Our selected historical consolidated financial data as of and for each of the five years in the period ended December 31, 2015 is reflected in the schedule that follows. We obtained the balance sheet data for the years ended December 31, 2015 and 2014 and the income statement data for the years ended December 31, 2015, 2014 and 2013 from our audited consolidated financial statements in this Form 10-K. The selected consolidated financial data as of and for the years ended December 31, 2012 and 2011 has been obtained from our consolidated financial statements which are not contained in this report. Our historical results should not be viewed as indicative of results expected for any future period.
This section reviews our consolidated financial condition at December 31, 2015 and 2014; our consolidated results of operations for the years 2015, 2014 and 2013; and, where appropriate, factors that may affect our future financial performance. This discussion should be read in conjunction with “Item 6: Selected Financial Data” and our consolidated financial statements in this Form 10-K. We define increases or decreases greater than or equal to 200% as “NM” or not meaningful.
The Phoenix Companies, Inc. (“we,” “our,” “us,” the “Company,” “PNX” or “Phoenix”) is a holding company incorporated in Delaware. Our operating subsidiaries provide life insurance and annuity products through independent agents and financial advisors. Our policyholder base includes both affluent and middle market consumers, with our more recent business concentrated in the middle market. Most of our life insurance in force is permanent life insurance (whole life, universal life and variable universal life) insuring one or more lives. Our annuity products include fixed and variable annuities with a variety of death benefit and guaranteed living benefit options.
On September 29, 2015, the Company announced the signing of a definitive agreement in which Nassau Reinsurance Group Holdings L.P. (“Nassau”) has agreed to acquire the Company for $37.50 per share in cash, representing an aggregate purchase price of $217.2 million. Founded in April 2015, Nassau is a privately held insurance and reinsurance business focused on acquiring and operating entities in the life, annuity and long-term care sectors. On December 17, 2015 the merger was approved by Phoenix shareholders. The transaction remains subject to regulatory approvals and the satisfaction of other closing conditions. After completion of the transaction, Nassau will contribute $100 million in new equity capital into the Company. After completion of the transaction, Phoenix will be a privately held, wholly-owned subsidiary of Nassau.
Net realized investment gains or losses related to investments and hedging programs include transaction gains and losses, OTTIs and changes in the value of certain derivatives and embedded derivatives. Certain of our variable and fixed annuity contracts include guaranteed minimum withdrawal and accumulation benefits which are classified as embedded derivatives. The fair value of the embedded derivative liability is calculated using significant management estimates, including: (i) the expected value of index credits on the next policy anniversary dates; (ii) the interest rate used to project the future growth in the contract liability; (iii) the discount rate used to discount future benefit payments, which includes an adjustment for our credit worthiness; and (iv) the expected costs of annual call options that will be purchased in the future to fund index credits beyond the next policy anniversary. These factors can vary significantly from period to period.
Income tax expense/benefit consists of both current and deferred tax provisions. The computation of these amounts is a function of pre-tax income and the application of relevant tax law and U.S. GAAP accounting guidance. In assessing the realizability of our deferred tax assets, we make significant judgments with respect to projections of future taxable income, the identification of prudent and feasible tax planning strategies and the reversal pattern of the Company’s book-to-tax differences that are temporary in nature. We also consider the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits. We have recorded a valuation allowance against a significant portion of our deferred tax assets based upon our conclusion that there is insufficient objective positive evidence to overcome the significant negative evidence from our cumulative losses in recent years. This assessment could change in the future, resulting in a release of the valuation allowance and a benefit to income.
Under U.S. GAAP, premiums and deposits for variable life, universal life and annuity products are not recorded as revenues. Premiums and deposits for variable life and universal life are reflected on our consolidated balance sheets as an increase in policy liabilities and accruals, and premiums and deposits for fixed annuities and certain investment options of variable annuities are reflected as an increase in policyholder deposit funds.
