485BPOS 1 d367482d485bpos.htm 485BPOS 485BPOS
Table of Contents

As filed with the Securities and Exchange Commission on April 24, 2017

Registration No. 333- 186032

811- 06032

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM N-4

REGISTRATION STATEMENT

UNDER

   THE SECURITIES ACT OF 1933  
   Pre-Effective Amendment No.       
   Post-Effective Amendment No. 7   ☒

and

REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 257   ☒

 

 

SEPARATE ACCOUNT VA B

(Exact Name of Registrant)

 

 

TRANSAMERICA LIFE INSURANCE COMPANY

(Name of Depositor)

4333 Edgewood Road N.E.

Cedar Rapids, IA 52499-0001

(Address of Depositor’s Principal Executive Offices)

Depositor’s Telephone Number: (213) 742-5216

Alison Ryan, Esquire

Transamerica Life Insurance Company

c/o Office of the General Counsel, MS#2520

4333 Edgewood Road, N.E.

Cedar Rapids, IA 52499-4240

(Name and Address of Agent for Service)

 

 

Title of Securities Being Registered: Flexible Premium Variable Annuity Policies

It is proposed that this filing become effective:

 

☐ immediately upon filing pursuant to paragraph (b) of Rule 485
☒ on May 1, 2017 pursuant to paragraph (b) of Rule 485
☐ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
☐ on                  2016 pursuant to paragraph (a)(1) of Rule 485

If appropriate, check the following box:

 

☐ This post-effective amendment designates a new effective date for a previously filed post-effective amendment

 

 

 

Table of Contents
Transamerica Variable Annuity Series    MEMBERS® Variable Annuity Series
Partners Variable Annuity Series    Transamerica Advisor EliteSM II
Transamerica AxiomSM II    Transamerica Income EliteSM II
Transamerica PrincipiumSM III    Transamerica Advisor EliteSM Variable Annuity
Transamerica LandmarkSM Variable Annuity    MEMBERS® LandmarkSM Variable Annuity
MEMBERS® FreedomSM Variable Annuity    Income EliteSM Variable Annuity
Transamerica ExtraSM Variable Annuity    MEMBERS® ExtraSM Variable Annuity
Transamerica LibertySM Variable Annuity    MEMBERS® LibertySM Variable Annuity
Transamerica AxiomSM Variable Annuity    Transamerica PrincipiumSM II Variable Annuity
Transamerica Variable Annuity I-Share   

Issued by

TRANSAMERICA LIFE INSURANCE COMPANY

SEPARATE ACCOUNT VA B

Supplement dated May 1, 2017

(for Applications signed on or after May 1, 2017)

to the

Prospectus dated May 1, 2017

This Rate Sheet Prospectus Supplement (this “supplement”) applies to the above listed Transamerica variable annuities and should be read and retained with the prospectus. If you would like another copy of the current prospectus, please call us at (800) 525-6205.

We are issuing this supplement to provide the growth percentage and withdrawal percentages that we are offering for the Retirement Income Max® as described in the Retirement Income Max®– Base Benefit – Withdrawal Percentage and the Retirement Income Max® – Base Benefit – Growth sections of the prospectus. This supplement replaces and supersedes any previously issued Rate Sheet Prospectus Supplement(s), and must be used in conjunction with the above effective variable annuity prospectuses, as amended.

The rates below apply for applications signed between May 1, 2017 and May 31, 2017. The growth percentage and withdrawal percentages may be different than those listed below for applications signed after May 31, 2017. The withdrawal percentage applicable to your policy will not change for the life of your policy (unless subject to an automatic step-up as described in the Automatic Step-Up section of your prospectus). The Rate Sheet Prospectus Supplement applicable to your policy will be included with your prospectus. Please work with your financial professional or visit www.transamerica.com to confirm the current rates.

GROWTH PERCENTAGE

5.50%

WITHDRAWAL PERCENTAGE

 

Age at time of

first withdrawal

  

Withdrawal Percentage -

Single Life Option*

 

Withdrawal Percentage -

Joint Life Option*

0-58   0.00%   0.00%
59-64   4.20%   3.70%
65-79   5.20%   4.70%
³ 80   6.20%   5.70%

 

*  The withdrawal percentage is determined by the annuitant’s age (or the annuitant’s spouse’s age if younger and the joint life option is elected) at the time of the first withdrawal taken on or after the benefit anniversary immediately following the annuitant’s (or the annuitant’s spouse’s if younger and the joint life option is elected) 59th birthday.

Please note: In order for you to receive the growth percentage and withdrawal percentages reflected above, your application must be signed within the time period disclosed above. We must also receive your completed application within 7 calendar days after the date that this supplement is no longer effective, and the policy must be funded within 60 calendar days from the date that this supplement is no longer effective. If these conditions are not met, your application will be considered not in good order. If you decide to proceed with the purchase of the policy, additional paperwork may be required to issue the policy with the applicable rates in effect at that time.

Please keep this Rate Sheet Prospectus Supplement for future reference.

Table of Contents
TRANSAMERICA INCOME ELITESM II
Transamerica Life Insurance Company
Separate Account VA B (EST. 1/19/1990)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
(800)525-6205
www.transamerica.com
 Transamerica Financial Life Insurance Company
Separate Account VA BNY (EST. 9/27/1994)
Administrative Office
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
(800)525-6205
www.transamerica.com
This prospectus describes information you should know before you purchase a Transamerica Income EliteSM II variable annuity. The prospectus describes a contract between each owner and joint owner (“you”) and Transamerica Life Insurance Company or Transamerica Financial Life Insurance Company (“us,” “we,” “our” or “Company”). This is an individual, deferred, flexible premium variable annuity. This variable annuity allows you to allocate your premium payments among the fixed account (if available) and the underlying fund portfolios.
This prospectus and the underlying fund prospectuses give you important information about the policies and the underlying fund portfolios. Please read them carefully before you invest and keep them for future reference. You can also contact us to get a Statement of Additional Information (SAI) free of charge. The SAI contains more information about this policy. A registration statement, including the SAI, has been filed with the Securities and Exchange Commission (SEC) and the SAI is incorporated herein by reference. The prospectus and SAI can also be obtained from the SEC's website (www.sec.gov). The table of contents of the SAI is included at the end of this prospectus. The Securities and Exchange Commission has not approved or disapproved these securities, or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
This variable annuity may not be suitable for everyone. This variable annuity may not be appropriate for people who do not have a long investment time horizon and is not appropriate for people who intend to engage in market timing. You will get no additional tax advantage from this variable annuity if you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 401(k) plan or Individual Retirement Account (“IRA”)). This prospectus is not intended to provide tax, accounting or legal advice.
We are not an investment adviser nor are we registered as such with the SEC or any state securities regulatory authority. We are not acting in any fiduciary capacity with respect to your policy nor are we acting in any capacity on behalf of tax-advantaged retirement plan. This information does not constitute personalized investment advice or financial planning advice.
Prospectus Date: May 1, 2017
Statement of Additional Information Date: May 1, 2017

 

The subaccounts available under this policy invest in the following underlying fund portfolios:
SUBACCOUNT UNDERLYING FUND PORTFOLIO
TA AB Dynamic Allocation - Service Class Transamerica AB Dynamic Allocation VP - Service Class
TA Aegon Government Money Market - Service Class Transamerica Aegon Government Money Market VP – Service Class
TA Aegon High Yield Bond - Initial Class Transamerica Aegon High Yield Bond VP – Initial Class
TA Aegon U.S. Government Securities - Service Class Transamerica Aegon U.S. Government Securities VP – Service Class
TA American Funds Managed Risk - Balanced - Service Class Transamerica American Funds Managed Risk VP - Service Class
TA Asset Allocation - Conservative - Service Class Transamerica Asset Allocation - Conservative VP – Service Class
TA Asset Allocation - Growth - Service Class Transamerica Asset Allocation - Growth VP – Service Class
TA Asset Allocation - Moderate Growth - Service Class Transamerica Asset Allocation - Moderate Growth VP – Service Class
TA Asset Allocation - Moderate - Service Class Transamerica Asset Allocation - Moderate VP – Service Class
TA Barrow Hanley Dividend Focused - Initial Class Transamerica Barrow Hanley Dividend Focused VP – Initial Class
TA BlackRock Equity Smart Beta 100 - Service Class Transamerica BlackRock Equity Smart Beta 100 VP - Service Class
TA BlackRock Global Allocation - Service Class Transamerica BlackRock Global Allocation VP - Service Class
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class Transamerica BlackRock Global Allocation Managed Risk - Balanced VP - Service Class
TA BlackRock Global Allocation Managed Risk - Growth - Service Class Transamerica BlackRock Global Allocation Managed Risk - Growth VP - Service Class
TA BlackRock Smart Beta 50 - Service Class Transamerica BlackRock Smart Beta 50 VP - Service Class
TA BlackRock Smart Beta 75 - Service Class Transamerica BlackRock Smart Beta 75 VP - Service Class
TA BlackRock Tactical Allocation - Service Class Transamerica BlackRock Tactical Allocation VP - Service Class
TA Clarion Global Real Estate Securities - Initial Class Transamerica Clarion Global Real Estate Securities VP – Initial Class
TA International Equity Index - Service Class Transamerica International Equity Index VP - Service Class
TA International Moderate Growth - Service Class Transamerica International Moderate Growth VP – Service Class
TA JPMorgan Core Bond - Service Class Transamerica JPMorgan Core Bond VP - Service Class
TA JPMorgan Enhanced Index - Initial Class Transamerica JPMorgan Enhanced Index VP – Initial Class
TA JPMorgan Mid Cap Value - Service Class Transamerica JPMorgan Mid Cap Value VP–Service Class
TA JPMorgan Tactical Allocation - Service Class Transamerica JPMorgan Tactical Allocation VP - Service Class
TA Janus Balanced - Service Class Transamerica Janus Balanced VP–Service Class
TA Janus Mid-Cap Growth - Initial Class Transamerica Janus Mid-Cap Growth VP – Initial Class
TA Jennison Growth - Initial Class Transamerica Jennison Growth VP – Initial Class
TA Legg Mason Dynamic Allocation - Balanced - Service Class Transamerica Legg Mason Dynamic Allocation - Balanced VP - Service Class
TA Legg Mason Dynamic Allocation - Growth - Service Class Transamerica Legg Mason Dynamic Allocation - Growth VP - Service Class
TA MFS International Equity - Initial Class Transamerica MFS International Equity VP – Initial Class
TA Managed Risk - Balanced ETF - Service Class Transamerica Managed Risk - Balanced ETF VP - Service Class
TA Managed Risk - Conservative ETF - Service Class Transamerica Managed Risk - Conservative ETF VP - Service Class
TA Managed Risk - Growth ETF - Service Class Transamerica Managed Risk - Growth ETF VP - Service Class
TA Market Participation Strategy - Service Class Transamerica Market Participation Strategy VP - Service Class
TA Multi-Managed Balanced - Service Class Transamerica Multi-Managed Balanced VP – Service Class
TA PineBridge Inflation Opportunities- Service Class Transamerica PineBridge Inflation Opportunities VP - Service Class
TA PIMCO Tactical - Balanced - Service Class Transamerica PIMCO Tactical–Balanced VP–Service Class
TA PIMCO Tactical - Conservative - Service Class Transamerica PIMCO Tactical–Conservative VP–Service Class
TA PIMCO Tactical - Growth - Service Class Transamerica PIMCO Tactical–Growth VP–Service Class
TA PIMCO Total Return - Service Class Transamerica PIMCO Total Return VP – Service Class
ii

 

SUBACCOUNT UNDERLYING FUND PORTFOLIO
TA QS Investors Active Asset Allocation - Conservative - Service Class Transamerica QS Investors Active Asset Allocation - Conservative VP - Service Class
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class Transamerica QS Investors Active Asset Allocation - Moderate Growth VP - Service Class
TA QS Investors Active Asset Allocation - Moderate - Service Class Transamerica QS Investors Active Asset Allocation - Moderate VP - Service Class
TA Small/Mid Cap Value - Initial Class Transamerica Small/Mid Cap Value VP - Initial Class
TA T. Rowe Price Small Cap - Initial Class Transamerica T. Rowe Price Small Cap VP – Initial Class
TA TS&W International Equity - Initial Class Transamerica TS&W International Equity VP – Initial Class
TA Torray Concentrated Growth - Initial Class Transamerica Torray Concentrated Growth VP - Initial Class
TA U.S. Equity Index - Service Class Transamerica U.S. Equity Index VP - Service Class
TA WMC US Growth - Initial Class Transamerica WMC US Growth VP – Initial Class
iii

 

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iv

 

GLOSSARY OF TERMS
accumulation unit—An accounting unit of measure used in calculating the policy value in the separate account before the annuity commencement date.
adjusted policy value—The policy value increased or decreased by any excess interest adjustment.
Administrative Office—Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company, Attention: Customer Care Group, 4333 Edgewood Road NE, Cedar Rapids, IA 52499-0001, (800) 525-6205.
annuitant—The person on whose life any annuity payments involving life contingencies will be based.
annuitize (annuitization)—When you switch from the accumulation phase to the income phase and we begin to make annuity payments to you (or your payee).
annuity commencement date—The date upon which annuity payments are to commence. This date may not be later than the last day of the policy month following the month in which the annuitant attains age 99 (earlier if required by state law).
annuity payment option—A method of receiving a stream of annuity payments selected by the owner.
assumed investment return or AIR— The annual effective rate shown in the contract that is used in the calculation of each variable annuity payment.
cash value—The adjusted policy value less any rider fees (imposed upon surrender).
excess interest adjustment—A positive or negative adjustment to amounts surrendered (both partial or full surrenders) and transfers or applied to annuity payment options from the fixed account guaranteed period options prior to the end of the guaranteed period. The adjustment reflects changes in the interest rates declared by us since the date any payment was received by, or an amount was transferred to, the guaranteed period option. The excess interest adjustment can either decrease or increase the amount to be received by the owner upon full or partial surrenders or commencement of annuity payments, depending upon whether there has been an increase or decrease in interest rates, respectively. The excess interest adjustment will not decrease the interest credited to your policy below the guaranteed minimum. The excess interest adjustment does not apply to policies issued in New York by Transamerica Financial Life Insurance Company.
fixed account—One or more investment options under the policy that are part of our general assets and are not in the separate account.
free amount—The amount that can be withdrawn each year without incurring any excess interest adjustments.
guaranteed lifetime withdrawal benefit—Any optional benefit under the policy that provides a guaranteed minimum withdrawal benefit, including the Retirement Income Max® Rider.
guaranteed period options—The various guaranteed interest rate periods of the fixed account which we may offer and into which premium payments may be paid or amounts transferred or amounts transferred when available.
market day—A day when the New York Stock Exchange is open for business.
owner (you, your)—The person who may exercise all rights and privileges under the policy.
policy date—The date shown on the policy data page attached to the policy and the date on which the policy becomes effective.
policy value—On or before the annuity commencement date, the policy value is equal to the owner's:
• premium payments; minus
• gross partial surrenders (partial surrenders plus or minus excess interest adjustments plus taxes (on the withdrawal)); plus
• interest credited in the fixed account; plus
• accumulated gains in the separate account; minus
• accumulated losses in the separate account; minus
• service charges, rider fees (including those imposed upon rider termination), premium taxes, transfer fees, and other charges, if any.
policy year—A policy year begins on the policy date and on each anniversary thereafter.
separate account—Separate Account VA B and Separate Account VA BNY, separate accounts established and registered as unit investment trusts under the Investment Company Act of 1940, as amended (the “1940 Act”), to which premium payments under the policies may be allocated.
1

 

separate account value—The portion of the policy value that is invested in the separate account.
subaccount—A subdivision within the separate account, the assets of which are invested in a specified underlying fund portfolio.
valuation period—The period of time from one determination of accumulation unit values and annuity unit values to the next subsequent determination of those values. Such determination shall be made generally at the close of business on each market day.
written notice—Written notice, signed by the owner, that gives us the information we require and is received in good order at the Administrative Office. For some transactions, we may accept an electronic notice or telephone instructions. Such electronic notice must meet the requirements for good order that we establish for such notices.
2

 

INTRODUCTION
How to buy this variable annuity
√ Choose Between Qualified and Non-Qualified(1)
  Qualified Policy(2,3)
Minimum Initial Deposit 		  Non-Qualified (4) Policy
Minimum Initial
Deposit 		  Surrender
Charge Period 		  Mortality & Expense
Risk and
Administrative Charges
Income Elite II $1,000   $5,000   0 years   0.45%
(1) This table does not show underlying fund portfolio expenses, annual service charge and optional rider fees. This variable annuity may not be available through your financial intermediary.
(2) We currently issue new policies to the following plans: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, 457(f) plans (in certain circumstances) and Section 401(a) plans (including profit sharing plans, defined benefit pension plans, defined contribution pension plans, 401(k) plans, combination defined benefit/contribution plans).
(3) Includes anticipated premium at time of application from transfers or rollovers as indicated on your application or electronic order form.
(4) Includes anticipated premium at time of application from 1035 exchanges as indicated on you application or electronic order form.
√ Choose investment options
• Subaccounts – Invest in underlying funds representing a range of investment strategies, objectives and asset classes.
• Fixed Account - A fixed interest account (if available).
Subject to limitations, you may move your policy value among each of these investment options.
√ Choose optional guaranteed benefits (if desired)
Guaranteed Lifetime Withdrawal Benefit Retirement Income Max®*
Death Benefits Return of Premium*
* Investment or other restrictions may apply
Additional fees apply. Optional benefits may not be available for all policies, in all states, at all times or through all financial intermediaries.
√ Complete our application or order form
√ Pay the applicable minimum initial deposit
3

 

FEE TABLE AND EXPENSE EXAMPLES
The following describes the fees and expenses that you will pay when buying, owning, and surrendering the policy. Please be certain to review the notes following the fee table and expense examples for further information about the fees and charges presented. The order of the notes follows the order in which the fees and charges under the policy are presented in the fee tables and the expense examples.
The fee table applies only to the accumulation phase and reflects the maximum charges unless otherwise noted. During the income phase the fees may be different than those described in the Fee Table. See Notes to Fee Table and Expense Examples, No. 5.
The first section describes the fees and expenses that you will pay at the time that you buy the policy, surrender the policy, or transfer cash value between investment options. State premium taxes may also be deducted. State premium taxes currently range from 0% - 3.5%. Excess interest adjustments may be made to amounts surrendered (partial and full), transferred or applied to annuity payment options from cash value from the fixed account. (All fees are maximum for purchases made while this prospectus is effective unless otherwise noted.)
Owner Transaction Expenses:  
Sales Load On Purchase Payments 0%
Contingent Deferred Surrender Charge (as a percentage of premium surrendered)(1) 0%
Transfer Fee(2) $0-$10
Special Service Fee(3) $0-$50*
* $0 - $25 for policies issued prior to May 1, 2015.
The next section describes the fees and expenses that you will pay periodically during the time that you own the policy, not including portfolio fees and expenses. (All fees are maximum for purchases made while this prospectus is effective unless otherwise noted.)
Annual Service Charge(4) $0-$50
Separate Account Annual Expenses (as a percentage, annually, of average separate account value)(5):  
Mortality and Expense Risk Fee 0.30%
Administrative Charge 0.15%
Total Base Separate Account Annual Expenses 0.45%
Optional Separate Account Expenses:  
Return of Premium Death Benefit 0.15%
Total Separate Account Annual Expenses with Highest Optional Separate Account Expenses 0.60%
    
  Maximum
Optional Guaranteed Lifetime Withdrawal Benefit Rider(6):  
Retirement Income Max® Rider (annual charge - a % of withdrawal base):*  
Base Benefit 2.50%
*The Current rider fee will be less than or equal to the stated Maximum. Your rider fee may increase (or decrease) at the time of any automatic step-up. See Automatic Step- Up section. Your current rider fee percentage will not exceed 0.75% from the current rider fee percentage in effect when you purchase the rider. The current rider fee will be disclosed in a Rate Sheet Prospectus Supplement. All Rate Sheet Prospectus Supplements are also available on the Edgar system at (File 333-186032 for TLIC and 333-186036 for TFLIC).
The next section shows the lowest and highest total operating expenses charged by the underlying fund portfolios for the year ended December 31, 2016 (before any fee waiver or expense reimbursements). Expenses may be higher or lower in future years. More detail concerning each portfolio’s fees and expenses is contained in the prospectus for each portfolio.
Total Portfolio Annual Operating Expenses (Expenses that are deducted from portfolio assets, including management fees, distribution and/or service 12b-1 fees, and other expenses)(7):  
Lowest Gross 0.35%
Highest Gross 1.50%
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The following Example is intended to help you compare the cost of investing in the policy with the cost of investing in other variable annuity policies. These costs include owner transaction expenses, policy fees, separate account annual expenses, and portfolio fees and expenses.
The Example assumes that you invest $10,000 in the policy for the time periods indicated. The Example also assumes that your policy has a 5% return each year, the highest Total Portfolio Annual Operating Expenses of any of the portfolios for the year ended December 31, 2016, and the base policy with the combination of available optional features or riders with the highest fees and expenses, Return of Premium Death Benefit and Retirement Income Max® Rider options. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
Expense Examples(8):
If the policy is surrendered or annuitized at the end of the applicable time period or if you do not surrender your policy:
1 Year $ 352
3 Years $1,088
5 Years $1,867
10 Years $4,023
Please remember that the Example is an illustration and does not represent past or future expenses. Your actual expenses may be lower or higher than those reflected in the Example. Similarly, your rate of return may be more or less than the 5% assumed in the Example.
For information concerning compensation paid for the sale of the policies, see OTHER INFORMATION - Distributor of the Policies.
Notes to Fee Table and Expense Examples
Owner Transaction Expenses:
1) Surrender Charge: This product does not have a surrender charge.
2) Transfer Fee:  The transfer fee, if any is imposed, applies to each policy, regardless of how policy value is allocated among the investment options. There is no fee for the first 12 transfers per policy year. For additional transfers, we may charge a fee of $10 per transfer. Currently, we do not charge a transfer fee, but reserve the right to do so.
3) Special Service Fees: We may deduct a charge for special services, including overnight delivery; duplicate policies; non-sufficient checks on new business; duplicate Form 1099 and Form 5498 tax forms; duplicate disclosure documents and semi-annual reports; check copies; printing and mailing previously submitted forms; and asset verification requests from mortgage companies. We may charge a fee for each service performed. In addition, we may consider as special services customer initiated changes, modifications and transactions which are submitted in such a manner as to require us to incur additional processing costs.
4) Annual Service Charge:
The maximum annual service charge is the lesser of $50 per policy or 2% of the policy value.
Criteria for Potential Waiver   Potential Waiver Amount**
$50,000 thru $249,999.99*   up to $35
$250,000 or more*   up to $50
* Based on Policy Value or sum of all premium payments less all withdrawals.
** In no event will we waive in the aggregate more than the actual annual service charge for any policy year.
5) Separate Account Annual Expenses:
Mortality and Expense Risk and Administrative Fee: The mortality and expense risk fee shown is for the accumulation phase with the base death benefit. During the income phase, the mortality and expense risk and administrative fee is at an annual rate of 1.25%.
Optional Separate Account Expenses: Any optional separate account expense is in addition to the mortality and expense risk and administrative fees. 
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Total Separate Account Annual Expenses with Highest Optional Separate Account Expenses: This reflects the base separate account expenses, the Return of Premium Death Benefit fee, but does not include any annual Optional Rider Charges.
6) Optional Rider Charges and Optional Guaranteed Lifetime Withdrawal Benefit Riders:
In some cases, riders to the policy are available that provide optional benefits. There are additional fees (annualized fee charged on a yearly or quarterly basis, depending on the rider) for those riders.
Retirement Income Max® Rider - Withdrawal Base: We use the withdrawal base to calculate the rider withdrawal amount. The withdrawal base on the rider date is the policy value.
7) Total Portfolio Annual Operating Expenses:
The fee table information relating to the underlying fund portfolios was provided to us by the underlying fund portfolios, their investment advisers or managers. We have not verified the accuracy of information provided by unaffiliated fund portfolios. Actual future expenses of the portfolios may be greater or less than those shown in the Table. “Gross” expense figures do not reflect any fee waivers or expense reimbursements. Actual expenses may have been lower than those shown in the Table.
8) Expense Examples:
The Example does not reflect premium tax charges, special service fees, or transfer fees. Different fees and expenses not reflected in the Example may be assessed during the income phase of the policy.
6

 

THE ANNUITY
This prospectus describes information you should know before you purchase the Transamerica Income EliteSM II.
An annuity is a contract between you, the owner, and an insurance company (in this case us), where the insurance company promises to pay you an income in the form of annuity payments. These payments begin on a designated date, referred to as the annuity commencement date. Until the annuity commencement date, your annuity is in the accumulation phase and the earnings (if any) are generally tax deferred. Tax deferral means you are not taxed until you take money out of your annuity. After you annuitize, your annuity switches to the income phase.
The policy is a “deferred” annuity. You can use the policy to accumulate funds for retirement or other long-term financial planning purposes. Your individual investment and your rights are determined primarily by your own policy.
The policy is a “flexible premium” annuity because after you purchase it, you can generally make additional premium payments of at least $50 (but not more than the stated maximum total premium payment amount) until the annuity commencement date. You are not required to make any additional premium payments.
The policy is a “variable” annuity because the value of your policy can go up or down based on the performance of your subaccounts. If you invest in the separate account, the amount of money you are able to accumulate in your policy during the accumulation phase depends upon the performance of your subaccounts. You could lose the amount you allocate to the separate account. The amount of annuity payments you receive from the separate account also depends upon the investment performance of your subaccounts for the income phase.
The fixed account may, but is not guaranteed to always, be offered. If the fixed account is offered it will offer interest at a rate(s) that we guarantee will not decrease during the selected guaranteed period. There may be different interest rates for each different guaranteed period that we may offer and that you select.
Do not purchase this policy if you plan to use it, or any of its riders, for resale, speculation, arbitrage, viatication, or any other type of collective investment scheme. Your policy is not intended or designed to be traded on any stock exchange or secondary market. By purchasing this policy, you represent and warrant that you are not using the policy, or any of its riders for resale, speculation, arbitrage, viatication, or any other type of collective investment scheme.
PURCHASE
Policy Issue Requirements
We will not issue a policy unless:
• we receive in good order (See OTHER INFORMATION - Sending Forms and Transaction Requests in Good Order) all information needed to issue the policy;
• we receive in good order (at our Administrative Office) a minimum initial premium (including anticipated premiums from 1035 exchanges on nonqualified policies and transfers or rollovers on qualified policies as indicated on your application or electronic order form) payment; and
• the annuitant, owner, and any joint owner are age 90 or younger (the limit may be lower for qualified policies).
• the owner and annuitant have an immediate familial relationship.
Please note, certain riders described herein may require a younger age. Please carefully read the applicable rider sections regarding any age limitations.
We reserve the right to reject any application.
Premium Payments
General. You should make checks for premium payments payable to Transamerica Life Insurance Company or Transamerica Financial Life Insurance Company, as applicable, and send them to the Administrative Office. Your check must be honored in order for us to pay any associated annuity payments and benefits due under the policy.
We do not accept cash. We reserve the right to not accept third party checks. A third party check is a check that is made payable to one person who endorses it and offers it as payment to a second person. Checks should normally be payable to us, however, in some circumstances, at our discretion we may accept third party checks that are from a rollover or transfer from other financial institutions. Any third party checks not accepted by us will be returned.
7

 

