Life Insurance and Annuity Reserves - The Company’s liability for contract and policy benefits is the largest liability included in its consolidated balance sheets, representing 51.9% and 53.9% of total liabilities at December 31, 2006 and 2005, respectively. Life insurance and annuity policy reserves with life contingencies are computed on the basis of estimated mortality, investment yield, withdrawals, future maintenance and settlement expenses and retrospective experience rating premium refunds. If actual experience is different than estimated, adjustments to such reserves may be required. Annuity contract reserves without life contingencies are established at the contractholder’s account value.
See Note 9 to the accompanying consolidated financial statements for a further discussion of DAC and VOBA.
See Note 17 to the accompanying consolidated financial statements for a further discussion of taxes on income.
Operating expenses include general and administrative expenses, amortization of deferred acquisition costs and value of business acquired, commissions, interest on long-term debt and premium taxes. Total operating expenses increased by $9 million, or 0.9%, to $993 million during the year ended December 31, 2005 when compared to 2004. The increase is primarily due to an increase in compensation costs of $35 million, or 7.6%, resulting from salary increases and an increase in employees resulting from the acquisition of EMJAY RPS in 2005. This increase is offset by decreases in other expenses as the result of various cost saving measures.
The Financial Services segment net income increased by $25 million, or 14.0%, to $203 million during the year ended December 31, 2005 from $178 million during 2004. The increase in the Financial Services segment’s net income was primarily attributed to higher fee income during 2005 as the result of new sales in the administrative record keeping area and improved mortality in the Individual Markets line of business.
Total benefits and expenses decreased by $17 million, or 1.2%, to $1,429 million during the year ended December 31, 2005 when compared to 2004. This decrease is primarily due to a $38 million decrease in individual life benefits and expenses acquired under the CLAC reinsurance agreement due to lower life insurance in-force that resulted from the discontinuation of new CLAC sales in 2003. This decrease is partially offset by a $14 million increase in operating expenses resulting from the acquisition of EMJAY RPS in 2005.
The following table provides information for the Retirement Services’ area participant account values.
Policyholder obligations with known contractual maturities include contractually certain individual and group annuity payments, such as guaranteed investment contracts and term certain annuity payouts.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Great-West Life & Annuity Insurance Company and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
In November 2005, the FASB issued Staff Position No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP 115-1 and 124-1”). FSP 115-1 and 124-1 supersedes Emerging Issues Task Force Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” and amends Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities,” Statement of Financial Accounting Standards No. 124 “Accounting for Certain Investments Held by Not-for-Profit Organizations” and Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock.” FSP 115-1 and 124-1 addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary in nature and the measurement of an impairment loss. FSP 115-1 and 124-1 also includes provisions for accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 and 124-1 was effective for reporting periods beginning after December 15, 2005 with earlier adoption permitted. The Company adopted FSP 115-1 and 124-1 during its fiscal quarter ended December 31, 2005. The adoption of FSP 115-1 and 124-1 did not have a material effect on the Company’s consolidated financial position or the results of its operations.
The following tables summarize life insurance in-force and total premium income at, and for the year ended, December 31, 2005.
See Note 2 for further discussion on acquisitions. The other activity represents purchase price adjustments.
The following table summarizes net realized gains on investments for the years ended December 31, 2006, 2005 and 2004.
accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of SFAS No. 158.
A November 30 measurement date is used for the defined benefit pension and post-retirement medical plans. Prepaid benefit costs and intangible assets are included in other assets and accrued benefit costs and unfunded status amounts are included in other liabilities in the accompanying consolidated balance sheets.
The Company does not expect any plan assets to be returned to it during the year ended December 31, 2007. The Company does not expect to make contributions to its pension plan during the year ended December 31, 2007. The Company expects to contribute $793 to its medical plan during the year ended December 31, 2007.
The following tables summarize segment financial information for the year ended and as of December 31, 2004.
The Lifeco plan contains a provision that permits a retiring option holder with unvested stock options on the date of retirement to continue to vest in them post-retirement for a period of up to five years. Upon the retirement of an option holder with unvested options, the Company accelerates the recognition period to the date of retirement for any unrecognized share-based compensation cost related thereto and recognizes it in its earnings at that time. At December 31, 2006, the Company had $5,665, net of estimated forfeitures, of unrecognized share-based compensation costs, which will be recognized in its earnings through December 2010. The weighted average period over which these costs will be recognized in earnings is 1.9 years.