The liability for profits followed by losses (“PFBL”), excluding the impact of unlocking, continues to increase during the periods in which we expect to have gross profits on the business. This long-term liability is sensitive to projected future interest rates, most notably the expected yield on invested assets. While the liability continued to accrue in the current year, the increase in the accrual was not as significant as the prior year as a result of less significant changes in interest rates and worse than expected mortality.
Other operating expenses. Other operating expenses have remained at elevated levels and have significantly impacted our earnings. These expenses are driven primarily by higher professional fees, including audit, outside consulting and legal services due to the preparation of financial statements and remediation efforts. Audit, other professional fees and outside consulting and legal services continue to be a significant driver of other operating expenses for the Company. In addition, in connection with the settlement agreement reached to resolve the Cost of Insurance Cases, the Company recorded an accrual in the amount of $48.5 million in the three months ended March 31, 2015.
Since 2009, we have pursued a strategy focused on balance sheet strength, policyholder service, operational efficiency and profitable growth. Within the growth portion of the strategy, we shifted our target market to middle market and mass affluent families and individuals planning for or living in retirement and focused the majority of our efforts on building and distributing a competitive portfolio of fixed indexed annuity products. On a smaller scale, we developed life insurance products for the same target market. In addition, we established a distribution company to sell Phoenix products through independent marketing organizations and producers and provide consulting services to partner firms in support of policies written by companies other than Phoenix. These efforts have produced a firm foundation for continued growth, even as our business remains sensitive to general economic conditions and capital market trends including equity markets and interest rates.
We believe there is significant demand for our products among middle market and mass affluent households, which have a variety of financial planning needs, such as tax-deferred savings, safety of principal, guaranteed income during retirement, income replacement and death benefits. The current low interest rate environment provides limited opportunities for consumers to protect principal and generate predictable income. Our fixed indexed annuity products are positioned favorably vis-à-vis traditional investments such as conventional fixed annuities and bank certificates of deposits since they offer principal protection, lifetime income options and earnings potential tied to stock market indices.
For a discussion of accounting standards and changes in accounting, see Note 2 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K.
Additional policyholder liabilities are established for certain contract features that could generate significant reductions to future gross profits (e.g., death benefits when a contract has zero account value and a no-lapse guarantee). The liabilities are accrued over the lifetime of the block based on assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing deferred policy acquisition costs, and are, thus, subject to the same variability and risk. The assumptions of investment performance and volatility for variable and equity index products are consistent with historical experience of the appropriate underlying equity indices.
Our fair value calculation of embedded derivative liabilities includes a credit standing adjustment (the “CSA”). The CSA represents the adjustment that market participants would make to reflect the risk that guaranteed benefit obligations may not be fulfilled (“non-performance risk”). We estimate our CSA using the credit spread (based on publicly available credit spread indices) for financial services companies similar to the Life Companies.
We classify our debt and equity securities as available-for-sale and report them in our consolidated balance sheets at fair value. Fair value is based on quoted market price or external third-party information, where available. When quoted market prices are not available, we estimate fair value by discounting debt security cash flows to reflect interest rates currently being offered on similar terms to borrowers of similar credit quality, by quoted market prices of comparable instruments and by independent pricing sources or internally developed pricing models.
See Note 12 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional disclosures of our fair value methodologies.
As of December 31, 2015, we concluded that our estimates of future taxable income, certain tax planning strategies and other sources of income did not constitute sufficient positive evidence to assert that it is more likely than not that certain deferred tax assets would be realizable. Accordingly, a valuation allowance of $599.7 million has been recorded on net deferred tax assets of $705.2 million. The remaining deferred tax asset of $105.5 million attributable to available-for-sale debt securities with gross unrealized losses does not require a valuation allowance due to our ability and intent to hold these securities until recovery of principal value through sale or contractual maturity, thereby avoiding the realization of taxable losses. This conclusion is consistent with prior periods. The impact of the valuation allowance on the allocation of tax to the components of the financial statements included an increase of $21.3 million in continuing operations, a decrease of $35.2 million in OCI-related deferred tax balances and an increase of $0.6 million recorded in discontinued operations.