We reserve the right to reject or accept any form of payment. Any unacceptable forms of payment will be returned.
Initial Premium Requirements. The initial premium payment for nonqualified policies must be at least $5,000 (including anticipated premiums from 1035 exchanges as indicated on your application or electronic order form), and at least $1,000 for qualified policies (including anticipated premiums from transfers or rollovers as indicated on your application or electronic order form). You must obtain our prior approval to purchase a policy with an amount in excess of our maximum premium amount.
Your initial premium payment may not be credited to your policy on the day that you leave your premium payment with your financial intermediary. Your financial intermediary may take up to seven market days to assess whether buying this policy is suitable for you. Your financial intermediary may send us your initial premium payment while they complete this assessment. Your financial intermediary must also ensure that we have all the information needed for us to process your policy. We will not begin to process your policy during this period.
We will first begin our review only once we receive both your initial premium payment and your application (or an electronic order form). We will credit your initial premium payment to your policy within two market days after the market day that we receive your initial premium payment, your application (or order form) and once we determine that your policy information is both complete and in good order. This time period is in addition to the time your financial intermediary may take to complete their part of the process. If we are unable to complete our part of the process within five market days after the market day that we receive your initial premium payment and your application (or electronic order form), then we will notify you or your financial intermediary, if applicable, and explain why we can't process your policy. We will also return your initial premium payment at that time unless you consent to us holding the premium up to 30 days. We must receive your consent to hold prior to the market close on the fifth market day after receipt of the premium. If your information is not received in good order within 30 days of our receipt of the premium, then it will be returned. We will credit your initial premium payment within two market days after your information is both complete and in good order.
Neither we nor your financial intermediary are responsible for lost investment opportunities while we each complete our review processes. Any initial premium payments received by us will be held in our general account until credited to your policy. You will not earn interest on your initial premium payment during these review periods.
The date on which we credit your initial premium payment to your policy is generally the policy date. The policy date is used to determine policy years, policy quarters, policy months and policy anniversaries.
Additional Premium Payments. You are not required to make any additional premium payments. However, you can generally make additional premium payments during the accumulation phase. Additional premium payments must be at least $50. After the first policy year, additional premium payments each policy year cannot, in the aggregate, without our prior approval exceed $25,000 for nonqualified policies and the lesser of (1) the IRS maximum contribution limit or (2) $60,000 for qualified policies. We reserve the right to refuse any additional premium payment in excess of these limits, and if you do not obtain prior approval for premiums in excess of the dollar amounts listed above, the business will be deemed not in good order. We will credit additional premium payments to your policy as of the market day we receive your premium and required information in good order at our Administrative Office. Additional premium payments must be received before the close of the New York Stock Exchange (usually 4:00 p.m. Eastern time) to get same-day pricing of the additional premium payment.
Maximum Total Premium Payments. For issue ages 0-80, we reserve the right to require prior approval of any cumulative premium payments over $1,000,000 (this includes subsequent premium payments) for policies with the same owner or same annuitant issued by us or an affiliate. We may approve premium payments over $1,000,000 but restrict access to certain optional benefits. For issue ages over 80, we reserve the right to require prior approval of any cumulative premium payments over $500,000 (this includes subsequent premium payments) for policies with the same owner or same annuitant issued by us or an affiliate. If you do not obtain prior approval for premium payments in excess of the dollar amounts listed above, the business will be deemed not in good order.
Allocation of Premium Payments. When you purchase a policy, we will allocate your premium payment to the investment choices you select. Your allocation must be in whole percentages and must total 100%. We will allocate additional premium payments the same way, unless you request a different allocation. You could lose the amount you allocate to the subaccounts.
If you allocate premium payments to the Dollar Cost Averaging program (if it is available), you must give us instructions regarding the subaccount(s) to which transfers are to be made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending written instructions to our Administrative Office, or by telephone, or other electronic means acceptable to us, subject to the limitations described in ADDITIONAL FEATURES - Telephone and Electronic Transactions, or any other means acceptable to us. The allocation change will apply to premium payments received on or after the date we receive the change request in good order.
We reserve the right to restrict or refuse any premium payment.
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Policy Value
You should expect your policy value to change from valuation period to valuation period. A valuation period begins at the close of trading on the New York Stock Exchange on each market day and ends at the close of trading on the next succeeding market day. A market day is each day that the New York Stock Exchange is open for business. The New York Stock Exchange usually closes at 4:00 p.m., Eastern time. Holidays are generally not market days.
INVESTMENT OPTIONS
This policy offers you a means of investing in various underlying fund portfolios offered by different investment companies (by investing in the corresponding subaccounts). The companies that provide investment advice and administrative services for the underlying fund portfolios offered through this policy are listed in the “Appendix - Underlying Fund Portfolios Associated with the Subaccounts.”
The general public may not purchase shares of any of these underlying fund portfolios. The names and investment objectives and policies may be similar to other portfolios managed by the same investment adviser or manager that are sold directly to the public. You should not expect the investment results of the underlying fund portfolios to be the same as those of other portfolios.
More detailed information, including an explanation of the portfolios' fees and investment objectives, may be found in the current prospectuses for the underlying fund portfolios, which accompany this prospectus. You should read the prospectuses for the underlying fund portfolios carefully before you invest.
Note: If you received a summary prospectus for any of the portfolios listed in “Appendix - Portfolios Associated with the Subaccounts”, please follow the instructions on the first page of the summary prospectus to obtain a copy of the full underlying fund prospectus or its statement of additional information.
Selection of Underlying Fund Portfolios
The underlying fund portfolios offered through this variable annuity are selected by us, and we may consider various factors, including, but not limited to, asset class coverage, the strength of the adviser's or sub-adviser's reputation and tenure, brand recognition, performance, volatility, hedgeability, and the capability and qualification of each investment firm. Another factor that we may consider is whether the underlying fund portfolio or its service providers (e.g., the investment adviser or sub-advisers) or its affiliates will make payments to us or our affiliates. For additional information about these arrangements, see EXPENSES - Revenue We Receive. We review the portfolios periodically and may remove a portfolio, or limit its availability to new premium payments and/or transfers of cash value if we determine that a portfolio no longer satisfies one or more of the selection criteria, and/or if the portfolio has not attracted significant allocations from owners. We have included the Transamerica Series Trust (“TST”) underlying fund portfolios at least in part because they are managed by one of our affiliates, Transamerica Asset Management, Inc. (“TAM”).
We have developed this variable annuity in cooperation with one or more distributors, and may include certain underlying fund portfolios based on their recommendations. Their selection criteria may differ from our selection criteria.
You are responsible for choosing the subaccounts which invest in the underlying fund portfolios, and the amounts allocated to each, that are appropriate for your own individual circumstances and your investment goals, financial situation, and risk tolerance. Because investment risk is borne by you, decisions regarding investment allocations should be carefully considered. We do not recommend or endorse any particular underlying fund portfolio and we do not provide investment advice.
In making your investment selections, we encourage you to thoroughly investigate all of the information regarding the underlying fund portfolios that are available to you, including each underlying fund portfolio's prospectus, statement of additional information and annual and semi-annual reports. Other sources such as the underlying fund's website provide more current information, including information about any regulatory actions or investigations relating to a fund or underlying fund portfolio. After you select underlying fund portfolios for your initial premium payment, you should monitor and periodically re-evaluate your allocations to determine if they are still appropriate.
You bear the risk of any decline in the cash value of your policy resulting from the performance of the underlying fund portfolios you have chosen.
We do not guarantee that any of the subaccounts will always be available for premium payments, allocations, or transfers. We will not add, delete or substitute any underlying fund portfolio shares attributable to your interest in a subaccount without notice to you and prior approval of the SEC, to the extent required by the 1940 Act or other applicable law.
We reserve the right to limit the number of subaccounts you are invested in at any one time.
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If you elect certain optional riders, you will be subject to investment restrictions. In the future, we may change the investment restrictions.
Not all subaccounts may be available for all policies, in all states, or through all financial intermediary firms.
Addition, Deletion, or Substitution of Investment Options
We cannot and do not guarantee that any of the subaccounts will always be available for premium payments, allocations, or transfers. We retain the right, subject to any applicable law, to make certain changes to the separate account and its investment options. We reserve the right to add new portfolios (or portfolio classes) or close existing portfolios (or portfolio classes). We also reserve the right to eliminate the shares of any portfolio held by a subaccount and to substitute shares of another portfolio of the underlying fund portfolios, or of another registered open-end management investment company for the shares of any portfolio, if the shares of the portfolio are no longer available for investment or if, in our judgment, investment in any portfolio would be inappropriate in view of the purposes of the separate account. To the extent required by the 1940 Act, as amended, substitutions of shares attributable to your interest in a subaccount will not be made without prior notice to you and the prior approval of the SEC. Nothing contained herein shall prevent the separate account from purchasing other securities for other series or classes of variable annuity policies, or from affecting an exchange between series or classes of variable annuity policies on the basis of your requests.
New subaccounts may be established when, in our sole discretion, marketing, tax, investment or other conditions warrant. Any new subaccounts may be made available to existing owners on a basis to be determined by us. Each additional subaccount will purchase shares in an underlying fund portfolio, or other investment vehicle. We may also close or liquidate one or more subaccounts if, in our sole discretion, marketing, tax, investment or other conditions warrant such change. In the event any subaccount is closed or liquidated, we will notify you and request a reallocation of the amounts invested in the closed or liquidated subaccount. If we do not receive additional instructions, any subsequent premium payments, or transfers (including Dollar Cost Averaging transactions or asset rebalance programs transactions) into a closed subaccount will be re-allocated to the remaining available investment options according to the investment allocation instructions you previously provided. If your previous investment allocation instructions do not include any available investment options, we will require new instructions. If we do not receive new instructions, the requested transaction will be canceled and any premium payment will be returned. Under asset rebalance programs the value remaining in the closed subaccount will be excluded from any future rebalancing. The value of the closed subaccount will continue to fluctuate due to portfolio performance, and may exceed the original rebalance percentages you requested. As you consider your overall investment strategy within your policy, you should also consider whether or not to re-allocate the value remaining in the closed subaccount to another investment option. If you decide to re-allocate the value of the closed subaccount, you will need to provide us with instructions to achieve your goal. Under certain situations involving death benefit adjustments for continued policies, if an investment option is closed to new investment, the amount that would have been allocated thereto will instead be allocated pro-rata to the other current investment options you have value allocated to and which are open to new investment.
In the event of any such substitution or change, we may, by appropriate endorsement, make such changes in the policies as may be necessary or appropriate to reflect such substitution or change. Furthermore, if deemed to be in the best interests of persons having voting rights under the policies, the separate account may be (1) operated as a management company under the 1940 Act or any other form permitted by law, (2) deregistered under the 1940 Act in the event such registration is no longer required or (3) combined with one or more other separate accounts. To the extent permitted by applicable law, we also may (1) transfer the assets of the separate account associated with the policies to another account or accounts, (2) restrict or eliminate any voting rights of owners or other persons who have voting rights as to the separate account, (3) create new separate accounts, (4) add new subaccounts to or remove existing subaccounts from the separate account, or combine subaccounts or (5) add new underlying fund portfolios, or substitute a new underlying fund portfolio for an existing underlying fund portfolio.
The Fixed Account
The fixed account may, but is not guaranteed to always, be available. If available, premium payments allocated and amounts transferred to the fixed account become part of our general account. Interests in the general account have not been registered under the Securities Act of 1933 (the “1933 Act”), nor is the general account registered as an investment company under the 1940 Act. Accordingly, neither the general account nor any interests therein are generally subject to the provisions of the 1933 or 1940 Acts. Disclosures relating to interests in the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy of statements made in a registration statement.
While we do not guarantee that the fixed account will always be available for investment, we do guarantee that the interest credited to the fixed account when available will not be less than the guaranteed minimum effective annual interest rate shown on your policy (the “guaranteed minimum”). We determine credited rates, which are guaranteed for at least one year, in our sole discretion. You bear the risk that we will not credit interest greater than the guaranteed minimum. At the end of the guaranteed period option you selected, the value in that guaranteed period option will automatically be transferred into the money market subaccount or if a money
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market subaccount is unavailable to a new guaranteed period option of the same length (or the next shorter period if the same period is no longer offered) at the current interest rate for that period. You can transfer to another investment option by giving us notice within 30 days before the end of the expiring guaranteed period.
Surrenders, withdrawals, transfers, and amounts applied to an annuity payment option from a guaranteed period option of the fixed account prior to the end of the guaranteed period are generally subject to an excess interest adjustment. See ACCESS TO YOUR MONEY - Excess Interest Adjustment for more information about when an excess interest adjustment applies. This adjustment will also be made to amounts that you apply to an annuity payment option. This adjustment may increase or decrease the amount of interest credited to your policy. The excess interest adjustment will not decrease the interest credited to your policy below the guaranteed minimum.
We also guarantee that upon full surrender your cash value attributable to the fixed account will not be less than the amount required by the applicable nonforfeiture law at the time the policy is issued.
If you select the fixed account, when it is available, your money will be placed with our other general assets. The amount of money you are able to accumulate in the fixed account during the accumulation phase depends upon the total interest credited. The amount of each annuity payment you receive during the income phase from the fixed portion of your policy will remain level for the entire income phase. The interest credited as well as principal invested in the fixed account is based on our claims-paying ability.
We reserve the right to refuse any premium payment or transfer to the fixed account.
Transfers
During the accumulation phase, you may make transfers to or from any investment option within certain limitations. Transfers out of a guaranteed period option of the fixed account are limited to the following:
• Transfers at the end of a guaranteed period.
• Transfers of amounts equal to interest credited. This may affect your overall interest-crediting rate, because unless otherwise directed transfers are deemed to come from the oldest premium payment first.
• Other than at the end of a guaranteed period, transfers of amounts from the guaranteed period option in excess of amounts equal to interest credited, are subject to an excess interest adjustment. If it is a negative adjustment, the maximum amount you can transfer in any one policy year may be limited to 25% of the amount in that guaranteed period option, less any previous transfers during the current policy year. If it is a positive adjustment, we do not limit the amount that you can transfer.  (Note: This restriction may prolong the period of time it takes to transfer the full amount in the guaranteed period option of the fixed account.  You should carefully consider whether investment in the fixed account meets your needs and investment criteria.)
In general, each transfer must be at least $500, or the entire subaccount value. Transfers of interest from a guaranteed period option of the fixed account must be at least $50. If less than $500 remains as a result of the transfer, then we reserve the right to include that amount in the transfer. Transfer requests must be received in good order while the New York Stock Exchange is open to get same-day pricing of the transaction. See OTHER INFORMATION - Sending Forms and Transaction Requests in Good Order.
The number of transfers permitted may be limited and a $10 charge for each transfer in excess of 12 in any policy year may apply. Currently, we do not charge a transfer fee. We reserve the right to prohibit transfers to the fixed account.
During the income phase, you may transfer values out of any subaccount; however, you cannot transfer values out of the fixed account. The minimum amount that can be transferred during this phase is the lesser of $10 of monthly income, or the entire monthly income of the annuity units in the subaccount from which the transfer is being made.
Transfers made by telephone, or other electronic means acceptable to us, are subject to the limitations described in ADDITIONAL FEATURES - Telephone and Electronic Transactions.
Market Timing and Disruptive Trading
Statement of Policy. This variable annuity policy was not designed to accommodate market timing or frequent or large transfers among the subaccounts or between the subaccounts and the fixed account. (Both frequent and large transfers may be considered disruptive.)
Market timing and disruptive trading can adversely affect you, other owners, beneficiaries and underlying fund portfolios. The adverse effects may include: (1) dilution of the interests of long-term investors in a subaccount if purchases or transfers into or out of an underlying fund portfolio are made at prices that do not reflect an accurate value for the underlying fund portfolio’s investments (some market timers attempt to do this through methods known as “time-zone arbitrage” and “liquidity arbitrage”); (2) an adverse effect on portfolio management, such as (a) impeding a portfolio manager’s ability to seek or sustain an investment objective; (b)
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causing the underlying fund portfolio to maintain a higher level of cash than would otherwise be the case; or (c) causing an underlying fund portfolio to liquidate investments prematurely (or otherwise at an inopportune time) in order to pay withdrawals or transfers out of the underlying fund portfolio; and (3) increased brokerage and administrative expenses. These costs are borne by all owners invested in those subaccounts, not just those making the transfers.
We have developed policies and procedures with respect to market timing and disruptive trading (which vary for certain subaccounts at the request of the corresponding underlying fund portfolios) and we do not make special arrangements or grant exceptions to accommodate market timing or potentially disruptive trading. As discussed herein, we cannot detect or deter all market timing or potentially disruptive trading. Do not invest with us if you intend to conduct market timing or potentially disruptive trading.
Detection. We employ various means in an attempt to detect and deter market timing and disruptive trading. However, despite our monitoring we may not be able to detect nor halt all harmful trading. In addition, because other insurance companies (and retirement plans) with different policies and procedures may invest in the underlying fund portfolios, we cannot guarantee that all harmful trading will be detected or that an underlying fund portfolio will not suffer harm from market timing and disruptive trading among subaccounts of variable products issued by these other insurance companies or retirement plans.
Deterrence. If we determine you or anyone acting on your behalf is engaged in market timing or disruptive trading, we may take one or more actions in an attempt to halt such trading. Your ability to make transfers is subject to modification or restriction if we determine, in our sole opinion, that your exercise of the transfer privilege may disadvantage or potentially harm the rights or interests of other owners (or others having an interest in the variable insurance products). As described below, restrictions may take various forms, but under our current policies and procedures will include loss of expedited transfer privileges. We consider transfers by telephone, fax, overnight mail, or the Internet to be “expedited” transfers. This means that we would accept only written transfer requests with an original signature transmitted to us only by U.S. mail. We may also restrict the transfer privileges of others acting on your behalf, including your registered representative or an asset allocation or investment advisory service.
We reserve the right to reject any premium payment or transfer request from any person without prior notice, if, in our judgment, (1) the premium payment or transfer, or series of premium payments or transfers, would have a negative impact on an underlying fund portfolio's operations, or (2) if an underlying fund portfolio would reject or has rejected our purchase order or has instructed us not to allow that purchase or transfer, or (3) because of a history of market timing or disruptive trading. We may impose other restrictions on transfers, or even prohibit transfers for any owner who, in our view, has abused, or appears likely to abuse, the transfer privilege on a case-by-case basis. We may, at any time and without prior notice, discontinue transfer privileges, modify our procedures, impose holding period requirements or limit the number, size, frequency, manner, or timing of transfers we permit. Because determining whether to impose any such special restrictions depends on our judgment and discretion, it is possible that some owners could engage in disruptive trading that is not permitted for others. We also reserve the right to reverse a potentially harmful transfer if an underlying fund portfolio refuses or reverses our order; in such instances some owners may be treated differently than others in that some transfers may be reversed and others allowed. For all of these purposes, we may aggregate two or more trades or variable insurance products that we believe are connected by owner or persons engaged in trading on behalf of owners.
In addition, transfers for multiple policies invested in the Transamerica Series Trust underlying fund portfolios which are submitted together may be disruptive at certain levels. At the present time, such aggregated transactions likely will not cause disruption if less than one million dollars total is being transferred with respect to any one underlying fund portfolio (a smaller amount may apply to smaller portfolios). Please note that transfers of less than one million dollars may be disruptive in some circumstances and this general amount may change quickly.
Please note: If you engage a third party investment adviser for asset allocation services, then you may be subject to these transfer restrictions because of the actions of your investment adviser in providing these services.
In addition to our internal policies and procedures, we will administer your variable annuity to comply with any applicable state, federal, and other regulatory requirements concerning transfers. We reserve the right to implement, administer, and charge you for any fee or restriction, including redemption fees, imposed by any underlying fund portfolio. To the extent permitted by law, we also reserve the right to defer the transfer privilege at any time that we are unable to purchase or redeem shares of any of the underlying fund portfolios.
Under our current policies and procedures, we do not:
• impose redemption fees on transfers; or
• expressly limit the number or size of transfers in a given period except for certain subaccounts where an underlying fund portfolio has advised us to prohibit certain transfers that exceed a certain size; or
• provide a certain number of allowable transfers in a given period.
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Redemption fees, transfer limits, and other procedures or restrictions imposed by the underlying funds or our competitors may be more or less successful than ours in deterring market timing or other disruptive trading and in preventing or limiting harm from such trading.
In the absence of a prophylactic transfer restriction (e.g., expressly limiting the number of trades within a given period or limiting trades by their size), it is likely that some level of market timing and disruptive trading will occur before it is detected and steps taken to deter it (although some level of market timing and disruptive trading can occur with a prophylactic transfer restriction). As noted above, we do not impose a prophylactic transfer restriction and, therefore, it is likely that some level of market timing and disruptive trading will occur before we are able to detect it and take steps in an attempt to deter it.
Please note that the limits and restrictions described herein are subject to our ability to monitor transfer activity. Our ability to detect market timing or disruptive trading may be limited by operational and technological systems, as well as by our ability to predict strategies employed by owners (or those acting on their behalf) to avoid detection. As a result, despite our efforts to prevent harmful trading activity among the variable investment options available under this variable insurance product, there is no assurance that we will be able to detect or deter market timing or disruptive trading by such owners or intermediaries acting on their behalf. Moreover, our ability to discourage and restrict market timing or disruptive trading may be limited by decisions of state regulatory bodies and court orders that we cannot predict.
Furthermore, we may revise our policies and procedures in our sole discretion at any time and without prior notice, as we deem necessary or appropriate (1) to better detect and deter harmful trading that may adversely affect other owners, other persons with material rights under the variable insurance products, or underlying fund shareholders generally, (2) to comply with state or federal regulatory requirements, or (3) to impose additional or alternative restrictions on owners engaging in market timing or disruptive trading among the investment options under the variable insurance product. In addition, we may not honor transfer requests if any variable investment option that would be affected by the transfer is unable to purchase or redeem shares of its corresponding underlying fund portfolio.
Underlying Fund Portfolio Frequent Trading Policies. The underlying fund portfolios may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. Underlying fund portfolios may, for example, assess a redemption fee (which we reserve the right to collect) on shares held for less than a certain period of time. The prospectuses for the underlying fund portfolios describe any such policies and procedures. The frequent trading policies and procedures of an underlying fund portfolio may be different, and more or less restrictive, than the frequent trading policies and procedures of other underlying fund portfolios and the policies and procedures we have adopted for our variable insurance products to discourage market timing and disruptive trading. Owners should be aware that we do not monitor transfer requests from owners or persons acting on behalf of owners against, nor do we apply, the frequent trading policies and procedures of the respective underlying fund portfolios that would be affected by the transfers.
Owners should be aware that we are required to provide to an underlying fund portfolio or its payee, promptly upon request, certain information about the trading activity of individual owners, and to restrict or prohibit further purchases or transfers by specific owners or persons acting on their behalf, identified by an underlying fund portfolio as violating the frequent trading policies established for the underlying fund portfolio.
Omnibus Orders. Owners and other persons with material rights under the variable insurance products also should be aware that the purchase and redemption orders received by the underlying fund portfolios generally are “omnibus” orders from intermediaries such as retirement plans and separate accounts funding variable insurance products. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and individual owners of variable insurance products. The omnibus nature of these orders may limit the underlying fund portfolios' ability to apply their respective frequent trading policies and procedures.
We cannot guarantee that the underlying fund portfolios will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the underlying fund portfolios. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it may affect other owners of underlying fund portfolio shares, as well as the owners of all of the variable annuity or life insurance policies, including ours, whose variable investment options correspond to the affected underlying fund portfolios. In addition, if an underlying fund portfolio believes that an omnibus order we submit may reflect one or more transfer requests from owners engaged in market timing and disruptive trading, the underlying fund portfolio may reject the entire omnibus order and thereby delay or prevent us from implementing your request.
Investment Restrictions
If you elect certain optional riders, you will be subject to investment restrictions requiring you to invest in certain underlying fund portfolios, known as designated investment options. In the future, we may change the investment restrictions.
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One or more of the underlying fund portfolios that may be designated investment options under an optional rider, in part, may include a volatility control strategy. Volatility control strategies, in periods of high market volatility, could limit your participation in market gains; this may conflict with your investment objectives by limiting your ability to maximize potential growth of your policy value and, in turn, the value of any guaranteed benefit that is tied to investment performance. Volatility control strategies are intended to help limit overall volatility and reduce the effects of significant market downturns during periods of high market volatility, providing policy owners with the opportunity for smoother performance and better risk adjusted returns. Volatility control (and similar terms) can encompass a variety of investment strategies of different types and degrees; therefore, you should read the applicable annuity and underlying fund portfolio prospectuses carefully to understand how these investment strategies may affect your policy value and rider benefits. Our requirement to invest in accordance with certain investment options, which may include volatility control, may reduce our costs and risks associated with this rider. You pay an additional fee for the rider benefits which, in part, pay for protecting the rider benefit base from investment losses. Since the rider benefit base does not decrease as a result of investment losses, volatility control strategies might not provide meaningful additional benefit to you. You should carefully evaluate with your financial advisor whether to invest in underlying fund portfolios with volatility control strategies, taking into consideration the potential positive or negative impact that such strategy may have on your investment objectives, your policy value and the benefits under the riders. If you determine that funds with volatility control strategies are not consistent with your investment objectives, there continues to be other investment options available under the riders that do not invest in funds that utilize volatility control strategies.
For more information about the underlying fund portfolios and the investment strategies they employ, please refer to the underlying fund portfolios' current prospectuses.
EXPENSES
There are charges and expenses associated with your policy that reduce the return on your investment in the policy. In addition to the following charges, there are optional benefits that if selected, assess additional charges. Please see ADDITIONAL FEATURES for more information.
Excess Interest Adjustment
Surrenders, withdrawals, transfers, amounts applied when a death benefit is calculated, and amounts applied to an annuity option from the fixed account may be subject to an excess interest adjustment. This adjustment could retroactively reduce the interest credited in the fixed account to the guaranteed minimum or increase the amount credited. This adjustment may also apply to amounts applied to an annuity payment option. (However, please note that a death benefit will not be reduced if the excess interest adjustment results in a decrease in the cash value available to you.) Please see “Appendix - Excess Interest Adjustment Examples” for an example showing the effect of a hypothetical excess interest adjustment calculation. The excess interest adjustment plays a role in calculating the total interest credited to the fixed account.
Mortality and Expense Risk Fees
We charge a fee as compensation for bearing certain mortality and expense risks under the policy. This fee is assessed daily based on the net asset value of each subaccount. Examples of such risks include a guarantee of annuity rates, the death benefit, certain expenses of the policy (including distribution related expenses), and assuming the risk that the current charges will be insufficient in the future to cover costs of selling, distributing and administering the policy.
If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We expect to profit from this charge. We may use any profit for any proper purpose, including distribution expenses.
Administrative Charges
We deduct a daily administrative charge to cover the costs of supporting and administering the policy (including certain distribution-related expenses). This charge is equal to a percentage of the daily net asset value of each subaccount during both the accumulation phase and the income phase.
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Premium Taxes
A deduction is also made for premium taxes, if any, imposed on us by a state, municipality or other government agency. The tax, currently ranging from 0% to 3.50%, is assessed at the time premium payments are made or when annuity payments begin. We pay the premium tax at the time it is imposed. We will, at our discretion, deduct the total amount of premium taxes, if any, from the policy value when such taxes are due to the applicable taxing authority, you begin receiving annuity payments, you surrender the policy or a death benefit is paid.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur because of the policy. However, no deductions are being made at the present time.
Special Service Fees
We may deduct a charge for special services, including overnight delivery; duplicate policies; non-sufficient checks on new business; duplicate Form 1099 and Form 5498 tax forms; duplicate disclosure documents and semi-annual reports; check copies; printing and mailing previously submitted forms; and asset verification requests from mortgage companies. In addition, we may consider as special services customer initiated changes, modifications and transactions which are submitted in such a manner as to require us to incur additional processing costs.
Transfer Fee
You are generally allowed to make 12 free transfers per policy year before the annuity commencement date. If you make more than 12 transfers per policy year, we reserve the right to charge for each additional transfer. Premium payments, Asset Rebalancing, and Dollar Cost Averaging transfers do not count as one of your free transfers. All transfer requests made at the same time are treated as a single transfer. Currently, we are not charging for transfers.
Service Charge
We reserve the right to increase the annual service charge up to the maximum. A portion of the service charge may be waived, but is not guaranteed to always be waived. We reserve the right to vary the amount of any waiver and the circumstances in which any waiver or waivers apply.
Optional Benefits
If you elect to purchase optional benefits, we will deduct an additional fee. For some optional benefits the fee is assessed against the daily net asset value of each subaccount and for others it is deducted from each investment option in proportion to the amount of policy value in each investment option. Please refer to the FEE TABLE AND EXPENSE EXAMPLES for the list of fees for each optional benefit and ADDITIONAL FEATURES for more information.
Underlying Fund Portfolio Fees and Expenses
The value of the assets in each subaccount will reflect the fees and expenses paid by the underlying fund portfolios. The lowest and highest underlying fund portfolio expenses for the previous calendar year are found in FEE TABLE AND EXPENSE EXAMPLES in this prospectus. See the prospectuses for the underlying fund portfolios for more information.
Reduced Fees and Charges
We may, at our discretion, reduce or eliminate certain fees and charges for certain policies (including employer-sponsored savings plans) which may result in decreased costs and expenses.
Revenue We Receive
This prospectus describes generally the payments that we (and/or our affiliates) may directly or indirectly receive from the underlying fund portfolios, their advisers, subadvisers, distributors or affiliates thereof, in connection with certain administrative, marketing and other support services we (and/or our affiliates) provide and expenses we incur in offering and selling our variable insurance products. These arrangements are described further below. While only certain of the types of payments described below may be made in connection with your particular policy, all such payments may nonetheless influence or impact actions we (and/or our affiliates) take, and recommendations we (and our affiliates) make, regarding each of the variable insurance products that we (and our affiliates) offer, including your policy.
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We (and/or our affiliates) may receive some or all of the following types of payments:
• Rule 12b-1 Fees. We and/or our affiliate, Transamerica Capital, Inc. (“TCI”) who is the principal underwriter for the policies, indirectly receive 12b-1 fees from certain underlying fund portfolios available as investment options under our variable insurance products. Any 12b-1 fees received by TCI that are attributable to our variable insurance products are then credited to us. These fees range from 0.00% to 0.35% of the average daily assets of the certain underlying fund portfolios attributable to the policies and to certain other variable insurance products that we and our affiliates issue.
• Administrative, Marketing and Support Service Fees (“Support Fees”). As noted above, an investment adviser, subadviser, administrator and/or distributor (or affiliates thereof) of the underlying fund portfolios may make payments to us and/or our affiliates, including TCI. These payments may be derived, in whole or in part, from the profits the investment adviser or subadviser realized on the advisory fee deducted from underlying fund portfolio assets. Policy owners, through their indirect investment in the underlying fund portfolios, bear the costs of these advisory fees (see the prospectuses for the underlying funds for more information). The amount of the payments we (or our affiliates) receive is generally based on a percentage of the assets of the particular underlying fund portfolios attributable to the policy and to certain other variable insurance products that our affiliates and we issue. These percentages differ and the amounts may be significant. Some advisers or sub-advisers (or other affiliates) pay us more than others.
The following chart provides the maximum combined percentages of Support Fees and underlying fund portfolio fees (i.e. sub-transfer agent, Rule 12b-1, and Shareholder Services) that we anticipate will be paid to us on an annual basis.
Incoming Payments to Us and/or TCI
Fund   Maximum Fee % of assets
TRANSAMERICA SERIES TRUST   0.25%
NOTES TO INCOMING PAYMENTS TABLE:
Maximum Fee % of assets: Payments are based on a percentage of the average assets of each underlying fund portfolio owned by the subaccounts available under this policy and under certain other variable insurance products offered by our affiliates and us. We and/or TCI may continue to receive 12b-1 fees and administrative fees on funds invested in subaccounts that are closed to new premium payments, depending on the terms of the agreements supporting those payments and on the services provided.
TST: Because TST is managed by TAM, an affiliate of ours, there are additional benefits to us and our affiliates for amounts you allocate to the TST underlying fund portfolios, in terms of our and our affiliates’ overall profitability. These additional benefits may be significant. Payments or other benefits may be received from TAM. Such payments or benefits may be entered into for a variety of purposes, such as to allocate resources to us and to provide administrative services to the policyholders who invest in subaccounts that invest in the TST underlying fund portfolios. These payments or benefits may take the form of internal credits, recognition, or cash payments. A variety of financial and accounting methods may be used to allocate resources and profits to us. Additionally, if a TST portfolio is subadvised by an entity that is affiliated with us, we may retain more revenue than on those TST portfolios that are subadvised by non-affiliated entities. During 2016 we received $223,234,178.31 for Transamerica Life Insurance Company and $15,423,182.55 for Transamerica Financial Life Insurance Company in benefits from TAM pursuant to these arrangements. This includes the 0.25% amount in the above chart. We anticipate receiving comparable amounts in the future.
Other Payments. TCI also serves as the wholesale distributor for the policies, and in that capacity directly or indirectly receives additional amounts or different percentages of assets under management from certain advisers and subadvisers to the underlying fund portfolios (or their affiliates) with regard to variable insurance products and/or mutual funds that are issued by us and our affiliates. These amounts may be derived, in whole or in part, from the profits the investment adviser or subadviser receives from the advisory fee deducted from underlying fund portfolio assets. Owners, through their indirect investment in the underlying fund portfolios, bear the costs of these advisory fees. Certain advisers and subadvisers of the underlying fund portfolios (or their affiliates):
• may each directly or indirectly pay TCI conference sponsorship or marketing allowance payments that provides such advisers and subadvisers with access to TCI's wholesalers at TCI's national and regional sales conferences as well as internal and external meetings and events that are attended by TCI's wholesalers and/or other TCI employees.
• may provide our affiliates and/or selling firms with wholesaling services to assist us in the distribution of the policies.
• may provide us and/or certain affiliates and/or selling firms with occasional gifts, meals, tickets or other compensation as an incentive to market the underlying fund portfolios and to assist with their promotional efforts. The amounts may be significant and these arrangements provide the adviser or subadviser (or other affiliates) with increased access to us and to our affiliates involved in the distribution of the policies.
For the calendar year ended December 31, 2016, TCI and its affiliates received payments that totaled approximately $2,700,000. The firms that paid to participate in TCI sponsored events included but were not limited to the following: Aegon USA Investment Management • Allianzgi Distributors • American Century Investment Management, Inc. • American Century Investment Management, Inc. • American Funds • Barrow, Hanley, Mewhinney & Strauss • Belle Haven Investments • BlackRock Investment Management, LLC • Columbia Threadneedle Investments • Fidelity Management & Research
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Company  • Franklin Templeton Services, LLC • Goldman Sachs• Hartford• Invesco• Janus Capital Management LLC • Jennison Associates LLC • John Hancock• JP Morgan Investment Management Inc. • Kayne Anderson Capital Advisors, LP • Lord Abbett & Co.• Manning & Napier Advisors• MFS Investment Management• Milliman Financial Risk Management LLC • Morgan Stanley Investment Management Inc. • Morningstar Advisers • Natixis Global Asset Management• Neuberger Berman• New York Life/Mainstay Investments• Oppenheimer Funds, Inc. • Pacific Investment Management Company • PineBridge Investments LLC • Pioneer Investment Management, Inc. • Prudential Investments• QS Legg Mason Global Asset Allocation, LLC • Ridgeworth Investments • Rockefeller & Co. • Schroder Investment Management • Systematic Financial Management • TIAA• Thompson Siegel & Walmsley • The Vanguard Group, Inc. • Torray, LLC •  and Wellington Management Company.
Please note some of the aforementioned managers and/or subadvisers may not be associated with underlying fund portfolios currently available in this product.
Proceeds from certain of these payments by the underlying fund portfolios, the advisers, the subadvisers and/or their affiliates may be used for any corporate purpose, including payment of expenses (1) that we and our affiliates incur in promoting, marketing, and administering the policy, and (2) that we incur, in our role as intermediary, in promoting, marketing, and administering the underlying fund portfolios. We and our affiliates may profit from these payments.
For further details about the compensation payments we make in connection with the sale of the policies, see OTHER INFORMATION - Distribution of the Policies in this prospectus.
ACCESS TO YOUR MONEY
During the accumulation phase, you can have access to the money in your policy in the following ways:
• by making a surrender (either a full or partial surrender); or
• by taking systematic payouts (See ADDITIONAL FEATURES - Systematic Payout Option for more details).
Surrenders
During the accumulation phase, if you take a full surrender you will receive your cash value. If you want to take a partial surrender, in most cases it must be for at least $500. Certain optional benefits have specific requirements regarding the order in which surrenders can be taken from investment options. Unless you tell us otherwise, we will take the surrender from each of the investment options in proportion to the policy value. Surrenders may be referred to as withdrawals on your policy statement and other documents.
Remember that any surrender you take will reduce the policy value, and the amount of the death benefit. See DEATH BENEFIT, for more details. A partial surrender also may have a negative impact on certain other benefits and guarantees of your policy. See ADDITIONAL FEATURES, for more details.
Surrenders from the fixed account may be subject to an excess interest adjustment. Income taxes, federal tax penalties and certain restrictions may apply to any surrenders you make.
Surrenders from qualified policies may be restricted or prohibited.
During the income phase, you will receive annuity payments under the annuity payment option you select; however, you generally may not take any other surrenders, either full or partial.
Delay of Payment and Transfer
Payment of any amount due from the separate account for a surrender, a death benefit, or the death of the owner of a nonqualified policy, will generally occur within seven days from the date we receive in good order all required information at our Administrative Office. We may defer such payment from the separate account if:
• the New York Stock Exchange is closed other than for usual weekends or holidays or trading on the Exchange is otherwise restricted;
• an emergency exists as defined by the SEC or the SEC requires that trading be restricted; or
• the SEC permits a delay for the protection of owners.
Transfers of amounts from the subaccounts also may be deferred under these circumstances. In addition, if, pursuant to SEC rules, the Transamerica Aegon Government Money Market VP portfolio (or any money market portfolio offered under this policy) suspends payment of redemption proceeds in connection with a liquidation of the portfolio, then we may delay payment of any transfer, surrender (either full or partial), loan, or death benefit from the TA Aegon Government Money Market subaccount until the portfolio is liquidated.
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Any payment or transfer request which is not in good order will cause a delay. See OTHER INFORMATION - Sending Forms and Transaction Requests in Good Order.
Federal laws designed to counter terrorism and prevent money laundering by criminals might in certain circumstances require us to reject a premium payment and/or “freeze” an owner's account. If these laws apply in a particular situation, we would not be allowed to pay any request for surrenders (either full or partial), or death benefits, make transfers, or continue making annuity payments absent instructions from the appropriate federal regulator. We may also be required to provide information about you and your policy to government agencies or departments.
Pursuant to the requirements of certain state laws, we reserve the right to defer payment of the cash value from the fixed account for up to six months. We may defer payment of any amount until your premium payment check has cleared your bank.
Excess Interest Adjustment
Surrenders, withdrawals, transfers, and amounts applied to an annuity option, from a guaranteed period option of the fixed account before the end of its guaranteed period (the number of years you specified the money would remain in the guaranteed period option) may be subject to an excess interest adjustment. If, at the time of such transactions the guaranteed interest rate set by us for the applicable period has risen since the date of the initial guarantee, the excess interest adjustment will result in a lower cash value (but not below the excess interest adjustment floor described in “Appendix - Excess Interest Adjustment Examples”). However, if the guaranteed interest rate for the applicable period has fallen since the date of the initial guarantee, the excess interest adjustment will result in a higher cash value upon surrender or transfer. Please see “Appendix - Excess Interest Adjustment Examples” to see how the excess interest adjustment is calculated and illustrative examples using hypothetical values.
Any amount surrendered in excess of the cumulative interest credited for that guaranteed period option is generally subject to an excess interest adjustment. An excess interest adjustment may also be made on amounts applied to an annuity payment option.
The formula that will be used to determine the excess interest adjustment is:
S* (G-C)* (M/12)
S = Is the amount (before ) being surrendered, withdrawn, transferred, paid upon death, or applied to an income option that is subject to the excess interest adjustment;
G = Is the guaranteed interest rate for the guaranteed period applicable to “S”;
C = Is the current guaranteed interest rate then being offered on new premium payments for the next longer option period than “M”. If this policy form or such an option period is no longer offered, “C” will be the U.S. Treasury rate for the next longer maturity (in whole years) than “M” on the 25th day of the previous calendar month,
M = Number of months remaining in the current option period for “S”, rounded up to the next higher whole number of months; and
* = Multiplication
Please see “Appendix - Excess Interest Adjustment Examples” for more detailed information concerning the excess interest adjustment calculation.
There will be no excess interest adjustment on any of the following:
• withdrawals of cumulative interest credited for that guaranteed period option;
• Nursing Care and Terminal Condition Waiver surrenders;
• Unemployment Waiver surrenders;
• transfers from a Dollar Cost Averaging fixed source;
• withdrawals to satisfy any minimum distribution requirements;
• systematic withdrawals, which do not exceed cumulative interest credited at the time of payment.
Please note that in these circumstances you will not receive a higher cash value if interest rates have fallen nor will you receive a lower cash value if interest rates have risen.
The excess interest adjustment may vary for certain policies and may not be applicable for all policies.
Signature Guarantee
As a protection against fraud, we require a signature guarantee (i.e., Medallion Signature Guarantee as required by us) for the following transaction requests:
• Any surrenders over $250,000 unless it is a custodial owned annuity;
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• Any non-electronic disbursement request made on or within 15 days of a change to the address of record for the policy owner’s account;
• Any electronic fund transfer instruction changes on or within 15 days of an address change;
• Any surrender when we have been directed to send proceeds to a different personal address from the address of record for that owner. PLEASE NOTE: This requirement will not apply to requests made in connection with exchanges of one annuity for another with the same owner in a “tax-free exchange”;
• Any surrender when we do not have an originating or guaranteed signature on file unless it is a custodial owned annuity;
• Any other transaction we require.
We may change the specific requirements listed above, or add signature guarantees in other circumstances, at our discretion if we deem it necessary or appropriate to help protect against fraud. For current requirements, please refer to the requirements listed on the appropriate form or call us at (800)525-6205.
You can obtain a Medallion signature guarantee from more than 7,000 financial institutions across the United States and Canada that participate in a Medallion signature guarantee program. The best source of a Medallion signature guarantee is a bank, savings and loan association, brokerage firm, or credit union with which you do business. A notary public cannot provide a Medallion signature guarantee. Notarization will not substitute for a Medallion signature guarantee.
ANNUITY PAYMENTS (THE INCOME PHASE)
Upon the annuity commencement date, which is the date your policy is annuitized and annuity payments begin, your annuity switches from the accumulation phase to the income phase. You can generally change the annuity commencement date by giving us 30 days notice with the new date or age. Unless required by state law this date cannot be earlier than the third policy anniversary. The latest annuity commencement date generally cannot be later than the last day of the month following the month in which the annuitant attains age 99 (earlier if required by state law).
Before the annuity commencement date, if the annuitant is alive, you may choose an annuity payment option or change your election. If the annuitant dies before the annuity commencement date, the death benefit is payable in a lump sum or under one of the annuity payment options (unless the surviving spouse is eligible to and elects to continue the policy). If the annuitant dies after the annuity commencement date, no death benefit is payable and the amount payable will depend on the annuity income option.
Your policy may not be “partially” annuitized, i.e., you may not apply a portion of your policy value to an annuity option while keeping the remainder of your policy in force.
Unless you specify otherwise, the owner will receive the annuity payments. After the annuitant's death, the beneficiary you designate at annuitization will receive any remaining guaranteed payments.
Annuity Payment Options
The policy provides several annuity payment options (also known as income options) that are described below. You may choose any combination of annuity payment options. We will use your policy value to provide these annuity payments. If the policy value on the annuity commencement date is less than $2,000, we reserve the right to pay it in one lump sum in lieu of applying it under an annuity payment option. You can receive annuity payments monthly, quarterly, semi-annually, or annually. (We reserve the right to change the frequency if annuity payments would be less than the amount specified in your policy.) We may require proof of life before making annuity payments.
In deciding on which annuity payment option to elect, you must decide if fixed or variable payments are better for you. If you choose to receive fixed annuity payments, then the amount of each payment will be set on the annuity commencement date and will not change. You may, however, choose to receive variable annuity payments. The dollar amount of the first variable annuity payment will be determined in accordance with the annuity payment rates set forth in the applicable table contained in the policy. The dollar amount of additional variable annuity payments will vary based on the investment performance of the subaccount(s) you select. The dollar amount of each variable annuity payment after the first may increase, decrease, or remain constant. If the actual investment performance (net of fees and expenses) exactly matched the assumed investment return of 3% at all times, the amount of each variable annuity payment would remain constant. If actual investment performance (net of fees and expenses) exceeds the assumed investment return, the amount of the variable annuity payments would increase. Conversely, if actual investment performance (net of fees and expenses) is lower than the assumed investment return, the amount of the variable annuity payments would decrease.
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You must also decide if you want your annuity payments to be guaranteed for the annuitant's lifetime, a period certain, or a combination thereof. Generally, annuity payments will be lower if you combine a period certain, guaranteed amount, or liquidity with a lifetime guarantee (e.g., Life Income with 10 years Certain and Life with Guaranteed Return of Policy proceeds). Likewise, annuity payments will also generally be lower the longer the period certain (because you are guaranteed payments for a longer time).
A charge for premium taxes and an excess interest adjustment may be made when annuity payments begin.
The annuity payment options currently available are explained below. Some options are fixed only.
Income for a Specified Period (fixed only). We will make level annuity payments only for a fixed period. No funds will remain at the end of the period. If your policy is a qualified policy, this annuity payment option may not satisfy minimum required distribution rules. Consult a tax advisor before electing this option.
Income of a Specified Amount (fixed only). Payments are made for any specified amount until the amount applied to this option, with interest, is exhausted. This will be a series of level annuity payments followed by a smaller final annuity payment. If your policy is a qualified policy, this annuity payment option may not satisfy minimum required distribution rules. Consult a tax advisor before electing this option.
Life Income. You may choose between:
• No Period Certain (fixed or variable) - Payments will be made only during the annuitant's lifetime. The last annuity payment will be the payment immediately before the annuitant's death.
• 10 Years Certain (fixed or variable) - Payments will be made for the longer of the annuitant's lifetime or ten years.
• Guaranteed Return of Policy Proceeds (fixed only) - Payments will be made for the longer of the annuitant's lifetime or until the total dollar amount of annuity payments we made to you equals the annuitized amount (i.e., the adjusted policy value).
Joint and Survivor Annuity. You may choose:
• No Period Certain (fixed or variable) - Payments are made during the joint lifetime of the annuitant and a joint annuitant of your selection. Annuity payments will be made as long as either person is living.
• 10 Year Certain (fixed only) - Payments will be made for the longer of the lifetime of the annuitant and joint annuitant or ten years.
Other annuity payment options may be arranged by agreement with us. Some annuity payment options may not be available for all policies, all ages or we may limit certain annuity payment options to ensure they comply with the applicable tax law provisions.
NOTE CAREFULLY
IF:
• you choose Life Income with No Period Certain or a Joint and Survivor Annuity with No Period Certain; and
• the annuitant dies (or both joint annuitants die) before the due date of the second (third, fourth, etc.) annuity payment;
THEN:
• we may make only one (two, three, etc.) annuity payments.
IF:
• you choose Income for a Specified Period, Life Income with 10 Years Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income of a Specified Amount; and
• the person receiving annuity payments dies prior to the end of the guaranteed period;
THEN:
• the remaining guaranteed annuity payments will be continued to a new payee, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment checks if the postal or other delivery service is unable to deliver checks to the payee's address of record. The person receiving annuity payments is responsible for keeping us informed of his/her current address.
You must annuitize your policy no later than the maximum annuity commencement date specified in your policy (earlier for certain distribution channels) or a later date if agreed to by us. If you do not elect an annuity payment option, the default option will be variable payments under Life with 10 Years Certain. If any portion of the default annuitization is a variable payout option, then
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annuity units will be purchased proportionally based off your available current investment allocations. Please note, all benefits (including guaranteed minimum death benefits and living benefits) terminate upon annuitization. The only benefits that remain include the guarantees provided under the terms of the annuity option.
DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if the annuitant dies during the accumulation phase. If there is a surviving owner(s) when the annuitant dies, the surviving owner(s) will receive the death benefit instead of the listed beneficiary. The person receiving the death benefit may choose an annuity payment option (if you pick a variable annuity payment option fees and expenses will apply), or may choose to receive the death benefit as a lump sum withdrawal. The guarantees of these death benefits are based on our claims-paying ability. No death benefit will be payable upon or after the annuity commencement date. Please note that there is a mandatory annuity commencement date.
We will determine the amount of and process the death benefit proceeds, if any are payable on a policy, upon receipt at our Administrative Office of satisfactory proof of the annuitant's death, directions regarding how to process the death benefit, and any other documents, forms and information that we need (collectively referred to as “due proof of death”). For policies with multiple beneficiaries, we will process the death benefit when the first beneficiary provides us with due proof of their share of the death proceeds. We will not pay any remaining beneficiary their share until we receive due proof of death from that beneficiary. Such beneficiaries continue to bear the investment risk until they submit due proof of death. Please note, we may be required to remit the death benefit proceeds to a state prior to receiving “due proof of death.” See OTHER INFORMATION - Abandoned or Unclaimed Property.
Please Note: Such due proof of death must be received in good order to avoid a delay in processing the death benefit claim. See OTHER INFORMATION - Sending Forms and Transaction Requests in Good Order.
The death benefit proceeds remain invested in the separate account in accordance with the allocations made by the policy owner until the beneficiary has provided us with due proof of death. Once we receive due proof of death, investments in the separate account may be reallocated in accordance with the beneficiary's instructions.
We may permit the beneficiary to give a “one-time” written instruction to reallocate the policy value in the separate account to the money market subaccount after the death of the annuitant. If there is more than one beneficiary, all beneficiaries must agree to the reallocation instructions. This one-time reallocation will be permitted if the beneficiary provides satisfactory evidence of the annuitant's death (satisfactory evidence may include a certified death certificate).
When We Pay A Death Benefit
We will pay a death benefit IF:
• you are both the annuitant and sole owner of the policy; and
• you die before the annuity commencement date.
We will pay a death benefit to you (owner) IF:
• you are not the annuitant; and
• the annuitant dies before the annuity commencement date.
If the sole beneficiary receiving the death benefit is the surviving spouse of the owner, then he or she may elect, if eligible, to continue the policy as the new annuitant and owner, instead of receiving the death benefit. See DEATH BENEFIT - Spousal Continuation.
When We Do Not Pay A Death Benefit
We will not pay a death benefit IF:
• you are the owner but not the annuitant; and
• you die prior to the annuity commencement date.
Please note: Distribution requirements apply upon the death of any owner. Generally, upon the owner's death (who is not the annuitant) the entire interest must be distributed within five years. See TAX INFORMATION for a more detailed discussion of the distribution requirements under the Code.
Deaths After the Annuity Commencement Date
The amount payable, if any, on or after the annuity commencement date depends on the annuity income option.
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IF:
• you are not the annuitant; and
• you die on or after the annuity commencement date; and
• the entire guaranteed amount in the policy has not been paid;
THEN:
• the remaining portion of such guaranteed amount in the policy will continue to be distributed at least as rapidly as under the method of distribution being used as of the date of your death.
IF:
• you are the owner and annuitant; and
• you die after the annuity commencement date; and
• the annuity payment option you selected did not have or no longer has a guaranteed period;
THEN:
• no additional payments will be made.
Succession of Ownership
If an owner (who is not the annuitant) dies during the accumulation phase, the person or entity first listed below who is alive or in existence on the date of that death will become the new owner:
• any surviving owner;
• primary beneficiary;
• contingent beneficiary; or
• owner's estate.
Spousal Continuation
If the sole primary beneficiary is the spouse, upon the owner's or the annuitant's death, the beneficiary may elect to continue the policy in his or her own name. Upon the annuitant's death if such election is made, the policy value will be adjusted upward (but not downward) to an amount equal to the death benefit amount determined upon such election and receipt of due proof of death of the annuitant. Any excess of the death benefit amount over the policy value will be allocated to each applicable investment option in the ratio that the policy value in the investment option bears to the total policy value. The terms and conditions of the policy that applied prior to the annuitant's death will continue to apply, with certain exceptions described in the policy. For purposes of the death benefit on the continued policy, the death benefit is calculated in the same manner as it was prior to continuation on the date the spouse continues the policy. See TAX INFORMATION - Same Sex Relationships for more information concerning spousal continuation involving same sex spouses.
For these purposes, if the sole primary beneficiary of the policy is a revocable grantor trust and the spouse of the owner/annuitant is the sole grantor, trustee, and beneficiary of the trust and the trust is using the spouse of the owner/annuitant's social security number at the time of claim, she or he shall be treated as the owner/annuitant's spouse. In those circumstances, the owner/annuitant's spouse will be treated as the beneficiary of the policy for purposes of applying the spousal continuation provisions of the policy.
For these purposes, if the owner is an individual retirement account within the meaning of IRC sections 408 or 408A and if the annuitant's spouse is the sole primary beneficiary of the annuitant's interest in such account, the annuitant's spouse will be treated as the beneficiary of the policy for purposes of applying the spousal continuation provisions of the policy.
Amount of Death Benefit
Death benefit provisions may differ from state to state. The death benefit may be paid as a lump sum, as annuity payments or as otherwise permitted by the Company in accordance with applicable law. The amount of the death benefit depends on the guaranteed minimum death benefit option, if any, you choose when you buy the policy. The “base policy” death benefit will generally be the greatest of:
• the policy value on the date we receive the required information in good order at our Administrative Office;
• the cash value on the date we receive the required information in good order at our Administrative Office (this will be more than the policy value if there is a positive excess interest adjustment);
• minimum required cash value on the date we receive the required information in good order at our Administrative Office; and
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• the guaranteed minimum death benefit (if one was elected) on the date of death; plus premium payments, minus gross withdrawals, from the date of death to the date the death benefit is paid. Please see “Appendix - Death Benefit” for illustrative examples regarding death benefit calculations.
Please note: The death benefit terminates upon annuitization and there is a maximum annuity commencement date.
Guaranteed Minimum Death Benefit
The guaranteed minimum death benefit terminates upon annuitization and there is a mandatory annuity commencement date. On the policy application, you may generally choose a guaranteed minimum death benefit, Return of Premium (age limitations may apply) for an additional fee. After the policy is issued, you cannot make an election and the death benefit cannot be changed.
Return of Premium Death Benefit
The Return of Premium Death Benefit is equal to:
• total premium payments; minus
• any adjusted withdrawals (please see “Appendix - Death Benefit”) as of the date of death; minus
• withdrawals from the date of death to the date the death benefit is paid.
This benefit is not available if you or the annuitant is 86 or older on the policy date. There is an extra charge for this death benefit. See FEE TABLE AND EXPENSE EXAMPLES.
Designated Investment Options. If you elected the Return of Premium Death Benefit, you must allocate 100% of your policy value to one or more of the designated investment options approved for the Return of Premium Death Benefit. See “Appendix - Designated Investment Options” for a complete listing of available subaccounts. Requiring that you designate 100% of your policy value to the designated investment options, some of which employ strategies that are intended to reduce the risk of loss and/or manage volatility, may reduce investment returns and may reduce the likelihood that we will be required to use our own assets to pay amounts due under this benefit.
Please note:
• All policy value must be allocated to one or more designated investment options or your death benefit will terminate.
• You may transfer amounts among the designated investment options; however, you cannot transfer any amount to any other subaccount if you elect this death benefit.
Please note: You will not receive an optional guaranteed minimum death benefit if you do not choose one when you purchase your policy.
The Guaranteed Minimum Death Benefit may vary for certain policies and may not be available for all policies, in all states, at all times or through all financial intermediaries. We may discontinue offering a guaranteed minimum death benefit at any time for new sales.
Adjusted Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit will be reduced by an amount called the adjusted partial withdrawal. Under certain circumstances, the adjusted partial withdrawal may be more than the dollar amount of your withdrawal request. This will generally be the case if the guaranteed minimum death benefit exceeds the policy value at the time of withdrawal. It is also possible that if a death benefit is paid after you have made a partial withdrawal, then the total amount paid could be less than the total premium payments.
The formula used to calculate the adjusted partial withdrawal amount is: adjusted partial withdrawal = (amount of the gross partial withdrawal * value of the current death proceeds immediately prior to the gross partial withdrawal) / policy value immediately prior to the gross withdrawal.
We have included a detailed explanation of this adjustment with examples in the “Appendix - Death Benefit.” This is referred to as “adjusted partial withdrawal” in your policy. If you have a qualified policy, minimum required distributions rules may require you to request a partial withdrawal.
TAX INFORMATION
NOTE: We have prepared the following information on federal taxes as a general discussion of the subject. It is not intended as tax advice to any taxpayer. The federal tax consequences discussed herein reflects our understanding of current law, and the law may change. No representation is made regarding the likelihood of continuation of the present federal tax law or of the
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current interpretations by the Internal Revenue Service. The discussion briefly references federal estate, gift and generation-skipping transfer taxes, but principally discusses federal income taxes. No attempt is made to consider any applicable state or other income tax laws, any state and local estate or inheritance tax, or other tax consequences of ownership or receipt of distributions under the policy. You should consult your own tax adviser about your own circumstances.
Introduction
Deferred annuity policies are a way of setting aside money for future needs like retirement. Congress recognized how important saving for retirement is and provided special rules in the Internal Revenue Code (the “Code”) for annuities. Simply stated, these rules generally provide that individuals will not be taxed on the earnings, if any, on the money held in an annuity policy until withdrawn. This is referred to as tax deferral. When a non-natural person (e.g., corporation or certain trusts) owns a nonqualified policy, the policy will generally not be treated as an annuity for tax purposes. Thus, the owner must generally include in income any increase in the policy value over the investment in the policy during each taxable year.
There are different rules as to how you will be taxed depending on how you take the money out and the type of policy-qualified or nonqualified.
If you purchase the policy as an individual retirement annuity or as a part of a 403(b) plan, 457 plan, a pension plan, a profit sharing plan (including a 401(k) plan), or certain other employer sponsored retirement programs, your policy is referred to as a qualified policy. There is no additional tax deferral benefit derived from placing qualified funds into a variable annuity. Features other than tax deferral should be considered in the purchase of a qualified policy. There are limits on the amount of contributions you can make to a qualified policy. Other restrictions may apply including terms of the plan in which you participate. To the extent there is a conflict between a plan's provisions and a policy's provisions, the plan's provisions will control.
If you purchase the policy other than as part of any arrangement described in the preceding paragraph, the policy is referred to as a nonqualified policy.
You will generally not be taxed on increases in the value of your policy, whether qualified or nonqualified, until a distribution occurs (e.g., as a surrender, withdrawal, or as annuity payments). However, you may be subject to current taxation if you assign or pledge or enter into an agreement to assign or pledge any portion of the policy. You may also be subject to current taxation if you make a gift of a nonqualified policy without valuable consideration. All amounts received from the policy that are includible in income are taxed at ordinary income rates; no amounts received from the policy are taxable at the lower rates applicable to capital gains.
The Internal Revenue Service (“IRS”) has not reviewed the policy for qualification as an IRA annuity, and has not addressed in a ruling of general applicability whether the death benefit options and riders available, with the policy, if any, comport with IRA qualification requirements.
The value of living and death benefit options and riders elected may need to be taken into account in calculating minimum required distributions from a qualified plan/or policy.
We may occasionally enter into settlements with owners and beneficiaries to resolve issues relating to the policy. Such settlements will be reported on the applicable tax form (e.g., Form 1099) provided to the taxpayer and the taxing authorities.
Taxation of Us
We are at present taxed as a life insurance company under part I of Subchapter L of the Code. The separate account is treated as a part of us and, accordingly, will not be taxed separately as a “regulated investment company” under Subchapter M of the Code. We do not expect to incur any federal income tax liability with respect to investment income and net capital gains arising from the activities of the separate account retained as part of the reserves under the policy. Based on this expectation, it is anticipated that no charges will be made against the separate account for federal income taxes. If in future years, any federal income taxes are incurred by us with respect to the separate account, we may make a charge to that account. We may benefit from any dividends received or foreign tax credits attributable to taxes paid by certain underlying fund portfolios to foreign jurisdictions to the extent permitted under federal tax law.
Tax Status of a Nonqualified Policy
Diversification Requirements. In order for a nonqualified variable policy which is based on a segregated asset account to qualify as an annuity policy under Section 817(h) of the Code, the investments made by such account must be “adequately diversified” in accordance with Treasury Regulations. The Regulations apply a diversification requirement to each of the subaccounts. Each separate account, through its underlying fund portfolios and their portfolios, intends to comply with the diversification requirements of the Regulations. We have entered into agreements with each underlying fund portfolio company that require the portfolios to be operated
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in compliance with the Regulations but we do not have control over the underlying fund portfolio companies. The owners bear the risk that the entire contract could be disqualified as an annuity policy under the Code due to the failure of a subaccount to be deemed to be “adequately diversified.”
Owner Control. In some circumstances, owners of variable policies who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets and may be subject to tax on income produced by those assets. In Revenue Ruling 2003-91, the IRS stated that whether the owner of a variable policy is to be treated as the owner of the assets held by the insurance company under the policy will depend on all of the facts and circumstances.
Revenue Ruling 2003-91 also gave an example of circumstances under which the owner of a variable policy would not possess sufficient control over the assets underlying the policy to be treated as the owner of those assets for federal income tax purposes. To the extent the circumstances relating to the issuance and ownership of a policy vary from those described in Revenue Ruling 2003-91, owners bear the risk that they will be treated as the owner of Separate Account assets and taxed accordingly.
We believe that the owner of a policy should not be treated as the owner of the underlying assets. We reserve the right to modify the policies to bring them into conformity with applicable standards should such modification be necessary to prevent owners of the policies from being treated as the owners of the underlying separate account assets. Concerned owners should consult their own tax advisers regarding the tax matter discussed above.
Distribution Requirements . The Code requires that nonqualified policies contain specific provisions for distribution of policy proceeds upon the death of any owner. In order to be treated as an annuity policy for federal income tax purposes, the Code requires that such policies provide that if any owner dies on or after the annuity starting date and before the entire interest in the policy has been distributed, the remaining portion must be distributed at least as rapidly as under the method in effect on such owner's death. If any owner dies before the annuity starting date, the entire interest in the policy must generally be distributed (1) within 5 years after such owner's date of death or (2) be used to provide payments to a designated beneficiary for the life of the beneficiary or for a period not extending beyond the life expectancy of the beneficiary. The designated beneficiary must be an individual and payments must begin within one year of such owner’s death. However, if upon such owner's death the owner's surviving spouse is the sole beneficiary of the policy, then the policy may be continued with the surviving spouse as the new owner. If any owner is a non-natural person (except in the case of certain grantor trusts), then for purposes of these distribution requirements, the primary annuitant shall be treated as an owner and any death or change of such primary annuitant shall be treated as the death of an owner.
In certain instances a designated beneficiary may be permitted to elect a “stretch” payment option as a means of disbursing death proceeds from a nonqualified annuity. The only method we use for making distribution payments from a nonqualified “stretch” payment option is the required minimum distribution method as set forth in Revenue Ruling 2002-62. The applicable payments are calculated using the Single Life Expectancy Table set forth in Treasury Regulation § 1.401(a)(9)-9, A-1.
The nonqualified policies contain provisions intended to comply with these requirements of the Code. No regulations interpreting these requirements of the Code have yet been issued and thus no assurance can be given that the provisions contained in the policies satisfy all such Code requirements. The provisions contained in the policies will be reviewed and modified if necessary to assure that they comply with the Code requirements when clarified by regulation or otherwise.
Taxation of a Nonqualified Policy
The following discussion assumes the policy qualifies as an annuity policy for federal income tax purposes.
In General. Code Section 72 governs taxation of annuities in general. We believe that an owner who is an individual will not be taxed on increases in the value of a policy until such amounts are surrendered or distributed. For this purpose, the assignment, pledge, or agreement to assign or pledge any portion of the policy value as collateral for a loan generally will be treated as a distribution of such portion. You may also be subject to current taxation if you make a gift of a nonqualified policy without valuable consideration. The taxable portion of a distribution is taxable as ordinary income.
Non-Natural Persons. Pursuant to Section 72(u) of the Code, a nonqualified policy held by a taxpayer other than a natural person generally will not be treated as an annuity policy under the Code; accordingly, an owner who is not a natural person will recognize as ordinary income for a taxable year the excess, if any, of the policy value over the “investment in the contract”. There are some exceptions to this rule and a prospective purchaser of the policy that is not a natural person should discuss these rules with a competent tax adviser. A policy owned by a trust using the grantor's social security number as its taxpayer identification number will be treated as owned by the grantor (natural person) for the purposes of our application of Section 72 of the Code. Consult a tax adviser for more information on how this may impact your policy.
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Different Individual Owner and Annuitant
If the owner and annuitant on the policy are different individuals, there may be negative tax consequences to the owner and/or beneficiaries under the policy if the annuitant predeceases the owner including, but not limited, to the assessment of penalty tax and the loss of certain death benefit distribution options. You may wish to consult your legal counsel or tax adviser if you are considering designating a different individual as the annuitant on your policy to determine the potential tax ramifications of such a designation.
Annuity Starting Date
This section makes reference to the annuity starting date as defined in Section 72 of the Code and the applicable regulations. Generally, the definition of annuity starting date will correspond with the definition of annuity commencement date used in your policy and the dates will be the same. However, in certain circumstances, your annuity starting date and annuity commencement date will not be the same date. If there is a conflict between the definitions, we will interpret and apply the definitions in order to ensure your policy maintains its status as an annuity policy for federal income tax purposes. You may wish to consult a tax adviser for more information on when this issue may arise.
It is possible that at certain advanced ages a policy might no longer be treated as an annuity contract if the policy has not been annuitized before that age or have other tax consequences. You should consult with a tax adviser about the tax consequences in such circumstances.
Taxation of Annuity Payments
Although the tax consequences may vary depending on the annuity payment option you select, in general, for nonqualified and certain qualified policies, only a portion of the annuity payments you receive will be includable in your gross income.
In general, the excludable portion of each annuity payment you receive will be determined as follows:
• Fixed payments-by dividing the “investment in the policy” on the annuity starting date by the total expected return under the policy (determined under Treasury regulations) for the term of the payments. This is the percentage of each annuity payment that is excludable.
• Variable payments-by dividing the “investment in the policy” on the annuity starting date by the total number of expected periodic payments. This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the “investment in the policy” has been fully recovered, the full amount of any additional annuity payments is includable in gross income and taxed as ordinary income. The “investment in the policy” is generally equal to the premiums you pay for the policy, reduced by any amounts you have previously received from the policy that are excludible from gross income.
If you select more than one annuity payment option, special rules govern the allocation of the policy's entire “investment in the policy” to each such option, for purposes of determining the excludable amount of each payment received under that option. We advise you to consult a competent tax adviser as to the potential tax effects of allocating amounts to any particular annuity payment option.
If, after the annuity starting date, annuity payments stop because an annuitant died, the excess (if any) of the “investment in the policy” as of the annuity starting date over the aggregate amount of annuity payments received that was excluded from gross income may possibly be allowable as a deduction on your tax return.
Taxation of Surrenders and Partial Withdrawals - Nonqualified Policies
When you surrender your policy, you are generally taxed on the amount that your surrender proceeds exceeds the “investment in the policy”. The “investment in the policy” is generally equal to the premiums you pay for the policy, reduced by any amounts you have previously received from the policy that are excludible from gross income. Partial withdrawals are generally treated first as taxable income to the extent of the excess in the policy value over the “investment in the policy.” Distributions made under the systematic payout option are treated for tax purposes as partial withdrawals, not annuity payments. In general, loans, pledges, and collateral assignments as security for a loan are taxed in the same manner as partial withdrawals and surrenders. You may also be subject to current taxation if you make a gift of a nonqualified policy without valuable consideration. All taxable amounts received under a policy are subject to tax at ordinary rather than capital gain tax rates.
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If your policy contains an excess interest adjustment feature (also known as a market value adjustment), then your policy value immediately before a policy withdrawal (or transaction taxed like a withdrawal) may have to be increased by any positive excess interest adjustments that result from the transaction. There is, however, no definitive guidance on the proper tax treatment of excess interest adjustments, and you may want to discuss the potential tax consequences of an excess interest adjustment with your tax adviser.
The Code also provides that amounts received from the policy that are includible in gross income (including the taxable portion of some annuity payments) may be subject to a penalty tax. The amount of the penalty tax is equal to 10% of the amount that is includable in income. Some surrender withdrawals and other amounts will be exempt from the penalty tax. Amounts received that are not subject to the penalty tax include, among others, any amounts: (1) paid on or after the taxpayer reaches age 59½; (2) paid after an owner (or where the owner is a non-natural person, an annuitant) dies; (3) paid if the taxpayer becomes disabled (as that term is defined in the Code); (4) paid in a series of substantially equal payments made annually (or more frequently) over the life of the taxpayer or the joint life of the taxpayer and the taxpayer's designated beneficiary; (5) paid under an immediate annuity; or (6) which come from premium payments made prior to August 14, 1982. Regarding the disability exception, because we cannot verify that the owner is disabled, we will report such withdrawals to the IRS as early withdrawals with no known exception from the penalty tax.
Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. You may wish to consult a tax adviser for more information regarding the imposition of penalty tax.
Guaranteed Lifetime Withdrawal Benefits
For policies with a guaranteed lifetime withdrawal benefit or a guaranteed minimum accumulation benefit the application of certain tax rules, particularly those rules relating to distributions from your policy, are not entirely clear. It is possible that the withdrawal base (with respect to the guaranteed lifetime withdrawal benefits) and the guaranteed future value (with respect to the guaranteed minimum accumulation benefit) could be taken into account to determine the policy value that is used to calculate required distributions and the amount of the distribution that would be included in income. The proper treatment of the Income Enhancement Option under a guaranteed lifetime withdrawal benefit is unclear. It is possible that the IRS could determine that the benefit provides some form of long term care insurance. In that event, the Internal Revenue Service may determine the Income Enhancement Option is an incidental benefit with adverse consequences for qualification as an Individual Retirement Annuity, you could be treated as in receipt of some amount of income attributable to the value of the benefit even though you have not received a payment from your policy, and the amount of income attributable to guaranteed lifetime withdrawal payments could be affected. In addition, if the Income Enhancement Benefit causes an increase in payments calculated to meet the Required Minimum Distribution requirements it may violate the rules governing such distributions with adverse tax consequences. In view of this uncertainty, you should consult a tax adviser with any questions.
Aggregation
All nonqualified deferred annuity policies that are issued by us (or our affiliates) to the same owner (policyholder) during any calendar year are treated as one annuity for purposes of determining the amount includable in the owner's income when a taxable distribution (other than annuity payments) occurs. If you are considering purchasing multiple policies from us (or our affiliates) during the same calendar year, you may wish to consult with your tax adviser regarding how aggregation will apply to your policies.
Tax-Free Exchanges of Nonqualified Policies
We may issue the nonqualified policy in exchange for all or part of another annuity contract that you own. Such an exchange will be tax free if certain requirements are satisfied. If the exchange is tax free, your investment in the policy immediately after the exchange will generally be the same as that of the annuity contract exchanged, increased by any additional premium payment made as part of the exchange. Your policy value immediately after the exchange may exceed your investment in the policy. That excess may be includable in income should amounts subsequently be withdrawn or distributed from the policy (e.g., as a partial withdrawal, surrender, annuity income payment or death benefit).
If you exchange part of an existing contract for the policy, and within 180 days of the exchange you received a payment other than certain annuity payments (e.g., you make a partial withdrawal) from either contract, the exchange may not be treated as a tax free exchange. Rather, some or all of the amount exchanged into the policy could be includible in your income and subject to a 10% penalty tax.
You should consult your tax adviser in connection with an exchange of all or part of an annuity contract for the policy, especially if you may make a withdrawal from either contract within 180 days after the exchange.
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Medicare Tax
Distributions from nonqualified annuity policies are considered “investment income” for purposes of the Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g., earnings) to individuals, trusts, and estates whose income exceeds certain threshold amounts. We are required to report distributions made from nonqualified annuity policies as being potentially subject to this tax. While distributions from qualified policies are not subject to the tax, such distributions may be includable in income for purposes of determining whether certain Medicare Tax thresholds have been met. As such, distributions from your qualified policy could cause your other investment income to be subject to the tax. Please consult a tax adviser for more information.
Same Sex Relationships
Same sex couples have the right to marry in all states. The parties to each marriage that is valid under the law of any state will each be treated as a spouse as defined in this policy. Individuals in other arrangements, such as civil unions, registered domestic partnerships, or other similar arrangements, that are not recognized as marriage under the relevant state law, will not be treated as married or as spouses as defined in this policy. Therefore, exercise of the spousal continuation provisions of this policy or any riders by individuals who do not meet the definition of “spouse” may have adverse tax consequences and/or may not be permissible. Please consult a tax adviser for more information on this subject.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of your death or the death of the annuitant. Generally, such amounts should be includable in the income of the recipient: (1) if distributed in a lump sum, these amounts are taxed in the same manner as a surrender; (2) if distributed via partial withdrawals, these amounts are taxed in the same manner as partial surrenders; or (3) if distributed under an annuity payment option, these amounts are taxed in the same manner as annuity payments.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an annuitant or payee or other beneficiary who is not also the owner, the exchange of a policy and certain other transactions, or a change of annuitant other than the owner, may result in certain income or gift tax consequences to the owner that are beyond the scope of this discussion. An owner contemplating any such transaction or designation should contact a competent tax adviser with respect to the potential tax effects.
Charges
It is possible that the IRS may take a position that fees for certain optional benefits (e.g., death benefits other than the Return of Premium death benefit) are deemed to be taxable distributions to you. In particular, the IRS may treat fees associated with certain optional benefits as a taxable partial withdrawal, which might also be subject to a tax penalty if the partial withdrawal occurs prior to age 59½. Although we do not believe that the fees associated with any optional benefit provided under the policy should be treated as taxable partial withdrawals, the tax rules associated with these benefits are unclear, and we advise that you consult your tax adviser prior to selecting any optional benefit under the policy.
Federal Estate, Gift and Generation-Skipping Transfer Taxes
Beginning in 2017, the federal estate tax, gift tax and generation-skipping transfer (“GST”) tax exemptions and maximum rate is $5,490,000 indexed for inflation and 40% respectively.
The uncertainty as to how the current law might be modified in the future underscores the importance of seeking guidance from a competent adviser to help ensure that your estate plan adequately addresses your needs and that of your beneficiaries under all possible scenarios.
Federal Estate Taxes. While no attempt is being made to discuss the Federal estate tax implications of the policy in detail, a purchaser should keep in mind that the value of an annuity policy owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent's gross estate. Depending on the terms of the annuity policy, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning adviser for more information.
Generation-Skipping Transfer Tax. Under certain circumstances, the Code may impose a “generation skipping transfer tax” when all or part of an annuity policy is transferred to, or a death benefit is paid to, an individual two or more generations younger than the owner. Regulations issued under the Code may require us to deduct the tax from your policy, or from any applicable payment, and pay it directly to the IRS.
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Qualified Policies
The qualified policy is designed for use with several types of tax-qualified retirement plans which are briefly described below. The tax rules applicable to participants and beneficiaries in tax-qualified retirement plans vary according to the type of plan and the terms and conditions of the plan. Special favorable tax treatment may be available for certain types of contributions and distributions. Adverse tax consequences may result from contributions in excess of specified limits, distributions prior to age 59½ (subject to certain exceptions), distributions that do not conform to specified commencement and minimum distribution rules, and in other specified circumstances. The distribution rules under Section 72(s) of the Code do not apply to annuities provided under a plan described in Sections 401(a), 403(a), 403(b), 408 or 408A of the Code, but other similar rules may. Some retirement plans are subject to distribution and other requirements that are not incorporated into the policies or our policy administration procedures. Owners, employers, participants, and beneficiaries are responsible for determining that contributions, distributions, and other transactions with respect to the policies comply with applicable law.
Traditional Individual Retirement Annuities. In order to qualify as a traditional individual retirement annuity under Section 408(b) of the Code, a policy must satisfy certain conditions: (i) the owner must be the annuitant; (ii) the policy generally is not transferable by the owner, e.g., the owner may not designate a new owner, designate a contingent owner or assign the policy as collateral security; (iii) subject to special rules, the total premium payments for any calendar year may not exceed the amount specified in the Code for the year, except in the case of a rollover amount or contribution under Section 402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3) or 457(e)(16) of the Code; (iv) annuity payments or partial surrenders according to the requirements in the IRS regulations (minimum required distributions) must begin no later than April 1 of the calendar year following the calendar year in which the annuitant attains age 70½; (v) an annuity payment option with a period certain that will guarantee annuity payments beyond the life expectancy of the annuitant and the beneficiary may not be selected; (vi) certain payments of death benefits must be made in the event the annuitant dies prior to the distribution of the policy value; (vii) the entire interest of the owner is non-forfeitable; and (viii) the premiums must not be fixed. Policies intended to qualify as traditional individual retirement annuities under Section 408(b) of the Code contain such provisions. Amounts in the individual retirement annuity (other than nondeductible contributions) generally are taxed only when distributed from the annuity. Distributions prior to age 59½ (unless certain exceptions apply) are subject to a 10% penalty tax.
SIMPLE and SEP IRAs are types of IRAs that allow employers to contribute to IRAs on behalf of their employees. SIMPLE IRAs permit certain small employers to establish SIMPLE plans as provided by section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a specified percentage of compensation. The sponsoring employer is required to make matching or non-elective contributions on behalf of employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions. Subject to certain exceptions, distributions prior to age 59½ are subject to a 10 percent penalty tax, which is increased to 25 percent if the distribution occurs within the first two years after the commencement of the employee's participation in the plan. SEP IRAs permit employers to make contributions to IRAs on behalf of their employees, up to a specified dollar amount for the year and subject to certain eligibility requirements as provided by Section 408(k) of the Code. Distributions from SEP IRAs are subject to the same rules that apply to IRA distributions and are taxed as ordinary income.
The IRS has not reviewed this policy for qualification as a traditional IRA, SIMPLE IRA or SEP IRA, and has not addressed in a ruling of general applicability whether any death benefits available under the policy comport with qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section 408A of the Code, contains many of the same provisions as a traditional IRA. However, there are some differences. First, the contributions are not deductible and must be made in cash or as a rollover or transfer from another Roth IRA, a traditional IRA or other allowed qualified plan. A rollover from or conversion of an IRA to a Roth IRA may be subject to tax. The ability to make cash contributions to Roth IRAs is available to individuals with earned income and whose modified adjusted gross income is under a specified dollar amount for the year. Subject to special rules, the amount per individual that may be contributed to all IRAs (Roth and traditional) is an amount specified in the Code for the year. Secondly, the distributions are taxed differently. The Roth IRA offers tax-free distributions when made 5 tax years after the first contribution to any Roth IRA of the individual and made after one of the following: attaining age 59½, to pay for qualified first time home buyer expenses (lifetime maximum of $10,000), or due to death or disability. All other distributions are subject to income tax when made from earnings and may be subject to a penalty tax unless an exception applies. Please note that specific tax ordering rules apply to Roth IRA distributions. Unlike the traditional IRA, there are no minimum required distributions during the owner's lifetime; however, minimum required distributions at death are generally the same as for traditional IRAs.
The IRS has not reviewed this policy for qualification as a ROTH IRA, and has not addressed in a ruling of general applicability whether any death benefits available under the policy comport with qualification requirements.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public school systems and certain tax exempt organizations to purchase policies for their employees are generally excludable from the gross income of the employee, subject to certain limitations. However, such payments may be subject to Federal Insurance Contributions Act (FICA or Social Security) taxes.
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The policy includes a death benefit that in some cases may exceed the greater of the premium payments or the policy value. Additionally, in accordance with the requirements of the Code, Section 403(b) annuities generally may not permit distribution of (i) elective contributions made in years beginning after December 31, 1988, and (ii) earnings on those contributions, and (iii) earnings on amounts attributed to elective contributions held as of the end of the last year beginning before January 1, 1989, unless certain events have occurred. Specifically distributions of such amounts will be allowed only upon the death of the employee, on or after attainment of age 59½, severance from employment, disability, or financial hardship, except that income attributable to elective contributions may not be distributed in the case of hardship. These rules may prevent the payment of guaranteed withdrawals under a guaranteed lifetime withdrawal benefit prior to age 59½. For policies issued after 2008, amounts attributable to non-elective contributions may be subject to distribution restrictions specified in the employer's section 403(b) plan. Employers using the policy in connection with Section 403(b) plans may wish to consult with their tax adviser.
Pursuant to tax regulations, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, loans or transfers you request from a 403(b) policy comply with applicable tax requirements before we process your request. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender or transfer, you consent to the sharing of confidential information about you, the policy, and transactions under the policy and any other 403(b) policies or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or record keeper, and other product providers.
Pension and Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit employers to establish various types of retirement plans for employees and self-employed individuals to establish qualified plans for themselves and their employees. Such retirement plans may permit the purchase of the policies to accumulate retirement savings. Adverse tax consequences to the plan, the participant or both may result if the policy is assigned or transferred to any individual as a means to provide benefit payments. Contributions to and distributions from such plans are limited by the Code and may be subject to penalties.
Deferred Compensation Plans. Section 457(b) of the Code, while not actually providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans established and maintained by state and local governments (and their agencies and instrumentalities) and tax exempt organizations. Under such plans a participant may be able to specify the form of investment in which his or her participation will be made. For non-governmental Section 457(b) plans, all such investments, however, are typically owned by, and are subject to, the claims of the general creditors of the sponsoring employer. Depending on the terms of the particular plan, a non-government employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457(b) plan obligations. In general, all amounts received under a non-governmental Section 457 plan are taxable in the year paid (or in the year paid or made available in the case of a non-governmental 457(b) plan). Distributions from non-governmental 457(b) plans are subject to federal income tax withholding as wages, distributions from governmental 457(b) plans are subject to withholding as “eligible rollover distributions” as described in the section entitled “Withholding.” below. Contributions to and distributions from such plans are limited by the Code and may be subject to penalties. Deferred compensation plans of governments and tax-exempt entities that do not meet the requirements of Section 457(b) are taxed under Section 457(f), which means compensation deferred under the plan is included in gross income in the first year in which the compensation is not subject to substantial risk of forfeiture.
Ineligible Owners-Qualified
We currently will not issue new policies to/or for the following plans: 403(a), 403(b), 412(i)/412(e)(3), 419, 457 (we will in certain limited circumstances accept 457(f) plans), employee stock ownership plans, Keogh/H.R.-10 plans and any other types of plans at our sole discretion.
Taxation of Surrenders and Partial Withdrawals - Qualified Policies
In the case of a withdrawal under a qualified policy (other than from a deferred compensation plan under Section 457 of the Code), a pro rata portion of the amount you receive is taxable, generally based on the ratio of your “investment in the policy” to your total account balance or accrued benefit under the retirement plan. Your “investment in the policy” generally equals the amount of any non-deductible premium payments made by you or on your behalf. If you do not have any non-deductible premium payments, your investment in the contract will be treated as zero.
In addition, a penalty tax may be assessed on amounts surrendered from the policy prior to the date you reach age 59½, unless you meet one of the exceptions to this rule which are similar to the penalty exceptions for distributions from nonqualified policies discussed above. However, the exceptions applicable for qualified policies differ from those provided to nonqualified policies. You may wish to consult a tax adviser for more information regarding the application of these exceptions to your circumstances. You may also be required to begin taking minimum distributions from the policy by a certain date. The terms of the plan may limit the rights otherwise available to you under the policy.
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Qualified Plan Required Distributions
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code requires that distributions generally must commence no later than the later of April 1 of the calendar year following the calendar year in which the owner (or plan participant) (i) reaches age 70½ or (ii) retires, and must be made in a specified form or manner. If a participant is a “5 percent owner” (as defined in the Code), or in the case of an IRA (other than a Roth IRA which is not subject to the lifetime required minimum distribution rules), distributions generally must begin no later than April 1 of the year following the calendar year in which the owner (or plan participant) reaches age 70½. The actuarial present value of death and/or living benefit options and riders elected may need to be taken into account in calculating minimum required distributions. Consult a competent tax adviser before purchasing an optional living or death benefit.
Each owner is responsible for requesting distributions under the policy that satisfy applicable tax rules. We do not attempt to provide more than general information about the use of the policy with the various types of retirement plans. Purchasers of policies for use with any retirement plan should consult their legal counsel and tax adviser regarding the suitability of the policy.
The Code generally requires that interest in a qualified policy be non-forfeitable.
You should consult your legal counsel or tax adviser if you are considering purchasing an enhanced death benefit or other optional rider, or if you are considering purchasing a policy for use with any qualified retirement plan or arrangement.
Optional Living Benefits
For policies with a guaranteed lifetime withdrawal benefit or a guaranteed maximum accumulation benefit the application of certain tax rules, particularly those rules relating to distributions from your policy, are not entirely clear. The tax rules for qualified policies may impact the value of these optional benefits. Additionally, the actions of the qualified plan as contract holder may cause the qualified plan participant to lose the benefit of the guaranteed lifetime withdrawal benefit. In view of this uncertainty, you should consult a tax adviser before purchasing this policy as a qualified policy.
Withholding
The portion of any distribution under a policy that is includable in gross income will be subject to federal income tax withholding unless the recipient of such distribution elects not to have federal income tax withheld. Election forms will be provided at the time distributions are requested or made. The amount of withholding varies according to the type of distribution. The withholding rates applicable to the taxable portion of periodic payments (other than eligible rollover distributions) are the same as the withholding rates generally applicable to payments of wages. A 10% withholding rate applies to the taxable portion of non-periodic payments. Regardless of whether you elect not to have federal income tax withheld, you are still liable for payment of federal income tax on the taxable portion of the payment. For qualified policies taxable, “eligible rollover distributions” from Section 401(a) plans, Section 403(a) annuities, Section 403(b) tax-sheltered annuities, and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution from such a plan, other than specified distributions such as distributions required by the Code, distributions in a specified annuity form or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if (i) the employee (or employee's spouse or former spouse as beneficiary or alternate payee) chooses a “direct rollover” from the plan to a tax-qualified plan, IRA, Roth IRA or 403(b) tax-sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) a non-spouse beneficiary chooses a “direct rollover” from the plan to an IRA established by the direct rollover.
Annuity Purchases by Residents of Puerto Rico
The IRS has announced that income received by residents of Puerto Rico under life insurance or annuity policies issued by a Puerto Rico branch of a United States life insurance company is U.S.-source income that is generally subject to United States federal income tax.
Annuity Policies Purchased by Non-resident Aliens and Foreign Corporations
The discussion above provided general information (but not tax advice) regarding U.S. federal income tax consequences to annuity owners that are U.S. persons. Taxable distributions made to owners who are not U.S. persons will generally be subject to U.S. federal income tax withholding at a 30% rate, unless a lower treaty rate applies. In addition, distributions may be subject to state and/or municipal taxes and taxes that may be imposed by the owner's country of citizenship or residence. Prospective foreign owners are advised to consult with a qualified tax adviser regarding U.S., state, and foreign taxation for any annuity policy purchase.
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Foreign Account Tax Compliance Act (“FATCA”)
If the payee of a distribution from the policy is a foreign financial institution (“FFI”) or a non-financial foreign entity (“NFFE”) within the meaning of the Code as amended by the Foreign Account tax Compliance Act (“FATCA”), the distribution could be subject to U.S. federal withholding tax on the taxable amount of the distribution at a 30% rate irrespective of the status of any beneficial owner of the policy or the distribution. The rules relating to FATCA are complex, and a tax adviser should be consulted if an FFI or NFFE is or may be designated as a payee with respect to the policy.
Possible Tax Law Changes
Although the likelihood of legislative or regulatory changes is uncertain, there is always the possibility that the tax treatment of the policy could change by legislation, regulation, or otherwise. You should consult a tax adviser with respect to legal or regulatory developments and their effect on the policy.
We have the right to modify the policy to meet the requirements of any applicable laws or regulations, including legislative changes that could otherwise diminish the favorable tax treatment that annuity owners currently receive.
ADDITIONAL FEATURES
Systematic Payout Option
You can select at any time during the accumulation phase to receive regular withdrawals from your policy by using the systematic payout option. Any systematic withdrawal in excess of the cumulative interest credited at the time of the payment may be subject to an excess interest adjustment. Any systematic withdrawal in excess of the remaining rider withdrawal amount could affect your rider values (if elected). Systematic withdrawals can be made monthly, quarterly, semi-annually, or annually. Each withdrawal must be at least $40. Monthly and quarterly systematic withdrawals must generally be made by electronic funds transfer directly to your checking or savings account. There is no charge for this benefit.
Keep in mind that withdrawals under the systematic payout option may be taxable, and if made before age 59½, may be subject to a 10% federal penalty tax.
Telephone and Electronic Transactions
Currently, certain transactions may be made by telephone or other electronic means acceptable to us upon our receipt of the appropriate authorization. We may discontinue this option at any time. To access information and perform transactions electronically, we require you to create an account with a username and password, and to maintain a valid e-mail address.
We will not be liable for following instructions communicated by telephone or electronically we reasonably believe to be genuine. We will employ reasonable procedures to confirm that instructions we receive are genuine. Our procedures require you to provide information to verify your identity when you call us and we will record conversations with you. We may also require written confirmation of the request. When someone contacts our Administrative Office and follows our procedures, we will assume you are authorizing us to act upon those instructions. For electronic transactions through the internet, you will need to provide your username and password. You are responsible for keeping your password confidential and must notify us of any loss, theft or unauthorized use of your password.
Telephone and other electronic transactions must be received while the New York Stock Exchange is open for regular trading to get same-day pricing of the transaction. Please note that the telephone and/or electronic device transactions may not always be available. Any telephone, fax machine or other electronic device, whether it is yours, your service provider's, or your financial representative's can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request if the volume of transactions is unusually high, we might not have anyone available, or lines available, to take your transaction. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request by writing to our Administrative Office.
We reserve the right to revoke your telephone and other electronic transaction privileges at any time without revoking all owners' privileges. We may deny telephone and electronic transaction privileges to market timers or disruptive traders.
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Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically make transfers into one or more subaccounts in accordance with your allocation instructions. This is known as Dollar Cost Averaging. While Dollar Cost Averaging buys more accumulation units when prices are low and fewer accumulation units when prices are high, it does not guarantee profits or assure that you will not experience a loss.
Dollar Cost Averaging programs that may be available under your policy:
• Traditional—You may specify the dollar amount to be transferred or the number of transfers. Transfers will begin as soon as the program is started. A minimum of $500 per transfer is required. The minimum number of transfers is 6 monthly transfers or 4 quarterly transfers, and the maximum is 24 monthly transfers or 8 quarterly transfers. You can elect to transfer from the fixed account, money market or other specified subaccount.
• Special —You may only elect either a six or twelve month program. Transfers will begin as soon as the program is started. You cannot transfer from another investment option into a Special Dollar Cost Averaging program. This program is only available for new premium payments, requires transfers from a fixed source, and may credit a higher or lower interest rate than a traditional program. A minimum of $500 per transfer is required ($3,000 or $6,000 to start a 6-month or 12-month program, respectively).
A Dollar Cost Averaging program will begin the next market day after we have received in good order all necessary information and the minimum required amount. See OTHER INFORMATION - Sending Forms and Transaction Requests in Good Order. Please note: Dollar Cost Averaging programs will not begin on the 29th, 30th, or 31st. If a program would have started on one of those dates, it will start on the 1st market day of the following month. If we receive additional premium payments while a Dollar Cost Averaging program is running, absent new instructions to the contrary, the amount of the Dollar Cost Averaging transfers will increase, but the length of the Dollar Cost Averaging program will not.
NOTE CAREFULLY:
New Dollar Cost averaging instructions are required to start a new Dollar Cost Averaging program once the previous Dollar Cost Averaging program has completed. Additional premium payments, absent new allocation instructions, received after a Dollar Cost Averaging program has completed, will be allocated according to the current premium payment allocations at that time but will not reactivate a completed Dollar Cost Averaging program.
IF:
• we do not receive all necessary information to begin or restart a Dollar Cost Averaging program
THEN:
• any amount allocated to a fixed source will be invested in that fixed source but will be transferred to the money market investment option within 30 days of allocation to fixed source if new Dollar Cost Averaging instructions are not received;
• any amount allocated to a variable source will be invested in that variable source and will remain in that variable investment option; and
• new Dollar Cost Averaging instructions will be required to begin a Dollar Cost Averaging program.
You should consider your ability to continue a Dollar Cost Averaging program during all economic conditions. Transfers from a Dollar Cost Averaging fixed source are not subject to an excess interest adjustment. A Dollar Cost Averaging program can be used in conjunction with Asset Rebalancing and a guaranteed lifetime withdrawal benefit (subject to any investment restrictions involving the source). There is no charge for this benefit.
The Dollar Cost Averaging Program may vary for certain policies and may not be available for all policies, in all states or at all times. See your policy for availability of the fixed account options.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the amounts in your subaccounts to maintain your desired asset allocation. This feature is called asset rebalancing and can be started and stopped at any time. If a transfer is requested, we will honor the requested transfer and discontinue asset rebalancing. New instructions are required to start asset rebalancing. Asset rebalancing ignores amounts in the fixed account. You can choose to rebalance monthly, quarterly, semi-annually, or annually. Asset rebalancing can be used in conjunction with the Retirement Income MaxSM Rider. There is no charge for this benefit.
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Retirement Income Max® Rider
If you elect the Retirement Income Max® Rider identified below, which provides certain guaranteed benefits, the Company requires your policy value to be allocated into designated investment options. One or more of the designated investment options may include a volatility control strategy. Volatility control strategies, in periods of high market volatility, could limit your participation in market gains; this may conflict with your investment objectives by limiting your ability to maximize potential growth of your policy value and, in turn, the value of any guaranteed benefit that is tied to investment performance. Volatility control strategies are intended to help limit overall volatility and reduce the effects of significant market downturns during periods of high market volatility, providing policy owners with the opportunity for smoother performance and better risk adjusted returns. Volatility control (and similar terms) can encompass a variety of investment strategies of different types and degrees; therefore, you should read the applicable annuity and underlying fund portfolio prospectuses carefully to understand how these investment strategies may affect your policy value and rider benefits. The Company’s requirement to invest in accordance with designated investment options, which may include volatility control, may reduce our costs and risks associated with this rider. You pay an additional fee for the rider benefits which, in part, pay for protecting the rider benefit base from investment losses. Since the rider benefit base does not decrease as a result of investment losses, volatility control strategies might not provide meaningful additional benefit to you. You should carefully evaluate with your financial advisor whether to invest in funds with volatility control strategies, taking into consideration the potential positive or negative impact that such strategy may have on your investment objectives, your policy value and the benefits under the Retirement Income Max® Rider. If you determine that funds with volatility control strategies are not consistent with your investment objectives, there continues to be other designated investment options available under the Retirement Income Max® Rider that do not invest in funds that utilize volatility control strategies.
You may elect to purchase the optional Retirement Income Max® rider which, provides you with: (1) a guaranteed lifetime withdrawal benefit; and (2) an opportunity for increases in the rider withdrawal amount. This rider is available during the accumulation phase, and requires that you allocate 100% of your policy value in certain designated investment options which are designed to help manage our risk and support the guarantees under the rider. The tax rules for qualified policies may limit the value of this rider. Please consult a qualified tax adviser before electing the Retirement Income Max® rider for a qualified policy. Please Note: This rider may not be issued or added to Inherited IRAs (sometimes also referred to as beneficiary IRAs) or a nonqualified annuity under which death benefits are being distributed under a stretch withdrawal option. The guaranteed lifetime withdrawal benefit is based on our claims-paying ability.
Retirement Income Max® - Base Benefit
Under this benefit, you can receive up to the rider withdrawal amount each rider year (first as withdrawals from your policy value and, if necessary because your policy value goes to zero by other than an excess withdrawal, as payments from us for life), starting with the rider year immediately following the annuitant’s (or the annuitant's spouse if younger and the joint life option is elected) 59th birthday and lasting until the annuitant’s (or surviving spouse's if the joint life option is elected) death (unless your withdrawal base is reduced to zero because of an “excess withdrawal”; see Withdrawal Base Adjustments, below). A rider year begins on the rider date (the date the rider becomes effective) and thereafter on each anniversary of that date. The withdrawal percentage and growth percentage that are used to determine your rider withdrawal amount will be disclosed in a Rate Sheet Prospectus Supplement which may be amended from time to time by us.
Of course, you can always withdraw an amount up to your cash value pursuant to your rights under the policy at your discretion. See the “Appendix - Hypothetical Adjusted Partial Withdrawals - Guaranteed Lifetime Withdrawal Benefit Riders” for examples showing the effect of hypothetical withdrawals in more detail.
Please note:
• You will begin paying the rider charge as of the date the rider takes effect, even if you do not begin taking withdrawals for many years, or ever. We will not refund the charges you have paid under the rider if you never choose to take withdrawals and/or if you never receive any payments under the rider.
• We have designed this rider to allow for withdrawals from your policy value each rider year that are less than or equal to the rider withdrawal amount. You should not purchase this rider if you plan to take withdrawals in excess of the rider withdrawal amount, because such excess withdrawals may significantly reduce or eliminate the value of the guarantee provided by the rider.
• The longer you wait to start making withdrawals under the benefit, the less time you have to benefit from the guarantee because of decreasing life expectancy as you age. On the other hand, the longer you wait to begin making withdrawals, the higher your
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  withdrawal percentage may be, the higher the withdrawal base due to growth may be, and the more opportunities you will have to lock in a higher withdrawal base. You should carefully consider when to begin making withdrawals. There is a risk that you will not begin making withdrawals at the most financially beneficial time for you.
• Because the guaranteed lifetime withdrawal benefit under this rider is accessed through regular withdrawals that do not exceed the rider withdrawal amount, the rider may not be appropriate for you if you do not foresee a need for liquidity and your primary objective is to take maximum advantage of the tax deferral aspect of the policy.
• All policy value must be allocated to a limited number of specified investment options. You should consult with your registered representative to assist you in determining whether these certain investment options are suited for your financial needs and risk tolerance.
• Any amount of withdrawals in any rider year that are in excess of the rider withdrawal amount are excess withdrawals.
• An excess withdrawal may impact the withdrawal base on a greater than dollar-for-dollar basis and may cause you to lose the benefit of this rider.
• Upon the death of the annuitant (or the death of the surviving spouse if the joint option is elected and the surviving spouse was eligible to and elected to continue the policy), the Retirement Income Max® rider terminates and all benefits thereunder cease.
Like all withdrawals, withdrawals while this rider is in effect also:
• reduce your policy value;
• reduce your base policy death benefit and other benefits;
• may be subject to excess interest adjustment if the withdrawal is greater than the cumulative interest in the GPO(s) of the fixed account;
• may be subject to income taxes and federal tax penalties; and
• may be limited or restricted under certain qualified policies.
Rider Withdrawal Amount. You can withdraw up to the rider withdrawal amount in any rider year (after age 59) from your policy value without causing an excess withdrawal. See Withdrawal Base Adjustments below.
The rider withdrawal amount is zero if the annuitant (or the annuitant's spouse if younger and the joint life option is elected) is not 59 years old on the rider date and remains zero until the first day of the rider year after the annuitant’s (or the annuitant's spouse's if younger and the joint life option is elected) 59th birthday. If the annuitant (or the annuitant's spouse if younger and the joint life option is elected) is at least 59 years old on the rider date, then the rider withdrawal amount is equal to the withdrawal base multiplied by the withdrawal percentage (for riders issued prior to the date of this prospectus, see “Appendix – Prior Withdrawal/Growth Percentages and Rider Fees” in the Statement of Additional Information, for your withdrawal percentage depending on when you purchased your rider).
For qualified policies: If the plan participant (generally the annuitant) is at least 70½ years old, the rider withdrawal amount for that rider year (and each subsequent rider year) is equal to the greater of:
• the rider withdrawal amount described above; or
• an amount equal to any minimum required distribution amount (for the tax year on that rider anniversary) calculated using only: (1) the living annuitant’s age, (2) the IRS Uniform Lifetime table or, if applicable, the Joint Life and Survivor Expectancy table, (3) the policy value of the base policy, (prior to the first rider anniversary we use the policy value on the rider date and thereafter we use the policy value on the date prescribed by the IRS) and (4) amounts from the current calendar year (no carry-over from past years).
Only amounts calculated as set forth above can be used as the rider withdrawal amount. If the minimum required distribution amount (determined as set forth above) exceeds the rider withdrawal amount, the excess will not be treated as an excess withdrawal under the rider.
If your policy value reaches zero:
• due to a non-excess withdrawal, then you cannot make premium payments and all other policy features, benefits, and guarantees (except those provided by this rider) are terminated. If your policy value reaches zero by other than an excess withdrawal, we will, unless instructed otherwise, disburse any remaining minimum required distribution amount for the current rider year and set up monthly payments beginning in the next rider year according to your guarantees.
• due to an excess withdrawal, then this rider terminates (as does the policy).
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Please note:
• If the rider is added prior to the annuitant’s (or the annuitant’s spouse if younger and the joint life option is elected) 59th birthday, the rider withdrawal amount will be zero until the beginning of the rider year after the annuitant’s (or the annuitant’s spouse if younger and the joint life option is elected) 59th birthday, however, you will still be charged a rider fee prior to this time.
• The rider year begins on the rider date and thereafter on each rider anniversary. Withdrawals requested for the upcoming rider year must be taken the day after each rider anniversary or later within the rider year. Any withdrawal taken on the rider anniversary date will count towards the previous rider year withdrawals.
• You cannot carry over any portion of your rider withdrawal amount that is not withdrawn during a rider year for withdrawal in a future rider year. This means that if you do not take the entire rider withdrawal amount during a rider year, you cannot take more than the rider withdrawal amount in the next rider year and maintain the rider's guarantees.
• Excess withdrawals may cause you to lose the benefit of the rider.
• All policy value must be allocated to a limited number of specified investment options. (See Designated Investment Options below.)
Rate Sheet Prospectus Supplement
The withdrawal, growth and fee percentages are disclosed in Rate Sheet Prospectus Supplements. We periodically issue new Rate Sheet Prospectus Supplements that may reflect different withdrawal, growth and fee percentages than the previous Rate Sheet Prospectus Supplements. All Rate Sheet Prospectus Supplements are also available on the Edgar system at (File 333-186032 for TLIC and 333-186036 for TFLIC). In order to receive the applicable withdrawal, growth and fee percentages: (1) your application must be signed and received within the stated time period set forth in the applicable Rate Sheet Prospectus Supplement and (2) your application must be received and your policy must be funded within the stated time periods set forth in the applicable Rate Sheet Prospectus Supplement. Withdrawal percentages reflected in a Rate Sheet Prospectus Supplement with an effective period that does not include the date you signed your application will not apply to your policy. You should not purchase this rider without first obtaining the applicable Rate Sheet Prospectus Supplement. You can contact us at to receive a Rate Sheet Prospectus Supplement applicable to you.
Withdrawal Percentage. We use the withdrawal percentage to calculate the rider withdrawal amount. The withdrawal percentage is determined by the annuitant’s age (or the annuitant's spouse's age if younger and the joint life option is elected) at the time of the first withdrawal taken on or after the rider anniversary immediately following the annuitant’s (or the annuitant's spouse's if younger and the joint life option is elected) 59th birthday.
Please note, once established, the withdrawal percentage will not change except in certain instances involving automatic step-ups. Withdrawal percentages will change when an automatic step-up occurs and you had crossed into another age band prior to the automatic step-up, see Automatic Step-Up section in the prospectus.
Withdrawal Base. We use the withdrawal base to calculate the rider withdrawal amount. The withdrawal base on the rider date is the policy value. During any rider year, the withdrawal base is equal to the withdrawal base on the rider date or most recent rider anniversary, plus subsequent premium payments, less subsequent withdrawal base adjustments due to excess withdrawals.
Please note:
• We determine the withdrawal base solely to calculate the rider withdrawal amount and rider fee.
• Your withdrawal base is not a cash value, a surrender value, or a death benefit. It is not available for withdrawal, it is not a minimum return for any subaccount, and it is not a guarantee of policy value.
• Because the withdrawal base is generally equal to the policy value on the rider date, the rider withdrawal amount may be lower if you delay electing the rider and the policy value decreases before you elect the rider.
On each rider anniversary, the withdrawal base will equal the greatest of:
• the current withdrawal base;
• the withdrawal base immediately before the rider anniversary, increased by the growth credit, if any (see Growth below);
• the policy value on any monthiversarySM (the same day of the month as the rider date, or the next market day if our Administrative Office or the New York Stock Exchange are closed) within the current rider year, including the current rider anniversary (see Automatic Step-Up below).
See “Appendix - Hypothetical Example of the Withdrawal Base Calculation - Retirement Income Max® Rider” which illustrates the hypothetical example of the withdrawal base calculation.
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Growth. On each of the first ten rider anniversaries, we will add a growth credit to your withdrawal base if no withdrawal occurred during the preceding rider year. The annual growth credit is equal to the growth percentage multiplied by the withdrawal base immediately before the rider anniversary.
Please note: Because a withdrawal will eliminate the potential application of the growth credit for that rider year, you should consider your need or possible need to take withdrawals within the first 10 rider years in deciding whether to purchase the rider.
Automatic Step-Up. On each rider anniversary, we will automatically step-up the withdrawal base to an amount equal to the greater of (1) the highest policy value on any monthiversarySM during the preceding rider year, if no excess withdrawal occurred, or (2) the policy value on the rider anniversary. If neither value is greater than the current withdrawal base, or the withdrawal base is increased by any growth percentage, no automatic step-up will occur. The withdrawal percentage (as indicated in the Rate Sheet Prospectus Supplement) will also increase if you have crossed into another age band prior to the automatic step-up. Please note, the increase is part of the automatic step-up and if no automatic step-up occurs then there will be no withdrawal percentage increase.
On each rider anniversary the rider fee percentage may increase (or decrease) at the time of any automatic step-up. The rider fee percentage will not exceed 0.75% from the current rider fee percentage in effect when you purchased the rider.
Automatic Step-Up Opt Out. Each time an automatic step-up results in a rider fee percentage increase, you have the option to reject the automatic step-up and reinstate the withdrawal base, withdrawal percentage, and rider fee percentage to their respective amounts immediately before the automatic step-up, provided that you do so within 30 days after the rider anniversary on which the automatic step-up occurred. We must receive your rejection (each time you elect to opt out), in good order, at our Administrative Office within the same 30 day period after the rider anniversary on which the automatic step-up occurred. You are not subject to fee increases for any Automatic Step-Up that you have opted out of. Opting out of one step-up does not operate as an opt-out of any future step-ups.
Withdrawal Base Adjustments. Cumulative gross partial withdrawals up to the rider withdrawal amount in any rider year will not reduce the withdrawal base. Any amount of gross partial withdrawals in excess of the rider withdrawal amount in any rider year (“excess withdrawals”) will reduce the withdrawal base, however, by the greater of the dollar amount of the excess withdrawal (if the policy value is greater than the withdrawal base) or a pro rata amount (in proportion to the reduction in the policy value when the policy value is less than the withdrawal base), possibly to zero. If an excess withdrawal reduces the policy value to zero, this rider will terminate. Withdrawal base adjustments occur immediately following excess withdrawals. See “Appendix - Hypothetical Adjusted Partial Withdrawals - Guaranteed Lifetime Withdrawal Benefit Riders” for examples showing the effect of hypothetical withdrawals in more detail, including an excess withdrawal that reduces the withdrawal base by a pro rata amount. The effect of an excess withdrawal is amplified if the policy value is less than the withdrawal base.
Please Note: You retain all responsibility for monitoring excess withdrawals. If you take regular or scheduled withdrawals please pay particular attention to any excess withdrawal because your otherwise regular or scheduled non-excess withdrawals may thereafter all be excess withdrawals that reduce or eliminate your benefit on an accelerated basis.
Example. Assume you are the owner and annuitant and you make a single premium payment of $100,000 when you are 66 years old. Further assume that you do not make any withdrawals or additional premium payments, no automatic step-ups occurred, but that after five years your policy value has declined to $90,000 solely because of negative investment performance. With an assumed annual growth rate percentage of 5.0%, after 5 years the withdrawal base is equal to $127,628 ($100,000 x 1.055). You could receive up to $6,381 which is the assumed withdrawal percentage of 5.0% for the single life option multiplied by the withdrawal base of $127,628, each rider year for the rest of your life (assuming that you take your first withdrawal when you are age 71, that you do not withdraw more than the rider withdrawal amount in any one year and there are no future automatic step-ups.)
Example continued. Assume the same facts as above, but you withdraw $10,000 when you are 71 years old. That excess withdrawal decreases your future rider withdrawal amount to $6,105.
See the “Appendix - Hypothetical Adjusted Partial Withdrawals - Guaranteed Lifetime Withdrawal Benefit Riders” for examples showing the effect of hypothetical withdrawals in more detail.
Designated Investment Options. If you elect this rider, you must designate 100% of your policy value into one or more of the designated investment options approved for the Retirement Income Max® Rider. See “Appendix - Designated Investment Options” for a complete listing of available subaccounts. Requiring that you designate 100% of your policy value to the designated investment options, some of which employ strategies that are intended to reduce the risk of loss and/or manage volatility, may reduce investment returns and may reduce the likelihood that we will be required to use our own assets to pay amounts due under this benefit.
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Transfers between the designated investment options are allowed as permitted under the policy; however, you cannot transfer any amount (or allocate premium payments) to any non-designated investment option. Within 30 days following the fifth rider anniversary (and each successive fifth rider anniversary), you can terminate this rider. Starting the next market day after you terminate your rider, you may transfer (or allocate premium payments) to a non-designated investment option. Terminating the rider will result in losing all your benefits under the rider.
Please note:
• The earliest you can transfer (or allocate premium payments) to a non-designated investment option is the first market day after the fifth rider anniversary. You will be required to terminate the rider first. If you terminate the rider you will lose all of its benefits.
• We can eliminate a designated investment option at any time. If this occurs, then an owner will be required to reallocate values in the affected designated investment options to other designated investment options that meet the allocation requirements.
Retirement Income Max® - Joint Life Option
If you elect this rider, then you can also elect to postpone termination of the rider until the later of the annuitant or annuitant’s spouse’s death (only if the annuitant’s spouse is eligible to and elects to continue the policy, see TAX INFORMATION - Tax Status of a Nonqualified Policy - Distribution Requirements). If you elect the Joint Life option, then the withdrawal percentage (used to calculate the rider withdrawal amount) is lower.
Please note:
• The withdrawal percentage for each “age at the time of the first withdrawal” is lower if you elect this option.
• The annuitant's spouse (or in certain instances a non-natural entity acting for the benefit of the annuitant's spouse) must be either a joint owner along with the annuitant or the sole primary beneficiary (and there is no joint owner), if you elect this option. (Please see Spousal Continuation section for more detail regarding annuitant's spouse).
• A former spouse of the annuitant cannot continue to keep the policy in force if no longer married to the annuitant at the time of the annuitant's death. In that event, the rider will terminate and no additional withdrawals under the rider will be permitted.
• The annuitant’s spouse for purposes of this rider cannot be changed to a new spouse.
• The rider withdrawal percentage is based on the age of the younger of the annuitant and annuitant’s spouse, if you elect this option.
• This option may not be permitted in the case of certain non-natural owners.
• The rider's issue ages may vary if you elect this option.
Retirement Income Max® Rider Fees
Retirement Income Max® Rider Fee. The rider fee is calculated on the rider date and at the beginning of each rider quarter. The rider fee will be adjusted for any premium additions and excess withdrawals. It will be deducted automatically from your policy value at the end of each rider quarter. Your rider fee may increase (or decrease) at the time of any automatic step-up. See Automatic Step-Up section. Your current rider fee will not exceed 0.75% from the current rider fee percentage in effect when you purchased the rider. The current rider fee will be disclosed in a Rate Sheet Prospectus Supplement. All Rate Sheet Prospectus Supplements are also available on the Edgar system at www.sec.gov (File 333-186032 for TLIC and 333-186036 for TFLIC).
On an annual basis, in general terms, the rider fee is the rider fee percentage times the withdrawal base. Specifically, the quarterly fee is calculated by multiplying (A) by (B) multiplied by (C), where:
(A) is the withdrawal base;
(B) is the rider fee percentage; and
(C) is the number of (remaining) days in the rider quarter divided by the total number of days in the applicable rider year.
The following example uses these assumed values: Initial Premium = $100,000; Withdrawal Base = $100,000; Rider Fee percentage = 1.25%; and 91 total days in the rider quarter.
Example 1: Calculation at rider issue for first quarter rider fee. The rider fee is:
= 100,000*0.0125*(91/365)
= 1,250*(91/365)
= $311.64
We will assess a prorated rider fee upon full surrender of the policy or other termination of the rider for the period beginning on the first day of the most recent rider quarter and ending on the date of termination.
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On each rider anniversary the rider fee percentage may increase (or decrease) at the time of an automatic step-up. See Automatic Step-Up section. The rider fee percentage will not exceed 0.75% from the current rider fee percentage in effect when you purchased the rider. The current rider fee will be disclosed in a Rate Sheet Prospectus Supplement which may be amended from time to time by us. Please contact your financial intermediary or call our Administrative Office to determine whether the Rate Sheet Prospectus Supplement has been amended. Each time an automatic step-up results in a rider fee percentage increase, you will have the option to reject the automatic step-up and reinstate the withdrawal base and rider fee percentage to their respective amounts immediately before the automatic step-up (adjusted for any subsequent premium payments or withdrawals), provided that you do so within 30 calendar days after the rider anniversary on which the automatic step-up occurred. We must receive your rejection, in good order, at our Administrative Office within the 30 day period after the rider anniversary on which the automatic step-up occurred.
Please note regarding the rider fee:
• Because the rider fee is a percentage of the withdrawal base, it could be a much higher percentage of your policy value, particularly in the event that your policy value decreases significantly.
• Because the rider fee is a percentage of the withdrawal base, the amount of the rider fee we deduct will increase if the withdrawal base increases (although the percentage(s) may remain the same).
Rider Fee Adjustment for Premium Payments and Excess Withdrawals. A rider fee adjustment will be calculated for subsequent premium payments and excess withdrawals because these events will change the withdrawal base. The rider fee adjustment may be positive or negative and will be added to or subtracted from the rider fee to be collected.
The following example uses these assumed values: All initial values as in Example 1; Subsequent Premium = $10,000; and 30 remaining days in the rider quarter.
Example 2: Calculation for first quarter rider fee adjustment for a subsequent premium. The fee adjustment is:
= 10,000*0.0125*(30/365)
= 125*(30/365)
= $10.27
Total fee assessed at the end of the first rider quarter (assuming no further rider fee adjustments):
= 311.64 + 10.27
= $321.91
Retirement Income Max® Rider Issue Requirements
We will not issue the Retirement Income Max® rider unless:
• the annuitant is not yet age 86 (lower if required by state law);
• the annuitant is also an owner (except in the case of non-natural owners);
• there are no more than two owners; and
• if the joint life option is elected, the annuitant’s spouse is also not yet 86 (lower if required by state law) and (1) is a joint owner along with the annuitant or (2) is the sole primary beneficiary (and there is no joint owner).
The use of joint life option may not be permitted in the case of certain non-natural owners.
Termination
The Retirement Income Max® rider will terminate upon the earliest of the following:
• the date we receive written notice from you requesting termination of the rider if such notice is received before midnight of the 30th calendar day after you receive the rider;
• the date we receive written notice from you requesting termination of the rider if such notice is received by us during the 30 days following the fifth rider anniversary or every fifth rider anniversary thereafter;
• the death of the annuitant (or if the joint life option was elected, the death of the annuitant’s spouse if that spouse was eligible to and elected to continue the policy as the surviving spouse);
• annuitization (however, if you have reached your maximum annuity commencement date you may choose an annuitization option which guarantees you lifetime payments in an amount equal to your rider withdrawal amount);
• the date the policy to which this rider is attached is assigned or if the owner is changed without our approval;
• the date an excess withdrawal reduces your policy value to zero; or
• termination of your policy.
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Please note: This rider terminates upon annuitization and there is a maximum annuity commencement date at which time your policy will be annuitized according to its terms. However, if you have reached your maximum annuity commencement date, we will allow you to annuitize your policy and elect to receive lifetime annuity payments which are at least equal to your rider withdrawal amount. Please contact us for more information concerning your options.
The Retirement Income Max® rider and additional options may vary for certain policies and may not be available for all policies, in all states, at all times or through all financial intermediaries. We may discontinue offering this benefit at any time for new sales. In some cases, a benefit not available through a financial intermediary may be obtained by contacting us directly. For more information on the options available for electing a benefit, please contact your financial intermediary or our Administrative Office.
OTHER INFORMATION
State Variations
The following section describes modifications to this prospectus required by one or more state insurance departments as of the date of this prospectus. Unless otherwise noted, variations apply to all forms of policies we issue. References to certain state's variations do not imply that we actually offer policies in each such state. These variations are subject to change without notice and additional variations may be imposed as specific states approve new riders.
Arizona. Owners age 65 and above have a 30 day right to cancel. If canceled, the amount returned will include any fees and charges.
California. The policy may be canceled by returning the policy. A refund will be paid within 30 days from the date notice of cancellation was received and refund will include any fees or charges. Owners age 60 or above have the option to elect immediate investment in investment options of their choice, and receive policy value if they cancel; or, they may allocate the initial premium payment to the money market portfolio for 35 calendar days at the end of which the policy value is moved to the investment options of their choice, and they would receive return of premium if they cancel. Restrictions on ownership change and assignments are not permitted. The fixed account is not available.
Connecticut. During the right to cancel period, prior to delivery of the policy, the owner will receive return of premium. There is no excess interest adjustment upon annuitization. Service charge cannot be assessed at time of surrender. Transfer restrictions apply if more than one transfer is made in a 30 day period. The Retirement Income Max® rider will not terminate for unapproved ownership changes and assignments, however, we have the right to reject certain ownership changes and assignments involving institutional investors, settlement companies or other similar organizations.
Florida. Owners have a 21 day right to cancel period and will receive return of premium. Excess interest adjustment is not applied upon annuitization or death. The annuity commencement date is not allowed until after the first policy year. The Retirement Income Max® rider will terminate if the policy to which this rider is attached has an ownership change or the policy is assigned.
Montana. The death benefit must be paid within 60 days and any interest due after 30 days.
New York. Under the right to cancel provision the premium payment allocated to the fixed account, if any, plus the policy value in the separate account, if any, including any fees and charges is returned. If the policy is a replacement, the right to cancel period is extended to 60 days. Telephone transactions are not available. There is no excess interest adjustment. The death benefit payable during the accumulation phase is the greater of policy value or guaranteed minimum death benefit, if any. The policy value is used upon annuitization. The annuity commencement date cannot be earlier than the first policy anniversary. The Retirement Income Max® Rider issue requirements for the annuitant are 58 - 85 for Single Life or 65 - 85 for Joint Life. Retirement Income Max® rider fees cannot be deducted from the fixed account if available. Restrictions on ownership change and assignments are not permitted.
North Dakota. Right to cancel period is 20 days.
Ownership
You, as owner of the policy, exercise all rights under the policy. You can generally change the owner at any time by notifying us in writing at our Administrative Office. If we do not have an originating signature or guaranteed signature on file or if the Company suspects fraud, we may require a notarized signature. There may be limitations on your ability to change the ownership of a qualified policy. An ownership change may be a taxable event.
Beneficiary
The beneficiary designation will remain in effect until changed. The owner may change the designated beneficiary by sending us written notice. The beneficiary's consent to such change is not required unless the beneficiary was irrevocably designated or law requires consent. (If an irrevocable beneficiary dies, the owner may then designate a new beneficiary.) We will not be liable for any
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payment made before the written notice is received in our Administrative Office. If more than one beneficiary is designated, and the owner fails to specify their interests, they will share equally. If, upon the death of the annuitant, there is a surviving owner(s), then the surviving owner(s) automatically takes the place of any beneficiary designation.
Right to Cancel Period
You may return your policy for a refund, but only if you return it within a prescribed period, which is generally 10 days after you receive the policy (for replacements the right to cancel period is generally 30 days), or whatever longer time may be required by state law. The amount of the refund will generally be the premiums paid plus or minus accumulated gains or losses in the separate account. You bear the risk of any decline in policy value during the right to cancel period. However, if state law requires, we will refund your original premium payment(s), or surrender value, if greater. We will pay the refund within seven days after we receive in good order within the applicable period at our Administrative Office, written notice of cancellation and the returned policy. The policy will then be deemed void.
Assignment
You can also generally assign the policy any time during your lifetime. We will not be bound by the assignment until we receive written notice of the assignment in good order at our Administrative Office and approve it. We reserve the right, except to the extent prohibited by applicable laws, regulations, or actions of the State insurance commissioner, to require that an assignment will be effective only upon acceptance by us, and to refuse assignments or transfers at any time on a non-discriminatory basis. We will not be liable for any payment or other action we take in accordance with the policy before we approve the assignment. There may be limitations on your ability to assign a qualified policy. An assignment may have tax consequences.
Termination for Low Value
If a partial surrender or fee (including an optional rider fee, administrative fee, or owner transaction fee) reduces your cash value below the minimum specified in your policy, we reserve the right to terminate your policy and send you a full distribution of your remaining cash value. All benefits associated with your annuity policy will be terminated. Federal law may impose restrictions on our right to terminate certain qualified policies. We do not currently anticipate exercising this right if you have certain optional benefits, however, we reserve the right to do so. For all other policies, including policies with certain other optional benefits, we intend to exercise this termination provision.
Sending Forms and Transaction Requests in Good Order
We cannot process your requests for transactions relating to the policy until they are received in good order. “Good order” means the actual receipt of the instructions relating to the requested transaction in writing (or, when appropriate, by telephone or electronically), along with all forms, information and supporting legal documentation necessary to effect the transaction. This information and documentation generally includes, to the extent applicable to the transaction: your completed application; the policy number; the transaction amount (in dollars or percentage terms); the names and allocations to and/or from the Subaccounts affected by the requested transaction; the signatures of all owners (exactly as registered on the Policy) if necessary; Social Security Number or Taxpayer I.D.; and any other information or supporting documentation that we may require, including any spousal or joint owner's consents. With respect to purchase requests, “good order” also generally includes receipt of sufficient funds to effect the purchase. We may, in our sole discretion, determine whether any particular transaction request is in good order, and we reserve the right to change or waive any good order requirements at any time.
“Received” or receipt in good order generally means that everything necessary must be received by us, at our Administrative Office specified in the Glossary of Terms. We reserve the right to reject electronic transactions that do not meet our requirements.
Regulatory Modifications to Policy
We reserve the right to amend the policy or any riders attached thereto as necessary to comply with specific direction provided by state or federal regulators, through change of law, rule, regulation, bulletin, regulatory directives or agreements.
Certain Offers
From time to time, we have (and we may again) offered you some form of payment or incentive in return for terminating or modifying certain guaranteed benefits.
When we make an offer, we may vary the offer amount, up or down, among the same group of policy owners based on certain criteria such as account value, the difference between account value and any applicable benefit base, investment allocations and the amount and type of withdrawals taken. For example, for guaranteed benefits that have benefit bases that can be reduced on either a pro rata or
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dollar-for-dollar basis depending on the amount of withdrawals taken, we may consider whether you have taken any withdrawal that has caused a pro rata reduction in your benefit base, as opposed to a dollar-for-dollar reduction. Also, we may increase or decrease offer amounts from offer to offer. In other words, we may make an offer to a group of policy owners based on an offer amount, and, in the future, make another offer based on a higher or lower offer amount to the remaining policy owners in the same group.
If you accept an offer that requires you to terminate a guaranteed benefit and you retain your policy, we will no longer charge you for the benefit, and you will not be eligible for any future offers related to that type of guaranteed benefit, even if such future offer would have included a greater offer amount or different payment or incentive.
We may also make an offer to you to exchange an existing rider for a different rider.
Mixed and Shared Funding
The underlying fund portfolios may serve as investment vehicles for variable life insurance policies, variable annuity policies and retirement plans (“mixed funding”) and shares of the underlying fund portfolios also may be sold to separate accounts of other insurance companies (“shared funding”). While we currently do not foresee any disadvantages to owners and participants arising from either mixed or shared funding, it is possible that the interests of owners of various policies and/or participants in various plans for which the underlying fund portfolios serve as investments might at some time be in conflict. We and each underlying fund portfolio’s Board of Directors intend to monitor events in order to identify any material conflicts and to determine what action, if any, to take. Such action could include the sale of underlying fund portfolio shares by one or more of the separate accounts, which could have adverse consequences. Such action could also include a decision that separate funds should be established for variable life and variable annuity separate accounts. In such an event, we would bear the attendant expenses, but owners and plan participants would no longer have the economies of scale resulting from a larger combined fund. Please read the prospectuses for the underlying fund portfolios, which discuss the underlying fund portfolios’ risks regarding mixed and shared funding, as applicable. Please see Voting Rights section below for how shares held by the Company would be voted.
Exchanges and/or Reinstatements
You can generally exchange a nonqualified annuity policy for another in a “tax-free exchange” under Section 1035 of the Internal Revenue Code or transfer qualified policies directly to another life insurance company as a “trustee-to-trustee transfer”. Before making an exchange or transfer, you should compare both annuities carefully. Remember that if you exchange or transfer another annuity for the one described in this prospectus, then you may pay a surrender charge on the other annuity and other charges may be higher (or lower) and the benefits under this annuity may be different. You should not exchange or transfer another annuity for this one unless you determine, after knowing all the facts, that the exchange or transfer is in your best interest and not just better for the person trying to sell you this policy (that person will generally earn a commission if you buy this policy through an exchange, transfer or otherwise).
You may ask us to reinstate your policy after such an exchange, transfer or full or partial surrender and in certain limited circumstances we will allow you to do so by returning the same total dollar amount of funds distributed to the applicable investment options. The dollar amount will be used to purchase new accumulation units at the then current price. In the event any subaccount previously invested in is closed and we don’t receive additional instructions, funds will be reallocated to the remaining available investment options according to the investment allocation instructions you previously provided. Because of changes in market value, your new accumulation units may be worth more or less than the units you previously owned. Generally, unless you return the original company check, your annuity policy is nonqualified and a portion of the prior withdrawal was taxable, we are required to report the taxable amount from the distribution to the IRS even though the funds have been reinstated. The cost basis will be adjusted accordingly. The taxable amount will be reported on Form 1099-R which you will receive in January of the year following the distribution. We recommend that you consult a tax professional to explain the possible tax consequences of reinstatements.
Voting Rights
To the extent required by law, we will vote all shares of the underlying fund portfolios held in the separate account in accordance with instructions we receive from you and/or other individuals that have voting interests in the portfolios. We will send you and/or other individuals requests for instructions on how to vote those shares. When we receive those instructions, we will vote all of the shares in proportion to those instructions. Accordingly, it is possible for a small number of owners (assuming there is a quorum) to determine the outcome of a vote, especially if they have large policy values. If, however, we determine that we are permitted to vote the shares in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and other materials relating to the appropriate portfolio.
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Abandoned or Unclaimed Property
Every state has unclaimed property laws that generally provide for escheatment to the state of unclaimed property (including proceeds of annuity, life and other insurance policies) under various circumstances. In addition to the state unclaimed property laws, we may be required to escheat property pursuant to regulatory demand, finding, agreement or settlement. To help prevent such escheatment, it is important that you keep your contact and other information on file with us up to date, including the names, contact information and identifying information for owners, insureds, annuitants, beneficiaries and other payees. Such updates should be communicated in a form and manner satisfactory to us.
Legal Proceedings
We, like other life insurance companies, are subject to regulatory and legal proceedings, including class action lawsuits, in the ordinary course of our business. Such legal and regulatory matters include proceedings specific to us and other proceedings generally applicable to business practices in the industry in which we operate. In some lawsuits and regulatory proceedings involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation or regulatory proceeding cannot be predicted with certainty, at the present time, we believe that there are no pending or threatened proceedings or lawsuits that are likely to have a material adverse impact on the separate account, on TCI's ability to perform under its principal underwriting agreement, or on our ability to meet our obligations under the policy.
The Company was the subject of inquiries and remains under audits and market conduct examinations with a focus on the handling of unreported claims and abandoned property. The audits and related examination activity may result in additional payments to beneficiaries, escheatment of funds deemed abandoned, and administrative penalties. The Company previously implemented changes in the procedures for the identification of unreported claims and handling of escheatable property to comply with the terms of regulatory agreements and newly adopted laws and regulations. The Company does not believe that any regulators actions or agreements that result from these audits and examinations will have a material adverse impact on our ability to meet our obligations.
Cyber Security
We rely heavily on interconnected computer systems and digital data to conduct our variable product business activities. Because our variable product business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is potentially vulnerable to disruptions from utility outages and other problems, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions) and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service attacks on websites and other operational disruption and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third party administrator, the underlying funds, intermediaries and other affiliated or third-party service provides may adversely affect us and your policy value. For instance, cyber-attacks may: interfere with our processing of policy transactions, including the processing of orders from our website or with the underlying funds; cause the release and possible destruction of confidential customer or business information; impede order processing; subject us and/or our service providers and intermediaries to regulatory fines and financial losses; and/or cause reputational damage. Cyber security risks may also affect the issuers of securities in which the underlying funds invest, which may cause the underlying funds to lose value. There can be no assurance that we, the underlying funds or our service providers will avoid losses affecting your policy that result from cyber-attacks or information security breaches in the future.
For a complete description regarding Transamerica’s policies for its websites, including the Privacy Policy and Terms of Use for such websites, please visit: https://www.transamerica.com/individual/privacy-policy and https://www.transamerica.com/individual/terms-of-use.
Information About Us
We are engaged in the sale of life and health insurance and annuity policies. Transamerica Life Insurance Company was incorporated under the laws of the State of Iowa on April 19, 1961 as NN Investors Life Insurance Company Inc., and is licensed in all states except New York and the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands. Transamerica Financial Life Insurance Company was incorporated under the laws of the State of New York on October 3, 1947 and is licensed in all states and the District of Columbia. We are a wholly-owned indirect subsidiary of Transamerica Corporation which conducts most of its operations through subsidiary companies engaged in the insurance business or in providing non-insurance financial services. All of the stock of Transamerica Corporation is indirectly owned by Aegon N.V. of The Netherlands, the securities of which are publicly traded. Aegon N.V., a holding company, conducts its business through subsidiary companies engaged primarily in the insurance business.
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All obligations arising under the policies, including the promise to make annuity payments, are general corporate obligations of ours. Accordingly, no financial institution, brokerage firm or insurance agency is responsible for our financial obligations arising under the policies.
Financial Condition
We pay benefits under your policy from our general account assets and/or from your policy value held in the separate account. It is important that you understand that payments of the benefits are not assured and depend upon certain factors discussed below.
Assets in the Separate Account. You assume all of the investment risk for your policy value that is allocated to the subaccounts of the separate account. Your policy value in those subaccounts constitutes a portion of the assets of the separate account. These assets are segregated and insulated from our general account, and may not be charged with liabilities arising from any other business that we may conduct.
Assets in the General Account. You also may be permitted to make allocations to guaranteed period options of the fixed account, which are supported by the assets in our general account. Any guarantees under a policy that exceed policy value, such as those associated with any lifetime withdrawal benefit riders and any optional death benefits, are paid from our general account (and not the separate account). Therefore, any amounts that we may be obligated to pay under the policy in excess of policy value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments. The assets of the separate account, however, are also available to cover the liabilities of our general account, but only to the extent that the separate account assets exceed the separate account liabilities arising under the policies supported by it.
We issue other types of insurance policies and financial products as well, and we also pay our obligations under these products from our assets in the general account.
As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all the contractual obligations of our general account. In order to meet our claims-paying obligation we monitor our reserves so that we hold sufficient amounts to cover actual or expected policy and claims payments. In addition, we hedge our investments in our general account, and may require purchasers of certain of the variable insurance products that we offer to allocate premium payments and policy value in accordance with specified investment requirements. However, it is important to note that there is no guarantee that we will always be able to meet our claims-paying obligations, and that there are risks to purchasing any insurance product.
State insurance regulators also require insurance companies to maintain a minimum amount of capital, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer’s operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on our general account assets, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in market value of these investments. We may also experience liquidity risk if our general account assets cannot be readily converted into cash to meet obligations to our policy owners or to provide the collateral necessary to finance our business operations.
How to Obtain More Information. We encourage both existing and prospective policy owners to read and understand our financial statements. We prepare our financial statements on a statutory basis. Our financial statements, which are presented in conformity with accounting practices prescribed or permitted by the Iowa Department of Insurance as well as the financial statements of the separate account are located in the Statement of Additional Information (SAI). For a free copy of the SAI, simply call or write us at the phone number or address of our Administrative Office referenced in this prospectus. In addition, the SAI is available on the SEC’s website at http://www.sec.gov. Our financial strength ratings which reflect the opinions of leading independent rating agencies of our ability to meet our obligations to our policy owners, are available on our website (https://www.transamerica.com/individual/what-we-do/about-us/financial-strength/), and the websites of these nationally recognized statistical ratings organizations – A.M. Best Company (www.ambest.com), Moody’s Investors Service (www.moodys.com), Standard & Poor’s Rating Services (www.standardandpoors.com) and Fitch, Inc. (www.fitchratings.com).
The Separate Account
Each separate account receives and invests the premium payments that are allocated to it for investment in shares of the underlying fund portfolios. Each separate account is registered with the SEC as a unit investment trust under the 1940 Act. However, the SEC does not supervise the management, the investment practices, or the policies of the separate account or us. Income, gains and losses (whether or not realized), from assets allocated to the separate account are, in accordance with the policies, credited to or charged against the separate account without regard to our other income, gains or losses.
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The assets of each separate account are held in our name on behalf of the separate account and belong to us. However, those assets that underlie the policies are not chargeable with liabilities arising out of any other business we may conduct. The separate account may include other subaccounts that are not available under these policies. We do not guarantee the investment results of the Separate Account.
The Underlying Funds
At the time you purchase your policy, you may allocate your premium payment to subaccounts. These are subdivisions of our separate account, an account that keeps your policy assets separate from our company assets. The subaccounts then purchase shares of underlying fund portfolios set up exclusively for variable annuity or variable life insurance products. These are not the same mutual funds that you buy through your investment professional even though they may have similar investment strategies and the same portfolio managers. Each underlying fund portfolio has varying degrees of investment risk. Underlying fund portfolios are also subject to separate fees and expenses such as management fees and operating expenses. “Master-feeder” or “fund of funds” invest substantially all of their assets in other mutual funds and will therefore bear a pro-rata share of fees and expenses incurred by both funds. This will reduce your investment return. Read the underlying fund portfolio prospectuses carefully before investing. We do not guarantee the investment results of any underlying fund portfolio. Certain underlying fund portfolios may not be available in all states and in all share classes. Please see “Appendix - Underlying Fund Portfolios Associated with the Subaccounts” for additional information.
Other Transamerica Policies
We offer a variety of fixed and variable annuity policies. They may offer features, including investment options, and have fees and charges, that are different from those in the policy offered by this Prospectus. Not every policy we issue is offered through every financial intermediary. Some financial intermediaries may not offer and/or limit the offering of certain features or options, as well as limit the availability of the policies, based on issue age, or other criteria established by the financial intermediary. Upon request, your financial professional can show you information regarding other Transamerica annuity policies that he or she distributes. You can also contact us to find out more about the availability of any of the Transamerica annuity policies.
You should work with your financial professional to decide whether this policy is appropriate for you based on a thorough analysis of your particular insurance needs, financial objectives, investment goals, time horizons and risk tolerance.
Distribution of the Policies
Distribution and Principal Underwriting Agreement. We have entered into a principal underwriting agreement with our affiliate, Transamerica Capital, Inc. (TCI), for the distribution and sale of the policies. We pay TCI an “override” on sales of policies which is not passed through to any selling firms and we may reimburse TCI for certain expenses it incurs in order to pay for the distribution of the policies. TCI may market the policies through investment advisory firms, bank affiliated firms, national brokerage firms, regional and independent broker-dealers and independent financial planners.
Compensation to Broker-Dealers Selling the Policies. This policy is sold through investment advisors and may charge you a fee to manage the assets. The policies may also be offered to the public through broker-dealers (advisors and broker-dealers are referred to as “selling firms”). The selling firms have entered into written selling agreements with us and with TCI as principal underwriter for the policies.
There are no commission payments made by us or TCI to the selling firms. Any advisory or other ongoing fee payment is set by the selling firm and is independent of us and TCI. We are not responsible for any issues or disputes that arise out of any fee arrangement between you and any selling firm. We have not made any independent investigation of any selling firm not do we endorse any selling firm or make any representations regarding their qualifications.
If you have a fee deducted directly from the policy to pay a selling firm, you will be required to provide written authorization to us and your account value will be reduced when the payments are deducted. The fee will no longer be available for deduction after the contract is annuitized. You should be aware that payments to selling firms are separate from and in addition to any policy fees (see EXPENSES section). There may be tax consequences if you have a fee deducted directly from your policy to pay a selling firm. You should consult your tax advisor. Additionally, deductions from the contract for a fee to a selling firm may have negative consequences to any optional living benefit rider you have elected. You should consult your sales representative.
To the extent permitted by Financial Industry Regulatory Authority (FINRA) rules, the Company and TCI may pay (or allow other broker-dealers to provide) promotional incentives or payments in the form of cash or non-cash compensation or reimbursement to some, but not all, selling firms and their sales representatives. These arrangements are are described further below.
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The sales representative who sells you the policy may receive a portion of the compensation we (and our affiliates) pay to the selling firms, depending on the agreement between the selling firm and its representative and the firm's internal compensation program. These programs may include other types of cash and non-cash compensation and other benefits. Ask your sales representative for further information about the compensation your sales representative, and the selling firm that employs your sales representative, may receive in connection with your purchase of a policy. Also inquire about any compensation arrangements that we and our affiliates may have with the selling firm, including the conflicts of interests that such arrangements may create.
You should be aware that a selling firm or its sales representatives may receive different compensation or incentives for selling one product over another. In some cases, these differences may create an incentive for the selling firm or its sales representatives to recommend or sell the policy to you. You may wish to take such incentives into account when considering and evaluating any recommendation relating to the policies.
Special Compensation Paid to Affiliated Firms. We and/or our affiliates provide paid-in capital to TCI and we or our affiliates may pay all or a portion of the cost of TCI's operating and other expenses, including costs for facilities, legal and accounting services, and other internal administrative functions. We and/or our affiliates also provide TCI with a percentage of total commissions paid on sales of our policies and provide TCI with capital payments that are not contingent on sales.
TCI's registered representatives and supervisors may receive non-cash compensation, such as attendance at conferences, seminars and trips (such as travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items, payments, loans, loan forgiveness or loan guarantees.
Additional Compensation That We, TCI and/or Our Affiliates Pay to Selected Selling Firms. TCI, in connection with the sales of the policies, may pay certain selling firms additional cash amounts in order to receive enhanced marketing services and increased access to their sales representatives. In exchange for providing TCI with access to their distribution network, such selling firms may receive additional compensation or reimbursement for, among other things, the hiring and training of sales personnel, marketing, sponsoring of conferences, meetings, seminars, events, and/or other services they provide to us and our affiliates. To the extent permitted by applicable law, We, TCI and other parties may provide the selling firms with occasional gifts, meals, tickets or other non-cash compensation as an incentive to sell the policies. These special compensation arrangements are not offered to all selling firms and the terms of such arrangements may differ among selling firms.
In addition, TCI paid selling firms other special fees based on new sales and/or assets under management. During 2016, TCI paid such fees to at least 61 broker-dealers and other financial intermediaries. Some of the more significant entities were:
BBVA Securities, Inc. • Bruderman Brothers, LLC • Cambridge Investment Research, Inc. •  CCO Investments •  Centarus Financial, Inc. • Cetera Advisor Networks LLC • Cetera Advisors LLC • Cetera Financial Specialists LLC • Cetera Investment Services LLC •  CFD Investments, Inc • Commonwealth Financial Network • Edward D. Jones & Co., L.P.• Equity Services, Inc. • Fifth Third Securities, Inc. • First Allied Holdings, Inc. • FSC Securities Corporation • Geneos Wealth Management, Inc. • Girard Securities, Inc. • Hantz Financial Services, Inc. • Invest Financial Corporation • Investacorp, Inc. • Investment Centers of America, Inc. • Investors Capital Holding, Inc. • James T. Borello & Co, • Janney Montgomery Scott, LLC • JP Turner & Company • Key Investment Services, Inc. • Legend Equities Corporation • Lincoln Financial Advisors Corporation • Lincoln Financial Securities Corporation • LPL Financial, LLC. • M&T Securities Product Management • Merrill Lynch, Pierce, Fenner & Smith Inc. • MetLife Securities, Inc. • Morgan Stanley Smith Barney, Inc. • Mutual of Omaha Inv. Serv. • National Planning Corporation • NFP Securities Inc. • Park Avenue Securities, LLC • Raymond James & Associates, Inc. • Raymond James Financial Services, Inc. • Royal Alliance Associates, Inc. • SagePoint Financial, Inc. • Santander Securities LLC • Securian Financial Services, Inc. • Securities America, Inc. •  Sigma Financial Corporation • Signator Investors, Inc. • SII Investments, Inc. • Summit Financial Service Group, Inc. • SunTrust Investment Services • The Huntington Investment Company • Transamerica Financial Advisors, Inc. • UBS Financial Services • US Bancorp Investments, Inc. • VOYA Financial Partners, LLC • VSR Financial Services, Inc. • Wells Fargo Advisors Financial Network, LLC • Wells Fargo Advisors, LLC • Wells Fargo Investments LLC • Woodbury Financial
For the calendar year ended December 31, 2016 TCI paid approximately $25,000,000 to various brokers and other financial intermediaries in connection with revenue sharing arrangements.
No specific charge is assessed directly to owners or the separate account to cover commissions, non-cash compensation, and other incentives or payments described above. We do intend to recoup commissions and other sales expenses and incentives we pay, however, through fees and charges deducted under the policy and other corporate revenue.
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Terms
The Policy - General Provisions
Investment Experience
Performance
Historical Performance Data
Published Ratings
State Regulation of Us
Administration
Records and Reports
Distribution of the Policies
Voting Rights
Other Products
Custody of Assets
Independent Registered Public Accounting Firm
Other Information
Financial Statements
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APPENDIX
UNDERLYING FUND PORTFOLIOS ASSOCIATED WITH THE SUBACCOUNTS
SUBACCOUNT (1) UNDERLYING FUND PORTFOLIO ADVISOR/SUBADVISOR
TRANSAMERICA SERIES TRUST*
TA AB Dynamic Allocation - Service Class Transamerica AB Dynamic Allocation VP - Service Class Alliance Bernstein L.P.
Investment Objective: Capital appreciation and current income.
TA Aegon Government Money Market - Service Class(2) Transamerica Aegon Government Money Market VP – Service Class(2) Aegon USA Investment Management, LLC
Investment Objective: Maximum current income from money market securities consistent with liquidity and preservation of principal.
TA Aegon U.S. Government Securities - Service Class Transamerica Aegon U.S. Government Securities VP – Service Class Aegon USA Investment Management, LLC
Investment Objective: As high a level of total return as is consistent with prudent investment strategies.
TA American Funds Managed Risk - Balanced - Service Class Transamerica American Funds Managed Risk VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Seeks to provide total return (including income and capital gains) consistent with preservation of capital over the long term while seeking to manage volatility and provide downside protection.
TA Asset Allocation - Conservative - Service Class Transamerica Asset Allocation - Conservative VP – Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Current income and preservation of capital.
TA Asset Allocation - Growth - Service Class Transamerica Asset Allocation - Growth VP – Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Long-term capital appreciation.
TA Asset Allocation - Moderate Growth - Service Class Transamerica Asset Allocation - Moderate Growth VP – Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Capital appreciation with current income as a secondary objective.
TA Asset Allocation - Moderate - Service Class Transamerica Asset Allocation - Moderate VP – Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Capital appreciation and current income.
TA BlackRock Equity Smart Beta 100 - Service Class Transamerica BlackRock Equity Smart Beta 100 VP - Service Class BlackRock Investment Management, LLC
Investment Objective: Seeks long-term capital appreciation.
TA BlackRock Global Allocation - Service Class Transamerica BlackRock Global Allocation VP - Service Class BlackRock Investment Management, LLC
Investment Objective: High total investment return. Total investment return is the combination of capital appreciation and investment income.
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class Transamerica BlackRock Global Allocation Managed Risk - Balanced VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Seeks to provide capital appreciation and income while seeking to manage volatility.
TA BlackRock Global Allocation Managed Risk - Growth - Service Class Transamerica BlackRock Global Allocation Managed Risk - Growth VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Seeks to provide capital appreciation and income while seeking to manage volatility.
TA BlackRock Smart Beta 50 - Service Class Transamerica BlackRock Smart Beta 50 VP - Service Class BlackRock Investment Management, LLC
Investment Objective: Seeks long-term capital appreciation and capital preservation.
TA BlackRock Smart Beta 75 - Service Class Transamerica BlackRock Smart Beta 75 VP - Service Class BlackRock Investment Management, LLC
Investment Objective: Seeks long-term capital appreciation with capital preservation as a secondary objective.
TA BlackRock Tactical Allocation - Service Class Transamerica BlackRock Tactical Allocation VP - Service Class BlackRock Financial Management, Inc.
Investment Objective: Capital appreciation with current income as a secondary objective.
TA International Equity Index - Service Class(3) Transamerica International Equity Index VP - Service Class(3) SSGA Funds Management, Inc.(3)
Investment Objective: Seeks to track the investment results of an index composed of large- and mid-capitalization developed market equities, excluding U.S. and Canada.
TA International Moderate Growth - Service Class Transamerica International Moderate Growth VP – Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Capital appreciation with current income as a secondary objective.
48

 

UNDERLYING FUND PORTFOLIOS ASSOCIATED WITH THE SUBACCOUNTS — (Continued)
SUBACCOUNT (1) UNDERLYING FUND PORTFOLIO ADVISOR/SUBADVISOR
TA JPMorgan Core Bond - Service Class Transamerica JPMorgan Core Bond VP - Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Total return, consisting of current income and capital appreciation.
TA JPMorgan Mid Cap Value - Service Class Transamerica JPMorgan Mid Cap Value VP–Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Growth from capital appreciation.
TA JPMorgan Tactical Allocation - Service Class Transamerica JPMorgan Tactical Allocation VP - Service Class J.P. Morgan Investment Management Inc.
Investment Objective: Current income and preservation of capital.
TA Janus Balanced - Service Class Transamerica Janus Balanced VP–Service Class Janus Capital Management LLC
Investment Objective: Lon-term capital growth, consistent with preservation of capital and balanced by current income.
TA Legg Mason Dynamic Allocation - Balanced - Service Class Transamerica Legg Mason Dynamic Allocation - Balanced VP - Service Class QS Investors, LLC
Investment Objective: Seeks capital appreciation and income.
TA Legg Mason Dynamic Allocation - Growth - Service Class Transamerica Legg Mason Dynamic Allocation - Growth VP - Service Class QS Investors, LLC
Investment Objective: Seeks capital appreciation and income.
TA Managed Risk - Balanced ETF - Service Class Transamerica Managed Risk - Balanced ETF VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Balance capital appreciation and income.
TA Managed Risk - Conservative ETF - Service Class Transamerica Managed Risk - Conservative ETF VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Current income and preservation of capital.
TA Managed Risk - Growth ETF - Service Class Transamerica Managed Risk - Growth ETF VP - Service Class Milliman Financial Risk Management LLC
Investment Objective: Capital appreciation as a primary objective and income as a secondary objective.
TA Market Participation Strategy - Service Class Transamerica Market Participation Strategy VP - Service Class Quantitative Management Associates LLC
Investment Objective: Seeks capital appreciation.
TA Multi-Managed Balanced - Service Class Transamerica Multi-Managed Balanced VP – Service Class J.P. Morgan Investment Management Inc. and Aegon USA Investment Management, LLC
Investment Objective: High total investment return through investments in a broadly diversified portfolio of stock, bonds and money market instruments.
TA PIMCO Tactical - Balanced - Service Class Transamerica PIMCO Tactical–Balanced VP–Service Class Pacific Investment Management Company LLC
Investment Objective: Seeks combination of capital appreciation and income.
TA PIMCO Tactical - Conservative - Service Class Transamerica PIMCO Tactical–Conservative VP–Service Class Pacific Investment Management Company LLC
Investment Objective: Seeks combination of capital appreciation and income.
TA PIMCO Tactical - Growth - Service Class Transamerica PIMCO Tactical–Growth VP–Service Class Pacific Investment Management Company LLC
Investment Objective: Seeks combination of capital appreciation and income.
TA PIMCO Total Return - Service Class Transamerica PIMCO Total Return VP – Service Class Pacific Investment Management Company LLC
Investment Objective: Maximum total return consistent with preservation of capital and prudent investment management.
TA PineBridge Inflation Opportunities- Service Class Transamerica PineBridge Inflation Opportunities VP - Service Class PineBridge Investments LLC
Investment Objective: Maximum real return consistent with preservation of real capital and prudent investment management.
TA QS Investors Active Asset Allocation - Conservative - Service Class Transamerica QS Investors Active Asset Allocation - Conservative VP - Service Class QS Investors, LLC
Investment Objective: Current income and preservation of capital.
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class Transamerica QS Investors Active Asset Allocation - Moderate Growth VP - Service Class QS Investors, LLC
Investment Objective: Capital appreciation with current income as secondary objective.
TA QS Investors Active Asset Allocation - Moderate - Service Class Transamerica QS Investors Active Asset Allocation - Moderate VP - Service Class QS Investors, LLC
Investment Objective: Capital appreciation and current income.
TA U.S. Equity Index - Service Class(4) Transamerica U.S. Equity Index VP - Service Class(4) SSGA Funds Management, Inc.(4)
Investment Objective: Seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.
49

 

UNDERLYING FUND PORTFOLIOS ASSOCIATED WITH THE SUBACCOUNTS — (Continued)
SUBACCOUNT (1) UNDERLYING FUND PORTFOLIO ADVISOR/SUBADVISOR
TRANSAMERICA SERIES TRUST INITIAL CLASS*
TA Aegon High Yield Bond - Initial Class Transamerica Aegon High Yield Bond VP – Initial Class Aegon USA Investment Management, LLC
Investment Objective: High level of current income by investing in high-yield debt securities.
TA Barrow Hanley Dividend Focused - Initial Class Transamerica Barrow Hanley Dividend Focused VP – Initial Class Barrow, Hanley, Mewhinney, & Strauss, LLC
Investment Objective: Long-term capital growth.
TA Clarion Global Real Estate Securities - Initial Class Transamerica Clarion Global Real Estate Securities VP – Initial Class CBRE Clarion Securities, LLC
Investment Objective: Long-term total return from investments primarily in equity securities of real estate companies. Total return consists of realized and unrealized capital gains and losses plus income.
TA JPMorgan Enhanced Index - Initial Class Transamerica JPMorgan Enhanced Index VP – Initial Class J.P. Morgan Investment Management Inc.
Investment Objective: Earn a total return modestly in excess of the total return performance of the Standard & Poor's 500 Index (including reinvestment of dividends) while maintaining a volatility of return similar to the S&P 500 Index.
TA Janus Mid-Cap Growth - Initial Class Transamerica Janus Mid-Cap Growth VP – Initial Class Janus Capital Management LLC
Investment Objective: Capital appreciation.
TA Jennison Growth - Initial Class Transamerica Jennison Growth VP – Initial Class Jennison Associates LLC
Investment Objective: Long-term growth of capital.
TA MFS International Equity - Initial Class Transamerica MFS International Equity VP – Initial Class MFS ® Investment Management
Investment Objective: Capital growth.
TA Small/Mid Cap Value - Initial Class Transamerica Small/Mid Cap Value VP - Initial Class Systematic Financial Management L.P. & Thompson, Siegel & Walmsley LLC
Investment Objective: Maximize total return.
TA T. Rowe Price Small Cap - Initial Class Transamerica T. Rowe Price Small Cap VP – Initial Class T. Rowe Price Associates, Inc.
Investment Objective: Long-term growth of capital by investing primarily in common stocks of small growth companies.
TA Torray Concentrated Growth - Initial Class Transamerica Torray Concentrated Growth VP - Initial Class Torray, LLC
Investment Objective: High total return.
TA TS&W International Equity - Initial Class Transamerica TS&W International Equity VP – Initial Class Thompson, Siegel & Walmsley LLC
Investment Objective: Maximum long-term total return, consistent with reasonable risk to principal, by investing in a diversified portfolio of common stock of primarily non-U.S. issuers.
TA WMC US Growth - Initial Class Transamerica WMC US Growth VP – Initial Class Wellington Management Company, LLP
Investment Objective: Maximize long-term growth.
(1)  Some subaccounts may be available for certain policies and may not be available for all policies. You should work with your registered representative to decide which subaccount(s) may be appropriate for you based on a thorough analysis of your particular insurance needs, financial objective, investment goals, time horizons, and risk tolerance.
(2)  There can be no assurance that the Transamerica Aegon Government Money Market VP - Service Class portfolio will be able to maintain a stable net asset value per share during extended periods of low interest rates, and partly as a result of policy charges, the yield on the TA Aegon Government Money Market - Service Class subaccount may become extremely low and possibly negative.
(3)  Effective on or about May 1, 2017, Transamerica International Equity Index VP subadvised by SSGA Funds Management, Inc. will be added.
(4)  Effective on or about May 1, 2017, Transamerica U.S. Equity Index VP subadvised by SSGA Funds Management, Inc. will be added.
* All underlying fund portfolios in the Transamerica Series Trust are advised by Transamerica Asset Management. The entities listed are the subadvisers unless otherwise indicated.
Certain subaccounts may not be available in all states, at all times or through all financial intermediaries. We may discontinue offering any subaccount at any time. In some cases, a subaccount not available through a financial intermediary may be obtained by contacting us directly. For more information on the options available for electing a subaccount, please contact your financial intermediary or our Administrative Office.
50

 

APPENDIX
Designated Investment Options
The table below identifies the Designated Investment Options available for use with the Guaranteed Minimum Death Benefits and our Guaranteed Lifetime Withdrawal Benefits.
Funds Return of Premium
Death Benefit 		Retirement Income
Max® Rider
Before 11/10/14 		Retirement Income
Max® Rider
11/10/14 and After
TA AB Dynamic Allocation - Service Class √    
TA Aegon Government Money Market - Service Class √ √ √
TA Aegon High Yield Bond - Initial Class √    
TA Aegon U.S. Government Securities - Service Class √ √ √
TA American Funds Managed Risk - Balanced - Service Class(1) √ √ √
TA Asset Allocation - Conservative - Service Class(1) √ √ √
TA Asset Allocation - Growth - Service Class √    
TA Asset Allocation - Moderate Growth - Service Class √    
TA Asset Allocation - Moderate - Service Class(1) √ √  
TA Barrow Hanley Dividend Focused - Initial Class √    
TA BlackRock Equity Smart Beta 100 - Service Class √    
TA BlackRock Global Allocation - Service Class √    
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class √   √
TA BlackRock Global Allocation Managed Risk - Growth - Service Class √    
TA BlackRock Smart Beta 50 - Service Class √    
TA BlackRock Smart Beta 75 - Service Class √    
TA BlackRock Tactical Allocation - Service Class √    
TA Clarion Global Real Estate Securities - Initial Class √    
TA International Equity Index - Service Class √    
TA International Moderate Growth - Service Class(1) √    
TA Janus Balanced - Service Class √    
TA Janus Mid-Cap Growth - Initial Class √    
TA Jennison Growth - Initial Class √    
TA JPMorgan Core Bond - Service Class √ √ √
TA JPMorgan Enhanced Index - Initial Class √    
TA JPMorgan Mid Cap Value - Service Class √    
TA JPMorgan Tactical Allocation - Service Class √ √ √
TA Legg Mason Dynamic Allocation - Balanced - Service Class(1) √ √ √
TA Legg Mason Dynamic Allocation - Growth - Service Class √    
TA MFS International Equity - Initial Class √    
TA Managed Risk - Balanced ETF - Service Class(1) √ √ √
TA Managed Risk - Conservative ETF - Service Class(1) √ √ √
TA Managed Risk - Growth ETF - Service Class √    
TA Market Participation Strategy - Service Class √ √  
TA Multi-Managed Balanced - Service Class √    
TA PIMCO Tactical - Balanced - Service Class(1) √ √  
TA PIMCO Tactical - Conservative - Service Class(1) √ √ √
51

 

Designated Investment Options — (Continued)
Funds Return of Premium
Death Benefit 		Retirement Income
Max® Rider
Before 11/10/14 		Retirement Income
Max® Rider
11/10/14 and After
TA PIMCO Tactical - Growth - Service Class √    
TA PIMCO Total Return - Service Class √ √ √
TA PineBridge Inflation Opportunities- Service Class √ √ √
TA QS Investors Active Asset Allocation - Conservative - Service Class(1) √ √ √
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class √    
TA QS Investors Active Asset Allocation - Moderate - Service Class(1) √ √  
TA Small/Mid Cap Value - Initial Class √    
TA T. Rowe Price Small Cap - Initial Class √    
TA Torray Concentrated Growth - Initial Class √    
TA TS&W International Equity - Initial Class √    
TA U.S. Equity Index - Service Class √    
TA WMC US Growth - Initial Class √    
Fixed Account √ √ √
(1) This subaccount invests in an underlying fund that utilized a volatility management strategy as part of its investment objective and/or principal investment strategy. See “Investment Restrictions” earlier in the prospectus for information on how volatility management strategies may impact your policy value in certain optional riders.
Certain designated investment options may not be available in all states, at all times or through all financial intermediaries. We may discontinue offering any designated investment option at any time. In some cases, a designated investment option not available through a financial intermediary may be obtained by contacting us directly. For more information on the options available for electing a designated investment option, please contact your financial intermediary or our Administrative Office.
52

 

APPENDIX
CONDENSED FINANCIAL INFORMATION
The following tables list the accumulation unit value information for accumulation units outstanding for policies with the highest total separate account expenses and policies with the lowest total separate account expenses available on December 31, 2016. Should the total separate account expense applicable to your policy fall between the highest and lowest charges, AND you wish to see a copy of the Condensed Financial Information applicable to your policy, such information is contained in the SAI. You can obtain a copy of the SAI FREE OF CHARGE by contacting us at:
Calling: (800) 525-6205
Writing: Transamerica Life Insurance Company
Transamerica Financial Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, IA 52499-0001
    
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA AB Dynamic Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.579149
$10.687611
$10.205317
$10.000000 		$10.725267
$10.579149
$10.687611
$10.205317 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Aegon Government Money Market - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.842468
$9.901207
$9.960295
$10.000000 		$9.784263
$9.842468
$9.901207
$9.960295 		20,493.152
11,888.605
5,354.870
11,104.568 		30,109.667
0.000
0.000
0.000
TA Aegon High Yield Bond - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.914341
$10.413705
$10.075660
$10.000000 		$11.367092
$9.914341
$10.413705
$10.075660 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Aegon U.S. Government Securities - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.893012
$9.970032
$9.605333
$10.000000 		$9.847774
$9.893012
$9.970032
$9.605333 		6,524.180
3,749.955
3,682.303
0.000 		0.000
0.000
0.000
0.000
TA American Funds Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.581314
$9.999836 		$10.134717
$9.581314 		0.000
0.000 		0.000
0.000
TA Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.386716
$10.678202
$10.537085
$10.000000 		$10.769124
$10.386716
$10.678202
$10.537085 		10,569.143
19,066.485
14,272.122
0.000 		6,888.896
6,984.826
7,075.749
7,165.138
TA Asset Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.484608
$11.803578
$11.592070
$10.000000 		$12.080608
$11.484608
$11.803578
$11.592070 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.979103
$11.330625
$11.126499
$10.000000 		$11.596044
$10.979103
$11.330625
$11.126499 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.620990
$10.956226
$10.741836
$10.000000 		$11.112516
$10.620990
$10.956226
$10.741836 		81,849.515
82,278.647
90,824.987
64,870.617 		0.000
0.000
0.000
0.000
TA Barrow Hanley Dividend Focused - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.500959
$13.045101
$11.699769
$10.000000 		$14.279657
$12.500959
$13.045101
$11.699769 		12,913.621
5,373.952
2,241.744
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Equity Smart Beta 100 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.540338 0.000 0.000
53

