |
) |
(13 |
) |
(52 |
) |
323 |
|
136 |
|
168 |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(1,028 |
) |
19 |
|
(228 |
) |
849 |
|
(410 |
) |
(8 |
) |
(926 |
) |
331 |
|
(380 |
) |
222 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
383 |
|
290 |
|
73 |
|
1,259 |
|
1,095 |
|
81 |
|
(733 |
) |
391 |
|
(563 |
) |
178 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
12,984 |
|
2,365 |
|
2,504 |
|
2,417 |
|
6,708 |
|
386 |
|
10,824 |
|
3,030 |
|
6,625 |
|
1,590 |
|
||||||||||
|
End of period |
|
$ |
13,367 |
|
$ |
2,655 |
|
$ |
2,577 |
|
$ |
3,676 |
|
$ |
7,803 |
|
$ |
467 |
|
$ |
10,091 |
|
$ |
3,421 |
|
$ |
6,062 |
|
$ |
1,768 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2016
|
|
|
Goldman Sachs Variable Insurance Trust |
|
Invesco Variable Insurance Funds |
|
||||||||||||||||||||||||||
|
($ in thousands) |
|
Goldman Sachs US
|
|
Goldman Sachs US
|
|
Goldman Sachs VIT
|
|
Goldman Sachs VIT
|
|
Invesco VI American
|
|
Invesco VI American
|
|
Invesco VI Balanced
|
|
Invesco VI
|
|
Invesco VI Equity
|
|
Invesco VI Global
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
122 |
|
$ |
2 |
|
$ |
1 |
|
$ |
— |
|
$ |
— |
|
$ |
3 |
|
$ |
1 |
|
$ |
535 |
|
$ |
360 |
|
$ |
7 |
|
|
Net realized gain (loss) on investments |
|
401 |
|
9 |
|
— |
|
12 |
|
504 |
|
157 |
|
1 |
|
2,777 |
|
683 |
|
10 |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
436 |
|
8 |
|
(1 |
) |
11 |
|
(405 |
) |
244 |
|
39 |
|
2,297 |
|
2,030 |
|
(8 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
959 |
|
19 |
|
— |
|
23 |
|
99 |
|
404 |
|
41 |
|
5,609 |
|
3,073 |
|
9 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
373 |
|
5 |
|
3 |
|
140 |
|
217 |
|
339 |
|
26 |
|
1,624 |
|
1,184 |
|
58 |
|
||||||||||
|
Policy maintenance charges |
|
(389 |
) |
(4 |
) |
(3 |
) |
(61 |
) |
(173 |
) |
(138 |
) |
(16 |
) |
(1,263 |
) |
(912 |
) |
(24 |
) |
||||||||||
|
Policy owners’ benefits |
|
(736 |
) |
(1 |
) |
— |
|
(40 |
) |
(226 |
) |
(46 |
) |
(7 |
) |
(1,631 |
) |
(740 |
) |
— |
|
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(81 |
) |
(9 |
) |
— |
|
(1 |
) |
(19 |
) |
(3 |
) |
(6 |
) |
(164 |
) |
(37 |
) |
(1 |
) |
||||||||||
|
Transfer (to) from other portfolios |
|
(47 |
) |
9 |
|
116 |
|
11 |
|
(75 |
) |
68 |
|
49 |
|
(132 |
) |
587 |
|
19 |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(880 |
) |
— |
|
116 |
|
49 |
|
(276 |
) |
220 |
|
46 |
|
(1,566 |
) |
82 |
|
52 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
79 |
|
19 |
|
116 |
|
72 |
|
(177 |
) |
624 |
|
87 |
|
4,043 |
|
3,155 |
|
61 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
9,624 |
|
147 |
|
15 |
|
1,526 |
|
4,842 |
|
2,345 |
|
345 |
|
33,179 |
|
20,666 |
|
481 |
|
||||||||||
|
End of period |
|
$ |
9,703 |
|
$ |
166 |
|
$ |
131 |
|
$ |
1,598 |
|
$ |
4,665 |
|
$ |
2,969 |
|
$ |
432 |
|
$ |
37,222 |
|
$ |
23,821 |
|
$ |
542 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2016
|
|
|
Invesco Variable Insurance Funds |
|
Legg Mason Partners Variable Equity
|
|
Lord Abbett Series Fund, Inc. |
|
||||||||||||||||||||||||
|
($ in thousands) |
|
Invesco VI
|
|
Invesco VI Growth
|
|
Invesco VI
|
|
Invesco VI Mid-Cap
|
|
Invesco VI Small
|
|
ClearBridge Variable
|
|
ClearBridge Variable
|
|
Lord Abbett Bond
|
|
Lord Abbett
|
|
Lord Abbett Classic
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
83 |
|
$ |
371 |
|
$ |
66 |
|
$ |
— |
|
$ |
— |
|
$ |
5 |
|
$ |
— |
|
$ |
969 |
|
$ |
161 |
|
$ |
8 |
|
|
Net realized gain (loss) on investments |
|
1 |
|
3,096 |
|
(1 |
) |
314 |
|
90 |
|
32 |
|
31 |
|
(2 |
) |
646 |
|
32 |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(34 |
) |
2,654 |
|
(92 |
) |
(290 |
) |
50 |
|
89 |
|
8 |
|
1,345 |
|
551 |
|
55 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
50 |
|
6,121 |
|
(27 |
) |
24 |
|
140 |
|
126 |
|
39 |
|
2,312 |
|
1,358 |
|
95 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
295 |
|
1,970 |
|
718 |
|
223 |
|
189 |
|
118 |
|
80 |
|
1,095 |
|
329 |
|
63 |
|
||||||||||
|
Policy maintenance charges |
|
(227 |
) |
(1,407 |
) |
(265 |
) |
(120 |
) |
(67 |
) |
(66 |
) |
(18 |
) |
(979 |
) |
(363 |
) |
(39 |
) |
||||||||||
|
Policy owners’ benefits |
|
(179 |
) |
(1,013 |
) |
(51 |
) |
(82 |
) |
(12 |
) |
(57 |
) |
(12 |
) |
(665 |
) |
(447 |
) |
(17 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(16 |
) |
(117 |
) |
(10 |
) |
(24 |
) |
(2 |
) |
(2 |
) |
(1 |
) |
(73 |
) |
(30 |
) |
— |
|
||||||||||
|
Transfer (to) from other portfolios |
|
(16 |
) |
1,432 |
|
405 |
|
81 |
|
65 |
|
270 |
|
(56 |
) |
1,979 |
|
(256 |
) |
— |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(143 |
) |
865 |
|
797 |
|
78 |
|
173 |
|
263 |
|
(7 |
) |
1,357 |
|
(767 |
) |
7 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
(93 |
) |
6,986 |
|
770 |
|
102 |
|
313 |
|
389 |
|
32 |
|
3,669 |
|
591 |
|
102 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
4,694 |
|
29,817 |
|
5,049 |
|
2,998 |
|
1,011 |
|
1,097 |
|
666 |
|
18,378 |
|
9,407 |
|
752 |
|
||||||||||
|
End of period |
|
$ |
4,601 |
|
$ |
36,803 |
|
$ |
5,819 |
|
$ |
3,100 |
|
$ |
1,324 |
|
$ |
1,486 |
|
$ |
698 |
|
$ |
22,047 |
|
$ |
9,998 |
|
$ |
854 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2016 |
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2016 |
|
|
|
MFS Variable Insurance Trust |
|
MFS Variable Insurance Trust II |
|
Oppenheimer Variable Account Funds |
|
|||||||||||||||||||||
|
($ in thousands) |
|
MFS Utilities IC |
|
MFS VIT Total
|
|
MFS VIT Value SC |
|
MFS VIT II
|
|
MFS VIT II
|
|
MFS VIT II MA
|
|
Oppenheimer
|
|
Oppenheimer
|
|
Oppenheimer Global
|
|
|||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net investment income (loss) |
|
$ |
172 |
|
$ |
355 |
|
$ |
217 |
|
$ |
1 |
|
$ |
53 |
|
$ |
22 |
|
$ |
41 |
|
$ |
— |
|
$ |
192 |
|
|
Net realized gain (loss) on investments |
|
137 |
|
1 |
|
965 |
|
3 |
|
108 |
|
437 |
|
1,028 |
|
290 |
|
1,219 |
|
|||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
204 |
|
52 |
|
321 |
|
33 |
|
8 |
|
(234 |
) |
(1,311 |
) |
(205 |
) |
(1,323 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
513 |
|
408 |
|
1,503 |
|
37 |
|
169 |
|
225 |
|
(242 |
) |
85 |
|
88 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Policy owners’ net payments |
|
263 |
|
1,226 |
|
1,123 |
|
35 |
|
561 |
|
172 |
|
545 |
|
222 |
|
1,343 |
|
|||||||||
|
Policy maintenance charges |
|
(221 |
) |
(556 |
) |
(539 |
) |
(19 |
) |
(240 |
) |
(136 |
) |
(453 |
) |
(204 |
) |
(789 |
) |
|||||||||
|
Policy owners’ benefits |
|
(242 |
) |
(204 |
) |
(235 |
) |
(34 |
) |
(71 |
) |
(79 |
) |
(381 |
) |
(284 |
) |
(675 |
) |
|||||||||
|
Net policy loan repayments (withdrawals) |
|
(8 |
) |
(33 |
) |
(32 |
) |
— |
|
(5 |
) |
(46 |
) |
(59 |
) |
(27 |
) |
(104 |
) |
|||||||||
|
Transfer (to) from other portfolios |
|
(138 |
) |
44 |
|
(72 |
) |
— |
|
169 |
|
(137 |
) |
(41 |
) |
19 |
|
1,247 |
|
|||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(346 |
) |
477 |
|
245 |
|
(18 |
) |
414 |
|
(226 |
) |
(389 |
) |
(274 |
) |
1,022 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total increase (decrease) in net assets |
|
167 |
|
885 |
|
1,748 |
|
19 |
|
583 |
|
(1 |
) |
(631 |
) |
(189 |
) |
1,110 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning of period |
|
4,258 |
|
10,201 |
|
10,672 |
|
395 |
|
4,183 |
|
3,670 |
|
10,656 |
|
3,982 |
|
18,524 |
|
|||||||||
|
End of period |
|
$ |
4,425 |
|
$ |
11,086 |
|
$ |
12,420 |
|
$ |
414 |
|
$ |
4,766 |
|
$ |
3,669 |
|
$ |
10,025 |
|
$ |
3,793 |
|
$ |
19,634 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2016 |
|
|
|
Oppenheimer Variable Account Funds |
|
PIMCO Variable Insurance Trust |
|
|||||||||||||||||||||||
|
($ in thousands) |
|
Oppenheimer Global
|
|
Oppenheimer
|
|
Oppenheimer Main
|
|
PIMCO VIT All
|
|
PIMCO VIT Long-
|
|
PIMCO VIT Low
|
|
PIMCO VIT Real
|
|
PIMCO VIT Short-
|
|
PIMCO VIT Total
|
|
|||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net investment income (loss) |
|
$ |
623 |
|
$ |
1 |
|
$ |
101 |
|
$ |
4 |
|
$ |
7 |
|
$ |
19 |
|
$ |
113 |
|
$ |
13 |
|
$ |
291 |
|
|
Net realized gain (loss) on investments |
|
3 |
|
— |
|
1,095 |
|
(5 |
) |
4 |
|
— |
|
— |
|
4 |
|
— |
|
|||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
162 |
|
— |
|
(193 |
) |
19 |
|
(2 |
) |
(1 |
) |
101 |
|
4 |
|
34 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
788 |
|
1 |
|
1,003 |
|
18 |
|
9 |
|
18 |
|
214 |
|
21 |
|
325 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Policy owners’ net payments |
|
831 |
|
845 |
|
304 |
|
5 |
|
26 |
|
79 |
|
433 |
|
64 |
|
1,297 |
|
|||||||||
|
Policy maintenance charges |
|
(650 |
) |
(553 |
) |
(345 |
) |
(8 |
) |
(14 |
) |
(66 |
) |
(351 |
) |
(46 |
) |
(798 |
) |
|||||||||
|
Policy owners’ benefits |
|
(602 |
) |
(687 |
) |
(709 |
) |
(32 |
) |
(70 |
) |
(38 |
) |
(32 |
) |
(55 |
) |
(199 |
) |
|||||||||
|
Net policy loan repayments (withdrawals) |
|
(16 |
) |
11 |
|
(48 |
) |
— |
|
(54 |
) |
— |
|
(29 |
) |
(10 |
) |
(12 |
) |
|||||||||
|
Transfer (to) from other portfolios |
|
195 |
|
1,055 |
|
(22 |
) |
(2 |
) |
37 |
|
179 |
|
1,724 |
|
227 |
|
2,584 |
|
|||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(242 |
) |
671 |
|
(820 |
) |
(37 |
) |
(75 |
) |
154 |
|
1,745 |
|
180 |
|
2,872 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total increase (decrease) in net assets |
|
546 |
|
672 |
|
183 |
|
(19 |
) |
(66 |
) |
172 |
|
1,959 |
|
201 |
|
3,197 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning of period |
|
12,160 |
|
7,717 |
|
9,136 |
|
163 |
|
356 |
|
1,296 |
|
4,105 |
|
740 |
|
13,122 |
|
|||||||||
|
End of period |
|
$ |
12,706 |
|
$ |
8,389 |
|
$ |
9,319 |
|
$ |
144 |
|
$ |
290 |
|
$ |
1,468 |
|
$ |
6,064 |
|
$ |
941 |
|
$ |
16,319 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2016 |
|
|
|
Royce Capital Fund |
|
The Universal
|
|
|||||
|
($ in thousands) |
|
Royce Capital Fund
|
|
Royce Capital Fund
|
|
UIF Global Real
|
|
|||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|||
|
Net investment income (loss) |
|
$ |
4 |
|
$ |
75 |
|
$ |
8 |
|
|
Net realized gain (loss) on investments |
|
1 |
|
829 |
|
(1 |
) |
|||
|
Net unrealized appreciation (depreciation) on investments |
|
143 |
|
(90 |
) |
11 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Net increase (decrease) in net assets resulting from operations |
|
148 |
|
814 |
|
18 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|||
|
Policy owners’ net payments |
|
55 |
|
421 |
|
42 |
|
|||
|
Policy maintenance charges |
|
(24 |
) |
(255 |
) |
(19 |
) |
|||
|
Policy owners’ benefits |
|
(6 |
) |
(58 |
) |
(20 |
) |
|||
|
Net policy loan repayments (withdrawals) |
|
— |
|
(13 |
) |
(23 |
) |
|||
|
Transfer (to) from other portfolios |
|
61 |
|
1,039 |
|
2 |
|
|||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
86 |
|
1,134 |
|
(18 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Total increase (decrease) in net assets |
|
234 |
|
1,948 |
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
NET ASSETS |
|
|
|
|
|
|
|
|||
|
Beginning of period |
|
634 |
|
3,105 |
|
593 |
|
|||
|
End of period |
|
$ |
868 |
|
$ |
5,053 |
|
$ |
593 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets
For the year ended December 31, 2015
|
|
|
American Funds Insurance Series |
|
Calvert Variable
|
|
||||||||||||||||||||
|
($ in thousands) |
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
American Funds
|
|
Calvert VP SRI
|
|
||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net investment income (loss) |
|
$ |
— |
|
$ |
3 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
|
$ |
1 |
|
$ |
— |
|
$ |
— |
|
|
Net realized gain (loss) on investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(1 |
) |
(6 |
) |
(2 |
) |
— |
|
1 |
|
(6 |
) |
— |
|
(1 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
(1 |
) |
(3 |
) |
(1 |
) |
— |
|
2 |
|
(5 |
) |
— |
|
(1 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Policy owners’ net payments |
|
— |
|
10 |
|
3 |
|
1 |
|
6 |
|
— |
|
— |
|
— |
|
||||||||
|
Policy maintenance charges |
|
— |
|
(4 |
) |
— |
|
— |
|
(5 |
) |
(1 |
) |
— |
|
(1 |
) |
||||||||
|
Policy owners’ benefits |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
||||||||
|
Net policy loan repayments (withdrawals) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
||||||||
|
Transfer (to) from other portfolios |
|
68 |
|
270 |
|
124 |
|
27 |
|
366 |
|
74 |
|
25 |
|
— |
|
||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
68 |
|
276 |
|
127 |
|
28 |
|
367 |
|
73 |
|
25 |
|
(2 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total increase (decrease) in net assets |
|
67 |
|
273 |
|
126 |
|
28 |
|
369 |
|
68 |
|
25 |
|
(3 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Beginning of period |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
59 |
|
||||||||
|
End of period |
|
$ |
67 |
|
$ |
273 |
|
$ |
126 |
|
$ |
28 |
|
$ |
369 |
|
$ |
68 |
|
$ |
25 |
|
$ |
56 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2015 |
|
|
|
Fidelity Variable Insurance Products |
|
Franklin Templeton
|
|
|||||||||||||||||||||||
|
($ in thousands) |
|
Fidelity Contrafund
|
|
Fidelity Equity
|
|
Fidelity Freedom
|
|
Fidelity Freedom
|
|
Fidelity Growth
|
|
Fidelity Index 500
|
|
Fidelity Investment
|
|
Fidelity Mid Cap SC |
|
Franklin Flex Cap
|
|
|||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net investment income (loss) |
|
$ |
210 |
|
$ |
69 |
|
$ |
6 |
|
$ |
11 |
|
$ |
3 |
|
$ |
175 |
|
$ |
98 |
|
$ |
49 |
|
$ |
— |
|
|
Net realized gain (loss) on investments |
|
1,933 |
|
218 |
|
7 |
|
1 |
|
64 |
|
7 |
|
3 |
|
1,249 |
|
1,847 |
|
|||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(2,007 |
) |
(375 |
) |
(11 |
) |
(15 |
) |
59 |
|
(85 |
) |
(133 |
) |
(1,507 |
) |
(1,723 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
136 |
|
(88 |
) |
2 |
|
(3 |
) |
126 |
|
97 |
|
(32 |
) |
(209 |
) |
124 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Policy owners’ net payments |
|
1,345 |
|
121 |
|
2 |
|
20 |
|
86 |
|
633 |
|
203 |
|
1,044 |
|
199 |
|
|||||||||
|
Policy maintenance charges |
|
(897 |
) |
(108 |
) |
(10 |
) |
(20 |
) |
(85 |
) |
(394 |
) |
(167 |
) |
(522 |
) |
(109 |
) |
|||||||||
|
Policy owners’ benefits |
|
(780 |
) |
(81 |
) |
(79 |
) |
(12 |
) |
(21 |
) |
(461 |
) |
(54 |
) |
(497 |
) |
(47 |
) |
|||||||||
|
Net policy loan repayments (withdrawals) |
|
(94 |
) |
(15 |
) |
— |
|
— |
|
(53 |
) |
(99 |
) |
(3 |
) |
(30 |
) |
(34 |
) |
|||||||||
|
Transfer (to) from other portfolios |
|
1,027 |
|
(77 |
) |
(2 |
) |
(19 |
) |
12 |
|
1,130 |
|
1,079 |
|
1,552 |
|
(24 |
) |
|||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
601 |
|
(160 |
) |
(89 |
) |
(31 |
) |
(61 |
) |
809 |
|
1,058 |
|
1,547 |
|
(15 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total increase (decrease) in net assets |
|
737 |
|
(248 |
) |
(87 |
) |
(34 |
) |
65 |
|
906 |
|
1,026 |
|
1,338 |
|
109 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning of period |
|
21,513 |
|
2,386 |
|
401 |
|
625 |
|
1,723 |
|
8,560 |
|
2,970 |
|
10,379 |
|
2,925 |
|
|||||||||
|
End of period |
|
$ |
22,250 |
|
$ |
2,138 |
|
$ |
314 |
|
$ |
591 |
|
$ |
1,788 |
|
$ |
9,466 |
|
$ |
3,996 |
|
$ |
11,717 |
|
$ |
3,034 |
|
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2015 |
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2015 |
The accompanying notes are an integral part of these financial statements
|
The Protective Variable Life Separate Account |
|
Statement of Changes in Net Assets, continued |
|
For the year ended December 31, 2015 |
|
|
|
Goldman Sachs Variable Insurance Trust |
|
Invesco Variable Insurance Funds |
|
||||||||||||||||||||||||||
|
($ in thousands) |
|
Goldman Sachs
|
|
Goldman Sachs US
|
|
Goldman Sachs US
|
|
Goldman Sachs VIT
|
|
Invesco VI American
|
|
Invesco VI American
|
|
Invesco VI Balanced
|
|
Invesco VI
|
|
Invesco VI Equity
|
|
Invesco VI Global
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
24 |
|
$ |
135 |
|
$ |
2 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
14 |
|
$ |
689 |
|
$ |
492 |
|
$ |
16 |
|
|
Net realized gain (loss) on investments |
|
— |
|
853 |
|
9 |
|
127 |
|
239 |
|
298 |
|
31 |
|
412 |
|
1,902 |
|
— |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(19 |
) |
(992 |
) |
(11 |
) |
(210 |
) |
(1 |
) |
(534 |
) |
(60 |
) |
(3,220 |
) |
(2,950 |
) |
(25 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
5 |
|
(4 |
) |
— |
|
(83 |
) |
238 |
|
(236 |
) |
(15 |
) |
(2,119 |
) |
(556 |
) |
(9 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
151 |
|
408 |
|
6 |
|
146 |
|
234 |
|
306 |
|
27 |
|
1,722 |
|
1,113 |
|
61 |
|
||||||||||
|
Policy maintenance charges |
|
(70 |
) |
(396 |
) |
(4 |
) |
(64 |
) |
(173 |
) |
(132 |
) |
(14 |
) |
(1,321 |
) |
(828 |
) |
(22 |
) |
||||||||||
|
Policy owners’ benefits |
|
(24 |
) |
(408 |
) |
(9 |
) |
(12 |
) |
(330 |
) |
(13 |
) |
(24 |
) |
(1,857 |
) |
(699 |
) |
(5 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(4 |
) |
(50 |
) |
— |
|
(3 |
) |
(40 |
) |
— |
|
— |
|
(187 |
) |
(39 |
) |
— |
|
||||||||||
|
Transfer (to) from other portfolios |
|
121 |
|
(749 |
) |
5 |
|
11 |
|
(127 |
) |
314 |
|
(52 |
) |
185 |
|
1,280 |
|
32 |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
174 |
|
(1,195 |
) |
(2 |
) |
78 |
|
(436 |
) |
475 |
|
(63 |
) |
(1,458 |
) |
827 |
|
66 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
179 |
|
(1,199 |
) |
(2 |
) |
(5 |
) |
(198 |
) |
239 |
|
(78 |
) |
(3,577 |
) |
271 |
|
57 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
1,411 |
|
10,823 |
|
149 |
|
1,531 |
|
5,040 |
|
2,106 |
|
423 |
|
36,756 |
|
20,395 |
|
424 |
|
||||||||||
|
End of period |
|
$ |
1,590 |
|
$ |
9,624 |
|
$ |
147 |
|
$ |
1,526 |
|
$ |
4,842 |
|
$ |
2,345 |
|
$ |
345 |
|
$ |
33,179 |
|
$ |
20,666 |
|
$ |
481 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2015
|
|
|
Invesco Variable Insurance Funds |
|
Legg Mason Partners Variable Equity
|
|
Lord Abbett Series Fund, Inc. |
|
||||||||||||||||||||||||
|
($ in thousands) |
|
Invesco VI
|
|
Invesco VI Growth
|
|
Invesco VI
|
|
Invesco VI Mid-Cap
|
|
Invesco VI Small
|
|
ClearBridge Variable
|
|
ClearBridge Variable
|
|
Lord Abbett Bond
|
|
Lord Abbett
|
|
Lord Abbett Classic
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
94 |
|
$ |
882 |
|
$ |
65 |
|
$ |
— |
|
$ |
— |
|
$ |
1 |
|
$ |
— |
|
$ |
769 |
|
$ |
175 |
|
$ |
6 |
|
|
Net realized gain (loss) on investments |
|
— |
|
4,584 |
|
2 |
|
248 |
|
207 |
|
65 |
|
14 |
|
116 |
|
849 |
|
124 |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(91 |
) |
(6,381 |
) |
(214 |
) |
(216 |
) |
(270 |
) |
(52 |
) |
(44 |
) |
(1,198 |
) |
(1,238 |
) |
(136 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
3 |
|
(915 |
) |
(147 |
) |
32 |
|
(63 |
) |
14 |
|
(30 |
) |
(313 |
) |
(214 |
) |
(6 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
304 |
|
1,721 |
|
647 |
|
212 |
|
176 |
|
109 |
|
72 |
|
896 |
|
373 |
|
61 |
|
||||||||||
|
Policy maintenance charges |
|
(222 |
) |
(1,171 |
) |
(253 |
) |
(121 |
) |
(63 |
) |
(46 |
) |
(20 |
) |
(753 |
) |
(373 |
) |
(37 |
) |
||||||||||
|
Policy owners’ benefits |
|
(194 |
) |
(1,477 |
) |
(63 |
) |
(63 |
) |
(7 |
) |
(2 |
) |
(8 |
) |
(969 |
) |
(507 |
) |
(9 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(26 |
) |
(97 |
) |
(5 |
) |
(14 |
) |
— |
|
(1 |
) |
(1 |
) |
(46 |
) |
7 |
|
— |
|
||||||||||
|
Transfer (to) from other portfolios |
|
83 |
|
2,859 |
|
846 |
|
(87 |
) |
111 |
|
223 |
|
(12 |
) |
2,739 |
|
(92 |
) |
39 |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(55 |
) |
1,835 |
|
1,172 |
|
(73 |
) |
217 |
|
283 |
|
31 |
|
1,867 |
|
(592 |
) |
54 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
(52 |
) |
920 |
|
1,025 |
|
(41 |
) |
154 |
|
297 |
|
1 |
|
1,554 |
|
(806 |
) |
48 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
4,746 |
|
28,897 |
|
4,024 |
|
3,039 |
|
857 |
|
800 |
|
665 |
|
16,824 |
|
10,213 |
|
704 |
|
||||||||||
|
End of period |
|
$ |
4,694 |
|
$ |
29,817 |
|
$ |
5,049 |
|
$ |
2,998 |
|
$ |
1,011 |
|
$ |
1,097 |
|
$ |
666 |
|
$ |
18,378 |
|
$ |
9,407 |
|
$ |
752 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2015
|
|
|
Lord Abbett Series Fund, Inc. |
|
MFS Variable Insurance Trust |
|
||||||||||||||||||||||||||
|
($ in thousands) |
|
Lord Abbett Growth
|
|
Lord Abbett Growth
|
|
Lord Abbett
|
|
Lord Abbett Mid
|
|
Lord Abbett Series
|
|
MFS Growth Series
|
|
MFS Investors
|
|
MFS Investors Trust
|
|
MFS New Discovery
|
|
MFS Research IC |
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
197 |
|
$ |
— |
|
$ |
10 |
|
$ |
94 |
|
$ |
47 |
|
$ |
16 |
|
$ |
32 |
|
$ |
86 |
|
$ |
— |
|
$ |
63 |
|
|
Net realized gain (loss) on investments |
|
1,182 |
|
379 |
|
104 |
|
1,217 |
|
307 |
|
568 |
|
1,112 |
|
1,013 |
|
164 |
|
669 |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(1,847 |
) |
(275 |
) |
15 |
|
(1,903 |
) |
(471 |
) |
140 |
|
(1,093 |
) |
(1,079 |
) |
(288 |
) |
(659 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
(468 |
) |
104 |
|
129 |
|
(592 |
) |
(117 |
) |
724 |
|
51 |
|
20 |
|
(124 |
) |
73 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
579 |
|
162 |
|
82 |
|
773 |
|
279 |
|
834 |
|
47 |
|
593 |
|
367 |
|
586 |
|
||||||||||
|
Policy maintenance charges |
|
(594 |
) |
(153 |
) |
(44 |
) |
(624 |
) |
(155 |
) |
(482 |
) |
(31 |
) |
(432 |
) |
(214 |
) |
(414 |
) |
||||||||||
|
Policy owners’ benefits |
|
(1,223 |
) |
(182 |
) |
(14 |
) |
(977 |
) |
(27 |
) |
(316 |
) |
(25 |
) |
(336 |
) |
(192 |
) |
(342 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(79 |
) |
(52 |
) |
(2 |
) |
(75 |
) |
(11 |
) |
(100 |
) |
(2 |
) |
(25 |
) |
(12 |
) |
(85 |
) |
||||||||||
|
Transfer (to) from other portfolios |
|
(330 |
) |
78 |
|
(44 |
) |
(308 |
) |
1,462 |
|
19 |
|
(3,872 |
) |
443 |
|
551 |
|
(129 |
) |
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(1,647 |
) |
(147 |
) |
(22 |
) |
(1,211 |
) |
1,548 |
|
(45 |
) |
(3,883 |
) |
243 |
|
500 |
|
(384 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
(2,115 |
) |
(43 |
) |
107 |
|
(1,803 |
) |
1,431 |
|
679 |
|
(3,832 |
) |
263 |
|
376 |
|
(311 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
17,740 |
|
3,585 |
|
1,153 |
|
17,084 |
|
2,521 |
|
9,491 |
|
3,832 |
|
8,856 |
|
4,725 |
|
8,646 |
|
||||||||||
|
End of period |
|
$ |
15,625 |
|
$ |
3,542 |
|
$ |
1,260 |
|
$ |
15,281 |
|
$ |
3,952 |
|
$ |
10,170 |
|
$ |
— |
|
$ |
9,119 |
|
$ |
5,101 |
|
$ |
8,335 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2015
|
|
|
MFS Variable Insurance Trust |
|
MFS Variable Insurance Trust II |
|
Oppenheimer Variable Account Funds |
|
||||||||||||||||||||||||
|
($ in thousands) |
|
MFS Total Return
|
|
MFS Utilities IC |
|
MFS VIT Total
|
|
MFS VIT Value SC |
|
MFS VIT II
|
|
MFS VIT II
|
|
MFS VIT II MA
|
|
Oppenheimer
|
|
Oppenheimer
|
|
Oppenheimer Global
|
|
||||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net investment income (loss) |
|
$ |
474 |
|
$ |
204 |
|
$ |
326 |
|
$ |
223 |
|
$ |
3 |
|
$ |
73 |
|
$ |
19 |
|
$ |
10 |
|
$ |
— |
|
$ |
243 |
|
|
Net realized gain (loss) on investments |
|
730 |
|
330 |
|
— |
|
628 |
|
— |
|
42 |
|
229 |
|
2,045 |
|
339 |
|
1,218 |
|
||||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(1,259 |
) |
(1,263 |
) |
(398 |
) |
(967 |
) |
(57 |
) |
104 |
|
(298 |
) |
(1,671 |
) |
(73 |
) |
(765 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
(55 |
) |
(729 |
) |
(72 |
) |
(116 |
) |
(54 |
) |
219 |
|
(50 |
) |
384 |
|
266 |
|
696 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Policy owners’ net payments |
|
787 |
|
281 |
|
1,136 |
|
1,068 |
|
45 |
|
534 |
|
141 |
|
553 |
|
218 |
|
1,292 |
|
||||||||||
|
Policy maintenance charges |
|
(733 |
) |
(220 |
) |
(530 |
) |
(489 |
) |
(20 |
) |
(233 |
) |
(101 |
) |
(458 |
) |
(206 |
) |
(751 |
) |
||||||||||
|
Policy owners’ benefits |
|
(1,097 |
) |
(350 |
) |
(101 |
) |
(117 |
) |
(3 |
) |
(25 |
) |
(124 |
) |
(569 |
) |
(173 |
) |
(664 |
) |
||||||||||
|
Net policy loan repayments (withdrawals) |
|
(40 |
) |
(28 |
) |
(9 |
) |
(18 |
) |
— |
|
(3 |
) |
(18 |
) |
(98 |
) |
(20 |
) |
(30 |
) |
||||||||||
|
Transfer (to) from other portfolios |
|
(55 |
) |
54 |
|
952 |
|
1,427 |
|
70 |
|
254 |
|
3,822 |
|
(117 |
) |
(138 |
) |
715 |
|
||||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
(1,138 |
) |
(263 |
) |
1,448 |
|
1,871 |
|
92 |
|
527 |
|
3,720 |
|
(689 |
) |
(319 |
) |
562 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Total increase (decrease) in net assets |
|
(1,193 |
) |
(992 |
) |
1,376 |
|
1,755 |
|
38 |
|
746 |
|
3,670 |
|
(305 |
) |
(53 |
) |
1,258 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Beginning of period |
|
18,846 |
|
5,250 |
|
8,825 |
|
8,917 |
|
357 |
|
3,437 |
|
— |
|
10,961 |
|
4,035 |
|
17,266 |
|
||||||||||
|
End of period |
|
$ |
17,653 |
|
$ |
4,258 |
|
$ |
10,201 |
|
$ |
10,672 |
|
$ |
395 |
|
$ |
4,183 |
|
$ |
3,670 |
|
$ |
10,656 |
|
$ |
3,982 |
|
$ |
18,524 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2015
|
|
|
Oppenheimer Variable Account Funds |
|
PIMCO Variable Insurance Trust |
|
|||||||||||||||||||||||
|
($ in thousands) |
|
Oppenheimer Global
|
|
Oppenheimer Main
|
|
Oppenheimer Money
|
|
PIMCO VIT All
|
|
PIMCO VIT Long-
|
|
PIMCO VIT Low
|
|
PIMCO VIT Real
|
|
PIMCO VIT Short-
|
|
PIMCO VIT Total
|
|
|||||||||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net investment income (loss) |
|
$ |
728 |
|
$ |
86 |
|
$ |
1 |
|
$ |
6 |
|
$ |
5 |
|
$ |
42 |
|
$ |
168 |
|
$ |
6 |
|
$ |
610 |
|
|
Net realized gain (loss) on investments |
|
(1 |
) |
1,483 |
|
— |
|
— |
|
— |
|
(1 |
) |
— |
|
— |
|
139 |
|
|||||||||
|
Net unrealized appreciation (depreciation) on investments |
|
(1,013 |
) |
(1,262 |
) |
— |
|
(22 |
) |
(12 |
) |
(40 |
) |
(280 |
) |
— |
|
(734 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net increase (decrease) in net assets resulting from operations |
|
(286 |
) |
307 |
|
1 |
|
(16 |
) |
(7 |
) |
1 |
|
(112 |
) |
6 |
|
15 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Policy owners’ net payments |
|
823 |
|
325 |
|
937 |
|
5 |
|
23 |
|
58 |
|
229 |
|
47 |
|
1,040 |
|
|||||||||
|
Policy maintenance charges |
|
(601 |
) |
(334 |
) |
(554 |
) |
(9 |
) |
(10 |
) |
(47 |
) |
(170 |
) |
(28 |
) |
(555 |
) |
|||||||||
|
Policy owners’ benefits |
|
(456 |
) |
(385 |
) |
(1,736 |
) |
(2 |
) |
(5 |
) |
(10 |
) |
(104 |
) |
(8 |
) |
(191 |
) |
|||||||||
|
Net policy loan repayments (withdrawals) |
|
(71 |
) |
(61 |
) |
(120 |
) |
— |
|
— |
|
30 |
|
(8 |
) |
— |
|
(5 |
) |
|||||||||
|
Transfer (to) from other portfolios |
|
643 |
|
60 |
|
2,102 |
|
15 |
|
199 |
|
275 |
|
1,993 |
|
217 |
|
2,708 |
|
|||||||||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
338 |
|
(395 |
) |
629 |
|
9 |
|
207 |
|
306 |
|
1,940 |
|
228 |
|
2,997 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total increase (decrease) in net assets |
|
52 |
|
(88 |
) |
630 |
|
(7 |
) |
200 |
|
307 |
|
1,828 |
|
234 |
|
3,012 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
NET ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Beginning of period |
|
12,108 |
|
9,224 |
|
7,087 |
|
170 |
|
156 |
|
989 |
|
2,277 |
|
506 |
|
10,110 |
|
|||||||||
|
End of period |
|
$ |
12,160 |
|
$ |
9,136 |
|
$ |
7,717 |
|
$ |
163 |
|
$ |
356 |
|
$ |
1,296 |
|
$ |
4,105 |
|
$ |
740 |
|
$ |
13,122 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Statement of Changes in Net Assets, continued
For the year ended December 31, 2015
|
|
|
Royce Capital Fund |
|
The Universal
|
|
|||||
|
($ in thousands) |
|
Royce Capital Fund
|
|
Royce Capital Fund
|
|
UIF Global Real
|
|
|||
|
FROM OPERATIONS |
|
|
|
|
|
|
|
|||
|
Net investment income (loss) |
|
$ |
— |
|
$ |
12 |
|
$ |
15 |
|
|
Net realized gain (loss) on investments |
|
39 |
|
723 |
|
(1 |
) |
|||
|
Net unrealized appreciation (depreciation) on investments |
|
(129 |
) |
(1,085 |
) |
(23 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Net increase (decrease) in net assets resulting from operations |
|
(90 |
) |
(350 |
) |
(9 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
FROM VARIABLE LIFE POLICY TRANSACTIONS |
|
|
|
|
|
|
|
|||
|
Policy owners’ net payments |
|
55 |
|
286 |
|
40 |
|
|||
|
Policy maintenance charges |
|
(23 |
) |
(134 |
) |
(21 |
) |
|||
|
Policy owners’ benefits |
|
(15 |
) |
(54 |
) |
(21 |
) |
|||
|
Net policy loan repayments (withdrawals) |
|
— |
|
(3 |
) |
(2 |
) |
|||
|
Transfer (to) from other portfolios |
|
1 |
|
1,350 |
|
(3 |
) |
|||
|
Net increase (decrease) in net assets resulting from variable life policy transactions |
|
18 |
|
1,445 |
|
(7 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Total increase (decrease) in net assets |
|
(72 |
) |
1,095 |
|
(16 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
NET ASSETS |
|
|
|
|
|
|
|
|||
|
Beginning of period |
|
706 |
|
2,010 |
|
609 |
|
|||
|
End of period |
|
$ |
634 |
|
$ |
3,105 |
|
$ |
593 |
|
The accompanying notes are an integral part of these financial statements
The Protective Variable Life Separate Account
Notes to Financial Statements
(1) Organization
The Protective Variable Life Separate Account (“Separate Account”) was established by Protective Life Insurance Company (“Protective Life”) under the provisions of Tennessee law and commenced operations on June 19, 1996. Protective Life is a wholly owned subsidiary of Protective Life Corporation (“PLC”). On February 1, 2015, PLC and its subsidiaries became wholly owned subsidiaries of The Dai-ichi Life Insurance Company, Limited, a k abushiki kaisha organized under the laws of Japan. The Separate Account is an investment account to which assets are allocated to support the benefits payable under flexible premium variable life insurance policies (“Policies”) issued by Protective Life. The following is a list of each variable life product funded by the Separate Account:
|
Executive |
|
Protective Investors Choice VUL |
|
Premiere I |
|
Protector |
|
Premiere II |
|
Provider |
|
Premiere II (2003) |
|
Singe Premium Plus |
|
Premiere III |
|
Survivor |
|
Preserver |
|
Transitions |
Protective Life has structured the Separate Account into a unit investment trust form registered with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended. The Separate Account follows the accounting and reporting guidance in ASC Topic 946, “Financial Services — Investment Companies”.
During the years ended December 31, 2016 and 2015, assets were invested in eighty nine subaccounts:
|
American Funds Asset Allocation Class 2 |
|
Invesco VI Balanced Risk Allocation II |
|
American Funds Blue Chip Income & Growth Class 2 |
|
Invesco VI Comstock I |
|
American Funds Global Growth Class 2 |
|
Invesco VI Equity and Income II |
|
American Funds Global Small Capitalization Class 2 |
|
Invesco VI Global Real Estate II |
|
American Funds Growth Class 2 |
|
Invesco VI Government Securities II |
|
American Funds International Class 2 |
|
Invesco VI Growth & Income I |
|
American Funds New World Class 2 |
|
Invesco VI International Growth II |
|
Calvert VP SRI Balanced |
|
Invesco VI Mid-Cap Growth II |
|
ClearBridge Variable Mid Cap Portfolio II (b) |
|
Invesco VI Small Cap Equity II |
|
ClearBridge Variable Small Cap Growth II |
|
Lord Abbett Bond Debenture VC |
|
Fidelity Contrafund Portfolio SC |
|
Lord Abbett Calibrated Dividend Growth VC |
|
Fidelity Equity Income SC |
|
Lord Abbett Classic Stock VC |
|
Fidelity Freedom Fund - 2015 Maturity SC |
|
Lord Abbett Growth & Income VC |
|
Fidelity Freedom Fund - 2020 Maturity SC |
|
Lord Abbett Growth Opportunities VC |
|
Fidelity Growth Portfolio SC |
|
Lord Abbett International Opportunities VC |
|
Fidelity Index 500 Portfolio SC |
|
Lord Abbett Mid Cap Stock VC |
|
Fidelity Investment Grade Bonds SC |
|
Lord Abbett Series Fundamental Equity VC |
|
Fidelity Mid Cap SC |
|
MFS Growth Series IC |
|
Franklin Flex Cap Growth VIP CL 2 |
|
MFS Investors Growth Stock IC (a) |
|
Franklin Income VIP CL 2 |
|
MFS Investors Trust IC |
|
Franklin Mutual Shares VIP CL 2 |
|
MFS New Discovery IC |
|
Franklin Rising Dividend VIP CL 2 |
|
MFS Research IC |
|
Franklin Small Cap Value VIP CL 2 |
|
MFS Total Return IC |
|
Franklin Small-Mid Cap Growth VIP CL 2 |
|
MFS Utilities IC |
|
Franklin US Government Securities VIP CL 2 |
|
MFS VIT Total Return Bond SC |
|
Templeton Developing Markets VIP CL 2 |
|
MFS VIT Value SC |
|
Templeton Foreign VIP CL 2 |
|
MFS VIT II Emerging Markets Equity SC |
|
Templeton Global Bond VIP Fund CL 2 |
|
MFS VIT II International Value SC |
|
Templeton Growth VIP CL 2 |
|
MFS VIT II MA Investors Growth Stock IC |
|
Goldman Sachs Large Cap Value |
|
Oppenheimer Capital Appreciation Fund/VA |
The Protective Variable Life Separate Account
Notes to Financial Statements
(1) Organization , continued
|
Goldman Sachs Large Cap Value Fund SC |
|
Oppenheimer Discovery Mid Cap Growth Fund/VA |
|
Goldman Sachs Mid Cap Value |
|
Oppenheimer Global Fund/VA |
|
Goldman Sachs Mid Cap Value SC |
|
Oppenheimer Global Strategic Income Fund/VA |
|
Goldman Sachs Small Cap Equity Insights |
|
Oppenheimer Government Money Fund/VA (b) |
|
Goldman Sachs Small Cap Equity Insights SC |
|
Oppenheimer Main Street Fund/VA |
|
Goldman Sachs Strategic Growth |
|
PIMCO VIT All Asset Advisor |
|
Goldman Sachs Strategic Growth SC |
|
PIMCO VIT Long-Term US Government Advisor |
|
Goldman Sachs Strategic International Equity |
|
PIMCO VIT Low Duration Advisor |
|
Goldman Sachs Strategic International Equity SC |
|
PIMCO VIT Real Return Advisor |
|
Goldman Sachs US Equity Insights |
|
PIMCO VIT Short-Term Advisor |
|
Goldman Sachs US Equity Insights SC |
|
PIMCO VIT Total Return Advisor |
|
Goldman Sachs VIT Core Fixed Income SC |
|
Royce Capital Fund Micro-Cap SC |
|
Goldman Sachs VIT Growth Opportunities SC |
|
Royce Capital Fund Small-Cap SC |
|
Invesco VI American Franchise I |
|
UIF Global Real Estate II |
|
Invesco VI American Value II |
|
|
(a) Subaccount closed in 2015
(b) Subaccount name changed. See below.
|
Old Subaccount Name |
|
New Subaccount Name |
|
ClearBridge Variable Mid Cap Core Class II |
|
ClearBridge Variable Mid Cap Portfolio Class II |
|
Oppenheimer Money Fund/VA |
|
Oppenheimer Government Money Fund/VA |
Gross premiums from the Policies are allocated to the subaccounts in accordance with policy owner instructions and are recorded as variable life policy transactions in the statement of changes in net assets. Such amounts are used to provide account funds to pay policy values under the Policies. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from Protective Life’s other assets and liabilities.
Policy owners may allocate some or all of the applicable gross premiums or transfer some or all of the policy value to the Guaranteed Account, which is part of Protective Life’s General Account. The assets of Protective Life’s General Account support its insurance and annuity obligations and are subject to Protective Life’s general liabilities from business operations. The Guaranteed Account’s balance as of December 31, 2016 was approximately $37.3 million.
The Protective Variable Life Separate Account
Notes to Financial Statements
(2) Significant Accounting Policies
Investment Valuation
Investments are made and measured in shares and are valued at the net asset values of the respective fund portfolios (“Funds”), whose investments are stated at fair value. The net assets of each subaccount of the Separate Account reflect the investment management fees and other operating expenses incurred by the Funds. Transactions with the Funds are recorded on the trade date.
Net Realized Gains and Losses on Investments
Net realized gains and losses on investments include gains and losses on redemptions of the Funds’ shares (determined for each product using the last-in-first-out (LIFO) basis) and capital gain distributions from the Funds.
Dividend Income and Capital Gain Distributions
Dividend income and capital gain distributions are recorded on the ex-dividend date and are reinvested in additional shares of the portfolio. Ordinary dividend and capital gain distributions are from net investment income and net realized gains, respectively, as recorded in the financial statements of the underlying investment company.
Accumulation Unit Value
The Accumulation Unit Value for each class of Accumulation Units in a subaccount at the end of every Valuation Date is the Accumulation Unit value for that class at the end of the previous Valuation Date times the net investment factor as defined in the underlying product prospectuses.
Net transfers (to) from Affiliate or Subaccounts
Net transfers (to) from affiliate or subaccounts include transfers of all or part of the contract owner’s interest to or from another subaccount or to the general account of Protective Life .
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make various estimates and assumptions that affect the reported amounts of assets and liabilities, at the date of the financial statements, as well as the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Federal Income Taxes
The results of the operations of the Separate Account are included in the federal income tax return of PLC. Under the provisions of the policies, Protective Life has the right to charge the Separate Account for federal income tax attributable to the Separate Account. No charge has been made against the Separate Account for such tax during the year ended December 31, 2016. Management will periodically review the application of this policy in the event of changes in tax law. Accordingly, a change may be made in future years to consider charges for any federal income taxes that would be attributable to the policies.
Risks and Uncertainties
The Separate Account provides for various subaccount investment options in any combination of mutual funds, each of which bears exposure to the market, credit and liquidity risks of the underlying portfolio in which it invests. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances, the amounts reported in the Statement of Assets and Liabilities and the amounts reported in the Statements of Changes in Net Assets. Accordingly, these financial statements should be read in conjunction with the financial statements and footnotes of the underlying mutual funds identified in Note 1.
The Protective Variable Life Separate Account
Notes to Financial Statements
(3) Fair Value of Financial Instruments
The Separate Account determines the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Separate Account has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy as outlined within the applicable guidance. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. As there are no level 2 or level 3 assets in any period presented, disclosure of transfers between levels or disclosure of a reconciliation of level 3 assets is not required. In addition, there are no other financial assets or assets valued on a non-recurring basis.
Financial assets recorded at fair value in the Statement of Assets and Liabilities are categorized as follows:
Level 1: Unadjusted quoted prices for identical assets in an active market.
Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:
a) Quoted prices for similar assets in active markets
b) Quoted prices for identical or similar assets 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 management’s own assumptions about the assumptions a market participant would use in pricing the asset.
Determination of fair values
The valuation methodologies used to determine the fair values of assets and liabilities under the FASB guidance referenced in the Fair Value Measurements and Disclosures Topic reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Separate Account determines the fair values of certain financial assets based on quoted market prices. All of the investments in the subaccounts of the Separate Account are classified as Level 1 in the fair value hierarchy and consist of open-ended mutual funds. Participants may, without restriction, transact at the daily net asset value (“NAV”) of the mutual funds. The NAV represents the daily per share value based on the fair value of the underlying portfolio of investments of the respective mutual funds.
The Protective Variable Life Separate Account
Notes to Financial Statements
(4) Changes in Units Outstanding
The change in units outstanding for the years ended December 31, 2016 and 2015 were as follows:
|
(in thousands) |
|
2016 |
|
2015 |
|
||||||||
|
Subaccount |
|
Units
|
|
Units
|
|
Net
|
|
Units
|
|
Units
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Funds Asset Allocation Class 2 |
|
51 |
|
2 |
|
49 |
|
7 |
|
— |
|
7 |
|
|
American Funds Blue Chip Income & Growth Class 2 |
|
94 |
|
12 |
|
82 |
|
29 |
|
— |
|
29 |
|
|
American Funds Global Growth Class 2 |
|
17 |
|
2 |
|
15 |
|
15 |
|
2 |
|
13 |
|
|
American Funds Global Small Capitalization Class 2 |
|
112 |
|
1 |
|
111 |
|
3 |
|
— |
|
3 |
|
|
American Funds Growth Class 2 |
|
114 |
|
11 |
|
103 |
|
37 |
|
— |
|
37 |
|
|
American Funds International Class 2 |
|
116 |
|
2 |
|
114 |
|
8 |
|
— |
|
8 |
|
|
American Funds New World Class 2 |
|
9 |
|
1 |
|
8 |
|
3 |
|
— |
|
3 |
|
|
Calvert VP SRI Balanced |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
ClearBridge Variable Mid Cap Portfolio II |
|
23 |
|
11 |
|
12 |
|
18 |
|
5 |
|
13 |
|
|
ClearBridge Variable Small Cap Growth II |
|
10 |
|
10 |
|
— |
|
8 |
|
6 |
|
2 |
|
|
Fidelity Contrafund Portfolio SC |
|
156 |
|
106 |
|
50 |
|
77 |
|
54 |
|
23 |
|
|
Fidelity Equity Income SC |
|
10 |
|
17 |
|
(7 |
) |
6 |
|
14 |
|
(8 |
) |
|
Fidelity Freedom Fund - 2015 Maturity SC |
|
— |
|
1 |
|
(1 |
) |
— |
|
6 |
|
(6 |
) |
|
Fidelity Freedom Fund - 2020 Maturity SC |
|
5 |
|
6 |
|
(1 |
) |
2 |
|
4 |
|
(2 |
) |
|
Fidelity Growth Portfolio SC |
|
7 |
|
13 |
|
(6 |
) |
11 |
|
15 |
|
(4 |
) |
|
Fidelity Index 500 Portfolio SC |
|
243 |
|
84 |
|
159 |
|
90 |
|
51 |
|
39 |
|
|
Fidelity Investment Grade Bonds SC |
|
223 |
|
28 |
|
195 |
|
82 |
|
17 |
|
65 |
|
|
Fidelity Mid Cap SC |
|
100 |
|
57 |
|
43 |
|
65 |
|
15 |
|
50 |
|
|
Franklin Flex Cap Growth VIP CL 2 |
|
24 |
|
17 |
|
7 |
|
14 |
|
15 |
|
(1 |
) |
|
Franklin Income VIP CL 2 |
|
82 |
|
121 |
|
(39 |
) |
56 |
|
59 |
|
(3 |
) |
|
Franklin Mutual Shares VIP CL 2 |
|
314 |
|
218 |
|
96 |
|
222 |
|
50 |
|
172 |
|
|
Franklin Rising Dividend VIP CL 2 |
|
82 |
|
92 |
|
(10 |
) |
54 |
|
45 |
|
9 |
|
|
Franklin Small Cap Value VIP CL 2 |
|
22 |
|
19 |
|
3 |
|
13 |
|
5 |
|
8 |
|
|
Franklin Small-Mid Cap Growth VIP CL 2 |
|
21 |
|
32 |
|
(11 |
) |
13 |
|
24 |
|
(11 |
) |
|
Franklin US Government Securities VIP CL 2 |
|
174 |
|
82 |
|
92 |
|
147 |
|
31 |
|
116 |
|
|
Templeton Developing Markets VIP CL 2 |
|
70 |
|
9 |
|
61 |
|
10 |
|
2 |
|
8 |
|
|
Templeton Foreign VIP CL 2 |
|
86 |
|
64 |
|
22 |
|
77 |
|
44 |
|
33 |
|
|
Templeton Global Bond VIP Fund CL 2 |
|
143 |
|
54 |
|
89 |
|
73 |
|
33 |
|
40 |
|
|
Templeton Growth VIP CL 2 |
|
121 |
|
112 |
|
9 |
|
79 |
|
42 |
|
37 |
|
|
Goldman Sachs Large Cap Value |
|
21 |
|
54 |
|
(33 |
) |
11 |
|
35 |
|
(24 |
) |
|
Goldman Sachs Large Cap Value Fund SC |
|
14 |
|
12 |
|
2 |
|
8 |
|
9 |
|
(1 |
) |
|
Goldman Sachs Mid Cap Value |
|
7 |
|
16 |
|
(9 |
) |
6 |
|
17 |
|
(11 |
) |
|
Goldman Sachs Mid Cap Value SC |
|
69 |
|
19 |
|
50 |
|
66 |
|
4 |
|
62 |
|
|
Goldman Sachs Small Cap Equity Insights |
|
9 |
|
17 |
|
(8 |
) |
4 |
|
16 |
|
(12 |
) |
|
Goldman Sachs Small Cap Equity Insights SC |
|
2 |
|
2 |
|
— |
|
1 |
|
3 |
|
(2 |
) |
|
Goldman Sachs Strategic Growth |
|
14 |
|
35 |
|
(21 |
) |
4 |
|
25 |
|
(21 |
) |
|
Goldman Sachs Strategic Growth SC |
|
37 |
|
19 |
|
18 |
|
34 |
|
9 |
|
25 |
|
|
Goldman Sachs Strategic International Equity |
|
33 |
|
52 |
|
(19 |
) |
14 |
|
25 |
|
(11 |
) |
|
Goldman Sachs Strategic International Equity SC |
|
36 |
|
14 |
|
22 |
|
22 |
|
6 |
|
16 |
|
|
Goldman Sachs US Equity Insights |
|
13 |
|
34 |
|
(21 |
) |
3 |
|
34 |
|
(31 |
) |
|
Goldman Sachs US Equity Insights SC |
|
2 |
|
1 |
|
1 |
|
1 |
|
1 |
|
— |
|
|
Goldman Sachs VIT Core Fixed Income SC |
|
14 |
|
2 |
|
12 |
|
1 |
|
— |
|
1 |
|
|
Goldman Sachs VIT Growth Opportunities SC |
|
11 |
|
9 |
|
2 |
|
7 |
|
4 |
|
3 |
|
|
Invesco VI American Franchise I |
|
32 |
|
57 |
|
(25 |
) |
9 |
|
52 |
|
(43 |
) |
The Protective Variable Life Separate Account
Notes to Financial Statements
(4) Changes in Units Outstanding, continued
|
(in thousands) |
|
2016 |
|
2015 |
|
||||||||
|
Subaccount |
|
Units
|
|
Units
|
|
Net
|
|
Units
|
|
Units
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco VI American Value II |
|
28 |
|
16 |
|
12 |
|
26 |
|
4 |
|
22 |
|
|
Invesco VI Balanced Risk Allocation II |
|
7 |
|
4 |
|
3 |
|
3 |
|
7 |
|
(4 |
) |
|
Invesco VI Comstock I |
|
83 |
|
131 |
|
(48 |
) |
32 |
|
79 |
|
(47 |
) |
|
Invesco VI Equity and Income II |
|
112 |
|
110 |
|
2 |
|
64 |
|
32 |
|
32 |
|
|
Invesco VI Global Real Estate II |
|
7 |
|
3 |
|
4 |
|
8 |
|
3 |
|
5 |
|
|
Invesco VI Government Securities II |
|
46 |
|
59 |
|
(13 |
) |
23 |
|
28 |
|
(5 |
) |
|
Invesco VI Growth & Income I |
|
165 |
|
131 |
|
34 |
|
110 |
|
43 |
|
67 |
|
|
Invesco VI International Growth II |
|
113 |
|
44 |
|
69 |
|
107 |
|
11 |
|
96 |
|
|
Invesco VI Mid-Cap Growth II |
|
40 |
|
31 |
|
9 |
|
24 |
|
30 |
|
(6 |
) |
|
Invesco VI Small Cap Equity II |
|
22 |
|
9 |
|
13 |
|
17 |
|
2 |
|
15 |
|
|
Lord Abbett Bond Debenture VC |
|
136 |
|
85 |
|
51 |
|
110 |
|
38 |
|
72 |
|
|
Lord Abbett Calibrated Dividend Growth VC |
|
19 |
|
44 |
|
(25 |
) |
12 |
|
31 |
|
(19 |
) |
|
Lord Abbett Classic Stock VC |
|
6 |
|
5 |
|
1 |
|
7 |
|
4 |
|
3 |
|
|
Lord Abbett Growth & Income VC |
|
30 |
|
94 |
|
(64 |
) |
21 |
|
102 |
|
(81 |
) |
|
Lord Abbett Growth Opportunities VC |
|
11 |
|
15 |
|
(4 |
) |
9 |
|
13 |
|
(4 |
) |
|
Lord Abbett International Opportunities VC |
|
16 |
|
13 |
|
3 |
|
12 |
|
13 |
|
(1 |
) |
|
Lord Abbett Mid Cap Stock VC |
|
38 |
|
68 |
|
(30 |
) |
18 |
|
67 |
|
(49 |
) |
|
Lord Abbett Series Fundamental Equity VC |
|
81 |
|
34 |
|
47 |
|
89 |
|
7 |
|
82 |
|
|
MFS Growth Series IC |
|
33 |
|
30 |
|
3 |
|
16 |
|
17 |
|
(1 |
) |
|
MFS Investors Growth Stock IC |
|
NA |
|
NA |
|
NA |
|
3 |
|
282 |
|
(279 |
) |
|
MFS Investors Trust IC |
|
23 |
|
33 |
|
(10 |
) |
24 |
|
16 |
|
8 |
|
|
MFS New Discovery IC |
|
16 |
|
18 |
|
(2 |
) |
22 |
|
9 |
|
13 |
|
|
MFS Research IC |
|
20 |
|
38 |
|
(18 |
) |
8 |
|
21 |
|
(13 |
) |
|
MFS Total Return IC |
|
32 |
|
63 |
|
(31 |
) |
18 |
|
53 |
|
(35 |
) |
|
MFS Utilities IC |
|
13 |
|
20 |
|
(7 |
) |
7 |
|
13 |
|
(6 |
) |
|
MFS VIT Total Return Bond SC |
|
127 |
|
90 |
|
37 |
|
135 |
|
23 |
|
112 |
|
|
MFS VIT Value SC |
|
81 |
|
68 |
|
13 |
|
105 |
|
12 |
|
93 |
|
|
MFS VIT II Emerging Markets Equity SC |
|
7 |
|
9 |
|
(2 |
) |
13 |
|
2 |
|
11 |
|
|
MFS VIT II International Value SC |
|
57 |
|
29 |
|
28 |
|
43 |
|
7 |
|
36 |
|
|
MFS VIT II MA Investors Growth Stock IC |
|
29 |
|
50 |
|
(21 |
) |
387 |
|
19 |
|
368 |
|
|
Oppenheimer Capital Appreciation Fund/VA |
|
27 |
|
38 |
|
(11 |
) |
9 |
|
29 |
|
(20 |
) |
|
Oppenheimer Discovery Mid Cap Growth Fund/VA |
|
11 |
|
19 |
|
(8 |
) |
4 |
|
15 |
|
(11 |
) |
|
Oppenheimer Global Fund/VA |
|
85 |
|
56 |
|
29 |
|
42 |
|
28 |
|
14 |
|
|
Oppenheimer Global Strategic Income Fund/VA |
|
53 |
|
62 |
|
(9 |
) |
35 |
|
23 |
|
12 |
|
|
Oppenheimer Government Money Fund/VA |
|
1,781 |
|
1,354 |
|
427 |
|
2,138 |
|
1,744 |
|
394 |
|
|
Oppenheimer Main Street Fund/VA |
|
17 |
|
45 |
|
(28 |
) |
6 |
|
21 |
|
(15 |
) |
|
PIMCO VIT All Asset Advisor |
|
4 |
|
8 |
|
(4 |
) |
2 |
|
1 |
|
1 |
|
|
PIMCO VIT Long-Term US Government Advisor |
|
7 |
|
12 |
|
(5 |
) |
18 |
|
4 |
|
14 |
|
|
PIMCO VIT Low Duration Advisor |
|
28 |
|
14 |
|
14 |
|
44 |
|
18 |
|
26 |
|
|
PIMCO VIT Real Return Advisor |
|
187 |
|
49 |
|
138 |
|
185 |
|
27 |
|
158 |
|
|
PIMCO VIT Short-Term Advisor |
|
37 |
|
21 |
|
16 |
|
35 |
|
13 |
|
22 |
|
|
PIMCO VIT Total Return Advisor |
|
336 |
|
114 |
|
222 |
|
266 |
|
29 |
|
237 |
|
|
Royce Capital Fund Micro-Cap SC |
|
12 |
|
5 |
|
7 |
|
6 |
|
5 |
|
1 |
|
|
Royce Capital Fund Small-Cap SC |
|
98 |
|
31 |
|
67 |
|
90 |
|
8 |
|
82 |
|
|
UIF Global Real Estate II |
|
7 |
|
9 |
|
(2 |
) |
10 |
|
11 |
|
(1 |
) |
The Protective Variable Life Separate Account
Notes to Financial Statements
(5) Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments, including distributions received and reinvested, for the year ended December 31, 2016 are as follows:
|
(in thousands) |
|
Purchases |
|
Sales |
|
||
|
|
|
|
|
|
|
||
|
American Funds Asset Allocation Class 2 |
|
$ |
540 |
|
$ |
21 |
|
|
American Funds Blue Chip Income & Growth Class 2 |
|
964 |
|
50 |
|
||
|
American Funds Global Growth Class 2 |
|
174 |
|
11 |
|
||
|
American Funds Global Small Capitalization Class 2 |
|
1,039 |
|
4 |
|
||
|
American Funds Growth Class 2 |
|
1,156 |
|
24 |
|
||
|
American Funds International Class 2 |
|
1,077 |
|
15 |
|
||
|
American Funds New World Class 2 |
|
88 |
|
5 |
|
||
|
Calvert VP SRI Balanced |
|
3 |
|
2 |
|
||
|
ClearBridge Variable Mid Cap Portfolio II |
|
463 |
|
163 |
|
||
|
ClearBridge Variable Small Cap Growth II |
|
216 |
|
194 |
|
||
|
Fidelity Contrafund Portfolio SC |
|
4,689 |
|
1,355 |
|
||
|
Fidelity Equity Income SC |
|
314 |
|
272 |
|
||
|
Fidelity Freedom Fund - 2015 Maturity SC |
|
17 |
|
10 |
|
||
|
Fidelity Freedom Fund - 2020 Maturity SC |
|
101 |
|
76 |
|
||
|
Fidelity Growth Portfolio SC |
|
234 |
|
169 |
|
||
|
Fidelity Index 500 Portfolio SC |
|
4,970 |
|
1,131 |
|
||
|
Fidelity Investment Grade Bonds SC |
|
3,658 |
|
178 |
|
||
|
Fidelity Mid Cap SC |
|
2,911 |
|
743 |
|
||
|
Franklin Flex Cap Growth VIP CL 2 |
|
713 |
|
182 |
|
||
|
Franklin Income VIP CL 2 |
|
1,363 |
|
1,236 |
|
||
|
Franklin Mutual Shares VIP CL 2 |
|
5,989 |
|
1,010 |
|
||
|
Franklin Rising Dividend VIP CL 2 |
|
2,714 |
|
996 |
|
||
|
Franklin Small Cap Value VIP CL 2 |
|
710 |
|
257 |
|
||
|
Franklin Small-Mid Cap Growth VIP CL 2 |
|
574 |
|
419 |
|
||
|
Franklin US Government Securities VIP CL 2 |
|
1,859 |
|
365 |
|
||
|
Templeton Developing Markets VIP CL 2 |
|
585 |
|
58 |
|
||
|
Templeton Foreign VIP CL 2 |
|
950 |
|
394 |
|
||
|
Templeton Global Bond VIP Fund CL 2 |
|
1,979 |
|
410 |
|
||
|
Templeton Growth VIP CL 2 |
|
1,615 |
|
736 |
|
||
|
Goldman Sachs Large Cap Value |
|
574 |
|
1,190 |
|
||
|
Goldman Sachs Large Cap Value Fund SC |
|
193 |
|
99 |
|
||
|
Goldman Sachs Mid Cap Value |
|
138 |
|
342 |
|
||
|
Goldman Sachs Mid Cap Value SC |
|
975 |
|
85 |
|
||
|
Goldman Sachs Small Cap Equity Insights |
|
445 |
|
576 |
|
||
|
Goldman Sachs Small Cap Equity Insights SC |
|
38 |
|
31 |
|
||
|
Goldman Sachs Strategic Growth |
|
256 |
|
1,130 |
|
||
|
Goldman Sachs Strategic Growth SC |
|
496 |
|
150 |
|
||
|
Goldman Sachs Strategic International Equity |
|
394 |
|
640 |
|
||
|
Goldman Sachs Strategic International Equity SC |
|
298 |
|
44 |
|
||
|
Goldman Sachs US Equity Insights |
|
627 |
|
1,024 |
|
||
|
Goldman Sachs VIT Core Fixed Income SC |
|
140 |
|
23 |
|
||
|
Goldman Sachs US Equity Insights SC |
|
32 |
|
25 |
|
||
|
Goldman Sachs VIT Growth Opportunities SC |
|
181 |
|
120 |
|
||
|
Invesco VI American Franchise I |
|
558 |
|
409 |
|
||
|
Invesco VI American Value II |
|
549 |
|
172 |
|
||
|
Invesco VI Balanced Risk Allocation II |
|
99 |
|
52 |
|
||
|
Invesco VI Comstock I |
|
4,004 |
|
2,355 |
|
||
|
Invesco VI Equity and Income II |
|
2,706 |
|
1,579 |
|
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(5) Purchases and Sales of Investments, continued
|
(in thousands) |
|
Purchases |
|
Sales |
|
||
|
|
|
|
|
|
|
||
|
Invesco VI Global Real Estate II |
|
$ |
91 |
|
$ |
22 |
|
|
Invesco VI Government Securities II |
|
383 |
|
454 |
|
||
|
Invesco VI Growth & Income I |
|
5,659 |
|
1,377 |
|
||
|
Invesco VI International Growth II |
|
1,062 |
|
198 |
|
||
|
Invesco VI Mid-Cap Growth II |
|
603 |
|
204 |
|
||
|
Invesco VI Small Cap Equity II |
|
311 |
|
48 |
|
||
|
Lord Abbett Bond Debenture VC |
|
3,150 |
|
831 |
|
||
|
Lord Abbett Calibrated Dividend Growth VC |
|
1,030 |
|
1,049 |
|
||
|
Lord Abbett Classic Stock VC |
|
97 |
|
51 |
|
||
|
Lord Abbett Growth & Income VC |
|
592 |
|
1,501 |
|
||
|
Lord Abbett Growth Opportunities VC |
|
197 |
|
303 |
|
||
|
Lord Abbett International Opportunities VC |
|
186 |
|
143 |
|
||
|
Lord Abbett Mid Cap Stock VC |
|
1,321 |
|
1,069 |
|
||
|
Lord Abbett Series Fundamental Equity VC |
|
1,333 |
|
269 |
|
||
|
MFS Growth Series IC |
|
1,234 |
|
499 |
|
||
|
MFS Investors Trust IC |
|
1,308 |
|
528 |
|
||
|
MFS New Discovery IC |
|
534 |
|
381 |
|
||
|
MFS Research IC |
|
1,133 |
|
806 |
|
||
|
MFS Total Return IC |
|
1,485 |
|
1,422 |
|
||
|
MFS Utilities IC |
|
570 |
|
618 |
|
||
|
MFS VIT Total Return Bond SC |
|
1,417 |
|
578 |
|
||
|
MFS VIT Value SC |
|
2,133 |
|
705 |
|
||
|
MFS VIT II Emerging Markets Equity SC |
|
43 |
|
60 |
|
||
|
MFS VIT II International Value SC |
|
756 |
|
182 |
|
||
|
MFS VIT II MA Investors Growth Stock IC |
|
617 |
|
391 |
|
||
|
Oppenheimer Capital Appreciation Fund/VA |
|
1,438 |
|
737 |
|
||
|
Oppenheimer Discovery Mid Cap Growth Fund/VA |
|
423 |
|
353 |
|
||
|
Oppenheimer Global Fund/VA |
|
3,214 |
|
752 |
|
||
|
Oppenheimer Global Strategic Income Fund/VA |
|
1,291 |
|
913 |
|
||
|
Oppenheimer Government Money Fund/VA |
|
2,249 |
|
1,577 |
|
||
|
Oppenheimer Main Street Fund/VA |
|
1,357 |
|
1,023 |
|
||
|
PIMCO VIT All Asset Advisor |
|
47 |
|
80 |
|
||
|
PIMCO VIT Long-Term US Government Advisor |
|
113 |
|
185 |
|
||
|
PIMCO VIT Low Duration Advisor |
|
271 |
|
97 |
|
||
|
PIMCO VIT Real Return Advisor |
|
2,003 |
|
148 |
|
||
|
PIMCO VIT Short-Term Advisor |
|
384 |
|
186 |
|
||
|
PIMCO VIT Total Return Advisor |
|
3,518 |
|
350 |
|
||
|
Royce Capital Fund Micro-Cap SC |
|
141 |
|
51 |
|
||
|
Royce Capital Fund Small-Cap SC |
|
2,203 |
|
165 |
|
||
|
UIF Global Real Estate II |
|
91 |
|
101 |
|
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights
Protective Life sells a number of variable life products that are funded by the Separate Account. These products have unique combinations of features and fees that are charged against the policy owner’s account. These expenses, primarily mortality, expense and administrative charges, are variable in nature and are assessed as a direct reduction in units versus as a reduction in unit value. As such charges are assessed as a reduction in units, there would not be a range of unit values or total return ratios.
