NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
REPORT ON EXAMINATION
OF THE
WILTON REASSURANCE LIFE COMPANY OF NEW YORK
CONDITION: DECEMBER 31, 2015
DATE OF REPORT: MAY 15, 2017
NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
REPORT ON EXAMINATION
OF THE
WILTON REASSURANCE LIFE COMPANY OF NEW YORK
AS OF
DECEMBER 31, 2015
DATE OF REPORT: MAY 15, 2017
EXAMINER: ALEX QUASNITSCHKA
EXAMINER: CHONG KIM
TABLE OF CONTENTS
ITEM PAGE NO.
1. Executive summary 2
2. Scope of examination 3
3. Description of Company 5
A. History 5
B. Holding company 6
C. Organizational chart 7
D. Service agreements 8
E. Management 8
4. Territory and plan of operations 10
A. Statutory and special deposits 10
B. Direct operations 10
C. Reinsurance 10
5. Significant operating results 12
6. Financial statements 16
A. Independent accountants 16
B. Net admitted assets 17
C. Liabilities, capital and surplus 18
D. Condensed summary of operations 19
E. Capital and surplus account 22
7. Market conduct activities 23
A. Advertising and sales activities 23
B. Underwriting and policy forms 23
C. Treatment of policyholders 23
D. Actuarial statement of self-support 23
8. Summary and conclusions 25
Andrew M. Cuomo Maria T. Vullo
Governor Superintendent
April 25, 2017
Honorable Maria T. Vullo
Superintendent of Financial Services
New York, New York 10004
Madam:
In accordance with instructions contained in Appointment No. 31507, dated July 7, 2016,
and Appointment No. 31493, dated June 8, 2016 and annexed hereto, an examination has been
made into the condition and affairs of Wilton Reassurance Life Company of New York, hereinafter
referred to as “the Company,” at its administrative office located at 20 Glover Avenue, 4
th
Floor,
Norwalk, CT 06850.
Wherever “Department” appears in this report, it refers to the New York State Department
of Financial Services.
The report indicating the results of this examination is respectfully submitted.
(212) 480‐ 4935 | ONE STATE STREET, 2ND FLOOR, NEW YORK, NY 10004‐ 1511 | WWW.DFS.NY.GOV
2
1. EXECUTIVE SUMMARY
The material violation contained in this report is summarized below.
The Company violated Section 4228(h) of the New York Insurance Law by failing to
demonstrate that pricing was performed prior to the date the statement of self-support was signed.
(See item 7D of this report)
3
2. SCOPE OF EXAMINATION
The examination of the Company was a full scope examination as defined in the NAIC
Financial Condition Examiners Handbook, 2016 Edition (the “Handbook”). The examination
covers the five-year period from January 1, 2011 through December 31, 2015. The examination
was conducted observing the guidelines and procedures in the Handbook and, where deemed
appropriate by the examiner, transactions occurring subsequent to December 31, 2015 but prior to
the date of this report (i.e., the completion date of the examination) were also reviewed.
In the course of the examination, a review was also made of the manner in which the
Company conducts its business and fulfills its contractual obligations to policyholders and
claimants. The results of this review are contained in item 7 of this report.
The examination was conducted on a risk focused basis in accordance with the provisions
of the Handbook published by the National Association of Insurance Commissioners (“NAIC”).
The Handbook guidance provides for the establishment of an examination plan based on the
examiner’s assessment of risk in the insurer’s operations and utilizing that evaluation in
formulating the nature and extent of the examination. The examiner planned and performed the
examination to evaluate the current financial condition as well as identify prospective risks that
may threaten the future solvency of the insurer. The examiner identified key processes, assessed
the risks within those processes and evaluated the internal control systems and procedures used to
mitigate those risks. The examination also included assessing the principles used and significant
estimates made by management, evaluating the overall financial statement presentation, and
determining management’s compliance with New York statutes and Department guidelines,
Statutory Accounting Principles as adopted by the Department, and annual statement instructions.
The examination was coordinated in conjunction with the examination of the Company’s
parent, Wilton Reassurance Company (“WRAC”), a Minnesota domestic insurance company. The
coordinated examination was led by the State of Minnesota with participation from the States of
New York, Texas and South Carolina. Since the lead and participating states are all accredited by
the NAIC, all states deemed it appropriate to rely on each other’s work.
Information about the Company’s organizational structure, business approach and control
environment were utilized to develop the examination approach. The Company’s risks and
4
management activities were evaluated incorporating the NAIC’s nine branded risk categories.