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA BlackRock Global Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.684807
$10.882645
$10.760639
$10.000000 		$11.105326
$10.684807
$10.882645
$10.760639 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.524143
$9.921184
$9.999507 		$9.502483
$9.524143
$9.921184 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.524143
$10.290358 		$9.502483
$9.524143 		N/A 0.000
0.000
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.325502
$9.881221
$9.999507 		$9.252360
$9.325502
$9.881221 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.325502
10.280389 		$9.252360
$9.325502 		N/A 0.000
0.000
TA BlackRock Smart Beta 50 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.221825 0.000 0.000
TA BlackRock Smart Beta 75 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.291496 0.000 0.000
TA BlackRock Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.018214
$11.098334
$10.626375
$10.000000 		$11.490011
$11.018214
$11.098334
$10.626375 		17,228.083
11,767.283
785.882
0.000 		0.000
0.000
0.000
0.000
TA Clarion Global Real Estate Securities - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.313001
$10.437867
$9.246492
$10.000000 		$10.315515
$10.313001
$10.437867
$9.246492 		5,057.254
3,831.407
3,810.979
0.000 		0.000
0.000
0.000
0.000
TA International Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.216023
$10.475034
$10.621815
$10.000000 		$10.264381
$10.216023
$10.475034
$10.621815 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.769848
$11.826220
$11.033486
$10.000000 		$12.181541
$11.769848
$11.826220
$11.033486 		23,984.938
23,985.800
752.510
0.000 		0.000
0.000
0.000
0.000
TA Janus Mid-Cap Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.640692
$12.331228
$12.403617
$10.000000 		$11.334792
$11.640692
$12.331228
$12.403617 		6,146.970
591.978
608.504
0.000 		0.000
0.000
0.000
0.000
TA Jennison Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$15.328594
$13.842474
$12.664733
$10.000000 		$14.986019
$15.328594
$13.842474
$12.664733 		13,292.021
3,227.589
3,399.230
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Core Bond - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.064132
$10.090906
$9.658843
$10.000000 		$10.210192
$10.064132
$10.090906
$9.658843 		8,036.012
2,853.484
2,431.164
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Enhanced Index - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.342523
$13.432731
$11.834803
$10.000000 		$14.768427
$13.342523
$13.432731
$11.834803 		27,919.121
2,895.191
2,263.143
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Mid Cap Value - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.910001
$13.380895
$11.706891
$10.000000 		$14.665115
$12.910001
$13.380895
$11.706891 		26,719.136
16,606.632
1,332.127
0.000
0.000
0.000
0.000
TA JPMorgan Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.610713
$10.717597
$10.144978
$10.000000 		$10.989488
$10.610713
$10.717597
$10.144978 		26,293.708
12,748.704
0.000
0.000 		0.000
0.000
0.000
0.000
54

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA Legg Mason Dynamic Allocation - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.868953
$11.166223
$10.355070
$10.000000 		$10.731774
$10.868953
$11.166223
$10.355070 		32,550.704
22,200.977
0.000
0.000 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.183661
$11.592856
$10.780917
$10.000000 		$11.007056
$11.183661
$11.592856
$10.780917 		1,102.871
1,104.362
0.000
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Balanced ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.696092
$10.954305
$10.540719
$10.000000 		$11.031262
$10.696092
$10.954305
$10.540719 		104,498.460
103,302.870
9,041.002
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Conservative ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.626819
$10.764771
$10.290195
$10.000000 		$10.993924
$10.626819
$10.764771
$10.290195 		90,532.808
64,119.454
58,080.151
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Growth ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.927956
$11.394162
$11.024941
$10.000000 		$11.369932
$10.927956
$11.394162
$11.024941 		5,442.598
29,022.516
29,197.479
0.000 		0.000
0.000
0.000
0.000
TA Market Participation Strategy - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.304020
$11.752982
$10.943354
$10.000000 		$11.704162
$11.304020
$11.752982
$10.943354 		5,096.433
5,167.732
0.000
0.000 		0.000
0.000
0.000
0.000
TA MFS International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.481475
$10.536489
$11.178253
$10.000000 		$10.427143
$10.481475
$10.536489
$11.178253 		7,074.790
3,367.322
3,360.290
0.000 		0.000
0.000
0.000
0.000
TA Multi-Managed Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.918443
$11.997730
$10.923256
$10.000000 		$12.752108
$11.918443
$11.997730
$10.923256 		4,889.061
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.903161
$11.255307
$10.500722
$10.000000 		$11.421203
$10.903161
$11.255307
$10.500722 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.758950
$11.053255
$10.227588
$10.000000 		$11.227101
$10.758950
$11.053255
$10.227588 		0.000
0.000
0.000
0.000 		7,059.706
7,158.017
7,251.193
7,342.800
TA PIMCO Tactical - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.020872
$11.484079
$10.858861
$10.000000 		$11.488815
$11.020872
$11.484079
$10.858861 		0.000
0.000
42,606.246
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Total Return - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.895840
$9.904141
$9.549413
$10.000000 		$10.080195
$9.895840
$9.904141
$9.549413 		11,520.854
3,761.562
3,317.168
0.000 		0.000
0.000
0.000
0.000
TA PineBridge Inflation Opportunities- Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$8.875294
$9.192257
$8.945400
$10.000000 		$9.157840
$8.875294
$9.192257
$8.945400 		3,989.604
4,515.475
3,829.557
0.000 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.229777
$10.540156
$10.234520
$10.000000 		$10.437985
$10.229777
$10.540156
$10.234520 		16,336.444
16,725.649
16,338.574
16,339.619 		44,730.096
0.000
0.000
0.000
55

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.325860
$11.114275
$10.831840
$10.000000 		$10.466124
$10.325860
$11.114275
$10.831840 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.277073
$10.800883
$10.486655
$10.000000 		$10.438778
$10.277073
$10.800883
$10.486655 		36,765.523
37,290.242
43,447.268
43,971.023 		0.000
0.000
0.000
0.000
TA Small/Mid Cap Value - Initial Class(1)
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.405324
$12.801600
$12.239105
$10.000000 		$14.936400
$12.405324
$12.801600
$12.239105 		25,938.923
11,292.791
1,749.215
0.000 		0.000
0.000
0.000
0.000
TA T. Rowe Price Small Cap - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.970365
$13.720537
$12.954644
$10.000000 		$15.445223
$13.970365
$13.720537
$12.954644 		22,103.945
11,563.163
2,154.625
0.000 		0.000
0.000
0.000
0.000
TA Torray Concentrated Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.843853
$13.127730
$12.006628
$10.000000 		$13.627439
$12.843853
$13.127730
$12.006628 		10,915.698
6,385.463
5,413.190
5,413.190 		0.000
0.000
0.000
0.000
TA TS&W International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.752773
$10.676898
$11.328498
$10.000000 		$10.803731
$10.752773
$10.676898
$11.328498 		2,618.964
1,074.976
1,027.515
0.000 		0.000
0.000
0.000
0.000
TA WMC US Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.131375
$13.305337
$12.047699
$10.000000 		$14.441908
$14.131375
$13.305337
$12.047699 		30,393.253
20,423.917
0.000
0.000 		0.000
0.000
0.000
0.000
    
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA AB Dynamic Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.621586
$10.714391
$10.215560
$10.000000 		$10.784372
$10.621586
$10.714391
$10.215560 		0.000
0.000
27,683.614
0.000 		0.000
0.000
0.000
0.000
TA Aegon Government Money Market - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.881935
$9.926045
$9.970265
$10.000000 		$9.838155
$9.881935
$9.926045
$9.970265 		474,569.839
221,732.468
94,218.487
74,301.299 		22,915.195
0.000
0.000
0.000
TA Aegon High Yield Bond - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.954097
$10.439790
$10.085762
$10.000000 		$11.429710
$9.954097
$10.439790
$10.085762 		29,522.931
17,814.904
17,880.203
2,891.037 		0.000
0.000
0.000
0.000
TA Aegon U.S. Government Securities - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.932697
$9.995022
$9.614974
$10.000000 		$9.902034
$9.932697
$9.995022
$9.614974 		90,135.044
3,686.986
7,324.173
0.000 		0.000
0.000
0.000
0.000
TA American Funds Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.590972
$9.999877 		$10.160081
$9.590972 		17,476.475
0.000 		0.000
0.000
TA Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.428386
$10.704960
$10.547657
$10.000000 		$10.828489
$10.428386
$10.704960
$10.547657 		45,418.607
32,324.813
955.679
965.723 		0.000
0.000
0.000
0.000
TA Asset Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.530663
$11.833142
$11.603686
$10.000000 		$12.147169
$11.530663
$11.833142
$11.603686 		2,691.453
2,725.443
3,678.115
0.000 		0.000
0.000
0.000
0.000
56

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.023152
$11.359025
$11.137655
$10.000000 		$11.659963
$11.023152
$11.359025
$11.137655 		29,641.346
29,672.269
28,574.560
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.663599
$10.983687
$10.752613
$10.000000 		$11.173763
$10.663599
$10.983687
$10.752613 		86,874.127
96,057.896
80,848.188
27,303.344 		0.000
0.000
0.000
0.000
TA Barrow Hanley Dividend Focused - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.551082
$13.077773
$11.711490
$10.000000 		$14.358328
$12.551082
$13.077773
$11.711490 		61,003.471
30,175.698
32,301.425
0.000 		5,302.151
5,494.864
5,729.567
0.000
TA BlackRock Equity Smart Beta 100 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.552709 5,770.237 0.000
TA BlackRock Global Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.727648
$10.909901
$10.771429
$10.000000 		$11.166514
$10.727648
$10.909901
$10.771429 		27,020.624
31,362.191
10,923.966
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.540574
$9.923387
$9.999630 		$9.533119
$9.540574
$9.923387 		1,547.852
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.540574
$10.297762 		$9.533119
$9.540574 		N/A 0.000
0.000
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.341585
$9.883412
$9.999630 		$9.282177
$9.341585
$9.883412 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.341585
$10.287777 		$9.282177
$9.341585 		N/A 0.000
0.000
TA BlackRock Smart Beta 50 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.233822 0.000 0.000
TA BlackRock Smart Beta 75 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.303579 0.000 0.000
TA BlackRock Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.062391
$11.126131
$10.637026
$10.000000 		$11.553302
$11.062391
$11.126131
$10.637026 		10,822.449
10,871.665
32,300.911
0.000 		0.000
0.000
0.000
0.000
TA Clarion Global Real Estate Securities - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.354384
$10.464030
$9.255780
$10.000000 		$10.372372
$10.354384
$10.464030
$9.255780 		35,222.662
15,634.111
14,920.625
2,455.344 		0.000
0.000
0.000
0.000
TA International Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.257003
$10.501288
$10.632464
$10.000000 		$10.320954
$10.257003
$10.501288
$10.632464 		6,341.565
1,835.472
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.817060
$11.855854
$11.044553
$10.000000 		$12.248668
$11.817060
$11.855854
$11.044553 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Mid-Cap Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.687416
$12.362141
$12.416050
$10.000000 		$11.397285
$11.687416
$12.362141
$12.416050 		1,412.610
6,470.589
6,000.845
5,079.552 		0.000
0.000
0.000
0.000
TA Jennison Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$15.390054
$13.877145
$12.677422
$10.000000 		$15.068576
$15.390054
$13.877145
$12.677422 		16,568.383
13,857.817
3,109.531
1,489.429 		0.000
0.000
0.000
0.000
57

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA JPMorgan Core Bond - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.104496
$10.116194
$9.668537
$10.000000 		$10.266455
$10.104496
$10.116194
$9.668537 		51,961.955
17,175.348
17,146.265
1,029.159 		0.000
0.000
0.000
0.000
TA JPMorgan Enhanced Index - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.396049
$13.466392
$11.846670
$10.000000 		$14.849813
$13.396049
$13.466392
$11.846670 		28,968.843
27,468.992
29,467.690
1,579.473 		4,630.860
4,794.676
0.000
0.000
TA JPMorgan Mid Cap Value - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.961789
$13.414418
$11.718636
$10.000000 		$14.745935
$12.961789
$13.414418
$11.718636 		37,316.286
16,153.882
15,098.563
2,358.570 		0.000
0.000
0.000
0.000
TA JPMorgan Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.653282
$10.744463
$10.155158
$10.000000 		$11.050062
$10.653282
$10.744463
$10.155158 		71,099.411
1,970.025
1,425.399
992.782 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.912552
$11.194198
$10.365462
$10.000000 		$10.790923
$10.912552
$11.194198
$10.365462 		281,303.286
161,824.752
43,433.548
0.000 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.228522
$11.621903
$10.791730
$10.000000 		$11.067720
$11.228522
$11.621903
$10.791730 		310.463
308.725
311.462
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Balanced ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.738997
$10.981748
$10.551286
$10.000000 		$11.092061
$10.738997
$10.981748
$10.551286 		574,353.136
518,246.048
305,425.418
128,853.187 		3,525.378
3,579.154
3,629.388
3,677.372
TA Managed Risk - Conservative ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.669454
$10.791753
$10.300527
$10.000000 		$11.054517
$10.669454
$10.791753
$10.300527 		36,846.992
25,353.103
18,656.308
14,946.950 		0.000
0.000
0.000
0.000
TA Managed Risk - Growth ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.971799
$11.422702
$11.035989
$10.000000 		$11.432595
$10.971799
$11.422702
$11.035989 		96,514.229
96,553.954
94,071.315
0.000 		0.000
0.000
0.000
0.000
TA Market Participation Strategy - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.349354
$11.782416
$10.954316
$10.000000 		$11.768654
$11.349354
$11.782416
$10.954316 		2,572.837
2,608.101
2,641.641
0.000 		0.000
0.000
0.000
0.000
TA MFS International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.523519
$10.562893
$11.189458
$10.000000 		$10.484602
$10.523519
$10.562893
$11.189458 		45,386.789
52,815.647
31,961.351
4,947.541 		0.000
0.000
0.000
0.000
TA Multi-Managed Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.966239
$12.027782
$10.934214
$10.000000 		$12.822377
$11.966239
$12.027782
$10.934214 		18,508.134
16,391.998
26,799.927
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.946883
$11.283498
$10.511256
$10.000000 		$11.484122
$10.946883
$11.283498
$10.511256 		3,520.466
10,033.871
10,132.579
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.802101
$11.080952
$10.237854
$10.000000 		$11.288971
$10.802101
$11.080952
$10.237854 		35,221.812
6,823.259
7,010.812
5,072.278 		0.000
0.000
0.000
0.000
58

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA PIMCO Tactical - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.065073
$11.512858
$10.869754
$10.000000 		$11.552115
$11.065073
$11.512858
$10.869754 		1,381.207
1,381.562
1,381.889
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Total Return - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.935537
$9.928963
$9.559002
$10.000000 		$10.135749
$9.935537
$9.928963
$9.559002 		71,908.071
32,948.362
17,637.517
3,528.573 		0.000
0.000
0.000
0.000
TA PineBridge Inflation Opportunities- Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$8.910911
$9.215296
$8.954385
$10.000000 		$9.208316
$8.910911
$9.215296
$8.954385 		12,449.868
6,869.986
6,750.213
3,080.774 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.270823
$10.566573
$10.244785
$10.000000 		$10.495530
$10.270823
$10.566573
$10.244785 		32,480.646
1,885.580
1,079.664
0.000 		9,209.713
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.367285
$11.142128
$10.842707
$10.000000 		$10.523814
$10.367285
$11.142128
$10.842707 		1,885.710
1,889.038
1,892.187
1,895.312 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.318286
$10.827937
$10.497167
$10.000000 		$10.496305
$10.318286
$10.827937
$10.497167 		103,379.322
94,245.938
228,271.912
228,909.208 		0.000
0.000
0.000
0.000
TA Small/Mid Cap Value - Initial Class(1)
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.455070
$12.833661
$12.251365
$10.000000 		$15.018692
$12.455070
$12.833661
$12.251365 		18,359.143
8,118.277
7,881.887
6,398.006 		3,950.771
4,086.440
4,260.685
0.000
TA T. Rowe Price Small Cap - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.026387
$13.754908
$12.967620
$10.000000 		$15.530319
$14.026387
$13.754908
$12.967620 		34,864.161
33,415.467
16,582.461
2,435.328 		0.000
0.000
0.000
0.000
TA Torray Concentrated Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.895360
$13.160611
$12.018651
$10.000000 		$13.702517
$12.895360
$13.160611
$12.018651 		4,448.435
1,435.167
24,036.348
2,123.752 		0.000
0.000
0.000
0.000
TA TS&W International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.795904
$10.703654
$11.339851
$10.000000 		$10.863282
$10.795904
$10.703654
$11.339851 		21,199.841
24,518.951
11,210.620
1,628.597 		0.000
0.000
0.000
0.000
TA WMC US Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.188011
$13.338646
$12.059768
$10.000000 		$14.521443
$14.188011
$13.338646
$12.059768 		12,921.805
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
(1)  Effective December 5, 2016, TA Systematic Small/Mid Cap Value was renamed TA Small/Mid Cap Value.
The TA International Equity Index and TA U.S. Equity Index had not commenced operation as of December 31, 2016, therefore, comparable data is not available.
59

 

APPENDIX
Excess Interest Adjustment Examples
Money that you surrender from, transfer out of, or apply to an annuity payment option, from a guaranteed period option of the fixed account before the end of its guaranteed period (the number of years you specified the money would remain in the guaranteed period option) may be subject to an excess interest adjustment (“EIA”). If, at the time of such transactions interest rates set by us have risen since the date of the initial guarantee, the excess interest adjustment will result in a lower cash value. However, if interest rates have fallen since the date of the initial guarantee, the excess interest adjustment will result in a higher cash value.
Excess interest adjustments will not reduce the policy value for a guaranteed period option below the premium payments and transfers to that guaranteed period option, less any prior partial surrenders and transfers from the guaranteed period option, plus interest at the policy's minimum guaranteed effective annual interest rate. This is referred to as the excess interest adjustment floor.
The formula that will be used to determine the excess interest adjustment is:
S* (G-C)* (M/12)
S = Is the amount (before premium taxes and the application of any Guaranteed Minimum Death Benefits, if any) being surrendered, withdrawn, transferred, paid upon death, or applied to an income option that is subject to the excess interest adjustment.
G = Is the guaranteed interest rate for the guaranteed period applicable to “S”;
C = Is the current guaranteed interest rate then being offered on new premium payments for the next longer option period than “M”. If this policy form or such an option period is no longer offered, “C” will be the U.S. Treasury rate for the next longer maturity (in whole years) than “M” on the 25th day of the previous calendar month; and
M = Number of months remaining in the current option period for “S”, rounded up to the next higher whole number of months.
* = multiplication
The following examples are for illustrative purposes only and are calculated using hypothetical values. Your experience will vary based on circumstances at the time of withdrawal. In the following examples ^ denotes exponentiation. Please note the exponentiation represents the compounding of the interest rate.
60

 

Excess Interest Adjustment Examples — (Continued)
Example 1 (Full Surrender, rates increase by 4%):
Assumptions:
Single premium payment = $50,000
Guarantee period = 5 Years
Guarantee rate = 5.5% per annum
Guarantee minimum interest rate = 1.50%
Surrender = Middle of policy year 3 (this is represented by 2.5 in this example)
Summary:  
Policy value at middle of policy year 3 = 50,000.00 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
Amount subject to excess interest adjustment = 57,161.18 – 7,161.18 = 50,000.00
Excess interest adjustment floor = 50,000.00 * (1.015) ^ 2.5 = 51,896.14
Excess interest adjustment S * (G - C) * (M/12) where: G = .055
C = .095
M = 30
= 50,000.00 * (.055 - .095) * (30/12)
  = -5,000.00, but excess interest adjustment cannot cause the adjusted policy value to fall below the excess interest adjustment floor, so the adjustment is limited to
51,896.14 - 57,161.18 = -5,265.03
Adjusted policy value = policy value + excess interest adjustment = 57,161.18 + (-5,265.03) = 51,896.15
Cash value at middle of policy year 3 = policy value + excess interest adjustment = 57,161.18 + (-5,265.03) = 51,896.15
Upon full surrender of the policy, the minimum cash value will never be less than that required by the non-forfeiture laws of your state.
Example 2 (Full Surrender, rates decrease by 1%):
Assumptions:
Single premium payment = $50,000
Guarantee period = 5 Years
Guarantee rate = 5.5% per annum
Guarantee minimum interest rate = 1.50%
Surrender = Middle of policy year 3 (this is represented by 2.5 in this example)
Summary:  
Policy value at middle of policy year 3 = 50,000.00 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of policy year 3 = 57,161.18 – 50,000.00 = 7,161.18
Amount subject to excess interest adjustment = 57,161.18 –7,161.18 = 50,000.00
Excess interest adjustment floor = 50,000.00 * (1.015) ^ 2.5 = 51,896.14
Excess interest adjustment S * (G - C) * (M/12) where: G = .055
C = .045
M = 30
= 50,000.00 * (.055 - .045) * (30/12) = 1,250.00
Adjusted policy value = 57,161.18 + 1,250.00 = 58,411.18
Cash value at middle of policy year 3 = policy value + excess interest adjustment = 57,161.18 + 1,250.00 = 58,411.18
Upon full surrender of the policy, the minimum cash value will never by less than that required by the non-forfeiture laws of your state.
61

 

Excess Interest Adjustment Examples — (Continued)
On a partial surrender, the Company will pay the policyholder the full amount of surrender requested (as long as the policy value is sufficient). Amounts surrendered will reduce the policy value by an amount equal to:
R - E
R = the requested partial surrender;
E = the excess interest adjustment
Example 3 (Partial Surrender, rates increase by 1%):
Assumptions:
Single premium payment = $50,000
Guarantee period = 5 Years
Guarantee rate = 5.5% per annum
Partial surrender = $20,000 in the middle of policy year 3 (this is represented by 2.5 in this example)
Summary:  
Policy value at middle of policy year 3 = 50,000.00 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of contract year 3 = 57,161.18 – 50,000.00 = 7,161.18
Excess interest adjustment S * (G - C) * (M/12) where: S = 20,000 –7,161.18 = 12,838.82
G = .055
C = .065
M = 30
= 12,838.82 * (.055 - .065) * (30/12) = - 320.97
Remaining policy value at middle of policy year 3 = 57,161.18 - (R - E)
= 57,161.18 - (20,000.00 - (-320.97)) = 36,840.21
Example 4 (Partial Surrender, rates decrease by 1%):
Assumptions:
Single premium payment = $50,000
Guarantee period = 5 Years
Guarantee rate = 5.5% per annum
Partial surrender = $20,000 in the middle of policy year 3 (this is represented by 2.5 in this example)
Summary:  
Policy value at middle of policy year 3 = 50,000.00 * (1.055) ^ 2.5 = 57,161.18
Adjustment free amount at middle of policy year 3 = 57,161.18 - 50,000.00 = 7,161.18
Excess interest adjustment S * (G - C) * (M/12) where: S = 20,000 –7,161.18 = 12,838.82
G = .055
C = .045
M = 30
= 12,838.82 * (.055 - .045) * (30/12) = 320.97
Remaining policy value at middle of policy year 3 = 57,161.18 - (R - E)
= 57,161.18 - (20,000.00 – 320.97) = 37,482.15
62

 

APPENDIX
Death Benefit
Adjusted Withdrawals. If you make a partial surrender (withdrawal), then your guaranteed minimum death benefit is reduced by an amount called the adjusted withdrawal. The amount of the reduction depends on the relationship between your death proceeds and policy value. The adjusted withdrawal is equal to the gross withdrawal multiplied by the death proceeds immediately prior to the withdrawal divided by the policy value immediately prior to the withdrawal. The formula is AW = GW x (DP/PV) where:
AW = adjusted withdrawal
GW= gross withdrawal
DP = death proceeds prior to the withdrawal = greatest of (PV, CV, or GMDB)
PV = policy value prior to the withdrawal
GMDB = guaranteed minimum death benefit prior to the withdrawal
CV = cash value prior to the withdrawal
The following examples describe the effect of a surrender on the guaranteed minimum death benefit and policy value.
Example 1: Death Proceeds Greater than Policy Value
Assumptions:
GMDB = $75,000
PV = $50,000
DP = $75,000
GW = $15,494
AW = $15,494 x ($75,000/$50,000) = $23,241
Summary:  
Reduction in guaranteed minimum death benefit =$23,241
Reduction in policy value =$15,494
New guaranteed minimum death benefit amount =$51,759
New policy value (after withdrawal) =$34,506
The guaranteed minimum death benefit is reduced more than the policy value because the guaranteed minimum death benefit was greater than the policy value immediately prior to the withdrawal.
Example 2: Death Proceeds Equal to Policy Value
Assumptions:
GMDB = $50,000
PV = $75,000
DP = $75,000
GW = $15,494
AW = $15,494 x ($75,000/$75,000) = $15,494
Summary:  
Reduction in guaranteed minimum death benefit =$15,494
Reduction in policy value =$15,494
New guaranteed minimum death benefit amount =$34,506
New policy value (after withdrawal) =$59,506
The guaranteed minimum death benefit and policy value are reduced by the same amount because the policy value was greater than the guaranteed minimum death benefit immediately prior to the withdrawal.
These examples are for illustrative purposes only. The purpose of these illustrations is to demonstrate how this feature is calculated using hypothetical values. Your experience will vary based on circumstances at the time of withdrawal.
63

 

Death Benefit — (Continued)
Hypothetical Example
In this example, certain death benefit values at various points in time are depicted based on hypothetical assumed rates of performance. This example is for illustrative purposes only and assumes a single $100,000 premium payment by a sole owner and annuitant who is age 50. It further assumes no subsequent premium payments or withdrawals. The difference between the two “Policy Value” columns is the fee for the guaranteed minimum death benefit.
End of Year   Net Rate of
Return for Fund* 		  Policy Value
(No GMDB
Elected) 		  Policy Value
(Return of
Premium GMDB
Elected) 		  Return of
Premium
GMDB
Issue   N/A   $100,000   $100,000   $100,000
1   -4%   $ 94,850   $ 94,700   $100,000
2   18%   $110,832   $110,515   $100,000
3   15%   $126,182   $125,655   $100,000
4   -7%   $115,899   $115,226   $100,000
5   2%   $116,884   $116,033   $100,000
6   10%   $127,228   $126,127   $100,000
7   14%   $143,577   $142,146   $100,000
8   -3%   $137,618   $136,033   $100,000
9   17%   $159,431   $157,391   $100,000
10   6%   $167,163   $164,788   $100,000
* The assumed rate does reflect the deduction of a hypothetical fund fee but does not reflect the deduction of any other fees, charges or taxes. The death benefit values do reflect the deduction of hypothetical base policy fees and hypothetical death benefit fees. For purposes of this example we assumed a Mortality and Expense Risk Fee and an Administrative Charge of 1.15% for Policy Value and 1.30% for Return of Premium. Different hypothetical returns and fees would produce different results.
64

 

APPENDIX
Hypothetical Adjusted Partial withdrawals -Guaranteed Lifetime Withdrawal Benefit Riders
When a withdrawal is taken, three parts of the guaranteed lifetime withdrawal benefit can be affected:
1.  Withdrawal Base (“WB”) (also referred to as Total Withdrawal Base (“TWB”) for some riders);
2.  Rider Withdrawal Amount (“RWA”) (also referred to as Maximum Annual Withdrawal Amount (“MAWA”) for some riders); and
3.  Rider Death Benefit (“RDB”) (also referred to as Minimum Remaining Withdrawal Amount (“MRWA”) for some riders (if applicable)).
Withdrawal Base.  Gross partial withdrawals in a rider year up to the rider withdrawal amount will not reduce the withdrawal base. Gross partial withdrawals in a rider year in excess of the rider withdrawal amount will reduce the withdrawal base by an amount equal to the greater of:
1)  the excess gross partial withdrawal amount; and
2)  a pro rata amount, the result of (A / B) * C, where:
A  is the excess gross partial withdrawal (the amount in excess of the rider withdrawal amount remaining prior to the withdrawal);
B  is the policy value after the rider withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and
C  is the withdrawal base prior to the withdrawal of the excess amount.
Rider Death Benefit.  Gross partial withdrawals in a rider year up to the rider withdrawal amount will reduce the rider death benefit by the amount withdrawn (dollar-for-dollar). Gross partial withdrawals in a rider year in excess of the rider withdrawal amount will reduce the rider death benefit by an amount equal to the greater of:
1)  the excess gross partial withdrawal amount; and
2)  a pro rata amount, the result of (A / B) * C, where:
A  is the excess gross partial withdrawal (the amount in excess of the rider withdrawal amount remaining prior to the withdrawal);
B  is the policy value after the rider withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount; and
C  is the rider death benefit after the rider withdrawal amount has been withdrawn, but prior to the withdrawal of the excess amount.
The following demonstrates, on a purely hypothetical basis, the effects of partial withdrawals under a guaranteed lifetime withdrawal benefit. The withdrawal percentages shown may not be available on all riders. Certain features (growth and rider death benefits) may not be available on all riders. For information regarding a specific rider, please refer to that rider section in this prospectus.
Example 1 (Base):
Assumptions:
WB = $100,000
Withdrawal Percentage = 5%
RWA = 5% withdrawal would be $5,000 (5% of the current $100,000 withdrawal base)
Gross partial withdrawal (“GPWD”) = $5,000
Excess withdrawal (“EWD”) = None
Policy Value (“PV”) = $100,000
Question: Is any portion of the withdrawal greater than the rider withdrawal amount?
No. There is no excess withdrawal under the guarantee since no more than $5,000 is withdrawn.
Result. In this example, because no portion of the withdrawal was in excess of $5,000, the withdrawal base does not change.
65

 

Hypothetical Adjusted Partial withdrawals -Guaranteed Lifetime Withdrawal Benefit
Riders — (Continued)
Example 2 (Excess Withdrawal):
Assumptions:
WB = $100,000
Withdrawal Percentage = 5%
RWA = 5% withdrawal would be $5,000 (5% of the current $100,000 withdrawal base)
GPWD = $7,000
EWD = $2,000 ($7,000 - $5,000)
PV = $90,000
NOTE. For the guaranteed lifetime withdrawal benefit, because there was an excess withdrawal amount, the withdrawal base needs to be adjusted and a new lower rider withdrawal amount calculated. Had the withdrawal for this example not been more than $5,000, the withdrawal base would remain at $100,000 and the rider withdrawal amount would be $5,000. However, because an excess withdrawal has been taken, the withdrawal base is also reduced (this is the amount the 5% is based on).
New withdrawal base:
Step One. The withdrawal base is reduced only by the amount of the excess withdrawal or the pro rata amount, if greater.
Step Two. Calculate how much the withdrawal base is affected by the excess withdrawal.
1.  The formula is (EWD / (PV - 5% withdrawal)) * WB before any adjustments
2.  ($2,000 / ($90,000 - $5,000)) * $100,000 = $2,352.94
Step Three. Which is larger, the actual $2,000 excess withdrawal or the $2,352.94 pro rata amount?
$2,352.94 pro rata amount.
Step Four. What is the new withdrawal base upon which the rider withdrawal amount is based?
$100,000 - $2,352.94 = $97,647.06
Result. The new withdrawal base is $97,647.06
New rider withdrawal amount:
Because the withdrawal base was adjusted (due to the excess withdrawal) we have to calculate a new rider withdrawal amount for the 5% guarantee that will be available starting on the next calendar anniversary. This calculation assumes no more activity prior to the next calendar anniversary.
Question: What is the new rider withdrawal amount?
$97,647.06 (the adjusted withdrawal base) * 5% = $4,882.35
Result. Going forward, the maximum you can take out in a year is $4,882.35 without causing an excess withdrawal for the guarantee and further reduction of the withdrawal base (assuming there are no future automatic step-ups).
Example 3 (Base demonstrating growth):
Assumptions:
WB = $100,000
Withdrawal Percentage = 5%
WB in 10 years (assuming an annual growth rate percentage of 5.0%) = $100,000 * (1 + .05) ^ 10 = $162,889
RWA = 5% withdrawal beginning 10 years from the rider date would be $8,144 (5% of the then-current $162,889 withdrawal base)
Please Note: Withdrawals under these riders can begin prior to the 10th rider anniversary, but the WB growth will not occur during the rider years when a withdrawal is taken, and the growth stops on the 10th rider anniversary.
GPWD = $8,144
EWD = None
PV = $90,000 in 10 years
Question:   Is any portion of the withdrawal greater than the rider withdrawal amount?
No.  There is no excess withdrawal under the guarantee if no more than $8,144 is withdrawn.
Result.   In this example, because no portion of the withdrawal was in excess of $8,144, the withdrawal base does not change.
66

 

Hypothetical Adjusted Partial withdrawals -Guaranteed Lifetime Withdrawal Benefit
Riders — (Continued)
Example 4 (Base demonstrating WB growth with Additional Death Payment Option):
Assumptions:
Withdrawal Percentage = 5%
WB at rider issue = $100,000
WB in 10 years (assuming an annual growth rate percentage of 5%) = $100,000 * (1 + .05) ^ 10 = $162,889
RDB (optional additional death benefit for additional cost) = $100,000
RWA = 5% withdrawal beginning 10 years from the rider date would be $8,144 (5% of the then-current $162,889 withdrawal base)
Please Note: Withdrawals under these riders can begin prior to the 10th rider anniversary, but the WB growth will not occur during the rider years when a withdrawal is taken, and the growth stops on the 10th rider anniversary.
GPWD = $8,144
EWD = None
PV = $90,000 in 10 years
Step One.  Is any portion of the withdrawal greater than the rider withdrawal amount?
No.  There is no excess withdrawal under the guarantee if no more than $8,144 is withdrawn.
Step Two.  What is the rider death benefit after the withdrawal has been taken?
1.  Total to deduct from the rider death benefit is $8,144 (there is no excess to deduct)
2.  $100,000 - $8,144 = $91,856.
Result.  In this example, because no portion of the withdrawal was in excess of $8,144, the total withdrawal base does not change and the rider death benefit reduces to $91,856.
Example 5 (Base with WB growth with Additional Death Payment Option illustrating excess withdrawal):
Assumptions:
Withdrawal Percentage = 5%.
WB at rider issue = $100,000
Automatic step-up never occurs and no withdrawals are taken in the first 10 rider years.
WB in 10 years (assuming an annual growth rate percentage of 5%) = $100,000 * (1 + .05) ^ 10 = $162,889.
RDB (optional additional death benefit for additional cost) = $100,000
RWA = 5% withdrawal beginning 10 years from the rider date would be $8,144 (5% of the then-current $162,889 withdrawal base)
Please Note: Withdrawals under these riders can begin prior to the 10th rider anniversary, but the WB growth will not occur during the rider years when a withdrawal is taken and the growth stops on the 10th rider anniversary.
GPWD = $10,000
EWD = $1,856 ($10,000 - $8,144)
PV = $90,000 in 10 years
Step One.  Is any portion of the total withdrawal greater than the rider withdrawal amount?
Yes. $10,000 - $8,144 = $1,856 (the excess withdrawal amount)
Step Two.  Calculate how much of the rider death benefit is affected by the excess withdrawal.
1.  Formula for pro rata amount is: (EWD / (PV - 5% withdrawal)) * (RDB - 5% withdrawal)
2.  ($1,856 / ($90,000 - $8,144)) * ($100,000 - $8,144) = $2,082.74
Step Three. Which is larger, the actual $1,856 excess withdrawal amount or the $2,082.74 pro rata amount?
$2,082.74 pro rata amount.
Step Four. What is the rider death benefit after the withdrawal has been taken?
1.  Total to deduct from the rider death benefit is $8,144 (RWA) + $2,082.74 (pro rata excess) = $10,226.74
2.  $100,000 - $10,226.74 = $89,773.26.
Result. The rider benefit is $89,773.26.
67

 

Hypothetical Adjusted Partial withdrawals -Guaranteed Lifetime Withdrawal Benefit
Riders — (Continued)
Note: Because there was an excess withdrawal amount in this example, the withdrawal base needs to be adjusted and a new lower rider withdrawal amount calculated. Had the withdrawal for this example not been more than $8,144, the withdrawal base would remain at $162,889 and the rider withdrawal amount would be $8,144. However, because an excess withdrawal has been taken, the withdrawal base is also reduced (this is the amount the 5% is based on).
The Retirement Income Max® rider and any additional options they offer may vary for certain policies, may not be available for all policies, and may not be available in all states.
This disclosure explains the material features of the Retirement Income Max® rider.
68

 

APPENDIX
Hypothetical Example of the Withdrawal Base Calculation -Retirement Income Max® Rider
The following table demonstrates, on a purely hypothetical basis, the withdrawal base calculation for the Retirement Income Max® Rider using an initial premium payment of $100,000 for a Single Life Option rider at an issue age of 80. All values shown are post transaction values. The assumed withdrawal percentage in the example below is 6.30%
Rider Year   Hypothetical
Policy Value 		  Subsequent
Premium
Payment 		  Withdrawal   Excess WB
Adjustment 		  Growth
Amount* 		  High
MonthiversarySM
Value 		  Withdrawal
Base 		  Rider
Withdrawal
Amount
    $100,000   $   $   $   $   $100,000   $100,000   $ 6,300
1   $102,000   $   $   $   $   $102,000   $100,000   $ 6,300
1   $105,060   $   $   $   $   $105,060   $100,000   $ 6,300
1   $107,161   $   $   $   $   $107,161   $100,000   $ 6,300
1   $110,376   $   $   $   $   $110,376   $100,000   $ 6,300
1   $112,584   $   $   $   $   $112,584   $100,000   $ 6,300
1   $115,961   $   $   $   $   $115,961   $100,000   $ 6,300
1   $118,280   $   $   $   $   $118,280   $100,000   $ 6,300
1   $121,829   $   $   $   $   $121,829   $100,000   $ 6,300
1   $124,265   $   $   $   $   $124,265   $100,000   $ 6,300
1   $120,537   $   $   $   $   $124,265   $100,000   $ 6,300
1   $115,716   $   $   $   $   $124,265   $100,000   $ 6,300
1   $109,930   $   $   $   $105,000   $124,265   $124,265 1   $ 7,829
2   $112,129   $   $   $   $   $112,129   $124,265   $ 7,829
2   $115,492   $   $   $   $   $115,492   $124,265   $ 7,829
2   $117,802   $   $   $   $   $117,802   $124,265   $ 7,829
2   $121,336   $   $   $   $   $121,336   $124,265   $ 7,829
2   $124,976   $   $   $   $   $124,976   $124,265   $ 7,829
2   $177,476   $50,000   $   $   $   $177,476   $174,265   $10,979
2   $175,701   $   $   $   $   $177,476   $174,265   $10,979
2   $172,187   $   $   $   $   $177,476   $174,265   $10,979
2   $167,022   $   $   $   $   $177,476   $174,265   $10,979
2   $163,681   $   $   $   $   $177,476   $174,265   $10,979
2   $166,955   $   $   $   $   $177,476   $174,265   $10,979
2   $170,294   $   $   $   $182,979   $177,476   $182,979 2   $11,528
3   $166,888   $   $   $   $   $166,888   $182,979   $11,528
3   $171,895   $   $   $   $   $171,895   $182,979   $11,528
3   $173,614   $   $   $   $   $173,614   $182,979   $11,528
3   $178,822   $   $   $   $   $178,822   $182,979   $11,528
3   $175,246   $   $   $   $   $178,822   $182,979   $11,528
3   $151,741   $   $20,000   $9,676   $   $   $173,303   $
3   $154,775   $   $   $   $   $   $173,303   $
3   $159,419   $   $   $   $   $   $173,303   $
3   $161,013   $   $   $   $   $   $173,303   $
3   $165,843   $   $   $   $   $   $173,303   $
3   $174,135   $   $   $   $   $   $173,303   $
3   $181,101   $   $   $   $   $   $181,101 1   $11,409
(1)  Automatic Step Up Applied
(2)  Growth Applied
*  Growth Percentage = 5%
69

Table of Contents
STATEMENT OF ADDITIONAL INFORMATION
TRANSAMERICA INCOME ELITESM II
Issued through
Transamerica Life Insurance Company
Separate Account VA B (EST. 1/19/1990)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
(800)525-6205
www.transamerica.com 		Transamerica Financial Life Insurance Company
Separate Account VA BNY (EST. 9/27/1994)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
(800)525-6205
www.transamerica.com
This Statement of Additional Information expands upon subjects discussed in the current prospectus for the Transamerica Income EliteSM II variable annuity offered by Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company (“us,” “we”, “our” or “Company”). You may obtain a copy of the current prospectus, dated May 1, 2017, by calling (800) 525-6205, or write us at the addresses listed above. The prospectus sets forth information that a prospective investor should know before investing in a policy. Terms used in the current prospectus for the policy are incorporated in this Statement of Additional Information.
This Statement of Additional Information (SAI) is not a prospectus and should be read only in conjunction with the prospectuses for the policy and the underlying fund portfolios.
Dated: May 1, 2017

 

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APPENDIX  
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APPENDIX  
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GLOSSARY OF TERMS
accumulation unit—An accounting unit of measure used in calculating the policy value in the separate account before the annuity commencement date.
adjusted policy value—The policy value increased or decreased by any excess interest adjustment.
Administrative Office—Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company, Attention: Customer Care Group, 4333 Edgewood Road NE, Cedar Rapids, IA 52499-0001, (800)525-6205.
annuitant—The person on whose life any annuity payments involving life contingencies will be based.
annuity commencement date—The date upon which annuity payments are to commence. This date may not be later than the last day of the policy month following the month in which the annuitant attains age 99 (earlier if required by state law).
annuity payment option—A method of receiving a stream of annuity payments selected by the owner.
annuity unit—An accounting unit of measure used in the calculation of the amount of the second and each subsequent variable annuity payment.
assumed investment return or AIR—The annual effective rate shown in the contract that is used in the calculation of each variable annuity payment.
beneficiary—The person who has the right to the death benefit as set forth in the policy.
cash value—The adjusted policy value less any rider fees (imposed upon surrender).
Code—The Internal Revenue Code of 1986, as amended.
enrollment form—A written application, order form, or any other information received electronically or otherwise upon which the policy is issued and/or is reflected on the data or specifications page.
excess interest adjustment—A positive or negative adjustment to amounts surrendered (both partial or full surrenders) and transfers or applied to annuity payment options from the fixed account guaranteed period options prior to the end of the guaranteed period. The adjustment reflects changes in the interest rates declared by us since the date any payment was received by, or an amount was transferred to, the guaranteed period option. The excess interest adjustment can either decrease or increase the amount to be received by the owner upon full or partial surrenders or commencement of annuity payments, depending upon whether there has been an increase or decrease in interest rates, respectively. The excess interest adjustment will not decrease the interest credited to your policy below the guaranteed minimum. The excess interest adjustment does not apply to policies issued in New York by Transamerica Financial Life Insurance Company.
excess partial surrender—The portion of a partial surrender (surrender) that exceeds the free amount.
fixed account—One or more guaranteed period options under the policy that are part of our general assets and are not in the separate account.
free amount—The amount that can be withdrawn each year without incurring any excess interest adjustments.
guaranteed lifetime withdrawal benefit—Any optional benefit under the policy that provides a guaranteed minimum withdrawal benefit, including the Retirement Income Max® Rider.
guaranteed period options—The various guaranteed interest rate periods of the fixed account which we may offer and into which premium payments may be paid or amounts transferred when available.
market day—A day when the New York Stock Exchange is open for business.
nonqualified policy—A policy other than a qualified policy.
owner (you, your)—The person who may exercise all rights and privileges under the policy.
policy date—The date shown on the policy data page attached to the policy and the date on which the policy becomes effective.
policy value—On or before the annuity commencement date, the policy value is equal to the owner's:
• premium payments; minus
• gross partial surrenders (partial surrenders plus or minus excess interest adjustments plus taxes (on the withdrawal)); plus
• interest credited in the fixed account; plus
• accumulated gains in the separate account; minus
• accumulated losses in the separate account; minus
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• service charges, rider fees, premium taxes, transfer fees, and other charges, if any.
policy year—A policy year begins on the policy date and on each anniversary thereafter.
premium payment—An amount paid to us by the owner or on the owner's behalf as consideration for the benefits provided by the policy.
qualified policy—A policy issued in connection with retirement plans that qualify for special federal income tax treatment under the Code.
separate account—Separate Account VA B and Separate Account VA BNY, separate accounts established and registered as unit investment trusts under the Investment Company Act of 1940, as amended (the “1940 Act”), to which premium payments under the policies may be allocated.
separate account value—The portion of the policy value that is invested in the separate account.
service charge—An annual charge on each policy anniversary (and a charge at the time of surrender during any policy year) for policy maintenance and related administrative expenses.
subaccount—A subdivision within the separate account, the assets of which are invested in a specified underlying fund portfolio.
valuation period—The period of time from one determination of accumulation unit values and annuity unit values to the next subsequent determination of those values. Such determination shall be made generally at the close of business on each market day.
variable annuity payments—Payments made pursuant to an annuity payment option which fluctuate as to dollar amount or payment term in relation to the investment performance of the specified subaccounts within the separate account.
written notice—Written notice, signed by the owner, that gives us the information we require and is received in good order at the Administrative Office. For some transactions, we may accept an electronic notice or telephone instructions. Such electronic notice must meet the requirements for good order that we establish for such notices.
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In order to supplement the description in the prospectus, the following provides additional information about us and the policy, which may be of interest to a prospective purchaser.
THE POLICY—GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after completion of an enrollment form and delivery of the initial premium payment. While the annuitant is living, the owner may: (1) assign the policy; (2) surrender the policy; (3) amend or modify the policy with our consent; (4) receive annuity payments or name a payee to receive the payments; and (5) exercise, receive and enjoy every other right and benefit contained in the policy. The exercise of these rights may be subject to the consent of any assignee or irrevocable beneficiary; and of your spouse in a community or marital property state.
Unless we have been notified of a community or marital property interest in the policy, we will rely on our good faith belief that no such interest exists and will assume no responsibility for inquiry.
Note carefully. If the owner predeceases the annuitant and no joint owner, primary beneficiary, or contingent beneficiary is alive or in existence on the date of death, the owner's estate will become the new owner. If no probate estate is opened because the owner has precluded the opening of a probate estate by means of a trust or other instrument, that trust may not exercise ownership rights to the policy. It may be necessary to open a probate estate in order to exercise ownership rights to the policy.
The owner may change the ownership of the policy in a written notice. When this change takes effect, all rights of ownership in the policy will pass to the new owner. A change of ownership may have tax consequences.
When there is a change of owner, the change will not be effective until it is recorded in our records. Once recorded, it will take effect as of the date the owner signs the written notice, subject to any payment we have made or action we have taken before recording the change. Changing the owner does not change the designation of the beneficiary or the annuitant.
Entire Contract
The entire contract consists of the policy and any application, endorsements and riders. If any portion of the policy or rider attached thereto shall be found to be invalid, unenforceable or illegal, the remainder shall not in any way be affected or impaired thereby, but shall have the same force and effect as if the invalid, unenforceable or illegal portion had not been inserted.
Misstatement of Age or Sex
During the Accumulation Phase. If the age of any person whose life or age a benefit provided under a guaranteed benefit has been misstated, any such benefit will be that which would have been purchased on the basis of the correct age. If that person would not have been eligible for that guaranteed benefit at the correct age, (i) the benefit will be rescinded; and (ii) any charges that were deducted for the benefit will be refunded and applied to the total account value of the policy.
We reserve the right to terminate the contract at any time if it discovers a misstatement or fraudulent representation of any information provided in connection with the issuance or ongoing administration of the policy.
After the Annuity Commencement Date. We may require proof of the annuitant’s or owner’s age and/or sex before any payments associated with any benefits are made. If the age or sex of the annuitant and/or owner has been misstated, we will change the payment associated with any benefits payable to that which the premium payments would have purchased for the correct age or sex. The dollar amount of any underpayment made by us shall be paid in full with the next payment due such person, beneficiary, or payee. The dollar amount of any overpayment made by us due to any misstatement shall be deducted from payments subsequently accruing to such person or beneficiary. Any underpayment or overpayment will include interest specified in your policy, from the date of the wrong payment to the date of the adjustment. The age of the annuitant or owner may be established at any time by the submission of proof satisfactory to us.
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, you may reallocate the value of a designated number of annuity units of a subaccount then credited to a policy into an equal value of annuity units of one or more other subaccounts or the fixed account. The reallocation shall be based on the relative value of the annuity units of the account(s) or subaccount(s) at the end of the market day on the next payment date. The minimum amount which may be reallocated is the lesser of (1) $10 of monthly income or (2) the entire monthly income of the annuity units in the account or subaccount from which the transfer is being made. If the monthly income of the
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annuity units remaining in an account or subaccount after a reallocation is less than $10, we reserve the right to include the value of those annuity units as part of the transfer. The request must be in writing to our Administrative Office. There is no charge assessed in connection with such reallocation. A reallocation of annuity units may be made up to four times in any given policy year.
After the annuity commencement date, no transfers may be made from the fixed account to the separate account.
Annuity Payment Options
During the lifetime of the annuitant and before the annuity commencement date, the owner may choose an annuity payment option or change the election, but notice of any election or change of election must be received by us in good order at least thirty (30) days before the annuity commencement date (elections less than 30 days require prior approval). If no election is made before the annuity commencement date, annuity payments will be made under life income with variable payments for 10 years certain using the existing policy value of the separate account. The default options may be restricted with respect to qualified policies.
The person who elects an annuity payment option can also name one or more beneficiaries to receive any unpaid, guaranteed amount at the death of the annuitant. Naming these beneficiaries cancels any prior choice of a beneficiary.
A payee who did not elect the annuity payment option does not have the right to advance or assign payments, take the payments in one sum, or make any other change. However, the payee may be given the right to do one or more of these things if the person who elects the option tells us in writing and we agree.
Adjusted Age. For the Life Income and Joint and Survivor annuity payment options, the adjusted age is the annuitant's actual age nearest birthday, on the annuity commencement date, adjusted as described in your policy. This adjustment assumes an increase in life expectancy, and therefore it results in lower payments than without such an adjustment.
Variable Payment Options. The dollar amount of the first variable annuity payment will be determined in accordance with the annuity payment rates set forth in the applicable table contained in the policy. For annuity payments the tables are based on a 3% effective annual AIR and the “Annuity 2000” (male, female and unisex if required by law) mortality table projected for improvement using projection scale G. The rates were projected dynamically using an assumed annuity commencement date of 2020. the “Annuity 2000” mortality rates are adjusted based on improvements in mortality to more appropriately reflect increased longevity. The dollar amount of additional variable annuity payments will vary based on the investment performance of the subaccount(s) of the separate account selected by the annuitant or beneficiary. For certain qualified policies the use of unisex mortality tables may be required.
Determination of the First Variable Payment. The amount of the first variable payment depends upon the sex (if consideration of sex is allowed under state and Federal law) and adjusted age of the annuitant.
Determination of Additional Variable Payments. All variable annuity payments other than the first are calculated using annuity units which are credited to the policy. The number of annuity units to be credited in respect of a particular subaccount is determined by dividing that portion of the first variable annuity payment attributable to that subaccount by the annuity unit value of that subaccount on the annuity commencement date. The number of annuity units of each particular subaccount credited to the policy then remains fixed, assuming no transfers to or from that subaccount occur. The dollar value of variable annuity units in the chosen subaccount will increase or decrease reflecting the investment experience of the chosen subaccount. The dollar amount of each variable annuity payment after the first may increase, decrease or remain constant. This amount is equal to the sum of the amounts determined by multiplying the number of annuity units of each particular subaccount credited to the policy by the annuity unit value for the particular subaccount on the date the payment is made.
Death Benefit
Due proof of death of the annuitant is proof that the annuitant died prior to the commencement of annuity payments. A certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, a written statement by the attending physician, or any other proof satisfactory to us will constitute due proof of death. If the annuitant dies after the annuity commencement date, no death benefit is payable and the amount payable will depend on the annuity income option.
Upon receipt in good order of this proof and an election of a method of settlement, the death benefit generally will be paid within seven days, or as soon thereafter as we have sufficient information about the beneficiary(ies) to make the payment. The death benefit may be paid as a lump sum, as annuity payments or as otherwise permitted by the Company in accordance with applicable law, unless a settlement agreement is effective at the death of the owner preventing such election.
If an owner is not an annuitant, and dies prior to the annuity commencement date, the new owner may surrender the policy at any time for the amount of the cash value. If the new owner is not the deceased owner's spouse, the cash value must be distributed within five years after the date of the deceased owner's death, or be used to provide payments to a designated beneficiary within one year of
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such owner’s death that will be made for life of the beneficiary or for a period not extending beyond the life expectancy of the beneficiary. If the sole new owner is the deceased owner's surviving spouse, such spouse may elect to continue the policy as the new owner instead of receiving the death benefit.
Beneficiary. The beneficiary designation in the enrollment form will remain in effect until changed. The owner may change the designated beneficiary by sending us written notice. The beneficiary's consent to such change is not required unless the beneficiary was irrevocably designated or law requires consent. If an irrevocable beneficiary dies, the owner may then designate a new beneficiary. The change will take effect as of the date the owner signs the written notice, whether or not the owner is living when we receive the notice. We will not be liable for any payment made before the written notice is received. If more than one beneficiary is designated, and the owner fails to specify their interests, they will share equally. If upon the death of the annuitant there is a surviving owner(s), the surviving owner(s) automatically takes the place of any beneficiary designation.
Death of Owner
Federal tax law requires that if any owner (including any joint owner who has become a current owner) dies before the annuity commencement date, then the entire value of the policy must generally be distributed within five years of the date of death of such owner. Certain rules apply where (1) the spouse of the deceased owner is the sole beneficiary, (2) the owner is not a natural person and the primary annuitant dies or is changed, or (3) any owner dies after the annuity commencement date. See the TAX INFORMATION section in the prospectus for more information about these rules. Other rules may apply to qualified policies.
Assignment
During the lifetime of the annuitant you may assign any rights or benefits provided by the policy if your policy is a nonqualified policy. An assignment will not be binding on us until a copy has been filed at our Administrative Office. Your rights and benefits and those of the beneficiary are subject to the rights of the assignee. We assume no responsibility for the validity or effect of any assignment. Any claim made under an assignment shall be subject to proof of interest and the extent of the assignment. An assignment may have tax consequences.
Unless you so direct by filing written notice with us, no beneficiary may assign any payments under the policy before they are due. To the extent permitted by law, no payments will be subject to the claims of any beneficiary's creditors.
Ownership under qualified policies is restricted to comply with the Code.
Evidence of Survival
We reserve the right to require satisfactory evidence that a person is alive if a payment is based on that person being alive. No payment will be made until we receive such evidence.
Non-Participating
The policy will not share in our surplus earnings; no dividends will be paid.
Amendments
No change in the policy is valid unless made in writing by us and approved by one of our officers. No registered representative has authority to change or waive any provision of the policy.
We reserve the right to amend the policies to meet the requirements of the Code, regulations or published rulings. You can refuse such a change by giving written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any broker/dealer authorized to sell the policy or their immediate family, or by an officer, director, trustee or bona-fide full-time employee of ours or our affiliated companies or their immediate family. In such a case, we may, at our sole discretion, credit an amount equal to a percentage of each premium payment to the policy due to lower acquisition costs we experience on those purchases. We may offer certain employer sponsored savings plans, reduced fees and charges including, but not limited to, the annual service charge, the mortality and expense risk fee and the administrative charge for certain sales under circumstances which may result in savings of certain costs and expenses. In addition, there may be other circumstances of which we are not presently aware which could result in reduced sales or distribution expenses. Credits to the policy or reductions in these fees and charges will not be unfairly discriminatory against any owner.
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INVESTMENT EXPERIENCE
A “net investment factor” is used to determine the value of accumulation units and annuity units, and to determine annuity payment rates.
Accumulation Units
Allocations of a premium payment directed to a subaccount are credited in the form of accumulation units. Each subaccount has a distinct accumulation unit value. The number of units credited is determined by dividing the premium payment or amount transferred to the subaccount by the accumulation unit value of the subaccount as of the end of the valuation period during which the allocation is made. For each subaccount, the accumulation unit value for a given market day is based on the net asset value of a share of the corresponding portfolio of the underlying fund portfolios less any applicable charges or fees. The investment performance of the portfolio, expenses, and deductions of certain charges affect the value of an accumulation unit.
Upon allocation to the selected subaccount, premium payments are converted into accumulation units of the subaccount. The number of accumulation units to be credited is determined by dividing the dollar amount allocated to each subaccount by the value of an accumulation unit for that subaccount as next determined after the premium payment is received at the Administrative Office or, in the case of the initial premium payment, when the enrollment form is completed, whichever is later. The value of an accumulation unit for each subaccount was arbitrarily established at $10 at the inception of each subaccount. Thereafter, the value of an accumulation unit is determined as of the close of trading on each day the New York Stock Exchange is open for business.
An index (the “net investment factor”) which measures the investment performance of a subaccount during a valuation period, is used to determine the value of an accumulation unit for the next subsequent valuation period. The net investment factor may be greater or less than or equal to one; therefore, the value of an accumulation unit may increase, decrease, or remain the same from one valuation period to the next. You bear this investment risk. The net investment performance of a subaccount and deduction of certain charges affect the accumulation unit value.
The net investment factor for any subaccount for any valuation period is determined by dividing (A + B - C) by (D) and subtracting (E) from the result, where the net result of:
A  the net asset value per share of the shares held in the subaccount determined at the end of the current valuation period, plus
B  the per share amount of any dividend or capital gain distribution made with respect to the shares held in the subaccount if the ex-dividend date occurs during the current valuation period, plus or minus
C  a per share credit or charge for any taxes determined by us to have resulted during the valuation period from the investment operations of the subaccount;
D  is the net asset value per share of the shares held in the subaccount determined as of the end of the immediately preceding valuation period; and
E  is an amount representing the separate account charge and any optional benefit fees, if applicable.
Illustration of Separate Account Accumulation Unit Value Calculations
Formula and Illustration for Determining the Net Investment Factor
Net Investment Factor = (A + B - C) - E
  D  
    
Where:  
A = The net asset value of an underlying fund portfolio share at of the end of the current valuation period.
  Assume A = $11.57
B = The per share amount of any dividend or capital gains distribution since the end of the immediately preceding valuation period.
  Assume B = 0
C = The per share charge or credit for any taxes reserved for at the end of the current valuation period.
  Assume C = 0
D = The net asset value of an underlying fund portfolio share at of the end of the immediately preceding valuation period.
  Assume D = $11.40
E = The daily deduction for the mortality and expense risk fee and the administrative charge, and any optional benefit fees, if applicable. Assume E total 1.50% on an annual basis; On a daily basis, this equals 0.000041096.
    
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Then, the net investment factor = (11.57 + 0 – 0) - 0.000041096 = Z = 1.014871185
  (11.40)  
Formula for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
Where:  
A = The accumulation unit value for the immediately preceding valuation period.
  Assume A = $X
B = The net investment factor for the current valuation period.
  Assume B = Y
Then, the accumulation unit value = $X * Y = $Z
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with annuity unit values. Annuity unit values rise if the net investment performance of the subaccount exceeds the assumed investment return of 3% annually. Conversely, annuity unit values fall if the net investment performance of the subaccount is less than the annual assumed investment return. The value of a variable annuity unit in each subaccount was established at $10 on the date operations began for that subaccount. The value of a variable annuity unit on any subsequent business day is equal to A multiplied by B multiplied by C, where:
A  is the variable annuity unit value for the subaccount on the immediately preceding market day;
B  is the net investment factor for that subaccount for the valuation period; and
C  is the assumed investment return adjustment factor for the valuation period.
The assumed investment return adjustment factor for the valuation period is the product of discount factors of .99986634 per day to recognize the 3% effective annual AIR. The valuation period is the period from the close of the immediately preceding market day to the close of the current market day.
The net investment factor for the policy used to calculate the value of a variable annuity unit in each subaccount for the valuation period is determined by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i)  is the result of:
(1) the net asset value of a fund share held in that subaccount determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions made by the fund for shares held in that subaccount if the ex-dividend date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which we determine to have resulted from the investment operations of the subaccount.
(ii)  is the net asset value of a fund share held in that subaccount determined as of the end of the immediately preceding valuation period.
(iii)  is a factor representing the mortality and expense risk fee and administrative charge. This factor is equal, on an annual basis, to 0.60% of the daily net asset value of shares held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon changes in applicable annuity unit values.
The annuity payment rates generally vary according to the annuity option elected and the gender and adjusted age of the annuitant at the annuity commencement date. The policy contains a table for determining the adjusted age of the annuitant.
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Calculations for Annuity Unit
Value and Variable Annuity Payments
Formula for Determining Annuity Unit Value
Annuity Unit Value = A * B * C
Where:  
A = Annuity unit value for the immediately preceding valuation period.
  Assume A = $X
B = Net investment factor for the valuation period for which the annuity value is being calculated.
  Assume B = Y
C = A factor to neutralize the annual assumed investment return of 3% built into the Annuity Tables used.
  Assume C = Z
Then, the annuity unit value is: $X * Y * Z = $Q
Formula for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
  $1,000
    
Where:  
A = The adjusted policy value as of the annuity commencement date.
  Assume A = $X
B = The annuity purchase rate per $1,000 of adjusted policy value based upon the option selected, the sex and adjusted age of the annuitant according to the tables contained in the policy.
  Assume B = $Y
    
Then, the first monthly variable annuity payment = $X * $Y = $Z
  1,000  
Formula for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
  B
    
Where:  
A = The dollar amount of the first monthly variable annuity payment.
  Assume A = $X
B = The annuity unit value for the valuation date on which the first monthly payment is due.
  Assume B = $Y
    
Then, the number of annuity units = $X = Z
  $Y  
PERFORMANCE
We periodically advertise performance of the various subaccounts. Performance figures might not reflect charges for options, riders, or endorsements. We may disclose at least three different kinds of non-standard performance. First, we may calculate performance by determining the percentage change in the value of an accumulation unit by dividing the increase (decrease) for that unit by the value of the accumulation unit at the beginning of the period. This performance number reflects the deduction of the mortality and expense risk fees and administrative charges. It does not reflect the deduction of any applicable premium taxes, or fees for any optional riders or endorsements. Any such deduction would reduce the percentage increase or make greater any percentage decrease.
Second, advertisements may also include total return figures, which reflect the deduction of the mortality and expense risk fees and administrative charges.
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Third, for certain investment portfolios, performance may be shown for the period commencing from the inception date of the investment portfolio (i.e., before commencement of subaccount operations). These figures should not be interpreted to reflect actual historical performance of the subaccounts.
Not all types of performance data presented reflect all of the fees and charges that may be deducted (such as fees for optional benefits); performance figures would be lower if these charges were included.
HISTORICAL PERFORMANCE DATA
Money Market Yields
We may from time to time disclose the current annualized yield of the money market subaccount, which invests in the corresponding money market portfolio, for a 7-day period in a manner which does not take into consideration any realized or unrealized gains or losses on shares of the corresponding money market portfolio or on its portfolio securities. This current annualized yield is computed by determining the net change (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and income other than investment income) at the end of the 7-day period in the value of a hypothetical account having a balance of 1 unit of the money market subaccount at the beginning of the 7-day period, dividing such net change in account value by the value of the account at the beginning of the period to determine the base period return, and annualizing this quotient on a 365-day basis. The net change in account value reflects (i) net income from the portfolio attributable to the hypothetical account; and (ii) charges and deductions imposed under a policy that are attributable to the hypothetical account. The charges and deductions include the per unit charges for the hypothetical account for (i) the administrative charges and (ii) the mortality and expense risk fee. Current yield will be calculated according to the following formula.
Current Yield = ((NCS * ES)/UV) * (365/7)
Where:    
NCS = The net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and income other than investment income) for the 7-day period attributable to a hypothetical account having a balance of 1 subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the money market subaccount will be lower than the yield for the corresponding money market portfolio. The yield calculations do not reflect the effect of any premium taxes.
We may also disclose the effective yield of the money market subaccount for the same 7-day period, determined on a compounded basis. The effective yield is calculated by compounding the base period return according to the following formula.
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:    
NCS = The net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation and income other than investment income) for the 7-day period attributable to a hypothetical account having a balance of one subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the money market subaccount normally will fluctuate on a daily basis. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. The money market subaccount's actual yield is affected by changes in interest rates on money market securities, average portfolio maturity of the corresponding money market portfolio, the types and quality of portfolio securities held by the corresponding money market portfolio and its operating expenses.
Total Returns
We may from time to time also advertise or disclose total returns for one or more of the subaccounts for various periods of time. One of the periods of time will include the period measured from the date the subaccount commenced operations. When a subaccount has been in operation for 1, 5 and 10 years, respectively, the total return for these periods will be provided. Total returns for other periods
9

 

of time may from time to time also be disclosed. Total returns represent the average annual compounded rates of return that would equate an initial investment of $1,000 to the redemption value of that investment as of the last day of each of the periods. The ending date for each period for which total return quotations are provided will be for the most recent month end practicable, considering the type and media of the communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values which we calculate on each market day based on the performance of the separate account's underlying fund portfolio and the deductions for the mortality and expense risk fee and the administrative charges. The total return will then be calculated according to the following formula.
P (1 + T)N = ERV
Where:    
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of the period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
Other Performance Data
We may from time to time also disclose average annual total returns in a non-standard format in conjunction with the standard format described above.
We may from time to time also disclose cumulative total returns in conjunction with the standard format described above. The cumulative returns will be calculated using the following formula.
CTR = (ERV / P)-1
Where:    
CTR = The cumulative total return net of subaccount recurring charges for the period.
ERV = The ending redeemable value of the hypothetical investment at the end of the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard performance data is also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual total returns for periods prior to the date a particular subaccount commenced operations. Such performance information for the subaccounts will be calculated based on the performance of the various portfolios and the assumption that the subaccounts were in existence for the same periods as those indicated for the portfolios, with the level of policy charges that are currently in effect.
PUBLISHED RATINGS
We may from time to time publish in advertisements, sales literature and reports to owners, the ratings and other information assigned to us by one or more independent rating organizations such as A.M. Best Company, Standard & Poor's Insurance Ratings Services, Moody's Investors Service and Fitch Financial Ratings. The purpose of the ratings is to reflect our financial strength. The ratings should not be considered as bearing on the investment performance of assets held in the separate account or of the safety or riskiness of an investment in the separate account. Each year the A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best's Ratings. These ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. In addition, these ratings may be referred to in advertisements or sales literature or in reports to owners. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance policies in accordance with their terms.
STATE REGULATION OF US
We are subject to the laws of jurisdiction governing insurance companies and to regulation by the jurisdiction Department of Insurance. An annual statement in a prescribed form is filed with the Department of Insurance each year covering our operations for the preceding year and our financial condition as of the end of such year. Regulation by the Department of Insurance includes periodic examination to determine our contract liabilities and reserves so that the Department may determine the items are correct.
10

 

Our books and accounts are subject to review by the Department of Insurance at all times, and a full examination of our operations are conducted periodically by the National Association of Insurance Commissioners. In addition, we are subject to regulation under the insurance laws of other jurisdictions in which it may operate.
ADMINISTRATION
We perform administrative services for the policies. These services include issuance of the policies, maintenance of records concerning the policies, and certain valuation services.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the separate account. As presently required by the 1940 Act, as amended, and regulations promulgated thereunder, we will mail to all owners at their last known address of record, at least annually, reports containing such information as may be required under that Act or by any other applicable law or regulation. Owners will also receive confirmation of each financial transaction and any other reports required by law or regulation. However, for certain routine transactions (for example, regular monthly premiums deducted from your checking account, or regular annuity payments we send to you) you may only receive quarterly confirmations.
DISTRIBUTION OF THE POLICIES
We have entered into a principal underwriting agreement with our affiliate, Transamerica Capital, Inc. (“TCI”), for the distribution and sale of the policies. We may reimburse TCI for certain expenses it incurs in order to pay for the distribution of the policies (e.g., commissions payable to selling firms selling the Policies, as described below).
TCI's home office is located at 1801 California St. Suite 5200 Denver, Colorado 80202. TCI is an indirect, wholly owned subsidiary of Aegon USA. TCI is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, and is a member of Financial Industry Regulatory Authority (“FINRA”). TCI is not a member of the Securities Investor Protection Corporation.
We currently offer the policies on a continuous basis. We anticipate continuing to offer the policies, but reserve the right to discontinue the offering. The policies are offered to the public through sales representatives of broker-dealers (“selling firms”) that have entered into selling agreements with us and with TCI. TCI compensates these selling firms for their services. Sales representatives with these selling firms are appointed as our insurance agents.
We and our affiliates provide paid-in-capital to TCI and pay for TCI's operating and other expenses, including overhead, legal and accounting fees. We may also pay TCI an “override” payment based on the pricing of the product which becomes part of TCI's assets. TCI paid no amounts in commissions in connection with the sale of the Policies.
We and/or TCI or another affiliate may pay certain selling firms additional cash amounts for: (1) marketing allowances, which may include marketing services and increased access to their sales representatives; (2) sales promotions relating to the policies; (3) costs associated with sales conferences and educational seminars for their sales representatives; and (4) other sales expenses of the selling firms. We and/or TCI may make bonus payments to certain selling firms based on aggregate sales or persistency standards. These additional payments are not offered to all selling firms, and the terms of any particular agreement governing the payments may vary among selling firms. Differences in compensation paid to a selling firm or its sales representatives for selling one product over another may create conflicts of interests for such firms or its sales representatives.
VOTING RIGHTS
To the extent required by law, we will vote the underlying fund portfolios' shares held by the separate account at regular and special shareholder meetings of the underlying fund portfolios in accordance with instructions received from persons having voting interests in the portfolios, although none of the underlying fund portfolios hold regular annual shareholder meetings. If, however, the 1940 Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result we will determine that it is permitted to vote the underlying fund portfolios shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the selected portfolios. The number of votes that you have the right to instruct will be calculated separately for each subaccount. The number of votes that you have the right to instruct for a particular subaccount will be determined by dividing your policy value in the subaccount by the net asset value per share of the corresponding portfolio in which the subaccount invests. Fractional shares will be counted.
11

 

After the annuity commencement date, you have the voting interest, and the number of votes decreases as annuity payments are made and as the reserves for the policy decrease. The person's number of votes will be determined by dividing the reserve for the policy allocated to the applicable subaccount by the net asset value per share of the corresponding portfolio. Fractional shares will be counted.
The number of votes that you have the right to instruct will be determined as of the date established by the underlying fund portfolio for determining shareholders eligible to vote at the meeting of the underlying fund portfolio. We will solicit voting instructions by sending you, or other persons entitled to vote, requests for instructions prior to that meeting in accordance with procedures established by the underlying fund portfolio. Portfolio shares as to which no timely instructions are received, and shares held by us in which you, or other persons entitled to vote have no beneficial interest, will be voted in proportion to the voting instructions that are received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy material, reports, and other materials relating to the appropriate portfolio.
OTHER PRODUCTS
We make other variable annuity policies available that may also be funded through the separate account. These variable annuity policies may have different features, such as different investment choices or charges.
CUSTODY OF ASSETS
We hold assets of each of the subaccounts. The assets of each of the subaccounts are segregated and held separate and apart from the assets of the other subaccounts and from our general account assets. We maintain records of all purchases and redemptions of shares of the underlying fund portfolios held by each of the subaccounts. Additional protection for the assets of the separate account is afforded by our fidelity bond, presently in the amount of $5,000,000, covering the acts of our officers and employees.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of the Separate Account VA B and Separate Account VA BNY, as of December 31, 2016 and for the years ended December 31, 2016 and 2015, and the statutory-basis financial statements and schedules of Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company as of December 31, 2016 and 2015 and for the three years ended December 31, 2016 included in this Statement of Additional Information, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given upon the authority of such firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP
One North Wacker Drive
Chicago, IL 60606
OTHER INFORMATION
A registration statement has been filed with the SEC, under the Securities Act of 1933 as amended, with respect to the policies discussed in this SAI. Not all of the information set forth in the registration statement and the amendments and exhibits thereto has been included in the prospectus or this SAI. Statements contained in the prospectus and this SAI concerning the content of the policies and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The values of your interest in the separate account will be affected solely by the investment results of the selected subaccount(s). Financial statements of certain subaccounts of Separate Account VA B and Separate Account VA BNY, which are available for investment by Transamerica Income EliteSM II policy owners, are contained herein. The statutory-basis financial statements and schedules of Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company, which are included in this SAI, should be considered only as bearing on the ability of us to meet our obligations under the policies. They should not be considered as bearing on the investment performance of the assets held in the separate account.
12

 

APPENDIX
CONDENSED FINANCIAL INFORMATION
The following tables list the accumulation unit values and the number of accumulation units outstanding for the total separate account expenses listed therein for each subaccount available on December 31, 2016.
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA AB Dynamic Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.579149
$10.687611
$10.205317
$10.000000 		$10.725267
$10.579149
$10.687611
$10.205317 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Aegon Government Money Market - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.842468
$9.901207
$9.960295
$10.000000 		$9.784263
$9.842468
$9.901207
$9.960295 		20,493.152
11,888.605
5,354.870
11,104.568 		30,109.667
0.000
0.000
0.000
TA Aegon High Yield Bond - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.914341
$10.413705
$10.075660
$10.000000 		$11.367092
$9.914341
$10.413705
$10.075660 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Aegon U.S. Government Securities - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.893012
$9.970032
$9.605333
$10.000000 		$9.847774
$9.893012
$9.970032
$9.605333 		6,524.180
3,749.955
3,682.303
0.000 		0.000
0.000
0.000
0.000
TA American Funds Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.581314
$9.999836 		$10.134717
$9.581314 		0.000
0.000 		0.000
0.000
TA Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.386716
$10.678202
$10.537085
$10.000000 		$10.769124
$10.386716
$10.678202
$10.537085 		10,569.143
19,066.485
14,272.122
0.000 		6,888.896
6,984.826
7,075.749
7,165.138
TA Asset Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.484608
$11.803578
$11.592070
$10.000000 		$12.080608
$11.484608
$11.803578
$11.592070 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.979103
$11.330625
$11.126499
$10.000000 		$11.596044
$10.979103
$11.330625
$11.126499 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.620990
$10.956226
$10.741836
$10.000000 		$11.112516
$10.620990
$10.956226
$10.741836 		81,849.515
82,278.647
90,824.987
64,870.617 		0.000
0.000
0.000
0.000
TA Barrow Hanley Dividend Focused - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.500959
$13.045101
$11.699769
$10.000000 		$14.279657
$12.500959
$13.045101
$11.699769 		12,913.621
5,373.952
2,241.744
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Equity Smart Beta 100 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.540338 0.000 0.000
TA BlackRock Global Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.684807
$10.882645
$10.760639
$10.000000 		$11.105326
$10.684807
$10.882645
$10.760639 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.524143
$9.921184
$9.999507 		$9.502483
$9.524143
$9.921184 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.524143
$10.290358 		$9.502483
$9.524143 		N/A 0.000
0.000
13

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.325502
$9.881221
$9.999507 		$9.252360
$9.325502
$9.881221 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.325502
10.280389 		$9.252360
$9.325502 		N/A 0.000
0.000
TA BlackRock Smart Beta 50 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.221825 0.000 0.000
TA BlackRock Smart Beta 75 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999508 $10.291496 0.000 0.000
TA BlackRock Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.018214
$11.098334
$10.626375
$10.000000 		$11.490011
$11.018214
$11.098334
$10.626375 		17,228.083
11,767.283
785.882
0.000 		0.000
0.000
0.000
0.000
TA Clarion Global Real Estate Securities - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.313001
$10.437867
$9.246492
$10.000000 		$10.315515
$10.313001
$10.437867
$9.246492 		5,057.254
3,831.407
3,810.979
0.000 		0.000
0.000
0.000
0.000
TA International Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.216023
$10.475034
$10.621815
$10.000000 		$10.264381
$10.216023
$10.475034
$10.621815 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.769848
$11.826220
$11.033486
$10.000000 		$12.181541
$11.769848
$11.826220
$11.033486 		23,984.938
23,985.800
752.510
0.000 		0.000
0.000
0.000
0.000
TA Janus Mid-Cap Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.640692
$12.331228
$12.403617
$10.000000 		$11.334792
$11.640692
$12.331228
$12.403617 		6,146.970
591.978
608.504
0.000 		0.000
0.000
0.000
0.000
TA Jennison Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$15.328594
$13.842474
$12.664733
$10.000000 		$14.986019
$15.328594
$13.842474
$12.664733 		13,292.021
3,227.589
3,399.230
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Core Bond - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.064132
$10.090906
$9.658843
$10.000000 		$10.210192
$10.064132
$10.090906
$9.658843 		8,036.012
2,853.484
2,431.164
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Enhanced Index - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.342523
$13.432731
$11.834803
$10.000000 		$14.768427
$13.342523
$13.432731
$11.834803 		27,919.121
2,895.191
2,263.143
0.000 		0.000
0.000
0.000
0.000
TA JPMorgan Mid Cap Value - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.910001
$13.380895
$11.706891
$10.000000 		$14.665115
$12.910001
$13.380895
$11.706891 		26,719.136
16,606.632
1,332.127
0.000
0.000
0.000
0.000
TA JPMorgan Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.610713
$10.717597
$10.144978
$10.000000 		$10.989488
$10.610713
$10.717597
$10.144978 		26,293.708
12,748.704
0.000
0.000 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.868953
$11.166223
$10.355070
$10.000000 		$10.731774
$10.868953
$11.166223
$10.355070 		32,550.704
22,200.977
0.000
0.000 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.183661
$11.592856
$10.780917
$10.000000 		$11.007056
$11.183661
$11.592856
$10.780917 		1,102.871
1,104.362
0.000
0.000 		0.000
0.000
0.000
0.000
14

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA Managed Risk - Balanced ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.696092
$10.954305
$10.540719
$10.000000 		$11.031262
$10.696092
$10.954305
$10.540719 		104,498.460
103,302.870
9,041.002
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Conservative ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.626819
$10.764771
$10.290195
$10.000000 		$10.993924
$10.626819
$10.764771
$10.290195 		90,532.808
64,119.454
58,080.151
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Growth ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.927956
$11.394162
$11.024941
$10.000000 		$11.369932
$10.927956
$11.394162
$11.024941 		5,442.598
29,022.516
29,197.479
0.000 		0.000
0.000
0.000
0.000
TA Market Participation Strategy - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.304020
$11.752982
$10.943354
$10.000000 		$11.704162
$11.304020
$11.752982
$10.943354 		5,096.433
5,167.732
0.000
0.000 		0.000
0.000
0.000
0.000
TA MFS International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.481475
$10.536489
$11.178253
$10.000000 		$10.427143
$10.481475
$10.536489
$11.178253 		7,074.790
3,367.322
3,360.290
0.000 		0.000
0.000
0.000
0.000
TA Multi-Managed Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.918443
$11.997730
$10.923256
$10.000000 		$12.752108
$11.918443
$11.997730
$10.923256 		4,889.061
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.903161
$11.255307
$10.500722
$10.000000 		$11.421203
$10.903161
$11.255307
$10.500722 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.758950
$11.053255
$10.227588
$10.000000 		$11.227101
$10.758950
$11.053255
$10.227588 		0.000
0.000
0.000
0.000 		7,059.706
7,158.017
7,251.193
7,342.800
TA PIMCO Tactical - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.020872
$11.484079
$10.858861
$10.000000 		$11.488815
$11.020872
$11.484079
$10.858861 		0.000
0.000
42,606.246
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Total Return - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.895840
$9.904141
$9.549413
$10.000000 		$10.080195
$9.895840
$9.904141
$9.549413 		11,520.854
3,761.562
3,317.168
0.000 		0.000
0.000
0.000
0.000
TA PineBridge Inflation Opportunities- Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$8.875294
$9.192257
$8.945400
$10.000000 		$9.157840
$8.875294
$9.192257
$8.945400 		3,989.604
4,515.475
3,829.557
0.000 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.229777
$10.540156
$10.234520
$10.000000 		$10.437985
$10.229777
$10.540156
$10.234520 		16,336.444
16,725.649
16,338.574
16,339.619 		44,730.096
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.325860
$11.114275
$10.831840
$10.000000 		$10.466124
$10.325860
$11.114275
$10.831840 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.277073
$10.800883
$10.486655
$10.000000 		$10.438778
$10.277073
$10.800883
$10.486655 		36,765.523
37,290.242
43,447.268
43,971.023 		0.000
0.000
0.000
0.000
15

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.60%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA Small/Mid Cap Value - Initial Class(1)
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.405324
$12.801600
$12.239105
$10.000000 		$14.936400
$12.405324
$12.801600
$12.239105 		25,938.923
11,292.791
1,749.215
0.000 		0.000
0.000
0.000
0.000
TA T. Rowe Price Small Cap - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.970365
$13.720537
$12.954644
$10.000000 		$15.445223
$13.970365
$13.720537
$12.954644 		22,103.945
11,563.163
2,154.625
0.000 		0.000
0.000
0.000
0.000
TA Torray Concentrated Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.843853
$13.127730
$12.006628
$10.000000 		$13.627439
$12.843853
$13.127730
$12.006628 		10,915.698
6,385.463
5,413.190
5,413.190 		0.000
0.000
0.000
0.000
TA TS&W International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.752773
$10.676898
$11.328498
$10.000000 		$10.803731
$10.752773
$10.676898
$11.328498 		2,618.964
1,074.976
1,027.515
0.000 		0.000
0.000
0.000
0.000
TA WMC US Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.131375
$13.305337
$12.047699
$10.000000 		$14.441908
$14.131375
$13.305337
$12.047699 		30,393.253
20,423.917
0.000
0.000 		0.000
0.000
0.000
0.000
    
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA AB Dynamic Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.621586
$10.714391
$10.215560
$10.000000 		$10.784372
$10.621586
$10.714391
$10.215560 		0.000
0.000
27,683.614
0.000 		0.000
0.000
0.000
0.000
TA Aegon Government Money Market - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.881935
$9.926045
$9.970265
$10.000000 		$9.838155
$9.881935
$9.926045
$9.970265 		474,569.839
221,732.468
94,218.487
74,301.299 		22,915.195
0.000
0.000
0.000
TA Aegon High Yield Bond - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.954097
$10.439790
$10.085762
$10.000000 		$11.429710
$9.954097
$10.439790
$10.085762 		29,522.931
17,814.904
17,880.203
2,891.037 		0.000
0.000
0.000
0.000
TA Aegon U.S. Government Securities - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.932697
$9.995022
$9.614974
$10.000000 		$9.902034
$9.932697
$9.995022
$9.614974 		90,135.044
3,686.986
7,324.173
0.000 		0.000
0.000
0.000
0.000
TA American Funds Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.590972
$9.999877 		$10.160081
$9.590972 		17,476.475
0.000 		0.000
0.000
TA Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.428386
$10.704960
$10.547657
$10.000000 		$10.828489
$10.428386
$10.704960
$10.547657 		45,418.607
32,324.813
955.679
965.723 		0.000
0.000
0.000
0.000
TA Asset Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.530663
$11.833142
$11.603686
$10.000000 		$12.147169
$11.530663
$11.833142
$11.603686 		2,691.453
2,725.443
3,678.115
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.023152
$11.359025
$11.137655
$10.000000 		$11.659963
$11.023152
$11.359025
$11.137655 		29,641.346
29,672.269
28,574.560
0.000 		0.000
0.000
0.000
0.000
TA Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.663599
$10.983687
$10.752613
$10.000000 		$11.173763
$10.663599
$10.983687
$10.752613 		86,874.127
96,057.896
80,848.188
27,303.344 		0.000
0.000
0.000
0.000
16

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA Barrow Hanley Dividend Focused - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.551082
$13.077773
$11.711490
$10.000000 		$14.358328
$12.551082
$13.077773
$11.711490 		61,003.471
30,175.698
32,301.425
0.000 		5,302.151
5,494.864
5,729.567
0.000
TA BlackRock Equity Smart Beta 100 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.552709 5,770.237 0.000
TA BlackRock Global Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.727648
$10.909901
$10.771429
$10.000000 		$11.166514
$10.727648
$10.909901
$10.771429 		27,020.624
31,362.191
10,923.966
0.000 		0.000
0.000
0.000
0.000
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.540574
$9.923387
$9.999630 		$9.533119
$9.540574
$9.923387 		1,547.852
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Balanced - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.540574
$10.297762 		$9.533119
$9.540574 		N/A 0.000
0.000
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date November 10, 2014 		2016
2015
2014 		$9.341585
$9.883412
$9.999630 		$9.282177
$9.341585
$9.883412 		0.000
0.000
0.000 		N/A
TA BlackRock Global Allocation Managed Risk - Growth - Service Class
Subaccount inception date May 1, 2015 		2016
2015 		$9.341585
$10.287777 		$9.282177
$9.341585 		N/A 0.000
0.000
TA BlackRock Smart Beta 50 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.233822 0.000 0.000
TA BlackRock Smart Beta 75 - Service Class
Subaccount inception date March 21, 2016 		2016 $9.999631 $10.303579 0.000 0.000
TA BlackRock Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.062391
$11.126131
$10.637026
$10.000000 		$11.553302
$11.062391
$11.126131
$10.637026 		10,822.449
10,871.665
32,300.911
0.000 		0.000
0.000
0.000
0.000
TA Clarion Global Real Estate Securities - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.354384
$10.464030
$9.255780
$10.000000 		$10.372372
$10.354384
$10.464030
$9.255780 		35,222.662
15,634.111
14,920.625
2,455.344 		0.000
0.000
0.000
0.000
TA International Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.257003
$10.501288
$10.632464
$10.000000 		$10.320954
$10.257003
$10.501288
$10.632464 		6,341.565
1,835.472
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.817060
$11.855854
$11.044553
$10.000000 		$12.248668
$11.817060
$11.855854
$11.044553 		0.000
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
TA Janus Mid-Cap Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.687416
$12.362141
$12.416050
$10.000000 		$11.397285
$11.687416
$12.362141
$12.416050 		1,412.610
6,470.589
6,000.845
5,079.552 		0.000
0.000
0.000
0.000
TA Jennison Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$15.390054
$13.877145
$12.677422
$10.000000 		$15.068576
$15.390054
$13.877145
$12.677422 		16,568.383
13,857.817
3,109.531
1,489.429 		0.000
0.000
0.000
0.000
TA JPMorgan Core Bond - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.104496
$10.116194
$9.668537
$10.000000 		$10.266455
$10.104496
$10.116194
$9.668537 		51,961.955
17,175.348
17,146.265
1,029.159 		0.000
0.000
0.000
0.000
TA JPMorgan Enhanced Index - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$13.396049
$13.466392
$11.846670
$10.000000 		$14.849813
$13.396049
$13.466392
$11.846670 		28,968.843
27,468.992
29,467.690
1,579.473 		4,630.860
4,794.676
0.000
0.000
17

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA JPMorgan Mid Cap Value - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.961789
$13.414418
$11.718636
$10.000000 		$14.745935
$12.961789
$13.414418
$11.718636 		37,316.286
16,153.882
15,098.563
2,358.570 		0.000
0.000
0.000
0.000
TA JPMorgan Tactical Allocation - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.653282
$10.744463
$10.155158
$10.000000 		$11.050062
$10.653282
$10.744463
$10.155158 		71,099.411
1,970.025
1,425.399
992.782 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.912552
$11.194198
$10.365462
$10.000000 		$10.790923
$10.912552
$11.194198
$10.365462 		281,303.286
161,824.752
43,433.548
0.000 		0.000
0.000
0.000
0.000
TA Legg Mason Dynamic Allocation - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.228522
$11.621903
$10.791730
$10.000000 		$11.067720
$11.228522
$11.621903
$10.791730 		310.463
308.725
311.462
0.000 		0.000
0.000
0.000
0.000
TA Managed Risk - Balanced ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.738997
$10.981748
$10.551286
$10.000000 		$11.092061
$10.738997
$10.981748
$10.551286 		574,353.136
518,246.048
305,425.418
128,853.187 		3,525.378
3,579.154
3,629.388
3,677.372
TA Managed Risk - Conservative ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.669454
$10.791753
$10.300527
$10.000000 		$11.054517
$10.669454
$10.791753
$10.300527 		36,846.992
25,353.103
18,656.308
14,946.950 		0.000
0.000
0.000
0.000
TA Managed Risk - Growth ETF - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.971799
$11.422702
$11.035989
$10.000000 		$11.432595
$10.971799
$11.422702
$11.035989 		96,514.229
96,553.954
94,071.315
0.000 		0.000
0.000
0.000
0.000
TA Market Participation Strategy - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.349354
$11.782416
$10.954316
$10.000000 		$11.768654
$11.349354
$11.782416
$10.954316 		2,572.837
2,608.101
2,641.641
0.000 		0.000
0.000
0.000
0.000
TA MFS International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.523519
$10.562893
$11.189458
$10.000000 		$10.484602
$10.523519
$10.562893
$11.189458 		45,386.789
52,815.647
31,961.351
4,947.541 		0.000
0.000
0.000
0.000
TA Multi-Managed Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.966239
$12.027782
$10.934214
$10.000000 		$12.822377
$11.966239
$12.027782
$10.934214 		18,508.134
16,391.998
26,799.927
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Balanced - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.946883
$11.283498
$10.511256
$10.000000 		$11.484122
$10.946883
$11.283498
$10.511256 		3,520.466
10,033.871
10,132.579
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.802101
$11.080952
$10.237854
$10.000000 		$11.288971
$10.802101
$11.080952
$10.237854 		35,221.812
6,823.259
7,010.812
5,072.278 		0.000
0.000
0.000
0.000
TA PIMCO Tactical - Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$11.065073
$11.512858
$10.869754
$10.000000 		$11.552115
$11.065073
$11.512858
$10.869754 		1,381.207
1,381.562
1,381.889
0.000 		0.000
0.000
0.000
0.000
TA PIMCO Total Return - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$9.935537
$9.928963
$9.559002
$10.000000 		$10.135749
$9.935537
$9.928963
$9.559002 		71,908.071
32,948.362
17,637.517
3,528.573 		0.000
0.000
0.000
0.000
18

 

CONDENSED FINANCIAL INFORMATION — (Continued)
    Separate Account Expense 0.45%
Subaccount Year Beginning AUV Ending AUV # Units (National) # Units (NY)
TA PineBridge Inflation Opportunities- Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$8.910911
$9.215296
$8.954385
$10.000000 		$9.208316
$8.910911
$9.215296
$8.954385 		12,449.868
6,869.986
6,750.213
3,080.774 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Conservative - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.270823
$10.566573
$10.244785
$10.000000 		$10.495530
$10.270823
$10.566573
$10.244785 		32,480.646
1,885.580
1,079.664
0.000 		9,209.713
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate Growth - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.367285
$11.142128
$10.842707
$10.000000 		$10.523814
$10.367285
$11.142128
$10.842707 		1,885.710
1,889.038
1,892.187
1,895.312 		0.000
0.000
0.000
0.000
TA QS Investors Active Asset Allocation - Moderate - Service Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.318286
$10.827937
$10.497167
$10.000000 		$10.496305
$10.318286
$10.827937
$10.497167 		103,379.322
94,245.938
228,271.912
228,909.208 		0.000
0.000
0.000
0.000
TA Small/Mid Cap Value - Initial Class(1)
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.455070
$12.833661
$12.251365
$10.000000 		$15.018692
$12.455070
$12.833661
$12.251365 		18,359.143
8,118.277
7,881.887
6,398.006 		3,950.771
4,086.440
4,260.685
0.000
TA T. Rowe Price Small Cap - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.026387
$13.754908
$12.967620
$10.000000 		$15.530319
$14.026387
$13.754908
$12.967620 		34,864.161
33,415.467
16,582.461
2,435.328 		0.000
0.000
0.000
0.000
TA Torray Concentrated Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$12.895360
$13.160611
$12.018651
$10.000000 		$13.702517
$12.895360
$13.160611
$12.018651 		4,448.435
1,435.167
24,036.348
2,123.752 		0.000
0.000
0.000
0.000
TA TS&W International Equity - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$10.795904
$10.703654
$11.339851
$10.000000 		$10.863282
$10.795904
$10.703654
$11.339851 		21,199.841
24,518.951
11,210.620
1,628.597 		0.000
0.000
0.000
0.000
TA WMC US Growth - Initial Class
Subaccount inception date May 1, 2013 		2016
2015
2014
2013 		$14.188011
$13.338646
$12.059768
$10.000000 		$14.521443
$14.188011
$13.338646
$12.059768 		12,921.805
0.000
0.000
0.000 		0.000
0.000
0.000
0.000
(1)  Effective December 5, 2016, TA Systematic Small/Mid Cap Value was renamed TA Small/Mid Cap Value.
The TA International Equity Index and TA U.S. Equity Index had not commenced operation as of December 31, 2016, therefore, comparable data is not available.
19

 

APPENDIX
Prior Withdrawal/ Growth Percentages and rider fees
The table below identifies the prior percentages for the Retirement Income Max® Rider.
Withdrawal Percentages
Date   Age at time of first withdrawal   Singe Life Percentage   Joint Life Percentage
Prior to May 1, 2014   0-58
59-64
65-79
≥80 		  0.00%
4.30%
5.30%
6.30% 		  0.00%
3.80%
4.80%
5.80%
May 1, 2014 to February 16, 2015   0-58
59-64
65-79
≥80 		  0.00%
4.30%
5.30%
6.30% 		  0.00%
4.00%
5.00%
6.00%
February 17, 2015 to December 31, 2016   0-58
59-64
65-79
≥80 		  0.00%
4.20%
5.20%
6.20% 		  0.00%
3.80%
4.80%
5.80%
January 1, 2017 to March 31, 2017   0-58
59-64
65-79
≥80 		  0.00%
4.20%
5.20%
6.20% 		  0.00%
3.70%
4.70%
5.70%
New York Withdrawal Percentages
Date   Age at time of first withdrawal   Singe Life Percentage   Joint Life Percentage
Prior to May 1, 2014   0-58
59-64
65-79
≥80 		  0.00%
4.30%
5.30%
6.30% 		  0.00%
3.80%
4.80%
5.80%
May 1, 2014 to March 1, 2015   0-58
59-64
65-79
≥80 		  0.00%
4.30%
5.30%
6.30% 		  0.00%
4.00%
5.00%
6.00%
March 2, 2015 to October 1, 2015   0-58
59-64
65-79
≥80 		  0.00%
4.20%
5.20%
6.20% 		  0.00%
3.80%
4.80%
5.80%
October 1, 2015 to December 31, 2016   0-58
59-64
65-79
≥80 		  0.00%
4.20%
5.20%
6.20% 		  0.00%
0.00%
4.80%
5.80%
January 1, 2017 to March 31, 2017   0-58
59-64
65-79
≥80 		  0.00%
4.20%
5.20%
6.20% 		  0.00%
0.00%
4.70%
5.70%
Growth Percentages
Date   Percentage
Prior to May 1, 2014   5.00%
May 1, 2014 to March 31, 2017   5.50%
20

Table of Contents

FINANCIAL STATEMENTS – STATUTORY BASIS

AND SUPPLEMENTARY INFORMATION

Transamerica Life Insurance Company

Years Ended December 31, 2016, 2015 and 2014

Table of Contents

Transamerica Life Insurance Company

Financial Statements – Statutory Basis

and Supplementary Information

Years Ended December 31, 2016, 2015 and 2014

Contents

 

Report of Independent Auditors

      1  

Audited Financial Statements

   

Balance Sheets – Statutory Basis

      3  

Statements of Operations – Statutory Basis

      5  

Statements of Changes in Capital and Surplus – Statutory Basis

      7  

Statements of Cash Flow – Statutory Basis

      9  

Notes to Financial Statements – Statutory Basis

      11  

Appendix A – Listing of Affiliated Companies

      112  

Statutory-Basis Financial Statement Schedules

   

Summary of Investments – Other Than Investments in Related Parties

     116  

Supplementary Insurance Information

      117  

Reinsurance

      118  

Table of Contents

LOGO

Report of Independent Auditors

To the Board of Directors of

Transamerica Life Insurance Company

We have audited the accompanying statutory financial statements of Transamerica Life Insurance Company (the “Company”), which comprise the statutory balance sheet as of December 31, 2016 and 2015, and the related statutory statements of operations, of changes in capital and surplus, and of cash flow for the years ended December 31, 2016, 2015, and 2014.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Iowa Insurance Division. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Note 1 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Iowa Insurance Division, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the financial statements of the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

PricewaterhouseCoopers LLP, 1 N Upper Wacker Drive, Chicago, IL 60606

T: 312-298-2000, F: , www.pwc.com

Table of Contents

LOGO

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the “Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles” paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2016 and 2015 or the results of its operations or its cash flows for the years ended December 31, 2016, 2015, and 2014.

