UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

COMMISSION FILE NUMBERS 33-34562; 33-60288; 333-48983; 333-133224

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(Exact name of Registrant as specified in its charter)

 

NEW YORK		16-1020455
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

440 Mamaroneck Avenue

Harrison, NY 10528

(Address of Principal Executive Offices)

1-800-333-6524

(Registrant’s telephone number including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer þ		Smaller reporting company ¨
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS:

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

COMMON 220,000

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

 

 

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PART 1. Financial Information

Item 1. Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

BALANCE SHEETS

 

(dollars in thousands, except share data)		March 31,        2011				December 31,     2010
		(unaudited)				(audited)
ASSETS
Investments
Fixed maturity available-for-sale securities, at estimated fair value (amortized cost: 2011 - $134,223; 2010 - $137,198)		$	142,274			$	145,547
Fixed maturity trading securities			192				1,295
Equity available-for-sale securities, at estimated fair value (cost: 2011 - $1,228; 2010 - $80)			1,239				66
Policy loans			58,625				58,839
Total investments			202,330				205,747
Cash and cash equivalents			33,842				28,617
Accrued investment income			3,049				3,159
Deferred policy acquisition costs			408				364
Deferred sales inducements			149				133
Value of business acquired			29,083				29,639
Goodwill			500				500
Federal income taxes - current			76				113
Reinsurance receivables - net			-				171
Receivable for investments sold - net			7				13
Other assets			3,978				3,498
Separate Accounts assets			638,899				636,012
Total Assets		$	912,321			$	907,966
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Policyholder liabilities and accruals
Policyholder account balances		$	111,965			$	115,096
Future policy benefits			18,272				17,439
Claims and claims settlement expenses			3,795				3,359
Total policyholder liabilities and accruals			134,032				135,894
Other policyholder funds			1,162				594
Federal income taxes - deferred			1,769				1,317
Affiliated payables - net			333				148
Reinsurance payables - net			34				-
Other liabilities			1,303				839
Separate Accounts liabilities			638,899				636,012
Total Liabilities			777,532				774,804
Stockholder’s Equity
Common stock ($10 par value; 220,000 shares authorized, issued and outstanding)			2,200				2,200
Additional paid-in capital			128,638				128,638
Accumulated other comprehensive income, net of taxes			5,438				5,549
Retained deficit			(1,487)				(3,225)
Total Stockholder’s Equity			134,789				133,162
Total Liabilities and Stockholder’s Equity		$	912,321			$	907,966

 

 

See Notes to Financial Statements

 

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TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF INCOME

 

		Three Months Ended     March  31,
(dollars in thousands)		2011				2010
		(unaudited)
Revenues
Policy charge revenue		$	3,611			$	3,653
Net investment income			2,574				2,598
Net realized investment gains (losses)
Other-than-temporary impairment losses on securities			-				-
Portion of other-than-temporary impairment losses recognized in other comprehensive income			-				-
Portion of other-than-temporary impairments previously recognized in other comprehensive income			-				-
Net other-than-temporary impairment losses on securities recognized in income			-				-
Net realized investment gains (losses), excluding other-than-temporary impairment losses on securities			(186)				545
Net realized investment gains (losses)			(186)				545
Total Revenues			5,999				6,796
Benefits and Expenses
Interest credited to policyholder liabilities			1,220				1,393
Policy benefits (net of reinsurance recoveries: 2011 - $128; 2010 - $69)			610				302
Reinsurance premium ceded			104				288
Accretion of deferred policy acquisition costs			(44)				(16)
Amortization of value of business acquired			642				470
Insurance expenses and taxes			1,204				1,456
Total Benefits and Expenses			3,736				3,893
Income Before Taxes			2,263				2,903
Federal Income Tax Expense (Benefit)
Current			37				57
Deferred			488				(57)
Federal Income Tax Expense (Benefit)			525				-
Net Income		$	1,738			$	2,903

 

 

 

See Notes to Financial Statements

 

2

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TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF COMPREHENSIVE INCOME

 

		Three Months Ended     March  31,
(dollars in thousands)		2011				2010
		(unaudited)
Net Income		$	1,738			$	2,903
Other Comprehensive Income (Loss)
Net unrealized gains (losses) on available-for-sale securities
Net unrealized holding gains (losses) arising during the period			(181	)			2,970
Reclassification adjustment for gains included in net income			(94	)			(681	)
			(275	)			2,289
Net unrealized other-than-temporary impairments on securities
Net unrealized other-than-temporary impairment losses arising during the period			-				-
Change in previously recognized unrealized other-than-temporary impairments			1				-
Reclassification adjustment for other-than-temporary impairments included in net income			-				-
			1				-
Adjustments
Policyholder liabilities			19				34
Value of business acquired			107				25
Deferred federal income taxes			37				(833	)
			163				(774	)
Total other comprehensive income (loss), net of taxes			(111	)			1,516
Comprehensive Income		$	1,627			$	4,418

 

 

 

 

See Notes to Financial Statements

 

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TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF STOCKHOLDER’S EQUITY

 

(dollars in thousands)		March 31, 2011				December 31, 2010
		(unaudited)				(audited)
Common Stock		$	2,200			$	2,200
Additional Paid-in Capital		$	128,638			$	128,638
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period		$	5,549			$	2,050
Total other comprehensive income (loss), net of taxes			(111)				3,499
Balance at end of period		$	5,438			$	5,549
Retained Earnings (Deficit)
Balance at beginning of period		$	(3,225)			$	(15,330)
Net income			1,738				12,105
Balance at end of period		$	(1,487)			$	(3,225)
Total Stockholder’s Equity		$	134,789			$	133,162

 

 

 

 

 

See Notes to Financial Statements

 

4

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TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF CASH FLOWS

 

		Three Months Ended     March  31,
(dollars in thousands)		2011				2010
		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	1,738			$	2,903
Adjustment to reconcile net income to net cash and cash equivalents provided by operating activities:
Changes in:
Deferred policy acquisition costs			(44	)			12
Deferred sales inducements			(16	)			(3	)
Value of business acquired			642				470
Benefit reserves			456				(43	)
Federal income tax accruals			526				(117	)
Claims and claims settlement expenses			436				1,913
Other policyholder funds			568				18
Other operating assets and liabilities, net			489				(1,552	)
Amortization (accretion) of investments			31				(5	)
Interest credited to policyholder liabilities			1,220				1,393
Net change in fixed maturity trading securities			(44	)			-
Net realized investment (gains) losses			186				(545	)
Net cash and cash equivalents provided by operating activities			6,188				4,444
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of available-for-sale securities			1,862				22,519
Maturities of available-for-sale securities			1,190				3,506
Purchases of available-for-sale securities			(1,148	)			(61,633	)
Sales of fixed maturity trading securities			1,147				-
Net settlements on futures contracts			(273	)			(296	)
Policy loans on insurance contracts, net			214				756
Net cash and cash equivalents provided by (used in) investing activities			2,992				(35,148	)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder deposits			160				84
Policyholder withdrawals			(4,115	)			(4,103	)
Net cash and cash equivalents used in financing activities			(3,955	)			(4,019	)
Net increase (decrease) in cash and cash equivalents (1)			5,225				(34,723	)
Cash and cash equivalents, beginning of year			28,617				49,423
Cash and cash equivalents, end of period		$	33,842			$	14,700

(1) Included in net increase (decrease) in cash and cash equivalents is interest paid (2011 - $0; 2010 - $1); interest received (2011 - $0; 2010 - $1); Federal income taxes paid (2011 - $0; 2010 - $205); Federal income taxes received (2011 - $0; 2010 - $88).

 

 

See Notes to Financial Statements

 

5

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TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

NOTES TO FINANCIAL STATEMENTS (unaudited)

(Dollars in Thousands)

 

 

Note 1. Summary of Significant Accounting Policies

 

Basis of Presentation

Transamerica Advisors Life Insurance Company of New York (“TALNY” or the “Company”) is a wholly owned subsidiary of AEGON USA, LLC (“AUSA”). AUSA is an indirect wholly owned subsidiary of AEGON N.V., a limited liability share company organized under Dutch law.

For a complete discussion of the Company’s 2010 Financial Statements and accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The interim Financial Statements for the three months are unaudited; however in the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the Financial Statements have been included. These unaudited Financial Statements should be read in conjunction with the audited Financial Statements included in the 2010 Annual Report on Form 10-K. The nature of the Company’s business is such that results of any interim period are not necessarily indicative of results for a full year.

Basis of Reporting

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The Company also submits financial statements to insurance industry regulatory authorities, which are prepared on the basis of statutory accounting principles (“SAP”). The significant accounting policies and related judgments underlying the Company’s financial statements are summarized below.

Certain reclassifications and format changes have been made to prior period financial statements, where appropriate, to conform to the current period presentation. These reclassifications have no effect on net income or stockholder’s equity of the prior periods.

Accounting Estimates and Assumptions

The preparation of financial statements requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets, asset valuation allowances, deferred policy acquisition costs, deferred sales inducements, value of business acquired, goodwill, policyholder liabilities, income taxes, and potential effects of unresolved litigated matters.

Subsequent Events

The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are issued, provided they give evidence of conditions that existed at the balance sheet date.

Events that are indicative of conditions that arose after the balance sheet date are disclosed, but do not result in an adjustment of the financial statements themselves.

Recent Accounting Guidance

Current Adoption of Recent Accounting Guidance

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures

On January 1, 2011, the Company adopted guidance (Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements) requiring separate presentation of information about purchases, sales, issuances, and settlements in the Level 3 reconciliation for fair value measurements using significant unobservable inputs. The adoption affected disclosures but did not impact the Company’s results of operations or financial position.

 

6

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ASC 944, Financial Services—Insurance

On January 1, 2011, the Company adopted guidance (ASU 2010-15, How Investments Held Through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments) clarifying that an insurance entity should not consider any separate account interest held for the benefit of policyholders in an investment to be the insurer’s interests and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation. The adoption did not have a material impact on the Company’s results of operations and financial position.