See Note 13 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information related to income taxes.
The net periodic costs for the plans consider an assumed discount (interest) rate, an expected rate of return on plan assets and trends in health care costs. Of these assumptions, our expected rate of return assumptions, and to a lesser extent our discount rate assumptions, have historically had the most significant effect on our net period costs associated with these plans. The Company uses a building block approach in estimating the long-term rate of return for plan assets by asset class. The historical relationships between equities, fixed income and other asset classes are reviewed. We apply long-term asset return estimates to the plan’s target asset allocation to determine the weighted-average long-term return. Our long-term asset allocation was determined through modeling long-term returns and asset return volatilities. Our assumed long-term rate of return for 2015 was 7.50% for our pension plan. Given the amount of plan assets as of December 31, 2014, the beginning of the measurement year, if we had assumed an expected rate of return for our pension that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic costs would have been a decrease of $5.2 million and an increase of $5.2 million, respectively. These amounts consider only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the measurement year, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed long-term rate of return.
We determine our discount rate, used to value the pension and post-employment benefit obligations, based upon rates commensurate with current yields on high quality corporate bonds. Our assumed discount rate for 2015 was 4.10% for our pension plan, 3.97% for the supplemental retirement plan and 3.62% for our other post-employment benefit plan. Given the amount of pension and post-employment obligations as of December 31, 2014, the beginning of the measurement year, if we had assumed a discount rate for our pension plans and our other post-employment benefit plan that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below. These amounts consider only changes in our assumed discount rate without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our assumed discount rate.
Our assumed discount rate as of December 31, 2015 was 4.54% for our pension plan, 4.43% for the supplemental retirement plan and 4.10% for our other post-employment benefit plan. Given the amount of pension and post-employment obligations as of December 31, 2015, if we had assumed a discount rate for our pension plans and our other post-employment benefit plan that was 100 basis points higher or 100 basis points lower than the rates we assumed, the change in projected benefit obligation would have been as shown in the table below.
The assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics. These differences may have a significant effect on the Company’s consolidated financial statements and liquidity. See Note 15 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K information on these and other assumptions used in measuring liabilities relating to the Company’s pension and other post-employment benefits.
See Note 15 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information on our pension and other post-employment benefits.
The decrease in net loss of $79.5 million for the year ended December 31, 2015 compared to the year ended December 31, 2014 is primarily due to the following items:
Operating expenses decreased by $0.3 million for the year ended December 31, 2015 compared to the year ended December 31, 2014. While the decline overall is not significant, there were declines in professional services and outside consulting expenses that were offset by a charge of $48.5 million during the first quarter of 2015 when the Company entered into a settlement agreement to resolve the COI cases.
The closed block contributed $25.0 million to net income for the year ended December 31, 2015 compared to $24.7 million for the year ended December 31, 2014. The closed block contribution to net income remains in line with its actuarially projected path that will continue to gradually decline as the inforce in the closed block declines. Any closed block earnings that are in excess of expected amounts are offset by policyholder dividend expense.
In connection with the assumption unlocks in 2015, assumption changes resulted in a charge of $19.7 million driven by lower lapse experience in the universal life block and changes in expected future interest rates. In the prior year, an unlock benefit of $13.0 million was driven primarily by long-term expected improvements in mortality. In addition to the PFBL, the annual assumption unlock resulted in reductions in the reserves for guaranteed death and other insurance benefit features of $10.5 million primarily driven by higher lapse assumptions in some portions of the fixed indexed annuity business as well as an increase in the projected yield on investments for the annuitization benefits on variable annuities with guaranteed minimum income benefits.
Realized losses increased by $57.2 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. In 2014, there were realized losses on the embedded derivatives both in the fixed indexed annuity business and the variable annuity business, while there were gains on the variable annuity embedded derivatives and losses on the fixed indexed annuity embedded derivative in 2013. In 2014, the losses on the embedded derivatives were primarily driven by the continued decline of interest rates and increased volatility in the equity markets. In 2013, the gains were driven primarily by strong equity market performance decreasing the liability associated with the variable annuity guarantees.