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and surplus of the Company as of December 31, 2016 and 2015 and the results of its operations and its cash flows for the years ended December 31, 2016, 2015 and 2014, in accordance with the accounting practices prescribed or permitted by the Iowa Insurance Division described in Note 1.

Emphasis of Matter

As discussed in Note 1 to the financial statements, the financial statements give retroactive effect to the merger of Global Preferred Re Limited into the Company on January 1, 2016 in a transaction accounted for as a statutory merger. Our opinion is not modified with respect to this matter.

As discussed in Note 2 to the financial statements, the Company changed the manner in which it accounts for its investment in Transamerica Life (Bermuda), Ltd. (TLB), a wholly-owned Bermuda domiciled life subsidiary in 2016. Our opinion is not modified with respect to this matter

Other Matter

Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Summary of Investments-Other Than Investments in Related Parties as of December 31, 2016 and the Supplementary Insurance Information and Reinsurance as of December 31, 2016 and 2015 and for the years then ended are presented for purposes of additional analysis and are not a required part of the financial statements. The Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The effects on the Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. As a consequence, the Summary of Investments-Other Than Investments in Related Parties as of December 31, 2016 and the Supplementary Insurance Information and Reinsurance as of December 31, 2016 and 2015 and for the years then ended do not present fairly, in conformity with accounting principles generally accepted in the United States of America. The Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance have been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the of Summary Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance are fairly stated, in all material respects, in relation to the financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

April 24, 2017

PricewaterhouseCoopers LLP, 1 N Upper Wacker Drive, Chicago, IL 60606

T: 312-298-2000, F: , www.pwc.com

Table of Contents

Transamerica Life Insurance Company

Balance Sheets – Statutory Basis

(Dollars in Thousands, Except per Share Amounts)

 

     December 31  
     2016      2015  

Admitted assets

      

Cash and invested assets:

      

Cash, cash equivalents and short-term investments

    $ 1,470,814      $ 2,280,106  

Bonds:

      

Affiliated entities

      4,982        63,750  

Unaffiliated entities

      38,627,052        34,109,703  

Preferred stocks

      

Affiliated entities

      7,162        7,162  

Unaffiliated entities

      95,547        99,102  

Common stocks:

      

Affiliated entities (cost: 2016 - $1,563,014; 2015 - $1,328,112)

      2,352,862        1,961,018  

Unaffiliated entities (cost: 2016 - $179,505; 2015 - $111,416)

      194,833        126,649  

Mortgage loans on real estate

      5,641,558        5,363,099  

Real estate, at cost less accumulated depreciation (2016 - $65,765; 2015 - $43,305):

      

Home office properties

      84,670        94,268  

Investment properties

      8,112        8,132  

Properties held for sale

      29,115        29,115  

Policy loans

      607,746        649,738  

Receivables for securities

      120,312        17,469  

Securities lending reinvested collateral assets

      2,303,603        2,760,922  

Derivatives

      866,950        1,157,993  

Receivable for derivative cash collateral posted to counterparty

      10,715        18,789  

Other invested assets

      1,927,635        2,653,261  
  

 

 

     

 

 

  

Total cash and invested assets

      54,353,668        51,400,275  

Accrued investment income

      510,947        474,961  

Cash surrender value of life insurance policies

      347,214        338,835  

Premiums deferred and uncollected

      149,211        139,516  

Current federal income tax recoverable

      524,017        237,608  

Net deferred income tax asset

      863,844        783,107  

Reinsurance receivables

      158,288        90,803  

Receivable from parent, subsidiaries and affiliates

      111,305        59,963  

Accounts receivable

      137,488        206,315  

General agents pension fund

      47,650        48,200  

Reinsurance deposit receivables

      199,500        203,429  

Variable annuity reserve hedge offset deferral

      575,869        —    

Other assets

      36,739        37,699  

Separate account assets

      73,774,288        72,128,772  
  

 

 

     

 

 

  

Total admitted assets

    $ 131,790,028      $ 126,149,483  
  

 

 

     

 

 

  

 

3

Table of Contents

Transamerica Life Insurance Company

Balance Sheets – Statutory Basis (continued)

(Dollars in Thousands, Except per Share Amounts)

 

     December 31  
     2016     2015  

Liabilities and capital and surplus

     

Liabilities:

     

Aggregate reserves for policies and contracts:

     

Life

    $ 15,074,311     $ 15,303,716  

Annuity

      17,190,070       15,701,229  

Accident and health

      5,110,678       4,824,046  

Policy and contract claim reserves:

     

Life

      283,287       342,120  

Accident and health

      265,766       259,538  

Liability for deposit-type contracts

      3,370,720       2,739,298  

Other policyholders’ funds

      18,126       18,987  

Transfers from separate accounts due or accrued including $(1,472,484) and $(1,605,754) accrued for expense allowances recognized in reserves, net of reinsurance allowances at December 31, 2016 and 2015, repectively)

      (1,515,226 )      (1,633,610 ) 

Funds held under reinsurance treaties

      3,603,948       3,381,363  

Amounts withheld or retained

      167,500       175,637  

General expenses due or accrued

      176,650       149,338  

Remittances and items not allocated

      263,232       246,306  

Asset valuation reserve

      813,683       740,321  

Interest maintenance reserve

      894,015       967,414  

Derivatives

      1,314,458       795,914  

Municipal reverse repurchase agreements

      91,808       90,299  

Payable for derivative cash collateral

      714,431       1,057,984  

Payable for securities lending

      2,303,603       2,760,922  

Borrowed money

      2,267,594       496,528  

Payable to parent, subsidiaries and affiliates

      115,256       18,965  

Other liabilities

      376,308       251,903  

Separate account liabilities

      73,655,055       72,012,055  
  

 

 

    

 

 

  

Total liabilities

    $ 126,555,273     $ 120,700,273  

Capital and surplus:

     

Common stock, $10 per share par value, 1,000,000 shares authorized, 676,190 issued and outstanding at December 31,

     

Class B common stock, $750 par value, 10,000 shares authorized, 3,697.27 issued and outstanding

      6,762       6,762  

Preferred stock, Series A, $10 per share par value, 42,500 shares authorized and issued (total liquidation value - $58,000) at December 31, 2016 and 2015; Series B, $10 per share par value, 250,000 shares authorized, 85,717 and 117,154 shares issued and outstanding total liquidation value - $857,170 and $1,171,540) at December 31, 2016 and 2015

      1,282       1,597  

Treasury stock, Series A Preferred, $10 per share par value, 42,500 shares as of December 31, 2016 and 2015

      (58,000 )      (58,000 ) 

Surplus notes

      150,000       150,000  

Paid-in surplus

      2,789,513       3,120,362  

Special surplus funds

      577,936       2,292  

Unassigned surplus

      1,767,262       2,226,197  
  

 

 

    

 

 

  

Total capital and surplus

      5,234,755       5,449,210  
  

 

 

    

 

 

  

Total liabilities and capital and surplus

    $ 131,790,028     $ 126,149,483  
  

 

 

    

 

 

  

See accompanying notes.

 

4

Table of Contents

Transamerica Life Insurance Company

Statements of Operations – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Revenues:

       

Premiums and other considerations, net of reinsurance:

       

Life

    $ 1,194,339     $ 1,113,373     $ 2,393,662  

Annuity

      12,204,065       12,919,985       16,656,875  

Accident and health

      624,248       771,929       (2,795,472 ) 

Net investment income

      2,453,818       2,326,992       2,359,512  

Amortization of interest maintenance reserve

      79,380       93,679       43,809  

Commissions and expense allowances on reinsurance ceded

      451,545       581,823       88,656  

Income from fees associated with investment management, administration and contract guarantees for separate accounts

      1,247,856       1,187,712       978,879  

Reserve adjustment on reinsurance ceded

      13,653       (191,378 )      3,773,911  

Consideration received on reinsurance recapture and novations

      7,326       49,723       195,620  

Income from administrative service agreement with affiliate

      136,494       133,831       124,653  

Other income

      146,486       141,506       116,319  
  

 

 

    

 

 

    

 

 

  
     18,559,209       19,129,175       23,936,424  

Benefits and expenses:

       

Benefits paid or provided for:

       

Life benefits

      1,543,390       1,376,035       1,305,025  

Accident and health benefits

      327,969       427,224       750,045  

Annuity benefits

      1,157,200       1,201,449       1,135,988  

Surrender benefits

      9,770,320       9,855,357       8,258,924  

Other benefits

      154,153       120,151       133,925  

Increase (decrease) in aggregate reserves for policies and contracts:

       

Life

      (229,405 )      124,129       (212,366 ) 

Annuity

      1,488,841       (1,787,418 )      933,763  

Accident and health

      286,632       304,113       143,401  
  

 

 

    

 

 

    

 

 

  
     14,499,100       11,621,040       12,448,705  

Insurance expenses:

       

Commissions

      1,029,935       1,324,189       1,486,330  

General insurance expenses

      891,388       913,754       951,122  

Taxes, licenses and fees

      125,864       127,072       131,974  

Net transfers to (from) separate accounts

      1,365,071       5,151,619       8,510,290  

Funds withheld ceded investment income

      (18,134 )      63,878       247,693  

Reinsurance transaction - modco reserve adjustment on reinsurance assumed

      (188,295 )      (228,984 )      (243,577 ) 

Consideration paid on reinsurance recapture transactions

      41,012       861       67,769  

IMR adjustment due to reinsurance

      81,293       —         —    

Other expenses

      47,650       (1,242 )      4,660  
  

 

 

    

 

 

    

 

 

  
     3,375,784       7,351,147       11,156,261  
  

 

 

    

 

 

    

 

 

  

Total benefits and expenses

      17,874,884       18,972,187       23,604,966  
  

 

 

    

 

 

    

 

 

  

Gain (loss) from operations before dividends to policyholders, federal income tax (benefit) expense and net realized capital gains (losses) on investments

    $ 684,327     $ 156,988     $ 331,458  

 

5

Table of Contents

Transamerica Life Insurance Company

Statements of Operations – Statutory Basis (continued)

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Dividends to policyholders

    $ 5,969     $ 5,894     $ 8,045  
  

 

 

    

 

 

    

 

 

  

Gain (loss) from operations before federal income tax (benefit) expense and net realized capital gains (losses) on investments

      678,358       151,094       323,413  

Federal income tax (benefit) expense

      (101,441 )      (9,618 )      258,554  
  

 

 

    

 

 

    

 

 

  

Gain (loss) from operations before net realized capital gains (losses) on investments

      779,799       160,712       64,859  

Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to/from interest maintenance reserve)

      (308,708 )      (343,731 )      288,762  
  

 

 

    

 

 

    

 

 

  

Net income (loss)

    $ 471,091     $ (183,019 )    $ 353,621  
  

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

6

Table of Contents

Transamerica Life Insurance Company

Statements of Changes in Capital and Surplus – Statutory Basis

(Dollars in Thousands)

 

    Common
Stock		     Preferred
Stock		     Treasury
Stock		     Surplus
Notes		     Paid-in
Surplus		     Special
Surplus
Funds		     Unassigned
Surplus		     Total
Capital and
Surplus		  

Balance at January 1, 2014

                

As originally presented

   $ 6,762     $ 1,597     $ (58,000 )    $ 150,000     $ 3,410,534     $ —       $ 1,271,902     $ 4,782,795  

Merger of Global Preferred Reinsurance (GPRe)

     250       —         —         —         17,411       —         (39,382 )      (21,721 ) 

Merger adjustment - retire GPRe stock

     (250 )      —         —         —         250       —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at January 1, 2014

     6,762       1,597       (58,000 )      150,000       3,428,195       —         1,232,520       4,761,074  

Net income (loss)

     —         —         —         —         —         —         353,621       353,621  

Change in net unrealized capital gains/losses, net of taxes

     —         —         —         —         —         —         902,174       902,174  

Change in net deferred income tax asset

     —         —         —         —         —         —         (263,473 )      (263,473 ) 

Change in nonadmitted assets

     —         —         —         —         —         —         418,748       418,748  

Change in asset valuation reserve

     —         —         —         —         —         —         127,971       127,971  

Change in surplus as a result of reinsurance

     —         —         —         —         —         —         224,000       224,000  

Dividends to stockholders

     —         —         —         —         —         —         (500,000 )      (500,000 ) 

Other changes - net

     —         —           —         5,552       667       (30,776 )      (24,557 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2014

   $ 6,762     $ 1,597     $ (58,000 )    $ 150,000     $ 3,433,747     $ 667     $ 2,464,785     $ 5,999,558  

Net income (loss)

     —         —         —         —         —         —         (183,019 )      (183,019 ) 

Change in net unrealized capital gains/losses, net of taxes

     —         —         —         —         —         —         95,872       95,872  

Change in net deferred income tax asset

     —         —         —         —         —         —         300,765       300,765  

Change in nonadmitted assets

     —         —         —         —         —         —         (318,398 )      (318,398 ) 

Change in surplus as a result of reinsurance

     —         —         —         —         —         —         (108,266 )      (108,266 ) 

Dividends to stockholders

     —         —         —         —         —         —         (50,000 )      (50,000 ) 

Return of Capital

     —         —         —         —         (300,000 )      —         —         (300,000 ) 

Other changes - net

     —         —         —         —         (13,385 )      1,625       24,458       12,698  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2015

   $ 6,762     $ 1,597     $ (58,000 )    $ 150,000     $ 3,120,362     $ 2,292     $ 2,226,197     $ 5,449,210  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

7

Table of Contents

Transamerica Life Insurance Company

Statements of Changes in Capital and Surplus – Statutory Basis (continued)

(Dollars in Thousands)

 

    Common
Stock		     Preferred
Treasury
Stock		     Stock     Surplus
Notes		     Paid-in
Surplus		     Special
Surplus
Funds		     Unassigned
Surplus		     Total
Capital and
Surplus		  

Balance at December 31, 2015

   $ 6,762     $ 1,597     $ (58,000 )    $ 150,000     $ 3,120,362     $ 2,292     $ 2,226,197     $ 5,449,210  

Net income (loss)

     —         —         —         —         —         —         471,091       471,091  

Change in net unrealized capital gains/losses, net of tax

     —         —         —         —         —         575,869       (688,997 )      (113,128 ) 

Change in net deferred income tax asset

     —         —         —         —         —         —         183,306       183,306  

Change in non admitted assets

     —         —         —         —         —         —         114,741       114,741  

Change in asset valuation reserve

     —         —         —         —         —         —         60,538       60,538  

Cumulative effect of change in accounting principles

     —         —         —         —         —         —         (276,042 )      (276,042 ) 

Return of capital

     —         —         —         —         (314,056 )      —         —         (314,056 ) 

Dividends to stockholders

     —         —         —         —         —         —         (385,630 )      (385,630 ) 

Other changes - net

     —         (315 )      —         —         (16,794 )      (225 )      62,057       44,724  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2016

   $ 6,762     $ 1,282     $ (58,000 )$      150,000     $ 2,789,513     $ 577,936     $ 1,767,262     $ 5,234,755  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

8

Table of Contents

Transamerica Life Insurance Company

Statements of Cash Flow – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Operating activities

       

Premiums collected, net of reinsurance

      12,158,028       14,868,206       16,205,618  

Net investment income

      2,356,181       2,306,617       2,356,404  

Miscellaneous income

      2,011,519       1,759,927       5,298,353  

Benefit and loss related payments

      (13,002,709 )      (12,846,598 )      (11,520,995 ) 

Net transfers from separate accounts

      (1,237,126 )      (5,214,145 )      (8,823,241 ) 

Commissions, expenses paid and other deductions

      (1,897,305 )      (2,202,781 )      (1,467,343 ) 

Dividends paid to policyholders

      (6,935 )      (7,743 )      (8,250 ) 

Federal income taxes (paid) received

      (203,264 )      (279,806 )      (288,721 ) 
  

 

 

    

 

 

    

 

 

  

Net cash provided by operating activities

      178,389       (1,616,322 )      1,751,826  

Investing activities

       

Proceeds from investments sold, matured or repaid:

       

Bonds

      10,795,896       13,740,477       8,362,600  

Stocks

      26,673       53,649       108,717  

Mortgage loans

      705,232       881,722       1,040,891  

Real estate and properties held for sale

      14,667       —         28,084  

Other invested assets

      921,210       614,621       635,395  

Securities lending reinvested collateral assets

      457,319       145,338       347,507  

Derivatives

      —         —         255,580  

Miscellaneous proceeds

      16,389       17,797       117,780  
  

 

 

    

 

 

    

 

 

  

Total investment proceeds

      12,937,386       15,453,602       10,896,555  

Costs of investments acquired:

       

Bonds

      (12,682,216 )      (12,145,728 )      (6,214,330 ) 

Stocks

      (210,597 )      (24,188 )      (307,013 ) 

Mortgage loans

      (740,949 )      (733,005 )      (853,948 ) 

Real estate and properties held for sale

      (2,809 )      (10,202 )      (13,410 ) 

Other invested assets

      (404,878 )      (1,516,458 )      (239,060 ) 

Payable for securities

      (102,843 )      (15,477 )      (18,033 ) 

Derivatives

      (185,514 )      (455,642 )      —    

Miscellaneous applications

      (151,001 )      (229,914 )      (49,870 ) 
  

 

 

    

 

 

    

 

 

  

Total cost of investments acquired

      (14,480,806 )      (15,130,616 )      (7,695,664 ) 

Net increase (decrease) in policy loans

      41,992       39,965       32,811  
  

 

 

    

 

 

    

 

 

  

Net cost of investments acquired

      (14,438,815 )      (15,090,650 )      (7,662,853 ) 
  

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) investing activities

      (1,501,428 )      362,952       3,233,701  

 

9

Table of Contents

Transamerica Life Insurance Company

Statements of Cash Flow – Statutory Basis (continued)

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Financing and miscellaneous activities

       

Change in:

       

Net deposits on deposit-type contracts an other insurance liabilities

      (217,744 )      (328,515 )      (624,703 ) 

Borrowed funds

      1,769,852       30,508       202,000  

Funds held under reinsurance treaties with unauthorized reinsurers

      (108,899 )      688,121       (2,527,186 ) 

Receivable from parent, subsidiaries and affiliates

      (51,647 )      111,599       (140,456 ) 

Payable to parent, subsidiaries and affiliates

      96,291       9,145       (17,220 ) 

Payable for securities lending

      (457,319 )      (145,338 )      (347,507 ) 

Other cash (applied) provided

      201,917       353,324       145,202  

Dividends to stockholders

      (385,630 )      (50,000 )      (500,000 ) 

Capital contribution provided

      (333,074 )      (327,213 )      (14,681 ) 
  

 

 

    

 

 

    

 

 

  

Net cash used in financing and miscellaneous activities

      513,747       341,632       (3,824,550 ) 
  

 

 

    

 

 

    

 

 

  

Net increase (decrease) in cash, cash equivalents and short-term investments

      (809,292 )      (911,738 )      1,160,977  

Cash, cash equivalents and short-term investments:

       

Beginning of year

      2,280,106       3,191,844       2,030,868  
  

 

 

    

 

 

    

 

 

  

End of year

      1,470,814       2,280,106       3,191,844  
  

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

10

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis

(Dollars in Thousands, Except per Share amounts)

December 31, 2016

1. Organization and Summary of Significant Accounting Policies

Transamerica Life Insurance Company (the Company) is a stock life insurance company owned by Commonwealth General Corporation (CGC). CGC is an indirect, wholly-owned subsidiary of Aegon N.V., a holding company organized under the laws of The Netherlands.

Prior to September 30, 2015, all outstanding common shares of the Company were owned by Transamerica International Holdings, Inc. (TIHI). Prior to September 29, 2015, the Series B preferred shares of the Company were owned by Transamerica Corporation (TA Corp) and AEGON USA, LLC (AEGON). On September 29, 2015, TA Corp and AEGON contributed their respective share of the Company’s Series B preferred share to TIHI. Effective September 30, 2015, TIHI merged into CGC. As a result of this merger, the Company is now wholly-owned by CGC.

On December 31, 2015, AEGON merged into TA Corp, a Delaware-domiciled non-insurance affiliate.

On January 1, 2016, the Company completed a merger with Global Preferred Re Limited (GPRe), a Bermuda-domiciled affiliate. The merger was accounted for in accordance with Statement of Statutory Accounting Principles (SAP) No. 68, Business Combinations and Goodwill, as a statutory merger. As such, financial statements for periods prior to the merger were combined and the recorded assets, liabilities and surplus of GPRe were carried forward to the merged company. As a result of the merger, GPRe’s common stock was deemed cancelled by operation of law. Each share of the Company’s capital stock issued and outstanding immediately before the merger shall continue to represent one share of the capital stock.

Summarized financial information for the Company and GPRe presented separately for periods prior to the merger is as follows:

 

     Year Ended
December 31
2015		      Year Ended
December 31
2014		  

Revenues:

      

Company

    $ 19,078,332      $ 23,904,030  

GPRe

      50,842        32,394  
  

 

 

     

 

 

  
   $ 19,129,174      $ 23,936,424  
  

 

 

     

 

 

  

Net income (loss):

      

Company

    $ (250,873 )     $ 335,423  

GPRe

      67,853        18,198  
  

 

 

     

 

 

  
   $ (183,020 )     $ 353,621  
  

 

 

     

 

 

  

 

11

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31
2015		      December 31
2014		  

Assets:

      

Company

    $ 126,035,999      $ 126,211,096  

GPRe

      88,529        105,579  

Change in deferred tax admissibility due to merger

      24,955        53,208  
  

 

 

     

 

 

  
   $ 126,149,483      $ 126,369,883  
  

 

 

     

 

 

  

Liabilities:

      

Company

    $ 120,577,357      $ 120,211,966  

GPRe

      122,916        158,359  
  

 

 

     

 

 

  
   $ 120,700,273      $ 120,370,325  
  

 

 

     

 

 

  

Capital and surplus:

      

Company

    $ 5,458,642      $ 5,999,130  

GPRe

      (37,685 )       (51,780 ) 

Change in deferred tax admissibility due to merger

      28,253        52,208  
  

 

 

     

 

 

  
   $ 5,449,210      $ 5,999,558  
  

 

 

     

 

 

  

On October 1, 2015, the Company completed a merger with Stonebridge Life Insurance Company (SLIC). The merger was accounted for in accordance with Statement of Statutory Accounting Principles (SSAP) No. 68, Business Combinations and Goodwill, as a statutory merger. As such, financial statements for periods prior to the merger were combined and the recorded assets, liabilities and surplus of SLIC were carried forward to the merged company. As a result of the merger, SLIC’s common stock was deemed cancelled by operation of law. Each share of the Company’s capital stock issued and outstanding immediately before the merger shall continue to represent one share of the capital stock.

Nature of Business

The Company sells individual non-participating whole life, endowment and term contracts, structured settlements, pension products and reinsurance, as well as a broad line of single fixed and flexible premium annuity products, guaranteed interest contracts and funding agreements. In addition, the Company offers group life, universal life, credit life, and individual and specialty health coverages. The Company is licensed in 49 states and the District of Columbia, Guam, Puerto Rico and US Virgin Islands. Sales of the Company’s products are primarily through a network of agents, brokers and financial institutions.

Basis of Presentation

The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

 

12

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Iowa Insurance Division, which practices differ from accounting principles generally accepted in the United States (GAAP). The more significant variances from GAAP are as follows:

Investments: Investments in bonds and mandatory redeemable preferred stocks are reported at amortized cost or fair value based on their National Association of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in earnings for those designated as trading and as a separate component of other comprehensive income (OCI) for those designated as available-for-sale. Fair value for GAAP is based on indices, third-party pricing services, brokers, external fund managers and internal models. For statutory reporting, the NAIC allows insurance companies to report the fair value determined by the Securities Valuation Office of the NAIC (SVO) or determine the fair value by using a permitted valuation method.

All single class and multi-class mortgage-backed/asset-backed securities (e.g., CMOs) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium of such securities using either the retrospective or prospective methods. If the fair value of the mortgage-backed/asset-backed security is less than amortized cost, an entity shall assess whether the impairment is other-than-temporary. An other-than-temporary impairment (OTTI) is considered to have occurred if the fair value of the mortgage-backed/asset-backed security is less than its amortized cost basis and the entity intends to sell the security or the entity does not have the intent and ability to hold the security for a period of time sufficient to recover the amortized cost basis. An OTTI is also considered to have occurred if the discounted estimated future cash flows are less than the amortized cost basis of the security.

If it is determined an OTTI has occurred as a result of the cash flow analysis, the security is written down to the discounted estimated future cash flows. If an OTTI has occurred due to intent to sell or lack of intent and ability to hold, the security is written down to fair value.

For GAAP, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, CBO, CDO, CLO, MBS and ABS securities), other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If high credit quality securities are adjusted, the retrospective method is used. If it is determined that a decline in fair value is other-than-temporary and the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the amortized cost basis and its fair value at the impairment date. If the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery, the OTTI should be separated into a) the amount representing the credit loss, which is recognized in earnings, and b) the amount related to all other factors, which is recognized in OCI, net of applicable taxes.

 

13

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Derivative instruments used in hedging transactions that meet the criteria of an effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability. Embedded derivatives are not accounted for separately from the host contract. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value, and the changes in the fair value are recorded in unassigned surplus as unrealized gains and losses. Under US GAAP, the effective and ineffective portions of a single hedge are accounted for separately, and the change in fair value for cash flow hedges is credited or charged directly to a separate component of OCI rather than to income as required for fair value hedges, and an embedded derivative within a contract that is not clearly and closely related to the economic characteristics and the risk of the host contract is accounted for separately from the host contract and valued and reported at fair value.

Derivative instruments are also used in replication (synthetic asset) transactions. In these transactions, the derivative is valued in a manner consistent with the cash instrument and replicated asset. For US GAAP, the derivative is reported at fair value, with the changes in fair value reported in income.

Investments in real estate are reported net of related obligations rather than on a gross basis as for GAAP. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses for statutory reporting include rent for the Company’s occupancy of those properties. Changes between depreciated cost and admitted amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP.

Valuation allowances are established for mortgage loans, if necessary, based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral.

The initial valuation allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus as part of the change in asset valuation reserve (AVR), rather than being included as a component of earnings as would be required under GAAP.

Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, primarily bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the bond or mortgage loan based on groupings of individual securities sold in five year bands. That net deferral is reported as the interest maintenance reserve (IMR) in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses are reported in the statement of operations on a pre-tax basis in the period that the assets giving rise to the gains or losses are sold.

The AVR provides a valuation allowance for invested assets. The AVR is determined by an NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP.

Subsidiaries: The accounts and operations of the Company’s subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP.

 

14

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, incremental costs directly related to the successful acquisition of insurance and investment contracts are deferred. For traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, acquisition costs would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality and expense margins.

Value of Business Acquired: Under GAAP, value of business acquired (VOBA) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future contracts and contract changes, premiums, mortality and morbidity, separate account performance, surrenders, operation expenses, investment returns, nonperformance risk adjustment and other factors. VOBA is not recognized under the NAIC Accounting Practices and Procedures Manual (NAIC SAP).

Subsidiaries: Investments in subsidiaries, controlled and affiliated companies (SCA) companies are state in accordance with the Purposes and Procedures Manual of the NAIC SVO, as well as SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88. Dividends or distributions received from an investee are recognized in investment income when declared to the extent that they are not in excess of the undistributed accumulated earnings attributable to an investee. Changes in investments in SCA’s are recorded as a change to the carrying value of the investment with a corresponding amount recorded directly to unrealized gain/loss (capital and surplus).

Separate Accounts with Guarantees: Some of the Company’s separate accounts provide policyholders with a guaranteed return. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account. These separate accounts are included in the general account for GAAP due to the nature of the guaranteed return.

Nonadmitted Assets: Certain assets designated as “nonadmitted”, primarily net deferred tax assets and other assets not specifically identified as an admitted asset within the NAIC SAP, are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the balance sheet to the extent that they are not impaired.

Universal Life and Annuity Policies: Revenues for universal life and annuity policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received. Benefits incurred represent surrenders and death benefits paid and the change in policy reserves. Premiums received and benefits incurred for annuity policies without mortality or morbidity risk and guaranteed interest in group annuity contracts are recorded directly to a policy reserve account using deposit accounting, without recognizing premium

 

15

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

income or benefits expense. Interest on these policies is reflected in other benefits. Under GAAP, for universal life policies, premiums received in excess of policy charges would not be recognized as premium revenue and benefits would represent interest credited to the account values and the excess of benefits paid over the policy account value. Under GAAP, for all annuity policies without significant mortality risk, premiums received and benefits paid would be recorded directly to the reserve liability using deposit accounting.

Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP.

Reinsurance: Any reinsurance amounts deemed to be uncollectible have been written off through a charge to operations. In addition, a liability for reinsurance balances would be established for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to the liability are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings.

Losses associated with an indemnity reinsurance transaction are reported within income when incurred rather than being deferred and amortized over the remaining life of the underlying reinsured contracts as would be required under GAAP.

Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP.

Commissions allowed by reinsurers on business ceded are reported as income when incurred rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP.

Under GAAP, for certain reinsurance agreements whereby assets are retained by the ceding insurer (such as funds withheld or modified coinsurance) and a return is paid based on the performance of underlying investments, the liabilities for these reinsurance arrangements must be adjusted to reflect the fair value of the invested assets. The NAIC SAP does not contain a similar requirement.

Deferred Income Taxes: The Company computes deferred income taxes in accordance with SSAP No. 101, Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10. Under SSAP No. 101, admitted adjusted deferred income tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse during a timeframe corresponding with the Internal Revenue Service tax loss carryback provisions, not to exceed three years, plus 2) the amount of adjusted gross deferred income tax assets expected to be realized within three years limited to an amount that is no greater than 15% of current period’s adjusted statutory capital and surplus, plus 3) the amount of remaining adjusted gross deferred income tax assets that can be offset against existing gross deferred income tax liabilities after considering the character (i.e., ordinary versus capital) and reversal patterns of the deferred tax assets and liabilities. The remaining adjusted deferred income tax assets are nonadmitted. Deferred state income taxes are not recorded under SSAP No. 101, whereas under GAAP state income taxes are included in the computation of deferred income taxes.

 

16

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Goodwill: Goodwill is measured as the difference between the cost of acquiring the entity and the reporting entity’s share of the book value of the acquired entity. Goodwill is admitted subject to an aggregate limitation of ten percent of the capital and surplus in the most recently filed annual statement excluding electronic data processing equipment, operating system software, net deferred income tax assets and net positive goodwill. Excess goodwill is nonadmitted. Goodwill is amortized over ten years. Under GAAP, goodwill is measured as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date as compared to the fair values of the identifiable net assets acquired. Goodwill is not amortized but is assessed for impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred.

Policyholder Dividends: Policyholder dividends are recognized when declared rather than over the term of the related policies as would be required under GAAP.

Surplus Notes: Surplus notes are reported as surplus rather than as liabilities as would be required under GAAP.

Statements of Cash Flow: Cash, cash equivalents and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less.

Securities Lending Assets and Liabilities: For securities lending programs, cash collateral received which may be sold or repledged by the Company is reflected as a one-line entry on the balance sheet (securities lending reinvested collateral assets) and a corresponding liability is established to record the obligation to return the cash collateral. Collateral received which may not be sold or repledged is not recorded on the Company’s balance sheet. Under GAAP, the reinvested collateral is included within invested assets (i.e. it is not one-line reported).

The effects of the foregoing variances from GAAP on the accompanying statutory-basis financial statements have not been determined by the Company, but are presumed to be material.

Other significant accounting policies are as follows:

Investments

Investments in bonds, except those to which the SVO has ascribed an NAIC designation of 6, are reported at amortized cost using the interest method.

Hybrid securities, as defined by the NAIC, are securities designed with characteristics of both debt and equity and provide protection to the issuer’s senior note holders. These securities meet the definition of a bond, in accordance with SSAP No. 26, Bonds, excluding Loan-backed and Structured Securities and therefore, are reported at amortized cost or fair value based upon their NAIC rating.

 

17

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method, including anticipated prepayments, except for those with an initial NAIC designation of 6, which are valued at the lower of amortized cost or fair value. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities, except principal-only and interest-only securities, which are valued using the prospective method.

The Company closely monitors below investment grade holdings and investment grade issuers, where the Company has concerns, to determine if an OTTI has occurred. The Company also regularly monitors industry sectors. The Company considers relevant facts and circumstances in evaluating whether the impairment is other-than-temporary including: (1) the probability of the Company collecting all amounts due according to the contractual terms of the security in effect at the date of acquisition; (2) the Company’s decision to sell a security prior to its maturity at an amount below its carrying amount; and (3) the Company’s ability to hold a structured security for a period of time to allow for recovery of the value to its carrying amount. Additionally, financial condition, near term prospects of the issuer and nationally recognized credit rating changes are monitored. Non-structured securities in unrealized loss positions that are considered other-than-temporary are written down to fair value. Structured securities considered other-than-temporarily impaired are written down to discounted estimated cash flows if the impairment is the result of cash flow analysis. If the Company has an intent to sell or lack of ability to hold a structured security, it is written down to fair value. For structured securities, cash flow trends and underlying levels of collateral are monitored. The Company will record a charge to the statement of operations to the extent that these securities are determined to be other-than-temporarily impaired.

Investments in both affiliated and unaffiliated preferred stocks in good standing are reported at cost or amortized cost. Investments in preferred stocks are stated at amortized cost, except those with NAIC designations RP4 to RP6 and P4 to P6, which are reported at lower of amortized cost or fair value, and the related net unrealized capital gains (losses) are reported in unassigned surplus along with any adjustment for federal income taxes.

Common stocks of unaffiliated companies, which include shares of mutual funds, are reported at fair value and the related net unrealized capital gains or losses are reported in unassigned surplus along with any adjustment for federal income taxes.

If the Company determines that a decline in the fair value of a common stock or a preferred stock is other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the statement of operations. The Company considers the following factors in determining whether a decline in value is other-than-temporary: (a) the financial condition and prospects of the issuer; (b) whether or not the Company has made a decision to sell the investment; and (c) the length of time and extent to which the value has been below cost.

Common stocks of affiliated insurance subsidiaries are reported based on underlying statutory equity plus the admitted portion of goodwill. Common stocks of affiliated noninsurance subsidiaries are reported based on underlying audited GAAP equity. The net change in the subsidiaries’ equity is included in the change in net unrealized capital gains or losses, reported in unassigned surplus along with any adjustment for federal income taxes.

 

18

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Short-term investments include investments with remaining maturities of one year or less at the time of acquisition and are principally stated at amortized cost.

Cash equivalents are short-term highly liquid investments with original maturities of three months or less and are principally stated at amortized cost.

Mortgage loans are reported at unpaid principal balances, less an allowance for impairment. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage agreement. When management determines that the impairment is other-than-temporary, the mortgage loan is written down to realizable value and a realized loss is recognized.

Land is reported at cost. Real estate occupied by the Company is reported at depreciated cost net of encumbrances. Real estate held for the production of income is reported at depreciated cost net of related obligations. Real estate that the Company classifies as held for sale is measured at lower of carrying amount or fair value less cost to sell. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties. The Company recognizes an impairment loss if the Company determines that the carrying amount of the real estate is not recoverable and exceeds its fair value. The Company deems that the carrying amount of the asset is not recoverable if the carrying amount exceeds the sum of undiscounted cash flows expected to result from the use and disposition. The impairment loss is measured as the amount by which the asset’s carrying value exceeds its fair value.

Policy loans are reported at unpaid principal balances.

The Company has minority ownership interests in joint ventures and limited partnerships. The Company carries these investments based on its interest in the underlying audited GAAP equity of the investee.

For a decline in the fair value of an investment in a joint venture or limited partnership which is determined to be other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the statement of operations. The Company considers an impairment to have occurred if it is probable that the Company will be unable to recover the carrying amount of the investment or if there is evidence indicating inability of the investee to sustain earnings which would justify the carrying amount of the investment.

Investments in Low Income Housing Tax Credit (LIHTC) properties are valued at amortized cost. Tax credits are recognized in operations in the tax reporting year in which the tax credit is utilized by the Company. The carrying value is amortized over the life of the investment. Amortization is calculated as a ratio of the current year tax credits and tax benefits compared to the total expected tax credits and tax benefits over the life of the investment.

Other “admitted assets” are valued principally at cost, as required or permitted by Iowa Insurance Laws.

Realized capital gains and losses are determined using the specific identification method and are recorded net of related federal income taxes. Changes in admitted asset carrying amounts of bonds, mortgage loans, common and preferred stocks are credited or charged directly to unassigned surplus.

 

19

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Income is also not accrued when collection is uncertain. In addition, accrued interest is excluded from investment income when payment exceeds 90 days past due. At December 31, 2016 and 2015, the Company excluded investment income due and accrued of $924 and $3,563 respectively, with respect to such practices.

For dollar repurchase agreements, the Company receives cash collateral in an amount at least equal to the fair value of the securities transferred by the Company in the transaction as of the transaction date. Cash received as collateral will be invested as needed or used for general corporate purposes of the Company.

Derivative Instruments

Overview: The Company may use various derivative instruments (options, caps, floors, swaps, foreign currency forwards, and futures) to manage risks related to its ongoing business operations. On the transaction date of the derivative instrument, the Company designates the derivative as either (A) hedging (fair value, foreign currency fair value, cash flow, foreign currency cash flow, forecasted transactions, or net investment in a foreign operation), (B) replication, (C) income generation, or (D) held for other investment/risk management activities. (B) Replications, (C) income generation and (D) held for other investment/risk management activities do not qualify for hedge accounting under SSAP No. 86, Accounting for Derivative Instruments and Hedging Activities.

Derivative instruments used in hedging relationships are accounted for on a basis that is consistent with the hedged item (amortized cost or fair value). Derivative instruments used in replication relationships are accounted for on a basis that is consistent with the cash instrument and the replicated asset (amortized cost or fair value). Derivative instruments used in income generation relationships are accounted for on a basis that is consistent with the associated covered asset or underlying interest to which the derivative relates (amortized cost or fair value). Derivative instruments held for other investment/risk management activities are measured at fair value with value adjustments recorded in unassigned surplus.

Derivative instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. The Company uses derivatives as hedges, consequently, when the value of the hedged asset or liability changes, the value of the hedging derivative is expected to move in the opposite direction. Market risk is a consideration when changes in the value of the derivative and the hedged item do not completely offset (correlation or basis risk) which is mitigated by active measuring and monitoring.

 

20

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company is exposed to credit-related losses in the event of non-performance by counterparties to derivative instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit rating of ‘A’ or better. The credit exposure of interest rate swaps and currency swaps is represented by the fair value of contracts, aggregated at a counterparty level, with a positive fair value at the reporting date. The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets on the Company’s behalf. The posted amount is equal to the difference between the net positive fair value of the contracts and an agreed upon threshold that is based on the credit rating of the counterparty. Inversely, if the net fair value of all contracts with this counterparty is negative, then the Company is required to post assets instead.

Instruments: Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process to modify the interest rate characteristics of the underlying asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating rate amounts based on an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.

Interest rate basis swaps are used in the overall asset/liability management process to modify the interest rate characteristics of the underlying liability to mitigate the basis risk of assets and liabilities resetting on different indices. These interest rate swaps generally provide for the exchange of the difference between a floating rate on one index to a floating rate of another index, based upon an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged at each due date. Swaps meeting hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.

Cross currency swaps are utilized to mitigate risks when the Company holds foreign denominated assets or liabilities therefore converting the asset or liability to a USD denominated security. These cross currency swap agreements involve the exchange of two principal amounts in two different currencies at the prevailing currency rate at contract inception. During the life of the swap, the counterparties exchange fixed or floating rate interest payments in the swapped currencies. At maturity, the principal amounts are again swapped at a pre-determined rate of exchange. Each asset or liability is hedged individually where the terms of the swap must meet the terms of the hedged instrument. For swaps qualifying for hedge accounting, the premium or discount is amortized into income over the life of the contract and the foreign currency translation adjustment is recorded as unrealized gain/loss in capital and surplus. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the hedged instrument receives that treatment.

 

21

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Total return swaps are used in the asset/liability management process to mitigate the delta risk created when the Company has issued minimum guarantee insurance contracts linked to an index. These total return swaps generally provide for the exchange of the difference between fixed leg (tied to the S&P or other global market financial index) and floating leg (tied to LIBOR) amounts based on an underlying notional amount (also tied to the underlying index). Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.

Variance swaps are used in the asset/liability management process to mitigate the gamma risk created when the Company has issued minimum guarantee insurance contracts linked to an index. These variance swaps are similar to volatility options where the underlying index provides for the market value movements. Variance swaps do not accrue interest. Typically, no cash is exchanged at the outset of initiating the variance swap, and a single receipt or payment occurs at the maturity or termination of the contract. The variance swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.

Futures contracts are used to hedge the liability risk associated when the Company issues products providing the customer a return based on various global market indices. Futures are marked to market on a daily basis whereby a cash payment is made or received by the Company. These payments are recognized as realized gains or losses in the financial statements.

The Company issues products providing the customer a return based on the various global equity market indices. The Company uses options to hedge the liability option risk associated with these products. Options are marked to fair value in the balance sheet and fair value adjustments are recorded as capital and surplus in the financial statements.

Caps are used in the asset/liability management process to mitigate the interest rate risk created due to a rapidly rising interest rate environment. The caps are similar to options where the underlying interest rate index provides for the market value movements. The caps do not accrue interest until the interest rate environment exceeds the caps strike rate. Cash is exchanged at the onset, and a single receipt or payment occurs at the maturity or termination of the contract. Caps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Caps that do not meet hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.

 

22

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company may sell products with expected benefit payments extending beyond investment assets currently available in the market. Because assets will have to be purchased in the future to fund future liability cash flows, the Company is exposed to the risk of future investments made at lower yields than what is assumed at the time of pricing. Forward-starting interest rate swaps are utilized to lock-in the current forward rate. The accrual of income begins at the forward date, rather than at the inception date. These forward-starting swaps meet hedge accounting rules and are carried at cost in the financial statements. Gains and losses realized upon termination of the forward-starting swap are deferred and used to adjust the basis of the asset purchased in the hedged forecasted period. The basis adjustment is then amortized into income as a yield adjustment to the asset over its life.

The Company issues fixed liabilities that have a guaranteed minimum crediting rate. The Company uses receiver swaptions, whereby the swaption is designed to generate cash flows to offset lower yields on assets during a low interest rate environment. The Company pays a single premium at the beginning of the contract and is amortized throughout the life of the swaption. These swaptions are marked to fair value in the balance sheet and the fair value adjustment is recorded in unassigned surplus. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment.

The Company invests in domestic corporate debt securities denominated in U.S. dollars. If the issuers of these debt obligations fail to make timely payments, the value of the investment declines materially. The Company manages credit default risk through the purchase of credit default swaps. As the buyer of credit default protection, the Company will pay a premium to an approved counterparty in exchange for a contingent payment should a defined credit event occur with respect to the underlying reference entity or asset. Typically, the periodic premium or fee is expressed in basis points per notional. Generally, the premium payment for default protection is made periodically, although it may be paid as an up-front fee for short dated transactions. Should a credit event occur, the Company may be required to deliver the reference asset to the counterparty for par. Alternatively, settlement may be in cash. These credit default swaps are carried on the balance sheet at amortized cost. Premium payments made by the Company are recognized as investment expense. If the Company is unable to prove hedge effectiveness, the credit default swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus. Gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment.

A replication transaction is a derivative transaction entered into in conjunction with a cash instrument to reproduce the investment characteristics of an otherwise permissible investment. The Company replicates investment grade corporate bonds or sovereign debt by combining a highly rated security as a cash component with a written credit default swap which, in effect, converts the high quality asset into an investment grade corporate asset or a sovereign debt. The benefits of using the swap market to replicate credit include possible enhanced relative values as well as ease of executing larger transactions in a shortened time frame. Generally, a premium is received by the Company on a periodic basis and recognized in investment income. In the event the representative issuer defaults on its debt obligation referenced in the contract, a payment equal to the notional amount of the contract will be made by the Company and recognized as a capital loss. The Company complies with the specific rules established in AVR for replication transactions.

 

23

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company replicates hybrid fixed to floating treasuries by combining a U.S. Treasury cash component with a forward starting swap which, in effect, converts a fixed U.S. Treasury into a hybrid fixed to floating treasury. The purpose of these replications is to aid duration matching between the treasuries and the supported liabilities. Generally these swaps are carried at amortized cost with periodic interest payments beginning at a future date. Any early terminations are recognized as capital gains or losses. The Company complies with the specific rules established in AVR for replication transactions.

The Company holds some warrants linked to an Argentina Government Gross Domestic Product (GDP) as part of an authorized workout from the Argentina Brady Bonds. The Company was put into these warrants and did not voluntarily convert into these types of instruments. The Company does not have any downside risk to the warrants, and only receives a payment if the GDP is above a specific threshold. These warrants are marked to fair value in the balance sheet and the fair value adjustment is recorded in capital and surplus. At December 31, 2015, all warrants had matured for the Company. The Company had realized gains totaling $4,225 for the year ended December 31, 2015 related to these warrants.

Separate Accounts

The majority of the separate accounts held by the Company, primarily for individual policyholders as well as for group pension plans, do not have any minimum guarantees, and the investment risks associated with fair value changes are borne by the policyholder. The assets in the accounts, carried at estimated fair value, consist of underlying mutual fund shares, common stocks, long-term bonds and short-term investments.

Certain other separate accounts held by the Company provide a minimum guaranteed return of 3% of the average investment balance to policyholders. The assets consist of long-term bonds and short-term investments which are carried at amortized cost.

Assets held in trust for purchases of variable universal life and annuity contracts and the Company’s corresponding obligation to the contract owners are shown separately in the balance sheets. The assets in the separate accounts are valued at fair value. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the contract owners and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The investment risks associated with fair value changes of the separate accounts are borne entirely by the policyholders except in cases where minimum guarantees exist. The Company received variable contract premiums of $8,767,590, $12,203,423 and $13,127,468 in 2016, 2015 and 2014, respectively. In addition, the Company received $1,247,856, $1,187,712 and $978,879 in 2016, 2015 and 2014, respectively, related to fees associated with investment management, administration and contractual guarantees for separate accounts.

Surplus funds transferred from the general account to the separate accounts, commonly referred to as seed money, and earnings accumulated on seed money are reported as surplus in the separate accounts until transferred or repatriated to the general account. The transfer of such funds between the separate account and the general account is reported as surplus contributed or withdrawn during the year.

 

24

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Aggregate Reserves for Policies and Contracts

Life, annuity and accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed cash value, or the amount required by law.

The Company waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium for periods beyond the date of death.

The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958, 1980 and 2001 Commissioner’s Standard Ordinary Mortality and American Experience Mortality Tables. The reserves are calculated using interest rates ranging from 2.00 to 6.00 percent and are computed principally on the Net Level Premium Valuation and the Commissioner’s Reserve Valuation Method. Reserves for universal life policies are based on account balances adjusted for the Commissioner’s Reserve Valuation Method.

Additional premiums are charged or additional mortality charges are assessed for policies issued on substandard lives according to underwriting classification. Generally, mean reserves are determined by computing the regular mean reserve for the plan at the true age and holding, in addition, one-half (1/2) of the extra premium charge for the year. For certain flexible premium and fixed premium universal life insurance products, reserves are calculated utilizing the Commissioner’s Reserve Valuation Method for universal life policies and recognizing any substandard ratings.

Deferred annuity reserves are calculated according to the Commissioner’s Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with and without life contingencies are equal to the present value of future payments assuming interest rates ranging from 2.00 to 11.25 percent and mortality rates, where appropriate, from a variety of tables.

Annuity reserves also include guaranteed investment contracts (GICs) and funding agreements classified as life-type contracts as defined in SSAP No. 50, Classifications and Definitions of Insurance or Managed Care Contracts In Force. These liabilities have annuitization options at guaranteed rates and consist of floating interest rate and fixed interest rate contracts. The contract reserves are carried at the greater of the account balance or the value as determined for an annuity with cash settlement option, on a change in fund basis, according to the Commissioner’s Annuity Reserve Valuation Method.

Accident and health policy reserves are equal to the greater of the gross unearned premiums or any required mid-terminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims.

Tabular interest, tabular less actual reserves released and tabular cost have been determined by formula. Tabular interest on funds not involving life contingencies has also been determined primarily by formula.

 

25

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the balance sheet date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available.

Liability for Deposit-Type Contracts

Deposit-type contracts do not incorporate risk from the death or disability of policyholders. These types of contracts may include GICs, funding agreements and other annuity contracts. Deposits and withdrawals on these contracts are recorded as a direct increase or decrease, respectively, to the liability balance and are not reported as premiums, benefits or changes in reserves in the statement of operations.

The Company issues certain funding agreements with well-defined class-based annuity purchase rates defining either specific or maximum purchase rate guarantees. However, these funding agreements are not issued to or for the benefit of an identifiable individual or group of individuals. These contracts are classified as deposit-type contracts in accordance with SSAP No. 50.

Municipal Repurchase Agreements

Municipal repurchase agreements are investment contracts issued to municipalities that pay either a fixed or floating rate of interest on the guaranteed deposit balance. The floating interest rate is based on a market index. The related liabilities are equal to the policyholder deposit and accumulated interest on the contract.

These municipal repurchase agreements require a minimum of 95% of the fair value of the securities transferred to be maintained as collateral.

Premiums and Annuity Considerations

Revenues for policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and are recognized over the premium paying periods of the related policies. Consideration received and benefits paid for annuity policies without mortality or morbidity risk are recorded using deposit accounting and recorded directly to an appropriate policy reserve account, without recognizing premium revenue.

Claims and Claim Adjustment Expense

Liabilities for losses and loss/claim adjustment expenses for accident and health contracts are estimated using statistical claim development models to develop best estimates of liabilities for medical expense business and using tabular reserves employing mortality/morbidity tables and discount rates meeting minimum regulatory requirements for other business. Unpaid claims include amounts for losses and related adjustment expenses and are estimates of the ultimate net costs of all losses, reported and unreported. These estimates are subject to the impact of future changes in claim severity, frequency and other factors.

 

26

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Activity in the liability for unpaid claims and related processing costs net of reinsurance is summarized as follows:

 

     Unpaid Claims
Liability
Beginning
of Year		      Claims
Incurred		      Claims
Paid		      Unpaid Claims
Liability End
of Year		  

Year ended December 31, 2016

            

2016

    $ —        $ 726,808      $ 212,321      $ 514,487  

2015 and prior

      1,372,958        (358,737 )       103,318        910,903  
  

 

 

     

 

 

     

 

 

     

 

 

  
     1,372,958      $ 368,071      $ 315,639        1,425,390  
     

 

 

     

 

 

     

Active life reserve

      3,710,626              3,951,054  
  

 

 

           

 

 

  

Total accident and health reserves

    $ 5,083,584            $ 5,376,444  
  

 

 

           

 

 

  
     Unpaid Claims
Liability
Beginning
of Year		      Claims
Incurred		      Claims
Paid		      Unpaid Claims
Liability End
of Year		  

Year ended December 31, 2015

            

2015

    $ —        $ 781,155      $ 285,156      $ 495,999  

2014 and prior

      1,203,942        (206,782 )       120,201        876,959  
  

 

 

     

 

 

     

 

 

     

 

 

  
     1,203,942      $ 574,373      $ 405,357        1,372,958  
     

 

 

     

 

 

     

Active life reserve

      3,575,596              3,710,626  
  

 

 

           

 

 

  

Total accident and health reserves

    $ 4,779,538            $ 5,083,584  
  

 

 

           

 

 

  

The Company’s unpaid claims reserve was decreased by $(358,737) and $(206,782) for the years ended December 31, 2016 and 2015, respectively, for health claims that were incurred prior to those balance sheet dates. The change in 2016 resulted primarily from variances in the estimated frequency of claims and claims severity.

The balance in the liability for unpaid accident and health claim adjustment expenses as of December 31, 2016 and 2015 was $36,586 and $35,337, respectively. The Company incurred $19,398 and paid $18,036 of claim adjustment expenses during 2016, of which $2,466 of the paid amount was attributable to insured or covered events of prior years. The Company incurred $24,766 and paid $20,388 of claim adjustment expenses during 2015, of which $13,485 of the paid amount was attributable to insured or covered events of prior years. The Company did not increase or decrease the claim adjustment expense provision for insured events of prior years during 2016 or 2015.

 

27

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Reinsurance

Coinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of in force blocks of business are included in unassigned surplus and amortized into income as earnings emerge on the reinsured block of business. Premiums ceded and recoverable losses have been reported as a reduction of premium income and benefits, respectively. Policy liabilities and accruals are reported in the accompanying financial statements net of reinsurance ceded.

Consistency of Presentation

Differences in tabular totals and references between notes are caused by rounding differences not considered to be significant to the financial statement presentation. Prior year amounts have been reclassified to conform to current period presentation.

Recent Accounting Pronouncements

Effective January 1, 2017, the Company adopted revisions to SSAP No. 35R, Guaranty Fund and Other Assessments, which allows 1) expected renewals of short-term health contracts to be considered in determining the assets recognized from accrued guaranty fund liability assessments and 2) requires reporting entities to discount guaranty fund liabilities, and related assets, resulting from the insolvencies of insurers that wrote long-term care contracts The adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2017, the Company adopted SSAP No. 41R, Surplus Notes. Surplus notes held by investors that are rated an equivalent NAIC 1 or 2 designation by an approved NAIC credit rating provider will be reported at amortized cost, while non-rated surplus notes or those with an equivalent designation of 3 through 6 will be reported at the lower of amortized cost or fair value adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2017, the Company adopted revisions to SSAP No. 51R, Life Contracts, which includes updates for new principle-based reserving (PBR) requirements, with references to Valuation Manual changes. The Valuation Manual allows companies to continue using current reserve methodologies for a three-year period, beginning with the Valuation Manual operative date. For policies issued after the operative date, formulaic calculations for some policies will be supplemented with more advanced deterministic and stochastic reserve methodologies. The Company adopted the new requirements for certain of its term products. The adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2017, the Company adopted revisions to SSAP No. 103R, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which incorporates explicit accounting guidance on short sales and secured borrowing transactions when the insurer is the transferee. The adoption of this guidance did not impact the financial position or results of operations of the Company.

 

28

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Effective December 31, 2017, the Company will adopt revisions to SSAP No. 2R, Cash, Drafts and Short-term Investments, which reclassify money market mutual funds from short-term investments to cash equivalents and clarify that money market mutual funds shall be valued at fair value, allowing net asset value as a practical expedient. The adoption of this guidance will not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2015, the Company adopted guidance that moves wholly-owned, single member/single asset LLCs where the underlying asset is real estate, into the scope of SSAP No. 40, Real Estate Investments, when specific conditions are met, and clarifies in SSAP No. 48, Joint Ventures, Partnerships and Limited Liability Companies, that these types of investments are within the scope of SSAP No. 40. The adoption of this guidance had no material impact to the financial position or results of operations of the Company.

Going Concern

Management has evaluated the ability of the Company to continue as a going concern and has determined that no substantial doubt exists with regard to the Company’s ability to meet its obligations as they become due within one year after the issuance of the financial statements.

2. Prescribed and Permitted Statutory Accounting Practices

The Iowa Insurance Division recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company, and for determining its solvency under the Iowa Insurance Law.

The Company, with the permission of the Iowa Commissioner of Insurance, is allowed special accounting treatment for certain hedges of interest rate exposures on variable annuity products that would not otherwise conform to current accounting guidance under SSAP No. 86. The Company recognizes a reserve hedge offset deferral for the difference between the hedge results associated with a highly effective clearly defined hedge strategy related to variable annuity interest rate risks and the corresponding interest-rate related impact to variable annuity results. This deferral was effective October 1, 2016, and will be amortized through the capital and surplus account change in net unrealized capital gains (losses) on a straight line basis over a period of 10 years beginning in the period of deferral.

The State of Iowa has adopted a prescribed accounting practice that differs from that found in the NAIC SAP related to the reported value of the assets supporting the Company’s guaranteed separate accounts. As prescribed by Iowa Administrative Code 508A.1.4, the Commissioner found that the Company is entitled to value the assets of the guaranteed separate account at amortized cost, whereas the assets would be required to be reported at fair value under SSAP No. 56, Separate Accounts, of the NAIC SAP. There is no impact to the Company’s income or surplus as a result of utilizing this prescribed practice.

 

29

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company previously valued its investments in limited purpose subsidiary (LPS) US insurance SCAs based on the underlying audited statutory equity under a prescribed practice adopted by the State of Iowa. Effective October 1, 2016, the Company received approval from Iowa for the respective LPS to be valued in accordance with SSAP No. 97, paragraph 8.b.i.1 in amounts equal to the respective entity’s underlying audited statutory equity including statutory accounting practices prescribed or permitted by the State of Iowa, which is consistent with Iowa Administrative Code 191-99.11(5). As a result, the Company will no longer disclose its valuation method for these LPS as a prescribed practice. The Company will continue to provide the disclosures required by SSAP No.97, paragraph 36 about underlying LPS accounting practices that depart from the NAIC accounting practices and procedures. This change in SCA valuation method did not result in a change in the Company’s valuation of its LPS but rather aligned the NAIC valuation with that required by the Iowa Administrative Code.

The Company has three LPS with prescribed practices whereby under Iowa Administrative Code 191-99.11(3), the LPS are entitled to admit the following assets that would not be admissible under the NAIC SAP:

 

TLIC Riverwood Reinsurance Inc. (TRRI)    Parental guarantee
TLIC Oakbrook Reinsurance Inc. (TORI)    Credit linked note
TLIC Watertree Reinsurance Inc. (TWRI)    Excess of loss reinsurance asset

For each respective LPS, the table below discloses the amount of the investment in the insurance SCA per recorded statutory equity and the amount of the investment if the insurance SCA had completed statutory financial statements in accordance with the NAIC SAP. Each LPS provides the Company audited financial statements annually.

 

     Amount of Investment  

SCA Entity

(Investments in Insurance SCA Entities)

    Per
Reported
Statutory
Equity		      If the Insurance
SCA Had
Completed
Statutory
Financial
Statements*		  

TLIC Riverwood Reinsurance Inc

    $ 965,083      $ —    

TLIC Oakbrook Reinsurance Inc

      133,416        —    

TLIC Watertree Reinsurance Inc

      188,313        —    

 

* Per AP&P Manual (without permitted or prescribed practices)

 

30

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

A reconciliation of the Company’s net income and capital and surplus between NAIC SAP and practices prescribed and permitted by the State of Iowa is shown below:

 

     SSAP #      F/S
Page		    F/S
Line		    2016     2015     2014  

Net (loss) income, State of Iowa basis

             $ 471,092     $ (182,480 )    $ 353,790  

State prescribed practice that increases(decreases) NAIC SAP:

                

Limited purpose subsidiary valuation - TRRI

      97      Balance Sheet    Common Stock      —         —         —    

Limited purpose subsidiary valuation - TORI

      97      Balance Sheet    Common Stock      —         —         —    

Separate account asset valuation

      56      NA    NA      —         —         —    

State permitted practice that increases(decreases) NAIC SAP:

                

Hedge reserve offset

      86      Balance Sheet;
Statement of
Changes in
Capital and
Surplus		    Hedge reserve
offset Change
in net
unrealized
capital gains/
losses		      —         —         —    

TLB

      97      Balance Sheet    Common Stock      —         —         —    

Net (loss) income, NAIC SAP

             $ 471,092     $ (182,480 )    $ 353,790  
           

 

 

    

 

 

    

 

 

  

Statutory surplus, State of Iowa basis

             $ 5,234,756     $ 5,449,210     $ 5,999,558  
           

 

 

    

 

 

    

 

 

  

State prescribed practice that increases(decreases) NAIC SAP:

                

Limited purpose subsidiary valuation - TRRI

      97      Balance Sheet    Common Stock      —         (869,844 )      (817,285 ) 

Limited purpose subsidiary valuation - TORI

      97      Balance Sheet    Common Stock      —         (132,955 )      (113,677 ) 

Separate account asset valuation

      56      NA    NA       

State permitted practice that increases(decreases) NAIC SAP:

                

Hedge reserve offset

      86      Balance Sheet;
Statement of
Changes in
Capital and
Surplus		    Hedge reserve
offset Change
in net
unrealized
capital gains/
losses		      (575,869 )      —         —    

TLB

      97      Balance Sheet    Common Stock      —         74,225       62,284  
           

 

 

    

 

 

    

 

 

  

Statutory surplus, NAIC SAP

             $ 4,658,887     $ 4,520,636     $ 5,130,880  
           

 

 

    

 

 

    

 

 

  

 

31

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company previously disclosed a state permitted practice to record the value of its wholly-owned Bermuda domiciled life subsidiary, Transamerica Life (Bermuda), Ltd. (TLB), based upon audited statutory equity rather than audited U.S. GAAP or foreign statutory basis financial statements equity adjusted to a statutory basis of accounting, utilizing adjustments as outlined in SSAP No.97, paragraph 9. Changes in the Bermuda Insurance Act 1978 require TLB to file audited GAAP or IFRS financials with the Bermuda Monetary Authority in 2016 rather than statutory basis financials. As a result of the change in the Bermuda regulation, the Company began recording the value of TLB in accordance with SSAP No. 97 in first quarter of 2016, therefore eliminating the need for a permitted practice.

3. Accounting Changes and Correction of Errors

As disclosed in Note 2, the Company began recording the value of its foreign insurance subsidiary in accordance with SSAP No. 97 in 2016, therefore eliminating the need for a permitted practice. This change in accounting impacted the carrying value of the subsidiary and the AVR reported on the Company’s balance sheet. The cumulative effect of implementing the change in accounting effective January 1, 2016, was a $276,042 decrease in capital and surplus. The cumulative effect consisted of two components, a $142,142 change in unrealized loss on the subsidiary and a $133,900 increase in AVR.

During the first quarter of 2016, management determined that the Company’s accretion policy was not correctly adjusting accretion yields for asset specific changes in future cash flow expectations which resulted in an understatement of investment income of $31,151, net of tax, relating to prior years. This was corrected in 2016 and is reflected as other changes, net, in the capital and surplus accounts of the Statements of Changes in Capital and Surplus.

During 2015, the Company discovered errors in the calculation of ceded reserves on certain substandard and disabled life policies which caused an overstatement of these reserves since 2011. The cumulative pre-tax effect of these errors was a decrease to equity of $13,866 and was reflected as other changes, net, in the 2015 capital and surplus accounts of the Statements of Changes in Capital and Surplus.

As a result of the Company’s model validation initiative performed in 2015, the Company determined that its aggregate life reserves were overstated by $16,713 relating to prior years. This was corrected in 2015 and was reflected as other changes, net, in the capital and surplus accounts of the Statements of Changes in Capital and Surplus.

During 2015, it was discovered that a 2014 intercompany transfer of taxes payable was booked incorrectly, resulting in an incorrect equity distribution to a non-insurance affiliate of $8,833. This was corrected in 2015 and was reflected as other changes, net, in the capital and surplus accounts of the Statements of Changes in Capital and Surplus.

During 2015, the Company made a change in valuation bases relating to its long-term care business. A change was made to use a morbidity table that is consistent with leading industry practice where claims are determined using a first-site, first principles approach. This change resulted in an increase in A&H reserves of $5,946 which has been reported on Exhibit 5A – Changes in Bases of Valuation During the Year.

 

32

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company had consistently reported reserves for all states using the Missouri Department of Insurance required modified 2001 CSO table in the valuation of certain limited underwriting policies. During 2015, Missouri rescinded this rule. The Company made a change in valuation bases relating to these policies to use the unmodified 2001 CSO table. This resulted in a decrease to reserves of $12,464 which has been reported on Exhibit 5A – Change in Bases of Valuation During the Year. Related to this change were corresponding decreases in the deferred premium asset of $5,114 and the uncollected premium asset of $104. These amounts were charged to surplus and are reported as a cumulative effect of changes in accounting principle in the capital and surplus accounts of the Statements of Changes in Capital and Surplus.

During 2015, the Company identified simplifications and implemented mapping updates in some of the valuation mortality tables used for the calculation of reinsurance reserve credits on some universal life policies. The change in valuation process resulted in a decrease to reserves of $14,481 which has been reported on Exhibit 5A – Change in Bases of Valuation During the Year.

During 2014, the Company discovered errors with certain components of the quarterly settlement statements related to the modified coinsurance treaty assumed from an affiliate, Western Reserve Life Assurance Co. of Ohio (WRL), resulting in incorrect cession amounts received by the Company since inception of the treaty effective December 31, 2010. The cumulative impact of the errors as of December 31, 2013 was an overstatement of capital and surplus of $53,792 after tax. This was reflected as other changes, net, in the 2014 capital and surplus accounts of the Statements of Changes in Capital and Surplus.

Prior to its merger in 2015 with the Company, during 2014, SLIC discovered that the accounting entries had not been recorded to the ledger when a block of escheated policies were entered into the claims administration system in 2013. The impact of not recording these entries to the ledger was an understatement of the claims liability of $2,900, an understatement of current federal income taxes recoverable of $1,015, an overstatement of net deferred income taxes of $1,298, and an overstatement of capital and surplus of $3,183 as of December 31, 2013. This was corrected in 2014 and is reflected as other changes, net, in the capital and surplus accounts of the Statements of Changes in Capital and Surplus.

4. Fair Values of Financial Instruments

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Determination of fair value

The fair values of financial instruments are determined by management after taking into consideration several sources of data. When available, the Company uses quoted market prices in active markets to determine the fair value of its investments. The Company’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.

 

33

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

To understand the valuation methodologies used by third-party pricing services, the Company reviews and monitors their applicable methodology documents. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, the Company performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that the Company can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.

Each month, the Company performs an analysis of the information obtained from indices, third-party services, and brokers to ensure that the information is reasonable and produces a reasonable estimate of fair value. The Company considers both qualitative and quantitative factors as part of this analysis, including but not limited to, recent transactional activity for similar securities, review of pricing statistics and trends, and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities.

Fair value hierarchy

The Company’s financial assets and liabilities carried at fair value are classified, for disclosure purposes, based on a hierarchy defined by SSAP No. 100, Fair Value Measurements. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

 

Level 1 -    Unadjusted quoted prices for identical assets or liabilities in active markets accessible at the measurement date.
Level 2 -    Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
   a)    Quoted prices for similar assets or liabilities in active markets
   b)    Quoted prices for identical or similar assets or liabilities in non-active markets
   c)    Inputs other than quoted market prices that are observable
   d)    Inputs that are derived principally from or corroborated by observable market data through correlation or other means

 

34

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Level 3 -    Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash Equivalents and Short-Term Investments: The carrying amounts reported in the accompanying balance sheets for these financial instruments is either reported at fair value or amortized cost (which approximates fair value). Cash is not included in the below tables.

Short-Term Notes Receivable from Affiliates: The carrying amounts reported in the accompanying balance sheets for these financial instruments approximate their fair value.

Bonds and Stocks: The NAIC allows insurance companies to report the fair value determined by the SVO or to determine the fair value by using a permitted valuation method. The fair values of bonds and stocks are reported or determined using the following pricing sources: indices, third-party pricing services, brokers, external fund managers and internal models.

Fair values for fixed maturity securities (including redeemable preferred stock) actively traded are determined from third-party pricing services, which are determined as discussed above in the description of Level 1 and Level 2 values within the fair value hierarchy. For fixed maturity securities (including redeemable preferred stock) not actively traded, fair values are estimated using values obtained from third-party pricing services, or are based on non-binding broker quotes or internal models. In the case of private placements, fair values are estimated by discounting the expected future cash flows using current market rates applicable to the coupon rate, credit and maturity of the investments.

Mortgage Loans on Real Estate: The fair values for mortgage loans on real estate are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans.

Real Estate: Real estate held for sale is typically valued utilizing independent external appraisers in conjunction with reviews by qualified internal appraisers. Valuations are primarily based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property.

Other Invested Assets: The fair values for other invested assets, which include investments in surplus notes issued by other insurance companies and fixed or variable rate investments with underlying characteristics of bonds were determined primarily by using indices, third-party pricing services and internal models.

 

35

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Derivative Financial Instruments: The estimated fair values of equity and interest rate options (calls, puts, caps) are based upon the latest quoted market price at the balance sheet date. The estimated fair values of swaps, including equity, interest rate and currency swaps, are based on pricing models or formulas using current assumptions. The estimated fair values of credit default swaps are based upon active market data, including interest rate quotes, credit spreads, and recovery rates, which are then used to calculate probabilities of default for the fair value calculation. The Company accounts for derivatives that receive and pass hedge accounting in the same manner as the underlying hedged instrument. If that instrument is held at amortized cost, then the derivative is also held at amortized cost.

Policy Loans: The fair value of policy loans is considered to approximate the book value of the loan, which is stated at unpaid principal balance.

Securities Lending Reinvested Collateral: The cash collateral from securities lending is reinvested in various short-term and long-term debt instruments. The fair values of these investments are determined using the methods described above under Cash Equivalents and Short-Term Investments and Bonds and Stocks.

Receivable From/Payable to Parents, Subsidiaries and Affiliates: The carrying amount of receivable from/payable to affiliates approximates their fair value.

Separate Account Assets and Annuity Liabilities: The fair value of separate account assets are based on quoted market prices when available. When not available, they are primarily valued either using third-party pricing services or are valued in the same manner as the general account assets as further described in this note. However, some separate account assets are valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilizes input that are not market observable. The fair value of separate account annuity liabilities is based on the account value for separate accounts business without guarantees. For separate accounts with guarantees, fair value is based on discounted cash flows.

Investment Contract Liabilities: Fair value for the Company’s liabilities under investment contracts, which include deferred annuities and GICs, are estimated using discounted cash flow calculations. For those liabilities that are short in duration, carrying amount approximates fair value. For investment contracts with no defined maturity, fair value is estimated to be the present surrender value.

Deposit-Type Contracts: The carrying amounts of deposit-type contracts reported in the accompanying balance sheets approximate their fair values. These are included in the Investment Contract Liabilities.

Surplus Notes: Fair values for surplus notes are estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.

The Company accounts for its investments in affiliated common stock in accordance with SSAP No. 97, as such, they are not included in the following disclosures.

Fair values for the Company’s insurance contracts other than investment-type contracts (including separate account universal life liabilities) are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

 

36

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables set forth a comparison of the estimated fair values and carrying amounts of the Company’s financial instruments, including those not measured at fair value in the balance sheets, as of December 31, 2016 and 2015, respectively:

 

     December 31, 2016  
     Estimated
Fair Value		      Admitted
Assets/
Liabilities		      (Level 1)      (Level 2)     (Level 3)  

Admitted assets

              

Cash equivalents and short-term investments, other than affiliates

    $ 1,435,906      $ 1,435,906      $ —        $ 1,435,906     $ —    

Bonds

      41,750,057        38,632,034        8,543,520        32,331,681       874,856  

Preferred stocks, other than affiliates

      94,325        95,547        —          91,172       3,153  

Common stocks, other than affiliates

      194,833        194,833        1,905        —         192,928  

Mortgage loans on real estate

      5,801,102        5,641,558        —          —         5,801,102  

Other invested assets

      168,197        149,019        —          160,516       7,681  

Options

      182,667        182,667        —          182,667       —    

Interest rate swaps

      678,868        587,537        —          674,938       3,930  

Currency swaps

      21,819        21,408        —          21,819       —    

Credit default swaps

      36,173        26,828        —          36,173       —    

Equity swaps

      48,509        48,509        —          48,509       —    

Policy loans

      607,746        607,746        —          607,746       —    

Securities lending reinvested collateral

      2,303,603        2,303,603        —          2,303,603       —    

Receivable from parent, subsidiaries and affiliates

      111,305        111,305        —          111,305       —    

Separate account assets

      72,675,382        72,638,065        69,229,744        3,399,333       46,305  

Liabilities

              

Investment contract liabilities

      17,237,938        15,077,116        —          265,681       16,972,257  

Options

      82,070        82,070        —          82,070       —    

Interest rate swaps

      183,689        806,424        —          (179,214 )      362,903  

Currency swaps

      1,666        76        —          1,666       —    

Credit default swaps

      13,478        44,647        —          13,478       —    

Equity swaps

      381,242        381,242        —          381,242       —    

Payable to parent, subsidiaries and affiliates

      115,256        115,256        —          115,256       —    

Separate account annuity liabilities

      66,986,814        66,987,131        1,996        66,926,286       58,532  

Surplus note

      165,351        150,000        —          165,351       —    

 

37

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements —   Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31, 2015  
     Estimated
Fair Value		     Admitted
Assets/
Liabilities		      (Level 1)      (Level 2)     (Level 3)  

Admitted assets

             

Cash equivalents and short-term investments, other than affiliates

    $ 2,012,842     $ 2,012,842      $ —        $ 2,012,842     $ —    

Short-term notes receivable from affiliates

      278,771       278,771        —          278,771       —    

Bonds

      36,576,232       34,173,453        6,841,379        28,830,442       904,411  

Preferred stocks, other than affiliates

      97,770       99,103        —          97,770       —    

Common stocks, other than affiliates

      126,649       126,649        8,239        71       118,339  

Mortgage loans on real estate

      5,657,436       5,657,436        —          —         5,657,436  

Other invested assets

      152,140       133,087        —          142,831       9,309  

Options

      399,911       399,911        —          399,911       —    

Interest rate swaps

      668,643       543,001        —          646,960       21,683  

Currency swaps

      28,988       26,378        —          28,988       —    

Credit default swaps

      37,808       32,968        —          37,808       —    

Equity swaps

      155,735       155,735        —          155,735       —    

Policy loans

      649,738       649,738        —          649,738       —    

Securities lending reinvested collateral

      2,760,922       2,760,922        —          2,760,922       —    

Receivable from parent, subsidiaries and affiliates

      59,963       59,963        —          59,963       —    

Separate account assets

      72,154,755       72,127,543        68,354,452        3,762,211       38,092  

Liabilities

             

Investment contract liabilities

      12,911,523       11,852,454        —          276,950       12,634,573  

Short-term notes payable to affiliates

      —         —          —          —         —    

Options

      178,638       178,638        —          178,638       —    

Interest rate swaps

      (484,994 )      429,751        —          (520,103 )      35,109  

Currency swaps

      38,722       46,656        —          38,722       —    

Credit default swaps

      13,862       27,180        —          13,862       —    

Equity swaps

      113,689       113,689        —          113,689       —    

Payable to parent, subsidiaries and affiliates

      18,965       18,965        —          18,965       —    

Separate account annuity liabilities

      63,493,519       63,507,470        983        63,428,222       64,314  

Surplus notes

      164,418       150,000        —          164,418       —    

 

38

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables provide information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2016 and 2015:

 

     2016  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Bonds

            

Government

    $ —        $ 1,124      $ —        $ 1,124  

Industrial and miscellaneous

      —          20,216        18,746        38,962  

Hybrid securities

      —          2,573        —          2,573  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total bonds

      —          23,913        18,746        42,659  
  

 

 

     

 

 

     

 

 

     

 

 

  

Preferred stock

            

Industrial and miscellaneous

      —          —          3,153        3,153  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total preferred stock

      —          —          3,153        3,153  
  

 

 

     

 

 

     

 

 

     

 

 

  

Common stock

            

Mutual funds

      761        —          —          761  

Industrial and miscellaneous

      1,144        —          192,928        194,072  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total common stock

      1,905        —          192,928        194,833  
  

 

 

     

 

 

     

 

 

     

 

 

  

Short-term investments

            

Government

      —          598,723        —          598,723  

Industrial and miscellaneous

      —          820,579        —          820,579  

Sweep accounts

      —          16,604        —          16,604  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total short-term investments

      —          1,435,906        —          1,435,906  
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities lending reinvested collateral

      —          2,303,603        —          2,303,603  

Derivative assets

      —          813,180        3,930        817,110  

Separate account assets

      69,213,345        2,706,809        45,420        71,965,574  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ 69,215,250      $ 7,283,411      $ 264,177      $ 76,762,838  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Derivative liabilities

    $ —        $ 878,117      $ 362,903      $ 1,241,020  

Separate account liabilities

      1,996        871        —          2,867  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilities

    $ 1,996      $ 878,988      $ 362,903      $ 1,243,887  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

39

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     2015  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Bonds

            

Government

    $ —        $ 1,094      $ —        $ 1,094  

Industrial and miscellaneous

      —          10,588        22,878        33,466  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total bonds

      —          11,682        22,878        34,560  
  

 

 

     

 

 

     

 

 

     

 

 

  

Common stock

            

Mutual funds

      5,823        69        —          5,892  

Industrial and miscellaneous

      2,416        2        118,339        120,757  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total common stock

      8,239        71        118,339        126,649  
  

 

 

     

 

 

     

 

 

     

 

 

  

Short-term investments

            

Government

      —          94,915        —          94,915  

Industrial and miscellaneous

      —          1,349,518        —          1,349,518  

Mutual funds

      —          526,117        —          526,117  

Intercompany notes receivable

      —          278,771        —          278,771  

Sweep accounts

      —          42,292        —          42,292  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total short-term investments

      —          2,291,613        —          2,291,613  
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities lending reinvested collateral

      —          2,760,922        —          2,760,922  

Derivative assets

      —          1,078,404        21,683        1,100,087  

Separate account assets

      68,338,600        2,670,280        32,569        71,041,449  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ 68,346,839      $ 8,812,972      $ 195,469      $ 77,355,280  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Derivative liabilities

    $ —        $ 670,145      $ 35,109      $ 705,254  

Separate account liabilities

      983        965        —          1,948  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilities

    $ 983      $ 671,110      $ 35,109      $ 707,202  
  

 

 

     

 

 

     

 

 

     

 

 

  

Bonds classified in Level 2 are valued using inputs from third party pricing services or broker quotes. Bonds classified in Level 3 are primarily those valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilize significant inputs that are not market observable.

Preferred stock classified in Level 3 is internally valued using significant unobservable inputs.

Common stocks classified in Level 3 are comprised primarily of shares in the Federal Home Loan Bank (FHLB) of Des Moines, which are valued at par as a proxy for fair value as a result of restrictions that allow redemptions only by FHLB.

Short-term investments are classified as Level 2 and carried at amortized cost or fair value. Because of the highly liquid nature of these assets, carrying amounts are used to approximate fair value when amortized cost is used.

Securities lending reinvested collateral is valued and classified in the same way as the underlying collateral, which is primarily composed of short-term investments.

 

40

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Derivatives classified as Level 2 represent over-the-counter (OTC) contracts valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services. Derivatives classified as Level 3 represent interest rate swaps calculated by simulation using a series of market-consistent inputs to model the dynamics of the swap. The inputs are taken from market instruments to the extent that they exist.

Separate account assets and liabilities are valued and classified in the same way as general account assets and liabilities (described above).

Transfers from Level 1 to Level 2 for separate account bonds were attributable to securities being valued using an index at December 31, 2015, subsequently changing to being valued using a different index during 2016.

Transfers from Level 1 to Level 2 for separate account common stock were attributable to securities being valued using third party vendor inputs at December 31, 2015, subsequently changing to being valued using external money manager statements during 2016.

Transfers from Level 2 to Level 1 for separate account common stock were attributable to securities being valued using external money managers at December 31, 2015, subsequently changing to being valued using third party vendor inputs during 2016.

 

41

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables summarize the changes in assets and liabilities classified in Level 3 for 2016 and 2015:

 

     Beginning
Balance at
January 1,
2016		     Transfers
in
(Level 3)		      Transfers
out
(Level 3)		     Total Gains
and (Losses)
Included in
Net income (a)		     Total Gains
and (Losses)
Included in
Surplus (b)		  

Bonds

            

Government

    $ —       $ —        $ —       $ (9 )    $ 9  

RMBS

      1,439       —          1,428       (122 )      116  

Other

      21,439       885        184       (2,852 )      5,003  

Preferred stock

      —         —          —         512       (101 ) 

Common stock

      118,338       —          —         —         101  

Derivatives

      (13,426 )      —          —         (189,403 )      (348,382 ) 

Separate account assets

      32,569       5,578        9,142       15,896       81  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total

    $ 160,359     $ 6,463      $ 10,754     $ (175,978 )    $ (343,173 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  
     Purchases     Issuances      Sales     Settlements     Ending Balance at
December 31, 2016		  

Bonds

            

Government

    $ —       $ —        $ —       $ —       $ —    

RMBS

      —         —          —         5       —    

Other

      1,663       —          —         7,208       18,746  

Preferred stock

      3,254       —          —         512       3,153  

Common stock

      73,000       1,689        200       —         192,928  

Derivatives

      2,834       —          (80,527 )      (108,876 )      (358,974 ) 

Separate account assets

      1,520       —          —         1,082       45,420  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total

    $ 82,271     $ 1,689      $ (80,327 )    $ (100,069 )    $ (98,727 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

42

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Beginning
Balance at
January 1,
2015		     Transfers
in
(Level 3)		      Transfers
out
(Level 3)		      Total Gains
and (Losses)
Included in
Net income (a)		     Total Gains
and (Losses)
Included in
Surplus (b)		  

Bonds

             

Government

    $ —       $ —        $ —        $ (11 )    $ 11  

RMBS

      1,498       —          —          (371 )      317  

Other

      21,156       14,483        3,846        (6,374 )      (1,848 ) 

Preferred stock

      164       —          —          —         —    

Common stock

      118,061       —          —          (24 )      281  

Derivatives

      90,924       —          —          —         (26,551 ) 

Separate account assets

      7,905       1,398        1,500        21,539       (220 ) 
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ 239,708     $ 15,881      $ 5,346      $ 14,759     $ (28,010 ) 
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  
     Purchases     Issuances      Sales      Settlements     Ending Balance at
December 31, 2015		  

Bonds

             

Government

    $ —       $ —        $ —        $ —       $ —    

RMBS

      —         —          —          5       1,439  

Other

      —         —          —          2,132       21,439  

Preferred stock

      —         —          —          164       —    

Common stock

      4,020       —          4,000        —         118,338  

Derivatives

      (63,114 )      —          —          14,685       (13,426 ) 

Separate account assets

      4,245       —          —          798       32,569  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

Total

    $ (54,849 )    $ —        $ 4,000      $ 17,784     $ 160,359  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

 

(a) Recorded as a component of Net Realized Capital Gains/Losses on Investments in the Statements of Operations
(b) Recorded as a component of Change in Net Unrealized Capital Gains/Losses in the Statements of Changes in Capital and Surplus

The Company’s policy is to recognize transfers in and out of Level 3 as of the beginning of the reporting period.

Transfers in for bonds were the result of a security being carried at amortized cost at December 31, 2015 and 2014, subsequently changing to being carried at fair value during 2016 and 2015. In addition, transfers in for bonds were attributable to a security being valued using third-party vendor input at December 31, 2014, subsequently changing to being valued using a stale price during 2015.

Transfers out for bonds were the result of a security being carried at fair value at December 31, 2015 and 2014, subsequently changing to being carried at amortized cost during 2016 and 2015.

Transfers in for separate account assets were attributable to securities being valued using third party vendor inputs at December 31, 2015 and 2014, subsequently changing to being valued using broker quotes during 2016 and 2015.

 

43

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Transfers out for separate account assets were attributable to securities being valued using a stale price at December 31, 2015 and 2014, subsequently changing to being valued using third party vendor inputs during 2016 and 2015. In addition, transfers out for separate account assets were attributable to securities being valued using broker quotes at December 31, 2015, subsequently changing to being valued using third party vendor inputs during 2016.

Non-recurring fair value measurements

As indicated in Note 1, real estate held for sale is measured at the lower of carrying amount or fair value less cost to sell. As of December 31, 2016, the Company has several parcels of land that are held for sale. Therefore, these properties are carried at fair value less cost to sell, which amounts to $8,570. Two parcels of land have a carrying amount less than its fair value and therefore is not carried at fair value as of December 31, 2016.

The Company also had parcels of land that were held for sale as of December 31, 2015. Fair value less cost to sell of these properties was $8,570. Two parcels of land had a carrying amount less than its fair value and therefore is not carried at fair value as of December 31, 2015.

Fair value was determined by utilizing an external appraisal following the sales comparison approach. The fair value measurements are classified in Level 3 as the comparable sales and adjustments for the specific attributes of these properties are not market observable inputs.

5. Investments

The carrying amounts and estimated fair value of investments in bonds and preferred stock are as follows:

 

     Carrying
Amount		      Gross
Unrealized
Gains		      Gross
Unrealized
Losses 12
Months or
More		      Gross
Unrealized
Losses less
Than 12
Months		      Estimated
Fair
Value		  

December 31, 2016

               

Unaffiliated bonds:

               

United States Government and agencies

    $ 7,909,126      $ 480,225      $ —        $ 276,098      $ 8,113,253  

State, municipal and other government

      846,024        38,500        9,136        11,920        863,468  

Hybrid securities

      463,953        21,551        26,842        2,308        456,354  

Industrial and miscellaneous

      22,672,674        2,963,306        81,739        140,208        25,414,034  

Mortgage and other asset-backed securities

      6,735,275        298,695        74,418        63,243        6,896,309  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     38,627,052        3,802,277        192,135        493,777        41,743,418  

Unaffiliated preferred stocks

      95,547        3,771        4,802        190        94,325  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 38,722,599      $ 3,806,048      $ 196,937      $ 493,967      $ 41,837,743  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

44

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Carrying
Amount		      Gross
Unrealized
Gains		      Gross
Unrealized
Losses 12
Months or
More		      Gross
Unrealized
Losses less
Than 12
Months		      Estimated
Fair
Value		  

December 31, 2015

               

Unaffiliated bonds:

               

United States Government and agencies

    $ 5,987,562      $ 499,532      $ 53      $ 106,422      $ 6,380,619  

State, municipal and other government

      848,372        44,220        4,395        18,989        869,208  

Hybrid securities

      363,526        20,787        21,966        6,216        356,131  

Industrial and miscellaneous

      20,933,595        2,289,579        171,562        320,604        22,731,008  

Mortgage and other asset-backed securities

      5,976,648        356,869        134,130        23,871        6,175,516  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     34,109,703        3,210,987        332,106        476,102        36,512,482  

Unaffiliated preferred stocks

      99,103        4,880        5,351        862        97,770  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 34,208,806      $ 3,215,867      $ 337,457      $ 476,964      $ 36,610,252  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

At December 31, 2016 and 2015, respectively, for bonds and preferred stocks that have been in a continuous loss position for greater than or equal to twelve months, the Company held 326 and 364 securities with a carrying amount of $1,905,967 and $2,234,787, and an unrealized loss of $196,937 and $337,457 with an average price of 89.7 and 84.9 (fair value/amortized cost). Of this portfolio, 66.2% and 71.8% were investment grade with associated unrealized losses of $105,393 and $191,342, respectively.

At December 31, 2016 and 2015, respectively, for bonds and preferred stocks that have been in a continuous loss position for less than twelve months, the Company held 1,128 and 1,081 securities with a carrying amount of $10,886,803 and $9,043,827 and an unrealized loss of $493,967 and $476,964 with an average price of 95.5 and 94.7 (fair value/amortized cost). Of this portfolio, 96.4% and 91.8% were investment grade with associated unrealized losses of $471,156 and $394,702, respectively.

At December 31, 2016 and 2015, respectively, for common stocks that have been in a continuous loss position for greater than or equal to twelve months, the Company held 0 and 2 securities with a cost of $0 and $1 and an unrealized loss of $0 and $1 with an average price of 0.0% and 4.8% (fair value/cost).

At December 31, 2016 and 2015, respectively, for common stocks that have been in a continuous loss position for less than twelve months, the Company held 4 and 3 securities with a cost of $2,020 and $476 and an unrealized loss of $294 and $20 with an average price of 85.5 and 95.7 (fair value/cost).

 

45

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The estimated fair value of bonds, preferred stocks and common stocks with gross unrealized losses at December 31, 2016 and 2015 is as follows:

 

     Losses 12
Months or
More		      Losses Less
Than 12
Months		      Total  

December 31, 2016

         

Unaffiliated bonds:

         

United States Government and agencies

    $ —        $ 3,765,738      $ 3,765,738  

State, municipal and other government

      49,698        290,257        339,955  

Hybrid securities

      107,667        65,108        172,775  

Industrial and miscellaneous

      856,096        3,754,485        4,610,581  

Mortgage and other asset-backed securities

      673,363        2,512,512        3,185,875  
  

 

 

     

 

 

     

 

 

  
     1,686,824        10,388,100        12,074,924  

Unaffiliated preferred stocks

      22,207        4,736        26,943  

Unaffiliated common stocks

      —          1,726        1,726  
  

 

 

     

 

 

     

 

 

  
   $ 1,709,031      $ 10,394,562      $ 12,103,593  
  

 

 

     

 

 

     

 

 

  
     Losses 12
Months or
More		      Losses Less
Than 12
Months		      Total  

December 31, 2015

         

Unaffiliated bonds:

         

United States Government and agencies

    $ 3,105      $ 2,247,989      $ 2,251,094  

State, municipal and other government

      40,402        323,866        364,268  

Hybrid securities

      96,946        41,249        138,195  

Industrial and miscellaneous

      825,390        4,376,512        5,201,902  

Mortgage and other asset-backed securities

      910,509        1,562,131        2,472,640  
  

 

 

     

 

 

     

 

 

  
     1,876,352        8,551,747        10,428,099  

Unaffiliated preferred stocks

      20,978        15,115        36,093  

Unaffiliated common stocks

      —          456        456  
  

 

 

     

 

 

     

 

 

  
   $ 1,897,330      $ 8,567,318      $ 10,464,648  
  

 

 

     

 

 

     

 

 

  

 

46

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The carrying amount and estimated fair value of bonds at December 31, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Carrying
Amount		      Estimated
Fair
Value		  

Due in one year or less

    $ 1,325,277      $ 1,348,424  

Due after one year through five years

      6,849,253        7,221,046  

Due after five years through ten years

      5,069,295        5,472,967  

Due after ten years

      18,647,952        20,804,672  
  

 

 

     

 

 

  
     31,891,777        34,847,109  

Mortgage and other asset-backed securities

      6,735,275        6,896,309  
  

 

 

     

 

 

  
   $ 38,627,052      $ 41,743,418  
  

 

 

     

 

 

  

For impairment policies related to non-structured and structured securities, refer to Note 1 under Investments.

As of December 31, 2016, the Company’s portfolio had Treasury investments in an unrealized loss position which had a fair value of $3,759,864, with a carrying value of $4,035,873, resulting in a gross unrealized loss of $276,009. All of the issuers in the sector continue to make payments in accordance with the original bond agreements. Fair value changes are driven by interest rate movements.

The following structured notes were held at December 31, 2016:

 

CUSIP

Identification

    Actual Cost      Fair Value      Book / Adjusted
Carrying Value		      Mortgage-
Referenced
Security
(YES/NO)		  

44965TAA5

    $ 11,561      $ 11,074      $ 11,566        NO  

G52836AB2

      10,050        10,310        10,050        NO  

912810QV3

      14,974        14,392        15,722        NO  

912810RA8

      772,522        873,726        809,956        NO  

912810RL4

      1,195,281        1,225,476        1,222,583        NO  
  

 

 

     

 

 

     

 

 

     

Total

    $ 2,004,388      $ 2,134,978      $ 2,069,877     
  

 

 

     

 

 

     

 

 

     

 

47

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table provides the number of 5* securities, aggregate book adjusted carrying value and aggregate fair value by investment type:

 

     Number of
5* Securities		      Book / Adjusted
Carrying Value		      Fair Value  

December 31, 2016

         

Bonds, amortized cost

      2      $ 14,644      $ 14,473  

Loan-backed and structured securities, amortized cost

      1        432        430  

Preferred stock, amortized cost

      0        —          —    

Preferred stock, fair value

      0        —          —    
  

 

 

     

 

 

     

 

 

  

Total

      3      $ 15,076      $ 14,903  

December 31, 2015

         

Bonds, amortized cost

      2      $ 8,868      $ 8,564  

Loan-backed and structured securities, amortized cost

      0        —          —    

Preferred stock, amortized cost

      0        —          —    

Preferred stock, fair value

      2        —          —    
  

 

 

     

 

 

     

 

 

  

Total

      4      $ 8,868      $ 8,564  

 

48

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table provides the aggregate totals for loan-backed securities with a recognized OTTI due to intent to sell or lack of intent and ability to hold for a period of time to recover the amortized cost basis during the years ended December 31, 2016 and December 31, 2015 respectively. During 2016 there was $27,182 of loan-backed securities with a recognized OTTI due to intent to sell or lack of intent and ability to hold, and none during 2015.

 

     Amortized Cost      OTTI Recognized in Loss         
     Basis Before OTTI      Interest      Non-interest      Fair Value  

Year Ended December 31, 2016

            

OTTI recognized 1st quarter:

            

Intent to sell

    $ —        $ —        $ —        $ —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 1st quarter OTTI on loan-backed securities

      —          —          —          —    

OTTI recognized 2nd quarter:

            

Intent to sell

      —          —          —          —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 2nd quarter OTTI on loan-backed securities

      —          —          —          —    

OTTI recognized 3rd quarter:

            

Intent to sell

      —          —          —          —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      27,182        —          2,892        24,290  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 3rd quarter OTTI on loan-backed securities

      27,182        —          2,892        24,290  

OTTI recognized 4th quarter:

            

Intent to sell

      —          —          —          —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 4th quarter OTTI on loan-backed securities

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 27,182      $ —        $ 2,892      $ 24,290  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

49

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Amortized Cost      OTTI Recognized in Loss         
     Basis Before OTTI      Interest      Non-interest      Fair Value  

Year Ended December 31, 2014

            

OTTI recognized 1st quarter:

            

Intent to sell

    $ —        $ —        $ —        $ —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 1st quarter OTTI on loan-backed securities

      —          —          —          —    

OTTI recognized 2nd quarter:

            

Intent to sell

      —          —          —          —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 2nd quarter OTTI on loan-backed securities

      —          —          —          —    

OTTI recognized 3rd quarter:

            

Intent to sell

      —          —          —          —    

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 3rd quarter OTTI on loan-backed securities

      —          —          —          —    

OTTI recognized 4th quarter:

            

Intent to sell

      17,618        1,513        —          16,105  

Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total 4th quarter OTTI on loan-backed securities

      17,618        1,513        —          16,105  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 17,618      $ 1,513      $ —        $ 16,105  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

50

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables provide the aggregate totals for loan-backed securities with a recognized OTTI due to the Company’s cash flow analysis, in which the security is written down to estimated future cash flows discounted at the security’s effective yield.