ASC 350, Intangibles—Goodwill and Other

On January 1, 2011 the Company adopted guidance (ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts) which requires entities with a zero or negative carrying value to assess, considering qualitative factors, whether it is more likely than not that a goodwill impairment exists. If an entity concludes that it is more likely than not that a goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. The adoption did not have a material impact on the Company’s results of operations and financial position.

Accounting Guidance Adopted in 2010

ASC 820, Fair Value Measurements and Disclosures

The Company adopted guidance (ASU 2010-06, Improving Disclosures about Fair Value Measurements) which included new disclosures and clarifications of existing disclosures about fair value measurements for the period ended March 31, 2010. The guidance requires disclosure of significant transfers in and out of Levels 1 and 2 of the fair value hierarchy and reasons for the transfers. Additionally, the ASU clarifies the level of disaggregation for fair value disclosures, requiring disclosures for each class of assets and liabilities. The guidance clarified that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The adoption required updates to the Company’s financial statement disclosures, but did not impact the Company’s results of operations or financial position.

Future Adoption of Accounting Guidance

ASC 944, Financial Services—Insurance

In October 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. This guidance modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. An insurance entity may only capitalize incremental direct costs of contract acquisition, the portion of employees’ compensation directly related to time spent performing specified acquisition activities for a contract that has actually been acquired, other costs related directly to specified activities that would not have been incurred had the acquisition contract transaction not occurred, and advertising costs that meet capitalization criteria in other GAAP guidance. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt the guidance on January 1, 2012 and is currently evaluating its impact on the Company’s results of operations and financial position.

 

 

Note 2. Fair Value of Financial Instruments

 

Fair Value Measurements

ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

Fair Value Hierarchy

The Company has categorized its financial instruments into a three level hierarchy which is based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

 

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Assets and liabilities recorded at fair value on the Balance Sheets are categorized as follows:

Level 1. Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2. Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

a)

Quoted prices for similar assets or liabilities in active markets

b)

Quoted prices for identical or similar assets or liabilities in non-active markets

c)

Inputs other than quoted market prices that are observable

d)

Inputs that are derived principally from or corroborated by observable market data through correlation or other means

Level 3. Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The Company recognizes transfers between levels at the beginning of the quarter.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis:

 

		March 31, 2011
		Level 1				Level 2				Level 3				Total
Assets
Fixed maturity available-for-sale (“AFS”) securities (a)
Corporate securities		$	-			$	103,546			$	-			$	103,546
Asset-backed securities			-				4,305				-				4,305
Commercial mortgage-backed securities			-				27,100				-				27,100
Residential mortgage-backed securities			-				1,112				-				1,112
Government and government agencies
United States			2,887				-				-				2,887
Foreign			2,360				964				-				3,324
Total fixed maturity AFS securities (a)			5,247				137,027				-				142,274
Fixed maturity trading securities - corporate securities (a)			-				192				-				192
Equity securities - banking securities (a)			-				1,239				-				1,239
Cash equivalents (b)			-				34,521				-				34,521
Separate Accounts assets (c)			638,899				-				-				638,899
Total assets		$	644,146			$	172,979			$	-			$	817,125
Liabilities
Future policy benefits (embedded derivatives only) (d)		$	-			$	-			$	(4,343)			$	(4,343)
Total liabilities		$	-			$	-			$	(4,343)			$	(4,343)

 

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		December 31, 2010
		Level 1				Level 2				Level 3				Total
Assets
Fixed maturity AFS securities (a)
Corporate securities		$	-			$	106,361			$	-			$	106,361
Asset-backed securities			-				4,434				-				4,434
Commercial mortgage-backed securities			-				27,232				-				27,232
Residential mortgage-backed securities			-				1,202				-				1,202
Government and government agencies
United States			2,936				-				-				2,936
Foreign			2,401				981				-				3,382
Total fixed maturity AFS securities (a)			5,337				140,210				-				145,547
Fixed maturity trading securities - corporate securities (a)			-				1,295				-				1,295
Equity securities - banking securities (a)			-				66				-				66
Cash equivalents (b)			-				29,722				-				29,722
Separate Accounts assets (c)			636,012				-				-				636,012
Total assets		$	641,349			$	171,293			$	-			$	812,642
Liabilities
Future policy benefits (embedded derivatives only) (d)		$	-			$	-			$	(4,973)			$	(4,973)
Total liabilities		$	-			$	-			$	(4,973)			$	(4,973)

 

(a)

Securities are classified as Level 1 if the fair value is determined by observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasury and U.S. Government Agency securities. Securities are classified as Level 2 if the fair value is determined by observable inputs, other than quoted prices included in Level 1, for the asset or prices for similar assets. Level 2 securities include fixed maturity securities and preferred stock for which the Company utilized pricing services and corroborated broker quotes. Securities are classified as Level 3 if the valuations are derived from techniques in which one or more of the significant inputs are unobservable.

(b)	Cash equivalents are primarily valued at amortized cost, which approximates fair value. Operating cash is not included in the abovementioned table.

(c)	Separate Accounts assets are carried at the net asset value provided by the fund managers.

(d)

The Company issued contracts containing guaranteed minimum withdrawal benefits riders (“GMWB”) and obtained reinsurance on guaranteed minimum income benefit riders (“GMIB reinsurance”). GMWB and GMIB reinsurance are treated as embedded derivatives and are required to be reported separately from the host variable annuity contract. The fair value of these guarantees is calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees, their fair values are determined using stochastic techniques under a variety of market return, discount rates and actuarial assumptions. Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 of the fair value hierarchy.

During 2011, there were no transfers between Level 1 and 2, respectively.

 

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There were no Level 3 assets at March 31, 2011. The following table provides a summary of the change in fair value of the Company’s Level 3 assets at December 31, 2010:

 

Fixed maturity AFS securities		December 31, 2010
Balance at beginning of period (a)		$	2,216
Change in unrealized gains (losses) (b)			22
Sales			(29	)
Transfers out of Level 3			(2,213	)
Changes in valuation (c)			4
Balance at end of period (a)		$	-

 

(a)	Recorded as a component of fixed maturity AFS securities in the Balance Sheets.

(b)	Recorded as a component of other comprehensive income (loss).

(c)	Recorded as a component of net investment income in the Statements of Income.

In certain circumstances, the Company will obtain non-binding broker quotes from brokers to assist in the determination of fair value. If those quotes can be corroborated by other market observable data, the investments will be classified as Level 2 investments. If not, the investments are classified as Level 3 due to the unobservable nature of the brokers’ valuation processes.

The Company’s Level 3 liabilities (assets) consist of provisions for GMWB and GMIB reinsurance. The fair value of these guarantees is calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined using stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including expected market rates of return, equity and interest rate volatility, credit spread, correlations of market returns, discount rates and actuarial assumptions.

The expected returns are based on risk-free rates, such as the current London Inter-Bank Offered Rate (“LIBOR”) forward curve. The credit spread is set by using the credit default swap (“CDS”) spreads of a reference portfolio of life insurance companies, adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors).

For equity volatility, the Company uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 24.4% at March 31, 2011 and 24.8% at December 31, 2010. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities. These assumptions are reviewed at each valuation date and updated based on historical experience and observable market data as required.

 

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The following table provides a summary of the changes in fair value of the Company’s Level 3 liabilities (assets) at March 31, 2011 and December 31, 2010:

 

		March 31, 2011								December 31, 2010
		GMWB				GMIB Reinsurance				GMWB				GMIB Reinsurance
Balance at beginning of period (b)		$	529			$	(5,502)			$	1,263			$	(5,745)
Changes in interest rates (a)			(224)				494				527				(799)
Changes in equity markets (a)			(13)				373				28				315
Other (a)			-				-				(1,289)				727
Balance at end of period (b)		$	292			$	(4,635)			$	529			$	(5,502)

 

(a)	Recorded as a component of policy benefits in the Statements of Income.

(b)	Recorded as a component of future policy benefits in the Balance Sheets.

During the three months ended March 31, 2011, the decrease in the GMWB and GMIB reinsurance was primarily driven by increased risk neutral rates and favorable equity market performance. During 2010, the decrease in the GMWB and GMIB reinsurance was principally driven by a decline in risk neutral rates and updated policyholder behavior assumptions partially offset by improved equity markets.

 

 

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, 2011 and December 31, 2010 were:

 

		March 31, 2011
		Amortized Cost/Cost				Gross Unrealized								Estimated Fair Value
						Gains				Losses/ OTTI (1)
Fixed maturity AFS securities
Corporate securities		$	78,754			$	5,930			$	(326)			$	103,546
Asset-backed securities			4,160				145				-				4,305
Commercial mortgage-backed securities			24,711				2,389				-				27,100
Residential mortgage-backed securities			1,235				20				(143)				1,112
Government and government agencies
United States			2,983				41				(137)				2,887
Foreign			3,192				224				(92)				3,324
Total fixed maturity AFS securities		$	115,036			$	8,749			$	(698)			$	142,274
Equity securities - preferred stocks
Banking securities		$	1,228			$	22			$	(11)			$	1,239
Total equity securities		$	1,228			$	22			$	(11)			$	1,239

 

11

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		December 31, 2010
		Amortized Cost/Cost				Gross Unrealized								Estimated Fair Value
						Gains				Losses/ OTTI (1)
Fixed maturity AFS securities
Corporate securities		$	100,552			$	6,198			$	(389)			$	106,361
Asset-backed securities			4,286				148				-				4,434
Commercial mortgage-backed securities			24,859				2,373				-				27,232
Residential mortgage-backed securities			1,320				23				(141)				1,202
Government and government agencies
United States			2,986				58				(108)				2,936
Foreign			3,195				275				(88)				3,382
Total fixed maturity AFS securities		$	137,198			$	9,075			$	(726)			$	145,547
Equity securities - preferred stocks
Banking securities		$	80			$	-			$	(14)			$	66
Total equity securities		$	80			$	-			$	(14)			$	66

(1) Subsequent unrealized gains (losses) on other-than-temporary (“OTTI”) securities are included in Other Comprehensive Income (“OCI”)-OTTI.

