FIRST
ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a
wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
STATUTORY
FINANCIAL STATEMENTS as of December 31, 2022 and 2021 and for the years ended December 31, 2022 and 2021 and Supplemental Information
as of and for the Year Ended December 31, 2022
First
Allmerica Financial Life Insurance Company
(A
wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Index
to Statutory Financial Statements
Year
Ended December 31, 2022 and 2021
| Independent Auditor’s Report | 3 |
| Statements of Admitted Assets, Liabilities, Capital and Surplus – Statutory Basis |
6 |
| Statements of Operations – Statutory Basis | 7 |
| Statements of Changes in Capital and Surplus – Statutory Basis |
8 |
| Statements of Cash Flows – Statutory Basis | 9 |
| Notes to Statutory Financial Statements – Statutory Basis |
11 |
| Supplemental Information | 67 |
| Supplemental Schedule of Selected Statutory Financial Data |
68 |
| Supplemental Schedule of Investment Risks Interrogatories | 71 |
| Summary Investment Schedule | 75 |
| Supplemental Schedule of Reinsurance Disclosures | 77 |
INDEPENDENT |
Deloitte 200 10th Boston, USA
Tel:+1 Fax:+1 www.deloitte.com |
To
the Board of Directors of First Allmerica Financial Life Insurance Company:
Opinions
We
have audited the statutory-basis financial statements of First Allmerica Financial Life Insurance Company (the “Company”),
which comprise the statutory-basis statements of admitted assets, liabilities, capital and surplus as of December 31, 2022 and
2021, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for the years then
ended, and the related notes to the statutory-basis financial statements (collectively referred to as the “statutory-basis
financial statements”).
Unmodified
Opinion on Statutory-Basis of Accounting
In
our opinion, the accompanying statutory-basis financial statements present fairly, in all material respects, the admitted assets,
liabilities, and capital and surplus of the Company as of December 31, 2022 and 2021, and the results of its operations and its
cash flows for the years then ended, in accordance with the accounting practices prescribed or permitted by the Division of Insurance
of the Commonwealth of Massachusetts described in Note 2.
Adverse
Opinion on Accounting Principles Generally Accepted in the United States of America
In
our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on Accounting Principles Generally
Accepted in the United States of America section of our report, the statutory-basis financial statements do not present fairly,
in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company
as of December 31, 2022 and 2021, or the results of its operations or its cash flows for the years then ended.
Basis
for Opinions
We
conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statutory-Basis Financial
Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities,
in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinions.
Basis
for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America
As
described in Note 2 to the statutory-basis financial statements, the statutory-basis financial statements are prepared by the
Company using the accounting practices prescribed or permitted by the Division of Insurance of the Commonwealth of Massachusetts,
which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the
requirements of the Division of Insurance of the Commonwealth of Massachusetts. The effects on the statutory-basis financial statements
of the variances between the statutory-basis of accounting described in Note 2 and accounting principles generally accepted in
the United States of America, although not reasonably determinable, are presumed to be material and pervasive.
Emphasis
of Matter
As
discussed in Note 1 to the statutory-basis financial statements, since the Company is a member of a controlled group of affiliated
companies, its results may not be indicative of those of a stand-alone entity. Our opinion is not modified with respect to this
matter.
Responsibilities
of Management for the Statutory-Basis Financial Statements
Management
is responsible for the preparation and fair presentation of the statutory-basis financial statements in accordance with the accounting
practices prescribed or permitted by the Division of Insurance of the Commonwealth of Massachusetts. Management is also responsible
for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of statutory-basis
financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the statutory-basis financial statements, management is required to evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for
one year after the date that the statutory-basis financial statements are issued.
Auditor’s
Responsibilities for the Audit of the Statutory-Basis Financial Statements
Our
objectives are to obtain reasonable assurance about whether the statutory-basis financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted
in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood
that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the statutory-basis
financial statements.
In
performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the statutory-basis financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the statutory-basis financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the statutory-basis financial statements. |
First
Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Report
on Supplemental Schedules
Our
2022 audit was conducted for the purpose of forming an opinion on the 2022 statutory-basis financial statements as a whole. The
supplemental schedule of selected statutory-basis financial data, the supplemental schedule of investment risk interrogatories,
the supplemental summary investment schedule, and the supplemental schedule of reinsurance disclosures as of and for the year
ended December 31, 2022, are presented for purposes of additional analysis and are not a required part of the 2022 statutory-
basis financial statements. These schedules are the responsibility of the Company’s management and were derived from and relate
directly to the underlying accounting and other records used to prepare the statutory-basis financial statements. Such schedules
have been subjected to the auditing procedures applied in our audit of the 2022 statutory-basis financial statements and certain
additional procedures, including comparing and reconciling such schedules directly to the underlying accounting and other records
used to prepare the statutory-basis financial statements or to the statutory-basis financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion,
such schedules are fairly stated in all material respects in relation to the 2022 statutory-basis financial statements as a whole.
April
19, 2023
First
Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
STATEMENTS
OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS – STATUTORY BASIS
As
of December 31, 2022 and 2021
| (Dollars in thousands, except share data) |
Notes | 2022 | 2021 | |||||||||
| ASSETS | ||||||||||||
| Bonds | 3,4 | $ | 4,750,538 | $ | 2,258,857 | |||||||
| Common Stock | 1,545 | — | ||||||||||
| Mortgage loans | 3,4 | 157,044 | 5,582 | |||||||||
| Other invested assets including receivables for securities | 3,4 | 12,893 | 5,451 | |||||||||
| Cash and short-term investments | 3,4 | 391,978 | 100,648 | |||||||||
| Policy loans | 3,4 | 89,413 | 41,476 | |||||||||
| Derivatives | 3,4 | — | 36 | |||||||||
| Subtotal, cash and invested assets | 5,403,411 | 2,412,050 | ||||||||||
| Investment income due and accrued | 62,666 | 25,335 | ||||||||||
| Deferred and uncollected premiums | 7 | 2,220 | 2,443 | |||||||||
| Reinsurance receivable and funds withheld receivable | 749,126 | 664,149 | ||||||||||
| Net deferred tax asset | 5 | 11,787 | — | |||||||||
| Current federal and foreign income tax recoverable | 420 | 2,655 | ||||||||||
| Other assets | 14 | 1,331 | 1,215 | |||||||||
| Separate account assets | 16 | 111,015 | 149,630 | |||||||||
| Total admitted assets | $ | 6,341,976 | $ | 3,257,477 | ||||||||
| LIABILITIES | ||||||||||||
| Aggregate reserve for life policies and contracts | $ | 979,835 | $ | 575,519 | ||||||||
| Deposit funds and other contract liabilities | 272,719 | 287,034 | ||||||||||
| Policy and contract claims | 16,679 | 20,576 | ||||||||||
| Dividends payable to policyholders | 373 | 382 | ||||||||||
| Reinsurance payable | 135,731 | 41,979 | ||||||||||
| Interest maintenance reserve | 23,931 | 41,393 | ||||||||||
| Net deferred tax liability | — | 3,998 | ||||||||||
| General expenses and commissions payable | 1,841 | 1,037 | ||||||||||
| Transfers to separate accounts due or accrued | (2,024 | ) | (2,871 | ) | ||||||||
| Payable to parent, subsidiaries, and affiliate | 5,583 | 719 | ||||||||||
| Funds held under reinsurance treaties | 3,970 | 11,604 | ||||||||||
| Funds held under reinsurance treaty with authorized and unauthorized reinsurers | 4,656,713 | 1,972,732 | ||||||||||
| Benefits plan payable | 15 | — | 1,244 | |||||||||
| Asset valuation reserve | 22,543 | 14,251 | ||||||||||
| Other liabilities | 14 | 23,396 | 21,046 | |||||||||
| Separate account liabilities | 16 | 111,015 | 149,630 | |||||||||
| Total liabilities | $ | 6,252,305 | $ | 3,140,273 | ||||||||
| CAPITAL AND SURPLUS | ||||||||||||
| Common stock, $10 par value, 1,000,000 shares authorized, 500,001 shares issued and outstanding |
5,000 | 5,000 | ||||||||||
| Paid in surplus | 147,062 | 97,062 | ||||||||||
| Unassigned surplus ( deficit) | (64,641 | ) | 12,892 | |||||||||
| Special contingency reserves | 2,250 | 2,250 | ||||||||||
| Total capital and surplus | 89,671 | 117,204 | ||||||||||
| Total liabilities, capital, and surplus | $ | 6,341,976 | $ | 3,257,477 | ||||||||
| The accompanying notes are an integral part of these financial statements | Page 6 |
First
Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
STATEMENTS
OF OPERATIONS – STATUTORY BASIS
For
the Years Ended December 31, 2022 and 2021
| (Dollars in thousands) |
Notes | 2022 | 2021 | ||||||||
| REVENUE | |||||||||||
| Premiums and annuity considerations | $ | 432,430 | $ | 177,405 | |||||||
| Considerations for supplementary contracts | 228 | 282 | |||||||||
| Net investment income | 3 | 138,539 | 97,453 | ||||||||
| Amortization of interest maintenance reserve | 3 | 4,524 | 4,210 | ||||||||
| Investment management and administration fees from separate accounts |
18,966 | 17,650 | |||||||||
| Commissions and expense allowance on reinsurance ceded | 923,818 | 9,324 | |||||||||
| Policyholder fee income | 31,099 | 33,040 | |||||||||
| Other income | 13,481 | (15,065 | ) | ||||||||
| Funds withheld net investment (loss) / income | 8,430 | 592 | |||||||||
| Total revenue | $ | 1,571,515 | $ | 324,891 | |||||||
| BENEFITS AND EXPENSES | |||||||||||
| Benefits paid or provided for: | |||||||||||
| Surrender benefits | $ | 38,120 | $ | 16,456 | |||||||
| Annuity payments | 24,218 | 23,141 | |||||||||
| Death benefits | 9,585 | 10,205 | |||||||||
| Disability benefits | 53 | 49 | |||||||||
| Interest and adjustments on deposit-type contract funds | (681 | ) | (399 | ) | |||||||
| Change in policy reserves | 404,315 | 121,562 | |||||||||
| Total benefits | 475,610 | 171,014 | |||||||||
| Change in loading expenses | 7 | (12 | ) | (160 | ) | ||||||
| Commissions and expense allowances | 992,539 | 3,436 | |||||||||
| General insurance expenses | 20,251 | 12,326 | |||||||||
| Insurance taxes, licenses and fees | 1,325 | 2,816 | |||||||||
| Expense as a result of reinsurance | 158,349 | 128,249 | |||||||||
| Other expenses | 14 | 1,778 | 1,766 | ||||||||
| Net transfers to/(from) separate accounts | 16 | 303 | (708 | ) | |||||||
| Total benefits and expenses | $ | 1,650,143 | $ | 318,739 | |||||||
| Net (loss) / gain from operations before dividends, federal income taxes and realized capital gains/(losses) |
(78,628 | ) | 6,152 | ||||||||
| Dividends to policyholders | 134 | 30 | |||||||||
| Net (loss) / gain from operations before federal income taxes and realized capital gains/(losses) |
(78,762 | ) | 6,122 | ||||||||
| Federal and foreign income tax | 5 | 2,696 | (32 | ) | |||||||
| Net (loss) / gain from operations before realized capital gains/(losses) |
(81,458 | ) | 6,154 | ||||||||
| Net realized capital gains/(losses), net of tax and transfers to interest maintenance reserve |
3 | (3,309 | ) | (648 | ) | ||||||
| Net income/(loss) | $ | (84,767 | ) | $ | 5,506 | ||||||
| The accompanying notes are an integral part of these financial statements | Page 7 |
First
Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
STATEMENTS
OF CHANGES IN CAPITAL AND SURPLUS – STATUTORY BASIS
For
the Years Ended December 31, 2022 and 2021
| (Dollars in thousands) |
Common Stock |
Paid in Surplus |
Special Contingency Reserve |
Unassigned Surplus (Deficit) |
Total Capital and Surplus |
|||||||||||||||
| Balance at December 31, 2020 | $ | 5,000 | $ | 452,978 | $ | 2,250 | $ | (344,670 | ) | $ | 115,558 | |||||||||
| Net income | — | — | — | 5,506 | 5,506 | |||||||||||||||
| Change in net unrealized capital gains | — | — | — | 625 | 625 | |||||||||||||||
| Change in net deferred income tax | — | — | — | (3,059 | ) | (3,059 | ) | |||||||||||||
| Change in asset valuation reserve | — | — | — | (1,950 | ) | (1,950 | ) | |||||||||||||
| Change in non-admitted assets | — | — | — | (4,679 | ) | (4,679 | ) | |||||||||||||
| Change as a result of reinsurance | — | — | — | 5,203 | 5,203 | |||||||||||||||
| Additional paid in capital | — | (355,916 | ) | — | 355,916 | — | ||||||||||||||
| Balance at December 31, 2021 | 5,000 | 97,062 | 2,250 | 12,892 | 117,204 | |||||||||||||||
| Net loss | — | — | — | (84,767 | ) | (84,767 | ) | |||||||||||||
| Change in net unrealized capital gains | — | — | — | (2,132 | ) | (2,132 | ) | |||||||||||||
| Change in net deferred income tax | — | — | — | 24,467 | 24,467 | |||||||||||||||
| Change in asset valuation reserve | — | — | — | (8,292 | ) | (8,292 | ) | |||||||||||||
| Change in non-admitted assets | — | — | — | (5,698 | ) | (5,698 | ) | |||||||||||||
| Change as a result of reinsurance | — | — | — | (2,686 | ) | (2,686 | ) | |||||||||||||
| Cumulative effect of changes in accounting principles | — | — | — | 1,575 | 1,575 | |||||||||||||||
| Additional paid in capital | — | 50,000 | — | 50,000 | ||||||||||||||||
| Balance at December 31, 2022 | $ | 5,000 | $ | 147,062 | $ | 2,250 | $ | (64,641 | ) | $ | 89,671 |
| The accompanying notes are an integral part of these financial statements | Page 8 |