 

     Amortized Cost
Before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year ended December 31, 2016

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 90,669      $ 7,850      $ 82,819      $ 75,187  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      7,387        2,482        4,905        4,587  

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      57,816        6,951        50,865        47,445  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      3,481        38        3,443        3,454  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 159,353      $ 17,321      $ 142,032      $ 130,673  
  

 

 

     

 

 

     

 

 

     

 

 

  
     Amortized Cost
Before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year ended December 31, 2015

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 118,794      $ 2,778      $ 116,016      $ 101,780  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      90,459        4,180        86,279        75,094  

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      50,862        2,928        47,934        40,960  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      17,193        542        16,651        9,769  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 277,308      $ 10,428      $ 266,880      $ 227,603  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

51

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Amortized Cost
Before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year ended December 31, 2014

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 91,982      $ 3,445      $ 88,537      $ 55,150  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      268,462        4,854        263,608        212,608  

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      459,548        46,113        413,435        325,095  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      95,282        4,776        90,506        83,684  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 915,274      $ 59,188      $ 856,086      $ 676,537  
  

 

 

     

 

 

     

 

 

     

 

 

  

The following loan-backed and structured securities were held at December 31, 2016, for which an OTTI was recognized during the current reporting period:

 

CUSIP

    Amortized
Cost Before
Current
Period OTTI		      Present
Value of
Projected
Cash Flows		      Recognized
OTTI		      Amortized
Cost After
OTTI		      Fair Value
at Time of
OTTI		      Quarter in
which
Impairment
Occurred		  

07402PAJ2

    $ 17,443      $ 17,230      $ 213      $ 17,230      $ 16,972        1Q 2016  

24763LDE7

      535        461        74        461        465        1Q 2016  

35729PPC8

      347        210        137        210        178        1Q 2016  

70557RAB6

      13,595        12,123        1,472        12,123        6,989        1Q 2016  

759676AJ8

      3,749        3,651        98        3,651        3,391        1Q 2016  

75970JAJ5

      2,821        2,693        128        2,693        2,485        1Q 2016  

75970QAH3

      3,712        3,550        161        3,551        3,306        1Q 2016  

75971EAF3

      3,612        3,446        167        3,445        3,006        1Q 2016  

759950GY8

      4,619        4,530        89        4,530        4,129        1Q 2016  

83611MMM7

      2,113        2,031        82        2,031        1,675        1Q 2016  

75970QAD2

      3,423        3,399        24        3,399        3,096        1Q 2016  

150324AC5

      34,700        29,495        5,205        29,495        29,495        1Q 2016  

61751NAM4

      2,713        611        2,101        612        600        2Q 2016  

36298JAA1

      4,674        4,293        381        4,293        3,987        2Q 2016  

14984WAA8

      2,325        2,153        172        2,153        1,872        3Q 2016  

70557RAB6

      9,322        7,795        1,527        7,795        5,222        3Q 2016  

759950GA0

      3,646        3,618        28        3,618        3,596        3Q 2016  

126380AB0

      12,381        12,212        169        12,212        12,333        3Q 2016  

150324AC5

      27,182        24,290        2,892        24,290        24,290        3Q 2016  

52108HYQ1

      2,960        798        2,163        797        132        3Q 2016  

759676AJ8

      3,481        3,443        38        3,443        3,454        4Q 2016  
        

 

 

           
         $ 17,321           
        

 

 

           

 

52

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The unrealized losses of loan-backed and structured securities where fair value is less than cost or amortized cost for which an OTTI has not been recognized in earnings as of December 31, 2016 and 2015 is as follows:

 

     Losses 12
Months or
More		      Losses Less
Than 12
Months		  

Year ended December 31, 2016

      

The aggregate amount of unrealized losses

    $ 74,418      $ 86,409  

The aggregate related fair value of securities with unrealized losses

      673,363        2,548,835  
     Losses 12
Months or
More		      Losses Less
Than 12
Months		  

Year ended December 31, 2015

      

The aggregate amount of unrealized losses

    $ 158,836      $ 24,176  

The aggregate related fair value of securities with unrealized losses

      939,458        1,566,481  

Detail of net investment income is presented below:

 

     Year Ended December 31  
     2016      2015      2014  

Income:

         

Bonds

    $ 1,790,692      $ 1,727,340      $ 1,791,926  

Preferred stocks

      6,141        6,639        8,542  

Common stocks

      13,474        3,836        29,486  

Mortgage loans on real estate

      284,532        314,903        350,497  

Real estate

      22,698        20,264        18,039  

Policy loans

      41,872        44,072        46,233  

Cash, cash equivalents and short-term investments

      15,064        6,597        3,115  

Derivatives

      221,031        256,287        183,316  

Other invested assets

      171,225        47,823        26,216  

Other

      26,591        33,364        17,290  
  

 

 

     

 

 

     

 

 

  

Gross investment income

      2,593,320        2,461,125        2,474,660  

Less investment expenses

      139,501        134,003        115,006  
  

 

 

     

 

 

     

 

 

  

Net investment income

    $ 2,453,819      $ 2,327,122      $ 2,359,654  
  

 

 

     

 

 

     

 

 

  

 

53

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Proceeds from sales and other disposals (excluding maturities) of bonds and preferred stock and related gross realized capital gains and losses were as follows:

 

     Year Ended December 31  
     2016      2015      2014  

Proceeds

    $ 10,076,310      $ 12,197,993      $ 7,606,211  
  

 

 

     

 

 

     

 

 

  

Gross realized gains

    $ 155,810      $ 180,050      $ 403,590  

Gross realized losses

      (117,345 )       (158,916 )       (83,674 ) 
  

 

 

     

 

 

     

 

 

  

Net realized capital gains

    $ 38,465      $ 21,134      $ 319,916  
  

 

 

     

 

 

     

 

 

  

The Company had gross realized losses, which relate to losses recognized on other-than-temporary declines in the fair value of bonds and preferred stocks, for the years ended December 31, 2016, 2015 and 2014 of $40,319, $13,947 and $80,230, respectively.

Net realized capital gains (losses) on investments are summarized below:

 

    

Realized

Year Ended December 31

  
     2016      2015      2014  

Bonds

    $ (48,223 )     $ (6,233 )     $ 241,065  

Preferred stocks

      933        10,119        (801 ) 

Common stocks

      885        (1,640 )       302  

Mortgage loans on real estate

      145        (16,141 )       (5,749 ) 

Real estate

      (3,377 )       (3,356 )       12,395  

Cash, cash equivalents and short-term investments

      133        2        6  

Derivatives

      (185,514 )       (455,642 )       255,580  

Other invested assets

      (148,597 )       140,574        234,758  

Other

      4,829        —          8  
  

 

 

     

 

 

     

 

 

  
     (378,786 )       (332,317 )       737,564  

Federal income tax effect

      (5,234 )       (51,585 )       (120,545 ) 

Transfer from (to) interest maintenance reserve

      75,312        39,581        (327,736 ) 
  

 

 

     

 

 

     

 

 

  

Net realized capital (losses) gains on investments

    $ (308,708 )     $ (344,321 )     $ 289,283  
  

 

 

     

 

 

     

 

 

  

At December 31, 2016 and 2015, the Company had no investments in restructured securities.

 

54

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The changes in net unrealized capital gains and losses on investments, including the changes in net unrealized foreign capital gains and losses were as follows:

 

     Change in Unrealized  
     Year Ended December 31  
     2016      2015      2014  

Bonds

    $ 87,348      $ (34,438 )     $ 37,229  

Preferred stocks

      (102 )       15        (15 ) 

Common stocks

      95        (1,898 )       (33,879 ) 

Affiliated entities

      412,879        141,897        139,410  

Mortgage loans on real estate

      149        6,123        (6,676 ) 

Cash, cash equivalents and short-term investments

      (131 )       —          —    

Derivatives

      (858,670 )       41,311        785,644  

Other invested assets

      475,672        (82,489 )       (10,680 ) 
  

 

 

     

 

 

     

 

 

  

Change in unrealized capital gains/losses, before taxes

      117,240        70,521        911,033  

Taxes on unrealized capital gains/losses

      (202,078 )       10,105        (19,971 ) 
  

 

 

     

 

 

     

 

 

  

Change in unrealized capital gains/losses, net of tax

    $ (84,838 )     $ 80,626      $ 891,062  
  

 

 

     

 

 

     

 

 

  

The credit qualities of mortgage loans by type of property for the year ended December 31, 2016 were as follows:

 

     Farm      Commercial      Mezzanine      Total  

AAA - AA

    $ —        $ 3,418,276      $ —        $ 3,418,276  

A

      68,833        1,832,506        —          1,901,339  

BBB

      —          255,494        —          255,494  

BB

      —          58,846        —          58,846  

B

      9,024        —          —          9,024  
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 77,857      $ 5,565,122      $ —        $ 5,642,979  
  

 

 

     

 

 

     

 

 

     

 

 

  

The credit quality for commercial and farm mortgage loans was determined based on an internal credit rating model which assigns a letter rating to each mortgage loan in the portfolio as an indicator of the credit quality of the mortgage loan. The internal credit rating model was designed based on rating agency methodology, then modified for credit risk associated with the Company’s mortgage lending process, taking into account such factors as projected future cash flows, net operating income, and collateral value. The model produces a credit rating score and an associated letter rating which is intended to align with S&P ratings as closely as possible. Information supporting the credit risk rating process is updated at least annually.

During 2016, the Company issued mortgage loans with a maximum interest rate of 8.71% and a minimum interest rate of 3.00% for commercial loans. The maximum percentage of any one mortgage loan to the value of the underlying real estate originated or acquired during the year ending December 31, 2016 at the time of origination was 91%. During 2015, the Company issued mortgage loans with a maximum interest rate of 4.59% and a minimum interest rate of 3.50% for commercial loans. The maximum percentage of any one mortgage loan to the value of the underlying real estate originated or acquired during the year ending December 31, 2015 at the time of origination was 75%. During 2014, the Company issued mortgage loans with a maximum interest rate of 7.00% and a minimum interest rate of 3.55% for commercial loans. The maximum percentage of any one mortgage loan to the value of the underlying real estate originated or acquired during the year ending December 31, 2014 at the time of origination was 79%.

 

55

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

During 2016, the Company did not reduce the interest rate on any outstanding mortgage loans. During 2015, the Company reduced the interest rate by 1.6% on two outstanding mortgage loan with statement value of $24,214. During 2014, the Company reduced the interest rate by 2.0% on one outstanding mortgage loan with statement value of $2,163.

The following tables provide the age analysis of mortgage loans aggregated by type:

 

            Residential      Commercial                
     Farm      Insured      All Other      Insured      All Other      Mezzanine      Total  

December 31, 2016

                     

Recorded Investment (All)

                     

(a) Current

    $ 77,857      $ —        $ —        $ —        $ 5,565,122      $ —        $ 5,642,979  

(b) 30-59 Days Past Due

      —          —          —          —          —          —          —    

(c) 60-89 Days Past Due

      —          —          —          —          —          —          —    

(d) 90-179 Days Past Due

      —          —          —          —          —          —          —    

(e) 180+ Days Past Due

      —          —          —          —          —          —          —    
            Residential      Commercial                
     Farm      Insured      All Other      Insured      All Other      Mezzanine      Total  

December 31, 2015

                     

Recorded Investment (All)

                     

(a) Current

    $ 64,068      $ —        $ —        $ —        $ 5,220,578      $ 73,729      $ 5,358,375  

(b) 30-59 Days Past Due

      —          —          —          —          —          —          —    

(c) 60-89 Days Past Due

      —          —          —          —          —          —          —    

(d) 90-179 Days Past Due

      —          —          —          —          —          —          —    

(e) 180+ Days Past Due

      —          —          —          —          6,293        —          6,293  

At December 31, 2016, no mortgage loans were non-income producing, and at December 31, 2015, two mortgage loans with a carrying value of $6,293 were non-income producing for the previous 180 days. There was no accrued interest related to these mortgage loans at December 31, 2016 or 2015. The Company has a mortgage or deed of trust on the property thereby creating a lien which gives it the right to take possession of the property (among other things) if the borrower fails to perform according to the terms of the loan documents. The Company requires all mortgaged properties to carry fire insurance equal to the value of the underlying property. At December 31, 2016 and 2015 there were no taxes, assessments and other amounts advanced and not included in the mortgage loan total.

At December 31, 2016 and 2015, respectively, the Company held $6,077 and $6,347 in impaired loans with related allowance for credit losses of $1,421 and $1,570. There were no impaired mortgage loans held without an allowance for credit losses as of December 31, 2016 and 2015, respectively. The average recorded investment in impaired loans during 2016 and 2015 was $9,820 and $30,884, respectively.

 

56

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table provides a reconciliation of the beginning and ending balances for the allowance for credit losses on mortgage loans:

 

     Year Ended December 31  
     2016      2015      2014  

Balance at beginning of period

    $ 1,569      $ 7,693      $ 1,017  

Additions, net charged to operations

      174        7,225        11,962  

Recoveries in amounts previously charged off

      (322 )       (13,349 )       (5,286 ) 
  

 

 

     

 

 

     

 

 

  

Balance at end of period

    $ 1,421      $ 1,569      $ 7,693  
  

 

 

     

 

 

     

 

 

  

The following table provides the aggregate amount of mortgage loans derecognized as a result of foreclosure and the collateral recognized:

 

     Year Ended December 31  
     2016      2015  

Aggregate amount of mortgage loans derecognized

    $ 10,522      $ 25,693  

Real estate collateral recognized

      10,543        25,693  

Other collateral recognized

      —          —    

Receivables recognized from a government guarantee of the foreclosed mortgage loan

      —          —    

The Company accrues interest income on impaired loans to the extent deemed collectible (delinquent less than 91 days) and the loan continues to perform under its original or restructured contractual terms. Interest income on nonperforming loans generally is recognized on a cash basis. For the years ended December 31, 2016, 2015 and 2014, respectively, the Company recognized $677, $92 and $1,924 of interest income on impaired loans. Interest income of $786, $289 and $1,759, respectively, was recognized on a cash basis for the years ended December 31, 2016, 2015 and 2014.

The fair value of property is determined based on an appraisal from a third-party appraiser, along with information obtained from discussions with internal asset managers and a listing broker regarding recent comparable sales data and other relevant property information. Impairment losses of $7,500, $3,356 and $112 were taken on real estate in 2016, 2015 and 2014, respectively, to write the book value down to the current fair value and were reflected as realized losses in the statements of operations. The Company disposed of one property during 2016, none in 2015, and multiple properties during 2014 resulting in a realized gains of $4,123, $0, and $2,446, respectively.

At December 31, 2016 and 2015, the Company held a mortgage loan loss reserve in the AVR of $53,388 and $54,414, respectively.

 

57

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company’s mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:

 

Geographic Distribution

 

     December 31  
     2016     2015  

Pacific

      25 %      27 % 

South Atlantic

      21       20  

Middle Atlantic

      18       17  

Mountain

      9       11  

W. North Central

      8       7  

E. North Central

      7       7  

W. South Central

      7       7  

E. South Central

      4       3  

New England

      1       1  

Property Type Distribution

 

     December 31  
     2016     2015  

Apartment

      38 %      33 % 

Retail

      24       26  

Office

      21       22  

Industrial

      11       12  

Other

      3       4  

Medical

      2       2  

Agricultural

      1       1  
 

 

At December 31, 2016, 2015 and 2014, the Company had mortgage loans with a total net admitted asset value of $81,895, $86,311 and $88,002, respectively, which had been restructured in accordance with SSAP No. 36, Troubled Debt Restructuring. There were no realized losses during the years ended December 31, 2016, 2015 and 2014 related to such restructurings. At December 31, 2016 and 2015 there was one commitment for $3,000 to lend additional funds to debtors owing receivables

During 2016, the Company recorded impairments of $4,971 for its investment in Prudential Capital Partners II, L.P.; $4,537 for its investment in Falcon Mezzanine Partners II, L.P.; $2,298 for its investment in VSS Communications Partners IV, L.P.; $7,560 for its investment in WLR Recovery Fund III, L.P.; $2,819 for its investment in Carlyle Partners IV, L.P.; $10,478 for its investment in Apollo Investment Fund VI, L.P.; $4,216 for its investment in Vintage III L.P.; $3,003 for its investment in Metalmark Capital Partners L.P.; $2,411 for its investment in PineBridge PEP IV Co-Investment, L.P; $12,610 for its investment in Invenergy Wind LLC. The impairments were taken because the decline in fair value of the funds were deemed to be other than temporary and a recovery in value from the remaining underlying investments in the funds were not anticipated. These write-downs are included in net realized capital gains (losses) within the statement of operations.

During 2015, the Company recorded impairments of $6,269 for its investment in PineBridge Global Emerging Markets Partners, LLC. The impairments were taken because the decline in fair value of the funds was deemed to be other-than-temporary and a recovery in value from the remaining underlying investments in the funds was not anticipated. These write-downs are included in net realized capital gains (losses) within the statement of operations.

During 2014, the Company did not recognize any impairment write down for its investments in joint ventures, partnerships and limited liability companies.

 

58

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016, the Company had ownership interests in fifty-two LIHTC investments. The remaining years of unexpired tax credits ranged from one to twelve, and the properties were not subject to regulatory review. The length of time remaining for holding periods ranged from one to seventeen years. The amount of contingent equity commitments expected to be paid during the years 2017 to 2029 is $48,742. LIHTC tax credits recognized during 2016 was $6,423. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.

At December 31, 2015, the Company had ownership interests in forty-six LIHTC investments. The remaining years of unexpired tax credits ranged from one to eleven, and the properties were not subject to regulatory review. The length of time remaining for holding periods ranged from one to sixteen years. The amount of contingent equity commitments expected to be paid during the years 2016 to 2029 is $8,611. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.

The following tables provide the carrying value of transferable state tax credits gross of any related tax liabilities and total unused transferable tax credits by state and in total as of December 31, 2016 and 2015:

 

            December 31, 2016  

Description of State Transferable and Non-transferable Tax Credits

    State      Carrying
Value		      Unused
Amount*		  

Low-Income Housing Tax Credits

      MA      $ 1,332      $ 9,000  

Economic Redevelopment and Growth Tax Credits

      NJ        4,669        15,497  
     

 

 

     

 

 

  

Total

       $ 6,001      $ 24,497  
     

 

 

     

 

 

  
            December 31, 2015  

Description of State Transferable and Non-transferable Tax Credits

    State      Carrying
Value		      Unused
Amount		  

Low-Income Housing Tax Credits

      MA      $ 1,332      $ 9,000  

Economic Redevelopment and Growth Tax Credits

      NJ        936        16,847  
     

 

 

     

 

 

  

Total

       $ 2,268      $ 25,847  
     

 

 

     

 

 

  

 

* The unused amount reflects credits that the Company deems will be realizable in the period from 2017 to 2025.

The Company did not have any non-transferable state tax credits.

The Company estimated the utilization of the remaining state transferable tax credits by projecting a future tax liability based on projected premium, tax rates and tax credits, and comparing the projected future tax liability to the availability of remaining state transferable tax credits. The Company had no impairment losses related to state transferable tax credits.

 

59

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets (cash or securities) on the Company’s behalf in an amount equal to the difference between the net positive fair value of the contracts and an agreed upon threshold based on the credit rating of the counterparty. If the net fair value of all contracts with this counterparty is negative, then the Company is required to post similar assets (cash or securities). Fair value of derivative contracts, aggregated at a counterparty level at December 31, was as follows:

 

     2016      2015  

Fair value—positive

    $ 1,803,598      $ 2,329,060  

Fair value—negative

      (1,497,706 )       (897,891 ) 

At December 31, 2016 and 2015, the Company has recorded $(591,186) and $272,952, respectively, for the component of derivative instruments utilized for hedging purposes that did not qualify for hedge accounting, which is recorded directly to unassigned surplus as an unrealized gain (loss). The Company did not recognize any unrealized gains or losses during 2016, 2015 and 2014 that represented the component of derivative instruments gain or loss that was excluded from the assessment of hedge effectiveness.

The maximum term over which the Company is hedging its exposure to the variability of future cash flows is approximately 27 years for forecasted hedge transactions. At December 31, 2016 and 2015, none of the Company’s cash flow hedges have been discontinued as it was probable that the original forecasted transactions would occur by the end of the originally specified time period documented at inception of the hedging relationship. As of December 31, 2016 and 2015, the Company has accumulated deferred gains in the amount of $30,231 and $48,182, respectively, related to the termination of swaps that were hedging forecasted transactions. It is expected that these gains will be used as basis adjustments on future asset purchases expected to transpire throughout 2026.

Summary of realized gain/(losses) by derivative type for year-end December 31, is as follows:

 

     2016      2015      2014  

Options:

         

Calls

    $ 1,524      $ 7,014      $ —    

Puts

      10,700        25,396        —    
  

 

 

     

 

 

     

 

 

  

Total options

    $ 12,224      $ 32,410      $ —    
  

 

 

     

 

 

     

 

 

  

Swaps:

         

Interest rate

    $ 642,433      $ (187,530 )     $ 377,414  

Credit

      3,046        (278 )       (472 ) 

Foreign exchange

      (2,959 )       —          —    

Total return

      (510,883 )       (324,480 )       (363,166 ) 
  

 

 

     

 

 

     

 

 

  

Total swaps

    $ 131,637      $ (512,288 )     $ 13,776  
  

 

 

     

 

 

     

 

 

  

Futures—net positions

      (337,977 )       20,012        241,804  

Argentina warrants

      —          4,225        —    

Lehman settlements

      1,241        1,590        —    
  

 

 

     

 

 

     

 

 

  

Total realized gains/(losses)

    $ (192,875 )     $ (454,051 )     $ 255,580  
  

 

 

     

 

 

     

 

 

  

 

60

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Fair value of replicated assets and credit default swaps (as underlying), as of December 31, is as follows:

 

     Year Ended December 31  
     2016      2015      2014  

Replicated assets

    $ 4,576,931      $ 4,726,248      $ 4,158,940  

Credit default

      (32,317 )       (95,069 )       (85,230 ) 

Capital gain/(losses) related to credit swap transactions (which are primarily replication transactions), as of December 31, is as follows:

 

     Year Ended December 31
     2016      2015      2014

Capital gains/(losses)

    $ 3,046      $ (278 )     $(472)

As stated in Note 1, the Company replicates investment grade corporate bonds by writing credit default swaps. As a writer of credit swaps, the Company actively monitors the underlying asset, being careful to note any events (default or similar credit event) that would require the Company to perform on the credit swap. If such events would take place, the Company has recourse provisions from the proceeds of the bankruptcy settlement of the underlying entity or by the sale of the underlying bond.

 

61

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

As of December 31, 2016, credit default swaps, used in replicating corporate bonds are as follows:

 

Deal, Receive (Pay), Underlying

    Maturity Date      Maximum
Future Payout
(Estimate)		      Current
Fair Value		  

43289,SWAP, USD 1 / (USD 0), :US731011AN26

      3/20/2017      $ 10,000        16  

43290,SWAP, USD 1 / (USD 0), :US46513E5Y48

      3/20/2017        10,000        18  

43291,SWAP, USD 1 / (USD 0), :US731011AN26

      3/20/2017        10,000        16  

43292,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        15,000        23  

43293,SWAP, USD 1 / (USD 0), :XS0113419690

      3/20/2017        10,000        19  

43294,SWAP, USD 1 / (USD 0), :US50064FAD69

      3/20/2017        10,000        19  

43295,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        10,000        15  

43296,SWAP, USD 1 / (USD 0), :USY6826RAA06

      3/20/2017        10,000        14  

43297,SWAP, USD 1 / (USD 0), :US168863AS74

      3/20/2017        15,000        24  

43298,SWAP, USD 1 / (USD 0), :US731011AN26

      3/20/2017        15,000        23  

43300,SWAP, USD 1 / (USD 0), :XS0113419690

      3/20/2017        15,000        28  

43309,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        15,000        23  

51402,SWAP, USD 1 / (USD 0), :US168863AS74

      3/20/2017        10,000        16  

43313,SWAP, USD 1 / (USD 0), :JP1200551248

      3/20/2017        15,000        31  

43314,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        10,000        15  

43315,SWAP, USD 1 / (USD 0), :XS0113419690

      3/20/2017        15,000        28  

43317,SWAP, USD 1 / (USD 0), :US50064FAD69

      3/20/2017        10,000        19  

51282,SWAP, USD 1 / (USD 0), :US168863AS74

      3/20/2017        10,000        16  

43320,SWAP, USD 1 / (USD 0), :USY6826RAA06

      3/20/2017        5,000        7  

43325,SWAP, USD 1 / (USD 0), :US50064FAD69

      3/20/2017        10,000        19  

43326,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        10,000        15  

43333,SWAP, USD 1 / (USD 0), :USY6826RAA06

      3/20/2017        10,000        14  

51283,SWAP, USD 1 / (USD 0), :US475070AD04

      6/20/2017        25,000        100  

51403,SWAP, USD 1 / (USD 0), :US026874AZ07

      6/20/2017        25,000        104  

51404,SWAP, USD 1 / (USD 0), :US026874AZ07

      6/20/2017        25,000        104  

47290,SWAP, USD 1 / (USD 0), :US141781AC86

      6/20/2017        10,000        42  

47291,SWAP, USD 1 / (USD 0), :US141781AC86

      6/20/2017        5,000        21  

47292,SWAP, USD 1 / (USD 0), :US42217KAL08

      6/20/2017        10,000        39  

43366,SWAP, USD 1 / (USD 0), :CDX-NAIGS18V1-5Y

      6/20/2017        20,000        87  

43368,SWAP, USD 1 / (USD 0), :CDX-NAIGS18V1-5Y

      6/20/2017        20,000        87  

57600,SWAP, USD 1 / (USD 0), :CDX-NAIGS18V1-5Y

      6/20/2017        26,000        113  

51284,SWAP, USD 1 / (USD 0), :CDX-NAIGS18V1-5Y

      6/20/2017        20,000        87  

47293,SWAP, USD 1 / (USD 0), :CDX-NAIGS18V1-5Y

      6/20/2017        25,000        109  

43383,SWAP, USD 1 / (USD 0), :XS0203685788

      6/20/2017        10,000        34  

43384,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2017        10,000        34  

43387,SWAP, USD 1 / (USD 0), :US731011AN26

      6/20/2017        8,000        28  

43602,SWAP, USD 1 / (USD 0), :US836205AJ33

      9/20/2017        10,600        57  

43604,SWAP, USD 1 / (USD 0), :US88322LAA70

      9/20/2017        5,100        30  

51211,SWAP, USD 1 / (USD 0), :US715638AP79

      9/20/2017        9,000        47  

43626,SWAP, USD 1 / (USD 0), :US455780AQ93

      9/20/2017        9,500        39  

45879,SWAP, USD 1 / (USD 0), :US731011AN26

      12/20/2017        15,000        103  

 

62

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

46819,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2017        5,000        27  

58913,SWAP, USD 1 / (USD 0), :US715638AP79

      12/20/2017        10,000        67  

46831,SWAP, USD 1 / (USD 0), :US88322LAA70

      12/20/2017        10,000        77  

46845,SWAP, USD 1 / (USD 0), :US46513E5Y48

      12/20/2017        10,000        79  

46951,SWAP, USD 1 / (USD 0), :US534187AX79

      12/20/2017        10,000        82  

46958,SWAP, USD 1 / (USD 0), :US416515AV66

      12/20/2017        10,000        84  

47855,SWAP, USD 1 / (USD 0), :US084664BN03

      12/20/2017        10,000        77  

47856,SWAP, USD 1 / (USD 0), :US416515AV66

      12/20/2017        20,000        167  

47859,SWAP, USD 1 / (USD 0), :US101137AG20

      12/20/2017        20,000        179  

47866,SWAP, USD 5 / (USD 0), :US345370BX76

      12/20/2017        20,000        924  

47867,SWAP, USD 1 / (USD 0), :US94973VAM90

      12/20/2017        20,000        171  

48247,SWAP, USD 1 / (USD 0), :US59156RAX61

      12/20/2017        20,000        159  

51440,SWAP, USD 1 / (USD 0), :CDX-NAIGS19V1-5Y

      12/20/2017        20,000        173  

51405,SWAP, USD 1 / (USD 0), :CDX-NAIGS19V1-5Y

      12/20/2017        25,000        216  

48458,SWAP, USD 5 / (USD 0), :US345370BX76

      12/20/2017        25,000        1,155  

48774,SWAP, USD 1 / (USD 0), :CDX-NAIGS19V1-5Y

      12/20/2017        12,500        108  

51287,SWAP, USD 1 / (USD 0), :US101137AG20

      12/20/2017        25,000        224  

51406,SWAP, USD 1 / (USD 0), :US94973VAM90

      12/20/2017        25,000        214  

51407,SWAP, USD 1 / (USD 0), :US084664BN03

      12/20/2017        20,000        153  

51288,SWAP, USD 5 / (USD 0), :US345370BX76

      12/20/2017        10,000        462  

50040,SWAP, USD 1 / (USD 0), :US29250RAC07

      12/20/2017        10,000        35  

53125,SWAP, USD 1 / (USD 0), :US29250RAC07

      3/20/2018        10,000        35  

52960,SWAP, USD 1 / (USD 0), :US96950HAD26

      3/20/2018        10,000        64  

53667,SWAP, USD 1 / (USD 0), :US59156RAX61

      3/20/2018        20,000        195  

53716,SWAP, USD 1 / (USD 0), :US55616XAA54

      3/20/2018        20,000        185  

53805,SWAP, USD 1 / (USD 0), :US55616XAA54

      3/20/2018        10,000        93  

54724,SWAP, USD 1 / (USD 0), :US836205AJ33

      3/20/2018        10,000        78  

55126,SWAP, USD 1 / (USD 0), :XS0292653994

      3/20/2018        7,100        77  

55142,SWAP, USD 1 / (USD 0), :US46513E5Y48

      3/20/2018        3,000        29  

55297,SWAP, USD 1 / (USD 0), :US836205AJ33

      3/20/2018        10,000        78  

57866,SWAP, USD 1 / (USD 0), :US74432QAY17

      6/20/2018        10,000        118  

60222,SWAP, USD 1 / (USD 0), :US026874AZ07

      6/20/2018        10,000        118  

64235,SWAP, USD 1 / (USD 0), :US925524AU41

      9/20/2020        10,000        214  

64236,SWAP, USD 1 / (USD 0), :US984121BW26

      9/20/2020        20,000        68  

64238,SWAP, USD 1 / (USD 0), :US55616XAA54

      9/20/2020        10,000        (32 ) 

64593,SWAP, USD 1 / (USD 0), :US416515AV66

      9/20/2020        20,000        376  

65753,SWAP, USD 1 / (USD 0), :US984121BW26

      9/20/2020        20,000        68  

65755,SWAP, USD 1 / (USD 0), :US428236AM52

      9/20/2020        15,000        183  

94986,SWAP, USD 5 / (USD 0), :US629377BG69

      12/20/2017        4,000        174  

94987,SWAP, USD 5 / (USD 0), :US85375CAW10

      12/20/2017        4,000        183  

94988,SWAP, USD 5 / (USD 0), :US459745GF62

      12/20/2017        4,000        181  

94990,SWAP, USD 5 / (USD 0), :US428040CD99

      12/20/2017        4,000        159  

94992,SWAP, USD 5 / (USD 0), :US911365AX24

      12/20/2017        3,500        163  

93528,SWAP, USD 1 / (USD 0), :US260543BJ10

      12/20/2020        9,500        153  

76131,SWAP, USD 1 / (USD 0), :US455780AU06

      3/20/2019        5,000        33  

76147,SWAP, USD 1 / (USD 0), :US718286AP29

      3/20/2019        5,000        59  

76203,SWAP, USD 1 / (USD 0), :US455780AU06

      3/20/2019        5,000        33  

76204,SWAP, USD 1 / (USD 0), :US718286AP29

      3/20/2019        5,000        59  

76205,SWAP, USD 1 / (USD 0), :USY6826RAA06

      3/20/2019        5,000        43  

 

63

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

76206,SWAP, USD 1 / (USD 0), :US836205AN45

      3/20/2019        5,000        22  

76207,SWAP, USD 1 / (USD 0), :XS0292653994

      3/20/2019        5,000        81  

78319,SWAP, USD 5 / (USD 0), :US459745GF62

      6/20/2019        10,000        1,038  

78318,SWAP, USD 5 / (USD 0), :US125581GL68

      6/20/2019        10,000        1,043  

78182,SWAP, USD 5 / (USD 0), :US125581GL68

      6/20/2019        5,000        521  

78184,SWAP, USD 5 / (USD 0), :US125581GL68

      6/20/2019        10,000        1,043  

78303,SWAP, USD 5 / (USD 0), :DE000A0TKUU3

      6/20/2019        10,000        1,130  

78347,SWAP, USD 1 / (USD 0), :US23331ABF57

      6/20/2019        22,000        292  

80205,SWAP, USD 5 / (USD 0), :XS0356705219

      6/20/2019        20,000        1,694  

93896,SWAP, USD 1 / (USD 0), :US105756AL40

      12/20/2019        10,000        (149 ) 

102612,SWAP, USD 1 / (USD 0), :US00163MAB00

      3/20/2020        15,000        179  

109652,SWAP, USD 1 / (USD 0), :US40414LAA70

      3/20/2020        15,000        (8 ) 

102633,SWAP, USD 1 / (USD 0), :US635405AQ61

      3/20/2020        10,000        214  

120684,SWAP, USD 1 / (USD 0), :US91086QAW87

      3/20/2020        10,000        0  

102864,SWAP, USD 1 / (USD 0), :US465410AH18

      3/20/2020        15,000        (127 ) 

102758,SWAP, USD 1 / (USD 0), :US042735AL41

      3/20/2020        15,000        321  

103144,SWAP, USD 1 / (USD 0), :US68268NAF06

      3/20/2020        7,000        (24 ) 

103050,SWAP, USD 5 / (USD 0), :US37045VAC46

      3/20/2020        20,000        2,522  

103278,SWAP, USD 1 / (USD 0), :ES0413900384

      3/20/2020        50,000        217  

103292,SWAP, USD 1 / (USD 0), :US902494AT07

      3/20/2020        30,000        589  

103592,SWAP, USD 1 / (USD 0), :US055450AG50

      3/20/2020        10,000        107  

103617,SWAP, USD 1 / (USD 0), :US055450AG50

      3/20/2020        20,000        215  

109186,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        4,000        (133 ) 

109189,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        6,500        (217 ) 

109217,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        4,000        (14 ) 

109218,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,500        (12 ) 

109220,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        4,000        (14 ) 

109221,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,500        (12 ) 

109224,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        4,000        (14 ) 

109225,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,500        (12 ) 

109356,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        4,000        43  

109358,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        3,500        37  

109542,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        4,200        17  

109543,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        3,400        14  

109551,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        2,100        9  

109552,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        1,700        7  

109548,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        2,000        21  

109549,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        1,750        19  

109644,SWAP, USD 1 / (USD 0), :US465410AH18

      6/20/2020        3,670        (40 ) 

109646,SWAP, USD 1 / (USD 0), :US465410AH18

      6/20/2020        3,670        (40 ) 

109686,SWAP, USD 1 / (USD 0), :US465410AH18

      6/20/2020        3,660        (40 ) 

 

64

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

110508,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        2,100        9  

110509,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        1,700        7  

110618,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        2,000        21  

110619,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        1,750        19  

111119,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        2,000        21  

111120,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        1,750        19  

111123,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        2,100        9  

111124,SWAP, USD 1 / (USD 0), :US698299AD63

      6/20/2020        1,700        7  

110852,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        2,000        21  

110853,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        1,750        19  

111717,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        6,000        (200 ) 

111727,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,000        (10 ) 

111730,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        3,000        (100 ) 

111733,SWAP, USD 1 / (USD 0), :US836205AN45

      6/20/2020        3,000        (45 ) 

111736,SWAP, USD 1 / (USD 0), :US105756BV13

      6/20/2020        3,000        (79 ) 

111742,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,000        (10 ) 

111828,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        3,000        32  

111840,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2020        3,000        (8 ) 

111843,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        3,000        (10 ) 

111896,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        3,000        (100 ) 

112136,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        6,000        13  

112139,SWAP, USD 1 / (USD 0), :US105756BV13

      6/20/2020        3,000        (79 ) 

112151,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        3,000        (100 ) 

112226,SWAP, USD 1 / (USD 0), :USY6826RAA06

      9/20/2020        6,000        (5 ) 

112229,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        4,400        9  

112250,SWAP, USD 5 / (USD 0), :US345370BX76

      9/20/2020        12,500        1,775  

112251,SWAP, USD 5 / (USD 0), :US345370BX76

      9/20/2020        12,500        1,775  

112252,SWAP, USD 5 / (USD 0), :US37045VAD29

      9/20/2020        12,500        1,715  

112255,SWAP, USD 5 / (USD 0), :US37045VAD29

      9/20/2020        12,500        1,715  

112257,SWAP, USD 1 / (USD 0), :US42217KAT34

      9/20/2020        7,500        38  

112258,SWAP, USD 1 / (USD 0), :US42217KAT34

      9/20/2020        7,500        38  

112259,SWAP, USD 1 / (USD 0), :US00163MAB00

      9/20/2020        7,500        65  

112260,SWAP, USD 1 / (USD 0), :US00163MAB00

      9/20/2020        7,500        65  

112302,SWAP, USD 1 / (USD 0), :US455780AU06

      9/20/2020        3,000        (16 ) 

112326,SWAP, USD 1 / (USD 0), :US91086QAW87

      9/20/2020        3,000        (16 ) 

112358,SWAP, USD 1 / (USD 0), :US465410AH18

      6/20/2020        3,000        (33 ) 

112429,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        3,000        6  

113045,SWAP, USD 1 / (USD 0), :XS0254035768

      9/20/2020        20,000        3  

113265,SWAP, USD 1 / (USD 0), :DE000DB5DCW6

      9/20/2020        25,000        (1,840 ) 

113396,SWAP, USD 1 / (USD 0), :US88322KAC53

      9/20/2020        3,000        47  

113435,SWAP, USD 1 / (USD 0), :US455780AU06

      9/20/2020        3,000        (16 ) 

115815,SWAP, USD 1 / (USD 0), :US260543BJ10

      9/20/2020        15,000        254  

115827,SWAP, USD 1 / (USD 0), :US42217KAT34

      9/20/2020        5,000        26  

116038,SWAP, USD 1 / (USD 0), :ES0413900384

      9/20/2020        13,335        14  

116754,SWAP, USD 1 / (USD 0), :US195325BB02

      9/20/2020        10,000        (65 ) 

116755,SWAP, USD 1 / (USD 0), :US715638AP79

      9/20/2020        10,000        94  

116933,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        5,700        12  

 

65

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

119228,SWAP, USD 1 / (USD 0), :US712219AG90

      9/20/2020        15,000        68  

119231,SWAP, USD 1 / (USD 0), :US168863AV04

      9/20/2020        10,000        136  

119422,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        10,000        21  

119572,SWAP, USD 1 / (USD 0), :US168863AV04

      9/20/2020        5,000        68  

119599,SWAP, USD 1 / (USD 0), :US91086QAW87

      9/20/2020        5,000        (26 ) 

119956,SWAP, USD 1 / (USD 0), :US712219AG90

      9/20/2020        5,000        23  

120467,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        5,000        (2 ) 

120468,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        10,000        (4 ) 

120565,SWAP, USD 1 / (USD 0), :US718286AP29

      12/20/2020        10,000        74  

120745,SWAP, USD 1 / (USD 0), :US718286AP29

      12/20/2020        5,000        37  

120673,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        5,000        (2 ) 

120951,SWAP, USD 1 / (USD 0), :CDX-NAIGS25V1-5Y

      12/20/2020        50,000        809  

120962,SWAP, USD 1 / (USD 0), :US534187AX79

      12/20/2020        20,000        163  

121009,SWAP, USD 1 / (USD 0), :US59156RAX61

      12/20/2020        30,000        377  

121131,SWAP, USD 1 / (USD 0), :CDX-NAIGS25V1-5Y

      12/20/2020        50,000        809  

127386,SWAP, USD 1 / (USD 0), :US149123BZ39

      12/20/2020        5,000        109  

127387,SWAP, USD 1 / (USD 0), :US149123BZ39

      12/20/2020        5,000        109  

127388,SWAP, USD 1 / (USD 0), :US149123BZ39

      12/20/2020        10,000        218  

127390,SWAP, USD 1 / (USD 0), :US460146CE11

      12/20/2020        5,000        109  

127391,SWAP, USD 1 / (USD 0), :US460146CE11

      12/20/2020        5,000        109  

127392,SWAP, USD 1 / (USD 0), :US460146CE11

      12/20/2020        10,000        218  

127394,SWAP, USD 1 / (USD 0), :US244199BC83

      12/20/2020        5,000        126  

127395,SWAP, USD 1 / (USD 0), :US244199BC83

      12/20/2020        5,000        126  

127396,SWAP, USD 1 / (USD 0), :US244199BC83

      12/20/2020        10,000        251  

127428,SWAP, USD 5 / (USD 0), :US37045VAD29

      12/20/2020        12,500        1,782  

127470,SWAP, USD 1 / (USD 0), :US037411AN57

      12/20/2020        5,000        46  

127472,SWAP, USD 1 / (USD 0), :US037411AN57

      12/20/2020        10,000        92  

127473,SWAP, USD 1 / (USD 0), :US29379VAS25

      12/20/2020        15,000        (25 ) 

127474,SWAP, USD 1 / (USD 0), :US29379VAS25

      12/20/2020        5,000        (8 ) 

127475,SWAP, USD 1 / (USD 0), :US29379VAS25

      12/20/2020        5,000        (8 ) 

127594,SWAP, USD 1 / (USD 0), :US670346AG05

      12/20/2020        10,000        156  

127595,SWAP, USD 1 / (USD 0), :US670346AG05

      12/20/2020        5,000        78  

127654,SWAP, USD 1 / (USD 0), :US29379VAS25

      12/20/2020        10,000        (17 ) 

127656,SWAP, USD 1 / (USD 0), :US29379VAS25

      12/20/2020        5,000        (8 ) 

128212,SWAP, USD 1 / (USD 0), :US037411AN57

      12/20/2020        10,000        92  

128213,SWAP, USD 1 / (USD 0), :US037411AN57

      12/20/2020        10,000        92  

128214,SWAP, USD 1 / (USD 0), :US037411AN57

      12/20/2020        5,000        46  

128216,SWAP, USD 1 / (USD 0), :US032511BF31

      12/20/2020        10,000        (12 ) 

128217,SWAP, USD 1 / (USD 0), :US032511BF31

      12/20/2020        10,000        (12 ) 

128218,SWAP, USD 1 / (USD 0), :US032511BF31

      12/20/2020        5,000        (6 ) 

128220,SWAP, USD 1 / (USD 0), :US670346AG05

      12/20/2020        12,500        194  

103570,SWAP, USD 1 / (USD 0), :US50064FAD69

      3/20/2017        5,000        10  

103571,SWAP, USD 1 / (USD 0), :US731011AN26

      3/20/2017        10,000        16  

103572,SWAP, USD 1 / (USD 0), :US731011AN26

      3/20/2017        10,000        16  

103573,SWAP, USD 1 / (USD 0), :JP1200551248

      3/20/2017        20,000        41  

103566,SWAP, USD 1 / (USD 0), :US59156RAN89

      6/20/2017        25,000        100  

 

66

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

103567,SWAP, USD 5 / (USD 0), :US345370BX76

      6/20/2017        25,000        564  

101771,SWAP, USD 1 / (USD 0), :US836205AJ33

      9/20/2017        8,000        43  

109653,SWAP, USD 1 / (USD 0), :US219350AE55

      12/20/2017        12,500        79  

101775,SWAP, USD 1 / (USD 0), :US29273RAB50

      12/20/2017        20,000        135  

103568,SWAP, USD 1 / (USD 0), :CDX-NAIGS19V1-5Y

      12/20/2017        50,000        433  

103569,SWAP, USD 1 / (USD 0), :US94973VAM90

      12/20/2017        20,000        171  

115332,SWAP, USD 5 / (USD 0), :US911365AX24

      12/20/2017        500        23  

101778,SWAP, USD 5 / (USD 0), :US37247DAK28

      6/20/2018        27,000        664  

107260,SWAP, USD 1 / (USD 0), :US026874AZ07

      6/20/2018        15,000        177  

101779,SWAP, USD 1 / (USD 0), :CDX-NAIGS20V1-5Y

      6/20/2018        50,000        595  

109654,SWAP, USD 1 / (USD 0), :US172967ES69

      9/20/2023        20,000        53  

109655,SWAP, USD 1 / (USD 0), :US06051GDX43

      9/20/2023        20,000        14  

109656,SWAP, USD 1 / (USD 0), :US55616XAA54

      9/20/2020        10,000        (32 ) 

101780,SWAP, USD 1 / (USD 0), :US084670BD98

      9/20/2023        30,000        (231 ) 

101781,SWAP, USD 1 / (USD 0), :US73755LAF40

      9/20/2020        20,000        130  

101782,SWAP, USD 1 / (USD 0), :US172967ES69

      9/20/2023        20,000        53  

109657,SWAP, USD 1 / (USD 0), :US925524AU41

      9/20/2020        10,000        214  

101783,SWAP, USD 1 / (USD 0), :US416515AV66

      9/20/2020        25,000        471  

101784,SWAP, USD 1 / (USD 0), :US74432QAY17

      9/20/2020        37,000        554  

109659,SWAP, USD 1 / (USD 0), :US260543BJ10

      12/20/2020        15,500        250  

109665,SWAP, USD 1 / (USD 0), :FR0010871376

      12/20/2020        10,000        227  

115333,SWAP, USD 1 / (USD 0), :FR0010871376

      12/20/2020        10,000        227  

109666,SWAP, USD 5 / (USD 0), :US852061AF78

      12/20/2019        5,000        409  

109667,SWAP, USD 5 / (USD 0), :US552953BB60

      12/20/2019        5,000        594  

109668,SWAP, USD 5 / (USD 0), :US126304AK02

      12/20/2019        2,000        168  

109669,SWAP, USD 5 / (USD 0), :US12543DAL47

      12/20/2019        5,000        (927 ) 

109670,SWAP, USD 5 / (USD 0), :US131347CF14

      12/20/2019        5,000        493  

119316,SWAP, USD 1 / (USD 0), :XS0292653994

      12/20/2019        10,000        137  

119323,SWAP, USD 1 / (USD 0), :US105756AL40

      12/20/2019        10,000        (149 ) 

119318,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2019        10,000        25  

119321,SWAP, USD 1 / (USD 0), :US836205AN45

      12/20/2019        10,000        (64 ) 

119320,SWAP, USD 1 / (USD 0), :US900123AL40

      12/20/2019        20,000        (451 ) 

101785,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2019        10,000        25  

133643,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        6,300        (49 ) 

133644,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        6,200        (48 ) 

133653,SWAP, USD 1 / (USD 0), :US195325BB02

      12/20/2020        6,200        (59 ) 

133656,SWAP, USD 1 / (USD 0), :US715638AP79

      12/20/2020        6,200        50  

133897,SWAP, USD 1 / (USD 0), :JP576400C859

      12/20/2020        5,000        75  

133896,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2020        5,000        (41 ) 

133743,SWAP, USD 1 / (USD 0), :US712219AG90

      12/20/2020        5,000        14  

133876,SWAP, USD 1 / (USD 0), :US712219AG90

      12/20/2020        5,000        14  

133877,SWAP, USD 1 / (USD 0), :US712219AG90

      12/20/2020        5,000        14  

133880,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        8,000        (62 ) 

133881,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        2,000        (16 ) 

133902,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        10,000        (78 ) 

134315,SWAP, USD 1 / (USD 0), :US168863AV04

      12/20/2020        5,000        65  

134316,SWAP, USD 1 / (USD 0), :US168863AV04

      12/20/2020        5,000        65  

 

67

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

134319,SWAP, USD 1 / (USD 0), :US465410AH18

      12/20/2020        10,000        (156 ) 

134643,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        6,000        (2 ) 

134618,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        5,000        (2 ) 

134620,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        5,000        (39 ) 

134622,SWAP, USD 1 / (USD 0), :US715638AP79

      12/20/2020        10,000        81  

134821,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2020        7,000        (58 ) 

134804,SWAP, USD 1 / (USD 0), :US718286AP29

      12/20/2020        10,000        74  

134805,SWAP, USD 1 / (USD 0), :US698299AD63

      12/20/2020        5,900        1  

134806,SWAP, USD 1 / (USD 0), :US698299AD63

      12/20/2020        2,000        0  

134808,SWAP, USD 1 / (USD 0), :US195325BB02

      12/20/2020        4,000        (38 ) 

134809,SWAP, USD 1 / (USD 0), :US195325BB02

      12/20/2020        6,000        (57 ) 

135158,SWAP, USD 1 / (USD 0), :US168863AV04

      12/20/2020        5,000        65  

138038,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2020        10,000        (83 ) 

141522,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        5,000        (39 ) 

141625,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        5,000        (39 ) 

141747,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2020        10,000        (83 ) 

141748,SWAP, USD 1 / (USD 0), :US195325BB02

      12/20/2020        5,000        (47 ) 

152086,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2021        15,000        (222 ) 

153789,SWAP, USD 1 / (USD 0), :CDX-NAIGS22V1-5Y

      6/20/2019        37,000        567  

157739,SWAP, USD 1 / (USD 0), :CDX-NAIGS24V1-5Y

      6/20/2020        50,000        830  

157740,SWAP, USD 1 / (USD 0), :CDX-NAIGS24V1-5Y

      6/20/2020        50,000        830  

157741,SWAP, USD 1 / (USD 0), :CDX-NAIGS24V1-5Y

      6/20/2020        50,000        830  

157735,SWAP, USD 1 / (USD 0), :CDX-NAIGS26V1-5Y

      6/20/2021        20,000        328  

157736,SWAP, USD 1 / (USD 0), :CDX-NAIGS26V1-5Y

      6/20/2021        20,000        328  

157742,SWAP, USD 1 / (USD 0), :CDX-NAIGS24V1-5Y

      6/20/2020        22,000        365  

158024,SWAP, USD 1 / (USD 0), :CDX-NAIGS26V1-5Y

      6/20/2021        40,000        656  

160768,SWAP, USD 1 / (USD 0), :XS0114288789

      6/20/2021        3,500        (81 ) 

160770,SWAP, USD 1 / (USD 0), :XS0114288789

      6/20/2021        5,000        (115 ) 

173565,SWAP, USD 5 / (USD 0), :US37045VAD29

      12/20/2021        10,000        1,593  

186522,SWAP, USD 1 / (USD 0), :XS0114288789

      12/20/2021        1,800        (62 ) 

186526,SWAP, USD 5 / (USD 0), :USP04808AE45

      12/20/2021        1,200        (7 ) 

184294,SWAP, USD 1 / (USD 0), :XS0114288789

      12/20/2021        9,000        (310 ) 

186529,SWAP, USD 5 / (USD 0), :USP04808AE45

      12/20/2021        6,000        (37 ) 

186530,SWAP, USD 5 / (USD 0), :USP04808AE45

      12/20/2021        4,000        (25 ) 

186669,SWAP, USD 1 / (USD 0), :XS0114288789

      12/20/2021        6,000        (207 ) 

187621,SWAP, USD 0 / (USD 0), :US23331ABF57

      12/20/2021        19,000        (211 ) 
     

 

 

     

 

 

  
      $ 3,429,535      $ 41,602  
     

 

 

     

 

 

  

 

68

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the Company’s outstanding financial instruments with on and off balance sheet risks, shown in notional amounts, are summarized as follows:

 

     Notional Amount  
     2016      2015  

Interest rate and currency swaps:

      

Receive fixed—pay fixed

    $ 85,262      $ 3,561,505  

Receive fixed—pay floating

      77,500        169,665  

Receive floating—pay floating

      —          120,950  

Swaptions:

      

Receive fixed—pay floating

      6,000,000        6,000,000  

Receive floating—pay fixed

      6,000,000        6,000,000  

Interest rate swaps:

      

Receive fixed—pay fixed

      11,825,181        6,022,893  

Receive fixed—pay floating

      15,695,014        17,733,996  

Receive floating—pay fixed

      18,811,000        14,818,781  

Receive floating—pay floating

      11,491,769        8,710,507  

Caps

      2,250,000        2,250,000  

Options Calls / Puts

      250,375        1,372,064  

 

69

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables show the pledged or restricted assets as of December 31, 2016 and 2015, respectively:

 

     Gross Restricted (Admitted & Nonadmitted)  
     2016  

Restricted Asset Category

    Total
General
Account
(G/A)		      G/A
Supporting
Separate
Account
(S/A)
Activity		      Total S/A
Restricted
Assets		      S/A Assets
Supporting
G/A
Activity		      Total  

Subject to contractual obligation for which liability is not shown

    $ —        $  —        $ —        $ —        $ —    

Collateral held under security lending agreements

      2,303,289        —          —          —          2,303,289  

Subject to repurchase agreements

      147,444        —          —          —          147,444  

Subject to reverse repurchase agreements

      —          —          —          —          —    

Subject to dollar repurchase agreements

      453,474        —          —          —          453,474  

Subject to dollar reverse repurchase agreements

      —          —          —          —          —    

Placed under option contracts

      —          —          —          —          —    

Letter stock or securities restricted as to sale - excluding FHLB capital stock

      6,408        —          —          —          6,408  

FHLB capital stock

      176,800        —          —          —          176,800  

On deposit with states

      47,548        —          —          —          47,548  

On deposit with other regulatory bodies

      —          —          —          —          —    

Pledged as collateral to FHLB (including assets backing funding agreements)

      5,155,703        —          —          —          5,155,703  

Pledged as collateral not captured in other categories

      1,039,105        —          —          —          1,039,105  

Other restricted assets

      482,544        —          —          —          482,544  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Restricted Assets

    $ 9,812,315      $ —        $ —        $ —        $ 9,812,315  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

70

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Gross (Admitted & Nonadmitted) Restricted      Percentage  

Restricted Asset Category

    Total From
Prior Year		      Increase/
(Decrease)		     Total
Nonadmitted
Restricted		      Total
Admitted
Restricted		      Gross
(Admitted &
Nonadmitted)
Restricted
to Total
Assets		     Admitted
Restricted
to
Total
Admitted
Assets		  

Subject to contractual obligation for which liability is not shown

    $ —        $ —       $ —        $ —          0.00 %      0.00 % 

Collateral held under security lending agreements

      2,760,891        (457,602 )      —          2,303,289        1.75 %      1.75 % 

Subject to repurchase agreements

      109,793        37,651       —          147,444        0.11 %      0.11 % 

Subject to reverse repurchase agreements

      —          —         —          —          0.00 %      0.00 % 

Subject to dollar repurchase agreements

      705,253        (251,779 )      —          453,474        0.34 %      0.34 % 

Subject to dollar reverse repurchase agreements

      —          —         —          —          0.00 %      0.00 % 

Placed under option contracts

      —          —         —          —          0.00 %      0.00 % 

Letter stock or securities restricted as to sale - excluding FHLB capital stock

      25,339        (18,931 )      —          6,408        0.00 %      0.00 % 

FHLB capital stock

      104,000        72,800       —          176,800        0.13 %      0.13 % 

On deposit with states

      49,010        (1,462 )      —          47,548        0.04 %      0.04 % 

On deposit with other regulatory bodies

      —          —         —          —          0.00 %      0.00 % 

Pledged as collateral to

                

FHLB (including assets backing funding agreements)

      3,299,057        1,856,646       —          5,155,703        3.91 %      3.91 % 

Pledged as collateral not captured in other categories

      371,577        667,528       —          1,039,105        0.79 %      0.79 % 

Other restricted assets

      476,119        6,425       —          482,544        0.37 %      0.37 % 
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

Total Restricted Assets

    $ 7,901,039      $ 1,911,276     $ —        $ 9,812,315        7.45 %      7.45 % 
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

 

71

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables show the pledged or restricted assets in other categories as of December 31, 2016 and 2015, respectively:

 

     Gross (Admitted & Nonadmitted) Restricted  
     2016  

Description of Assets

    Total
General
Account (G/A)		      G/A Supporting
S/A Activity (a)		     Total Separate
Account (S/A)
Restricted
Assets		      S/A Assets
Supporting
G/A Activity		     Total  

Derivatives

    $ 989,453      $ —       $ —        $ —       $ 989,453  

Secured Funding Agreements

      42,588        —         —          —         42,588  

AMBAC

      7,064        —         —          —         7,064  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Total

    $ 1,039,105      $ —       $ —        $ —       $ 1,039,105  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  
     Gross (Admitted &
Nonadmitted) Restricted		            Percentage  

Description of Assets

    Total From
Prior Year		      Increase/
(Decrease)		     Total Current
Year
Admitted
Restricted		      Gross
(Admitted &
Nonadmitted)
Restricted to
Total Assets		     Admitted
Restricted to
Total
Admitted
Assets		  

Derivatives

    $ 314,892      $ 674,561     $ 989,453        0.75 %      0.75 % 

Secured Funding Agreements

      45,928        (3,340 )      42,588        0.03       0.03  

AMBAC

      10,757        (3,693 )      7,064        0.01       0.01  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Total

    $ 371,577      $ 667,528     $ 1,039,105        0.78 %      0.78 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

The follow table shows the collateral received and reflected as assets within the financial statements as of December 31, 2016.

 

Collateral Assets

    Book Adjusted
Carrying Value
(BACV)		      Fair Value      % of BACV to
Total Assets
(Admitted and
Nonadmitted)		     % of BACV to
Total Admited
Assets		  

Cash

    $ 1,079,335      $ 1,079,335        1.84 %      1.86 % 

Securities lending collateral assets

      2,303,603        2,303,603        3.92       3.97  

Other

      79,536        79,531        0.14       0.14  
  

 

 

     

 

 

     

 

 

    

 

 

  

Total Collateral Assets

    $ 3,462,473      $ 3,462,469        5.90 %      5.97 % 
  

 

 

     

 

 

     

 

 

    

 

 

  

 

     Amount      % of Liability to
Total Liabilities		  

Recognized obligation to return collateral asset

    $ 3,463,690        6.55 % 

 

72

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company has no receivables as of December 31, 2016 associated with “to-be-announced” (TBA) covered short sales. The Company has receivables as of December 31, 2015 associated with TBA covered short sales. These receivables have been offset on the Balance Sheet with dollar repurchase agreement liabilities as the transactions are with the same counterparty. See the following table:

 

     Gross Amount
Recognized		      Amount Offset      Net Amount
Presented on
Financial
Statements		  

December 31, 2016

         

Assets:

         

Receivables for securities

    $ —        $ —        $ —    

Liabilities:

         

Borrowed money

    $ —        $ —        $ —    

December 31, 2015

         

Assets:

         

Receivables for securities

    $ 226,645      $ 209,176      $ 17,469  

Liabilities:

         

Borrowed money

    $ 705,704      $ 209,176      $ 496,528  

6. Reinsurance

Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The Company reinsures portions of the risk on certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligation under the reinsurance treaty.

Premiums earned reflect the following reinsurance amounts:

 

     Year Ended December 31  
     2016      2015      2014  

Direct premiums

    $ 14,081,227      $ 17,621,969      $ 18,862,934  

Reinsurance assumed - non affiliates

      1,412,887        1,376,827        1,451,900  

Reinsurance assumed - affiliates

      98,501        110,700        128,976  

Reinsurance ceded - non affiliates

      (2,018,612 )       (2,650,533 )       (2,078,651 ) 

Reinsurance ceded - affiliates

      448,649        (1,649,085 )       (2,129,876 ) 
  

 

 

     

 

 

     

 

 

  

Net premiums earned

    $ 14,022,652      $ 14,809,878      $ 16,235,283  
  

 

 

     

 

 

     

 

 

  

Effective October 1, 2016, the Company recaptured fixed annuity and funding agreement business previously ceded to Transamerica Premier Life Insurance Company (TPLIC), an affiliate, on a coinsurance basis. The Company received cash and invested assets of $3,017,999 and recaptured policy and claim reserves of $3,030,564. A reinsurance receivable from TPLIC

 

73

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

was established for the remaining $12,565 of assets to be transferred in support of the transferred policy and claim reserves. In addition, TPLIC transferred $82,218 of transfer date IMR to the Company. The Company paid net consideration to TPLIC resulting in a pre-tax loss of $40,086, which has been included in the Summary of Operations.

Effective October 1, 2016, TPLIC recaptured medium-term note funding agreements previously ceded to the Company on a coinsurance basis. The Company transferred cash and invested assets of $114,175 and released deposit-type reserves of $112,238 and a hedge novation of $2,228. A payable to TPLIC of $292 was established for remaining assets to be transferred in support of the hedge novation. The Company received consideration from TPLIC resulting in a pre-tax gain of $2,936 which has been included in the Summary of Operations.

Effective September 30, 2016, the Company ceded term life business to TWRI, an affiliate, on a coinsurance funds withheld basis. The Company paid an initial reinsurance premium of $41,565, transferred other net assets of $2,042, and released life and claim reserves of $296,656 and $21,926, respectively, resulting in a pre-tax gain of $274,974 ($178,733 net of tax) which has been credited directly to unassigned surplus.

The Company received reinsurance recoveries in the amount of $3,349,716, $3,370,420 and $3,157,884, during 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $753,202 and $731,784. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2016 and 2015 of $30,090,704 and $33,315,357.

On October 1, 2015, the Company, Union Hamilton Reinsurance, Ltd. (UH), and Commonwealth Annuity and Life Insurance Company (CALIC) entered into a Novation Agreement, pursuant to which UH assigned and delegated to CALIC its rights and obligations under the Original Agreement. Subsequently, the Company and CALIC amended and restated the fixed annuity reinsurance agreement from a modified coinsurance to coinsurance basis. As a result of the amendment, the Company transferred assets with a market value of $735,156, released coinsurance reserve liabilities of $721,190, and released an after-tax IMR liability associated with the block of business in the amount of $9,477 resulting in a net of tax gain on the transaction in the amount of $399 (IMR after-tax gain of $9,477 less gross loss on reinsurance of $13,966 taxed at 35%) which has been included in the Statement of Operations.

Effective July 1, 2015, the Company entered into an assumption reinsurance agreement with TPLIC, an affiliate, under which the Company novated its Medicare Supplement business to TPLIC. The Company transferred policy reserves of $6,987, claims reserves of $20,893, other liabilities of $920 along with assets of $28,801 to TPLIC during the last two quarters of the year. This represents the portion of the Medicare supplement business for which regulatory approval of the assumption agreement was received by July 1. No consideration was paid or received related to the novation. No gain or loss was recognized in the financial statements.

Effective April 14, 2015, the reinsurance agreement dated December 31, 2008 reinsuring variable annuity reinsurance between the Company and Transamerica International Re (Bermuda) Ltd (TIRe) was novated, to Firebird Re Corp. (FReC). General account reserves, and claim reserves ceded on a coinsurance basis at the time of novation were $514,898 and $5,070, respectively.

 

74

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Separate account modified coinsurance reserves and general account modified coinsurance reserves at the time of the novation were $7,052,587 and $140,034 respectively. No consideration was paid or received related to the novation. No gain or loss was recognized.

Subsequent to the novation, the Companies entered into an amended and restated reinsurance agreement related to the business. The modified coinsurance reinsurance reserves were converted to coinsure reserves and a general account funds withheld was established. The general account paid FReC $140,034 for the modified coinsurance reserves and ceded coinsurance reserves of $156,478, resulting in a pre-tax gain of $16,444 which has been credited directly to unassigned surplus. FReC placed assets of $676,446, equal to the ceded general account reserves, in a funds withheld account, and the Company established a corresponding funds withheld liability of $676,446.    

Effective December 31, 2014, the Company ceded certain stand-alone long-term care policies to TPLIC, an affiliate, for which the Company paid an initial ceding commission and premiums of $350,000 and $3,914,521, respectively and ceded modified coinsurance reserves of $3,914,521, resulting in a pre-tax loss of $350,000 which has been included in the Statement of Operations.

Effective October 1, 2014, the Company recaptured fixed annuity contracts previously reinsured to TIRe for which the Company received net consideration of $43,360, released a funds withheld liability of $1,975,937, and established benefit reserves and claim reserves $2,004,673 resulting in a pre-tax gain of $14,624 which has been included in the Statement of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cession of this business to TIRe in the amount of $15,795, which included the recapture of IMR gains in the amount of $19,852 on an after-tax basis, with a corresponding charge to unassigned surplus.

Effective October 1, 2014, the Company recaptured the variable BOLI/COLI business that was previously reinsured to Transamerica International Re (Bermuda), Ltd. (TIRe), an affiliate, for which the Company paid net consideration of $17,769, released the funds withheld liability of $1,080,541, and recaptured separate account and general account policy and claims reserves of $1,080,541, resulting in a pre-tax loss of $17,769 which was included in the Statement of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cession of this business to TIRe in the amount of $94,571 ($61,471 after-tax) with a corresponding charge to unassigned surplus.

Effective October 1, 2014, the Company recaptured the single premium universal life, credit life and credit disability business previously reinsured to TIRe for which the Company paid net consideration of $50,000, released a funds withheld liability of $516,472, recaptured policy and claims reserves of $560,275 and other liabilities of $13,334, and recaptured policy loans in the amount of $2,048, resulting in a pre-tax loss of $105,091 which has been included in the Statement of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cession of this business to TIRe in the amount of $1,323 ($860 after-tax) with a corresponding charge to unassigned surplus.

Subsequently, effective October 1, 2014, the Company ceded this business to Ironwood Re Corp. (IRC) for which the Company received net consideration of $50,000, established a funds withheld liability of $516,472, released policy and claim reserves of $560,275 and other liabilities of $13,334, resulting in a pre-tax gain of $107,138 ($69,640 after-tax) which has been credited directly to unassigned surplus.

 

75

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Effective October 1, 2014, SLIC, prior to the merger, recaptured the business that was previously reinsured to TIRe, an affiliate, for which net consideration received was $19,000, funds withheld liability released was $572,468, policy and claims reserves recaptured were $869,488, and other assets recaptured were $34,500, resulting in a pre-tax loss of $243,519 which was included in the Statements of Operations. In addition, the Company released into income a previously deferred unamortized gain resulting from the original cession of this business to TIRe in the amount of $243,586 ($158,331 after-tax) with a corresponding charge to unassigned surplus.

Subsequently, October 1, 2014, SLIC ceded this business to Ironwood Re Corp. (IRC), an affiliate, for which net consideration paid was $19,000, a funds withheld liability of $572,468 was established, policy and claims reserves released were $869,660, and other assets released were $34,501, resulting in a pre-tax gain of $243,691 ($158,399 after-tax) which has been credited directly to unassigned surplus.

Effective June 30, 2014, the Company ceded level term life and universal life secondary guarantee business to TLIC Oakbrook Reinsurance, Inc., an affiliate, on a coinsurance funds withheld basis. The Company paid an initial reinsurance premium of $25,667, transferred other net assets of $1,852 and released life and claim reserves of $535,211 and $25,667, respectively, resulting in a pre-tax gain of $533,359 ($346,683 net of tax) which was credited directly to unassigned surplus on a net of tax basis.

Effective June 30, 2014, the Company ceded to Transamerica Premier Life Insurance Company on a YRT basis the net amount paid in excess of $3,000 on covered level term and universal life secondary guarantee policies. The Company paid an initial reinsurance premium of $858 and released reserves of $5,685 resulting in a pre-tax gain of $4,826 which has been included in the Statement of Operations.

During 2016, 2015 and 2014 amortization of deferred gains associated with previously transacted reinsurance agreements was released into income in the amount of $255,425 ($176,996 after tax), $133,048 ($106,755 after tax) and $175,042 ($114,198, net of tax), respectively.

The Company reports a reinsurance deposit receivable of $199,500 and $203,429 as of December 31, 2016 and 2015, respectively. In 1996, the Company entered into a reinsurance agreement with an unaffiliated company where, for a net consideration of $59,716, the Company ceded certain portions of future obligations under single premium annuity contracts originally written by the Company in 1993. Consistent with the requirements of SSAP No. 75, Reinsurance Deposit Accounting, the Company reports the net consideration paid as a deposit. The amount reported is the present value of the future payment streams discounted at the effective yield rate determined at inception.

During 2016, 2015 and 2014, the Company obtained letters of credit of $98,006, $242,957 and $123,006, respectively, for the benefit of affiliated and nonaffiliated companies that have reinsured business to the Company where the ceding company’s state of domicile does not recognize the Company as an authorized reinsurer.

 

76

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company reinsures a closed block of guaranteed minimum income benefit (GMIB), guaranteed minimum death benefit (GMDB), and guaranteed minimum withdrawal benefit (GMWB) risks to Firebird Re Corp. The affiliated reinsurance treaties have been in place for a number of years and do not include any new business since the inception but were initiated to better align hedging and capital requirements. The risk reinsured to the affiliated reinsurer is retained by the Transamerica group. The risks assumed by Firebird Re Corp. are all affiliated variable annuity treaties.

Variable annuity reserves established by Firebird Re Corp. are equal to the US GAAP reserve requirements. In addition, the captive establishes an additional variable annuity reserve above the US GAAP reserve to the greater of the mirror of the reserve ceded to the Captive (US statutory) and a total asset requirement (CTE 80) level. The TAR CTE80 is calculated assuming a 50% best estimate model (with hedge credit) and 50% stochastic model.

The Company took reserve credits for variable annuities of $746,339 and $790,284 in 2016 and 2015, respectively. The amount of collateral supporting the reserve credits was $730,545 and $776,072 in 2016 and 2015, respectively. All of the collateral held to support the reserve credit is funds withheld. The collateral is made up of bonds, cash and short-term assets.

The Company ceded modified coinsurance reserves of $4,536,010 and $4,236,392 as of December 31, 2016 and 2015, respectively, for certain stand-alone long-term care policies under the indemnity reinsurance agreement with TPLIC, an affiliate. Ceded losses incurred of $361,167 and $346,166 for years ended December 31, 2016 and 2015, respectively, are presented net within the claims development table in Note 1.

 

77

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

7. Income Taxes

The net deferred income tax asset at December 31, 2016 and 2015 and the change from the prior year are comprised of the following components:

 

     December 31, 2016  
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ 2,481,049      $ 215,092      $ 2,696,141  

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      2,481,049        215,092        2,696,141  

Deferred Tax Assets Nonadmitted

      515,901        —          515,901  
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      1,965,148        215,092        2,180,240  

Deferred Tax Liabilities

      1,152,105        164,291        1,316,396  
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ 813,043      $ 50,801      $ 863,844  
  

 

 

     

 

 

     

 

 

  
     December 31, 2015  
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ 2,057,430      $ 292,685      $ 2,350,115  

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      2,057,430        292,685        2,350,115  

Deferred Tax Assets Nonadmitted

      618,270        —          618,270  
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      1,439,160        292,685        1,731,845  

Deferred Tax Liabilities

      687,781        260,956        948,737  
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ 751,379      $ 31,729      $ 783,108  
  

 

 

     

 

 

     

 

 

  
            Change         
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ 423,619      $ (77,593 )     $ 346,026  

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      423,619        (77,593 )       346,026  

Deferred Tax Assets Nonadmitted

      (102,369 )       —          (102,369 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      525,988        (77,593 )       448,395  

Deferred Tax Liabilities

      464,324        (96,665 )       367,659  
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ 61,664      $ 19,072      $ 80,736  
  

 

 

     

 

 

     

 

 

  

 

78

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The main components of deferred income tax amounts are as follows:

 

     Year Ended December 31         
     2016      2015      Change  

Deferred Tax Assets:

         

Ordinary

         

Discounting of unpaid losses

    $ 5,995      $ 2,382      $ 3,613  

Policyholder reserves

      936,738        769,309        167,429  

Investments

      570,496        471,638        98,858  

Deferred acquisition costs

      626,204        621,902        4,302  

Compensation and benefits accrual

      33,383        26,365        7,018  

Receivables - nonadmitted

      28,232        33,000        (4,768 ) 

Tax credit carry-forward

      222,313        67,359        154,954  

Section 197 Intangible Amortization

      —          6,250        (6,250 ) 

Corporate Provision

      —          474        (474 ) 

Assumption Reinsurance

      9,545        10,715        (1,170 ) 

CFC FTC Offset

      15,020        —          15,020  

Other (including items <5% of ordinary tax assets)

      33,123        48,036        (14,913 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal

      2,481,049        2,057,430        423,619  

Nonadmitted

      515,901        618,270        (102,369 ) 
  

 

 

     

 

 

     

 

 

  

Admitted ordinary deferred tax assets

      1,965,148        1,439,160        525,988  

Capital:

         

Investments

      215,092        292,685        (77,593 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal

      215,092        292,685        (77,593 ) 

Nonadmitted

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Admitted capital deferred tax assets

      215,092        292,685        (77,593 ) 
  

 

 

     

 

 

     

 

 

  

Admitted deferred tax assets

    $ 2,180,240      $ 1,731,845      $ 448,395  
  

 

 

     

 

 

     

 

 

  

 

79

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Year Ended December 31         
     2016      2015      Change  

Deferred Tax Liabilities:

         

Ordinary

         

Investments

    $ 787,307      $ 565,039      $ 222,268  

Fixed assets

      40,867        26,944        13,923  

§807(f) adjustment

      75,844        64,659        11,185  

Separate Account Adjustments

      34,766        31,139        3,627  

CFC FTC Offset

      11,579        —          11,579  

Hedge Reserve Offset

      201,554        —          201,554  

Other (including items <5% of total ordinary tax liabilities)

      188        —          188  
  

 

 

     

 

 

     

 

 

  

Subtotal

      1,152,105        687,781        464,324  

Capital

         

Investments

      164,291        260,956        (96,665 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal

      164,291        260,956        (96,665 ) 
  

 

 

     

 

 

     

 

 

  

Deferred tax liabilities

      1,316,396        948,737        367,659  
  

 

 

     

 

 

     

 

 

  

Net deferred tax assets/liabilities

    $ 863,844      $ 783,108      $ 80,736  
  

 

 

     

 

 

     

 

 

  

The Company did not report a valuation allowance for deferred income tax assets as of December 31, 2016 or 2015.

The Company made a modification in 2015 to its groupings of DTAs and DTLs (as permitted under SSAP No. 101 Q&A 2.9). Prior to this change, the Company had DTAs and DTLs that were netted together within two specific categories of temporary differences. The Company determined, in accordance with its practice of recording DTAs and DTLs separately for purposes of application of SSAP No. 101, that it is more appropriate and consistent to present DTAs and DTLs with respect to 1) reserves and deferred and uncollected premiums and 2) bonds and derivatives on certain blocks of business.

 

80

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

As discussed in Note 1, for the years ended December 31, 2016 and 2015 the Company admits deferred income tax assets pursuant to SSAP No. 101. The amount of admitted adjusted gross deferred income tax assets under each component of SSAP No. 101 is as follows:

 

               December 31, 2016  
              

Ordinary

    Capital      Total  

Admission Calculation Components SSAP No. 101

         

2(a)

   

Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks

    $226,217    $ 30,862      $ 257,079  

2(b)

   

Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)

    550,512      56,253        606,765  
   1.   

Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date

    550,512      56,253        606,765  
   2.   

Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold

    XXX      XXX        655,637  

2(c)

   

Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities

    1,188,419      127,977        1,316,396  
        

 

   

 

 

     

 

 

  

2(d)

   

Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c))

    $1,965,148    $ 215,092      $ 2,180,240  
        

 

   

 

 

     

 

 

  

 

81

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

               December 31, 2015  
              

Ordinary

    Capital     Total  

Admission Calculation Components SSAP No. 101

        

2(a)

   

Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks

    $286,447    $ 61,384     $ 347,831  

2(b)

   

Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)

    357,063      78,214       435,277  
   1.   

Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date

    357,063      78,214       435,277  
   2.   

Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold

    XXX      XXX       717,412  

2(c)

   

Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities

    795,650      153,087       948,737  
        

 

   

 

 

    

 

 

  

2(d)

   

Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c))

    $1,439,160    $ 292,685     $ 1,731,845  
        

 

   

 

 

    

 

 

  
               Change  
              

Ordinary

    Capital     Total  

Admission Calculation Components SSAP No. 101

        

2(a)

   

Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks

    $(60,230)    $ (30,522 )    $ (90,752 ) 

2(b)

   

Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)

    193,449      (21,961 )      171,488  
   1.   

Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date

    193,449      (21,961 )      171,488  
   2.   

Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold

    XXX      XXX       (61,775 ) 

2(c)

   

Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities

    392,769      (25,110 )      367,659  
        

 

   

 

 

    

 

 

  

2(d)

   

Deferred Tax Assets Admitted as the result of application of SSAP No. 101, Total (2(a) + 2(b) + 2(c))

    $525,988    $ (77,593 )    $ 448,395  
        

 

   

 

 

    

 

 

  

 

82

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31        
     2016     2015     Change  

Ratio Percentage Used To Determine Recovery Period and Threshold Limitation Amount

      708 %      844 %      -136 % 
  

 

 

    

 

 

    

 

 

  

Amount of Adjusted Capital and Surplus Used To Determine Recovery Period and Threshold

       
  

 

 

    

 

 

    

 

 

  

Limitation in 2(b)2 above

    $ 4,370,911     $ 4,700,489     $ (329,578 ) 
  

 

 

    

 

 

    

 

 

  

The impact of tax planning strategies at December 31, 2016 and 2015 was as follows:

 

     December 31, 2016  
     Ordinary
Percent		     Capital
Percent		     Total Percent  

Impact of Tax Planning Strategies:

       

(% of Total Adjusted Gross DTAs)

      0 %      0 %      0 % 
  

 

 

    

 

 

    

 

 

  

(% of Total Net Admitted Adjusted Gross DTAs)

      3 %      25 %      6 % 
  

 

 

    

 

 

    

 

 

  
     December 31, 2015  
     Ordinary
Percent		     Capital
Percent		     Total Percent  

Impact of Tax Planning Strategies:

       

(% of Total Adjusted Gross DTAs)

      0 %      36 %      4 % 
  

 

 

    

 

 

    

 

 

  

(% of Total Net Admitted Adjusted Gross DTAs)

      3 %      35 %      8 % 
  

 

 

    

 

 

    

 

 

  

The Company’s tax planning strategies do not include the use of reinsurance-related tax planning strategies.

Current income taxes incurred consist of the following major components:

 

     Year Ended December 31         
     2016      2015      Change  

Current Income Tax

         

Federal

    $ (101,440 )     $ (9,592 )     $ (91,848 ) 

Foreign

      (1 )       (26 )       25  
  

 

 

     

 

 

     

 

 

  

Subtotal

      (101,441 )       (9,618 )       (91,823 ) 
  

 

 

     

 

 

     

 

 

  

Federal income tax on net capital gains

      5,234        50,995        (45,761 ) 
  

 

 

     

 

 

     

 

 

  

Federal and foreign income taxes incurred

    $ (96,207 )     $ 41,377      $ (137,584 ) 
  

 

 

     

 

 

     

 

 

  

 

83

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Year Ended December 31         
     2015      2014      Change  

Current Income Tax

         

Federal

    $ (9,592 )     $ 258,554      $ (268,146 ) 

Foreign

      (26 )       —          (26 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal

      (9,618 )       258,554        (268,172 ) 
  

 

 

     

 

 

     

 

 

  

Federal income tax on net capital gains

      50,995        121,064        (70,069 ) 
  

 

 

     

 

 

     

 

 

  

Federal and foreign income taxes incurred

    $ 41,377      $ 379,618      $ (338,241 ) 
  

 

 

     

 

 

     

 

 

  

The Company’s current income tax incurred and change in deferred income tax differs from the amount obtained by applying the federal statutory rate of 35% to income before tax as follows:

 

     Year Ended December 31  
     2016     2015     2014  

Current income taxes incurred

    $ (96,207 )    $ 41,377     $ 379,618  

Change in deferred income taxes

(without tax on unrealized gains and losses)

      (183,307 )      (300,764 )      331,883  
  

 

 

    

 

 

    

 

 

  

Total income tax reported

    $ (279,514 )    $ (259,387 )    $ 711,501  
  

 

 

    

 

 

    

 

 

  

Income before taxes

    $ 299,572     $ (181,353 )    $ 1,060,978  
     35 %      35 %      35 % 
  

 

 

    

 

 

    

 

 

  

Expected income tax expense (benefit) at 35% statutory rate

    $ 104,850     $ (63,474 )    $ 371,342  

Increase (decrease) in actual tax reported resulting from:

       

Dividends received deduction

      (74,012 )      (69,204 )      (46,828 ) 

Tax credits

      (25,037 )      (81,829 )      (37,788 ) 

Tax-exempt income

      (11 )      (7 )      —    

Tax adjustment for IMR

      669       (33,936 )      (16,620 ) 

Surplus adjustment for in-force ceded

      608       (40,327 )      76,692  

Nondeductible expenses

      1,049       976       1,264  

Deferred tax benefit on other items in surplus

      (233,112 )      (3,152 )      319,999  

Provision to return

      (2,177 )      (4,546 )      8,055  

Life-owned life insurance

      (2,966 )      (2,948 )      (3,132 ) 

Dividends from certain foreign corporations

      1,620       2,093       1,066  

Pre-tax income of single member limited liability company

      14,093       46,193       52,362  

Intercompany dividends

      (47,766 )      —         —    

Partnership permanent adjustment

      (1,913 )      (13,177 )      (11,764 ) 

Audit adjustment—Permanent

      (21,196 )      —         —    

Other

      5,787       3,951       (3,147 ) 
  

 

 

    

 

 

    

 

 

  

Total income tax reported

    $ (279,514 )    $ (259,387 )    $ 711,501  
  

 

 

    

 

 

    

 

 

  

 

84

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company’s federal income tax return is consolidated with other affiliated companies. Please see attached listing of companies in the Appendix A. The method of allocation between the companies is subject to a written tax allocation agreement. Under the terms of the tax allocation agreement, allocations are based on separate income tax return calculations. The Company is entitled to recoup federal income taxes paid in the event the future losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in the year generated. The Company is also entitled to recoup federal income taxes paid in the event the losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in any carryback or carryforward year when so applied. Intercompany income tax balances are settled within thirty days of payment to or filing with the Internal Revenue Service. A tax return has not yet been filed for 2016.

As of December 31, 2016 and 2015, respectively, the Company had a $222,314 and $67,359 tax credit carryforward available for tax purposes. Included in the 2016 tax credit carryforward is a general business tax credit carryforward of $164,764.

 

Carryovers from:    Expiration:       

12-31-2010

    12-31-2030      21,817  

12-31-2011

    12-31-2031      45,391  

12-31-2012

    12-31-2032      28,827  

12-31-2013

    12-31-2033      22,676  

12-31-2014

    12-31-2034      20,601  

12-31-2015

    12-31-2035      20,931  

12-31-2016

    12-31-2036      4,521  

 

   

 

   

 

 

  

Standard GBC Carryovers

      164,764  

The Company also has an alternative minimum tax credit carryforward of $57,550 available for tax purposes that carries forward indefinitely. As of December 31, 2016 and 2015, the Company had no operating loss or capital loss carryfowards available for tax purposes.

The Company incurred income taxes of $0, $12,699, and $252,550 during 2016, 2015, and 2014, respectively, which will be available for recoupment in the event of future net losses.

The amount of tax contingencies calculated for the Company as of December 31, 2016 and 2015 is $9,763 and $4,152, respectively. The total amount of the tax contingencies that if recognized, would affect the effective income tax rate is $9,763. The Company classifies interest and penalties related to income taxes as income tax expense. The Company’s interest (benefit) expense related to income taxes for the years ending in December 31, 2016, 2015, and 2014 is $864, ($270), and $12,961, respectively. The total interest payable balance as of December 31, 2016 and 2015 is $10,768 and $9,903, respectively. The Company recorded no liability for penalties. It is not anticipated that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date.

During 2016 the company modified its calculation of dividends that are eligible for the dividends received deduction. This resulted in recording a permanent tax benefit of $20,250 in the Company’s 2016 financial statements for years 2011 – 2015. This has been treated as a change in estimate, the impact on future years is not currently determinable.

 

85

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company’s federal income tax returns have been examined by the Internal Revenue Service and closing agreements have been executed through 2008. We expect receivables and payables for 2005-2008 to be settled in early 2017. An examination is in progress for the year 2009 through 2013. The Company believes that there are adequate defenses against or sufficient provisions established related to any open or contested tax positions.

8. Policy and Contract Attributes

Participating life insurance policies were issued by the Company which entitle policyholders to a share in the earnings of the participating policies, provided that a dividend distribution, which is determined annually based on mortality and persistency experience of the participating policies, is authorized by the Company. Participating insurance constituted approximately 0.05% of ordinary life insurance in force at December 31, 2016 and 2015, respectively.

For the years ended December 31, 2016, 2015 and 2014, premiums for life participating policies were $12,036, $13,196 and $14,110, respectively. The Company accounts for its policyholder dividends based on dividend scales and experience of the policies. The Company paid dividends in the amount of $5,967, $5,894 and $8,045 to policyholders during 2016, 2015 and 2014, respectively, and did not allocate any additional income to such policyholders.

 

86

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

A portion of the Company’s policy reserves and other policyholders’ funds (including separate account liabilities) relates to liabilities established on a variety of the Company’s annuity and deposit fund products. There may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics, is summarized as follows:

 

     December 31
2016		  
     General
Account		      Separate
Account
with
Guarantees		      Separate
Account Non-
Guaranteed		      Total      Percent  

Subject to discretionary withdrawal with adjustment:

               

With fair value adjustment

    $ 1,141,878      $ —        $ —        $ 1,141,878        1 % 

At book value less surrender charge of 5% or more

      273,919        —          —          273,919        0  

At fair value

      126,155        —          66,886,612        67,012,767        73  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total with adjustment or at fair value

      1,541,952        —          66,886,612        68,428,564        74  

At book value without adjustment (minimal or no charge or adjustment)

      13,413,613        17,739        —          13,431,352        14  

Not subject to discretionary withdrawal provision

      10,732,102        41,507        38,256        10,811,865        12  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total annuity reserves and deposit liabilities

      25,687,667        59,246        66,924,868        92,671,781        100 % 
              

 

 

  

Less reinsurance ceded

      4,680,333        —          —          4,680,333     
  

 

 

     

 

 

     

 

 

     

 

 

     

Net annuity reserves and deposit liabilities

    $ 21,007,334      $ 59,246      $ 66,924,868      $ 87,991,448     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

87

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31
2015		  
     General
Account		      Separate
Account
with
Guarantees		      Separate
Account Non-
Guaranteed		      Total      Percent  

Subject to discretionary withdrawal with adjustment:

               

With fair value adjustment

    $ 1,275,215      $ —        $ —        $ 1,275,215        1 % 

At book value less surrender charge of 5% or more

      250,597        —          —          250,597        0  

At fair value

      134,954        —          63,388,970        63,523,924        69  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total with adjustment or at fair value

      1,660,766        —          63,388,970        65,049,736        72  

At book value without adjustment (minimal or no charge or adjustment)

      14,346,775        34,954        —          14,381,729        16  

Not subject to discretionary withdrawal provision

      11,126,108        43,311        38,287        11,207,706        12  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total annuity reserves and deposit liabilities

      27,133,649        78,265        63,427,257        90,639,171        100 % 
              

 

 

  

Less reinsurance ceded

      9,235,531        —          —          9,235,531     
  

 

 

     

 

 

     

 

 

     

 

 

     

Net annuity reserves and deposit liabilities

    $ 17,898,118      $ 78,265      $ 63,427,257      $ 81,403,640     
  

 

 

     

 

 

     

 

 

     

 

 

     

The Company’s liability for deposit-type contracts includes GIC’s and Funding Agreements assumed from Transamerica Premier Life Insurance Company, an affiliate. The liabilities assumed are $0 and $167,933 at December 31, 2016 and 2015, respectively.

Certain separate and variable accounts held by the Company relate to individual variable life insurance policies. The benefits provided on the policies are determined by the performance and/or fair value of the investments held in the separate account. The net investment experience of the separate account is credited directly to the policyholder and can be positive or negative. The assets of these separate accounts are carried at fair value. The life insurance policies typically provide a guaranteed minimum death benefit.

Certain separate accounts held by the Company represent funds which are administered for pension plans. The assets consist primarily of fixed maturities and equity securities and are carried at fair value. The Company provides a minimum guaranteed return to policyholders of certain separate accounts. Certain other separate accounts do not have any minimum guarantees and the investment risks associated with fair value changes are borne entirely by the policyholder.

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Information regarding the separate accounts of the Company as of and for the years ended December 31, 2016, 2015 and 2014 is as follows:

 

     Guaranteed
Indexed		      Nonindexed
Guarantee
Less Than or
Equal to 4%		      Nonindexed
Guarantee
Greater
Than 4%		      Nonguaranteed
Separate
Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2016

    $ —        $ 64      $ 10,970      $ 8,767,639      $ 8,778,673  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts as of December 31, 2016 with assets at:

               

Fair value

    $ —        $ 21,505      $ 20,001      $ 70,154,420      $ 70,195,926  

Amortized cost

      —          633,674        —          —          633,674  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total as of December 31, 2016

    $ —        $ 655,179      $ 20,001      $ 70,154,420      $ 70,829,600  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts by withdrawal characteristics as of December 31, 2016:

               

Subject to discretionary withdrawal

    $ —        $ —        $ —        $ —        $ —    

With fair value adjustment

      —          —          —          —          —    

At fair value

      —          —          —          70,116,163        70,116,163  

At book value without fair value adjustment and with current surrender charge of less than 5%

      —          633,674        —          —          633,674  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          633,674        —          70,116,163        70,749,837  

Not subject to discretionary withdrawal

      —          21,505        20,001        38,257        79,763  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total separate account reserve liabilities at December 31, 2016

    $ —        $ 655,179      $ 20,001      $ 70,154,420      $ 70,829,600  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

89

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Guaranteed
Indexed		      Nonindexed
Guarantee
Less Than or
Equal to 4%		      Nonindexed
Guarantee
Greater
Than 4%		      Nonguaranteed
Separate
Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2015

    $ —        $ 31      $ 9,244      $ 12,203,423      $ 12,212,698  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts as of December 31, 2015 with assets at:

               

Fair value

    $ —        $ 19,818      $ 23,493      $ 66,606,612      $ 66,649,923  

Amortized cost

      —          633,332        —          —          633,332  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total as of December 31, 2015

    $ —        $ 653,150      $ 23,493      $ 66,606,612      $ 67,283,255  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts by withdrawal characteristics as of December 31, 2015:

               

Subject to discretionary withdrawal

    $ —        $ —        $ —        $ —        $ —    

With fair value adjustment

      —          —          —          —          —    

At fair value

      —          —          —          66,568,326        66,568,326  

At book value without fair value adjustment and with current surrender charge of less than 5%

      —          633,332        —          —          633,332  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          633,332        —          66,568,326        67,201,658  

Not subject to discretionary withdrawal

      —          19,818        23,493        38,286        81,597  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total separate account reserve liabilities at December 31, 2015

    $ —        $ 653,150      $ 23,493      $ 66,606,612      $ 67,283,255  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Guaranteed
Indexed		      Nonindexed
Guarantee
Less Than or
Equal to 4%		      Nonindexed
Guarantee
Greater
Than 4%		      Nonguaranteed
Separate
Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2014

    $ —        $ 53      $ 11,846      $ 13,127,469      $ 13,139,368  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts as of December 31, 2014 with assets at:

               

Fair value

    $ —        $ 20,574      $ 35,038      $ 65,194,925      $ 65,250,537  

Amortized cost

      —          634,931        —          —          634,931  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total as of December 31, 2014

    $ —        $ 655,505      $ 35,038      $ 65,194,925      $ 65,885,468  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserves for separate accounts by withdrawal characteristics as of December 31, 2014:

               

Subject to discretionary withdrawal

    $ —        $ —        $ —        $ —        $ —    

With fair value adjustment

      —          —          —          —          —    

At fair value

      —          —          —          65,152,722        65,152,722  

At book value without fair value adjustment and with current surrender charge of less than 5%

      —          634,931        —          —          634,931  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          634,931        —          65,152,722        65,787,653  

Not subject to discretionary withdrawal

      —          20,574        35,038        42,203        97,815  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total separate account reserve liabilities at December 31, 2014

    $ —        $ 655,505      $ 35,038      $ 65,194,925      $ 65,885,468  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

A reconciliation of the amounts transferred to and from the Company’s separate accounts is presented below:

 

     Year Ended December 31  
     2016      2015      2014  

Transfer as reported in the summary of operations of the separate accounts statement:

         

Transfers to separate accounts

    $ 8,767,931      $ 12,204,163      $ 13,127,680  

Transfers from separate accounts

      (7,872,107 )       (8,389,740 )       (6,499,970 ) 
  

 

 

     

 

 

     

 

 

  

Net transfers to separate accounts

      895,824        3,814,423        6,627,710  

Miscellaneous reconciling adjustments

      469,247        1,337,434        1,882,846  
  

 

 

     

 

 

     

 

 

  

Net transfers as reported in the statements of operations of the life, accident and health annual statement

    $ 1,365,071      $ 5,151,857      $ 8,510,556  
  

 

 

     

 

 

     

 

 

  

 

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Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The legal insulation of separate account assets prevents such assets from being generally available to satisfy claims resulting from the general account. At December 31, 2016 and 2015, the Company’s separate account statement included legally insulated assets of $73,597,682 and $72,128,772, respectively. The assets legally insulated from general account claims at December 31, 2016 and 2015 are attributed to the following products:

 

     2016      2015  

Group annuities

    $ 24,388,135      $ 24,948,800  

Variable annuities

      44,163,304        42,603,715  

Fixed universal life

      729,291        695,852  

Variable universal life

      4,212,641        3,602,521  

Variable life

      37,918        196,411  

Modified separate accounts

      53,201        70,353  

Registered Market Value Annuity Product - SPL

      13,192        11,120  
  

 

 

     

 

 

  

Total separate account assets

    $ 73,597,682      $ 72,128,772  
  

 

 

     

 

 

  

Some separate account liabilities are guaranteed by the general account. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account. As of December 31, 2016 and 2015, the general account of the Company had a maximum guarantee for separate account liabilities of $2,852,548 and $3,029,017 respectively. To compensate the general account for the risk taken, the separate account paid risk charges of $483,307, $434,084, $342,823, $242,109, and $180,478 to the general account in 2016, 2015, 2014, 2013, and 2012, respectively. During the years ended December 31, 2016, 2015, 2014, 2013, and 2012 the general account of the Company had paid $77,232, $223,304, $35,985, $30,830, and $61,901 respectively, toward separate account guarantees.