These categories are as follows:
Pricing/Underwriting
Reserving
Operational
Strategic
Credit
Market
Liquidity
Legal
Reputational
The Company was audited annually, for the years 2011 through 2015, by the accounting
firm of Ernst & Young, LLP (“E&Y”). The Company received an unqualified opinion in all years.
Certain audit workpapers of the accounting firm were reviewed and relied upon in conjunction
with this examination. An independent internal audit department exists at the holding company
level. The internal audit department was given the task of assessing the internal control structure
and compliance with the Sarbanes-Oxley Act of 2002 (“SOX”) for all entities within the Group.
The internal audit function is co-sourced and the Group utilizes PricewaterhouseCoopers LLP
(“PwC”) as its service provider for certain underlying compliance procedures. Where applicable,
SOX workpapers and reports were reviewed and portions were relied upon for this examination.
The examiner reviewed the prior report on examination which did not contain any
violations, recommendations or comments.
This report on examination is confined to financial statements and comments on those
matters which involve departure from laws, regulations or rules, or which require explanation or
description.
5
3. DESCRIPTION OF COMPANY
A. History
The Company, under the name of American Life Insurance Company of New York
(“ALNY”), was incorporated as a stock life insurance company under the laws of New York on
March 23, 1955, was licensed on November 9, 1956 and commenced business on April 1, 1957.
Initial resources of $2,000,000, consisting of capital stock of $500,000 and paid-in and contributed
surplus of $1,500,000, were provided through the sale of 50,000 shares of common stock (with a
par value of $10 each) for $40 per share.
ALNY was initially formed as a wholly-owned subsidiary of American Surety Company
of New York. On December 31, 1963, control of ALNY passed to Transamerica Insurance
Company, Inc. after American Surety Company of New York was absorbed in a merger. On April
1, 1981, Allied Investment Corporation, a Delaware Corporation, acquired all of the outstanding
stock of ALNY from Transamerica Insurance Company, Inc. On March 4, 1988, Mutual of
America Corporation (“MOAC”) purchased ALNY from Allied Investment Corporation. MOAC
changed its own name on September 20, 2000 to LIFCO Holding Company, Inc. (“LIFCO”).
Mutual of America, (“MOA”), was the ultimate parent of MOAC and hence became the parent of
LIFCO.
On March 16, 2001, Inviva, Inc. (“Inviva”), a Delaware holding company, acquired 100%
of the outstanding stock of LIFCO from MOA. LIFCO owned 100% of ALNY’s 1,100,000 shares
of authorized common stock, with a par value of $4.55 per share, of which 550,000 shares were
issued and outstanding.
On September 27, 2006, Wilton Re U.S. Holdings, Inc. (“Wilton Re Holdings”) acquired
all the issued and outstanding shares of ALNY, Utica National Life Insurance Company (“Utica”)
and the North American Company for Life and Health Insurance of New York (“NANY”) for an
aggregate purchase price of $156.7 million. Wilton Re Holdings contributed all of the issued and
outstanding capital stock of ALNY, Utica and NANY to its wholly-owned subsidiary, WRAC, a
Minnesota domestic insurance company.
On September 29, 2006, Utica and NANY were merged with and into ALNY with ALNY
surviving. ALNY was renamed Wilton Reassurance Life Company of New York.
6
On July 2, 2007, WRAC acquired all of the issued and outstanding capital stock of
Keystone State Life Insurance Company (‘Keystone”), a Pennsylvania domiciled company for an
aggregate purchase price of $15.3 million. On December 31, 2007, Keystone was merged with
and into the Company, with the Company surviving. WRAC owns 100% of the Company’s
1,100,000 shares of authorized common stock, with a par value of $4.55 per share, of which
550,000 shares are issued and outstanding.
Effective June 30, 2014, in connection with the acquisition of Wilton Re Holdings Limited,
a Bermuda company and the former ultimate parent (“WRHL”), by an affiliate of Canada Pension
Plan Investment Board (“CPPIB”), WRHL was merged with and into Cheddar Merger Holdings
Limited, a Bermuda company which, effective August 2014, was continued from Bermuda to
Nova Scotia, Canada and renamed as Wilton Re Limited (“WRL”). All but a de minimis portion
of the economic interests and 100% of the voting interests of Wilton Re Holdings are held or
controlled by Wilton Re U.S. Holdings Trust (the “Trust”), a wholly owned subsidiary of WRL,
established under the laws of Ontario, Canada in June 2014. In turn, all economic interests
associated with the Trust accrue to WRL, the ultimate parent corporation in the Company’s holding
company system.