Excluding investments in United States 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, 2011 and December 31, 2010 were:

 

		March 31, 2011								December 31, 2010
		Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Investment grade		$	130,045			$	137,923			$	132,510			$	140,665
Below investment grade			4,178				4,351				4,688				4,882
Total fixed maturity AFS securities		$	134,223			$	142,274			$	137,198			$	145,547

The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to Standard & Poor’s (“S&P”) BBB- or higher (or similar rating agency). At March 31, 2011 and December 31, 2010, the estimated fair value of fixed maturity securities rated BBB- were $9,854 and $11,174, respectively, which is the lowest investment grade rating given by S&P.

 

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The amortized cost and estimated fair value of fixed maturity AFS securities at March 31, 2011 and December 31, 2010 by contractual maturities were:

 

		March 31, 2011								December 31, 2010
		Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Fixed maturity AFS securities
Due in one year or less		$	200			$	208			$	415			$	417
Due after one year through five years			34,977				36,836				30,148				31,240
Due after five years through ten years			59,235				62,858				65,964				70,502
Due after ten years			9,705				9,855				10,206				10,520
			104,117				109,757				106,733				112,679
Mortgage-backed securities and other asset-backed securities			30,106				32,517				30,465				32,868
Total fixed maturity AFS securities		$	134,223			$	142,274			$	137,198			$	145,547

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, 2011 there was $22 of investment income on fixed maturity trading securities and $19 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 three months 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.

 

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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, 2011 and December 31, 2010 were as follows:

 

		March 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		$	7,665			$	8,486			$	(326)
Government and government agencies - United States			1,946				2,083				(137)
Total fixed maturity and equity securities			9,612				10,569				(463)
Greater than six months but less than or equal to one year
Fixed maturity AFS securities - residential mortgage-backed securities			3				3				-
Total fixed maturity and equity securities			3				3				-
Greater than one year
Fixed maturity AFS securities
Residential mortgage-backed securities			781				924				(143)
Government and government agencies - foreign			369				461				(92)
Equity securities - banking securities			69				80				(11)
Total fixed maturity and equity securities			1,219				1,465				(246)
Total fixed maturity and equity securities		$	10,833			$	12,037			$	(709)

 

		December 31, 2010
		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		$	9,862			$	10,238			$	(376)
Residential mortgage-backed securities			3				3				-
Government and government agencies - United States			921				1,029				(108)
Total fixed maturity and equity securities			10,786				11,270				(484)
Greater than one year
Fixed maturity AFS securities
Corporate securities			771				784				(13)
Residential mortgage-backed securities			812				953				(141)
Government and government agencies - foreign			373				461				(88)
Equity securities - banking securities			66				80				(14)
Total fixed maturity and equity securities			2,022				2,278				(256)
Total fixed maturity and equity securities		$	12,808			$	13,548			$	(740)

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

The total number of securities in an unrealized loss position was 12 and 11 at March 31, 2011 and December 31, 2010, respectively. At March 31, 2011 and December 31, 2010, there were no securities whose fair value had declined below amortized cost by greater than 20%, respectively.

Unrealized gains (losses) incurred during the three months ended March 31, 2011 and 2010 were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. As the Company does not have the intent to sell and it is

 

14

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not more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, the Company did not consider these securities to be other-than-temporarily impaired.

The components of net unrealized gain (loss) and OTTI included in accumulated other comprehensive income, net of taxes, at March 31, 2011 and December 31, 2010 was as follows:

 

		March 31, 2011				December 31, 2010
Assets
Fixed maturity securities		$	8,051			$	8,349
Equity securities			11				(14	)
Value of business acquired			(20	)			(127	)
			8,042				8,208
Liabilities
Policyholder account balances			388				369
Federal income taxes - deferred			(2,992	)			(3,028	)
			(2,604	)			(2,659	)
Stockholder’s equity
Accumulated other comprehensive income, net of taxes		$	5,438			$	5,549

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.

Policy Loans

Policy loans on insurance contracts are stated at unpaid principal balances. The Company estimates the fair value of policy loans as equal to the book value of the loans. The estimated fair value of the policy loans at March 31, 2011 and December 31, 2010 was $58,625 and $58,839, respectively. Policy loans are fully collateralized by the account value of the associated insurance contracts, and the spread between the policy loan interest rate and the interest rate credited to the account value held as collateral is fixed.

Derivatives

The Company uses derivatives to manage the capital market risk associated with the GMWB. The derivatives, which are S&P 500 Composite Stock Price Index 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, 2011, the Company had 10 outstanding short futures contracts with a notional value of $3,303. At December 31, 2010, the Company had 20 outstanding short futures contracts with a notional value of $6,265.

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:

 

		Three Months Ended March 31,
		2011				2010
Proceeds		$	1,862			$	22,519
Gross realized investment gains			109				841
Gross realized investment losses			-				(0)
Proceeds on AFS securities sold at a realized loss			-				789

 

15

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

 

		Three Months Ended March 31,
		2011				2010
Fixed maturity securities		$	109			$	841
Derivatives - futures			(273)				(296)
Associated amortization of value of business acquired			(22)				-
Net realized investment gains (losses)		$	(186)			$	545

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, 2011 and December 31, 2010:

 

			December 31,			December 31,
		March 31, 2011				December 31, 2010
Balance at beginning of period		$	25			$              -
Credit loss impairment recognized in the current period on securities not previously impaired			-			48
Accretion of credit loss impairments previously recognized			(7)			(23)
Balance at end of period		$	18			$              25

For the three months ended March 31, 2011 and 2010, the Company did not record any OTTI in the Statements of Income, respectively.

 

 

Note 4. Value of Business Acquired (“VOBA”), Deferred Acquisition Costs (“DAC”), and Deferred Sales Inducements (“DSI”)

 

VOBA

VOBA reflects the estimated fair value of in force contracts acquired and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, for each block of business, of future policy and contract charges, premiums, mortality, Separate Account performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. If estimated gross profits or premiums differ from expectations, the amortization of VOBA is adjusted to reflect actual experience.

The short-term equity growth rate and the long-term growth rate for the amortization of VOBA, DAC and DSI were as follows:

 

		March 31, 2011				December 31, 2010				March 31, 2010
Gross short-term equity growth rate for five years			9.00  %				9.00  %				6.75  %
Gross long-term growth rate			9.00  %				9.00  %				9.00  %

 

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The change in the carrying amount of VOBA for the three months ended March 31 was as follows:

 

				Three Months Ended March  31,
				2011				2010
Amortization expense				$	(976)			$	(663)
Unlocking					334				193
Adjustment related to realized gains on investments					(22)				-
Adjustment related to unrealized losses and OTTI on investments					108				25
Change in VOBA carrying amount				$	(556)			$	(445)

During the three months ended March 31, 2011, continued favorable equity market performance resulted in higher projected gross profits resulting in an increase in amortization and favorable unlocking as compared to the same period in 2010.

DAC and DSI

The carrying amount of DAC and DSI for the three months ended March 31 was as follows:

 

				Three Months Ended March 31,
DAC				2011				2010
Capitalization				$	-			$	(28)
Accretion expense					100				15
Unlocking					(56)				1
Change in DAC carrying amount				$	44			$	(12)
				Three Months Ended March 31,
DSI				2011				2010
Accretion expense				$	37			$	6
Unlocking					(21)				(3)
Change in DSI carrying amount				$	16			$	3

 

 

Note 5. Variable Contracts Containing Guaranteed Benefits

 

The Company records liabilities for contracts containing guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) as a component of future policy benefits in the Balance Sheets and changes in the liabilities are included as a component of policy benefits in the Statements of Income.

The components of the changes in the variable annuity GMDB and GMIB liabilities for the three months ended March 31 were as follows:

 

				Three Months Ended March 31,
GMDB				2011				2010
Guaranteed benefits incurred				$	449			$	544
Guaranteed benefits paid					(148)				(174)
Unlocking					(300)				(228)
Change in GMDB				$	1			$	142

 

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			December 31,				December 31,
		Three Months Ended March 31,
GMIB		2011				2010
Guaranteed benefits incurred		$	170			$	323
Unlocking			(303)				(122)
Change in GMIB		$	(133)			$	201

During the three months ended March 31, 2011, continued favorable equity market performance resulted in a decrease in estimated future benefits causing more favorable unlocking as compared to the same period in 2010.

The variable annuity GMDB liability at March 31, 2011 and December 31, 2010 was $11 and $10, respectively. The variable annuity GMIB liability at March 31, 2011 and December 31, 2010 was $1,880 and $2,013, respectively.

The Company has issued variable life contracts in which the Company contractually guarantees to the contract owner a GMDB. In general, contracts containing GMDB provisions provide a death benefit equal to the amount specified in the contract regardless of the level of the contract’s account value. For the three months ended March 31, 2011 and 2010, an insignificant amount of variable life guaranteed benefits were recorded as policy benefits in the Statements of Income as incurred or paid.

 

 

Note 6. Federal Income Taxes

 

The effective tax rate was 23% and 0% for the three months ended March 31, 2011 and 2010, respectively. Differences between the effective rate and the U.S. statutory rate of 35% principally were the result of Separate Accounts dividends-received deduction (“DRD”) and the valuation allowance on net operating loss carryforward.

At March 31, 2011, the Company did not have a tax valuation allowance for deferred tax assets. The tax valuation allowance was deemed no longer necessary at December 31, 2010 as management determined that it is more likely than not that the deferred tax assets will be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies in making the assessment.

The Company has analyzed all material tax positions under the guidance of ASC 740, Income Taxes, related to the accounting for uncertainty in income tax, and determined there were tax benefits of $403 (gross $1,152) that should not be recognized at March 31, 2011 and December 31, 2010, respectively, which primarily relates to uncertainty regarding the sustainability of certain deductions taken on the 2009 and 2008 U.S. Federal income tax return. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in a future period. It is not anticipated that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date.