At December 31, 2016 and 2015, the Company reported guaranteed separate account assets at amortized cost in the amount of $672,491 and $668,367, respectively, based upon the prescribed practice granted by the State of Iowa as described in Note 2. These assets had a fair value of $709,808 and $695,578 at December 31, 2016 and 2015, respectively, which would have resulted in an unrealized gain of $37,317 and $27,211, respectively, had these assets been reported at fair value.

The Company does not participate in securities lending transactions within the separate account.

For variable annuities with guaranteed living benefits and variable annuities with minimum guaranteed death benefits the Company complies with Actuarial Guideline XLIII (AG 43), which replaces Actuarial Guidelines 34 and 39. AG 43 specifies statutory reserve requirements for variable annuity contracts with benefit guarantees (VACARVM) and without benefit guarantees and related products. The AG 43 reserve calculation includes variable annuity products issued after January 1, 1981. Examples of covered guaranteed benefits include guaranteed minimum accumulation benefits, return of premium death benefits, guaranteed minimum income benefits, guaranteed minimum withdrawal benefits and guaranteed payout annuity floors. The aggregate reserve for contracts falling within the scope of AG 43 is equal to the conditional tail expectation (CTE) Amount, but not less than the standard scenario amount (SSA).

 

92

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

To determine the CTE Amount, the Company used 1,000 of the pre-packaged scenarios developed by the American Academy of Actuaries (AAA) produced in October 2005 and prudent estimate assumptions based on Company experience. The SSA was determined using the assumptions and methodology prescribed in AG 43 for determining the SSA.

At December 31, 2016 and 2015, the Company had variable and separate account annuities with minimum guaranteed benefits as follows:

 

Benefit and Type of Risk

    Subjected
Account
Value		      Gross
Amount of
Reserve Held		      Reinsurance
Reserve
Credit		  

December 31, 2016

         

Minimum guaranteed death benefit

    $ 9,966,666      $ 341,249      $ 173,898  

Minimum guaranteed income benefit

      4,095,173        957,867        769,259  

Guaranteed premium accumulation fund

      235,183        25,312        —    

Minimum guaranteed withdrawal benefit

      33,170,833        371,165        15,601  

December 31, 2015

         

Minimum guaranteed death benefit

    $ 9,824,534      $ 305,392      $ 205,460  

Minimum guaranteed income benefit

      3,845,600        585,083        921,716  

Guaranteed premium accumulation fund

      266,040        24,086        —    

Minimum guaranteed withdrawal benefit

      32,000,725        255,044        (72 ) 

Reserves on the Company’s traditional life insurance products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policies’ paid-through date to the policies’ next anniversary date. At December 31, 2016 and 2015, the gross premium and loading amounts related to these assets (which are reported as premiums deferred and uncollected), are as follows:

 

     Gross      Loading      Net  

December 31, 2016

         

Life and annuity:

         

Ordinary first-year business

    $ 5,026      $ 1,336      $ 3,690  

Ordinary renewal business

      775,352        10,855        764,497  

Group life direct business

      44,988        9,649        35,339  

Credit direct business

      556        —          556  

Reinsurance ceded

      (687,316 )       —          (687,316 ) 
  

 

 

     

 

 

     

 

 

  
   $ 138,606      $ 21,840      $ 116,766  

Accident and health

      32,651        —          32,651  
  

 

 

     

 

 

     

 

 

  
   $ 171,257      $ 21,840      $ 149,417  
  

 

 

     

 

 

     

 

 

  

 

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Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Gross      Loading      Net  

December 31, 2015

         

Life and annuity:

         

Ordinary first-year business

    $ 5,595      $ 5,322      $ 273  

Ordinary renewal business

      526,286        11,110        515,176  

Group life business

      49,752        10,235        39,517  

Credit direct business

      1,214        —          1,214  

Reinsurance ceded

      (459,372 )       —          (459,372 ) 
  

 

 

     

 

 

     

 

 

  
   $ 123,475      $ 26,667      $ 96,808  

Accident and health

      42,708        —          42,708  
  

 

 

     

 

 

     

 

 

  
   $ 166,183      $ 26,667      $ 139,516  
  

 

 

     

 

 

     

 

 

  

Amounts recorded as supplementary contracts without life contingencies of $3,370,720 and $2,738,140 at December 31, 2016 and 2015, respectively, are subject to discretionary withdrawals without adjustments.

The Company anticipates investment income as a factor in the premium deficiency calculation, in accordance with SSAP No. 54, Individual and Group Accident and Health Contracts. As of December 31, 2016 and 2015, the Company had insurance in force aggregating $108,217,769 and $96,861,149, respectively, in which the gross premiums are less than the net premiums required by the valuation standards established by the Iowa Insurance Division. The Company established policy reserves of $1,636,310 and $1,588,202 to cover these deficiencies as of December 31, 2016 and 2015, respectively.

For indeterminate premium products, a full schedule of current and anticipated premium rates is developed at the point of issue. Premium rate adjustments are considered when anticipated future experience foretells deviations from the original profit standards. The source of deviation (mortality, persistency, expense, etc.) is an important consideration in the re-rating decision as well as the potential effect of a rate change on the future experience of the existing block of business.

9. Capital and Surplus

The Company is subject to limitations, imposed by the State of Iowa, on the payment of dividends to its shareholders. Generally, dividends during any twelve-month period may not be paid, without prior regulatory approval, in excess of the greater of (a) 10 percent of the Company’s statutory surplus as of the preceding December 31, or (b) the Company’s statutory gain from operations before net realized capital gains (losses) on investments for the preceding year. Subject to the availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 2017, without the prior approval of insurance regulatory authorities, is $779,799.

On December 22, 2016, the Company paid a preferred stock dividend of $35,630 and a cash return of capital of $314,056 to its parent. In addition, the Company paid $314 representing the redemption of 31,437 shares of Series B non-voting preferred stock at par value to its parent also on December 22, 2016.

 

94

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

On June 20, 2016 the Company paid a preferred stock dividend of $104,555 and an ordinary common stock dividend of $245,445 to its parent company.

On December 22, 2015, the Company paid a cash return of capital of $300,000 to its parent. The Company did not pay any ordinary dividends during 2015.

On September 28, 2016 the Company made a capital contribution in the amount of $2,500 to TWRI in exchange for 25,000 common shares of TWRI. The Company also made an additional capital contribution to TWRI of $122,500 on September 28, 2016.

The Company received a capital contribution of $10 from TIHI on March 31, 2015.

Life and health insurance companies are subject to certain RBC requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life or health insurance company is to be determined based on the various risk factors related to it. At December 31, 2016, the Company meets the minimum RBC requirements.

On September 30, 2002, Life Investors Insurance Company of America (LIICA), which merged in to the Company effective October 2, 2008, received $150,000 from TA Corp in exchange for surplus notes. These notes are due 20 years from the date of issuance at an interest rate of 6%, and are subordinate and junior in right of payment to all obligations and liabilities of the Company. In the event of liquidation of the Company, the holders of the issued and outstanding preferred stock shall be entitled to priority only with respect to accumulated but unpaid dividends before the holder of the surplus notes and full payment of the surplus notes shall be made before the holders of common stock become entitled to any distribution of the remaining assets of the Company. The Company received approval from the Iowa Insurance Division prior to paying quarterly interest payments.

Additional information related to the outstanding surplus notes at December 31, 2016 and 2015 is as follows:

 

For Year

Ending

    Balance
Outstanding		      Interest
Paid
Current
Year		      Cumulative
Interest
Paid		      Accrued
Interest		  

2016

    $ 150,000      $ 9,000      $ 126,000      $ 2,250  

2015

    $ 150,000      $ 9,000      $ 117,000      $ 2,250  

10. Securities Lending

The Company participates in an agent-managed securities lending program. The Company receives collateral equal to 102% of the fair value of the loaned domestic securities as of the transaction date. If the fair value of the collateral is at any time less than 102% of the fair value of the loaned securities, the counterparty is mandated to deliver additional collateral, the fair value of which, together with the collateral already held in connection with the lending transaction, is at least equal to 102% of the fair value of the loaned government or other domestic securities. In the event the Company loans a foreign security and the denomination of the currency of the collateral is other than the denomination of the currency of the loaned foreign security, the Company receives and maintains collateral equal to 105% of the fair value of the loaned security.

 

95

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements –  Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, respectively, securities with a fair value of $2,251,377 and $2,692,737 were on loan under securities lending agreements. At December 31, 2016, the collateral the Company received from securities lending activities was in the form of cash and on open terms. This cash collateral is reinvested and is not available for general corporate purposes. The reinvested cash collateral has a fair value of $2,303,603 and $2,760,922 at December 31, 2016 and 2015, respectively.

The contractual maturities of the securities lending collateral positions are as follows:

 

     Fair Value  

Open

    $ 2,303,289  

30 days or less

      —    

31 to 60 days

      —    

61 to 90 days

      —    

Greater than 90 days

      —    
  

 

 

  

Total

      2,303,289  

Securities received

      —    
  

 

 

  

Total collateral received

    $ 2,303,289  
  

 

 

  

The Company receives primarily cash collateral in an amount in excess of the fair value of the securities lent. The Company reinvests the cash collateral into higher yielding securities than the securities which the Company has lent to other entities under the arrangement.

The maturity dates of the reinvested securities lending collateral are as follows:

 

     Amortized Cost      Fair Value  

Open

    $ 349,742      $ 349,742  

30 days or less

      1,045,472        1,045,472  

31 to 60 days

      320,865        320,865  

61 to 90 days

      200,597        200,597  

91 to 120 days

      110,054        110,054  

121 to 180 days

      276,873        276,873  
  

 

 

     

 

 

  

Total

      2,303,603        2,303,603  

Securities received

      —          —    
  

 

 

     

 

 

  

Total collateral reinvested

    $ 2,303,603      $ 2,303,603  
  

 

 

     

 

 

  

For securities lending, the Company’s sources of cash that it uses to return the cash collateral are dependent upon the liquidity of the current market conditions. Under current conditions, the Company has securities with a par value of $2,304,719 (fair value of $2,303,603) that are currently tradable securities that could be sold and used to pay for the $2,303,289 in collateral calls that could come due under a worst-case scenario.

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

11. Retirement and Compensation Plans

The Company’s employees participate in a qualified defined benefit pension plan sponsored by Transamerica. Generally, employees of the Company who customarily work at least 20 hours per week and complete six months of continuous service and meet the other eligibility requirements are participants of the plan. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from Transamerica. The pension expense is allocated among the participating companies based on International Accounting Standards 19 (IAS 19), Accounting for Employee Benefits, and based upon actuarial participant benefit calculations. The benefits are based on years of service and the employee’s eligible compensation. The plan provides benefits based on a traditional final average formula or a cash balance formula. The plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974. Pension expenses were $35,812, $32,799 and $29,648 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company’s employees participate in a contributory defined contribution plan sponsored by Transamerica, the Company’s parent, which is qualified under Section 401(k) of the Internal Revenue Code. Generally, employees of the Company who customarily work at least 20 hours per week and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to 100% of eligible earnings, subject to government or other plan restrictions for certain key employees. The Company will match an amount up to three percent of the participant’s eligible earnings. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974. The Company’s allocation of benefits expense was $15,745, $16,439 and $14,742 for the years ended December 31, 2016, 2015 and 2014 respectively.

TA Corp sponsors supplemental retirement plans to provide the Company’s senior management with benefits in excess of normal pension benefits. The Company has no legal obligation for the plan. The plans are noncontributory and benefits are based on years of service and the employee’s eligible compensation. The plan provides benefits based on a traditional final average formula or cash balance formula. The plans are unfunded and nonqualified under the Internal Revenue Service Code. In addition, TA Corp has established deferred compensation plans for certain key employees of the Company. The Company’s allocation of expense for these plans for each of the years ended December 31, 2016, 2015 and 2014 was insignificant. TA Corp also sponsors an employee stock option plan/stock appreciation rights for employees of the Company and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been funded as deemed appropriate by management of TA Corp and the Company.

In addition to pension benefits, the Company participates in plans sponsored by TA Corp that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. The Company has no legal obligation for the plan. Portions of the medical and dental plans are contributory. The expenses of the postretirement plans are allocated among the participating companies based on IAS 19 and based upon actuarial participant benefit calculations. The Company expensed $6,527, $6,361 and $6,609 related to these plans for the years ended December 31, 2016, 2015 and 2014, respectively.

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company announced an update of its restructuring plan in December 2016 that includes a significant number of position eliminations. Affected employees were offered a severance package contingent upon completion of the terms of their employment. In accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, an expense was accrued in 2016 for the severance benefit of $21,615.

During December 2015, the Company offered select employees the opportunity to participate in the Transamerica Voluntary Separation Incentive Plan (VSIP). Eligible employees were given until January 18, 2016 to make an election. Following SSAP No. 11, Postemployment Benefits and Compensated Absences, and SSAP No. 5R, an expense was accrued in 2015 for the post-employment benefit in the amount of $34,824. The remaining accrual balance at the year ended December 31, 2016 was $5,876.

12. Related Party Transactions

The Company shares certain officers, employees and general expenses with affiliated companies.

The Company is party to a common cost allocation service agreement between TA Corp companies, in which various affiliated companies may perform specified administrative functions in connection with the operation of the Company, in consideration of reimbursement of actual costs of services rendered. The Company is also party to a service agreement with TFLIC, in which the Company provides services, including accounting, data processing and other professional services, in consideration of reimbursement of the actual costs of services rendered. The Company is also a party to a Management and Administrative and Advisory agreement with AEGON USA Realty Advisors, Inc. whereby the advisor serves as the administrator and advisor for the Company’s mortgage loan operations. AEGON USA Investment Management, LLC acts as a discretionary investment manager under an Investment Management Agreement with the Company. The amount received by the Company as a result of being a party to these agreements was $993,182 $802,298 and $1,144,599 during 2016, 2015 and 2014, respectively. The amount paid as a result of being a party to these agreements was $610,754, $445,462 and $859,389 during 2016, 2015 and 2014, respectively. Fees charged between affiliates approximate their cost. The Company has an administration service agreement with Transamerica Asset Management, Inc. to provide administrative services to the AEGON/Transamerica Series Trust. The Company received $136,494, $133,831 and $124,653 for these services during 2016, 2015 and 2014, respectively.

Transamerica Capital, Inc. provides wholesaling distribution services for the Company under a distribution agreement. The Company incurred expenses under this agreement of $56,076, $71,184 and $143,027 for the years ended December 31, 2016, 2015 and 2014, respectively.

Receivables from and payables to affiliates bear interest at the thirty-day commercial paper rate. During 2016, the Company received net interest of $63 from affiliates. During 2015 and 2014, the Company paid net interest of $90 and $50, respectively, to affiliates. At December 31, 2016 and 2015, respectively, the Company reported receivables from affiliates of $111,305 and $59,963. At December 31, 2016 and 2015, respectively, the Company reported payables to affiliates of $115,256 and $18,965. Terms of settlement require that these amounts are settled within 90 days.

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016, the Company had no short-term intercompany notes receivable. At December 31, 2015, the Company had short-term intercompany notes receivable of $278,771 as follows. In accordance with SSAP No. 25, Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties, these notes are reported as short-term investments.

 

Receivable from

    Amount      Due By      Interest Rate  

Transamerica Corporation

    $ 254,271        October 27, 2016        0.25 % 

Transamerica Corporation

      24,500        October 28, 2016        0.25 % 

During 1998, the Company issued life insurance policies to two affiliated companies, covering the lives of certain employees of those affiliates. Aggregate reserves for policies and contracts related to these policies are $165,912 and $162,440 at December 31, 2016 and 2015, respectively.

In prior years, the Company purchased life insurance policies covering the lives of certain employees of the Company from an affiliate. At December 31, 2016 and 2015, the cash surrender value of these policies was $171,075 and $167,132, respectively.

The Company utilizes the look-through approach in valuing its investment in the following four entities.

 

Real Estate Alternatives Portfolio 2, LLC (REAP 2)

    $ 33,145  

Real Estate Alternatives Portfolio 3, LLC (REAP 3)

    $ 65,966  

Real Estate Alternatives Portfolio 4 HR, LLC (REAP 4 HR)

    $ 116,110  

SB Frazer Owner, LLC (SB Frazer)

    $ 1,203  

The financial statements for these entities are not audited and the Company has limited the value of its investment in these entities to the value contained in the audited financial statements of the underlying LP/LLC investments, including adjustments required by SSAP No. 97 of SCA entities and/or non-SCA SSAP No. 48 entities owned by REAP 2, REAP 3, REAP 4 HR, and SB Frazer, and valued in accordance with the relevant paragraphs of SSAP No. 97. All liabilities, commitments, contingencies, guarantees, or obligations of REAP 2, REAP 3, REAP 4 HR, and SB Frazer, which are required to be recorded as liabilities, commitments, contingencies, guarantees, or obligations under applicable accounting guidance, are reflected in the Company’s determination of the carrying value of the investment in REAP 2, REAP 3, REAP 4HR, and SB Frazer, if not already recorded in the financial statements of REAP 2, REAP 3, REAP 4HR, and SB Frazer.

 

99

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table shows the disclosures for all SCA investments, except 8bi entities, and balance sheet value (admitted and nonadmitted) as of December 31, 2016:

 

     Percentage of     Gross      Admitted      Nonadmitted  

SCA Entity

    SCA Ownership     Amount      Amount      Amount  

SSAP No. 97 8a Entities

           

None

      —   %    $ —        $ —        $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8a Entities

      XXX     $ —        $ —        $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

SSAP No. 97 8b(ii) Entities

           

None

      —   %    $ —        $ —        $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(ii) Entities

      XXX %    $ —        $ —        $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

SSAP No. 97 8b(iii) Entities

           

REAL ESTATE ALTERN PORT 3A INC

      53.60 %    $ 17,252      $ 17,252      $ —    

GARNET ASSURANCE CORP

      100.00       —          —          —    

LIFE INVESTORS ALLIANCE LLC

      100.00       —          —          —    

ASIA INVESTMENT HOLDING LTD

      100.00       —          —          —    

AEGON FINANCIAL SERVICES GROUP

      100.00       —          —          —    

GARNET ASSURANCE CORP III

      100.00       —          —          —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(iii) Entities

      XXX     $ 17,252      $ 17,252      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

SSAP No. 97 8b(iv) Entities

           

TRANSAMERICA LIFE (BERMUDA) LTD

      94.07 %    $ 924,100      $ 924,100      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(iv) Entities

      XXX     $ 924,100      $ 924,100      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b Entities (except 8bi entities)

      XXX     $ 941,352      $ 941,352      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Aggregate Total

      XXX     $ 941,352      $ 941,352      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

 

100

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table shows the NAIC responses for the SCA filings (except 8Bi entities):

 

SCA Entity

    Type of
NAIC
Filing*		      Date of
Filing to
the NAIC		      NAIC
Valuation
Amount		      NAIC
Response
Received
Y/N		      NAIC
Disallowed
Entities
Valuation
Method,
Submission
Required
Y/N		      Code**  

SSAP No. 97 8a Entities

                  

None

          $ —             
        

 

 

           

Total SSAP No. 97 8a Entities

      —          —        $ —          —          —          —    
        

 

 

           

SSAP No. 97 8b(ii) Entities

                  

None

          $ —             
        

 

 

           

Total SSAP No. 97 8b(ii) Entities

      —          —        $ —          —          —          —    
        

 

 

           

SSAP No. 97 8b(iii) Entities

                  

REAL ESTATE ALTERN PORT 3A INC

      S2        12/8/2016      $ 20,592        Y        N        I  

GARNET ASSURANCE CORP

      NA           —          N        N        I  

LIFE INVESTORS ALLIANCE LLC

      NA           —          N        N        I  

ASIA INVESTMENT HOLDING LTD

      NA           —          N        N        I  

AEGON FINANCIAL SERVICES GROUP

      NA           —          N        N        I  

GARNET ASSURANCE CORP III

      NA           —          N        N        I  
        

 

 

           

Total SSAP No. 97 8b(iii) Entities

      —          —        $ 20,592        —          —          —    
        

 

 

           

SSAP No. 97 8b(iv) Entities

                  

TRANSAMERICA LIFE (BERMUDA) LTD

      NA         $ 924,100        N        N        I  
        

 

 

           

Total SSAP No. 97 8b(iv) Entities

      —          —        $ 924,100        —          —          —    
        

 

 

           

Total SSAP No. 97 8b Entities (except 8bi entities)

      —          —        $ 944,692        —          —          —    
        

 

 

           

Aggregate Total

      —          —        $ 944,692        —          —          —    
        

 

 

           

 

* S1 – Sub1, S2 – Sub2 or RDF – Resubmission of Disallowed Filing
** I – Immaterial or M – Material

The Company reports an investment in the following insurance SCAs for which the reported statutory equity reflects a departure from NAIC SAP. Each of the insurance SCAs listed in the table below reflects an admitted asset, equal to the value of the letter of credit provided by an unaffiliated company, whereas this would not be an admitted asset recognized by SSAP No. 4, Assets and Non Admitted Assets.

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The monetary effect on net income and surplus as a result of using an accounting practice that differed from NAIC SAP, the amount of the investment in the insurance SCA per reported statutory equity, and amount of the investment if the insurance SCA has completed statutory financial statements in accordance with the NAIC SAP. The SCAs are valued in the Company’s financial statements at zero in accordance with SSAP No. 97.

 

     Monetary Effect on NAIC SAP      Amount of Investment  
                          If the Insurance  
                          SCA Had  
     Net             Per      Completed  
     Income      Surplus      Reported      Statutory  
SCA Entity    Increase      Increase      Statutory      Financial  

(Investments in Insurance SCA Entities)

    (Decrease)      (Decrease)      Equity      Statements*  

LIICA Re II

    $ —        $ (120,000 )     $ 107,327      $ —    

Pine Falls Re

      —          (1,181,330 )       368,914        —    

Stonebridge Reinsurance Company

      —          (900,422 )       84,068        —    

MLIC Re

      —          (990,000 )       420,607        —    

 

* Per AP&P Manual (without permitted or prescribed practices)

The above SCA entities had not been permitted to include a letter of credit as an admitted asset recognized in the financial statements, the risk- based capital would have been below the mandatory control level. If the RBC for each of the insurance SCA entities listed above would have triggered a regulatory event had they not used a prescribed practice.

13. Commitments and Contingencies

At December 31, 2016 and 2015, the Company has mortgage loan commitments of $24,877 and $3,000, respectively.

The Company has contingent commitments for $809,291 and $374,233 as of December 31, 2016 and 2015, respectively, to provide additional funding for various joint ventures, partnerships, and limited liability companies, which includes LIHTC commitments of $48,742 and $8,611, respectively.

The company leases office buildings under various non-cancelable operating lease agreements. Rental expense for years 2016 and 2015 was $12,837 and $13,009, respectively. The minimum aggregate rental commitments are as follows:

 

Year

    Amount  

2017

    $ 14,987  

2018

      11,738  

2019

      8,314  

2020

      8,445  

2021

      8,265  

The Company is not involved in any material sales-leaseback transactions. Leasing (lessor leasing) is not a significant part of the Company’s business activities in terms of revenue, net income or assets.

 

102

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the Company has private placement commitments outstanding of $21,679 and $69,000, respectively.

The Company sold $5,858 of securities on a TBA basis as of December 31, 2016. Due to different counterparties, the receivable related to these TBAs was not reclassed. The Company sold $209,176 securities on a TBA basis as of December 31, 2015. The receivable related to these TBAs was reclassed. Note 5, Investments, provides details on the offsetting and netting of assets and liabilities related to this transaction.

The Company may pledge assets as collateral for derivative transactions. At December 31, 2016 and 2015, the Company has pledged invested assets with a carrying value of $989,453 and $314,892, respectively, and fair value of $1,081,242 and $349,075, respectively, in conjunction with these transactions.

Cash collateral received from derivative counterparties as well as the obligation to return the collateral is recorded on the Company’s balance sheet. The amount of cash collateral received as of December 31, 2016 and 2015, respectively, was $714,431 and $1,057,821. In addition, securities in the amount of $198,786 and $339,479 were also posted to the Company as of December 31, 2016 and 2015, respectively, which were not included on the balance sheet of the Company as the Company does not have the ability to sell or repledge the collateral.

The Company may pledge assets as collateral for transactions involving funding agreements. At December 31, 2016 and 2015, the Company has pledged invested assets with a carrying amount of $42,588 and $45,928 respectively, and fair value of $44,079 and $48,843 respectively, in conjunction with these transactions

The Company has provided back-stop guarantees for the performance of non-insurance affiliates or subsidiaries that are involved in the guaranteed sale of investments in low-income housing tax credit partnerships. The nature of the obligation is to provide third-party investors with a minimum guaranteed annual and cumulative return on their contributed capital which is based on tax credits and tax losses generated from the low income housing tax credit partnerships. Guarantee payments arise if low income housing tax credit partnerships experience unexpected significant decreases in tax credits and tax losses or there are compliance issues with the partnerships. A significant portion of the remaining term of the guarantees is between 13-18 years. The Company did not recognize a liability for the low income housing tax credit guarantees at December 31, 2016 or 2015, as the maximum potential amount of future payments the Company could be required to make is immaterial to the Company’s financial results. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Company’s financial statements as a decrease in net investment income. The maximum potential amount of future payments (undiscounted) that the Company could be required to make under these guarantees was $59 and $88 at December 31, 2016 and 2015, respectively. No payments are required as of December 31, 2016. The current assessment of risk of making payments under these guarantees is remote.

The Company has guaranteed to the Monetary Authority of Singapore (MAS) that it will provide adequate funds to make up for any liquidity shortfall in its wholly-owned foreign life insurance subsidiary, TLB (Singapore Branch), and continues to meet, pay and settle all present and future obligations of TLB. As of December 31, 2016, there is no payment or performance risk because TLB has adequate liquidity as of this date.

 

103

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company has guaranteed to the Hong Kong Insurance Authority that it will provide the financial support to TLB for maintaining TLB’s solvency at all times so as to enable TLB to promptly meet its obligations and liabilities. If at any time the value of TLB’s assets do not exceed its liabilities by the prevailing acceptable level of solvency, the Company will increase the paid up share capital of TLB or provide financial assistance to TLB to maintain the acceptable level of solvency, defined as net assets at one hundred and fifty percent of the required margin of solvency as stipulated under the Insurance Companies (Margin of Solvency) Regulation. As of December 31, 2016, there is no payment or performance risk because TLB is able to meet its obligations and has assets in excess of its liabilities by the prevailing level of solvency as of this date.

The Company has guaranteed that TLB will (1) maintain tangible net worth of at least equal to the greater of 165% of S&P Risk-Based Capital and the minimum required by regulatory authorities in all jurisdictions in which TLB operates, (2) have, at all times, sufficient cash to pay all contractual obligations in a timely manner and (3) have a maximum operating leverage ratio of 20 times. TLIC can terminate this agreement upon thirty days written notice, but not until TLB attains a rating from S&P the same as without the support from this agreement, or the entire book of TLB business is transferred provided that it is transferred to an entity with a rating from S&P that is the same as or better than TLIC’s then current rating or AA, whichever is lower. As of December 31, 2016, there is no payment or performance risk because TLB has adequate tangible net worth, sufficient cash to meet its obligations and an operating leverage ratio not in excess of 20 times as of this date.

The Company is not able to estimate the financial statement impact or the maximum potential amount of future payments it could be required to make under these three guarantees as they are considered to be unlimited under the provisions of SSAP No. 5R.

The Company has provided a guarantee to TLB’s (Singapore Branch) policyholders. If TLB fails to pay a valid claim solely by reason of it becoming insolvent as defined by Bermuda law, then the Company shall pay directly to the policy owner or named beneficiary the amount of the valid claim. At December 31, 2016 and 2015, TLB holds related statutory-basis policy and claim reserves of $1,880,923 and $1,567,299, respectively, which would be the maximum potential amount of future payments the Company could be required to make under this guarantee. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Company’s financial statements as an increase to incurred claims. As of December 31, 2016, there is no payment or performance risk because TLB is not insolvent as of this date.

The Company has provided a guarantee to TLB’s (Hong Kong Branch) policyholders. If TLB fails to pay a valid claim solely by reason of it becoming insolvent as defined by Bermuda law, then the Company shall pay directly to the policy owner or named beneficiary the amount of the valid claim. At December 31, 2016 and 2015, TLB holds related statutory-basis policy and claim reserves of $3,005,979 and 2,587,349, respectively, which would be the maximum potential amount of future payments the Company could be required to make under this guarantee. In the event the Company is required to make a payment under this guarantee, the payment would be reflected in the Company’s financial statements as an increase to incurred claims. As of December 31, 2016, there is no payment or performance risk because TLB is not insolvent as of this date.

 

104

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company did not recognize a liability for any of the TLB guarantees due to the adoption of SSAP No. 5R at December 31, 2016 or 2015, as a liability is not required for guarantees to or on behalf of a wholly-owned subsidiary. Management monitors TLB’s financial condition, and there are no indications that TLB will become insolvent. As such, management feels the risk of payment under these guarantees on behalf of TLB is remote.

Effective July 1, 2016, the Company became a party to a fee agreement with TLB whereby the Company continues to provide the guarantees with respect to TLB described in the paragraphs above. The Company received $260 under this agreement in 2016.

The Company has provided guarantees for the obligations of noninsurance affiliates who have accepted assignments of structured settlement payment obligations from other insurers and purchased structured settlement insurance policies from subsidiaries of the Company that match those obligations. The guarantees made by the Company are specific to each structured settlement contract and vary in date and duration of the obligation. These are numerous and are backed by the reserves established by the Company to represent the present value of the future payments for those contracts. The statutory reserve established at December 31, 2016 and 2015 for the total payout block is $3,363,290 and $3,448,503, respectively. As this reserve is already recorded on the balance sheet of the Company, there was no additional liability recorded due to the adoption of SSAP No. 5R.

The following table provides an aggregate compilation of guarantee obligations as of December 31, 2016 and 2015:

 

     December 31  
     2016      2015  

Aggregate maximum potential of future payments of all guarantees (undiscounted)

    $ 4,886,961      $ 4,154,736  
  

 

 

     

 

 

  

Current liability recognized in financial statements:

      

Noncontingent liabilities

      —          —    
  

 

 

     

 

 

  

Contingent liabilities

      —          —    
  

 

 

     

 

 

  

Ultimate financial statement impact if action required:

      

Incurred claims

      4,886,902        4,154,648  

Other

      59        88  
  

 

 

     

 

 

  

Total impact if action required

    $ 4,886,961      $ 4,154,736  
  

 

 

     

 

 

  

The Company is a member of the FHLB of Des Moines. Through its membership, the Company has conducted business activity (borrowings) with the FHLB. It is part of the Company’s strategy to utilize these funds for asset and liability management and spread lending purposes. The Company has determined the actual/estimated long-term maximum borrowing capacity as $4,614,389. The Company calculated this amount in accordance with the terms and conditions of agreement with FHLB of Des Moines.

 

105

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the Company purchased/owned the following FHLB stock as part of the agreement:

 

     Year Ended December 31  
     2016      2015  

Membership Stock:

      

Class A

    $ —        $ —    

Class B

      10,000        10,000  

Activity Stock

      166,800        94,000  

Excess Stock

      —          —    
  

 

 

     

 

 

  

Total

      $176,800        $104,000  
  

 

 

     

 

 

  

At December 31, 2016, Membership Stock (Class A and B) Eligible for Redemption and the anticipated timeframe for redemption was as follows:

 

     Less Than
6 Months		      6 Months to
Less Than
1 Year		      1 to Less
Than 3
Years		      3 to 5
Years		  

Membership Stock

            

Class A

    $ —        $ —        $ —        $ —    

Class B

      —          —          —          10,000  

Total

    $ —        $ —        $ —        $ 10,000  

At December 31, 2016 and 2015, the amount of collateral pledged to the FHLB was as follows:

 

     Fair Value      Carry Value  

December 31, 2016

      

Total Collateral Pledged

    $ 5,344,860      $ 5,155,703  

 

     Fair Value      Carry Value  

Decemeber 31, 2015

      

Total Collateral Pledged

    $ 3,463,755      $ 3,299,057  

During 2016 and 2015, the maximum amount pledged to the FHLB during reporting period was as follows:

 

     Fair Value      Carry Value  

2016

      

Maximum Collateral Pledged

    $ 5,344,860      $ 5,155,703  

 

     Fair Value      Carry Value  

2015

      

Maximum Collateral Pledged

    $ 3,841,327      $ 3,554,195  

 

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the borrowings from the FHLB were as follows:

 

            Funding  
            Agreements  
     General      Reserves  
     Account      Established  

December 31, 2016

      

Debt

    $ 1,820,000      $ —    

Funding agreements

      2,350,000        2,350,742  

Other

      —          —    
  

 

 

     

 

 

  

Total

    $ 4,170,000        $2,350,742  
  

 

 

     

 

 

  

 

            Funding  
            Agreements  
     General      Reserves  
     Account      Established  

December 31, 2015

      

Debt

    $ —        $ —    

Funding agreements

      2,350,000        1,450,418  

Other

      108,156        —    
  

 

 

     

 

 

  

Total

    $ 2,458,156      $ 1,450,418  
  

 

 

     

 

 

  

During 2016, the maximum amount of borrowings during reporting period was as follows:

 

     General
Account		  

2016

   

Debt

    $ 1,820,000  

Funding agreements

      2,350,000  

Other

      —    
  

 

 

  

Total

    $ 4,170,000  
  

 

 

  

At December 31, 2016 the prepayment penalties information is as follows:

 

     Does the Company have
prepayment obligations
under the following
arrangements (yes/no)?
Debt    NO
Funding Agreements    NO
Other    N/A

 

107

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company has issued synthetic GIC contracts to benefit plan sponsors totaling $2,704,658 and $2,503,747 as of December 31, 2016 and 2015, respectively. A synthetic GIC is an off-balance sheet fee-based product sold primarily to tax qualified plans. The plan sponsor retains ownership and control of the related plan assets. The Company provides book value benefit responsiveness in the event that qualified plan benefit requests exceed plan cash flows. In certain contracts, the Company agrees to make advances to meet benefit payment needs and earns a market interest rate on these advances. The periodically adjusted contract-crediting rate is the means by which investment and benefit responsive experience is passed through to participants. In return for the book value benefit responsive guarantee, the Company receives a premium that varies based on such elements as benefit responsive exposure and contract size. The Company underwrites the plans for the possibility of having to make benefit payments and also must agree to the investment guidelines to ensure appropriate credit quality and cash flow. Funding requirements to date have been minimal and management does not anticipate any future material funding requirements that would have a material impact on reported financial results. To comply with statutory guidelines no related reserves have been recorded at December 31, 2016.

The Company has guaranteed the full faith and complete performance of Mid-West National Life Insurance Company of Tennessee (Mid-West), an unaffiliated company, through execution of a Cut-Through Endorsement and Substitution Agreement and a Stop-Loss Reinsurance Agreement, with respect to the obligations of Mid-West on a block of annuity contracts assumed by Mid-West from Mutual Security Life Insurance Company in Liquidation (Transferred Contracts). The Company agrees to substitute itself in Mid-West’s place with respect to the Transferred Contracts if Mid-West fails to perform any of the terms, duties, and conditions of the reinsurance agreement between Mid-West and Mutual Security Life Insurance Company. This guarantee is in force until all duties and obligations of the Transferred Contracts and the agreements have been completely satisfied. Wilton Reinsurance Company has agreed to reimburse TLIC for any payments made. As of December 31, 2016, the most recent reserve balance reported to the Company (as of September 30, 2016) is $8,290. As of December 31, 2016, the Company does not anticipate future action under the guarantee will be required.

The Company is a party to legal proceedings involving a variety of issues incidental to its business, including class actions. Lawsuits may be brought in nearly any federal or state court in the United States or in an arbitral forum. In addition, there continues to be significant federal and state regulatory activity relating to financial services companies. The Company’s legal proceedings are subject to many variables, and given its complexity and scope, outcomes cannot be predicted with certainty. Although legal proceedings sometimes include substantial demands for compensatory and punitive damages, and injunctive relief, it is management’s opinion that damages arising from such demands will not be material to the Company’s financial position.

The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company, except where right of offset against other taxes paid is allowed by law. Amounts available for future offsets are recorded as an asset on the Company’s balance sheet. The future obligation for known insolvencies has been accrued based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Associations. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The Company has established a reserve of $20,034 and $6,375 and an offsetting premium tax benefit of $13,593 and $3,205 at December 31, 2016 and 2015, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The guaranty fund (benefit) expense was $6,142, $1,112 and $(57), for the years ended December 31, 2016, 2015 and 2014, respectively.

 

108

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

14. Sales, Transfer, and Servicing of Financial Assets and Extinguishments of Liabilities

The Company has recorded liabilities of $91,808 and $90,299 for municipal repurchase agreements as of December 31, 2016 and 2015, respectively. The repurchase agreements are primarily collateralized by investment-grade corporate bonds with book values of $147,444 and $109,792, respectively, and fair values of $156,407 and $114,644, respectively, as of December 31, 2016 and 2015. These securities have maturity dates that range from 2017 to 2097.

For repurchase agreements, the Company rigorously manages asset/liability risks via an integrated risk management framework. The Company’s liquidity position is monitored constantly, and factors heavily in the management of the asset portfolio. Projections comparing liquidity needs to available resources in both adverse and routine scenarios are refreshed monthly. The results of these projections on time horizons ranging from 16 months to 24 months are the basis for the near-term liquidity planning. This liquidity model excludes new business (non applicable for the spread business), renewals and other sources of cash and assumes all liabilities are paid off on the earliest dates required. Interest rate risk is carefully managed, in part through rigorously defined and monitored derivatives programs.

The Company enters into dollar repurchase agreements in which securities are delivered to the counterparty once adequate collateral has been received. At December 31, 2016 and 2015, the Company had dollar repurchase agreements outstanding in the amount of $453,474 and $705,253, respectively. The Company had an outstanding liability for borrowed money in the amount $445,656 and $496,529, which included accrued interest of $1,217 and $1,941, at December 31, 2016 and 2015, respectively due to participation in dollar repurchase agreements.

The contractual maturities of the dollar repurchase agreement positions are as follows:

 

     Fair Value  

Open

    $ 444,439  

30 days or less

      —    

31 to 60 days

      —    

61 to 90 days

      —    

Greater than 90 days

      —    
  

 

 

  

Total

      444,439  

Securities received

      —    
  

 

 

  

Total collateral received

    $ 444,439  
  

 

 

  

 

109

Table of Contents

Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

In the course of the Company’s asset management, securities are sold and reacquired within 30 days of the sale date to enhance the Company’s yield on its investment portfolio. The details by NAIC designation 3 or below of securities sold during 2016 and reacquired within 30 days of the sale date are:

 

     Number of
Transactions		      Book Value of
Securities
Sold		      Cost of
Securities
Repurchased		      Gain/(Loss)  

Bonds:

            

NAIC 4

      1      $ 1,071      $ 1,067      $ 4  

Common stocks:

            

NAIC L

      2      $ 8      $ 8      $ 1  

15. Reconciliation to Statutory Statement

The following is a reconciliation of amounts previously reported to the Iowa Department of Financial Regulation in the 2016 Annual Statement, to those reported in the accompanying statutory-basis financial statements:

 

     December 31,
2016		  

Balance Sheet

   

Total assets as reported in the Company’s Annual Statement

    $ 131,790,028  

Increase in receivable from parent, subsidiaries and affiliates

      111,305  

Decrease in other invested asset receivable

      (111,305 ) 
  

 

 

  

Total assets as reported in the accompanying audited statutory basis balance sheet

    $ 131,790,028  
  

 

 

  

Statement of Cash Flow

   

Investing activities

   

Total net cash from investing activities in the Company’s Annual Statement

    $ (1,613,038 ) 

Decrease in miscellaneous applications

      111,610  
  

 

 

  

Total net cash from investing activities as reported in the accompanying audited statutory basis statement of cash flow

    $ (1,501,428 ) 

Financing and miscellaneous activities

   

Total net cash from financing and miscellaneous sources in the Company’s Annual Statement

    $ 625,357  

Increase in change in receivable from parent, subsidaries, and affiliates

      (111,610 ) 
  

 

 

  

Total net cash from financing and miscellaneous sources as reported in the accompanying audited statutory basis statement of cash flow

    $ 513,747  

In the 2016 Annual Statement, a receivable was incorrectly classified as an other invested asset rather than a receivable from parent, subsidiaries and affiliates.

 

110

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Transamerica Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

16. Subsequent Events

The financial statements are adjusted to reflect 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 (Type I). 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 (Type II). The Company has not identified any Type I or Type II subsequent events for the year ended December 31, 2016 through April 24, 2017.

 

111

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Transamerica Life Insurance Company

Appendix A – Listing of Affiliated Companies

Transamerica Corporation

EIN: 42-1484983

AFFILIATIONS SCHEDULE

YEAR ENDED DECEMBER 31, 2016

Attachment to Note 7

 

Entity Name

    FEIN  

Transamerica Corporation

      42-1484983  

AEGON Alliances Inc

      56-1358257  

AEGON Asset Management Services Inc

      39-1884868  

AEGON Assignment Corp (Illinois)

      42-1477359  

AEGON Assignment Corp of Kentucky

      61-1314968  

AEGON Direct Marketing Services Inc

      42-1470697  

AEGON Direct Marketing Services International Inc

      52-1291367  

AEGON Financial Services Group Inc

      41-1479568  

AEGON Institutional Markets Inc

      61-1085329  

AEGON Management Company

      35-1113520  

AEGON Structured Settlements Inc

      61-1068209  

AEGON USA Real Estate Services Inc

      61-1098396  

AEGON USA Realty Advisors of CA FKA Pensaprima Inc

      20-5023693  

AFSG Securities Corporation

      23-2421076  

AUSA Properties Inc

      27-1275705  

Commonwealth General Corporation

      51-0108922  

Creditor Resources Inc

      42-1079584  

CRI Solutions Inc

      52-1363611  

Financial Planning Services Inc

      23-2130174  

Firebird Reinsurance Corporation

      47-3331975  

Garnet Assurance Corporation

      11-3674132  

Garnet Assurance Corporation II

      14-1893533  

Garnet Assurance Corporation III

      01-0947856  

Global Preferred RE LTD

      98-0164807  

Intersecurities Ins Agency

      42-1517005  

Investors Warranty of America Inc

      42-1154276  

LIICA RE I

      20-5984601  

LIICA RE II

      20-5927773  

 

112

Table of Contents

Transamerica Life Insurance Company

Appendix A – Listing of Affiliated Companies (continued)

 

Transamerica Corporation

EIN: 42-1484983

AFFILIATIONS SCHEDULE

YEAR ENDED DECEMBER 31, 2016

Attachment to Note 7

 

Entity Name

    FEIN  

Massachusetts Fidelity Trust

      42-0947998  

MLIC RE I Inc

      01-0930908  

Money Services Inc

      42-1079580  

Monumental General Administrators Inc

      52-1243288  

Pearl Holdings Inc I

      20-1063558  

Pearl Holdings Inc II

      20-1063571  

Pine Falls Re Inc

      26-1552330  

Real Estate Alternatives Portfolio 3A Inc

      20-1627078  

River Ridge Insurance Company

      20-0877184  

Short Hills Management

      42-1338496  

Stonebridge Benefit Services Inc

      75-2548428  

Stonebridge Reinsurance Company

      61-1497252  

TCF Asset Management Corp

      84-0642550  

TCFC Air Holdings Inc

      32-0092333  

TCFC Asset Holdings Inc

      32-0092334  

TLIC Oakbrook Reinsurance Inc.

      47-1026613  

TLIC Riverwood Reinsurance Inc

      45-3193055  

TLIC Watertree Reinsurance Inc

      81-3715574  

Tranasmerica Advisors Life Insurance Company (FKA MLLIC)

      91-1325756  

Transamerica Accounts Holding Corp

      36-4162154  

Transamerica Affinity Services Inc

      42-1523438  

Transamerica Affordable Housing Inc

      94-3252196  

Transamerica Agency Network Inc (FKA: Life Inv Fin Group)

      61-1513662  

Transamerica Annuity Service Corporation

      85-0325648  

Transamerica Asset Management (fka Transamerica Fund Adviso)

      59-3403585  

Transamerica Capital Inc

      95-3141953  

Transamerica Casualty Insurance Company

      31-4423946  

Transamerica Commercial Finance Corp I

      94-3054228  

Transamerica Consumer Finance Holding Company

      95-4631538  

Transamerica Corporation (OREGON)

      98-6021219  

Transamerica Distribution Finance Overseas Inc

      36-4254366  

Transamerica Finance Corporation

      95-1077235  

 

113

Table of Contents

Transamerica Life Insurance Company

Appendix A – Listing of Affiliated Companies (continued)

 

Transamerica Corporation

EIN: 42-1484983

AFFILIATIONS SCHEDULE

YEAR ENDED DECEMBER 31, 2016

Attachment to Note 7

 

Entity Name

    FEIN  

Transamerica Financial Advisors FKA InterSecurities

      59-2476008  

Transamerica Financial Life Insurance Company

      36-6071399  

Transamerica Fund Services Inc

      59-3403587  

Transamerica Home Loan

      95-4390993  

Transamerica International Re (Bermuda) Ltd

      98-0199561  

Transamerica Investors Securities Corp

      13-3696753  

Transamerica Leasing Holdings Inc

      13-3452993  

Transamerica Life Insurance Company

      39-0989781  

Transamerica Pacific Insurance Co Ltd

      94-3304740  

Transamerica Premier Life Insurance Company

      52-0419790  

Transamerica Resources Inc (FKA: Nat Assoc Mgmt)

      52-1525601  

Transamerica Small Business Capital Inc

      36-4251204  

Transamerica Stable Value Solutions Inc

      27-0648897  

Transamerica Vendor Financial Services Corporation

      36-4134790  

United Financial Services Inc

      52-1263786  

WFG China Holdings Inc

      20-2541057  

World Fin Group Ins Agency of Massachusetts Inc

      04-3182849  

World Financial Group Inc

      42-1518386  

World Financial Group Ins Agency of Hawaii Inc

      99-0277127  

World Financial Group Insurance Agency of WY Inc

      42-1519076  

World Financial Group Insurance Agency

      95-3809372  

Zahorik Company Inc

      95-2775959  

Zero Beta Fund LLC

      26-1298094  

 

114

Table of Contents

Statutory-Basis Financial

Statement Schedules

Table of Contents

Transamerica Life Insurance Company

Summary of Investments – Other Than

Investments in Related Parties

(Dollars in Thousands)

December 31, 2016

SCHEDULE I

 

                   Amount at  
                   Which Shown  
            Fair      in the  

Type of Investment

    Cost (1)      Value      Balance Sheet (2)  

Fixed maturities

         

Bonds:

         

United States government and government agencies and authorities

    $ 8,179,856      $ 8,441,228      $ 8,229,805  

States, municipalities and political subdivisions

      1,440,915        1,423,882        1,440,864  

Foreign governments

      399,387        409,234        399,387  

Hybrid securities

      649,843        636,492        649,822  

All other corporate bonds

      27,930,336        30,832,582        27,907,174  

Preferred stocks

      95,648        94,325        95,547  
  

 

 

     

 

 

     

 

 

  

Total fixed maturities

      38,695,985        41,837,743        38,722,599  

Equity securities

         

Common stocks:

         

Industrial, miscellaneous and all other

      179,505        194,833        194,833  
  

 

 

     

 

 

     

 

 

  

Total equity securities

      179,505        194,833        194,833  

Mortgage loans on real estate

      5,641,558           5,641,558  

Real estate

      121,897           121,897  

Policy loans

      607,746           607,746  

Other long-term investments

      764,618           764,618  

Receivable for Securities

      120,312           120,312  

Securities Lending

      2,303,603           2,303,603  

Cash, cash equivalents and short-term investments

      1,470,814           1,470,814  
  

 

 

        

 

 

  

Total investments

    $ 49,906,038         $ 49,947,980  
  

 

 

        

 

 

  

 

(1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts.
(2) United States government, state, municipal and political, hybrid and corporate bonds of $42,659 are held at fair value rather than amortized cost due to having an NAIC 6 rating. A preferred stock security is held at its fair value of $3,153 due to having an NAIC 6 rating.

 

116

Table of Contents

Transamerica Life Insurance Company

Supplementary Insurance Information

(Dollars in Thousands)

SCHEDULE III

 

                                  Benefits,        
                                  Claims        
    Future Policy           Policy and           Net     Losses and     Other  
    Benefits and     Unearned     Contract     Premium     Investment     Settlement     Operating  
    Expenses     Premiums     Liabilities     Revenue     Income*     Expenses     Expenses*  

Year ended December 31, 2016

              

Individual life

   $ 14,039,759     $ —       $ 241,127     $ 1,044,264     $ 741,186     $ 1,793,850     $ 856,746  

Individual health

     4,102,287       96,408       177,690       128,097       285,489       358,011       164,250  

Group life and health

     1,920,903       26,223       111,533       646,226       123,645       395,670       313,984  

Annuity

     17,189,479       —         18,703       12,204,066       1,016,736       11,951,569       2,040,802  

Other

     —         —         —         —         286,762       —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 37,252,428     $ 122,631     $ 549,053     $ 14,022,653     $ 2,453,818     $ 14,499,100     $ 3,375,782  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Year ended December 31, 2015

              

Individual life

   $ 14,281,360     $ —       $ 294,838     $ 973,383     $ 725,919     $ 2,085,979     $ 800,784  

Individual health

     3,825,220       101,563       171,161       247,524       281,181       465,188       259,508  

Group life and health

     1,893,922       26,260       109,739       664,396       95,206       277,444       307,198  

Annuity

     15,700,664       —         25,920       12,919,985       1,109,860       8,792,427       5,983,656  

Other

     —         —         —         —         114,826       —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 35,701,166     $ 127,823     $ 601,658     $ 14,805,288     $ 2,326,992     $ 11,621,038     $ 7,351,146  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Year ended December 31, 2014

              

Individual life

   $ 14,077,989     $ —       $ 235,349     $ 2,255,406     $ 784,891     $ 1,474,878     $ 2,078,598  

Individual health

     3,469,272       108,308       173,505       (3,366,284 )      233,091       593,464       184,228  

Group life and health

     2,039,392       26,474       111,607       709,068       167,144       418,964       402,714  

Annuity

     17,498,115       —         22,001       16,656,874       1,174,388       9,961,398       8,490,721  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 37,084,768     $ 134,782     $ 542,462     $ 16,255,064     $ 2,359,514     $ 12,448,704     $ 11,156,261  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

* Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied.

 

117

Table of Contents

Transamerica Life Insurance Company

Reinsurance

(Dollars in Thousands)

SCHEDULE IV

 

                  Assumed            Percentage  
            Ceded to     From            of Amount  
     Gross      Other     Other      Net     Assumed  
     Amount      Companies     Companies      Amount     to Net  

Year ended December 31, 2016

             

Life insurance in force

    $ 529,122,141      $ 916,395,356     $ 525,650,271      $ 138,377,056       380 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Premiums:

             

Individual life

    $ 2,501,843      $ 2,887,979     $ 1,430,399      $ 1,044,263       137 % 

Individual health

      554,332        431,437       5,202        128,097       4 % 

Group life and health

      820,508        203,774       29,492        646,226       5 % 

Annuity

      10,204,544        (1,953,227 )      46,295        12,204,066       0 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  
   $ 14,081,227      $ 1,569,963     $ 1,511,388      $ 14,022,652       11 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Year ended December 31, 2015

             

Life insurance in force

    $ 526,735,949      $ 884,406,081     $ 541,956,160      $ 184,286,028       294 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Premiums:

             

Individual life

    $ 2,399,330      $ 2,771,123     $ 1,345,164      $ 973,371       138 % 

Individual health

      705,974        468,848       11,260        248,386       5 % 

Group life and health

      864,846        234,779       34,330        664,397       5 % 

Annuity

      13,651,819        826,310       94,476        12,919,985       1 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  
   $ 17,621,969      $ 4,301,060     $ 1,485,230      $ 14,806,139       10 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Year ended December 31, 2014

             

Life insurance in force

    $ 495,242,330      $ 938,375,587     $ 580,466,611      $ 137,333,354       423 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Premiums:

             

Individual life

    $ 2,671,642      $ 1,856,326     $ 1,440,367      $ 2,255,683       64 % 

Individual health

      638,552        4,021,733       16,898        (3,366,283 )      -1 % 

Group life and health

      855,114        185,824       39,779        709,069       6 % 

Annuity

      14,697,625        (1,859,920 )      99,330        16,656,875       1 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  
   $ 18,862,933      $ 4,203,963     $ 1,596,374      $ 16,255,344       10 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

 

118

Table of Contents

FINANCIAL STATEMENTS

Transamerica Life Insurance Company

Separate Account VA B

Years Ended December 31, 2016 and 2015

Table of Contents

Transamerica Life Insurance Company

Separate Account VA B

Financial Statements

Years Ended December 31, 2016 and 2015

Contents

 

Report of Independent Registered Public Accounting Firm

      1  

Financial Statements

   

Statements of Assets and Liabilities

      2  

Statements of Operations and Changes in Net Assets

      7  

Notes to Financial Statements

      34  

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Contract Owners of

Subaccounts of Separate Account VA B and

Board of Directors of

Transamerica Life Insurance Company

In our opinion, for each of the subaccounts of Separate Account VA B indicated in the table below, the accompanying statements of assets and liabilities, and the related statement of operations and change in net assets present fairly, in all material respects, the financial position of each of the subaccounts of Separate Account VA B as of the date indicated in the table, and the results of each of their operations and 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 Transamerica 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 securities as of December 31, 2016 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinions.

 

AB Balanced Wealth Strategy Class B Shares (1)    TA BlackRock Tactical Allocation Service Class (1)
AB Growth and Income Class B Shares (1)    TA Clarion Global Real Estate Securities Initial Class (1)
AB Large Cap Growth Class B Shares (1)    TA Clarion Global Real Estate Securities Service Class (1)
American Funds - Asset Allocation Class 2 Shares (1)    TA International Moderate Growth Initial Class (1)
American Funds - Bond Class 2 Shares (1)    TA International Moderate Growth Service Class (1)
American Funds - Growth Class 2 Shares (1)    TA Janus Balanced Service Class (1)
American Funds - Growth-Income Class 2 Shares (1)    TA Janus Mid-Cap Growth Initial Class (1)
American Funds - International Class 2 Shares (1)    TA Janus Mid-Cap Growth Service Class (1)
BlackRock Basic Value V.I. Class I Shares (1)    TA Jennison Growth Initial Class (1)
BlackRock Global Allocation V.I. Class I Shares (1)    TA Jennison Growth Service Class (1)
BlackRock High Yield V.I. Class I Shares (1)    TA JPMorgan Core Bond Service Class (1)
Catalyst Dividend Capture VA (1)    TA JPMorgan Enhanced Index Initial Class (1)
Catalyst Insider Buying VA (1)    TA JPMorgan Enhanced Index Service Class (1)
Fidelity® VIP Balanced Service Class 2 (1)    TA JPMorgan Mid Cap Value Service Class (1)
Fidelity® VIP Contrafund® Initial Class (1)    TA JPMorgan Tactical Allocation Service Class (1)
Fidelity® VIP Contrafund® Service Class 2 (1)   

TA Legg Mason Dynamic Allocation - Balanced Service

Class (1)

Fidelity® VIP Equity-Income Initial Class (1)   

TA Legg Mason Dynamic Allocation - Growth Service

Class (1)

Fidelity® VIP Equity-Income Service Class 2 (1)    TA Madison Balanced Allocation Service Class (1)
Fidelity® VIP Growth Initial Class (1)    TA Madison Conservative Allocation Service Class (1)
Fidelity® VIP Growth Service Class 2 (1)    TA Madison Diversified Income Service Class (1)
Fidelity® VIP Growth Opportunities Service Class 2 (1)    TA Managed Risk - Balanced ETF Service Class (1)
Fidelity® VIP Mid Cap Initial Class (1)    TA Managed Risk - Conservative ETF Service Class (1)
Fidelity® VIP Mid Cap Service Class 2 (1)    TA Managed Risk - Growth ETF Service Class (1)
Fidelity® VIP Value Strategies Initial Class (1)    TA Market Participation Strategy Service Class (1)
Fidelity® VIP Value Strategies Service Class 2 (1)    TA MFS International Equity Initial Class (1)
Franklin Founding Funds Allocation Class 4 Shares (1)    TA MFS International Equity Service Class (1)
Franklin Income Class 2 Shares (1)    TA Morgan Stanley Capital Growth Initial Class (1)
Franklin Mutual Shares Class 2 Shares (1)    TA Morgan Stanley Capital Growth Service Class (1)
Franklin Templeton Foreign Class 2 Shares (1)    TA Multi-Managed Balanced Initial Class (1)
Invesco V.I. American Franchise Series II Shares (1)    TA Multi-Managed Balanced Service Class (1)
Invesco V.I. Value Opportunities Series II Shares (1)    TA Multi-Manager Alternative Strategies Service Class (1)
Janus Aspen - Enterprise Service Shares (1)    TA PIMCO Tactical - Balanced Service Class (1)
Janus Aspen - Global Research Service Shares (1)    TA PIMCO Tactical - Conservative Service Class (1)
Janus Aspen - Perkins Mid Cap Value Service Shares (1)    TA PIMCO Tactical - Growth Service Class (1)
MFS® New Discovery Service Class (1)    TA PIMCO Total Return Initial Class (1)
MFS® Total Return Service Class (1)    TA PIMCO Total Return Service Class (1)
NVIT Emerging Markets Class D Shares (4)    TA PineBridge Inflation Opportunities Service Class (1)
State Street Total Return V.I.S. Class 3 Shares (1)    TA ProFunds UltraBear Service Class (OAM) (1)
TA AB Dynamic Allocation Initial Class (1)    TA QS Investors Active Asset Allocation - Conservative Service Class (1)
TA AB Dynamic Allocation Service Class (1)    TA QS Investors Active Asset Allocation - Moderate Service Class (1)
TA Aegon Government Money Market Initial Class (1)    TA QS Investors Active Asset Allocation - Moderate Growth Service Class (1)
TA Aegon Government Money Market Service Class (1)    TA Small/Mid Cap Value Initial Class (1)
TA Aegon High Yield Bond Initial Class (1)    TA Small/Mid Cap Value Service Class (1)
TA Aegon High Yield Bond Service Class (1)    TA T. Rowe Price Small Cap Initial Class (1)
TA Aegon U.S. Government Securities Initial Class (1)    TA T. Rowe Price Small Cap Service Class (1)
TA Aegon U.S. Government Securities Service Class (1)    TA Torray Concentrated Growth Initial Class (1)
TA American Funds Managed Risk - Balanced Service Class (2)    TA Torray Concentrated Growth Service Class (1)
TA Asset Allocation - Conservative Initial Class (1)    TA TS&W International Equity Initial Class (1)
TA Asset Allocation - Conservative Service Class (1)    TA TS&W International Equity Service Class (1)
TA Asset Allocation - Growth Initial Class (1)    TA WMC US Growth Initial Class (1)
TA Asset Allocation - Growth Service Class (1)    TA WMC US Growth Service Class (1)
TA Asset Allocation - Moderate Initial Class (1)    Vanguard® Equity Index (1)
TA Asset Allocation - Moderate Service Class (1)    Vanguard® International (1)
TA Asset Allocation - Moderate Growth Initial Class (1)    Vanguard® Mid-Cap Index (1)
TA Asset Allocation - Moderate Growth Service Class (1)    Vanguard® REIT Index (1)
TA Barrow Hanley Dividend Focused Initial Class (1)    Vanguard® Short-Term Investment Grade (1)
TA Barrow Hanley Dividend Focused Service Class (1)    Vanguard® Total Bond Market Index (1)
TA BlackRock Equity Smart Beta 100 Service Class (3)    Voya Global Perspectives Class S Shares (2)
TA BlackRock Global Allocation Service Class (1)    Voya Large Cap Value Class S Shares (2)
TA BlackRock Global Allocation Managed Risk - Balanced Service Class (1)    Voya Strategic Allocation Conservative Class S Shares (2)
TA BlackRock Global Allocation Managed Risk - Growth Service Class (1)    Voya Strategic Allocation Moderate Class S Shares (2)
TA BlackRock Smart Beta 50 Service Class (3)    Wanger International (1)
TA BlackRock Smart Beta 75 Service Class (3)    Wanger USA (1)

 

(1) Statement of assets and liabilities as of December 31, 2016, and statement of operations and change in net assets for the years ended December 31, 2016 and 2015
(2) Statement of assets and liabilities as of December 31, 2016 and statement of operations and change in net assets for the year ended December 31, 2016 and the period May 1, 2015 (commencement of operations) through December 31, 2015
(3) Statement of assets and liabilities as of December 31, 2016 and statement of operations and change in net assets for the period March 21, 2016 (commencement of operations) through December 31, 2016
(4) Statement of assets and liabilities as of December 31, 2016 and statement of operations and change in net assets for the period August 4, 2016 (commencement of operations) through December 31, 2016

/s/PricewaterhouseCoopers LLP

Chicago, Illinois

April 24, 2017

Table of Contents

FINANCIAL STATEMENTS AND SCHEDULES –

STATUTORY BASIS

Transamerica Financial Life Insurance Company

Years Ended December 31, 2016, 2015 and 2014

Table of Contents

Transamerica Financial Life Insurance Company

Financial Statements – Statutory Basis

and Supplementary Information

Years Ended December 31, 2016, 2015, and 2014

Contents

 

Report of Independent Auditors

     1  

Audited Financial Statements

   

Balance Sheets – Statutory Basis

      3  

Statements of Operations – Statutory Basis

      5  

Statements of Changes in Capital and Surplus – Statutory Basis

      7  

Statements of Cash Flow – Statutory Basis

      9  

Notes to Financial Statements – Statutory Basis

      11  

Appendix A – Listing of Affiliated Companies

      75  

Statutory – Basis Financial Statement Schedules

   

Summary of Investments – Other Than Investments in Related Parties

     79  

Supplementary Insurance Information

      80  

Reinsurance

      81  

Table of Contents

LOGO

Report of Independent Auditors

To the Board of Directors of

Transamerica Financial Life Insurance Company

We have audited the accompanying statutory financial statements of Transamerica Financial Life Insurance Company (“the Company”), which comprise the statutory balance sheets as of December 31, 2016 and 2015 and the related statutory statements of operations, of changes in capital and surplus, and of cash flows for the years ended December 31, 2016, 2015 and 2014.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Note 1 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the New York State Department of Financial Services, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the financial statements of the variances between the statutory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

PricewaterhouseCoopers LLP, 1 N Upper Wacker Drive, Chicago, IL 60606

T: 312-298-2000, F: , www.pwc.com

 

1

Table of Contents

LOGO

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the “Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles” paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2016 and 2015, or the results of its operations or its cash flows for the years ended December 31, 2016, 2015 and 2014.

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and surplus of the Company as of December 31, 2016 and 2015 and the results of its operations and its cash flows for the years ended December 31, 2016, 2015 and 2014, in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services described in Note 1.

Other Matter

Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Summary of Investments-Other Than Investments in Related Parties as of December 31, 2016 and the Supplementary Insurance Information and Reinsurance as of December 31, 2016 and 2015 and for the years then ended are presented for purposes of additional analysis and are not a required part of the financial statements. The Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The effects on the Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. As a consequence, the Summary of Investments-Other Than Investments in Related Parties as of December 31, 2016 and the Supplementary Insurance Information and Reinsurance as of December 31, 2016 and 2015 and for the years then ended do not present fairly, in conformity with accounting principles generally accepted in the United States of America. The Summary of Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance have been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the of Summary Investments-Other Than Investments in Related Parties, Supplementary Insurance Information and Reinsurance are fairly stated, in all material respects, in relation to the financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

April 21, 2017

PricewaterhouseCoopers LLP, 1 N Upper Wacker Drive, Chicago, IL 60606

T: 312-298-2000, F: , www.pwc.com

 

2

Table of Contents

Transamerica Financial Life Insurance Company

Balance Sheets – Statutory Basis

(Dollars in Thousands, Except per Share Amounts)

 

     December 31  
     2016      2015  

Admitted assets

      

Cash and invested assets:

      

Cash, cash equivalents and short-term investments

    $ 420,915      $ 319,700  

Bonds

      6,401,964        6,851,692  

Preferred stocks

      4,552        3,269  

Common stocks:

      

Affiliated entities (cost: 2016 - $3,544; 2015 - $4,227)

      3,025        3,573  

Unaffiliated entities (cost: 2016 - $0; 2015 - $134)

      —          124  

Mortgage loans on real estate

      1,243,156        950,309  

Real estate: Properties held for sale

      3,600        —    

Policy loans

      122,026        119,525  

Receivables for securities

      927        1,328  

Securities lending reinvested collateral assets

      307,732        433,653  

Derivatives

      85,941        63,966  

Receivable for derivative cash collateral posted to counterparty

      280        12,353  

Other invested assets

      226,054        192,035  
  

 

 

     

 

 

  

Total cash and invested assets

      8,820,172        8,951,527  

Accrued investment income

      85,930        86,000  

Premiums deferred and uncollected

      13,792        16,461  

Current federal income tax recoverable

      39,091        12,143  

Net deferred income tax asset

      48,911        54,458  

Reinsurance receivables

      16,370        18,233  

Other assets

      12,722        26,901  

Separate account assets

      23,281,407        22,369,554  
  

 

 

     

 

 

  

Total admitted assets

    $ 32,318,395      $ 31,535,277  
  

 

 

     

 

 

  

 

3

Table of Contents

Transamerica Financial Life Insurance Company

Balance Sheets – Statutory Basis (continued)

(Dollars in Thousands, Except per Share Data)

 

     December 31  
     2016     2015  

Liabilities and capital and surplus

     

Liabilities:

     

Aggregate reserves for policies and contracts:

     

Life

    $ 1,209,435     $ 1,116,951  

Annuity

      5,775,761       5,775,613  

Accident and health

      153,469       152,756  

Policy and contract claim reserves:

     

Life

      19,869       17,125  

Annuity

      686       937  

Accident and health

      21,459       32,821  

Liability for deposit-type contracts

      55,021       59,701  

Other policyholders’ funds

      2,131       1,478  

Commissions & expense allowances payable on reins assum

      16,177       12,327  

Transfers from separate accounts due or accrued

      (363,988 )      (195,550 ) 

Unearned investment income

      8,769       —    

Remittances and items not allocated

      339,062       144,319  

Asset valuation reserve

      124,698       117,572  

Interest maintenance reserve

      62,056       68,341  

Derivatives

      99,747       46,478  

Payable for derivative cash collateral

      42,500       28,953  

Payable for securities

      774       79,477  

Payable for securities lending

      307,732       433,653  

Borrowed money

      20,005       31,526  

Payable to parent, subsidiaries and affiliates

      12,714       26,231  

Other liabilities

      36,606       47,630  

Separate account liabilities

      23,281,407       22,369,552  
  

 

 

    

 

 

  

Total liabilities

      31,226,090       30,367,891  

Capital and surplus:

     

Common stock, $125 per share par value, 17,142 shares authorized, issued and outstanding

      2,143       2,143  

Preferred stock, $10 per share par value, 45,981 shares authorized, issued and outstanding

      460       460  

Surplus notes

      —         150,000  

Paid-in surplus

      933,659       933,659  

Special surplus funds

      9,509       8,653  

Unassigned surplus

      146,534       72,471  
  

 

 

    

 

 

  

Total capital and surplus

      1,092,305       1,167,386  
  

 

 

    

 

 

  

Total liabilities and capital and surplus

    $ 32,318,395     $ 31,535,277  
  

 

 

    

 

 

  

See accompanying notes.

 

4

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Operations – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Revenues:

       

Premiums and other considerations, net of reinsurance:

       

Life

    $ 178,751     $ 163,715     $ 145,665  

Annuity

      5,469,296       5,524,045       5,180,015  

Accident and health

      127,213       125,234       113,966  

Net investment income

      395,527       401,084       410,350  

Amortization of interest maintenance reserve

      12,802       14,464       16,342  

Commissions and expense allowances on reinsurance ceded

      95,424       76,294       50,250  

Income from fees associated with investment management, administration and contract guarantees for separate accounts

      180,835       178,533       168,948  

Income from fees associated with investment management, administration and contract guarantees for general accounts

      51,462       60,118       38,954  

Other income

      39,786       37,333       34,810  
  

 

 

    

 

 

    

 

 

  
     6,551,096       6,580,820       6,159,300  

Benefits and expenses:

       

Benefits paid or provided for:

       

Life benefits

      73,456       76,149       62,203  

Annuity benefits

      121,979       127,894       124,851  

Accident and health benefits

      58,684       74,781       63,638  

Surrender benefits

      5,651,094       5,009,782       5,462,477  

Other benefits

      10,097       9,958       10,037  

Increase (decrease) in aggregate reserves for policies and contracts:

       

Life

      92,483       67,393       304,220  

Annuity

      148       (282,017 )      (456,213 ) 

Accident and health

      713       15,812       3,482  
  

 

 

    

 

 

    

 

 

  
     6,008,655       5,099,752       5,574,695  

Insurance expenses:

       

Commissions

      164,667       185,806       183,813  

General insurance expenses

      134,108       148,335       152,242  

Taxes, licenses and fees

      15,996       13,337       10,334  

Net transfers to (from) separate accounts

      (79,281 )      783,118       101,563  

Experience refunds

      239       100       567  

Interest on surplus notes

      9,167       9,375       9,375  

Other expenses

      (5,397 )      (4,328 )      (3,819 ) 
  

 

 

    

 

 

    

 

 

  
     239,499       1,135,743       454,075  
  

 

 

    

 

 

    

 

 

  

Total benefits and expenses

      6,248,154       6,235,495       6,028,770  
  

 

 

    

 

 

    

 

 

  

Gain (loss) from operations before federal income tax expense (benefit) and net realized capital gains (losses) on investments

    $ 302,942     $ 345,325     $ 130,530  

 

5

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Operations – Statutory Basis (continued)

(Dollars in Thousands)

 

Federal income tax expense (benefit)

    $ 42,388     $ 54,965     $ 73,027  
  

 

 

    

 

 

    

 

 

  

Gain (loss) from operations before and net realized capital gains (losses) on investments

      260,554       290,360       57,503  

Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to/from interest maintenance reserve)

      (35,577 )      (30,484 )      (33,574 ) 
  

 

 

    

 

 

    

 

 

  

Net income (loss)

    $ 224,977     $ 259,876     $ 23,929  
  

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

6

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Changes in Capital and

Surplus – Statutory Basis

(Dollars in Thousands)

 

                            Special     Unassigned     Total  
    Common     Preferred     Surplus     Paid-in     Surplus     (Deficit)     Capital and  
    Stock     Stock     Notes     Surplus     Funds     Surplus     Surplus  

Balance at January 1, 2014

   $ 2,143     $ 460     $ 150,000     $ 933,659     $ 8,085     $ (66,719 )    $ 1,027,628  

Net income (loss)

     —         —         —         —         674       23,255       23,929  

Change in net unrealized capital gains/losses, net of tax

     —         —         —         —         —         41,844       41,844  

Change in net unrealized foreign gains/losses, net of tax

     —         —         —         —         —         36       36  

Change in nonadmitted assets

     —         —         —         —         —         (44,910 )      (44,910 ) 

Change in asset valuation reserve

     —         —         —         —         —         24,045       24,045  

Surplus withdrawn from separate account

     —         —         —         —         —         (1 )      (1 ) 

Change in net deferred income tax asset

     —         —         —         —         —         42,825       42,825  

Change in surplus as result of reinsurance

     —         —         —         —         —         (8,281 )      (8,281 ) 

Dividends to stockholders

     —         —         —         —         —         (150,000 )      (150,000 ) 

Change in reserve on account of change in valuation basis

     —         —         —         —         —         582       582  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2014

   $ 2,143     $ 460     $ 150,000     $ 933,659     $ 8,759     $ (137,324 )    $ 957,697  

Net income (loss)

     —         —         —         —         (106 )      259,982       259,876  

Change in net unrealized capital gains/losses, net of tax

     —         —         —         —         —         2,413       2,413  

Change in net deferred income tax asset

     —         —         —         —         —         (22,410 )      (22,410 ) 

Change in nonadmitted assets

     —         —         —         —         —         13,526       13,526  

Change in provision for reinsurance in unauthorized companies

     —         —         —         —         —         (2,468 )      (2,468 ) 

Change in reserve on account of change in valuation basis

     —         —         —         —         —         (1,142 )      (1,142 ) 

Change in asset valuation reserve

     —         —         —         —         —         (5,569 )      (5,569 ) 

Change in surplus in separate accounts

     —         —         —         —         —         (2 )      (2 ) 

Change in surplus as a result of reinsurance

     —         —         —         —         —         (34,253 )      (34,253 ) 

Cumulative effect of changes in accounting principles

     —         —         —         —         —         (282 )      (282 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2015

   $ 2,143     $ 460     $ 150,000     $ 933,659     $ 8,653     $ 72,471     $ 1,167,386  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

7

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Changes in Capital and Surplus – Statutory Basis (continued)

(Dollars in Thousands)

 

                                Special            Total  
     Common      Preferred      Surplus     Paid-in      Surplus      Unassigned     Capital and  
     Stock      Stock      Notes     Surplus      Funds      Surplus     Surplus  

Balance at December 31, 2015

    $ 2,143      $ 460      $ 150,000     $ 933,659      $ 8,653        72,471     $ 1,167,386  

Net income (loss)

      —          —          —         —          856        224,121       224,977  

Change in net unrealized capital gains/losses, net of tax

      —          —          —         —          —          (20,924 )      (20,924 ) 

Change in net deferred income tax asset

      —          —          —         —          —          3,541       3,541  

Change in other nonadmitted assets

      —          —          —         —          —          4,751       4,751  

Change in asset valuation reserve

      —          —          —         —          —          (7,126 )      (7,126 ) 

Change in surplus as a result of reinsurance

      —          —          —         —          —          (61,046 )      (61,046 ) 

Change in surplus notes

      —          —          (150,000 )      —          —          —         (150,000 ) 

Dividends to stockholders

      —          —          —         —          —          (70,000 )      (70,000 ) 

Other changes, net

      —          —          —         —          —          746       746  
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

Balance at December 31, 2016

    $ 2,143      $ 460      $ —       $ 933,659      $ 9,509      $ 146,534     $ 1,092,305  
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

See accompanying notes.

 

8

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Cash Flow – Statutory Basis

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Operating activities

       

Premiums collected, net of reinsurance

    $ 5,778,926     $ 5,809,547     $ 5,437,362  

Net investment income received

      400,563       408,238       421,203  

Miscellaneous income

      304,792       315,661       287,549  

Benefit and loss related payments

      (5,921,651 )      (5,288,477 )      (5,724,166 ) 

Net transfers to separate accounts

      (89,156 )      (806,817 )      (141,346 ) 

Commissions, expenses paid, and other deductions

      (315,012 )      (352,330 )      (355,492 ) 

Federal income taxes paid

      (72,571 )      (66,187 )      (88,377 ) 
  

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) operating activities

      85,891       19,635       (163,267 ) 

Investing activities

       

Proceeds from investments sold, matured or repaid:

       

Bonds

      1,879,956       2,273,822       1,517,656  

Stocks

      897       1,560       2,000  

Mortgage loans

      58,315       146,025       118,566  

Other invested assets

      57,692       43,477       29,682  

Securities lending reinvested collateral assets

      125,921       37,639       —    

Miscellaneous proceeds

      14,507       1,752       6,006  
  

 

 

    

 

 

    

 

 

  

Total investment proceeds

      2,137,288       2,504,275       1,673,910  

Costs of investments acquired:

       

Bonds

      (1,420,519 )      (1,819,135 )      (1,126,261 ) 

Common stocks

      (1,331 )      —         (100 ) 

Preferred stocks

      —         —         (2,024 ) 

Mortgage loans

      (355,434 )      (365,923 )      (297,607 ) 

Other invested assets

      (98,809 )      (167,119 )      (6,139 ) 

Payable for securities

      (78,703 )      79,476       —    

Securities lending reinvested collateral assets

      —         —         (40,614 ) 

Derivatives

      (16,280 )      —         —    

Miscellaneous applications

      1,206       (33,830 )      (25,971 ) 
  

 

 

    

 

 

    

 

 

  

Total cost of investments acquired

      (1,969,870 )      (2,306,531 )      (1,498,716 ) 

Net increase (decrease) in policy loans

      (2,501 )      (3,132 )      (2,180 ) 
  

 

 

    

 

 

    

 

 

  

Net cost of investments acquired

      (1,972,371 )      (2,309,663 )      (1,500,896 ) 
  

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) investing activities

      164,917       194,612       173,014  

 

9

Table of Contents

Transamerica Financial Life Insurance Company

Statements of Cash Flow – Statutory Basis (continued)

(Dollars in Thousands)

 

     Year Ended December 31  
     2016     2015     2014  

Financing and miscellaneous activities

       

Net withdrawals on deposit-type contracts and other insurance liabilities

    $ (8,341 )    $ (1,266 )    $ (869 ) 

Change in:

       

Borrowed funds

      (11,475 )      (43,385 )      54,845  

Surplus notes

      (150,000 )      —         —    

Payable to parent, subsidiaries and affiliates

      (13,516 )      5,583       20,137  

Payable for securities lending

      (125,921 )      (37,639 )      40,614  

Other cash (used) provided

      229,660       (79,836 )      140,507  

Dividends paid to stockholders

      (70,000 )      —         (150,000 ) 
  

 

 

    

 

 

    

 

 

  

Net cash (used in) provided by financing and miscellaneous activities

      (149,593 )      (156,543 )      105,234  
  

 

 

    

 

 

    

 

 

  

Net increase (decrease) in cash, cash equivalents and short-term investments

      101,215       57,704       114,981  

Cash, cash equivalents and short-term investments:

       

Beginning of year

      319,700       261,996       147,015  
  

 

 

    

 

 

    

 

 

  

End of year

    $ 420,915     $ 319,700     $ 261,996  
  

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

10

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis

(Dollars in Thousands, Except per Share amounts)

1. Organization and Summary of Significant Accounting Policies

Organization

Transamerica Financial Life Insurance Company (the Company) is a stock life insurance company and is majority owned by Transamerica Corporation (TA Corp) (87.9% of shares) and minority owned by Transamerica Life Insurance Company (TLIC) (12.1% of shares). Both TA Corp and TLIC are indirect, wholly-owned subsidiaries of AEGON N.V., a holding company organized under the laws of The Netherlands. Prior to December 31, 2015, the Company was majority owned by AEGON USA, LLC (AEGON). On December 31, 2015, AEGON merged into TA Corp, a Delaware-domiciled non-insurance affiliate.

On July 1, 2014, the Company completed a merger with Transamerica Advisors Life Insurance Company of New York (TALICNY), which was wholly-owned by AEGON. The merger was accounted for in accordance with Statement of Statutory Accounting Principles (SSAP) No. 68, Business Combinations and Goodwill, as a statutory merger. As such, financial statements for periods prior to the merger were combined and the recorded assets, liabilities and surplus of TALICNY were carried forward to the merged company. As a result of the merger, TALICNY’s common stock was deemed cancelled by operation of law. In exchange for its agreement to merge TALICNY into the Company, AEGON received a proportionate number of TFLIC shares equal in value to the fair market value of TALICNY relative to the fair market value of the combined companies. Specifically, AEGON received 676 shares of the Company’s common stock and 1,806 shares of the Company’s preferred stock.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Nature of Business

The Company sells fixed and variable pension and annuity products, group life coverages, life insurance, investment contracts, structured settlements and guaranteed interest contracts and funding agreements. The Company is licensed in 50 states and the District of Columbia. Sales of the Company’s products are primarily through brokers.

Basis of Presentation

The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the New York Department of Financial Services (formerly known as the Department of Insurance of the State of New York), which practices differ from accounting principles generally accepted in the United States (GAAP). The more significant variances from GAAP are as follows:

Investments: Investments in bonds and mandatory redeemable preferred stocks are reported at amortized cost or fair value based on their National Association of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in earnings for those designated as trading and as a separate component of other comprehensive income (OCI) for those designated as available-for-sale. Fair value for GAAP is based on indices, third-party pricing services, brokers, external fund managers and internal models. For statutory reporting, the NAIC allows insurance companies to report the fair value determined by the Securities Valuation Office of the NAIC (SVO) or determine the fair value by using a permitted valuation method.

All single class and multi-class mortgage-backed/asset-backed securities (e.g., CMOs) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium of such securities using either the retrospective or prospective methods. If the fair value of the mortgage-backed/asset-backed security is less than amortized cost, an entity shall assess whether the impairment is other-than-temporary. An other-than-temporary impairment (OTTI) is considered to have occurred if the fair value of the mortgage-backed/asset-backed security is less than its amortized cost basis and the entity intends to sell the security or the entity does not have the intent and ability to hold the security for a period of time sufficient to recover the amortized cost basis. An OTTI is also considered to have occurred if the discounted estimated future cash flows are less than the amortized cost basis of the security.

If it is determined an OTTI has occurred as a result of the cash flow analysis, the security is written down to the discounted estimated future cash flows. If an OTTI has occurred due to intent to sell or lack of intent and ability to hold, the security is written down to fair value.

For GAAP, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, CBO, CDO, CLO, MBS and ABS securities), other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If high credit quality securities are adjusted, the retrospective method is used. If it is determined that a decline in fair value is other-than-temporary and the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI should be recognized in earnings equal to the entire difference between the amortized cost basis and its fair value at the impairment date. If the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery, the OTTI should be separated into a) the amount representing the credit loss, which is recognized in earnings, and b) the amount related to all other factors, which is recognized in OCI, net of applicable taxes.

 

12

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Derivative instruments used in hedging transactions that meet the criteria of an effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability. Embedded derivatives are not accounted for separately from the host contract. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value, and the changes in the fair value are recorded in unassigned surplus as unrealized gains and losses. Under US GAAP, the effective and ineffective portions of a single hedge are accounted for separately, and the change in fair value for cash flow hedges is credited or charged directly to a separate component of OCI rather than to income as required for fair value hedges, and an embedded derivative within a contract that is not clearly and closely related to the economic characteristics and the risk of the host contract is accounted for separately from the host contract and valued and reported at fair value.

Derivative instruments are also used in replication (synthetic asset) transactions. In these transactions, the derivative is valued in a manner consistent with the cash instrument and replicated asset. For US GAAP, the derivative is reported at fair value, with the changes in fair value reported in income.

Investments in real estate are reported net of related obligations rather than on a gross basis as for GAAP. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses for statutory reporting include rent for the Company’s occupancy of those properties. Changes between depreciated cost and admitted amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP.

Valuation allowances are established for mortgage loans, if necessary, based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral.

The initial valuation allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus as part of the change in asset valuation reserve (AVR), rather than being included as a component of earnings as would be required under GAAP.

Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, primarily bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the bond or mortgage loan based on groupings of individual securities sold in five year bands. That net deferral is reported as the interest maintenance reserve (IMR) in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses are reported in the statement of operations on a pre-tax basis in the period that the assets giving rise to the gains or losses are sold.

The AVR provides a valuation allowance for invested assets. The AVR is determined by an NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP.

 

13

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Subsidiaries: Investments in subsidiaries, controlled and affiliated companies (SCA) companies are stated in accordance with the Purposes and Procedures Manual of the NAIC SVO, as well as SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88. Dividends or distributions received from an investee are recognized in investment income when declared to the extent that they are not in excess of the undistributed accumulated earnings attributable to an investee. Changes in investments in SCA’s are recorded as a change to the carrying value of the investment with a corresponding amount recorded directly to unrealized gain/loss (capital and surplus).

Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, incremental costs directly related to the successful acquisition of insurance and investment contracts are deferred. For traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, acquisition costs would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality and expense margins.

Value of Business Acquired: Under GAAP, value of business acquired (VOBA) is an intangible asset resulting from a business combination that represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of future policy contracts and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operation expenses, investment returns, nonperformance risk adjustment and other factors. VOBA is not recognized under the NAIC Accounting Practices and Procedures Manual.

Separate Accounts with Guarantees: Some of the Company’s separate accounts provide policyholders with a guaranteed return. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account. These separate accounts are included in the general account for GAAP due to the nature of the guaranteed return.

Nonadmitted Assets: Certain assets designated as “nonadmitted”, primarily net deferred tax assets and other assets not specifically identified as an admitted asset within the NAIC SAP, are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the balance sheet to the extent they are not impaired.

Universal Life and Annuity Policies: Revenues for universal life and annuity policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received. Benefits incurred represent surrenders and death benefits paid and the change in policy reserves. Premiums received and benefits incurred for annuity policies without mortality or morbidity risk and guaranteed interest in group annuity contracts are recorded directly to a policy reserve account using deposit accounting, without recognizing premium income or benefits expense. Interest on these policies is reflected in other benefits. Under GAAP, for universal life policies, premiums received in excess of policy charges would not be recognized as premium revenue and benefits would represent interest credited to the account values and the excess of benefits paid over the policy account value. Under GAAP, for all annuity policies without significant mortality risk, premiums received and benefits paid would be recorded directly to the reserve liability using deposit accounting.

Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP.

 

14

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Reinsurance: Any reinsurance amounts deemed to be uncollectible have been written off through a charge to operations. In addition, a liability for reinsurance balances would be established for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to the liability are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings.

Losses associated with an indemnity reinsurance transaction are reported within income when incurred rather than being deferred and amortized over the remaining life of the underlying reinsured contracts as would be required under GAAP.

Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP.

Commissions allowed by reinsurers on business ceded are reported as income when incurred rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP.

Under GAAP, for certain reinsurance agreements whereby assets are retained by the ceding insurer (such as funds withheld or modified coinsurance) and a return is paid based on the performance of underlying investments, the liabilities for these reinsurance arrangements must be adjusted to reflect the fair value of the invested assets. The NAIC SAP does not contain a similar requirement.

Deferred Income Taxes: The Company computes deferred income taxes in accordance with SSAP No. 101, Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10. Under SSAP No. 101, admitted adjusted deferred income tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse during a timeframe corresponding with the Internal Revenue Service tax loss carryback provisions, not to exceed three years, plus 2) the amount of adjusted gross deferred income tax assets expected to be realized within three years limited to an amount that is no greater than 15% of current period’s adjusted statutory capital and surplus, plus 3) the amount of remaining adjusted gross deferred income tax assets that can be offset against existing gross deferred income tax liabilities after considering the character (i.e., ordinary versus capital) and reversal patterns of the deferred tax assets and liabilities. The remaining adjusted deferred income tax assets are nonadmitted. Deferred state income taxes are not recorded under SSAP No. 101, whereas under GAAP state income taxes are included in the computation of deferred income taxes.

Goodwill: Goodwill is measured as the difference between the cost of acquiring the entity and the reporting entity’s share of the book value of the acquired entity. Goodwill is admitted subject to an aggregate limitation of ten percent of the capital and surplus in the most recently filed annual statement excluding electronic data processing equipment, operating system software, net deferred income tax assets and net positive goodwill. Excess goodwill is nonadmitted. Goodwill is amortized over ten years. Under GAAP, goodwill is measured as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date as compared to the fair values of the identifiable net assets acquired. Goodwill is not amortized but is assessed for impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred.

Policyholder Dividends: Policyholder dividends are recognized when declared rather than over the term of the related policies as would be required under GAAP.

Surplus Notes: Surplus notes are reported as surplus rather than liabilities as would be required under GAAP.

 

15

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Statements of Cash Flow: Cash, cash equivalents and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less.

Securities Lending Assets and Liabilities: For securities lending programs, cash collateral received which may be sold or repledged by the Company is reflected as a one-line entry on the balance sheet (securities lending reinvested collateral assets) and a corresponding liability is established to record the obligation to return the cash collateral. Collateral received which may not be sold or repledged is not recorded on the Company’s balance sheet. Under GAAP, the reinvested collateral is included within invested assets (i.e. it is not one-line reported).

The effects of the foregoing variances from GAAP on the accompanying statutory-basis financial statements have not been determined by the Company, but are presumed to be material.

Other significant accounting policies are as follows:

Investments

Investments in bonds, except those to which the SVO has ascribed an NAIC designation of 6, are reported at amortized cost using the interest method.

Hybrid securities, as defined by the NAIC, are securities designed with characteristics of both debt and equity and provide protection to the issuer’s senior note holders. These securities meet the definition of a bond, in accordance with SSAP No. 26, Bonds, excluding Loan-backed and Structured Securities and therefore, are reported at amortized cost or fair value based upon their NAIC rating.

Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method, including anticipated prepayments, except for those with an initial NAIC designation of 6, which are valued at the lower of amortized cost or fair value. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities, except principal-only and interest-only securities, which are valued using the prospective method.

The Company closely monitors below investment grade holdings and investment grade issuers where the Company has concerns to determine if an OTTI has occurred. The Company also regularly monitors industry sectors. The Company considers relevant facts and circumstances in evaluating whether the impairment is other-than-temporary including: (1) the probability of the Company collecting all amounts due according to the contractual terms of the security in effect at the date of acquisition; (2) the Company’s decision to sell a security prior to its maturity at an amount below its carrying amount; and (3) the Company’s ability to hold a structured security for a period of time to allow for recovery of the value to its carrying amount. Additionally, financial condition, near term prospects of the issuer and nationally recognized credit rating changes are monitored. Non-structured securities in unrealized loss positions that are considered other-than-temporary are written down to fair value. Structured securities considered other-than-temporarily impaired are written down to discounted estimated cash flows if the impairment is the result of cash flow analysis. If the Company has an intent to sell or lack of ability to hold a structured security, it is written down to fair value. For structured securities, cash flow trends and underlying levels of collateral are monitored. The Company will record a charge to the statement of operations to the extent that these securities are determined to be other-than-temporarily impaired.

Investments in preferred stocks in good standing are reported at cost or amortized cost. Investments in preferred stocks are stated at amortized cost, except those with NAIC designations RP4 to RP6 and P4 to P6, which are reported at lower of amortized cost or fair value, and the related net unrealized capital gains (losses) are reported in unassigned surplus along with any adjustment for federal income taxes.

 

16

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Common stocks of unaffiliated companies are reported at fair value and the related net unrealized capital gains or losses are reported in unassigned surplus along with any adjustment for federal income taxes.

If the Company determines that a decline in the fair value of a common stock or a preferred stock is other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the statement of operations. The Company considers the following factors in determining whether a decline in value is other-than-temporary: (a) the financial condition and prospects of the issuer; (b) whether or not the Company has made a decision to sell the investment; and (c) the length of time and extent to which the value has been below cost.

Common stocks of affiliated noninsurance subsidiaries are reported based on underlying audited GAAP equity. The net change in the subsidiaries’ equity is included in the change in net unrealized capital gains or losses, reported in unassigned surplus along with any adjustment for federal income taxes.

There are no restrictions on common or preferred stock.

Short-term investments include investments with remaining maturities of one year or less at the time of acquisition and are principally stated at amortized cost.

Cash equivalents are short-term highly liquid investments with original maturities of three months or less and are principally stated at amortized cost.

Mortgage loans are reported at unpaid principal balances, less an allowance for impairment. A mortgage loan is considered to be impaired when it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage agreement. When management determines that the impairment is other-than-temporary, the mortgage loan is written down to realizable value and a realized loss is recognized.

Real estate that the Company classifies as held for sale is measured at lower of carrying amount or fair value less cost to sell.

Policy loans are reported at unpaid principal balances.

The Company has minority ownership interests in joint ventures and limited partnerships. The Company carries these investments based on its interest in the underlying audited GAAP equity of the investee.

For a decline in the fair value of an investment in a joint venture or limited partnership which is determined to be other-than-temporary, the Company writes it down to fair value as the new cost basis and the amount of the write down is accounted for as a realized loss in the statement of operations. The Company considers an impairment to have occurred if it is probable that the Company will be unable to recover the carrying amount of the investment or if there is evidence indicating inability of the investee to sustain earnings which would justify the carrying amount of the investment.

Investments in Low Income Housing Tax Credit (LIHTC) properties are valued at amortized cost. Tax credits are recognized in operations in the tax reporting year in which the tax credit is utilized by the Company. The carrying value is amortized over the life of the investment. Amortization is calculated as a ratio of the current year tax credits and tax benefits compared to the total expected tax credits and tax benefits over the life of the investment.

 

17

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Other “admitted assets” are valued principally at cost, as required or permitted by New York Insurance Laws.

Realized capital gains and losses are determined using the specific identification method and are recorded net of related federal income taxes. Changes in admitted asset carrying amounts of bonds, mortgage loans, common and preferred stocks are credited or charged directly to unassigned surplus.

Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or real estate where rent is in arrears for more than three months. Income is also not accrued when collection is uncertain. In addition, accrued interest is excluded from investment income when payment exceeds 90 days past due. At December 31, 2016 and 2015, the Company excluded investment income due and accrued of $100 and $410, respectively, with respect to such practices.

For dollar repurchase agreements, the Company receives cash collateral in an amount at least equal to the fair value of the securities transferred by the Company in the transaction as of the transaction date. Cash received as collateral will be invested as needed or used for general corporate purposes of the Company.

Derivative Instruments

Overview: The Company may use various derivative instruments (options, caps, floors, swaps, foreign currency forwards, and futures) to manage risks related to its ongoing business operations. On the transaction date of the derivative instrument, the Company designates the derivative as either (A) hedging (fair value, foreign currency fair value, cash flow, foreign currency cash flow, forecasted transactions, or net investment in a foreign operation), (B) replication, (C) income generation, or (D) held for other investment/risk management activities. (B) Replications, (C) income generation and (D) held for other investment/risk management activities do not qualify for hedge accounting under SSAP No. 86, Accounting for Derivative Instruments and Hedging Activities (SSAP No. 86).