The following table discloses the units, unit fair value, net assets, investment income ratio and total return ratio for each applicable subaccount for each of the five years in the period ended December 31, 2016, were as follows.
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
American Funds Asset Allocation Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
55 |
|
$ |
10.80 |
|
$ |
598 |
|
2.08 |
% |
9.41 |
% |
|
2015 |
|
7 |
|
9.87 |
|
67 |
|
0.62 |
% |
0.66 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
American Funds Blue Chip Income & Growth Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
110 |
|
11.23 |
|
1,240 |
|
2.60 |
% |
18.70 |
% |
||
|
2015 |
|
29 |
|
9.46 |
|
273 |
|
2.46 |
% |
-2.52 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
American Funds Global Growth Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
28 |
|
9.77 |
|
276 |
|
1.04 |
% |
0.62 |
% |
||
|
2015 |
|
13 |
|
9.71 |
|
126 |
|
1.17 |
% |
-0.77 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
American Funds Global Small Capitalization Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
114 |
|
9.09 |
|
1,038 |
|
0.48 |
% |
2.10 |
% |
||
|
2015 |
|
3 |
|
8.90 |
|
28 |
|
0.00 |
% |
-11.91 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
American Funds Growth Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
139 |
|
10.97 |
|
1,530 |
|
0.96 |
% |
9.49 |
% |
||
|
2015 |
|
37 |
|
10.02 |
|
369 |
|
0.74 |
% |
1.39 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
American Funds International Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
122 |
|
9.05 |
|
1,101 |
|
2.38 |
% |
3.53 |
% |
||
|
2015 |
|
8 |
|
8.74 |
|
68 |
|
2.15 |
% |
-9.73 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
American Funds New World Class 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
11 |
|
$ |
9.61 |
|
$ |
109 |
|
1.17 |
% |
5.26 |
% |
|
2015 |
|
3 |
|
9.13 |
|
25 |
|
0.33 |
% |
-6.20 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
Calvert VP SRI Balanced |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
2 |
|
26.92 |
|
58 |
|
1.87 |
% |
7.85 |
% |
||
|
2015 |
|
2 |
|
24.96 |
|
56 |
|
0.12 |
% |
-2.19 |
% |
||
|
2014 |
|
2 |
|
25.52 |
|
59 |
|
1.50 |
% |
9.60 |
% |
||
|
2013 |
|
3 |
|
23.28 |
|
70 |
|
1.06 |
% |
18.00 |
% |
||
|
2012 |
|
3 |
|
19.73 |
|
62 |
|
1.14 |
% |
10.51 |
% |
||
|
ClearBridge Variable Mid Cap Portfolio II (b) |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
63 |
|
23.67 |
|
1,486 |
|
0.39 |
% |
9.11 |
% |
||
|
2015 |
|
51 |
|
21.70 |
|
1,097 |
|
0.06 |
% |
1.99 |
% |
||
|
2014 |
|
38 |
|
21.27 |
|
800 |
|
0.10 |
% |
7.82 |
% |
||
|
2013 |
|
27 |
|
19.73 |
|
525 |
|
0.05 |
% |
37.05 |
% |
||
|
2012 |
|
13 |
|
14.40 |
|
190 |
|
0.75 |
% |
17.61 |
% |
||
|
ClearBridge Variable Small Cap Growth II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
29 |
|
24.38 |
|
698 |
|
0.00 |
% |
5.54 |
% |
||
|
2015 |
|
29 |
|
23.10 |
|
666 |
|
0.00 |
% |
-4.59 |
% |
||
|
2014 |
|
27 |
|
24.21 |
|
665 |
|
0.00 |
% |
3.79 |
% |
||
|
2013 |
|
16 |
|
23.33 |
|
377 |
|
0.05 |
% |
46.62 |
% |
||
|
2012 |
|
7 |
|
15.91 |
|
118 |
|
0.12 |
% |
18.96 |
% |
||
|
Fidelity Contrafund Portfolio SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
848 |
|
30.08 |
|
25,514 |
|
0.75 |
% |
7.91 |
% |
||
|
2015 |
|
799 |
|
27.87 |
|
22,250 |
|
0.96 |
% |
0.56 |
% |
||
|
2014 |
|
776 |
|
27.72 |
|
21,513 |
|
0.88 |
% |
11.82 |
% |
||
|
2013 |
|
791 |
|
24.79 |
|
19,599 |
|
1.02 |
% |
31.14 |
% |
||
|
2012 |
|
777 |
|
18.90 |
|
14,683 |
|
1.28 |
% |
16.31 |
% |
||
|
Fidelity Equity Income SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
103 |
|
22.83 |
|
2,352 |
|
2.18 |
% |
17.90 |
% |
||
|
2015 |
|
110 |
|
19.36 |
|
2,138 |
|
3.06 |
% |
-4.09 |
% |
||
|
2014 |
|
118 |
|
20.19 |
|
2,386 |
|
2.68 |
% |
8.65 |
% |
||
|
2013 |
|
127 |
|
18.58 |
|
2,368 |
|
2.35 |
% |
28.01 |
% |
||
|
2012 |
|
141 |
|
14.52 |
|
2,045 |
|
3.12 |
% |
17.19 |
% |
||
|
Fidelity Freedom Fund - 2015 Maturity SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
21 |
|
15.29 |
|
326 |
|
1.44 |
% |
5.81 |
% |
||
|
2015 |
|
22 |
|
14.45 |
|
314 |
|
1.57 |
% |
-0.44 |
% |
||
|
2014 |
|
28 |
|
14.51 |
|
401 |
|
1.74 |
% |
4.63 |
% |
||
|
2013 |
|
25 |
|
13.87 |
|
352 |
|
1.79 |
% |
14.24 |
% |
||
|
2012 |
|
25 |
|
12.14 |
|
303 |
|
2.00 |
% |
12.13 |
% |
||
|
Fidelity Freedom Fund - 2020 Maturity SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
41 |
|
15.24 |
|
623 |
|
1.47 |
% |
6.04 |
% |
||
|
2015 |
|
41 |
|
14.38 |
|
591 |
|
1.76 |
% |
-0.37 |
% |
||
|
2014 |
|
43 |
|
14.43 |
|
625 |
|
1.70 |
% |
4.66 |
% |
||
|
2013 |
|
41 |
|
13.79 |
|
565 |
|
1.78 |
% |
15.95 |
% |
||
|
2012 |
|
40 |
|
11.89 |
|
474 |
|
1.97 |
% |
13.19 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fidelity Growth Portfolio SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
97 |
|
$ |
17.57 |
|
$ |
1,697 |
|
0.00 |
% |
0.71 |
% |
|
2015 |
|
102 |
|
17.45 |
|
1,788 |
|
0.16 |
% |
7.05 |
% |
||
|
2014 |
|
106 |
|
16.30 |
|
1,723 |
|
0.09 |
% |
11.19 |
% |
||
|
2013 |
|
108 |
|
14.66 |
|
1,586 |
|
0.19 |
% |
36.20 |
% |
||
|
2012 |
|
119 |
|
10.76 |
|
1,281 |
|
0.49 |
% |
14.54 |
% |
||
|
Fidelity Index 500 Portfolio SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
629 |
|
22.54 |
|
14,178 |
|
1.60 |
% |
11.75 |
% |
||
|
2015 |
|
470 |
|
20.17 |
|
9,466 |
|
1.95 |
% |
1.24 |
% |
||
|
2014 |
|
431 |
|
19.93 |
|
8,560 |
|
1.77 |
% |
13.46 |
% |
||
|
2013 |
|
373 |
|
17.56 |
|
6,546 |
|
1.99 |
% |
32.11 |
% |
||
|
2012 |
|
337 |
|
13.29 |
|
4,480 |
|
2.12 |
% |
15.81 |
% |
||
|
Fidelity Investment Grade Bonds SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
441 |
|
17.02 |
|
7,502 |
|
2.96 |
% |
4.63 |
% |
||
|
2015 |
|
246 |
|
16.27 |
|
3,996 |
|
2.83 |
% |
-0.71 |
% |
||
|
2014 |
|
181 |
|
16.39 |
|
2,970 |
|
2.35 |
% |
5.75 |
% |
||
|
2013 |
|
167 |
|
15.50 |
|
2,581 |
|
2.41 |
% |
-1.89 |
% |
||
|
2012 |
|
156 |
|
15.79 |
|
2,471 |
|
2.35 |
% |
5.77 |
% |
||
|
Fidelity Mid Cap SC2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
431 |
|
33.88 |
|
14,618 |
|
0.45 |
% |
12.11 |
% |
||
|
2015 |
|
388 |
|
30.22 |
|
11,717 |
|
0.44 |
% |
-1.50 |
% |
||
|
2014 |
|
338 |
|
30.68 |
|
10,379 |
|
0.18 |
% |
6.20 |
% |
||
|
2013 |
|
298 |
|
28.89 |
|
8,615 |
|
0.46 |
% |
36.06 |
% |
||
|
2012 |
|
258 |
|
21.23 |
|
5,469 |
|
0.57 |
% |
14.75 |
% |
||
|
Franklin Flex Cap Growth VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
173 |
|
17.70 |
|
3,061 |
|
0.00 |
% |
-2.89 |
% |
||
|
2015 |
|
166 |
|
18.23 |
|
3,034 |
|
0.00 |
% |
4.37 |
% |
||
|
2014 |
|
167 |
|
17.46 |
|
2,925 |
|
0.00 |
% |
6.11 |
% |
||
|
2013 |
|
143 |
|
16.46 |
|
2,351 |
|
0.00 |
% |
37.48 |
% |
||
|
2012 |
|
128 |
|
11.97 |
|
1,531 |
|
0.00 |
% |
9.26 |
% |
||
|
Franklin Income VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
908 |
|
18.51 |
|
16,802 |
|
4.84 |
% |
14.02 |
% |
||
|
2015 |
|
947 |
|
16.23 |
|
15,369 |
|
4.73 |
% |
-7.05 |
% |
||
|
2014 |
|
950 |
|
17.47 |
|
16,592 |
|
4.98 |
% |
4.62 |
% |
||
|
2013 |
|
934 |
|
16.69 |
|
15,588 |
|
6.23 |
% |
13.94 |
% |
||
|
2012 |
|
852 |
|
14.65 |
|
12,488 |
|
6.41 |
% |
12.65 |
% |
||
|
Franklin Mutual Shares VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
2,155 |
|
17.49 |
|
37,668 |
|
2.00 |
% |
16.06 |
% |
||
|
2015 |
|
2,059 |
|
15.07 |
|
31,022 |
|
3.22 |
% |
-4.94 |
% |
||
|
2014 |
|
1,887 |
|
15.85 |
|
29,900 |
|
2.06 |
% |
7.12 |
% |
||
|
2013 |
|
1,790 |
|
14.79 |
|
26,465 |
|
2.14 |
% |
28.26 |
% |
||
|
2012 |
|
1,682 |
|
11.53 |
|
19,386 |
|
2.10 |
% |
14.24 |
% |
||
|
Franklin Rising Dividend VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
737 |
|
20.81 |
|
15,339 |
|
1.37 |
% |
16.04 |
% |
||
|
2015 |
|
747 |
|
17.93 |
|
13,398 |
|
1.43 |
% |
-3.65 |
% |
||
|
2014 |
|
738 |
|
18.61 |
|
13,722 |
|
1.32 |
% |
8.72 |
% |
||
|
2013 |
|
666 |
|
17.12 |
|
11,403 |
|
1.54 |
% |
29.69 |
% |
||
|
2012 |
|
575 |
|
13.20 |
|
7,592 |
|
1.61 |
% |
11.96 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Franklin Small Cap Value VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
120 |
|
$ |
24.64 |
|
$ |
2,966 |
|
0.79 |
% |
30.19 |
% |
|
2015 |
|
117 |
|
18.92 |
|
2,217 |
|
0.64 |
% |
-7.39 |
% |
||
|
2014 |
|
109 |
|
20.43 |
|
2,230 |
|
0.61 |
% |
0.57 |
% |
||
|
2013 |
|
92 |
|
20.32 |
|
1,863 |
|
1.31 |
% |
36.24 |
% |
||
|
2012 |
|
79 |
|
14.91 |
|
1,184 |
|
0.77 |
% |
18.39 |
% |
||
|
Franklin Small-Mid Cap Growth VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
164 |
|
18.68 |
|
3,061 |
|
0.00 |
% |
4.17 |
% |
||
|
2015 |
|
175 |
|
17.93 |
|
3,145 |
|
0.00 |
% |
-2.66 |
% |
||
|
2014 |
|
186 |
|
18.42 |
|
3,424 |
|
0.00 |
% |
7.47 |
% |
||
|
2013 |
|
180 |
|
17.14 |
|
3,077 |
|
0.00 |
% |
38.15 |
% |
||
|
2012 |
|
179 |
|
12.40 |
|
2,222 |
|
0.00 |
% |
10.85 |
% |
||
|
Franklin US Government Securities VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
772 |
|
13.54 |
|
10,444 |
|
2.48 |
% |
0.66 |
% |
||
|
2015 |
|
680 |
|
13.45 |
|
9,149 |
|
2.51 |
% |
0.47 |
% |
||
|
2014 |
|
564 |
|
13.39 |
|
7,557 |
|
2.59 |
% |
3.38 |
% |
||
|
2013 |
|
436 |
|
12.95 |
|
5,641 |
|
2.73 |
% |
-2.24 |
% |
||
|
2012 |
|
341 |
|
13.25 |
|
4,511 |
|
2.58 |
% |
1.89 |
% |
||
|
Templeton Developing Markets VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
92 |
|
8.58 |
|
787 |
|
0.44 |
% |
17.44 |
% |
||
|
2015 |
|
30 |
|
7.30 |
|
223 |
|
2.05 |
% |
-19.60 |
% |
||
|
2014 |
|
22 |
|
9.08 |
|
203 |
|
1.46 |
% |
-8.39 |
% |
||
|
2013 |
|
7 |
|
9.92 |
|
74 |
|
2.05 |
% |
-0.92 |
% |
||
|
2012 |
|
1 |
|
10.01 |
|
14 |
|
0.00 |
% |
2.50 |
% |
||
|
Templeton Foreign VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
632 |
|
13.46 |
|
8,509 |
|
1.90 |
% |
7.18 |
% |
||
|
2015 |
|
609 |
|
12.56 |
|
7,651 |
|
3.45 |
% |
-6.49 |
% |
||
|
2014 |
|
576 |
|
13.43 |
|
7,740 |
|
1.85 |
% |
-11.13 |
% |
||
|
2013 |
|
535 |
|
15.11 |
|
8,089 |
|
2.34 |
% |
22.97 |
% |
||
|
2012 |
|
501 |
|
12.29 |
|
6,153 |
|
2.99 |
% |
18.23 |
% |
||
|
Templeton Global Bond VIP Fund CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
562 |
|
18.07 |
|
10,124 |
|
0.00 |
% |
2.94 |
% |
||
|
2015 |
|
473 |
|
17.55 |
|
8,307 |
|
8.12 |
% |
-4.30 |
% |
||
|
2014 |
|
433 |
|
18.34 |
|
7,939 |
|
5.02 |
% |
1.83 |
% |
||
|
2013 |
|
362 |
|
18.01 |
|
6,516 |
|
4.75 |
% |
1.63 |
% |
||
|
2012 |
|
309 |
|
17.72 |
|
5,480 |
|
6.28 |
% |
15.07 |
% |
||
|
Templeton Growth VIP CL 2 |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
1,025 |
|
14.08 |
|
14,423 |
|
1.96 |
% |
9.62 |
% |
||
|
2015 |
|
1,016 |
|
12.85 |
|
13,047 |
|
2.67 |
% |
-6.49 |
% |
||
|
2014 |
|
979 |
|
13.74 |
|
13,449 |
|
1.34 |
% |
-2.81 |
% |
||
|
2013 |
|
926 |
|
14.14 |
|
13,083 |
|
2.65 |
% |
30.82 |
% |
||
|
2012 |
|
898 |
|
10.81 |
|
9,690 |
|
2.05 |
% |
21.07 |
% |
||
|
Goldman Sachs Large Cap Value |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
387 |
|
34.58 |
|
13,367 |
|
2.10 |
% |
11.58 |
% |
||
|
2015 |
|
419 |
|
30.99 |
|
12,984 |
|
1.43 |
% |
-4.41 |
% |
||
|
2014 |
|
443 |
|
32.42 |
|
14,320 |
|
1.41 |
% |
12.94 |
% |
||
|
2013 |
|
474 |
|
28.71 |
|
13,579 |
|
1.23 |
% |
33.23 |
% |
||
|
2012 |
|
517 |
|
21.55 |
|
11,124 |
|
1.42 |
% |
19.13 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Goldman Sachs Large Cap Value Fund SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
167 |
|
$ |
15.95 |
|
$ |
2,655 |
|
1.91 |
% |
11.28 |
% |
|
2015 |
|
165 |
|
14.33 |
|
2,365 |
|
1.21 |
% |
-4.58 |
% |
||
|
2014 |
|
166 |
|
15.02 |
|
2,486 |
|
1.14 |
% |
12.61 |
% |
||
|
2013 |
|
169 |
|
13.34 |
|
2,250 |
|
0.96 |
% |
32.93 |
% |
||
|
2012 |
|
177 |
|
10.03 |
|
1,779 |
|
1.20 |
% |
18.82 |
% |
||
|
Goldman Sachs Mid Cap Value |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
87 |
|
29.62 |
|
2,577 |
|
1.31 |
% |
13.53 |
% |
||
|
2015 |
|
96 |
|
26.09 |
|
2,504 |
|
0.39 |
% |
-9.24 |
% |
||
|
2014 |
|
107 |
|
28.75 |
|
3,087 |
|
1.00 |
% |
13.57 |
% |
||
|
2013 |
|
117 |
|
25.31 |
|
2,966 |
|
0.85 |
% |
32.89 |
% |
||
|
2012 |
|
128 |
|
19.05 |
|
2,446 |
|
1.19 |
% |
18.47 |
% |
||
|
Goldman Sachs Mid Cap Value SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
194 |
|
18.97 |
|
3,676 |
|
1.30 |
% |
13.28 |
% |
||
|
2015 |
|
144 |
|
16.74 |
|
2,417 |
|
0.15 |
% |
-9.52 |
% |
||
|
2014 |
|
82 |
|
18.51 |
|
1,520 |
|
0.87 |
% |
13.29 |
% |
||
|
2013 |
|
67 |
|
16.34 |
|
1,089 |
|
0.73 |
% |
32.56 |
% |
||
|
2012 |
|
48 |
|
12.32 |
|
594 |
|
1.10 |
% |
18.19 |
% |
||
|
Goldman Sachs Small Cap Equity Insights |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
134 |
|
58.51 |
|
7,803 |
|
1.13 |
% |
23.20 |
% |
||
|
2015 |
|
142 |
|
47.49 |
|
6,708 |
|
0.29 |
% |
-2.13 |
% |
||
|
2014 |
|
154 |
|
48.52 |
|
7,459 |
|
0.79 |
% |
6.93 |
% |
||
|
2013 |
|
158 |
|
45.38 |
|
7,170 |
|
1.00 |
% |
35.62 |
% |
||
|
2012 |
|
168 |
|
33.46 |
|
5,630 |
|
1.16 |
% |
12.83 |
% |
||
|
Goldman Sachs Small Cap Equity Insights SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
20 |
|
23.51 |
|
467 |
|
0.90 |
% |
22.99 |
% |
||
|
2015 |
|
20 |
|
19.11 |
|
386 |
|
0.03 |
% |
-2.49 |
% |
||
|
2014 |
|
22 |
|
19.60 |
|
422 |
|
0.54 |
% |
6.69 |
% |
||
|
2013 |
|
22 |
|
18.37 |
|
395 |
|
0.75 |
% |
35.38 |
% |
||
|
2012 |
|
22 |
|
13.57 |
|
298 |
|
0.94 |
% |
12.51 |
% |
||
|
Goldman Sachs Strategic Growth |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
222 |
|
45.48 |
|
10,091 |
|
0.60 |
% |
1.98 |
% |
||
|
2015 |
|
243 |
|
44.60 |
|
10,824 |
|
0.35 |
% |
3.40 |
% |
||
|
2014 |
|
264 |
|
43.13 |
|
11,351 |
|
0.38 |
% |
13.64 |
% |
||
|
2013 |
|
285 |
|
37.95 |
|
10,766 |
|
0.41 |
% |
32.42 |
% |
||
|
2012 |
|
308 |
|
28.66 |
|
8,803 |
|
0.69 |
% |
19.89 |
% |
||
|
Goldman Sachs Strategic Growth SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
179 |
|
19.10 |
|
3,421 |
|
0.42 |
% |
1.69 |
% |
||
|
2015 |
|
161 |
|
18.79 |
|
3,030 |
|
0.12 |
% |
3.14 |
% |
||
|
2014 |
|
136 |
|
18.21 |
|
2,469 |
|
0.13 |
% |
13.38 |
% |
||
|
2013 |
|
127 |
|
16.06 |
|
2,046 |
|
0.17 |
% |
32.00 |
% |
||
|
2012 |
|
121 |
|
12.17 |
|
1,477 |
|
0.48 |
% |
19.63 |
% |
||
|
Goldman Sachs Strategic International Equity |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
309 |
|
19.68 |
|
6,062 |
|
2.01 |
% |
-2.73 |
% |
||
|
2015 |
|
328 |
|
20.23 |
|
6,625 |
|
1.77 |
% |
1.05 |
% |
||
|
2014 |
|
339 |
|
20.02 |
|
6,777 |
|
3.66 |
% |
-7.54 |
% |
||
|
2013 |
|
351 |
|
21.65 |
|
7,577 |
|
1.88 |
% |
24.20 |
% |
||
|
2012 |
|
379 |
|
17.43 |
|
6,612 |
|
2.14 |
% |
21.23 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Goldman Sachs Strategic International Equity SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
178 |
|
$ |
9.94 |
|
$ |
1,768 |
|
1.91 |
% |
-2.87 |
% |
|
2015 |
|
155 |
|
10.23 |
|
1,590 |
|
1.59 |
% |
0.77 |
% |
||
|
2014 |
|
139 |
|
10.16 |
|
1,411 |
|
3.62 |
% |
-7.70 |
% |
||
|
2013 |
|
123 |
|
11.00 |
|
1,353 |
|
1.68 |
% |
23.73 |
% |
||
|
2012 |
|
116 |
|
8.89 |
|
1,033 |
|
2.06 |
% |
20.89 |
% |
||
|
Goldman Sachs US Equity Insights |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
224 |
|
43.63 |
|
9,703 |
|
1.26 |
% |
10.73 |
% |
||
|
2015 |
|
245 |
|
39.40 |
|
9,624 |
|
1.32 |
% |
-0.20 |
% |
||
|
2014 |
|
276 |
|
39.48 |
|
10,823 |
|
1.41 |
% |
16.37 |
% |
||
|
2013 |
|
300 |
|
33.93 |
|
10,147 |
|
1.14 |
% |
37.52 |
% |
||
|
2012 |
|
326 |
|
24.67 |
|
8,047 |
|
1.81 |
% |
14.46 |
% |
||
|
Goldman Sachs US Equity Insights SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
8 |
|
19.54 |
|
166 |
|
1.12 |
% |
10.47 |
% |
||
|
2015 |
|
8 |
|
17.69 |
|
147 |
|
1.13 |
% |
-0.41 |
% |
||
|
2014 |
|
8 |
|
17.76 |
|
149 |
|
1.20 |
% |
16.18 |
% |
||
|
2013 |
|
9 |
|
15.29 |
|
133 |
|
0.93 |
% |
37.23 |
% |
||
|
2012 |
|
9 |
|
11.14 |
|
98 |
|
1.64 |
% |
14.14 |
% |
||
|
Goldman Sachs VIT Core Fixed Income SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
13 |
|
10.30 |
|
131 |
|
1.15 |
% |
2.70 |
% |
||
|
2015 |
|
1 |
|
10.03 |
|
15 |
|
0.40 |
% |
0.48 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
Goldman Sachs VIT Growth Opportunities SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
76 |
|
21.09 |
|
1,598 |
|
0.00 |
% |
1.42 |
% |
||
|
2015 |
|
73 |
|
20.80 |
|
1,526 |
|
0.00 |
% |
-5.20 |
% |
||
|
2014 |
|
70 |
|
21.94 |
|
1,531 |
|
0.00 |
% |
11.10 |
% |
||
|
2013 |
|
69 |
|
19.75 |
|
1,369 |
|
0.00 |
% |
32.20 |
% |
||
|
2012 |
|
59 |
|
14.94 |
|
880 |
|
0.00 |
% |
19.43 |
% |
||
|
Invesco VI American Franchise I |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
438 |
|
10.67 |
|
4,665 |
|
0.00 |
% |
2.27 |
% |
||
|
2015 |
|
464 |
|
10.43 |
|
4,842 |
|
0.00 |
% |
5.01 |
% |
||
|
2014 |
|
507 |
|
9.93 |
|
5,040 |
|
0.04 |
% |
8.44 |
% |
||
|
2013 |
|
529 |
|
9.16 |
|
4,841 |
|
0.44 |
% |
40.14 |
% |
||
|
2012 |
|
550 |
|
6.54 |
|
3,582 |
|
0.00 |
% |
19.43 |
% |
||
|
Invesco VI American Value II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
129 |
|
23.07 |
|
2,969 |
|
0.12 |
% |
15.22 |
% |
||
|
2015 |
|
117 |
|
20.03 |
|
2,345 |
|
0.01 |
% |
-9.36 |
% |
||
|
2014 |
|
95 |
|
22.09 |
|
2,106 |
|
0.23 |
% |
9.48 |
% |
||
|
2013 |
|
55 |
|
20.18 |
|
1,111 |
|
0.73 |
% |
33.93 |
% |
||
|
2012 |
|
19 |
|
15.07 |
|
283 |
|
0.70 |
% |
17.08 |
% |
||
|
Invesco VI Balanced Risk Allocation II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
28 |
|
15.65 |
|
432 |
|
0.21 |
% |
11.52 |
% |
||
|
2015 |
|
25 |
|
14.04 |
|
345 |
|
3.69 |
% |
-4.40 |
% |
||
|
2014 |
|
29 |
|
14.68 |
|
423 |
|
0.00 |
% |
5.71 |
% |
||
|
2013 |
|
23 |
|
13.89 |
|
318 |
|
1.51 |
% |
1.42 |
% |
||
|
2012 |
|
24 |
|
13.70 |
|
324 |
|
0.99 |
% |
10.64 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Invesco VI Comstock I |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
1,063 |
|
$ |
35.03 |
|
$ |
37,222 |
|
1.52 |
% |
17.30 |
% |
|
2015 |
|
1,111 |
|
29.86 |
|
33,179 |
|
1.97 |
% |
-5.98 |
% |
||
|
2014 |
|
1,158 |
|
31.76 |
|
36,756 |
|
1.35 |
% |
9.39 |
% |
||
|
2013 |
|
1,183 |
|
29.04 |
|
34,291 |
|
1.67 |
% |
35.97 |
% |
||
|
2012 |
|
1,259 |
|
21.35 |
|
26,816 |
|
1.75 |
% |
19.23 |
% |
||
|
Invesco VI Equity and Income II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
816 |
|
29.21 |
|
23,821 |
|
1.62 |
% |
14.84 |
% |
||
|
2015 |
|
813 |
|
25.44 |
|
20,666 |
|
2.40 |
% |
-2.58 |
% |
||
|
2014 |
|
781 |
|
26.11 |
|
20,395 |
|
1.60 |
% |
8.77 |
% |
||
|
2013 |
|
768 |
|
24.01 |
|
18,425 |
|
1.51 |
% |
24.89 |
% |
||
|
2012 |
|
761 |
|
19.23 |
|
14,602 |
|
1.81 |
% |
12.39 |
% |
||
|
Invesco VI Global Real Estate II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
41 |
|
13.32 |
|
542 |
|
1.45 |
% |
1.82 |
% |
||
|
2015 |
|
37 |
|
13.08 |
|
481 |
|
3.61 |
% |
-1.74 |
% |
||
|
2014 |
|
32 |
|
13.31 |
|
424 |
|
1.67 |
% |
14.34 |
% |
||
|
2013 |
|
17 |
|
11.64 |
|
194 |
|
5.78 |
% |
2.44 |
% |
||
|
2012 |
|
1 |
|
11.37 |
|
12 |
|
0.40 |
% |
10.93 |
% |
||
|
Invesco VI Government Securities II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
409 |
|
11.24 |
|
4,601 |
|
1.78 |
% |
1.00 |
% |
||
|
2015 |
|
423 |
|
11.13 |
|
4,694 |
|
2.00 |
% |
0.06 |
% |
||
|
2014 |
|
428 |
|
11.12 |
|
4,746 |
|
2.94 |
% |
3.88 |
% |
||
|
2013 |
|
419 |
|
10.71 |
|
4,473 |
|
3.34 |
% |
-2.85 |
% |
||
|
2012 |
|
387 |
|
11.02 |
|
4,208 |
|
2.98 |
% |
2.22 |
% |
||
|
Invesco VI Growth & Income I |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
1,154 |
|
31.91 |
|
36,803 |
|
1.11 |
% |
19.69 |
% |
||
|
2015 |
|
1,120 |
|
26.66 |
|
29,817 |
|
3.00 |
% |
-3.06 |
% |
||
|
2014 |
|
1,053 |
|
27.50 |
|
28,897 |
|
1.82 |
% |
10.28 |
% |
||
|
2013 |
|
1,049 |
|
24.94 |
|
25,995 |
|
1.51 |
% |
24.89 |
% |
||
|
2012 |
|
1,048 |
|
18.60 |
|
19,417 |
|
1.54 |
% |
14.63 |
% |
||
|
Invesco VI International Growth II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
499 |
|
11.66 |
|
5,819 |
|
1.22 |
% |
-0.70 |
% |
||
|
2015 |
|
430 |
|
11.74 |
|
5,049 |
|
1.43 |
% |
-2.62 |
% |
||
|
2014 |
|
334 |
|
12.06 |
|
4,024 |
|
1.59 |
% |
0.09 |
% |
||
|
2013 |
|
198 |
|
12.05 |
|
2,385 |
|
1.30 |
% |
18.72 |
% |
||
|
2012 |
|
96 |
|
10.15 |
|
971 |
|
1.41 |
% |
15.25 |
% |
||
|
Invesco VI Mid-Cap Growth II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
283 |
|
11.01 |
|
3,100 |
|
0.00 |
% |
0.57 |
% |
||
|
2015 |
|
274 |
|
10.95 |
|
2,998 |
|
0.00 |
% |
1.04 |
% |
||
|
2014 |
|
280 |
|
10.84 |
|
3,039 |
|
0.00 |
% |
7.69 |
% |
||
|
2013 |
|
273 |
|
10.06 |
|
2,744 |
|
0.23 |
% |
36.60 |
% |
||
|
2012 |
|
262 |
|
7.37 |
|
1,934 |
|
0.00 |
% |
11.63 |
% |
||
|
Invesco VI Small Cap Equity II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
89 |
|
14.93 |
|
1,324 |
|
0.00 |
% |
11.84 |
% |
||
|
2015 |
|
76 |
|
13.35 |
|
1,011 |
|
0.00 |
% |
-5.74 |
% |
||
|
2014 |
|
61 |
|
14.16 |
|
857 |
|
0.00 |
% |
2.09 |
% |
||
|
2013 |
|
25 |
|
13.87 |
|
345 |
|
0.00 |
% |
37.08 |
% |
||
|
2012 |
|
3 |
|
10.12 |
|
28 |
|
0.00 |
% |
2.46 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Lord Abbett Bond Debenture VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
777 |
|
$ |
28.41 |
|
$ |
22,047 |
|
4.79 |
% |
12.13 |
% |
|
2015 |
|
726 |
|
25.34 |
|
18,378 |
|
4.37 |
% |
-1.53 |
% |
||
|
2014 |
|
654 |
|
25.73 |
|
16,824 |
|
4.89 |
% |
4.35 |
% |
||
|
2013 |
|
633 |
|
24.66 |
|
15,465 |
|
5.14 |
% |
8.17 |
% |
||
|
2012 |
|
628 |
|
22.79 |
|
14,260 |
|
5.78 |
% |
12.53 |
% |
||
|
Lord Abbett Calibrated Dividend Growth VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
300 |
|
33.35 |
|
9,998 |
|
1.66 |
% |
15.10 |
% |
||
|
2015 |
|
326 |
|
28.97 |
|
9,407 |
|
1.78 |
% |
-2.13 |
% |
||
|
2014 |
|
345 |
|
29.60 |
|
10,213 |
|
1.72 |
% |
11.54 |
% |
||
|
2013 |
|
367 |
|
26.54 |
|
9,706 |
|
1.66 |
% |
27.93 |
% |
||
|
2012 |
|
393 |
|
20.75 |
|
8,119 |
|
3.05 |
% |
12.46 |
% |
||
|
Lord Abbett Classic Stock VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
49 |
|
17.55 |
|
854 |
|
1.04 |
% |
12.44 |
% |
||
|
2015 |
|
48 |
|
15.60 |
|
752 |
|
0.83 |
% |
-0.90 |
% |
||
|
2014 |
|
45 |
|
15.75 |
|
704 |
|
0.76 |
% |
9.14 |
% |
||
|
2013 |
|
41 |
|
14.43 |
|
597 |
|
1.05 |
% |
29.85 |
% |
||
|
2012 |
|
39 |
|
11.11 |
|
428 |
|
1.24 |
% |
15.09 |
% |
||
|
Lord Abbett Growth & Income VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
714 |
|
23.53 |
|
16,742 |
|
1.46 |
% |
17.11 |
% |
||
|
2015 |
|
778 |
|
20.09 |
|
15,625 |
|
1.18 |
% |
-2.86 |
% |
||
|
2014 |
|
859 |
|
20.68 |
|
17,740 |
|
0.70 |
% |
7.65 |
% |
||
|
2013 |
|
928 |
|
19.21 |
|
17,712 |
|
0.57 |
% |
35.90 |
% |
||
|
2012 |
|
1,031 |
|
14.14 |
|
14,516 |
|
0.99 |
% |
12.09 |
% |
||
|
Lord Abbett Growth Opportunities VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
111 |
|
31.23 |
|
3,460 |
|
0.00 |
% |
1.23 |
% |
||
|
2015 |
|
115 |
|
30.85 |
|
3,542 |
|
0.00 |
% |
2.72 |
% |
||
|
2014 |
|
119 |
|
30.03 |
|
3,585 |
|
0.00 |
% |
6.07 |
% |
||
|
2013 |
|
126 |
|
28.31 |
|
2,564 |
|
0.00 |
% |
37.08 |
% |
||
|
2012 |
|
139 |
|
20.65 |
|
2,872 |
|
0.00 |
% |
14.10 |
% |
||
|
Lord Abbett International Opportunities VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
92 |
|
13.45 |
|
1,238 |
|
0.97 |
% |
-4.28 |
% |
||
|
2015 |
|
90 |
|
14.05 |
|
1,260 |
|
0.85 |
% |
11.10 |
% |
||
|
2014 |
|
91 |
|
12.64 |
|
1,153 |
|
1.43 |
% |
-5.76 |
% |
||
|
2013 |
|
80 |
|
13.42 |
|
1,074 |
|
2.00 |
% |
31.70 |
% |
||
|
2012 |
|
75 |
|
10.19 |
|
763 |
|
2.02 |
% |
20.38 |
% |
||
|
Lord Abbett Mid Cap Stock VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
613 |
|
27.68 |
|
16,959 |
|
0.50 |
% |
16.39 |
% |
||
|
2015 |
|
643 |
|
23.78 |
|
15,281 |
|
0.58 |
% |
-3.79 |
% |
||
|
2014 |
|
692 |
|
24.71 |
|
17,084 |
|
0.45 |
% |
11.53 |
% |
||
|
2013 |
|
728 |
|
22.16 |
|
16,015 |
|
0.42 |
% |
30.32 |
% |
||
|
2012 |
|
776 |
|
17.00 |
|
13,176 |
|
0.68 |
% |
14.55 |
% |
||
|
Lord Abbett Series Fundamental Equity VC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
261 |
|
21.48 |
|
5,595 |
|
1.29 |
% |
15.74 |
% |
||
|
2015 |
|
213 |
|
18.56 |
|
3,952 |
|
1.44 |
% |
-3.44 |
% |
||
|
2014 |
|
131 |
|
19.22 |
|
2,521 |
|
0.52 |
% |
7.14 |
% |
||
|
2013 |
|
102 |
|
17.94 |
|
1,833 |
|
0.28 |
% |
35.76 |
% |
||
|
2012 |
|
77 |
|
13.21 |
|
1,017 |
|
0.64 |
% |
10.58 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
MFS Growth Series IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
273 |
|
$ |
38.58 |
|
$ |
10,518 |
|
0.04 |
% |
2.44 |
% |
|
2015 |
|
270 |
|
37.66 |
|
10,170 |
|
0.16 |
% |
7.56 |
% |
||
|
2014 |
|
271 |
|
35.02 |
|
9,491 |
|
0.11 |
% |
8.94 |
% |
||
|
2013 |
|
245 |
|
32.14 |
|
7,877 |
|
0.24 |
% |
36.85 |
% |
||
|
2012 |
|
222 |
|
23.49 |
|
5,217 |
|
0.00 |
% |
17.39 |
% |
||
|
MFS Investors Growth Stock IC (c) |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
||
|
2015 |
|
— |
|
13.91 |
|
— |
|
1.66 |
% |
1.35 |
% |
||
|
2014 |
|
279 |
|
13.73 |
|
3,832 |
|
0.54 |
% |
11.45 |
% |
||
|
2013 |
|
258 |
|
12.32 |
|
3,178 |
|
0.62 |
% |
30.29 |
% |
||
|
2012 |
|
254 |
|
9.45 |
|
2,401 |
|
0.45 |
% |
16.97 |
% |
||
|
MFS Investors Trust IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
302 |
|
31.77 |
|
9,565 |
|
0.84 |
% |
8.59 |
% |
||
|
2015 |
|
312 |
|
29.26 |
|
9,119 |
|
0.95 |
% |
0.22 |
% |
||
|
2014 |
|
304 |
|
29.20 |
|
8,856 |
|
0.96 |
% |
11.01 |
% |
||
|
2013 |
|
280 |
|
26.30 |
|
7,353 |
|
1.11 |
% |
32.05 |
% |
||
|
2012 |
|
265 |
|
19.92 |
|
5,273 |
|
0.88 |
% |
19.18 |
% |
||
|
MFS New Discovery IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
137 |
|
40.10 |
|
5,483 |
|
0.00 |
% |
9.05 |
% |
||
|
2015 |
|
139 |
|
36.77 |
|
5,101 |
|
0.00 |
% |
-1.89 |
% |
||
|
2014 |
|
126 |
|
37.48 |
|
4,725 |
|
0.00 |
% |
-7.26 |
% |
||
|
2013 |
|
122 |
|
40.41 |
|
4,933 |
|
0.00 |
% |
41.52 |
% |
||
|
2012 |
|
115 |
|
28.56 |
|
3,286 |
|
0.00 |
% |
21.22 |
% |
||
|
MFS Research IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
253 |
|
33.39 |
|
8,446 |
|
0.77 |
% |
8.74 |
% |
||
|
2015 |
|
271 |
|
30.71 |
|
8,335 |
|
0.74 |
% |
0.80 |
% |
||
|
2014 |
|
284 |
|
30.46 |
|
8,646 |
|
0.84 |
% |
10.20 |
% |
||
|
2013 |
|
291 |
|
27.64 |
|
8,034 |
|
0.33 |
% |
32.28 |
% |
||
|
2012 |
|
300 |
|
20.90 |
|
6,269 |
|
0.80 |
% |
17.27 |
% |
||
|
MFS Total Return IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
510 |
|
35.64 |
|
18,152 |
|
2.89 |
% |
9.09 |
% |
||
|
2015 |
|
541 |
|
32.67 |
|
17,653 |
|
2.60 |
% |
-0.37 |
% |
||
|
2014 |
|
576 |
|
32.79 |
|
18,846 |
|
1.87 |
% |
8.50 |
% |
||
|
2013 |
|
589 |
|
30.22 |
|
17,666 |
|
1.79 |
% |
19.05 |
% |
||
|
2012 |
|
596 |
|
25.39 |
|
15,089 |
|
2.73 |
% |
11.26 |
% |
||
|
MFS Utilities IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
105 |
|
42.47 |
|
4,425 |
|
3.97 |
% |
11.47 |
% |
||
|
2015 |
|
112 |
|
38.10 |
|
4,258 |
|
4.30 |
% |
-14.52 |
% |
||
|
2014 |
|
118 |
|
44.57 |
|
5,250 |
|
2.09 |
% |
12.73 |
% |
||
|
2013 |
|
117 |
|
39.53 |
|
4,626 |
|
2.38 |
% |
20.52 |
% |
||
|
2012 |
|
111 |
|
32.80 |
|
3,630 |
|
6.67 |
% |
13.48 |
% |
||
|
MFS VIT Total Return Bond SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
837 |
|
13.25 |
|
11,086 |
|
3.33 |
% |
4.01 |
% |
||
|
2015 |
|
801 |
|
12.74 |
|
10,201 |
|
3.43 |
% |
-0.58 |
% |
||
|
2014 |
|
689 |
|
12.81 |
|
8,825 |
|
2.94 |
% |
5.62 |
% |
||
|
2013 |
|
395 |
|
12.13 |
|
4,790 |
|
1.23 |
% |
-1.29 |
% |
||
|
2012 |
|
194 |
|
12.29 |
|
2,379 |
|
2.64 |
% |
7.06 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
MFS VIT Value SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
550 |
|
$ |
22.61 |
|
$ |
12,420 |
|
1.88 |
% |
13.78 |
% |
|
2015 |
|
537 |
|
19.87 |
|
10,672 |
|
2.27 |
% |
-0.93 |
% |
||
|
2014 |
|
444 |
|
20.06 |
|
8,917 |
|
1.40 |
% |
10.20 |
% |
||
|
2013 |
|
351 |
|
18.20 |
|
6,384 |
|
1.06 |
% |
35.59 |
% |
||
|
2012 |
|
258 |
|
13.43 |
|
3,469 |
|
1.48 |
% |
15.88 |
% |
||
|
MFS VIT II Emerging Markets Equity SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
49 |
|
8.46 |
|
414 |
|
0.37 |
% |
9.04 |
% |
||
|
2015 |
|
51 |
|
7.76 |
|
395 |
|
0.69 |
% |
-13.08 |
% |
||
|
2014 |
|
40 |
|
8.93 |
|
357 |
|
0.47 |
% |
-6.99 |
% |
||
|
2013 |
|
22 |
|
9.60 |
|
208 |
|
2.03 |
% |
-5.40 |
% |
||
|
2012 |
|
3 |
|
10.15 |
|
26 |
|
0.58 |
% |
3.57 |
% |
||
|
MFS VIT II International Value SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
315 |
|
15.15 |
|
4,766 |
|
1.18 |
% |
3.84 |
% |
||
|
2015 |
|
287 |
|
14.59 |
|
4,183 |
|
1.90 |
% |
6.32 |
% |
||
|
2014 |
|
251 |
|
13.72 |
|
3,437 |
|
2.05 |
% |
1.13 |
% |
||
|
2013 |
|
104 |
|
13.57 |
|
1,413 |
|
1.66 |
% |
27.63 |
% |
||
|
2012 |
|
15 |
|
10.63 |
|
155 |
|
0.48 |
% |
6.55 |
% |
||
|
MFS VIT II MA Investors Growth Stock IC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
347 |
|
10.57 |
|
3,669 |
|
0.61 |
% |
6.08 |
% |
||
|
2015 |
|
368 |
|
9.96 |
|
3,670 |
|
1.02 |
% |
-2.39 |
% |
||
|
2014 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2013 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
2012 |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
||
|
Oppenheimer Capital Appreciation Fund/VA |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
296 |
|
33.88 |
|
10,025 |
|
0.39 |
% |
-2.20 |
% |
||
|
2015 |
|
308 |
|
34.64 |
|
10,656 |
|
0.09 |
% |
3.54 |
% |
||
|
2014 |
|
328 |
|
33.46 |
|
10,961 |
|
0.45 |
% |
15.41 |
% |
||
|
2013 |
|
358 |
|
28.99 |
|
10,365 |
|
0.98 |
% |
29.74 |
% |
||
|
2012 |
|
370 |
|
22.35 |
|
8,273 |
|
0.65 |
% |
14.12 |
% |
||
|
Oppenheimer Discovery Mid Cap Growth Fund/VA |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
130 |
|
29.58 |
|
3,793 |
|
0.00 |
% |
2.33 |
% |
||
|
2015 |
|
138 |
|
28.91 |
|
3,982 |
|
0.00 |
% |
6.61 |
% |
||
|
2014 |
|
149 |
|
27.12 |
|
4,035 |
|
0.00 |
% |
5.78 |
% |
||
|
2013 |
|
159 |
|
25.64 |
|
4,065 |
|
0.01 |
% |
35.98 |
% |
||
|
2012 |
|
166 |
|
18.85 |
|
3,134 |
|
0.00 |
% |
16.45 |
% |
||
|
Oppenheimer Global Fund/VA |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
501 |
|
39.24 |
|
19,634 |
|
1.01 |
% |
0.08 |
% |
||
|
2015 |
|
472 |
|
39.21 |
|
18,524 |
|
1.36 |
% |
3.94 |
% |
||
|
2014 |
|
458 |
|
37.72 |
|
17,266 |
|
1.10 |
% |
2.29 |
% |
||
|
2013 |
|
458 |
|
36.87 |
|
16,885 |
|
1.38 |
% |
27.31 |
% |
||
|
2012 |
|
458 |
|
28.97 |
|
13,271 |
|
2.14 |
% |
21.26 |
% |
||
|
Oppenheimer Global Strategic Income Fund/VA |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
448 |
|
28.40 |
|
12,706 |
|
5.01 |
% |
6.53 |
% |
||
|
2015 |
|
457 |
|
26.66 |
|
12,160 |
|
6.00 |
% |
-2.26 |
% |
||
|
2014 |
|
445 |
|
27.27 |
|
12,108 |
|
4.25 |
% |
2.84 |
% |
||
|
2013 |
|
448 |
|
26.52 |
|
11,876 |
|
4.97 |
% |
-0.13 |
% |
||
|
2012 |
|
444 |
|
26.56 |
|
11,743 |
|
5.85 |
% |
13.53 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Oppenheimer Government Money Fund/VA (b) |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
5,332 |
|
$ |
1.57 |
|
$ |
8,389 |
|
0.01 |
% |
0.00 |
% |
|
2015 |
|
4,905 |
|
1.57 |
|
7,717 |
|
0.01 |
% |
0.00 |
% |
||
|
2014 |
|
4,511 |
|
1.57 |
|
7,087 |
|
0.01 |
% |
0.00 |
% |
||
|
2013 |
|
4,415 |
|
1.57 |
|
6,945 |
|
0.01 |
% |
0.01 |
% |
||
|
2012 |
|
3,827 |
|
1.57 |
|
6,019 |
|
0.01 |
% |
0.00 |
% |
||
|
Oppenheimer Main Street Fund/VA |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
290 |
|
32.13 |
|
9,319 |
|
1.10 |
% |
11.62 |
% |
||
|
2015 |
|
318 |
|
28.78 |
|
9,136 |
|
0.94 |
% |
3.33 |
% |
||
|
2014 |
|
333 |
|
27.86 |
|
9,223 |
|
0.83 |
% |
10.70 |
% |
||
|
2013 |
|
359 |
|
25.16 |
|
9,023 |
|
1.09 |
% |
31.77 |
% |
||
|
2012 |
|
381 |
|
19.10 |
|
7,260 |
|
0.95 |
% |
16.87 |
% |
||
|
PIMCO VIT All Asset Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
13 |
|
11.16 |
|
144 |
|
2.36 |
% |
12.90 |
% |
||
|
2015 |
|
17 |
|
9.89 |
|
163 |
|
3.36 |
% |
-9.19 |
% |
||
|
2014 |
|
16 |
|
10.89 |
|
170 |
|
5.82 |
% |
0.46 |
% |
||
|
2013 |
|
10 |
|
10.84 |
|
108 |
|
6.87 |
% |
0.11 |
% |
||
|
2012 |
|
0 |
|
10.82 |
|
3 |
|
6.65 |
% |
7.18 |
% |
||
|
PIMCO VIT Long-Term US Government Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
19 |
|
14.97 |
|
290 |
|
2.26 |
% |
0.58 |
% |
||
|
2015 |
|
24 |
|
14.89 |
|
356 |
|
2.14 |
% |
-1.49 |
% |
||
|
2014 |
|
10 |
|
15.11 |
|
156 |
|
2.14 |
% |
23.89 |
% |
||
|
2013 |
|
16 |
|
12.20 |
|
196 |
|
2.27 |
% |
-13.04 |
% |
||
|
2012 |
|
18 |
|
14.03 |
|
247 |
|
2.06 |
% |
4.33 |
% |
||
|
PIMCO VIT Low Duration Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
127 |
|
11.59 |
|
1,468 |
|
1.41 |
% |
1.30 |
% |
||
|
2015 |
|
113 |
|
11.44 |
|
1,296 |
|
3.68 |
% |
0.21 |
% |
||
|
2014 |
|
87 |
|
11.41 |
|
989 |
|
1.05 |
% |
0.75 |
% |
||
|
2013 |
|
75 |
|
11.33 |
|
848 |
|
1.30 |
% |
-0.23 |
% |
||
|
2012 |
|
45 |
|
11.36 |
|
515 |
|
1.79 |
% |
5.75 |
% |
||
|
PIMCO VIT Real Return Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
478 |
|
12.68 |
|
6,064 |
|
2.22 |
% |
5.09 |
% |
||
|
2015 |
|
341 |
|
12.06 |
|
4,105 |
|
5.27 |
% |
-2.80 |
% |
||
|
2014 |
|
183 |
|
12.41 |
|
2,277 |
|
1.28 |
% |
2.99 |
% |
||
|
2013 |
|
148 |
|
12.05 |
|
1,780 |
|
1.95 |
% |
-9.31 |
% |
||
|
2012 |
|
101 |
|
13.29 |
|
1,347 |
|
0.92 |
% |
8.64 |
% |
||
|
PIMCO VIT Short-Term Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
85 |
|
11.03 |
|
941 |
|
1.59 |
% |
2.27 |
% |
||
|
2015 |
|
69 |
|
10.78 |
|
740 |
|
0.91 |
% |
1.01 |
% |
||
|
2014 |
|
47 |
|
10.67 |
|
506 |
|
0.61 |
% |
0.61 |
% |
||
|
2013 |
|
36 |
|
10.61 |
|
377 |
|
0.65 |
% |
0.47 |
% |
||
|
2012 |
|
27 |
|
10.56 |
|
282 |
|
0.78 |
% |
2.67 |
% |
||
|
PIMCO VIT Total Return Advisor |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
1,266 |
|
12.89 |
|
16,319 |
|
1.97 |
% |
2.58 |
% |
||
|
2015 |
|
1,044 |
|
12.57 |
|
13,122 |
|
5.25 |
% |
0.35 |
% |
||
|
2014 |
|
807 |
|
12.53 |
|
10,110 |
|
2.16 |
% |
4.17 |
% |
||
|
2013 |
|
663 |
|
12.02 |
|
7,972 |
|
2.14 |
% |
-2.06 |
% |
||
|
2012 |
|
484 |
|
12.28 |
|
5,937 |
|
2.47 |
% |
9.49 |
% |
||
The Protective Variable Life Separate Account
Notes to Financial Statements
(6) Financial Highlights, continued
|
|
|
As of December 31 |
|
For the year ended December 31 |
|
||||||||
|
Subaccount |
|
Units
|
|
Unit Fair
|
|
Net
|
|
Investment
|
|
Total Return ** |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Royce Capital Fund Micro-Cap SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
55 |
|
$ |
15.77 |
|
$ |
868 |
|
0.56 |
% |
19.37 |
% |
|
2015 |
|
48 |
|
13.21 |
|
634 |
|
0.00 |
% |
-12.61 |
% |
||
|
2014 |
|
47 |
|
15.12 |
|
706 |
|
0.00 |
% |
-3.84 |
% |
||
|
2013 |
|
38 |
|
15.72 |
|
596 |
|
0.41 |
% |
20.65 |
% |
||
|
2012 |
|
32 |
|
13.03 |
|
412 |
|
0.00 |
% |
7.45 |
% |
||
|
Royce Capital Fund Small-Cap SC |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
256 |
|
19.73 |
|
5,053 |
|
1.85 |
% |
20.53 |
% |
||
|
2015 |
|
190 |
|
16.37 |
|
3,105 |
|
0.49 |
% |
-11.97 |
% |
||
|
2014 |
|
108 |
|
18.59 |
|
2,010 |
|
0.00 |
% |
2.92 |
% |
||
|
2013 |
|
89 |
|
18.06 |
|
1,616 |
|
1.16 |
% |
34.44 |
% |
||
|
2012 |
|
63 |
|
13.44 |
|
848 |
|
0.03 |
% |
12.22 |
% |
||
|
UIF Global Real Estate II |
|
|
|
|
|
|
|
|
|
|
|
||
|
2016 |
|
42 |
|
14.09 |
|
593 |
|
1.41 |
% |
3.12 |
% |
||
|
2015 |
|
43 |
|
13.66 |
|
593 |
|
2.51 |
% |
-1.42 |
% |
||
|
2014 |
|
44 |
|
13.86 |
|
609 |
|
0.75 |
% |
13.85 |
% |
||
|
2013 |
|
47 |
|
12.17 |
|
569 |
|
3.62 |
% |
2.63 |
% |
||
|
2012 |
|
41 |
|
11.86 |
|
491 |
|
0.52 |
% |
29.94 |
% |
||
* These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude expenses such as mortality and expense charges. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying funds in which the subaccount invests.
** These amounts represent the total return for the period indicated, including changes in the value of the underlying fund. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for the period indicated or from the effective date of that investment option in the variable account. The presentation of an expense ratio, which would include mortality and expense risk charges as described below in the Summary of Charges Assessed to the Separate Account, has been excluded from this financial highlights table. Such expenses are assessed through a direct charge to policy owners’ accounts and are included in the Statement of Changes in Net Assets. Total returns for periods of less than one year are not annualized.
(a) Effective April 29, 2016, name changed from ClearBridge Variable Mid Cap Core Class II.
(b) Effective April 29, 2016, name changed from Oppenheimer Money Fund/VA.
(c) Subaccount closed effective March 28, 2015.