B. Holding Company
The Company is a wholly-owned subsidiary of WRAC, a Minnesota domestic insurance
company. WRAC is in turn a wholly-owned subsidiary of Wilton Re Holdings, a Delaware
corporation. The ultimate parent of the Company is Wilton Re Limited, a Nova Scotia, Canada
corporation.
C. Organizational Chart
An organization chart reflecting the relationship between the Company and significant entities in its
holding company system as of December 31, 2015 follows:
Wilton Re Ltd.
(Nova Scotia, Canada)
Wilton Reassurance
Bermuda Limited
(Bermuda Reinsurer)
Wilton Re U.S.
Holdings Trust
(Ontario, Canada Trust)
Redding Fund Ltd.
(Nova Scotia, Canada)
Wilton Re U.S.
Holdings, Inc.
(Delaware)
Wilton Reassurance Company
(Minnesota Insurer)
Wilton Re Services, Inc.
(Delaware)
Redding Reassurance
Company 2
(South Carolina
SPFC)
Wilton Reassurance
Life Company of
New York
(New York Insurer)
Texas Life
Insurance Company
(Texas Insurer)
Wilco Life
Insurance Company
(Indiana Insurer)
Wilcac Life
Insurance Company
(Illinois Insurer)
Wilton Re Finance
LLC (DE)
Wilcac Structured
Settlements, Inc. (IL)
7
8
D. Service Agreements
The Company had one service agreement in effect with an affiliate during the examination
period.
Type of
Agreement and
Department File
Number
Effective
Date
Provider
of
Services
Recipient
of
Services
Specific
Services
Covered
Income/
(Expense)* For
Each Year of the
Examination
Administrative
Services
File No. 35181H
09/27/2006 Wilton Re
Services
Inc.
The
Company
Accounting
Actuarial and
Administrative
2011 $(2,199,973)
2012 $(1,643,854)
2013 $(1,496,979
2014 $(1,048,394)
2015 $(1,115,697)
* Amount of Income or (Expense) Incurred by the Company
The Company participates in a federal tax allocation agreement with its parent and
affiliates.
E. Management
The Company’s by-laws provide that the board of directors shall be comprised of not less
than seven and not more than thirteen directors. Directors are elected for a period of one year at
the annual meeting of the stockholders held during the second quarter of each year. As of
December 31, 2015, the board of directors consisted of seven members. Meetings of the board are
held annually and as frequently as the dispatch of business shall require.
The seven board members and their principal business affiliation, as of December 31, 2015,
were as follows:
Year First
Name and Residence Principal Business Affiliation Elected
Perry H. Braun
Scarsdale, NY
Sr. Vice President and Chief Investment Officer
Wilton Reassurance Life Company of New York
2006
Robert V. Deutsch*
Farmington, CT
Chief Strategy Officer
Hamilton Insurance Group
2006
Michael E. Fleitz
Wilton, CT
Sr. Vice President and Chief Financial Officer
Wilton Reassurance Life Company of New York
2006
9
Year First
Name and Residence Principal Business Affiliation Elected
Herman D. Overbeeke* President and Chief Executive Officer, Brake Parts 2007
Wilton CT Inc., LLC
Mark R. Sarlitto Sr. Vice President and General Counsel 2006
Cross River, NY Wilton Reassurance Life Company of New York
John P. Schreiner* Retired Actuary, 2012
Chicago, IL Milliman, Inc
Chris C. Stroup Chairman, President and Chief Executive Officer 2006
Wilton, CT Wilton Reassurance Life Company of New York
* Not affiliated with the Company or any other company in the holding company system
The examiner’s review of the minutes of the meetings of the board of directors and its
committees indicated that meetings were well attended and that each director attended a majority
of meetings.
The following is a listing of the principal officers of the Company as of December 31,
2015:
Name Title
Chris C. Stroup Chairman, Chief Executive Officer
Michael E. Fleitz Senior Vice President and Chief Financial Officer
Mark R. Sarlitto Senior Vice President, General Counsel and Secretary
Robert Fahr Controller
Robert L. Buckner Valuation Actuary
Ms. Patricia Harrigan, Vice President and Associate General Counsel, is the designated
consumer services officer per Insurance Regulation No. 64, 11 NYCRR Section 216.4(c).
