The Company’s corporate office facility is comprised of an 882,000 square foot complex located in Greenwood Village, Colorado. The Company owns its corporate office facilities. At December 31, 2010, the Company leased approximately 188,000 square feet of the complex to CIGNA for a variety of time periods. The Company also leases sales and administrative offices throughout the United States. Management believes that the Company’s properties are suitable and adequate for its current and anticipated business operations.
in part from the Company’s consolidated financial statements not included elsewhere herein. The following information should be read in conjunction with and is qualified in its entirety by the information contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements appearing in Item 8.
This product involves cash flows of which the magnitude and timing are uncertain and are dependent on the level of equity and fixed income market returns, interest rates, market volatility, policyholder behavior and policyholder longevity. In June 2010, the Company implemented a hedging program to mitigate certain risks associated with options embedded in its GMWB product. Through this hedging program, the Company, at December 31, 2010, had entered into index futures with an aggregate notional amount of $1 million to mitigate equity market risk and interest rate swap futures with an aggregate notional amount of $5 million to mitigate interest rate risk.
The Company began an interest rate risk hedging program during the fourth quarter of 2009 to hedge the economic effect of a large increase in interest rates on the Company’s general account life insurance and group pension liabilities as well as certain separate account life insurance liabilities. The company initially purchased static swaptions in 2009 but in June of 2010, the company began a dynamic hedging program. Under the dynamic hedging program, the derivatives are frequently rebalanced based on interest rate movements. During 2010, interest rates declined further and the Company’s risk from rising interest rates also declined. As a result, the derivatives in this program generated losses of $4 million for the year ended December 31, 2010. A portion of these losses are offset by changes in policyholder related amounts of $3 million for the year ended December 31, 2010. The Company continues to believe the program provides a sound economic hedge against risk and plans to continue with its strategy.
During the latter part of 2009 and into 2010, the financial markets have shown some recovery from the turmoil experienced in the latter part of 2008 and early 2009. The S&P 500 index is up by 13% at December 31, 2010 when compared to December 31, 2009 and it is up by 23% at December 31, 2009 when compared to December 31, 2008. The average of the S&P 500 index during the year ended December 31, 2010 is up by 20% when compared to the average for the year ended December 31, 2009 and it is down by 22% for the year ended December 31, 2009 when compared to the year ended December 31, 2008.
· Valuation of deferred acquisition costs and value of business acquired.
The Company’s investments are in fixed maturity and equity securities, mortgage and policy loans and limited partnership interests and other investments. The Company’s investments are exposed to three primary sources of risk: credit, interest rate and market valuation. The financial statement risks,
A significant estimate related to the fair value of available-for-sale securities is the evaluation of investments for other-than-temporary impairments. The assessment of whether an other-than-temporary impairment has occurred on securities where management does not intend to sell the fixed maturity investment and it is not more likely than not the Company will be required to sell the fixed maturity investment before recovery of its amortized cost basis, is based upon management’s case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors, as described below, regarding the security issuer and uses its best judgment in evaluating the cause of the decline in its estimated fair value and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the issuer’s operations and ability to generate future cash flows. While all available information is taken into account, it is difficult to predict the ultimate recoverable amount from a distressed or impaired security.
· The decline in fair value has existed for an extended period of time.
· The fixed maturity investment has been downgraded by a credit rating agency.
· The payment structure of the fixed maturity investment and the likelihood of the issuer being able to make payments that increase in the future.
· Dividends have been reduced or eliminated or scheduled interest payments have not been made.
investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the fixed maturity investment and it is not more likely than not that the Company will be required to sell the fixed maturity investment before recovery of its amortized cost basis, but the present value of the cash flows expected to be collected (discounted at the effective interest rate implicit in the fixed maturity investment prior to impairment) is less than the amortized cost basis of the fixed maturity investment (referred to as the credit loss portion), an other-than-temporary impairment is considered to have occurred. In this instance, total other-than-temporary impairment is bifurcated into two components: the amount related to the credit loss, which is recognized in earnings; and the amount attributed to other factors (referred to as the non-credit portion), which is recognized as a separate component in accumulated other comprehensive income (loss). After the recognition of an other-than-temporary impairment, the fixed maturity investment is accounted for as if it had been purchased on the measurement date of the other-than-temporary impairment, with an amortized cost basis equal to the previous amortized cost basis less the other-than-temporary impairment recognized in earnings.