The Protective Variable Life Separate Account
Notes to Financial Statements
(7) Expenses
The following is a summary of separate account expense charges which are assessed either as a direct reduction in unit values or through a redemption of units for all policies contained within the Separate Account:
|
Expense Type |
|
Range |
|
|
|
|
|
Mortality and Expense Risk Charge
|
|
0.000% - 0.075% of policy value per month |
|
|
|
|
|
Cost of Insurance Charge (COI)
|
|
$.01-$333.33 per thousand of net amount at risk per month or 0.046% to 0.057% of policy value per month up to a maximum of the guaranteed COI. |
|
|
|
|
|
Policy Expense Charge
|
|
0.000% - 0.058% of policy value per month |
|
|
|
|
|
Annual Maintenance Fee
|
|
$0 - $35 |
|
|
|
|
|
Surrender Charge (Contingent Deferred Sales Charge) and Premium Tax Recovery Charge
|
|
$0 - $58 per thousand at surrender or 0.0% - 27% of 1 st year premiums at surrender |
|
|
|
|
|
Transfer Fee
|
|
$25 |
|
|
|
|
|
Monthly Standard Administration Charge
|
|
$3 - $8 per month |
|
|
|
|
|
Monthly Administrative Charge for Face Value Increase
|
|
$0.08 - $1.75 per thousand per month or $23.50 + $0.06 per thousand per month up to a maximum of $250 per month |
The Protective Variable Life Separate Account
Notes to Financial Statements
(7) Expenses, continued
|
Expense Type |
|
Range |
|
|
|
|
|
Monthly Administrative Charge for Initial Face Value
|
|
$ 0.00 - $3.28 per thousand per month |
|
|
|
|
|
Riders
|
|
0.0125% of policy value up to a maximum of $31.25 or 0.01% of policy value
|
(8) Related Party Transactions
Policy owners’ net payments represent premiums received from policyholders less certain deductions made by Protective Life in accordance with the policy terms. These deductions include, where appropriate, tax, surrender, cost of insurance protection and administrative charges. These deductions are made to the individual policies in accordance with the terms governing each policy as set forth in the Policy.
Protective Life offers a loan privilege to certain policy owners. Such policy owners may obtain loans using the Policy as the only security for the loan. Loans may be subject to provisions of The Internal Revenue Code of 1986, as amended. Loans outstanding were approximately $22.4 million at December 31, 2016.
Investment Distributors, Inc., a wholly owned subsidiary of PLC, is the principal underwriter for the Separate Account.
(9) Subsequent Events
The Separate Account has evaluated the effects of events subsequent to December 31, 2016, and through the financial statement issuance date. All accounting and disclosure requirements related to subsequent events are included in our financial statements.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareowner of
Protective Life Insurance Company
In our opinion, the consolidated balance sheets as of December 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income (loss), shareowner’s equity and cash flows for the year ended December 31, 2016 and for the period February 1, 2015 to December 31, 2015 present fairly, in all material respects, the financial position of Protective Life Insurance Company and its subsidiaries (the “Company” or “Successor Company”) at December 31, 2016 and 2015, and the results of their operations and their cash flows for the year ended December 31, 2016 and the period February 1, 2015 to December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion the financial statement schedules listed in the accompanying index as of December 31, 2016 and 2015 and for the year ended December 31, 2016 and the period from February 1, 2015 to December 31, 2015 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The Company’s management is responsible for these financial statements and financial statement schedules. Our responsibility is to express opinions on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
As discussed in Notes 1 and 4 to the consolidated financial statements, Protective Life Corporation (the Company’s parent company) was acquired on February 1, 2015 by The Dai-ichi Life Insurance Company, Limited. The Company elected to apply “pushdown” accounting as of the acquisition date.
/s/ PricewaterhouseCoopers LLP
Birmingham, Alabama
March 20, 2017
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareowner of
Protective Life Insurance Company
In our opinion, the accompanying consolidated statements of income, comprehensive income (loss), shareowner’s equity and cash flows for the period from January 1, 2015 to January 31, 2015 and for the year ended December 31, 2014 present fairly, in all material respects, the results of operations and of cash flows of Protective Life Insurance Company and its subsidiaries (the “Company” or “Predecessor Company”) for such respective periods in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for the period from January 1, 2015 to January 31, 2015 and for the year ended December 31, 2014 listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 1 and 4 to the consolidated financial statements, Protective Life Corporation (the Company’s parent company) was acquired on February 1, 2015 by The Dai-ichi Life Insurance Company, Limited. The Company elected to apply the “pushdown” basis of accounting as of the acquisition date.
/s/ PricewaterhouseCoopers LLP
Birmingham, Alabama
March 18, 2016
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
Successor Company |
|
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
|
(Dollars In Thousands) |
|
||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees |
|
$ |
3,389,419 |
|
$ |
2,992,822 |
|
|
|
$ |
260,582 |
|
$ |
3,283,069 |
|
|
Reinsurance ceded |
|
(1,330,723 |
) |
(1,174,871 |
) |
|
|
(91,632 |
) |
(1,395,743 |
) |
||||
|
Net of reinsurance ceded |
|
2,058,696 |
|
1,817,951 |
|
|
|
168,950 |
|
1,887,326 |
|
||||
|
Net investment income |
|
1,823,463 |
|
1,532,796 |
|
|
|
164,605 |
|
2,098,013 |
|
||||
|
Realized investment gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Derivative financial instruments |
|
49,790 |
|
58,436 |
|
|
|
22,031 |
|
(13,492 |
) |
||||
|
All other investments |
|
90,630 |
|
(166,935 |
) |
|
|
81,153 |
|
205,302 |
|
||||
|
Other-than-temporary impairment losses |
|
(32,075 |
) |
(28,659 |
) |
|
|
(636 |
) |
(2,589 |
) |
||||
|
Portion recognized in other comprehensive income (before taxes) |
|
14,327 |
|
1,666 |
|
|
|
155 |
|
(4,686 |
) |
||||
|
Net impairment losses recognized in earnings |
|
(17,748 |
) |
(26,993 |
) |
|
|
(481 |
) |
(7,275 |
) |
||||
|
Other income |
|
288,878 |
|
271,787 |
|
|
|
23,388 |
|
294,333 |
|
||||
|
Total revenues |
|
4,293,709 |
|
3,487,042 |
|
|
|
459,646 |
|
4,464,207 |
|
||||
|
Benefits and expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Benefits and settlement expenses, net of reinsurance ceded: (Successor 2016 - $1,176,609; 2015 - $1,022,638); (Predecessor 2015 - $87,830; 2014 - $1,223,804) |
|
2,876,726 |
|
2,535,388 |
|
|
|
266,575 |
|
2,786,463 |
|
||||
|
Amortization of deferred policy acquisition costs and value of business acquired |
|
150,298 |
|
95,064 |
|
|
|
4,817 |
|
308,320 |
|
||||
|
Other operating expenses, net of reinsurance ceded: (Successor 2016 - $210,270; 2015 - $196,383); (Predecessor 2015 - $17,700; 2014 - $199,824) |
|
744,004 |
|
602,402 |
|
|
|
55,407 |
|
630,635 |
|
||||
|
Total benefits and expenses |
|
3,771,028 |
|
3,232,854 |
|
|
|
326,799 |
|
3,725,418 |
|
||||
|
Income before income tax |
|
522,681 |
|
254,188 |
|
|
|
132,847 |
|
738,789 |
|
||||
|
Income tax (benefit) expense |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
(38,663 |
) |
46,722 |
|
|
|
(47,384 |
) |
181,763 |
|
||||
|
Deferred |
|
208,736 |
|
27,769 |
|
|
|
91,709 |
|
65,075 |
|
||||
|
Total income tax expense |
|
170,073 |
|
74,491 |
|
|
|
44,325 |
|
246,838 |
|
||||
|
Net income |
|
$ |
352,608 |
|
$ |
179,697 |
|
|
|
$ |
88,522 |
|
$ |
491,951 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
Successor Company |
|
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
|
(Dollars In Thousands) |
|
||||||||
|
Net income |
|
$ |
352,608 |
|
$ |
179,697 |
|
|
|
$ |
88,522 |
|
$ |
491,951 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Change in net unrealized gains (losses) on investments, net of income tax: (Successor 2016 - $326,765; 2015 - $(680,274)); (Predecessor 2015 - $259,616; 2014 - $529,838) |
|
606,848 |
|
(1,263,367 |
) |
|
|
482,143 |
|
983,985 |
|
||||
|
Reclassification adjustment for investment amounts included in net income, net of income tax: (Successor 2016 - $(5,085); 2015 - $9,352); (Predecessor 2015 - $(2,244); 2014 - $(23,903)) |
|
(9,442 |
) |
17,369 |
|
|
|
(4,166 |
) |
(44,391 |
) |
||||
|
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (Successor 2016 - $(3,652); 2015 - $(212)); (Predecessor 2015 - $(131); 2014 - $1,883) |
|
(6,782 |
) |
(393 |
) |
|
|
(243 |
) |
3,498 |
|
||||
|
Change in accumulated (loss) gain - derivatives, net of income tax: (Successor 2016 - $370; 2015 - $(45)); (Predecessor 2015 - $5; 2014 - $(1)) |
|
688 |
|
(86 |
) |
|
|
9 |
|
(2 |
) |
||||
|
Reclassification adjustment for derivative amounts included in net income, net of income tax: (Successor 2016 - $21; 2015 - $45); (Predecessor 2015 - $13; 2014 - $622) |
|
39 |
|
86 |
|
|
|
23 |
|
1,155 |
|
||||
|
Total other comprehensive income (loss) |
|
591,351 |
|
(1,246,391 |
) |
|
|
477,766 |
|
944,245 |
|
||||
|
Total comprehensive income (loss) |
|
$ |
943,959 |
|
$ |
(1,066,694 |
) |
|
|
$ |
566,288 |
|
$ |
1,436,196 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Assets |
|
|
|
|
|
||
|
Fixed maturities, at fair value (amortized cost: Successor 2016 - $39,645,111; 2015 - $38,389,859) |
|
$ |
37,996,577 |
|
$ |
35,507,098 |
|
|
Fixed maturities, at amortized cost (fair value: Successor 2016 - $2,733,340; 2015 - $515,000) |
|
2,770,177 |
|
593,314 |
|
||
|
Equity securities, at fair value (cost: Successor 2016 - $729,951; 2015 - $693,147) |
|
716,017 |
|
699,925 |
|
||
|
Mortgage loans (related to securitizations: Successor 2016 - $277,964; 2015 - $359,181) |
|
6,132,125 |
|
5,662,812 |
|
||
|
Investment real estate, net of accumulated depreciation (Successor 2016 - $252; 2015 - $133) |
|
8,060 |
|
11,118 |
|
||
|
Policy loans |
|
1,650,240 |
|
1,699,508 |
|
||
|
Other long-term investments |
|
856,410 |
|
594,036 |
|
||
|
Short-term investments |
|
315,834 |
|
263,837 |
|
||
|
Total investments |
|
50,445,440 |
|
45,031,648 |
|
||
|
Cash |
|
214,439 |
|
212,358 |
|
||
|
Accrued investment income |
|
480,689 |
|
472,694 |
|
||
|
Accounts and premiums receivable |
|
132,826 |
|
54,054 |
|
||
|
Reinsurance receivables |
|
5,070,185 |
|
5,307,556 |
|
||
|
Deferred policy acquisition costs and value of business acquired |
|
2,024,524 |
|
1,562,373 |
|
||
|
Goodwill |
|
793,470 |
|
732,443 |
|
||
|
Other intangibles, net of accumulated depreciation (Successor 2016 - $79,183; 2015 - $37,869) |
|
687,348 |
|
645,131 |
|
||
|
Property and equipment, net of accumulated depreciation (Successor 2016 - $16,573; 2015 - $7,908) |
|
103,706 |
|
101,600 |
|
||
|
Other assets |
|
275,965 |
|
255,283 |
|
||
|
Income tax receivable |
|
96,363 |
|
— |
|
||
|
Assets related to separate accounts |
|
|
|
|
|
||
|
Variable annuity |
|
13,244,252 |
|
12,829,188 |
|
||
|
Variable universal life |
|
895,925 |
|
827,610 |
|
||
|
Total assets |
|
$ |
74,465,132 |
|
$ |
68,031,938 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(continued)
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Liabilities |
|
|
|
|
|
||
|
Future policy benefits and claims |
|
$ |
30,510,242 |
|
$ |
29,703,190 |
|
|
Unearned premiums |
|
761,937 |
|
651,205 |
|
||
|
Total policy liabilities and accruals |
|
31,272,179 |
|
30,354,395 |
|
||
|
Stable value product account balances |
|
3,501,636 |
|
2,131,822 |
|
||
|
Annuity account balances |
|
10,642,115 |
|
10,719,862 |
|
||
|
Other policyholders’ funds |
|
1,165,749 |
|
1,069,572 |
|
||
|
Other liabilities |
|
1,436,091 |
|
1,230,500 |
|
||
|
Income tax payable |
|
— |
|
76,584 |
|
||
|
Deferred income taxes |
|
1,790,961 |
|
1,215,180 |
|
||
|
Non-recourse funding obligations |
|
2,973,829 |
|
1,951,563 |
|
||
|
Repurchase program borrowings |
|
802,721 |
|
438,185 |
|
||
|
Liabilities related to separate accounts |
|
|
|
|
|
||
|
Variable annuity |
|
13,244,252 |
|
12,829,188 |
|
||
|
Variable universal life |
|
895,925 |
|
827,610 |
|
||
|
Total liabilities |
|
67,725,458 |
|
62,844,461 |
|
||
|
Commitments and contingencies - Note 16 |
|
|
|
|
|
||
|
Shareowner’s equity |
|
|
|
|
|
||
|
Preferred Stock; $1 par value, shares authorized: 2,000; Liquidation preference: $2,000 |
|
2 |
|
2 |
|
||
|
Common Stock, $1 par value, shares authorized and issued: 2016 and 2015 - 5,000,000 |
|
5,000 |
|
5,000 |
|
||
|
Additional paid-in-capital |
|
7,422,407 |
|
6,274,169 |
|
||
|
Retained earnings (deficit) |
|
(32,695 |
) |
154,697 |
|
||
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
||
|
Net unrealized gains (losses) on investments, net of income tax: (Successor 2016 - $(349,242); 2015 - $(670,922)) |
|
(648,592 |
) |
(1,245,998 |
) |
||
|
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (Successor 2016 - $(3,864); 2015 - $(212)) |
|
(7,175 |
) |
(393 |
) |
||
|
Accumulated gain (loss) - derivatives, net of income tax: (Successor 2016 - $391; 2015 - $0) |
|
727 |
|
— |
|
||
|
Total shareowner’s equity |
|
6,739,674 |
|
5,187,477 |
|
||
|
Total liabilities and shareowner’s equity |
|
$ |
74,465,132 |
|
$ |
68,031,938 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHAREOWNER’S EQUITY
|
|
|
Preferred
|
|
Common
|
|
Additional
|
|
Retained
|
|
Accumulated
|
|
Total
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Predecessor Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Balance, December 31, 2013 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
1,433,258 |
|
$ |
2,713,200 |
|
$ |
538,966 |
|
$ |
4,690,426 |
|
|
Net income for 2014 |
|
|
|
|
|
|
|
491,951 |
|
|
|
491,951 |
|
||||||
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
944,245 |
|
944,245 |
|
||||||
|
Comprehensive income for 2014 |
|
|
|
|
|
|
|
|
|
|
|
1,436,196 |
|
||||||
|
Capital contributions |
|
|
|
|
|
4,529 |
|
|
|
|
|
4,529 |
|
||||||
|
Dividends paid to the parent company |
|
|
|
|
|
|
|
(300,000 |
) |
|
|
(300,000 |
) |
||||||
|
Balance, December 31, 2014 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
1,437,787 |
|
$ |
2,905,151 |
|
$ |
1,483,211 |
|
$ |
5,831,151 |
|
|
Net income for the period of January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
88,522 |
|
|
|
88,522 |
|
||||||
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
477,766 |
|
477,766 |
|
||||||
|
Comprehensive income for the period of January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
566,288 |
|
||||||
|
Balance, January 31, 2015 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
1,437,787 |
|
$ |
2,993,673 |
|
$ |
1,960,977 |
|
$ |
6,397,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Preferred
|
|
Common
|
|
Additional
|
|
Retained
|
|
Accumulated
|
|
Total
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Balance, February 1, 2015 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
6,504,211 |
|
$ |
— |
|
$ |
— |
|
$ |
6,509,213 |
|
|
Net income for the period of February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
179,697 |
|
|
|
179,697 |
|
||||||
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(1,246,391 |
) |
(1,246,391 |
) |
||||||
|
Comprehensive loss for the period of February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
(1,066,694 |
) |
||||||
|
Dividends paid to the parent company |
|
|
|
|
|
|
|
(25,000 |
) |
|
|
(25,000 |
) |
||||||
|
Return of capital |
|
|
|
|
|
(230,042 |
) |
|
|
|
|
(230,042 |
) |
||||||
|
Balance, December 31, 2015 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
6,274,169 |
|
$ |
154,697 |
|
$ |
(1,246,391 |
) |
$ |
5,187,477 |
|
|
Net income for 2016 |
|
|
|
|
|
|
|
352,608 |
|
|
|
352,608 |
|
||||||
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
591,351 |
|
591,351 |
|
||||||
|
Comprehensive income for 2016 |
|
|
|
|
|
|
|
|
|
|
|
943,959 |
|
||||||
|
Dividends paid to the parent company |
|
|
|
|
|
|
|
(540,000 |
) |
|
|
(540,000 |
) |
||||||
|
Capital contributions |
|
|
|
|
|
1,148,238 |
|
|
|
|
|
1,148,238 |
|
||||||
|
Balance, December 31, 2016 |
|
$ |
2 |
|
$ |
5,000 |
|
$ |
7,422,407 |
|
$ |
(32,695 |
) |
$ |
(655,040 |
) |
$ |
6,739,674 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Successor Company |
|
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
|
(Dollars In Thousands) |
|
||||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
|
$ |
352,608 |
|
$ |
179,697 |
|
|
|
$ |
88,522 |
|
$ |
491,951 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Realized investment losses (gains) |
|
(122,672 |
) |
135,492 |
|
|
|
(102,703 |
) |
(184,535 |
) |
||||
|
Amortization of deferred policy acquisition costs and value of business acquired |
|
150,298 |
|
95,064 |
|
|
|
4,817 |
|
308,320 |
|
||||
|
Capitalization of deferred policy acquisition costs |
|
(330,302 |
) |
(300,190 |
) |
|
|
(22,799 |
) |
(293,612 |
) |
||||
|
Depreciation and amortization expense |
|
36,942 |
|
45,829 |
|
|
|
796 |
|
7,401 |
|
||||
|
Deferred income tax |
|
208,736 |
|
27,769 |
|
|
|
91,709 |
|
65,075 |
|
||||
|
Accrued income tax |
|
(168,786 |
) |
126,701 |
|
|
|
(48,469 |
) |
10,751 |
|
||||
|
Interest credited to universal life and investment products |
|
699,227 |
|
682,836 |
|
|
|
79,088 |
|
824,418 |
|
||||
|
Policy fees assessed on universal life and investment products |
|
(1,262,166 |
) |
(1,056,092 |
) |
|
|
(90,288 |
) |
(1,038,180 |
) |
||||
|
Change in reinsurance receivables |
|
246,768 |
|
231,081 |
|
|
|
(98,148 |
) |
100,348 |
|
||||
|
Change in accrued investment income and other receivables |
|
(58,493 |
) |
25,259 |
|
|
|
(1,285 |
) |
14,332 |
|
||||
|
Change in policy liabilities and other policyholders’ funds of traditional life and health products |
|
(222,438 |
) |
(176,920 |
) |
|
|
176,119 |
|
92,823 |
|
||||
|
Trading securities: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Maturities and principal reductions of investments |
|
154,633 |
|
114,501 |
|
|
|
17,946 |
|
114,793 |
|
||||
|
Sale of investments |
|
459,802 |
|
135,465 |
|
|
|
26,422 |
|
353,250 |
|
||||
|
Cost of investments acquired |
|
(532,429 |
) |
(220,094 |
) |
|
|
(27,289 |
) |
(320,928 |
) |
||||
|
Other net change in trading securities |
|
22,427 |
|
73,376 |
|
|
|
(26,901 |
) |
(69,641 |
) |
||||
|
Amortization of premiums and accretion of discounts on investments and mortgage loans |
|
374,726 |
|
373,362 |
|
|
|
3,420 |
|
52,770 |
|
||||
|
Change in other liabilities |
|
182,973 |
|
6,336 |
|
|
|
211,031 |
|
197,442 |
|
||||
|
Other income - gains on repurchase of non-recourse funding obligations |
|
— |
|
— |
|
|
|
— |
|
(7,393 |
) |
||||
|
Other, net |
|
(18,093 |
) |
(46,128 |
) |
|
|
(133,928 |
) |
(75,731 |
) |
||||
|
Net cash provided by operating activities |
|
173,761 |
|
453,344 |
|
|
|
148,060 |
|
643,654 |
|
||||
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
|
|
|
Successor Company |
|
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
|
(Dollars In Thousands) |
|
||||||||
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Maturities and principal reductions of investments, available-for-sale |
|
1,299,324 |
|
1,052,198 |
|
|
|
59,028 |
|
1,198,690 |
|
||||
|
Sale of investments, available-for-sale |
|
1,952,696 |
|
1,334,251 |
|
|
|
200,716 |
|
2,273,909 |
|
||||
|
Cost of investments acquired, available-for-sale |
|
(4,858,159 |
) |
(3,496,997 |
) |
|
|
(150,030 |
) |
(3,602,600 |
) |
||||
|
Change in investments, held-to-maturity |
|
(2,181,000 |
) |
(65,000 |
) |
|
|
— |
|
(70,000 |
) |
||||
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
New lendings |
|
(1,396,283 |
) |
(1,466,020 |
) |
|
|
(100,530 |
) |
(925,910 |
) |
||||
|
Repayments |
|
863,873 |
|
1,306,034 |
|
|
|
45,741 |
|
1,285,489 |
|
||||
|
Change in investment real estate, net |
|
2,851 |
|
(3,662 |
) |
|
|
7 |
|
13,032 |
|
||||
|
Change in policy loans, net |
|
49,268 |
|
52,364 |
|
|
|
6,365 |
|
57,507 |
|
||||
|
Change in other long-term investments, net |
|
(251,987 |
) |
(73,948 |
) |
|
|
(25,372 |
) |
(87,522 |
) |
||||
|
Change in short-term investments, net |
|
(61,094 |
) |
(11,271 |
) |
|
|
(39,312 |
) |
(71,015 |
) |
||||
|
Net unsettled security transactions |
|
28,853 |
|
(64,615 |
) |
|
|
37,510 |
|
30,212 |
|
||||
|
Purchase of property and equipment |
|
(2,863 |
) |
(6,823 |
) |
|
|
(648 |
) |
(8,088 |
) |
||||
|
Cash received from or paid for acquisitions, net of cash acquired |
|
320,967 |
|
— |
|
|
|
— |
|
(906 |
) |
||||
|
Net cash (used in) provided by investing activities |
|
(4,233,554 |
) |
(1,443,489 |
) |
|
|
33,475 |
|
92,798 |
|
||||
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Issuance (repayment) of non-recourse funding obligations |
|
2,169,700 |
|
65,000 |
|
|
|
— |
|
32,348 |
|
||||
|
Repurchase program borrowings |
|
359,536 |
|
388,185 |
|
|
|
— |
|
(300,000 |
) |
||||
|
Capital contributions from PLC |
|
— |
|
— |
|
|
|
— |
|
4,529 |
|
||||
|
Dividends/Return of capital to the parent company |
|
(540,000 |
) |
(255,042 |
) |
|
|
— |
|
(300,000 |
) |
||||
|
Investment product deposits and change in universal life deposits |
|
4,393,596 |
|
3,064,373 |
|
|
|
169,233 |
|
2,576,727 |
|
||||
|
Investment product withdrawals |
|
(2,320,958 |
) |
(2,438,916 |
) |
|
|
(240,147 |
) |
(2,827,305 |
) |
||||
|
Other financing activities, net |
|
— |
|
— |
|
|
|
(4 |
) |
(44 |
) |
||||
|
Net cash provided by (used in) financing activities |
|
4,061,874 |
|
823,600 |
|
|
|
(70,918 |
) |
(813,745 |
) |
||||
|
Change in cash |
|
2,081 |
|
(166,545 |
) |
|
|
110,617 |
|
(77,293 |
) |
||||
|
Cash at beginning of period |
|
212,358 |
|
378,903 |
|
|
|
268,286 |
|
345,579 |
|
||||
|
Cash at end of period |
|
$ |
214,439 |
|
$ |
212,358 |
|
|
|
$ |
378,903 |
|
$ |
268,286 |
|
See Notes to Consolidated Financial Statements
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Basis of Presentation
Protective Life Insurance Company (the “Company”), a stock life insurance company, was founded in 1907. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company. On February 1, 2015, PLC became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Limited, a kabushiki kaisha organized under the laws of Japan (now known as Dai-ichi Life Holdings, Inc., “Dai-ichi Life”), when DL Investment (Delaware), Inc. a wholly owned subsidiary of Dai-ichi Life, merged with and into PLC (the “Merger”). Prior to February 1, 2015, and for the periods reported as “predecessor,” PLC’s stock was publicly traded on the New York Stock Exchange. Subsequent to the Merger date, PLC and the Company remain as SEC registrants within the United States. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate segment devoted to the acquisition of insurance policies from other companies. PLC is a holding company with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products.
In conjunction with the Merger, the Company elected to apply “pushdown” accounting by applying the guidance allowed by ASC Topic 805, Business Combinations , including the initial recognition of most of the Company’s assets and liabilities at fair value as of the acquisition date, and similarly recognizing goodwill calculated based on the terms of the transaction and the fair value of the new basis of net assets of the Company. The new basis of accounting will be the basis of the accounting records for assets and liabilities held at the acquisition date in the preparation of future financial statements and related disclosures after the Merger date.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities (see also Note 24, Statutory Reporting Practices and Other Regulatory Matters ).
The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.
Entities Included
The consolidated financial statements include the accounts of Protective Life Insurance Company and its affiliate companies in which the Company holds a majority voting or economic interest. Intercompany balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and related amortization periods, goodwill recoverability, value of business acquired (“VOBA”), investment and certain derivatives fair values, other-than-temporary impairments, future policy benefits, pension and other postretirement benefits, provisions for income taxes, reserves for contingent liabilities, reinsurance risk transfer assessments, and reserves for losses in connection with unresolved legal matters.
Significant Accounting Policies
Valuation of Investment Securities
The Company determines the appropriate classification of investment securities at the time of purchase and periodically re-evaluates such designations. Investment securities are classified as either trading, available-for-sale, or held-to-maturity securities. Investment securities classified as trading are recorded at fair value with changes in fair value recorded in realized gains (losses). Investment securities purchased for long term investment purposes are classified as available-for-sale and are recorded at fair value with changes in unrealized gains and losses, net of taxes, reported as a component of other comprehensive income (loss). Investment securities are classified as held-to-maturity when the Company has the intent and ability to hold the securities to maturity and are reported at amortized cost. Interest income on available-for-sale and held-to-maturity securities includes the amortization of premiums and accretion of discounts and are recorded in investment income.
The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data
including market research publications. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which the Company purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party service or an independent broker quotation. Included in the pricing of other asset-backed securities, collateralized mortgage obligations (“CMOs”), and mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments of principal and underlying collateral support over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and rates of prepayments previously experienced at the interest rate levels projected for the underlying collateral. The basis for the cost of securities sold was determined at the Committee on Uniform Securities Identification Procedures (“CUSIP”) level on a first in first out basis. The committee supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S., to facilitate clearing and settlement. These numbers are used when any buy and sell orders are recorded.
Each quarter the Company reviews investments with unrealized losses and tests for other-than-temporary impairments. The Company analyzes various factors to determine if any specific other-than-temporary asset impairments exist. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of the Company’s intent to sell the security (including a more likely than not assessment of whether the Company will be required to sell the security) before recovering the security’s amortized cost, 5) the duration of the decline, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security by security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, and in some cases, an analysis regarding the Company’s expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows is performed. Once a determination has been made that a specific other-than-temporary impairment exists, the security’s basis is adjusted and an other-than-temporary impairment is recognized. Equity securities that are other-than-temporarily impaired are written down to fair value with a realized loss recognized in earnings. Other-than-temporary impairments to debt securities that the Company does not intend to sell and does not expect to be required to sell before recovering the security’s amortized cost are written down to discounted expected future cash flows (“post impairment cost”) and credit losses are recorded in earnings. The difference between the securities’ discounted expected future cash flows and the fair value of the securities on the impairment date is recognized in other comprehensive income (loss) as a non-credit portion impairment. When calculating the post impairment cost for residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”), the Company considers all known market data related to cash flows to estimate future cash flows. When calculating the post impairment cost for corporate debt securities, the Company considers all contractual cash flows to estimate expected future cash flows. To calculate the post impairment cost, the expected future cash flows are discounted at the original purchase yield. Debt securities that the Company intends to sell or expects to be required to sell before recovery are written down to fair value with the change recognized in earnings.
Cash
Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. As a result of the Company’s cash management system, checks issued from a particular bank but not yet presented for payment may create negative book cash balances with the bank at certain reporting dates. Such negative balances are included in other liabilities and were $79.2 million as of December 31, 2016 (Successor Company) and $70.3 million as of December 31, 2015 (Successor Company), respectively. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the creditworthiness of these financial institutions and believes there is minimal risk of a material loss.
Deferred Policy Acquisition Costs
The incremental direct costs associated with successfully acquired insurance policies, are deferred to the extent such costs are deemed recoverable from future profits. Such costs include commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products. DAC are subject to recoverability testing at the end of each accounting period. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization.
The Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits, currently 1.0% to 7.3%) the Company expects to experience in future periods when determining the present value of estimated gross profits. These assumptions are best estimates and are periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with our universal life and investment products had been realized. Acquisition costs for stable value contracts are amortized over the term of the contracts using the effective yield method.
Value of Businesses Acquired
In conjunction with the Merger and the acquisition of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from cash flows and earnings of associated insurance policies and investment contracts. This intangible asset, called VOBA, is based on the actuarially estimated present value of future cash flows from associated insurance policies and investment contracts acquired. The estimated present value of future cash flows used in the calculation of the VOBA is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. The Company amortizes VOBA in proportion to gross premiums for traditional life products, or estimated gross margins (“EGMs”) for participating traditional life products within the MONY Life Insurance Company (“MONY”) block. For interest sensitive products, the Company uses various amortization bases including expected gross profits (“EGPs”), revenues, or insurance in-force. VOBA is subject to annual recoverability testing.
Intangible Assets
Intangible assets with definite lives are amortized over the estimated useful life of the asset and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Amortizable intangible assets primarily consist of distribution relationships, trade names, technology, and software. Intangible assets with indefinite lives, primarily insurance licenses, are not amortized, but are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Software is amortized over a three year useful life.
Intangible assets recognized by the Company included the following (excluding goodwill):
|
|
|
Successor Company |
|
|
|
||||
|
|
|
As of December 31, |
|
Estimated |
|
||||
|
|
|
2016 |
|
2015 |
|
Useful Life |
|
||
|
|
|
(Dollars In Thousands) |
|
(In Years) |
|
||||
|
Distribution relationships |
|
$ |
428,499 |
|
$ |
385,319 |
|
14-22 |
|
|
Trade names |
|
92,049 |
|
97,105 |
|
13-17 |
|
||
|
Technology |
|
121,253 |
|
130,707 |
|
7-14 |
|
||
|
Other |
|
13,547 |
|
— |
|
|
|
||
|
Total intangible assets subject to amortization |
|
655,348 |
|
613,131 |
|
|
|
||
|
|
|
|
|
|
|
|
|
||
|
Insurance licenses |
|
32,000 |
|
32,000 |
|
Indefinite |
|
||
|
Total intangible assets |
|
$ |
687,348 |
|
$ |
645,131 |
|
|
|
Identified intangible assets were valued using the excess earnings method, relief from royalty method or cost approach, as appropriate.
Amortizable intangible assets will be amortized straight line over their assigned useful lives. The following is a schedule of future estimated aggregate amortization expense:
|
Year |
|
Amount |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2017 |
|
$ |
52,120 |
|
|
2018 |
|
51,131 |
|
|
|
2019 |
|
47,850 |
|
|
|
2020 |
|
46,382 |
|
|
|
2021 |
|
46,232 |
|
|
Property and Equipment
In conjunction with the Merger, property and equipment was recorded at fair value as of the Merger date and will be depreciated from this basis in future periods based on the respective estimated useful lives. Real estate assets were recorded at appraised values as of the acquisition date. The Company has estimated the remaining useful life of the home office building to be 25 years. Land is not depreciated.
The Company depreciates its assets using the straight-line method over the estimated useful lives of the assets. The Company’s furniture is depreciated over a ten year useful life, office equipment and machines are depreciated over a five year useful life, and computers are depreciated over a three year useful life. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.
Property and equipment consisted of the following:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Home office building |
|
$ |
67,279 |
|
$ |
65,697 |
|
|
Data processing equipment |
|
21,749 |
|
14,607 |
|
||
|
Other, principally furniture and equipment |
|
6,331 |
|
4,284 |
|
||
|
|
|
95,359 |
|
84,588 |
|
||
|
Land |
|
24,920 |
|
24,920 |
|
||
|
Accumulated depreciation |
|
(16,573 |
) |
(7,908 |
) |
||
|
Total property and equipment |
|
$ |
103,706 |
|
$ |
101,600 |
|
Separate Accounts
The separate account assets represent funds for which the Company does not bear the investment risk. These assets are carried at fair value and are equal to the separate account liabilities, which represent the policyholder’s equity in those assets. The investment income and investment gains and losses on the separate account assets accrue directly to the policyholder. These amounts are reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements. Amounts assessed against policy account balances for the costs of insurance, policy administration, and other services are included in premiums and policy fees in the accompanying consolidated statements of income.
Stable Value Product Account Balances
The Stable Value Products segment sells fixed and floating rate funding agreements directly to qualified institutional investors. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. GICs are contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan.
The Company records its stable value contract liabilities in the consolidated balance sheets in “stable value product account balances” at the deposit amount plus accrued interest, adjusted for any unamortized premium or discount. Interest on the contracts is accrued based upon contract terms. Any premium or discount is amortized using the effective yield method.
The segment’s products complement the Company’s overall asset/liability management in that the terms may be tailored to the needs of the Company as the seller of the contracts. Stable value product account balances include GICs and funding agreements the Company has issued. As of December 31, 2016 and 2015 (Successor Company), the Company had $1,872.5 million and $400.7 million, respectively, of stable value product account balances marketed through structured programs. Most GICs and funding agreements the Company has written have maturities of one to twelve years.
As of December 31, 2016 (Successor Company), future maturities of stable value products were as follows:
|
Year of Maturity |
|
Amount |
|
|
|
|
|
(Dollars In Millions) |
|
|
|
2017 |
|
$ |
631.8 |
|
|
2018 - 2019 |
|
1,646.6 |
|
|
|
2020 - 2021 |
|
1,071.8 |
|
|
|
Thereafter |
|
140.4 |
|
|
Derivative Financial Instruments
The Company records its derivative financial instruments in the consolidated balance sheet in “other long-term investments” and “other liabilities” in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The change in the fair value of derivative financial instruments is reported either in the statement of income or in the other comprehensive income (loss), depending upon whether the derivative instrument qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists. For cash flow hedges, the effective portion of their gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis. The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship in earnings. Changes in the fair value of derivatives that are recognized in current earnings are
reported in “Realized investment gains (losses)—Derivative financial instruments”. For additional information, see Note 8, Derivative Financial Instruments .
Insurance Liabilities and Reserves
Establishing an adequate liability for the Company’s obligations to policyholders requires the use of certain assumptions. Estimating liabilities for future policy benefits on life and health insurance products requires the use of assumptions relative to future investment yields, mortality, morbidity, persistency, and other assumptions based on the Company’s historical experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Determining liabilities for the Company’s property and casualty insurance products also requires the use of assumptions, including the projected levels of used vehicle prices, the frequency and severity of claims, and the effectiveness of internal processes designed to reduce the level of claims. The Company’s results depend significantly upon the extent to which its actual claims experience is consistent with the assumptions the Company used in determining its reserves and pricing its products. The Company’s reserve assumptions and estimates require significant judgment and, therefore, are inherently uncertain. The Company cannot determine with precision the ultimate amounts that it will pay for actual claims or the timing of those payments.
Guaranteed Living Withdrawal Benefits
The Company also establishes reserves for guaranteed living withdrawal benefits (“GLWB”) on its variable annuity (“VA”) products. The GLWB is valued in accordance with FASB guidance under the ASC Derivatives and Hedging Topic which utilizes the valuation technique prescribed by the ASC Fair Value Measurements and Disclosures Topic, which requires the embedded derivative to be recorded at fair value using current implied volatilities for the equity indices. The fair value of the GLWB is impacted by equity market conditions and can result in the GLWB embedded derivative being in an overall net asset or net liability position. In times of favorable equity market conditions the likelihood and severity of claims is reduced and expected fee income increases. Since claims are generally expected later than fees, these favorable equity market conditions can result in the present value of fees being greater than the present value of claims, which results in a net GLWB embedded derivative asset. In times of unfavorable equity market conditions the likelihood and severity of claims is increased and expected fee income decreases and can result in the present value of claims exceeding the present value of fees resulting in a net GLWB embedded derivative liability. The methods used to estimate the embedded derivatives employ assumptions about mortality, lapses, policyholder behavior, equity market returns, interest rates, and market volatility. The Company assumes age-based mortality from the Ruark 2015 ALB table for company experience. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. In conjunction with the Merger, the Company updated the fair value of the GLWB reserves to reflect current assumptions as of February 1, 2015 (Successor Company). As a result of the application of ASC Topic 805, the Company reset the hedge premium rates utilized in the valuation for all policies to be equal to the present value of future claims with the reset hedge premium rates being capped at the actual charges to the policyholder. This update resulted in a decrease in the net liability of approximately $69.4 million on the Merger date. The Company reinsures certain risks associated with the GLWB to Shades Creek Captive Insurance (“Shades Creek”), a direct wholly owned insurance subsidiary of PLC. As of December 31, 2016 (Successor Company), the Company’s net GLWB liability held, including the impact of reinsurance, was $7.0 million.
Goodwill
The balance recognized as goodwill is not amortized, but is reviewed for impairment on an annual basis, or more frequently as events or circumstances may warrant, including those circumstances which would more likely than not reduce the fair value of the Company’s reporting units below its carrying amount. Accounting for goodwill requires an estimate of the future profitability of the associated lines of business within the Company’s operating segments to assess the recoverability of the capitalized acquisition goodwill. The Company’s material goodwill balances are attributable to certain of its operating segments (which are each considered to be reporting units). The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company first determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that segment goodwill balances are impaired as of the testing date. If the qualitative analysis does not indicate that an impairment of segment goodwill is more likely than not then no other specific quantitative impairment testing is required.
If it is determined that it is more likely than not that impairment exists, the Company performs a quantitative assessment and compares its estimate of the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The Company utilizes a fair value measurement (which includes a discounted cash flows analysis) to assess the carrying value of the reporting units in consideration of the recoverability of the goodwill balance assigned to each reporting unit as of the measurement date. The cash flows used to determine the fair value of the Company’s reporting units are dependent on a number of significant assumptions. The Company’s estimates, which consider a market participant view of fair value, are subject to change given the inherent uncertainty in predicting future results and cash flows, which are impacted by such things as policyholder behavior, competitor pricing, capital limitations, new product introductions, and specific industry and market conditions.
Income Taxes
The Company and its subsidiaries are included in the consolidated federal income tax return of PLC, that includes both life insurance companies and non-life insurance companies. The Company has one life insurance subsidiary that is not eligible to be included in the consolidated federal income tax return and files a separate corporate tax return.
The Company uses the asset and liability method of accounting for income taxes. Generally, most items in pretax book income are also included in taxable income in the same year. However, some items are recognized for book purposes and for tax purposes in different years or are never recognized for either book or tax purposes. Those differences that will never be recognized for either book or tax purposes are permanent differences (e.g., the dividends-received deduction). As a result, the effective tax rate reflected in the financial statements may differ from the statutory rate reflected in the tax return. Those differences that are reported in different years for book and tax purposes are temporary and will reverse over time (e.g., the valuation of future policy benefits). These temporary differences are accounted for in the intervening periods as deferred tax assets and liabilities. Deferred tax assets generally represent revenue that is taxable before it is recognized in financial income and expenses that are deductible after they are recognized in financial income. Deferred tax liabilities generally represent revenues that are taxable after they are recognized in financial income or expenses or losses that are deductible before they are recognized in financial income.
The application of GAAP requires the Company to evaluate the recoverability of the Company’s deferred tax assets and establish a valuation allowance, if necessary, to reduce the Company’s deferred tax assets to an amount that is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company may consider many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized.
GAAP prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on tax returns. The application of this guidance is a two-step process, the first step being recognition. The Company determines whether it is more likely than not, based on the technical merits, that the tax position will be sustained upon examination. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. The Company measures the tax position as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate resolution with a taxing authority that has full knowledge of all relevant information. This measurement considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement using the facts, circumstances, and information available at the reporting date.
The Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (“IRS”) or other taxing jurisdictions. Audit periods remain open for review until the statute of limitations expires. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards, the statute of limitations does not close until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The Company classifies all interest and penalties related to tax uncertainties as income tax expense. See Note 21, Income Taxes, for additional information regarding income taxes.
Variable Interest Entities
The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the FASB ASC (excluding debt and equity securities held as trading, available-for-sale, or held-to-maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a Variable Interest Entity (“VIE”). If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. For more information on the Company’s investment in a VIE refer to Note 6, Investment Operations, to the consolidated financial statements.
Policyholder Liabilities, Revenues, and Benefits Expense
Future Policy Benefits and Claims
|
|
|
Successor Company |
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|
|
As of December 31, |
|
As of December 31, |
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||||||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
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|
|
Total Policy Liabilities
|
|
Reinsurance
|
|
||||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Life and annuity benefit reserves |
|
$ |
29,574,479 |
|
$ |
28,767,296 |
|
$ |
4,178,794 |
|
$ |
4,423,411 |
|
|
Unpaid life claim liabilities |
|
517,257 |
|
504,710 |
|
323,699 |
|
323,205 |
|
||||
|
Life and annuity future policy benefits |
|
30,091,736 |
|
29,272,006 |
|
4,502,493 |
|
4,746,616 |
|
||||
|
Other policy benefits reserves |
|
170,519 |
|
184,719 |
|
103,746 |
|
115,676 |
|
||||
|
Other policy benefits unpaid claim liabilities |
|
247,987 |
|
246,465 |
|
200,107 |
|
200,008 |
|
||||
|
Future policy benefits and claims and associated reinsurance receivable |
|
$ |
30,510,242 |
|
$ |
29,703,190 |
|
$ |
4,806,346 |
|
$ |
5,062,300 |
|
|
Unearned premiums |
|
761,937 |
|
651,205 |
|
263,839 |
|
245,256 |
|
||||
|
Total policy liabilities and accruals and associated reinsurance receivable |
|
$ |
31,272,179 |
|
$ |
30,354,395 |
|
$ |
5,070,185 |
|
$ |
5,307,556 |
|
Liabilities for life and annuity benefit reserves consist of liabilities for traditional life insurance, cash values associated with universal life insurance, immediate annuity benefit reserves, and other benefits associated with life and annuity benefits. The unpaid life claim liabilities consist of current pending claims as well as an estimate of incurred but not reported life insurance claims.
Other policy benefit reserves consist of certain health insurance policies that are in runoff. The unpaid claim liabilities associated with other policy benefits includes current pending claims, the present value of estimated future claim payments for policies currently receiving benefits and an estimate of claims incurred but not yet reported.
Traditional Life, Health, and Credit Insurance Products
Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and they include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. In accordance with ASC 805, the liabilities for future policy benefits on traditional life insurance products, when combined with the associated VOBA, were recorded at fair value on the date of the Merger. These values were computed using assumptions that include interest rates, mortality, lapse rates, expense estimates, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation.
Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions on December 31, 2016 (Successor Company), range from approximately 3.0% to 4.5%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to us and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.
Traditional life insurance premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of DAC and VOBA. Gross premiums in excess of net premiums related to immediate annuities are deferred and recognized over the life of the policy.
Universal Life and Investment Products
Universal life and investment products include universal life insurance, guaranteed investment contracts, guaranteed funding agreements, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Such fees are recognized when assessed and earned. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life products ranged from 1.0% to 8.75% and investment products ranged from 0.4% to 11.3% in 2016.
The Company establishes liabilities for fixed indexed annuity (“FIA”) products. These products are deferred fixed annuities with a guaranteed minimum interest rate plus a contingent return based on equity market performance. The FIA product is considered a hybrid financial instrument under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”) Topic 815 - Derivatives and Hedging which allows the Company to make the election to value the liabilities of these FIA products at fair value. This election was made for the FIA products issued prior to 2010 as the policies were issued. These products are no longer being marketed. The future changes in the fair value of the liability for these FIA products are recorded in Benefit and settlement expenses with the liability being recorded in Annuity account balances . For more information regarding the determination of fair value of annuity account balances please refer to Note 7, Fair Value of Financial Instruments . Premiums and policy fees for these FIA products consist of fees that have been assessed against the policy account balances for surrenders. Such fees are recognized when assessed and earned.
The Company currently markets a deferred fixed annuity with a guaranteed minimum interest rate plus a contingent return based on equity market performance and the products are considered hybrid financial instruments under the FASB’s ASC Topic 815 - Derivatives and Hedging . The Company did not elect to value these FIA products at fair value. As a result, the Company accounts for the provision that provides for a contingent return based on equity market performance as an embedded derivative. The embedded derivative is bifurcated from the host contract and recorded at fair value in Other liabilities . Changes in the fair value of the embedded derivative are recorded in Realized investment gains (losses) - Derivative financial instruments . For more information regarding the determination of fair value of the FIA embedded derivative refer to Note 7, Fair Value of Financial Instruments . The host contract is accounted for as a debt instrument in accordance with ASC Topic 944 - Financial Services—Insurance and is recorded in Annuity account balances with any discount to the minimum account value being accreted using the effective yield method. Benefits and settlement expenses include accreted interest and benefit claims incurred during the period.
The Company markets universal life products with a guaranteed minimum interest rate plus a contingent return based on equity market performance and the products are considered hybrid financial instruments under the FASB’s ASC Topic 815 - Derivatives and Hedging . The Company did not elect to value these indexed universal life (“IUL”) products at fair value prior to the Merger date. As a result, the Company accounts for the provision that provides for a contingent return based on equity market performance as an embedded derivative. The embedded derivative is bifurcated from the host contract and recorded at fair value in Other liabilities . Changes in the fair value of the embedded derivative are recorded in Realized investment gains (losses) - Derivative financial instruments . For more information regarding the determination of fair value of the IUL embedded derivative refer to Note 7, Fair Value of Financial Instruments . The host contract is accounted for as a debt instrument in accordance with ASC Topic 944 - Financial Services - Insurance and is recorded in Future policy benefits and claims with any discount to the minimum account value being accreted using the effective yield method. Benefits and settlement expenses include accreted interest and benefit claims incurred during the period.
The Company’s accounting policies with respect to variable universal life (“VUL”) and VA are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at fair value and reported as components of assets and liabilities related to separate accounts.
The Company establishes liabilities for guaranteed minimum death benefits (“GMDB”) on its VA products. The methods used to estimate the liabilities employ assumptions about mortality and the performance of equity markets. The Company assumes age-based mortality from the National Association of Insurance Commissioners 1994 Variable Annuity MGDB Mortality Table for company experience. Future declines in the equity market would increase the Company’s GMDB liability. Differences between the actual experience and the assumptions used result in variances in profit and could result in losses. Our GMDB, as of December 31, 2016 (Successor Company), are subject to a dollar-for-dollar reduction upon withdrawal of related annuity deposits on contracts issued prior to January 1, 2003. The Company reinsures certain risks associated with the GMDB to Shades Creek. As of December 31, 2016 (Successor Company), the GMDB reserve, including the impact of reinsurance, was $27.8 million.
Property and Casualty Insurance Products
Property and casualty insurance products include service contract business, surety bonds, and guaranteed asset protection (“GAP”). Premiums for service contracts and GAP products are recognized based on expected claim patterns. For all other products, premiums are generally recognized over the terms of the contract on a pro-rata basis. Fee income from providing administrative services is recognized as earned when the related services are performed. Unearned premium reserves are maintained for the portion of the premiums that is related to the unexpired period of the policy. Benefit reserves are recorded when insured events occur. Benefit reserves include case basis reserves for known but unpaid claims as of the balance sheet date as well as incurred but not reported (“IBNR”) reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date. The case basis reserves and IBNR are calculated based on historical experience and on assumptions relating to claim severity and frequency, the level of used vehicle prices, and other factors. These assumptions are modified as necessary to reflect anticipated trends.
Reinsurance
The Company uses reinsurance extensively in certain of its segments and accounts for reinsurance and the recognition of the impact of reinsurance costs in accordance with the ASC Financial Services - Insurance Topic. The following summarizes some of the key aspects of the Company’s accounting policies for reinsurance.
Reinsurance Accounting Methodology —Ceded premiums of the Company’s traditional life insurance products are treated as an offset to direct premium and policy fee revenue and are recognized when due to the assuming company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable financial reporting period. Expense allowances paid by the assuming companies which are allocable to the current period are treated as an offset to other operating expenses. Since reinsurance treaties typically provide for allowance percentages
that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances representing recovery of acquisition costs is treated as an offset to direct amortization of DAC or VOBA. Amortization of deferred expense allowances is calculated as a level percentage of expected premiums in all durations given expected future lapses and mortality and accretion due to interest.
The Company utilizes reinsurance on certain short duration insurance contracts (primarily issued through the Asset Protection segment). As part of these reinsurance transactions the Company receives reinsurance allowances which reimburse the Company for acquisition costs such as commissions and premium taxes. A ceding fee is also collected to cover other administrative costs and profits for the Company. As a component of reinsurance costs, reinsurance allowances are accounted for in accordance with the relevant provisions of ASC Financial Services—Insurance Topic, which state that reinsurance costs should be amortized over the contract period of the reinsurance if the contract is short-duration. Accordingly, reinsurance allowances received related to short-duration contracts are capitalized and charged to expense in proportion to premiums earned. Ceded unamortized acquisition costs are netted with direct unamortized acquisition costs in the balance sheet.
Ceded premiums and policy fees on the Company’s fixed universal life (“UL”), VUL, bank-owned life insurance (“BOLI”), and annuity products reduce premiums and policy fees recognized by the Company. Ceded claims are treated as an offset to direct benefits and settlement expenses and are recognized when the claim is incurred on a direct basis. Ceded policy reserve changes are also treated as an offset to benefits and settlement expenses and are recognized during the applicable valuation period.
Since reinsurance treaties typically provide for allowance percentages that decrease over the lifetime of a policy, allowances in excess of the “ultimate” or final level allowance are capitalized. Amortization of capitalized reinsurance expense allowances are amortized based on future expected gross profits. Assumptions regarding mortality, lapses, and interest rates are continuously reviewed and may be periodically changed. These changes will result in “unlocking” that changes the balance in the ceded deferred acquisition cost and can affect the amortization of DAC and VOBA. Ceded unearned revenue liabilities are also amortized based on expected gross profits. Assumptions are based on the best current estimate of expected mortality, lapses and interest spread.
The Company has also assumed certain policy risks written by other insurance companies through reinsurance agreements. Premiums and policy fees as well as Benefits and settlement expenses include amounts assumed under reinsurance agreements and are net of reinsurance ceded. Assumed reinsurance is accounted for in accordance with ASC Financial Services—Insurance Topic.
Reinsurance Allowances—Long-Duration Contracts —Reinsurance allowances are intended to reimburse the ceding company for some portion of the ceding company’s commissions, expenses, and taxes. The amount and timing of reinsurance allowances (both first year and renewal allowances) are contractually determined by the applicable reinsurance contract and do not necessarily bear a relationship to the amount and incidence of expenses actually paid by the ceding company in any given year.
Ultimate reinsurance allowances are defined as the lowest allowance percentage paid by the reinsurer in any policy duration over the lifetime of a universal life policy (or through the end of the level term period for a traditional life policy). Ultimate reinsurance allowances are determined during the negotiation of each reinsurance agreement and will differ between agreements.
The Company determines its “cost of reinsurance” to include amounts paid to the reinsurer (ceded premiums) net of amounts reimbursed by the reinsurer (in the form of allowances). As noted within ASC Financial Services—Insurance Topic, “The difference, if any, between amounts paid for a reinsurance contract and the amount of the liabilities for policy benefits relating to the underlying reinsured contracts is part of the estimated cost to be amortized”. The Company’s policy is to amortize the cost of reinsurance over the life of the underlying reinsured contracts (for long-duration policies) in a manner consistent with the way in which benefits and expenses on the underlying contracts are recognized. For the Company’s long-duration contracts, it is the Company’s practice to defer reinsurance allowances as a component of the cost of reinsurance and recognize the portion related to the recovery of acquisition costs as a reduction of applicable unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized. The remaining balance of reinsurance allowances are included as a component of the cost of reinsurance and those allowances which are allocable to the current period are recorded as an offset to operating expenses in the current period consistent with the recognition of benefits and expenses on the underlying reinsured contracts. This practice is consistent with the Company’s practice of capitalizing direct expenses (e.g. commissions), and results in the recognition of reinsurance allowances on a systematic basis over the life of the reinsured policies on a basis consistent with the way in which acquisition costs on the underlying reinsured contracts would be recognized. In some cases reinsurance allowances allocable to the current period may exceed non-deferred direct costs, which may cause net other operating expenses (related to specific contracts) to be negative.
Amortization of Reinsurance Allowances —Reinsurance allowances do not affect the methodology used to amortize DAC and VOBA, or the period over which such DAC and VOBA are amortized. Reinsurance allowances offset the direct expenses capitalized, reducing the net amount that is capitalized. DAC and VOBA on traditional life policies are amortized based on the pattern of estimated gross premiums of the policies in force. Reinsurance allowances do not affect the gross premiums, so therefore they do not impact traditional life amortization patterns. DAC and VOBA on universal life products are amortized based on the pattern of estimated gross profits of the policies in force. Reinsurance allowances are considered in the determination of estimated gross profits, and therefore do impact amortization patterns.
Reinsurance Assets and Liabilities —Claim liabilities and policy benefits are calculated consistently for all policies, regardless of whether or not the policy is reinsured. Once the claim liabilities and policy benefits for the underlying policies are estimated, the amounts recoverable from the reinsurers are estimated based on a number of factors including the terms of the reinsurance contracts, historical payment patterns of reinsurance partners, and the financial strength and credit worthiness of reinsurance partners and recorded as Reinsurance receivables on the balance sheet. The reinsurance receivables as of the Merger
date, were recorded in the balance sheet using current accounting policies and the most current assumptions. As of the Merger date, the Company also calculated the ceded VOBA associated with the reinsured policies. The reinsurance receivables combined with the associated ceded VOBA represent the fair value of the reinsurance assets as of the Merger date.
Liabilities for unpaid reinsurance claims are produced from claims and reinsurance system records, which contain the relevant terms of the individual reinsurance contracts. The Company monitors claims due from reinsurers to ensure that balances are settled on a timely basis. Incurred but not reported claims are reviewed to ensure that appropriate amounts are ceded.
The Company analyzes and monitors the credit worthiness of each of its reinsurance partners to minimize collection issues. For newly executed reinsurance contracts with reinsurance companies that do not meet predetermined standards, the Company requires collateral such as assets held in trusts or letters of credit.
Components of Reinsurance Cost —The following income statement lines are affected by reinsurance cost:
Premiums and policy fees (“reinsurance ceded” on the Company’s financial statements) represent consideration paid to the assuming company for accepting the ceding company’s risks. Ceded premiums and policy fees increase reinsurance cost.
Benefits and settlement expenses include incurred claim amounts ceded and changes in ceded policy reserves. Ceded benefits and settlement expenses decrease reinsurance cost.
Amortization of deferred policy acquisition cost and VOBA reflects the amortization of capitalized reinsurance allowances representing recovery of acquisition costs. Ceded amortization decreases reinsurance cost.
Other expenses include reinsurance allowances paid by assuming companies to the Company less amounts representing recovery of acquisition costs. Reinsurance allowances decrease reinsurance cost.
The Company’s reinsurance programs do not materially impact the other income line of the Company’s income statement. In addition, net investment income generally has no direct impact on the Company’s reinsurance cost. However, it should be noted that by ceding business to the assuming companies, the Company forgoes investment income on the reserves ceded to the assuming companies. Conversely, the assuming companies will receive investment income on the reserves assumed which will increase the assuming companies’ profitability on business assumed from the Company.
Accounting Pronouncements Recently Adopted
Accounting Standards Update (“ASU”) No. 2015-02 - Consolidation-Amendments to the Consolidation Analysis. This Update makes several targeted changes to generally accepted accounting principles, including a) eliminating the presumption that a general partner should consolidate a limited partnership and b) eliminating the consolidation model specific to limited partnerships. The amendments also clarify when fees and related party relationships should be considered in the consolidation of variable interest entities. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2015. The Update did not impact the Company’s financial position or results of operations, and the Company is prepared to comply with the revised guidance in future periods.
ASU No. 2015-03 - Interest-Imputation of Interest. The objective of this Update is to eliminate diversity in practice related to the presentation of debt issuance costs. The amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The Update is effective for fiscal years beginning after December 15, 2015, and requires revised presentation of debt issuance costs in all periods presented in the financial statements. The Update did not impact the Company’s financial position or results of operations, and the Company is prepared to comply with the revised guidance in future periods.
ASU No. 2015-15 - Interest - Imputation of Interest - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. The objective of this Update is to clarify the SEC Staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on the topic in ASU No. 2015-03. This Update reflects the SEC Staff’s decision to not object when an entity defers and presents debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The Update did not impact the Company’s financial position or results of operations, and the Company is prepared to comply with the revised guidance in future periods.
ASU No. 2015-05 - Intangibles - Goodwill and Other - Internal-Use Software. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The Update is effective for annual and interim periods beginning after December 15, 2015. The Update did not impact the Company’s financial position or results of operations, and the Company has revised its policies and processes to comply with the new standard.
ASU No. 2014-15 - Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This Update will require management to assess an entity’s ability to continue as a going concern, and will require footnote disclosures in certain circumstances. Under the updated guidance, management should consider relevant conditions and evaluate whether it is probable that the entity will be unable to meet its obligations within one year after the issuance date of the financial statements. The Update is effective for annual periods
ending December 31, 2016 and for annual and interim periods thereafter, with early adoption permitted. The amendments in this Update did not impact the Company’s financial position or results of operations. However, the new guidance will require a formal assessment of going concern by management based on criteria prescribed in the new guidance. The Company has revised its policies and processes to comply with the revised guidance.
ASU No. 2015-09 - Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The amendments in this Update require additional disclosures for short-duration contracts issued by insurance entities. The additional disclosures focus on the liability for unpaid claims and claim adjustment expenses and include incurred and paid claims development information by accident year in tabular form, along with a reconciliation of this information to the statement of financial position. For accident years included in the development tables, the amendments also require disclosure of the total incurred-but-not-reported liabilities and expected development on reported claims, along with claims frequency information unless impracticable. Finally, the amendments require disclosure of the historical average annual percentage payout of incurred claims. With the exception of the current reporting period, claims development information may be presented as supplementary information. The Update is effective for annual periods beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The additional disclosures introduced in this Update were not required for the Company, as the short-duration lines of business to which they apply were not material to the Company’s financial statements.
Accounting Pronouncements Not Yet Adopted
ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606). This Update provides for significant revisions to the recognition of revenue from contracts with customers across various industries. Under the new guidance, entities are required to apply a prescribed 5-step process to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting for revenues associated with insurance products is not within the scope of this Update. The Update was originally effective for annual and interim periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU No. 2015-14 - Revenues from Contracts with Customers: Deferral of the Effective Date , to defer the effective date of ASU No. 2014-09 by one year to annual and interim periods beginning after December 15, 2017. Early adoption will be allowed, but not before the original effective date.The amendments in the Update, along with clarifying updates issued subsequent to ASU 2014-09, may impact several of the Company’s non-core lines of business, specifically revenues at the Company’s affiliated broker dealers and insurance agency. Additionally, certain non-insurance products sold from the Asset Protection Division, such as fee-for-service arrangements, may be in the scope of the revised guidance. Several application questions remain outstanding, most notably interpretive positions from the AICPA regarding the Update’s application to insurance companies and products. The Company does not anticipate material financial impact from the implementation of the revised guidance. However, the Company is assessing whether changes are needed to its accounting policies, contracts, and processes with respect to the non-insurance lines of business referenced above.
ASU No. 2016-01 - Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the Update requires that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized in net income. The Update also introduces a single-step impairment model for equity investments without a readily determinable fair value. Additionally, the Update requires changes in instrument-specific credit risk for fair value option liabilities to be recorded in other comprehensive income. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2017 and will be applied on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the revised guidance.
ASU No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change will relate to the accounting model used by lessees. The Update will require all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability will be measured at the present value of the minimum lease payments less any upfront payments or fees. The Update also requires numerous disclosure changes for which the Company is assessing the impact. The amendments in the Update are effective for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis. The Company has completed an inventory of all leases in the organization and is currently assessing the impact of the Update and updating internal processes to ensure compliance with the revised guidance.
ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption, and assessing the impact this standard will have on its operations and financial results.
ASU No. 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update are intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Specific transactions addressed in the new guidance include: Debt prepayment/extinguishment costs, contingent consideration payments, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from
equity method investments. The Update does not introduce any new accounting or financial reporting requirements, and is effective for annual and interim periods beginning after December 15, 2018. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.
ASU No. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Task Force). The amendments in this update provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing diversity in practice related to the presentation of these amounts. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Update is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is reviewing its policies and processes to ensure compliance with the requirements in this Update, upon adoption.
ASU No. 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of this update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in the Update provide a specific test by which an entity may determine whether an acquisition involves a set of assets or a business. The amendments in the Update are to be applied prospectively for periods beginning after December 15, 2017. The Company has reviewed the revised requirements, and does not anticipate that the changes will impact its policies or recent conclusions related to its acquisition activities.
ASU No. 2017-04-Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Update simplifies the goodwill impairment test by re-defining the concept of goodwill impairment as the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The Update eliminates “Step 2” of the current goodwill impairment test, which requires entities to determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The amendments in the Update are effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for impairment tests conducted after January 1, 2017. The revised guidance will not impact the Company’s financial position or results of operations and will simplify its annual goodwill impairment test, generally conducted in the fourth quarter. For more details regarding the Company’s goodwill assessment process, please refer to the summary of Critical Accounting Policies. The Company intends to adopt the Update in the first quarter of 2017, and will apply the revised guidance to impairment tests conducted after January 1, 2017.
3. SIGNIFICANT TRANSACTIONS
On January 15, 2016, the Company completed the transaction contemplated by the Master Agreement, dated September 30, 2015 (the “Master Agreement”), with Genworth Life and Annuity Insurance Company (“GLAIC”). Pursuant to the Master Agreement, effective January 1, 2016, the Company entered into a reinsurance agreement (the “Reinsurance Agreement”) under the terms of which the Company coinsures certain term life insurance business of GLAIC (the “GLAIC Block”). In connection with the reinsurance transaction, on January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a wholly owned subsidiary of the Company, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary of PLC, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by the Company and West Coast Life Insurance Company (“WCL”), a direct wholly owned subsidiary of the Company. Steel City issued notes with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLC, WCL and the Company, meaning that none of these companies are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. In connection with the transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City, including a guarantee of the fees to the Risk-Takers. As a result of the financing transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by PLC were contributed to the Company and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes. Also on January 15, 2016, Golden Gate paid an extraordinary dividend of $300 million to the Company as approved by the Vermont Department of Financial Regulation.