The components of the change in the unrecognized tax benefits were as follows:

 

			December 31,				December 31,
		March 31,   2011				December 31,   2010
Unrecognized tax benefits, beginning balance		$	403			$	343
Additions for tax positions of prior years			-				60
Unrecognized tax benefits, ending balance		$	403			$	403

At March 31, 2011 and December 31, 2010, the Company had an operating loss carryforward for federal income tax purposes of $4,482 (net of the ASC 740 reduction of $1,152) and $7,059 (net of the ASC 740 reduction of $1,152), respectively, with a carryforward period of fifteen years that expire at various dates up to 2023. The Company has a foreign tax credit carryforward at March 31, 2011 and December 31, 2010 of $452 and $343, respectively, with a carryforward period of ten years that will expire at various dates up to 2021. Also, the Company has an Alternative Minimum Tax tax credit carryforward for federal income tax purposes of $211 and $174 at March 31, 2011 and December 31, 2010, respectively, with an indefinite carryforward period.

The Company classifies interest and penalties related to income taxes as interest expense and penalty expense, respectively. The Company hasn’t incurred or recognized any penalties in its financial statements at March 31, 2011 and December 31, 2010, respectively. The Company did not recognize any interest expense at March 31, 2011. The Company recognized interest expense

 

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of ($11) at December 31, 2010. The accrued interest expense related to federal income tax was released during 2010 based on the expectation that the net operating loss will offset any taxable income generated by the uncertain tax position for the Company in future tax periods.

The Company files a separate federal income tax return for the years 2008 through 2012. Beginning in 2013 and assuming no changes in ownership, the Company will join the affiliated consolidated tax group. A tax return has been filed for 2009 and 2008, but no examination by the Internal Revenue Service has commenced.

 

 

Note 7. Stockholder’s Equity and Statutory Accounting Principles

 

The Company’s statutory financial statements are presented on the basis of accounting practices prescribed or permitted by the New York Insurance Department. The State of New York has adopted the National Association of Insurance Commissioners (“NAIC”) statutory accounting principles as a component of prescribed or permitted practices by the State of New York.

The Company’s statutory net income for the three months ended March 31, 2011 and 2010 was $4,279 and $5,011, respectively. Statutory capital and surplus at March 31, 2011 and December 31, 2010 was $98,462 and $95,501, respectively.

During the first quarter 2011 and 2010, the Company did not pay any dividends to AUSA or receive any capital contributions from AUSA.

 

 

Note 8. Reinsurance

 

In the normal course of business, the Company seeks to limit its exposure to loss on any single insured life and to recover a portion of benefits paid by ceding mortality risk to other insurance enterprises or reinsurers under indemnity reinsurance agreements, primarily quota share coverage and coinsurance agreements. The maximum amount of mortality risk retained by the Company is approximately $1,000 on single and joint life policies.

Indemnity reinsurance agreements do not relieve the Company from its obligations to contract owners. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its reinsurers so as to minimize its exposure to significant losses from reinsurer insolvencies. At March 31, 2011 and December 31, 2010, reinsurance receivables (payables) were ($34) and $171, respectively. At March 31, 2011 and December 31, 2010, respectively, the reinsurance reserve was $89.

The Company is party to an indemnity reinsurance agreement with an unaffiliated insurer whereby the Company coinsures, on a modified coinsurance basis, 50% of the unaffiliated insurer’s variable annuity contracts sold from January 1, 1997 to June 30, 2001.

In addition, the Company seeks to limit its exposure to guaranteed benefit features contained in certain variable annuity contracts. Specifically, the Company reinsures certain GMIB and GMDB provisions to the extent reinsurance capacity is available in the marketplace. At March 31, 2011 and December 31, 2010, 58% and 7% of the account value for variable annuity contracts containing GMIB and GMDB provisions, respectively, were reinsured.

 

 

Note 9. Related Party Transactions

 

At March 31, 2011, the Company had the following related party agreements in effect:

The Company is party to a common cost allocation service agreement between AUSA companies in which various affiliated companies may perform specified administrative functions in connection with the operation of the Company, in consideration of reimbursement of actual costs of services rendered. During the three months ended March 31, 2011 and 2010, the Company incurred $141 and $436, respectively, in expenses under this agreement. Charges attributable to this agreement are included in insurance expenses and taxes, net of amounts capitalized.

AEGON USA Investment Management, LLC acts as a discretionary investment manager under an investment management agreement with the Company. During the three months ended March 31, 2011 and 2010, the Company incurred $52 and $47, respectively, in expenses under this agreement. Charges attributable to this agreement are included in net investment income.

 

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Transamerica Capital, Inc. provides underwriting and distribution services for the Company under an underwriting agreement. During the three months ended March 31, 2011 and 2010, the Company incurred $731 and $707, respectively, in expenses under this agreement. Charges attributable to this agreement are included in insurance expenses and taxes, net of amounts capitalized.

Transamerica Asset Management, Inc. acts as the investment advisor for certain related party funds in the Company’s Separate Accounts under multiple service agreements. During the three months ended March 31, 2011, the Company incurred $4 in expenses under this agreement. During the three months ended March 31, 2010, the Company did not incur any expenses under these agreements.

The Company has a participation agreement with Transamerica Series Trust to offer certain funds in the Company’s Separate Accounts. Transamerica Capital, Inc. acts as the distributor for said related party funds. The Company has also entered into a distribution and shareholder services agreement for certain of the said funds. During the three months ended March 31, 2011, the Company received $20 under this agreement, respectively. During the three months ended March 31, 2010, the Company did not receive any revenue under these agreements. Revenue attributable to this agreement is included in policy charge revenue.

The Company has a service agreement with Western Reserve Life Assurance Co. of Ohio (“WRL”) whereby WRL will perform specified administrative functions in connection with the operation of the Company except to the extent that the services are performed for the Company by another party. During the three months ended March 31, 2011 and 2010, the Company incurred $176 and $45, respectively, in expenses under this agreement.

While management believes that the service agreements referenced above are calculated on a reasonable basis, they may not necessarily be indicative of the costs that would have been incurred with an unrelated third party. Affiliated agreements generally contain reciprocal indemnity provisions pertaining to each party’s representations and contractual obligations thereunder.

 

 

Note 10. Segment Information

 

In reporting to management, the Company’s operating results are categorized into two business segments: Annuity and Life Insurance. The Company’s Annuity segment consists of variable annuities and interest-sensitive annuities. The Company’s Life Insurance segment consists of variable life insurance products and interest-sensitive life insurance products. The accounting policies of the business segments are the same as those for the Company’s financial statements included herein. All revenue and expense transactions are recorded at the product level and accumulated at the business segment level for review by management. The following tables summarize each business segment’s contribution to select Statements of Income information for the three months ended:

 

			Insurance				Insurance				Insurance
		Annuity				Life     Insurance				Total
March 31, 2011
Net revenues (a)		$	3,078			$	1,701			$	4,779
Amortization of VOBA			343				299				642
Policy benefits (net of reinsurance recoveries)			457				153				610
Federal income tax expense			246				279				525
Net income			1,012				726				1,738
March 31, 2010
Net revenues (a)		$	3,888			$	1,515			$	5,403
Amortization of VOBA			140				330				470
Policy benefits (net of reinsurance recoveries)			(177	)			479				302
Federal income tax expense (benefit)			(11	)			11				-
Net income			2,495				408				2,903

 

(a)	Net revenues include total revenues net of interest credited to policyholder liabilities.

 

 

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Item 2. Management’s Narrative Analysis of Results of Operations

This Management’s Narrative Analysis of Results of Operations should be read in conjunction with the Financial Statements and Notes to Financial Statements included herein.

Forward Looking Statements

Certain statements in this report may be considered forward-looking, including those about management expectations, strategic objectives, growth opportunities, business prospects, anticipated financial results and other similar matters. These forward-looking statements represent only management’s beliefs regarding future performance, which is inherently uncertain. There are a variety of factors, many of which are beyond the Company’s control, which affect its operations, performance, business strategy and results and could cause its actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, actions and initiatives taken by current and potential competitors, general economic conditions, the effects of current, pending and future legislation, regulation and regulatory actions, and the other risks and uncertainties detailed in this report. See Risk Factors in the 2010 Annual Report on Form 10-K. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. The Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. The reader should, however, consult further disclosures the Company may make in future filings of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

 

Business

 

Overview

Transamerica Advisors Life Insurance Company of New York (“TALNY”, “Registrant”, the “Company”, “we”, “our”, or “us”) is a wholly owned subsidiary of AEGON USA, LLC (“AUSA”). AUSA is an indirect wholly owned subsidiary of AEGON N.V., a limited liability share company organized under Dutch law. The Company is domiciled in New York.

TALNY conducts its business primarily in the annuity markets and to a lesser extent in the life insurance markets of the financial services industry. The Company offered the following guaranteed benefits within its variable annuity product suite: guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”) and guaranteed minimum withdrawal benefits (“GMWB”).

The Company’s gross earnings are principally derived from two sources:

 

•

the charges imposed on variable annuity and variable life insurance contracts, and

 

•

the net earnings from investment of fixed rate life insurance and annuity contract owner deposits less interest credited to contract owners, commonly known as interest spread.

The costs associated with acquiring contract owner deposits (deferred policy acquisition costs) are amortized over the period in which the Company anticipates holding those funds, as noted in the Critical Accounting Policies and Estimates section below. Insurance expenses and taxes reported in the Statements of Income are net of amounts deferred. In addition, the Company incurs expenses associated with the maintenance of in force contracts.

 

 

Deposits

 

Total direct deposits (including internal exchanges) were $0.2 million and $0.1 million for the three months ended March 31, 2011 and 2010, respectively. Internal exchanges during the three months ended March 31, 2011 were less than $0.1 million. There were no internal exchanges during the three months ended March 31, 2010.

 

 

Financial Condition

 

At March 31, 2011, the Company’s assets were $912.3 million or $4.4 million higher than the $908.0 million in assets at December 31, 2010. Assets excluding Separate Accounts assets increased $1.5 million. Separate Accounts assets, which represent 70% of total assets, increased $2.9 million to $638.9 million.