Operating expenses increased by $13.1 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in operating expenses is primarily due to higher professional fees, including audit, outside consulting and legal expenses in the first quarter of 2014 primarily as a result of the preparation of restated financial statements.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. As reported in “Item 9A: Controls and Procedures” of this Form 10-K, the Company has concluded that there are material weaknesses in its internal control over financial reporting, which have materially adversely affected its ability to timely and accurately report its results of operations and financial condition, and that its disclosure controls and procedures are ineffective as of December 31, 2015. These material weaknesses have not been fully remediated as of the filing date of this report and the Company cannot assure that other material weaknesses will not be identified in the future. It is necessary for the Company to maintain effective internal control over financial reporting to prevent fraud and errors, and to maintain effective disclosure controls and procedures so that it can provide timely and reliable financial and other information. If the Company fails to maintain an effective system of internal controls, the accuracy and timing of its financial reporting may be adversely affected. Further, the absence of timely and reliable financial and other information about the Company’s business operations may inhibit the Company’s ability to identify operational risk. A failure to correct material weaknesses in our internal controls could result in further restatements of financial statements and correction of other information filed with the SEC. See “Item 1A: Risk Factors” in Part I of this Form 10-K for a description of these and other risks that may impact the Company’s operations. Also see “Item 9A: Controls and Procedures” in Part II of this Form 10-K for more information regarding these weaknesses, an evaluation of the effectiveness of the Company’s disclosure controls and procedures, and the Company’s remediation plans.
One of the key measures we use to quantify our interest rate exposure is duration, a measure of the sensitivity of the fair value of assets and liabilities to changes in interest rates. For example, if interest rates increase by 100 basis points, or 1%, the fair value of an asset or liability with a duration of five is expected to decrease by 5%. We believe that as of December 31, 2015, our asset and liability portfolio durations were reasonably matched.
Fair value of available-for-sale equity securities excludes $65.7 million of common stock securities, which are not directly related to interest rates.
We also use derivative financial instruments, primarily interest rate swaps, to manage our residual exposure to fluctuations in interest rates. We enter into derivative contracts with a number of highly rated financial institutions, to both diversify and reduce overall counterparty credit risk exposure.
The table below shows the interest rate sensitivity of components of our deferred policy acquisition costs and policy liabilities that are more sensitive to interest rate changes.
The profits followed by losses reserve is, as indicated above, particularly sensitive to interest rate changes. Investment earnings on the portfolio backing these policies as well as the discount rate on the liability are based on assumptions regarding the portfolio earned rates, both in the near term as well as the ultimate long-term earned rate. The long-term earned rate is reviewed annually as part of the unlock. Near term portfolio yields are assumed to revert to the long-term yield based on market implied forward rates. This analysis is updated quarterly and can result in volatility in net income during periods in which forward rates change significantly.
Equity risk is the risk that we will incur economic losses due to adverse changes in equity prices. At December 31, 2015, we held certain financial instruments that are sensitive to equity market movements, including available-for-sale equity securities, primarily related to our holdings of common stock and mutual funds, private equity partnership interests and other equities, as well as fair value equity instruments, equity options and other investments. We manage equity price risk through industry and issuer diversification and asset allocation techniques.
Available-for-sale equity securities excludes $116.3 million of perpetual preferred equity securities.
Includes private equity funds. The value of private equity investments are not highly correlated to public equity markets, because of their liquidity and valuation methodologies. Direct private equity investments have been included in the sensitivity because they are a significant equity exposure for the Company.
See Note 5 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information regarding DAC.