First
Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
STATEMENTS
OF CASH FLOWS – STATUTORY BASIS
For
the Years Ended December 31, 2022 and 2021
| (Dollars in thousands) |
2022 | 2021 | ||||||
| CASH FROM OPERATIONS |
||||||||
| Premiums and annuity considerations |
$ | 239,201 | $ | 14,617 | ||||
| Net investment income |
120,163 | 85,877 | ||||||
| Funds withheld net investment income |
8,401 | (183 | ) | |||||
| Other (loss) / income |
(44,560 | ) | 45,421 | |||||
| Claims, surrenders and other benefits |
(12,252 | ) | (53,572 | ) | ||||
| Commissions and expenses paid |
(166,232 | ) | (134,929 | ) | ||||
| Net transfers from separate accounts |
544 | 1,288 | ||||||
| Dividends to policyholders |
(144 | ) | (51 | ) | ||||
| Federal income taxes (paid) / recovered |
— | 26,469 | ||||||
| Net cash provided by (used in) operations |
145,121 | (15,063 | ) | |||||
| CASH FROM INVESTMENTS |
||||||||
| Proceeds from investments sold, matured or repaid |
||||||||
| Bonds | 2,758,992 | 379,378 | ||||||
| Mortgage loans |
3,614 | 252 | ||||||
| Derivatives | — | 1,602 | ||||||
| Other invested assets |
867 | 8,050 | ||||||
| Miscellaneous Applications |
— | 1,693 | ||||||
| Total investment proceeds |
2,763,473 | 390,975 | ||||||
| Cost of investments acquired |
||||||||
| Bonds | (2,551,900 | ) | (324,411 | ) | ||||
| Stocks | (1,545 | ) | — | |||||
| Mortgage loans |
(154,471 | ) | — | |||||
| Other invested assets | (501 | ) | (209 | ) | ||||
| Miscellaneous Applications |
(1,711 | ) | 969 | |||||
| Total cost of investments acquired |
(2,710,128 | ) | (323,651 | ) | ||||
| Net change in policy loans |
7,041 | 5,897 | ||||||
| Net cash from investments |
60,386 | 73,221 | ||||||
| CASH FROM FINANCING AND OTHER SOURCES |
||||||||
| Net withdrawals on deposit type contracts and other liabilities |
(14,315 | ) | (8,165 | ) | ||||
| Capital and paid in surplus, less treasury stock |
50,000 | — | ||||||
| Net change in fund held for reinsurers |
58,211 | (22,478 | ) | |||||
| Other cash provided / (applied) |
(8,074 | ) | 1,261 | |||||
| Net cash from / (used in) financing and other sources |
85,822 | (29,382 | ) | |||||
| Net change in cash and short-term investments |
291,329 | 28,776 | ||||||
| Beginning of the year |
100,648 | 71,872 | ||||||
| End of the year |
$ | 391,978 | $ | 100,648 | ||||
| The accompanying notes are an integral part of these financial statements | Page 9 |
First
Allmerica Financial Life Insurance Company
(A wholly-owned
subsidiary of Commonwealth Annuity and Life Insurance Company)
STATEMENTS OF CASH FLOWS – STATUTORY BASIS (Continued)
For the Years Ended December 31, 2022 and 2021
| (Dollars in thousands) |
2022 | 2021 | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING ACTIVITIES |
||||||||
| Non-cash premiums assumed from reinsurance transactions |
(3,789,124 | ) | (233,088 | ) | ||||
| Non-cash accrued investment income assumed to settle reinsurance transactions |
27,884 | 2,179 | ||||||
| Non-cash assumed commissions |
1,006,852 | — | ||||||
| Non-cash premiums ceded from reinsurance transactions |
3,531,987 | 69,968 | ||||||
| Non-cash ceded commissions |
(906,218 | ) | 2,850 | |||||
| Non-cash Capitalization of policy loan interest |
— | 7,604 | ||||||
| Non-cash policy loan write-off |
— | 206 | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES |
||||||||
| Non-cash bonds received to settle reinsurance transactions |
2,703,387 | 228,897 | ||||||
| Non-cash preferred stocks received to settle reinsurance transactions |
— | 2,012 | ||||||
| Assumed contract loans from reinsurance transactions |
51,000 | — | ||||||
| Reclass Residual Tranches |
(501 | ) | — | |||||
| Non cash investment transactions – bonds |
(37,598 | ) | — | |||||
| Non cash investment transactions – mortgages |
(7,497 | ) | — | |||||
| Non cash investment transactions – other invested assets |
(1,931 | ) | — | |||||
| Non-cash Capitalization of policy loan interest |
— | 7,604 | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES |
||||||||
| Non-cash funds withheld payable and deposit assets on reinsurance ceded |
(2,625,769 | ) | (72,818 | ) | ||||
| Non-cash assumed reinsurance receivable |
— | — | ||||||
| The accompanying notes are an integral part of these financial statements | Page 10 |
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 1. | ORGANIZATION AND NATURE OF OPERATIONS |
First
Allmerica Financial Life Insurance Company, a Massachusetts domiciled life insurance company (the Company), is a wholly owned
subsidiary of Commonwealth Annuity and Life Insurance Company, a Massachusetts domiciled life insurance company (Commonwealth
Annuity), which in turn is a wholly owned indirect subsidiary of The Global Atlantic Financial Group LLC, a Bermuda company (Global
Atlantic, which shall mean The Global Atlantic Financial Group LLC and, unless otherwise indicated or the context otherwise requires,
its applicable subsidiaries). Global Atlantic is majority owned by KKR & Co. Inc (KKR).
On
February 1, 2021, KKR & Co. Inc. (“KKR”) indirectly acquired a majority interest in the Company following the
merger of Global Atlantic Financial Group Limited (“GAFGL”) and Magnolia Merger Sub Limited, with GAFGL as the surviving
entity of the merger transaction. Prior to the merger transaction, Magnolia Merger Sub Limited was a Bermuda exempted company,
a direct wholly owned subsidiary of Magnolia Parent LLC (now known as The Global Atlantic Financial Group LLC or “TGAFGL”)
and an indirect subsidiary of KKR. Accordingly, TGAFGL is now the holding company of GAFGL and KKR is deemed the ultimate controlling
person of FAFLIC
KKR
Magnolia Holdings LLC owns a total of approximately 63.3% of the outstanding ordinary shares of TGAFGL; the remaining investors,
none of whom own more than 9.0%, own the remaining approximately 36.7% of the outstanding ordinary shares.
The
Company insures and reinsures blocks of traditional life insurance, universal life insurance, fixed annuities, group retirement
products, variable annuities, variable universal life insurance, and an exited accident and health (A&H) business with external
parties as well as affiliates. The results of operations may not be indicative of a stand alone entity.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The
accompanying financial statements have been prepared in conformity with statutory accounting practices prescribed or permitted
by the Division of Insurance of the Commonwealth of Massachusetts (MADOI), which differ in some respects from accounting principles
generally accepted in the United States of America (GAAP). Prescribed statutory accounting practices (SAP) include publications
of the National Association of Insurance Commissioners “Accounting Practices and Procedures Manual” (NAIC SAP), state
laws, regulations and general administrative rules. The more significant of these differences are as follows:
| • | Bonds which are “available-for-sale” or “trading” are carried at fair value under GAAP, and are carried at amortized cost under NAIC SAP, except for bonds in or near default which are carried at the lower of fair value or amortized cost under NAIC SAP; |
| • | Derivatives for which the Company employs fair value accounting are carried at fair value. However, changes in unrealized capital gains and losses are not recognized in net income, but as changes to surplus; |
| • | The Asset Valuation Reserve (AVR) is required under NAIC SAP to offset potential credit-related investment losses on bonds, mortgage loans, stocks, real estate, and other invested assets. The AVR is recorded as a liability with changes in the reserve accounted for as direct increases or decreases in surplus. Under GAAP, no such reserve is required; |
| The accompanying notes are an integral part of these financial statements | Page 11 |
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| • | The Interest Maintenance Reserve (IMR) is required under NAIC SAP to defer recognition of realized gains and losses (net of applicable federal income taxes) on short and long term fixed income investments resulting from interest rate changes. The deferred gain and loss is amortized over the expected remaining life (maturity) of the investment sold. In the event that realized capital losses exceed gains on a cumulative basis, negative IMR is reclassified to a non-admitted asset. Under GAAP, no such reserve is required; |
| • | Policy acquisition costs, such as commissions, and other costs that are directly related to the successful efforts of acquiring new business are deferred under GAAP. Under NAIC SAP, such items are recorded as expenses when incurred; |
| • | Benefit reserves are determined using statutorily prescribed interest, morbidity and mortality assumptions under NAIC SAP, except under certain principles-based reserve methodologies. With respect to variable annuities, VM-21 prescribes various approaches for setting assumptions related to policyholder and economic behavior that can vary by reserve component (Stochastic Reserve and Standard Projection Amount). With respect to life insurance products, valuation assumptions are prudent estimates used in determining Stochastic and Deterministic reserve components as prescribed by VM-20. In all cases the Company follows these prescribed practices. Under US GAAP, reserves and related balances are generally calculated using assumptions that are based on best estimates, which in some cases require appropriate adjustments that are required under certain FASB Accounting Standards. Effective January 1, 2023, public company reporting for long duration insurance contracts changed under the new long duration targeted improvements (LDTI) insurance accounting standard. LDTI requires the unlocking of assumptions for traditional life and limited pay contracts, requiring more frequent update to best estimates |
| • | Under NAIC SAP, amounts recoverable from reinsurers for unpaid losses are not recorded as assets, but as offsets against the respective policyholder liabilities. Under GAAP, amounts recoverable from reinsurers for unpaid losses are recorded as assets and not offset against the respective policyholder liabilities. Reinsurance balance amounts deemed to be uncollectible are written off through a charge to operations. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings; |
| • | Deferred income taxes, which provide for book/tax temporary differences, are charged directly to unassigned surplus under NAIC SAP, whereas under GAAP, they are included as a component of net income. Deferred tax assets are also subject to an admissibility test under NAIC SAP; |
| • | Under NAIC SAP, certain items are designated as “non-admitted” assets (such as furniture and equipment, prepaid expenses, bills receivable, computer system software, and agents’ balance, etc.) and are excluded from assets by a direct charge to surplus. Under GAAP, such assets are carried on the balance sheet with appropriate valuation allowances; |
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| • | Under GAAP acquisition accounting, an intangible asset can be assigned a value representing the cost to duplicate, create or replace the asset, assigned a finite life, and amortized accordingly. NAIC SAP does not recognize this type of transaction but recognizes any amount paid in excess of the subsidiary’s underlying statutory capital and surplus as unamortized goodwill on the parent company’s books. Goodwill is then amortized into unrealized capital gains and losses, on a straight line basis for a period which the acquiring entity benefits economically, not to exceed 10 years; |
| • | Under GAAP accounting, the Company’s assets and liabilities were remeasured at fair value upon the close of the KKR acquisition. This resulted in the recognition of Value of Business Acquired (VOBA), which is generally amortized on a constant level basis using policy count over the estimated lives of the contracts, and goodwill, which is not amortized but assessed for impairment annually or more frequently if circumstances indicate impairment may have occurred, for GAAP. There was no such remeasurement of assets and liabilities for Statutory reporting. Under NAIC SAP, consideration in excess of the net book value of business acquired is recognized as a ceding commission. Ceding commission expenses are recognized in income on the date of the transaction. Ceding commission revenues are recognized as a separate surplus item on a net of tax basis and are subsequently amortized into income as earnings from the business emerge. |
| • | Under NAIC SAP, revenues for annuity contracts and universal life policies consist of the entire premium received, and benefits incurred represent the total of death benefits paid, surrenders (net of surrender charges), and the change in policy reserves. Under GAAP, premiums received for annuity contracts and universal life that do not include significant mortality risk would not be recognized as premium revenue and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values. Charges for mortality expenses and surrenders for both types of policies would be recognized as revenue under GAAP; |
| • | Policyowner dividends are recognized when declared under NAIC SAP rather than over the term of the related policies as required by GAAP; |
| • | Under GAAP the Company has elected to carry the funds withheld assets at fair value while for statutory treatment the Company carries the funds withheld assets at amortized cost; |
| • | Under NAIC SAP, cash and short-term investments in the statements of cash flows represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents includes cash balances and investments with initial maturities of three months or less; |
| • | Investments in subsidiaries where the Company has the ability to exercise control are consolidated for GAAP reporting. Under NAIC SAP, the equity value of subsidiaries is recorded as other invested assets and investments in common stocks of affiliated entities; |
| • | Bond portfolios and associated liabilities comprising guaranteed separate accounts, also referred to as market value adjusted annuities, are included in separate accounts for NAIC SAP, whereas these are classified under the Company’s general account under GAAP. |
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
effects on the financial statements of the variances between statutory and GAAP, although not readily determinable, are presumed
to be material.