The transactions described above resulted in an increase to total assets and total liabilities of approximately $2.8 billion. Of the approximate $2.8 billion increase in total assets, $0.6 billion was the result of the reinsurance transaction with GLAIC which included a $280 million increase in VOBA. The remaining $2.2 billion increase to total assets and liabilities is associated with the financing transaction between Golden Gate and Steel City.
The Company considered whether the Reinsurance Agreement constituted the purchase of a business for accounting and reporting purposes pursuant to ASC 805, Business Combinations. While the transaction included a continuation of the revenue-producing activities associated with the reinsured policies, it did not result in the acquisition of a market distribution system, sales force or production techniques. Based on Management’s decision not to pursue distribution opportunities or future sales related to the reinsured policies, the Company accounted for the transaction as a reinsurance agreement under ASC 944, Insurance Contracts and asset acquisition under ASC 805. Accordingly, the Company recorded the assets and liabilities acquired under the reinsurance agreement at fair value and recognized an intangible asset, VOBA, equal to the excess of the fair value of assets acquired over liabilities assumed, measured in accordance with the Company’s accounting policies for insurance and reinsurance contracts that it issues or holds pursuant to ASC 944.
USWC Holding Company Acquisition
On December 1, 2016, the Company completed the acquisition of the Pompano Beach, Florida-based USWC Holding Company (“US Warranty”) pursuant to a Stock Purchase Agreement. US Warranty’s primary operating subsidiary is United States Warranty Corp., which currently markets vehicle service contracts, GAP coverage, and a suite of ancillary automotive maintenance and protection products nationwide. This acquisition is expected to provide the Company’s Asset Protection segment and USWC with expanded market reach, enhanced product and operational capabilities, and higher collective growth potential.
The transaction was accounted for under the acquisition method of accounting under ASC Topic 805. In accordance with ASC Topic 805-20-30, all identifiable assets acquired and liabilities assumed were measured at fair value as of the acquisition date. On the acquisition date, goodwill of $61.0 million represented the cost in excess of the fair value of net assets acquired (including identifiable intangibles), and reflected the US Warranty’s assembled workforce, future growth potential and other sources of value not associated with identifiable assets. The Company acquired 100% of voting equity interests. The aggregate purchase price for US Warranty was $136.1 million.
The amount recorded as the value of business acquired at December 1, 2016, represents the actuarially estimated present value of after-tax future cash flows, adjusted for statutory reserve differences and cost of capital, from the policies acquired through the US Warranty acquisition. This amount will be amortized in proportion with the gross premiums or estimated net profits of the acquired insurance contracts.
The following table summarizes the fair values of the net assets acquired as of the acquisition date:
|
|
|
Fair Value
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
Assets |
|
|
|
|
|
Fixed maturities |
|
$ |
10,592 |
|
|
Other long-term investments |
|
2,340 |
|
|
|
Cash |
|
122,167 |
|
|
|
Accrued investment income |
|
52 |
|
|
|
Accounts and premiums receivables |
|
18,536 |
|
|
|
Reinsurance receivable |
|
9,397 |
|
|
|
Value of businesses acquired |
|
5,079 |
|
|
|
Goodwill |
|
61,027 |
|
|
|
Other intangibles |
|
70,400 |
|
|
|
Property and equipment |
|
390 |
|
|
|
Accrued income taxes |
|
4,161 |
|
|
|
Other assets |
|
40 |
|
|
|
Total assets |
|
304,181 |
|
|
|
Liabilities |
|
|
|
|
|
Unearned premiums |
|
$ |
82,757 |
|
|
Other policyholders’ funds |
|
21,483 |
|
|
|
Other liabilities |
|
24,951 |
|
|
|
Deferred income taxes |
|
38,929 |
|
|
|
Total liabilities |
|
168,120 |
|
|
|
Net assets acquired |
|
$ |
136,061 |
|
Intangible assets recognized by the Company included the following (excluding goodwill):
|
|
|
Estimated |
|
|
|
|
|
|
|
Fair Value on |
|
Estimated |
|
|
|
|
|
Acquisition Date |
|
Useful Life |
|
|
|
|
|
(Dollars In Thousands) |
|
(In Years) |
|
|
|
Distribution relationships |
|
$ |
65,000 |
|
13-21 |
|
|
Trade names |
|
1,400 |
|
5-6 |
|
|
|
Technology |
|
4,000 |
|
8-11 |
|
|
|
Total intangible assets |
|
$ |
70,400 |
|
|
|
Identified intangible assets were valued using the excess earnings method, relief from royalty method or cost approach, as appropriate.
Amortizable intangible assets will be amortized straight line over their assigned useful lives. The following is a schedule of future estimated aggregate amortization expense:
|
Year |
|
Amount |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2017 |
|
$ |
4,843 |
|
|
2018 |
|
4,843 |
|
|
|
2019 |
|
4,843 |
|
|
|
2020 |
|
4,843 |
|
|
|
2021 |
|
4,843 |
|
|
The following (unaudited) pro forma condensed consolidated results of operations assumes that the acquisition of US Warranty was completed as of January 1, 2015:
|
|
|
Successor Company |
|
||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Revenue(1) |
|
$ |
4,342,054 |
|
$ |
3,530,073 |
|
|
Net income(2) |
|
352,856 |
|
179,877 |
|
||
(1) Includes $4.7 million of revenue recognized in the Company’s net income for year ended December 31, 2016 (Successor Company).
(2) Includes $0.2 million of net income recognized in the Company’s net income for the year ended December 31, 2016 (Successor Company).
The pro forma information above is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, not is it intended to be a projection of future results.
4. DAI-ICHI MERGER
On February 1, 2015 PLC, subsequent to required approvals from PLC’s shareholders and relevant regulatory authorities, became a wholly owned subsidiary of Dai-ichi Life as contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) with Dai-ichi Life and DL Investment (Delaware), Inc., a Delaware corporation and wholly owned subsidiary of Dai-ichi Life Holdings, Inc., which provided for the Merger of DL Investment (Delaware), Inc. with and into PLC, with PLC surviving the Merger as a wholly owned subsidiary of Dai-ichi Life. On February 1, 2015 each share of PLC’s common stock outstanding was converted into the right to receive $70 per share, without interest (the “Per Share Merger Consideration”). The aggregate cash consideration paid in connection with the Merger for the outstanding shares of common stock was approximately $5.6 billion and paid directly to the shareowners of record by Dai-ichi Life. The Merger provided Dai-ichi Life with a platform for growth in the United States, where it did not previously have a significant presence. In connection with the completion of the Merger, PLC’s previously publicly traded equity was delisted from the NYSE, although PLC and the Company remain SEC registrants for financial reporting purposes in the United States.
The Merger was accounted for under the acquisition method of accounting under ASC Topic 805. In accordance with ASC Topic 805-20-30, all identifiable assets acquired and liabilities assumed were measured at fair value as of the acquisition date. On the date of the Merger, goodwill of $735.7 million represented the cost in excess of the fair value of PLC’s net assets acquired (including identifiable intangibles) in the Merger, and reflected the Company’s assembled workforce, future growth potential and other sources of value not associated with identifiable assets. During the measurement period subsequent to February
1, 2015, the Company made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. The balance of goodwill associated with the Merger as of December 31, 2016 (Successor Company) is $732.4 million. None of the goodwill is tax deductible.
The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:
|
|
|
Fair Value |
|
|
|
|
|
As of |
|
|
|
|
|
February 1, 2015 |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
Assets |
|
|
|
|
|
Fixed maturities |
|
$ |
38,342,948 |
|
|
Equity securities |
|
699,081 |
|
|
|
Mortgage loans |
|
5,580,229 |
|
|
|
Investment real estate |
|
7,456 |
|
|
|
Policy loans |
|
1,751,872 |
|
|
|
Other long-term investments |
|
657,346 |
|
|
|
Short-term investments |
|
311,236 |
|
|
|
Total investments |
|
47,350,168 |
|
|
|
Cash |
|
378,903 |
|
|
|
Accrued investment income |
|
483,691 |
|
|
|
Accounts and premiums receivable |
|
104,260 |
|
|
|
Reinsurance receivables |
|
5,538,637 |
|
|
|
Value of business acquired |
|
1,278,064 |
|
|
|
Goodwill |
|
735,712 |
|
|
|
Other intangibles |
|
683,000 |
|
|
|
Property and equipment |
|
102,736 |
|
|
|
Other assets |
|
224,555 |
|
|
|
Income tax receivable |
|
50,117 |
|
|
|
Assets related to separate accounts |
|
|
|
|
|
Variable annuity |
|
12,970,587 |
|
|
|
Variable universal life |
|
819,188 |
|
|
|
Total assets |
|
$ |
70,719,618 |
|
|
Liabilities |
|
|
|
|
|
Future policy and benefit claims |
|
$ |
30,195,397 |
|
|
Unearned premiums |
|
622,278 |
|
|
|
Total policy liabilities and accruals |
|
30,817,675 |
|
|
|
Stable value product account balances |
|
1,932,277 |
|
|
|
Annuity account balances |
|
10,941,661 |
|
|
|
Other policyholders’ funds |
|
1,388,083 |
|
|
|
Other liabilities |
|
1,533,666 |
|
|
|
Deferred income taxes |
|
1,861,632 |
|
|
|
Non-recourse funding obligations |
|
1,895,636 |
|
|
|
Repurchase program borrowings |
|
50,000 |
|
|
|
Liabilities related to separate accounts |
|
|
|
|
|
Variable annuity |
|
12,970,587 |
|
|
|
Variable universal life |
|
819,188 |
|
|
|
Total liabilities |
|
64,210,405 |
|
|
|
Net assets acquired |
|
$ |
6,509,213 |
|
Treatment of Benefit Plans
At or immediately prior to the Merger, each stock appreciation right with respect to shares of PLC’s Common Stock granted under any Stock Plan (each, a “SAR”) that was outstanding and unexercised immediately prior to the Merger and that had a base price per share of Common Stock underlying such SAR (the “Base Price”) that was less than the Per Share Merger Consideration (each such SAR, an “In-the-Money SAR”), whether or not exercisable or vested, was cancelled and converted into the right to receive an amount in cash less any applicable withholding taxes, determined by multiplying (i) the excess of the Per
Share Merger Consideration over the Base Price of such In-the-Money SAR by (ii) the number of shares of PLC’s Common Stock subject to such In- the-Money SAR (such amount, the “SAR Consideration”).
At or immediately prior to the effective time of the Merger, each restricted stock unit with respect to a share of PLC’s Common Stock granted under any Stock Plan (each, a “RSU”) that was outstanding immediately prior to the Merger, whether or not vested, was cancelled and converted into the right to receive an amount in cash, without interest, less any applicable withholding taxes, determined by multiplying (i) the Per Share Merger Consideration by (ii) the number of PLC’s RSUs.
The number of performance shares earned for each award of performance shares granted under any PLC Stock Plan was calculated by determining the number of performance shares that would have been paid if the subject award period had ended on the December 31 immediately preceding the Merger (based on the conditions set for payment of performance share awards for the subject award period), provided that the number of performance shares earned for each award were not less than the aggregate number of performance shares at the target performance level. Each performance share earned that was outstanding immediately prior to the Merger, whether or not vested, was cancelled and converted into the right to receive an amount in cash, without interest, less any applicable withholding taxes, determined by multiplying (i) the Per Share Merger Consideration by (ii) the number of Performance Shares.
5. MONY CLOSED BLOCK OF BUSINESS
In 1998, MONY Life Insurance Company (“MONY”) converted from a mutual insurance company to a stock corporation (“demutualization”). In connection with its demutualization, an accounting mechanism known as a closed block (the “Closed Block”) was established for certain individuals’ participating policies in force as of the date of demutualization. Assets, liabilities, and earnings of the Closed Block are specifically identified to support its participating policyholders. The Company acquired the Closed Block in conjunction with the acquisition of MONY in 2013.
Assets allocated to the Closed Block inure solely to the benefit of each Closed Block’s policyholders and will not revert to the benefit of MONY or the Company. No reallocation, transfer, borrowing or lending of assets can be made between the Closed Block and other portions of MONY’s general account, any of MONY’s separate accounts or any affiliate of MONY without the approval of the Superintendent of The New York State Department of Financial Services (the “Superintendent”). Closed Block assets and liabilities are carried on the same basis as similar assets and liabilities held in the general account.
The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income (loss) (“AOCI”)) at the acquisition date of October 1, 2013, represented the estimated maximum future post-tax earnings from the Closed Block that would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. In connection with the acquisition of MONY, the Company developed an actuarial calculation of the expected timing of MONY’s Closed Block’s earnings as of October 1, 2013. Pursuant to the acquisition of the Company by Dai-ichi Life, this actuarial calculation of the expected timing of MONY’s Closed Block earnings was recalculated and reset as of February 1, 2015, along with the establishment of a policyholder dividend obligation as of such date.
If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in the Company’s net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend, unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block.
Many expenses related to Closed Block operations, including amortization of VOBA, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block.
Summarized financial information for the Closed Block as of December 31, 2016 and 2015 (Successor Company) and is as follows:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Closed block liabilities |
|
|
|
|
|
||
|
Future policy benefits, policyholders’ account balances and other policyholder liabilities |
|
$ |
5,896,355 |
|
$ |
6,010,520 |
|
|
Policyholder dividend obligation |
|
31,932 |
|
— |
|
||
|
Other liabilities |
|
40,007 |
|
24,539 |
|
||
|
Total closed block liabilities |
|
5,968,294 |
|
6,035,059 |
|
||
|
Closed block assets |
|
|
|
|
|
||
|
Fixed maturities, available-for-sale, at fair value |
|
4,440,105 |
|
4,426,090 |
|
||
|
Mortgage loans on real estate |
|
201,088 |
|
247,162 |
|
||
|
Policy loans |
|
712,959 |
|
746,102 |
|
||
|
Cash and other invested assets |
|
108,270 |
|
34,420 |
|
||
|
Other assets |
|
135,794 |
|
162,640 |
|
||
|
Total closed block assets |
|
5,598,216 |
|
5,616,414 |
|
||
|
Excess of reported closed block liabilities over closed block assets |
|
370,078 |
|
418,645 |
|
||
|
Portion of above representing accumulated other comprehensive income: |
|
|
|
|
|
||
|
Net unrealized investments gains (losses) net of policyholder dividend obligation of $(128,343) (Successor) and $(179,360) (Successor) |
|
— |
|
(18,597 |
) |
||
|
Future earnings to be recognized from closed block assets and closed block liabilities |
|
$ |
370,078 |
|
$ |
400,048 |
|
Reconciliation of the policyholder dividend obligation is as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Policyholder dividend obligation, beginning balance |
|
$ |
— |
|
$ |
323,432 |
|
|
$ |
366,745 |
|
|
Applicable to net revenue (losses) |
|
(46,557 |
) |
(47,493 |
) |
|
(1,369 |
) |
|||
|
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation; includes deferred tax benefits of $69,108 (2016 - Successor); $(96,579) (2015 - Successor); $47,277 (2015 - Predecessor) |
|
78,489 |
|
(275,939 |
) |
|
135,077 |
|
|||
|
Policyholder dividend obligation, ending balance |
|
$ |
31,932 |
|
$ |
— |
|
|
$ |
500,453 |
|
Closed Block revenues and expenses were as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Revenues |
|
|
|
|
|
|
|
|
|||
|
Premiums and other income |
|
$ |
189,700 |
|
$ |
185,562 |
|
|
$ |
15,065 |
|
|
Net investment income |
|
211,175 |
|
193,203 |
|
|
19,107 |
|
|||
|
Net investment gains |
|
1,524 |
|
3,333 |
|
|
568 |
|
|||
|
Total revenues |
|
402,399 |
|
382,098 |
|
|
34,740 |
|
|||
|
Benefits and other deductions |
|
|
|
|
|
|
|
|
|||
|
Benefits and settlement expenses |
|
353,488 |
|
336,629 |
|
|
31,152 |
|
|||
|
Other operating expenses |
|
2,804 |
|
1,001 |
|
|
— |
|
|||
|
Total benefits and other deductions |
|
356,292 |
|
337,630 |
|
|
31,152 |
|
|||
|
Net revenues before income taxes |
|
46,107 |
|
44,468 |
|
|
3,588 |
|
|||
|
Income tax expense |
|
16,137 |
|
14,920 |
|
|
1,256 |
|
|||
|
Net revenues |
|
$ |
29,970 |
|
$ |
29,548 |
|
|
$ |
2,332 |
|
6. INVESTMENT OPERATIONS
Major categories of net investment income are summarized as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Fixed maturities |
|
$ |
1,547,346 |
|
$ |
1,266,769 |
|
|
$ |
140,052 |
|
$ |
1,711,722 |
|
|
Equity securities |
|
38,838 |
|
40,879 |
|
|
2,556 |
|
41,533 |
|
||||
|
Mortgage loans |
|
270,749 |
|
252,577 |
|
|
24,977 |
|
360,778 |
|
||||
|
Investment real estate |
|
2,152 |
|
2,528 |
|
|
112 |
|
4,483 |
|
||||
|
Short-term investments |
|
99,979 |
|
93,938 |
|
|
9,974 |
|
109,592 |
|
||||
|
|
|
1,959,064 |
|
1,656,691 |
|
|
177,671 |
|
2,228,108 |
|
||||
|
Other investment expenses |
|
135,601 |
|
123,895 |
|
|
13,066 |
|
130,095 |
|
||||
|
Net investment income |
|
$ |
1,823,463 |
|
$ |
1,532,796 |
|
|
$ |
164,605 |
|
$ |
2,098,013 |
|
Net realized investment gains (losses) for all other investments are summarized as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Fixed maturities |
|
$ |
32,183 |
|
$ |
1,272 |
|
|
$ |
6,891 |
|
$ |
75,074 |
|
|
Equity securities |
|
92 |
|
(1,001 |
) |
|
— |
|
495 |
|
||||
|
Impairments on corporate securities |
|
(17,748 |
) |
(26,993 |
) |
|
(481 |
) |
(7,275 |
) |
||||
|
Modco trading portfolio |
|
67,583 |
|
(167,359 |
) |
|
73,062 |
|
142,016 |
|
||||
|
Other investments |
|
(9,228 |
) |
153 |
|
|
1,200 |
|
(12,283 |
) |
||||
|
Total realized gains (losses) - investments |
|
$ |
72,882 |
|
$ |
(193,928 |
) |
|
$ |
80,672 |
|
$ |
198,027 |
|
Gross realized gains and gross realized losses on investments available-for-sale (fixed maturities, equity securities, and short-term investments) are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Gross realized gains |
|
$ |
42,058 |
|
$ |
8,735 |
|
|
$ |
6,920 |
|
$ |
76,737 |
|
|
Gross realized losses |
|
$ |
(27,531 |
) |
$ |
(35,457 |
) |
|
$ |
(469 |
) |
$ |
(8,443 |
) |
|
Impairments losses included in gross realized losses |
|
$ |
(17,748 |
) |
$ |
(26,993 |
) |
|
$ |
(481 |
) |
$ |
(7,275 |
) |
The chart below summarizes the fair value (proceeds) and the gains/losses realized on securities the Company sold that were in an unrealized gain position and an unrealized loss position.
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Securities in an unrealized gain position: |
|
|
|
|
|
|
|
|
|
|
||||
|
Fair value (proceeds) |
|
$ |
1,194,808 |
|
$ |
948,774 |
|
|
$ |
172,551 |
|
$ |
1,658,042 |
|
|
Gains realized |
|
$ |
42,058 |
|
$ |
8,735 |
|
|
$ |
6,920 |
|
$ |
76,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Securities in an unrealized loss position(1): |
|
|
|
|
|
|
|
|
|
|
||||
|
Fair value (proceeds) |
|
$ |
85,835 |
|
$ |
178,415 |
|
|
$ |
435 |
|
$ |
22,868 |
|
|
Losses realized |
|
$ |
(9,783 |
) |
$ |
(8,463 |
) |
|
$ |
(29 |
) |
$ |
(1,168 |
) |
(1) The Company made the decision to exit these holdings in conjunction with its overall asset liability management process.
The amortized cost and fair value of the Company’s investments classified as available-for-sale are as follows:
|
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
Total OTTI
|
|
|||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Residential mortgage-backed securities |
|
$ |
1,904,165 |
|
$ |
10,737 |
|
$ |
(25,295 |
) |
$ |
1,889,607 |
|
$ |
(9 |
) |
|
Commercial mortgage-backed securities |
|
1,820,644 |
|
2,455 |
|
(40,602 |
) |
1,782,497 |
|
— |
|
|||||
|
Other asset-backed securities |
|
1,210,490 |
|
21,741 |
|
(20,698 |
) |
1,211,533 |
|
— |
|
|||||
|
U.S. government-related securities |
|
1,308,192 |
|
422 |
|
(40,455 |
) |
1,268,159 |
|
— |
|
|||||
|
Other government-related securities |
|
251,197 |
|
1,526 |
|
(14,797 |
) |
237,926 |
|
— |
|
|||||
|
States, municipals, and political subdivisions |
|
1,760,837 |
|
1,224 |
|
(105,558 |
) |
1,656,503 |
|
— |
|
|||||
|
Corporate securities |
|
28,655,364 |
|
151,383 |
|
(1,582,098 |
) |
27,224,649 |
|
(11,030 |
) |
|||||
|
Preferred stock |
|
94,362 |
|
— |
|
(8,519 |
) |
85,843 |
|
— |
|
|||||
|
|
|
37,005,251 |
|
189,488 |
|
(1,838,022 |
) |
35,356,717 |
|
(11,039 |
) |
|||||
|
Equity securities |
|
722,868 |
|
7,751 |
|
(21,685 |
) |
708,934 |
|
— |
|
|||||
|
Short-term investments |
|
263,185 |
|
— |
|
— |
|
263,185 |
|
— |
|
|||||
|
|
|
$ |
37,991,304 |
|
$ |
197,239 |
|
$ |
(1,859,707 |
) |
$ |
36,328,836 |
|
$ |
(11,039 |
) |
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Residential mortgage-backed securities |
|
$ |
1,773,099 |
|
$ |
9,286 |
|
$ |
(17,112 |
) |
$ |
1,765,273 |
|
$ |
— |
|
|
Commercial mortgage-backed securities |
|
1,327,288 |
|
428 |
|
(41,852 |
) |
1,285,864 |
|
— |
|
|||||
|
Other asset-backed securities |
|
813,056 |
|
2,758 |
|
(18,763 |
) |
797,051 |
|
— |
|
|||||
|
U.S. government-related securities |
|
1,566,260 |
|
449 |
|
(34,532 |
) |
1,532,177 |
|
— |
|
|||||
|
Other government-related securities |
|
18,483 |
|
— |
|
(743 |
) |
17,740 |
|
— |
|
|||||
|
States, municipals, and political subdivisions |
|
1,729,732 |
|
682 |
|
(126,814 |
) |
1,603,600 |
|
— |
|
|||||
|
Corporate securities |
|
28,433,530 |
|
26,147 |
|
(2,681,020 |
) |
25,778,657 |
|
(605 |
) |
|||||
|
Preferred stock |
|
64,362 |
|
192 |
|
(1,867 |
) |
62,687 |
|
— |
|
|||||
|
|
|
35,725,810 |
|
39,942 |
|
(2,922,703 |
) |
32,843,049 |
|
(605 |
) |
|||||
|
Equity securities |
|
684,888 |
|
13,255 |
|
(6,477 |
) |
691,666 |
|
— |
|
|||||
|
Short-term investments |
|
202,110 |
|
— |
|
— |
|
202,110 |
|
— |
|
|||||
|
|
|
$ |
36,612,808 |
|
$ |
53,197 |
|
$ |
(2,929,180 |
) |
$ |
33,736,825 |
|
$ |
(605 |
) |
(1) These amounts are included in the gross unrealized gains and gross unrealized losses columns above.
As of December 31, 2016 and 2015 (Successor Company), the Company had an additional $2.6 billion and $2.7 billion of fixed maturities, $7.1 million and $8.3 million of equity securities, and $52.6 million and $61.7 million of short-term investments classified as trading securities, respectively.
The amortized cost and fair value of available-for-sale and held-to-maturity fixed maturities as of December 31, 2016 (Successor Company), by expected maturity, are shown below. Expected maturities of securities without a single maturity date are allocated based on estimated rates of prepayment that may differ from actual rates of prepayment.
|
|
|
Available-for-sale |
|
Held-to-maturity |
|
||||||||
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Due in one year or less |
|
$ |
564,081 |
|
$ |
565,452 |
|
$ |
— |
|
$ |
— |
|
|
Due after one year through five years |
|
7,190,074 |
|
7,161,104 |
|
— |
|
— |
|
||||
|
Due after five years through ten years |
|
7,640,640 |
|
7,508,825 |
|
— |
|
— |
|
||||
|
Due after ten years |
|
21,610,456 |
|
20,121,336 |
|
2,770,177 |
|
2,733,340 |
|
||||
|
|
|
$ |
37,005,251 |
|
$ |
35,356,717 |
|
$ |
2,770,177 |
|
$ |
2,733,340 |
|
The chart below summarizes the Company’s other-than-temporary impairments of investments. All of the impairments were related to fixed maturities.
|
|
|
Successor Company |
|
Predecessor Company |
|
|||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Other-than-temporary impairments |
|
$ |
(32,075 |
) |
$ |
(28,659 |
) |
|
$ |
(636 |
) |
$ |
(2,589 |
) |
|
Non-credit impairment losses recorded in other comprehensive income |
|
14,327 |
|
1,666 |
|
|
155 |
|
(4,686 |
) |
||||
|
Net impairment losses recognized in earnings |
|
$ |
(17,748 |
) |
$ |
(26,993 |
) |
|
$ |
(481 |
) |
$ |
(7,275 |
) |
There were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company).
The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss):
|
|
|
Successor Company |
|
Predecessor Company |
|
|||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Beginning balance |
|
$ |
22,761 |
|
$ |
— |
|
|
$ |
15,463 |
|
$ |
41,674 |
|
|
Additions for newly impaired securities |
|
14,876 |
|
22,761 |
|
|
— |
|
— |
|
||||
|
Additions for previously impaired securities |
|
2,063 |
|
— |
|
|
221 |
|
2,263 |
|
||||
|
Reductions for previously impaired securities due to a change in expected cash flows |
|
(24,396 |
) |
— |
|
|
— |
|
(28,474 |
) |
||||
|
Reductions for previously impaired securities that were sold in the current period |
|
(2,619 |
) |
— |
|
|
— |
|
— |
|
||||
|
Other |
|
— |
|
— |
|
|
— |
|
— |
|
||||
|
Ending balance |
|
$ |
12,685 |
|
$ |
22,761 |
|
|
$ |
15,684 |
|
$ |
15,463 |
|
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2016 (Successor Company):
|
|
|
Less Than 12 Months |
|
12 Months or More |
|
Total |
|
||||||||||||
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Residential mortgage-backed securities |
|
$ |
1,051,694 |
|
$ |
(21,178 |
) |
$ |
170,826 |
|
$ |
(4,117 |
) |
$ |
1,222,520 |
|
$ |
(25,295 |
) |
|
Commercial mortgage-backed securities |
|
1,426,252 |
|
(36,589 |
) |
100,475 |
|
(4,013 |
) |
1,526,727 |
|
(40,602 |
) |
||||||
|
Other asset-backed securities |
|
323,706 |
|
(9,291 |
) |
176,792 |
|
(11,407 |
) |
500,498 |
|
(20,698 |
) |
||||||
|
U.S. government-related securities |
|
1,237,942 |
|
(40,454 |
) |
3 |
|
(1 |
) |
1,237,945 |
|
(40,455 |
) |
||||||
|
Other government-related securities |
|
98,412 |
|
(2,907 |
) |
79,393 |
|
(11,890 |
) |
177,805 |
|
(14,797 |
) |
||||||
|
States, municipalities, and political subdivisions |
|
1,062,368 |
|
(63,809 |
) |
548,254 |
|
(41,749 |
) |
1,610,622 |
|
(105,558 |
) |
||||||
|
Corporate securities |
|
12,490,517 |
|
(467,463 |
) |
9,791,313 |
|
(1,114,635 |
) |
22,281,830 |
|
(1,582,098 |
) |
||||||
|
Preferred stock |
|
66,781 |
|
(6,642 |
) |
19,062 |
|
(1,877 |
) |
85,843 |
|
(8,519 |
) |
||||||
|
Equities |
|
411,845 |
|
(15,273 |
) |
69,497 |
|
(6,412 |
) |
481,342 |
|
(21,685 |
) |
||||||
|
|
|
$ |
18,169,517 |
|
$ |
(663,606 |
) |
$ |
10,955,615 |
|
$ |
(1,196,101 |
) |
$ |
29,125,132 |
|
$ |
(1,859,707 |
) |
RMBS and CMBS had gross unrealized losses greater than twelve months of $4.1 million and $4.0 million, respectively, as of December 31, 2016 (Successor Company). Factors such as the credit enhancement within the deal structure, the average life of the securities, and the performance of the underlying collateral support the recoverability of these investments.
The other asset-backed securities have a gross unrealized loss greater than twelve months of $11.4 million as of December 31, 2016 (Successor Company). This category predominately includes student-loan backed auction rate securities, the underlying collateral, of which is at least 97% guaranteed by the Federal Family Education Loan Program (“FFELP”). At this time, the Company has no reason to believe that the U.S. Department of Education would not honor the FFELP guarantee, if it were necessary.
The states, municipalities, and political subdivisions categories had gross unrealized losses greater than twelve months of $41.7 million as of December 31, 2016 (Successor Company). These declines were related to changes in interest rates.
The corporate securities category has gross unrealized losses greater than twelve months of $1.1 billion as of December 31, 2016 (Successor Company). The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.
As of December 31, 2016 (Successor Company), the Company had a total of 2,375 positions that were in an unrealized loss position, but the Company does not consider these unrealized loss positions to be other-than-temporary. This is based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and the Company does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.
The following table includes the gross unrealized losses and fair value of the Company’s investments that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 (Successor Company):
|
|
|
Less Than 12 Months |
|
12 Months or More |
|
Total |
|
||||||||||||
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Residential mortgage-backed securities |
|
$ |
977,433 |
|
$ |
(17,112 |
) |
$ |
— |
|
$ |
— |
|
$ |
977,433 |
|
$ |
(17,112 |
) |
|
Commercial mortgage-backed securities |
|
1,232,495 |
|
(41,852 |
) |
— |
|
— |
|
1,232,495 |
|
(41,852 |
) |
||||||
|
Other asset-backed securities |
|
633,274 |
|
(18,763 |
) |
— |
|
— |
|
633,274 |
|
(18,763 |
) |
||||||
|
U.S. government-related securities |
|
1,291,476 |
|
(34,532 |
) |
— |
|
— |
|
1,291,476 |
|
(34,532 |
) |
||||||
|
Other government-related securities |
|
17,740 |
|
(743 |
) |
— |
|
— |
|
17,740 |
|
(743 |
) |
||||||
|
States, municipalities, and political subdivisions |
|
1,566,752 |
|
(126,814 |
) |
— |
|
|
|
1,566,752 |
|
(126,814 |
) |
||||||
|
Corporate securities |
|
24,235,121 |
|
(2,681,020 |
) |
|
|
— |
|
24,235,121 |
|
(2,681,020 |
) |
||||||
|
Preferred Stock |
|
34,685 |
|
(1,867 |
) |
— |
|
— |
|
34,685 |
|
(1,867 |
) |
||||||
|
Equities |
|
248,493 |
|
(6,477 |
) |
— |
|
— |
|
248,493 |
|
(6,477 |
) |
||||||
|
|
|
$ |
30,237,469 |
|
$ |
(2,929,180 |
) |
$ |
— |
|
$ |
— |
|
$ |
30,237,469 |
|
$ |
(2,929,180 |
) |
The book value of the Company’s investment portfolio was marked to fair value as of February 1, 2015 (Successor Company), in conjunction with the Dai-ichi Merger which resulted in the elimination of previously unrealized gains and losses from accumulated other comprehensive income. The level of interest rates as of February 1, 2015 (Successor Company) resulted in an increase in the carrying value of the Company’s investments. Since February 1, 2015 (Successor Company), interest rates have increased resulting in net unrealized losses in the Company’s investment portfolio.
The Company does not consider these unrealized loss positions to be other-than-temporary, based on the aggregate factors discussed previously and because the Company has the ability and intent to hold these investments until the fair values recover, and does not intend to sell or expect to be required to sell the securities before recovering the Company’s amortized cost of the securities.
As of December 31, 2016 (Successor Company), the Company had securities in its available-for-sale portfolio which were rated below investment grade with a fair value of $2.0 billion and had an amortized cost of $2.0 billion. In addition, included in the Company’s trading portfolio, the Company held $263.1 million of securities which were rated below investment grade. Approximately $354.0 million of the below investment grade securities held by the Company were not publicly traded.
The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities, classified as available-for-sale is summarized as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||||
|
Fixed maturities |
|
$ |
802,248 |
|
$ |
(1,873,795 |
) |
|
669,160 |
|
$ |
1,224,248 |
|
|
Equity securities |
|
(13,463 |
) |
4,406 |
|
|
12,172 |
|
33,642 |
|
|||
The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of December 31, 2016 and 2015 (Successor Company), are as follows:
|
Successor Company
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
Total OTTI
|
|
|||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Securities issued by affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Red Mountain LLC |
|
$ |
654,177 |
|
$ |
— |
|
$ |
(67,222 |
) |
$ |
586,955 |
|
$ |
— |
|
|
Steel City LLC |
|
2,116,000 |
|
30,385 |
|
— |
|
2,146,385 |
|
— |
|
|||||
|
|
|
$ |
2,770,177 |
|
$ |
30,385 |
|
$ |
(67,222 |
) |
$ |
2,733,340 |
|
$ |
— |
|
|
Successor Company
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
Total OTTI
|
|
|||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Securities issued by affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Red Mountain LLC |
|
$ |
593,314 |
|
$ |
— |
|
$ |
(78,314 |
) |
$ |
515,000 |
|
$ |
— |
|
|
|
|
$ |
593,314 |
|
$ |
— |
|
$ |
(78,314 |
) |
$ |
515,000 |
|
$ |
— |
|
During the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), the Company did not record any other-than-temporary impairments on held-to-maturity securities.
The Company’s held-to-maturity securities had $30.4 million of gross unrecognized holding gains and $67.2 million of gross unrecognized holding losses by maturity as of December 31, 2016 (Successor Company). The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information. These held-to-maturity securities are issued by affiliates of the Company which are considered VIE’s. The Company is not the primary beneficiary of these entities and thus the securities are not eliminated in consolidation. These securities are collateralized by non-recourse funding obligations issued by captive insurance companies that are affiliates of the Company.
The Company’s held-to-maturity securities had $78.3 million of gross unrecognized holding losses as of December 31, 2015 (Successor Company). The Company does not consider these unrecognized holding losses to be other-than-temporary based on certain positive factors associated with the securities which include credit ratings of the guarantor, financial health of the issuer and guarantor, continued access of the issuer to capital markets and other pertinent information.
The Company held $39.5 million of non-income producing securities for the year ended December 31, 2016 (Successor Company).
Included in the Company’s invested assets are $1.7 billion of policy loans as of December 31, 2016 (Successor Company). The interest rates on standard policy loans range from 3.0% to 8.0%. The collateral loans on life insurance policies have an interest rate of 13.64%.
Variable Interest Entities
The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the FASB ASC (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a Variable Interest Entity (“VIE”). If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
Based on this analysis, the Company had an interest in one wholly owned subsidiary, Red Mountain, LLC (“Red Mountain”), that was determined to be a VIE as of December 31, 2016 and 2015 (Successor Company). The activity most significant to Red Mountain is the issuance of a note in connection with a financing transaction involving Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and the Company in which Golden Gate V issued non-recourse funding obligations to Red Mountain and Red Mountain issued the note to Golden Gate V. Credit enhancement on the Red Mountain Note is provided by an unrelated third party. For details of this transaction, see Note 15, Debt and Other Obligations . The Company has the power, via its 100% ownership through an affiliate, to direct the activities of the VIE, but does not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third party in its function as provider of credit enhancement on the Red Mountain Note. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, PLC, the holding company, has guaranteed Red Mountain’s payment obligation for the VIE’s credit enhancement fee to the unrelated third party provider. As of December 31, 2016 (Successor Company), no payments have been made or required related to this guarantee.
Steel City, a newly formed wholly owned subsidiary of the Company, entered into a financing agreement on January 15, 2016 involving Golden Gate Captive Insurance Company, in which Golden Gate issued non-recourse funding obligations to Steel City and Steel City issued three notes (the “Steel City Notes”) to Golden Gate. Credit enhancement on the Steel City Notes is provided by unrelated third parties. For details of the financing transaction, see Note 15, Debt and Other Obligations . The activity most significant to Steel City is the issuance of the Steel City Notes. The Company had the power, via its 100% ownership, to direct the activities of the VIE, but did not have the obligation to absorb losses related to the primary risks or sources of variability to the VIE. The variability of loss would be borne primarily by the third parties in their function as providers of credit enhancement
on the Steel City Notes. Accordingly, it was determined that the Company is not the primary beneficiary of the VIE. The Company’s risk of loss related to the VIE is limited to its investment of $10,000. Additionally, the Company has guaranteed Steel City’s payment obligation for the credit enhancement fee to the unrelated third party providers. As of December 31, 2016 (Successor Company), no payments have been made or required related to this guarantee.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosures Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company has adopted the provisions from the FASB guidance that is referenced in the Fair Value Measurements and Disclosures Topic for non-financial assets and liabilities (such as property and equipment, goodwill, and other intangible assets) that are required to be measured at fair value on a periodic basis. The effect on the Company’s periodic fair value measurements for non-financial assets and liabilities was not material.
The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized as follows:
· Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.
· Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. 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 management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
Fixed maturity securities - available-for-sale |
|
|
|
|
|
|
|
|
|
||||
|
Residential mortgage-backed securities |
|
$ |
— |
|
$ |
1,889,604 |
|
$ |
3 |
|
$ |
1,889,607 |
|
|
Commercial mortgage-backed securities |
|
— |
|
1,782,497 |
|
— |
|
1,782,497 |
|
||||
|
Other asset-backed securities |
|
— |
|
648,929 |
|
562,604 |
|
1,211,533 |
|
||||
|
U.S. government-related securities |
|
1,002,020 |
|
266,139 |
|
— |
|
1,268,159 |
|
||||
|
State, municipalities, and political subdivisions |
|
— |
|
1,656,503 |
|
— |
|
1,656,503 |
|
||||
|
Other government-related securities |
|
— |
|
237,926 |
|
— |
|
237,926 |
|
||||
|
Corporate securities |
|
— |
|
26,560,603 |
|
664,046 |
|
27,224,649 |
|
||||
|
Preferred stock |
|
66,781 |
|
19,062 |
|
— |
|
85,843 |
|
||||
|
Total fixed maturity securities - available-for-sale |
|
1,068,801 |
|
33,061,263 |
|
1,226,653 |
|
35,356,717 |
|
||||
|
Fixed maturity securities - trading |
|
|
|
|
|
|
|
|
|
||||
|
Residential mortgage-backed securities |
|
— |
|
255,027 |
|
— |
|
255,027 |
|
||||
|
Commercial mortgage-backed securities |
|
— |
|
149,683 |
|
— |
|
149,683 |
|
||||
|
Other asset-backed securities |
|
— |
|
115,521 |
|
84,563 |
|
200,084 |
|
||||
|
U.S. government-related securities |
|
22,424 |
|
4,537 |
|
— |
|
26,961 |
|
||||
|
State, municipalities, and political subdivisions |
|
— |
|
316,519 |
|
— |
|
316,519 |
|
||||
|
Other government-related securities |
|
— |
|
63,012 |
|
— |
|
63,012 |
|
||||
|
Corporate securities |
|
— |
|
1,619,097 |
|
5,492 |
|
1,624,589 |
|
||||
|
Preferred stock |
|
3,985 |
|
— |
|
— |
|
3,985 |
|
||||
|
Total fixed maturity securities - trading |
|
26,409 |
|
2,523,396 |
|
90,055 |
|
2,639,860 |
|
||||
|
Total fixed maturity securities |
|
1,095,210 |
|
35,584,659 |
|
1,316,708 |
|
37,996,577 |
|
||||
|
Equity securities |
|
650,231 |
|
— |
|
65,786 |
|
716,017 |
|
||||
|
Other long-term investments (1) |
|
82,420 |
|
335,497 |
|
115,516 |
|
533,433 |
|
||||
|
Short-term investments |
|
313,835 |
|
1,999 |
|
— |
|
315,834 |
|
||||
|
Total investments |
|
2,141,696 |
|
35,922,155 |
|
1,498,010 |
|
39,561,861 |
|
||||
|
Cash |
|
214,439 |
|
— |
|
— |
|
214,439 |
|
||||
|
Assets related to separate accounts |
|
|
|
|
|
|
|
|
|
||||
|
Variable annuity |
|
13,244,252 |
|
— |
|
— |
|
13,244,252 |
|
||||
|
Variable universal life |
|
895,925 |
|
— |
|
— |
|
895,925 |
|
||||
|
Total assets measured at fair value on a recurring basis |
|
$ |
16,496,312 |
|
$ |
35,922,155 |
|
$ |
1,498,010 |
|
$ |
53,916,477 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
Annuity account balances(2) |
|
$ |
— |
|
$ |
— |
|
$ |
87,616 |
|
$ |
87,616 |
|
|
Other liabilities(1)(3) |
|
13,004 |
|
255,241 |
|
405,803 |
|
674,048 |
|
||||
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
13,004 |
|
$ |
255,241 |
|
$ |
493,419 |
|
$ |
761,664 |
|
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
(3) During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. The change in estimate resulted in a transfer of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.
The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
Fixed maturity securities - available-for-sale |
|
|
|
|
|
|
|
|
|
||||
|
Residential mortgage-backed securities |
|
$ |
— |
|
$ |
1,765,270 |
|
$ |
3 |
|
$ |
1,765,273 |
|
|
Commercial mortgage-backed securities |
|
— |
|
1,285,864 |
|
— |
|
1,285,864 |
|
||||
|
Other asset-backed securities |
|
— |
|
210,020 |
|
587,031 |
|
797,051 |
|
||||
|
U.S. government-related securities |
|
1,054,353 |
|
477,824 |
|
— |
|
1,532,177 |
|
||||
|
State, municipalities, and political subdivisions |
|
— |
|
1,603,600 |
|
— |
|
1,603,600 |
|
||||
|
Other government-related securities |
|
— |
|
17,740 |
|
— |
|
17,740 |
|
||||
|
Corporate securities |
|
83 |
|
24,876,455 |
|
902,119 |
|
25,778,657 |
|
||||
|
Preferred stock |
|
43,073 |
|
19,614 |
|
— |
|
62,687 |
|
||||
|
Total fixed maturity securities - available-for-sale |
|
1,097,509 |
|
30,256,387 |
|
1,489,153 |
|
32,843,049 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed maturity securities - trading |
|
|
|
|
|
|
|
|
|
||||
|
Residential mortgage-backed securities |
|
— |
|
286,658 |
|
— |
|
286,658 |
|
||||
|
Commercial mortgage-backed securities |
|
— |
|
146,743 |
|
— |
|
146,743 |
|
||||
|
Other asset-backed securities |
|
— |
|
122,511 |
|
152,912 |
|
275,423 |
|
||||
|
U.S. government-related securities |
|
233,592 |
|
4,755 |
|
— |
|
238,347 |
|
||||
|
State, municipalities, and political subdivisions |
|
— |
|
313,354 |
|
— |
|
313,354 |
|
||||
|
Other government-related securities |
|
— |
|
58,827 |
|
— |
|
58,827 |
|
||||
|
Corporate securities |
|
— |
|
1,322,276 |
|
18,225 |
|
1,340,501 |
|
||||
|
Preferred stock |
|
2,794 |
|
1,402 |
|
— |
|
4,196 |
|
||||
|
Total fixed maturity securities - trading |
|
236,386 |
|
2,256,526 |
|
171,137 |
|
2,664,049 |
|
||||
|
Total fixed maturity securities |
|
1,333,895 |
|
32,512,913 |
|
1,660,290 |
|
35,507,098 |
|
||||
|
Equity securities |
|
620,358 |
|
13,063 |
|
66,504 |
|
699,925 |
|
||||
|
Other long-term investments (1) |
|
113,699 |
|
141,487 |
|
68,384 |
|
323,570 |
|
||||
|
Short-term investments |
|
261,659 |
|
2,178 |
|
— |
|
263,837 |
|
||||
|
Total investments |
|
2,329,611 |
|
32,669,641 |
|
1,795,178 |
|
36,794,430 |
|
||||
|
Cash |
|
212,358 |
|
— |
|
— |
|
212,358 |
|
||||
|
Assets related to separate accounts |
|
|
|
|
|
|
|
|
|
||||
|
Variable annuity |
|
12,829,188 |
|
— |
|
— |
|
12,829,188 |
|
||||
|
Variable universal life |
|
827,610 |
|
— |
|
— |
|
827,610 |
|
||||
|
Total assets measured at fair value on a recurring basis |
|
$ |
16,198,767 |
|
$ |
32,669,641 |
|
$ |
1,795,178 |
|
$ |
50,663,586 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
Annuity account balances (2) |
|
$ |
— |
|
$ |
— |
|
$ |
92,512 |
|
$ |
92,512 |
|
|
Other liabilities (1) |
|
40,067 |
|
106,310 |
|
375,848 |
|
522,225 |
|
||||
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
40,067 |
|
$ |
106,310 |
|
$ |
468,360 |
|
$ |
614,737 |
|
(1) Includes certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
Determination of Fair Values
The valuation methodologies used to determine the fair values of assets and liabilities reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines certain fair values based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity, and where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments as listed in the above table.
The fair value of fixed maturity, short-term, and equity securities is determined by management after considering one of three primary sources of information: third party pricing services, non-binding independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for non-binding prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. Third party pricing services price approximately 90% of the Company’s available-for-sale and trading fixed maturity securities. Based on the typical trading volumes and the lack of quoted market prices for available-for-sale and trading fixed maturities, third party pricing services derive the majority of security prices from observable market inputs such as recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Certain securities are priced via independent non-binding broker quotations, which are considered to have no significant unobservable inputs. When using non-binding independent broker quotations, the Company obtains one quote per security, typically from the broker from which we purchased the security. A pricing matrix is used to price securities for which the Company is unable to obtain or effectively rely on either a price from a third party pricing service or an independent broker quotation.
The pricing matrix used by the Company begins with current spread levels to determine the market price for the security. The credit spreads, assigned by brokers, incorporate the issuer’s credit rating, liquidity discounts, weighted- average of contracted cash flows, risk premium, if warranted, due to the issuer’s industry, and the security’s time to maturity. The Company uses credit ratings provided by nationally recognized rating agencies.
For securities that are priced via non-binding independent broker quotations, the Company assesses whether prices received from independent brokers represent a reasonable estimate of fair value through an analysis using internal and external cash flow models developed based on spreads and, when available, market indices. The Company uses a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. The Company did not adjust any quotes or prices received from brokers during the year ended December 31, 2016 (Successor Company).
The Company has analyzed the third party pricing services’ valuation methodologies and related inputs and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs that is in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3. Most prices provided by third party pricing services are classified into Level 2 because the significant inputs used in pricing the securities are market observable and the observable inputs are corroborated by the Company. Since the matrix pricing of certain debt securities includes significant non-observable inputs, they are classified as Level 3.
During 2016, the Company revised its methodology for assessing inputs to its valuation of certain centrally cleared derivatives. The change in estimate resulted in a transfer of $169.4 million in other long-term assets and $120.0 million in other liabilities from Level 1 to Level 2 of the fair value hierarchy.
Asset-Backed Securities
This category mainly consists of residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities (collectively referred to as asset-backed securities or “ABS”). As of December 31, 2016 (Successor Company), the Company held $4.8 billion of ABS classified as Level 2. These securities are priced from information provided by a third party pricing service and independent broker quotes. The third party pricing services and brokers mainly value securities using both a market and income approach to valuation. As part of this valuation process they consider the following characteristics of the item being measured to be relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, and 7) credit ratings of the securities.
After reviewing these characteristics of the ABS, the third party pricing service and brokers use certain inputs to determine the value of the security. For ABS classified as Level 2, the valuation would consist of predominantly market observable inputs such as, but not limited to: 1) monthly principal and interest payments on the underlying assets, 2) average life of the security, 3) prepayment speeds, 4) credit spreads, 5) treasury and swap yield curves, and 6) discount margin. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
As of December 31, 2016 (Successor Company), the Company held $647.2 million of Level 3 ABS, which included $562.6 million of other asset-backed securities classified as available-for-sale and $84.6 million of other asset-backed securities classified as trading. These securities within the available-for-sale portfolio are predominantly ARS whose underlying collateral is at least 97% guaranteed by the FFELP. Due to the limited activity in the market for these securities in periods where there are insufficient market transactions, the Company prices its ARS using an income approach valuation model. As part of the valuation process the Company reviews the following characteristics of the ARS in determining the relevant inputs: 1) weighted-average coupon rate, 2) weighted-average years to maturity, 3) types of underlying assets, 4) weighted-average coupon rate of the underlying assets, 5) weighted-average years to maturity of the underlying assets, 6) seniority level of the tranches owned, 7) credit ratings of the securities, 8) liquidity premium, and 9) paydown rate. In periods where market activity increases and there are transactions at a price that is not the result of a distressed or forced sale we consider those prices as part of our valuation. If the market activity
during a period is solely the result of the issuer redeeming positions we consider those transactions in our valuation, but still consider them to be level three measurements due to the nature of the transaction.
Corporate Securities, U.S. Government-Related Securities, States, Municipals, and Political Subdivisions, and Other Government Related Securities
As of December 31, 2016 (Successor Company), the Company classified approximately $30.7 billion of corporate securities, U.S. government-related securities, states, municipals, and political subdivisions, and other government-related securities as Level 2. The fair value of the Level 2 securities is predominantly priced by broker quotes and a third party pricing service. The Company has reviewed the valuation techniques of the brokers and third party pricing service and has determined that such techniques used Level 2 market observable inputs. The following characteristics of the securities are considered to be the primary relevant inputs to the valuation: 1) weighted- average coupon rate, 2) weighted-average years to maturity, 3) seniority, and 4) credit ratings. The Company reviews the methodologies and valuation techniques (including the ability to observe inputs) in assessing the information received from external pricing services and in consideration of the fair value presentation.
The brokers and third party pricing service utilize valuation models that consist of a hybrid income and market approach to valuation. The pricing models utilize the following inputs: 1) principal and interest payments, 2) treasury yield curve, 3) credit spreads from new issue and secondary trading markets, 4) dealer quotes with adjustments for issues with early redemption features, 5) liquidity premiums present on private placements, and 6) discount margins from dealers in the new issue market.
As of December 31, 2016 (Successor Company), the Company classified approximately $669.5 million of securities as Level 3 valuations. Level 3 securities primarily represent investments in illiquid bonds for which no price is readily available. To determine a price, the Company uses a discounted cash flow model with both observable and unobservable inputs. These inputs are entered into an industry standard pricing model to determine the final price of the security. These inputs include: 1) principal and interest payments, 2) coupon rate, 3) sector and issuer level spread over treasury, 4) underlying collateral, 5) credit ratings, 6) maturity, 7) embedded options, 8) recent new issuance, 9) comparative bond analysis, and 10) an illiquidity premium.
Equities
As of December 31, 2016 (Successor Company), the Company held approximately $65.8 million of equity securities classified as Level 2 and Level 3. Of this total, $65.7 million represents FHLB stock. The Company believes that the cost of the FHLB stock approximates fair value.
Other Long-Term Investments and Other Liabilities
Other long-term investments and other liabilities consist entirely of free-standing and embedded derivative financial instruments. Refer to Note 8, Derivative Financial Instruments for additional information related to derivatives. Derivative financial instruments are valued using exchange prices, independent broker quotations, or pricing valuation models, which utilize market data inputs. Excluding embedded derivatives, as of December 31, 2016 (Successor Company), 79% of derivatives based upon notional values were priced using exchange prices or independent broker quotations. Inputs used to value derivatives include, but are not limited to, interest swap rates, credit spreads, interest rate and equity market volatility indices, equity index levels, and treasury rates. The Company performs monthly analysis on derivative valuations that includes both quantitative and qualitative analyses.
Derivative instruments classified as Level 1 generally include futures and options, which are traded on active exchange markets.
Derivative instruments classified as Level 2 primarily include swaps, options, and swaptions, which are traded over-the-counter. Level 2 also includes certain centrally cleared derivatives. These derivative valuations are determined using independent broker quotations, which are corroborated with observable market inputs.
Derivative instruments classified as Level 3 were embedded derivatives and include at least one significant non-observable input. A derivative instrument containing Level 1 and Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has at least one significant Level 3 input.
The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instruments may not be classified within the same fair value hierarchy level as the associated assets and liabilities. Therefore, the changes in fair value on derivatives reported in Level 3 may not reflect the offsetting impact of the changes in fair value of the associated assets and liabilities.
The embedded derivatives are carried at fair value in other long-term investments and other liabilities on the Company’s consolidated balance sheet. The changes in fair value are recorded in earnings as “Realized investment gains (losses)—Derivative financial instruments”. Refer to Note 8, Derivative Financial Instruments for more information related to each embedded derivatives gains and losses.
The fair value of the GLWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using multiple risk neutral stochastic equity scenarios and policyholder behavior assumptions. The risk neutral scenarios are generated using the current swap curve and projected equity volatilities and correlations. The projected equity volatilities are based on a blend of historical volatility and near- term equity market implied volatilities. The equity correlations are based on historical price observations. For policyholder behavior assumptions, expected lapse and utilization assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the Ruark 2015 ALB table with attained age factors varying from 91.1% - 106.6%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR plus a credit spread (to represent the Company’s non-performance risk). As
a result of using significant unobservable inputs, the GLWB embedded derivative is categorized as Level 3. These assumptions are reviewed on a quarterly basis.
The balance of the FIA embedded derivative is impacted by policyholder cash flows associated with the FIA product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 1994 Variable Annuity MGDB mortality table modified with company experience, with attained age factors varying from 46% - 113%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.
The balance of the indexed universal life (“IUL”) embedded derivative is impacted by policyholder cash flows associated with the IUL product that are allocated to the embedded derivative in addition to changes in the fair value of the embedded derivative during the reporting period. The fair value of the IUL embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the SOA 2015 VBT Primary Tables modified with company experience, with attained age factors varying from 38% - 153%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBORup to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the IUL embedded derivative is categorized as Level 3.
The Company has assumed and ceded certain blocks of policies under modified coinsurance agreements in which the investment results of the underlying portfolios inure directly to the reinsurers. As a result, these agreements contain embedded derivatives that are reported at fair value. Changes in their fair value are reported in earnings. The investments supporting these agreements are designated as “trading securities”; therefore changes in their fair value are also reported in earnings. As of December 31, 2016 (Successor Company), the fair value of the embedded derivative is based upon the relationship between the statutory policy liabilities (net of policy loans) of $2.4 billion and the statutory unrealized gain (loss) of the securities of $147.3 million. As a result, changes in the fair value of the embedded derivatives are largely offset by the changes in fair value of the related investments and each are reported in earnings. The fair value of the embedded derivative is considered a Level 3 valuation due to the unobservable nature of the policy liabilities.
Certain of the Company’s subsidiaries have entered into interest support, yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements with PLC. These agreements meet the definition of a derivative and are accounted for at fair value and are considered Level 3 valuations. The fair value of these derivatives as of December 31, 2016 (Successor Company), was $48.9 million and is included in Other long-term investments . For information regarding realized gains on these derivatives please refer to Note 8, Derivative Financial Instruments .
The Interest Support Agreement provides that PLC will make payments to Golden Gate II if actual investment income on certain of Golden Gate II’s asset portfolios falls below a calculated investment income amount as defined in the Interest Support Agreement. The calculated investment income amount is a level of investment income deemed to be sufficient to support certain of Golden Gate II’s obligations under a reinsurance agreement with the Company, dated July 1, 2007. The derivative is valued using an internal valuation model that assumes a conservative projection of investment income under an adverse interest rate scenario and the probability that the expectation falls below the calculated investment income amount. This derivative had a fair value of $43.3 million as of December 31, 2016 (Successor Company), however, interest support agreement obligations to Golden Gate II of approximately $1.5 million have been collateralized by PLC. Re-evaluation, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreement. As of December 31, 2016 (Successor Company), no payments have been triggered under this agreement.
The YRT Premium support agreements provide that PLC will make payments to Golden Gate and Golden Gate II in the event that YRT premium rates increase. The derivatives are valued using an internal valuation model. The valuation model is a probability weighted discounted cash flow model. The value is primarily a function of the likelihood and severity of future YRT premium increases. The fair value of these derivatives as of December 31, 2016 (Successor Company), was $2.0 million. As of December 31, 2016 (Successor Company), no payments have been triggered under this agreement.
The portfolio maintenance agreements provide that PLC will make payments to Golden Gate, Golden Gate V, and WCL in the event of other-than-temporary impairments on investments that exceed defined thresholds. The derivatives are valued using an internal discounted cash flow model. The significant unobservable inputs are the projected probability and severity of credit losses used to project future cash flows on the investment portfolios. The fair value of the portfolio maintenance agreements as of December 31, 2016 (Successor Company), was $3.6 million. As of December 31, 2016 (Successor Company), no payments have been triggered under this agreement.
The Funds Withheld derivative results from a reinsurance agreement with Shades Creek where the economic performance of certain hedging instruments held by the Company is ceded to Shades Creek. The value of the Funds Withheld derivative is directly tied to the value of the hedging instruments held in the funds withheld account. The hedging instruments predominantly consist of derivative instruments the fair values of which are classified as a Level 2 measurement; as such, the fair value of the
Funds Withheld derivative has been classified as a Level 2 measurement. The fair value of the Funds Withheld derivative as of December 31, 2016 (Successor Company), was a liability of $91.3 million.
Annuity Account Balances
The Company records a certain legacy block of FIA reserves at fair value. Based on the characteristics of these reserves, the Company believes that the fund value approximates fair value. The fair value measurement of these reserves is considered a Level 3 valuation due to the unobservable nature of the fund values. The Level 3 fair value as of December 31, 2016 (Successor Company) is $87.6 million.
Separate Accounts
Separate account assets are invested in open-ended mutual funds and are included in Level 1.
Valuation of Level 3 Financial Instruments
The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:
|
|
|
Successor Company |
|
|
|
|
|
|
||
|
|
|
Fair Value
|
|
Valuation
|
|
Unobservable
|
|
Range
|
||
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
||
|
Assets: |
|
|
|
|
|
|
|
|
||
|
Other asset-backed securities |
|
$ |
553,308 |
|
Liquidation |
|
Liquidation value |
|
$88 - $97.25 ($95.04) |
|
|
Corporate securities |
|
638,279 |
|
Discounted cash flow |
|
Spread over treasury |
|
0.31% - 4.50% (2.04%) |
||
|
Liabilities:(1) |
|
|
|
|
|
|
|
|
||
|
Embedded derivatives—GLWB(2) |
|
$ |
7,031 |
|
Actuarial cash flow model |
|
Mortality |
|
91.1% to 106.6% of
|
|
|
|
|
|
|
|
Lapse |
|
0.3% - 15%, depending on product/duration/funded status of guarantee |
|||
|
|
|
|
|
|
|
Utilization |
|
99%. 10% of policies have a one-time over-utilization of 400% |
||
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.09% |
||
|
Embedded derivative—FIA |
|
147,368 |
|
Actuarial cash flow model |
|
Expenses |
|
$126 per policy |
||
|
|
|
|
|
|
Asset Earned Rate |
|
4.08% - 4.66% |
|||
|
|
|
|
|
|
Withdrawal rate |
|
1% prior to age 70, 100% of the RMD for ages 70+ |
|||
|
|
|
|
|
|
|
Mortality |
|
1994 MGDB table with company experience |
||
|
|
|
|
|
|
|
Lapse |
|
2.0% - 40.0%, depending on duration/surrender charge period |
||
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.09% |
||
|
Embedded derivative—IUL |
|
46,051 |
|
Actuarial cash flow model |
|
Mortality |
|
38% - 153% of 2015
|
||
|
|
|
|
|
|
Lapse |
|
0.5% - 10.0%, depending on duration/distribution channel and smoking class |
|||
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.09% |
||
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.
The Company has considered all reasonably available quantitative inputs as of December 31, 2016 (Successor Company), but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $125.2 million of financial instruments being classified as Level 3 as of December 31, 2016 (Successor Company). Of the $125.2 million, $93.9 million are other asset-backed securities, and $31.3 million are corporate securities.
In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2016 (Successor Company), the Company held $65.7 million of financial instruments where book value approximates fair value which are predominantly FHLB stock.
The following table presents the valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments:
|
|
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Valuation
|
|
Unobservable
|
|
Range
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Other asset-backed securities |
|
$ |
587,031 |
|
Discounted cash flow |
|
Liquidity premium |
|
0.27% - 1.49% (0.42%) |
|
|
|
|
|
|
Paydown rate |
|
10.20% - 14.72% (13.11%) |
||
|
Corporate securities |
|
875,810 |
|
Discounted cash flow |
|
Spread over treasury |
|
0.10% - 19.00% (2.61%) |
|
|
Liabilities:(1) |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives—GLWB(2) |
|
$ |
18,511 |
|
Actuarial cash flow model |
|
Mortality |
|
1994 MGDB table with company experience |
|
|
|
|
|
|
Lapse |
|
0.3% - 15%, depending on product/duration/funded status of guarantee |
||
|
|
|
|
|
|
|
Utilization |
|
99%. 10% of policies have a one-time over-utilization of 400% |
|
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.04% |
|
|
Annuity account balances(3) |
|
92,512 |
|
Actuarial cash flow model |
|
Asset earned rate |
|
4.53% - 5.67% |
|
|
|
|
|
|
|
Expenses |
|
$81 per policy |
||
|
|
|
|
|
|
|
Withdrawal rate |
|
2.20% |
|
|
|
|
|
|
|
|
Mortality |
|
1994 MGDB table with company experience |
|
|
|
|
|
|
|
|
Lapse |
|
2.2% - 33.0%, depending on duration/surrender charge period |
|
|
|
|
|
|
|
|
Return on assets |
|
1.50% - 1.85% depending on surrender charge period |
|
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.04% |
|
|
Embedded derivative—FIA |
|
100,329 |
|
Actuarial cash flow model |
|
Expenses |
|
$81.50 per policy |
|
|
|
|
|
|
|
Withdrawal rate |
|
1.1% - 4.5% depending on duration and tax qualification |
||
|
|
|
|
|
|
|
Mortality |
|
1994 MGDB table with company experience |
|
|
|
|
|
|
|
|
Lapse |
|
2.5% - 40.0%, depending on duration/surrender charge period |
|
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.04% |
|
|
Embedded derivative—IUL |
|
29,629 |
|
Actuarial cash flow model |
|
Mortality |
|
38% - 153% of 2015 |
|
|
|
|
|
|
|
|
|
VBT Primary Tables |
||
|
|
|
|
|
|
Lapse |
|
0.5% - 10.0%, depending on duration/distribution channel and smoking class |
||
|
|
|
|
|
|
|
Nonperformance risk |
|
0.18% - 1.04% |
|
(1) Excludes modified coinsurance arrangements.