 

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Changes in Separate Accounts assets were as follows:

 

(dollars in millions)		Three Months Ended       March 31, 2011
Investment performance		$	26.8
Deposits			0.2
Policy fees and charges			(3.2)
Surrenders, benefits and withdrawals			(20.9)
Net change		$	2.9

During the first three months of 2011 and 2010, the Company did not have any fixed contract owner deposits, respectively. During the first three months of 2011 and 2010, fixed contract owner withdrawals were $2.6 million and $3.0 million, respectively.

 

 

Environment

 

The Company’s financial position and/or results of operations are primarily impacted by the following economic factors: equity market performance, fluctuations in medium term interest rates, and the corporate credit environment via credit quality and fluctuations in credit spreads. The following discusses the impact of each economic factor.

Equity Market Performance

The investment performance of the underlying U.S. equity-based mutual funds supporting the Company’s variable products do not replicate the returns of any specific U.S. equity market index. However, investment performance will generally increase or decrease with corresponding increases or decreases of the overall U.S. equity market. There are several standard indices published on a daily basis that measure performance of selected components of the U.S. equity market. Examples include the Dow Jones Industrial Average (“Dow”), the NASDAQ Composite Index (“NASDAQ”) and the Standard & Poor’s 500 Composite Stock Price Index (“S&P”). The Dow, NASDAQ and S&P ended March 31, 2011 with increases of 6%, 5% and 5%, respectively, from December 31, 2010.

Changes in the U.S. equity market directly affect the values of the underlying U.S. equity-based mutual funds supporting Separate Accounts assets and, accordingly, the values of variable contract owner account balances. Approximately 76% of Separate Accounts assets were invested in equity-based mutual funds at March 31, 2011. Since asset-based fees collected on in force variable contracts represent a significant source of revenue, the Company’s financial condition will be impacted by fluctuations in investment performance of equity-based Separate Accounts assets.

During the three months ended March 31, 2011, average variable account balances decreased $5.1 million (or 1%) to $631.9 million as compared to the same period in 2010. The decrease in average variable account balances contributed $0.1 million to the decrease in asset-based policy charge revenue during the three months ended March 31, 2011 as compared to the same period in 2010.

Fluctuations in the U.S. equity market also directly impact the Company’s exposure to guaranteed benefit provisions contained in the variable contracts it manufactures. Minimal or negative investment performance generally results in greater exposure to guarantee provisions. Prolonged periods of minimal or negative investment performance will result in greater guaranteed benefit costs as compared to assumptions. If the Company determines that it needs to increase its estimated long term cost of guaranteed benefits, it will result in establishing greater guaranteed benefit liabilities as compared to current practice.

Medium Term Interest Rates, Corporate Credit and Credit Spreads

Changes in interest rates affect the value of investments, primarily fixed maturity securities and preferred equity securities, as well as interest-sensitive liabilities. Changes in interest rates have an inverse relationship to the value of investments and interest-sensitive liabilities. Also, since the Company has certain fixed products that contain guaranteed minimum crediting rates, decreases in interest rates can decrease the amount of interest spread earned.

Changes in the corporate credit environment directly impact the value of the Company’s investments, primarily fixed maturity securities. The Company primarily invests in investment-grade corporate debt to support its fixed rate product liabilities.

 

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Credit spreads represent the credit risk premiums required by market participants for a given credit quality, i.e. the additional yield that a debt instrument issued by a AA-rated entity must produce over a risk-free alternative (e.g., U.S. Treasury instruments). Changes in credit spreads have an inverse relationship to the value of interest sensitive investments.

The impact of changes in medium term interest rates, corporate credit and credit spreads on market valuations were as follows:

 

		Three Months Ended March 31,
		2011				2010
Average medium term interest rate yield (a)			1.11%				1.15%
Increase (decrease) in medium term interest rates (in basis points)			14				(28)
Credit spreads (in basis points) (b)			147				160
Contracting of credit spreads (in basis points)			(28)				(40)
Increase (decrease) on market valuations (in millions)
Available-for-sale investment securities		$	(0.3)			$	2.3
Interest-sensitive policyholder liabilities			0.0				0.0
Net change on market valuations		$	(0.3)			$	2.3

 

(a)	The Company defines medium term interest rates as the average interest rate on U.S. Treasury securities with terms of one to five years.

(b)	The Company defines credit spreads according to the Merrill Lynch U.S. Corporate Bond Index for BBB-A Rated bonds with three to five year maturities.

 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses. Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ and could have a material impact on the financial statements, and it is possible that such changes could occur in the near term.

The Company’s critical accounting policies and estimates are discussed below. For a full description of these and other accounting policies see Note 1 of the 2010 Annual Report on Form 10-K.

Valuation of Fixed Maturity and Equity Securities

The Company’s investments consist of fixed maturity and equity securities that are classified as available-for-sale (“AFS”) which are reported at estimated fair value. In addition, the Company holds fixed maturity securities which contain a conversion to equity feature, which is considered an embedded derivative. These fixed maturity securities have been classified as trading and are reported at estimated fair value. The fair values of fixed maturity and equity securities are determined by management after taking into consideration several sources of data. The Company’s valuation policy dictates that publicly available prices are initially sought from several third party pricing services. In the event that pricing is not available from these services, those securities are submitted to brokers to obtain quotes. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.

Each month, the Company performs an analysis of the information obtained from third party services and brokers to ensure that the information is reasonable and produces a reasonable estimate of fair value. The Company considers both qualitative and quantitative factors as part of this analysis, including but not limited to, recent transactional activity for similar fixed maturities, review of pricing statistics and trends, and consideration of recent relevant market events.

At March 31, 2011 and December 31 2010, approximately $22.2 million (or 15%) and $22.1 million (or 15%), respectively, of the Company’s fixed maturity and equity securities portfolio consisted of non-publicly traded securities. Since significant judgment is required for the valuation of non-publicly traded securities, the estimated fair value of these securities may differ from amounts realized upon an immediate sale.

 

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Changes in the fair value of fixed maturity and equity securities deemed AFS are reported as a component of accumulated other comprehensive income (loss), net of taxes on the Balance Sheets and are not reflected in the Statements of Income until a sale transaction occurs or when credit-related declines in estimated fair value are deemed other-than-temporary. Changes in fair value of fixed maturity securities deemed trading are reported as a component of net investment income.

Other-Than-Temporary Impairment (“OTTI”) Losses on Investments

The Company regularly reviews each investment in its fixed maturity and equity AFS securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. Management makes this determination through a series of discussions with the Company’s portfolio managers and credit analysts, and information obtained from external sources (i.e. company announcements, ratings agency announcements, or news wire services). For fixed maturity AFS securities, the Company also considers whether it is more likely than not that it will not be required to sell the debt security before its anticipated recovery. The factors that may give rise to a potential OTTI include, but are not limited to, i) certain credit-related events such as default of principal or interest payments by the issuer, ii) bankruptcy of issuer, iii) certain security restructurings, and iv) fair market value less than cost or amortized cost for an extended period of time. In the absence of a readily ascertainable market value, the estimated fair value on these securities represents management’s best estimate and is based on comparable securities and other assumptions as appropriate. Management bases this determination on the most recent information available.

For equity securities, once management determines a decline in the value of an AFS security is other-than-temporary, the cost basis of the equity security is reduced to its fair value, with a corresponding charge to earnings.

For fixed maturity AFS securities, an OTTI must be recognized in earnings when an entity either a) has the intent to sell the debt security or b) more likely than not will be required to sell the debt security before its anticipated recovery. If the Company meets either of these criteria, the OTTI is recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For fixed maturity AFS securities in unrealized loss positions that do not meet these criteria, the Company must analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows. If the net present value is less than the amortized cost of the investment, an OTTI is recorded. The OTTI is separated into two pieces: an amount representing the credit loss, where the present value of cash flows expected to be collected is less than the amortized cost basis of the security, and an amount related to all other factors (referred to as the non credit portion). The credit loss is recognized in earnings and the non credit loss is recognized in other comprehensive income (“OCI”), net of applicable taxes and value of business acquired. Management records subsequent changes in the estimated fair value (positive and negative) of fixed maturity AFS securities for which non credit OTTI was previously recognized in OCI in OCI-OTTI.

For the three months ended March 31, 2011 and 2010, the Company did not record an OTTI in income.

Derivative Instruments

Derivatives are financial instruments in which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date. All derivatives recognized on the Balance Sheets are carried at fair value. All changes in fair value are recognized in the Statements of Income. The fair value for exchange traded derivatives, such as futures, are calculated net of the interest accrued to date and is based on quoted market prices. Net settlements on the futures occur daily. At March 31, 2011, the Company had 10 outstanding short futures contracts with a notional amount of $3.3 million. At December 31, 2010, the Company had 20 outstanding short futures contracts with a notional amount of $6.3 million.

Value of Business Acquired (“VOBA”), Deferred Policy Acquisition Costs (“DAC”), and Deferred Sales Inducements (“DSI”)

VOBA

VOBA represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, for each block of business, of future policy and contract charges, premiums, mortality, policyholder behavior, Separate Account performance, operating expenses, investment returns, and other factors. Actual experience on the purchased business may vary from these projections. Revisions in estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross profits are less than the unamortized balance. At March 31, 2011 and December 31, 2010, the Company’s VOBA asset was $29.1 million and $29.6 million, respectively. For the three months ended March 31, 2011 and 2010, the favorable impact to pre-tax net income related to VOBA unlocking was $0.3 million and $0.2 million, respectively. See Note 4 to the Financial Statements for a further discussion.

 

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DAC

The costs of acquiring business, principally commissions, certain expenses related to policy issuance, and certain variable sales expenses that relate to and vary with the production of new and renewal business are deferred and amortized based on the estimated future gross profits for a group of contracts. DAC are subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting period. At March 31, 2011 and December 31, 2010, variable annuities accounted for the Company’s entire DAC asset of $0.4 million and $0.4 million, respectively.