Use
of Estimates
The
preparation of financial statements in accordance with statutory accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results
could differ significantly from those estimates. Significant estimates included in the accompanying statutory basis financial
statements are assumptions and judgments utilized in determining if declines in fair values of investments are other-than-temporary,
valuation methods for infrequently traded securities and private placements, policy liabilities, accruals relating to legal and
administrative proceedings and estimates to establish the reserves for future policy benefits.
The
Company is currently undergoing a conversion to a new life insurance administration system. As part of this conversion certain
life insurance policies have been temporarily restricted at December 31, 2022 resulting in a delay of the billing of premiums
and other related policy transactions. In limited cases, estimates were used for restricted policy balances within the financial
statements. Any variances to the estimates will be recorded as policies are released from the restricted status in future periods.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Investments
Bonds
The
NAIC classifies bonds into six quality categories and 20 subcategories. These categories range from 1A (the highest) to 5C (the
lowest) for non-defaulted bonds, and category 6 for bonds in and near default. In 2021 and prior, residual tranches in securitizations
were captured as bonds, whereas commencing in 2022, those investments will be captured in other invested assets. Bonds in default
are required to be carried at the lower of amortized cost or NAIC fair value. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Bonds
and preferred stocks, excluding loan-backed and structured securities (LBASS), are stated at amortized cost using the modified
scientific method, or fair value in accordance with the “Purposes and Procedures Manual (P & P Manual) of the NAIC Capital
Markets and Investment Analysis Office” (CMIAO). Fair values are measured in accordance with the Statements of Statutory
Accounting Principles (SSAP) No. 100 Fair Value Measurements (SSAP No.100). Short-term investments are highly liquid investments
readily convertible to cash, with maturities of greater than 90 days and less than one year at time of purchase and are reported
at amortized cost.
LBASS
are stated at amortized cost or fair value in accordance with the P & P Manual of the CMIAO. Prepayment assumptions are primarily
obtained from external sources or internal estimates, and are consistent with the current interest rate and economic environment.
The prospective adjustment method is used on most non-agency LBASS. Fair values are based on quoted market prices. If a quoted
market price is not available, fair values are estimated using independent pricing sources or internally developed pricing models,
based on discounted cash flow analysis. The Company reviews securities at least quarterly for other-than-temporary impairments
(OTTI) using current cash flow assumptions.
The
NAIC has contracted with Blackrock for non-agency Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed
Securities (CMBS), to provide expected loss information, which the Company must use to determine the appropriate NAIC designations
for accounting, and risk-based capital (RBC) calculations.
Mortgage
Loans
Mortgage
loans on real estate are carried at unpaid principal balances, net of discounts/premiums and valuation allowances, and are secured.
Specific valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value,
when it is probable that based on current information and events, the Company will be unable to collect all amounts due under
the contractual terms of the loan agreement. Specific valuation allowances are based on the fair value of the collateral. Fair
value is determined by discounting the projected cash flows for each property to determine the current net present value.
Commercial
mortgage loans (CMLs) acquired at a premium or discount are carried at amortized cost using the effective interest rate method.
CMLs held by the Company are diversified by property type and geographic area throughout the United States. CMLs are considered
impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement.
The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value
of the underlying collateral using internal valuations generally based on discounted cash flow analyses.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Financial
Instruments and Derivatives
In
the normal course of business, the Company enters into transactions involving various types of financial instruments including
derivatives. Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other
inputs or a combination of these factors. Derivatives may be privately negotiated contracts, which are usually referred to as
over-the-counter (OTC) derivatives, or they may be listed and traded on an exchange (exchange-traded). Exchange-traded equity
futures are transacted through a regulated exchange. From time to time, futures contracts are terminated. The clearinghouse guarantees
the performance of both counterparties, which mitigates credit risk.
The
Company primarily uses derivatives to hedge its exposure to indexed universal life insurance products with potential growth in
interest linked to market indexes. OTC call options and call spreads are purchased to hedge the growth in interest credited to
the customer as a direct result of increases in the related indices. Upon exercise, the Company will receive the fair value of
the call options and call spreads. In accordance with SSAP No. 86, Derivatives (SSAP No. 86), the Company has elected to
account for these derivatives using the fair value method of accounting. Under such treatment, the derivatives are marked to market,
with changes in fair value recorded as unrealized investment gains or losses. Upon termination, the unrealized investment gains
and losses are reclassified to realized gains and losses in earnings. The Company values the OTC options utilizing the Black-Scholes
and Heston models. The Company also compares the derivative valuations to the daily counterparty marks to validate the model outputs.
The parties with whom the Company enters into OTC option contracts are highly rated financial institutions. Contracts are also
fully supported by collateral, which minimizes the credit risk associated with such contracts.
The
Company also owns foreign currency denominated bonds that generate exposure to FX risk. The Company has hedged this risk by entering
into foreign currency swaps. Under the terms of the swaps, the Company pays fixed and floating rate terms denominated in foreign
currency and receives fixed USD. The Company considers these derivatives to be cash flow hedges. Under such treatment, the unrealized
gains and losses on are recorded consistent with the bonds hedged.
Policy
Loans
Policy
loans are carried at unpaid principal balances.
Other
Invested Assets
Other
invested assets of the Company consist primarily of ownership interests in partnerships, and in 2022, residual tranches in structured
security investments. The Company values these interests based upon the investment method and their proportionate share of the
underlying GAAP equity of the investment.
Cash
and Short-Term Investments
Cash
and short-term investments include cash on hand, amounts due from banks, and highly liquid short-term investments. The Company
considers all investments with an original maturity of 90 days or less as cash equivalents. Cash equivalent investments are stated
at amortized cost. The Company considers all investments with an original maturity of greater than 90 days and less than one year
as short-term investments. Short-term investments are stated at amortized cost.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Investment
Income
Investment
income is recognized on an accrual basis. Any investment income which is over 90 days past due is excluded from surplus. Investments
in bonds that are delinquent are placed on non-accrual status, and thereafter interest income is recognized only when cash payments
are received. Interest income on policy loans is recorded as earned using the contractually agreed upon interest rate and is included
in accrued investment income until the policy’s anniversary date at which point the interest is capitalized and added to
principal.
Capital
Gains and Losses
Realized
capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income
taxes. The AVR is established by the Company to provide for potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the
AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company
defers, to the IMR, the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage
loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period
to maturity of the security.
The
Company acquires IMR associated with certain assumed blocks of business through reinsurance transactions. Should realized capital
losses exceed gains on a cumulative basis, the resulting negative IMR is reclassified to assets and is non-admitted.
Impairments
The
Company evaluates mortgages for impairment based on the credit quality of the borrowers ability to pay, common stocks, which are
primarily affiliated companies, based on the underlying financial condition of those companies, and joint ventures, partnerships
and Limited Liability Companies (LLCs) when it is probable that it will be unable to recover the carrying amount of the investment
or there is evidence indicating inability of the investee to sustain earnings that would justify the carrying value of the investment.
At
least quarterly, management reviews impaired securities for OTTI. The Company considers several factors when determining if a
security is other-than-temporarily impaired, including but not limited to the following: its intent and ability to hold the impaired
security until an anticipated recovery in value; the issuer’s ability to meet current and future principal and interest obligations
for bonds; the length and severity of the impairment; and, the financial condition and near term and long-term prospects for the
issuer. The review process involves monitoring market events that could impact issuers’ credit ratings, business climate, management
changes, litigation and government actions and other similar factors. The process also involves monitoring late payments, downgrades
by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit
issues. Additional factors are considered when evaluating the unique features that apply to certain structured securities, including
but not limited to the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration
of the payment terms of the underlying loans or assets backing a particular security, and the payment priority with the tranche
structure of the security.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Recognition
of Premium Income and Acquisition Costs
Life
premiums are recognized as income over the premium-paying period of the related polices. Annuity considerations are recognized
as income when received. Deposits on deposit-type contracts, such as funding agreements, supplemental contracts, dividend accumulations,
and premium and other deposit funds, are recorded as a liability when received. Health premiums are earned ratably over the terms
of the related insurance or reinsurance contracts or policies. Considerations for inforce block liabilities assumed are recognized
as premium income when received. Expenses incurred in connection with acquiring new insurance
business, including acquisition costs such as sales commissions, are charged to operations as incurred.
Reinsurance
premiums and benefits paid or provided are accounted for on a basis consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts.
Deposit
Accounting
In
accordance with SSAP No. 61R, Life, Deposit-Type and Accident and Health Reinsurance (SSAP No. 61R) and P & P Manual Appendix
A-791 “Life and Health Reinsurance Contracts”, deposits and returns of deposits are recorded directly to the balance
sheet. Fee income and expenses are recorded as earned / incurred. The liabilities under applicable treaties are categorized as
deposit liabilities rather than reserves, and any unpaid settlements are categorized as other payables or receivables rather than
reinsurance payables or receivables. P & P Manual Appendix A-791 “Life and Health Reinsurance Contracts”, allows
for increase in surplus net of tax to be identified separately as a surplus item.