(2) The fair value for the GLWB embedded derivative is presented as a net liability.
(3) Represents liabilities related to fixed indexed annuities.
The chart above excludes Level 3 financial instruments that are valued using broker quotes and those which book value approximates fair value.
The Company has considered all reasonably available quantitative inputs as of December 31, 2015 (Successor Company), but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $197.5 million of financial instruments being classified as Level 3 as of December 31, 2015 (Successor Company). Of the $197.5 million, $152.9 million are other asset backed securities, and $44.6 million are corporate securities.
In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2015 (Successor Company), the Company held $66.5 million of financial instruments where book value approximates fair value which are predominantly FHLB stock.
The asset-backed securities classified as Level 3 are predominantly ARS. A change in the paydown rate (the projected annual rate of principal reduction) of the ARS can significantly impact the fair value of these securities. A decrease in the paydown rate would increase the projected weighted average life of the ARS and increase the sensitivity of the ARS’ fair value to changes in interest rates. An increase in the liquidity premium would result in a decrease in the fair value of the securities, while a decrease
in the liquidity premium would increase the fair value of these securities. The liquidation value for these securities are sensitive to the issuer’s available cash flows and ability to redeem the securities, as well as the current holders’ willingness to liquidate at the specified price.
The fair value of corporate bonds classified as Level 3 is sensitive to changes in the interest rate spread over the corresponding U.S. Treasury rate. This spread represents a risk premium that is impacted by company specific and market factors. An increase in the spread can be caused by a perceived increase in credit risk of a specific issuer and/or an increase in the overall market risk premium associated with similar securities. The fair values of corporate bonds are sensitive to changes in spread. When holding the treasury rate constant, the fair value of corporate bonds increases when spreads decrease, and decreases when spreads increase.
The fair value of the GLWB embedded derivative is sensitive to changes in the discount rate which includes the Company’s nonperformance risk, volatility, lapse, and mortality assumptions. The volatility assumption is an observable input as it is based on market inputs. The Company’s nonperformance risk, lapse, and mortality are unobservable. An increase in the three unobservable assumptions would result in a decrease in the fair value of the liability and conversely, if there is a decrease in the assumptions the fair value would increase. The fair value is also dependent on the assumed policyholder utilization of the GLWB where an increase in assumed utilization would result in an increase in the fair value of the liability and conversely, if there is a decrease in the assumption, the fair value would decrease.
The fair value of the FIA embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and nonperformance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.
The fair value of the IUL embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the IUL embedded derivative is sensitive to non-performance risk, which is unobservable. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for year ended December 31, 2016 (Successor Company), for which the Company has used significant unobservable inputs (Level 3):
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|
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Total
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains
|
|
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Beginning
|
|
Included
|
|
Included In
|
|
Included
|
|
Included in
|
|
Purchases |
|
Sales |
|
Issuances |
|
Settlements |
|
Transfers
|
|
Other |
|
Ending
|
|
still held at
|
|
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(Dollars In Thousands) |
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Assets: |
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Fixed maturity securities available-for-sale |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
$ |
3 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
6 |
|
— |
|
(1,608 |
) |
23,559 |
|
— |
|
— |
|
— |
|
(21,938 |
) |
(19 |
) |
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
587,031 |
|
6,859 |
|
42,865 |
|
— |
|
(29,673 |
) |
30,441 |
|
(79,314 |
) |
— |
|
— |
|
7,457 |
|
(3,062 |
) |
562,604 |
|
— |
|
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
States, municipals, and political subdivisions |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
902,119 |
|
925 |
|
40,574 |
|
(4,135 |
) |
(33,151 |
) |
102,425 |
|
(225,556 |
) |
— |
|
— |
|
(109,792 |
) |
(9,363 |
) |
664,046 |
|
— |
|
|||||||||||||
|
Total fixed maturity securities - available-for-sale |
|
1,489,153 |
|
7,784 |
|
83,445 |
|
(4,135 |
) |
(64,432 |
) |
156,425 |
|
(304,870 |
) |
— |
|
— |
|
(124,273 |
) |
(12,444 |
) |
1,226,653 |
|
— |
|
|||||||||||||
|
Fixed maturity securities - trading |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
152,912 |
|
5,386 |
|
— |
|
(4,790 |
) |
— |
|
— |
|
(70,270 |
) |
— |
|
— |
|
172 |
|
1,153 |
|
84,563 |
|
594 |
|
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
States, municipals and political subdivisions |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
18,225 |
|
713 |
|
— |
|
(442 |
) |
— |
|
10,906 |
|
(4,071 |
) |
— |
|
— |
|
(19,722 |
) |
(117 |
) |
5,492 |
|
101 |
|
|||||||||||||
|
Total fixed maturity securities - trading |
|
171,137 |
|
6,099 |
|
— |
|
(5,232 |
) |
— |
|
10,906 |
|
(74,341 |
) |
— |
|
— |
|
(19,550 |
) |
1,036 |
|
90,055 |
|
695 |
|
|||||||||||||
|
Total fixed maturity securities |
|
1,660,290 |
|
13,883 |
|
83,445 |
|
(9,367 |
) |
(64,432 |
) |
167,331 |
|
(379,211 |
) |
— |
|
— |
|
(143,823 |
) |
(11,408 |
) |
1,316,708 |
|
695 |
|
|||||||||||||
|
Equity securities |
|
66,504 |
|
— |
|
— |
|
(740 |
) |
— |
|
22 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
65,786 |
|
— |
|
|||||||||||||
|
Other long-term investments(1) |
|
68,384 |
|
76,606 |
|
— |
|
(30,903 |
) |
— |
|
1,429 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
115,516 |
|
45,703 |
|
|||||||||||||
|
Short-term investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Total investments |
|
1,795,178 |
|
90,489 |
|
83,445 |
|
(41,010 |
) |
(64,432 |
) |
168,782 |
|
(379,211 |
) |
— |
|
— |
|
(143,823 |
) |
(11,408 |
) |
1,498,010 |
|
46,398 |
|
|||||||||||||
|
Total assets measured at fair value on a recurring basis |
|
$ |
1,795,178 |
|
$ |
90,489 |
|
$ |
83,445 |
|
$ |
(41,010 |
) |
$ |
(64,432 |
) |
$ |
168,782 |
|
$ |
(379,211 |
) |
$ |
— |
|
$ |
— |
|
$ |
(143,823 |
) |
$ |
(11,408 |
) |
$ |
1,498,010 |
|
$ |
46,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Annuity account balances(2) |
|
$ |
92,512 |
|
$ |
— |
|
$ |
— |
|
$ |
3,144 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
555 |
|
$ |
9,844 |
|
$ |
— |
|
$ |
1,249 |
|
$ |
87,616 |
|
$ |
— |
|
|
Other liabilities(1) |
|
375,848 |
|
252,324 |
|
— |
|
(282,279 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
405,803 |
|
(29,955 |
) |
|||||||||||||
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
468,360 |
|
$ |
252,324 |
|
$ |
— |
|
$ |
(279,135 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
555 |
|
$ |
9,844 |
|
$ |
— |
|
$ |
1,249 |
|
$ |
493,419 |
|
$ |
(29,955 |
) |
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the year ended December 31, 2016 (Successor Company), there were $75.7 million of transfers into Level 3.
For the year ended December 31, 2016 (Successor Company), $221.5 million of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of December 31, 2016 (Successor Company).
For the year ended December 31, 2016 (Successor Company), there were $12.2 million of transfers from Level 2 to Level 1.
For the year ended December 31, 2016 (Successor Company), $0.1 million of securities were transferred from Level 1. In addition, there was transfers of $169.4 million in other long-term investments and $120.0 million in other liabilities from Level 1 to Level 2.
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the period of February 1, 2015 to December 31, 2015 (Successor Company), for which the Company has used significant unobservable inputs (Level 3):
|
|
|
|
|
Total
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|||||||||||||||||
|
|
|
Beginning
|
|
Included in
|
|
Included in
|
|
Included in
|
|
Included in
|
|
Purchases |
|
Sales |
|
Issuances |
|
Settlements |
|
Transfers
|
|
Other |
|
Ending
|
|
still held at
|
|
|||||||||||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||||||||||||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Fixed maturity securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
$ |
3 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
603,646 |
|
— |
|
11,040 |
|
(92 |
) |
(17,076 |
) |
— |
|
(9,677 |
) |
— |
|
— |
|
— |
|
(810 |
) |
587,031 |
|
— |
|
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
States, municipals, and political subdivisions |
|
3,675 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(3,675 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
1,307,259 |
|
4,367 |
|
24,490 |
|
(963 |
) |
(52,898 |
) |
199,924 |
|
(407,052 |
) |
— |
|
— |
|
(164,588 |
) |
(8,420 |
) |
902,119 |
|
— |
|
|||||||||||||
|
Total fixed maturity securities— available-for-sale |
|
1,914,583 |
|
4,367 |
|
35,530 |
|
(1,055 |
) |
(69,974 |
) |
199,924 |
|
(420,404 |
) |
— |
|
— |
|
(164,588 |
) |
(9,230 |
) |
1,489,153 |
|
— |
|
|||||||||||||
|
Fixed maturity securities—trading |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
169,473 |
|
6,260 |
|
— |
|
(7,967 |
) |
— |
|
2,000 |
|
(15,154 |
) |
— |
|
— |
|
(1,982 |
) |
282 |
|
152,912 |
|
(5,804 |
) |
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
States, municipals and political subdivisions |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
25,130 |
|
501 |
|
— |
|
(1,407 |
) |
— |
|
— |
|
(5,805 |
) |
— |
|
— |
|
— |
|
(194 |
) |
18,225 |
|
(1,430 |
) |
|||||||||||||
|
Total fixed maturity securities—trading |
|
194,603 |
|
6,761 |
|
— |
|
(9,374 |
) |
— |
|
2,000 |
|
(20,959 |
) |
— |
|
— |
|
(1,982 |
) |
88 |
|
171,137 |
|
(7,234 |
) |
|||||||||||||
|
Total fixed maturity securities |
|
2,109,186 |
|
11,128 |
|
35,530 |
|
(10,429 |
) |
(69,974 |
) |
201,924 |
|
(441,363 |
) |
— |
|
— |
|
(166,570 |
) |
(9,142 |
) |
1,660,290 |
|
(7,234 |
) |
|||||||||||||
|
Equity securities |
|
66,691 |
|
— |
|
44 |
|
— |
|
— |
|
— |
|
(231 |
) |
— |
|
— |
|
— |
|
— |
|
66,504 |
|
— |
|
|||||||||||||
|
Other long-term investments(1) |
|
64,200 |
|
52,792 |
|
— |
|
(48,608 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
68,384 |
|
4,184 |
|
|||||||||||||
|
Short-term investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Total investments |
|
2,240,077 |
|
63,920 |
|
35,574 |
|
(59,037 |
) |
(69,974 |
) |
201,924 |
|
(441,594 |
) |
— |
|
— |
|
(166,570 |
) |
(9,142 |
) |
1,795,178 |
|
(3,050 |
) |
|||||||||||||
|
Total assets measured at fair value on a recurring basis |
|
$ |
2,240,077 |
|
$ |
63,920 |
|
$ |
35,574 |
|
$ |
(59,037 |
) |
$ |
(69,974 |
) |
$ |
201,924 |
|
$ |
(441,594 |
) |
$ |
— |
|
$ |
— |
|
$ |
(166,570 |
) |
$ |
(9,142 |
) |
$ |
1,795,178 |
|
$ |
(3,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Annuity account balances(2) |
|
$ |
98,279 |
|
$ |
— |
|
$ |
— |
|
$ |
(6,156 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
368 |
|
$ |
12,291 |
|
$ |
— |
|
$ |
— |
|
$ |
92,512 |
|
$ |
— |
|
|
Other liabilities(1) |
|
530,118 |
|
278,171 |
|
— |
|
(123,901 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
375,848 |
|
154,270 |
|
|||||||||||||
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
628,397 |
|
$ |
278,171 |
|
$ |
— |
|
$ |
(130,057 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
368 |
|
$ |
12,291 |
|
$ |
— |
|
$ |
— |
|
$ |
468,360 |
|
$ |
154,270 |
|
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the period of February 1, 2015 to December 31, 2015 (Successor Company), there were no transfers of securities into Level 3.
For the period of February 1, 2015 to December 31, 2015 (Successor Company), $166.6 million transfers of securities were transferred into Level 2. This amount was transferred from Level 3. These transfers resulted from securities that were priced internally using significant unobservable inputs where market observable inputs were not available in previous periods but were priced by independent pricing services or brokers as of December 31, 2015 (Successor Company).
For the period of February 1, 2015 to December 31, 2015 (Successor Company), $90.4 million of securities were transferred from Level 2 to Level 1.
For the period of February 1, 2015 to December 31, 2015 (Successor Company), $21.0 million of securities were transferred out of Level 1.
The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), for which the Company has used significant unobservable inputs (Level 3):
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|
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|
|
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|
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|
Total Gains |
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
(losses) |
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|||||||||||||
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|
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|
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|
|
|
included in |
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|||||||||||||
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|
|
|
Total |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|||||||||||||||||
|
|
|
|
|
Realized and Unrealized |
|
Realized and Unrealized |
|
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|
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|
|
|
|
|
|
|
|
|
related to |
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|||||||||||||||||
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|
|
|
|
Gains |
|
Losses |
|
|
|
|
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|
|
|
|
|
|
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Instruments |
|
|||||||||||||||||
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|
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|
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|
Included in |
|
|
|
Included in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held at |
|
|||||||||||||
|
|
|
|
|
Included |
|
Other |
|
Included |
|
Other |
|
|
|
|
|
|
|
|
|
Transfers |
|
|
|
|
|
the |
|
|||||||||||||
|
|
|
Beginning |
|
in |
|
Comprehensive |
|
in |
|
Comprehensive |
|
|
|
|
|
|
|
|
|
in/out of |
|
|
|
Ending |
|
Reporting |
|
|||||||||||||
|
|
|
Balance |
|
Earnings |
|
Income |
|
Earnings |
|
Income |
|
Purchases |
|
Sales |
|
Issuances |
|
Settlements |
|
Level 3 |
|
Other |
|
Balance |
|
Date |
|
|||||||||||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||||||||||||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Fixed maturity securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
$ |
3 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
563,961 |
|
— |
|
— |
|
— |
|
(3,867 |
) |
— |
|
(32 |
) |
— |
|
— |
|
43,205 |
|
379 |
|
603,646 |
|
— |
|
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
States, municipals, and political subdivisions |
|
3,675 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
3,675 |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
1,325,683 |
|
— |
|
12,282 |
|
— |
|
(23,029 |
) |
— |
|
(7,062 |
) |
— |
|
— |
|
— |
|
(615 |
) |
1,307,259 |
|
— |
|
|||||||||||||
|
Total fixed maturity securities - available-for-sale |
|
1,893,322 |
|
— |
|
12,282 |
|
— |
|
(26,896 |
) |
— |
|
(7,094 |
) |
— |
|
— |
|
43,205 |
|
(236 |
) |
1,914,583 |
|
— |
|
|||||||||||||
|
Fixed maturity securities - trading |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Commercial mortgage-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other asset-backed securities |
|
169,461 |
|
586 |
|
— |
|
(139 |
) |
— |
|
— |
|
(472 |
) |
— |
|
— |
|
— |
|
37 |
|
169,473 |
|
447 |
|
|||||||||||||
|
U.S. government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|||||||||||||
|
States, municipals and political subdivisions |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Other government-related securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Corporate securities |
|
24,744 |
|
602 |
|
— |
|
(196 |
) |
— |
|
— |
|
(20 |
) |
— |
|
— |
|
— |
|
— |
|
25,130 |
|
406 |
|
|||||||||||||
|
Total fixed maturity securities - trading |
|
194,205 |
|
1,188 |
|
— |
|
(335 |
) |
— |
|
— |
|
(492 |
) |
— |
|
— |
|
— |
|
37 |
|
194,603 |
|
853 |
|
|||||||||||||
|
Total fixed maturity securities |
|
2,087,527 |
|
1,188 |
|
12,282 |
|
(335 |
) |
(26,896 |
) |
— |
|
(7,586 |
) |
— |
|
— |
|
43,205 |
|
(199 |
) |
2,109,186 |
|
853 |
|
|||||||||||||
|
Equity securities |
|
66,691 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
66,691 |
|
— |
|
|||||||||||||
|
Other long-term investments(1) |
|
44,625 |
|
16,617 |
|
— |
|
(15,166 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
46,076 |
|
1,451 |
|
|||||||||||||
|
Short-term investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||||||
|
Total investments |
|
2,198,843 |
|
17,805 |
|
12,282 |
|
(15,501 |
) |
(26,896 |
) |
— |
|
(7,586 |
) |
— |
|
— |
|
43,205 |
|
(199 |
) |
2,221,953 |
|
2,304 |
|
|||||||||||||
|
Total assets measured at fair value on a recurring basis |
|
$ |
2,198,843 |
|
$ |
17,805 |
|
$ |
12,282 |
|
$ |
(15,501 |
) |
$ |
(26,896 |
) |
$ |
— |
|
$ |
(7,586 |
) |
$ |
— |
|
$ |
— |
|
$ |
43,205 |
|
$ |
(199 |
) |
$ |
2,221,953 |
|
$ |
2,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Annuity account balances(2) |
|
$ |
97,825 |
|
$ |
— |
|
$ |
— |
|
$ |
(536 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
7 |
|
$ |
419 |
|
$ |
— |
|
$ |
— |
|
$ |
97,949 |
|
$ |
— |
|
|
Other liabilities(1) |
|
506,343 |
|
61 |
|
— |
|
(125,995 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
632,277 |
|
(125,934 |
) |
|||||||||||||
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
604,168 |
|
$ |
61 |
|
$ |
— |
|
$ |
(126,531 |
) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
7 |
|
$ |
419 |
|
$ |
— |
|
$ |
— |
|
$ |
730,226 |
|
$ |
(125,934 |
) |
(1) Represents certain freestanding and embedded derivatives.
(2) Represents liabilities related to fixed indexed annuities.
For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), $43.2 million of securities were transferred into Level 3. This amount was transferred from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of January 31, 2015 (Predecessor Company). All transfers are recognized as of the end of the period.
For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 3 to Level 2.
For the period of January 1, 2015 to January 31, 2015 (Predecessor Company), there were no transfers from Level 2 to Level 1, and there were no transfers out of Level 1.
Total realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either realized investment gains (losses) within the consolidated statements of income (loss) or other comprehensive income (loss) within shareowner’s equity based on the appropriate accounting treatment for the item.
Purchases, sales, issuances, and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed indexed annuities.
The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. The asset transfers in the table(s) above primarily related to positions moved from Level 3 to Level 2 as the Company determined that certain inputs were observable.
The amount of total gains (losses) for assets and liabilities still held as of the reporting date primarily represents changes in fair value of trading securities and certain derivatives that exist as of the reporting date and the change in fair value of fixed indexed annuities.
Estimated Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company’s financial instruments as of the periods shown below are as follows:
|
|
|
|
|
Successor Company |
|
||||||||||
|
|
|
|
|
As of December 31, |
|
||||||||||
|
|
|
|
|
2016 |
|
2015 |
|
||||||||
|
|
|
Fair Value
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
||||
|
|
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Mortgage loans on real estate |
|
3 |
|
$ |
6,132,125 |
|
$ |
5,930,992 |
|
$ |
5,662,812 |
|
$ |
5,529,803 |
|
|
Policy loans |
|
3 |
|
1,650,240 |
|
1,650,240 |
|
1,699,508 |
|
1,699,508 |
|
||||
|
Fixed maturities, held-to-maturity(1) |
|
3 |
|
2,770,177 |
|
2,733,340 |
|
593,314 |
|
515,000 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stable value product account balances |
|
3 |
|
$ |
3,501,636 |
|
$ |
3,488,877 |
|
$ |
2,131,822 |
|
$ |
2,124,712 |
|
|
Future policy benefits and claims(2) |
|
3 |
|
221,634 |
|
221,658 |
|
226,499 |
|
226,527 |
|
||||
|
Other policyholders’ funds(3) |
|
3 |
|
135,367 |
|
136,127 |
|
132,840 |
|
133,657 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Non-recourse funding obligations(4) |
|
3 |
|
$ |
2,973,829 |
|
$ |
2,939,387 |
|
$ |
1,951,563 |
|
$ |
1,621,773 |
|
Except as noted below, fair values were estimated using quoted market prices.
(1) Securities purchased from unconsolidated subsidiaries, Red Mountain LLC and Steel City LLC.
(2) Single premium immediate annuity without life contingencies.
(3) Supplementary contracts without life contingencies.
(4) Of this carrying amount $565.0 million, fair value of $567.1 million, as of December 31, 2016 (Successor Company) and $500.0 million, fair value of $495.5 million, as of December 31, 2015 (Successor Company), relates to non-recourse funding obligations issued by Golden Gate V.
Fair Value Measurements
Mortgage Loans on Real Estate
The Company estimates the fair value of mortgage loans using an internally developed model. This model includes inputs derived by the Company based on assumed discount rates relative to the Company’s current mortgage loan lending rate and an expected cash flow analysis based on a review of the mortgage loan terms. The model also contains the Company’s determined representative risk adjustment assumptions related to credit and liquidity risks.
Policy Loans
The Company believes the fair value of policy loans approximates book value. Policy loans are funds provided to policy holders in return for a claim on the policy. The funds provided are limited to the cash surrender value of the underlying policy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of repayments, the Company believes the fair value of policy loans approximates carrying value.
Fixed Maturities, Held-to-Maturity
The Company estimates the fair value of its fixed maturity, held-to-maturity securities using internal discounted cash flow models. The discount rates used in the model are based on a current market yield for similar financial instruments.
Stable Value Product and Other Investment Contract Balances
The Company estimates the fair value of stable value product account balances and other investment contract balances (included in Future policy benefits and claims as well as Other policyholder funds line items on our balance sheet) using models based on discounted expected cash flows. The discount rates used in the models are based on a current market rate for similar financial instruments.
Previously, the Company’s policy had been to disclose the fair value of annuity account balances, as reported on the consolidated balance sheets, in the table above. During 2016, the Company revised its classification criteria with respect to the disclosure of its insurance products to include only guaranteed investment contracts, term-certain annuities, and similar products which are classified as investment contracts pursuant to ASC 944 - Insurance Contracts . Amounts in the table above, including the comparative figures as of December 31, 2015 (Successor Company), reflect this policy change, which the Company believes this provides more detailed and useful information to financial statement users.
Non-Recourse Funding Obligations
The Company estimates the fair value of its non-recourse funding obligations using internal discounted cash flow models. The discount rates used in the model were based on a current market yield for similar financial instruments.
8. DERIVATIVE FINANCIAL INSTRUMENTS
Types of Derivative Instruments and Derivative Strategies
The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments to reduce exposure to certain risks, including but not limited to, interest rate risk, inflation risk, currency exchange risk, volatility risk, and equity market risk. These strategies are developed through the Company’s analysis of data from financial simulation models and other internal and industry sources, and are then incorporated into the Company’s risk management program.
Derivative instruments expose the Company to credit and market risk and could result in material changes from period to period. The Company attempts to minimize its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and risk management strategies. In addition, all derivative programs are monitored by our risk management department.
Derivatives Related to Interest Rate Risk Management
Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps, interest rate futures, interest rate caps, and interest rate swaptions.
Derivatives Related to Risk Mitigation of Certain Annuity Contracts
The Company may use the following types of derivative contracts to mitigate its exposure to certain guaranteed benefits related to VA contracts and fixed indexed annuities:
· Foreign Currency Futures
· Variance Swaps
· Interest Rate Futures
· Equity Options
· Equity Futures
· Interest Rate Swaps
· Interest Rate Swaptions
· Volatility Futures
· Volatility Options
· Funds Withheld Agreement
· Total Return Swaps
Other Derivatives
The Company and certain of its subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC.
The Company has a funds withheld account that consists of various derivative instruments held by us that is used to hedge the GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek. The funds withheld account is accounted for as a derivative financial instrument.
Accounting for Derivative Instruments
The Company records its derivative financial instruments in the consolidated balance sheet in “other long-term investments” and “other liabilities” in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The change in the fair value of derivative financial instruments is reported either in the statement of income or in other comprehensive income (loss), depending upon whether it qualified for and also has been properly identified as being part of a hedging relationship, and also on the type of hedging relationship that exists.
For a derivative financial instrument to be accounted for as an accounting hedge, it must be identified and documented as such on the date of designation. For cash flow hedges, the effective portion of their realized gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged item impacts earnings. Any remaining gain or loss, the ineffective portion, is recognized in current earnings. For fair value hedge derivatives, their gain or loss as well as the offsetting loss or gain attributable to the hedged risk of the hedged item is recognized in current earnings. Effectiveness of the Company’s hedge relationships is assessed on a quarterly basis.
The Company reports changes in fair values of derivatives that are not part of a qualifying hedge relationship through earnings in the period of change. Changes in the fair value of derivatives that are recognized in current earnings are reported in “Realized investment gains (losses)—Derivative financial instruments”.
Derivative Instruments Designated and Qualifying as Hedging Instruments
Cash-Flow Hedges
· To hedge certain inflation-adjusted funding agreements, the Company entered into swaps to essentially convert the floating CPI-linked interest rate on the agreements to a fixed rate. The Company paid a fixed rate on the swap and received a floating rate primarily determined by the period’s change in the CPI. The amounts received on the swaps almost equal to the amounts that were paid on the agreements. None of these positions were held as of December 31, 2016 (Successor Company), as these funding agreements and correlating swaps matured in June 2015.
· To hedge a fixed rate note denominated in a foreign currency, the Company entered into a fixed-to-fixed foreign currency swap in order to hedge the foreign currency exchange risk associated with the note. The cash flows received on the swap are identical to the cash flow paid on the note.
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments
The Company uses various other derivative instruments for risk management purposes that do not qualify for hedge accounting treatment. Changes in the fair value of these derivatives are recognized in earnings during the period of change.
Derivatives Related to Variable Annuity Contracts
· The Company uses equity, interest rate, currency, and volatility futures to mitigate the risk related to certain guaranteed minimum benefits, including GLWB, within its VA products. In general, the cost of such benefits varies with the level of equity and interest rate markets, foreign currency levels, and overall volatility.
· The Company uses equity options, variance swaps, and volatility options to mitigate the risk related to certain guaranteed minimum benefits, including GLWB, within its VA products. In general, the cost of such benefits varies with the level of equity markets and overall volatility.
· The Company uses interest rate swaps and interest rate swaptions to mitigate the risk related to certain guaranteed minimum benefits, including GLWB, within its VA products.
· The Company markets certain VA products with a GLWB rider. The GLWB component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.
· The Company has a funds withheld account that consists of various derivative instruments held by the Company that are used to hedge the GLWB and GMDB riders. The economic performance of derivatives in the funds withheld account is ceded to Shades Creek. The funds withheld account is accounted for as a derivative financial instrument.
Derivatives Related to Fixed Annuity Contracts
· The Company uses equity futures and options to mitigate the risk within its fixed indexed annuity products. In general, the cost of such benefits varies with the level of equity and overall volatility.
· The Company markets certain fixed indexed annuity products. The FIA component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.
Derivatives Related to Indexed Universal Life Contracts
· The Company uses equity futures and options to mitigate the risk within its indexed universal life products. In general, the cost of such benefits varies with the level of equity markets.
· The Company markets certain IUL products. The IUL component is considered an embedded derivative, not considered to be clearly and closely related to the host contract.
Other Derivatives
· The Company and certain of its subsidiaries have an interest support agreement, YRT premium support agreements, and portfolio maintenance agreements with PLC.
· The Company uses various swaps and other types of derivatives to manage risk related to other exposures.
· The Company is involved in various modified coinsurance arrangements which contain embedded derivatives. Changes in their fair value are recorded in current period earnings. The investment portfolios that support the related modified coinsurance reserves had fair value changes which substantially offset the gains or losses on these embedded derivatives.
The following table sets forth realized investments gains and losses for the periods shown:
Realized investment gains (losses) - derivative financial instruments
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Derivatives related to variable annuity contracts: |
|
|
|
|
|
|
|
|
|
|
||||
|
Interest rate futures - VA |
|
$ |
(3,450 |
) |
$ |
(14,818 |
) |
|
$ |
1,413 |
|
$ |
27,801 |
|
|
Equity futures - VA |
|
(106,431 |
) |
(5,033 |
) |
|
9,221 |
|
(26,104 |
) |
||||
|
Currency futures - VA |
|
33,836 |
|
7,169 |
|
|
7,778 |
|
14,433 |
|
||||
|
Variance swaps - VA |
|
— |
|
— |
|
|
— |
|
(744 |
) |
||||
|
Equity options - VA |
|
(60,962 |
) |
(27,733 |
) |
|
3,047 |
|
(41,216 |
) |
||||
|
Interest rate swaptions - VA |
|
(1,161 |
) |
(13,354 |
) |
|
9,268 |
|
(22,280 |
) |
||||
|
Interest rate swaps - VA |
|
20,420 |
|
(85,942 |
) |
|
122,710 |
|
214,164 |
|
||||
|
Embedded derivative - GLWB |
|
13,306 |
|
6,512 |
|
|
(68,503 |
) |
(119,844 |
) |
||||
|
Funds withheld derivative |
|
115,540 |
|
30,117 |
|
|
(9,073 |
) |
47,792 |
|
||||
|
Total derivatives related to VA contracts |
|
11,098 |
|
(103,082 |
) |
|
75,861 |
|
94,002 |
|
||||
|
Derivatives related to FIA contracts: |
|
|
|
|
|
|
|
|
|
|
||||
|
Embedded derivative - FIA |
|
(16,494 |
) |
(738 |
) |
|
1,769 |
|
(16,932 |
) |
||||
|
Equity futures - FIA |
|
4,248 |
|
(355 |
) |
|
(184 |
) |
870 |
|
||||
|
Volatility futures - FIA |
|
— |
|
5 |
|
|
— |
|
20 |
|
||||
|
Equity options - FIA |
|
8,149 |
|
1,211 |
|
|
(2,617 |
) |
9,906 |
|
||||
|
Total derivatives related to FIA contracts |
|
(4,097 |
) |
123 |
|
|
(1,032 |
) |
(6,136 |
) |
||||
|
Derivatives related to IUL contracts: |
|
|
|
|
|
|
|
|
|
|
||||
|
Embedded derivative - IUL |
|
9,529 |
|
(614 |
) |
|
(486 |
) |
(8 |
) |
||||
|
Equity futures - IUL |
|
129 |
|
144 |
|
|
3 |
|
15 |
|
||||
|
Equity options - IUL |
|
3,477 |
|
(540 |
) |
|
(115 |
) |
150 |
|
||||
|
Total derivatives related to IUL contracts |
|
13,135 |
|
(1,010 |
) |
|
(598 |
) |
157 |
|
||||
|
Embedded derivative - Modco reinsurance treaties |
|
390 |
|
166,092 |
|
|
(68,026 |
) |
(105,276 |
) |
||||
|
Interest rate swaps |
|
— |
|
— |
|
|
— |
|
— |
|
||||
|
Derivatives with PLC(1) |
|
29,289 |
|
(3,778 |
) |
|
15,863 |
|
4,085 |
|
||||
|
Other derivatives |
|
(25 |
) |
91 |
|
|
(37 |
) |
(324 |
) |
||||
|
Total realized gains (losses) - derivatives |
|
$ |
49,790 |
|
$ |
58,436 |
|
|
$ |
22,031 |
|
$ |
(13,492 |
) |
(1) These derivatives include an interest support, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.
The following table sets forth realized investments gains and losses for the Modco trading portfolio that is included in realized investment gains (losses) — all other investments:
Realized investment gains (losses) - all other investments
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Modco trading portfolio(1) |
|
$ |
67,583 |
|
$ |
(167,359 |
) |
|
$ |
73,062 |
|
$ |
142,016 |
|
(1) The Company elected to include the use of alternate disclosures for trading activities.
The following tables present the components of the gain or loss on derivatives that qualify as a cash flow hedging relationship:
Gain (Loss) on Derivatives in Cash Flow Relationship
|
|
|
Amount of Gains (Losses)
|
|
Amount and Location of
|
|
Amount and Location of
|
|
|||
|
|
|
Derivatives |
|
(Effective Portion) |
|
(Ineffective Portion) |
|
|||
|
|
|
(Effective Portion) |
|
Benefits and settlement
|
|
Realized investment
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|||||||
|
Successor Company |
|
|
|
|
|
|
|
|||
|
For The Year Ended December 31, 2016 |
|
|
|
|
|
|
|
|||
|
Foreign Currency Swaps |
|
$ |
1,058 |
|
$ |
(60 |
) |
$ |
— |
|
|
Total |
|
$ |
1,058 |
|
$ |
(60 |
) |
$ |
— |
|
|
|
|
|
|
|
|
|
|
|||
|
Successor Company |
|
|
|
|
|
|
|
|||
|
February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
|||
|
Inflation |
|
$ |
(131 |
) |
$ |
(131 |
) |
$ |
73 |
|
|
Total |
|
$ |
(131 |
) |
$ |
(131 |
) |
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Predecessor Company |
|
|
|
|
|
|
|
|||
|
January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
|||
|
Inflation |
|
$ |
13 |
|
$ |
(36 |
) |
$ |
(7 |
) |
|
Total |
|
$ |
13 |
|
$ |
(36 |
) |
$ |
(7 |
) |
|
|
|
|
|
|
|
|
|
|||
|
Predecessor Company |
|
|
|
|
|
|
|
|||
|
For The Year Ended December 31, 2014 |
|
|
|
|
|
|
|
|||
|
Inflation |
|
$ |
(4 |
) |
$ |
(1,777 |
) |
$ |
(223 |
) |
|
Total |
|
$ |
(4 |
) |
$ |
(1,777 |
) |
$ |
(223 |
) |
Based on expected cash flows of the underlying hedged items, the Company expects to reclassify $0.8 million out of accumulated other comprehensive income into earnings during the next twelve months.
The table below presents information about the nature and accounting treatment of the Company’s primary derivative financial instruments and the location in and effect on the consolidated financial statements for the periods presented below:
|
|
|
Successor Company |
|
||||||||||
|
|
|
As of December 31, |
|
||||||||||
|
|
|
2016 |
|
2015 |
|
||||||||
|
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
||||
|
|
|
(Dollars In Thousands) |
|
(Dollars In Thousands) |
|
||||||||
|
Other long-term investments |
|
|
|
|
|
|
|
|
|
||||
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
||||
|
Foreign currency swaps |
|
$ |
117,178 |
|
$ |
132 |
|
$ |
— |
|
$ |
— |
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
||||
|
Interest rate swaps |
|
1,135,000 |
|
71,644 |
|
1,435,000 |
|
66,408 |
|
||||
|
Derivatives with PLC(1) |
|
2,808,807 |
|
48,878 |
|
1,619,200 |
|
18,161 |
|
||||
|
Embedded derivative - Modco reinsurance treaties |
|
64,123 |
|
2,573 |
|
64,593 |
|
1,215 |
|
||||
|
Embedded derivative - GLWB |
|
2,045,529 |
|
64,064 |
|
1,723,081 |
|
49,007 |
|
||||
|
Interest rate futures |
|
102,587 |
|
894 |
|
282,373 |
|
1,537 |
|
||||
|
Equity futures |
|
654,113 |
|
5,805 |
|
262,485 |
|
1,275 |
|
||||
|
Currency futures |
|
340,058 |
|
7,883 |
|
226,936 |
|
2,499 |
|
||||
|
Equity options |
|
3,944,444 |
|
328,908 |
|
2,198,340 |
|
179,458 |
|
||||
|
Interest rate swaptions |
|
225,000 |
|
2,503 |
|
225,000 |
|
3,663 |
|
||||
|
Other |
|
212 |
|
149 |
|
242 |
|
347 |
|
||||
|
|
|
$ |
11,437,051 |
|
$ |
533,433 |
|
$ |
8,037,250 |
|
$ |
323,570 |
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
||||
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
||||
|
Inflation |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
||||
|
Interest rate swaps |
|
575,000 |
|
10,208 |
|
475,000 |
|
16,579 |
|
||||
|
Embedded derivative - Modco reinsurance treaties |
|
2,450,692 |
|
141,301 |
|
2,473,427 |
|
178,362 |
|
||||
|
Funds withheld derivative |
|
1,557,237 |
|
91,267 |
|
1,149,664 |
|
102,378 |
|
||||
|
Embedded derivative - GLWB |
|
1,849,400 |
|
71,082 |
|
1,834,308 |
|
67,528 |
|
||||
|
Embedded derivative - FIA |
|
1,496,346 |
|
147,368 |
|
1,110,790 |
|
100,329 |
|
||||
|
Embedded derivative - IUL |
|
103,838 |
|
46,051 |
|
57,760 |
|
29,629 |
|
||||
|
Interest rate futures |
|
993,842 |
|
6,611 |
|
793,763 |
|
1,539 |
|
||||
|
Equity futures |
|
102,667 |
|
2,907 |
|
233,412 |
|
2,599 |
|
||||
|
Currency futures |
|
— |
|
— |
|
46,692 |
|
1,115 |
|
||||
|
Equity options |
|
2,590,160 |
|
157,253 |
|
1,205,204 |
|
22,167 |
|
||||
|
|
|
$ |
11,719,182 |
|
$ |
674,048 |
|
$ |
9,380,020 |
|
$ |
522,225 |
|
(1) These derivatives include an interest support, YRT premium support, and portfolio maintenance agreements between certain of the Company’s subsidiaries and PLC.
9. OFFSETTING OF ASSETS AND LIABILITIES
Certain of the Company’s derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company’s repurchase agreements provide for net settlement on termination of the agreement. Refer to Note 15, Debt and Other Obligations for details of the Company’s repurchase agreement programs.
The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 2016 (Successor Company):
|
|
|
Gross |
|
Gross
|
|
Net Amounts
|
|
Gross Amounts
|
|
|
|
||||||||
|
|
|
Amounts of
|
|
Statement of
|
|
Statement of
|
|
Financial
|
|
Cash
|
|
Net Amount |
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Offsetting of Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Free-Standing derivatives |
|
$ |
417,769 |
|
$ |
— |
|
$ |
417,769 |
|
$ |
171,384 |
|
$ |
100,890 |
|
$ |
145,495 |
|
|
Total derivatives, subject to a master netting arrangement or similar arrangement |
|
417,769 |
|
— |
|
417,769 |
|
171,384 |
|
100,890 |
|
145,495 |
|
||||||
|
Derivatives not subject to a master netting arrangement or similar arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Embedded derivative - Modco reinsurance treaties |
|
2,573 |
|
— |
|
2,573 |
|
— |
|
— |
|
2,573 |
|
||||||
|
Embedded derivative - GLWB |
|
64,064 |
|
— |
|
64,064 |
|
— |
|
— |
|
64,064 |
|
||||||
|
Derivatives with PLC |
|
48,878 |
|
— |
|
48,878 |
|
— |
|
— |
|
48,878 |
|
||||||
|
Other |
|
149 |
|
— |
|
149 |
|
— |
|
— |
|
149 |
|
||||||
|
Total derivatives, not subject to a master netting arrangement or similar arrangement |
|
115,664 |
|
— |
|
115,664 |
|
— |
|
— |
|
115,664 |
|
||||||
|
Total derivatives |
|
533,433 |
|
— |
|
533,433 |
|
171,384 |
|
100,890 |
|
261,159 |
|
||||||
|
Total Assets |
|
$ |
533,433 |
|
$ |
— |
|
$ |
533,433 |
|
$ |
171,384 |
|
$ |
100,890 |
|
$ |
261,159 |
|
|
|
|
Gross |
|
Gross
|
|
Net Amounts
|
|
Gross Amounts
|
|
|
|
||||||||
|
|
|
Amounts of
|
|
Statement of
|
|
Statement of
|
|
Financial
|
|
Cash
|
|
Net Amount |
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Offsetting of Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Free-Standing derivatives |
|
$ |
176,979 |
|
$ |
— |
|
$ |
176,979 |
|
$ |
171,384 |
|
$ |
5,595 |
|
$ |
— |
|
|
Total derivatives, subject to a master netting arrangement or similar arrangement |
|
176,979 |
|
— |
|
176,979 |
|
171,384 |
|
5,595 |
|
— |
|
||||||
|
Derivatives not subject to a master netting arrangement or similar arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Embedded derivative - Modco reinsurance treaties |
|
141,301 |
|
— |
|
141,301 |
|
— |
|
— |
|
141,301 |
|
||||||
|
Funds withheld derivative |
|
91,267 |
|
— |
|
91,267 |
|
— |
|
— |
|
91,267 |
|
||||||
|
Embedded derivative - GLWB |
|
71,082 |
|
— |
|
71,082 |
|
— |
|
— |
|
71,082 |
|
||||||
|
Embedded derivative - FIA |
|
147,368 |
|
— |
|
147,368 |
|
— |
|
— |
|
147,368 |
|
||||||
|
Embedded derivative - IUL |
|
46,051 |
|
— |
|
46,051 |
|
— |
|
— |
|
46,051 |
|
||||||
|
Total derivatives, not subject to a master netting arrangement or similar arrangement |
|
497,069 |
|
— |
|
497,069 |
|
— |
|
— |
|
497,069 |
|
||||||
|
Total derivatives |
|
674,048 |
|
— |
|
674,048 |
|
171,384 |
|
5,595 |
|
497,069 |
|
||||||
|
Repurchase agreements (1) |
|
797,721 |
|
— |
|
797,721 |
|
— |
|
— |
|
797,721 |
|
||||||
|
Total Liabilities |
|
$ |
1,471,769 |
|
$ |
— |
|
$ |
1,471,769 |
|
$ |
171,384 |
|
$ |
5,595 |
|
$ |
1,294,790 |
|
(1) Borrowings under repurchase agreements are for a term less than 90 days.
The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 2015 (Successor Company).
|
|
|
Gross
|
|
Gross
|
|
Net
|
|
Gross Amounts
|
|
|
|
||||||||
|
|
|
of
|
|
Statement of
|
|
Statement of
|
|
Financial
|
|
Cash
|
|
Net Amount |
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Offsetting of Derivative Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Free-Standing derivatives |
|
$ |
254,840 |
|
$ |
— |
|
$ |
254,840 |
|
$ |
42,382 |
|
$ |
105,842 |
|
$ |
106,616 |
|
|
Total derivatives, subject to a master netting arrangement or similar arrangement |
|
254,840 |
|
— |
|
254,840 |
|
42,382 |
|
105,842 |
|
106,616 |
|
||||||
|
Derivatives not subject to a master netting arrangement or similar arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Embedded derivative - Modco reinsurance treaties |
|
1,215 |
|
— |
|
1,215 |
|
— |
|
— |
|
1,215 |
|
||||||
|
Embedded derivative - GLWB |
|
49,007 |
|
— |
|
49,007 |
|
— |
|
— |
|
49,007 |
|
||||||
|
Derivatives with PLC |
|
18,161 |
|
— |
|
18,161 |
|
— |
|
— |
|
18,161 |
|
||||||
|
Other |
|
347 |
|
— |
|
347 |
|
— |
|
— |
|
347 |
|
||||||
|
Total derivatives, not subject to a master netting arrangement or similar arrangement |
|
68,730 |
|
— |
|
68,730 |
|
— |
|
— |
|
68,730 |
|
||||||
|
Total derivatives |
|
323,570 |
|
— |
|
323,570 |
|
42,382 |
|
105,842 |
|
175,346 |
|
||||||
|
Total Assets |
|
$ |
323,570 |
|
$ |
— |
|
$ |
323,570 |
|
$ |
42,382 |
|
$ |
105,842 |
|
$ |
175,346 |
|
|
|
|
Gross
|
|
Gross
|
|
Net
|
|
Gross Amounts
|
|
|
|
||||||||
|
|
|
of
|
|
Statement of
|
|
Statement of
|
|
Financial
|
|
Cash
|
|
Net Amount |
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Offsetting of Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Free-Standing derivatives |
|
$ |
43,999 |
|
$ |
— |
|
$ |
43,999 |
|
$ |
42,382 |
|
$ |
1,617 |
|
$ |
— |
|
|
Total derivatives, subject to a master netting arrangement or similar arrangement |
|
43,999 |
|
— |
|
43,999 |
|
42,382 |
|
1,617 |
|
— |
|
||||||
|
Derivatives not subject to a master netting arrangement or similar arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Embedded derivative - Modco reinsurance treaties |
|
178,362 |
|
— |
|
178,362 |
|
— |
|
— |
|
178,362 |
|
||||||
|
Funds withheld derivative |
|
102,378 |
|
— |
|
102,378 |
|
— |
|
— |
|
102,378 |
|
||||||
|
Embedded derivative - GLWB |
|
67,528 |
|
— |
|
67,528 |
|
— |
|
— |
|
67,528 |
|
||||||
|
Embedded derivative - FIA |
|
100,329 |
|
— |
|
100,329 |
|
— |
|
— |
|
100,329 |
|
||||||
|
Embedded derivative - IUL |
|
29,629 |
|
— |
|
29,629 |
|
— |
|
— |
|
29,629 |
|
||||||
|
Total derivatives, not subject to a master netting arrangement or similar arrangement |
|
478,226 |
|
— |
|
478,226 |
|
— |
|
— |
|
478,226 |
|
||||||
|
Total derivatives |
|
522,225 |
|
— |
|
522,225 |
|
42,382 |
|
1,617 |
|
478,226 |
|
||||||
|
Repurchase agreements (1) |
|
438,185 |
|
— |
|
438,185 |
|
— |
|
— |
|
438,185 |
|
||||||
|
Total Liabilities |
|
$ |
960,410 |
|
$ |
— |
|
$ |
960,410 |
|
$ |
42,382 |
|
$ |
1,617 |
|
$ |
916,411 |
|
(1) Borrowings under repurchase agreements are for a term less than 90 days.
10. MORTGAGE LOANS
Mortgage Loans
The Company invests a portion of its investment portfolio in commercial mortgage loans. As of December 31, 2016 (Successor Company), the Company’s mortgage loan holdings were approximately $6.1 billion. The Company has specialized in making loans on credit-oriented commercial properties, credit-anchored strip shopping centers, senior living facilities, and
apartments. The Company’s underwriting procedures relative to its commercial loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset types associated with the necessities of life (retail, multi-family, senior living, professional office buildings, and warehouses). The Company believes that these asset types tend to weather economic downturns better than other commercial asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the Company’s mortgage loans portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.
The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.
As of February 1, 2015, all mortgage loans were measured at fair value. Each mortgage loan was individually analyzed to determine the fair value. Each loan was either analyzed and assigned a discount rate or given an impairment, based on whether facts and circumstances which, as of the acquisition date, indicated less than full projected collections of contractual principal and interest payments. Various market factors were considered in determining the net present value of the expected cash flow stream or underlying real estate collateral, including the characteristics of the borrower, the underlying collateral, underlying credit worthiness of the tenants, and tenant payment history. Known events and risks, such as refinancing risks, were also considered in the fair value determination. In certain cases, fair value was based on the net present value of the expected cash flow stream or the underlying value of the real estate collateral.
The following table includes a breakdown of the Company’s commercial mortgage loan portfolio by property type as of December 31, 2016 (Successor Company):
|
Type |
|
Percentage of
|
|
|
Retail |
|
56.5 |
% |
|
Office Buildings |
|
12.1 |
|
|
Apartments |
|
8.9 |
|
|
Warehouses |
|
9.6 |
|
|
Senior housing |
|
8.3 |
|
|
Other |
|
4.6 |
|
|
|
|
100.0 |
% |
The Company specializes in originating mortgage loans on either credit-oriented or credit-anchored commercial properties. No single tenant’s exposure represents more than 1.7% of mortgage loans. Approximately 65.7% of the mortgage loans are on properties located in the following states:
|
State |
|
Percentage of
|
|
|
Alabama |
|
11.0 |
% |
|
Texas |
|
9.9 |
|
|
Florida |
|
8.5 |
|
|
Georgia |
|
7.7 |
|
|
Tennessee |
|
6.3 |
|
|
Utah |
|
5.1 |
|
|
North Carolina |
|
4.8 |
|
|
Ohio |
|
4.8 |
|
|
California |
|
4.0 |
|
|
South Carolina |
|
3.6 |
|
|
|
|
65.7 |
% |
During the year ended December 31, 2016 (Successor Company), the Company funded approximately $1.4 billion of new loans, with an average loan size of $7.8 million. The average size mortgage loan in the portfolio as of December 31, 2016 (Successor Company), was $3.4 million and the weighted-average interest rate was 5.0%. The largest single mortgage loan at December 31, 2016 (Successor Company) was $48.6 million.
Certain of the mortgage loans have call options that occur within the next 12 years. However, if interest rates were to significantly increase, we may be unable to exercise the call options on our existing mortgage loans commensurate with the
significantly increased market rates. Assuming the loans are called at their next call dates, approximately $167.6 million would become due in 2017, $938.3 million in 2018 through 2022, $131.0 million in 2023 through 2027, and $10.2 million thereafter.
The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. As of December 31, 2016 (Successor Company) and December 31, 2015 (Successor Company), approximately $595.2 million and $449.2 million, respectively, of the Company’s mortgage loans have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company recognized $16.7 million, $29.8 million, and $0.1 million of participating mortgage loan income, respectively.
As of December 31, 2016 (Successor Company), approximately $1.5 million of invested assets consisted of nonperforming mortgage loans, restructured mortgage loans, or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the year ended December 31, 2016 (Successor Company), certain mortgage loan transactions occurred that were accounted for as troubled debt restructurings. For all mortgage loans, the impact of troubled debt restructurings is generally reflected in our investment balance and in the allowance for mortgage loan credit losses. During the year ended December 31, 2016 (Successor Company), the Company recognized a troubled debt restructuring as a result of the Company granting a concession to a borrower which included loans terms unavailable from other lenders and reduced the expected cash flows on the loan. This concession was the result of agreements between the creditor and the debtor. The Company did not identify any loans whose principal was permanently impaired during the year ended December 31, 2016 (Successor Company).
As of December 31, 2015 (Successor Company), approximately $4.7 million of invested assets consisted of nonperforming, restructured, or mortgage loans that were foreclosed and were converted to real estate properties since February 1, 2015 (Successor Company). The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the period of February 1, 2015 to December 31, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company entered into certain mortgage loan transactions that were accounted for as troubled debt restructurings. For all mortgage loans, the impact of troubled debt restructurings is generally reflected in the Company’s investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the period of February 1, 2015 to December 31, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company) included either the acceptance of assets in satisfaction of principal during the respective periods or at a future date and were the result of agreements between the creditor and the debtor. During the period of February 1, 2015 to December 31, 2015 (Successor Company), the Company accepted or agreed to accept assets of $15.8 million in satisfaction of $21.1 million of principal and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company accepted or agreed to accept assets of $11.3 million in satisfaction of $13.8 million of principal. Of the amounts accepted or agreed to accept in satisfaction of principal during the period of February 1, 2015 to December 31, 2015 (Successor Company) $3.7 million related to foreclosures. These transactions resulted in no material realized losses in the Company’s investment in mortgage loans net of existing discounts for mortgage loans losses for the period of February 1, 2015 to December 31, 2015 (Successor Company).
As of December 31, 2014 (Predecessor Company), approximately $24.5 million, or 0.05%, of invested assets consisted of nonperforming, restructured or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the year ended December 31, 2014 (Predecessor Company), certain mortgage loan transactions occurred that were accounted for as troubled debt restructurings. For all mortgage loans, the impact of troubled debt restructurings is generally reflected in our investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the year ended December 31, 2014 (Predecessor Company) included either the acceptance of assets in satisfaction of principal at a future date or the recognition of permanent impairments to principal, and were the result of agreements between the creditor and the debtor. During the year ended December 31, 2014 (Predecessor Company), the Company accepted or agreed to accept assets of $33.0 million in satisfaction of $41.7 million of principal. The Company also identified one loan whose principal of $12.6 million was permanently impaired to a value of $7.3 million. These transactions resulted in realized losses of $10.3 million and a decrease in the Company’s investment in mortgage loans net of existing allowances for mortgage loans losses.
The Company’s mortgage loan portfolio consists of two categories of loans: 1) those not subject to a pooling and servicing agreement and 2) those subject to a contractual pooling and servicing agreement. As of December 31, 2016 (Successor Company), $1.5 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming, restructured, or mortgage loans that were foreclosed and were converted to real estate. None of the restructured loans were nonperforming during the year ended December 31, 2016 (Successor Company). The Company foreclosed on $1.0 million of nonperforming loans during the year ended December 31, 2016 (Successor Company).
As of December 31, 2016 (Successor Company), none of the loans subject to a pooling and servicing agreement were nonperforming or restructured. The Company did not foreclose on any nonperforming loans subject to a pooling and servicing agreement during the year ended December 31, 2016 (Successor Company).
As of December 31, 2016 (Successor Company), the Company had an allowance for mortgage loan credit losses of $0.7 million and as of December 31, 2015 (Successor Company), there was no allowance for mortgage loan credit losses. Due to the Company’s loss experience and nature of the loan portfolio, the Company believes that a collectively evaluated allowance would be inappropriate. The Company believes an allowance calculated through an analysis of specific loans that are believed to have a higher risk of credit impairment provides a more accurate presentation of expected losses in the portfolio and is consistent with the applicable guidance for loan impairments in ASC Subtopic 310. Since the Company uses the specific identification method for calculating the allowance, it is necessary to review the economic situation of each borrower to determine those that have higher
risk of credit impairment. The Company has a team of professionals that monitors borrower conditions such as payment practices, borrower credit, operating performance, and property conditions, as well as ensuring the timely payment of property taxes and insurance. Through this monitoring process, the Company assesses the risk of each loan. When issues are identified, the severity of the issues are assessed and reviewed for possible credit impairment. If a loss is probable, an expected loss calculation is performed and an allowance is established for that loan based on the expected loss. The expected loss is calculated as the excess carrying value of a loan over either the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the current estimated fair value of the loan’s underlying collateral. A loan may be subsequently charged off at such point that the Company no longer expects to receive cash payments, the present value of future expected payments of the renegotiated loan is less than the current principal balance, or at such time that the Company is party to foreclosure or bankruptcy proceedings associated with the borrower and does not expect to recover the principal balance of the loan.
A charge off is recorded by eliminating the allowance against the mortgage loan and recording the renegotiated loan or the collateral property related to the loan as investment real estate on the balance sheet, which is carried at the lower of the appraised fair value of the property or the unpaid principal balance of the loan, less estimated selling costs associated with the property:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
As of
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Beginning balance |
|
$ |
— |
|
$ |
— |
|
|
$ |
5,720 |
|
|
Charge offs |
|
(4,682 |
) |
(2,561 |
) |
|
(861 |
) |
|||
|
Recoveries |
|
— |
|
(638 |
) |
|
(2,359 |
) |
|||
|
Provision |
|
5,406 |
|
3,199 |
|
|
— |
|
|||
|
Ending balance |
|
$ |
724 |
|
$ |
— |
|
|
$ |
2,500 |
|
It is the Company’s policy to cease accruing interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is the Company’s general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. For loans subject to a pooling and servicing agreement, there are certain additional restrictions and/or requirements related to workout proceedings, and as such, these loans may have different attributes and/or circumstances affecting the status of delinquency or categorization of those in nonperforming status. An analysis of the delinquent loans is shown in the following chart:
|
|
|
30-59 Days
|
|
60-89 Days
|
|
Greater
|
|
Total
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
||||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
||||
|
Commercial mortgage loans |
|
$ |
3,669 |
|
$ |
— |
|
$ |
— |
|
$ |
3,669 |
|
|
Number of delinquent commercial mortgage loans |
|
4 |
|
— |
|
— |
|
4 |
|
||||
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
||||
|
Commercial mortgage loans |
|
$ |
6,002 |
|
$ |
1,033 |
|
$ |
— |
|
$ |
7,035 |
|
|
Number of delinquent commercial mortgage loans |
|
6 |
|
1 |
|
— |
|
7 |
|
||||
The Company’s commercial mortgage loan portfolio consists of mortgage loans that are collateralized by real estate. Due to the collateralized nature of the loans, any assessment of impairment and ultimate loss given a default on the loans is based upon a consideration of the estimated fair value of the real estate. The Company limits accrued interest income on impaired loans to ninety days of interest. Once accrued interest on the impaired loan is received, interest income is recognized on a cash basis. For information regarding impaired loans, please refer to the following chart:
|
|
|
Recorded
|
|
Unpaid
|
|
Related
|
|
Average
|
|
Interest
|
|
Cash Basis
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Commercial mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
With no related allowance recorded |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
With an allowance recorded |
|
1,819 |
|
1,819 |
|
724 |
|
1,819 |
|
96 |
|
96 |
|
||||||
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Commercial mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
With no related allowance recorded |
|
$ |
1,694 |
|
$ |
1,728 |
|
$ |
— |
|
$ |
847 |
|
$ |
104 |
|
$ |
117 |
|
|
With an allowance recorded |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
||||||
As of December 31, 2015 (Successor Company), the Company did not carry any mortgage loans that have been modified in a troubled debt restructuring. Mortgage loans that were modified in a troubled debt restructuring as of December 31, 2016 (Successor Company) were as follows:
|
|
|
Number of
|
|
Pre-Modification
|
|
Post-
|
|
||
|
|
|
|
|
(Dollars In Thousands) |
|
||||
|
Successor Company |
|
|
|
|
|
|
|
||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
||
|
Troubled debt restructuring: |
|
|
|
|
|
|
|
||
|
Commercial mortgage loans |
|
1 |
|
$ |
468 |
|
$ |
468 |
|
11. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Deferred policy acquisition costs
The balances and changes in DAC are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
As of
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Balance, beginning of period |
|
$ |
291,497 |
|
$ |
— |
|
|
$ |
2,653,065 |
|
|
Capitalization of commissions, sales, and issue expenses |
|
330,302 |
|
306,237 |
|
|
22,820 |
|
|||
|
Amortization |
|
(49,179 |
) |
(24,699 |
) |
|
1,080 |
|
|||
|
Change in unrealized investment gains and losses |
|
4,065 |
|
9,959 |
|
|
(96,830 |
) |
|||
|
Balance, end of period |
|
$ |
576,685 |
|
$ |
291,497 |
|
|
$ |
2,580,135 |
|
Value of Business Acquired
The balances and changes in VOBA are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
As of
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Balance, beginning of period |
|
$ |
1,270,876 |
|
$ |
1,278,063 |
|
|
$ |
501,981 |
|
|
Acquisitions |
|
285,092 |
|
— |
|
|
— |
|
|||
|
Amortization |
|
(101,119 |
) |
(70,367 |
) |
|
(5,895 |
) |
|||
|
Change in unrealized gains and losses |
|
(7,010 |
) |
69,226 |
|
|
(79,417 |
) |
|||
|
Other |
|
— |
|
(6,046 |
) |
|
— |
|
|||
|
Balance, end of period |
|
$ |
1,447,839 |
|
$ |
1,270,876 |
|
|
$ |
416,669 |
|
As of February 1, 2015, the existing DAC and VOBA balance was written off in conjunction with the Merger previously disclosed in Note 4, Dai-ichi Merger , and in accordance with ASC Topic 805 - Business Combinations .
Concurrently, a VOBA asset was created representing the actuarial estimated present value of future cash flows from the Company’s insurance policies and investment contracts in-force on the date of the Merger.
Based on the balance recorded as of December 31, 2016 (Successor Company), the expected amortization of VOBA for the next five years is as follows:
|
|
|
Expected |
|
|
|
Years |
|
Amortization |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2017 |
|
$ |
129,610 |
|
|
2018 |
|
123,455 |
|
|
|
2019 |
|
116,523 |
|
|
|
2020 |
|
102,166 |
|
|
|
2021 |
|
90,317 |
|
|
12. GOODWILL
During the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company decreased its goodwill balance by approximately $0.3 million. The decrease for the period of the Predecessor Company was due to an adjustment in the Acquisitions segment related to tax benefits realized during the period on the portion of tax goodwill in excess of GAAP basis goodwill. The goodwill balances associated with the Predecessor Company were replaced with newly established goodwill balances in conjunction with the Dai-ichi Merger, in accordance with ASC Topic 805, as described below.
On the date of the Merger, goodwill of $735.7 million was recognized as the excess of the purchase considerations over the fair value of identifiable assets acquired and liabilities assumed. During the measurement period subsequent to February 1, 2015, the Company has made adjustments to provisional amounts related to certain tax balances that resulted in a decrease to goodwill of $3.3 million from the amount recorded at the Merger date. The balance of goodwill associated with the Merger as of December 31, 2016 (Successor Company) is $732.4 million. During the fourth quarter of 2016, the Company performed its annual qualitative evaluation of goodwill based on the circumstances that existed as of October 1, 2016 (Successor Company) and determined that there was no indication that its segment goodwill was more likely than not impaired, thus no quantitative assessment was performed and no adjustment to impair goodwill was necessary. The Company has assessed whether events have occurred subsequent to October 1, 2016 that would impact the Company’s conclusion and no such events were identified. As of December 31, 2016 (Successor Company), the Company increased its goodwill balance by approximately $61.0 million in the Asset Protection segment, which was attributed to the US Warranty acquisition. Refer to Note 3, Significant Transactions . The balance of goodwill for the Company as of December 31, 2016 (Successor Company) was $793.5 million. See Note 3, Significant Transactions for more information.
13. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
The Company issues variable universal life and VA products through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. The Company also offers, for our VA products, certain GMDB. The most significant of these guarantees involve 1) return of the highest anniversary date account value, or 2) return of the greater of the highest anniversary date account value or the last anniversary date account value compounded at 5% interest or 3) return of premium. The GLWB rider provides the contract holder with protection against certain adverse market impacts on the amount they can withdraw and is classified as an embedded derivative and is carried at fair value on the Company’s balance sheet. The VA separate account balances subject to GLWB were $9.5 billion as of December 31, 2016 (Successor Company). For more information regarding the valuation of and income impact of GLWB, please refer to Note 2, Summary of Significant Accounting Policies , Note 7, Fair Value of Financial Instruments , and Note 8, Derivative Financial Instruments .