See Notes 6 and 7 to the accompanying consolidated financial statements for more information regarding the Company’s invested assets and their fair values.
The Company enters into derivative transactions which include the use of interest rate swaps, interest rate swaptions, foreign currency exchange contracts, United States government treasury futures contracts, Eurodollar futures contracts, futures on equity indices and interest rate swap futures. The Company uses these derivative instruments to manage various risks, including interest rate and foreign exchange risk associated with its invested assets and liabilities. Derivative instruments are not used for speculative reasons. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one party to the agreement at each due date.
The accounting for derivative instruments is complex. The Company designates its derivative financial instruments as (i) cash flow hedges, (ii) fair value hedges and (iii) derivatives not qualifying for hedge accounting.
· Cash flow hedges - Interest rate swap agreements are used to convert the interest rate on certain debt securities from a floating rate to a fixed rate. Foreign currency exchange contracts are used to manage the foreign exchange rate risk associated with bonds denominated in other than U.S. dollars. Interest rate futures are used to manage the interest rate risks of forecasted acquisitions of fixed rate maturity investments. The effective portion of the changes in the fair value of a derivative instrument that is designated as a cash flow hedge is recorded in accumulated other comprehensive income on the consolidated balance sheet and is reclassified to earnings when the cash flow of the hedged item
· Derivatives not designated as hedging instruments - Interest rate swaptions, interest rate swaps, interest rate swap futures, futures on equity indices and Eurodollar futures are used to manage the potential variability in future interest payments on certain insurance products due to a change in credited interest rates and the related change in cash flows due to increased surrenders. A change in the fair value of a derivative instrument that does not qualify for hedge accounting treatment is recognized in net investment income in the period of the change and may result in significant volatility of earnings.
Investment gains and losses generally result from the termination of derivative contracts prior to expiration.
See Note 6 to the accompanying consolidated financial statements for more information regarding the Company’s derivative instruments.
See Notes 1 and 8 to the accompanying consolidated financial statements for more information regarding the Company’s future policy benefits.
See Note 16 to the accompanying consolidated financial statements for more information regarding taxes on income.
On April 1, 2008, the Company and certain of its subsidiaries completed the sale of substantially all of their healthcare insurance business to a subsidiary of CIGNA Corporation (“CIGNA”). The Company recognized a gain in the amount of $697 million, net of income taxes, upon completion of the transaction. The business that was sold, formerly reported as the Company’s Healthcare segment, was the vehicle through which it marketed and administered group life and health insurance to small, mid-sized and national employers. CIGNA acquired from the Company the stop loss, group life, group disability, group medical, group dental, group vision, group prescription drug coverage and group accidental death and dismemberment insurance business in the United States and the Company’s supporting information technology infrastructure through a combination of 100% indemnity reinsurance agreements, renewal rights, related administrative service agreements and the acquisition of certain of the Company’s subsidiaries. The statements of income and balance sheets of the disposed business activities are presented as discontinued operations for all periods presented in the consolidated financial statements. See Note 3 to the accompanying consolidated financial statements for further information regarding this transaction.
During the first quarter of 2008, undistributed earnings on participating business decreased by $208 million with a corresponding decrease to policyholder benefits in connection with a long-standing assumption reinsurance agreement under which the Company had reinsured a block of participating policies. On January 1, 2008, the Company was no longer required to maintain the liability to meet its obligations under the terms of the agreement. An income tax provision was recorded on the undistributed earnings when those earnings occurred. Accordingly, there was no income tax provision recorded at the time of the liability release. On January 1, 2008, the Company began recognizing the net earnings on these policies in its Individual Markets segment net income.
Premium income increased by $246 million, or 44%, to $806 million for the year ended December 31, 2010 when compared to 2009. This increase is primarily related to a $224 million increase in sales of the single premium whole life product in the Company’s Individual Markets segment.