Modified
Coinsurance and Funds Withheld Reserve Adjustment
Reinsurance
premiums, commissions, expense reimbursement, claims, and claims adjustment expenses related to reinsured business are accounted
for on a basis consistent with that used in accounting for the original policies issued and with the terms of the reinsurance
contracts and are reported net of amounts ceded to other companies. A liability has been provided for unsecured policy reserves
on reinsurance ceded to companies not authorized to assume business in the state of domicile. Changes in this liability are reported
directly in unassigned surplus. Policy and contract liabilities ceded have been reported as reductions of the related reserves
rather than as assets as would be required under GAAP.
In
accordance with SSAP No. 61R, the cedent retains invested assets supporting the ceded reserves for modified coinsurance and funds
withheld coinsurance. The counterparties settle statutory basis policyholder activity, investment activity and agreed upon fees.
Significant contributors to periodic settlements are transfers from separate accounts, change in statutory reserves, mark-to-market
of the derivative portfolio, other investment returns, and administration fees.
Policy
and Contract Claims
The
liability for policy and contract claims is based on actual claims submitted but not paid on the statement date and an estimate
of claims that had been incurred but not been reported on the statement date.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Insurance
Reserves and Annuity and Other Fund Reserves
Reserving
Practices
Reserves
for life insurance, annuities, and accident and health insurance are established in amounts adequate to meet the estimated future
obligations of policies in force based upon accepted actuarial methods. These liabilities are computed based upon mortality, morbidity,
withdrawal, and interest rate assumptions applicable to these coverages. Reserves for life insurance and annuity policies are
computed using interest rates ranging from 2.5% to 6% for life insurance policies and 1.00% to 9.5% for annuity contracts. Mortality,
morbidity, and withdrawal assumptions for all policies are based on industry standards and assumptions prescribed by statute.
The assumptions vary by plan, age at issue, year of issue and duration.
Claim
reserves are computed based on historical experience modified for expected trends in frequency and severity. Withdrawal characteristics
of annuity and other fund reserves vary by contract. At December 31, 2022 and 2021, approximately 1.86% and
7.10% of the account value, respectively, of the contracts (included in both the general account and separate accounts
of the Company) were not subject to discretionary withdrawal or were subject to withdrawal at book value less surrender charge
greater than 5%.
Policy
liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be
assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in
force. The amount of liabilities and accruals, however, could be revised in the near term if the estimates discussed above are
revised.
For
individual life insurance, claim reserves are established equal to 100% of the benefit payable.
The
Company’s variable annuity contracts contain guaranteed minimum death benefit features. For all variable annuity contracts, including
those that reduce the death benefit on a dollar-for-dollar basis, reserves are calculated in accordance with the Commissioners
Annuity Reserve Valuation Method (CARVM) and VM-21 (CARVM for variable annuities). However, the adoption of VM-21 did not have
an impact as these contracts are 100% ceded.
For
non-universal life plans and universal life accidental death and waiver of premium features, tabular interest, tabular less actual
reserve released and tabular costs are calculated by formulas.
For
universal life, except for accidental death and waiver of premium features, tabular interest and tabular cost are equal to actual
credits and charges to the policies.
Tabular
interest on funds not involving life contingencies is calculated by formula.
Other
increases reflect significant items for changes in adjustment from fund value to reserve for annuities and universal life insurance.
For
the year ended December 31, 2022, the Company’s assumed participating policies were approximately 4.4% of the total life
insurance in force. The method of accounting for policyholder dividends is based upon dividends credited annually to policyholders
on their policy anniversary date plus the change from the prior period on one year’s projected dividend liability on policies
in force at the statement date. Source data is produced from the cedant’s policy administration system. The amount of dividend
expense incurred for the year ended December 31, 2022 and the year ended December 31, 2021 was $134 and $30, respectively. There
was no additional income allocated to participating policyholders.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Waiver
of Premiums, and Gross Premiums less than Net Premiums
The
Company waives deduction of deferred fractional premiums at death and returns any portion of the final premium paid beyond the
month of death. Surrender values are not promised in excess of the legally computed reserves.
As
of December 31, 2022 and 2021, the Company had $979,079 and $963,189, respectively of insurance in force for which the gross premiums
are less than the net premiums according to the standard valuation required by the Commonwealth of Massachusetts.
Substandard
Policies
Extra
premiums are assessed for substandard lives in addition to the standard mortality charges. Mean reserves for universal life policies
include (1) the standard mean reserve plus (2) the excess of the mean reserve calculated using the appropriate multiple of the
1958 or 1980 CSO Mortality Table and/or the appropriate additional mortality charge per
1,000 and 4.5%, 5.5% and 6% interest over the standard mean reserve. In no event is the total reserve less than the policy’s
cash surrender value.
Extra
premiums are assessed for substandard lives in addition to the standard gross premium. Mean reserves for policies and riders based
on table ratings include (1) the regular mean reserve for the plan and (2) the excess, if any, of the mean reserve calculated
using the appropriate multiple of the 1958 or 1980 CSO Mortality Table and 4.0%, 5.0% or
5.5% interest over the standard mean reserve. In the case of flat extra premium ratings, mean reserves are equal to (1)
the regular mean reserve and (2) 1/2 of the net extra premium.
Federal
Income Taxes
Deferred
federal income taxes are calculated as defined by SSAP No. 101, Income Taxes (SSAP No. 101). SSAP No. 101 establishes deferred
tax assets and liabilities based on differences between statutory and tax bases of reporting. The deferred tax assets are
then subject to an admissibility test, which can limit the amount of deferred tax assets that are recorded. The deferred
federal income taxes result primarily from insurance reserves, policy acquisition expenses, and ceding commissions.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Separate
Accounts
Separate
account assets and liabilities represent segregated funds administered and invested by the Company for the benefit of certain
variable annuity, variable life insurance, and pension contract holders. Assets consist principally of bonds, common stocks, mutual
funds, and short-term obligations and are generally stated at fair value. The investment income gains and losses of these accounts
generally accrue to the contract holders and therefore, are not included in the Company’s net income. Appreciation and depreciation
of the Company’s interest in the separate accounts, including undistributed net investment income, is reflected as other
income. The fair value of assets and liabilities held in separate accounts is based on quoted market prices. Separate account
assets representing contract holder funds are measured at fair value and reported as a summary total in the Statements of Admitted
Assets, Liabilities, Capital and Surplus, with an equivalent summary total reported for separate account liabilities.
The
Company receives fees for assuming mortality and certain expense risks. Such fees are included in investment management and administration
fees from separate accounts in the accompanying Statement of Operations. Reserves in the separate accounts for variable annuity
contracts are provided in accordance with the Variable Annuity Commissioners’ Annuity Reserve Valuation Method (VACARVM)
under VM-21. However, the adoption of VM-21 did not have an impact as these contracts are 100% ceded.
Transfers
from Separate Accounts Due or Accrued and Accrued Expense Allowance
The
Company records a negative liability due from the separate accounts which primarily represents amounts that are held for policy
account values in excess of statutory reserves, and certain other policy charges, including cost of insurance charges, administrative
charges and guaranteed minimum death benefit (GMDB) charges, partially offset by associated reinsurance credits. This negative
liability due from the separate accounts also includes assumed and ceded business. Amounts held in excess of the statutory reserve
cannot be transferred from the separate account unless the policy is terminated or the policy account value is withdrawn.
Closed
Block
The
Company established and began operating a closed block for the benefit of participating policies, consisting of certain individual
life insurance participating policies, individual deferred annuity contracts and supplementary contracts not involving life contingencies
which were in force as of the Company’s demutualization on October 16, 1995.
The
purpose of the closed block is to benefit certain classes of policies and contracts for which the Company has a dividend scale
payable. The closed block will continue to be in effect until none of the closed block policies is in force, except in the event
that the Massachusetts Commissioner of Insurance consents to an earlier termination. The Company allocated to the closed block
assets in an amount that is expected to produce cash flows which, together with future revenues from the closed block, are reasonably
sufficient to support the closed block, including provision for payment of policy benefits, certain future expenses and taxes,
and for continuation of policyholder dividend scales as payable in 1994 so long as the experience underlying such dividend scales
continues. The Company expects that the factors underlying such experience will fluctuate in the future and policyholder dividend
scales for the closed block will be set accordingly.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Effective
December 1, 2015, the Company entered into a coinsurance agreement whereby it ceded substantially all risk in the closed block.
The net retained closed block balances and activity are included in the Company’s financial statements. A presentation of
the entire closed block financial schedules are included in footnote 18 of the financial statements.
Dividends
to Policyholders
Prior
to demutualization, the Company issued certain life, health and annuity insurance policies that contained dividend payment provisions
which enabled the policyholder to participate in the earnings of the Company. The amount of policyholders’ dividends to
be paid was determined annually by the Board of Directors. The aggregate amount of policyholders’ dividends was related
to the actual interest, mortality, morbidity, and expense experience for the year and the Company’s judgment as to the appropriate
level of statutory surplus to be retained. Upon demutualization, certain participating individual life policies, individual annuity,
and supplemental contracts were transferred to the Closed Block. The Closed Block was funded to protect the dividend expectations
of such policies and contracts. Accordingly, these policies no longer participate in the earnings and surplus of the remaining
block. Prior to demutualization, the Company ceased issuance of participating policies.
Guaranty
Fund Assessments
Guaranty
fund assessments are paid to various states. The assessments are amortized against the premium tax benefit period.
Affiliated
Entities and Related Parties
The
Company recognizes entities which are under common control as affiliated entities consistent with SSAP No. 25 – Affiliates
and Other Related Parties guidance. In addition, entities in which the company or affiliated companies own at least 10% of
the voting interests are considered to be related parties even if there is no control or affiliation, and are disclosed consistent
with related party disclosure guidelines in SSAP No. 25 guidance.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Recently
Adopted Accounting Standards
In
December, 2022, the NAIC Statutory Accounting Principles Working Group adopted revisions to SSAP No. 36 – Troubled Debt Restructuring,
which requires an entity to evaluate the modification represents a new loan or a continuation of an existing loan. This update
eliminates prior U.S. GAAP guidance for troubled debt restructuring by creditors. The Company has adopted these changes for the
annual 2022 reporting period and there is no significant impact on the financial statements.
In
December, 2022, the NAIC Statutory Accounting Principles Working Group adopted revisions to SSAP No. 9 – Subsequent Events, and
SSAP No. 101 – Income Taxes, which include outlines to the new corporate alternative minimum tax (CAMT) for tax years beginning
after third quarter 2022 through first quarter 2023. This guidance also provides subsequent event exceptions. The Company has
adopted these changes for the annual 2022 reporting period and there is no significant impact on the financial statements.
In
May, 2022, the NAIC Statutory Accounting Principles Working Group adopted revisions to SSAP No. 25 – Affiliates and Other Related
Parties and SSAP No. 43R – Loan-Backed and Structured Securities which clarify application of the existing affiliate definition
and incorporate new disclosure requirements for all investments that involve related parties, regardless if they meet the affiliate
definition. The new guidance provides an expanded list of examples of related parties and further clarifies that investments from
any arrangement which results in direct or indirect control, including control through a servicer or other controlling arrangement,
shall be reported as affiliated. The Company has adopted these changes in the annual 2022 reporting period and there is no significant
impact on the financial statements.
In
May, 2022, the Blanks Working Group adopted updates to the Life/Fraternal Blank Asset Valuation Reserve (AVR) factors to correspond
with the 2021 Life Risk-Based Capital Working Group adopted changes to Risk-Based Capital (RBC) factors for the expanded bond
designation categories. The Company has adopted these changes in the annual 2022 reporting period.The result of adopting this
change is that the 2022 AVR liability under the new calculation is marginally higher than it would have been prior to the change.
In
March, 2022, the Blanks Working Group adopted changes to add a group of lines for Residual Tranches or Interests in the AVR which
impacts the value of AVR in the 2022 financial statement amounts. The Company has adopted these changes in the annual 2022 reporting
period. The result of adopting this change is that the 2022 AVR liability under the new calculation is marginally lower than it
would have been prior to the change.