In May, 2016, Michael E. Fleitz replaced Chris C. Stroup as Chief Executive Officer. Mr.
Stroup still remains Chairman of the Board. Also in May, 2016, Steven D. Lash was elected Senior
Vice President and replaced Mr. Fleitz as Chief Financial Officer.
10
4. TERRITORY AND PLAN OF OPERATIONS
The Company is authorized to write life insurance, annuities and accident and health
insurance as defined in paragraphs 1, 2 and 3 of Section 1113(a) of the New York Insurance Law.
The Company is licensed to transact business in all 50 states, the District of Columbia and
the U.S. Virgin Islands. In 2015, 71% of life premiums, 94% of annuity considerations, and 84%
of accident and health premiums, were received from New York.
A. Statutory and Special Deposits
As of December 31, 2015, the Company had $5,000,000 (par value) of Type B assets on
deposit with the State of New York, its domiciliary state, for the benefit of all policyholders,
claimants and creditors of the Company. As reported in Schedule E of the 2015 filed annual
statement, an additional, $4,363,594 was being held by the states of Arkansas, Florida, Georgia,
Massachusetts, New Mexico, North Carolina, South Carolina, Virginia and the U.S. Virgin Islands.
.
B. Direct Operations
The majority of the Company’s business is in run-off as the Company does not actively
market or write new business. The Company’s operating strategy is focused on the acquisition of
closed blocks of life and fixed annuities business. Historically, marketing efforts have been
concentrated in New York.
Computer Sciences Corporation (“CSC”) is the Company’s Third Party Administrator
(“TPA”) since July 1, 2009. The Company does not administer any direct policy business. All
other administrative functions are outsourced to CSC. With a heavy reliance on CSC, as part of
its in-house TPA Monitoring Program, the Company utilizes SSAE 16 reports to ensure there are
adequately designed controls that are operating effectively over all CSC administrative areas.
C. Reinsurance
As of December 31, 2015, the Company had reinsurance treaties in effect with 32
companies, of which 18 were authorized or accredited. The Company’s life and accident and
health business is reinsured on a coinsurance, modified coinsurance, and yearly renewable term
basis. Reinsurance is provided on an automatic and facultative basis.
11
The maximum retention limit for individual life contracts is $1,000,000. The total face
amount of life insurance ceded as of December 31, 2015, was $10,286,381,681, which represents
86% of the total face amount of life insurance in force. Reserve credit taken for reinsurance ceded
to unauthorized companies, totaling $52,884,914, was supported by letters of credit, trust
agreements and funds withheld.
The total face amount of life insurance assumed as of December 31, 2015, was
$347,011,621.
Effective January 1, 2012, the Company coinsured a block of individual life policies to
WRAC. According to the agreement, the Company ceded 100% of the risk on the in force blocks
of individual life insurance policies originally issued by NANY. The agreement was approved by
the Department with an effective date of January 1, 2012.
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5. SIGNIFICANT OPERATING RESULTS
Indicated below is significant information concerning the operations of the Company
during the period under examination as extracted from its filed annual statements. Failure of items
to add to the totals shown in any table in this report is due to rounding.
The following table indicates the Company’s financial growth (decline) during the period
under review:
December 31,
2010
December 31,
2015
Increase
(Decrease)
Admitted assets $1,199,634,337 $902,186,236 $(297,448,101)
Liabilities $1,100,983,465 $811,415,422 $(289,568,043)
Common capital stock
Gross paid in and contributed surplus
Aggregate write-ins for special surplus
funds
Unassigned funds (surplus)
Total capital and surplus
$ 2,502,500
68,307,831
3,528,426
24,312,116
$ 98,650,873
$ 2,502,500
71,546,348
0
16,721,959
$ 90,770,807
$ 0
3,238,517
(3,528,426)
(7,590,157)
$ (7,880,066)
Total liabilities, capital and surplus $1,199,634,338 $902,186,229 $(297,448,109)
The Company’s invested assets as of December 31, 2015, exclusive of separate accounts,
were mainly comprised of bonds (92.0%). The majority (97.3%) of the Company’s bond portfolio,
as of December 31, 2015, was comprised of investment grade obligations.