Income tax expense increased by $30 million, or 71%, to $72 million for the year ended December 31, 2010 when compared to 2009. This increase is primarily due to the $110 million increase in income before income taxes in 2010 when compared to 2009, offset by a $13 million prior year tax benefit recorded in 2010 primarily related to the closing of Internal Revenue Service (“IRS”) examinations.
The following is a summary of certain financial data of the Company for the years ended December 31, 2009 and 2008:
The Company’s consolidated income from continuing operations decreased by $328 million, or 72%, to $125 million for the year ended December 31, 2009 when compared to 2008. This decrease is primarily due to a gain in 2008 in the amount of $208 million as a result of the release of the liability associated with certain participating policies of the Company’s Other segment as discussed in Note 3 to the accompanying consolidated financial statements and a $98 million ($64 million net of income taxes) liability release on these policies. In addition, fee income decreased and realized losses on investments increased in 2009 when compared to 2008.
Net realized losses on investments increased by $45 million to $67 million during the year ended December 31, 2009 when compared to 2008. The $67 million loss in 2009 is due to $99 million of write-downs primarily on fixed maturity securities guaranteed by Financial Guaranty Insurance Company (“FGIC”) partially offset by $32 million of net realized gains on the sale of investments. The $22 million loss during the year ended December 31, 2008 is due to $87 million of write-downs including $36 million on a fixed maturity security backed by Lehman Brothers Holdings Inc. and $25 million on securities backed by General Motors Corporation. These write-downs are partially offset by $65 million of net realized gains on the sale of investments.
Policyholder benefit expenses include amounts paid or credited to policyholders, changes in policy liabilities, claims, surrenders and annuity and maturity payments. Excluding the impact of the aforementioned $306 million decrease in future policy benefits in 2008 related to the participating policy liabilities, policyholder benefits increased by $72 million, or 6%, to $1,326 million for the year ended December 31, 2009 when compared to 2008. The increase is primarily due to increased future policy benefits of $91 million related to the increase in the fixed single premium whole life product as mentioned above and an increase in interest credited to contractholders of $24 million in the Company’s Individual Markets segment.
million decrease in net realized and unrealized investment losses, net of policyholder related amounts and $17 million release of future policyholder benefits offset by $22 million increase in acquisition expenses of the single premium whole life product due to increased sales.
Premium income increased by $248 million, or 58%, to $676 million for the year ended December 31, 2010 when compared to 2009. The increase is primarily related to sales in the single premium whole life product marketed through banks which increased by $224 million.
Total benefits and expenses increased by $268 million, or 25%, to $1,352 million for the year ended December 31, 2010 when compared to 2009. The increase is primarily attributable to an increase in future policy benefits and expenses of $268 million primarily related to the single premium whole life product marketed through banks less $17 million of future policy benefits released due to a change in estimate due to the availability of more precise information for assumed reinsurance. In addition, interest paid or credited to contractholders decreased by $20 million due to lower crediting rates primarily in the participating block of business.
Income tax expense increased by $13 million, or 76%, to $30 million during the year ended December 31, 2010 when compared to 2009. The increase is primarily due to a $36 million increase in income before income taxes in 2010.
Income tax expense decreased by $15 million, to $17 million during the year ended December 31, 2009 when compared to 2008 primarily due to the $41 million decrease in income from continuing operations before income taxes.
Net realized investment losses remain unchanged at $23 million during the years ended December 31, 2010 and 2009. The $23 million loss in 2010 is due to $47 million of write-downs primarily on fixed maturity securities guaranteed by Ambac offset by $24 million of net realized gains on the sale of investments. The $23 million loss in 2009 is due to $46 million of write-downs primarily on fixed maturity securities guaranteed by FGIC partially offset by $23 million of net realized gains on the sale of investments.
Account values invested in the general account fixed investment options have increased by $895 million, or 13%, at December 31, 2010 compared to December 31, 2009 primarily due to an increase in new participant contributions and interest credited to existing account balances.
Participant account values invested in unaffiliated retail investment options and participant account values where only administrative services and record-keeping functions are provided have increased by $21,030 million, or 21%, at December 31, 2010 compared to December 31, 2009. The increase is primarily due to new sales and an overall increase in the U.S. equity markets.