DAC for variable annuities is amortized with interest over the anticipated lives of the insurance contracts in relation to the present values of estimated future gross profits from asset-based fees, guaranteed benefit rider fees, contract fees, and surrender charges, less a provision for guaranteed death and living benefit expenses, policy maintenance expenses, and non-capitalized commissions. Future gross profit estimates are subject to periodic evaluation with necessary revisions applied against amortization to date. The impact of revisions and assumptions to estimates on cumulative amortization is recorded as a charge or benefit to current operations, commonly referred to as “unlocking”. Changes in assumptions can have a significant impact on the amount of DAC reported and the related amortization patterns. In general, increases in the estimated Separate Accounts return and decreases in surrender or mortality assumptions increase the expected future profitability of the underlying business and may lower the rate of DAC amortization. Conversely, decreases in the estimated Separate Accounts returns and increases in surrender or mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization. For the three months ended March 31, 2011 and 2010, there was relatively no impact to pre-tax income related to DAC unlocking. See Note 4 to the Financial Statements for a further discussion.

DSI

The Company offers a sales inducement whereby the contract owner receives a bonus which increases the initial account balance by an amount equal to a specified percentage of the contract owner’s deposit. This amount may be subject to recapture under certain circumstances. Consistent with DAC, sales inducements for variable annuity contracts are deferred and amortized based on the estimated future gross profits for each group of contracts. These future gross profit estimates are subject to periodic evaluation by the Company, with necessary revisions applied against amortization to date. The impact of these revisions on cumulative amortization is recorded as a charge or credit to current operations, commonly referred to as “unlocking”. It is reasonably possible that estimates of future gross profits could be reduced in the future, resulting in a material reduction in the carrying amount of the deferred sales inducement asset.

The expense and the subsequent capitalization and amortization are recorded as a component of policy benefits in the Statements of Income. At March 31, 2011 and December 31, 2010, variable annuities accounted for the Company’s entire DSI asset of $0.1 million and $0.1 million, respectively. See Note 4 to the Financial Statements for a further discussion.

The short-term equity growth rate and the long-term growth rate for the amortization of VOBA, DAC and DSI were as follows:

 

		March 31, 2011				December 31, 2010				March 31, 2010
Gross short-term equity growth rate for five years			9.00  %				9.00  %				6.75  %
Gross long-term growth rate			9.00  %				9.00  %				9.00  %

Policyholder Account Balances

The Company’s liability for policyholder account balances represents the contract value that has accrued to the benefit of policyholders at the Balance Sheet date. The liability is generally equal to the accumulated account deposits plus interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Policyholder account balances at March 31, 2011 and December 31, 2010 were $112.0 million and $115.1 million, respectively.

Future Policy Benefits

Future policy benefits are actuarially determined liabilities, which are calculated to meet future obligations and are generally payable over an extended period of time. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, surrender rates, policy expenses, equity returns, interest rates, and inflation. These estimates and assumptions are influenced by historical experience, current developments and anticipated market trends. At March 31, 2011 and December 31, 2010, future policy benefits were $18.3 million and $17.4 million, respectively.

 

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Included within future policy benefits are liabilities for GMDB and GMIB provisions contained in the variable products that the Company issues. At March 31, 2011 and December 31, 2010, GMDB and GMIB liabilities included within future policy benefits were as follows:

 

(dollars in millions)		March 31,          2011				December 31,     2010
GMDB liability		$	0.0			$	0.0
GMIB liability			1.9				2.0

The Company regularly evaluates the assumptions used to establish these liabilities, as well as actual experience and adjusts GMDB and GMIB liabilities with a related charge or credit to earnings (“unlocking”), if actual experience or evidence suggests that the assumptions should be revised. For the three months ended March 31, 2011 and 2010, the favorable impact to pre-tax income related to GMDB and GMIB unlocking was $0.6 million and $0.4 million, respectively.

Future policy benefits also include liabilities, which can be either positive or negative, for contracts containing GMWB provisions and for the reinsurance of GMIB provisions (“GMIB reinsurance”) for variable annuities based on the fair value of the underlying benefit. GMWB and GMIB reinsurance are treated as embedded derivatives and are required to be reported separately from the host variable annuity contract. The fair value of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined using stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including expected market rates of return, equity and interest rate volatility, credit spread, correlations of market returns, discount rates and actuarial assumptions.

At March 31, 2011 and December 31, 2010, GMWB liability and GMIB reinsurance asset included within future policy benefits were as follows:

 

(dollars in millions)		March 31,          2011				December 31,     2010
GMWB liability		$	0.3			$	0.5
GMIB reinsurance asset			(4.6)				(5.5)

Federal Income Taxes

The Company uses the asset and liability method in providing income taxes on all transactions that have been recognized in the financial statements. The asset and liability method requires that deferred taxes be adjusted to reflect the tax rates at which future taxable amounts will be settled or realized. The Company provides for federal income taxes based on amounts it believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the realization of certain tax deductions and credits.

Specific estimates include the realization of dividend-received deductions (“DRD”) and foreign tax credits (“FTC”). A portion of the Company’s investment income related to Separate Accounts business qualifies for the DRD and FTC. Information necessary to calculate these tax adjustments is typically not available until the following year. However, within the current year’s provision, management makes estimates regarding the future tax deductibility of these items. These estimates are primarily based on recent historic experience. See Note 6 to the Financial Statements for a further discussion.

The Company files a return in the U.S. federal tax jurisdiction and various state tax jurisdictions.

 

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Recent Accounting Guidance

The following outlines the adoption of recent accounting guidance in 2011. See Note 1 to the Financial Statements for a further discussion.

 

•

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosure, Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurement – requires separate presentation of information about purchases, sales, issuances, and settlements in the Level 3 reconciliation for fair value measurements using significant unobservable inputs – adopted January 1, 2011.

 

•

ASC 944, Financial Services—Insurance – ASU 2010-15, How Investments Held Through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments – clarifies that an insurance entity should not consider any separate account interest held for the benefit of policyholders in an investment to be the insurer’s interest and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation – adopted January 1, 2011.

 

•

ASC 350, Intangibles—Goodwill and Other – ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts – requires entities with a zero or negative carrying value to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists – adopted January 1, 2011.

The following outlines the adoption of accounting guidance in 2010. See Note 1 to the Financial Statements for a further discussion.

 

•

ASC 820, Fair Value Measurements and Disclosure, ASU 2010-06, Improving Disclosures about Fair Value Measurements – guidance on new disclosures and clarifications of existing disclosures about fair value measurements – adopted January 1, 2010.

In addition, the following is accounting guidance that will be adopted in the future. See Note 1 to the Financial Statements for a further discussion.

 

•

ASC 944, Financial Services—Insurance – ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts – modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts – will be adopted January 1, 2012.

 

 

Investments

 

The Company maintains a conservative general account investment portfolio comprised primarily of investment grade fixed maturity securities, policy loans, and cash and cash equivalents.

 

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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, 2011 and December 31, 2010 were:

 

		March 31, 2011
						Gross Unrealized								Estimated Fair Value				% of
(dollars in millions)		Amortized Cost/Cost				Gains				Losses/ OTTI (1)								Estimated     Fair Value
Fixed maturity AFS securities
Corporate bonds
Financial services		$	19.2			$	0.9			$	(0.1)			$	20.0				14  %
Industrial			73.5				4.7				(0.3)				77.9				55
Utility			5.2				0.4				-				5.6				4
Asset-backed securities
Housing related			1.9				-				-				1.9				1
Credit cards			0.3				-				-				0.3				-
Autos			2.0				0.2				-				2.2				2
Commercial mortgage-backed securities - non agency backed			24.7				2.4				-				27.1				19
Residential mortgage-backed securities
Agency backed			0.3				-				-				0.3				-
Non agency backed			0.9				-				(0.1)				0.8				1
Government and government agencies
United States			3.0				-				(0.1)				2.9				2
Foreign			3.2				0.2				(0.1)				3.3				2
Total fixed maturity AFS securities			134.2				8.8				(0.7)				142.3				99
Equity securities - banking securities			1.2				-				-				1.2				1
Total equity securities			1.2				-				-				1.2				1
Total fixed maturity and equity securities		$	134.5			$	8.8			$	(0.7)			$	143.5				100  %
		December 31, 2010
						Gross Unrealized								Estimated Fair Value				% of
(dollars in millions)		Amortized Cost/Cost				Gains				Losses/ OTTI (1)								Estimated     Fair Value
Fixed maturity AFS securities
Corporate bonds
Financial services		$	19.4			$	1.0			$	(0.2)			$	20.2				14  %
Industrial			76.3				4.9				(0.1)				81.1				57
Utility			4.8				0.3				(0.1)				5.0				3
Asset-backed securities
Housing related			2.0				-				-				2.0				1
Credit cards			0.3				-				-				0.3				-
Autos			2.0				0.1				-				2.1				1
Commercial mortgage-backed securities - non agency backed			24.9				2.4				-				27.3				19
Residential mortgage-backed securities
Agency backed			0.4				-				-				0.4				-
Non agency backed			0.9				-				(0.1)				0.8				1
Government and government agencies
United States			3.0				-				(0.1)				2.9				2
Foreign			3.2				0.3				(0.1)				3.4				2
Total fixed maturity AFS securities			137.2				9.0				(0.7)				145.5				100
Equity securities - banking securities			0.1				-				-				0.1				-
Total equity securities			0.1				-				-				0.1				-
Total fixed maturity and equity securities		$	137.3			$	9.0			$	(0.7)			$	145.6				100  %

 

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

 

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The Company regularly monitors industry sectors and individual debt securities for evidence of impairment. This evidence may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations, 5) high probability of bankruptcy of the issuer, 6) nationally recognized credit rating agency downgrades, and/or 7) intent and ability to hold to recovery. Additionally, for structured securities (asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”)), cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. For debt securities, an OTTI must be recognized in earnings when an entity either a) has the intent to sell the debt security or b) more likely than not will be required to sell the debt security before its anticipated recovery. If the Company meets either of these criteria, the OTTI is recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For debt securities in unrealized loss positions that do not meet these criteria, the Company must analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. The Company has evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss, and unless otherwise noted, does not consider these investments to be impaired at March 31, 2011.

