XML 33 R22.htm IDEA: XBRL DOCUMENT v3.10.0.1
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

Transamerica Advisors Life Insurance Company (“TALIC,” the “Registrant,” the “Company,” “we,” “our,” or “us”) is a wholly-owned subsidiary of Transamerica Corporation (“TA Corp” or “the Parent”), which is an indirect wholly-owned subsidiary of Aegon N.V., a limited liability share company organized under Dutch law. Aegon N.V. and its subsidiaries and joint ventures have life insurance and pension operations in over twenty countries in Europe, the Americas, and Asia and are also active in savings and investment operations, accident and health insurance, and general insurance and have limited banking operations in a number of these countries.

The Company is a life insurance company that conducts its business primarily in the annuity markets and, to a lesser extent, in the life insurance markets of the financial services industry. The Company is domiciled in the State of Arkansas and is currently licensed to sell insurance and annuities in forty-nine states, the District of Columbia, the U.S. Virgin Islands and Guam.

Basis of Reporting

Basis of Reporting

The accompanying Financial Statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”). The Company also submits financial statements to insurance industry regulatory authorities, which are prepared on the basis of statutory accounting principles. The interim Financial Statements are unaudited; all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the Financial Statements have been included. These unaudited Financial Statements should be read in conjunction with the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. For a complete discussion of the Company’s 2017 Financial Statements and accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The nature of the Company’s business is such that results of any interim period are not necessarily indicative of results for a full year.

Income before taxes and net income for the nine months ended September 30, 2018 includes a net increase of $4,500, reflecting the correction of a prior period error. The Company’s annual comprehensive review of actuarial assumptions identified an error in the implementation of the mortality improvement factor changes during the third quarter of 2017, which caused amortization of value of business acquired to be incorrect. Management has evaluated the error and related correction and concluded it was not material to any previously reported quarterly or annual financial statements or to the current reporting period.

Accounting Estimates and Assumptions

Accounting Estimates and Assumptions

The preparation of financial statements in conformity to GAAP requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: the fair value of certain investments (including derivatives), asset valuation allowances, deferred policy acquisition costs (“DAC”), deferred sales inducements (“DSI”), the value of business acquired (“VOBA”), goodwill, policyholder liabilities, income taxes, and the potential effects of unresolved litigation matters.

Investments

Investments

 

Fixed Maturity and Equity Securities

 

The Company’s investments consist principally of fixed maturity securities that are classified as available-for-sale (“AFS”) and are reported at estimated fair value. With the adoption of ASU 2016-01 the Company classified holdings in non-redeemable preferred stock as equity securities, which are reported at estimated fair value on the Balance Sheets, with valuation adjustments recorded through net investment income on the Statements of Income (Loss).

VOBA, DAC and DSI

VOBA, DAC and DSI

Annually, the Company performs a comprehensive review of actuarial assumptions utilized in measuring insurance liabilities and expected gross profits used in amortizing VOBA, DAC and DSI. The assumptions include, but are not necessarily limited to, inputs such as mortality, policyholder behavior and expected future rates of returns on investments. As part of this review, the Company considers emerging trends, future expectations and other data, including any observable market data. In prior years, these assumptions were updated and implemented in the third quarter of each year, unless a material change in experience, indicative of a long-term trend, was observed during an interim period. Beginning in 2018, these annual assumption updates were made in the second quarter to align with Aegon N.V.’s semi-annual external reporting. If material changes in experience, indicative of a long-term trend, are observed during an interim period, updated assumptions would be implemented.

Future Policy Benefits

Future Policy Benefits

 

The Company’s liability for future policy benefits consists of liabilities for immediate annuities and liabilities for certain guaranteed benefits contained in the variable insurance products the Company manufactures. Liabilities for immediate annuities are equal to the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment generally depends on policyholder mortality. Interest rates used in establishing such liabilities were in the range of 0.01% to 9.6% during 2018. See Notes to Financial Statements - Note 5, Variable Contracts Containing Guaranteed Benefits, for further discussion.

Subsequent Events

Subsequent Events

The Financial Statements are adjusted to reflect material events that occurred between the Balance Sheet date and the date when the Financial Statements are issued, provided they give evidence of conditions that existed at the Balance Sheet date. Material events that are indicative of conditions that arose after the Balance Sheet date are disclosed, but do not result in an adjustment of the Financial Statements themselves. No subsequent events have been identified that require adjustments to or disclosure in the Financial Statements.

Current Accounting Guidance

Current Accounting Guidance

ASU 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update provide guidance on the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and they should be applied using a retrospective transition method to each period presented unless impracticable. The Company adopted this standard on January 1, 2018. Adoption of this ASU did not have a material impact on its Financial Statements.

ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. For the Company, the amendments in this guidance are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this guidance are to be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for those related to equity securities without readily determinable fair values (including disclosure requirements) which are to be applied prospectively to equity investments that exist as of the date of adoption of the Update. The Company adopted this standard on January 1, 2018. The Company has no equity securities without readily determinable fair value, however it has equity securities that are in scope. Therefore, adoption of this ASU resulted in a $3,023 beginning of period cumulative-effect adjustment for unrealized gains and current period had unrealized losses recorded through net investment income (loss) in the Statements of Income (Loss), which are not material to the Company’s Financial Statements. See the Statements of Comprehensive Income (Loss), Statements of Stockholder’s Equity and Note 7, Accumulated Other Comprehensive Income (“AOCI”), for Financial Statement and disclosure impacts related to the beginning of period cumulative-effect adjustment and Note 3, Investments, for current period disclosure impact.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue 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 guidance establishes a five-step process to achieve this core principle. An entity may use either of two transition methods: retrospective to each prior reporting period presented with certain practical expedients, or retrospective with the cumulative effect of initial application recognized at the date of initial application subject to certain additional disclosures. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations of Topic 606. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in a few narrow areas and adds some practical expedients to the guidance. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which affects narrow aspects of the guidance issued in Update 2014-09. In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323), which requires the Company to determine the appropriate financial statement disclosures about the potential material effects of ASU 2014-09 when adopted. In November 2017, the FASB issued ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update). In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which defers the effective date by one year. As a result, these updates are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Update was adopted on January 1, 2018. The Company performed its evaluation and determined the majority of the Company’s revenue streams are out-of-scope (Accounting Standards Codification (“ASC”) 944), therefore adoption of this ASU did not have a material impact on its Financial Statements.

Future Accounting Guidance

Future Accounting Guidance

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in this Update improve the effectiveness of disclosures about fair value measurements required under ASC 820 for recurring and nonrecurring fair value measurements by removing, modifying and adding certain disclosures. The amendments in this Update are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that adoption of this Update will have on its Financial Statements.

 

ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued 2018-12, Financial Services – Insurance (Topic 944). The amendments in this Update change how insurance companies account for and disclose long-duration contracts, such as life insurance, disability income, long-term care, and annuities, and how DAC are amortized. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is evaluating the impact that adoption of this Update will have on its Financial Statements.

 

ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued new guidance on derivatives and hedging ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objectives of the Update are to improve transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815) – Inclusion of Secured Overnight Financing Rate (SOFR) Oversight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which extends the scope of the targeted improvements to include an additional alternative for US Benchmark interest rates. The amendments in these Updates are effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is evaluating the impact that adoption of these Updates will have on its Financial Statements.