In
December, 2021, the NAIC Statutory Accounting Principles Working Group adopted revisions to clarify that residual tranches of
structured securities shall be reported as other invested assets and valued at the lower of cost or market. Revisions are effective
December 31, 2022, with early adoption permitted on December 31, 2021. The Working Group also clarified that residual tranches
which are reported as bonds for the December 31, 2021 reporting date must be rated 6, and may not be rated 5GI. The Company presented
residual tranches as bonds in 2021 and as Other Invested Assets in 2022, consistent with this guidance.
In
December, 2021, the NAIC Statutory Accounting Principles Working Group adopted revisions to SSAP No. 43R – Loan-Backed and Structured
Securities. These revisions identify that SVO-Identified Credit Tenant Loans are in scope. The Company adopted the guidance in
the 2021 and there were no significant impact on the financial statements.
In
May, 2021, the NAIC Statutory Accounting Principles Working Group issued INT 20-01: Reference Rate Reform. As it relates to discontinuance
of LIBOR, the interpretation provides optional expedients for derivative instruments affected by changes to the interest rates
used for discounting, margining or contract price alignment as of result of the reference rate reform. This will allow for continuation
of the existing hedge relationship and not require hedge de-designation. The Company adopted the guidance in 2021 and there were
no significant impact on the financial statements.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
In
May, 2021, the NAIC Statutory Principles Working Group adopted revisions to SSAP No. 103R – Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. These revisions incorporate additional disclosures and data-capture templates to assist
state insurance regulators in assessments of transferred assets. This will assist in the determination if the economic interest
is retained by the reporting entity, related party or another member within the holding group and disclosed. The Company made
such disclosures in the 2021 statements, as applicable.
In
March, 2021, the NAIC Statutory Principles Working Group adopted revisions to SSAP No. 25 – Related Parties. These revisions clarify
the identification of related parties under U.S. GAAP or SEC reporting requirements would be considered a related party under
statutory accounting principles. The interpretation also states a non-controlling ownership over 10% results in a related party
classification regardless of any disclaimer of control or affiliation and does not eliminate the disclosure of material transactions
as required under SSAP No. 25. The Company made such disclosure in the 2021 statements, as applicable.
In
March, 2021, the NAIC Statutory Principles Working Group adopted revisions to SSAP No. 32R – Preferred Stock. These revisions
disclose requirements regarding preferred stock warrants and require publicly traded preferred stock warrants to be reported at
fair value. The Company made such disclosures in the 2021 statements, as applicable.
Change
in Accounting Principle
In
2022, the Company updated its accounting for ceding IMR gains and losses after the inception of the treaty where gains and
losses transferred to a counterparty are now assessed on an accrual basis whereas previously we assessed that transfer on a
cash basis. Since both are acceptable interpretations of the standard, the Company has accounted for this as a change in
accounting principle and has applied an adjustment to IMR for all such ceded gains, whereas previously we made no adjustment
to IMR and instead set up a different liability. There was an impact to surplus arising from the change due to the IMR
liability being stated at an after tax amount whereas the other liability had been stated without an adjustment for tax. An
adjustment to surplus of $1,575 has been captured as the cumulative impact of the change in accounting
principle.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Bonds
Book/Adjusted
Carrying Value and Fair Values
The
book/adjusted carrying value and fair value of investment in long term bonds are as follows:
| Book / Adjusted Carrying Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| December 31, 2022 | ||||||||||||||||
| Long term bonds: | ||||||||||||||||
| United States Government and agencies | $ | 15,313 | $ | 116 | $ | (35 | ) | $ | 15,394 | |||||||
| State and political subdivisions | 392,352 | 3,764 | (26,763 | ) | 369,353 | |||||||||||
| Foreign government | 69,128 | 415 | (5,669 | ) | 63,874 | |||||||||||
| Corporate securities | 3,762,410 | 23,957 | (254,258 | ) | 3,532,109 | |||||||||||
| Hybrid | 77,197 | 1,250 | (4,883 | ) | 73,564 | |||||||||||
| Parent, Subsidiaries and Affiliates | 134,580 | — | (24,488 | ) | 110,092 | |||||||||||
| Asset-backed securities | 39,599 | 6 | (3,084 | ) | 36,521 | |||||||||||
| Commercial mortgage-backed securities | 68,166 | — | (4,566 | ) | 63,600 | |||||||||||
| Residential mortgage-backed securities | 191,793 | 11,285 | (5,784 | ) | 197,294 | |||||||||||
| Total long term bonds | 4,750,538 | 40,793 | (329,530 | ) | 4,461,801 | |||||||||||
| Short-term bonds | 4,452 | 5 | — | 4,457 | ||||||||||||
| Total long term, short-term and cash equivalent bonds | $ | 4,754,990 | $ | 40,798 | $ | (329,530 | ) | $ | 4,466,258 | |||||||
| Book / Adjusted Carrying Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| December 31, 2021 | ||||||||||||||||
| Long term bonds: | ||||||||||||||||
| United States Government and agencies | $ | 5,112 | $ | 1,389 | $ | — | $ | 6,501 | ||||||||
| State and political subdivisions | 306,231 | 67,581 | (994 | ) | 372,818 | |||||||||||
| Foreign government | 29,725 | 5,148 | (44 | ) | 34,829 | |||||||||||
| Corporate securities | 1,534,238 | 222,604 | (4,319 | ) | 1,752,524 | |||||||||||
| Hybrid | 40,433 | 11,314 | (223 | ) | 51,524 | |||||||||||
| Parent, Subsidiaries and Affiliates | 15,008 | 1,425 | (12 | ) | 16,421 | |||||||||||
| Asset-backed securities | 120,108 | 5,567 | (604 | ) | 125,071 | |||||||||||
| Commercial mortgage-backed securities | 26,039 | 907 | (13 | ) | 26,932 | |||||||||||
| Residential mortgage-backed securities | 181,964 | 34,157 | (196 | ) | 215,926 | |||||||||||
| Total long term bonds | $ | 2,258,858 | $ | 350,092 | $ | (6,405 | ) | $ | 2,602,546 | |||||||
| Short-term bonds | 154 | — | — | 154 | ||||||||||||
| Cash equivalent bonds | — | — | — | — | ||||||||||||
| Total long term, short-term and cash equivalent bonds | $ | 2,259,012 | $ | 350,092 | $ | (6,405 | ) | $ | 2,602,700 | |||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
At
December 31, 2022 and 2021, respectively, 100.0% and 99.0% of debt securities were rated by the NAIC as investment grade (1 or
2 by the NAIC).
The
book/adjusted carrying value and fair value of bonds by contractual maturity at December 31, 2022 are shown below. Actual maturities
may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties or the Company may have the right to put or sell the obligations back to the issuers. Mortgage-backed securities
are included in their own distinct category.
| Book / Adjusted Carrying Value |
Fair Value |
|||||||
| Due in one year or less | $ | 20,933 | $ | 20,729 | ||||
| Due after one year through five years | 244,029 | 233,087 | ||||||
| Due after five years through ten years | 475,371 | 446,256 | ||||||
| Due after ten years | 3,595,530 | 3,371,121 | ||||||
| Mortgage-backed and asset-backed securities | 419,126 | 395,067 | ||||||
| Total | $ | 4,754,990 | $ | 4,466,260 | ||||
The
following tables provide information about the Company’s bonds that have been continuously in an unrealized loss position.
|
Less |
Greater |
Total | ||||||||||||||||||||||
| December 31, 2022 | Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
||||||||||||||||||
| Long term bonds: | ||||||||||||||||||||||||
| United States government and agencies | $ | 1,456 | $ | (35 | ) | $ | — | $ | — | $ | 1,456 | $ | (35 | ) | ||||||||||
| State and political subdivision | 239,384 | (19,559 | ) | 40,259 | (7,204 | ) | 279,643 | (26,763 | ) | |||||||||||||||
| Foreign government | 22,450 | (5,388 | ) | 1,416 | (281 | ) | 23,866 | (5,669 | ) | |||||||||||||||
| Corporate securities | 2,299,660 | (215,023 | ) | 116,065 | (39,236 | ) | 2,415,725 | (254,259 | ) | |||||||||||||||
| Hybrid | 20,435 | (1,612 | ) | 11,378 | (3,271 | ) | 31,813 | (4,883 | ) | |||||||||||||||
| Parent, Subsidiaries and Affiliates | 76,775 | (22,472 | ) | 10,091 | (2,016 | ) | 86,866 | (24,488 | ) | |||||||||||||||
| Asset-backed securities | 32,079 | (2,402 | ) | 3,815 | (683 | ) | 35,894 | (3,085 | ) | |||||||||||||||
| Commercial mortgage-backed securities | 62,377 | (4,438 | ) | 690 | (128 | ) | 63,067 | (4,566 | ) | |||||||||||||||
| Residential mortgage-backed securities | 106,125 | (5,439 | ) | 1,556 | (345 | ) | 107,681 | (5,784 | ) | |||||||||||||||
| Total long term bonds | 2,860,741 | (276,368 | ) | 185,270 | (53,164 | ) | 3,046,011 | (329,532 | ) | |||||||||||||||
| Short-term bonds | — | — | — | — | — | — | ||||||||||||||||||
| Total long term, short-term and cash equivalent bonds | $ | 2,860,741 | $ | (276,368 | ) | $ | 185,270 | $ | (53,164 | ) | $ | 3,046,011 | $ | (329,532 | ) | |||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
|
Less Twelve |
Greater Twelve |
Total | ||||||||||||||||||||||
| December 31, 2021 | Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
||||||||||||||||||
| Long term bonds: | ||||||||||||||||||||||||
| United States government and agencies | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| State and political subdivision | 55,678 | (994 | ) | — | — | 55,678 | (994 | ) | ||||||||||||||||
| Foreign government | 2,803 | (44 | ) | — | — | 2,803 | (44 | ) | ||||||||||||||||
| Corporate securities | 182,726 | (4,319 | ) | — | — | 182,726 | (4,319 | ) | ||||||||||||||||
| Hybrid | 14,510 | (223 | ) | — | — | 14,510 | (223 | ) | ||||||||||||||||
| Parent, Subsidiaries and Affiliates | 9,957 | (12 | ) | — | — | 9,957 | (12 | ) | ||||||||||||||||
| Asset-backed securities | 30,609 | (604 | ) | — | — | 30,609 | (604 | ) | ||||||||||||||||
| Commercial mortgage-backed securities | 883 | (13 | ) | — | — | 883 | (13 | ) | ||||||||||||||||
| Residential mortgage-backed securities | 1,794 | (173 | ) | 195 | (23 | ) | 1,989 | (196 | ) | |||||||||||||||
| Total long term bonds | $ | 298,960 | $ | (6,382 | ) | $ | 195 | $ | (23 | ) | $ | 299,155 | $ | (6,405 | ) | |||||||||
| Short-term bonds | 154 | — | — | — | 154 | — | ||||||||||||||||||
| Cash equivalent bonds | — | — | — | — | — | — | ||||||||||||||||||
| Total long term, short-term and cash equivalent bonds | $ | 299,114 | $ | (6,382 | ) | $ | 195 | $ | (23 | ) | $ | 299,309 | $ | (6,405 | ) | |||||||||
The
Company has the intent and ability to hold all bonds in an unrealized loss position until amortized cost basis is recovered.
As
of December 31, 2022 and 2021, the number of securities in an unrealized loss position for over 12 months consisted of 170 and
1, respectively.
In
the course of the Company’s asset management, no securities have been sold or reacquired within 30 days of the sale date
to enhance the Company’s yield on its investment portfolio.
Insurer
Self-Certified Securities
Securities
for which the Company does not have all information required for the NAIC to provide a NAIC designation, but for which the Company
is receiving timely payments of principal and interest are referred to as “5GI Securities”.
The
Company did not hold any 5GI securities as of December 31, 2022 and 2021.