The Company estimates that the annualized net investment income yield on its fixed income securities, excluding the closed block, was approximately 4.4% during the year ended December 31, 2015. The average investment rate on fixed income securities purchases, excluding the closed block, during the year ended December 31, 2015 was approximately 4.2% on total purchases of approximately $1.5 billion. Management estimates that proceeds from maturities, calls and prepayments of approximately $495 million is expected to be available for reinvestment over the next 12 months, before considering new deposits and premiums and other cash flow uses. The reinvestment of those funds at new money rates is not expected to have a significant impact on net investment income over the next 12 months. The estimated impact is subject to change as the composition of the portfolio changes through normal portfolio management and other factors.
The following table presents certain information with respect to realized gains and losses including those on debt securities pledged as collateral, with losses from OTTI charges reported separately in the table. These impairment charges were determined based on our assessment of factors enumerated below, as they pertain to the individual securities determined to be other-than-temporarily impaired.
Includes the change in fair value of embedded derivatives associated with fixed index annuity indexed crediting feature and variable annuity riders. See Note 10 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional disclosures.
Management assessed all securities in an unrealized loss position in determining whether impairments were temporary or other-than-temporary. In reaching its conclusions, management exercised significant judgment and used a number of issuer-specific quantitative indicators and qualitative judgments to assess the probability of receiving a given security’s contractual cash flows. This included the issue’s implied yield to maturity, cumulative default rate based on rating, comparisons of issue-specific spreads to industry or sector spreads, specific trading activity in the issue and other market data, such as recent debt tenders and upcoming refinancing requirements. Management also reviewed fundamentals such as issuer credit and liquidity metrics, business outlook and industry conditions. Management maintains a watch list of securities that is reviewed for impairments. Each security on the watch list was evaluated, analyzed and discussed, with the positive and negative factors weighed, in the ultimate determination of whether or not the security was other-than-temporarily impaired. For securities for which no OTTI was ultimately indicated at December 31, 2015, management does not have the intention to sell, nor does it expect to be required to sell, these securities prior to their recovery.
The following table presents a roll-forward of pre-tax credit losses recognized in earnings related to available-for-sale debt securities for which a portion of the OTTI was recognized in OCI.
The following tables present certain information with respect to our gross unrealized gains and losses related to our investments in debt securities as of December 31, 2015. We separately present information that is applicable to unrealized losses both outside and inside the closed block. See Note 7 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information regarding the closed block. Applicable DAC and deferred income taxes further reduce the effect of unrealized gains and losses on our comprehensive income.
As of December 31, 2015, Phoenix Life and PHL Variable had $535.3 million and $209.3 million, respectively, of statutory capital, surplus and AVR. Our RBC ratio was in excess of 400% at Phoenix Life and 200% at PHL Variable. Also, during the year ended December 31, 2015, APLAR paid $10.0 million to the holding company consisting of an extraordinary dividend and a redemption of common stock.
Holding company operating expenses for the years ended December 31, 2015, 2014 and 2013 were $30.6 million, $102.6 million and $70.7 million. The expenses in 2014 and 2013 were due primarily to audit, consulting and legal expenses associated with prior restatements of the Company’s financial statements. There are expense sharing arrangements in place among the holding company and its operating subsidiaries. However, given unique circumstances regarding the historical restatement of the Company’s financial statements, management determined it was in the best interest of the Company that the majority of these costs be borne by the holding company.
The holding company also provides capital support to its operating subsidiaries. PHL Variable’s statutory capital and surplus reflects the benefit of $33.1 million and $15.0 million of capital contributions in 2015 and 2014, respectively, and Phoenix may need to make additional capital contributions in the future. The need for significant additional capital contributions to operating subsidiaries or an inability to reduce expenses at the holding company could constrain the ability of the holding company to meet its debt obligations. Based on management’s review of the holding company’s liquidity position, we believe it can continue to meet its liquidity obligations through 2016 and beyond.
The cash values of certain individual life insurance policies increase over the lives of the policies. Policyholders have the right to borrow an amount up to a certain percentage of the cash value on those policies. As of December 31, 2015, our Life Companies had approximately $10.3 billion in cash values with respect to which policyholders had rights to take policy loans. For eligible policies, the majority of policy loans are at variable interest rates that are reset annually on the policy anniversary. Policy loans at December 31, 2015 were $2.4 billion.