The GMDB reserve is calculated by applying a benefit ratio, equal to the present value of total expected GMDB claims divided by the present value of total expected contract assessments, to cumulative contract assessments. This amount is then adjusted by the amount of cumulative GMDB claims paid and accrued interest. Assumptions used in the calculation of the GMDB reserve were as follows: mean investment performance of 6.83%, age-based mortality from the National Association of Insurance Commissioners 1994 Variable Annuity MGDB Mortality Table for company and industry experience, lapse rates ranging from 0.5% - 38.7% (depending on product type and duration), and an average discount rate of 5.1%. Changes in the GMDB reserve are included in benefits and settlement expenses in the accompanying consolidated statements of income.
The VA separate account balances subject to GMDB were $12.6 billion as of December 31, 2016 (Successor Company). The total GMDB amount payable based on VA account balances as of December 31, 2016 (Successor Company), was $142.4 million (including $123.1 million in the Annuities segment and $19.3 million in the Acquisitions segment) with a GMDB reserve of $24.7 million and $3.1 million in the Annuities and Acquisitions segment, respectively. The average attained age of contract holders as of December 31, 2016 for the Company was 70.
These amounts exclude certain VA business which has been 100% reinsured to Commonwealth Annuity and Life Insurance Company (formerly known as Allmerica Financial Life Insurance and Annuity Company) (“CALIC”) under a Modco agreement. The guaranteed amount payable associated with the annuities reinsured to CALIC was $10.2 million and is included in the Acquisitions segment. The average attained age of contract holders as of December 31, 2016 (Successor Company), was 66 years.
Activity relating to GMDB reserves (excluding those 100% reinsured under the Modco agreement) is as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Beginning balance |
|
$ |
29,931 |
|
$ |
23,893 |
|
|
$ |
21,695 |
|
$ |
13,608 |
|
|
Incurred guarantee benefits |
|
(682 |
) |
8,285 |
|
|
2,506 |
|
10,130 |
|
||||
|
Less: Paid guarantee benefits |
|
1,414 |
|
2,247 |
|
|
442 |
|
2,043 |
|
||||
|
Ending balance |
|
$ |
27,835 |
|
$ |
29,931 |
|
|
$ |
23,759 |
|
$ |
21,695 |
|
Account balances of variable annuities with guarantees invested in variable annuity separate accounts are as follows:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Equity mutual funds |
|
$ |
8,071,204 |
|
$ |
5,476,366 |
|
|
Fixed income mutual funds |
|
5,085,864 |
|
7,184,528 |
|
||
|
Total |
|
$ |
13,157,068 |
|
$ |
12,660,894 |
|
Certain of the Company’s fixed annuities and universal life products have a sales inducement in the form of a retroactive interest credit (“RIC”). In addition, certain annuity contracts provide a sales inducement in the form of a bonus interest credit. The Company maintains a reserve for all interest credits earned to date. The Company defers the expense associated with the RIC and bonus interest credits each period and amortizes these costs in a manner similar to that used for DAC.
Activity in the Company’s deferred sales inducement asset was as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Deferred asset, beginning of period |
|
$ |
11,756 |
|
$ |
— |
|
|
$ |
155,150 |
|
$ |
146,651 |
|
|
Amounts deferred |
|
16,212 |
|
14,557 |
|
|
82 |
|
18,302 |
|
||||
|
Amortization |
|
(5,471 |
) |
(2,801 |
) |
|
(1,139 |
) |
(9,803 |
) |
||||
|
Deferred asset, end of period |
|
$ |
22,497 |
|
$ |
11,756 |
|
|
$ |
154,093 |
|
$ |
155,150 |
|
14. REINSURANCE
The Company reinsures certain of its risks with (cedes), and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company reinsures only the mortality risk, while under coinsurance the Company reinsures a proportionate share of all risks arising under the reinsured policy. Under coinsurance, the reinsurer receives a proportionate share of the premiums less commissions and is liable for a corresponding share of all benefit payments. Modified coinsurance is accounted for in a manner similar to coinsurance except that the liability for future policy benefits is held by the ceding company, and settlements are made on a net basis between the companies.
Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to us under the terms of the reinsurance agreements. The Company monitors the concentration of credit risk the Company has with any reinsurer, as well as the financial condition of its reinsurers. As of December 31, 2016 (Successor Company), the Company had reinsured approximately 41% of the face value of its life insurance in-force. The Company has reinsured approximately 18% of the face value of its life insurance in-force with the following three reinsurers:
· Security Life of Denver Insurance Co. (currently administered by Hannover Re)
· Swiss Re Life & Health America Inc.
· The Lincoln National Life Insurance Co. (currently administered by Swiss Re Life & Health America Inc.)
The Company has not experienced any credit losses for the years ended December 31, 2016 (Successor Company), December 31, 2015 (Successor Company), or December 31, 2014 (Predecessor Company) related to these reinsurers. The Company has set limits on the amount of insurance retained on the life of any one person. The amount of insurance retained by the Company on any one life on traditional life insurance was $500,000 in years prior to mid-2005. In 2005, this retention amount was increased to $1,000,000 for certain policies, and during 2008, was increased to $2,000,000 for certain policies. During 2016, the retention amount was increased to $5,000,000.
Reinsurance premiums, commissions, expense reimbursements, benefits, and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the reinsurance contract period. Amounts recoverable from reinsurers, for both short-duration and long-duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated with reinsured policies.
The following table presents the net life insurance in-force:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
As of December 31, |
|
|
As of December 31, |
|
|||||
|
|
|
2016 |
|
2015 |
|
|
2014 |
|
|||
|
|
|
(Dollars In Millions) |
|
|
(Dollars In Millions) |
|
|||||
|
Direct life insurance in-force |
|
$ |
739,249 |
|
$ |
727,705 |
|
|
$ |
721,036 |
|
|
Amounts assumed from other companies |
|
116,265 |
|
39,547 |
|
|
43,237 |
|
|||
|
Amounts ceded to other companies |
|
(348,995 |
) |
(368,142 |
) |
|
(388,890 |
) |
|||
|
Net life insurance in-force |
|
$ |
506,519 |
|
$ |
399,110 |
|
|
$ |
375,383 |
|
|
|
|
|
|
|
|
|
|
|
|||
|
Percentage of amount assumed to net |
|
23 |
% |
10 |
% |
|
12 |
% |
|||
The following table reflects the effect of reinsurance on life, accident/health, and property and liability insurance premiums written and earned:
|
|
|
Gross
|
|
Ceded to
|
|
Assumed
|
|
Net
|
|
Percentage of
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
|
||||
|
For The Year Ended December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,610,682 |
|
$ |
(1,207,159 |
) |
$ |
454,999 |
|
$ |
1,858,522 |
(1) |
24.5 |
% |
|
Accident/health insurance |
|
58,076 |
|
(36,935 |
) |
17,439 |
|
38,580 |
|
45.2 |
|
||||
|
Property and liability insurance |
|
242,517 |
|
(86,629 |
) |
5,706 |
|
161,594 |
|
3.5 |
|
||||
|
Total |
|
$ |
2,911,275 |
|
$ |
(1,330,723 |
) |
$ |
478,144 |
|
$ |
2,058,696 |
|
|
|
|
February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,360,643 |
|
$ |
(1,058,706 |
) |
$ |
308,280 |
|
$ |
1,610,217 |
(1) |
19.1 |
% |
|
Accident/health insurance |
|
70,243 |
|
(36,871 |
) |
18,252 |
|
51,624 |
|
35.4 |
|
||||
|
Property and liability insurance |
|
228,500 |
|
(79,294 |
) |
6,904 |
|
156,110 |
|
4.4 |
|
||||
|
Total |
|
$ |
2,659,386 |
|
$ |
(1,174,871 |
) |
$ |
333,436 |
|
$ |
1,817,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Gross
|
|
Ceded to
|
|
Assumed
|
|
Net
|
|
Percentage of
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||
|
Predecessor Company |
|
|
|
|
|
|
|
|
|
|
|
||||
|
January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
204,185 |
|
$ |
(80,657 |
) |
$ |
28,601 |
|
$ |
152,129 |
(1) |
18.8 |
% |
|
Accident/health insurance |
|
6,846 |
|
(4,621 |
) |
1,809 |
|
4,034 |
|
44.8 |
|
||||
|
Property and liability insurance |
|
18,475 |
|
(6,354 |
) |
666 |
|
12,787 |
|
5.2 |
|
||||
|
Total |
|
$ |
229,506 |
|
$ |
(91,632 |
) |
$ |
31,076 |
|
$ |
168,950 |
|
|
|
|
For The Year Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,603,956 |
|
$ |
(1,279,908 |
) |
$ |
349,934 |
|
$ |
1,673,982 |
(1) |
20.9 |
% |
|
Accident/health insurance |
|
81,037 |
|
(42,741 |
) |
20,804 |
|
59,100 |
|
35.2 |
|
||||
|
Property and liability insurance |
|
218,663 |
|
(73,094 |
) |
8,675 |
|
154,244 |
|
5.6 |
|
||||
|
Total |
|
$ |
2,903,656 |
|
$ |
(1,395,743 |
) |
$ |
379,413 |
|
$ |
1,887,326 |
|
|
|
(1) Includes annuity policy fees of $80.1 million, $77.2 million, $7.7 million, and $92.8 million for the year ended December 31, 2016 (Successor Company), the periods of February 1, 2015 to December 31, 2015 (Successor Company) and January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively.
As of December 31, 2016 and 2015 (Successor Company), policy and claim reserves relating to insurance ceded of $5.1 billion and $5.3 billion, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, the Company would be obligated to pay such claims. As of December 31, 2016 and 2015 (Successor Company), the Company had paid $87.9 million and $77.9 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, as of December 31, 2016 and 2015 (Successor Company), the Company had receivables of $64.5 million and $64.9 million, respectively, related to insurance assumed.
The Company’s third party reinsurance receivables amounted to $5.1 billion and $5.3 billion as of December 31, 2016 and 2015 (Successor Company), respectively. These amounts include ceded reserve balances and ceded benefit payments. The ceded benefit payments are recoverable from reinsurers. The following table sets forth the receivables attributable to our more significant reinsurance partners:
|
|
|
Successor Company |
|
||||||||
|
|
|
As of December 31, |
|
||||||||
|
|
|
2016 |
|
2015 |
|
||||||
|
|
|
Reinsurance
|
|
A.M. Best
|
|
Reinsurance
|
|
A.M. Best
|
|
||
|
|
|
(Dollars In Millions) |
|
||||||||
|
Security Life of Denver Insurance Company |
|
$ |
762.2 |
|
A |
|
$ |
800.6 |
|
A |
|
|
Swiss Re Life & Health America, Inc. |
|
682.6 |
|
A+ |
|
719.2 |
|
A+ |
|
||
|
Lincoln National Life Insurance Co. |
|
530.9 |
|
A+ |
|
546.0 |
|
A+ |
|
||
|
Transamerica Life Insurance Co. |
|
367.8 |
|
A+ |
|
396.6 |
|
A+ |
|
||
|
SCOR Global Life(1) |
|
354.8 |
|
A |
|
320.4 |
|
A |
|
||
|
American United Life Insurance Company |
|
285.6 |
|
A+ |
|
314.2 |
|
A+ |
|
||
|
RGA Reinsurance Company |
|
269.0 |
|
A+ |
|
303.5 |
|
A+ |
|
||
|
Centre Reinsurance (Bermuda) Ltd |
|
243.6 |
|
NR |
|
247.6 |
|
NR |
|
||
|
Scottish Re (U.S.) Inc. |
|
232.8 |
|
NR |
|
268.6 |
|
NR |
|
||
|
The Canada Life Assurance Company |
|
216.2 |
|
A+ |
|
207.5 |
|
A+ |
|
||
(1) Includes SCOR Global Life Americas Reinsurance Company, SCOR Global Life USA Reinsurance Co, and SCOR Global Life Reinsurance Co of Delaware
The Company’s reinsurance contracts typically do not have a fixed term. In general, the reinsurers’ ability to terminate coverage for existing cessions is limited to such circumstances as material breach of contract or non-payment of premiums by the ceding company. The reinsurance contracts generally contain provisions intended to provide the ceding company with the ability to cede future business on a basis consistent with historical terms. However, either party may terminate any of the contracts with respect to future business upon appropriate notice to the other party.
Generally, the reinsurance contracts do not limit the overall amount of the loss that can be incurred by the reinsurer. The amount of liabilities ceded under contracts that provide for the payment of experience refunds is immaterial.
15. DEBT AND OTHER OBLIGATIONS
In conjunction with the Merger and in accordance with ASC Topic 805, the Company adjusted the carrying value of debt to fair value as of the date of the Merger, February 1, 2015. This resulted in PLC and the Company establishing premiums and discounts on PLC’s outstanding debt, subordinated debentures and PLC and the Company’s non-recourse funding obligations. The carrying value of the Company’s revolving line of credit approximates fair value due to the nature of the borrowings and the fact the Company pays a variable rate of interest that reflects current market conditions. The fair value of PLC’s senior notes and subordinated debt and PLC and the Company’s non-recourse funding obligations associated with Golden Gate II Captive Insurance Company and MONY Life Insurance Company were determined using market prices as of February 1, 2015. The fair value of the Golden Gate V non-recourse funding obligation was determined using a discounted cash flow model with inputs derived from comparable financial instruments. The premiums and discounts established as of February 1, 2015 are amortized over the expected life of the instruments using the effective interest method. The amortization of premiums and discounts are recorded as a component of interest expense and are recorded in “Other operating expenses” on the Company’s Consolidated Statements of Income.
On February 2, 2015, the Company and PLC amended and restated the Credit Facility (the “Credit Facility”). Under the Credit Facility, the Company has the ability to borrow on an unsecured basis up to an aggregate principal amount of $1.0 billion. The Company has the right in certain circumstances to request that the commitment under the Credit Facility be increased up to a maximum principal amount of $1.25 billion. Balances outstanding under the Credit Facility accrue interest at a rate equal to, at the option of the Borrowers, (i) LIBOR plus a spread based on the ratings of PLC’s Senior Debt, or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one month LIBOR plus 1.00% and (B) a spread based on the ratings of PLC’s Senior Debt. The Credit Facility also provided for a facility fee at a rate that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The initial facility fee rate was 0.15% on February 2, 2015, and was adjusted to 0.125% upon PLC’s subsequent ratings upgrade on February 2, 2015. The Credit Facility provides that PLC is liable for the full amount of any obligations for borrowings or letters of credit, including those of the Company, under the Credit Facility. The maturity date of the Credit Facility is February 2, 2020. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of December 31, 2016 (Successor Company). PLC had an outstanding balance of $170.0 million bearing interest at a rate of LIBOR plus 1.00% as of December 31, 2016 (Successor Company). As of June 30, 2016 (Successor Company), the Company had used $30.0 million of borrowing capacity by executing a Letter of Credit under the Credit Facility for the benefit on an affiliated captive reinsurance subsidiary of the Company. This Letter of Credit was terminated during the period and no Letter of Credit was outstanding as of December 31, 2016 (Successor Company)
Non-Recourse Funding Obligations
Golden Gate Captive Insurance Company
On January 15, 2016, Golden Gate Captive Insurance Company (“Golden Gate”), a Vermont special purpose financial insurance company and a wholly owned subsidiary of the Company, and Steel City, LLC (“Steel City”), a newly formed wholly owned subsidiary of PLC, entered into an 18-year transaction to finance $2.188 billion of “XXX” reserves related to the acquired GLAIC Block and the other term life insurance business reinsured to Golden Gate by the Company and WCL, a direct wholly owned subsidiary of the Company. Steel City issued notes (the “Steel City Notes”) with an aggregate initial principal amount of $2.188 billion to Golden Gate in exchange for a surplus note issued by Golden Gate with an initial principal amount of $2.188 billion. Through the structure, Hannover Life Reassurance Company of America (Bermuda) Ltd., The Canada Life Assurance Company (Barbados Branch) and Nomura Americas Re Ltd. (collectively, the “Risk-Takers”) provide credit enhancement to the Steel City Notes for the 18-year term in exchange for credit enhancement fees. The transaction is “non-recourse” to PLC, WCL, and the Company, meaning that none of these companies, other than Golden Gate, are liable to reimburse the Risk-Takers for any credit enhancement payments required to be made. As of December 31, 2016 (Successor Company), the aggregate principal balance of the Steel City Notes was $2.116 billion. In connection with this transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate or Steel City including a guarantee of the fees to the Risk-Takers. The support agreements provide that amounts would become payable by PLC if Golden Gate’s annual general corporate expenses were higher than modeled amounts, certain reinsurance rates applicable to the subject business increase beyond modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, PLC has entered into a separate agreement to guarantee payment of certain fee amounts in connection with the credit enhancement of the Steel City Notes. As of December 31, 2016 (Successor Company), no payments have been made under these agreements.
In connection with the transaction outlined above, Golden Gate had a $2.116 billion outstanding non-recourse funding obligation as of December 31, 2016 (Successor Company). This non-recourse funding obligation matures in 2039 and accrues interest at a fixed annual rate of 4.75%.
Prior to this transaction Golden Gate had three series of non-recourse funding obligations with a total outstanding balance of $800 million. PLC held the entire outstanding balance of non-recourse funding obligations. Series A1 non-recourse funding obligations had a balance of $400 million and accrued interest at 7.375%, the Series A2 non-recourse funding obligations had a balance of $100 million and accrued interest at 8%, and the Series A3 non-recourse funding obligations had a balance of $300 million and accrued interest at 8.45%. As a result of the transaction described above, the $800 million of Golden Gate Series A Surplus Notes held by PLC were contributed to the Company and then subsequently contributed to Golden Gate, which resulted in the extinguishment of these notes.
Golden Gate II Captive Insurance Company
Golden Gate II Captive Insurance Company (“Golden Gate II”), a South Carolina special purpose financial captive insurance company and wholly owned subsidiary, had $575 million of non-recourse funding obligations outstanding as of December 31, 2016 (Successor Company). These outstanding non-recourse funding obligations were issued to special purpose trusts, which in turn issued securities to third parties. Certain of our affiliates own a portion of these securities. As of December 31, 2016 (Successor Company), securities related to $58.6 million of the outstanding balance of the non-recourse funding obligations were held by external parties, securities related to $220.3 million of the non-recourse funding obligations were held by nonconsolidated affiliates, and $296.1 million were held by consolidated subsidiaries of the Company. PLC has entered into certain support agreements with Golden Gate II obligating it to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate II. These support agreements provide that amounts would become payable by PLC to Golden Gate II if its annual general corporate expenses were higher than modeled amounts or if Golden Gate II’s investment income on certain investments or premium income was below certain actuarially determined amounts. As of December 31, 2016 (Successor Company), no payments have been made under these agreements; however, certain support agreement obligations to Golden Gate II of approximately $1.5 million have been collateralized by PLC. Re-evaluation and, if necessary, adjustments of any support agreement collateralization amounts occur annually during the first quarter pursuant to the terms of the support agreements.
During the year ended December 31, 2016 (Successor Company), the Company and its affiliates repurchased $86.3 million of its outstanding non-recourse funding obligations, at a discount. These repurchases did not result in a material gain or loss for the Company. During the period of February 1, 2015 to December 31, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the Company did not repurchase any of its outstanding non-recourse funding obligations.
Golden Gate V Vermont Captive Insurance Company
On October 10, 2012, Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”), a Vermont special purpose financial insurance company and Red Mountain, LLC (“Red Mountain”), both wholly owned subsidiaries, entered into a 20-year transaction to finance up to $945 million of “AXXX” reserves related to a block of universal life insurance policies with secondary guarantees issued by the Company and its subsidiary, West Coast Life Insurance Company (“WCL”). Golden Gate V issued non-recourse funding obligations to Red Mountain, and Red Mountain issued a note with an initial principal amount of $275 million, increasing to a maximum of $945 million in 2027, to Golden Gate V for deposit to a reinsurance trust supporting Golden Gate V’s obligations under a reinsurance agreement with WCL, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. Through the structure, Hannover Life Reassurance Company of America (“Hannover Re”), the ultimate risk taker in the transaction, provides credit enhancement to the Red Mountain note for the 20-year term in exchange for a fee. The transaction is “non-recourse” to Golden Gate V, Red Mountain, WCL, PLC, and the
Company, meaning that none of these companies are liable for the reimbursement of any credit enhancement payments required to be made. As of December 31, 2016 (Successor Company), the principal balance of the Red Mountain note was $565 million. Future scheduled capital contributions to prefund credit enhancement fees amount to approximately $128.3 million and will be paid in annual installments through 2031. In connection with the transaction, PLC has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate V or Red Mountain. The support agreements provide that amounts would become payable by PLC if Golden Gate V’s annual general corporate expenses were higher than modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, PLC has entered into separate agreements to indemnify Golden Gate V with respect to material adverse changes in non-guaranteed elements of insurance policies reinsured by Golden Gate V and to guarantee payment of certain fee amounts in connection with the credit enhancement of the Red Mountain note. As of December 31, 2016 (Successor Company), no payments have been made under these agreements.
In connection with the transaction outlined above, Golden Gate V had a $565 million outstanding non-recourse funding obligation as of December 31, 2016 (Successor Company). This non-recourse funding obligation matures in 2037, has scheduled increases in principal to a maximum of $945 million, and accrues interest at a fixed annual rate of 6.25%.
Non-recourse funding obligations outstanding, on a consolidated basis, are shown in the following table:
|
Issuer |
|
Outstanding
|
|
Carrying Value(1) |
|
Maturity
|
|
Year-to-Date
|
|
||
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
||
|
Golden Gate Captive Insurance Company(2)(3) |
|
$ |
2,116,000 |
|
$ |
2,116,000 |
|
2039 |
|
4.75 |
% |
|
Golden Gate II Captive Insurance Company |
|
278,949 |
|
227,338 |
|
2052 |
|
1.30 |
% |
||
|
Golden Gate V Vermont Captive Insurance Company(2)(3) |
|
565,000 |
|
628,025 |
|
2037 |
|
5.12 |
% |
||
|
MONY Life Insurance Company(3) |
|
1,091 |
|
2,466 |
|
2024 |
|
6.19 |
% |
||
|
Total |
|
$ |
2,961,040 |
|
$ |
2,973,829 |
|
|
|
|
|
|
Issuer |
|
Outstanding
|
|
Carrying Value(1) |
|
Maturity
|
|
Year-to-Date
|
|
||
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
||||
|
Successor Company |
|
|
|
|
|
|
|
|
|
||
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
||
|
Golden Gate Captive Insurance Company(3) |
|
$ |
800,000 |
|
$ |
1,148,237 |
|
2037 |
|
4.66 |
% |
|
Golden Gate II Captive Insurance Company |
|
290,249 |
|
236,123 |
|
2052 |
|
1.22 |
% |
||
|
Golden Gate V Vermont Captive Insurance Company(3) |
|
500,000 |
|
564,679 |
|
2037 |
|
5.12 |
% |
||
|
MONY Life Insurance Company(3) |
|
1,091 |
|
2,524 |
|
2024 |
|
6.19 |
% |
||
|
Total |
|
$ |
1,591,340 |
|
$ |
1,951,563 |
|
|
|
|
|
(1) Carrying values include premiums and discounts and do no represent unpaid principal balances.
(2) Obligations are issued to non-consolidated subsidiaries of PLC. These obligations collateralize certain held-to-maturity securities issued by wholly owned subsidiaries of the Company.
(3) Fixed rate obligations
Letters of Credit
Golden Gate III Vermont Captive Insurance Company
Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement (the “Reimbursement Agreement”) with UBS AG, Stamford Branch (“UBS”), as issuing lender. Under the original Reimbursement Agreement, dated April 23, 2010, UBS issued a letter of credit (the “LOC”) in the initial amount of $505 million to a trust for the benefit of WCL. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011 (the “First Amended and Restated Reimbursement Agreement”), to replace the existing LOC with one or more letters of credit from UBS, and to extend the maturity date from April 1, 2018, to April 1, 2022. On August 7, 2013, Golden Gate III entered into a Second Amended and Restated Reimbursement Agreement with UBS (the “Second Amended and Restated Reimbursement Agreement”), which amended and restated the First Amended and Restated Reimbursement Agreement. Under the Second and Amended and Restated Reimbursement Agreement a new LOC in an initial amount of $710 million was issued by UBS in replacement of the existing LOC issued under the First Amended and Restated Reimbursement Agreement. The term of the LOC was extended from April 1, 2022 to October 1, 2023, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $610 million to $720 million in 2015 if certain conditions had been met. On June 25, 2014, Golden Gate III entered into a Third Amended and Restated Reimbursement Agreement with UBS (the “Third Amended and Restated Reimbursement Agreement”), which amended and restated the Second Amended and Restated Reimbursement Agreement. Under the Third Amended and Restated Reimbursement Agreement, a new LOC in an initial amount of $915 million was issued by UBS in replacement of the existing LOC issued under the Second Amended and Restated Reimbursement Agreement. The term of the LOC was extended from October 1, 2023 to April 1, 2025, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $720 million to $935 million in 2015. The LOC is held in trust for the benefit of WCL, and supports certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement originally effective April 1, 2010, as amended and restated on November 21, 2011, and as further amended and restated on August 7, 2013 and on June 25, 2014 to include additional blocks of policies, and pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. Pursuant to the terms of the Third Amended and Restated Reimbursement Agreement, the LOC balance reached its scheduled peak of $935 million in 2015. As of December 31, 2016 (Successor Company), the LOC balance was $930 million. The term of the LOC is expected to be approximately 15 years from the original issuance date. This transaction is “non-recourse” to WCL, PLC, and the Company, meaning that none of these companies other than Golden Gate III are liable for reimbursement on a draw of the LOC. PLC has entered into certain support agreements with Golden Gate III obligating PLC to make capital contributions or provide support related to certain of Golden Gate III’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate III. Future scheduled capital contributions amount to approximately $122.5 million and will be paid in three installments with the last payment occurring in 2021, and these contributions may be subject to potential offset against dividend payments as permitted under the terms of the Third Amended and Restated Reimbursement Agreement. The support agreements provide that amounts would become payable by PLC to Golden Gate III if Golden Gate III’s annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate III. Pursuant to the terms of an amended and restated letter agreement with UBS, PLC has continued to guarantee the payment of fees to UBS as specified in the Third Amended and Restated Reimbursement Agreement. As of December 31, 2016 (Successor Company), no payments have been made under these agreements.
Golden Gate IV Vermont Captive Insurance Company
Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial insurance company and wholly owned subsidiary, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. Pursuant to the terms of the Reimbursement Agreement, the LOC reached its scheduled peak amount of $790 million in 2016 and remained at this level as of December 31, 2016 (Successor Company). The term of the LOC is expected to be 12 years from the original issuance date (stated maturity of December 30, 2022). The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of the Company. This transaction is “non-recourse” to WCL, PLC, and the Company, meaning that none of these companies other than Golden Gate IV are liable for reimbursement on a draw of the LOC. PLC has entered into certain support agreements with Golden Gate IV obligating PLC to make capital contributions or provide support related to certain of Golden Gate IV’s expenses and in certain circumstances, to collateralize certain of PLC’s obligations to Golden Gate IV. The support agreements provide that amounts would become payable by PLC to Golden Gate IV if Golden Gate IV’s annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate IV. PLC has also entered into a separate agreement to guarantee the payments of LOC fees under the terms of the Reimbursement Agreement. As of December 31, 2016 (Successor Company), no payments have been made under these agreements.
Repurchase Program Borrowings
While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. These borrowings are typically for a term less than 90 days. The market value of securities to be repurchased is monitored and collateral levels are adjusted where appropriate to protect the counterparty against credit exposure. Cash received is invested in fixed maturity securities, and the agreements provided for net settlement in the event of default or on termination of the agreements. As of December 31, 2016 (Successor Company), the fair value of securities pledged under the repurchase program was $861.7 million and the repurchase obligation of $797.7 million was included in the Company’s consolidated balance sheets (at an average borrowing rate of 65 basis points). During the year ended December 31, 2016 (Successor Company), the maximum balance outstanding at any one point in time related to these programs was $1,065.8 million. The average daily balance was $505.4 million (at an average borrowing rate of 44 basis points) during the year ended December 31, 2016 (Successor Company). During the period of February 1, 2015 to December 31, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), the maximum balance outstanding at any one point in time related to these programs was $912.7 million and $175.0 million, respectively. The average daily balance was $540.3 million and $77.4 million (at an average borrowing rate of 20 and 16 basis points, respectively) during the period of February 1, 2015 to December 31, 2015 (Successor Company) and the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.
The following table provides the fair value of collateral pledged for repurchase agreements, grouped by asset class, as of December 31, 2016 (Successor Company):
Repurchase Agreements, Securities Lending Transactions, and Repurchase-to-Maturity Transactions Accounted for as Secured Borrowings
|
|
|
Remaining Contractual Maturity of the Agreements |
|
|||||||||||||
|
|
|
As of December 31, 2016 (Successor Company) |
|
|||||||||||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
|
|
Overnight and |
|
|
|
|
|
Greater Than |
|
|
|
|||||
|
|
|
Continuous |
|
Up to 30 days |
|
30 - 90 days |
|
90 days |
|
Total |
|
|||||
|
Repurchase agreements and repurchase-to-maturity transactions |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
U.S. Treasury and agency securities |
|
$ |
357,705 |
|
$ |
23,758 |
|
$ |
— |
|
$ |
— |
|
$ |
381,463 |
|
|
State and municipal securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
Other asset-backed securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
Corporate securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
Equity securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
Non-U.S. sovereign debt |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||
|
Mortgage loans |
|
480,269 |
|
— |
|
— |
|
— |
|
480,269 |
|
|||||
|
Total borrowings |
|
$ |
837,974 |
|
$ |
23,758 |
|
$ |
— |
|
$ |
— |
|
$ |
861,732 |
|
Other Obligations
The Company routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another’s behalf. Receivables and payables among affiliates are generally settled monthly.
Interest Expense
Interest expense on non-recourse funding obligations, letters of credit, and other temporary borrowings was $170.8 million, $106.4 million, $10.0 million, $118.6 million, for the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively.
16. COMMITMENTS AND CONTINGENCIES
The Company leases administrative and marketing office space in approximately 20 cities, including 24,090 square feet in Birmingham (excluding the home office building), with most leases being for periods of three to ten years. The Company had rental expense of $11.4 million, $10.2 million, $0.9 million, and $10.8 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively. The aggregate annualized rent was approximately $11.4 million for the year ended December 31, 2016 (Successor Company). The following is a schedule by year of future minimum rental payments required under these leases:
|
Year |
|
Amount |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2017 |
|
$ |
4,497 |
|
|
2018 |
|
4,515 |
|
|
|
2019 |
|
4,319 |
|
|
|
2020 |
|
4,044 |
|
|
|
2021 |
|
3,779 |
|
|
|
Thereafter |
|
12,472 |
|
|
Additionally, the Company leases a building contiguous to its home office. The lease was renewed in December 2013 and was extended to December 2018. At the end of the lease term the Company may purchase the building for approximately $75 million. Monthly rental payments are based on the current LIBOR rate plus a spread. The following is a schedule by year of future minimum rental payments required under this lease:
|
Year |
|
Amount |
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2017 |
|
$ |
1,653 |
|
|
2018 |
|
76,629 |
|
|
As of December 31, 2016 and 2015 (Successor Company), the Company had outstanding mortgage loan commitments of $855.3 million at an average rate of 4.17% and $601.9 million at an average rate of 4.43%, respectively.
Under the insurance guaranty fund laws of most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. From time to time, companies may be asked to contribute amounts beyond prescribed limits. It is possible that the Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other specialty products, that alters future premium tax offsets received in connection with guaranty fund assessments. The Company cannot predict the amount, nature or timing of any future assessments or legislation, any of which could have a material and adverse impact on the Company’s financial condition or results of operations.
A number of civil jury verdicts have been returned against insurers, broker dealers and other providers of financial services involving sales, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The financial services and insurance industries in particular are also sometimes the target of law enforcement and regulatory investigations relating to the numerous laws and regulations that govern such companies. Some companies have been the subject of law enforcement or regulatory actions or other actions resulting from such investigations. The Company, in the ordinary course of business, is involved in such matters.
The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established. For such matters, the Company may provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis and updates its established liabilities, disclosures and estimates of reasonably possible losses or range of loss based on such reviews.
The Company and certain of its insurance subsidiaries, as well as certain other insurance companies for which the Company has coinsured blocks of life insurance and annuity policies, are under audit for compliance with the unclaimed property laws of a number of states. The audits are being conducted on behalf of the treasury departments or unclaimed property administrators in such states. The focus of the audits is on whether there have been unreported deaths, maturities, or policies that have exceeded limiting age with respect to which death benefits or other payments under life insurance or annuity policies should be treated as unclaimed property that should be escheated to the state. The Company is presently unable to estimate the reasonably possible
loss or range of loss that may result from the audits due to a number of factors, including uncertainty as to the legal theory or theories that may give rise to liability, the early stages of the audits being conducted, and, with respect to one block of life insurance policies that is co-insured by the Company, uncertainty as to whether the Company or other companies are responsible for the liabilities, if any, arising in connection with such policies. The Company will continue to monitor the matter for any developments that would make the loss contingency associated with the audits reasonably estimable.
The Company and certain of its subsidiaries are under a targeted multi-state examination with respect to their claims paying practices and their use of the U.S. Social Security Administration’s Death Master File or similar databases (a “Death Database”) to identify unreported deaths in their life insurance policies, annuity contracts and retained asset accounts. There is no clear basis in previously existing law for requiring a life insurer to search for unreported deaths in order to determine whether a benefit is owed, and substantial legal authority exists to support the position that the prevailing industry practice was lawful. A number of life insurers, however, have entered into settlement or consent agreements with state insurance regulators under which the life insurers agreed to implement procedures for periodically comparing their life insurance and annuity contracts and retained asset accounts against a Death Database, treating confirmed deaths as giving rise to a death benefit under their policies, locating beneficiaries and paying them the benefits and interest, and escheating the benefits and interest as well as penalties to the state if the beneficiary could not be found. It has been publicly reported that the life insurers have paid administrative and/or examination fees to the insurance regulators in connection with the settlement or consent agreements. The Company believes it is reasonably possible that insurance regulators could demand from the Company administrative and/or examination fees relating to the targeted multi-state examination. Based on publicly reported payments by other life insurers, the Company estimates the range of such fees to be from $0 to $4.5 million.
17. SHAREOWNER’S EQUITY
PLC owns all of the 2,000 shares of non-voting preferred stock issued by the Company’s subsidiary, Protective Life and Annuity Insurance Company (“PL&A”). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A’s statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2016, 2015, and 2014, PL&A paid no dividends to PLC on its preferred stock.
18. STOCK-BASED COMPENSATION (PREDECESSOR COMPANY)
As a result of the Merger, PLC adopted a new long-term incentive program in 2015. The program was modified to reflect the fact that PLC no longer has a publicly traded class of stock to use in its compensation programs. Prior to that time, since 1973, PLC had stock-based incentive plans designed and established to motivate management to focus on its long-range performance through the awarding of stock-based compensation. Due to change in control provision, the awards outstanding immediately prior to the Merger were cancelled and converted into the right to receive an amount in cash. For more information refer to Note 4, Dai-ichi Merger.
Performance Shares (Predecessor)
The criteria for payment of the 2014 performance awards was based on PLC’s average operating return on average equity (“ROE”) over a three-year period. If PLC’s ROE was below 10.5%, no award was earned. If PLC’s ROE was at or above 12.0%, the award maximum was earned.
Performance shares were equivalent in value to one share of PLC’s common stock times the award earned percentage payout. Performance share awards of 203,295 performance share awards were issued during the year ended December 31, 2014 (Predecessor Company).
Performance share awards and the estimated fair value of the awards at grant date are as follows:
|
Year Awarded |
|
Performance
|
|
Estimated
|
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
2014 |
|
203,295 |
|
$ |
10,484 |
|
Stock Appreciation Rights (Predecessor)
Stock Appreciation Rights (“SARs”) were granted to certain officers of PLC to provide long-term incentive compensation based solely on the performance of PLC’s common stock. The SARs were exercisable either 5 years after the date of grant or in three or four equal annual installments beginning one year after the date of grant (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of PLC) and expire after ten years or upon termination of employment. The SARs activity as well as weighted-average base price was as follows:
|
|
|
Weighted-Average
|
|
No. of SARs |
|
|
|
Balance at December 31, 2014 |
|
$ |
30.41 |
|
157,628 |
|
The outstanding SARs as of December 31, 2014 (Predecessor Company), were at the following base prices:
|
Base Price |
|
SARs
|
|
Remaining Life
|
|
Currently
|
|
|
$41.05 |
|
10,000 |
|
1 |
|
10,000 |
|
|
$43.46 |
|
22,300 |
|
3 |
|
22,300 |
|
|
$38.59 |
|
52,000 |
|
4 |
|
52,000 |
|
|
$3.50 |
|
46,110 |
|
5 |
|
46,110 |
|
|
$18.36 |
|
27,218 |
|
6 |
|
27,218 |
|
There were no SARs issued for the year ended December 31, 2014 (Predecessor Company). These fair values were estimated using a Black-Scholes option pricing model. The assumptions used in this pricing model varied depending on the vesting period of awards. Assumptions used in the model for the 2010 SARs granted (the simplified method under the ASC Compensation-Stock Compensation Topic was used for the 2010 awards) were as follows: an expected volatility of 69.4%, a risk-free interest rate of 2.6%, a dividend rate of 2.4%, a zero percent forfeiture rate, and expected exercise date of 2016. Due to the change in control provision, all SARs outstanding immediately prior to the Merger were cancelled and converted into the right to receive an amount in cash.
Restricted Stock Units (Predecessor)
Restricted stock units were awarded to participants and include certain restrictions relating to vesting periods. PLC issued 98,700 restricted stock units for the year ended December 31, 2014 (Predecessor Company). These awards had a total fair value at grant date of $5.1 million. Approximately half of these restricted stock units were to vest after three years from grant date and the remainder vest after four years.
PLC recognizes all stock-based compensation expense over the related service period of the award, or earlier for retirement eligible employees. The expense recorded by PLC for its stock-based compensation plans was $25.9 million in 2014. PLC’s obligations of its stock-based compensation plans that are expected to be settled in shares of PLC’s common stock are reported as a component of shareowner’s equity, net of deferred taxes. As of December 31, 2014 (Predecessor Company), the total compensation cost related to non-vested stock-based compensation not yet recognized was $27.0 million. Due to the Merger, the unrecognized stock compensation expense was accelerated as of the date of the merger due to a change in control provision.
The following table provides information as of December 31, 2014 (Predecessor Company), regarding equity compensation plans under which the Company’s common stock was authorized for issuance:
Securities Authorized for Issuance under Equity Compensation Plans
|
Plan category |
|
Number of securities
|
|
Weighted-average
|
|
Number of securities
|
|
|
|
Equity compensation plans approved by shareowners |
|
1,960,959 |
(1) |
$ |
22.07 |
(3) |
4,092,546 |
(4) |
|
Equity compensation plans not approved by shareowners |
|
193,720 |
(2) |
Not applicable |
|
Not applicable |
(5) |
|
|
Total |
|
2,154,679 |
|
$ |
22.07 |
|
4,092,546 |
|
(1) Includes the following number of shares: (a) 102,458 shares issuable with respect to outstanding SARs (assuming for this purpose that one share of common stock will be payable with respect to each outstanding SAR); (b) 907,487 shares issuable with respect to outstanding performance share awards (assuming for this purpose that the awards are payable based on estimated performance under the awards as of September 30, 2014); (c) 313,199 shares issuable with respect to outstanding restricted stock units (assuming for this purpose that shares will be payable with respect to all outstanding restricted stock units); (d) 475,386 shares issuable with respect to stock equivalents representing previously earned awards under the LTIP that the recipient deferred under PLC’s Deferred Compensation Plan for Officers; and (e) 162,429 shares issuable with respect to stock equivalents representing previous awards under PLC’s Stock Plan for Non-Employee Directors that the recipient deferred under PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC.
(2) Includes the following number of shares of common stock: (a) 152,709 shares issuable with respect to stock equivalents representing (i) stock awards to PLC’s Directors before June 1, 2004 that the recipient deferred pursuant to PLC’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC and (ii) cash retainers and fees that PLC’s Directors deferred under the Company’s Deferred Compensation Plan for Directors Who Are Not Employees of PLC, and (b) 41,011 shares issuable with respect to stock equivalents pursuant to PLC’s Deferred Compensation Plan for Officers.
(3) Based on exercise prices of outstanding SARs.
(4) Represents shares of common stock available for future issuance under the LTIP and PLC’s Stock Plan for Non-Employee Directors.
(5) The plans listed in Note (2) do not currently have limits on the number of shares of common stock issuable under such plans. The total number of shares of common stock that may be issuable under such plans will depend upon, among other factors, the deferral elections made by the plans’ participants.
19. EMPLOYEE BENEFIT PLANS
Due to the Dai-ichi acquisition, PLC remeasured all materially impacted benefit plans as of January 31, 2015. Financial remeasurement was performed for the defined benefit pension plan, the unfunded excess benefit plan, and the postretirement life insurance plan as of January 31, 2015. The January results for the retiree life plan were not material, and therefore, remeasurement was not deemed necessary for this plan. PLC has disclosed relevant financial information related to the January 31, 2015 remeasurement.
Beginning with the December 31, 2015 measurement, PLC changed its method used to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefits by applying a spot rate approach. Historically, PLC utilized a single weighted average discount rate derived from a selected yield curve used to measure the benefit obligation as of the measurement date. Under the new spot rate approach, the actual calculation of service and interest cost will reflect an array of spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. PLC made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot rates from the selected yield curve. This new approach does not affect the measurement of the total benefit obligation.
Defined Benefit Pension Plan and Unfunded Excess Benefit Plan
PLC sponsors a defined benefit pension plan covering substantially all of its employees, including those of the Company. Benefits are based on years of service and the employee’s compensation.
Effective January 1, 2008, PLC made the following changes to its defined benefit pension plan. These changes have been reflected in the computations within this note.
· Employees hired after December 31, 2007, will receive benefits under a cash balance plan.
· Employees active on December 31, 2007, with age plus vesting service less than 55 years, will receive a final pay-based pension benefit for service through December 31, 2007, plus a cash balance benefit for service after December 31, 2007.
· Employees active on December 31, 2007, with age plus vesting service equaling or exceeding 55 years, will receive a final pay-based pension benefit for service both before and after December 31, 2007, with a modest reduction in the formula for benefits earned after December 31, 2007.
· All participants terminating employment on or after December of 2007 may elect to receive a lump sum benefit.
In 2016, PLC amended its defined benefit pension plan to offer a limited-time opportunity of benefit payouts to eligible, terminated-vested participants (“lump sum window”). The lump sum window provided eligible, terminated-vested participants with an option to elect to receive a lump sum settlement of his or her pension benefit in December 2016 or to elect receipt of monthly pension benefits commencing in December 2016. This event triggered settlement accounting for PLC and resulted in the recognition of $0.9 million of settlement income for the twelve months ended December 31, 2016 (Successor Company).
PLC also sponsors an unfunded excess benefit plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law.
On May 5, 2016, the Board of Directors of Protective Life Corporation decided to convert the accrued benefit payable under the excess benefit plan as of March 31, 2016 to John D. Johns, the Company’s Chairman and Chief Executive Officer, into a lump sum amount. On September 30, 2016, the lump sum amount was allocated to a book entry account that will be treated as though it were a deferral account under PLC’s deferred compensation plan for officers. Mr. Johns will continue to accrue benefits with respect to his continued service as an employee of PLC after March 31, 2016 in a manner that is consistent with the provisions of the excess benefit plan. The conversion event required PLC to re-measure the excess benefit plan as of May 31, 2016 and resulted in the recognition of $2.1 million in settlement expense during the twelve months ended December 31, 2016 (Successor Company).
The following table presents the benefit obligation, fair value of plan assets, funded status, and amounts not yet recognized as components of net periodic pension costs for PLC’s defined benefit pension plan and unfunded excess benefit plan as of December 31, 2016 (Successor Company), December 31, 2015 (Successor Company), and January 31, 2015 (Predecessor Company):
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||||||||
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
|
January 31, 2015 |
|
||||||||||||
|
|
|
Defined
|
|
Unfunded
|
|
Defined
|
|
Unfunded
|
|
|
Defined
|
|
Unfunded
|
|
||||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||||||||
|
Accumulated benefit obligation, end of year |
|
$ |
247,595 |
|
$ |
45,594 |
|
$ |
250,133 |
|
$ |
54,196 |
|
|
$ |
262,290 |
|
$ |
49,251 |
|
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Projected benefit obligation at beginning of year |
|
$ |
268,221 |
|
$ |
56,985 |
|
$ |
281,099 |
|
$ |
51,243 |
|
|
$ |
267,331 |
|
$ |
49,575 |
|
|
Service cost |
|
12,791 |
|
1,413 |
|
11,220 |
|
1,229 |
|
|
974 |
|
95 |
|
||||||
|
Interest cost |
|
9,751 |
|
1,353 |
|
9,072 |
|
1,499 |
|
|
1,002 |
|
140 |
|
||||||
|
Amendments |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
||||||
|
Actuarial loss/(gain) |
|
5,988 |
|
4,124 |
|
(19,235 |
) |
4,484 |
|
|
12,384 |
|
1,555 |
|
||||||
|
Benefits paid |
|
(30,903 |
) |
(16,073 |
) |
(13,935 |
) |
(1,470 |
) |
|
(592 |
) |
(122 |
) |
||||||
|
Projected benefit obligation at end of year |
|
265,848 |
|
47,802 |
|
268,221 |
|
56,985 |
|
|
281,099 |
|
51,243 |
|
||||||
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Fair value of plan assets at beginning of year |
|
196,042 |
|
— |
|
201,820 |
|
— |
|
|
203,772 |
|
— |
|
||||||
|
Actual return on plan assets |
|
15,815 |
|
— |
|
6,751 |
|
— |
|
|
(3,525 |
) |
— |
|
||||||
|
Employer contributions(1) |
|
20,889 |
|
16,073 |
|
1,406 |
|
1,470 |
|
|
2,165 |
|
122 |
|
||||||
|
Benefits paid(2) |
|
(30,903 |
) |
(16,073 |
) |
(13,935 |
) |
(1,470 |
) |
|
(592 |
) |
(122 |
) |
||||||
|
Fair value of plan assets at end of year |
|
201,843 |
|
— |
|
196,042 |
|
— |
|
|
201,820 |
|
— |
|
||||||
|
After reflecting FASB guidance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Funded status |
|
(64,005 |
) |
(47,802 |
) |
(72,179 |
) |
(56,985 |
) |
|
(79,279 |
) |
(51,243 |
) |
||||||
|
Amounts recognized in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Other liabilities |
|
(64,005 |
) |
(47,802 |
) |
(72,179 |
) |
(56,985 |
) |
|
(79,279 |
) |
(51,243 |
) |
||||||
|
Amounts recognized in accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Net actuarial loss/(gain) |
|
(7,855 |
) |
6,294 |
|
(12,772 |
) |
4,484 |
|
|
96,965 |
|
22,401 |
|
||||||
|
Prior service cost/(credit) |
|
— |
|
— |
|
— |
|
— |
|
|
(1,001 |
) |
23 |
|
||||||
|
Total amounts recognized in AOCI |
|
$ |
(7,855 |
) |
$ |
6,294 |
|
$ |
(12,772 |
) |
$ |
4,484 |
|
|
$ |
95,964 |
|
$ |
22,424 |
|
(1) Employer contributions disclosed are based on the Company’s fiscal filing year
(2) Includes amount related to Mr. Johns’ excess benefit to deferred compensation plan conversion as discussed above in Unfunded Excess Benefit Plan
Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:
|
|
|
Successor Company |
|
||||||
|
|
|
Defined Benefit
|
|
Unfunded Excess
|
|
||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
Discount rate |
|
4.04% |
|
4.29% |
|
3.60% |
|
3.63% |
|
|
Rate of compensation increase |
|
4.75% prior to
|
|
4.75% prior to
|
|
4.75% prior to
|
|
4.75% prior to age 40/ 3.75% for age 40 and above |
|
The benefit obligations as of January 31 were determined based on the assumptions used in the 2014 year end disclosures with the following exception:
|
|
|
Predecessor Company |
|
||
|
|
|
Defined Benefit
|
|
Unfunded Excess
|
|
|
Discount rate |
|
3.55 |
% |
3.26 |
% |
Weighted-average assumptions used to determine the net periodic benefit cost for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), and for the year ended December 31, 2014 (Predecessor Company) are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended December 31, |
|
|
For The Year Ended December 31, |
|
||||||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
2014 |
|
2014 |
|
|
|
|
Defined Benefit
|
|
Unfunded Excess Benefit Plan |
|
|
Defined Benefit
|
|
Unfunded Excess
|
|
||||
|
Discount rate |
|
4.29% |
|
3.95% |
|
3.63% |
|
3.65% |
|
|
4.86% |
|
4.30% |
|
|
Rate of compensation increase |
|
4.75% prior to age 40/ 3.75% for age 40 and above |
|
4.75% prior to age 40/ 3.75% for age 40 and above |
|
4.75% prior to age 40/ 3.75% for age 40 and above |
|
4.75% prior to age 40/ 3.75% for age 40 and above |
|
|
3.0 |
|
4.0 |
|
|
Expected long-term return on plan assets |
|
7.25% |
|
7.50% |
|
N/A |
|
N/A |
|
|
7.50% |
|
N/A |
|
The assumed discount rates used to determine the benefit obligations were based on an analysis of future benefits expected to be paid under the plans. The assumed discount rate reflects the interest rate at which an amount that is invested in a portfolio of high-quality debt instruments on the measurement date would provide the future cash flows necessary to pay benefits when they come due.
To determine an appropriate long-term rate of return assumption, PLC obtained 25 year annualized returns for each of the represented asset classes. In addition, PLC received evaluations of market performance based on PLC’s asset allocation as provided by external consultants. A combination of these statistical analytics provided results that PLC utilized to determine an appropriate long-term rate of return assumption.
Components of the net periodic benefit cost for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company) are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||||||||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||||||||||||||
|
|
|
Defined
|
|
Unfunded
|
|
Defined
|
|
Unfunded
|
|
|
Defined
|
|
Unfunded
|
|
Defined
|
|
Unfunded
|
|
||||||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||||||||||||||
|
Service cost — benefits earned during the period |
|
$ |
12,791 |
|
$ |
1,413 |
|
$ |
11,220 |
|
$ |
1,229 |
|
|
$ |
974 |
|
$ |
95 |
|
$ |
9,411 |
|
$ |
954 |
|
|
Interest cost on projected benefit obligation |
|
9,751 |
|
1,353 |
|
9,072 |
|
1,499 |
|
|
1,002 |
|
140 |
|
10,493 |
|
1,696 |
|
||||||||
|
Expected return on plan assets |
|
(13,780 |
) |
— |
|
(13,214 |
) |
— |
|
|
(1,293 |
) |
— |
|
(12,166 |
) |
— |
|
||||||||
|
Amortization of prior service cost/(credit) |
|
— |
|
— |
|
— |
|
— |
|
|
(33 |
) |
1 |
|
(392 |
) |
12 |
|
||||||||
|
Amortization of actuarial loss/(gain)(1) |
|
— |
|
178 |
|
— |
|
— |
|
|
668 |
|
138 |
|
6,821 |
|
1,516 |
|
||||||||
|
Preliminary net periodic benefit cost |
|
8,762 |
|
2,944 |
|
7,078 |
|
2,728 |
|
|
1,318 |
|
374 |
|
14,167 |
|
4,178 |
|
||||||||
|
Settlement/curtailment expense(2) |
|
(964 |
) |
2,135 |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
||||||||
|
Total net periodic benefit cost |
|
$ |
7,798 |
|
$ |
5,079 |
|
$ |
7,078 |
|
$ |
2,728 |
|
|
$ |
1,318 |
|
$ |
374 |
|
$ |
14,167 |
|
$ |
4,178 |
|
(1) 2016 average remaining service period used is 9.31 years and 8.58/8.63 years for the defined benefit pension plan and unfunded excess benefit plan, respectively.
(2) The unfunded excess benefit plan triggered settlement accounting for the year ended December 31, 2016 since the total lump sum payments exceeded the settlement threshold of service cost plus interest cost.
For the defined benefit pension plan, PLC does not expect to amortize any net actuarial loss/(gain) from other comprehensive income into net periodic benefit cost during 2017 since the net actuarial loss/(gain) subject to amortization is less than 10% of the greater of the smooth value of assets or the projected benefit obligation. For the unfunded excess benefit plan, PLC expects to amortize a loss of approximately $0.2 million from other comprehensive income into net periodic benefit cost during 2017.
Estimated future benefit payments under the defined benefit pension plan and unfunded excess benefit plan are as follows:
|
Years |
|
Defined Benefit
|
|
Unfunded Excess
|
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
2017 |
|
$ |
18,410 |
|
$ |
3,014 |
|
|
2018 |
|
18,050 |
|
3,245 |
|
||
|
2019 |
|
19,112 |
|
6,364 |
|
||
|
2020 |
|
19,434 |
|
5,290 |
|
||
|
2021 |
|
19,990 |
|
4,873 |
|
||
|
2022 - 2026 |
|
106,672 |
|
21,890 |
|
||
Defined Benefit Pension Plan Assets
Allocation of plan assets of the defined benefit pension plan by category as of December 31 are as follows:
|
|
|
Successor Company |
|
||||
|
Asset Category |
|
Target
|
|
2016 |
|
2015 |
|
|
Cash and cash equivalents |
|
2 |
% |
2 |
% |
2 |
% |
|
Equity securities |
|
60 |
|
61 |
|
61 |
|
|
Fixed income |
|
38 |
|
37 |
|
37 |
|
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
PLC’s target asset allocation is designed to provide an acceptable level of risk and balance between equity assets and fixed income assets. The weighting towards equity securities is designed to help provide for an increased level of asset growth potential and liquidity.
Prior to July 1999, upon an employee’s retirement, a distribution from pension plan assets was used to purchase a single premium annuity from the Company in the retiree’s name. Therefore, amounts shown above as plan assets exclude assets relating to such retirees. Since July 1999, retiree obligations have been fulfilled from pension plan assets. The defined benefit pension plan has a target asset allocation of 60% domestic equities, 38% fixed income, and 2% cash. When calculating asset allocation, PLC includes reserves for pre-July 1999 retirees.
PLC’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges (shown above) by major asset categories. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies.
The plan’s equity assets are in a Russell 3000 index fund that invests in a domestic equity index collective trust managed by Northern Trust Corporation and in a Spartan 500 index fund managed by Fidelity. The plan’s cash is invested in a collective trust managed by Northern Trust Corporation. The plan’s fixed income assets are invested in a group deposit administration annuity contract with the Company.
Plan assets of the defined benefit pension plan by category as of December 31, 2016 and 2015 (Successor Company) are as follows:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
Asset Category |
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Cash and cash equivalents |
|
$ |
4,175 |
|
$ |
3,121 |
|
|
Equity securities: |
|
|
|
|
|
||
|
Collective Russell 3000 equity index fund |
|
67,627 |
|
72,663 |
|
||
|
Fidelity Spartan 500 index fund |
|
58,815 |
|
52,551 |
|
||
|
Fixed income |
|
71,226 |
|
67,707 |
|
||
|
Total investments |
|
201,843 |
|
196,042 |
|
||
|
Employer contribution receivable |
|
— |
|
— |
|
||
|
Total |
|
$ |
201,843 |
|
$ |
196,042 |
|
The valuation methodologies used to determine the fair values reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. The Plan’s group deposit administration annuity contract with the Company is recorded at contract value, which, by utilizing a long-term view, PLC believes approximates fair value. Contract value represents contributions made under the contract, plus interest at the contract rate, less funds used to purchase annuities. Units in collective short-term and collective investment funds are valued at the unit value, which approximates fair value, as reported by the trustee of the collective short-term and collective investment funds on each valuation date. These methods of valuation may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while PLC believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2016 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Collective short-term investment fund |
|
$ |
4,175 |
|
$ |
— |
|
$ |
— |
|
$ |
4,175 |
|
|
Collective investment funds: |
|
|
|
|
|
|
|
|
|
||||
|
Equity index funds |
|
58,815 |
|
67,627 |
|
— |
|
126,442 |
|
||||
|
Group deposit administration annuity contract |
|
— |
|
— |
|
71,226 |
|
71,226 |
|
||||
|
Total investments |
|
$ |
62,990 |
|
$ |
67,627 |
|
$ |
71,226 |
|
$ |
201,843 |
|
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2015 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Collective short-term investment fund |
|
$ |
3,121 |
|
$ |
— |
|
$ |
— |
|
$ |
3,121 |
|
|
Collective investment funds: |
|
|
|
|
|
|
|
|
|
||||
|
Equity index funds |
|
52,551 |
|
72,663 |
|
— |
|
125,214 |
|
||||
|
Group deposit administration annuity contract |
|
— |
|
— |
|
67,707 |
|
67,707 |
|
||||
|
Total investments |
|
$ |
55,672 |
|
$ |
72,663 |
|
$ |
67,707 |
|
$ |
196,042 |
|
For the year ended December 31, 2016 (Successor Company) and for the period of February 1, 2015 to December 31, 2015 (Successor Company), there were no transfers between levels.
The following table summarizes the Plan investments measured at fair value based on NAV per share as of December 31, 2016 (Successor Company) and December 31, 2015 (Successor Company), respectively:
|
Name |
|
Fair Value |
|
Unfunded
|
|
Redemption
|
|
Redemption
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
Successor Company |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Collective short-term investment fund |
|
$ |
4,175 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
Collective Russell 3000 index fund(1) |
|
67,627 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
|
Fidelity Spartan 500 index fund |
|
58,815 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
Collective short-term investment fund |
|
$ |
3,121 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
Collective Russell 3000 index fund(1) |
|
72,663 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
|
Fidelity Spartan 500 index fund |
|
52,551 |
|
Not Applicable |
|
Daily |
|
1 day |
|
|
(1) Non-lending collective trust that does not publish a daily NAV but tracks the Russell 3000 index and provides a daily NAV to the Plan.
The following table presents a reconciliation of the beginning and ending balances for the fair value measurements for the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Copmany) for which PLC has used significant unobservable inputs (Level 3):
|
|
|
Successor Company |
|
|
|
Predecessor Company |
|
|||||
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
|
|
January 31, 2015 |
|
|||
|
|
|
(Dollars In Thousands) |
|
|
|
(Dollars In Thousands) |
|
|||||
|
Balance, beginning of year |
|
$ |
67,707 |
|
$ |
64,581 |
|
|
|
$ |
64,296 |
|
|
Interest income |
|
3,519 |
|
3,126 |
|
|
|
285 |
|
|||
|
Transfers from collective short-term investments fund |
|
— |
|
— |
|
|
|
— |
|
|||
|
Transfers to collective short-term investments fund |
|
— |
|
— |
|
|
|
— |
|
|||
|
Balance, end of year |
|
$ |
71,226 |
|
$ |
67,707 |
|
|
|
$ |
64,581 |
|
The following table represents the Plan’s Level 3 financial instrument, the valuation technique used, and the significant unobservable input and the ranges of values for that input as of December 31, 2016 (Successor Company):
|
Instrument |
|
Fair Value |
|
Principal
|
|
Significant
|
|
Range of
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
Group deposit administration annuity contract |
|
$ |
71,226 |
|
Contract Value |
|
Contract Rate |
|
5.11 - 5.35% |
|
Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported.
Defined Benefit Pension Plan Funding Policy
PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) plus such additional amounts as PLC may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
Under the Pension Protection Act of 2006 (“PPA”), a plan could be subject to certain benefit restrictions if the plan’s adjusted funding target attainment percentage (“AFTAP”) drops below 80%. Therefore, PLC may make additional contributions in future periods to maintain an AFTAP of at least 80%. In general, the AFTAP is a measure of how well the plan is funded and is obtained by dividing the plan’s assets by the plan’s funding liabilities. AFTAP is based on participant data, plan provisions, plan methods and assumptions, funding credit balances, and plan assets as of the plan valuation date. Some of the assumptions and methods used to determine the plan’s AFTAP may be different from the assumptions and methods used to measure the plan’s funded status on a GAAP basis.
In July of 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension funding stabilization provisions, was signed into law. These provisions establish an interest rate corridor which is designed to stabilize the segment rates used to determine funding requirements from the effects of interest rate volatility. In August of 2014, the Highway and Transportation Funding Act of 2014 (“HATFA”) was signed into law. HAFTA extends the funding relief provided by MAP-21 by delaying the interest rate corridor expansion. The funding stabilization provisions of MAP-21 and HATFA reduced the Company’s minimum required defined benefit plan contributions for the 2013 and 2014 plan years. Since the funding stabilization provisions of MAP-21 and HATFA do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, PLC may also make additional contributions in future periods to avoid certain PBGC reporting triggers.
During the twelve months ended December 31, 2016, PLC contributed $1.9 million to the defined benefit pension plan for the 2015 plan year and $19.0 million to its defined benefit pension plan for the 2016 plan year. The $19.0 million contribution for the 2016 plan year was an acceleration of the contributions due during 2017 and was related to the funding of payments resulting from the lump sum window offered during the year as previously discussed herein. PLC has not yet determined what amount it will fund for 2017, but estimates that the amount will be between $1 million and $10 million.
Other Postretirement Benefits
In addition to pension benefits, PLC provides limited healthcare benefits to eligible retired employees until age 65. This postretirement benefit is provided by an unfunded plan. As of December 31, 2016 and 2015 (Successor Company), the accumulated postretirement benefit obligation associated with these benefits was $0.1 million and $0.1 million, respectively.
The change in the benefit obligation for the retiree medical plan is as follows:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Change in Benefit Obligation |
|
|
|
|
|
||
|
Benefit obligation, beginning of year |
|
$ |
137 |
|
$ |
247 |
|
|
Service cost |
|
— |
|
1 |
|
||
|
Interest cost |
|
1 |
|
2 |
|
||
|
Actuarial (gain)/loss |
|
(22 |
) |
(113 |
) |
||
|
Plan participant contributions |
|
87 |
|
141 |
|
||
|
Benefits paid |
|
(142 |
) |
(141 |
) |
||
|
Benefit obligation, end of year |
|
$ |
61 |
|
$ |
137 |
|
For the retiree medical plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2016 (Successor Company) is 1.70% and 1.54%, respectively.
For a closed group of retirees over age 65, PLC provides a prescription drug benefit. As of December 31, 2016 (Successor Company) and December 31, 2015 (Successor Company), PLC’s liability related to this benefit was less than $0.1 million. PLC’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.