Income from continuing operations for the Retirement Services segment decreased by $43 million, or 36%, to $76 million during the year ended December 31, 2009 when compared to 2008 primarily due to a decrease in fee income, an increase in amortization of DAC and an increase in realized losses on investments. These are partially offset by an increase in interest margins on guaranteed products.
Fee income decreased by $37 million, or 10%, to $331 million for the year ended December 31, 2009 when compared to 2008. The decrease is primarily related to lower variable fee income as a result of lower average account balances due to the weak performance of the U.S. equities market as seen by the lower S&P 500 Index average in 2009 compared to 2008.
Net realized losses on investments increased by $13 million to $23 million during the year ended December 31, 2009 when compared to 2008. The $23 million loss in 2009 is due to $46 million of write-downs primarily on fixed maturity securities guaranteed by FGIC partially offset by $23 million of net realized gains on the sale of investments. The $10 million loss during 2008 is due to $35 million of write-downs primarily on a fixed maturity security backed by Lehman Brothers Holdings Inc. and on securities backed by General Motors Corporation. These write-downs are partially offset by $25 million of net realized gains on the sale of investments.
The following is a summary of certain financial data of the Company’s Other segment for the years ended December 31, 2009 and 2008:
Excluding the impact of the aforementioned $208 million benefit release of the liability associated with certain participating policies and the $98 million adjustment to the future policy benefits of these policies, total benefits and expenses decreased by $39 million to $184 million during the year ended December 31, 2009 when compared to 2008. The decrease is primarily due to a $27 million decrease in GWSC reinsurance agreement benefits and expenses primarily as the result of a $22 million decrease in future policy benefits in 2009.
A summary of the Company’s general account investment assets and the assets as a percentage of total general account investments at December 31, 2010 and 2009 follows:
Fixed maturity investments include public and privately placed corporate bonds, government bonds and mortgage-backed and asset-backed securities. The Company’s strategy related to mortgage-backed and asset-backed securities is to focus on those investments with low prepayment risk and minimal credit risk. The Company does not invest in higher-risk collateralized mortgage obligations such as interest-only and principal-only strips, and currently has no plans to invest in such securities.
Private placement investments are generally less marketable than publicly traded assets, yet they typically offer enhanced covenant protection that allows the Company, if necessary, to take appropriate action to protect its investment. The Company believes that the cost of the additional monitoring and analysis required by private placement investments is more than offset by their enhanced yield.
One of the Company’s primary objectives is to ensure that its fixed maturity portfolio is maintained at a high average quality to limit credit risk. If not externally rated, the securities are rated by the Company on a basis intended to be similar to that of the rating agencies. The Company’s internal rating methodology generally takes into account ratings from Standard & Poors Ratings Services and Moody’s Investor Services, Inc., however, ratings presented for non-agency RMBS are based on final ratings from the revised NAIC rating methodology which became effective December 31, 2009. The Company’s CMBS ratings were not affected by the revised NAIC rating methodology.
The distribution of the Company’s fixed maturity portfolio by the Company’s internal credit rating at December 31, 2010 and 2009 is summarized as follows:
(1) The December 31, 2009 percentages were updated to reflect the non-agency RMBS ratings as determined by the revised NAIC rating methodology.
(1) Exposure of 2.9% and 4.1% to the oil and gas sector is included in natural resources at December 31, 2010 and 2009, respectively.
The Company is not yet certain of the amount or timing of recoveries under the Plan. The Company assesses OTTI on a regular basis on these securities. The financial health of several other monoline insurers has been in question recently and several insurers have experienced ratings downgrades.
At December 31, 2010 and 2009, the Company had $418 million and $624 million, respectively, of asset-backed securities insured by monolines other than FGIC and Ambac. At December 31, 2010 and 2009, the overall credit quality of the Company’s monoline-insured asset-backed securities, including the benefits of monoline insurance, was A and BBB+, respectively. At December 31, 2010 and 2009, the Company has other insured securities with a fair value of $112 million and $161 million, respectively, primarily exposed to state/municipal bond authorities and utilities and financial services companies.