13
The following indicates, for each of the years listed below, the amount of life insurance
issued and in force by type (in thousands of dollars):
Individual
Whole Life
Individual
Term
Year Issued In Force Issued In Force
2011
2012
2013
2014
2015
$3,070
$2,495
$2,996
$ 0
$1,345
$4,909,927
$4,579,143
$4,349,669
$4,168,188
$3,996,455
$ 0
$13,463
$16,117
$ 0
$ 700
$12,531,791
$11,045,427
$ 9,877,799
$ 8,890,322
$ 7,939,199
The Company does not write new business. Amounts reported as issued for individual
whole life insurance were due to policy conversions from term life insurance. Amounts reported
as issued for individual term life insurance were due to renewals under the policy re-entry
provision. Decreases in term and whole life inforce were due to the businesses being in run-off.
14
The following is the net gain (loss) from operations by line of business after federal income
taxes but before realized capital gains (losses) reported for each of the years under examination in
the Company’s filed annual statements:
2011 2012 2013 2014 2015
Ordinary:
Life insurance
Individual
annuities
Supplementary
contracts
$(4,855,464)
2,390,064
1,805,331
$23,318,473
(1,620,175)
23,220
$13,390,396
(173,035)
162,806
$ 5,991,837
(1,984,832)
(775,574)
$(4,249,035)
(3,564,899)
323,343
Total ordinary $ (660,069) $21,721,518 $13,380,167 $ 3,231,431 $(7,490,591)
Group:
Life
Annuities
$ 3,535
92,878
$ (1,488)
35,477
$ (15,019)
34,954
$ 606
43,134
$ 4,464
37,950
Total group $ 96,413 $ 33,989 $ 19,935 $ 43,740 $ 42,414
Accident and health:
Group
Other
$ 4,168
(1,632)
$ 14,439
80,100
$ (10,485)
25,945
$ 13,056
143
$ 11,018
24,866
Total accident and
health
$ 2,536 $ 94,539 $ 15,460 $ 13,199 $ 35,884
Total $ (561,120) $21,850,046 $13,415,562 $ 3,288,371 $(7,412,294)
The increase in ordinary life net gain from operations in 2012 compared to 2011 was
primarily due to income tax benefits, all allocated to ordinary life, the impact of which resulted
from cession to WRAC. The 2012 decrease in individual annuities net gain from operations
compared to 2011 was primarily the result of an increase to asset adequacy reserves of $10 million.
The decrease in ordinary life net gain in operations in 2013 compared to 2012 was due to
changes in account for sold Interest Maintenance Reserve (“IMR”). During the second quarter of
2013, the Company reviewed its accounting for sold IMR, relative to the coinsurance agreement
15
with WRAC, and found that it had not been recorded properly in the Summary of Operations. As
a result, entries were made relative to these transactions during 2013. The Company’s premiums
decreased by $53.2 million with an offset of $34.6 million to miscellaneous income and federal
income taxes of $18.6 million.
The decrease in ordinary life net gain from operations in 2014 compared to 2013 was
primarily driven by a federal income tax increase by $32.6 million. This increase was primarily
due to the aforementioned unfavorable change on federal income taxes for the correction of the
accounting for sold IMR in 2013. The ordinary life net gain in operations in 2015 decreased
approximately $10.2 million when compared to 2014 due to an increase in asset adequacy reserves.
16
6. FINANCIAL STATEMENTS
The following statements show the assets, liabilities, capital and surplus as of December
31, 2015, as contained in the Company’s 2015 filed annual statement, a condensed summary of
operations and a reconciliation of the capital and surplus account for each of the years under
review. The examiner’s review of a sample of transactions did not reveal any differences which
materially affected the Company’s financial condition as presented in its financial statements
contained in the December 31, 2015 filed annual statement.
A. Independent Accountants
The firm of Ernst & Young, LLP (“E&Y”) was retained by the Company to audit the
Company’s statutory basis statements of financial position as of December 31 of each year in the
examination period, and the related statutory-basis statements of operations, capital and surplus,
and cash flows for the year then ended.
E&Y concluded that the statutory financial statements presented fairly, in all material
respects, the financial position of the Company at the respective audit dates. Balances reported in
these audited financial statements were reconciled to the corresponding years’ annual statements
with no discrepancies noted.