PLC also offers life insurance benefits for retirees from $10,000 up to a maximum of $75,000 which are provided through the payment of premiums under a group life insurance policy. This plan is partially funded at a maximum of $50,000 face amount of insurance. The accumulated postretirement benefit obligation associated with these benefits is as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
|||||
|
|
|
As of December 31, 2016 |
|
As of December 31, 2015 |
|
|
As of January 31, 2015 |
|
|||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
|||||
|
Change in Benefit Obligation |
|
|
|
|
|
|
|
|
|||
|
Benefit obligation, beginning of year |
|
$ |
9,063 |
|
$ |
9,781 |
|
|
$ |
9,288 |
|
|
Service cost |
|
102 |
|
138 |
|
|
12 |
|
|||
|
Interest cost |
|
338 |
|
336 |
|
|
39 |
|
|||
|
Actuarial (gain)/loss |
|
604 |
|
(894 |
) |
|
511 |
|
|||
|
Benefits paid |
|
(473 |
) |
(298 |
) |
|
(69 |
) |
|||
|
Benefit obligation, end of year |
|
$ |
9,634 |
|
$ |
9,063 |
|
|
$ |
9,781 |
|
For the postretirement life insurance plan, PLC’s discount rate assumption used to determine benefit obligation and the net periodic benefit cost as of December 31, 2016 (Successor Company) is 4.35% and 4.60%, respectively.
PLC’s expected long-term rate of return assumption used to determine the net periodic benefit cost as of December 31, 2016 (Successor Company) is 2.75%. To determine an appropriate long-term rate of return assumption, PLC utilized 25 year average and annualized return results on the Barclay’s short treasury index.
Investments of PLC’s group life insurance plan are held by Wells Fargo Bank, N.A. Plan assets held by the Custodian are invested in a money market fund.
The fair value of each major category of plan assets for PLC’s postretirement life insurance plan is as follows
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
Category of Investment |
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
|
|
|
|
|
|
||
|
Money market fund |
|
$ |
5,362 |
|
$ |
5,653 |
|
Investments are stated at fair value and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The money market funds are valued based on historical cost, which represents fair value, at year end. This method of valuation may produce a fair value calculation that may not be reflective of future fair values. Furthermore, while PLC believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2016 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Money market fund |
|
$ |
5,362 |
|
$ |
— |
|
$ |
— |
|
$ |
5,362 |
|
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2015 (Successor Company):
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Money market fund |
|
$ |
5,653 |
|
$ |
— |
|
$ |
— |
|
$ |
5,653 |
|
For the year ended December 31, 2016 and 2015 (Successor Company), there were no transfers between levels.
Investments are exposed to various risks, such as interest rate and credit risks. Due to the level of risk associated with investments and the level of uncertainty related to credit risks, it is at least reasonably possible that changes in risk in the near term could materially affect the amounts reported.
401(k) Plan
PLC sponsors a 401(k) Plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code or as after-tax “Roth” contributions. Employees may contribute up to 25% of their eligible annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service ($18,000 for 2016). The Plan also provides a “catch-up” contribution provision which permits eligible participants (age 50 or over at the end of the calendar year), to make additional contributions that exceed the regular annual contribution limits up to a limit periodically set by the Internal Revenue Service ($6,000 for 2016). PLC matches the sum of all employee contributions dollar for dollar up to a maximum of 4% of an employee’s pay per year per person. All matching contributions vest immediately.
Prior to 2009, employee contributions to PLC’s 401(k) Plan were matched through use of an ESOP established by PLC. Beginning in 2009, PLC adopted a cash match for employee contributions to the 401(k) plan. For the year ended December 31, 2016 (Successor Company) and for the period of February 1, 2015 to December 31, 2015 (Successor Company), PLC recorded an expense of $7.5 million and $6.3 million, respectively.
Effective as of January 1, 2005, PLC adopted a supplemental matching contribution program, which is a nonqualified plan that provides supplemental matching contributions in excess of the limits imposed on qualified defined contribution plans by federal tax law. The first allocations under this program were made in early 2006, with respect to the 2005 plan year. The expense recorded by PLC for this employee benefit was $0.6 million, $0.5 million, and $0.4 million, respectively, in 2016, 2015, and 2014.
Prior to the Merger date of February 1, 2015, PLC’s outstanding and publicly traded common stock was a component of the investment options allowed to participants in the 401(k) Plan.
Deferred Compensation Plan
On February 1, 2015, PLC became a wholly owned subsidiary of Dai-ichi Life and PLC stock ceased to be publicly traded. Thus, any common stock equivalents within the plans converted into rights to receive the merger consideration of $70.00 per common stock equivalent.
As of February 1, 2015, PLC has continued the deferred compensation plans for officers and others. Compensation deferred was credited to the participants in cash, mutual funds, or a combination thereof. As of December 31, 2015 (Successor Company), PLC’s obligations related to its deferred compensation plans are reported in other liabilities.
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in the accumulated balances for each component of AOCI as of December 31, 2016 and 2015 (Successor Company), January 31, 2015 (Predecessor Company), and December 31, 2014 (Predecessor Company).
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
Successor Company |
|
Unrealized
|
|
Accumulated
|
|
Total
|
|
|||
|
|
|
(Dollars In Thousands, Net of Tax) |
|
|||||||
|
Beginning Balance, December 31, 2015 |
|
$ |
(1,246,391 |
) |
$ |
— |
|
$ |
(1,246,391 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
606,848 |
|
688 |
|
607,536 |
|
|||
|
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings |
|
(6,782 |
) |
— |
|
(6,782 |
) |
|||
|
Amounts reclassified from accumulated other comprehensive income (loss)(1) |
|
(9,442 |
) |
39 |
|
(9,403 |
) |
|||
|
Net current-period other comprehensive income (loss) |
|
590,624 |
|
727 |
|
591,351 |
|
|||
|
Ending Balance, December 31, 2016 |
|
$ |
(655,767 |
) |
$ |
727 |
|
$ |
(655,040 |
) |
(1) See Reclassification table below for details.
(2) As of December 31, 2015 (Successor Company) and December 31, 2016 (Successor Company), net unrealized losses reported in AOCI were offset by $623.0 million and $424.1 million, respectively, due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
Successor Company |
|
Unrealized
|
|
Accumulated
|
|
Total
|
|
|||
|
|
|
(Dollars In Thousands, Net of Tax) |
|
|||||||
|
Beginning Balance, February 1, 2015 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Other comprehensive income (loss) before reclassifications |
|
(1,263,367 |
) |
(86 |
) |
(1,263,453 |
) |
|||
|
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings |
|
(393 |
) |
— |
|
(393 |
) |
|||
|
Amounts reclassified from accumulated other comprehensive income (loss)(1) |
|
17,369 |
|
86 |
|
17,455 |
|
|||
|
Net current-period other comprehensive income (loss) |
|
(1,246,391 |
) |
— |
|
(1,246,391 |
) |
|||
|
Ending Balance, December 31, 2015 |
|
$ |
(1,246,391 |
) |
$ |
— |
|
$ |
(1,246,391 |
) |
(1) See Reclassification table below for details.
(2) As of December 31, 2015 (Successor Company), net unrealized losses reported in AOCI were offset by $623.0 million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
Predecessor Company |
|
Unrealized
|
|
Accumulated
|
|
Total
|
|
|||
|
|
|
(Dollars In Thousands, Net of Tax) |
|
|||||||
|
Beginning Balance, December 31, 2014 |
|
$ |
1,483,293 |
|
$ |
(82 |
) |
$ |
1,483,211 |
|
|
Other comprehensive income (loss) before reclassifications |
|
482,143 |
|
9 |
|
482,152 |
|
|||
|
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings |
|
(243 |
) |
— |
|
(243 |
) |
|||
|
Amounts reclassified from accumulated other comprehensive income (loss)(1) |
|
(4,166 |
) |
23 |
|
(4,143 |
) |
|||
|
Net current-period other comprehensive income (loss) |
|
477,734 |
|
32 |
|
477,766 |
|
|||
|
Ending Balance, January 31, 2015 |
|
$ |
1,961,027 |
|
$ |
(50 |
) |
$ |
1,960,977 |
|
(1) See Reclassification table below for details.
(2) As of January 31, 2015 and December 31, 2014, net unrealized losses reported in AOCI were offset by $(492.6) million and $(504.4) million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
Predecessor Company |
|
Unrealized
|
|
Accumulated
|
|
Total
|
|
|||
|
|
|
(Dollars In Thousands, Net of Tax) |
|
|||||||
|
Beginning Balance, December 31, 2013 |
|
$ |
540,201 |
|
$ |
(1,235 |
) |
$ |
538,966 |
|
|
Other comprehensive income (loss) before reclassifications |
|
983,985 |
|
(2 |
) |
983,983 |
|
|||
|
Other comprehensive income (loss) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings |
|
3,498 |
|
— |
|
3,498 |
|
|||
|
Amounts reclassified from accumulated other comprehensive income (loss)(1) |
|
(44,391 |
) |
1,155 |
|
(43,236 |
) |
|||
|
Net current-period other comprehensive income (loss) |
|
943,092 |
|
1,153 |
|
944,245 |
|
|||
|
Ending Balance, December 31, 2014 |
|
$ |
1,483,293 |
|
$ |
(82 |
) |
$ |
1,483,211 |
|
(1) See Reclassification table below for details.
(2) As of December 31, 2014 and 2013, net unrealized losses reported in AOCI were offset by $(504.4) million and $(189.8) million due to the impact those net unrealized losses would have had on certain of the Company’s insurance assets and liabilities if the net unrealized losses had been recognized in net income.
The following table summarizes the reclassifications amounts out of AOCI for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company).
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount
|
|
Affected Line Item in the Consolidated
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
Successor Company |
|
|
|
|
|
|
|
For The Year Ended December 31, 2016 |
|
|
|
|
|
|
|
Gains and losses on derivative instruments |
|
|
|
|
|
|
|
Net settlement (expense)/benefit(1) |
|
$ |
(60 |
) |
Benefits and settlement expenses, net of reinsurance ceded |
|
|
|
|
(60 |
) |
Total before tax |
|
|
|
|
|
21 |
|
Tax (expense) or benefit |
|
|
|
|
|
$ |
(39 |
) |
Net of tax |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities |
|
|
|
|
|
|
|
Net investment gains/losses |
|
$ |
32,275 |
|
Realized investment gains (losses): All other investments |
|
|
Impairments recognized in earnings |
|
(17,748 |
) |
Net impairment losses recognized in earnings |
|
|
|
|
|
14,527 |
|
Total before tax |
|
|
|
|
|
(5,085 |
) |
Tax (expense) or benefit |
|
|
|
|
|
$ |
9,442 |
|
Net of tax |
|
(1) See Note 8, Derivative Financial Instruments for additional information.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount
|
|
Affected Line Item in the Consolidated
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
Successor Company |
|
|
|
|
|
|
|
February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
Gains and losses on derivative instruments |
|
|
|
|
|
|
|
Net settlement (expense)/benefit(1) |
|
$ |
(131 |
) |
Benefits and settlement expenses, net of reinsurance ceded |
|
|
|
|
(131 |
) |
Total before tax |
|
|
|
|
|
45 |
|
Tax (expense) or benefit |
|
|
|
|
|
$ |
(86 |
) |
Net of tax |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities |
|
|
|
|
|
|
|
Net investment gains/losses |
|
$ |
271 |
|
Realized investment gains (losses): All other investments |
|
|
Impairments recognized in earnings |
|
(26,992 |
) |
Net impairment losses recognized in earnings |
|
|
|
|
|
(26,721 |
) |
Total before tax |
|
|
|
|
|
9,352 |
|
Tax (expense) or benefit |
|
|
|
|
|
$ |
(17,369 |
) |
Net of tax |
|
(1) See Note 8, Derivative Financial Instruments for additional information.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount
|
|
Affected Line Item in the Consolidated
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
Predecessor Company |
|
|
|
|
|
|
|
January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
Gains and losses on derivative instruments |
|
|
|
|
|
|
|
Net settlement (expense)/benefit(1) |
|
$ |
(36 |
) |
Benefits and settlement expenses, net of reinsurance ceded |
|
|
|
|
(36 |
) |
Total before tax |
|
|
|
|
|
13 |
|
Tax (expense) or benefit |
|
|
|
|
|
$ |
(23 |
) |
Net of tax |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities |
|
|
|
|
|
|
|
Net investment gains/losses |
|
$ |
6,891 |
|
Realized investment gains (losses): All other investments |
|
|
Impairments recognized in earnings |
|
(481 |
) |
Net impairment losses recognized in earnings |
|
|
|
|
|
6,410 |
|
Total before tax |
|
|
|
|
|
(2,244 |
) |
Tax (expense) or benefit |
|
|
|
|
|
$ |
4,166 |
|
Net of tax |
|
(1) See Note 8, Derivative Financial Instrument s for additional information.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount
|
|
Affected Line Item in the Consolidated
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
Predecessor Company |
|
|
|
|
|
|
|
For The Year Ended December 31, 2014 |
|
|
|
|
|
|
|
Gains and losses on derivative instruments |
|
|
|
|
|
|
|
Net settlement (expense)/benefit(1) |
|
$ |
(1,777 |
) |
Benefits and settlement expenses, net of reinsurance ceded |
|
|
|
|
(1,777 |
) |
Total before tax |
|
|
|
|
|
622 |
|
Tax (expense) or benefit |
|
|
|
|
|
$ |
(1,155 |
) |
Net of tax |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities |
|
|
|
|
|
|
|
Net investment gains/losses |
|
$ |
75,569 |
|
Realized investment gains (losses): All other investments |
|
|
Impairments recognized in earnings |
|
(7,275 |
) |
Net impairment losses recognized in earnings |
|
|
|
|
|
68,294 |
|
Total before tax |
|
|
|
|
|
(23,903 |
) |
Tax (expense) or benefit |
|
|
|
|
|
$ |
44,391 |
|
Net of tax |
|
(1) See Note 8, Derivative Financial Instruments for additional information.
21. INCOME TAXES
The Company’s effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
|
Statutory federal income tax rate applied to pre-tax income |
|
35.0 |
% |
35.0 |
% |
|
35.0 |
% |
35.0 |
% |
|
State income taxes |
|
0.6 |
|
1.4 |
|
|
0.5 |
|
0.5 |
|
|
Investment income not subject to tax |
|
(3.1 |
) |
(6.8 |
) |
|
(2.8 |
) |
(2.7 |
) |
|
Uncertain tax positions |
|
0.3 |
|
— |
|
|
— |
|
0.5 |
|
|
Other |
|
(0.3 |
) |
(0.3 |
) |
|
0.7 |
|
0.1 |
|
|
|
|
32.5 |
% |
29.3 |
% |
|
33.4 |
% |
33.4 |
% |
The annual provision for federal income tax in these financial statements differs from the annual amounts of income tax expense reported in the respective income tax returns. Certain significant revenues and expenses are appropriately reported in different years with respect to the financial statements and the tax returns.
The components of the Company’s income tax are as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Current income tax expense: |
|
|
|
|
|
|
|
|
|
|
||||
|
Federal |
|
$ |
(41,244 |
) |
$ |
50,722 |
|
|
$ |
(48,469 |
) |
$ |
176,238 |
|
|
State |
|
2,581 |
|
(4,000 |
) |
|
1,085 |
|
5,525 |
|
||||
|
Total current |
|
$ |
(38,663 |
) |
$ |
46,722 |
|
|
$ |
(47,384 |
) |
$ |
181,763 |
|
|
Deferred income tax expense: |
|
|
|
|
|
|
|
|
|
|
||||
|
Federal |
|
$ |
204,810 |
|
$ |
18,880 |
|
|
$ |
90,774 |
|
$ |
65,566 |
|
|
State |
|
3,926 |
|
8,889 |
|
|
935 |
|
(491 |
) |
||||
|
Total deferred |
|
$ |
208,736 |
|
$ |
27,769 |
|
|
$ |
91,709 |
|
$ |
65,075 |
|
The components of the Company’s net deferred income tax liability are as follows:
|
|
|
Successor Company |
|
||||
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Thousands) |
|
||||
|
Deferred income tax assets: |
|
|
|
|
|
||
|
Loss and credit carryforwards |
|
$ |
510,886 |
|
$ |
115,667 |
|
|
Deferred compensation |
|
101,626 |
|
108,416 |
|
||
|
Deferred policy acquisition costs |
|
155,009 |
|
267,542 |
|
||
|
Premium on non-recourse funding obligations |
|
4,482 |
|
13,872 |
|
||
|
Net unrealized loss on investments |
|
353,149 |
|
671,176 |
|
||
|
Other |
|
— |
|
6,605 |
|
||
|
Valuation allowance |
|
(5,039 |
) |
(3,466 |
) |
||
|
|
|
1,120,113 |
|
1,179,812 |
|
||
|
Deferred income tax liabilities: |
|
|
|
|
|
||
|
Premium receivables and policy liabilities |
|
819,476 |
|
202,753 |
|
||
|
VOBA and other intangibles |
|
720,878 |
|
632,176 |
|
||
|
Invested assets (other than unrealized gains (losses)) |
|
1,340,688 |
|
1,560,063 |
|
||
|
Other |
|
30,032 |
|
— |
|
||
|
|
|
2,911,074 |
|
2,394,992 |
|
||
|
Net deferred income tax liability |
|
$ |
(1,790,961 |
) |
$ |
(1,215,180 |
) |
The Company’s income tax returns, except for MONY which files separately, are included in PLC’s consolidated U.S. income tax return.
The deferred tax assets reported above include certain deferred tax assets related to nonqualified deferred compensation and other employee benefit liabilities. These liabilities were assumed by AXA and they were not acquired by the Company in connection with the acquisition of MONY. The future tax deductions stemming from these liabilities will be claimed by the Company on MONY’s tax returns in its post-acquisition periods. These deferred tax assets have been estimated as of the MONY Acquisition date (and through the December 31, 2016 reporting date) based on all available information. However, it is possible that these estimates may be adjusted in future reporting periods based on actuarial changes to the projected future payments associated with these liabilities. Any such adjustments will be recognized by the Company as an adjustment to income tax expense during the period in which they are realized.
In management’s judgment, the gross deferred income tax asset as of December 31, 2016 (Successor Company) will more likely than not be fully realized. The Company has recognized a valuation allowance of $7.8 million and $5.3 million as of December 31, 2016 and 2015 (Successor Company), respectively, related to state-based loss carryforwards that it has determined are more likely than not to expire unutilized. This resulting unfavorable change of $2.5 million, before federal income taxes, increased state income tax expense in 2016 by the same amount.
During the twelve months ended December 31, 2016 (Successor Company), the Company entered into a reinsurance transaction, as discussed in Note 3, Significant Transactions . This transaction is expected to generate an operating loss on the
Company’s consolidated 2016 U.S. income tax return. The Company has evaluated its ability to carry this loss back to receive funds of previously-paid taxes, plus utilize the remaining loss in future years. The Company expects to receive refunds for substantially all of the U.S. income taxes that it paid in 2014 and 2015, as well as fully utilize the remaining operating loss carryforward during the carryforward period. Based on the Company’s current assessment of future taxable income, including available tax planning opportunities, the Company anticipates that it is more likely than not that it will generate sufficient taxable income to realize all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of December 31, 2016 (Successor Company).
The Company has life net operating loss carryforwards for federal income tax purposes of $1,021.5 million which are available to offset both future life group taxable income and non-life group taxable income through 2031. Foreign tax credits of $5.6 million are available to offset both future life group income tax and non-life group income tax and will begin to expire in 2024. In addition, included in the deferred income tax assets above are approximately $14.0 million in state net operating loss carryforwards attributable to certain jurisdictions, which are available to offset future taxable income in the respective state jurisdictions, expiring between 2017 and 2036.
As of December 31, 2016 and 2015 (Successor Company), some of the Company’s fixed maturities were reported at an unrealized loss. If the Company were to realize a tax-basis net capital loss for a year, then such loss could not be deducted against that year’s other taxable income. However, such a loss could be carried back and forward against any prior year or future year tax-basis net capital gains. Therefore, the Company has relied upon a prudent and feasible tax-planning strategy regarding its fixed maturities that were reported at an unrealized loss. The Company has the ability and the intent to either hold such fixed maturities to maturity, thereby avoiding a realized loss, or to generate an offsetting realized gain from unrealized gain fixed maturities if such unrealized loss fixed maturities are sold at a loss prior to maturity.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Balance, beginning of period |
|
$ |
8,937 |
|
$ |
105,850 |
|
|
$ |
168,076 |
|
$ |
85,846 |
|
|
Additions for tax positions of the current year |
|
2,122 |
|
2,213 |
|
|
(5,010 |
) |
57,392 |
|
||||
|
Additions for tax positions of prior years |
|
1,318 |
|
1,812 |
|
|
1,149 |
|
34,371 |
|
||||
|
Reductions of tax positions of prior years: |
|
|
|
|
|
|
|
|
|
|
||||
|
Changes in judgment |
|
(975 |
) |
(644 |
) |
|
(58,365 |
) |
(9,533 |
) |
||||
|
Settlements during the period |
|
(1,546 |
) |
(100,294 |
) |
|
— |
|
— |
|
||||
|
Lapses of applicable statute of limitations |
|
— |
|
— |
|
|
— |
|
— |
|
||||
|
Balance, end of period |
|
$ |
9,856 |
|
$ |
8,937 |
|
|
$ |
105,850 |
|
$ |
168,076 |
|
Included in the end of period balance above, as of December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and as of December 31, 2014 (Predecessor Company), are approximately $0.7 million, $1.4 million, $94.9 million, and $157.3 million of unrecognized tax benefits, respectively, for which the ultimate deductibility is certain but for which there is uncertainty about the timing of such deductions. Other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate to an earlier period the payment of cash to the taxing authority. The total amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate is approximately $9.2 million, $7.5 million, $11.0 million, and $10.7 million as of December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and as of December 31, 2014 (Predecessor Company), respectively.
Any accrued interest related to the unrecognized tax benefits and other accrued income taxes have been included in income tax expense. There were no amounts included in any period ending in 2016, 2015, or 2014, as the parent company maintains responsibility for the interest on unrecognized tax benefits. The Company has no accrued interest associated with unrecognized tax benefits as of any balance sheet date ending in 2016, 2015, or 2014.
In June 2012, the IRS proposed favorable and unfavorable adjustments to the Company’s 2003 through 2007 reported taxable incomes. The Company protested certain unfavorable adjustments and sought resolution at the IRS’ Appeals Division. In October 2015, Appeals accepted the Company’s earlier proposed settlement offer. In September 2015, the IRS proposed favorable and unfavorable adjustments to the Company’s 2008 through 2011 reported taxable income. The Company agreed to these adjustments.
The resulting net adjustment to the Company’s current income taxes for the years 2003 through 2011 will not materially affect the Company or its effective tax rate.
In July 2016, the IRS proposed favorable and unfavorable adjustments to the Company’s 2012 and 2013 reported taxable income. The Company agreed to these adjustments. The resulting settlement paid in September 2016 did not materially impact the Company or its effective tax rate.
These agreements with the IRS are the primary cause for the reductions of unrecognized tax benefits shown in the chart above. The Company believes that in the next 12 months, none of these unrecognized tax benefits will be significantly increased or reduced. In general, the Company is no longer subject to income tax examinations by taxing authorities for tax years that began before 2014. Nevertheless, certain of these pre-2014 years have pending U.S. tax refunds. Due to their size, these refunds are being reviewed by Congress’ Joint Committee on Taxation. Furthermore, due to the afore-mentioned IRS adjustments to the Company’s pre-2014 taxable income, the Company is amending certain of its 2003 through 2013 state income tax returns. Such amendments will cause such years to remain open, pending the states’ acceptances of the returns. At this time, the Company believes that the Joint Committee’s review of its U.S. tax refunds and the states’ acceptance of its amending returns will be completed this year. The underlying statutes of limitations are expected to close in due course on or before December 31, 2017.
During the year ended December 31, 2016 (Successor Company), the Company filed a non-automatic tax accounting method change related to income recognition for unearned premium reserve and discounted loss reserve for claims incurred and is awaiting acceptance by the IRS. If the Company’s request for the non-automatic tax accounting method change is accepted as filed, the Company anticipates an overall increase to current tax expense of approximately $1.5 million which will be reflected on tax returns for the years ended December 31, 2016 through December 31, 2019. Of this total amount, a $2.9 million tax benefit will be reflected on the federal tax return for the year ended December 31, 2016 (Successor Company). This change, if approved, is not expected to have a material impact on our effective tax rate.
22. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information:
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended December 31, 2014 |
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Cash paid / (received) during the year: |
|
|
|
|
|
|
|
|
|
|
||||
|
Interest expense |
|
$ |
142,463 |
|
$ |
98,232 |
|
|
$ |
21,567 |
|
$ |
117,776 |
|
|
Income taxes |
|
127,615 |
|
(75,869 |
) |
|
(1 |
) |
159,724 |
|
||||
23. RELATED PARTY TRANSACTIONS
The Company leases furnished office space and computers to affiliates. Lease revenues were $5.8 million, $4.6 million, $0.4 million, and $4.9 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively. The Company purchases data processing, legal, investment, and management services from affiliates. The costs of such services were $258.0 million, $214.8 million, $19.0 million, and $206.3 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively. In addition, the Company has an intercompany payable with affiliates as of December 31, 2016 and 2015 of $14.9 million and $22.5 million, respectively. There was no intercompany receivable with affiliates balance as of December 31, 2016 or 2015 (Successor Company).
Certain corporations with which PLC’s directors were affiliated paid us premiums and policy fees or other amounts for various types of insurance and investment products, interest on bonds we own and commissions on securities underwritings in which our affiliates participated. Such amounts totaled $7.2 million, $45.3 million, $2.6 million, and $33.4 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively. The Company and/or PLC paid commissions, interest on debt and investment products, and fees to these same corporations totaling $8.6 million, $10.0 million, $0.8 million, and $16.5 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively.
Prior to the Merger, PLC and the Company had no related party transactions with Dai-ichi Life. During the period ending December 31, 2016 (Successor Company), PLC paid a management fee to Dai-ichi Life of $6.4 million for certain services provided to the company.
PLC has guaranteed the Company’s obligations for borrowings or letters of credit under the revolving line of credit arrangement to which PLC is also a party. PLC has also issued guarantees, entered into support agreements and/or assumed a duty to indemnify its indirect wholly owned captive insurance companies in certain respects. In addition, as of December 31, 2016 (Successor Company), PLC was the sole holder of the $800 million balance of outstanding surplus notes issued by one such wholly owned captive insurance company, Golden Gate. During 2016, these notes were contributed, ultimately, to Golden Gate and extinguished.
As of February 1, 2000, PLC guaranteed the obligations of the Company under a synthetic lease entered into by the Company, as lessee, with a non-affiliated third party, as lessor. Under the terms of the synthetic lease, financing of $75 million was available to the Company for construction of an office building and parking deck which was completed on February 1, 2000.
The synthetic lease was amended and restated as of December 19, 2013, wherein as of December 31, 2016, PLC continued to guarantee the obligations of the Company thereunder.
The Company has agreements with certain of its subsidiaries under which it provides administrative services for a fee. These services include but are not limited to accounting, financial reporting, compliance, policy administration, reserve computations, and projections. In addition, the Company and its subsidiaries pay PLC for investment, legal and data processing services.
The Company and/or certain of its affiliates have reinsurance agreements in place with companies owned by PLC. These agreements relate to certain portions of our service contract business which is included within the Asset Protection segment. These transactions are eliminated at the PLC consolidated level.
The Company has reinsured GLWB and GMDB riders related to our variable annuity contracts to Shades Creek, a wholly owned insurance subsidiary of PLC. Also during 2012, PLC entered into an intercompany capital support agreement with Shades Creek which provides through a guarantee that PLC will contribute assets or purchase surplus notes (or cause an affiliate or third party to contribute assets or purchase surplus notes) in amounts necessary for Shades Creek’s regulatory capital levels to equal or exceed minimum thresholds as defined by the agreement. In accordance with this agreement, $50 million of additional capital was provided to Shades Creek by PLC through cash contributions during the year ended December 31, 2016 (Successor Company). As of December 31, 2016 (Successor Company), Shades Creek maintained capital levels in excess of the required minimum thresholds. The maximum potential future payment amount which could be required under the capital support agreement will be dependent on numerous factors, including the performance of equity markets, the level of interest rates, performance of associated hedges, and related policyholder behavior.
24. STATUTORY REPORTING PRACTICES AND OTHER REGULATORY MATTERS
The Company and its insurance subsidiaries prepare statutory financial statements for regulatory purposes in accordance with accounting practices prescribed by the NAIC and the applicable state insurance department laws and regulations. These financial statements vary materially from GAAP. Statutory accounting practices include publications of the NAIC, state laws, regulations, general administrative rules as well as certain permitted accounting practices granted by the respective state insurance department. Generally, the most significant differences are that statutory financial statements do not reflect 1) deferred acquisition costs and VOBA, 2) benefit liabilities that are calculated using Company estimates of expected mortality, interest, and withdrawals, 3) deferred income taxes that are not subject to statutory limits, 4) recognition of realized gains and losses on the sale of securities in the period they are sold, and 5) fixed maturities recorded at fair values, but instead at amortized cost.
Statutory net income (loss) for the Company was $(391.6) million, $440.0 million, and $554.2 million for the year ended December 31, 2016, 2015, and 2014, respectively. Statutory capital and surplus for the Company was $4.2 billion and $3.8 billion as of December 31, 2016 and 2015, respectively. The Statutory net loss incurred by the Company for the year ended December 31, 2016 was caused by the required Statutory accounting treatment of the initial gain recognized on the retrocession of the term business assumed from Genworth Life and Annuity Insurance Company to Golden Gate Captive Insurance Company, which resulted in approximately a $1.2 billion gain being included as a component of surplus, rather than reflected in Statutory net income as of the January 15, 2016 cession date.
The Company and its insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to the Company from our insurance subsidiaries in 2017 is approximately $201.8 million. Additionally, as of December 31, 2016, approximately $1.4 billion of consolidated shareowner’s equity, excluding net unrealized gains on investments, represented restricted net assets of the Company’s insurance subsidiaries needed to maintain the minimum capital required by the insurance subsidiaries’ respective state insurance departments.
State insurance regulators and the National Association of Insurance Commissioners (“NAIC”) have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile.
A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to the RBC. Under specific RBC requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the insurance regulators, to its company action level of RBC (known as the RBC ratio), also as defined by insurance regulators. As of December 31, 2016, the Company’s total adjusted capital and company action level RBC were approximately $4.5 billion and $731.0 million, respectively, providing an RBC ratio of approximately 619%.
Additionally, the Company has certain assets that are on deposit with state regulatory authorities and restricted from use. As of December 31, 2016, the Company and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a fair value of approximately $43.4 million.
The states of domicile of the Company and its insurance subsidiaries have adopted prescribed accounting practices that differ from the required accounting outlined in NAIC Statutory Accounting Principles (“SAP”). The insurance subsidiaries also have certain accounting practices permitted by the states of domicile that differ from those found in NAIC SAP.
Certain prescribed and permitted practices impact the statutory surplus of the Company. These practices include the non-admission of goodwill as an asset for statutory reporting and the reporting of Bank Owned Life Insurance (“BOLI”) separate account amounts at book value rather than at fair value.
The favorable (unfavorable) effects of the Company and its statutory surplus, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Millions) |
|
||||
|
Non-admission of goodwill |
|
$ |
(257 |
) |
$ |
(295 |
) |
|
Total (net) |
|
$ |
(257 |
) |
$ |
(295 |
) |
The Company also has certain prescribed and permitted practices which are applied at the subsidiary level and do not have a direct impact on the statutory surplus of the Company. These practices include permission to follow the actuarial guidelines of the domiciliary state of the ceding insurer for certain captive reinsurers, accounting for the face amount of all issued and outstanding letters of credit, and a note issued by an affiliate as an asset in the statutory financial statements of certain wholly owned subsidiaries that are considered “Special Purpose Financial Captives,” and a reserve difference related to a captive insurance company.
The favorable (unfavorable) effects on the statutory surplus of the Company’s insurance subsidiaries, compared to NAIC statutory surplus, from the use of these prescribed and permitted practices were as follows:
|
|
|
As of December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
||
|
|
|
(Dollars In Millions) |
|
||||
|
Accounting for Letters of Credit as admitted assets |
|
$ |
1,720 |
|
$ |
1,715 |
|
|
Accounting for certain notes as admitted assets |
|
$ |
2,681 |
|
$ |
500 |
|
|
Reserving based on state specific actuarial practices |
|
$ |
120 |
|
$ |
117 |
|
25. OPERATING SEGMENTS
The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments and makes adjustments to its segment reporting as needed. There were no changes to the Company’s operating segments made or required to be made as a result of the Merger on February 1, 2015. A brief description of each segment follows.
· The Life Marketing segment markets fixed UL, IUL, VUL, BOLI, and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.
· The Acquisitions segment focuses on acquiring, converting, and/or servicing policies and contracts acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Therefore earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.
· The Annuities segment markets fixed and VA products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.
· The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. This segment also issues funding agreements to the FHLB, and markets GICs to 401(k) and other qualified retirement savings plans. The Company also has an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.
· The Asset Protection segment markets extended service contracts, GAP products, credit life and disability insurance, and specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. GAP covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.
· The Corporate and Other segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead and expenses not attributable to the segments above. This segment
includes earnings from several non-strategic or runoff lines of business, various financing and investment related transactions, and the operations of several small subsidiaries.
The Company’s management and Board of Directors analyzes and assesses the operating performance of each segment using “pre-tax adjusted operating income (loss)” and “after-tax adjusted operating income (loss)”. Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is the Company’s measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting “income (loss) before income tax”, by excluding the following items:
· realized gains and losses on investments and derivatives,
· changes in the GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,
· actual GLWB incurred claims, and the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.
The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management’s and the Board of Directors’ understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.
In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.
In previous filings, the Company referred to “Pre-tax adjusted operating income (loss)” as “Pre-tax operating income,” “Operating income before tax,” or “Segment operating income.” In addition, we previously referred to “After-tax adjusted operating income (loss)” as “After-tax operating income” or “Operating earnings”. The definition of these labels remains unchanged, but the Company has modified the labels to provide further clarity that these measures are non-GAAP measures.
There were no significant intersegment transactions during the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company).
The following tables present a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income (Predecessor and Successor period are not comparable):
|
|
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
||||
|
Life Marketing |
|
$ |
1,517,542 |
|
$ |
1,316,832 |
|
|
$ |
133,361 |
|
$ |
1,421,795 |
|
|
Acquisitions |
|
1,676,017 |
|
1,333,430 |
|
|
139,761 |
|
1,720,179 |
|
||||
|
Annuities |
|
547,512 |
|
396,651 |
|
|
130,918 |
|
785,176 |
|
||||
|
Stable Value Products |
|
114,580 |
|
79,670 |
|
|
8,181 |
|
127,708 |
|
||||
|
Asset Protection |
|
306,237 |
|
294,657 |
|
|
24,566 |
|
305,396 |
|
||||
|
Corporate and Other |
|
131,821 |
|
65,802 |
|
|
22,859 |
|
103,953 |
|
||||
|
Total revenues |
|
$ |
4,293,709 |
|
$ |
3,487,042 |
|
|
$ |
459,646 |
|
$ |
4,464,207 |
|
|
Adjusted Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
||||
|
Life Marketing |
|
$ |
41,457 |
|
$ |
54,864 |
|
|
$ |
(2,271 |
) |
$ |
116,875 |
|
|
Acquisitions |
|
260,511 |
|
194,654 |
|
|
20,134 |
|
254,021 |
|
||||
|
Annuities |
|
174,362 |
|
146,828 |
|
|
11,363 |
|
204,015 |
|
||||
|
Stable Value Products |
|
61,294 |
|
56,581 |
|
|
4,529 |
|
73,354 |
|
||||
|
Asset Protection |
|
11,309 |
|
17,632 |
|
|
1,907 |
|
26,274 |
|
||||
|
Corporate and Other |
|
(161,820 |
) |
(118,832 |
) |
|
(16,662 |
) |
(99,048 |
) |
||||
|
Pre-tax adjusted operating income |
|
387,113 |
|
351,727 |
|
|
19,000 |
|
575,491 |
|
||||
|
Realized investment (losses) gains - investments(1) |
|
48,522 |
|
(185,202 |
) |
|
89,414 |
|
151,035 |
|
||||
|
Realized investment (losses) gains - derivatives |
|
87,046 |
|
87,663 |
|
|
24,433 |
|
12,263 |
|
||||
|
Income before income tax |
|
522,681 |
|
254,188 |
|
|
132,847 |
|
738,789 |
|
||||
|
Income tax expense |
|
(170,073 |
) |
(74,491 |
) |
|
(44,325 |
) |
(246,838 |
) |
||||
|
Net income |
|
$ |
352,608 |
|
$ |
179,697 |
|
|
$ |
88,522 |
|
$ |
491,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Pre-tax adjusted operating income |
|
$ |
387,113 |
|
$ |
351,727 |
|
|
$ |
19,000 |
|
$ |
575,491 |
|
|
Adjusted operating income tax (expense) benefit |
|
(122,624 |
) |
(108,629 |
) |
|
(4,479 |
) |
(189,684 |
) |
||||
|
After-tax adjusted operating income |
|
264,489 |
|
243,098 |
|
|
14,521 |
|
385,807 |
|
||||
|
Realized investment gains (losses)—investments(1) |
|
48,522 |
|
(185,202 |
) |
|
89,414 |
|
151,035 |
|
||||
|
Realized investment gains (losses)— derivatives |
|
87,046 |
|
87,663 |
|
|
24,433 |
|
12,263 |
|
||||
|
Income tax (expense) benefit on adjustments |
|
(47,449 |
) |
34,138 |
|
|
(39,846 |
) |
(57,154 |
) |
||||
|
Net income |
|
$ |
352,608 |
|
$ |
179,697 |
|
|
$ |
88,522 |
|
$ |
491,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Investment gains (losses) |
|
$ |
72,882 |
|
$ |
(193,928 |
) |
|
$ |
80,672 |
|
$ |
198,027 |
|
|
Less: amortization related to DAC/VOBA and benefits and settlement expenses |
|
24,360 |
|
(8,726 |
) |
|
(8,742 |
) |
46,992 |
|
||||
|
Realized investment gains (losses)- investments |
|
$ |
48,522 |
|
$ |
(185,202 |
) |
|
$ |
89,414 |
|
$ |
151,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Derivative gains (losses) |
|
$ |
49,790 |
|
$ |
58,436 |
|
|
$ |
22,031 |
|
$ |
(13,492 |
) |
|
Less: VA GLWB economic cost |
|
(37,256 |
) |
(29,227 |
) |
|
(2,402 |
) |
(25,755 |
) |
||||
|
Realized investment gains (losses)- derivatives |
|
$ |
87,046 |
|
$ |
87,663 |
|
|
$ |
24,433 |
|
$ |
12,263 |
|
(1) Includes credit related other-than-temporary impairments of $17.7 million, $27.0 million, $0.5 million, and $7.3 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively.
|
|
|
Successor Company |
|
Predecessor Company |
|
|||||||||
|
|
|
For The Year Ended
|
|
February 1, 2015
|
|
|
January 1, 2015
|
|
For The Year Ended
|
|
||||
|
|
|
(Dollars In Thousands) |
|
|
(Dollars In Thousands) |
|
||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
||||
|
Life Marketing |
|
$ |
523,989 |
|
$ |
446,518 |
|
|
$ |
47,622 |
|
$ |
553,006 |
|
|
Acquisitions |
|
764,571 |
|
639,422 |
|
|
71,088 |
|
874,653 |
|
||||
|
Annuities |
|
318,511 |
|
296,839 |
|
|
37,189 |
|
465,849 |
|
||||
|
Stable Value Products |
|
107,010 |
|
78,459 |
|
|
6,888 |
|
107,170 |
|
||||
|
Asset Protection |
|
17,591 |
|
14,042 |
|
|
1,540 |
|
18,830 |
|
||||
|
Corporate and Other |
|
91,791 |
|
57,516 |
|
|
278 |
|
78,505 |
|
||||
|
Total net investment income |
|
$ |
1,823,463 |
|
$ |
1,532,796 |
|
|
$ |
164,605 |
|
$ |
2,098,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Amortization of DAC and VOBA |
|
|
|
|
|
|
|
|
|
|
||||
|
Life Marketing |
|
$ |
130,708 |
|
$ |
107,811 |
|
|
$ |
4,813 |
|
$ |
175,807 |
|
|
Acquisitions |
|
8,178 |
|
2,035 |
|
|
5,033 |
|
60,031 |
|
||||
|
Annuities |
|
(11,031 |
) |
(41,071 |
) |
|
(6,999 |
) |
47,448 |
|
||||
|
Stable Value Products |
|
1,176 |
|
43 |
|
|
25 |
|
380 |
|
||||
|
Asset Protection |
|
21,267 |
|
26,219 |
|
|
1,858 |
|
24,169 |
|
||||
|
Corporate and Other |
|
— |
|
27 |
|
|
87 |
|
485 |
|
||||
|
Total amortization of DAC and VOBA |
|
$ |
150,298 |
|
$ |
95,064 |
|
|
$ |
4,817 |
|
$ |
308,320 |
|
Successor Company
|
|
|
Operating Segment Assets
|
|
||||||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
|
|
Life
|
|
Acquisitions |
|
Annuities |
|
Stable Value
|
|
||||
|
Investments and other assets |
|
$ |
14,050,905 |
|
$ |
19,679,690 |
|
$ |
20,076,818 |
|
$ |
3,373,646 |
|
|
Deferred policy acquisition costs and value of business acquired |
|
1,218,944 |
|
106,532 |
|
655,618 |
|
5,455 |
|
||||
|
Other intangibles |
|
300,664 |
|
37,103 |
|
183,449 |
|
8,722 |
|
||||
|
Goodwill |
|
200,274 |
|
14,524 |
|
336,677 |
|
113,813 |
|
||||
|
Total assets |
|
$ |
15,770,787 |
|
$ |
19,837,849 |
|
$ |
21,252,562 |
|
$ |
3,501,636 |
|
|
|
|
Asset
|
|
Corporate
|
|
Total
|
|
|||
|
Investments and other assets |
|
$ |
858,648 |
|
$ |
12,920,083 |
|
$ |
70,959,790 |
|
|
Deferred policy acquisition costs and value of business acquired |
|
37,975 |
|
— |
|
2,024,524 |
|
|||
|
Other intangibles |
|
143,865 |
|
13,545 |
|
687,348 |
|
|||
|
Goodwill |
|
128,182 |
|
— |
|
793,470 |
|
|||
|
Total assets |
|
$ |
1,168,670 |
|
$ |
12,933,628 |
|
$ |
74,465,132 |
|
Successor Company
|
|
|
Operating Segment Assets
|
|
||||||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
|
|
Life
|
|
Acquisitions |
|
Annuities |
|
Stable Value
|
|
||||
|
Investments and other assets |
|
$ |
13,258,639 |
|
$ |
19,879,988 |
|
$ |
19,715,901 |
|
$ |
2,006,263 |
|
|
Deferred policy acquisition costs and value of business acquired |
|
1,119,515 |
|
(178,662 |
) |
578,742 |
|
2,357 |
|
||||
|
Other intangibles |
|
319,623 |
|
39,658 |
|
196,780 |
|
9,389 |
|
||||
|
Goodwill |
|
200,274 |
|
14,524 |
|
336,677 |
|
113,813 |
|
||||
|
Total assets |
|
$ |
14,898,051 |
|
$ |
19,755,508 |
|
$ |
20,828,100 |
|
$ |
2,131,822 |
|
|
|
|
Asset
|
|
Corporate
|
|
Total
|
|
|||
|
Investments and other assets |
|
$ |
766,294 |
|
$ |
9,464,906 |
|
$ |
65,091,991 |
|
|
Deferred policy acquisition costs and value of business acquired |
|
40,421 |
|
— |
|
1,562,373 |
|
|||
|
Other intangibles |
|
79,681 |
|
— |
|
645,131 |
|
|||
|
Goodwill |
|
67,155 |
|
— |
|
732,443 |
|
|||
|
Total assets |
|
$ |
953,551 |
|
$ |
9,464,906 |
|
$ |
68,031,938 |
|
26. CONSOLIDATED QUARTERLY RESULTS — UNAUDITED
The Company’s unaudited consolidated quarterly operating data for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company) is presented below. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair statement of quarterly results have been reflected in the following data. It is also management’s opinion, however, that quarterly operating data for insurance enterprises are not necessarily indicative of results that may be expected in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in shareowner’s equity, and cash flows for a period of several quarters.
|
Successor Company
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Premiums and policy fees |
|
$ |
848,369 |
|
$ |
853,351 |
|
$ |
829,835 |
|
$ |
857,864 |
|
|
Reinsurance ceded |
|
(314,874 |
) |
(340,594 |
) |
(325,373 |
) |
(349,882 |
) |
||||
|
Net of reinsurance ceded |
|
533,495 |
|
512,757 |
|
504,462 |
|
507,982 |
|
||||
|
Net investment income |
|
448,229 |
|
458,783 |
|
451,818 |
|
464,633 |
|
||||
|
Realized investment gains (losses) |
|
111,000 |
|
131,364 |
|
21,376 |
|
(141,068 |
) |
||||
|
Other income |
|
67,178 |
|
71,938 |
|
76,132 |
|
73,630 |
|
||||
|
Total revenues |
|
1,159,902 |
|
1,174,842 |
|
1,053,788 |
|
905,177 |
|
||||
|
Total benefits and expenses |
|
924,923 |
|
914,262 |
|
959,521 |
|
972,322 |
|
||||
|
Income before income tax |
|
234,979 |
|
260,580 |
|
94,267 |
|
(67,145 |
) |
||||
|
Income tax expense |
|
76,362 |
|
87,787 |
|
20,965 |
|
(15,041 |
) |
||||
|
Net income |
|
$ |
158,617 |
|
$ |
172,793 |
|
$ |
73,302 |
|
$ |
(52,104 |
) |
|
Successor Company
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||
|
Premiums and policy fees |
|
$ |
506,386 |
|
$ |
828,058 |
|
$ |
793,572 |
|
$ |
864,806 |
|
|
Reinsurance ceded |
|
(146,813 |
) |
(351,196 |
) |
(312,256 |
) |
(364,606 |
) |
||||
|
Net of reinsurance ceded |
|
359,573 |
|
476,862 |
|
481,316 |
|
500,200 |
|
||||
|
Net investment income |
|
272,211 |
|
408,147 |
|
413,544 |
|
438,894 |
|
||||
|
Realized investment gains (losses) |
|
(40,004 |
) |
(97,515 |
) |
37,140 |
|
(35,113 |
) |
||||
|
Other income |
|
49,181 |
|
75,459 |
|
74,671 |
|
72,476 |
|
||||
|
Total revenues |
|
640,961 |
|
862,953 |
|
1,006,671 |
|
976,457 |
|
||||
|
Total benefits and expenses |
|
616,425 |
|
898,520 |
|
850,550 |
|
867,359 |
|
||||
|
Income before income tax |
|
24,536 |
|
(35,567 |
) |
156,121 |
|
109,098 |
|
||||
|
Income tax expense |
|
8,116 |
|
(9,991 |
) |
42,542 |
|
33,824 |
|
||||
|
Net income |
|
$ |
16,420 |
|
$ |
(25,576 |
) |
$ |
113,579 |
|
$ |
75,274 |
|
(1) First quarter includes February 1, 2015 to March 31, 2015
|
Predecessor Company |
|
January 1, 2015
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
Premiums and policy fees |
|
$ |
260,582 |
|
|
Reinsurance ceded |
|
(91,632 |
) |
|
|
Net of reinsurance ceded |
|
168,950 |
|
|
|
Net investment income |
|
164,605 |
|
|
|
Realized investment gains (losses) |
|
102,703 |
|
|
|
Other income |
|
23,388 |
|
|
|
Total revenues |
|
459,646 |
|
|
|
Total benefits and expenses |
|
326,799 |
|
|
|
Income before income tax |
|
132,847 |
|
|
|
Income tax expense |
|
44,325 |
|
|
|
Net income |
|
$ |
88,522 |
|
27. SUBSEQUENT EVENTS
The Company has evaluated the effects of events subsequent to December 31, 2016 (Successor Company), and through the date we filed our consolidated financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated financial statements.
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
|
(1) |
Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied. |
|
|
|
|
(2) |
Excludes Life Insurance. |
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(continued)
|
Segment |
|
Net
|
|
Net
|
|
Benefits
|
|
Amortization of
|
|
Other
|
|
Premiums Written(2) |
|
||||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||||||
|
Predecessor Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
January 1, 2015 to January 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Life Marketing |
|
$ |
84,926 |
|
$ |
47,622 |
|
$ |
123,179 |
|
$ |
4,813 |
|
$ |
7,124 |
|
$ |
12 |
|
|
Acquisitions |
|
62,343 |
|
71,088 |
|
101,926 |
|
5,033 |
|
9,041 |
|
2,134 |
|
||||||
|
Annuities |
|
6,355 |
|
37,189 |
|
30,047 |
|
(6,999 |
) |
9,333 |
|
— |
|
||||||
|
Stable Value Products |
|
— |
|
6,888 |
|
2,255 |
|
25 |
|
79 |
|
— |
|
||||||
|
Asset Protection |
|
13,983 |
|
1,540 |
|
7,447 |
|
1,858 |
|
13,354 |
|
13,330 |
|
||||||
|
Corporate and Other |
|
1,343 |
|
278 |
|
1,721 |
|
87 |
|
16,476 |
|
1,345 |
|
||||||
|
Total |
|
$ |
168,950 |
|
$ |
164,605 |
|
$ |
266,575 |
|
$ |
4,817 |
|
$ |
55,407 |
|
$ |
16,821 |
|
|
(1) |
Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied. |
|
(2) |
Excludes Life Insurance |
SCHEDULE IV - REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
|
Successor Company |
|
||||||||||||
|
|
|
Gross
|
|
Ceded to
|
|
Assumed
|
|
Net
|
|
Percentage of
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||
|
For The Year Ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance in-force |
|
$ |
739,248,680 |
|
$ |
(348,994,650 |
) |
$ |
116,265,430 |
|
$ |
506,519,460 |
|
23.0 |
% |
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,610,682 |
|
$ |
(1,207,159 |
) |
$ |
454,999 |
|
$ |
1,858,522 |
(1) |
24.5 |
% |
|
Accident/health insurance |
|
58,076 |
|
(36,935 |
) |
17,439 |
|
38,580 |
|
45.2 |
|
||||
|
Property and liability insurance |
|
242,517 |
|
(86,629 |
) |
5,706 |
|
161,594 |
|
3.5 |
|
||||
|
Total |
|
$ |
2,911,275 |
|
$ |
(1,330,723 |
) |
$ |
478,144 |
|
$ |
2,058,696 |
|
|
|
|
February 1, 2015 to December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance in-force |
|
$ |
727,705,256 |
|
$ |
(368,142,294 |
) |
$ |
39,546,742 |
|
$ |
399,109,704 |
|
9.9 |
% |
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,360,643 |
|
$ |
(1,058,706 |
) |
$ |
308,280 |
|
$ |
1,610,217 |
(1) |
19.1 |
% |
|
Accident/health insurance |
|
70,243 |
|
(36,871 |
) |
18,252 |
|
51,624 |
|
35.4 |
|
||||
|
Property and liability insurance |
|
228,500 |
|
(79,294 |
) |
6,904 |
|
156,110 |
|
4.4 |
|
||||
|
Total |
|
$ |
2,659,386 |
|
$ |
(1,174,871 |
) |
$ |
333,436 |
|
$ |
1,817,951 |
|
|
|
|
|
|
Predecessor Company |
|
||||||||||||
|
|
|
Gross
|
|
Ceded to
|
|
Assumed
|
|
Net
|
|
Percentage of
|
|
||||
|
|
|
(Dollars In Thousands) |
|
||||||||||||
|
January 1, 2015 to January 31, 2015(2) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
204,185 |
|
$ |
(80,657 |
) |
$ |
28,601 |
|
$ |
152,129 |
(1) |
18.8 |
% |
|
Accident/health insurance |
|
6,846 |
|
(4,621 |
) |
1,809 |
|
4,034 |
|
44.8 |
|
||||
|
Property and liability insurance |
|
18,475 |
|
(6,354 |
) |
666 |
|
12,787 |
|
5.2 |
|
||||
|
Total |
|
$ |
229,506 |
|
$ |
(91,632 |
) |
$ |
31,076 |
|
$ |
168,950 |
|
|
|
|
For The Year Ended December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance in-force |
|
$ |
721,036,332 |
|
$ |
(388,890,060 |
) |
$ |
43,237,358 |
|
$ |
375,383,630 |
|
11.5 |
% |
|
Premiums and policy fees: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance |
|
$ |
2,603,956 |
|
$ |
(1,279,908 |
) |
$ |
349,934 |
|
$ |
1,673,982 |
(1) |
20.9 |
% |
|
Accident/health insurance |
|
81,037 |
|
(42,741 |
) |
20,804 |
|
59,100 |
|
35.2 |
|
||||
|
Property and liability insurance |
|
218,663 |
|
(73,094 |
) |
8,675 |
|
154,244 |
|
5.6 |
|
||||
|
Total |
|
$ |
2,903,656 |
|
$ |
(1,395,743 |
) |
$ |
379,413 |
|
$ |
1,887,326 |
|
|
|
|
(1) |
|
Includes annuity policy fees of $80.1 million, $77.2 million $7.7 million, and $92.8 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively. |
|
(2) |
|
January 31, 2015 (Predecessor Company) balance sheet information is not presented in our consolidated financial statements, therefore January 31, 2015 Life Insurance In-Force has been omitted from this schedule. |
SCHEDULE V — VALUATION AND QUALIFYING ACCOUNTS
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
|
|
|
Successor Company |
|
|||||||||||||
|
|
|
|
|
Additions |
|
|
|
|
|
|||||||
|
Description |
|
Balance
|
|
Charged to
|
|
Charges
|
|
Deductions |
|
Balance
|
|
|||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for losses on commercial mortgage loans |
|
$ |
— |
|
$ |
(4,682 |
) |
$ |
— |
|
$ |
5,406 |
|
$ |
724 |
|
|
As of December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for losses on commercial mortgage loans |
|
$ |
— |
|
$ |
2,561 |
|
$ |
— |
|
$ |
(2,561 |
) |
$ |
— |
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
|
Predecessor Company |
|
|||||||||||||
|
|
|
|
|
Additions |
|
|
|
|
|
|||||||
|
Description |
|
Balance
|
|
Charged to
|
|
Charges
|
|
Deductions |
|
Balance
|
|
|||||
|
|
|
(Dollars In Thousands) |
|
|||||||||||||
|
As of January 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for losses on commercial mortgage loans |
|
$ |
5,720 |
|
$ |
(2,359 |
) |
$ |
— |
|
$ |
(861 |
) |
$ |
2,500 |
|
PART C
OTHER INFORMATION
Item 26. Exhibits.
1. Certified resolutions of the board of directors of Protective Life Insurance Company establishing Protective Variable Life Separate Account. (1)
2. Custodian Agreements — None.
3. (a) Form of Underwriting Agreement among Protective Life Insurance Company, Investment Distributors, Inc. and Protective Variable Life Separate Account. (2)
(a)(1) Amendment I to the Underwriting Agreement. (6)
(a)(2) Second Amended Distribution Agreement between IDI and PLICO. (26)
(b) Form of Distribution Agreement between Investment Distributors, Inc. and selling broker-dealers. (2)
4. (a)(1) Form of Premiere II Contract (for Policies Applied for before June 1, 2003). (4)
(a)(2) Form of Premiere II Contract (for Policies Applied for on or after June 1, 2003). (14)
(a)(3) Premiere III Contract (19)
(b) Children's term life rider. (1)
(c) Accidental death benefit rider. (1)
(d) Disability benefit rider. (1)
(d) Guaranteed insurability rider. (1)
(f) Protected insurability benefit rider. (1)
(g) Term Rider for Covered Insured. (4)
(h)(1) Policy Value Credit Endorsement (for Premiere II Policies Applied for before June 1, 2003). (4)
(h)(2) Policy Value Credit Endorsement (for Premiere II Policies Applied for on or after June 1, 2003). (14)
(i) Terminal Illness Accelerated Death Benefit Endorsement. (7)
(j) Lapse Protection Extension Rider (for Premiere II Policies). (12)
(k) Cash Value Accumulation Test Endorsement. (9)
(l)(1) Residual Death Benefit Endorsement (for Premiere II Policies Applied for on or after June 1, 2003). (14)
(l)(2) Residual Death Benefit Endorsement (Premiere III) (19)
(m)(1) Policy Loan Endorsement (for Premiere II Policies Applied for Before June 1, 2003). (9)
(m)(2) Policy Loan Endorsement (for Premiere II Policies Applied for on or after June 1, 2003 and Premiere III Policies). (14)
(n) Arbitration Endorsement (Premiere III). (19)
5. Form of Contract Application. (4)
6. (a) Charter of Protective Life Insurance Company. (1)
(b) By-Laws of Protective Life Insurance Company. (1)
(c) Amended and Restated Charter of Protective Life Insurance Company (18)
(d) Amended and Restated Bylaws of Protective Life Insurance Company (18)
(e) 2011 Amended and Restated Charter of Protective Life Insurance Company (24)
(f) 2011 Amended and Restated Bylaws of Protective Life Insurance Company (24)
7. (a) Form of Automatic and Facultative Yearly Renewable Term Agreement. (14)
(b) Form of Yearly Renewable Term Reinsurance Agreement. (22)
(c) List of Reinsurers. (27)
8. (a) Participation/Distribution Agreement. (2)
(a)(1) Amendment I to the Participation/Distribution Agreement. (6)
(b) Participation Agreement (Oppenheimer Variable Account Funds). (3)
C-1
(c) Participation Agreement (MFS Variable Insurance Trust). (3)
(d) Participation Agreement (Acacia Capital Corporation). (3)
(e) Participation Agreement (Van Eck Worldwide Insurance Trust). (5)
(f) Participation Agreement (Van Kampen Life Investment Trust). (8)
(g) Form of Participation Agreement (Fidelity Variable Insurance Products Funds). (9)
(h) Participation Agreement (Lord Abbett Series Fund, Inc.). (11)
(i) Participation Agreement for Class II Shares (Van Kampen) (13)
(j) Form of Participation Agreement for Service Class Shares (Universal Institutional Funds, Inc.). (13)
(k) Participation Agreement (Goldman Sachs Variable Insurance Trust) (15)
(i) Amendment to Participation Agreement re Summary Prospectus (Goldman Sachs Variable Insurance Trust) (23)
(l) Participation Agreement (Franklin Templeton Variable Insurance Products Trust) (17)
(m) Amended and Restated Participation Agreement (Fidelity Variable Insurance Products Funds). (17)
(i) Amendment to Participation Agreement re Summary Prospectus (Franklin Templeton Variable Insurance Products Trust) (23)
(n) Rule 22c-2 Shareholder Information Agreement (Calvert Group) (18)
(o) Rule 22c-2 Shareholder Information Agreement (Fidelity Variable Insurance Products) (18)
(p) Rule 22c-2 Shareholder Information Agreement (Franklin Templeton Variable Insurance Products Trust) (18)
(q) Rule 22c-2 Shareholder Information Agreement (Goldman Sachs Variable Insurance Trust) (18)
(r) Rule 22c-2 Shareholder Information Agreement (Lord Abbett Series Fund) (18)
(s) Rule 22c-2 Shareholder Information Agreement (MFS Variable Insurance Trust) (18)
(t) Rule 22c-2 Shareholder Information Agreement (Oppenheimer Variable Account Funds) (18)
(u) Rule 22c-2 Shareholder Information Agreement (Universal Institutional Funds, Inc.) (18)
(v) Rule 22c-2 Shareholder Information Agreement (Van Kampen Life Investment Trust) (18)
(w) Rule 22c-2 Shareholder Information Agreement (Van Eck Worldwide Insurance Trust) (18)
(x) Participation Agreement (Legg Mason) (21)
(y) Participation Agreement (PIMCO) (21)
(i) Form of Novation of and Amendment to Participation Agreement (PIMCO Variable Insurance Trust) (23)
(ii) Form of Amendment to Participation Agreement re Summary Prospectuses (PIMCO Variable Insurance Trust) (23)
(z) Participation Agreement (Royce Capital) (21)
(aa) Rule 22c-2 Information Sharing Agreement (Royce Capital) (21)
(bb) Participation Agreement (AIM Variable Insurance Funds (Invesco Variable Insurance Funds)) (23)
(cc) Form of Participation Agreement (MFS Variable Insurance Trust II) (25)
(dd) Form of Participation Agreement (Vanguard Variable Insurance Funds)(27)
(ee) Form of Participation Agreement (DFA Investment Dimensions Group Inc.) (28)
9. Administrative Contracts — Not applicable.
10. Other Material Contracts. Not Applicable.
11. Opinion and consent of David M. Loper, Esq. (20)
12. Actuarial Opinion. Not applicable.
13. Calculations. Not applicable.
14. Other Opinions.
(a) Consent of Eversheds Sutherland (US) LLP. (28)
(b) Consent of PricewaterhouseCoopers, LLP. (28)
15. Omitted Financial Statements. No Financial Statements are omitted from Item 24.
16. Initial Capital Agreements. Not applicable.
17. Redeemability Exemption.
(a) Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption procedures for Premiere II Policies applied for before June 1, 2003. (10)
C-2
(b) Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption procedures for Premiere II Policies applied for on or after June 1, 2003. (16)
(c) Amended Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) describing issue, transfer and redemption procedures for Premiere III Policies. (26)
18. Power of Attorney (28)
(1) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement, (File No. 33-61599) as filed with the Commission on August 4, 1995.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement, (File No. 33-61599) as filed with the Commission on December 22, 1995.
(3) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form N-4 Registration Statement (File No. 33-70984) as filed with the Commission on April 30, 1997.
(4) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement (File No. 333-52215) as filed with the Commission on May 8, 1998.
(5) Incorporated herein by reference to Pre-Effective Amendment Number 1 to the Form N-4 Registration Statement (File No. 333-60149) filed with the Commission on October 26, 1998.
(6) Incorporated herein by reference to Pre-Effective Amendment Number 1 to the Form S-6 Registration Statement (File No. 333-45963) filed with the Commission on June 3, 1998.
(7) Incorporated herein by reference to Post-Effective Amendment Number 5 to the Form S-6 Registration Statement (File No. 33-61599) filed with the Commission on April 25, 2000.
(8) Incorporated herein by reference to Post-Effective Amendment No. 9 to the Form N-4 Registration Statement (File No. 33-70984) as filed with the Commission on April 20, 2000.