Subprime
Mortgage Related Risk Exposure
While
the Company holds no direct investments in subprime mortgage loans, the Company has limited exposure to subprime borrowers, through
direct investments in primarily investment grade securities with underlying subprime exposure. The Company’s definition
of subprime is predominantly based on borrower statistics from a residential pool of mortgages. Included in the statistics evaluated
is the average credit score of the borrower, the loan-to-value ratio, the debt-to-income statistics, and the diversity of all
these statistics across the borrower profile. As is true for all securities in the Company’s portfolio, the Company reviews
the entire portfolio for impairments at least quarterly. Included in that analysis are current delinquency and default statistics,
as well as the current and original levels of subordination on the security.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company has indirect subprime exposure through the following investments:
| Actual Cost |
Book / Adjusted Carrying Value (excluding interest) |
Fair Value |
Other Than Temporary Impairment Losses Recognized |
|||||||||||||
| December 31, 2022 | ||||||||||||||||
| Residential mortgage-backed securities | $ | 10,588 | $ | 9,129 | $ | 11,484 | $ | — | ||||||||
| Total | $ | 10,588 | $ | 9,129 | $ | 11,484 | $ | — | ||||||||
| Actual Cost |
Book |
Fair Value |
Other Than Temporary Impairment Losses Recognized |
|||||||||||||
| December 31, 2021 | ||||||||||||||||
| Residential mortgage-backed securities | $ | 15,592 | $ | 10,415 | $ | 15,417 | $ | — | ||||||||
| Total | $ | 15,592 | $ | 10,415 | $ | 15,417 | $ | — | ||||||||
Mortgage
Loans
Maturities
| Year Ended December 31, |
|||||||||
| 2022 | Percentage | ||||||||
| 2025 | 8,520 | 5.43 | % | ||||||
| 2026 | 5,461 | 3.48 | % | ||||||
| 2027 and thereafter | 143,063 | 91.10 | % | ||||||
| Total | $ | 157,044 | 100.00 | % | |||||
Impairments
The
Company evaluates all of its mortgage loans for impairment. This evaluation considers the borrower’s ability to pay and
the value of the underlying collateral. When a loan is impaired, its impaired value is measured based on the present value of
expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the impaired
value may be based on a loan’s observable market price (where available), or the fair value of the collateral if the loan
is a collateral-dependent loan. An allowance is established for the difference between the loan’s impaired value and its
current carrying value. Additional allowance amounts established for incurred but not specifically identified impairments in the
mortgage portfolio, based on analysis of market loss rate data, adjusted for specific characteristics of the Company’s portfolio
and changes in economic conditions. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the
carrying amount of the loan is charged off against the allowance.
The
Company did not recognize impairments or establish allowances on mortgage loans as of December 31, 2022 or 2021.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Regions
and Type
The
Company diversifies its mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration.
The
following tables present the Company’s mortgage loans by geographic region and property type.
The
mortgage loans were concentrated in the following regions:
| Year Ended December 31, |
||||||||||||||||
| 2022 | Percentage | 2021 | Percentage | |||||||||||||
| East North Central | $ | 3,066 | 1.95 | % | $ | 5,582 | 100.00 | % | ||||||||
| East South Central | 1,636 | 1.04 | % | — | — | % | ||||||||||
| Middle Atlantic | 1,721 | 1.10 | % | — | — | % | ||||||||||
| New England | 7,625 | 4.86 | % | — | — | % | ||||||||||
| Pacific | 78,713 | 50.12 | % | — | — | % | ||||||||||
| South Atlantic | 6,282 | 4.00 | % | — | — | % | ||||||||||
| Mountain | 42,442 | 27.03 | % | — | — | % | ||||||||||
| West North Central | 161 | 0.10 | % | — | — | % | ||||||||||
| West South Central | 15,398 | 9.80 | % | — | — | % | ||||||||||
| Total | $ | 157,044 | 100.00 | % | $ | 5,582 | 100.00 | % | ||||||||
The
mortgage loans by type are as follows:
| Year Ended December 31, |
||||||||||||||||
| 2022 | Percentage | 2021 | Percentage | |||||||||||||
| Office building | $ | 119,532 | 76.11 | % | $ | 3,495 | 62.61 | % | ||||||||
| Retail | 16,495 | 10.50 | % | 2,087 | 37.39 | % | ||||||||||
| Apartment / Multifamily | 19,104 | 12.16 | % | — | — | % | ||||||||||
| Self storage | 1,110 | 0.71 | % | — | — | % | ||||||||||
| Other | 803 | 0.51 | % | — | 0.00 | % | ||||||||||
| Total | $ | 157,044 | 100.00 | % | $ | 5,582 | 100.00 | % | ||||||||
In
2022 the minimum and maximum rates of interest received for commercial and residential loans were 3.6% and 11.3%.The maximum percentage
of any one loan to the value of the security at the time of the loan was 85.3%. There were no taxes, assessments or other amounts
advances that were not included in the mortgage total.
Derivative
and Hedging Activities
The
Company utilizes various derivative instruments to hedge risk identified in the normal course of its insurance business. The Company
owns equity index options to limit its net exposure to equity market risk. The Company enters into equity index future contracts
through exchange to hedge the general business risk. The Company receives collateral from its derivative counterparties to limit
the risk of nonperformance by the counterparties.
The
Company’s derivative portfolio consists of equity index options to hedge the growth in interest credited to the customers
on the indexed universal life insurance products. The Company limits the general business risk by entering into equity index futures.
The total carrying values of derivative assets were $0 and $36 as of December 31, 2022 and 2021, respectively.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Under
SSAP No. 86, the Company has elected to account for its derivatives using the fair value method of accounting, with changes in
fair value recorded as unrealized investment gains or losses. The realized gains/losses are recorded at the option expiration
date.
The
current credit exposure of the Company’s OTC derivative contracts is limited to the fair value of $0 as of December 31,
2022. Credit risk is managed by entering into transactions with creditworthy counterparties and obtaining full collateral of $0
from counterparties as of December 31, 2022. In the event of the nonperformance by the counterparties, the Company has the right
to the collateral pledged by counterparties. The exchange-traded derivatives are affected through a regulated exchange and positions
are marked to market on a daily basis, the Company has little exposure to credit-related losses in the event of nonperformance
by counterparties to such financial instruments.
The
fair value of the derivative assets and liabilities by risk hedged were as follows:
| As of December 31, 2022 | ||||||||||||
| Risk Hedged | Derivative Assets | Derivative Liabilities | Notional Amounts | |||||||||
| Equity/index | $ | — | $ | (16 | ) | $ | 386 | |||||
| Gross fair value of derivative instruments | $ | — | $ | (16 | ) | $ | 386 | |||||
| Offset per SSAP No. 64 | — | — | ||||||||||
| Net Fair value included within derivatives | $ | — | $ | (16 | ) | |||||||
| As of December 31, 2021 | ||||||||||||
| Risk Hedged | Derivative Assets |
Derivative Liabilities |
Notional Amounts |
|||||||||
| Equity/index | $ | 36 | $ | — | $ | 1,667 | ||||||
| Gross fair value of derivative instruments | $ | 36 | $ | — | $ | 1,667 | ||||||
| Offset per SSAP No. 64 | — | — | ||||||||||
| Net Fair value included within derivatives | $ | 36 | $ | — | ||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
fair value of the derivative assets and liabilities by instrument were as follows:
| As of December 31, 2022 | ||||||||||||
| Derivative Instruments | Derivative Assets | Derivative Liabilities | Notional Amounts | |||||||||
| Equity index options | $ | — | $ | — | $ | — | ||||||
| Futures | — | (16 | ) | 386 | ||||||||
| Gross fair value of derivative instruments | $ | — | $ | (16 | ) | $ | 386 | |||||
| Offset per SSAP No. 64 | — | — | ||||||||||
| Net Fair value included within derivatives | $ | — | $ | (16 | ) | |||||||
| As of December 31, 2021 | ||||||||||||
| Derivative Instruments | Derivative Assets |
Derivative Liabilities |
Notional Amounts |
|||||||||
| Equity index options | $ | — | $ | — | $ | — | ||||||
| Futures | 36 | — | 1,667 | |||||||||
| Gross fair value of derivative instruments | $ | 36 | $ | — | $ | 1,667 | ||||||
| Offset per SSAP No. 64 | — | — | ||||||||||
| Net Fair value included within derivatives | $ | 36 | $ | — | ||||||||
The
derivative gains and losses by investment, all of which hedge equity market exposure, were as follows:
| As of December 31, 2022 | ||||||||
| Derivative Instruments | Amount of Realized Gain / (Loss) on Derivatives |
Amount of Unrealized Gain / (Loss) on Derivatives |
||||||
| Equity index options | $ | — | $ | — | ||||
| Futures | (64 | ) | (53 | ) | ||||
| Total gains (losses) | $ | (64 | ) | $ | (53 | ) | ||
As of December 31, 2021
| Derivative Instruments | Amount of Realized Gain / (Loss) on Derivatives |
Amount of Unrealized Gain / (Loss) on Derivatives |
||||||
| Equity index options | $ | 110 | $ | (94 | ) | |||
| Futures | 203 | 264 | ||||||
| Total gains (losses) | $ | 313 | $ | 170 | ||||
The
Company’s off balance sheet credit risk is the risk of nonperformance by OTC counterparties. The Company limits this risk
by utilizing and managing collateral according to a Credit Support Annex agreement (CSA). The company negotiates the CSA agreement
with each highly rated counterparty prior to trading. Collateral is managed to CSA standards by the Company’s derivative
custodian.
As
of December 31, 2022, the Company had collateral cash on deposit with its custodian with a fair value of $0.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Other
Investments
Other
Invested Assets
Other
invested assets on the Company’s Statements of Admitted Assets, Liabilities, Capital and Surplus consist of interests in
partnerships and a non-qualified defined contribution pension plan covering career distribution system agents sponsored by Accordia.
The carrying value of these investments for the years ended December 31, were as follows:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Partnerships | $ | 1,641 | $ | 5,276 | ||||
| Defined contribution pension plan | — | 155 | ||||||
| Receivable for bonds and stocks | 10,132 | 20 | ||||||
| Residual tranches | 1,120 | — | ||||||
| Total | $ | 12,893 | $ | 5,451 | ||||
Cash
and Short-Term Investments
Cash
and short-term investments held at December 31, were as follows:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents | $ | 387,526 | $ | 100,494 | ||||
| Short-term investments | 4,452 | 154 | ||||||
| Total | $ | 391,978 | $ | 100,648 | ||||
Restricted
Assets
The
Company has securities on deposit with various state and governmental authorities. The statement value of these securities as
of December 31, 2022 and 2021 was $11,865 and $11,949, respectively.
Proceeds,
Net Investment Income and Capital Gains and Losses
Proceeds
from the sale of bonds and related capital gains and losses were as follows:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Proceeds | $ | 2,692,266 | $ | 80,543 | ||||
| Gross realized gains | 1,016 | 6,271 | ||||||
| Gross realized losses | (7,534 | ) | (1,395 | ) | ||||
| Total net realized gains/(losses) | $ | (6,518 | ) | $ | 4,876 | |||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Major
categories of net investment income are summarized below:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Bonds | $ | 139,453 | $ | 100,074 | ||||
| Stocks | — | (16 | ) | |||||
| Policy loans | 3,213 | 235 | ||||||
| Short-term and cash equivalent investments | 4,147 | 2,713 | ||||||
| Mortgage loans | 3,041 | 351 | ||||||
| Other invested assets | 2,069 | 2,972 | ||||||
| Miscellaneous income | 233 | 23 | ||||||
| Gross investments income | 152,156 | 106,352 | ||||||
| Less investment expenses | 13,617 | 8,899 | ||||||
| Net investment income before IMR amortization | 138,539 | 97,453 | ||||||
| IMR amortization | 4,524 | 4,210 | ||||||
| Net investment income after IMR amortization | $ | 143,063 | $ | 101,663 | ||||
There
were no amounts excluded from investment income for bonds where collection of interest was uncertain at December 31, 2022 and
2021.
The
Company did not have any due and accrued amounts over 90 days past due to exclude from surplus at December 31, 2022 and 2021,
respectively.