The Company has exposure to the subprime market in the form of home equity loan asset-backed securities of $949 million, or 4% of total investments of $23,069 million as of December 31, 2010 and $889 million, or 4% of total investment of $20,376 million as of December 31, 2009. The majority of these securities are investment grade rated, 82% of which have a rating of AAA. The majority of the mortgages backing these securities are fixed rate loans, which typically have lower default and loss rates than adjustable rate loans. Of these pools 56% were originated before 2005, which is associated with lower default and loss rates compared to pools that were originated from 2005 through 2008. The weighted average credit enhancement level for these securities is 36% (excluding any monoline guarantees) as of December 31, 2010. This credit enhancement represents subordinated securities or surplus collateral that would absorb losses prior to losses being allocated to the Company’s securities.
The following tables summarize the fair values and gross unrealized losses on fixed maturity investments where the estimated fair value has declined and remained below amortized cost by 20% or more at December 31, 2010 and 2009:
While many unrealized losses have now existed for longer than twelve months, the Company believes this is attributable to general market conditions related to changes in interest rates and credit spreads and not reflective of the financial condition of the issuer or collateral backing the securities. The continued decrease in unrealized losses reflects recovery in market liquidity, lower interest rates and tightening of credit spreads, although the economic uncertainty in these markets still remains. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis, which may be maturity; therefore, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2010.
Following the recognition of the other-than-temporary impairment for fixed maturities, the Company accretes the new cost basis to par or to estimated future value over the remaining life of the security based on the future estimated cash flows by adjusting the security’s yields. See Note 6 to the accompanying consolidated financial statements for a further discussion of impaired fixed maturity investments.
The Company’s mortgage loans on real estate are comprised exclusively of domestic commercial collateralized real estate loans. The mortgage loan portfolio is diversified with regard to geographical markets and commercial real estate property types within the United States. The Company originates, directly or through correspondents, real estate mortgages with the intent to hold to maturity. The Company does not generally purchase or sell mortgage loans. The Company’s portfolio includes loans which are fully amortizing, amortizing with a balloon balance at maturity, interest only to maturity and interest only for a number of years followed by an amortizing period. The Company does not invest in interest only strips nor does it originate single family residential mortgage loans.
Other investments consist primarily of equity investments, policy loans, short-term investments, limited partnerships and investment in real estate. The Company anticipates limited participation in equity and real estate markets during 2011.
(1) Excludes net income on derivative investments and net interest on funds withheld balances under reinsurance agreements.
The principal sources of the Company’s liquidity are premiums and contract deposits, fees, investment income and investment maturities and sales. Funds provided from these sources are reasonably predictable and normally exceed liquidity requirements for payment of policy benefits, payments to policy and contractholders in connection with surrenders and withdrawals and general expenses. However, since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. A primary liquidity concern regarding cash flows from operations is the risk of early policyholder and contractholder withdrawals. A primary liquidity concern regarding investment activity is the risks of defaults and market volatilities. In addition, a demand for funds may arise as a result of the Company taking advantage of current investment opportunities. The sources of the funds that may be required in such situations include the
issuance of commercial paper or other debt instruments. Management believes that the liquidity profile of its assets is sufficient to satisfy the liquidity requirements of reasonably foreseeable scenarios.
Generally, the Company has met its operating requirements by utilizing cash flows from operations and maintaining appropriate levels of liquidity in its investment portfolio. Included in cash flows from operating activities are net sales (purchases) of trading securities of $1 million and ($97) million for the years ended December 31, 2010 and 2009, respectively. The Company intends to reinvest these securities in higher yielding permanent investments. Liquidity for the Company has remained strong, as evidenced by the amounts of short-term investments and cash that totaled $969 million and $659 million as of December 31, 2010 and 2009, respectively. In addition, 98% and 97% of the bond portfolio carried an investment grade rating at December 31, 2010 and 2009, respectively, thereby providing significant liquidity to the Company’s overall investment portfolio.
The Company makes commitments to fund partnership interests and other investments in the normal course of its business. The amounts of these unfunded commitments at December 31, 2010 and 2009 were $96 million and $127 million, respectively. The precise timing of the fulfillment of the commitment cannot be predicted, however, these amounts are due within one year of the dates indicated. There are no other obligations or liabilities arising from such arrangements that are reasonably likely to become material.