Rating agencies assign Phoenix Life financial strength ratings and assign the holding company debt ratings based in each case on their opinions of the relevant company’s ability to meet its financial obligations. A downgrade or withdrawal of any of our credit ratings could negatively impact our liquidity. For additional information regarding certain risks associated with our credit ratings, please see the risk factors under “Risks Related to the Restatements of Prior Period Financial Statements and our Internal Control Over Financial Reporting” contained in “Item 1A: Risk Factors” in Part I of this Form 10-K.
The financial strength and debt ratings as of March 11, 2016 were as follows:
Total assets decreased $654.0 million from December 31, 2014 to December 31, 2015. The decrease is primarily attributable to a decrease in invested assets driven by the following:
A decrease in available-for-sale debt securities of $488.6 million, which is driven by a decrease in market value of $504.2 million for the year primarily due to an increase in interest rates. There continue to be outflows associated with withdrawals and claim payments, that were offset by purchases from continued sales of fixed indexed annuities.
An increase in other assets of $50.4 million, which is driven primarily by a tax receivable of $23.0 million that was a payable of $16.4 million at December 31, 2014 recorded within other liabilities.
An increase in policyholder deposit funds of $378.2 million, which is driven primarily by continued sales of the fixed indexed annuity products as illustrated in the table in the next section entitled “Annuity Funds on Deposit.”
An increase in accumulated other comprehensive loss (“AOCI”) of $31.8 million. The loss is driven by unrealized losses on investments during the period.
Variable universal life funds on deposit decreased $88.4 million for the year ended December 31, 2015 compared to an increase of $26.7 million for the year ended December 31, 2014. The decrease is driven primarily by worse market performance in 2015 compared to 2014. Benefits and surrenders, fees and COIs, and deposits remain consistent for the comparable periods.
Variable universal life funds on deposit decreased $26.7 million for the year ended December 31, 2014 compared to an increase of $75.0 million for the year ended December 31, 2013. The decrease in 2014 is driven primarily by worse market performance due to less significant gains in the equity markets in 2014 compared to 2013. Benefits and surrenders, fees and COIs, and deposits remain consistent for the comparable periods.
Other purchase liabilities relate to open purchase orders and other contractual obligations. This amount includes no expected pension contribution in 2016. See Note 15 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information on pension and other post-employment benefits.
Policyholder contractual obligations represent estimated benefits from life insurance and annuity contracts issued by our life insurance subsidiaries. Policyholder contractual obligations also include separate account liabilities, which are contractual obligations of the separate account assets established under applicable state insurance laws and are legally insulated from our general account assets.
Future obligations are based on our estimate of future investment earnings, mortality, surrenders and applicable policyholder dividends. Included in the amounts above are policyholder dividends generated by estimated favorable future investment and mortality, in excess of guaranteed amounts for our closed block. Actual obligations in any single year, or ultimate total obligations, may vary materially from these estimates as actual experience emerges. As described in Note 2 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K, policy liabilities and accruals are recorded on the consolidated balance sheets in amounts adequate to meet the estimated future obligations of the policies in force. The policyholder obligations reflected in the table above exceed the policy liabilities, policyholder deposit fund liabilities and separate account liabilities reported on our December 31, 2015 consolidated balance sheets because the above amounts do not reflect future investment earnings and future premiums and deposits on those policies. Separate account obligations will be funded by the cash flows from separate account assets, while the remaining obligations will be funded by cash flows from investment earnings on general account assets and premiums and deposits on contracts in force.
We do not anticipate any increases to unrecognized tax benefits that would have a significant impact on the financial position of the Company. Therefore, no unrecognized tax benefits have been excluded from this table. See Note 13 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information on unrecognized tax benefits.
Other commercial commitments relate to agreements to fund limited partnerships and private placement investments. These commitments can be drawn down by private equity funds as necessary to fund their portfolio investments through the end of the funding period as stated in each agreement.