Realized
gains and losses, net of amounts transferred to the IMR and federal income tax, are as follows:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Realized gains (losses) | ||||||||
| Bonds | $ | (13,776 | ) | $ | 4,202 | |||
| Derivatives | (64 | ) | 313 | |||||
| Mortgages | 19 | — | ||||||
| Total realized gains (losses) on investments | (13,821 | ) | 4,517 | |||||
| Less amount transferred to IMR (net of related taxes of $2,672 in 2022 and $792 in 2021) |
(10,051 | ) | (2,979 | ) | ||||
| Total realized gains (losses) on investments | (3,770 | ) | 1,538 | |||||
| Federal income tax expense (benefit) | (461 | ) | 2,186 | |||||
| Net realized gains (losses) | $ | (3,309 | ) | $ | (648 | ) | ||
The
change in unrealized gains and losses on investments recorded in unassigned surplus is as follows:
| Year Ended December 31, |
||||||||
| 2022 | 2021 | |||||||
| Stocks | $ | — | $ | (22 | ) | |||
| Derivative instruments | $ | (53 | ) | $ | 170 | |||
| Other invested assets | (2,341 | ) | 645 | |||||
| Total change in unrealized gains (losses) | (2,394 | ) | 793 | |||||
| Capital gains tax expense (benefit) | (262 | ) | 169 | |||||
| Change in unrealized gains (losses), net of taxes | $ | (2,132 | ) | $ | 624 | |||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company employs a systematic methodology to evaluate declines in fair values below amortized cost for all investments. The Company
evaluates the ability and intent to hold the investment to maturity, the issuer’s overall financial condition, the issuer’s
credit and financial strength ratings, the issuer’s financial performance including earnings trends, dividend payments,
and asset quality, weakening of the general market conditions in the industry or geographic region in which the issuer operates,
the length of time in which the fair value of an issuer’s securities remains below cost, and, with respect to fixed maturity
investments, any factors that might raise doubt about the issuer’s ability to pay all amounts due according to the contractual
terms. The Company applies these factors to all securities, as necessary.
The
Company recognized $1,034 and $42 losses for OTTI of bonds and other invested assets at December 31, 2022 and 2021.
There
were no loan backed securities with a recognized OTTI held by the Company at December 31, 2022 and 2021, with the present value
of cash flows expected to be less than amortized cost.
The
following is the aggregate amount of unrealized losses and related fair value of impaired loan-backed securities (the fair value
is less than cost or amortized cost) for which an other-than-temporary impairment has not been recognized in earnings as a realized
loss as of December 31, 2022 and 2021:
| December 31, 2022 |
||||||||||||||||||||||||
| Less than 12 Months |
12 Months or More |
Total | ||||||||||||||||||||||
| Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
| Loan-backed and structured securities | $ | 275,410 | $ | (21,686 | ) | $ | 16,153 | $ | (3,171 | ) | $ | 291,562 | $ | (24,857 | ) | |||||||||
| December 31, 2021 |
||||||||||||||||||||||||
| Less than 12 Months |
12 Months or More |
Total | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| Fair Value |
Losses | Fair Value |
Losses | Fair Value |
Losses | |||||||||||||||||||
| Loan-backed and structured securities | $ | 33,286 | $ | (790 | ) | $ | 195 | $ | (23 | ) | $ | 33,480 | $ | (813 | ) | |||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 4. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The
fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (the exit price). The fair value hierarchy under SSAP
No. 100 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement).
The
three levels of the fair value hierarchy are described below:
Basis
of Fair Value Measurement
| Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities |
| Level 2 | Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly. |
| Level 3 | Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
A
financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement.
Summary
of Fair Value Methodologies
The
following methods and assumptions were used by the Company in estimating fair value for financial instruments:
Bonds,
preferred stock and common stock – Fair values are based on quoted market prices. If quoted market prices are not available,
fair values are estimated using independent pricing sources or internally developed pricing models using discounted cash flow
analyses, which utilize current interest rates for similar financial instruments having comparable terms and credit. Bonds rated
a 6 in accordance with the P&P Manual of the NAIC CMIAO are carried at the lower of amortized cost or fair value.
Cash
and short-term investments – For these investments, the carrying amounts reported in the Statements of Admitted Assets, Liabilities,
Capital and Surplus approximate fair value.
Mortgage
loans – The fair value of mortgage loans is estimated by discounting future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Derivatives
– The Company values the OTC options utilizing the Black-Scholes models implemented in the SunGard derivative system with
index marks updated daily. The Company’s OTC equity options trade in liquid markets, resulting in calculations that do not
involve significant management judgment and valuations that generally can be verified. The Company also compares the derivative
valuations to the daily counterparty marks to validate the model outputs. Such instruments are typically classified within Level
2 of the fair value hierarchy maturities.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Policy
loans – The estimated fair value for policy loans with variable interest rates approximates the carrying value due to the
absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a material
change in estimated fair value due to changes in market interest rates. The estimated fair value for policy loans with fixed interest
rates is based on discounted cash flows.
Policy
and contract liabilities – Fair values of the Company’s liabilities under contracts not involving significant mortality
or morbidity risks (principally, annuities and supplementary contracts) are stated at the cost the Company would incur to extinguish
the liability (i.e., the cash surrender value).
Separate
accounts – The estimated fair value of assets held in separate accounts is based on quoted market prices. Separate account
assets representing contract holder funds are measured at fair value and reported as a summary total in the Statements of Admitted
Assets, Liabilities, Capital and Surplus, with an equivalent summary total reported for related liabilities. Based on the level
of observable activity, these assets will be measured at either level 1 or level 2.
Financial
Instruments Held at Fair Value
As
of December 31, 2022, the Company’s assets carried at fair value consist of bonds, derivative instruments and separate account
funds on a recurring basis. The following table presents, by level within the fair value hierarchy, financial assets and liabilities
held at fair value.
| Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Financial Assets | ||||||||||||||||
| Derivatives | $ | — | $ | — | $ | — | $ | — | ||||||||
| Separate account assets | 111,015 | — | — | 111,015 | ||||||||||||
| Total assets at fair value | $ | 111,015 | $ | — | $ | — | $ | 111,015 | ||||||||
| Financial Liabilities | ||||||||||||||||
| Derivatives liabilities | 16 | — | — | 16 | ||||||||||||
| Total liabilities at fair value | $ | 16 | $ | — | $ | — | $ | 16 | ||||||||
| Level 1 |
Level 2 |
Level 3 |
Total | |||||||||||||
| December 31, 2021 | ||||||||||||||||
| Financial Assets | ||||||||||||||||
| Derivatives | $ | 36 | $ | — | $ | — | $ | 36 | ||||||||
| Separate account assets | 149,630 | — | — | 149,630 | ||||||||||||
| Total assets at fair value | $ | 149,666 | $ | — | $ | — | $ | 149,666 | ||||||||
| Financial Liabilities | ||||||||||||||||
| Derivatives liabilities | — | — | — | — | ||||||||||||
| Total liabilities at fair value | $ | — | $ | — | $ | — | $ | — | ||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Transfers
Into or Out of Level 3
Overall,
transfers into and/or out of level 3 are attributable to a change in the observability of inputs. Assets and liabilities are transferred
into level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases
significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances
in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of level 3 when circumstances
change such that a significant input can be corroborated with market observable data. This may be due to a significant increase
in market activity, a specific event, or one or more significant input(s) becoming observable. Transfers into and/or out of any
level are assumed to occur at the beginning of the period.
The
Company did not hold any Level 3 financial assets or liabilities carried at fair value, nor were there any transfers into or out
of Level 3 for the year ended December 31, 2022.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Fair
Value of All Financial Instruments
The
aggregate fair value of the Company’s financial instruments and the level within the fair value hierarchy in which the fair
value measurements fall, together with the related admitted values, are presented in the following tables. Pursuant to SSAP No.
100R, insurance contracts have been excluded.
| Aggregate Fair Value |
Admitted Assets |
Level 1 | Level 2 | Level 3 | Not Practicable (carrying value) |
|||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||
| Bonds | $ | 4,461,802 | $ | 4,750,538 | $ | 15,394 | $ | 4,334,463 | $ | 111,945 | $ | — | ||||||||||||
| Common stock | 1,545 | 1,545 | — | — | 1,545 | — | ||||||||||||||||||
| Separate account assets | 111,015 | 111,015 | 111,015 | — | — | — | ||||||||||||||||||
| Short-term investments | 4,457 | 4,452 | — | 4,457 | — | — | ||||||||||||||||||
| Cash and cash equivalents | 387,526 | 387,526 | 387,526 | — | — | — | ||||||||||||||||||
| Mortgage loans | 163,964 | 157,044 | — | — | 163,964 | — | ||||||||||||||||||
| Other invested assets | 11,254 | 11,254 | 10,134 | — | 1,120 | — | * | |||||||||||||||||
| Policy loans | 89,413 | 89,413 | — | — | 89,413 | — | ||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||
| Derivative liabilities | 16 | 16 | 16 | — | — | — | ||||||||||||||||||
| Other contract deposit funds | 3,245 | 3,245 | — | — | 3,245 | — | ||||||||||||||||||
| Aggregate Fair Value |
Admitted Assets |
Level 1 | Level 2 | Level 3 | Not Practicable (carrying value) |
|||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||
| Bonds | $ | 2,602,546 | $ | 2,258,857 | $ | 6,501 | $ | 2,536,758 | $ | 59,287 | $ | — | ||||||||||||
| Separate account assets | 149,630 | 149,630 | 149,630 | — | — | — | ||||||||||||||||||
| Short-term investments | 154 | 154 | — | 154 | — | — | ||||||||||||||||||
| Cash and cash equivalents | 100,494 | 100,494 | 100,494 | — | — | — | ||||||||||||||||||
| Mortgage loans | 5,806 | 5,582 | — | — | 5,806 | — | ||||||||||||||||||
| Derivatives | 36 | 36 | 36 | — | — | — | ||||||||||||||||||
| Other invested assets | 175 | 175 | 20 | — | 155 | — | * | |||||||||||||||||
| Policy loans | 41,476 | 41,476 | — | — | 41,476 | — | ||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||
| Derivative liabilities | — | — | — | — | — | — | ||||||||||||||||||
| Other contract deposit funds | 3,355 | 3,355 | — | — | 3,355 | — | ||||||||||||||||||
*
Not practicable as there are no available quoted market prices for these assets.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Financial
Instruments Held at Carrying Value
The
following is the estimated fair values of financial instruments held at carrying value:
| December 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
| Financial Assets | ||||||||||||||||
| Short-term investments | $ | 4,452 | $ | 4,457 | $ | 154 | $ | 154 | ||||||||
| Common stock | 1,545 | 1,545 | — | — | ||||||||||||
| Bonds | 4,750,538 | 4,461,801 | 2,258,857 | 2,602,545 | ||||||||||||
| Mortgage loans | 157,044 | 163,964 | 5,582 | 5,806 | ||||||||||||
| Other invested assets | 11,253 | 11,254 | 175 | 175 | ||||||||||||
| Policy loans | 89,413 | 89,413 | 41,476 | 41,476 | ||||||||||||
| Cash and equivalents | 387,526 | 387,526 | 100,494 | 100,494 | ||||||||||||
| Total | $ | 5,401,771 | $ | 5,119,960 | $ | 2,402,479 | $ | 2,746,391 | ||||||||
| Financial Liabilities | ||||||||||||||||
| Premium deposit funds | $ | 268,731 | $ | 301,166 | $ | 282,930 | $ | 313,823 | ||||||||
| Other deposit funds | 3,988 | 3,988 | 4,105 | 4,105 | ||||||||||||
| Total | $ | 272,719 | $ | 305,154 | $ | 287,035 | $ | 317,928 | ||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company is a member of the Federal Home Loan Bank (FHLB) Boston. Through its membership, the Company has the ability to conduct
business activity (borrowings with the FHLB). It is part of the Company’s strategy to utilize these funds as a key source
of liquidity and to promote liability- driven duration management. The Company has determined the actual/estimated maximum borrowing
capacity as $503,000,000. The Company calculated this amount in accordance with current and potential acquisitions of FHLB capital
stock.