(9) Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form S-6 Registration Statement (File No. 33-61599) as filed with the Commission on April 20, 2001.
(10) Incorporated herein by reference to Post-Effective Amendment No. 3 to the Form S-6 Registration Statement (File No. 333-52215) as filed with the Commission on April 26, 2000.
(11) Incorporated herein by reference to Post-Effective Amendment No. 3 to the Form N-4 Registration Statement (File No. 333-94047) as filed with the Commission on April 25, 2002.
(12) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement (File No. 333-52215) as filed with the Commission on April 30, 2002.
(13) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form N-4 Registration Statement (File No. 333-94047) as filed with the Commission on April 30, 2003.
(14) Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form N-6 Registration Statement (File No. 333-52215) as filed with the Commission on April 30, 2003.
(15) Incorporated herein by reference to the initial Registration Statement on Form N-4 (File No. 333-112892), filed with the Commission on February 17, 2004.
(16) Incorporated herein by reference to the Post-Effective Amendment No. 8 to the Form N-6 Registration Statement (File No. 333-52215) as filed with the Commission on April 30, 2004.
(17) Incorporated herein by reference to Post-Effective Amendment No. 2 to the Form N-4 Registration Statement (File No. 333-116813) as filed with the Commission on April 28, 2006.
(18) Incorporated herein by reference to Post-Effective Amendment No. 17 to the Form N-4 Registration Statement (File No. 33-70984) as filed with the Commission on April 27, 2007.
(19) Incorporated herein by reference to Post-Effective Amendment No. 14 to the Form N-6 Registration Statement (333-52215) as filed with the Commission on August 15, 2008.
(20) Incorporated herein by reference to Post Effective Amendment No. 16 to the Form N-6 Registration Statement (333-52215) as filed with the Commission on November 7, 2008.
(21) Incorporated herein by reference to Post-Effective Amendment No. 15 to the Form N-4 Registration Statement (333-113070) as filed with the Commission on October 28, 2009.
(22) Incorporated herein by reference to Post-Effective Amendment No. 17 to the Form N-6 Registration Statement (333-52215) as filed with the Commission on April 27, 2009.
(23) Incorporated herein by reference to Post-Effective Amendment No. 19 to the Form N-4 Registration Statement (333-113070) as filed with the Commission on April 25, 2011.
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(24) Incorporated herein by reference to Post-Effective Amendment No. 8 to the Form N-4 Registration Statement (File No. 333-153041), filed with the Commission on September 16, 2011.
(25) Incorporated herein by reference to Post-Effective Amendment No. 2 to the Form N-4 Registration Statement (File No. 333-176657), as filed with the Commission on April 24, 2012.
(26) Incorporated herein by reference to the Post-Effective Amendment No. 1 to the Form N-4 Registration Statement (File No. 333-190294) filed with the Commission on April 25, 2014.
(27) Incorporated herein by reference to the Post-Effective Amendment No. 27 to the Form N-6 Registration Statement (333-52215) as filed with the Commission on April 27, 2017.
(28) Filed herein.
Item 27. Directors and Officers of Depositor.
|
Name and Principal Business Address * |
Position and Offices with Depositor |
||||||
|
Adams, D. Scott
|
Chief Administrative Officer
Executive Vice President |
||||||
|
Bedwell, Robert R. III |
Senior Vice President, Mortgage Loans |
||||||
|
Bielen, Richard J.
|
Chief Executive Officer
Director Chairman of the Board President Executive Committee |
||||||
|
Black, Lance P.
|
Senior Vice President
Treasurer |
||||||
|
Callaway, Steve M.
|
Assistant Secretary
Chief Compliance Officer Senior Associate Counsel Senior Vice President |
||||||
|
Cirulli, Vincent |
Senior Vice President, Derivatives and VA Hedging |
||||||
|
Cyphert, Mark
|
Chief Information and Operations Officer
Senior Vice President |
||||||
|
Drew, Mark L.
|
Executive Vice President
General Counsel |
||||||
|
Evesque, Wendy L.
|
Chief Human Resources Officer
Senior Vice President |
||||||
|
Goyer, Stephane
|
Head of Insurance Risk
Senior Vice President |
||||||
|
Harrison, Wade V. |
Senior Vice President, Chief Product Actuary |
||||||
|
Herring, Derry W
|
Chief Auditor
Senior Vice President |
||||||
|
Kane, Nancy
|
Acquisitions and Corporate Development,
Senior Vice President |
||||||
|
Karchunas, Scott
|
Asset Protection Division,
Senior Vice President |
||||||
|
Kohler, Matthew
|
Chief Technology Officer
Senior Vice President |
||||||
|
Long, Deborah J.
|
Chief Legal Officer
Executive Vice President Secretary |
||||||
|
Loper, David M
|
Senior Associate Counsel
Senior Vice President |
||||||
|
Moloney, Michelle
|
Chief Risk Officer
Senior Vice President |
||||||
|
Passafiume, Philip E. |
Senior Vice President, Director of Fixed Income |
||||||
C-4
|
Name and Principal Business Address * |
Position and Offices with Depositor |
||||||
|
Riebel, Matthew A. |
Senior Vice President, Life Sales |
||||||
|
Sawyer, John Robert
|
Life and Annuity Executive
Senior Vice President |
||||||
|
Searcy, Timothy
|
Chief Information Security Officer
Vice President |
||||||
|
Seurkamp, Aaron C. |
Senior Vice President, Chief Sales Officer |
||||||
|
Stokes, Barrie Balzli
|
Senior Associate Counsel
Senior Vice President, Government Affairs |
||||||
|
Stuenkel, Wayne E.
|
Chief Actuary
Senior Vice President |
||||||
|
Temple, Michael G. |
Executive Vice President, Finance and Risk |
||||||
|
Thigpen, Carl S.
|
Chief Investment Officer
Director Executive Vice President |
||||||
|
Wagner, James |
Senior Vice President, Annuity Sales |
||||||
|
Walker, Steven G.
|
Chief Financial Officer
Executive Vice President |
||||||
|
Wells, Paul R.
|
Chief Accounting Officer
Controller Senior Vice President |
||||||
|
Whitcomb, John |
Senior Vice President, Emerging Business |
||||||
|
Williams, Lucinda S. |
Senior Vice President, Customer Experience |
||||||
* Unless otherwise indicated, principal business address is 2801 Highway 280 South, Birmingham, Alabama 35223.
Item 28. Persons Controlled by or Under Common Control With the Depositor and Registrant.
The registrant is a segregated asset account of the Company and is therefore owned and controlled by the Company. All of the Company's outstanding voting common stock is owned by Protective Life Corporation, a subsidiary of The Dai-ichi Life Insurance Company, Limited. Protective Life Corporation is described more fully in the prospectus included in this registration statement. Various companies and other entities controlled by Protective Life Corporation may therefore be considered to be under common control with the registrant or the Company. Such other companies and entities, together with the identity of their controlling persons (where applicable), are set forth in Exhibit 21 to Form 10-K of Protective Life Corporation for the fiscal year ended December 31, 2016 (File No. 001-11339) filed with the Commission on February 24, 2017.
Item 29. Indemnification.
Article XI of the By-laws of Protective Life provides, in substance, that any of Protective Life's directors and officers, who is a party or is threatened to be made a party to any action, suit or proceeding, other than an action by or in the right of Protective Life, by reason of the fact that he is or was an officer or director, shall be indemnified by Protective Life against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such claim, action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of Protective Life and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. If the claim, action or suit is or was by or in the right of Protective Life to procure a judgment in its favor, such person shall be indemnified by Protective Life against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of Protective Life, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of
C-5
his duty to Protective Life unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. To the extent that a director or officer has been successful on the merits or otherwise in defense of any such action, suit or proceeding, or in defense of any claim, issue or matter therein, he shall be indemnified by Protective Life against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, not withstanding that he has not been successful on any other claim issue or matter in any such action, suit or proceeding. Unless ordered by a court, indemnification shall be made by Protective Life only as authorized in the specific case upon a determination that indemnification of the officer or director is proper in the circumstances because he has met the applicable standard of conduct. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to, or who have been successful on the merits or otherwise with respect to, such claim action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (c) by the shareholders.
In addition, the executive officers and directors are insured by PLC's Directors' and Officers' Liability Insurance Policy including Company Reimbursement and are indemnified by a written contract with PLC which supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification may be against public policy as expressed in the Act and may be, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 30. Principal Underwriter.
(a) Other Activity. Investment Distributors, Inc. ("IDI") is the principal underwriter of the Policies as defined in the Investment Company Act of 1940. IDI is also principal underwriter for the Protective Variable Annuity Separate Account, and the Variable Annuity Separate Account A of Protective Life.
(b) Management. The following information is furnished with respect to the officers and directors of Investment Distributors, Inc.
|
Name and Principal Business Address * |
Position and Offices |
Position and Offices with Registrant |
|||||||||
|
Brown, Barry K. |
Assistant Secretary |
Assistant Vice President, LLC Commissions |
|||||||||
|
Caldwell, Edwin V. II |
Director
President |
Vice President, New Business Operations, Life and Annuity Divisions |
|||||||||
|
Callaway, Steve M. |
Director
Chief Compliance Officer Secretary |
None |
|||||||||
|
Debnar, Lawrence J. |
Assistant Financial Officer |
Vice President, Financial Reporting |
|||||||||
|
Gilmer, Joseph F. |
Director
Assistant Financial Officer |
Assistant Vice President — Annuity Financial Reporting |
|||||||||
C-6
|
Name and Principal Business Address * |
Position and Offices |
Position and Offices with Registrant |
|||||||||
|
Johnson, Julena G. |
Assistant Compliance Officer |
Senior Compliance Analyst II, Life and Annuity Division |
|||||||||
|
Majewski, Carol L. |
Assistant Compliance Officer |
Director II, Compliance Officer |
|||||||||
|
Morsch, Letitia |
Assistant Secretary |
Second Vice President, Annuity and VUL Administration |
|||||||||
|
Tennent, Rayburn |
Chief Financial Officer |
None |
|||||||||
* Unless otherwise indicated, principal business address is 2801 Highway 280 South, Birmingham, Alabama, 35223.
(c) Compensation From the Registrant. The following commissions were received by each principal underwriter, directly or indirectly, from the Registrant during the Registrant's last fiscal year:
|
(1) Name of Principal
Underwriter |
(2) Net Underwriting
Discounts and Commissions |
(3) Compensation on
Redemption |
(4) Brokerage
Commissions |
(5) Other
Compensation |
|||||||||||||||
|
Investments Distributors, Inc. |
None |
None |
N/A |
N/A |
|||||||||||||||
Item 31. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are maintained by Protective Life Insurance Company at 2801 Highway 280 South, Birmingham, Alabama, 35223.
Item 32. Management Services.
All management contracts are discussed in Part A or Part B.
Item 33. Fee Representation.
Protective Life hereby represents that the fees and charges deducted under the variable life insurance policies described herein are, in the aggregate, reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by it under such policies.
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Protective Variable Life Separate Account, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has duly caused this Post-Effective Amendment to the Registration Statement on Form N-6 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama on November 27, 2017.
PROTECTIVE VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: *
Richard J. Bielen,
Chief Executive Officer,
President, Chairman of the Board and Director
Protective Life Insurance Company
PROTECTIVE LIFE INSURANCE COMPANY
(Depositor)
By: *
Richard J. Bielen,
Chief Executive Officer,
President, Chairman of the Board and Director
Protective Life Insurance Company
As required by the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement on Form N-6 has been signed by the following persons in the capacities and on the dates indicated.
| Signature |
Title |
Date |
|||||||||
|
*
Richard J. Bielen |
President, Chief Executive Officer, Chairman of the Board and Director |
November 27, 2017 |
|||||||||
|
*
Steven G. Walker |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
November 27, 2017 |
|||||||||
|
*
Carl S. Thigpen |
Executive Vice President, Chief Investment Officer and Director |
November 27, 2017 |
|||||||||
|
*BY: /S/ MAX BERUEFFY
Max Berueffy Attorney-in-Fact |
November 27, 2017 |
||||||||||
Exhibits
8. (ee) Participation Agreement (DFA Investment Dimensions Group Inc.)
14. (a) Consent of Eversheds Sutherland (US) LLP.
(b) Consent of PricewaterhouseCoopers, LLP.
18. Power of Attorney
Exhibit 8(dd)
[ Manual After Hours ex MSFO ]
PARTICIPATION AGREEMENT
by and among
DFA INVESTMENT DIMENSIONS GROUP INC.,
DIMENSIONAL FUND ADVISORS LP,
DFA SECURITIES LLC
and
PROTECTIVE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 15 th day of October 2017, by and among Protective Life Insurance Company (the “Company”), on its own behalf and on behalf of segregated asset accounts of the Company that may be established from time to time (individually, an “Account” and collectively, the “Accounts”); DFA Investment Dimensions Group Inc. (the “Fund”); the Fund’s investment adviser, Dimensional Fund Advisors LP (the “Adviser”); and the Fund’s principal underwriter, DFA Securities LLC (“DFAS”) (individually, a “Party” and collectively, the “Parties”).
The Company, the Fund, the Adviser and DFAS, intending to be legally bound, hereby agree as follows:
1. Sales of Shares/Procedures
1.1 Except as otherwise provided herein, the Fund agrees to make it shares available for purchase by the Company and its Accounts on each Business Day as defined herein. Shares of the respective portfolios (individually, a “Portfolio” and collectively, the “Portfolios”) of the Fund listed on Schedule 1.1 hereto, as amended from time to time by the Parties, shall be sold by the Fund through its agent DFAS, and purchased by the Company for the appropriate subaccount of each Account, at the net asset value (“NAV”) next computed after receipt by the Fund or its designee of each order of the Accounts, in accordance with the provisions of this Agreement, the then current prospectus(es) and statement(s) of additional information of the Fund that describe the Portfolios, and the variable annuity contracts or variable life insurance contracts (the “Contracts”) that use the Portfolios as underlying investment media; provided , however , that if any conflicts exist among any such documents, then the terms of the Fund’s current prospectus(es) and statement(s) of additional information shall control. The Company agrees that shares of the VIT Inflation-Protected Securities Portfolio will only be available for purchase by variable life insurance contract accounts.
(a) Transmission of Instructions The procedures to be followed for purchases, redemptions, and exchanges of shares of the Portfolios are as follows.
On any given Business Day, the Company shall accept instructions in proper form from the Contract holders (collectively, “Instructions”) up to the Close of Trading, but in no event shall the Company accept Instructions that have been received by the Company or its designee after the Close of Trading on such Business Day (“Trade Date”). Instructions received in proper form by the Company after the Close of Trading on any Business Day shall be treated as if received on the next following Business Day. The Fund hereby appoints the Company as a designee of the Fund for the limited purpose of receipt of purchase and redemption orders on behalf of the Accounts for shares of the Portfolios listed on Schedule 1.1, and receipt by the Company as designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by the transmission deadlines described in this Section 1.1. “Close of Trading”
shall mean 4:00 p.m. Eastern Time on a Business Day or at such other time as the NAV of a Portfolio is calculated, as disclosed in the then current prospectus(es) of the Portfolios. “Business Day” shall mean, unless otherwise noted in this Agreement, any day on which the New York Stock Exchange (the “NYSE”) is open for trading and on which a Portfolio calculates its NAV pursuant to the rules of the Securities and Exchange Commission (the “SEC”).
The Company shall transmit to the Fund, or its designee, a single aggregate purchase or redemption order that reflects the “net” effect of all purchase or redemptions of shares of the Portfolios based upon the Instructions received prior to the Close of Trading on Trade Date.
The purchase/redemption price for the shares of a Portfolio shall be the applicable NAV of such shares. For the Fund and for each Account maintained by the Company with the Fund, orders received by the Fund or its designee from the Company by 9:30 a.m. Eastern Time on the Business Day after Trade Date will receive the NAV on the Trade Date.
(b) Settlement
The Company shall forward payment for the net purchase of shares of the Portfolios by wire no later than the close of the Federal Reserve Wire Transfer System on the next day on which the Federal Reserve Wire Transfer System is open following Trade Date to the transfer agent of the Fund.
The transfer agent of the Fund will wire net redemption proceeds to the Company on any Business Day on which the transfer agent receives Instructions by 9:30 a.m. Eastern Time. If the Business Day on which the transfer agent receives Instructions is a day on which the Federal Reserve Wire Transfer System is closed, the transfer agent will wire net redemption proceeds to the Company on the first Business Day thereafter on which the Federal Reserve Wire Transfer System is open.
The Fund may make redemptions in accordance with the Portfolios’ then current prospectus(es) or statement(s) of additional information or as otherwise permitted under the Investment Company Act of 1940, as amended (the “1940 Act”).
Nothing herein shall prevent the Fund, on behalf of a Portfolio, from delaying or suspending the right of purchase or redemption of shares of a Portfolio in accordance with the provisions of the Investment Company Act of 1940 Act and the rules thereunder (the “1940 Act”). The Fund will have no responsibility for the proper disbursement or crediting of redemption proceeds, and the Company will be solely responsible for such actions.
(c) Errors The Company shall be solely responsible for the accuracy of any Instruction transmitted to the Fund or its transfer agent and the transmission of such Instruction shall constitute the Company’s representation to the Fund that the Instruction is accurate, complete and duly authorized by the Accounts whose shares are the subject of the Instruction. The Company shall assume responsibility for any loss to the Fund, the Portfolios, or their transfer agent caused by a cancellation or correction made subsequent to the date as of which an Instruction has been placed, and the Company will immediately pay such loss to the Adviser, the Fund or such Portfolios upon notification.
Each Party shall notify the other Parties of any errors or omissions in any information and interruptions in, or delay or unavailability of, the means of transmittal of any such information as promptly as possible. The Company agrees to maintain reasonable errors and omissions insurance coverage commensurate with the Company’s responsibilities under this Agreement.
The Company shall maintain a record of the total number of shares of the Portfolios which are so purchased, based on information provided by the Fund or its designee to the Company, and shall reconcile with the Fund on a periodic basis the number of shares of each Portfolio attributable to each Account. If an order to purchase shares of a Portfolio must be canceled due to nonpayment, the Company will be responsible for any loss incurred by the Fund or a Portfolio arising out of such cancellation. To recover any such loss, the Fund and the Portfolios reserve the right to redeem shares of the affected Portfolios held in the name of the Company or a corresponding subaccount of the applicable Account to the extent permitted under the 1940 Act.
1.2 The Fund will redeem the shares of the Portfolios when requested on behalf of the Company or the corresponding subaccount of the applicable Accounts at the NAV next computed after receipt by the Fund or its designee of each request for redemption, in accordance with the provisions of this Agreement, the then current prospectus(es) and the current statement(s) of additional information of the Portfolios, and the Contracts; provided , however , that if any conflicts exist among any such documents, then the terms of the Fund’s current prospectus(es) and the statement(s) of additional information describing the Portfolios shall control.
The Company shall apply any net redemption proceeds received by it in accordance with the applicable Contracts. The Company shall not process or effect any redemptions with respect to shares of any Portfolio after receipt by the Company of notification of suspension of the determination of the NAV of such Portfolio. The Board of Directors of the Fund (the “Directors” or the “Board”) may refuse to sell shares of any Portfolio to any person, including the Company with respect to the Accounts, or suspend or terminate the offering of shares of any particular Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction, or is deemed by the Directors, in their sole discretion, acting in good faith and in light of the Directors’ duties under federal and any applicable state laws, necessary in the best interests of the shareholders of the Portfolio.
1.3 The Company agrees to purchase and redeem the shares of each Portfolio in accordance with the provisions of this Agreement and the then current prospectus(es) and statement(s) of additional information of the Fund that describe the Portfolios. The Company shall not redeem shares of the Portfolios attributable to the Contracts, except:
(a) as permitted by applicable laws and as necessary to implement transactions initiated by Contract holders or transactions executed automatically pursuant to a contractual or systematic programs or features offered in a Contract such as asset allocation or rebalancing programs; transfer of assets within a Contract out of a Fund as a result of annuity payouts, loans, systematic withdrawal programs, as a result of any deduction or charge or fees under a Contract or as a result of a calculation or payment of death benefits; or
(b) as otherwise may be required by applicable U.S. federal laws or regulations with respect to maintaining the Contracts’ status under the Internal Revenue Code of 1986, as amended from time to time and any successor provisions thereto (the “Code”).
1.4 Issuance and transfer of shares of each Portfolio will be by book-entry only. Stock certificates will not be issued to the Company or to the applicable Accounts. Shares of a Portfolio purchased from the Fund will be recorded in appropriate book-entry titles for the Accounts by the Fund or its designee.
1.5 The Fund shall promptly make available to Company information regarding any income, dividends or capital gain distributions to be paid on the Portfolios’ shares. The Company hereby elects to receive all such dividends and distributions as are payable on shares of a Portfolio in additional shares of that Portfolio. The Fund shall notify the Company or its delegates of the number of shares of a Portfolio so issued as payment of such dividends and distributions.
The Company shall maintain a record of the number of shares of the Portfolios held by the Accounts on behalf of each Contract holder, and the Company shall maintain appropriate records of Contract holder information.
The Company shall investigate all inquiries from Contract holders relating to their interests in the Accounts and any Portfolio, and shall respond to all communications from Contract holders and other persons having an interest in the Contracts relating to the Company’s duties hereunder, in such form of correspondence as the Company, the Fund and the Adviser may mutually agree.
1.6 The Fund will compute the closing net asset value for each Portfolio as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York Stock Exchange is open for business (a “Business Day”) or at such other time as the net asset value of a Fund is calculated, as disclosed in the relevant Funds’ current prospectuses. The Fund will use its commercially reasonable efforts to communicate to the Company such information by 6:30 p.m. Eastern Time on each Business Day.
1.7 In the event an adjustment is made to the computation of the net asset value of Portfolio shares as reported to the Company under section 1.6, (1) the correction will be handled in a manner consistent with SEC guidelines and the Investment Company Act of 1940, as amended and (2) the Fund or the Adviser shall notify the Company as soon as practicable after the Fund or Adviser has determined that any such adjustment is required. To the extent a price adjustment results in a deficiency or excess to a Contract holder’s account, the Company and the Adviser agree to evaluate the situation together on a case-by-case basis with the goal towards pursuing an appropriate course of action. To the extent the price adjustment was due to an error by the Fund or its agent resulting in a loss to the Company’s account with the Fund, the Fund or its agent shall adjust the number of Fund shares for such account to correct such error or pay the balance of any redemption proceeds that may be owed due to the error, as the case may be.
2. Proxy Solicitations and Voting
2.1 The Fund agrees that the terms on which the shares of any Portfolio are offered to the Accounts will not be materially altered without at least sixty (60) days’ prior written notice to the Company during any period when an Account owns shares of a Portfolio.
2.2 If and to the extent required by applicable law or by the terms of the Contracts, the Company shall:
(i) solicit voting instructions from the Contract holders;
(ii) vote the shares of the Portfolios held by the Accounts in accordance with instructions received from the Contract holders; and
(iii) vote the shares of the Portfolios held by the Accounts for which no timely instructions have been received from the Contract holders in the same proportion as shares of the Portfolios for which timely instructions have been received,
if and to the extent that (i) the SEC continues to interpret the 1940 Act to require pass-through voting privileges for various variable contract holders, and (ii) such interpretation is deemed applicable to the Contracts. The Company reserves the right to vote Portfolio shares held in any Account in the Company’s own right, to the extent permitted by applicable law. The Company will calculate voting
privileges in a manner consistent with other separate accounts investing in the Portfolios and in accordance with applicable law. The Company agrees to hold the Fund, the Portfolios, the Adviser and DFAS harmless from and against any liability that may arise as a result of the Company’s voting Portfolio shares held in any Account in the Company’s own right.
3. Representations and Warranties
3.1 The Company represents and warrants that it is a life insurance company within the meaning of Section 816(a) of the Code, duly organized and in good standing under applicable law, and that it has elected and qualified and will maintain (or, if newly organized, intends to elect and qualify for the period commencing with its inception and will maintain) its status as a domestic corporation under Section 953(d) of the Code. The Company will notify the Adviser and the Fund promptly upon having a reasonable basis for believing that the Company has ceased to qualify and be a life insurance company treated as a domestic corporation or that it might not so qualify and be treated in the future. The Company has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under applicable state insurance laws, and that it has and will maintain the capacity to issue all Contracts that may be sold; and that it is properly licensed, qualified and in good standing to sell the Contracts in all jurisdictions where the Company does business. The Company represents and warrants that the Contracts will be issued and sold in compliance, in all material respects, with all applicable federal and state laws, and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements.
3.2 The Company represents and warrants that the Contracts are duly registered under applicable laws and regulations to the extent required or will be exempt from such registration.
3.3 The Company represents and warrants that it has or will have registered each Account as a unit investment trust, in accordance with the provisions of the 1940 Act, or each such Account is, and will continue to be, exempt from registration under Section 3(c) of the 1940 Act, to serve as a segregated investment account for the Contracts.
3.4 The Company represents and warrants that the Contracts are currently treated as variable contracts under Section 817(d) of the Code, and that the Company will maintain such treatment, and that the Company will notify the Adviser and the Fund promptly upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that the Contracts might not be so treated in the future.
The Company further represents and warrants that each Account or subaccount that acquires shares of the VIT Inflation-Protected Securities Portfolio is a segregated asset account solely with respect to Contracts that are variable life
insurance contracts within the meaning of Treas. Reg. Section 1.817-5(b)(3)(i), and that the Company will maintain the treatment of all such Contracts as life insurance contracts under Section 7702(a) of the Code, and that the Company will notify the Adviser and the Fund promptly upon having a reasonable basis for believing that one more such Contracts have ceased to be so treated or that the Contracts might not be so treated in the future.
3.5 This Agreement has been duly authorized, executed and delivered by the Company, and is a valid and legally binding contract enforceable in accordance with its terms. No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Company of the transactions contemplated by this Agreement. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated by this Agreement will not, violate the Company’s organizational documents or By-laws, or any resolution, agreement or arrangement to which the Company is a party or by which the Company is bound.
3.6 The Company and the Accounts are duly authorized to acquire shares of the Portfolios as contemplated by the terms of this Agreement. The Company will cooperate with the Fund in providing information as provided in Schedule 3.6 hereto and will assist the Fund in preventing possible market timing and other trading activities in violation of the Fund’s policies and procedures, including without limitation, restricting or prohibiting further purchases or exchanges of the shares of the Portfolios as provided in Schedule 3.6 hereto.
3.7 There are no material legal, administrative or other proceedings pending or, to the Company’s knowledge, threatened against the Company or its property or assets that could result in liability on the Company’s part. The Company knows of no facts that might form the basis for the institution of such proceedings. Neither the Company nor the Accounts are parties to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its or their business or its or their ability to consummate the transactions herein contemplated.
3.8 Except as noted below, the disclosure contained in the applicable prospectus(es) or offering documents for the Accounts does not contain any untrue statements of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such disclosure meets all legal requirements of applicable federal and state laws and regulations. The Company represents and warrants that all current and future prospectus(es) or offering documents with respect to the Accounts, and other materials that mention the Company, the Fund, the Portfolios, the Adviser, or DFAS shall meet the requirements described in the first sentence of this subparagraph; provided , however , that the Company shall not be responsible for any disclosure that is provided to the Company in the Fund’s current prospectus(es) and statement(s) of additional information describing the Portfolios or the Fund’s registration
statement on Form N-1A (the “Fund Registration Statement”) as filed with the SEC.
3.9 The Fund represents and warrants that it is lawfully established and validly existing under the laws of the State of Maryland. The Fund represents that its operations are and shall at all times remain in material compliance with the laws of the State of Maryland, to the extent required to perform this Agreement.
3.10 The Fund represents and warrants that the shares of the Portfolios sold pursuant to this Agreement are registered under the Securities Act of 1933, as amended (the “1933 Act”), and duly authorized for issuance; that the Fund shall amend the Fund Registration Statement for the Portfolios under the 1933 Act and the 1940 Act, from time to time, as required in order to effect the continuous offering of the shares of the Portfolios; that the Fund will sell such shares in compliance with all applicable federal and state laws; and that the Fund is and will remain registered under, and complies and will continue to comply, in all material respects, with, the 1940 Act. The Fund shall register and qualify the shares of the Portfolios for sale in accordance with the laws of the various states only if, and to the extent, deemed advisable by the Fund, the Adviser, or DFAS.
3.11 The Fund and each of the Portfolios comply and will continue to comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or such Regulations. In the event of a breach of this Section 3.11 by the Fund or a Portfolio, the Fund will promptly take all steps necessary to diversify the Portfolio(s) adequately so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. Upon request by the Company, the Fund or the Adviser will provide to Company a certification of compliance with respect to the diversification requirements herein for each calendar quarter no later than the end of the following quarter in a form and in a manner agreed to by the Parties.
3.11A The parties acknowledge that the VIT Inflation-Protected Securities Portfolio will rely on the alternative diversification test for variable life insurance contracts in Treas. Reg. Section 1.817-5(b)(3)(i) in satisfying the diversification requirements of Section 817(h) of the Code. The Fund agrees to notify the Company upon having a reasonable basis for believing that any Portfolio has ceased to satisfy such diversification requirements.
3.12 The Fund represents and warrants that the Portfolios qualify (or as to Portfolios that have not yet commenced business, will qualify) as regulated investment companies under Subchapter M of the Code (or any successor or similar provision), and that the Fund will take all reasonable steps to maintain such qualification, subject to the reservation of the right of the Directors to not maintain the qualification of a Portfolio as a regulated investment company if the Directors determine this course of action to be beneficial to shareholders. The
Fund agrees to notify the Company upon having a reasonable basis for believing that any Portfolio has ceased to so qualify or upon the Directors taking any such action.
3.13 The Company shall inform a Portfolio in writing if the Company determines that such Portfolio is not in compliance with applicable insurance laws.
3.14 DFAS represents and warrants that it is and will remain a member in good standing of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is and will be duly registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended (the “1934 Act”). DFAS represents that its operations are, and shall at all times remain, in material compliance with the laws of the State of Delaware to the extent required to perform this Agreement. DFAS further represents and warrants that it will sell and distribute the shares of the Portfolios in accordance with any applicable state laws and federal securities laws, including, without limitation, the 1933 Act, the 1934 Act and the 1940 Act.
3.15 The Parties represent and warrant to each other that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Portfolios are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund, in an amount not less than the amount required by the applicable rules of FINRA and the federal securities laws, including the 1940 Act, as applicable. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. The Parties agree to make all reasonable efforts to assure that such bond or another bond containing these provisions is continuously in effect, and each agrees to notify promptly the other Parties in the event that such coverage no longer applies.
3.16 The Parties will conduct their business at all times so that no Contract holder will have such incidents of control as will cause a Portfolio’s income and gains to be taxable to the Contract holder as a result of the application of the investor control doctrine enunciated in a series of Revenue Rulings, including Revenue Ruling 77-85, Revenue Ruling 80-274, Revenue Ruling 81-225, Revenue Ruling 82-54, Revenue Ruling 2003-91 and Revenue Ruling 2007-7, and adopted by Christoffersen v. United States, 749 F.2d 513 (8th Cir. 1985) and Jeffrey T. Webber v. Commissioner, 144 T.C. No 17 (2015). In this regard, the Parties agree to limit, and not facilitate, a Contract holder’s participation in each Portfolio’s investment process in contravention of the following, which the Parties represent and warrant to each other to be true: (1) there is not, and there will not be, any arrangement, plan, contract or agreement between the Adviser (or a subadviser) and a Contract holder regarding the availability of a Portfolio as an Account under the Contract, or the specific assets to be held by a Portfolio; (2) other than a Contract holder’s ability to allocate Contract premiums and transfer amounts in the Company’s Account to and from the Company’s Account corresponding to a Portfolio, all investment decisions concerning a Portfolio will be made by the Adviser, any subadviser(s) and the Directors in their sole and
absolute discretion; (3) a Contract holder cannot, and will not be able to, direct a Portfolio’s investment in any particular asset or recommend a particular investment or investment strategy; (4) there is not, and will not be, any agreement or plan between the Adviser or a subadviser and a Contract holder regarding a particular investment of a Portfolio; (5) a Contract holder cannot, and will not be able to, communicate directly or indirectly with the Adviser or a subadviser concerning the selection, quality or rate of return on any specific investment or group of investments held by a Portfolio; (6) a Contract holder does not have, and will not have, any current knowledge of a Portfolio’s specific assets other than as may be required to be presented in periodic reports to a Portfolio’s shareholders or may be publicly available; (7) a Contract holder does not have, and will not have, any legal, equitable, direct or indirect ownership interest in any of the assets of a Portfolio; and (8) a Contract holder only has, and only will have, a contractual claim against the insurance company offering the Contract to receive cash from the insurance company under the terms of the Contract holder’s Contract.
4. Sales Material and Information
4.1 The Company shall promptly inform DFAS as to the status of all sales literature filings and shall promptly notify DFAS of all approvals or disapprovals of sales literature filings with regulatory authorities. The Company shall promptly provide the Fund with copies of any Contract holder complaints respecting the Contracts that relate to the Fund or to the Portfolios.
4.2 Except with the written consent of the Adviser, the Fund or DFAS, as appropriate, the Company shall not make any oral or written material representations concerning the Adviser, DFAS, the Fund or the Portfolios, other than the information or representations contained in:
(a) the Fund Registration Statement or prospectus(es) for the Fund, as amended or supplemented from time to time;
(b) published reports or statements of the Fund which are in the public domain or are approved by the Fund; or
(c) sales literature or other promotional material of the Fund or the Portfolios.
4.3 Except with the written consent of the Company, the Adviser, DFAS, or the Fund shall not make any oral or written material representations concerning the Company, other than the information or representations contained in:
(a) a registration statement, prospectus, or offering memoranda for the Contracts, as amended or supplemented from time to time;
(b) published reports or statements of the Contracts or the Accounts which are in the public domain or are approved by the Company; or
(c) sales literature or other promotional material of the Company.
Notwithstanding the foregoing, this provision shall not be interpreted to prevent the Adviser, DFAS and the Fund from providing information about the Company or this Agreement to their directors, regulators, accountants, legal counsel or otherwise in the ordinary course of their business.
4.4 No Party shall use any other Party’s names, logos, trademarks or service marks, whether registered or unregistered, without the prior written consent of such Party.
4.5 As provided in Section 4A below, the Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, all amendments to any of the above that relate to the Portfolios or their shares, and any other applicable documents or materials, in final form as filed with the SEC.
4.6 The Company will provide to the Fund at least one complete copy of all offering materials describing the Fund, the Portfolios and the Contracts, including application and investment election forms, sample illustrations, reports, solicitations for voting instructions, sales literature and any other promotional materials, applications for exemptions, requests for no-action letters, all amendments to any of the above and any other applicable documents or materials that relate to the Contracts and each Account. In the event any such documents are required to be filed with any regulatory authority or body, the Company shall provide such materials in final form as filed with such regulatory authority or body. The Company represents and warrants that the Contracts, registration statements, prospectuses, offering memoranda and any other filing in connection therewith with respect to the Accounts will not materially deviate from the form of such documents provided to the Fund.
4.7 For purposes of this Section 4, the phrase “sales literature or other promotional material” shall be construed in accordance with all applicable securities laws and regulations.
4.8 To the extent required by applicable law, including the administrative requirements of regulatory authorities, or as mutually agreed between the Company and DFAS, the Company reserves the right to modify any of the Contracts in any respect whatsoever. The Company reserves the right, in its sole discretion, to suspend the sale of any Contract, in whole or in part, or to accept or reject any application for the sale of a Contract. The Company agrees to notify the other Parties promptly upon the occurrence of any event that the Company believes might necessitate a material modification or suspension.
4.9 The Parties agree to review the arrangements set forth herein from time to time for possible changes and will make their personnel reasonably available for this purpose.
4A. Fund Prospectuses and Reports
4A.1 DFAS shall provide the Company, at the expense of DFAS or Adviser, with a copy of the Fund’s current Prospectus(es) (and any supplements thereto). DFAS shall also provide a final copy of the amended prospectus(es) of the Portfolios as set in type (including an 8 1/2” x 11” size camera-ready stat).The Fund’s Prospectus shall state that the Statement of Additional Information for the Fund is available from the DFAS or, in the Fund’s discretion, from the Fund.
4A.2 The Fund, at its expense, shall provide the Company with copies of its proxy materials, reports to shareholders, and other communications to shareholder in such quantity as the Company shall reasonably require for distributing to Contract owners.
4A.3 If the Fund and the Company agree to distribute to Contract owners summary prospectuses (as defined in Rule 498 of the 1933 Act) (“Summary Prospectuses”) relating to one or more Portfolios of the Fund pursuant to Rule 498 of the 1933 Act, then each Party to the Agreement represents and warrants that it complies with the requirements of Rule 498 in all material respects, and that it maintains policies and procedures reasonably designed to ensure that it can meet its obligations under Rule 498 in connection with the use of such Summary Prospectuses. In this regard, the Fund and the Adviser each represents and warrants that (a) the Summary Prospectuses and the web site hosting of such Summary Prospectuses will comply in all material respects with the requirements of Rule 498 applicable to the Fund and its Portfolios; (b) the Fund and the Adviser will be responsible for compliance with the provisions of Rule 498(f)(i) involving Contract owner requests for additional Fund documents made directly to the Fund or the Adviser, or one of their affiliates; and (c) any information obtained about Contract owners pursuant to this provision will be used solely for the purposes of responding to requests for additional Fund documents. Furthermore, the Company represents and warrants that (a) it will respond to requests for additional Fund documents made by Contract owners directly to the Company or one of its affiliates and will be responsible for compliance with the provisions of Rule 498(f)(i) involving Contract owner requests for additional Fund documents made directly to the Company or one of its affiliates; and (b) any bundling of Summary Prospectuses and Statutory Prospectuses will be done in compliance with Rule 498.
4A.4 Except as provided in the following sentence, the Company shall distribute (or arrange for distribution of) a Summary Prospectus for each Portfolio to Contract owners as required to be distributed to such Contract owners under applicable federal or state law. The Company reserves the right to distribute (or arrange for distribution of) the Statutory Prospectus in place of the Summary Prospectus.”
The Company agrees that it will give the Adviser and the Fund 30 days’ advance notice of its intended use of the Summary Prospectuses or the Statutory Prospectuses. The Company shall be permitted, but not required, to post a copy of the Fund’s Statutory Prospectuses and/or Summary Prospectuses on the Company’s Web site. The Fund shall provide the Company with copies of the Summary Prospectuses and any supplements thereto in the same manner and at the same times as the Agreement requires that the Fund provide the Company with Statutory Prospectuses.
4A.5 The Fund and the Adviser each agrees that the URL indicated on each Summary Prospectus will lead Contract owners directly to the web page used for hosting Summary Prospectuses and that such web page will host the current Fund documents required to be posted in compliance with Rule 498. The Fund agrees that the web landing page used for hosting Summary Prospectuses will contain Summary Prospectuses and any other Fund documents permitted by Rule 498 only for the Fund or its affiliated investment companies. At the Company’s request, the Adviser and the Fund will provide the Company with URLs to the current Fund documents for use with Company’s electronic delivery of Fund documents or on the Company’s website.4A.9 If the Fund determines that it will end its use of the Summary Prospectus delivery option, the Fund will provide the Company with at least 30 days’ advance notice of its intent so that the Company can arrange to provide a Statutory Prospectus in place of a Summary Prospectus. In order to comply with Rule 498(e)(1), the Fund shall continue to maintain its website in compliance with the requirements of this Agreement and Rule 498 for a minimum of 90 days after the termination of any such notice period.
5. Fees and Expenses
5.1 The Fund shall bear the cost of registration and qualification of the shares of the Portfolios; preparation and filing of the Portfolios’ prospectus(es) and the Fund Registration Statement, proxy materials and reports relating to the Portfolios; preparation of all other statements and notices relating to the Portfolios required by any federal or state law; payment of all applicable fees, including, without limitation, all fees due under Rule 24f-2 of the 1940 Act relating to the Portfolios; and all taxes on the issuance or transfer of the Portfolios’ shares.
5.2 The Company shall assure that the Contracts are registered under the 1933 Act or are properly exempt from such registration, and that each Account is registered as a unit investment trust in accordance with the 1940 Act or is properly exempt from such registration. In those circumstances where the Company is relying upon a registration exemption, the Company will make every effort to maintain such an exemption and will notify the Fund, the Adviser and DFAS immediately upon having a reasonable basis for believing that such exemption no longer applies or might not in the future. The Company shall bear the expenses for the costs of preparation and any required filing of the Company’s prospectus, offering memoranda, registration statement and other materials and information with
respect to the Contracts, including the Application and investment selection forms; preparation of all other statements and notices relating to the Accounts or the Contracts required by any applicable federal or state law; all expenses for the solicitation and sale of the Contracts, including all costs of printing and distributing all copies of advertisements, prospectuses, statements of additional information, proxy materials and reports to Contract holders and prospective purchasers of the Contracts as required by applicable state and federal law; payment of all applicable fees and taxes relating to the Contracts; all costs of drafting, filing and obtaining approvals of the Contracts in the various jurisdictions under applicable insurance laws; and all other costs associated with ongoing compliance with all such laws and the Company’s obligations hereunder.
6. Indemnification
6.1 Indemnification by the Company
6.1(a) The Company agrees to indemnify, defend and hold harmless the Fund, the Portfolios, DFAS and the Adviser, and each of their directors and officers (as applicable), and each person, if any, who controls any of them within the meaning of Section 15 of the 1933 Act (collectively, the “Indemnified Parties” for purposes of this Section 6.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses) (except in all cases, excluding consequential or special damages), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus, offering memoranda or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Section 6.1(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement, prospectus or offering memoranda for the Contracts (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the Contracts or the shares of the Portfolios; or
(ii) arise out of, or as a result of, statements or representations or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or the shares of the Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Fund and the Portfolios, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or
(iv) arise out of, or as a result of, any failure by the Company or persons under its control to provide the services and furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material breach of any representation and/or warranty made by the Company or persons under its control in this Agreement or arise out of or result from any other material breach of this Agreement by the Company or persons under its control;
as limited by and in accordance with the provisions of Sections 6.1(b) and 6.1(c) hereof.
6.1(b) The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party’s willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party’s duties or by reason of such Indemnified Party’s reckless disregard of its obligations or duties under this Agreement or to the Fund, whichever is applicable, or to the extent of such Indemnified Party’s gross negligence.
6.1(c) The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action, provided that the Company gives written notice of such intention to the Indemnified Parties. The Company also shall be entitled to assume and to control the defense thereof. After notice from the Company to such Party of the
Company’s election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by the Indemnified Party, and the Company will not be liable to such Party under this Agreement for any legal or other expenses subsequently incurred by such Party independently in connection with the defense thereof other than reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the shares of the Portfolios or the Contracts or the operation of the Portfolios.
6.2 Indemnification by DFAS
6.2(a) DFAS agrees to indemnify, defend and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the “Indemnified Parties” for purposes of this Section 6.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund or DFAS) or litigation (including legal and other expenses) (except in all cases, excluding consequential or special damages), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Fund Registration Statement or current prospectus(es) or sales literature of the Fund and the Portfolios (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Section 6.2(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company for use in the Fund Registration Statement or prospectus(es) for the Portfolios or in sales literature (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the shares of the Portfolios; or
(ii) arise out of, or as a result of, statements or representations or wrongful conduct of DFAS or the Fund or persons under their control, with respect to the sale or distribution of the shares of the Portfolios (it is understood that the persons who are involved in the sale or distribution of the Contracts are not under the control of DFAS, the Adviser or the Fund); or
(iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, offering memoranda or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; or
(iv) arise out of, or as a result of, any failure by DFAS, the Fund or persons under their control to provide the services and furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation and/or warranty made by DFAS, the Fund or persons under their control in this Agreement or arise out of or result from any other material breach of this Agreement by DFAS, the Fund or persons under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and 6.2(c) hereof.
6.2(b) DFAS shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party’s willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party’s duties or by reason of such Indemnified Party’s reckless disregard of its obligations and duties under this Agreement or to the Company or the Accounts, whichever is applicable, or to the extent of such Indemnified Party’s gross negligence.
6.2(c) DFAS shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified DFAS in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify DFAS of any such claim shall not relieve DFAS from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, DFAS will be entitled to participate, at its own expense, in the defense thereof, provided that DFAS gives written notice of such intention to the Indemnified Parties. DFAS also shall be entitled to assume and to control the defense thereof. After notice from DFAS to such Party of DFAS’s election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by the Indemnified Party, and
DFAS will not be liable to such Party under this Agreement for any legal or other expenses subsequently incurred by such Party independently in connection with the defense thereof other than reasonable costs of investigation.
6.2(d) The Indemnified Parties will promptly notify DFAS of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Contracts or the operation of the Accounts.
6.3 Indemnification by the Adviser
6.3(a) The Adviser agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the “Indemnified Parties” for purposes of this Section 6.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund or the Adviser) or litigation (including legal and other expenses) (except in all cases, excluding consequential or special damages) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, and:
(i) arise out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the Fund Registration Statement or current prospectus(es) or sales literature of the Fund and the Portfolios (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Section 6.3(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Fund or the Adviser by or on behalf of the Company for use in the Fund Registration Statement or prospectus(es) for the Portfolios or in sales literature (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the shares of the Portfolios; or
(ii) arise out of, or as a result of, statements or representations or wrongful conduct of DFAS, the Fund or the Adviser or persons under their control, with respect to the sale or distribution of the shares of the Portfolios (it is understood that the persons who are involved in the sale or distribution of the Contracts are not under the control of DFAS, the Adviser or the Fund); or
(iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus,
offering memoranda or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Adviser; or
(iv) arise out of, or as a result of, any failure by DFAS, the Adviser, the Fund or persons under their control to provide the services and furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation and/or warranty made by DFAS, the Fund, the Adviser or persons under their control in this Agreement or arise out of or result from any other material breach of this Agreement by DFAS, the Adviser, the Fund or persons under their control;
as limited by and in accordance with the provisions of Sections 6.3(b) and 6.3(c) hereof.
6.3(b) The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party’s willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party’s duties or by reason of such Indemnified Party’s reckless disregard of its obligations and duties under this Agreement or to the Company or the Accounts, whichever is applicable, or to the extent of such Indemnified Party’s gross negligence.
6.3(c) The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund or the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund or the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof, provided that the Adviser gives written notice of such intention to the Indemnified Parties. The Adviser also shall be entitled to assume and to control the defense thereof. After notice from the Adviser to such Party of the Adviser’s election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by the Indemnified Party, and the Adviser will not be liable to such Party under this Agreement for any legal or other expenses subsequently incurred by such Party independently in connection with the defense thereof, other than reasonable costs of investigation.
6.3(d) The Indemnified Parties will promptly notify the Fund and the Adviser of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Contracts or the operation of the Accounts.
7. Company Assistance to Directors
The Company will assist the Directors in carrying out their responsibilities under any applicable provisions of the federal securities laws and/or any exemptive orders granted by the SEC by providing the Directors with all information reasonably necessary for the Directors to consider any issues raised.
8. Term and Termination
8.1 This Agreement may be terminated by any Party with or without cause on 90 days’ advance written notice or later, if a Party requires exemptive relief or other orders from the SEC or make a regulatory filing prior to termination, but in no event later than 180 days’ after the initial written notice of termination has been provided.
8.2 Notwithstanding any other provision of this Agreement, DFAS, the Adviser or the Fund may terminate this Agreement for cause on not less than thirty (30) days’ prior written notice to the Company, unless the Company has cured such cause within thirty (30) days of receiving such notice, for any material breach by the Company of any representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement for cause on not less than thirty (30) days’ prior written notice to DFAS, the Adviser and the Fund, unless DFAS, the Adviser or the Fund, as appropriate, has cured such cause within thirty (30) days of receiving such notice, for any material breach by DFAS, the Adviser or the Fund of any representation, warranty, covenant or obligation hereunder.
8.4 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement by written notice to the Fund and DFAS with respect to any Portfolio based upon the Company’s determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts.
8.5 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement by written notice to the Fund, the Adviser and DFAS with respect to any Portfolio in the event any of the Portfolio’s shares are not
registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts that are issued or to be issued by the Company.
8.6 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement by written notice to the Fund, the Adviser and DFAS with respect to any Portfolio in the event that such Portfolio ceases to qualify as a “regulated investment company” under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that any such Portfolio may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement by written notice to the Fund, the Adviser and DFAS with respect to any Portfolio in the event that such Portfolio fails to satisfy the diversification requirements of Section 817 of the Code and the Treasury Regulations promulgated thereunder.
8.8 Notwithstanding any other provision of this Agreement, the Fund, the Adviser or DFAS may terminate this Agreement by written notice to the Company, if any one or all shall determine, in its or their, as applicable, sole judgment, exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity.
8.9 Notwithstanding any other provision of this Agreement, the Company may terminate this Agreement by written notice to the Fund, the Adviser and DFAS, if the Company shall determine, in its sole judgment, exercised in good faith, that any of the Fund, the Portfolios, the Adviser or DFAS has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity.
8.10 Notwithstanding any other provision of this Agreement, any Party may terminate this Agreement for cause on not less than thirty (30) days’ prior written notice to the other Parties, unless any of the other Parties has cured such cause within thirty (30) days of receiving such notice, for any one of the following reasons:
(a) a change in control of the Adviser or the Adviser’s ultimate controlling person; however, a change in the name of the Adviser will not constitute a change in control;
(b) a material change in, or other material revision to, the Contracts, which material change or revision is not reasonably acceptable to the Fund, the Adviser or DFAS, as determined in good faith; or
(c) a material change in, or other material revision to, the Prospectus(es) of the Fund that describe the Portfolios, which material change or revision is not reasonably acceptable to the Company, as determined in good faith; or
(d) any action taken by federal, state or other regulatory authorities of competent jurisdiction which, in the reasonable judgment of any of the Parties, either (i) materially and adversely alters the terms, advantages and/or benefits of the Contracts to current or prospective purchasers; or (ii) materially or adversely alters the terms or conditions of such Party’s participation in the subject matter of this Agreement.
8.11 Notwithstanding the termination of this Agreement, each Party shall continue for so long as any Contracts remain outstanding to perform such of its duties hereunder as are necessary to ensure the continued tax status thereof and the payment of benefits thereunder, with respect to a Portfolio and the corresponding subaccount of each Account.
8.12 Notwithstanding any termination of this Agreement, the Fund and DFAS shall at the option of the Company, continue to make available additional shares of the Fund and the Portfolios pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (“Existing Contracts”) unless the Advisor or the Board determines in good faith and in accordance with the 1940 Act and the applicable rules and regulations thereunder that doing so would not serve the best interests of the shareholders of the affected Portfolios or would be inconsistent with applicable law or regulation or in the event the Board determines to liquidate a Portfolio or the Fund and end such Portfolio’s or Fund’s existence. Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate invests in the Fund and the Portfolios, redeem investments in the Fund and the Portfolios and/or invest in the Fund and the Portfolios upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 8.12 will not apply to any terminations under sections 8.2, 8.8, 8.10(b), or 8.10(d) of this Agreement.
8.13 The provisions of Section 3 (Representations and Warranties), Section 6 (Indemnification) and Section 10 (Miscellaneous) shall survive termination of this Agreement with respect to shares of the Fund held on behalf of Contract holders while the Agreement was in effect. In addition, all other applicable provisions of this Agreement shall survive termination with respect to the shares of the Fund that are held on behalf of Contract owners in accordance with section 8.12, except that the Fund and DFAS shall have no further obligation to make Fund shares available tin Contracts issued after termination.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or certified mail, or via facsimile, to the other Parties at the address of such Parties set forth below or at such other address as such Parties may from time to time specify in writing to the other Parties.
If to the Fund:
Catherine L. Newell, Esq.
Vice President and Secretary
DFA Investment Dimensions Group Inc.
6300 Bee Cave Road, Building One
Austin, TX 78746
If to the Adviser:
Catherine L. Newell, Esq.
Vice President and Secretary
Dimensional Fund Advisors LP
6300 Bee Cave Road, Building One
Austin, TX 78746
If to DFAS:
Catherine L. Newell, Esq.
Vice President and Secretary
DFA Securities LLC
6300 Bee Cave Road, Building One
Austin, TX 78746
If to the Company:
Protective Life Insurance Company
2810 Highway 280 South
Birmingham, AL 35223
Attention: Chief Product Actuary
With a copy to:
Protective Life Insurance Company
2810 Highway 280 South
Birmingham, AL 35223
Attention: Senior Counsel, Variable Products
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of reference only and in no way affect the construction or effect of any provisions hereof.
10.2 If any portion of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby.
10.3 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument.
10.4 Each Party shall cooperate with the other Parties and all appropriate governmental authorities (including, without limitation, the SEC, FINRA, and any applicable insurance, securities or other regulator of competent jurisdiction), and shall permit such authorities reasonable access to its books and records as required by applicable law in connection with any investigation or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other Parties the right to audit the Party’s records relating to the terms and conditions of this Agreement upon reasonable notice during reasonable business hours in order to confirm compliance with this Agreement.
10.6 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, to which the Parties hereto are entitled under state and federal laws.
10.7 Subject to the requirements of legal process and regulatory authority, the Fund, the Adviser and DFAS shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by the Company hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the Company until such time as such information may come into the public domain.
10.8 This Agreement or any of the rights and obligations hereunder may not be assigned by any Party without the prior written consent of the other Parties hereto.
10.9 In any dispute arising hereunder, each Party waives its right to demand a trial by jury and hereby consents to a bench trial of all such disputes.
10.10 The terms of this Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof; provided , however , that all performances rendered hereunder shall be subject to compliance with all applicable state and federal laws and regulations.
To the extent such laws are applicable, this Agreement shall be subject to the provisions of the 1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations and interpretations thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant, and any applicable FINRA
regulations or interpretations, and the terms hereof shall be interpreted and construed in accordance therewith.
10.11 In the event of any action or proceeding arising out of this Agreement, the Party bringing the action shall have the right to choose the applicable forum; provided , however , that no Party shall be deemed to have waived any objection based on forum non conveniens or any objection to venue in connection with the initially selected forum.
10.12 The Company agrees that upon execution of this Agreement, and thereafter promptly upon the earlier of (i) reasonable demand by the Adviser or Fund, or (ii) learning that documentation (as defined below) is required, Company shall deliver to the Fund any certification, form, document or information (collectively, “documentation”) that may be required or reasonably requested in order to allow the Fund to make any payments or distributions, whether in-kind or in cash or reinvested in additional Fund shares, to the Company without any deduction or withholding for or on account of any tax including, without limitation, an executed United States Internal Revenue Service Form W-9 (and successor forms thereto) and any other documentation required to be delivered pursuant to Section 1471(b) or section 1472(b)(1) of the Code.
10.13 This Agreement may not be amended or modified except by a written amendment, which includes any amendments to the Schedules, executed by all Parties to the Agreement.
[The remainder of this page intentionally left blank]
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be duly executed as of the date first set forth above.
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PROTECTIVE LIFE INSURANCE COMPANY |
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DFA INVESTMENT DIMENSIONS GROUP INC. |
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DIMENSIONAL FUND ADVISORS LP |
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By: Dimensional Holdings Inc., general partner |
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DFA SECURITIES LLC |
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Schedule 1.1
VA U.S. Targeted Value Portfolio
VA U.S. Large Value Portfolio
VA International Value Portfolio
VA International Small Portfolio
VA Short-Term Fixed Portfolio
VA Global Bond Portfolio
VIT Inflation-Protected Securities Portfolio — only
available for purchase by variable life insurance contract accounts
SCHEDULE 3.6 : Rule 22c-2 Provisions
1. Agreement to Provide Information. The Company (hereafter, an “Intermediary”) agrees to provide the Fund or its designee, upon written request, the taxpayer identification number (“TIN”), the Individual/International Taxpayer Identification Number (“ITIN”)(1), or other government-issued identifier (“GII”), if known, of any or all Contract holders or shareholder(s) of the account (together, “Shareholder(s)”) and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Fund shares (“Shares”) held through an account maintained by the Intermediary during the period covered by the request, provided that the Company shall provide such information only as it relates to Shareholder-Initiated Transactions and Shareholders who engage in such Shareholder-Initiated Transactions.
1.1. Period Covered by Request. Unless otherwise directed by the Fund, Intermediary agrees to provide the information specified in Section 1 for each trading day during the period covered by the request. Requests must set forth a specific period, generally not to exceed 90 days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than 90 days from the date of the request as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund, but shall not make a request for any information older than 12 months from the date of the request.
1.2. Form and Timing of Response.
1.2.1. Intermediary agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in Section 1. If requested by the Fund or its designee, Intermediary agrees to use its best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in Section 1 is itself a financial intermediary (“indirect intermediary”) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in Section 1 for those shareholders who hold an account with an indirect intermediary, or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. Intermediary additionally agrees to inform the Fund whether it plans to perform (i) or (ii).
(1) According to the IRS’ website, the ITIN refers to the Individual Taxpayer Identification number, which is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX.. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). SEC Rule 22c-2 inadvertently refers to the ITIN as the International Taxpayer Identification Number.
1.2.2. Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Parties.
1.2.3. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
1.3. Limitations on Use of Information . The Fund agrees not to use the information received from the Intermediary for the Fund’s use in external solicitation or marketing to shareholders without the prior written consent of the Intermediary. The Fund is permitted to use the information received from the Intermediary for the Fund’s internal purposes, including monitoring compliance with the Fund’s internal policies, procedures and practices. The Fund agrees to keep any non-public information furnished by the Intermediary confidential consistent with the Fund’s then current privacy policy, except as necessary to comply with federal, state, or local laws, rules, or other applicable legal requirements.
2. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund to restrict or prohibit further Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through Intermediary purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions in the Fund’s Shares (directly or indirectly through the Intermediary’s account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund.
2.1. Form of Instructions. Instructions to restrict or prohibit trading must include the TIN, ITIN, or GII, if known, and the specific restriction(s) to be executed. If the TIN, ITIN, or GII is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or Accounts or other agreed upon information to which the instruction relates.
2.2. Timing of Response. Intermediary agrees to execute instructions from the Fund to restrict or prohibit trading as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by the Intermediary.
2.3. Confirmation by Intermediary. Intermediary must provide written confirmation to the Fund that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.
3. Definitions. For purposes of this Schedule 3.6 :
3.1. The term “Fund” includes the Fund’s principal underwriter and transfer agent. The term not does include any “excepted funds” as defined in SEC Rule 22c-2(b) under the 1940 Act.(2)
3.2. The term “Shares” means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the 1940 Act that are held by the Intermediary.
3.3. The term “Shareholder” means the beneficial owner of Shares, whether the Shares are held directly or by the Intermediary in nominee name; except:
3.3.1. with respect to retirement plan recordkeepers, the term “Shareholder” means the Plan participant notwithstanding that the Plan may be deemed to be the beneficial owner of Shares; and
3.3.2. with respect to insurance companies, the term “Shareholder” means the holder of interests in a variable annuity or variable life insurance contract issued by the Intermediary.
3.4. The term “Shareholder-Initiated Transaction” means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract into or out of a Fund, but does not include transactions that are executed: (i) automatically pursuant to contractual or systematic programs or enrollments such as “dollar cost averaging” programs, insurance company approved asset allocation programs, automatic rebalancing programs, scheduled annuity payouts, loans, or systematic withdrawal programs; (ii) pursuant to the calculation or payment of a Contract death benefit; (iii) to allocate assets to a Fund through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; (iv) as pre-arranged transfers at the conclusion of a required free look period; (v) as a result of any deduction or charge or fees under a Contract; or (vi) as a result of scheduled withdrawals or surrenders from a Contract.
3.5. The term “written” includes electronic writings and facsimile transmissions.
3.6. The term “Intermediary” shall mean a “financial intermediary” as defined in SEC Rule 22c-2.(3)
3.7. The term “purchase” does not include the automatic reinvestment of dividends.
(2) As defined in SEC Rule 22c-2(b), the term “excepted fund” means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
(3) “Financial intermediary” is defined in SEC Rule 22c-2(c)(1) as: “(i) any broker, dealer, bank, or other entity that holds securities of record issued by the fund, in nominee name; (ii) a unit investment trust or fund that invests in the fund in reliance on section 12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)); and (iii) in the case of a participant-directed employee benefit plan that owns the securities issued by the fund, a retirement plan’s administrator under section 3(16)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(16)(A)) or any entity that maintains the plan’s participant records.”
3.8. The term “promptly” as used in Section 1.2 shall mean as soon as practicable but in no event later than 10 business days from the Intermediary’s receipt of the request for information from the Fund or its designee.
Exhibit 14(a)
[EVERSHEDS SUTHERLAND (US) LLP]
THOMAS E. BISSET
Direct line: 202.383.0118
E-mail: ThomasBisset@eversheds-sutherland.com
November 27, 2017
VIA EDGAR
Board of Directors
Protective Life Insurance Company
2801 Highway 280 South
Birmingham, AL 35223
Re:
Protective Premiere III
Post-Effective Amendment No. 28
Directors:
We hereby consent to the reference to our name under the caption “Legal Matters” in the Statement of Additional Information filed as part of the Registration Statement on Form N-6 (File No. 333-52215) by Protective Life Insurance Company and Protective Variable Life Separate Account with the Securities and Exchange Commission. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933.
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Very truly yours, |
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Eversheds Sutherland (US) LLP |
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By: |
/s/Thomas e. Bisset |
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Thomas E. Bisset |
Exhibit 14(b)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form N-6 (File No. 333-52215) of our reports dated March 20, 2017 (“Successor Company”) and March 18, 2016 (“Predecessor Company”), relating to the consolidated financial statements and financial statement schedules of Protective Life Insurance Company and subsidiaries, which appears in such Registration Statement.
We also consent to the use in this Registration Statement on Form N-6 (File No. 333-52215) of our report dated April 24, 2017, relating to the financial statements of the subaccounts listed in such report of the Protective Variable Life Separate Account, which appears in such Registration Statement.
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/s/PricewaterhouseCoopers LLP |
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Birmingham, Alabama |
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November 27, 2017 |
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Exhibit 18
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and the Chief Financial Officer of Protective Life Insurance Company, a Tennessee corporation, (“Company”) by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Richard J. Bielen, Max Berueffy, or Steven G. Walker, and each or any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Registration Statement on Form N-6 (333-52215) to be filed by the Company with respect to the Protective Premiere III variable universal life product, including any pre-effective and post-effective amendments thereto, with the Securities and Exchange Commission, pursuant to the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission and with such state securities authorities as may be appropriate, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes of the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in-fact and agent or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and sealed this 27 th day of November, 2017.
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/s/Richard J. Bielen |
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Richard J. Bielen |
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/s/Steven G. Walker |
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Steven G. Walker |
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/s/Carl S. Thigpen |
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Carl S. Thigpen |
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WITNESS TO ALL SIGNATURES: |
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/s/Max Berueffy |
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Max Befueffy |
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