Derivative instruments used in hedging relationships are accounted for on a basis that is consistent with the hedged item (amortized cost or fair value). Derivative instruments used in replication relationships are accounted for on a basis that is consistent with the cash instrument and the replicated asset (amortized cost or fair value). Derivative instruments used in income generation relationships are accounted for on a basis that is consistent with the associated covered asset or underlying interest to which the derivative relates (amortized cost or fair value). Derivative instruments held for other investment/risk management activities are measured at fair value with value adjustments recorded in unassigned surplus.

Derivative instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. The Company uses derivatives as hedges, consequently, when the value of the hedged asset or liability changes, the value of the hedging derivative is expected to move in the opposite direction. Market risk is a consideration when changes in the value of the derivative and the hedged item do not completely offset (correlation or basis risk) which is mitigated by active measuring and monitoring.

The Company is exposed to credit-related losses in the event of non-performance by counterparties to derivative instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit rating of ‘A’ or better. The credit exposure of interest rate swaps and currency swaps is represented by the fair value of contracts, aggregated at a counterparty level, with a positive fair value at the reporting date. The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets on the Company’s behalf. The posted amount is equal to the difference between the net positive fair value of the contracts and an agreed upon threshold that is based on the credit rating of the counterparty. Inversely, if the net fair value of all contracts with this counterparty is negative, then the Company is required to post assets instead.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Instruments: Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process to modify the interest rate characteristics of the underlying asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating rate amounts based on an underlying notional amount. Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in unassigned surplus.

Cross currency swaps are utilized to mitigate risks when the Company holds foreign denominated assets or liabilities therefore converting the asset or liability to a U.S. dollar denominated security. These cross currency swap agreements involve the exchange of two principal amounts in two different currencies at the prevailing currency rate at contract inception. During the life of the swap, the counterparties exchange fixed or floating rate interest payments in the swapped currencies. At maturity, the principal amounts are again swapped at a pre-determined rate of exchange. Each asset or liability is hedged individually where the terms of the swap must meet the terms of the hedged instrument. For swaps qualifying for hedge accounting, the premium or discount is amortized into income over the life of the contract and the foreign currency translation adjustment is recorded as unrealized gain/loss in capital and surplus. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the hedged instrument receives that treatment.

Total return swaps are used in the asset/liability management process to mitigate the delta risk created when the Company has issued minimum guarantee insurance contracts linked to an index. These total return swaps generally provide for the exchange of the difference between fixed leg (tied to the Standard & Poor’s (S&P) or other global market financial index) and floating leg (tied to the London Interbank Offered Rate (LIBOR)) amounts based on an underlying notional amount (also tied to the underlying index). Typically, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. Swaps that meet hedge accounting rules are carried in a manner consistent with the hedged item, generally at amortized cost, on the financial statements. If the swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment. Swaps not meeting hedge accounting rules are carried at fair value with fair value adjustments recorded in capital and surplus.

Futures contracts are used to hedge the liability risk associated with when the Company issues products providing the customer a return based on various global market indices. Futures are marked to market on a daily basis whereby a cash payment is made or received by the Company. These payments are recognized as realized gains or losses in the financial statements. These gains and losses may be included in IMR or AVR if the underlying instrument receives that treatment

A replication transaction is a derivative transaction entered into in conjunction with a cash instrument to reproduce the investment characteristics of an otherwise permissible investment. The Company replicates investment grade corporate bonds or sovereign debt by combining a highly rated security as a cash component with a written credit default swap which, in effect, converts the high quality asset into an investment grade corporate asset or a sovereign debt. The benefits of using the swap market to replicate credit include possible enhanced relative values as well as ease of executing larger transactions in a shortened time frame. Generally, a premium is received by the Company on a periodic basis and recognized in investment income. In the event the representative issuer defaults on its debt obligation referenced in the contract, a payment equal to the notional amount of the contract will be made by the Company and recognized as a capital loss. The Company complies with the specific rules established in AVR for replication transactions.

 

19

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Separate Accounts

The majority of the separate accounts held by the Company represent funds which are administered for pension plans. The assets in the managed separate accounts consist of common stock, long-term bonds, real estate and short-term investments. The non-managed separate accounts are invested by the Company in a corresponding portfolio of Diversified Investors Portfolios. The portfolios are registered under the Investment Company Act of 1940, as amended, as open-ended, diversified, management investment companies.

Except for some guaranteed separate accounts, which are carried at amortized cost, the assets are carried at fair value, and the investment risks associated with fair value changes are borne entirely by the policyholder. Some of the guaranteed separate accounts provide a guarantee of principal and some include an interest guarantee of 4% or less, so long as the contract is in effect. Separate account asset performance less than guaranteed requirements is transferred from the general account and reported in the statements of operations.

Assets held in trust for purchases of separate account contracts and the Company’s corresponding obligation to the contract owners are shown separately in the balance sheets. Income and gains and losses with respect to these assets accrue to the benefit of the contract owners and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements.

The investment risks associated with fair value changes of the separate account are borne entirely by the contract owners except in cases where minimum guarantees exist. Income and gains and losses with respect to the assets in the separate accounts supporting modified guaranteed annuity contracts are included in the Company’s statements of operations as a component of net transfers from separate accounts.

The Company received variable contract premiums of $4,693,209, $4,948,619 and $4,687,960 in 2016, 2015 and 2014, respectively. In addition, the Company received $180,835, $178,533, and $168,948 in 2016, 2015 and 2014, respectively, related to fees associated with investment management, administration and contractual guarantees for separate accounts.

Separate account assets and liabilities reported in the accompanying financial statements consist of two types: non-indexed guaranteed and nonguaranteed. Non-indexed guaranteed separate accounts represent funds invested by the Company for the benefit of contract holders who are guaranteed certain returns as specified in the contracts. Separate account asset performance different than the guaranteed requirements is either transferred to or received from the general account and reported in the statements of operations. Non-indexed guaranteed separate account assets and liabilities are carried at amortized cost.

The non-guaranteed separate account assets and liabilities represent group annuity funds segregated by the Company for the benefit of contract owners, who bear the investment risks. The assets and liabilities of the nonguaranteed separate accounts are carried at estimated fair value.

Aggregate Reserves for Policies and Contracts

Life, annuity and accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed cash value, or the amount required by law.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Surrender values are not promised in excess of the legally computed reserves. For annual premium variable life insurance there is an extra premium charged to the policyholder before the premium is transferred to the Separate Accounts. An additional reserve for this policy is held in the General Account that is a multiple of the reserve that would otherwise be held.

The Company waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium for periods beyond the date of death.

The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958, 1980 and 2001 Commissioners’ Standard Ordinary Mortality Tables. The reserves are calculated using interest rates ranging from 2.00 to 7.25 percent and are computed principally on the Net Level Premium Valuation and the Commissioner’s Reserve Valuation Method. Reserves for universal life policies are based on account balances adjusted for the Commissioner’s Reserve Valuation Method.

Additional premiums are charged or additional mortality charges are assessed for policies issued on substandard lives according to underwriting classification. Generally, mean reserves are determined by computing the regular mean reserve for the plan at the true age and holding, in addition, one-half (1/2) of the extra premium charge for the year. For certain flexible premium and fixed premium universal life insurance products, reserves are calculated utilizing the Commissioner’s Reserve Valuation Method for universal life policies and recognizing any substandard ratings.

Deferred annuity reserves are calculated according to the Commissioner’s Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with and without life contingencies are equal to the present value of future payments assuming interest rates ranging from 3.50 to 11.00 percent and mortality rates, where appropriate, from a variety of tables.

Annuity reserves also include guaranteed investment contracts (GICs) and funding agreements classified as life-type contracts as defined in SSAP No. 50, Classifications and Definitions of Insurance or Managed Care Contracts In Force. These liabilities have annuitization options at guaranteed rates and consist of floating interest rate and fixed interest rate contracts. The contract reserves are carried at the greater of the account balance or the value as determined for an annuity with a cash settlement option, on a change in fund basis, according to the Commissioner’s Annuity Reserve Valuation Method.

Accident and health policy reserves are equal to the greater of the gross unearned premiums or any required mid-terminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims.

Tabular interest, tabular less actual reserves released and tabular cost have been determined by formula. On group annuity deposit funds not involving life contingencies, tabular interest has been determined by adjusting the interest credited to group annuity deposits. On other funds not involving life contingencies, tabular interest has been determined by formula.

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the balance sheet date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Liability for Deposit-Type Contracts

Deposit-type contracts do not incorporate risk from the death or disability of policyholders. These types of contracts may include GICs, funding agreements and other annuity contracts. Deposits and withdrawals on these contracts are recorded as a direct increase or decrease, respectively, to the liability balance, and are not reported as premiums, benefits or changes in reserves in the statement of operations.

Premiums and Annuity Considerations

Revenues for policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and are recognized over the premium paying periods of the related policies. Considerations received and benefits paid for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium revenue.

Claims and Claim Adjustment Expense

Liabilities for losses and loss/claim adjustment expenses for accident and health contracts are estimated using statistical claim development models to develop best estimates of liabilities for medical expense business and using tabular reserves employing mortality/morbidity tables and discount rates meeting minimum regulatory requirements for other business. Unpaid claims include amounts for losses and related adjustment expenses and are estimates of the ultimate net costs of all losses, reported and unreported. These estimates are subject to the impact of future changes in claim severity, frequency and other factors.

Activity in the liability for unpaid claims and related processing costs net of reinsurance is summarized as follows:

 

     Unpaid Claims
Liability
Beginning
of Year		      Claims
Incurred		      Claims
Paid		      Unpaid Claims
Liability End
of Year		  

Year ended December 31, 2016

            

2016

    $ —        $ 76,171      $ 43,008      $ 33,163  

2015 and prior

      47,976        (16,259 )       27,038        4,680  
  

 

 

     

 

 

     

 

 

     

 

 

  
     47,976      $ 59,912      $ 70,046        37,843  
     

 

 

     

 

 

     

Active life reserve

      137,601              137,085  
  

 

 

           

 

 

  

Total accident and health reserves

    $ 185,577            $ 174,928  
  

 

 

           

 

 

  

 

22

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Unpaid Claims
Liability
Beginning
of Year		      Claims
Incurred		      Claims
Paid		      Unpaid Claims
Liability End
of Year		  

Year ended December 31, 2015

            

2015

    $ —        $ 74,428      $ 34,235      $ 40,193  

2014 and prior

      43,111        (7,098 )       28,230        7,783  
  

 

 

     

 

 

     

 

 

     

 

 

  
     43,111      $ 67,330      $ 62,465        47,976  
     

 

 

     

 

 

     

Active life reserve

      111,952              137,601  
  

 

 

           

 

 

  

Total accident and health reserves

    $ 155,063            $ 185,577  
  

 

 

           

 

 

  

The Company’s unpaid claims reserve was decreased by $16,259 and $7,098 for the years ended December 31, 2016 and 2015, respectively, for health claims that were incurred prior to those balance sheet dates. The change in 2016 and 2015 resulted primarily from variances in the estimated frequency of claims and claim severity.

The balance in the liability for unpaid accident and health claim adjustment expenses as of December 31, 2016 and 2015 was $747 and $696, respectively. The Company incurred $1,320 and paid $1,264 of claim adjustment expenses during 2016, of which $602 of the paid amount was attributable to insured or covered events of prior years. The Company incurred $1,268 and paid $1,312 of claim adjustment expenses during 2015, of which $657 of the paid amount was attributable to insured or covered events of prior years. The Company did not increase or decrease the claim adjustment expense provision for insured events of prior years during 2016 or 2015.

Reinsurance

Coinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of in force blocks of business are included in unassigned surplus and amortized into income as earnings emerge on the reinsured block of business. Premiums ceded and recoverable losses have been reported as a reduction of premium income and benefits, respectively. Policy liabilities and accruals are reported in the accompanying financial statements net of reinsurance ceded.

Consistency of Presentation

Differences in tabular totals and references between notes are caused by rounding differences not considered to be significant to the financial statement presentation. Prior year amounts have been reclassified to conform to current period presentation.

Recent Accounting Pronouncements

Effective January 1, 2017, the Company adopted revisions to SSAP No. 35R, Guaranty Fund and Other Assessments, which allows 1) expected renewals of short-term health contracts to be considered in determining the assets recognized from accrued guaranty fund liability assessments and 2) requires reporting entities to discount guaranty fund liabilities, and related assets, resulting from the insolvencies of insurers that wrote long-term care contracts The adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

 

23

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Effective January 1, 2017, the Company adopted SSAP No. 41R, Surplus Notes. Surplus notes held by investors that are rated an equivalent NAIC 1 or 2 designation by an approved NAIC credit rating provider will be reported at amortized cost, while non-rated surplus notes or those with an equivalent designation of 3 through 6 will be reported at the lower of amortized cost or fair value adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2017, the Company adopted revisions to SSAP No. 51R, Life Contracts, which includes updates for new principle-based reserving (PBR) requirements, with references to Valuation Manual changes. The Valuation Manual allows companies to continue using current reserve methodologies for a three-year period, beginning with the Valuation Manual operative date. For policies issued after the operative date, formulaic calculations for some policies will be supplemented with more advanced deterministic and stochastic reserve methodologies. The Company adopted the new requirements for certain of its term products. The adoption of this guidance did not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2017, the Company adopted revisions to SSAP No. 103R, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which incorporates explicit accounting guidance on short sales and secured borrowing transactions when the insurer is the transferee. The adoption of this guidance did not impact the financial position or results of operations of the Company.

Effective December 31, 2017, the Company will adopt revisions to SSAP No. 2R, Cash, Drafts and Short-term Investments, which reclassify money market mutual funds from short-term investments to cash equivalents and clarify that money market mutual funds shall be valued at fair value, allowing net asset value as a practical expedient. The adoption of this guidance will not have a material impact on the financial position or results of operations of the Company.

Effective January 1, 2015 the Company adopted guidance that moves wholly-owned, single member/single asset LLCs where the underlying asset is real estate, into the scope of SSAP No. 40, Real Estate Investments, when specific conditions are met, and clarifies in SSAP No. 48, Joint Ventures, Partnerships and Limited Liability Companies, that these types of investments are within the scope of SSAP No. 40. The adoption of this guidance did not impact the financial position and results of operations of the Company.

Effective December 31, 2014, the Company adopted revisions of SSAP No. 104R, Share-Based Payments, which provides guidance for share-based payments transactions with non-employees. The adoption of this revision did not impact the financial position and results of operations of the Company.

Effective December 15, 2014, the Company adopted SSAP No. 107, Accounting for Risk-Sharing Provisions of the Affordable Care Act, which establishes accounting treatment for the three risk sharing programs of the Affordable Care Act (ACA). Disclosures related to the assets, liabilities and revenue elements by program, previously adopted in SSAP No. 35R, Guaranty Fund and Other Assessments – Revised, were moved to this SSAP. The adoption of this standard did not impact the financial position or results of operations of the Company.

Effective January 1, 2014, the Company adopted SSAP No. 106, Affordable Care Act Assessments, which adopted with modifications the guidance in Accounting Standards Update (ASU) 2011-06: Other Expenses – Fees Paid to the Federal Government by Health Insurers and moves the ACA Section 9010 fee guidance from SSAP No. 35R, to SSAP No. 106. The adoption of this standard did not impact the Company’s results of operations or financial position.

 

24

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Effective January 1, 2014, the Company adopted SSAP No. 105, Working Capital finance Investments, which allows working capital finance investments to be admitted assets if certain criteria are met. The adoption of this standard did not impact the financial position or results of operations of the Company.

Effective January 1, 2014, the Company adopted revisions to SSAP No. 30, Investments in Common Stock (excluding investments in common stock of subsidiary, controlled or affiliated entities), which requires Federal Home Loan Bank (FHLB) capital stock to be reported at par value and expands the disclosures related to FHLB capital stock, collateral pledged to the FHLB and borrowing from the FHLB. The adoption of this revision did not impact the Company’s financial position or results of operations, as the company has no FHLB agreements.

Going Concern

Management has evaluated the ability of the Company to continue as a going concern and has determined that no substantial doubt exists with regard to the Company’s ability to meet its obligations as they become due within one year after the issuance of the financial statements.

2. Prescribed and Permitted Statutory Accounting Practices

The New York Department of Financial Services recognizes only statutory accounting practices prescribed or permitted by the State of New York for determining and reporting the financial condition and results of operations of an insurance company, and for determining its solvency under the New York Insurance Law.

The State of New York has adopted a prescribed accounting practice that differs from that found in the NAIC SAP related to the reported value of the assets supporting the Company’s guaranteed separate accounts. As prescribed by Section 1414 of the New York Insurance Law, the Commissioner found that the Company is entitled to value the assets of the guaranteed separate account at amortized cost, whereas the assets would be required to be reported at fair value under SSAP No. 56, Separate Accounts, of the NAIC SAP. There is no impact to the Company’s income or surplus as a result of utilizing this prescribed practice.

3. Accounting Changes and Correction of Errors

During the first quarter of 2016, management determined that the Company’s accretion policy was not correctly adjusting accretion yields for asset specific changes in future cash flow expectations which resulted in an understatement of investment income of $745 net of tax relating to prior years. This was corrected in 2016 and is reflected as other changes, net, in the Statement of Changes in Capital and Surplus.

4. Fair Values of Financial Instruments

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Determination of fair value

The fair values of financial instruments are determined by management after taking into consideration several sources of data. When available, the Company uses quoted market prices in active markets to determine the fair value of its investments. The Company’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.

 

25

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

To understand the valuation methodologies used by third-party pricing services, the Company reviews and monitors their applicable methodology documents. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, the Company performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that the Company can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.

Each month, the Company performs an analysis of the information obtained from indices, third-party services, and brokers to ensure that the information is reasonable and produces a reasonable estimate of fair value. The Company considers both qualitative and quantitative factors as part of this analysis, including but not limited to, recent transactional activity for similar securities, review of pricing statistics and trends, and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities.

Fair value hierarchy

The Company’s financial assets and liabilities carried at fair value are classified, for disclosure purposes, based on a hierarchy defined by SSAP No. 100 - Fair Value Measurements. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

 

Level 1 -    Unadjusted quoted prices for identical assets or liabilities in active markets accessible at the measurement date.
Level 2 -    Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
      a) Quoted prices for similar assets or liabilities in active markets
      b) Quoted prices for identical or similar assets or liabilities in non-active markets
      c) Inputs other than quoted market prices that are observable
      d) Inputs that are derived principally from or corroborated by observable market data through correlation or other means
Level 3 -       Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect the Company’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

 

26

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash Equivalents and Short-Term Investments: The carrying amounts reported in the accompanying balance sheets for these financial instruments is either reported at fair value or amortized cost (which approximates fair value). Cash is not included in the below tables.

Short-Term Notes Receivable from Affiliates: The carrying amounts reported in the accompanying balance sheets for these financial instruments approximate their fair value.

Bonds and Stocks: The NAIC allows insurance companies to report the fair value determined by the SVO or to determine the fair value by using a permitted valuation method. The fair values of bonds and stocks are reported or determined using the following pricing sources: indices, third-party pricing services, brokers, external fund managers, and internal models.

Fair values for fixed maturity securities (including redeemable preferred stock) actively traded are determined from third-party pricing services, which are determined as discussed above in the description of Level 1 and Level 2 values within the fair value hierarchy. For fixed maturity securities (including redeemable preferred stock) not actively traded, fair values are estimated using values obtained from third-party pricing services, or are based on non-binding broker quotes or internal models. In the case of private placements, fair values are estimated by discounting the expected future cash flows using current market rates applicable to the coupon rate, credit and maturity of the investments.

Mortgage Loans on Real Estate: The fair values for mortgage loans on real estate are estimated utilizing discounted cash flow analyses, using interest rates reflective of current market conditions and the risk characteristics of the loans.

Real Estate: Real estate held for sale is typically valued utilizing independent external appraisers in conjunction with reviews by qualified internal appraisers. Valuations are primarily based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property.

Other Invested Assets: The fair values for other invested assets, which include investments in surplus notes issued by other insurance companies and fixed or variable rate investments with underlying characteristics of bonds, were determined primarily by using indices, third-party pricing services and internal models.

Derivative Financial Instruments: The estimated fair values of interest rate caps and options are based upon the latest quoted market price at the balance sheet date. The estimated fair values of swaps, including interest rate and currency swaps are based on pricing models or formulas using current assumptions. The estimated fair value of credit default swaps are based upon active market data, including interest rate quotes, credit spreads, and recovery rates, which are then used to calculate probabilities of default for the fair value calculation. The Company accounts for derivatives that receive and pass hedge accounting in the same manner as the underlying hedged instrument. If that instrument is held at amortized cost, then the derivative is also held at amortized cost.

Policy Loans: The fair value of policy loans is equal to the book value of the loan, which is stated at unpaid principal balance.

Securities Lending Reinvested Collateral: The cash collateral from securities lending is reinvested in various short-term and long-term debt instruments. The fair values of these investments are determined using the methods described above under Cash Equivalents and Short-Term Investments and Bonds and Stocks.

 

27

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Receivable From/Payable to Parents, Subsidiaries and Affiliates: The carrying amount of receivable from/payable to affiliates approximates their fair value.

Separate Account Assets and Annuity Liabilities: The fair value of separate account assets are based on quoted market prices when available. When not available, they are primarily valued either using third-party pricing services or are valued in the same manner as the general account assets as further described in this note. However, some separate account assets are valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilizes input that are not market observable. The fair value of separate account annuity liabilities is based on the account value for separate accounts business without guarantees. For separate accounts with guarantees, fair value is based on discounted cash flows.

Investment Contract Liabilities: Fair value for the Company’s liabilities under investment contracts, which include deferred annuities and GICs, are estimated using discounted cash flow calculations. For those liabilities that are short in duration, carrying amount approximates fair value. For investment contracts with no defined maturity, fair value is estimated to be the present surrender value.

Deposit-Type Contracts: The carrying amounts of deposit-type contracts reported in the accompanying balance sheets approximate their fair values. These are included in the Investment Contract Liabilities.

Surplus Notes: Fair values for surplus notes are estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.

The Company accounts for its investments in affiliated common stock in accordance with SSAP No. 97, as such, they are not included in the following disclosures.

Fair values for the Company’s insurance contracts other than investment-type contracts (including separate account universal life liabilities) are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

 

28

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables set forth a comparison of the estimated fair values and carrying amounts of the Company’s financial instruments, including those not measured at fair value in the balance sheets, as of December 31, 2016 and 2015, respectively:

 

     December 31
2016		  
     Estimated
Fair Value		     Admitted
Assets		      (Level 1)      (Level 2)     (Level 3)  

Admitted assets

             

Cash equivalents and short-term investments, other than affiliates

    $ 328,733     $ 328,734      $ —        $ 328,733     $ —    

Bonds

      6,714,779       6,401,964        577,129        5,967,691       169,959  

Preferred stocks, other than affiliates

      4,498       4,552        —          4,498       —    

Mortgage loans on real estate

      1,229,443       1,243,156        —          —         1,229,443  

Other invested assets

      23,631       20,693        —          23,401       230  

Interest rate swaps

      75,010       75,010        —          75,010       —    

Currency swaps

      1,589       2,150        —          1,589       —    

Credit default swaps

      8,327       6,399        —          8,327       —    

Equity swaps

      2,382       2,382        —          2,382       —    

Policy loans

      122,026       122,026        —          122,026       —    

Securities lending reinvested collateral

      307,732       307,732        —          307,732       —    

Separate account assets

      23,248,326       23,255,130        15,666,535        7,581,791       —    

Liabilities

 

Investment contract liabilities

      5,518,487       5,158,420           3,036       5,515,452  

Interest rate swaps

      86,436       86,910        —          44,095       42,341  

Credit default swaps

      (778 )      5,498        —          (778 )      —    

Equity swaps

      7,339       7,339        —          7,339       —    

Payable to parent, subsidiaries and affiliates

      12,714       12,714        —          12,714       —    

Separate account annuity liabilities

      22,638,491       22,638,491        —          17,049,972       5,588,519  

 

29

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31
2015		  
     Estimated
Fair Value		      Admitted
Assets		      (Level 1)      (Level 2)      (Level 3)  

Admitted assets

               

Cash equivalents and short-term investments, other than affiliates

    $ 171,797      $ 171,797      $ —        $ 171,797      $ —    

Short-term notes receivable from affiliates

      175,000        175,000        —          175,000        —    

Bonds

      7,076,222        6,851,692        683,277        6,206,728        186,217  

Preferred stocks, other than affiliates

      3,340        3,269        —          3,340        —    

Common stocks, other than affiliates

      124        124        124        —          —    

Mortgage loans on real estate

      960,243        950,309        —          —          960,243  

Other invested assets

      23,822        20,905        —          23,379        443  

Interest rate swaps

      51,173        51,173        —          47,855        3,318  

Currency swaps

      1,734        1,817        —          1,734        —    

Credit default swaps

      7,753        5,704        —          7,753        —    

Equity swaps

      5,272        5,272        —          5,272        —    

Policy loans

      119,525        119,525        —          119,525        —    

Securities lending reinvested collateral

      433,646        433,653        —          433,646        —    

Separate account assets

      22,336,195        22,366,990        14,045,139        8,290,423        633  

Liabilities

               

Investment contract liabilities

      5,231,355        5,142,489        —          2,072        5,229,283  

Interest rate swaps

      28,933        40,826        —          28,933        —    

Credit default swaps

      61        4,473        —          61        —    

Equity Swaps

      1,179        1,179        —          1,179        —    

Payable to parent, subsidiaries and affiliates

      26,231        26,231        —          26,231        —    

Separate account annuity liabilities

      21,855,736        21,855,772        —          15,793,441        6,062,295  

Surplus notes

      174,579        150,000        —          174,579        —    

 

30

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables provide information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2016 and 2015:

 

     2016  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Bonds

            

Industrial and miscellaneous

    $ —        $ 155      $ 1,344      $ 1,499  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total bonds

      —          155        1,344        1,499  

Short-term investments

            

Government

      —          57,545        —          57,545  

Industrial and miscellaneous

      —          270,723        —          270,723  

Intercompany notes receivable

      —          20,000        —          20,000  

Sweep accounts

      —          465        —          465  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total short-term

      —          348,733        —          348,733  

Securities lending reinvested collateral

      —          281,659        —          281,659  

Derivative assets

      —          77,392        —          77,392  

Separate account assets

      15,484,245        2,002,722        —          17,486,968  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets at fair value

    $ 15,484,245      $ 2,710,661      $ 1,344      $ 18,196,251  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Derivative liabilities

    $ —        $ 46,756      $ 42,341      $ 89,097  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilites at fair value

    $ —        $ 46,756      $ 42,341      $ 89,097  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

31

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     2015  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Bonds

            

Industrial and miscellaneous

    $ —        $ 394      $ 1,630      $ 2,024  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total bonds

      —          394        1,630        2,024  

Common stock

            

Industrial and miscellaneous

      124        —          —          124  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total common stock

      124        —          —          124  

Short-term investments

            

Government

      —          1        —          1  

Industrial and miscellaneous

      —          44,097        —          44,097  

Money market mutual fund

      —          112,007        —          112,007  

Sweep accounts

      —          15,692        —          15,692  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total short-term

      —          171,797        —          171,797  

Securities lending reinvested collateral

      —          290,629        —          290,629  

Derivative assets

      —          53,127        3,318        56,445  

Separate account assets

      14,026,711        2,211,504        —          16,238,215  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets at fair value

    $ 14,026,835      $ 2,727,451      $ 4,948      $ 16,759,234  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Derivative liabilities

    $ —        $ 34,605      $ —        $ 34,605  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilites at fair value

    $ —        $ 34,605      $ —        $ 34,605  
  

 

 

     

 

 

     

 

 

     

 

 

  

Bonds classified in Level 2 are valued using inputs from third-party pricing services or broker quotes. Bonds classified in Level 3 are primarily those valued using non-binding broker quotes, which cannot be corroborated by other market observable data, or internal modeling which utilize significant inputs that are not market observable.

Short-term investments are classified as Level 2 and carried at amortized cost or fair value. Because of the highly liquid nature of these assets, carrying amounts are used to approximate fair value when amortized cost is used.

Securities lending reinvested collateral is valued and classified in the same way as the underlying collateral, which is primarily composed of short-term investments.

Derivatives classified as Level 2 represent over-the-counter (OTC) contracts valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades or external pricing services. Derivatives classified as Level 3 represent interest rate swaps calculated by simulation using a series of market-consistent inputs to model the dynamics of the swap. The inputs are taken from market instruments to the extent that they exist.

Separate Account assets and liabilities are valued and classified in the same way as general accounts assets and liabilities (described above).

During 2016 and 2015, there were no transfers between Level 1 and 2, respectively.

 

32

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables summarize the changes in assets classified in Level 3 for 2016 and 2015:

 

     Balance at
January 1,
2016		      Transfers
out of
Level 3		      Total Gains
and (Losses)
Included in
Net income (a)		      Total Gains
and (Losses)
Included in
Surplus (b)		  

Bonds

            

RMBS

    $ 335      $ 333      $ (21 )     $ 19  

Other

      1,295        —          23        221  

Derivatives

      3,318        —          7,536        (45,659 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 4,948      $ 333      $ 7,538      $ (45,419 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  
     Purchases      Sales      Settlements      Balance at
December 31,
2016		  

Bonds

            

RMBS

    $ —        $ —        $ —        $ —    

Other

      —          —          195        1,344  

Derivatives

      —          —          7,536        (42,341 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ —        $ —        $ 7,731      $ (40,997 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  
     Balance at
January 1,
2015		      Transfers
out of
Level 3		      Total Gains
and (Losses)
Included in
Net income (a)		      Total Gains
and (Losses)
Included in
Surplus (b)		  

Bonds

            

RMBS

    $ 349      $ —        $ (62 )     $ 48  

Other

      8,086        5,838        (383 )       142  

Derivatives

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 8,435      $ 5,838      $ (445 )     $ 190  
  

 

 

     

 

 

     

 

 

     

 

 

  
     Purchases      Issuances      Settlements      Balance at
December 31,
2015		  

Bonds

            

RMBS

    $ —        $ —        $ —        $ 335  

Other

      —          —          712        1,295  

Derivatives

      3,318        —          —          3,318  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 3,318      $ —        $ 712      $ 4,948  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

33

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company’s policy is to recognize transfers in and out of level 3 as of the beginning of the reporting period.

Transfers out for bonds were the result of a security being carried at fair value at December 31, 2015, subsequently changing to being carried at amortized cost during 2016.

Other nonrecurring fair value measurements

As indicated in Note 1, real estate held for sale is measured at the lower of carrying amount or fair value less cost to sell. As of December 31, 2016, the Company has one property held for sale. The property is carried at fair value.

Fair value was determined by utilizing an external appraisal following the sales comparison approach. The fair value measurements are classified in Level 3 as the comparable sales and adjustments for the specific attributes of these properties are not market observable inputs.

 

34

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

5. Investments

The carrying amounts and estimated fair value of investments in bonds and preferred stocks are as follows:

 

     Carrying
Amount		      Gross
Unrealized
Gains		      Gross
Unrealized
Losses 12
Months or
More		      Gross
Unrealized
Losses less
Than 12
Months		      Estimated
Fair
Value		  

December 31, 2016

               

Unaffiliated bonds:

               

United States Government and agencies

    $ 491,592      $ 76,102      $ —        $ 3,767      $ 563,927  

State, municipal and other government

      103,905        9,498        —          1,447        111,956  

Hybrid securities

      94,244        2,163        10,127        206        86,075  

Industrial and miscellaneous

      4,648,771        255,537        23,365        35,979        4,844,963  

Mortgage and other asset-backed securities

      1,063,452        56,702        3,559        8,736        1,107,858  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     6,401,964        400,002        37,051        50,135        6,714,779  

Unaffiliated preferred stocks

      4,552        101        —          155        4,498  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 6,406,516      $ 400,103      $ 37,051      $ 50,290      $ 6,719,277  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

     Carrying
Amount		      Gross
Unrealized
Gains		      Gross
Unrealized
Losses 12
Months or
More		      Gross
Unrealized
Losses less
Than 12
Months		      Estimated
Fair
Value		  

December 31, 2015

               

Unaffiliated bonds:

               

United States Government and agencies

    $ 590,717      $ 77,946      $ 2,029      $ 5,365      $ 661,268  

State, municipal and other government

      124,262        8,764        462        3,547        129,017  

Hybrid securities

      97,931        1,868        13,727        3,438        82,634  

Industrial and miscellaneous

      4,682,570        238,251        56,816        68,292        4,795,714  

Mortgage and other asset-backed securities

      1,356,212        63,921        8,142        4,402        1,407,589  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     6,851,692        390,750        81,176        85,044        7,076,222  

Unaffiliated preferred stocks

      3,269        138        —          68        3,340  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 6,854,961      $ 390,888      $ 81,176      $ 85,112      $ 7,079,562  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

At December 31, 2016 and 2015, respectively, for bonds and preferred stocks that have been in a continuous loss position for greater than or equal to twelve months, the Company held 96 and 115 securities with a carrying amount of $442,713 and $600,374 and an unrealized loss of $37,051 and $81,176 with an average price of 91.6 and 86.5 (fair value/amortized cost). Of this portfolio, 61.3% and 77.3% were investment grade with associated unrealized losses of $20,301 and $49,579, respectively.

 

35

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, respectively, for bonds and preferred stocks that have been in a continuous loss position for less than twelve months, the Company held 328 and 396 securities with a carrying amount of $1,294,335 and $1,852,998 and an unrealized loss of $50,290 and $85,112 with an average price of 96.1 and 95.4 (fair value/amortized cost). Of this portfolio, 93.8% and 86.5% were investment grade with associated unrealized losses of $44,580 and $52,689, respectively.

At December 31, 2016 and 2015, the Company did not hold any common stocks that had been in continuous loss position for greater than or equal to twelve months.

At December 31, 2016, the Company did not hold any common stocks that had been in continuous loss position for less than twelve months. At December 31, 2015, for common stocks that had been in a continuous loss position for less than twelve months, the Company held 1 security with a cost of $134 and an unrealized loss of $10 with an average price of 92.9 (fair value/cost).

The estimated fair value of bonds, preferred stocks and common stocks with gross unrealized losses at December 31, 2016 and 2015 is as follows:

 

     Losses 12
Months or
More		      Losses Less
Than 12
Months		      Total  

December 31, 2016

         

Unaffiliated bonds:

         

United States Government and agencies

    $ —        $ 67,938      $ 67,938  

State, municipal and other government

      —          14,809        14,809  

Hybrid securities

      51,909        7,149        59,058  

Industrial and miscellaneous

      284,790        839,181        1,123,971  

Mortgage and other asset-backed securities

      68,963        311,816        380,779  
  

 

 

     

 

 

     

 

 

  
     405,662        1,240,893        1,646,555  

Unaffiliated preferred stocks

      —          3,152        3,152  
  

 

 

     

 

 

     

 

 

  
   $ 405,662      $ 1,244,045      $ 1,649,707  
  

 

 

     

 

 

     

 

 

  

 

36

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Losses 12
Months or
More		      Losses Less
Than 12
Months		      Total  

December 31, 2015

         

Unaffiliated bonds:

         

United States Government and agencies

    $ 97,431      $ 97,938      $ 195,369  

State, municipal and other government

      3,306        34,287        37,593  

Hybrid securities

      35,431        20,666        56,097  

Industrial and miscellaneous

      249,044        1,244,210        1,493,254  

Mortgage and other asset-backed securities

      133,986        368,829        502,815  
  

 

 

     

 

 

     

 

 

  
   $ 519,198      $ 1,765,930      $ 2,285,128  
  

 

 

     

 

 

     

 

 

  

Unaffiliated preferred stocks

      —          1,956        1,956  

Unaffiliated common stocks

      —          124        124  
  

 

 

     

 

 

     

 

 

  
   $ 519,198      $ 1,768,010      $ 2,287,208  
  

 

 

     

 

 

     

 

 

  

The carrying amount and estimated fair value of bonds at December 31, 2016, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Carrying
Amount		      Estimated
Fair
Value		  

Due in one year or less

    $ 306,265      $ 311,697  

Due after one year through five years

      2,103,103        2,190,077  

Due after five years through ten years

      1,106,209        1,124,860  

Due after ten years

      1,822,935        1,980,287  
  

 

 

     

 

 

  
     5,338,512        5,606,921  

Mortgage and other asset-backed securities

      1,063,452        1,107,858  
  

 

 

     

 

 

  
   $ 6,401,964      $ 6,714,779  
  

 

 

     

 

 

  

The following structured notes were held at December 31, 2016:

 

CUSIP

Identification

    Actual
Cost		      Fair Value      Book / Adjusted
Carrying Value		      Mortgage-
Referenced
Security

44965TAA5

    $ 1,462      $ 1,347      $ 1,463      NO

912810QV3

      39,979        40,972        42,855      NO

912810RA8

      49,933        57,905        52,869      NO

912810RL4

      24,893        26,867        25,602      NO

912810RR1

      1,925        1,800        1,931      NO
  

 

 

     

 

 

     

 

 

     

Total

    $ 118,192      $ 128,891      $ 124,720     
  

 

 

     

 

 

     

 

 

     

 

37

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table provides the number of 5* securities, aggregate book adjusted carrying value and aggregate fair value by investment type.

 

     Number of
5* Securities		      Book / Adjusted
Carrying Value		      Fair
Value		  

December 31, 2016

         

Bonds, amortized cost

      1      $ 3,963      $ 3,920  
  

 

 

     

 

 

     

 

 

  

Total

      1      $ 3,963      $ 3,920  

December 31, 2015

         

Bonds, amortized cost

      1      $ 3,961      $ 3,960  
  

 

 

     

 

 

     

 

 

  

Total

      1      $ 3,961      $ 3,960  

For impairment policies related to non-structured and structured securities, refer to Note 1 under Investments.

There were no loan-backed securities with a recognized OTTI due to intent to sell or lack of intent and ability to hold during the years ended December 31, 2016 and 2015.

The following tables provide the aggregate totals for loan-backed securities with a recognized OTTI due to the Company’s cash flow analysis, in which the security is written down to estimated future cash flows discounted at the security’s effective yield.

 

     Amortized Cost
before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year Ended December 31, 2016

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 10,457      $ 390      $ 10,067      $ 9,318  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      —          —          —          —    

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      13,293        462        12,831        12,354  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      3,978        43        3,934        3,947  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 27,728      $ 895      $ 26,832      $ 25,619  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

38

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Amortized Cost
before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year Ended December 31, 2015

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 13,287      $ 890      $ 12,397      $ 11,082  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      14,183        1,751        12,433        11,025  

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      1,356        631        724        664  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 28,826      $ 3,272      $ 25,554      $ 22,771  
  

 

 

     

 

 

     

 

 

     

 

 

  
     Amortized Cost
before Current
Period OTTI		      Recognized
OTTI		      Amortized Cost
After OTTI		      Fair Value  

Year Ended December 31, 2014

            

1st quarter present value of cash flows expected to be less than the amortized cost basis

    $ 12,087      $ 1,432      $ 10,655      $ 10,663  

2nd quarter present value of cash flows expected to be less than the amortized cost basis

      4,546        48        4,498        4,187  

3rd quarter present value of cash flows expected to be less than the amortized cost basis

      28,210        308        27,902        26,600  

4th quarter present value of cash flows expected to be less than the amortized cost basis

      16,062        2,099        13,963        12,937  
  

 

 

     

 

 

     

 

 

     

 

 

  

Aggregate total

    $ 60,905      $ 3,887      $ 57,018      $ 54,387  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

39

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following loan-backed and structured securities were held at December 31, 2016, for which an OTTI was recognized during the current reporting period:

 

CUSIP

    Amortized Cost
Before Current
Period OTTI		      Present Value of
Projected Cash
Flows		      Recognized
OTTI		      Amortized
Cost After
OTTI		      Fair Value at
Time of
OTTI		      Quarter in
which
Impairment
Occurred		  

759676AJ8

    $ 4,284      $ 4,173      $ 112      $ 4,173      $ 3,875        1Q 2016  

75970JAJ5

      5,642        5,387        255        5,387        4,971        1Q 2016  

75970QAH3

      530        507        23        507        472        1Q 2016  

14984WAA8

      4,650        4,306        344        4,306        3,744        3Q 2016  

126380AB0

      8,643        8,525        118        8,525        8,610        3Q 2016  

759676AJ8

      3,978        3,934        43        3,934        3,947        4Q 2016  
        

 

 

           
         $ 895           
        

 

 

           

The unrealized losses of loan-backed and structured securities where fair value is less than cost or amortized cost for which an OTTI has not been recognized in earnings as of December 31, 2016 and 2015 is as follows:

 

     Losses 12
Months or
More		      Losses Less
Than 12
Months		  

Year ended December 31, 2016

      

The aggregate amount of unrealized losses

    $ 3,559      $ 8,888  

The aggregate related fair value of securities with unrealized losses

      68,963        312,042  
     Losses 12
Months or
More		      Losses Less
Than 12
Months		  

Year ended December 31, 2015

      

The aggregate amount of unrealized losses

    $ 8,971      $ 4,402  

The aggregate related fair value of securities with unrealized losses

      135,616        368,829  

 

40

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Detail of net investment income is presented below:

 

     Year Ended December 31  
     2016      2015      2014  

Income:

         

Bonds

    $ 321,213      $ 333,020      $ 358,641  

Preferred stocks

      148        198        194  

Mortgage loans on real estate

      47,305        37,235        37,297  

Policy loans

      7,319        7,211        7,107  

Cash, cash equivalents and short-term investments

      2,412        479        244  

Derivatives

      21,572        18,678        17,636  

Other invested assets

      (308 )       2,183        3,742  

Other

      13,144        19,310        38  
  

 

 

     

 

 

     

 

 

  

Gross investment income

      412,805        418,314        424,899  

Less investment expenses

      17,277        17,230        14,549  
  

 

 

     

 

 

     

 

 

  

Net investment income

    $ 395,528      $ 401,084      $ 410,350  
  

 

 

     

 

 

     

 

 

  

Proceeds from sales and other disposals (excluding maturities) of bonds and preferred stock and related gross realized capital gains and losses were as follows:

 

     Year Ended December 31  
     2016      2015      2014  

Proceeds

    $ 1,682,509      $ 1,835,590      $ 1,024,169  
  

 

 

     

 

 

     

 

 

  

Gross realized gains

    $ 26,490      $ 26,268      $ 12,628  

Gross realized losses

      (15,183 )       (31,950 )       (15,724 ) 
  

 

 

     

 

 

     

 

 

  

Net realized capital gains (losses)

    $ 11,307      $ (5,682 )     $ (3,096 ) 
  

 

 

     

 

 

     

 

 

  

The Company had gross realized losses, which relate to losses recognized on other-than-temporary declines in the fair value of bonds and preferred stocks, for the years ended December 31, 2016, 2015 and 2014 of $8,093, $8,067 and $3,999, respectively.

 

41

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Net realized capital gains (losses) on investments are summarized below:

 

     Realized  
     Year Ended December 31  
     2016      2015      2014  

Bonds

    $ 3,214      $ (14,825 )     $ (7,095 ) 

Preferred stocks

      —          1,077        —    

Common stocks

      32        (68 )       522  

Mortgage loans on real estate

      (698 )       21        —    

Cash, cash equivalents and short-term investments

      9        (11 )       1  

Derivatives

      (16,280 )       (18,751 )       (25,808 ) 

Other invested assets

      (12,505 )       8,099        7,828  
  

 

 

     

 

 

     

 

 

  
     (26,228 )       (24,458 )       (24,552 ) 

Federal income tax effect

      (2,833 )       (3,518 )       (5,405 ) 

Transfer to interest maintenance reserve

      (6,516 )       (2,507 )       (3,617 ) 
  

 

 

     

 

 

     

 

 

  

Net realized capital (losses) gains on investments

    $ (35,577 )     $ (30,483 )     $ (33,574 ) 
  

 

 

     

 

 

     

 

 

  

At December 31, 2016 and 2015, the Company had no recorded investment in restructured securities. There were no capital gains (losses) taken as a direct result of restructures in 2016, 2015 and 2014. The Company often has other-than-temporarily impaired a security prior to the restructure date. These other-than-temporary impairments are not included in the calculation of restructure related losses and are accounted for as a realized loss, reducing the cost basis of the security involved.

The changes in net unrealized capital gains and losses on investments, including the changes in net unrealized foreign capital gains and losses were as follows:

 

     Change in Unrealized  
     Year Ended December 31  
     2016      2015      2014  

Bonds

    $ 4,433      $ (2,493 )     $ 7,613  

Common stocks

      10        (140 )       (208 ) 

Affiliated entities

      136        (294 )       (366 ) 

Cash, cash equivalents and short-term investments

      (9 )       —          —    

Derivatives

      (30,961 )       9,972        40,517  

Other invested assets

      10,833        (8,190 )       (4,548 ) 
  

 

 

     

 

 

     

 

 

  

Change in unrealized capital (losses) gains, before taxes

      (15,558 )       (1,145 )       43,008  

Taxes on unrealized capital (losses) gains

      5,366        (3,558 )       1,124  
  

 

 

     

 

 

     

 

 

  

Change in unrealized capital (losses) gains, net of tax

    $ (20,924 )     $ 2,413      $ 41,884  
  

 

 

     

 

 

     

 

 

  

 

42

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The credit quality of mortgage loans by type of property for the year ended December 31, 2016 was as follows:

 

     Farm      Commercial      Total  

AAA - AA

    $ —        $ 493,886      $ 493,886  

A

      10,795        637,553        648,348  

BBB

      2,486        86,810        89,296  

BB

      —          11,626        11,626  
  

 

 

     

 

 

     

 

 

  
   $ 13,281      $ 1,229,875      $ 1,243,156  
  

 

 

     

 

 

     

 

 

  

The credit quality for commercial and farm mortgage loans was determined based on an internal credit rating model which assigns a letter rating to each mortgage loan in the portfolio as an indicator of the credit quality of the mortgage loan. The internal credit rating model was designed based on rating agency methodology, then modified for credit risk associated with the Company’s mortgage lending process, taking into account such factors as projected future cash flows, net operating income, and collateral value. The model produces a credit rating score and an associated letter rating which is intended to align with S&P ratings as closely as possible. Information supporting the credit risk rating process is updated at least annually.

During 2016 and 2015, respectively, the Company issued mortgage loans with a maximum interest rate of 6.23% and 5.30%, and a minimum interest rate of 3.60% and 3.51% for commercial loans. The maximum percentage of any one mortgage loan to the value of the underlying real estate originated or acquired during the year ending December 31, 2016 at the time of origination or acquisitions was 79%. The maximum percentage of any one mortgage loan to the value of the underlying real estate originated during the year ending December 31, 2015 at the time of origination was 73%. During 2016 and 2015, the Company did not reduce the interest rate on any outstanding mortgage loan. During 2016, the Company issued one farm mortgage loan with an interest rate of 4.40%.

The following tables provide the age analysis of mortgage loans aggregated by type:

 

            Residential      Commercial                

December 31, 2016

    Farm      Insured      All Other      Insured      All Other      Mezzanine      Total  

Recorded Investment (All)

                     

(a) Current

    $ 10,795      $ —        $  —        $  —        $ 1,229,875      $  —        $ 1,240,670  

(b) 30-59 Days Past Due

      2,486        —          —          —          —          —          2,486  

(c) 60-89 Days Past Due

      —          —          —          —          —          —          —    

(d) 90-179 Days Past Due

      —          —          —          —          —          —          —    

(e) 180+ Days Past Due

      —          —          —          —          —          —          —    
            Residential      Commercial                

December 31, 2015

    Farm      Insured      All Other      Insured      All Other      Mezzanine      Total  

Recorded Investment (All)

                     

(a) Current

    $ 7,828      $  —        $  —        $  —        $ 937,916      $ 1,992      $ 947,736  

(b) 30-59 Days Past Due

      2,572        —          —          —          —          —          2,572  

(c) 60-89 Days Past Due

      —          —          —          —          —          —          —    

(d) 90-179 Days Past Due

      —          —          —          —          —          —          —    

(e) 180+ Days Past Due

      —          —          —          —          —          —          —    

The Company did not have any impaired loans at December 31, 2016 or 2015. The Company did not hold an allowance for credit losses on mortgage loans at December 31, 2016, 2015 or 2014.

 

43

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company accrues interest income on impaired loans to the extent deemed collectible (delinquent less than 91 days) and the loan continues to perform under its original or restructured contractual terms. Interest income on nonperforming loans generally is recognized on a cash basis.

During 2016, one mortgage loan in the amount of $3,600 was foreclosed and transferred to real estate. No mortgage loan foreclosures occurred during 2015. At December 31, 2016 and 2015, the company held a mortgage loan loss reserve in the AVR of $12,888 and $9,171, respectively

The Company’s mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:

 

Geographic Distribution

    

Property Type Distribution

  
     December 31          December 31  
     2016     2015          2016     2015  

South Atlantic

      26 %      24 %    Apartment      51 %      52 % 

Pacific

      23       22     Retail      16       16  

Middle Atlantic

      12       9     Industrial      12       14  

Mountain

      11       14     Office      12       13  

W. North Central

      10       12     Medical      4       4  

W. South Central

      9       12     Other      4       —    

E. North Central

      5       4     Agricultural      1       1  

E. South Central

      4       3         

New England

      —         —           

During 2016 the Company recognized $10,869 of impairment writes downs for its investments in joint ventures and limited partnerships. During 2015 and 2014, the Company did not recognize any impairment write-downs for its investments in joint ventures and limited partnerships.

At December 31, 2016, the Company had ownership interest in seven LIHTC investments. The remaining years of unexpired tax credits ranged from eight to thirteen and the properties were not subject to regulatory review. The length of time remaining for the holding period ranged from one to sixteen years. The amount of contingent equity commitments expected to be paid during the years 2017 to 2019 is $146,694. LIHTC tax credits recognized in 2016 was $2,416, and other LIHTC tax benefits recognized in 2016 was $1,231. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.

At December 31, 2015, the Company had ownership interest in two LIHTC investments. The remaining years of unexpired tax credits ranged from one to nine and the properties were not subject to regulatory review. The length of time remaining for the holding period ranged from two to ten years. There are no contingent equity commitments expected to be paid in the future. There were no impairment losses, write-downs or reclassifications during the year related to any of these credits.

Derivatives

The Company has entered into collateral agreements with certain counterparties wherein the counterparty is required to post assets (cash or securities) on the Company’s behalf in an amount equal to the difference between the net positive fair value of the contracts and an agreed upon threshold based on the credit rating of the counterparty. If the net fair value of all contracts with this counterparty is negative, then the Company is required to post similar assets (cash or securities). Fair value of derivative contracts, aggregated at a counterparty level at December 31, was as follows:

 

44

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     2016      2015  

Fair value - positive

    $ 89,939      $ 77,911  

Fair value - negative

      (95,627 )       (42,152 ) 

For the years ended December 31, 2016, 2015 and 2014, the Company recorded unrealized gains (losses) of $(11,706), $17,627 and $8,313, respectively, for the component of derivative instruments utilized for hedging purposes that did not qualify for hedge accounting. This has been recorded directly to unassigned surplus as an unrealized gain (loss). The Company did not recognize any unrealized gains or losses during 2016, 2015 or 2014 that represented the component of derivative instruments gain or loss that was excluded from the assessment of hedge effectiveness.

Summary of realized gain (losses) by derivative type for year-end December 31, is as follows:

 

     2016      2015      2014  

Swaps:

         

Interest rate

    $ 30,336      $ (10,391 )     $ 310  

Credit

      861        24        (676 ) 

Total return

      (26,807 )       (638 )       (823 ) 
  

 

 

     

 

 

     

 

 

  

Total swaps

    $ 4,390      $ (11,005 )     $ (1,189 ) 
  

 

 

     

 

 

     

 

 

  

Foreign currency forwards

      —          931        493  

Futures—net positions

      (20,669 )       (8,677 )       (25,113 ) 

Lehman settlements

      108        139        —    
  

 

 

     

 

 

     

 

 

  

Total realized (losses) gains

    $ (16,171 )     $ (18,612 )     $ (25,809 ) 
  

 

 

     

 

 

     

 

 

  

Fair value of replicated assets and credit default swaps (as underlying), as of December 31, is as follows:

 

     Year End December 31  
     2016      2015      2014  

Replicated assets

    $ 644,760      $ 666,362      $ 628,483  

Credit default

      9,105        7,691        14,591  

Credit gain (losses) to credit swap transactions (which are primary replication transactions), as of December 31, is as follows:

 

     Year End December 31  
     2016      2015      2014  

Capital gains (losses)

    $ 861      $ 23      $ 676  

As stated in Note 1, the Company replicates investment grade corporate bonds or sovereign debt by writing credit default swaps. As a writer of credit swaps, the Company actively monitors the underlying asset, being careful to note any events (default or similar credit event) that would require the Company to perform on the credit swap. If such events would take place, the Company has recourse provisions from the proceeds of the bankruptcy settlement of the underlying entity or by the sale of the underlying bond. As of December 31, 2016, credit default swaps, used in replicating corporate bonds or sovereign debt are as follows:

 

45

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

            Maximum         
            Future Payout      Current Fair  

Deal, Receive (Pay), Underlying

    Maturity Date      (Estimated)      Value  

51410,SWAP, USD 1 / (USD 0), :US168863A S74

      3/20/2017      $ 10,000      $ 16  

51409,SWAP, USD 1 / (USD 0), :XS0203685788

      3/20/2017        11,000        17  

51412,SWAP, USD 1 / (USD 0), :US50064FAD69

      3/20/2017        10,000        19  

51411,SWAP, USD 1 / (USD 0), :USY6826RAA06

      3/20/2017        12,000        17  

51413,SWAP, USD 1 / (USD 0), :US168863A S74

      3/20/2017        10,000        16  

51414,SWAP, USD 1 / (USD 0), :CDX-NAIG S18V1-5Y

      6/20/2017        20,000        87  

51415,SWAP, USD 1 / (USD 0), :CDX-NAIG S18V1-5Y

      6/20/2017        20,000        87  

43375,SWAP, USD 1 / (USD 0), :CDX-NAIG S18V1-5Y

      6/20/2017        5,000        22  

51416,SWAP, USD 1 / (USD 0), :US836205A J33

      9/20/2017        8,500        46  

43612,SWAP, USD 1 / (USD 0), :US455780A Q93

      9/20/2017        2,000        8  

46535,SWAP, USD 1 / (USD 0), :XS0292653994

      12/20/2017        15,000        130  

59021,SWAP, USD 1 / (USD 0), :CDX-NAIGS19V1-5Y

      12/20/2017        20,000        173  

59022,SWAP, USD 1 / (USD 0), :US084664BN 03

      12/20/2017        25,000        192  

49133,SWAP, USD 5 / (USD 0), :US345370BX76

      12/20/2017        10,000        462  

49374,SWAP, USD 1 / (USD 0), :US246688A F27

      12/20/2017        10,000        90  

49893,SWAP, USD 1 / (USD 0), :US29250R AC07

      12/20/2017        10,000        35  

50058,SWAP, USD 1 / (USD 0), :US444859A U63

      12/20/2017        10,000        88  

50222,SWAP, USD 1 / (USD 0), :US293791A D17

      12/20/2017        10,000        70  

60228,SWAP, USD 1 / (USD 0), :US026874A Z07

      6/20/2018        5,000        59  

78320,SWAP, USD 5 / (USD 0), :DE000A0TK UU3

      6/20/2019        10,000        1,130  

78183,SWAP, USD 5 / (USD 0), :US125581GL 68

      6/20/2019        5,000        521  

79113,SWAP, USD 5 / (USD 0), :US37045V AC46

      6/20/2019        10,000        1,034  

79606,SWAP, USD 5 / (USD 0), :US459745GF 62

      6/20/2019        10,000        1,038  

 

46

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

111718,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        2,800        (93 ) 

111728,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        1,400        (5 ) 

111731,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        1,400        (47 ) 

111734,SWAP, USD 1 / (USD 0), :US836205AN45

      6/20/2020        1,400        (21 ) 

111737,SWAP, USD 1 / (USD 0), :US105756BV13

      6/20/2020        1,400        (37 ) 

111743,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        1,400        (5 ) 

111831,SWAP, USD 1 / (USD 0), :US715638AP79

      6/20/2020        1,400        15  

111841,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2020        1,400        (4 ) 

111844,SWAP, USD 1 / (USD 0), :US195325BB02

      6/20/2020        1,400        (5 ) 

111897,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        1,400        (47 ) 

112137,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        2,800        6  

112152,SWAP, USD 1 / (USD 0), :US900123AL40

      6/20/2020        1,400        (47 ) 

112227,SWAP, USD 1 / (USD 0), :USY6826RAA06

      9/20/2020        2,800        (2 ) 

112303,SWAP, USD 1 / (USD 0), :US455780AU06

      9/20/2020        1,400        (7 ) 

112327,SWAP, USD 1 / (USD 0), :US91086QAW87

      9/20/2020        1,400        (7 ) 

112339,SWAP, USD 1 / (USD 0), :US25271CAJ18

      9/20/2020        6,650        (421 ) 

112364,SWAP, USD 1 / (USD 0), :US465410AH18

      6/20/2020        1,400        (15 ) 

112430,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        1,400        3  

112572,SWAP, USD 1 / (USD 0), :US105756BV13

      6/20/2020        1,400        (37 ) 

113397,SWAP, USD 1 / (USD 0), :US88322KAC53

      9/20/2020        1,400        22  

113436,SWAP, USD 1 / (USD 0), :US455780AU06

      9/20/2020        1,400        (7 ) 

116039,SWAP, USD 1 / (USD 0), :ES0413900384

      9/20/2020        6,665        7  

116934,SWAP, USD 1 / (USD 0), :US698299AD63

      9/20/2020        3,200        7  

120678,SWAP, USD 5 / (USD 0), :US345370BX76

      9/20/2020        10,000        1,421  

119324,SWAP, USD 1 / (USD 0), :US59156RAX61

      9/20/2020        15,000        203  

133645,SWAP, USD 1 / (USD 0), :US91086QAW87

      12/20/2020        3,600        (28 ) 

133654,SWAP, USD 1 / (USD 0), :US195325BB02

      12/20/2020        1,800        (17 ) 

133657,SWAP, USD 1 / (USD 0), :US715638AP79

      12/20/2020        1,800        15  

133739,SWAP, USD 1 / (USD 0), :US715638AP79

      12/20/2020        5,000        40  

133742,SWAP, USD 1 / (USD 0), :US712219AG90

      12/20/2020        5,000        14  

133878,SWAP, USD 1 / (USD 0), :US712219AG90

      12/20/2020        5,000        14  

133888,SWAP, USD 1 / (USD 0), :US698299AD63

      12/20/2020        5,000        1  

134317,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        10,000        (4 ) 

134318,SWAP, USD 1 / (USD 0), :US445545AD87

      12/20/2020        2,500        (1 ) 

134822,SWAP, USD 1 / (USD 0), :US455780AU06

      12/20/2020        8,000        (66 ) 

134929,SWAP, USD 1 / (USD 0), :US168863AV04

      12/20/2020        5,000        65  

137181,SWAP, USD 1 / (USD 0), :US718286AP29

      12/20/2020        2,500        18  

151442,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2021        15,000        (222 ) 

151679,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2021        20,000        (296 ) 

151451,SWAP, USD 1 / (USD 0), :US91086QAW87

      6/20/2021        5,000        (74 ) 

153790,SWAP, USD 1 / (USD 0), :CDX-NAIGS22V1-5Y

      6/20/2019        10,000        153  

164370,SWAP, USD 1 / (USD 0), :CDX-NAIGS26V1-5Y

      6/20/2021        10,000        164  

173566,SWAP, USD 5 / (USD 0), :US37045VAD29

      12/20/2021        15,000        2,390  

186523,SWAP, USD 1 / (USD 0), :XS0114288789

      12/20/2021        840        (29 ) 

186527,SWAP, USD 5 / (USD 0), :USP04808AE45

      12/20/2021        560        (3 ) 

164834,SWAP, USD 1 / (USD 0), :US74432QAB14

      9/20/2020        20,000        299  

164835,SWAP, USD 1 / (USD 0), :US36962G3H54

      9/20/2023        20,000        437  
     

 

 

     

 

 

  
      $ 503,815      $ 9,104  
     

 

 

     

 

 

  

 

47

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the Company’s outstanding financial instruments with on and off-balance sheet risks, shown in notional amounts, are summarized as follows:

 

     Notional Amount  
     2016      2015  

Interest rate and currency swaps:

      

Receive fixed—pay fixed

    $ 10,508      $ 544,124  

Receive fixed—pay floating

      15,902        —    

Interest rate swaps:

      

Receive fixed—pay fixed

      1,210,884        364,069  

Receive fixed—pay floating

      1,514,250        1,335,250  

Receive floating—pay fixed

      1,654,500        909,500  

Receive floating—pay floating

      425,236        308,735  

 

48

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables show the pledged or restricted assets as of December 31, 2016 and 2015, respectively:

 

         Gross Restricted (Admitted & Nonadmitted)  
         2016  
                G/A Supporting      Total S/A      S/A Assets         
         Total General      Separate Account      Restricted      Supporting G/A         
   

Restricted Asset Category

    Account (G/A)      (S/A) Activity      Assets      Activity      Total  

a.

  

Subject to contractual obligation for which liability is not shown

    $ —        $ —        $ —        $ —          —    

b.

  

Collateral held under security lending agreements

      307,744        —          —          —          307,744  

c.

  

Subject to repurchase agreements

      —          —          —          —          —    

d.

  

Subject to reverse repurchase agreements

      —          —          —          —          —    

e.

  

Subject to dollar repurchase agreements

      20,325        —          —          —          20,325  

f.

  

Subject to dollar reverse repurchase agreements

      —          —          —          —          —    

g.

  

Placed under option contracts

      —          —          —          —          —    

h.

  

Letter stock or securities restricted as to sale - excluding FHLB capital stock

      —          —          —          —          —    

i.

  

FHLB capital stock

      —          —          —          —          —    

j.

  

On deposit with states

      2,613        —          —          —          2,613  

k.

  

On deposit with other regulatory bodies

      —          —          —          —          —    

l.

  

Pledged as collateral to FHLB (including assets backing funding agreements)

      —          —          —          —          —    

m.

  

Pledged as collateral not captured in other categories

      80,398        —          —          —          80,398  

n.

   Other restricted assets      —          —          —          —          —    
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

o.

   Total Restricted Assets    $ 411,080      $ —        $ —        $ —          411,080  
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

49

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

        Gross (Admitted & Nonadmitted) Restricted     Percentage  
                                Gross (Admitted &     Admitted  
                                Nonadmitted)     Restricted to  
                          Total Admitted     Restricted     Total  
        Total As of     Increase/     Total Nonadmitted     Restricted     to Total     Admitted  
   

Restricted Asset Category

   12/31/15     (Decrease)     Restricted     (5 minus 8)     Assets     Assets  

a.

  

Subject to contractual obligation for which liability is not shown

   $ —       $ —       $ —       $ —         0.00 %      0.00 % 

b.

  

Collateral held under security lending agreements

     433,773       (126,029 )      —         307,744       0.95 %      0.95 % 

c.

  

Subject to repurchase agreements

     —         —         —         —         0.00 %      0.00 % 

d.

  

Subject to reverse repurchase agreements

     —         —         —         —         0.00 %      0.00 % 

e.

  

Subject to dollar repurchase agreements

     31,307       (10,982 )      —         20,325       0.06 %      0.06 % 

f.

  

Subject to dollar reverse repurchase agreements

     —         —         —         —         0.00 %      0.00 % 

g.

  

Placed under option contracts

     —         —         —         —         0.00 %      0.00 % 

h.

  

Letter stock or securities restricted as to sale - excluding FHLB capital stock

     1,792       (1,792 )      —         —         0.00 %      0.00 % 

i.

  

FHLB capital stock

     —         —         —         —         0.00 %      0.00 % 

j.

  

On deposit with states

     2,621       (8 )      —         2,613       0.01 %      0.01 % 

k.

  

On deposit with other regulatory bodies

     —         —         —         —         0.00 %      0.00 % 

l.

  

Pledged as collateral to FHLB (including assets backing funding agreements)

     —         —         —         —         0.00 %      0.00 % 

m.

  

Pledged as collateral not captured in other categories

     35,958       44,440       —         80,398       0.25 %      0.25 % 

n.

  

Other restricted assets

     —         —         —         —         0.00 %      0.00 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

o.

  

Total Restricted Assets

   $ 505,451     $ (94,371 )    $ —       $ 411,080       1.27 %      1.27 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

50

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table shows the pledged or restricted assets in other categories as of December 31, 2016 and 2015, respectively:

 

     Gross (Admitted & Nonadmitted) Restricted  
     Current Year  
     1      2      3      4      5  
                   Total Separate                
                   Account (S/A)      S/A Assets         
     Total General      G/A Supporting      Restricted      Supporting G/A      Total  

Description of Assets

    Account (G/A)      S/A Activity (a)      Assets      Activity (b)      (1 plus 3)  

Derivatives

    $ 80,398      $ —        $ —        $ —          80,398  

Secured Funding Agreements

      —          —          —          —          —    

AMBAC

      —          —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total (c)

    $ 80,398      $ —        $ —        $ —          80,398  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

     Gross (Admitted & Nonadmitted)
Restricted		      Percentage  
     6      7      8      9     10  
                          Gross     Admitted  
                          (Admitted &     Restricted to  
            Increase/      Total Current      Nonadmitted)     Total  
     Total as of      (Decrease)      Year Admitted      Restricted to     Admitted  

Description of Assets

    12/31/2015      (5 minus 6)      Restricted      Total Assets     Assets  

Derivatives

    $ 35,958      $ 44,440      $ 80,398        0.25 %      0.25 % 

Secured Funding Agreements

      —          —          —          0.00 %      0.00 % 

AMBAC

      —          —          —          0.00 %      0.00 % 
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

Total (c)

    $ 35,958      $ 44,440      $ 80,398        0.25 %      0.25 % 
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

  

 

(a) Subset of column 1
(b) Subset of column 3
(c) Total Line for Columns 1 through 7 should equal 5H(1)m Columns 1 through 7 respectively and Total Line for Columns 8 through

 

51

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following table shows the collateral received and reflected as assets within the financial statements as of December 31, 2016.

 

     1      2      3     4  
     Book Adjusted             % of BACV to Total        
     Carrying Value             Assets (Admitted     % of BACV to Total  

Collateral Assets

    ((BACV)      Fair Value      and Nonadmitted*)     Admited Assets **  

a. Cash

    $ 49,719      $ 49,719        0.55 %      0.55 % 

b. Schedule D, Part 1

      —          —          —         —    

c. Schedule D, Part 2, Section 1

      —          —          —         —    

d. Schedule D, Part 2, Section 2

      —          —          —         —    

e. Schedule B

      —          —          —         —    

f. Schedule A

      —          —          —         —    

g. Schedule BA, Part 1

      —          —          —         —    

h. Schedule DL, Part 1

      307,732        307,732        3.38 %      3.41 % 

i. Other

      12,736        12,736        0.14 %      0.14 % 
  

 

 

     

 

 

     

 

 

    

 

 

  

j. Total Collateral Assets

    $ 370,187      $ 370,187        4.07 %      4.10 % 

 

* Column 1 divided by Asset Page, Line 26 (Column 1)
** Column 1 divided by Asset Page, Line 26 (Column 3)

 

            12  
            % of Liability to  
     Amount      Total Liabilities*  

k. Recognized Obligation to

      

    Return Collateral Asset

      370,236        4.66 % 

 

* Column 1 divided by Liability Page, Line 26 (Column 1)

6. Reinsurance

Certain premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The Company reinsures portions of the risk on certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligation under the reinsurance treaty.

Premiums earned reflect the following reinsurance amounts:

 

     Year Ended December 31  
     2016      2015      2014  

Direct premiums

    $ 5,786,774      $ 5,821,086      $ 5,452,910  

Reinsurance assumed—non affiliates

      529,283        510,492        550,438  

Reinsurance assumed—affiliates

      50        65        41  

Reinsurance ceded—non affiliates

      (341,356 )       (317,940 )       (357,388 ) 

Reinsurance ceded—affiliates

      (199,490 )       (200,709 )       (206,355 ) 
  

 

 

     

 

 

     

 

 

  

Net premiums earned

    $ 5,775,260      $ 5,812,994      $ 5,439,646  
  

 

 

     

 

 

     

 

 

  

 

52

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded to affiliates at December 31, 2016 and 2015 of $1,577,030 and $1,579,551, respectively.

The Company received reinsurance recoveries in the amounts of $430,476, $427,569 and $447,903 during 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $174,979 and $156,350, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2016 and 2015 of $2,281,757 and $2,079,702, respectively.

The Company did not enter into any new reinsurance agreements in which a reserve credit was taken during the years ended December 31, 2016, 2015 and 2014.

During 2016, 2015 and 2014, amortization of deferred gains associated with previously transacted reinsurance agreements was released into income in the amount of $93,916 ($61,046 after tax), $52,697 ($34,253 after tax) and $12,740 ($8,281 after tax), respectively.

The Company is reviewing historical treaty language of yearly renewable treaty agreements with the New York Department of Financial Service under an interpretation which would result in higher gross reserves. These reinsurance contracts are fully ceded and would not impact the capital and surplus of the Company.

7. Income Taxes

The net deferred income tax asset at December 31, 2016 and 2015 is comprised of the following components:

 

     December 31, 2016  
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ 109,009      $ 15,603      $ 124,612  

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      109,009        15,603        124,612  

Deferred Tax Assets Nonadmitted

      47,310        —          47,310  
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      61,699        15,603        77,302  

Deferred Tax Liabilities

      16,273        12,118        28,391  
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ 45,426      $ 3,485      $ 48,911  
  

 

 

     

 

 

     

 

 

  
     December 31, 2015  
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ 112,987      $ 18,660      $ 131,647  

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      112,987        18,660        131,647  

Deferred Tax Assets Nonadmitted

      43,588        —          43,588  
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      69,399        18,660        88,059  

Deferred Tax Liabilities

      18,158        15,443        33,601  
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ 51,241      $ 3,217      $ 54,458  
  

 

 

     

 

 

     

 

 

  

 

53

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

            Change         
     Ordinary      Capital      Total  

Gross Deferred Tax Assets

    $ (3,978 )     $ (3,057 )     $ (7,035 ) 

Statutory Valuation Allowance Adjustment

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Adjusted Gross Deferred Tax Assets

      (3,978 )       (3,057 )       (7,035 ) 

Deferred Tax Assets Nonadmitted

      3,722        —          3,722  
  

 

 

     

 

 

     

 

 

  

Subtotal (Net Deferred Tax Assets)

      (7,700 )       (3,057 )       (10,757 ) 

Deferred Tax Liabilities

      (1,885 )       (3,325 )       (5,210 ) 
  

 

 

     

 

 

     

 

 

  

Net Admitted Deferred Tax Assets

    $ (5,815 )     $ 268      $ (5,547 ) 
  

 

 

     

 

 

     

 

 

  

The main components of deferred income tax amounts are as follows:

Deferred Tax Assets:

 

     Year Ended December 31         
     2016      2015      Change  

Ordinary

         

Discounting of unpaid losses

    $ 193      $ 120      $ 73  

Unearned premium reserve

      306        357        (51 ) 

Policyholder reserves

      61,796        63,369        (1,573 ) 

Investments

      2,320        3,200        (880 ) 

Deferred acquisition costs

      31,621        29,184        2,437  

Compensation and benefits accrual

      1,501        331        1,170  

Receivables—nonadmitted

      3,967        6,896        (2,929 ) 

Section 197 Intangible Amortization

      1,885        2,232        (347 ) 

Assumption Reinsurance

      2,895        3,722        (827 ) 

Other (including items <5% of ordinary tax assets)

      2,525        3,576        (1,051 ) 
  

 

 

     

 

 

     

 

 

  

Subtotal

      109,009        112,987        (3,978 ) 

Statutory valuation allowance adjustment

      —          —          —    

Nonadmitted

      47,310        43,588        3,722  
  

 

 

     

 

 

     

 

 

  

Admitted ordinary deferred tax assets

      61,699        69,399        (7,700 ) 

Capital:

         

Investments

      15,603        18,660        (3,057 ) 

Other (including items <5% of total total capital tax assets)

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      15,603        18,660        (3,057 ) 

Statutory valuation allowance adjustment

      —          —          —    

Nonadmitted

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Admitted capital deferred tax assets

      15,603        18,660        (3,057 ) 
  

 

 

     

 

 

     

 

 

  

Admitted deferred tax assets

    $ 77,302      $ 88,059      $ (10,757 ) 
  

 

 

     

 

 

     

 

 

  

 

54

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Year Ended December 31         
     2016      2015      Change  

Deferred Tax Liabilities:

         

Ordinary

         

Investments

    $ 1,461      $ 2,083      $ (622 ) 

§807(f) adjustment

      5,267        5,359        (92 ) 

Reinsurance Ceded

      9,545        10,716        (1,171 ) 

Other (including items <5% of total ordinary tax liabilities)

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      16,273        18,158        (1,885 ) 

Capital

         

Investments

      12,118        15,443        (3,325 ) 

Real estate

      —          —          —    

Other (including items <5% of total capital tax liabilities)

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      12,118        15,443        (3,325 ) 
  

 

 

     

 

 

     

 

 

  

Deferred tax liabilities

      28,391        33,601        (5,210 ) 
  

 

 

     

 

 

     

 

 

  

Net deferred tax assets/liabilities

    $ 48,911      $ 54,458      $ (5,547 ) 
  

 

 

     

 

 

     

 

 

  

The Company did not report a valuation allowance for deferred income tax assets as of December 31, 2016 or 2015.

 

55

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

As discussed in Note 1, for the years ended December 31, 2016 and 2015 the Company admits deferred income tax assets pursuant to SSAP No. 101. The amount of admitted adjusted gross deferred income tax assets under each component of SSAP No. 101 is as follows:

 

               December 31, 2016  
               Ordinary      Capital      Total  
Admission Calculation Components SSAP No. 101         
2(a)       Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks      $41,910        $7,001        $48,911  
2(b)       Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)      —          —          —    
   1.    Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date      —          —          —    
   2.    Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold      XXX        XXX        156,182  
2(c)       Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities      19,789        8,602        28,391  
        

 

 

     

 

 

     

 

 

  
2(d)       Deferred Tax Assets Admitted as the result of application of SSAP No. 101      $61,699        $15,603        $77,302  
        

 

 

     

 

 

     

 

 

  
              

December 31, 2015

  
               Ordinary      Capital      Total  
Admission Calculation Components SSAP No. 101        
2(a)       Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks      $45,173        $9,285        $54,458  
2(b)       Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)      —          —          —    
   1.    Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date      —          —          —    
   2.    Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold      XXX        XXX        166,928  
2(c)       Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a)and 2(b) above) Offset by Gross Deferred Tax Liabilities      24,226        9,375        33,601  
        

 

 

     

 

 

     

 

 

  
2(d)       Deferred Tax Assets Admitted as the result of application of SSAP No. 101      $69,399        $18,660        $88,059  
        

 

 

     

 

 

     

 

 

  

 

56

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

             Ordinary      Change
Capital		      Total  
Admission Calculation Components SSAP No. 101        
2(a)    

Federal Income Taxes Paid in Prior Years

Recoverable Through Loss Carrybacks

      $(3,263)        $(2,284)        $(5,547)  
2(b)     Adjusted Gross Deferred Tax Assets Expected to be Realized (Excluding The Amount of Deferred Tax Assets From 2(a) above) After Application of the Threshold Limitation (the Lesser of 2(b)1 and 2(b)2 below)      —          —          —    
  1.   Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date      —          —          —    
  2.   Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold      XXX        XXX        (10,746)  
2(c)     Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a)and 2(b) above) Offset by Gross Deferred Tax Liabilities      (4,437)        (773)        (5,210)  
      

 

 

     

 

 

     

 

 

  
2(d)     Deferred Tax Assets Admitted as the result of application of SSAP No. 101      $(7,700)        $(3,057)        $(10,757)  
      

 

 

     

 

 

     

 

 

  

 

     December 31        
     2016     2015     Change  

Ratio Percentage Used To Determine Recovery Period and Threshold Limitation Amount

      1188 %      1197 %      -9 % 
  

 

 

    

 

 

    

 

 

  

Amount of Adjusted Capital and Surplus Used To Determine Recovery Period and Threshold Limitation in 2(b)2 above

    $ 1,043,379     $ 1,112,853     $ (69,474 ) 
  

 

 

    

 

 

    

 

 

  

The impact of tax planning strategies at December 31, 2016 and 2015 was as follows:

 

    

December 31, 2016

  
     Ordinary
Percent		     Capital
Percent		     Total Percent  

Impact of Tax Planning Strategies:

       

(% of Total Adjusted Gross DTAs)

      0 %      0 %      0 % 
  

 

 

    

 

 

    

 

 

  

(% of Total Net Admitted Adjusted Gross DTAs)

      0 %      0 %      0 % 
  

 

 

    

 

 

    

 

 

  

 

57

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31, 2015  
     Ordinary
Percent		     Capital
Percent		     Total
Percent		  

Impact of Tax Planning Strategies:

       

(% of Total Adjusted Gross DTAs)

      0 %      0 %      0 % 
  

 

 

    

 

 

    

 

 

  

(% of Total Net Admitted Adjusted Gross DTAs)

      0 %      0 %      0 % 
  

 

 

    

 

 

    

 

 

  

The Company’s tax planning strategies do not include the use of reinsurance-related tax planning strategies.

Current income taxes incurred consist of the following major components:

 

     Year Ended December 31         
     2015      2014      Change  

Current Income Tax

         

Federal

    $ 54,965      $ 73,027      $ (18,062 ) 

Foreign

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      54,965        73,027        (18,062 ) 
  

 

 

     

 

 

     

 

 

  

Federal income tax on net capital gains

      3,518        5,405        (1,887 ) 

Utilization of capital loss carry-forwards

      —          —          —    

Other

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Federal and foreign income taxes incurred

    $ 58,483      $ 78,432      $ (19,949 ) 
  

 

 

     

 

 

     

 

 

  
     Year Ended December 31         
     2016      2015      Change  

Current Income Tax

         

Federal

    $ 42,387      $ 54,965      $ (12,578 ) 

Foreign

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      42,387        54,965        (12,578 ) 
  

 

 

     

 

 

     

 

 

  

Federal income tax on net capital gains

      2,834        3,518        (684 ) 

Utilization of capital loss carry-forwards

      —          —          —    

Other

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Federal and foreign income taxes incurred

    $ 45,221      $ 58,483      $ (13,262 ) 
  

 

 

     

 

 

     

 

 

  

 

58

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The Company’s current income tax incurred and change in deferred income tax differs from the amount obtained by applying the federal statutory rate of 35% to income before tax as follows:

 

     Year Ended December 31  
     2016     2015     2014  

Current income taxes incurred

    $ 45,221     $ 58,483     $ 78,433  

Change in deferred income taxes

(without tax on unrealized gains and losses)

      (3,541 )      22,410       (42,820 ) 
  

 

 

    

 

 

    

 

 

  

Total income tax reported

    $ 41,680     $ 80,893     $ 35,613  
  

 

 

    

 

 

    

 

 

  

Income before taxes

    $ 276,716     $ 320,866     $ 105,979  
     35.00 %      35.00 %      35.00 % 
  

 

 

    

 

 

    

 

 

  

Expected income tax expense (benefit) at 35% statutory rate

    $ 96,851     $ 112,303     $ 37,093  

Increase (decrease) in actual tax reported resulting from:

       

Dividends received deduction

      (8,345 )      (5,707 )      (5,523 ) 

Tax credits

      (2,925 )      (2,188 )      (1,799 ) 

Tax adjustment for IMR

      (8,174 )      (10,462 )      (3,969 ) 

Surplus adjustment for in-force ceded

      (21,366 )      (11,988 )      (2,898 ) 

Nondeductible expenses

      35       295       29  

Deferred tax benefit on other items in surplus

      (7,243 )      179       12,956  

Provision to return

      (2,069 )      (803 )      14  

Dividends from certain foreign corporations

      137       141       80  

Audit Adjustment—Permanent

      (4,972 )      —         —    

Other

      (249 )      (877 )      (371 ) 
  

 

 

    

 

 

    

 

 

  

Total income tax reported

    $ 41,680     $ 80,893     $ 35,612  
  

 

 

    

 

 

    

 

 

  

The Company’s federal income tax return is consolidated with other included affiliated companies. The method of allocation between the companies is subject to a written tax allocation agreement. Under the terms of the tax allocation agreement, allocations are based on separate income tax return calculations. The Company is entitled to recoup federal income taxes paid in the event the future losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in the year generated. The Company is also entitled to recoup federal income taxes paid in the event the losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in any carryback or carry forward year when so applied. Intercompany income tax balances are settled within thirty days of payment to or filing with the Internal Revenue Service. A tax return has not been filed for 2016.

As of December 31, 2016 and 2015, the Company had no operating loss, capital loss, or tax credit carryforwards available for tax purposes.

The Company incurred income taxes of $52,043, $58,874, and $80,961 during 2016, 2015, and 2014, respectively, which will be available for recoupment in the event of future net losses.

The amount of tax contingencies calculated for the Company as of December 31, 2016 and 2015 is $1,445 and $1,129, respectively. The total amount of the tax contingencies that if recognized, would affect the effective income tax rate is $1,445. The Company classifies interest and penalties related to income taxes

 

59

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

as income tax expense. The Company’s interest (benefit) expense related to income taxes for the years ending in December 31, 2016, 2015, and 2014 is $(36), $28, and $1, respectively. The total interest payable balance as of December 31, 2016 and 2015 is $241 and $29, respectively. The Company recorded no liability for penalties. It is not anticipated that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date.

During 2016 the company modified its calculation of dividends that are eligible for the dividends received deduction. This resulted in recording a permanent tax benefit of $4,770 in the Company’s 2016 financial statements for years 2011 – 2015. This has been treated as a change in estimate, the impact on future years is not currently determinable.

The Company’s federal income tax returns have been examined by the Internal Revenue Service and closing agreements have been executed through 2008. We expect receivables and payables for 2005-2008 to be settled in early 2017. An examination is in progress for the year 2009 through 2013. The Company believes that there are adequate defenses against or sufficient provisions established related to any open or contested tax positions.

8. Policy and Contract Attributes

Participating life insurance policies were issued by the Company which entitle policyholders to a share in the earnings of the participating policies, provided that a dividend distribution, which is determined annually based on mortality and persistency experience of the participating policies, is authorized by the Company.

For the years ended December 31, 2016, 2015 and 2014, there were no premiums for participating life insurance policies. The Company accounts for its policyholder dividends based on dividend scales and experience of the policies. The Company did not pay any dividends to policyholders during 2016, 2015 or 2014.

A portion of the Company’s policy reserves and other policyholders’ funds (including separate account liabilities) relates to liabilities established on a variety of the Company’s annuity and deposit fund products. There may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics, is summarized as follows:

 

     December 31 2016  
     General
Account		      Separate Account
with Guarantees		      Separate Account
Non-Guaranteed		      Total      Percent  

Subject to discretionary withdrawal

               

With fair value adjustment

    $ 761,466      $ 87,114      $ —        $ 848,580        3 % 

At book value less surrender charge of 5% or more

      825,747        35,845        —          861,592        3  

At fair value

      24,190        366,825        15,829,548        16,220,563        57  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total with adjustment or at fair value

      1,611,403        489,784        15,829,548        17,930,735        63  

At book value without adjustment (minimal or no charge or adjustment)

      3,417,022        49,768        —          3,466,790        12  

Not subject to discretionary withdrawal provision

      834,018        5,007,072        1,266,558        7,107,648        25  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total annuity reserves and deposit liabilities

      5,862,443        5,546,624        17,096,106        28,505,173        100 % 
              

 

 

  

Less reinsurance ceded

      1,335        —          —          1,335     
  

 

 

     

 

 

     

 

 

     

 

 

     

Net annuity reserves and deposit liabilities

    $ 5,861,108      $ 5,546,624      $ 17,096,106      $ 28,503,838     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

60

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     December 31
2015		  
     General
Account		      Separate Account with
Guarantees		      Separate Account Non-
Guaranteed		      Total      Percent  

Subject to discretionary withdrawal With fair value adjustment

    $ 752,535      $ 119,066      $ —        $ 871,601        3  % 

At book value less surrender charge of 5% or more

      848,188        40,199        —          888,387        3  

At fair value

      21,960        505,969        14,329,152        14,857,081        54  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total with adjustment or at fair value

      1,622,683        665,234        14,329,152        16,617,069        60  

At book value without adjustment (minimal or no charge or adjustment)

      3,384,669        55,814        —          3,440,483        12  

Not subject to discretionary withdrawal provision

      858,069        5,369,673        1,438,647        7,666,389        28  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total annuity reserves and deposit liabilities

      5,865,421        6,090,721        15,767,799        27,723,941        100  % 
              

 

 

  

Less reinsurance ceded

      1,292        —          —          1,292     
  

 

 

     

 

 

     

 

 

     

 

 

     

Net annuity reserves and deposit liabilities

    $ 5,864,129      $ 6,090,721      $ 15,767,799      $ 27,722,649     
  

 

 

     

 

 

     

 

 

     

 

 

     

Separate account assets held by the Company represent contracts where the benefit is determined by the performance of the investments held in the separate account. Information regarding the separate accounts of the Company as of and for the years ended December 31, 2016, 2015 and 2014 is as follows:

 

     Nonindexed
Guarantee Less
Than or Equal to 4%		      Nonguaranteed
Separate Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2016

    $ 1,396,422      $ 3,296,786      $ 4,693,208  
  

 

 

     

 

 

     

 

 

  

Reserves for separate acccounts as of December 31, 2016 with assets at:

    $ —        $ 17,329,112      $ 17,329,112  

Fair value

      5,546,624        —          5,546,624  
  

 

 

     

 

 

     

 

 

  

Amortized cost

    $ 5,546,624      $ 17,329,112      $ 22,875,736  
  

 

 

     

 

 

     

 

 

  

Total as of December 31, 2016

         

Reserves for separate accounts by withdrawal characteristics as of December 31, 2016:

         

Subject to discretionary withdrawal:

    $ 87,114      $ —        $ 87,114  

At book value without fair value adjustment and with current surrender charge of 5% or more

      35,845        —          35,845  

At fair value

      366,825        16,062,554        16,429,379  

At book value without fair value adjustment and with current surrender charge of less than 5%

      49,768        —          49,768  
  

 

 

     

 

 

     

 

 

  

Subtotal

      539,552        16,062,554        16,602,106  

Not subject to discretionary withdrawal

      5,007,072        1,266,558        6,273,630  
  

 

 

     

 

 

     

 

 

  

Total separate account reserves at December 31, 2016

    $ 5,546,624        17,329,112        22,875,736  
  

 

 

     

 

 

     

 

 

  

 

61

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Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

     Nonindexed
Guarantee
Less Than or
Equal to 4%		      Nonguaranteed
Separate
Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2015

    $ 1,435,432      $ 3,513,187      $ 4,948,619  
  

 

 

     

 

 

     

 

 

  

Reserves for separate acccounts as of December 31, 2015 with assets at:

         

Fair value

    $ —        $ 16,002,134      $ 16,002,134  

Amortized cost

      6,090,721        —          6,090,721  
  

 

 

     

 

 

     

 

 

  

Total as of December 31, 2015

    $ 6,090,721      $ 16,002,134      $ 22,092,855  
  

 

 

     

 

 

     

 

 

  

Reserves for separate accounts by withdrawal characteristics as of December 31, 2015:

         

Subject to discretionary withdrawal:

    $ 119,066      $ —        $ 119,066  

At book value without fair value adjustment and with current surrender charge of 5% or more

      40,199        —          40,199  

At fair value

      505,969        14,563,487        15,069,456  

At book value without fair value adjustment and with current surrender charge of less than 5%

      55,814        —          55,814  
  

 

 

     

 

 

     

 

 

  

Subtotal

      721,048        14,563,487        15,284,535  

Not subject to discretionary withdrawal

      5,369,673        1,438,647        6,808,320  
  

 

 

     

 

 

     

 

 

  

Total separate account reserves at December 31, 2015

    $ 6,090,721      $ 16,002,134      $ 22,092,855  
  

 

 

     

 

 

     

 

 

  
     Nonindexed
Guarantee
Less Than
or Equal to 4%		      Nonguaranteed
Separate
Accounts		      Total  

Premiums, deposits and other considerations for the year ended December 31, 2014

    $ 1,480,473      $ 3,207,516      $ 4,687,989  
  

 

 

     

 

 

     

 

 

  

Reserves for separate acccounts as of December 31, 2014 with assets at:

         

Fair value

    $ —        $ 15,369,859      $ 15,369,859  

Amortized cost

      6,222,709        —          6,222,709  
  

 

 

     

 

 

     

 

 

  

Total as of December 31, 2014

    $ 6,222,709      $ 15,369,859      $ 21,592,568  
  

 

 

     

 

 

     

 

 

  

Reserves for separate accounts by withdrawal characteristics as of December 31, 2014:

         

Subject to discretionary withdrawal:

         

With fair value adjustment

    $ 122,381      $ —        $ 122,381  

At book value without fair value adjustment and with current surrender charge of 5% or more

      43,081        —          43,081  

At fair value

      505,121        13,691,347        14,196,468  

At book value without fair value adjustment and with current surrender charge of less than 5%

      59,815        —          59,815  
  

 

 

     

 

 

     

 

 

  

Subtotal

      730,398        13,691,347        14,421,745  

Not subject to discretionary withdrawal

      5,492,311        1,678,512        7,170,823  
  

 

 

     

 

 

     

 

 

  

Total separate account reserves at December 31, 2014

    $ 6,222,709      $ 15,369,859      $ 21,592,568  
  

 

 

     

 

 

     

 

 

  

 

62

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

A reconciliation of the amounts transferred to and from the Company’s separate accounts is presented below:

 

     Year Ended December 31  
     2016      2015      2014  

Transfer as reported in the summary of operations of the separate accounts statement:

         

Transfers to separate accounts

    $ 4,693,348      $ 4,948,847      $ 4,687,981  

Transfers from separate accounts

      (4,789,961 )       (4,181,143 )       (4,581,447 ) 
  

 

 

     

 

 

     

 

 

  

Net transfers to separate accounts

      (96,613 )       767,704        106,534  

Miscellaneous reconciling adjustments

      17,332        15,414        (4,971 ) 
  

 

 

     

 

 

     

 

 

  

Net transfers as reported in the statements of operations of the life, accident and health annual statement

    $ (79,281 )     $ 783,118      $ 101,563  
  

 

 

     

 

 

     

 

 

  

The legal insulation of separate account assets prevents such assets from being generally available to satisfy claims resulting from the general account. At December 31, 2016 and 2015, the Company’s separate account statement included legally insulated assets of $23,243,008 and $22,337,000, respectively. The assets legally insulated from general account claims at December 31, 2016 and 2015 are attributed to the following products:

 

     2016      2015  

Variable life

    $ 240,308      $ 243,002  

Variable annuities

      4,346,782        4,063,670  

Group annuities

      9,767,338        8,398,062  

Registered Market value separate accounts

      731,645        765,582  

Non Registered Market value separate accounts

      851,068        854,588  

Par annuities

      1,539,214        1,865,861  

Annuity Product—SPL

      1,624        1,523  

Book value separate accounts

      5,765,029        6,144,712  
  

 

 

     

 

 

  

Total separate account assets

    $ 23,243,008      $ 22,337,000  
  

 

 

     

 

 

  

At December 31, 2016 and 2015, the Company held separate account assets not legally insulated from the general account in the amount of $27,898 and $32,067, respectively, related to variable annuity products.

Some separate account liabilities are guaranteed by the general account. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account. As of December 31, 2016 and 2015, the general account of the Company had a maximum guarantee for separate account liabilities of $87,241 and $116,723, respectively. To compensate the general account for the risk taken, the separate account paid risk charges of $46,668, $42,677, $40,314, $33,770, and $32,822 to the general account in 2016, 2015, 2014, 2013, and 2012, respectively. During the years ended December 31, 2016, 2015, 2014, 2013, and 2012 the general account of the Company had paid $1,627, $1,671, $530, $1,112, and $1,449 respectively, toward separate account guarantees.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

At December 31, 2016 and 2015, the Company reported guaranteed separate account assets at amortized cost in the amount of $5,764,436 and $6,144,712, respectively, based upon the prescribed practice by the State of New York as described in Note 2. These assets had a fair value of $5,740,987 and $6,113,061 at December 31, 2016 and 2015, respectively, which would have resulted in an unrealized (loss) of $(23,449) and $(31,651), respectively, had these assets been reported at fair value.

The Company participates in securities lending within the separate account. The Company follows the same policies and procedures as the general account for such transactions conducted from the separate account. See Note 10 for a discussion of securities lending policies and procedures. As of December 31, 2016 and 2015, securities with a book value of $0 and $0, respectively, were on loan under securities lending agreements, which represents less than one percent of total separate account assets. The Company does not obtain approval or otherwise provide notification to contract holders regarding securities lending transactions that occur with separate account assets. However, the Company requires that borrowers pledge collateral worth 102% of the value of the loaned securities. As of December 31, 2016, the Company did not have any collateral from securities lending transactions. This cash collateral is reinvested in a registered money market fund and is not available for general corporate purposes.

For variable annuities with guaranteed living benefits and variable annuities with minimum guaranteed death benefits the Company complies with Actuarial Guideline XLIII (AG 43), which replaces Actuarial Guidelines 34 and 39. AG 43 specifies statutory reserve requirements for variable annuity contracts with benefit guarantees (VACARVM) and without benefit guarantees and related products. The AG 43 reserve calculation includes variable annuity products issued after January 1, 1981. Examples of covered guaranteed benefits include guaranteed minimum accumulation benefits, return of premium death benefits, guaranteed minimum income benefits, guaranteed minimum withdrawal benefits and guaranteed payout annuity floors. The aggregate reserve for contracts falling within the scope of AG 43 is equal to the conditional tail expectation (CTE) amount, but not less than the standard scenario amount (SSA).

To determine the CTE amount, the Company used 1,000 of the pre-packaged scenarios developed by the American Academy of Actuaries (AAA) produced in October 2005 and prudent estimate assumptions based on Company experience. The SSA was determined using the assumptions and methodology prescribed in AG 43 for determining the SSA.