Five issuers represent more than 5% of the total unrealized loss position, comprised of two corporate non-convertible bonds, two government securities and one RMBS holding. The Company has two investment grade corporate non-convertible securities with unrealized losses totaling $0.4 million. The Company’s government bonds have unrealized losses of $0.2 million, were issued in the United States and Venezuela and are rated investment grade and rated below investment grade, respectively. The Company’s RMBS unrealized loss is $0.1 million and relates to a securitized portfolio of prime hybrid mortgages that contain fixed income positions where our holding is rated below investment grade and was previously impaired to discounted cash flows.

At March 31, 2011 and December 31, 2010, approximately $0.3 million (or 1%) and $0.4 million (or 1%), respectively, of RMBS and CMBS holdings were fully collateralized by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. RMBS and CMBS securities are structured to allow the investor to determine, within certain limits, the amount of interest rate risk, prepayment risk and default risk that the investor is willing to accept. It is this level of risk that determines the degree to which the yields on RMBS and CMBS will exceed the yields that can be obtained from corporate securities with similar credit ratings.

Unrealized gains (losses) incurred during the three months of 2011 and 2010 were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. As the Company does not have the intent to sell and it is not more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, the Company did not consider these securities to be other-than-temporarily impaired.

Details underlying securities in a continuous gross unrealized loss and OTTI position for investment grade AFS securities were as follows:

 

		March 31, 2011
(dollars in millions)		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Investment grade AFS securities
Less than or equal to six months
Corporate bonds
Financial services		$	3.4			$	3.5			$	(0.1)
Industrial			2.8				3.0				(0.2)
Utility			2.0				2.0				-
Government and government agencies - United States			2.0				2.1				(0.1)
Total fixed maturity and equity securities		$	10.2			$	10.6			$	(0.4)

 

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		March 31, 2011
(dollars in millions)		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Investment grade AFS securities (continued)
Total of all investment grade AFS securities
Corporate bonds
Financial services		$	3.4			$	3.5			$	(0.1)
Industrial			2.8				3.0				(0.2)
Utility			2.0				2.0				-
Government and government agencies - United States			2.0				2.1				(0.1)
Total fixed maturity and equity securities		$	10.2			$	10.6			$	(0.4)
Total number of securities in a continuous unrealized loss position											9
		December 31, 2010
(dollars in millions)		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Investment grade AFS securities
Less than or equal to six months
Corporate bonds
Financial services		$	2.8			$	3.0			$	(0.2)
Industrial			5.2				5.3				(0.1)
Utility			1.9				2.0				(0.1)
Government and government agencies - United States			0.9				1.0				(0.1)
Total fixed maturity and equity securities			10.8				11.3				(0.5)
Greater than one year
Corporate bonds - financial services			0.8				0.8				-
Total fixed maturity and equity securities			0.8				0.8				-
Total of all investment grade AFS securities
Corporate bonds
Financial services			3.6				3.8				(0.2)
Industrial			5.2				5.3				(0.1)
Utility			1.9				2.0				(0.1)
Government and government agencies - United States			0.9				1.0				(0.1)
Total fixed maturity and equity securities		$	11.6			$	12.1			$	(0.5)
Total number of securities in a continuous unrealized loss position											8

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

 

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Details underlying securities in a continuous gross unrealized loss and OTTI position for below investment grade AFS securities were as follows:

 

		March 31, 2011
(dollars in millions)		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Below investment grade AFS securities
Greater than one year
Residential mortgage-backed securities - non agency backed		$	0.8			$	0.9			$	(0.1)
Government and government agencies - foreign			0.4				0.5				(0.1)
Equity securities - banking securities			0.1				0.1				-
Total fixed maturity and equity securities			1.3				1.5				(0.2)
Total of all below investment grade AFS securities
Residential mortgage-backed securities - non agency backed			0.8				0.9				(0.1)
Government and government agencies - foreign			0.4				0.5				(0.1)
Equity securities - banking securities			0.1				0.1				-
Total fixed maturity and equity securities		$	1.3			$	1.5			$	(0.2)
Total number of securities in a continuous unrealized loss position											3
		December 31, 2010
(dollars in millions)		Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Below investment grade AFS securities
Greater than one year
Residential mortgage-backed securities - non agency backed		$	0.8			$	0.9			$	(0.1)
Government and government agencies - foreign			0.4				0.5				(0.1)
Equity securities - banking securities			0.1				0.1				-
Total fixed maturity and equity securities			1.3				1.5				(0.2)
Total of all below investment grade AFS securities
Residential mortgage-backed securities - non agency backed			0.8				0.9				(0.1)
Government and government agencies - foreign			0.4				0.5				(0.1)
Equity securities - banking securities			0.1				0.1				-
Total fixed maturity and equity securities		$	1.3			$	1.5			$	(0.2)
Total number of securities in a continuous unrealized loss position											3

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

Gross unrealized losses and OTTI on below investment grade AFS securities represented 35% and 33% of total gross unrealized losses and OTTI on all AFS securities at March 31, 2011 and December 31, 2010, respectively. Generally below investment grade securities are more likely than investment grade securities to develop credit concerns. The ratios of estimated fair value to amortized cost reflected in the table below were not necessarily indicative of the market value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of these ratios subsequent to March 31, 2011.

 

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Details underlying AFS securities below investment grade and in an unrealized loss and OTTI position were as follows:

 

						March 31, 2011
(dollars in millions)		Ratio of Amortized Cost to Estimated Fair Value				Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI  (1)
Greater than one year			70% to 100%			$	0.9			$	1.0			$	(0.2)
Total						$	0.9			$	1.0			$	(0.2)
						December 31, 2010
(dollars in millions)		Ratio of Amortized Cost to Estimated Fair Value				Estimated Fair Value				Amortized Cost/Cost				Gross Unrealized Losses and OTTI (1)
Greater than one year			70% to 100%			$	1.3			$	1.5			$	(0.2)
Total						$	1.3			$	1.5			$	(0.2)

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

There were no assets depressed over 20% and greater than one year at March 31, 2011. As there has been no impact to expected future cash flows, the Company does not consider the underlying investments to be impaired at March 31, 2011.

The amortized cost and estimated fair value of fixed maturity AFS securities at March 31, 2011 and December 31, 2010 by rating agency equivalent were:

 

		March 31, 2011								December 31, 2010
(dollars in millions)		Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
AAA		$	32.9			$	35.3			$	33.2			$	35.7
AA			13.7				14.1				13.7				14.1
A			55.8				59.2				57.4				61.1
BBB			27.6				29.3				28.2				29.7
Below investment grade			4.2				4.4				4.7				4.9
Total fixed maturity AFS securities		$	134.2			$	142.3			$	137.2			$	145.5
Investment grade			97%				97%				97%				97%
Below investment grade			3%				3%				3%				3%

The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to S&P’s BBB- or higher (or similar rating agency). At March 31, 2011 and December 31, 2010 approximately $9.9 million (or 7%) and $11.2 million (or 8%), respectively, of fixed maturity securities were rated BBB-, which is the lowest investment grade rating given by S&P. Below investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. The Company closely monitors such investments.

For the three months ended March 31, 2011 there was less than $0.1 million of investment income on fixed maturity trading securities and less than $0.1 million 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 less than $0.1 million during the three months ended March 31, 2011 on the conversion of a fixed maturity trading security to preferred stock.

 

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Subprime Mortgage Investments

Subprime mortgages are loans to homebuyers who have weak or impaired credit histories. Through 2008, the market for these loans had expanded rapidly. During that time, however, lending practices and credit assessment standards grew steadily weaker. As a result, the market experienced a sharp increase in the number of loan defaults. Investors in subprime mortgage assets include not only mortgage lenders, but also brokers, hedge funds, and insurance companies. The Company does not currently invest in or originate whole loan residential mortgages. The Company categorizes ABS issued by a securitization trust as having subprime mortgage exposure when the average credit score of the underlying mortgage borrowers in a securitization trust is below 660 at issuance. The Company also categorizes ABS issued by a securitization trust with second lien mortgages as subprime mortgage exposure, even though a significant percentage of second lien mortgage borrowers may not necessarily have credit scores below 660 at issuance. The estimated fair value of the subprime mortgage investments at March 31, 2011 and December 31, 2010 was $1.9 million and $2.0 million, respectively, entirely in first lien - fixed rate, AAA quality and vintages prior to 2004.

OTTI

The Company had no impairment losses for the three months ended March 31, 2011 and 2010, respectively.

 

 

Liquidity and Capital Resources

 

Liquidity

The Company’s liquidity requirements include the payment of sales commissions and other underwriting expenses and the funding of its contractual obligations for the life insurance and annuity contracts it has in force. The Company has developed and utilizes a cash flow projection system and regularly performs asset/liability duration matching in the management of its asset and liability portfolios. The Company anticipates funding its cash requirements utilizing cash from operations, normal investment maturities and anticipated calls and repayments, consistent with prior years. At March 31, 2011 and December 31, 2010, the Company’s assets included $172.0 million and $170.6 million, respectively, of cash, short-term investments and investment grade publicly traded AFS securities that could be liquidated if funds were required.

Capital Resources

During the first three months of 2011 and 2010, the Company did not receive a capital contribution from AUSA nor did the Company pay a dividend to AUSA.

Ratings

Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace. Rating agencies rate insurance companies based on financial strength and the ability to pay claims, factors more relevant to contract holders than investors.

