TRANSAMERICA ADVISORS LIFE INSURANCE Co OF NEW YORK - FORM 10-Q - XML - IDEA: XBRL DOCUMENT - May 11, 2012

Note 3. Investments

 

Fixed Maturity and Equity Securities

The amortized cost/cost and estimated fair value of investments in fixed maturity and equity AFS securities at March 31, 2012 and December 31, 2011 were:

 

			00000000				00000000				00000000				00000000
		March 31, 2012
		Amortized Cost/Cost				Gross Unrealized								Estimated Fair Value
						Gains				Losses/ OTTI (1)
Fixed maturity AFS securities
Corporate securities		$	94,488			$	9,486			$	(183	)		$	103,791
Asset-backed securities			3,086				38				(6	)			3,118
Commercial mortgage-backed securities			22,207				2,880				-				25,087
Residential mortgage-backed securities			5,223				203				(98	)			5,328
Government and government agencies
United States			2,968				275				-				3,243
Foreign			3,181				588				(23	)			3,746
Total fixed maturity AFS securities		$	131,153			$	13,470			$	(310	)		$	144,313
Equity securities - banking securities		$	1,228			$	57			$	(8	)		$	1,277
Total equity securities		$	1,228			$	57			$	(8	)		$	1,277
		December 31, 2011
		Amortized Cost/Cost				Gross Unrealized								Estimated Fair Value
						Gains				Losses/ OTTI (1)
Fixed maturity AFS securities
Corporate securities		$	99,892			$	9,247			$	(737	)		$	108,402
Asset-backed securities			3,423				50				(6	)			3,467
Commercial mortgage-backed securities			22,967				2,534				-				25,501
Residential mortgage-backed securities			5,252				125				(159	)			5,218
Government and government agencies
United States			2,972				398				-				3,370
Foreign			3,184				666				(101	)			3,749
Total fixed maturity AFS securities		$	137,690			$	13,020			$	(1,003	)		$	149,707
Equity securities - banking securities		$	1,228			$	-			$	(97	)		$	1,131
Total equity securities		$	1,228			$	-			$	(97	)		$	1,131
(1) Subsequent unrealized gains (losses) on other-than-temporary (“OTTI”) securities are included in OCI-OTTI.

Excluding investments in U.S. government and government agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturity securities portfolio.

 

The amortized cost and estimated fair value of fixed maturity AFS securities by investment grade at March 31, 2012 and December 31, 2011 were:

 

		March 31, 2012								December 31, 2011
		Amortized  Cost				Estimated  Fair Value				Amortized  Cost				Estimated  Fair Value
Investment grade		$	127,281			$	140,269			$	133,857			$	145,732
Below investment grade			3,872				4,044				3,833				3,975
Total fixed maturity AFS securities		$	131,153			$	144,313			$	137,690			$	149,707

The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to S&P BBB- or higher (or similar rating agency). At March 31, 2012 and December 31, 2011, the estimated fair value of fixed maturity securities rated BBB- were $2,323 and $4,098, respectively, which is the lowest investment grade rating given by S&P.

The amortized cost and estimated fair value of fixed maturity AFS securities at March 31, 2012 and December 31, 2011 by contractual maturities were:

 

		March 31, 2012								December 31, 2011
		Amortized  Cost				Estimated  Fair Value				Amortized  Cost				Estimated  Fair Value
Fixed maturity AFS securities
Due in one year or less		$	1,456			$	1,486			$	6,188			$	6,261
Due after one year through five years			33,425				36,390				33,286				35,906
Due after five years through ten years			56,063				61,778				56,878				62,056
Due after ten years			9,693				11,126				9,696				11,298
			100,637				110,780				106,048				115,521
Mortgage-backed securities and other asset-backed securities			30,516				33,533				31,642				34,186
Total fixed maturity AFS securities		$	131,153			$	144,313			$	137,690			$	149,707

In the preceding table, fixed maturity securities not due at a single maturity date have been included in the year of final maturity. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

For the three months ended March 31, 2012 and 2011, there was $3 and $22, respectively, of investment income on fixed maturity trading securities and $16 and $19, respectively, of income recognized from the change in the fair value on fixed maturity trading securities recorded in net investment income in the Statements of Income. The Company also recognized gains of $25 during the periods ended March 31, 2011, on the conversion of a fixed maturity trading security to preferred stock.

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

The Company’s investments in fixed maturity and equity securities classified as AFS are carried at estimated fair value with unrealized gains and losses included in stockholder’s equity as a component of accumulated other comprehensive income (loss), net of taxes.

 

The estimated fair value and gross unrealized losses and OTTI of fixed maturity and equity AFS securities aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011 were as follows:

 

		March 31, 2012
		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI (1)
Less than or equal to six months
Fixed maturity AFS securities
Corporate securities		$	3,647			$	3,755			$	(108	)
Residential mortgage-backed securities			7				7				-
Total fixed maturity and equity securities			3,654				3,762				(108	)
Greater than six months but less than or equal to one year
Fixed maturity AFS securities
Corporate securities			742				786				(44	)
Asset-backed securities			1,562				1,568				(6	)
Total fixed maturity and equity securities			2,304				2,354				(50	)
Greater than one year
Fixed maturity AFS securities
Corporate securities			1,469				1,500				(31	)
Residential mortgage-backed securities			683				781				(98	)
Government and government agencies - foreign			439				462				(23	)
Equity securities - banking securities			72				80				(8	)
Total fixed maturity and equity securities			2,663				2,823				(160	)
Total fixed maturity and equity securities		$	8,621			$	8,939			$	(318	)
		December 31, 2011
		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI (1)
Less than or equal to six months
Fixed maturity AFS securities - corporate securities		$	3,635			$	3,978			$	(343	)
Equity securities - banking securities			1,068				1,148				(80	)
Total fixed maturity and equity securities			4,703				5,126				(423	)
Greater than one year
Fixed maturity AFS securities
Corporate securities			3,890				4,284				(394	)
Asset-backed securities			1,649				1,655				(6	)
Residential mortgage-backed securities			667				826				(159	)
Government and government agencies - foreign			360				461				(101	)
Equity securities - banking securities			63				80				(17	)
Total fixed maturity and equity securities			6,629				7,306				(677	)
Total fixed maturity and equity securities		$	11,332			$	12,432			$	(1,100	)
(1) Subsequent unrealized gains (losses) on OTTI securities are included in OCI-OTTI.

