In 2002 , we received a related party capital contribution of $191.5 million from MassMutual representing the transfer of all of MML Bay State Life Insurance Company’s outstanding shares of common stock. In 2001, 2000 and 1998, we received surplus contributions of $45.0 million, $85.0 million and $25.0 million, respectively, from MassMutual.
a decrease of $34.9 million due to changes in reserve valuation bases and
As of December 31, 2002, our total adjusted capital as defined by the NAIC was $356.6 million. The NAIC developed the Risk Based Capital (“RBC”) model to compare the total adjusted capital with a standard design in order to reflect an insurance company’s risk profile. Although we believe that there is no single appropriate means of measuring RBC needs, we feel that the NAIC approach to RBC measurement is reasonable, and we manage our capital position with significant attention to maintaining adequate total adjusted capital relative to RBC. Our total adjusted capital was in excess of all RBC standards at December 31, 2002 and 2001. We believe that we are well positioned to meet policyholder and other obligations.
Bonds consist primarily of government securities and high quality marketable corporate debt securities. We invest a significant portion of our investments in high quality publicly traded bonds in order to maintain and manage liquidity and reduce the risk of default in the portfolio.
debt service coverage or cash flow ratios that fall below industry-specific thresholds,
The values of bonds are adjusted for impairments in value deemed to be other than temporary. The Company considers the following factors in the evaluation of whether a decline in value is other than temporary: (a) the financial condition and near-term prospects of the issuer; (b) the Company’s ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; and (c) the period and degree to which the market value has been below cost. If the impairment is other than temporary, a direct write-down is recognized in the Statutory Statements of Income as a realized capital loss, and a new cost basis is established. Bond transactions are recorded on a trade date basis.
Derivatives are included in other investments on the Statutory Statements of Financial Position. Derivatives are carried at fair value and changes in fair values are recorded as realized capital gains and losses on the Statutory Statements of Income. In cases where the Company receives or pays a premium as consideration for entering into a derivative instrument, the premium is amortized into investment income over the useful life of the derivative instrument. The Company’s derivative strategy employs a variety of instruments, including interest rate and currency swaps, options, forward commitments and asset and equity swaps.
The Company considers the following factors in the evaluation of whether a decline in value is other than temporary: (a) the financial condition and near-term prospects of the issuer; (b) the Company’s ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; and (c) the period and degree to which the market value has been below cost. If the impairment is other than temporary, a direct write down is recognized in the Statutory Statements of Income as a realized capital loss, and a new cost basis is established. Common stock transactions are recorded on a trade date basis.
Preferred stocks in good standing are valued at cost and are included in other investments on the Statutory Statements of Financial Position.
Reserves for individual annuities are based on account value or accepted actuarial methods, principally at interest rates ranging from 5.25% to 7.25%.
During 2000, the Company adopted the continuous application of the Commissioner’s Reserve Valuation Method of calculating individual annuity reserves resulting in a $9.0 million decrease to shareholder’s equity. Previously, the Company used a curtate application of the Commissioners’ Reserve Valuation Method.
Transfers due from separate accounts represent a net receivable from the Company’s separate account.
The Company maintains an Asset Valuation Reserve (“AVR”). The AVR and other investment reserves stabilize shareholder’s equity against fluctuations in the value of stocks, bonds, mortgage loans and real estate investments.
The purchases, sales and maturities of mortgage loans were as follows:
The change in net deferred income taxes is comprised of the following (in millions):