17
B. Net Admitted Assets
Bonds $829,050,575
Stocks:
Preferred stocks 12,126,626
Common stocks 253
Cash, cash equivalents and short term investments 25,983,886
Contract loans 15,841,377
Other invested assets 531,096
Receivables for securities 944,009
Investment income due and accrued 6,669,291
Premiums and considerations:
Uncollected premiums and agents’ balances in the course of collection 757,870
Deferred premiums, agents’ balances and installments booked but
deferred and not yet due 1,150,356
Reinsurance:
Amounts recoverable from reinsurers 3,418,558
Other amounts receivable under reinsurance contracts 69,173
Net deferred tax asset 2,959,533
Guaranty funds receivable or on deposit 900,000
Prepaid ceded premium (N.Y.C.L.11) 1,139,804
From separate accounts, segregated accounts and protected cell accounts 643,829
Total admitted assets $902,186,236
18
C. Liabilities, Capital and Surplus
Aggregate reserve for life policies and contracts $742,128,532
Aggregate reserve for accident and health contracts 29,549
Liability for deposit-type contracts 12,472,170
Contract claims:
Life 10,957,405
Accident and Health 4,472
Premiums and annuity considerations for life and accident and health
contracts received in advance 52,658
Contract liabilities not included elsewhere:
Surrender values on canceled contracts 24,673
Other amounts payable on reinsurance ceded 317,153
Interest maintenance reserve 11,534,083
Commissions to agents due or accrued 39,810
Commissions and expense allowances payable on reinsurance assumed (159,997)
General expenses due or accrued 949,627
Taxes, licenses and fees due or accrued, excluding federal income taxes 119,993
Current federal and foreign income taxes 8,657,968
Unearned investment income 82,099
Amounts withheld or retained by company as agent or trustee 287,769
Amounts held for agents’ account 467,870
Remittances and items not allocated 4,583,346
Miscellaneous liabilities:
Asset valuation reserve 5,269,945
Reinsurance in unauthorized companies 4,252,189
Funds held under reinsurance treaties with unauthorized reinsurers 7,081,113
Payable to parent, subsidiaries and affiliates 272,155
Abandoned Property 738,766
Contingency reserve 300,000
Payable to NACOLAH 250,702
Modco payable 57,543
From Separate Accounts statement 643,829
Total liabilities $811,415,422
Common capital stock 2,502,500
Gross paid in and contributed surplus 71,546,348
Unassigned funds (surplus) 16,721,959
Surplus $ 88,268,307
Total capital and surplus $ 90,770,807
Total liabilities, capital and surplus $902,186,229
D. Condensed Summary of Operations
2011
2012
2013
2014
2015
Premiums and considerations $ 48,896,828 $(375,252,427) $(32,031,691) $18,259,413 $ 18,793,016
Investment income 67,879,545 60,601,638 45,840,392 47,518,126 44,421,619
Commissions and reserve adjustments 3,923,614 18,629,894 1,435,629 1,601,330 1,232,779
on reinsurance ceded
Miscellaneous income (450,707) (4,018,934) 34,377,700
225,074
(377,761)
Total income $120,249,280 $(300,039,829) $ 49,622,030 $67,603,943 $ 64,069,653
Benefit payments $ 92,538,446 $ 45,846,151 $ 46,340,897 $51,871,777 $ 48,262,773
Increase in reserves 16,131,449 (334,698,467) 10,712,999 1,685,026 12,288,417
Commissions 1,260,727 1,261,595 1,114,452 1,018,020 685,940
General expenses and taxes 10,631,837 6,933,567 6,657,243 5,534,626 5,711,645
Net transfers to (from) (8,759) 28,740 13,180 (28,801) (35,870)
Separate Accounts
Miscellaneous deductions 50,000 158,557
(150,000)
125,560
(124,947)
Total deductions $120,603,700 $(280,469,857) $ 64,688,771 $60,206,208 $ 66,787,958
Net gain (loss) $ (354,420) $ (19,569,972) $(15,066,741) $ 7,397,735 $ (2,718,305)
Federal and foreign income taxes 206,700 (41,420,018) (28,482,303) 4,109,364 4,693,988
incurred
Net gain (loss) from operations $ (561,120) $ 21,850,046 $ 13,415,562 $ 3,288,371 $ (7,412,293)
before net realized capital gains
Net realized capital gains (losses)
(91,473)
14,467,284
286,131
(5,031,012) (4,668,968)
Net income $ (652,593) $ 36,317,329 $ 13,701,692 $ (1,742,641) $(12,081,262)
19
20
From 2011 to 2012, premiums and considerations decreased $423.6 million or 882.7%
mainly due to the 2012 coinsurance agreement with WRAC and the continuing run-off of the in-
force business. Net investment income decreased by $7.2 million or 10.9% primarily as a result
of the assets transferred as part of the coinsurance agreement with WRAC in the third quarter of
2012. Reinsurance commissions on ceded reinsurance increased $15.3 million or 401.4%
attributable to the coinsurance agreement with WRAC. Aggregate write-ins for miscellaneous
income decreased $3.6 million as a result of the coinsurance agreement with WRAC. Death
benefits decreased $35.8 million or 76.5% while annuity benefits decreased $2.4 million or 24.5%.