At December 31, 2016 and 2015, the Company had variable annuities with minimum guaranteed benefits as follows:

 

Benefit and Type of Risk

    Subjected
Account
Value		      Gross Amount of
Reserve Held		      Reinsurance
Reserve
Credit		  

December 31, 2016

         

Minimum guaranteed death benefit

    $ 1,857,246      $ 5,025      $ 1,335  

Minimum guaranteed income benefit

         

Guaranteed premium accumulation fund

         

Minimum guaranteed withdrawal benefit

      5,142,999        39,891     

December 31, 2015

         

Minimum guaranteed death benefit

    $ 1,830,440      $ 5,315      $ 1,292  

Minimum guaranteed income benefit

      —          —          —    

Guaranteed premium accumulation fund

      —          —          —    

Minimum guaranteed withdrawal benefit

      5,182,141        46,981        —    

 

64

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Reserves on the Company’s traditional life insurance products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policies’ paid-through date to the policy’s next anniversary date. At December 31, 2016 and 2015, the gross premium and loading amounts related to these assets (which are reported as premiums deferred and uncollected), are as follows:

 

     Gross      Loading      Net  

December 31, 2016

         

Life and annuity:

         

Ordinary direct first-year business

    $ 224      $ 193      $ 31  

Ordinary direct renewal business

      252,840        994        251,846  

Group life direct business

      422        84        338  

Credit direct business

      32        —          32  

Reinsurance ceded

      (247,291 )       —          (247,291 ) 
  

 

 

     

 

 

     

 

 

  
   $ 6,227      $ 1,271      $ 4,956  

Accident and health

      8,836        —          8,836  
  

 

 

     

 

 

     

 

 

  
   $ 15,063      $ 1,271      $ 13,792  
  

 

 

     

 

 

     

 

 

  
     Gross      Loading      Net  

December 31, 2015

         

Life and annuity:

         

Ordinary direct first-year business

    $ 178      $ 157      $ 21  

Ordinary direct renewal business

      132,775        1,362        131,413  

Group life direct business

      582        98        484  

Credit direct business

      254        —          254  

Reinsurance ceded

      (126,599 )       —          (126,599 ) 
  

 

 

     

 

 

     

 

 

  
   $ 7,190      $ 1,617      $ 5,573  

Accident and health

      10,888        —          10,888  
  

 

 

     

 

 

     

 

 

  
   $ 18,078      $ 1,617      $ 16,461  
  

 

 

     

 

 

     

 

 

  

The Company anticipates investment income as a factor in premium deficiency calculation, in accordance with SSAP No. 54, Individual and Group Accident and Health Contracts. As of December 31, 2016 and 2015, the Company had insurance in force aggregating $3,847,827 and $5,092,695, respectively, in which the gross premiums are less than the net premiums required by the valuation standards established by the New York Department of Financial Services. The Company established policy reserves of $229,295 and $35,275 to cover these deficiencies as of December 31, 2016 and 2015, respectively.

The Company does not write any accident and health business that is subject to the Affordable Care Act risk sharing provisions. As of December 31, 2016 and 2015, the Company has recorded a liability of $8 and $15, respectively, for the amount it has been assessed to fund the transitional reinsurance program.

 

65

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

9. Capital and Surplus

At December 31, 2016 and 2015, the Company had 45,981 shares of 6% non-voting, non-cumulative preferred stock issued and outstanding. TA Corp owns 40,415 shares and TLIC owns 5,566 shares. Par value is $10 per share, and the liquidation value is $1,286.72 per share.

The preferred stock shareholders are entitled to receive non-cumulative dividends at the rate of 6% per year of an amount equal to the sum of (1) the par value plus (2) any additional paid-in capital for such preferred stock. Dividends are payable annually in December. The amount of dividends unpaid at December 31, 2016 and 2015 were $0 and $0, respectively. The preferred shares have preference as to dividends and upon dissolution or liquidation of the Company.

The Company is subject to limitations, imposed by the State of New York, on the payment of dividends to its stockholders. Generally, dividends during any year may not be paid, without prior regulatory approval, in excess of the lesser of (1) 10 percent of the Company’s statutory surplus as of the preceding December 31, or (2) the Company’s statutory gain from operations before net realized capital gains on investments for the preceding year. Subject to the availability of unassigned surplus at the time of such a dividend, the maximum payment which may be made in 2016, without prior approval of insurance regulatory authorities, is $109,230.

On December 22, 2016, the Company paid ordinary common stock dividends of $8,473 to Transamerica Life Insurance Company and $61,527 to Transamerica Corporation.

The Company did not pay any dividends in 2015.

Life and health insurance companies are subject to certain RBC requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life and health insurance company is to be determined based on the various risk factors related to it. At December 31, 2016, the Company meets the minimum RBC requirements.

On May 2, 2008, the Company received $150,000 from TA Corp in exchange for surplus notes due 20 years from the date of the issuance at an interest rate of 6.25%. The notes are subordinate and junior in the right of payment to all obligations and liabilities of the Company. On December 22, 2016 the Company repaid TA Corp the principal and accrued interest. The Company received approval from the Superintendent of Insurance of the New York Department of Financial Services prior to issuance and repayment of the surplus notes as well as prior to making annual interest payments.

Additional information related to the outstanding surplus notes at December 31, 2016 and 2015 is as follows:

 

For Year Ending

    Balance
Outstanding		      Interest Paid
Current Year		      Cumulative
Interest Paid		      Accrued
Interest		  

2016

    $ —        $ 9,167      $ 81,042      $ —    

2015

    $ 150,000      $ 9,375      $ 71,875      $ —    

The Company held special surplus funds in the amount of $9,509 and $8,653, as of December 31, 2016 and 2015, respectively, for annuitant mortality fluctuations as required under New York Regulation 47, Separate Account and Separate Account Annuities.

 

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Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

10. Securities Lending

The Company participates in an agent-managed securities lending program. The Company receives collateral equal to 102% of the fair value of the loaned domestic securities as of the transaction date. If the fair value of the collateral is at any time less than 102% of the fair value of the loaned securities, the counterparty is mandated to deliver additional collateral, the fair value of which, together with the collateral already held in connection with the lending transaction, is at least equal to 102% of the fair value of the loaned domestic securities. In the event the Company loans a foreign security and the denomination of the currency of the collateral is other than the denomination of the currency of the loaned foreign security, the Company receives and maintains collateral equal to 105% of the fair value of the loaned security.

At December 31, 2016 and 2015, respectively, securities with a fair value of $301,914 and $419,588 were on loan under securities lending agreements. At December 31, 2016, the collateral the Company received from securities lending was in the form of cash and on open terms. This cash collateral is reinvested and is not available for general corporate purposes. The reinvested cash collateral has a fair value of $307,732 and $433,646 at December 31, 2016 and 2015, respectively.

The contractual maturities of the securities lending collateral positions are as follows:

 

     Fair Value  

Open

    $ 307,744  

30 days or less

      —    

31 to 60 days

      —    

61 to 90 days

      —    

Greater than 90 days

      —    
  

 

 

  

Total

      307,744  

Securities received

      —    
  

 

 

  

Total collateral received

    $ 307,744  
  

 

 

  

The Company receives primarily cash collateral in an amount in excess of the fair value of the securities lent. The Company reinvests the cash collateral into higher yielding securities than the securities which the Company has lent to other entities under the arrangement.

The maturity dates of the reinvested securities lending collateral are as follows:

 

     Amortized Cost      Fair Value  

Open

    $ 19,466      $ 19,466  

30 days or less

      180,863        180,863  

31 to 60 days

      33,358        33,358  

61 to 90 days

      24,783        24,783  

91 to 120 days

      12,750        12,750  

121 to 180 days

      36,512        36,512  
  

 

 

     

 

 

  

Total

      307,732        307,732  

Securities received

      —          —    
  

 

 

     

 

 

  

Total collateral reinvested

    $ 307,732      $ 307,732  
  

 

 

     

 

 

  

For securities lending, the Company’s sources of cash that it uses to return the cash collateral is dependent upon the liquidity of the current market conditions. Under current conditions, the Company has securities with a par value of $307,850 (fair value of $307,732) that are currently tradable securities that could be sold and used to pay for the $307,744 in collateral calls that could come due under a worst-case scenario.

 

67

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

11. Retirement and Compensation Plans

The Company’s employees participate in a qualified defined benefit pension plan sponsored by TA Corp. Generally, employees of the Company who customarily work at least 20 hours per week and complete six months of continuous service and meet the other eligibility requirement are participants of the plan. The Company has no legal obligation for the plan. The Company recognizes pension expense equal to its allocation from TA Corp. The pension expense is allocated among the participating companies based on International Accounting Standards 19 (IAS 19), Accounting for Employee Benefits and based upon actuarial participant benefit calculations. The benefits are based on years of service and the employee’s eligible annual compensation. Pension expenses were $1,414, $456 and $637 for the years ended December 31, 2016, 2015 and 2014, respectively. The plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974.

The Company’s employees also participate in a defined contribution plan sponsored by TA Corp which is qualified under Section 401(k) of the Internal Revenue Service Code. Employees of the Company who customarily work at least 1,000 hours during each calendar year and meet the other eligibility requirements are participants of the plan. Participants may elect to contribute up to twenty-five percent of their salary to the plan. The Company will match an amount up to three percent of the participant’s salary. Participants may direct all of their contributions and plan balances to be invested in a variety of investment options. The plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974. The Company’s allocation of benefits expense for the years ended December 31, 2016, 2015 and 2014 was $714, $311, and $261 for each year, respectively.

TA Corp sponsors supplemental retirement plans to provide the Company’s senior management with benefits in excess of normal pension benefits. The plans are noncontributory, and benefits are based on years of service and the employee’s compensation level. The plans are unfunded and nonqualified under the Internal Revenue Service Code. In addition, TA Corp has established incentive deferred compensation plans for certain key employees of the Company. The Company’s allocation of expense for these plans for each of the years ended December 31, 2016, 2015 and 2014 was insignificant. TA Corp also sponsors an employee stock option plan/stock appreciation rights for employees of the Company and a stock purchase plan for its producers, with the participating affiliated companies establishing their own eligibility criteria, producer contribution limits and company matching formula. These plans have been accrued or funded as deemed appropriate by management of TA Corp and the Company.

In addition to pension benefits, the Company participates in plans sponsored by TA Corp that provide postretirement medical, dental and life insurance benefits to employees meeting certain eligibility requirements. Portions of the medical and dental plans are contributory. The postretirement plan expenses are charged to affiliates in accordance with an intercompany cost sharing arrangement. The Company’s allocation of postretirement expenses was $257, $89 and $143 for the year end December 31, 2016, 2015 and 2014.

During December 2015, the Company offered select employees the opportunity to participate in the Transamerica Voluntary Separation Incentive Plan (VSIP). Eligible employees were given until January 18, 2016 to make a decision. Following SSAP No. 11, Postemployment Benefits and Compensated Absences, and SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, an expense was accrued in 2015 for the post-employment benefit in the amount of $3,853.

 

68

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

12. Related Party Transactions

The Company shares certain officers, employees and general expenses with affiliated companies.

In accordance with an agreement between TA Corp and the Company, TA Corp will ensure the maintenance of certain minimum tangible net worth, operating leverage and liquidity levels of the Company, as defined in the agreement, through the contribution of additional capital by TA Corp as needed.

The Company is party to a service agreement with TLIC, in which the Company receives services, including accounting, data processing and other professional services, in consideration of reimbursement of the actual costs of services rendered. The Company is party to a Management and Administrative and Advisory agreement with Aegon USA Realty Advisors, Inc. (Advisor) whereby Advisor serves as the administrator and advisor for the Company’s mortgage loan operations. The Company is party to a common cost allocation service agreement between TA Corp companies in which various affiliated companies may perform specified administrative functions in connection with the operation of the Company, in consideration of reimbursement of actual costs of services rendered. Aegon USA Investment Management, LLC acts as a discretionary investment manager under an Investment Management Agreement with the Company. During 2016, 2015 and 2014, the Company paid $30,662, $32,914 and $33,720, respectively, for these services, which approximates cost.

The Company has an administration service agreement with Transamerica Asset Management, Inc. to provide administrative services to the TA Corp/Transamerica Series Trust. The Company received $9,203, $8,320 and $6,843 for these services during 2016, 2015 and 2014, respectively.

Transamerica Capital, Inc. provides wholesaling distribution services for the Company under a distribution agreement. The Company incurred expenses under this agreement of $5,196, $5,485 and $11,760 for the years ended December 31, 2016, 2015 and 2014, respectively.

Payables to and receivables from affiliates and intercompany borrowings bear interest at the thirty-day commercial paper rate. During 2016, 2015 and 2014, the Company paid (received) net interest of $47, $6 and $1, respectively, to (from) affiliates. At December 31, 2016 and 2015, the Company reported a net amount of $12,714 and $26,230 payable to affiliates, respectively. Terms of settlement require that these amounts are settled within 90 days.

At December 31, 2016, the Company had short-term intercompany notes receivable of $20,000 as shown below. In accordance with SSAP No. 25, Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties, these notes are reported in Schedule DA as short-term investments.

 

Receivable from    Amount      Due By      Interest Rate  

Transamerica Corporation

    $ 20,000        12/9/2017        0.47 % 

At December 31, 2015 the Company had short-term intercompany notes receivable of $175,000.

The Company utilizes the look-through approach in valuing its investment in the following two entities.

 

Real Estate Alternatives Portfolio 2, LLC (REAP 2)

    $ 2,687  

Real Estate Alternatives Portfolio 4 HR, LLC (REAP 4 HR)

    $ 7,257  

These entity’s financial statements are not audited and the Company has limited the value of its investment in these entities to the value contained in the audited financial statements of the underlying LP/LLC investments, including adjustments required by SSAP No. 97, of SCA entities and/or non-SCA SSAP No. 48 entities owned by REAP 2 and REAP 4 HR and valued in accordance with the relevant paragraphs of

 

69

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

SSAP No. 97. All liabilities, commitments, contingencies, guarantees or obligations of REAP 2 and REAP 4 HR, which are required to be recorded as liabilities, commitments, contingencies, guarantees or obligations under applicable accounting guidance, are reflected in the Company’s determination of the carrying value of the investment in REAP 2 and REAP 4 HR, if not already recorded in the financial statements of REAP 2 and REAP 4 HR.

The aggregate balance sheet value for all subsidiary, controlled and affiliated (SCA) investments, except SCA insurance entities, are as follows:

 

SCA Description

    Gross
Amount		      Nonadmitted
Amount		      Admitted
Asset
Amount		      Date of
Filing to
NAIC		      Type of
NAIC
Filing		      NAIC
Response
Received		      NAIC
Valuation		      NAIC Disallowed
Entity’s Valuation
Method,
Resubmission
Required		  

Real Estate Alternatives Portfolio 3A Inc.

    $ 3,025      $ —        $ 3,025        12/21/2016        Sub-2        No      $ 3,025        No  

 

70

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

The following tables show the disclosures for all SCA investments, except 8bi entities, balance sheet value (admitted and nonadmitted) and the NAIC Responses for the SCA filings (except 8Bi entities) as of December 31, 2016:

 

SCA Entity

    Percentage of     Gross Amount      Admitted      Nonadmitted  

a. SSAP No. 97 8a Entities

           
     —   %    $ —        $ —        $ —    
     —         —          —          —    
     —         —          —          —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8a Entities

      —   %    $ —        $ —        $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

b. SSAP No. 97 8b(ii) Entities

           
     —   %    $ —        $ —        $ —    
     —         —          —          —    
     —         —          —          —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(ii) Entities

      —   %    $ —        $ —        $ —    

c. SSAP No. 97 8b(iii) Entities

           

REAL ESTATE ALTERN PORT 3A INC

      9.4 %    $ 3,025      $ 3,025      $ —    
     —         —          —          —    
     —         —          —          —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(iii) Entities

      9.4 %    $ 3,025      $ 3,025      $ —    

d. SSAP No. 97 8b(iv) Entities

           
     —   %    $ —        $ —        $ —    
     —         —          —          —    
     —         —          —          —    
  

 

 

    

 

 

     

 

 

     

 

 

  

Total SSAP No. 97 8b(iv) Entities

      —   %    $ —        $ —        $ —    

e. Total SSAP No. 97 8b Entities (except 8bi entities) (b+c+d+e)

      $ 3,025      $ 3,025      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

f. Aggregate Total (a+e)

      $ 3,025      $ 3,025      $ —    
  

 

 

    

 

 

     

 

 

     

 

 

  

 

SCA Entity

(Should be same entities as shown in M(1) above.)

   

Type

of

NAIC

Filing
*

     

Date of Filing

to the NAIC

     

NAIC

Valuation

Amount(1)

     

NAIC

Response
Received

Y/N

     

NAIC
Disallowed
Entities
Valuation
Method,

Submission
Required

Y/N

      Code**  

a. SSAP No. 97 8a Entities

                  
         $ —             
           —             
           —             
        

 

 

           

Total SSAP No. 97 8a Entities

          $ —             
        

 

 

           

b. SSAP No. 97 8b(ii) Entities

                  
         $ —             
           —             
           —             
        

 

 

           

Total SSAP No. 97 8b(ii) Entities

          $ —             

c. SSAP No. 97 8b(iii) Entities

                  

REAL ESTATE ALTERN PORT 3A INC

      S2        12/21/2016      $ 3,611        Y        N        I  
           —             
           —             
        

 

 

           

Total SSAP No. 97 8b(iii) Entities

          $ 3,611           

d. SSAP No. 97 8b(iv) Entities

                  
         $ —             
           —             
           —             
        

 

 

           

Total SSAP No. 97 8b(iv) Entities

          $ —             
        

 

 

           

e. Total SSAP No. 97 8b Entities (except 8bi entities) (b+c+d+e)

          $ 3,611           
        

 

 

           

f Aggregate Total (a+e)

          $ 3,611           
        

 

 

           

 

* S1 – Sub1, S2 – Sub2 or RDF – Resubmission of Disallowed Filing
** I – Immaterial or M – Material
(1) NAIC Valuation Amount is as of the Filing Date to the NAIC

 

71

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

13. Managing General Agents

The Company utilizes managing general agents and third-party administrators in its operations. Information regarding these entities is as follows:

 

Name and Address of MGA/TPA

    FEIN #      Exclusive
Contract		      Type of Business
Written		    Type of
Authority
Granted		      Total Direct
Premiums
Written/Produced		  

The Vanguard Group, Inc.

100 Vanguard Blvd

Malvem, PA 19355

      23-1945930        No      Deferred and
Incom Annuities		      C, B, P, U      $ 35,397,127  

C - Claims Payment

B - Binding Authority

P - Premium Collection

U - Underwriting

For years ended December 31, 2016, 2015 and 2014, the Company had $35,397, $48,811 and $38,824, respectively, of direct premiums written by The Vanguard Group, Inc.

For years ended December 31, 2016, 2015 and 2014 the Company had $0, $16,899 and $0, respectively, of direct premiums written by Affinion Group.

14. Commitments and Contingencies

At December 31, 2016 and 2015, the Company has mortgage loan commitments of $17,177 and $9,735, respectively.

The Company has contingent commitments of $160,415 and $13,781, at December 31, 2016 and 2015, respectively, to provide additional funding for joint ventures, partnerships and limited liability companies. There are no LIHTC commitments as of December 31, 2016 and 2015, respectively.

Private placement commitments outstanding as of December 31, 2016 and 2015 were $18,000 and $15,000, respectively.

Securities acquired on a “to be announced” (TBA) basis at December 31, 2016 and 2015 were $0 and $79,280, respectively.

The Company may pledge assets as collateral for derivative transactions. At December 31, 2016 and 2015, the Company has pledged invested assets with a carrying value of $80,398 and $35,958, respectively, and fair value of $88,703 and $37,331, respectively, in conjunction with these transactions.

 

72

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

Cash collateral received from derivative counterparties as well as the obligation to return the collateral is recorded on the Company’s balance sheet. The amount of cash collateral posted to the Company as of December 31, 2016 and 2015, respectively, was $42,500 and $28,953. In addition, securities in the amount of $0 and $20,971 were also posted to the Company as of December 31, 2016 and 2015, respectively, which were not included in the financials of the Company. Noncash collateral is not to be recognized by the recipient unless that collateral is sold or repledged or the counterparty defaults.

The Company is a party to legal proceedings involving a variety of issues incidental to its business. Lawsuits may be brought in nearly any federal or state court in the United States or in an arbitral forum. In addition, there continues to be significant federal and state regulatory activity relating to financial services companies. The Company’s legal proceedings are subject to many variables, and given its complexity and scope, outcomes cannot be predicted with certainty. Although legal proceedings sometimes include substantial demands for compensatory and punitive damages, and injunctive relief, it is management’s opinion that damages arising from such demands will not be material to the Company’s financial position.

The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law. Amounts available for future offsets are recorded as an asset on the Company’s balance sheet. The future obligation for known insolvencies has been accrued based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Association. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The Company has established a reserve of $391 and $191 at December 31, 2016 and 2015, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies. The Company had an offsetting premium tax benefit of $19 and $19 at December 31, 2016 and 2015, respectively. The guaranty fund (benefit) expense was $(315), $(210) and $3,865 for the years ended December 31, 2016, 2015 and 2014, respectively.

15. Sales, Transfer and Servicing of Financial Assets and Extinguishments of Liabilities

The Company enters into dollar repurchase agreements in which securities are delivered to the counterparty once adequate collateral has been received. As of December 31, 2016 and 2015, the Company had dollar repurchase agreements outstanding in the amount of $20,325 and $31,307, respectively. The Company had an outstanding liability for borrowed money in the amount $20,005 and $31,526 at December 31, 2016 and 2015, respectively due to participation in dollar repurchase agreements which includes accrued interest.

The contractual maturities of the dollar repurchase agreement positions are as follows:

Dollar repurchase Agreement

 

     Fair Value  

Open

    $ 19,955  

30 days or less

      —    

31 to 60 days

      —    

61 to 90 days

      —    

Greater than 90 days

      —    

Total

      19,955  
  

 

 

  

Securities received

      —    
  

 

 

  

Total collateral received

    $ 19,955  
  

 

 

  

 

73

Table of Contents

Transamerica Financial Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands, Except per Share amounts)

 

In the course of the Company’s asset management, securities are sold and reacquired within 30 days of the sale date to enhance the Company’s yield on its investment portfolio. During 2016 there were no securities sold and reacquired within 30 days of the sale date.

16. Subsequent Event

The financial statements are adjusted to reflect 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 (Type I). 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 (Type II). The Company has not identified any Type I or Type II subsequent events for the year ended December 31, 2016 through April 21, 2017.

 

74

Table of Contents

Transamerica Financial Life Insurance Company

Appendix A – Listing of Affiliated Companies

 

Transamerica Corporation

   

EIN: 42-1484983

   

AFFILIATIONS SCHEDULE

   

YEAR ENDED DECEMBER 31, 2016

   

Attachment to Note 7

   
Entity Name    FEIN  

Transamerica Corporation

      42-1484983  

AEGON Alliances Inc

      56-1358257  

AEGON Asset Management Services Inc

      39-1884868  

AEGON Assignment Corp (Illinois)

      42-1477359  

AEGON Assignment Corp of Kentucky

      61-1314968  

AEGON Direct Marketing Services Inc

      42-1470697  

AEGON Direct Marketing Services International Inc

      52-1291367  

AEGON Financial Services Group Inc

      41-1479568  

AEGON Institutional Markets Inc

      61-1085329  

AEGON Management Company

      35-1113520  

AEGON Structured Settlements Inc

      61-1068209  

AEGON USA Real Estate Services Inc

      61-1098396  

AEGON USA Realty Advisors of CA FKA Pensaprima Inc

      20-5023693  

AFSG Securities Corporation

      23-2421076  

AUSA Properties Inc

      27-1275705  

Commonwealth General Corporation

      51-0108922  

Creditor Resources Inc

      42-1079584  

CRI Solutions Inc

      52-1363611  

Financial Planning Services Inc

      23-2130174  

Firebird Reinsurance Corporation

      47-3331975  

Garnet Assurance Corporation

      11-3674132  

Garnet Assurance Corporation II

      14-1893533  

Garnet Assurance Corporation III

      01-0947856  

Global Preferred RE LTD

      98-0164807  

Intersecurities Ins Agency

      42-1517005  

Investors Warranty of America Inc

      42-1154276  

LIICA RE I

      20-5984601  

LIICA RE II

      20-5927773  

 

75

Table of Contents

Transamerica Financial Life Insurance Company

Appendix A – Listing of Affiliated Companies (continued)

 

Transamerica Corporation

EIN: 42-1484983

AFFILIATIONS SCHEDULE

YEAR ENDED DECEMBER 31, 2016

Attachment to Note 7

 

Entity Name

    FEIN  

Massachusetts Fidelity Trust

      42-0947998  

MLIC RE I Inc

      01-0930908  

Money Services Inc

      42-1079580  

Monumental General Administrators Inc

      52-1243288  

Pearl Holdings Inc I

      20-1063558  

Pearl Holdings Inc II

      20-1063571  

Pine Falls Re Inc

      26-1552330  

Real Estate Alternatives Portfolio 3A Inc

      20-1627078  

River Ridge Insurance Company

      20-0877184  

Short Hills Management

      42-1338496  

Stonebridge Benefit Services Inc

      75-2548428  

Stonebridge Reinsurance Company

      61-1497252  

TCF Asset Management Corp

      84-0642550  

TCFC Air Holdings Inc

      32-0092333  

TCFC Asset Holdings Inc

      32-0092334  

TLIC Oakbrook Reinsurance Inc.

      47-1026613  

TLIC Riverwood Reinsurance Inc

      45-3193055  

TLIC Watertree Reinsurance Inc

      81-3715574  

Transamerica Advisors Life Insurance Company (FKA MLLIC)

      91-1325756  

Transamerica Accounts Holding Corp

      36-4162154  

Transamerica Affinity Services Inc

      42-1523438  

Transamerica Affordable Housing Inc

      94-3252196  

Transamerica Agency Network Inc (FKA: Life Inv Fin Group)

      61-1513662  

Transamerica Annuity Service Corporation

      85-0325648  

Transamerica Asset Management (fka Transamerica Fund Adviso)

      59-3403585  

Transamerica Capital Inc

      95-3141953  

Transamerica Casualty Insurance Company

      31-4423946  

Transamerica Commercial Finance Corp I

      94-3054228  

Transamerica Consumer Finance Holding Company

      95-4631538  

Transamerica Corporation (OREGON)

      98-6021219  

Transamerica Distribution Finance Overseas Inc

      36-4254366  

Transamerica Finance Corporation

      95-1077235  

 

76

Table of Contents

Transamerica Financial Life Insurance Company

Appendix A – Listing of Affiliated Companies (continued)

 

Transamerica Corporation

EIN: 42-1484983

AFFILIATIONS SCHEDULE

YEAR ENDED DECEMBER 31, 2016

Attachment to Note 7

 

Entity Name

    FEIN  

Transamerica Financial Advisors FKA InterSecurities

      59-2476008  

Transamerica Financial Life Insurance Company

      36-6071399  

Transamerica Fund Services Inc

      59-3403587  

Transamerica Home Loan

      95-4390993  

Transamerica International Re (Bermuda) Ltd

      98-0199561  

Transamerica Investors Securities Corp

      13-3696753  

Transamerica Leasing Holdings Inc

      13-3452993  

Transamerica Life Insurance Company

      39-0989781  

Transamerica Pacific Insurance Co Ltd

      94-3304740  

Transamerica Premier Life Insurance Company

      52-0419790  

Transamerica Resources Inc (FKA: Nat Assoc Mgmt)

      52-1525601  

Transamerica Small Business Capital Inc

      36-4251204  

Transamerica Stable Value Solutions Inc

      27-0648897  

Transamerica Vendor Financial Services Corporation

      36-4134790  

United Financial Services Inc

      52-1263786  

WFG China Holdings Inc

      20-2541057  

World Fin Group Ins Agency of Massachusetts Inc

      04-3182849  

World Financial Group Inc

      42-1518386  

World Financial Group Ins Agency of Hawaii Inc

      99-0277127  

World Financial Group Insurance Agency of WY Inc

      42-1519076  

World Financial Group Insurance Agency

      95-3809372  

Zahorik Company Inc

      95-2775959  

Zero Beta Fund LLC

      26-1298094  

 

77

Table of Contents

Statutory-Basis

Financial Statement Schedule

 

78

Table of Contents

Transamerica Financial Life Insurance Company

Summary of Investments – Other Than

Investments in Related Parties

(Dollars in Thousands)

December 31, 2016

SCHEDULE I

 

                   Amount at  
                   Which Shown  
            Fair      in the  

Type of Investment

    Cost (1)      Value      Balance Sheet (2)  

Fixed maturities

         

Bonds:

         

United States Government and government agencies and authorities

    $ 487,049      $ 564,725      $ 492,352  

States, municipalities and political subdivisions

      46,689        47,780        46,689  

Foreign governments

      93,123        100,641        93,123  

Hybrid securities

      117,258        109,305        117,258  

All other corporate bonds

      5,652,935        5,892,342        5,652,552  

Preferred stocks

      4,552        4,498        4,552  
  

 

 

     

 

 

     

 

 

  

Total fixed maturities

      6,401,606        6,719,291        6,406,526  

Equity securities

         

Common stocks:

         

Industrial, miscellaneous and all other

      —          —          —    
  

 

 

     

 

 

     

 

 

  

Total common stocks

      —          —          —    

Mortgage loans on real estate

      1,243,156           1,243,156  

Real estate

      3,600           3,600  

Policy loans

      122,026           122,026  

Other long-term investments

      61,323           61,323  

Receivable for securities

      927           927  

Securities lending reinvested collateral assets

      307,732           307,732  

Cash, cash equivalents and short-term investments

      400,915           400,915  
  

 

 

        

 

 

  

Total investments

    $ 8,541,285         $ 8,546,206  
  

 

 

        

 

 

  

 

(1) Original cost of equity securities and, as to fixed maturities, original cost reduce by repayments and adjusted for amortization of premiums or accrual of discounts.
(2) United States government and corporate bonds of $1,499 are held at fair value rather than amortized cost due to having NAIC 6 rating.

 

79

Table of Contents

Transamerica Financial Life Insurance Company

Supplementary Insurance Information

(Dollars in Thousands)

SCHEDULE III

 

                                  Benefits,        
                                  Claims        
    Future Policy           Policy and           Net     Losses and     Other  
    Benefits and
Expenses		     Unearned
Contract		     Premiums
Liabilities		     Premium
Revenue		     Investment
Income*		     Settlement
Expenses		     Operating
Expenses		  

Year ended December 31, 2016

              

Individual life

   $ 1,148,823     $ —       $ 18,281     $ 163,774     $ 55,259     $ 191,636     $ 76,179  

Individual health

     43,800       5,321       11,729       62,058       3,382       19,448       17,692  

Group life and health

     162,148       2,811       11,317       80,133       8,421       55,385       32,104  

Annuity

     5,775,761       —         686       5,469,296       285,513       5,742,186       113,522  

Other

     —         —         —         —         42,953       —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 7,130,532     $ 8,132     $ 42,013     $ 5,775,261     $ 395,528     $ 6,008,655     $ 239,497  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Year ended December 31, 2015

              

Individual life

   $ 1,062,083     $ —       $ 15,641     $ 148,823     $ 53,379     $ 169,044     $ 81,612  

Individual health

     59,122       5,842       12,239       58,286       3,103       53,426       22,486  

Group life and health

     140,745       1,914       22,065       81,840       7,680       47,903       27,820  

Annuity

     5,775,613       —         938       5,524,044       283,722       4,829,378       1,003,826  

Other

     —         —         —         —         53,200       —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 7,037,563     $ 7,756     $ 50,883     $ 5,812,993     $ 401,084     $ 5,099,751     $ 1,135,744  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Year ended December 31, 2014

              

Individual life

   $ 1,105,341     $ —       $ 13,237     $ 131,835     $ 62,331     $ 390,722     $ 77,976  

Individual health

     39,895       5,953       6,227       53,360       2,760       33,441       20,718  

Group life and health

     136,947       1,821       15,498       74,435       8,137       41,910       26,037  

Annuity

     5,953,030       —         568       5,180,015       337,122       5,108,620       329,343  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 7,235,213     $ 7,774     $ 35,530     $ 5,439,645     $ 410,350     $ 5,574,693     $ 454,074  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

* Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied.

 

80

Table of Contents

Transamerica Financial Life Insurance Company

Reinsurance

(Dollars in Thousands)

SCHEDULE IV

 

                   Assumed             Percentage  
            Ceded to      From             of Amount  
     Gross      Other      Other      Net      Assumed  
     Amount      Companies      Companies      Amount      to Net  

Year ended December 31, 2016

               

Life insurance in force

    $ 25,466,212      $ 172,845,130      $ 170,252,105      $ 22,873,187        744 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Premiums:

               

Individual life

      179,182        536,674        521,267        163,775        318 % 

Individual health

      62,606        604        56        62,058        0 % 

Group life and health

      81,420        3,235        1,948        80,133        2 % 

Annuity

      5,463,567        333        6,062        5,469,296        0 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 5,786,775      $ 540,846      $ 529,333      $ 5,775,262        9 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Year ended December 31, 2015

               

Life insurance in force

    $ 24,382,596      $ 180,500,389      $ 177,774,290      $ 21,656,497        895 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Premiums:

               

Individual life

      163,471        515,667        501,018        148,822        337 % 

Individual health

      59,062        822        46        58,286        0 % 

Group life and health

      81,321        1,766        2,284        81,839        3 % 

Annuity

      5,517,232        395        7,208        5,524,045        0 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 5,821,086      $ 518,650      $ 510,556      $ 5,812,992        9 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Year ended December 31, 2014

               

Life insurance in force

    $ 22,754,916      $ 193,135,172      $ 190,242,263      $ 19,862,007        958 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Premiums:

               

Individual life

      148,145        556,231        539,921        131,835        410 % 

Individual health

      54,133        857        86        53,362        0 % 

Group life and health

      78,089        6,239        2,584        74,434        3 % 

Annuity

      5,172,542        415        7,889        5,180,015        0 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 5,452,909      $ 563,742      $ 550,480      $ 5,439,646        10 % 
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

81

Table of Contents

FINANCIAL STATEMENTS

Transamerica Financial Life Insurance Company

Separate Account VA BNY

Years Ended December 31, 2016 and 2015

Table of Contents

Transamerica Financial Life Insurance Company

Separate Account VA BNY

Financial Statements

Years Ended December 31, 2016 and 2015

Contents

 

Report of Independent Registered Public Accounting Firm

      1  

Financial Statements

   

Statements of Assets and Liabilities

      2  

Statements of Operations and Changes in Net Assets

      5  

Notes to Financial Statements

      29  

 

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Contract Owners of

Subaccounts of Separate Account VA BNY and

Board of Directors of

Transamerica Financial Life Insurance Company

In our opinion, for each of the subaccounts of Separate Account VA BNY indicated in the table below, the accompanying statements of assets and liabilities, and the related statement of operations and change in net assets present fairly, in all material respects, the financial position of each of the subaccounts of Separate Account VA BNY as of the date indicated in the table, and the results of each of their operations and 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 Transamerica Financial 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 securities as of December 31, 2016 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinions.

 

AB Balanced Wealth Strategy Class B Shares (1)    TA BlackRock Tactical Allocation Service Class (1)
AB Growth and Income Class B Shares (1)    TA Clarion Global Real Estate Securities Initial Class (1)
AB Large Cap Growth Class B Shares (1)    TA Clarion Global Real Estate Securities Service Class (1)
American Funds - Asset Allocation Class 2 Shares (1)    TA International Moderate Growth Service Class (1)
American Funds - Bond Class 2 Shares (1)    TA Janus Balanced Service Class (1)
American Funds - Growth Class 2 Shares (1)    TA Janus Mid-Cap Growth Initial Class (1)
American Funds - Growth-Income Class 2 Shares (1)    TA Janus Mid-Cap Growth Service Class (1)
American Funds - International Class 2 Shares (1)    TA Jennison Growth Initial Class (1)
Fidelity® VIP Balanced Service Class 2 (1)    TA Jennison Growth Service Class (1)
Fidelity® VIP Contrafund® Initial Class (1)    TA JPMorgan Core Bond Service Class (1)
Fidelity® VIP Contrafund® Service Class 2 (1)    TA JPMorgan Enhanced Index Initial Class (1)
Fidelity® VIP Equity-Income Service Class 2 (1)    TA JPMorgan Enhanced Index Service Class (1)
Fidelity® VIP Growth Service Class 2 (1)    TA JPMorgan Mid Cap Value Service Class (1)
Fidelity® VIP Growth Opportunities Service Class 2 (1)    TA JPMorgan Tactical Allocation Service Class (1)
Fidelity® VIP Mid Cap Initial Class (1)   

TA Legg Mason Dynamic Allocation - Balanced Service

Class (1)

Fidelity® VIP Mid Cap Service Class 2 (1)    TA Legg Mason Dynamic Allocation - Growth Service Class (1)
Fidelity® VIP Value Strategies Initial Class (1)    TA Managed Risk - Balanced ETF Service Class (1)
Fidelity® VIP Value Strategies Service Class 2 (1)    TA Managed Risk - Conservative ETF Service Class (1)
Franklin Founding Funds Allocation Class 4 Shares (1)    TA Managed Risk - Growth ETF Service Class (1)
Franklin Income Class 2 Shares (1)    TA Market Participation Strategy Service Class (1)
Franklin Mutual Shares Class 2 Shares (1)    TA MFS International Equity Initial Class (1)
Franklin Templeton Foreign Class 2 Shares (1)    TA MFS International Equity Service Class (1)
Invesco V.I. American Franchise Series II Shares (1)    TA Morgan Stanley Capital Growth Initial Class (1)
Invesco V.I. Value Opportunities Series II Shares (1)    TA Morgan Stanley Capital Growth Service Class (1)
Janus Aspen - Enterprise Service Shares (1)    TA Multi-Managed Balanced Initial Class (1)
Janus Aspen - Global Research Service Shares (1)    TA Multi-Managed Balanced Service Class (1)
Janus Aspen - Perkins Mid Cap Value Service Shares (1)    TA Multi-Manager Alternative Strategies Service Class (1)
JPMorgan Insurance Trust Core Bond Class 1 Shares (1)    TA PIMCO Tactical - Balanced Service Class (1)
JPMorgan Insurance Trust Mid Cap Value Class 1 Shares (1)    TA PIMCO Tactical - Conservative Service Class (1)
JPMorgan Insurance Trust Small Cap Core Class 1 Shares (1)    TA PIMCO Tactical - Growth Service Class (1)
JPMorgan Insurance Trust U.S. Equity Class 1 Shares (1)    TA PIMCO Total Return Initial Class (1)
MFS® New Discovery Service Class (1)    TA PIMCO Total Return Service Class (1)
MFS® Total Return Service Class (1)    TA PineBridge Inflation Opportunities Service Class (1)
State Street Total Return V.I.S. Class 3 Shares (1)    TA ProFunds UltraBear Service Class (OAM) (1)
TA AB Dynamic Allocation Initial Class (1)    TA QS Investors Active Asset Allocation - Conservative Service Class (1)
TA AB Dynamic Allocation Service Class (1)    TA QS Investors Active Asset Allocation - Moderate Service Class (1)
TA Aegon Government Money Market Initial Class (1)    TA QS Investors Active Asset Allocation - Moderate Growth Service Class (1)
TA Aegon Government Money Market Service Class (1)    TA Small/Mid Cap Value Initial Class (1)
TA Aegon High Yield Bond Initial Class (1)    TA Small/Mid Cap Value Service Class (1)
TA Aegon High Yield Bond Service Class (1)    TA T. Rowe Price Small Cap Initial Class (1)
TA Aegon U.S. Government Securities Initial Class (1)    TA T. Rowe Price Small Cap Service Class (1)
TA Aegon U.S. Government Securities Service Class (1)    TA Torray Concentrated Growth Initial Class (1)
TA American Funds Managed Risk - Balanced Service Class (2)    TA Torray Concentrated Growth Service Class (1)
TA Asset Allocation - Conservative Initial Class (1)    TA TS&W International Equity Initial Class (1)
TA Asset Allocation - Conservative Service Class (1)    TA TS&W International Equity Service Class (1)
TA Asset Allocation - Growth Initial Class (1)    TA WMC US Growth Initial Class (1)
TA Asset Allocation - Growth Service Class (1)    TA WMC US Growth Service Class (1)
TA Asset Allocation - Moderate Initial Class (1)    Vanguard® Equity Index (1)
TA Asset Allocation - Moderate Service Class (1)    Vanguard® International (1)
TA Asset Allocation - Moderate Growth Initial Class (1)    Vanguard® Mid-Cap Index (1)
TA Asset Allocation - Moderate Growth Service Class (1)    Vanguard® REIT Index (1)
TA Barrow Hanley Dividend Focused Initial Class (1)    Vanguard® Short-Term Investment Grade (1)
TA Barrow Hanley Dividend Focused Service Class (1)    Vanguard® Total Bond Market Index (1)
TA BlackRock Equity Smart Beta 100 Service Class (3)    Voya Global Perspectives Class S Shares (2)
TA BlackRock Global Allocation Service Class (1)    Voya Large Cap Value Class S Shares (2)
TA BlackRock Global Allocation Managed Risk - Balanced Service Class (2)    Voya Strategic Allocation Conservative Class S Shares (2)
TA BlackRock Global Allocation Managed Risk - Growth Service Class (2)    Voya Strategic Allocation Moderate Class S Shares (2)
TA BlackRock Smart Beta 50 Service Class (3)    Wanger International (1)
TA BlackRock Smart Beta 75 Service Class (3)    Wanger USA (1)

 

(1) Statement of assets and liabilities as of December 31, 2016, and statement of operations and change in net assets for the years ended December 31, 2016 and 2015
(2) Statement of assets and liabilities as of December 31, 2016 and statement of operations and change in net assets for the year ended December 31, 2016 and the period May 1, 2015 (commencement of operations) through December 31, 2015
(3) Statement of assets and liabilities as of December 31, 2016 and statement of operations and change in net assets for the period March 21, 2016 (commencement of operations) through December 31, 2016

/s/PricewaterhouseCoopers LLP

Chicago, Illinois

April 24, 2017

Table of Contents
PART C OTHER INFORMATION

 

Item 24. Financial Statements and Exhibits

 

  (a)     Financial Statements

    All required financial statements are included in Part B of this Registration Statement.

 

  (b)     Exhibits:

 

 

(1)

      (a )    Resolution of the Board of Directors of Transamerica Life Insurance Company authorizing establishment of the Separate Account. Note 1
 

(2)

      Not Applicable.
 

(3)

      (a )    Amended and restated Principal Underwriting Agreement by and between Transamerica Life Insurance Company, on its own behalf and on the behalf of the Separate Account, and Transamerica Capital, Inc. Note 3
       (b )    Form of Broker/Dealer and Sales Agreement. Note 1
 

(4)

      (a )    Form of Policy. Note 3
       (b )    Form of Policy Rider (Return of Premium). Note 3
       (c )    Form of Policy Rider (RIM). Note 10
       (d )    Form of Policy Rider (Transamerica Income Edge). Note 13
 

(5)

      (a )    Form of Application. Note 10
 

(6)

      (a )    Articles of Incorporation of Transamerica Life Insurance Company. Note 2
       (b )    By-Laws of Transamerica Life Insurance Company. Note 2
 

(7)

      Reinsurance Agreements. Not Applicable
 

(8)

      (a )    Participation Agreement (TST). Note 3
       (a )(1)    Amendment No. 1 to Participation Agreement (TST). Note 4
       (a )(2)    Amended Schedule A to Participation Agreement dated September 18, 2013 (TST). Note 5
       (a )(3)    Amended Schedule A to Participation Agreement dated May 1, 2014 (TST). Note 7
       (a )(4)    Amendment No. 2 to Participation Agreement (TST). Note 8
       (a )(5)    Amended Schedule A to Participation Agreement dated May 1, 2015 (TST)
       (a )(6)    Amended Schedule A to Participation Agreement dated July 1, 2015 (TST). Note 11
       (a )(7)    Amended Schedule A to Participation Agreement dated December 18, 2015 (TST). Note 12
       (a )(8)    Amended Schedule A to Participation Agreement dated March 21, 2016 (TST). Note 12
       (a )(9)    Amended Schedule A to Participation Agreement dated May 1, 2016 (TST). Note 12
       (a )(10)    Amended Schedule A to Participation Agreement dated December 16, 2016 (TST). Note 14
       (a )(11)    Amended Schedule A to Participation Agreement dated May 1, 2017 (TST). Note 25
 

(9)

      Opinion and Consent of Counsel. Note 16
 

(10)

      Consent of Independent Registered Public Accounting Firm. Note 16
 

(11)

      Not applicable.
 

(12)

      Not applicable.
 

(13)

      Powers of Attorney. (Blake S. Bostwick, Eric J. Martin, Mark W. Mullin, Jay Orlandi, David Schulz, C. Michiel van Katwijk) Note 15.

 

Note 1. Incorporated herein by reference to Initial Filing to form N-4 Registration Statement (File No. 333-185573) filed on December 20, 2012.

 

Note 2. Incorporated herein by reference to Initial Filing to form N-4 Registration Statement (File No. 333-169445) filed on September 17, 2010.

 

Note 3. Filed with Pre-Effective Amendment No. 1 to form N-4 Registration Statement (File No. 333-186032) filed on April 10, 2013.

 

Note 4. Incorporated herein by reference to Post-Effective Amendment No. 59 to form N-4 Registration Statement (File No. 33-33085) filed on August 16, 2013.

 

Note 5. Incorporated herein by reference to Pre-Effective Amendment No. 2 to form N-4 Registration Statement (File No. 333-189435) filed on October 2, 2013.

 

Note 6. Incorporated herein by reference to the Initial Filing of form N-4 Registration Statement (File No. 333-189435) filed on September 11, 2014.

 

Note 7. Filed with Post-Effective Amendment No. 1 to Form N-4 Registration Statement (File No. 333-186032) filed on April 29, 2014.

 

Note 8. Incorporated herein by reference to Post-Effective Amendment No. 67 to Form N-4 Registration Statement (File No. 33-56908) filed on December 30, 2014.

 

Note 9. Incorporated herein by reference to Post-Effective Amendment No. 2 to Form N-4 Registration Statement (File No. 333-189435) filed on February 19, 2015.

 

Note 10. Filed with Post-Effective Amendment No. 2 to Form N-4 Registration Statement (File No. 333-186032) filed on April 24, 2015.

 

Note 11. Incorporated herein by reference to Post-Effective Amendment No. 4 to Form N-4 Registration Statement (File No. 333-186029) filed on October 13, 2015.

 

Note 12. Filed with Post-Effective Amendment No. 3 to Form N-4 Registration Statement (File No. 333-186032) filed on April 27, 2016.

 

Note 13. Filed with Post-Effective Amendment No. 6 to Form N-4 Registration Statement (File No. 333-186032) filed on October 31, 2016.

 

Note 14. Incorporated herein by reference to the Initial Filing to Form N-4 Registration Statement (File No. 333-215598) filed on January 18, 2017.

 

Note 15. Incorporated herein by reference to Post-Effective Amendment No. 9 to Form N-4 Registration Statement (File No. 333-185573) filed on April 24, 2017.

 

Note 16. Filed herewith.

Table of Contents
Item 25. Directors and Officers of the Depositor (Transamerica Life Insurance Company)

 

Name and Business Address

   

Principal Positions and Offices with Depositor

Blake S. Bostwick

1801 California St. Suite 5200

Denver, CO 80202

    Director and President

Eric J. Martin

4333 Edgewood Road, N.E.

Cedar Rapids, IA 52499-0001

    Controller, Senior Vice President and Assistant Treasurer

Mark W. Mullin

100 Light Street

Baltimore, MD 21202

    Director and Chairman of the Board

Jay Orlandi

100 Light Street

Baltimore, MD 21202

    Director, Executive Vice President, Secretary and General Counsel

David Schulz

4333 Edgewood Road, N.E.

Cedar Rapids, IA 52499

    Director, Chief Tax Officer, and Senior Vice President

C. Michiel van Katwijk

100 Light Street

Baltimore, MD 21202

    Director, Executive Vice President, Chief Financial Officer and Treasurer

Table of Contents

Item 26. Persons Controlled by or under Common Control with the Depositor or Registrant.

As of December 31, 2016, the following pages shows all corporations directly or indirectly controlled or under common control, with the Depositor, showing the state or other sovereign power under the laws of which each is organized and the percentage ownership of voting securities giving rise to the control relationship.

 

Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
25 East 38th Street, LLC   Delaware  

Sole Member: Yarra Rapids, LLC

 

   Real estate investments
239 West 20th Street, LLC   Delaware  

Sole Member: Yarra Rapids, LLC

 

   Real estate investments
313 East 95th Street, LLC   Delaware  

Sole Member: Yarra Rapids, LLC

 

   Real estate investments
319 East 95th Street, LLC   Delaware  

Sole Member: Yarra Rapids, LLC

 

   Real estate investments
AEGON Affordable Housing Debt Fund I, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
AEGON Asset Management Services, Inc.   Delaware  

100% AUSA Holding, LLC

 

   Registered investment advisor
AEGON Assignment Corporation   Illinois  

100% AEGON Financial Services Group, Inc.

 

   Administrator of structured settlements
AEGON Assignment Corporation of Kentucky   Kentucky  

100% AEGON Financial Services Group, Inc.

 

   Administrator of structured settlements
Aegon Community Investments 50, LLC   Delaware  

Members: Aegon Community Investments 50, LLC (0.10%); Transamerica Financial Life Insurance Company (25.49750%); Transamerica Premier Life Insurance Company (25.49750%); non-AEGON affiliate, Citibank, N.A. (48.9950%)

 

   Investments
Aegon Community Investments 51, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
AEGON Direct Marketing Services, Inc.   Maryland  

Transamerica Premier Life Insurance Company owns 103,324 shares; Commonwealth General Corporation owns 37,161 shares

 

   Marketing company
AEGON Direct Marketing Services International, Inc.   Maryland   100% AUSA Holding, LLC  

Marketing arm for sale of mass marketed insurance coverage

 

AEGON Direct Marketing Services Mexico, S.A. de C.V.   Mexico   100% AEGON DMS Holding B.V.  

Provide management advisory and technical consultancy services.

 

AEGON Direct Marketing Services Mexico Servicios, S.A. de C.V.   Mexico   100% AEGON DMS Holding B.V.  

Provide marketing, trading, telemarketing and advertising services in favor of any third party, particularly in favor of insurance and reinsurance companies.

 

AEGON Financial Services Group, Inc.   Minnesota  

100% Transamerica Life Insurance Company

 

   Marketing
AEGON Funding Company, LLC.   Delaware   Sole Member: Transamerica Corporation  

Issue debt securities-net proceeds used to make loans to affiliates

 

Aegon Global Services, LLC   Iowa  

Sole Member: Commonwealth General Corporation

 

   Holding company
AEGON Institutional Markets, Inc.   Delaware   100% Commonwealth General Corporation  

Provider of investment, marketing and administrative services to insurance companies

 

AEGON Life Insurance Agency Inc.   Taiwan  

100% AEGON Direct Marketing Services, Inc. (Taiwan Domiciled)

 

   Life insurance

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Aegon LIHTC Fund 50, LLC   Delaware  

Members: Aegon Community Investments 50, LLC (0.01%); Transamerica Financial Life Insurance Company (25.49750%); Transamerica Premier Life Insurance Company (25.49750%); non-

Sole Member: Aegon Community Investments 50, LLC (managing member)

 

   Investments
Aegon LIHTC Fund 51, LLC   Delaware  

Sole Member: Aegon Community Investments 51, LLC

 

   Investments
AEGON Managed Enhanced Cash, LLC   Delaware  

Members: Transamerica Life Insurance Company (84.3972%) ; Transamerica Premier Life Insurance Company (15.6028%)

 

   Investment vehicle for securities lending cash collateral
AEGON Management Company   Indiana  

100% Transamerica Corporation

 

   Holding company
AEGON N.V.   Netherlands  

22.446% of Vereniging AEGON Netherlands Membership Association

 

   Holding company
AEGON Structured Settlements, Inc.   Kentucky   100% Commonwealth General Corporation  

Administers structured settlements of plaintiff’s physical injury claims against property and casualty insurance companies.

 

AEGON USA Asset Management Holding, LLC   Iowa  

Sole Member: AUSA Holding, LLC

 

   Holding company
AEGON USA Investment Management, LLC   Iowa  

Sole Member: AEGON USA Asset Management Holding, LLC

 

   Investment advisor
AEGON USA Real Estate Services, Inc.   Delaware  

100% AEGON USA Realty Advisors, Inc.

 

   Real estate and mortgage holding company
AEGON USA Realty Advisors, LLC   Iowa  

Sole Member: AEGON USA Asset Management Holding, LLC

 

   Administrative and investment services
AEGON USA Realty Advisors of California, Inc.   Iowa  

100% AEGON USA Realty Advisors, Inc.

 

   Investments
AFSG Securities Corporation   Pennsylvania  

100% Commonwealth General Corporation

 

   Inactive
AHDF Manager I, LLC   Delaware  

Sole Member: AEGON USA Realty Advisors, LLC

 

   Investments
ALH Properties Eight LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Eleven LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Four LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Nine LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Seven LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Seventeen LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Sixteen LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Ten LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Twelve LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
ALH Properties Two LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
AMTAX HOLDINGS 308, LLC   Ohio  

TAHP Fund II, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 347, LLC   Ohio  

TAHP Fund II, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 388, LLC   Ohio  

TAHP Fund II, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
AMTAX HOLDINGS 483, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 546, LLC   Ohio  

TAHP Fund II, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 559, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 561, LLC   Ohio  

TAHP Fund VII, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 567, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 588, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 613, LLC   Ohio  

Garnet LIHTC Fund VII, LLC - 99% member; Cupples State LIHTC Investors, LLC - 1% member; TAH Pentagon Funds, LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 639, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 649, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 672, LLC   Ohio  

TAHP Fund I, LLC - 100% MEMBER; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
AMTAX HOLDINGS 713, LLC   Ohio  

TAHP Fund II, LLC - 100% member; TAH Pentagon Funds LLC - non-owner manager

 

   Affordable housing
Apollo Housing Capital Arrowhead Gardens, LLC   Delaware  

Sole Member: Garnet LIHTC Fund XXXV, LLC

 

   Affordable housing
AUIM Credit Opportunities Fund, Ltd.   Delaware  

100% AEGON USA Investment Management, LLC

 

   Investment vehicle
AUSA Holding, LLC   Maryland  

Sole Member: 100% Transamerica Corporation

 

   Holding company
AUSA Properties, Inc.   Iowa  

100% AEGON USA Realty Advisors, LLC

 

   Own, operate and manage real estate
AXA Equitable AgriFinance, LLC   Delaware  

Members: AEGON USA Realty Advisors, LLC (50%); AXA Equitable Life Insurance Company, a non-affiliate of AEGON (50%)

 

   Agriculturally-based real estate advisory services
Barfield Ranch Associates, LLC   Florida  

Members: Mitigation Manager, LLC (50%); non-affiliate of AEGON, OBPFL-Barfield, LLC (50%)

 

   Investments
Bay Area Community Investments I, LP   California  

Partners: 69.995% Transamerica Life Insurance Company; 29.995% Transamerica Premier Life Insurance Company; 0.01% Transamerica Affordable housing, Inc.

 

   Investments in low income housing tax credit properties
Bay State Community Investments I, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments in low income housing tax credit properties
Bay State Community Investments II, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments in low income housing tax credit properties

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Carle Place Leasehold SPE, LLC   Delaware  

Sole Member: Transamerica Financial Life Insurance Company

 

   Lease holder
Cedar Funding, Ltd.   Cayman Islands  

100% Transamerica Life Insurance Company

 

   Investments
Commonwealth General Corporation   Delaware  

100% Transamerica Corporation

 

   Holding company
Creditor Resources, Inc.   Michigan  

100% AUSA Holding, LLC

 

   Credit insurance
CRI Solutions Inc.   Maryland  

100% Creditor Resources, Inc.

 

   Sales of reinsurance and credit insurance
Cupples State LIHTC Investors, LLC   Delaware  

Sole Member: Garnet LIHTC Fund VIII, LLC

 

   Investments
FD TLIC, Limited Liability Company   New York  

100% Transamerica Life Insurance Company

 

   Broadway production
FGH Realty Credit LLC   Delaware  

Sole Member: FGH USA, LLC

 

   Real estate
FGH USA LLC   Delaware  

Sole Member: RCC North America LLC

 

   Real estate
FGP 90 West Street LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
FGP West Street LLC   Delaware  

Sole Member: FGP West Mezzanine LLC

 

   Real estate
Fifth FGP LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
Financial Planning Services, Inc.  

District of Columbia

 

   100% Commonwealth General Corporation   Special-purpose subsidiary
Firebird Re Corp.   Arizona  

100% Transamerica Corporation

 

   Captive insurance company
First FGP LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
Fourth FGP LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
Garnet Assurance Corporation   Kentucky  

100% Transamerica Life Insurance Company

 

   Investments
Garnet Assurance Corporation II   Iowa  

100% Commonwealth General Corporation

 

   Business investments
Garnet Assurance Corporation III   Iowa  

100% Transamerica Life Insurance Company

 

   Business investments
Garnet Community Investments, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments III, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Business investments
Garnet Community Investments IV, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments V, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments VI, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments VII, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments VIII, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments IX, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments X, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments XI, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments
Garnet Community Investments XII, LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Investments

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Garnet Community Investments XVIII, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XX, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXIV, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXV, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investment XXVI, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXVII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investment XXVIII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXIX, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXX, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXI, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXIII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXIV, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXV, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXVI, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXVII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXVIII, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XXXIX, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XL, LLC   Delaware  

Sole Member - Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLI, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLII, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLIII, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLIV, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLVI, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLVII, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet Community Investments XLVIII, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Garnet Community Investments XLIX, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Garnet ITC Fund XLIII, LLC   Delaware  

Members: Garnet Community Investments XLIII, LLC (0%) asset manager: non-affiliate of AEGON, Solar TC Corp. (100%) investor member

 

   Investments
Garnet LIHTC Fund III, LLC   Delaware  

Members: Garnet Community Investments III, LLC (0.01%); Jefferson-Pilot Life Insurance Company, a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund IV, LLC   Delaware  

Members: Garnet Community Investments IV, LLC (0.01%); Goldenrod Asset Management, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund V, LLC   Delaware  

Members: Garnet Community Investments V, LLC (0.01%); Lease Plan North America, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund VI, LLC   Delaware  

Members: Garnet Community Investments VI, LLC (0.01%); Pydna Corporation, a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund VII, LLC   Delaware  

Members: Garnet Community Investments VII, LLC (0.01%); J.P. Morgan Chase Bank, N.A., a non-AEGON affiliate(99.99%)

 

   Investments
Garnet LIHTC Fund VIII, LLC   Delaware  

Members: Garnet Community Investments VIII, LLC (0.01%); J.P. Morgan Chase Bank, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund IX, LLC   Delaware  

Members: Garnet Community Investments IX, LLC (0.01%); Bank of America, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund X, LLC   Delaware  

Members: Garnet Community Investments X, LLC (0.01%); Goldenrod Asset Management, a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XI, LLC   Delaware  

Members: Garnet Community Investments XI, LLC (0.01%); NorLease, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XII, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (.01%); and the following non-AEGON affiliates: Bank of America, N.A.( 73.39%); J.P. Morgan Chase Bank, N.A. (13.30%); NorLease, Inc. (13.30%)

 

   Investments
Garnet LIHTC Fund XII-A, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (0.01%); Bank of America, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XII-B, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (0.01%); J.P. Morgan Chase Bank, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XII-C, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (.01%); NorLease, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XIII, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (.01%); and the following non-AEGON affiliates: Bank of America, N.A.( 73.39%); J.P. Morgan Chase Bank, N.A. (13.30%); NorLease, Inc. (13.30%)

 

   Investments

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Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Garnet LIHTC Fund XIII-A, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (.01%); J.P. Morgan Chase Bank, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XIII-B, LLC   Delaware  

Members: Garnet Community Investments XII, LLC (.01%); NorLease, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XIV, LLC   Delaware  

Members: 0.01% Garnet Community Investments, LLC (0.01%); Wells Fargo Bank, N.A. (49.995%); and Goldenrod Asset Management, Inc.(49.995%), both non-AEGON affiliates

 

   Investments
Garnet LIHTC Fund XV, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); Bank of America, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XVI, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); FNBC Leasing Corporation, a non-AEGON entity (99.99%)

 

   Investments
Garnet LIHTC Fund XVII, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); Special Situations Investing Group II, LLC, a non-affiliate of AEGON (99.99%)

 

   Investments
Garnet LIHTC Fund XVIII, LLC   Delaware  

Members: Garnet Community Investments XVIII, LLC (0.01%); Verizon Capital Corp., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XIX, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); Bank of America, N.A., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XX, LLC   Delaware  

Sole Member - Garnet Community Investments XX, LLC

 

   Investments
Garnet LIHTC Fund XXI, LLC   Delaware  

Sole Member: Garnet Community Investments, LLC

 

   Investments
Garnet LIHTC Fund XXII, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); NorLease, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XXIII, LLC   Delaware  

Members: Garnet Community Investments, LLC (0.01%); Idacorp Financial Services, Inc., a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XXIV, LLC   Delaware  

Members: Garnet Community Investments XXIV, LLC (0.01% as Managing Member); Transamerica Life Insurance Company (21.26%); non-affiliates of AEGON: New York Life Insurance Company (25.51%), New York Life Insurance and Annuity Corporation (21.73%) and Principal Life Insurance Company (31.49%)

 

   Investments
Garnet LIHTC Fund XXV, LLC   Delaware  

Members: Garnet Community Investment XXV, LLC (0.01%); Garnet LIHTC Fund XXVIII LLC (1%); non-affiliates of AEGON: Mt. Hamilton Fund, LLC (97.99%); Google Affordable housing I LLC (1%)

 

   Investments
Garnet LIHTC Fund XXVI, LLC   Delaware  

Members: Garnet Community Investments XXVI, LLC (0.01%); American Income Life Insurance Company, a non-affiliate of AEGON (99.99%)

 

   Investments

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Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Garnet LIHTC Fund XXVII, LLC   Delaware  

Members: Garnet Community Investments XXVII, LLC (0.01%); Transamerica Life Insurance Company (16.7045%); non-affiliates of AEGON: Aetna Life Insurance Company (30.2856%); New York Life Insurance Company (22.7142%); ProAssurance Casualty Company (3.6343%); ProAssurance Indemnity Company (8.4800%); State Street Bank and Trust Company (18.1714%)

 

   Investments
Garnet LIHTC Fund XXVIII, LLC   Delaware  

Members: Garnet Community Investments XXVIII LLC (0.01%); non-affiliates of AEGON: USAA Casualty Insurance Company (17.998%); USAA General Indemnity Company (19.998%); USAA Life Insurance Company (3.999%); United Services Automobile Association (57.994%)

 

   Investments
Garnet LIHTC Fund XXIX, LLC   Delaware  

Members: Garnet Community Investments XXIX, LLC (.01%); non-affiliate of AEGON: Bank of America, N.A. (99.99%)

 

   Investments
Garnet LIHTC Fund XXX, LLC   Delaware  

Members: Garnet Community Investments XXX, LLC (0.01%); non-affiliate of AEGON, New York Life Insurance Company (99.99%)

 

   Investments
Garnet LIHTC Fund XXXI, LLC   Delaware  

Members: Garnet Community Investments XXXI, LLC (0.1%); non-affiliates of AEGON: Thunderbolt Peak Fund, LLC (98.99%); Google Affordable housing I, LLC (1%)

 

   Investments
Garnet LIHTC Fund XXXII, LLC   Delaware  

Sole Member: Garnet Community Investments XXXVII, LLC.

 

   Investments
Garnet LIHTC Fund XXXIII, LLC   Delaware  

Members: Garnet Community Investment XXXIII, LLC (0.01%); non-affiliate of AEGON, NorLease, Inc. (99.99%)

 

   Investments
Garnet LIHTC Fund XXXIV, LLC   Delaware  

Members: non-AEGON affiliate, U.S. Bancorp Community Development Corporation (99.99%); Garnet Community Investments XXXIV, LLC (.01%)

 

   Investments
Garnet LIHTC Fund XXXV, LLC   Delaware  

Members: Garnet Community Investment XXXV, LLC (0.01%); non-affiliate of AEGON, Microsoft Corporation (99.99%)

 

   Investments
Garnet LIHTC Fund XXXVI, LLC   Delaware  

Members: Garnet Community Investments XXXVI, LLC (1%) as managing member; JPM Capital Corporation, a non-AEGON affiliate (99%) as investor member

 

   Investments
Garnet LIHTC Fund XXXVII, LLC   Delaware  

Members: Garnet Community Investments XXXVII, LLC (.01%); LIH Realty Corporation, a non-AEGON affiliate (99.99%)

 

   Investments
Garnet LIHTC Fund XXXVIII, LLC   Delaware  

Members: Garnet Community Investments XXXVIII, LLC, non-member manager; non-affiliate of AEGON, Norlease, Inc. (100%)

 

   Investments
Garnet LIHTC Fund XXXIX, LLC   Delaware  

Members: Garnet Community Investments XXXIX, LLC at 1% managing member and non-AEGON affiliate, FNBC Leasing Corporation as the 99% investor member.

 

   Investments

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Name  

Jurisdiction

of

Incorporation

 

   Percent of Voting
Securities Owned		   Business
Garnet LIHTC Fund XL, LLC   Delaware  

Members: Garnet Community Investments XL, LLC as a .01% member and non-AEGON affiliate, Partner Reinsurance Company of the U.S. as the 99.99% member.

 

   Investments
Garnet LIHTC Fund XLI, LLC   Delaware  

Members: Transamerica Life Insurance Company (9.990%) and Garnet Community Investments XLI, LLC (.01% managing member); non-AEGON affiliates : BBCN Bank (1.2499%), East West Bank (12.4988%), Opus Bank (12.4988%), Standard Insurance Company (24.9975%), Mutual of Omaha (12.4988%), Pacific Western Bank (7.4993%) and Principal Life Insurance Company (18.7481%).

 

   Investments
Ganet LIHTC Fund XLII, LLC   Delaware  

Members: Garnet Community Investments XLII, LLC (.01%) managing member; non-affiliates of AEGON: Community Trust Bank (83.33%) investor member; Metropolitan Bank (16.66%) investor member.

 

   Investments
Garnet LIHTC Fund XLIV-A, LLC   Delaware  

Sole Member: ING Capital, LLC; Asset Manager: Garnet Community Investments XLIV, LLC (0% interest)

 

   Investments
Garnet LIHTC Fund XLIV-B, LLC   Delaware  

Sole Member: Lion Capital Delaware, Inc.; Asset Manager: Garnet Community Investments XLIV, LLC (0% interest)

 

   Investments
Garnet LIHTC Fund XLVI, LLC   Delaware  

Members: Garnet Community Investments XLVI, LLC (0.01%) managing member; non-affiliate of AEGON, Standard Life Insurance Company (99.99%) investor member

 

   Investments
Garnet LIHTC Fund XLVII, LLC   Delaware  

Members: Garnet Community Investments XLVII, LLC (1%) managing member; Transamerica Premire Life Insurance Company (14%) investor member; non-affiliate of AEGON: Citibank, N.A. (49%) investor member; New York Life Insurance Company (20.5%) investor member and New York Life Insurance and Annuity Corporation (15.5%) investor member.

 

   Investments
Garnet LIHTC Fund XLVIII, LLC   Delaware  

Sole Member: Garnet Community Investments XLVIII, LLC

 

   Investments
Harbor View Re Corp.   Hawaii  

100% Commonwealth General Corporation

 

   Captive insurance company
Horizons Acquisition 5, LLC   Florida  

Sole Member - PSL Acquisitions Operating, LLC

 

   Development company
Horizons St. Lucie Development, LLC   Florida  

Sole Member - PSL Acquisitions Operating, LLC

 

   Development company
Imani Fe, LP   California  

Partners: Garnet LIHTC Fund XIV, LL (99.99% investor limited partner); Transamerica Affordable housing, Inc. (non-owner manager); non-affiliates of AEGON: ABS Imani Fe, LLC (.0034% class A limited partner); Central Valley Coalition for Affordable housing (.0033% co-managing general partner); Grant Housing and Economic Development Corporation (.0033% managing partner)

 

   Affordable housing
InterSecurities Insurance Agency, Inc.   California  

100% Transamerica Premier Life Insurance Company

 

   Insurance agency
Interstate North Office Park GP, LLC   Delaware  

Sole Member: Interstate North Office Park Owner, LLC

 

   Investments

Table of Contents
Name  

Jurisdiction

of

Incorporation

 

   Percent of Voting
Securities Owned		   Business
Interstate North Office Park, LP   Delaware  

100% Interstate North Office Park Owner, LLC

 

   Investments
Interstate North Office Park Owner, LLC   Delaware  

Sole Member: Investors Warranty of America, LLC

 

   Investments
Interstate North Office Park (Land) GP, LLC   Delaware  

Sole Member: Interstate North Office Park Owner, LLC

 

   Investments
Interstate North Office Park (Land) LP   Delaware  

100% Interstate North Office Park Owner, LLC

 

   Investments
Investors Warranty of America, LLC   Iowa  

Sole Member: Transamerica Life Insurance Company

 

   Leases business equipment
Ironwood Re Corp.   Hawaii  

100% Transamerica Corporation

 

   Captive insurance company
LCS Associates, LLC   Delaware  

Sole Member: Investors Warranty of America, LLC

 

   Investments
Life Investors Alliance LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Purchase, own, and hold the equity interest of other entities
LIHTC Fund XLV, LLC   Delaware  

Non-Member Manager: Garnet Community Investments XLV, LLC (0%)

 

   Investments
LIHTC Fund XLIX, LLC   Delaware  

Sole Member: Garnet Community Investments XLIX, LLC

 

   Investments
LIICA Holdings, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   To form and capitalize LIICA Re I, Inc.
LIICA Re I, Inc.   Vermont  

100% LIICA Holdings, LLC

 

   Captive insurance company
LIICA Re II, Inc.   Vermont  

100% Transamerica Life Insurance Company

 

   Captive insurance company
Massachusetts Fidelity Trust Company   Iowa  

100% AUSA Holding, LLC

 

   Trust company
Mitigation Manager, LLC   Delaware  

Sole Member: Investors Warranty of America, LLC

 

   Investments
MLIC Re I, Inc.   Vermont  

100% Transamerica Life Insurance Company

 

   Captive insurance company
Money Services, Inc.   Delaware   100% AUSA Holding, LLC  

Provides certain financial services for affiliates including, but not limited to, certain intellectual property, computer and computer-related software and hardware services, including procurement and contract services to some or all of the members of the AEGON Group in the United States and Canada.

 

Monumental Financial Services, Inc.   Maryland   100% Transamerica Corporation  

DBA in the State of West Virginia for United Financial Services, Inc.

 

Monumental General Administrators, Inc.   Maryland   100% AUSA Holding, LLC  

Provides management services to unaffiliated third party administrator

 

nVISION Financial, Inc.   Iowa  

100% AUSA Holding, LLC

 

   Special-purpose subsidiary
New Markets Community Investment Fund, LLC   Iowa  

Members: AEGON Institutional Markets, Inc.(50%); AEGON USA Realty Advisors, Inc. (50%)

 

   Community development entity
Oncor Insurance Services, LLC   Iowa  

Sole Member - Life Investors Financial Group, Inc.

 

   Direct sales of term life insurance
Osceola Mitigation Partners, LLC   Florida  

Members: Mitigation Manager, LLC (50%); non-affiliate of AEGON, OBPFL-MITBK, LLC (50%)

 

   Investmetns
Pearl Holdings, Inc. I   Delaware  

100% AEGON USA Asset Management Holding, LLC

 

   Holding company
Pearl Holdings, Inc. II   Delaware  

100% AEGON USA Asset Management Holding, LLC

 

   Holding company
Peoples Benefit Services, LLC   Pennsylvania  

Sole Member - Transamerica Life Insurance Company

 

   Special-purpose subsidiary

Table of Contents
Name  

Jurisdiction

of

Incorporation

 

   Percent of Voting
Securities Owned		   Business
Pine Falls Re, Inc.   Vermont  

100% Transamerica Life Insurance Company

 

   Captive insurance company
Placer 400 Investors, LLC   California  

Members: Investors Warranty of America, LLC (50%); non-affiliate of AEGON, AKT Placer 400 Investors, LLC (50%)

 

   Investments
Primus Guaranty, Ltd.   Bermuda  

Members: Transamerica Life Insurance Company (20% 13.1%) and non-affiliates of AEGON and the public holders own the remainder.

 

   Provides protection from default risk of investment grade corporate and sovereign issues of financial obligations.
PSL Acquisitions Operating, LLC   Iowa  

Sole Member: Investors Warranty of America, LLC

 

   Owner of Core subsidiary entities
RCC North America LLC   Delaware  

Sole Member: Transamerica Corporation

 

   Real estate
Real Estate Alternatives Portfolio 2 LLC   Delaware  

Members are: Transamerica Life Insurance Company (92.%); Transamerica Financial Life Insurance Company (7.5%). Manager: AEGON USA Realty Advisors, Inc.

 

   Real estate alternatives investment
Real Estate Alternatives Portfolio 3 LLC   Delaware  

Members are: Transamerica Life Insurance Company (74.4%); Transamerica Premier Life Insurance Company (25.6%). Manager: AEGON USA Realty Advisors, Inc.

 

   Real estate alternatives investment
Real Estate Alternatives Portfolio 3A, Inc.   Delaware  

Members: Transamerica Premier Life Insurance Company (37%); Transamerica Financial Life Insurance Company (9.4%); Transamerica Life Insurance Company (53.6%).

 

   Real estate alternatives investment
Real Estate Alternatives Portfolio 4 HR, LLC   Delaware  

Members: Transamerica Life Insurance Company (64%); Transamerica Premier Life Insurance Company (32%); Transamerica Financial Life Insurance Company (4%). Manager: AEGON USA Realty Advisors, Inc.

 

   Investment vehicle for alternative real estate investments that are established annually for our affiliated companies common investment
Real Estate Alternatives Portfolio 4 MR, LLC   Delaware  

Members: Transamerica Life Insurance Company (64%); Transamerica Premier Life Insurance Company (32%); Transamerica Financial Life Insurance Company (4%). Manager: AEGON USA Realty Advisors, Inc.

 

   Investment vehicle for alternative real estate investments that are established annually for our affiliated companies common investment
River Ridge Insurance Company   Vermont  

100% AEGON Management Company

 

   Captive insurance company
SB Frazer Owner, LLC   Delaware  

Sole Member: Transamerica Life Insurance Company

 

   Investments
Second FGP LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
Seventh FGP LLC   Delaware  

Sole Member: FGH USA LLC

 

   Real estate
Short Hills Management Company   New Jersey  

100% Transamerica Corporation

 

   Dormant
Southwest Equity Life Insurance Company   Arizona  

Voting common stock is allocated 75% of total cumulative vote - Transamerica Corporation. Participating Common stock (100% owned by non-AEGON shareholders) is allocated 25% of total cumulative vote.

 

   Insurance
St. Lucie West Development Company, LLC   Florida  

Sole Member - PSL Acquisitions Operating, LLC

 

   Development company
Stonebridge Benefit Services, Inc.   Delaware  

100% Commonwealth General Corporation

 

   Health discount plan

Table of Contents
Name  

Jurisdiction

of

Incorporation

 

   Percent of Voting
Securities Owned		   Business
Stonebridge Reinsurance Company   Vermont  

100% Transamerica Life Insurance Company

 

   Captive insurance company
TAH-MCD IV, LLC   Iowa  

Sole Member - Transamerica Affordable housing, Inc.

 

   Serve as the general partner for McDonald Corporate Tax Credit Fund IV Limited Partnership.
TAH Pentagon Funds, LLC   Iowa  

Sole Member - Transamerica Affordable housing, Inc.

 

   Serve as a general partner in a lower-tier tax credit entity
TAHP Fund 1, LLC   Delaware  

Sole Member - Garnet LIHTC Fund IX, LLC

 

   Real estate investments
TAHP Fund 2, LLC   Delaware  

Sole Member - Garnet LIHTC Fund VIII, LLC

 

   Low incoming housing tax credit
TAHP Fund VII, LLC   Delaware  

Investor Member: Garnet LIHTC Fund XIX, LLC

 

   Real estate investments
TCF Asset Management Corporation   Colorado  

100% TCFC Asset Holdings, Inc.

 

   A depository for foreclosed real and personal property.
TCFC Air Holdings, Inc.   Delaware  

100% Transamerica Commercial Finance Corporation, I

 

   Holding company
TCFC Asset Holdings, Inc.   Delaware  

100% Transamerica Commercial Finance Corporation, I

 

   Holding company

The AEGON Trust Advisory Board: Mark W. Mullin, Alexander R. Wynaendts, and Jay Orlandi

 

   Delaware  

100% AEGON International B.V.

 

   Voting Trust
THH Acquisitions, LLC   Iowa   Sole Member - Investors Warranty of America, LLC  

Acquirer of Core South Carolina mortgage loans from Investors Warranty of America, LLC and holder of foreclosed real estate.

 

TLIC Oakbrook Reinsurance, Inc.   Iowa  

100% Transamerica Life Insurance Company

 

   Limited purpose subsidiary life insurance company
TLIC Riverwood Reinsurance, Inc.   Iowa  

100% Transamerica Life Insurance Company

 

   Limited purpose subsidiary life insurance company
TLIC Watertree Reinsurance Inc.   Iowa  

100% Transamerica Life Insurance Company

 

   Limited purpose subsidiary life insurance company
Tradition Development Company, LLC   Florida  

Sole Member - PSL Acquisitions Operating, LLC

 

   Development company
Tradition Irrigation Company, LLC   Florida  

Sole Member - PSL Acquisitions Operating, LLC

 

   Irrigation company
Tradition Land Company, LLC   Iowa   Sole Member: Investors Warranty of America, LLC  

Acquirer of Core Florida mortgage loans from Investors Warranty and holder of foreclosed real estate.

 

Transamerica Accounts Holding Corporation   Delaware  

100% TCFC Asset Holdings, Inc.

 

   Holding company
Transamerica Advisors Life Insurance Company   Arkansas  

100% Transamerica Corporation

 

   Insurance company
Transamerica Affinity Marketing Corretora de Seguros Ltda.   Brazil  

749,000 quota shares owned by AEGON DMS Holding B.V.; 1 quota share owned by AEGON International B.V.

 

   Brokerage company
Transamerica Affinity Services, Inc.   Maryland  

100% AEGON Direct Marketing Services, Inc.

 

   Marketing company
Transamerica Affordable housing, Inc.   California  

100% Transamerica Realty Services, LLC

 

   General partner LHTC Partnership
Transamerica Agency Network, Inc.   Iowa  

100% AUSA Holding, LLC

 

   Special purpose subsidiary
Transamerica Annuity Service Corporation   New Mexico   100% Commonwealth General Corporation  

Performs services required for structured settlements

 

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Transamerica Asset Management, Inc.   Florida  

Transamerica Premier Life Insurance Company owns 77%; AUSA Holding, LLC owns 23%.

 

   Fund advisor
Transamerica Aviation LLC   Delaware  

Sole Member: TCFC Air Holdings, Inc.

 

   Special purpose corporation
Transamerica (Bermuda) Services Center, Ltd.   Bermuda  

100% AEGON International B.V.

 

   Special purpose corporation
Transamerica Capital, Inc.   California  

100% AUSA Holding, LLC

 

   Broker/Dealer
Transamerica Casualty Insurance Company   Ohio  

100% Transamerica Corporation

 

   Insurance company
Transamerica Commercial Finance Corporation, I   Delaware  

100% Transamerica Finance Corporation

 

   Holding company
Transamerica Consumer Finance Holding Company   Delaware  

100% TCFC Asset Holdings, Inc.

 

   Consumer finance holding company
Transamerica Corporation   Delaware  

100% The AEGON Trust

 

   Major interest in insurance and finance
Transamerica Corporation   Oregon  

100% Transamerica Corporation

 

   Holding company
Transamerica Distribution Finance - Overseas, Inc.   Delaware  

100% TCFC Asset Holdings, Inc.

 

   Commercial Finance
Transamerica Finance Corporation   Delaware   100% Transamerica Corporation  

Commercial & Consumer Lending & equipment leasing

 

Transamerica Financial Advisors, Inc.   Delaware  

1,000 shares owned by AUSA Holding, LLC; 209 shares owned by Commonwealth General Corporation; 729 shares owned by AEGON Asset Management Services, Inc.

 

   Broker/Dealer
Transamerica Financial Life Insurance Company   New York  

88% Transamerica Corporation; 12% Transamerica Life Insurance Company

 

   Insurance
Transamerica Fund Services, Inc.   Florida  

Transamerica Premier Life Insurance Company owns 44%; AUSA Holding, LLC owns 56%

 

   Mutual fund
Transamerica Funding LP   U.K.  

99% Transamerica Leasing Holdings, Inc.; 1% Transamerica Commercial Finance Corporation, I

 

   Intermodal leasing
Transamerica Home Loan   California  

100% Transamerica Consumer Finance Holding Company

 

   Consumer mortgages
Transamerica Insurance Marketing Asia Pacific Pty Ltd.   Australia  

100% Transamerica Direct Marketing Asia Pacific Pty Ltd.

 

   Insurance intermediary
Transamerica International Direct Marketing Consultants, LLC   Maryland  

Members: 51% Beth Lewellyn; 49% AEGON Direct Marketing Services, Inc.

 

   Provide consulting services ancillary to the marketing of insurance products overseas.
Transamerica International RE (Bermuda) Ltd.   Bermuda  

100% Transamerica Corporation

 

   Reinsurance
Transamerica International Re Escritório de Representação no Brasil Ltd   Brazil  

95% Transamerica International Re(Bermuda) Ltd.; 5% Commonwealth General Corporation

 

   Insurance and reinsurance consulting
Transamerica Investment Management, LLC   Delaware  

Sole Member - AEGON USA Asset Management Holding, LLC

 

   Investment advisor
Transamerica Investors Securities Corporation   Delaware  

100% Transamerica Retirement Solutions, LLC

 

   Broker/Dealer
Transamerica Leasing Holdings Inc.   Delaware  

100% Transamerica Finance Corporation

 

   Holding company
Transamerica Life Insurance Company   Iowa  

100% - Commonwealth General Corporation

 

   Insurance
Transamerica Life (Bermuda) Ltd.   Bermuda  

100% Transamerica Life Insurance Company

 

   Long-term life insurer in Bermuda - - will primarily write fixed universal life and term insurance
Transamerica Pacific Insurance Company, Ltd.   Hawaii  

100% Commonwealth General Corporation

 

   Life insurance

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
Transamerica Premier Life Insurance Company   Iowa  

100% Commonwealth General Corporation

 

   Insurance Company
Transamerica Pyramid Properties LLC   Iowa  

Sole Member: Transamerica Premier Life Insurance Company

 

   Realty limited liability company
Transamerica Realty Investment Properties LLC   Delaware  

Sole Member: Transamerica Premier Life Insurance Company

 

   Realty limited liability company
TABR Realty Services, LLC   Delaware  

Sole Member: AUSA Holding, LLC

 

   Real estate investments
Transamerica Resources, Inc.   Maryland  

100% Monumental General Administrators, Inc.

 

   Provides education and information regarding retirement and economic issues.
Transamerica Retirement Advisors, LLC   Delaware  

Sole Member: Transamerica Retirement Solutions, LLC

 

   Investment advisor
Transamerica Retirement Insurance Agency, LLC   Delaware  

Sole Member: Transamerica Retirement Solutions, LLC

 

   Conduct business as an insurance agency.
Transamerica Retirement Solutions, LLC   Delaware  

Sole Member: AUSA Holding, LLC

 

   Retirement plan services.
Transamerica Small Business Capital, Inc.   Delaware  

100% TCFC Asset Holdings, Inc.

 

   Holding company
Transamerica Stable Value Solutions Inc.   Delaware   100% Commonwealth General Corporation  

Principle Business: Provides management services to the stable value division of AEGON insurers who issue synthetic GIC contracts.

 

Transamerica Travel and Conference Services, LLC   Iowa  

Sole Member: Money Services, Inc.

 

   Travel and conference services
Transamerica Vendor Financial Services Corporation   Delaware  

100% TCFC Asset Holdings, Inc.

 

   Provides commercial leasing
Transamerica Ventures, LLC   Delaware  

Sole Member: AUSA Holding, LLC

 

   Investments
Transamerica Ventures Fund, LLC   Delaware  

100% AUSA Holding, LLC

 

   Investments
United Financial Services, Inc.   Maryland  

100% Transamerica Corporation

 

   General agency
Universal Benefits, LLC   Iowa  

Sole Member: AUSA Holding, LLC

 

   Third party administrator
WFG China Holdings, Inc.   Delaware   100% World Financial Group, Inc.  

Hold interest in Insurance Agency located in Peoples Republic of China

 

WFG Insurance Agency of Puerto Rico, Inc.   Puerto Rico  

100% World Financial Group Insurance Agency, Inc.

 

   Insurance agency
WFG Properties Holdings, LLC   Georgia  

Sole Member: World Financial Group, Inc.

 

   Marketing
WFG Reinsurance Limited   Hawaii  

51% owned by World Financial Group, Inc.; remaining 49% is annually offered to independent contractors associated with WFG Reinsurance Ltd.

 

   Reinsurance
WFG Securities Inc.   Canada  

100% World Financial Group Holding Company of Canada, Inc.

 

   Mutual fund dealer
World Financial Group Canada Inc.   Canada  

100% World Financial Group Holding Company of Canada Inc.

 

   Marketing

World Financial Group Holding Company of Canada Inc.

 

   Canada   100% Commonwealth General Corporation   Holding company
World Financial Group, Inc.   Delaware  

100% AEGON Asset Management Services, Inc.

 

   Marketing
World Financial Group Insurance Agency of Canada Inc.   Ontario  

50% World Financial Group Holding Co. of Canada Inc.; 50% World Financial Group Subholding Co. of Canada Inc.

 

   Insurance agency
World Financial Group Insurance Agency of Hawaii, Inc.   Hawaii  

100% World Financial Group Insurance Agency, Inc.

 

   Insurance agency
World Financial Group Insurance Agency of Massachusetts, Inc.   Massachusetts  

100% World Financial Group Insurance Agency, Inc.

 

   Insurance agency

Table of Contents
Name  

Jurisdiction
of
Incorporation

 

  

Percent of Voting

Securities Owned

   Business
World Financial Group Insurance Agency of Wyoming, Inc.   Wyoming  

100% World Financial Group Insurance Agency, Inc.

 

   Insurance agency
World Financial Group Insurance Agency, Inc.   California  

100% Transamerica Premier Life Insurance Company

 

   Insurance agency
World Financial Group Subholding Company of Canada Inc.   Canada  

100% World Financial Group Holding Company of Canada, Inc.

 

   Holding company
Yarra Rapids, LLC   Delaware  

Members are: Real Estate Alternatives Portfolio 4MR, LLC (49%) and non-AEGON affiliate (51%)

 

   Real estate investments
Zahorik Company, Inc.   California  

100% AUSA Holding, LLC

 

   Inactive
Zero Beta Fund, LLC   Delaware  

Members are: Transamerica Life Insurance Company (71.6%); Transamerica Premier Life Insurance Company (16.8%); Transamerica Financial Life Insurance Company (9.3%); Firebird Re Corp. (1.7%); Transamerica Advisors Life Insurance Company (0.7%). Manager: AEGON USA Investment Management LLC

 

   Aggregating vehicle formed to hold various fund investments.

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Item 27. Number of Contract Owners

As of March 31, 2017, there were 197 Contract owners.

 

Item 28. Indemnification

The Iowa Code (Sections 490.850 et. seq.) provides for permissive indemnification in certain situations, mandatory indemnification in other situations, and prohibits indemnification in certain situations. The Code also specifies procedures for determining when indemnification payments can be made.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Depositor of expenses incurred or paid by a director, officer or controlling person in connection with the securities being registered), the Depositor 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.

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Principal Underwriters

 

(a) Transamerica Capital, Inc. serves as the principal underwriter for:

Transamerica Capital, Inc. serves as the principal underwriter for the Retirement Builder Variable Annuity Account, Separate Account VA B, Separate Account VA Q, Separate Account VA FF, Separate Account VA HH, Separate Account VA-1, Separate Account VA-2L, Separate Account VA-5, Separate Account VA-6, Separate Account VA-7, Separate Account VA-8, Separate Account Fund B, Separate Account Fund C, Transamerica Corporate Separate Account Sixteen, Transamerica Separate Account R3, Separate Account VL, Separate Account VUL-1; Separate Account VUL-2, Separate Account VUL-3, Separate Account VUL-4, Separate Account VUL-5, Separate Account VUL-6, Separate Account VUL-A, and Variable Life Account A. These accounts are separate accounts of Transamerica Life Insurance Company.

Transamerica Capital, Inc. serves as principal underwriter for Separate Account VA BNY, Separate Account VA QNY, TFLIC Separate Account VNY, Separate Account VA-2LNY, TFLIC Separate Account C, Separate Account VA-5NLNY, Separate Account VA-6NY, TFLIC Series Annuity Account, TFLIC Series Life Account, TFLIC Pooled Account No. 44, ML of New York Variable Annuity Separate Account, ML of New York Variable Annuity Separate Account A, ML of New York Variable Annuity Separate Account B, ML of New York Variable Annuity Separate Account C, ML of New York Variable Annuity Separate Account D, ML of New York Variable Life Separate Account, and ML of New York Variable Life Separate Account II. These accounts are separate accounts of Transamerica Financial Life Insurance Company.

Transamerica Capital, Inc. also serves as principal underwriter for Separate Account VA BB, Separate Account VA CC, Separate Account VA U, Separate Account VA V, Separate Account VA AA, WRL Series Annuity Account, WRL Series Annuity Account B, WRL Series Life Account, WRL Series Life Account G, WRL Series Life Corporate Account and Separate Account VL E. This account is a separate account of Transamerica Premier Life Insurance Company.

Transamerica Capital, Inc. also serves as principal underwriter for Merrill Lynch Life Variable Annuity Separate Account, Merrill Lynch Life Variable Annuity Separate Account A, Merrill Lynch Life Variable Annuity Separate Account B, Merrill Lynch Life Variable Annuity Separate Account C, Merrill Lynch Life Variable Annuity Separate Account D, Merrill Lynch Variable Life Separate Account, and Merrill Lynch Life Variable Life Separate Account II. These accounts are separate accounts of Transamerica Advisors Life Insurance Company.

Transamerica Capital, Inc. also serves as principal underwriter for Transamerica Series Trust, Transamerica Funds, Transamerica Investors, Inc., Transamerica Partners Funds Group, Transamerica Partners Funds Group II, Transamerica Partners Portfolios, and Transamerica Asset Allocation Variable Funds.

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(b) Directors and Officers of Transamerica Capital, Inc.:

 

Name

   

Principal

Business Address

  

Position and Offices with Underwriter

Brian Beitzel

    (2)   Director, Treasurer and Chief Financial Officer

Joe Boan

    (1)   Director and Vice President

David R. Paulsen

    (3)   Director, Chief Executive Officer, President and Chairman of the Board

Mike Curran

    (3)   Chief Compliance Officer

Amy E. Angle

    (2)   Secretary

Vincent J. Toner

    (3)   Vice President

John Koehler

    (3)   Vice President

Alison Ryan

    (4)   Assistant Secretary

 

(1) 100 Light Street, Floor B1, Baltimore, MD 21202
(2) 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
(3) 1801 California Street, Suite 5200, Denver, CO 80202
(4) 1150 S. Olive St., Los Angeles, CA 90015

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  (c) Compensation to Principal Underwriter:

 

Name of Principal Underwriter

    Net Underwriting
Discounts and
Commissions(1)		      Compensation on
Redemption		      Brokerage
Commissions		      Compensation  

Transamerica Capital, Inc.

    $ 14,399        0        0        0  

 

(1)  Fiscal Year 2016

 

Item 30. Location of Accounts and Records

The records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by Manager Regulatory Filing Unit, Transamerica Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.

 

Item 31. Management Services.

All management Contracts are discussed in Part A or Part B.

 

Item 32. Undertakings

 

(a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as Premiums under the Contract may be accepted.

 

(b) Registrant undertakes that it will include either (i) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information or (ii) a space in the Policy application that an applicant can check to request a Statement of Additional Information.

 

(c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to Transamerica Life Insurance Company at the address or phone number listed in the Prospectus.

 

(d) Transamerica Life Insurance Company hereby represents that the fees and charges deducted under the contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Transamerica Life Insurance Company.

SECTION 403(B) REPRESENTATIONS

Transamerica Life Insurance Company represents that it is relying on a no-action letter dated November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection with redeemability restrictions on Section 403(b) Policies, and that paragraphs numbered (1) through (4) of that letter will be complied with.

TEXAS ORP REPRESENTATION

The Registrant intends to offer policies to participants in the Texas Option Retirement Program. In connection with that offering, the Registrant is relying on Rule 6c-7 under the Investment Company Act of 1940 and is complying with, or shall comply with, paragraphs (a) – (d) of that Rule.

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SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant hereby certifies that this Amendment to the Registration Statement meets the requirements for effectiveness pursuant to paragraph (b) of Securities Act Rule 485 and has caused this Registration Statement to be signed on its behalf, in the City of Cedar Rapids and State of Iowa, on this 24th day of April, 2017.

 

SEPARATE ACCOUNT VA B

TRANSAMERICA LIFE INSURANCE COMPANY

Depositor

*
Blake S. Bostwick
Director and President

As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signatures

   

Title

  

Date

*

Blake S. Bostwick

    Director and President   April 24, 2017

*

Eric J. Martin

    Controller, Senior Vice President and Assistant Treasurer   April 24, 2017

*

Mark W. Mullin

    Director and Chairman of the Board   April 24, 2017

*

Jay Orlandi

    Director, Executive Vice President, Secretary and General Counsel   April 24, 2017

*

David Schulz

    Director, Chief Tax Officer and Senior Vice President   April 24, 2017

*

C. Michiel van Katwijk

    Director, Executive Vice President Chief Financial Officer and Treasurer   April 24, 2017

/s/Alison Ryan

Alison Ryan

    Assistant Secretary   April 24, 2017

 

* By: Alison Ryan – Attorney-in-Fact pursuant to Powers of Attorney filed previously and/or herewith.

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Registration No.

333 – 186032

811 - 06032

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

EXHIBITS

TO

FORM N-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FOR

TRANSAMERICA INCOME ELITE® II

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EXHIBIT INDEX

 

Exhibit No.

   

Description of Exhibit

    Page No.*  
9    Opinion and Consent of Counsel   
10    Consent of Independent Registered Public Accounting Firm   

 

*  Page numbers included only in manually executed original.