The insurer financial strength rating scales of S&P, A.M. Best, and Fitch Ratings (“Fitch”) are characterized as follows:

 

•

S&P – AAA to R

•

A.M. Best – A++ to S

•

Fitch – AAA to C

The following table summarizes the Company’s ratings at May 12, 2011:

 

S&P		AA-		(4th out of 21)
A.M. Best		A+		(2nd out of 16)
Fitch		AA-		(4th out of 19)

A downgrade of our financial strength rating could affect our competitive position in the insurance industry as customers may select companies with higher financial strength ratings. These ratings are not a recommendation to buy or hold any of the Company’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

 

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Commitments and Contingencies

 

The following table summarizes the Company’s policyholders’ obligations at March 31, 2011:

 

(dollars in millions)		Less Than One Year				One To Three Years				Four To Five Years				More Than Five Years				Total
General accounts (a)		$	17.4			$	29.8			$	24.6			$	112.0			$	183.8
Separate Accounts (a)			92.8				160.3				138.9				522.4				914.4
		$	110.2			$	190.1			$	163.5			$	634.4			$	1,098.2

 

(a)

The policyholder liabilities include benefit and claim liabilities of which a significant portion represents policies and contracts that do not have a stated contractual maturity. The projected cash benefit payments in the table above are based on management’s best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefit payments are based on mortality and lapse assumptions comparable with the Company’s historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance. The liability amounts in the Company’s Financial Statements reflect the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table above exceeds the corresponding policyholder liability amounts.

In the normal course of business, the Company is subject to various claims and assessments. Management believes the settlement of these matters would not have a material effect on the financial position, results of operations or cash flows of the Company.

 

 

Results of Operations

 

For the three months ended March 31, 2011 and 2010, the Company recorded net income of $1.7 million and $2.9 million, respectively. The decrease in income during 2011 as compared to 2010 was primarily due to net realized investment losses as compared to gains in 2010, increased policy benefits and 2011 income tax expense.

Policy charge revenue decreased slightly during the three months ended March 31, 2011 as compared to the same period in 2010. The following table provides the changes in policy charge revenue by type for each respective period:

 

		Three Months Ended March 31,
(dollars in millions)		2011				2010				Change
Asset-based policy charge revenue		$	2.2			$	2.3			$	(0.1)
Guaranteed benefit based policy charge revenue			0.3				0.3				-
Non-asset based policy charge revenue			1.1				1.1				-
Total policy charge revenue		$	3.6			$	3.7			$	(0.1)

 

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Net realized investment gains (losses) decreased $0.7 million during the three months ended March 31, 2011 as compared to the same period in 2010. The following table provides the changes in net realized investment gains (losses) by type:

 

		Three Months Ended March 31,
(dollars in millions)		2011				2010				Change
Interest related gains		$	0.1			$	0.8			$	(0.7)	(a)
Equity related losses			(0.3)				(0.3)				-
Total net realized investment gains (losses)		$	(0.2)			$	0.5			$	(0.7)
Write-downs for OTTI included in net realized investment gains (losses)		$	-			$	-			$	-

 

(a)	The change in interest related gains were higher in Q1 2010 compared to Q1 2011 primarily as a result of higher fixed maturity securities’ sales in 2010.

Policy benefits decreased $0.3 million during the three months ended March 31, 2011 as compared to the same period in 2010. The following table provides the changes in policy benefits by type:

 

		Three Months Ended March  31,
(dollars in millions)		2011				2010				Change
Annuity benefit unlocking		$	(0.6)			$	(0.4)			$	(0.2)	(a)
Annuity benefit expense			1.0				0.2				0.8	(b)
Life insurance mortality expense			0.2				0.5				(0.3)
Total policy benefits		$	0.6			$	0.3			$	0.3

 

(a)	See the Critical Accounting Policies and Estimates section above for further discussion of annuity benefit unlocking.

(b)	Annuity benefit expense increased in 2011 primarily due to the change in the GMIB reinsurance reserve.

Amortization of VOBA was $0.6 million for the three months ended March 31, 2011, which included favorable unlocking of $0.3 million. Amortization of VOBA was $0.5 million for the three months ended March 31, 2010, which included favorable unlocking of $0.2 million. During the three months ended March 31, 2011, continued favorable equity market performance resulted in higher projected gross profits resulting in an increase in amortization and favorable unlocking as compared to the same period in 2010.

Insurance expenses and taxes decreased $0.3 million in the three months ended March 31, 2011 as compared to the same period in 2010. The following table provides the changes in insurance expenses and taxes for each respective period:

 

		Three Months Ended March 31,
(dollars in millions)		2011				2010				Change
Commissions		$	0.8			$	0.8			$	-
General insurance expenses			0.4				0.7				(0.3)	(a)
Total insurance expenses and taxes		$	1.2			$	1.5			$	(0.3)

 

(a)	The decrease in general insurance expenses is primarily due to 2010 transition and system conversion related expenses.

 

 

Segment Information

 

The products that comprise the Annuity and Life Insurance segments generally possess similar economic characteristics. As such, the financial condition and results of operations of each business segment are generally consistent with the Company’s consolidated financial condition and results of operations presented herein.

 

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ITEM 4. Controls and Procedures

The Company’s Disclosure Committee assists with the monitoring and evaluation of its disclosure controls and procedures. The Company’s President, Chief Financial Officer and Disclosure Committee have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on that evaluation, the Company’s President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

In addition, no change in the Company’s internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the first fiscal quarter of 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II Other Information

Item 1. Legal Proceedings.

Nothing to report.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1. “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition, and/or operating results.

Item 5. Other Information.

(a) Nothing to report.

(b) Nothing to report.

 

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Item 6. Exhibits.

 

3.1		Certificate of Amendment of the Charter of ML Life Insurance Company of New York. (Incorporated by reference to Exhibit 6(a)(ii) to Post-Effective Amendment No. 10 to ML of New York Variable Annuity Account A’s registration statement on Form N-4, File No. 33-43654, filed December 9, 1996.)
3.2		Certificate of Amendment of the Charter of ML Life Insurance Company of New York. (Incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, abd 333-133224, filed on August 12, 2010.)
3.3		By-Laws of Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, abd 333-133224, filed on August 12, 2010.)
4.1		Modified Guaranteed Annuity Contract. (Incorporated by reference to Exhibit 4(a) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
4.2		Modified Guaranteed Annuity Contract Application. (Incorporated by reference to Exhibit 4(b) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
4.3		Qualified Retirement Plan Endorsement. (Incorporated by reference to Exhibit 4(c) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
4.4		IRA Endorsement. (Incorporated by reference to Exhibit 4(d) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
4.5		Company Name Change Endorsement. (Incorporated by reference to Exhibit 4(e) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)
4.6		IRA Endorsement, MLNY009 (Incorporated by reference to Exhibit 4(d)(2) to Post-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 31, 1994).
4.7		Modified Guaranteed Annuity Contract MLNY-AY-991/94. (Incorporated by reference to Exhibit 4(a)(2) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed December 7, 1994).
4.8		Qualified Retirement Plan Endorsement MLNY-AYQ-991/94. (Incorporation by reference to Exhibit 4(c)(2) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed December 7, 1994).
10.1		General Agency Agreement between Royal Tandem Life Insurance Company and Merrill Lynch Life Agency Inc. (Incorporated by reference to Exhibit 10(a) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
10.2		Investment Management Agreement by and between Royal Tandem Life Insurance Company and Equitable Capital Management Corporation. (Incorporated by reference to Exhibit 10(b) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
10.3		Shareholders’ Agreement by and among The Equitable Life Assurance Society of the United States and Merrill Lynch & Co., Inc. and Tandem Financial Group, Inc. (Incorporated by reference to Exhibit 10(c) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
10.4		Service Agreement by and between Royal Tandem Life Insurance Company and Tandem Financial Group, Inc. (Incorporated by reference to Exhibit 10(d) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)
10.5		Service Agreement by and between Tandem Financial Group, Inc. and Merrill Lynch & Co., Inc. (Incorporated by reference to Exhibit 10(e) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

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10.6		Form of Investment Management Agreement by and between Royal Tandem Life Insurance Company and Merrill Lynch Asset Management, Inc. (Incorporated by reference to Exhibit 10(f) to Post-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 7, 1991.)
10.7		Assumption Reinsurance Agreement between Merrill Lynch Life Insurance Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance Company and Family Life Insurance Company. (Incorporated by reference to Exhibit 10(g) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)
10.8		Indemnity Agreement between ML Life Insurance Company of New York and Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit 10(h) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)
10.9		Amended General Agency Agreement between ML Life Insurance Company of New York and Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit 10(i) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)
10.10		Amended Management Agreement between ML Life Insurance Company of New York and Merrill Lynch Asset Management, Inc. (Incorporated by reference to Exhibit 10(j) to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 30, 1993.)
10.11		Mortgage Loan Servicing Agreement between ML Life Insurance Company of New York and Merrill Lynch & Co., Inc. (Incorporated by reference to Exhibit 10(k) to Post-Effective Amendment No. 4 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 29, 1995.)
10.12		Master Distribution Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.2 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed January 4, 2008.)
10.13		Non-Affiliated Broker-Dealer Wholesaling Agreement between ML Life Insurance Company of New York, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Transamerica Capital, Inc. (Incorporated by Reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, and 333-133224, Filed March 27, 2008.)
10.14		Selling Agreement between ML Life Insurance Company of New York, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch Life Agency, Inc. (Incorporated by Reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, and 333-133224, Filed March 27, 2008.)
10.15		Purchase Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.1 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed August 17, 2007.)
10.16		First Amendment to Purchase Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.1 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed January 4, 2008.)
10.17		Principal Underwriting Agreement between Transamerica Capital, Inc. and ML Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed on March 26, 2009.)
10.18		Amended and Restated Principal Underwriting Agreement between Transamerica Capital, Inc. and Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed March 25, 2011.)
10.19		Investment Management Services Agreement among Transamerica Asset Management, Inc., Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed March 25, 2011.)
31.1		Certification by the Chief Executive Officer pursuant to Rule 15d-14(a).
31.2		Certification by the Chief Financial Officer pursuant to Rule 15d-14(a).
32.1		Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: May 12, 2011

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EXHIBIT INDEX

 

31.1		Certification by the Chief Executive Officer pursuant to Rule 15d-14(a).
31.2		Certification by the Chief Financial Officer pursuant to Rule 15d-14(a).
32.1		Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.