These decreases were primarily attributable to the coinsurance agreement with WRAC. Surrender
benefits and withdrawals decreased $10.5 million or 29.6% due to $5.0 million in surrenders
associated with the WRAC coinsurance agreement coupled with the reductions in surrender rates
on the annuity block. Aggregate reserves decreased $350.8 million or 2,174.9% with $400.0
million attributed to the coinsurance agreement with WRAC. This favorable change was partially
offset by a $60 million increase in asset adequacy reserves.
From 2012 to 2013, premiums and considerations increased $343.1 million. The 2012
coinsurance agreement with WRAC decreased earned premium in 2012 by $399.2 million due to
the initial asset transfer and by $53.2 million in 2013 due to recording the sold Interest
Maintenance Reserve (IMR) on this transaction. The net of these one-time events, $346.0 million,
is the driver of the $343.2 million increase in earned premiums. The year-over-year change also
reflects the reduction in premium from the continuing run-off of the in-force business. Net
investment income earned decreased $14.9 million mainly as a result of the assets transferred as
part of the coinsurance agreement with WRAC in 2012. Reinsurance commissions on ceded
reinsurance decreased $17.3 million as a result of the 2012 coinsurance agreement with WRAC.
Aggregate write-ins for miscellaneous income increased $38.4 million. During the second quarter
of 2013, the Company reviewed its account for sold IMR, relative to the 2012 coinsurance
agreement with WRAC, and found that it had not been recorded properly in the Summary of
Operations. As a result, entries were made relative to these transactions in 2013. The Company’s
premiums decreased by $53.2 million with an offset of $34.6 million to miscellaneous income.
The difference is the tax effect and, when coupled with the resulting tax entries, brings the after
tax effect of the entries to $0. Aggregate reserves increased $345.4 million with $400.4 million of
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the change attributed to the 2012 coinsurance agreement with WRAC. This was partially offset
by an increase of $60.0 million in the asset adequacy reserves.
From 2013 to 2014, premiums and considerations increased $49.9 million. This was
primarily driven by the one-time decrease in 2013 due to initial asset transfers related to the WRAC
coinsurance agreement. Aggregate write-ins for miscellaneous income decreased $34.2 million
due to the 2012 changes in accounting for IMR previously mentioned. Increase in aggregate
reserves decreased $9.0 million. The Company established an asset adequacy reserve of $150.0
million ($25.0 million net of reinsurance) at December 31, 2014. This represents an increase of
$5.0 million from the $145.0 million ($20.0 million net of reinsurance) reported at December 31,
2013. This increase primarily reflects continued pressure on investment income from the
continued low interest rate environment. Federal and foreign income taxes increased $32.6 million
primarily due to the aforementioned $18.6 million effect on federal income taxes from the
correction of the accounting for sold IMR in 2013. Also impacting the change was the year-over-
year change in the gain (loss) from operations. Net realized capital losses less taxes increased $5.3
million, capital gains tax increased $6.1 million and capital gains taxes transferred to IMR
increased $3.1 million. Net realized capital losses are primarily due to the tax expense of $5.0
million on recorded gains in 2014.
From 2014 to 2015, aggregate reserves increased $10.6 million or 629.3%. The Company
established gross asset adequacy reserves of $145.0 million and $150.0 million at December 31,
2015 and December 31, 2014, respectively. The decrease in gross asset adequacy reserves reflects
the normal release of reserves previously built up to cover future underwriting losses for universal
life (UL) product using reserve methodologies that predate the UL Model Regulation. After
reinsurance, the net asset adequacy reserves were $40 million and $25 million, respectively for
2015 and 2014. This UL business is ceded to the Company’s parent, WRAC.