The following table summarizes the Company’s major contractual obligations at December 31, 2010:
(1), (2) Future policy benefits and policy and contract claims - The Company has estimated payments to be made to policy and contractholders for future policy benefits. Insurance and investment contract liabilities include various investment-type products with contractually scheduled maturities, including periodic payments of a term certain nature. However, a significant portion of policy benefits and claims to be paid do not have stated contractual maturity dates and ultimately may not result in any payment obligation.
The amounts presented in the table above are undiscounted as to interest. Accordingly, the sum of the estimated cash payment presented significantly exceeds the liability amount on the Company’s consolidated balance sheet principally due to the time value of money.
(4) Provision for policyholder dividends - The provision for policyholders’ dividends payable represents the liabilities related to dividends payable in the following year on participating policies. As such, the obligations related to these liabilities are presented in the table above in the less than one year category in the amounts of the liabilities presented in the Company’s consolidated balance sheet.
(6) Related party long-term debt principal - Represents contractual maturities of principal due to the Company’s parent, GWL&A Financial, under the terms of two long-term surplus notes. The amounts shown in this table differ from the amounts included in the Company’s consolidated balance sheet because the amounts shown above do not consider the discount upon the issuance of one of the surplus notes.
· Expected benefit payments to the Company’s defined benefit pension and post-retirement medical plans through 2019.
We have audited the accompanying consolidated balance sheets of Great-West Life & Annuity Insurance Company and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.
1. The Company classifies the majority of its fixed maturity and all of its equity investments as available-for-sale and records them at fair value with the related net unrealized gain or loss, net of policyholder related amounts and deferred taxes, in accumulated other comprehensive income (loss) in the stockholder’s equity section of the consolidated balance sheets. Net unrealized gains and losses related to participating contract policies that cannot be distributed are recorded as undistributed earnings on participating business in the Company’s consolidated balance sheets. The Company recognizes the acquisition of its public fixed maturity and equity investments on a trade date basis.
The Company reviews the reasonableness of its credit loss methodology quarterly, by reviewing certain key indicators by loan type, including but not limited to, trends in the number of individual loans in default, number of late payments and other data indicative of underperforming loans. Additionally, the Company’s provision methodology is reviewed for reasonableness in relation to current trends in market data affecting collateral values, local and national economic market conditions and their effect on the Company’s historic loan loss experience. The primary risk characteristics in the portfolio include the borrower’s inability to service debt from operations and collateral valuation declines due to leasing or market conditions. Risk is mitigated through first position collateralization, guarantees, loan covenants and borrower reporting requirements. Since the Company does not originate or hold uncollateralized mortgages, loans are generally not fully charged off. Generally, unrecoverable amounts are charged off during the final stage of the foreclosure process.
7. The Company may employ a trading strategy that involves the sale of securities with a simultaneous agreement to repurchase similar securities at a future date at an agreed-upon price. Proceeds of the sale are reinvested in other securities and may enhance the current yield and total return. The difference between the sales price and the future repurchase price is recorded as an adjustment to net investment income. During the period between the sale and repurchase, the Company will not be entitled to receive interest and principal payments on the securities sold. Losses may arise from changes in the value of the securities or if the counterparty enters bankruptcy proceedings or becomes insolvent. In such cases, the Company’s right to repurchase the security may be restricted. Amounts
owed to brokers under these arrangements are included in repurchase agreements in the accompanying consolidated balance sheets. The liability is collateralized by securities with approximately the same fair value.
agreements with the counterparty. This collateral is held directly by the Company. This unrestricted cash collateral is included in other assets and the obligation to return is included in other liabilities.
The Company had established a Participating Policyholder Experience Account (“PPEA”) for the benefit of all participating policyholders. The Company had also established a Participation Fund Account (“PFA”) for the benefit of the participating policyholders previously assumed from The Great-West Life Assurance Company (“GWL”) under an assumption reinsurance transaction. The PFA was part of the PPEA. As discussed in Note 4, on January 1, 2008, the Company was no longer required to maintain the PPEA.