Premium income increased by $40 million, or 13%, to $354 million for the year ended December 31, 2013 when compared to 2012. The increase is primarily related to $53 million in the participating block of business of which $42 million was received in conjunction with the termination of the reinsurance agreement with CLAC. The increase in premiums from the participating block of business was partially offset by a $9 million decrease in premium income related to sales of the SPWL product marketed through banks. In 2011, the Company began replacing the SPWL product with a SPUL product. The SPWL product is considered an insurance contract, and SPWL product sales are recognized as premium income. Conversely, the SPUL product is considered an investment contract, and SPUL product sales are recognized as deposits rather than as premium income.
Realized investment gains (losses), net, increased by $35 million to $56 million during the year ended December 31, 2012 when compared to 2011. Of the increase, $13 million resulted from derivative and hedging activities and $12 million resulted from increased realized gains on sales of investments offset by a $2 million decrease due to forward settling TBA security transactions. Additionally, there was a net $8 million decrease in the mortgage provision allowance in 2012 as compared to a $2 million increase in the mortgage provision allowance in 2011. The mortgage provision allowance decrease resulted from revised assumptions primarily related to the improvement in general economic conditions, the stability of loss levels within the commercial real estate market and the stability of the Company’s own commercial mortgage portfolio.
Estimated future policyholder obligations have been developed in accordance with industry accepted actuarial standards based upon the estimated timing of cash flows related to the policies or contracts, the Company’s historical experience and its expectation of future payment patterns. Management has incorporated significant assumptions in developing these estimates, many of which are outside of the Company’s control and include assumptions relating to mortality, morbidity, policy renewals and terminations, retirement, inflation, disability recovery rates, investment returns, future interest credited rate levels, policy loans, future premium receipts on current policies in-force and other contingent events as may be appropriate to the respective product type. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results.
(10) Investment purchase obligations - The Company makes commitments to fund partnership interests, mortgage loans on real estate and other investments in the normal course of its business. As the timing of the fulfillment of the commitment to fund partnership interests cannot be predicted, such obligations are presented in the less than one year category. The timing of the funding of mortgage loans on real estate is based on the expiration date of the commitment.
The consolidated financial statements include the accounts of the Company and the accounts of its subsidiaries over which it exercises control. Intercompany transactions and balances have been eliminated in consolidation.
Certain amounts reported in the consolidated financial statements and notes to the consolidated financial statements as of and for the years ended December 31, 2012 and 2011 have been reclassified to conform to current period presentation.
DAC and VOBA associated with the annuity products and flexible premium universal life insurance products are being amortized over the life of the contracts in proportion to the emergence of gross profits. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits. DAC and VOBA associated with traditional life insurance are amortized over the premium-paying period of the related policies in proportion to premium revenues recognized. DAC and VOBA, for applicable products, are adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized, with corresponding credits or charges included in AOCI.
Fixed maturity investments - Total unrealized losses and OTTI increased by $135,474, or 78%, from December 31, 2012 to December 31, 2013. The increase in unrealized losses was in the less than twelve months category which increased by $191,110 from December 31, 2012 to December 31, 2013.
Included in net investment income and realized investment gains (losses) are amounts allocable to the participating fund account. This allocation is based upon the activity in a specific block of investments that are segmented for the benefit of the participating fund account.
Ceded reinsurance contracts do not relieve the Company from its obligations to policyholders. The failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 2013 and 2012, the reinsurance receivables had carrying values in the amounts of $588,533 and $638,797, respectively. Included in these amounts are $502,471 and $533,446 at December 31, 2013 and 2012, respectively, associated with reinsurance agreements with related parties. At December 31, 2013 and 2012, 85% and 83%, respectively, of the total reinsurance receivable was due from CLAC, a related party.
(2) Reinsurance assumed has been restated from $72,580,078 at December 31, 2012. The Company believes the effects of this error are immaterial to the prior period.
The balance of goodwill, all of which is within the Retirement Services segment, at December 31, 2013 and 2012 was $105,255.
The following table summarizes the significant components of general insurance expenses:
During 2013 and 2012, the Company generated $25,013 and $30,965 of Guaranteed Federal Low Income Housing tax credit carryforwards, respectively. As of December 31, 2013, the total credit carryforward for Low Income Housing is $123,865. These credits will begin to expire in 2030.
The Company maintains a Performance Share Unit Plan (“PSU plan”) for senior executives of the Company. Under the PSU plan, “performance share units” are granted to certain senior executives of the Company. Each performance unit has a value equal to one share of Lifeco common stock and is subject to adjustment for cash dividends paid to Lifeco stockholders, company earnings results as well as stock dividends and splits, consolidations and the like that affect shares of Lifeco common stock outstanding.