E. Capital and Surplus Account
2011 2012 2013 2014 2015
Capital and surplus,
December 31, prior year
$ 98,650,873
$ 87,018,925 $118,322,479 $113,124,531 $106,559,024
Net income
Change in net unrealized capital gains (losses)
Change in net deferred income tax
Change in non-admitted assets
and related items
Change in liability for reinsurance
in unauthorized companies
Change in asset valuation reserve
Surplus adjustments:
Paid in
Dividends to stockholders
$
(652,593)
(884,538)
(1,562,743)
3,443,030
(179,910)
(2,295,193)
0
(9,500,000)
$ 36,317,329
814,959
(47,941,005)
44,677,333
64,333
(2,629,396)
0
0
$ 13,701,692
124,718
(11,082,171)
4,515,422
(1,723,187)
265,578
0
(11,000,000)
$
(1,742,641)
(2,724,740)
8,322,929
(4,589,531)
918,031
1,443,456
2,806,985
(11,000,000)
$ (12,081,262)
(1,255,714)
5,078,289
(4,872,134)
50,889
85,192
431,532
(3,225,000)
Net change in capital and surplus
for the year (11,631,947) 31,303,553
(5,197,949)
(6,565,512) (15,788,208)
Capital and surplus,
December 31, current year $ 87,018,925 $118,322,479 $113,124,531 $106,559,024 $ 90,770,807
22
23
7. MARKET CONDUCT ACTIVITIES
The examiner reviewed various elements of the Company’s market conduct activities
affecting policyholders, claimants, and beneficiaries to determine compliance with applicable
statutes and regulations and the operating rules of the Company.
A. Advertising and Sales Activities
The Company did not have any advertising or sales activities during the period under
review.
B. Underwriting and Policy Forms
The Company did not write any business during the period under review.
C. Treatment of Policyholders
The examiner reviewed a sample of various types of claims, surrenders, changes and
lapses. The examiner also reviewed the various controls involved, checked the accuracy of the
computations and traced the accounting data to the books of account.
Based upon the sample reviewed, no significant findings were noted.
D. Actuarial Statement of Self-Support
Section 4228(h) of the New York Insurance Law states, in part:
“No company shall offer for sale any life insurance policy form or annuity contract
form covered by this section or any debit life insurance policy form which shall not
appear to be self-supporting on reasonable assumptions as to interest, mortality,
persistency, taxes, agents' and brokers' survival and expenses resulting from the
sale of the policy or contract form. For all such forms offered for sale in this state,
and for all forms filed for use outside this state by domestic life insurance
companies, a statement that the requirements of this subsection have been met,
signed by an actuary who is a member in good standing of the American Academy
of Actuaries and meets the requirements prescribed by the superintendent by
regulation shall be submitted with each such life insurance policy or annuity
contract form filed pursuant to paragraph one or six of subsection (b) of section
three thousand two hundred one of this chapter. A demonstration supporting each
such statement, signed by an actuary meeting such qualifications, shall be retained
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in the company's home office, while such form is being offered in this state and for
a period of six years thereafter and be available for inspection. . . .”
The examiner conducted a review of the pricing adequacy for various products subject to
Section 4228(h) of the New York Insurance Law. This review included an examination of the
required actuarial statements of self-support and the supporting demonstrations. The examiner
requested statements and corresponding demonstrations for the Company’s policy forms subject
to Section 4228(h). For one policy form, with 228 policies issued, no signed and dated
demonstration of self-support could be located.
The Company violated Section 4228(h) of the New York Insurance Law by failing to
demonstrate that pricing was performed prior to the date the statement of self-support was signed.
In response to the Department's concerns, the Company agreed that all future
demonstrations will be signed, dated and finalized prior to the date of the statement of self-support.
The Company also agreed that such demonstrations will be well organized, containing detailed
narrative descriptions of the methodologies and material assumptions used such that another
actuary can make a reasonable assessment of the analyses performed.
25
8. SUMMARY AND CONCLUSIONS
Following is the violation contained in this report:
Item Description Page No(s).
A The Company violated Section 4228(h) of the New York Insurance
Law by failing to demonstrate that pricing was performed prior to
the date the statement of self-support was signed.
23 - 24
Respectfully submitted,
/s/
Alex Quasnitschka, CFE
Examiner-In-Charge
Risk & Regulatory Consulting, LLC
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
Alex Quasnitschka, being duly sworn, deposes and says that the foregoing report,
subscribed by him, is true to the best of his knowledge and belief.
/s/
Alex Quasnitschka
Subscribed and sworn to before me
this day of
Respectfully submitted,
/s/
Chong Kim
Senior Insurance Examiner
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
Chong Kim, being duly sworn, deposes and says that the foregoing report, subscribed by
him, is true to the best of his knowledge and belief.
/s/
Chong Kim
Subscribed and sworn to before me
this day of