The total number of securities in an unrealized loss position was 17 and 18 at March 31, 2012 and December 31, 2011, respectively.

 

At March 31, 2012, there were no securities whose fair value had declined below amortized cost by greater than 20%. At December 31, 2011 the estimated fair value, gross unrealized losses, OTTI and number of securities where the fair value had declined below amortized cost by greater than 20% were as follows:

 

		December 31, 2011
		Estimated Fair Value				Gross Unrealized Losses/OTTI (1)				Number of Securities
Decline > 20%
Greater than one year		$	423			$	(119	)			2
Total		$	423			$	(119	)			2

 

(1)	Subsequent unrealized gains (losses) on OTTI securities are included in OCI-OTTI.

Unrealized gains (losses) incurred during the three months ended March 31, 2012 and 2011 were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. If the Company has the intent to sell or it is more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, securities are written down to fair value. If cash flow models indicate a credit event will impact future cash flows, the security is impaired to discounted cash flows. As the remaining unrealized losses in the portfolio relate to holdings where the Company expects to receive full principal and interest, the Company does not consider the underlying investments to be impaired.

The components of net unrealized gain (loss) and OTTI included in accumulated other comprehensive income, net of taxes, at March 31, 2012 and December 31, 2011 were as follows:

 

			December 31,				December 31,
		March 31, 2012				December 31, 2011
Assets
Fixed maturity securities		$	13,160			$	12,017
Equity securities			49				(97	)
Value of business acquired			(445	)			(532	)
			12,764				11,388
Liabilities
Policyholder account balances			(72	)			-
Federal income taxes - deferred			(4,504	)			(4,042	)
			(4,576	)			(4,042	)
Stockholder’s equity
Accumulated other comprehensive income, net of taxes		$	8,188			$	7,347

The Company records certain adjustments to policyholder account balances in conjunction with the unrealized holding gains or losses on investments classified as available-for-sale. The Company adjusts a portion of these liabilities as if the unrealized holding gains or losses had actually been realized, with corresponding credits or charges reported in accumulated other comprehensive income (loss), net of taxes.

Derivatives

The Company uses derivatives to manage the capital market risk associated with the GMWB. The derivatives, which are S&P futures contracts, are used to hedge the equity risk associated with these types of variable guaranteed products, in particular the claim and/or revenue risks of the liability portfolio. The Company will not seek hedge accounting on these hedges because, in most cases, the derivatives’ change in value will create a natural offset in the Statements of Income with the change in reserves. Net settlements on the futures occur daily. At March 31, 2012, the Company had 20 outstanding short futures contracts with a notional value of $7,016. At December 31, 2011, the Company had 20 outstanding short futures contracts with a notional value of $6,263.

 

Realized Investment Gains (Losses)

The Company considers fair value at the date of sale to be equal to proceeds received. Proceeds and gross realized investment gains (losses) from the sale of AFS securities for the three months ended March 31 were as follows:

 

			December 31,				December 31,
		Three Months Ended March  31,
		2012				2011
Proceeds		$	2,731			$	1,862
Gross realized investment gains			150				109
Gross realized investment losses			(216	)			-
Proceeds on AFS securities sold at a realized loss			1,783				-

Net realized investment gains (losses) for the three months ended March 31 were as follows:

 

			December 31,				December 31,
		Three Months Ended March 31,
		2012				2011
Fixed maturity securities		$	(66	)		$	109
Derivatives - futures			(782	)			(273	)
Associated amortization of value of business acquired			-				(22	)
Net realized investment losses		$	(848	)		$	(186	)

OTTI

If management determines that a decline in the value of an available-for-sale equity security is other-than-temporary, the cost basis is adjusted to estimated fair value and the decline in value is recorded as a net realized investment loss. For debt securities, the manner in which an OTTI is recorded depends on whether management intends to sell a security or it is more likely than not that it will be required to sell a security in an unrealized loss position before its anticipated recovery. If management intends to sell or more likely than not will be required to sell the debt security before recovery, the OTTI is recognized in earnings for the difference between amortized cost and fair value. If these criteria are not met, the OTTI is bifurcated into two pieces: a credit loss is recognized in earnings at an amount equal to the difference between the amortized cost of the debt security and the present value of the security’s anticipated cash flows, and a non credit loss is recognized in OCI for any difference between the fair value and the net present value of the debt security at the impairment measurement date.

The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts at March 31, 2012 and December 31, 2011:

 

			December 31,				December 31,
		March 31,        2012				December 31,        2011
Balance at beginning of period		$	36			$	25
Additional credit loss impairments recognized in the current period on securities previously impaired through other comprehensive income			-				22
Accretion of credit loss impairments previously recognized			-				(11	)
Balance at end of period		$	36			$	36

For the three months ended March 31, 2012 and 2011, the Company did not record any OTTI in the Statements of Income.