We have three defined benefit plans. The employee pension plan (“Employee Plan”) provides benefits not to exceed the amount allowed under the Internal Revenue Code. Two supplemental plans (“Supplemental Plans”) provide benefits in excess of the Employee Plan. Retirement benefits under the plans are a function of years of service and compensation. Effective March 31, 2010, all benefit accruals under these defined benefit plans were frozen.
We have historically provided certain health care, dental and life insurance benefits (“Other Post-Employment Benefits Plan”) for eligible retired employees. In December 2009, we announced the decision to eliminate retiree medical coverage for active employees whose age plus years of service did not equal at least 65 as of March 31, 2010. Employees who remain eligible must still meet certain other defined criteria to receive benefits.
These decisions affected retiree medical contributions for both past service and active employees. Curtailments and plan amendments were recognized as a result of the plan changes.
To meet the above funding objectives, we made contributions to the pension plan totaling $0 and $11.8 million during 2015 and 2014, respectively. On August 8, 2014, the Highway and Transportation Funding Act of 2014 was enacted into law, effective immediately. The law extends certain pension funding provisions originally included in the Moving Ahead for Progress in the 21st Century Act (MAP-21). The Company took advantage of this in September of 2014, which resulted in the Company not making any further contributions for the remainder of 2014. We expect to make no contributions over the next 12 months.
The changes in the projected benefit obligations of the employee plan at December 31, 2015 as compared to December 31, 2014 were principally the result of actuarial gains due to assumption changes.
The Supplemental Plans are unfunded and represent general obligations of the Company. We fund periodic benefit payments to retirees as they become due under these plans from cash-flow from operations. The projected benefit obligations as of December 31, 2015 and 2014 were $142.7 million and $153.7 million, respectively.
The Post-Employment Benefit Plan is unfunded and had projected benefit obligations of $22.9 million and $33.4 million as of December 31, 2015 and 2014, respectively. We fund periodic benefit payments under this plan from cash flows from operations as they become due.
We have entered into agreements with certain key executives of the Company that will, in certain circumstances, provide separation benefits upon the termination of the executive’s employment by the Company for reasons other than death, disability, cause or retirement, or by the executive for “good reason,” as defined in the agreements. The agreements provide this protection only if the termination occurs following (or is effectively connected with) the occurrence of a change of control, as defined in the agreements. As soon as reasonably possible upon a change in control, as so defined, we are required to make an irrevocable contribution to a trust in an amount sufficient to pay benefits due under these agreements. See Note 15 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Form 10-K for additional information on our pension and other post-employment benefits.
We maintain reinsurance agreements to limit potential losses, reduce exposure to larger risks and provide additional capacity for growth. We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to the Company. Since we bear the risk of nonpayment, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. Based on our review of their financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance. At December 31, 2015, five major reinsurance companies account for approximately 68% of the reinsurance recoverable.
Phoenix Life’s statutory basis capital and surplus (including AVR) decreased from $752.2 million at December 31, 2014 to $535.3 million at December 31, 2015. Prior to the de-stacking, Phoenix Life’s surplus decreased as a result of the $48.5 million COI settlement in the first quarter of 2015, and increased $153.5 million as a result of the execution of an intercompany reinsurance treaty in the second quarter of 2015. In the third quarter, Phoenix Life’s surplus decreased by $262.2 million as a result of the de-stacking. During 2015, Phoenix Life also declared and paid $59.9 million of dividends to Phoenix.
PHL Variable’s statutory basis capital and surplus decreased from $213.7 million at December 31, 2014 to $209.3 million at December 31, 2015. Reductions in surplus were driven primarily by worse than expected mortality in the universal life business and the impact of PHL Variable’s $36.4 million portion of the COI settlements in the first quarter of 2015. The reductions in PHL Variable’s surplus were partially offset by the increase in surplus of $52.5 million as a result of the execution of the intercompany reinsurance treaty in the second quarter and $33.1 million in capital contributions from Phoenix.