| December 31, 2022 | December 31, 2021 | |||||||
| FHLB stock purchased/owned as part of the agreement | $ | 1,545 | $ | — | ||||
| Funding capacity currently available | 503,000 | — | ||||||
| Agreement assets and liabilities | ||||||||
| General account assets | 1,545 | — | ||||||
| General account liabilities | — | — | ||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Components
of Net Deferred Tax Asset/ (Liability)
The
components of the net deferred tax asset /liability at December 31, 2022 and 2021 and the change is comprised of the following
components:
| December 31, 2022 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Gross deferred tax assets | $ | 33,658 | $ | 3,496 | $ | 37,154 | ||||||
| Statutory valuation allowance adjustments | — | — | — | |||||||||
| Adjusted gross deferred tax assets | 33,658 | 3,496 | 37,154 | |||||||||
| Deferred tax assets nonadmitted | 7,144 | 1,801 | 8,944 | |||||||||
| Subtotal net admitted deferred tax asset | 26,514 | 1,695 | 28,210 | |||||||||
| Gross deferred tax liabilities | 16,422 | — | 16,422 | |||||||||
| Net admitted deferred tax asset / (liability) | $ | 10,092 | $ | 1,695 | $ | 11,787 | ||||||
| December 31, 2021 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Gross deferred tax assets | $ | 18,394 | $ | 177 | $ | 18,571 | ||||||
| Statutory valuation allowance adjustments | — | — | — | |||||||||
| Adjusted gross deferred tax assets | 18,394 | 177 | 18,571 | |||||||||
| Deferred tax assets nonadmitted | — | — | — | |||||||||
| Subtotal net admitted deferred tax asset | 18,394 | 177 | 18,571 | |||||||||
| Gross deferred tax liabilities | 22,456 | 113 | 22,569 | |||||||||
| Net admitted deferred tax asset / (liability) | $ | (4,062 | ) | $ | 64 | $ | (3,998 | ) | ||||
| Change | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Gross deferred tax assets | $ | 15,264 | $ | 3,319 | $ | 18,583 | ||||||
| Statutory valuation allowance adjustments | — | — | — | |||||||||
| Adjusted gross deferred tax assets | 15,264 | 3,319 | 18,583 | |||||||||
| Deferred tax assets nonadmitted | 7,144 | 1,801 | 8,944 | |||||||||
| Subtotal net admitted deferred tax asset | 8,120 | 1,518 | 9,639 | |||||||||
| Gross deferred tax liabilities | (6,033 | ) | (113 | ) | (6,146 | ) | ||||||
| Net admitted deferred tax asset / (liability) | $ | 14,154 | $ | 1,632 | $ | 15,785 | ||||||
The
ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which the
temporary differences are deductible and prior to the expiration of capital loss, net operating loss and tax credit carry-forwards.
Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry-back and carry-forward
periods), projected taxable income, and tax planning strategies in making this assessment. Management believes it is more likely
than not that all deferred tax assets will be realized based on projected taxable income and available tax planning strategies.
There were no tax planning strategies used related to reinsurance.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Components
of Admission Calculation
The
admission calculation components under SSAP No. 101 are as follows:
| December 31, 2022 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Federal income taxes paid in prior years recoverable through loss carrybacks |
$ | — | $ | — | $ | — | ||||||
| Adjusted gross deferred tax assets expected to be realized (Excluding threshold limitation) |
10,092 | 1,695 | 11,787 | |||||||||
| Adjusted gross deferred tax assets expected to be realized following the balance sheet date |
10,734 | 1,695 | 12,429 | |||||||||
| Adjusted gross deferred tax assets allowed per limitation | 11,787 | |||||||||||
| Adjusted gross deferred tax assets (excluding the amount of deferred taxes from above) offset by gross liabilities |
16,422 | — | 16,422 | |||||||||
| Deferred tax assets admitted as the result of application of SSAP No. 101 |
$ | 26,514 | $ | 1,695 | $ | 28,210 | ||||||
| December 31, 2021 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Federal income taxes paid in prior years recoverable through loss carrybacks |
$ | — | $ | — | $ | — | ||||||
| Adjusted gross deferred tax assets expected to be realized (Excluding threshold limitation) |
10,003 | — | 10,003 | |||||||||
| Adjusted gross deferred tax assets expected to be realized following the balance sheet date |
10,003 | — | 10,003 | |||||||||
| Adjusted gross deferred tax assets allowed per limitation | 18,066 | |||||||||||
| Adjusted gross deferred tax assets (excluding the amount of deferred taxes from above) offset by gross liabilities |
8,391 | 177 | 8,568 | |||||||||
| Deferred tax assets admitted as the result of application of SSAP No. 101 |
$ | 18,394 | $ | 177 | $ | 18,571 | ||||||
| Change | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Federal income taxes paid in prior years recoverable through loss carrybacks |
$ | — | $ | — | $ | — | ||||||
| Adjusted gross deferred tax assets expected to be realized (Excluding threshold limitation) |
89 | 1,695 | 1,784 | |||||||||
| Adjusted gross deferred tax assets expected to be realized following the balance sheet date |
730 | 1,695 | 2,426 | |||||||||
| Adjusted gross deferred tax assets allowed per limitation | (6,279 | ) | ||||||||||
| Adjusted gross deferred tax assets (excluding the amount of deferred taxes from above) offset by gross liabilities |
8,032 | (177 | ) | 7,855 | ||||||||
| Deferred tax assets admitted as the result of application of SSAP No. 101 |
$ | 8,120 | $ | 1,518 | $ | 9,639 | ||||||
Other
Admissibility Criteria
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Ratio percentage used to determine recovery period | 597.79 | % | 1200 | % | ||||
| Ratio percentage used to determine recovery period and threshold limitation amount |
$ | 100,481 | $ | 135,809 | ||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Impact
of tax planning strategies
| December 31, 2022 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Determination of adjusted gross deferred tax assets and net admitted deferred tax assets, by tax character as a percentage |
||||||||||||
| Adjusted Gross DTAs |
$ | 33,658 | $ | 3,496 | $ | 37,154 | ||||||
| Percentage of adjusted gross DTAs by tax character attributable to the impact of tax planning strategies. |
61 | % | 99.8 | % | 66.6 | % | ||||||
| Net Admitted Adjusted Gross DTAs |
$ | 26,514 | $ | 1,695 | $ | 28,210 | ||||||
| Percentage of net admitted adjusted gross DTAs by tax character admitted because of the impact of tax planning strategies |
23.2 | % | 99.8 | % | 27.8 | % | ||||||
| December 31, 2021 | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Determination of adjusted gross deferred tax assets and net admitted deferred tax assets, by tax character as a percentage |
||||||||||||
| Adjusted Gross DTAs |
$ | 18,394 | $ | 177 | $ | 18,571 | ||||||
| Percentage of adjusted gross DTAs by tax character attributable to the impact of tax planning strategies. |
0 | % | 0 | % | 0 | % | ||||||
| Net Admitted Adjusted Gross DTAs |
$ | 18,394 | $ | 177 | $ | 18,571 | ||||||
| Percentage of net admitted adjusted gross DTAs by tax character admitted because of the impact of tax planning strategies |
0 | % | 0 | % | 0 | % | ||||||
| Change | ||||||||||||
| Ordinary | Capital | Total | ||||||||||
| Determination of adjusted gross deferred tax assets and net admitted deferred tax assets, by tax character as a percentage |
||||||||||||
| Adjusted Gross DTAs |
$ | 15,264 | $ | 3,319 | $ | 18,583 | ||||||
| Percentage of adjusted gross DTAs by tax character attributable to the impact of tax planning strategies. |
61 | % | 99.8 | % | 66.6 | % | ||||||
| Net Admitted Adjusted Gross DTAs |
$ | 8,120 | $ | 1,518 | $ | 9,639 | ||||||
| Percentage of net admitted adjusted gross DTAs by tax character admitted because of the impact of tax planning strategies |
23.2 | % | 99.8 | % | 27.8 | % | ||||||
There
are no temporary differences for which deferred tax liabilities are not recognized.
Current
Tax Expense and Change in Deferred Tax
Current
income taxes incurred consist of the following categories:
| 2022 | 2021 | |||||||
| Federal income tax expense (benefit) on operations |
2,696 | $ | (32 | ) | ||||
| Federal income tax (benefit) on net capital gains |
(461 | ) | 2,186 | |||||
| Current year income tax expense/(benefit) |
$ | 2,235 | $ | 2,154 | ||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
main components of the deferred tax amounts from book/tax differences are as follows:
| December 31, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Deferred tax assets | ||||||||||||
| Policyholder reserves | $ | 9,951 | $ | 8,372 | $ | 1,579 | ||||||
| Deferred acquisition costs | 6,241 | 6,739 | (498 | ) | ||||||||
| Policyholders dividends accrual | 1,944 | 2,012 | (68 | ) | ||||||||
| Receivables – nonadmitted | 1,068 | 1,047 | 21 | |||||||||
| Ceding Commission | 14,243 | — | 14,243 | |||||||||
| Other | 211 | 224 | (13 | ) | ||||||||
| Total gross ordinary deferred tax assets | 33,658 | 18,394 | 15,264 | |||||||||
| Nonadmitted | 7,144 | — | 7,144 | |||||||||
| Admitted ordinary deferred tax assets | 26,514 | 18,394 | 8,120 | |||||||||
| Capital | — | — | ||||||||||
| Investments | 3,122 | 176 | 2,946 | |||||||||
| Net capital loss carry-forward | 374 | — | 374 | |||||||||
| Total gross capital deferred tax assets | 3,496 | 176 | 3,320 | |||||||||
| Nonadmitted | 1,801 | 1,801 | ||||||||||
| Admitted capital deferred tax assets | 1,695 | 176 | 1,518 | |||||||||
| Admitted deferred tax asset | $ | 28,209 | $ | 18,570 | $ | 9,638 | ||||||
| Deferred tax liabilities | ||||||||||||
| Investments | $ | 10,273 | $ | 14,731 | $ | (4,458 | ) | |||||
| Deferred and uncollected premium | 512 | 552 | (40 | ) | ||||||||
| Policyholder reserves | 3,881 | 5,175 | (1,294 | ) | ||||||||
| Other | — | 241 | (241 | ) | ||||||||
| Acquired reserve basis | 1,756 | 1,756 | — | |||||||||
| 16,422 | 22,455 | (6,033 | ) | |||||||||
| Capital | — | 113 | (113 | ) | ||||||||
| Deferred tax liabilities | 16,422 | 22,568 | (6,146 | ) | ||||||||
| Net deferred tax assets | $ | 11,787 | $ | (3,998 | ) | $ | 15,785 | |||||
The
change in deferred income taxes reported in surplus before consideration of nonadmitted assets is comprised of the following components:
| 2022 | 2021 | |||||||||||||||||||||||||||
| Ordinary | Capital | Total | Ordinary | Capital | Total | Change | ||||||||||||||||||||||
| Total deferred tax assets (admitted and nonadmitted) | $ | 33,658 | $ | 3,496 | $ | 37,154 | $ | 18,394 | $ | 177 | $ | 18,571 | $ | 18,583 | ||||||||||||||
| Total deferred tax liabilities | 16,422 | — | 16,422 | 22,456 | 113 | 22,569 | (6,147 | ) | ||||||||||||||||||||
| Net deferred tax assets/ (liabilities) | $ | 17,236 | $ | 3,496 | $ | 20,732 | $ | (4,062 | ) | $ | 64 | $ | (3,998 | ) | $ | 24,730 | ||||||||||||
| Tax effect of unrealized (gains) / losses | (262 | ) | ||||||||||||||||||||||||||
| Change in net deferred income tax | $ | 24,467 | ||||||||||||||||||||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Reconciliation
of Federal Income Tax Rate to Actual Rate
The
significant items causing a difference between the statutory federal income tax rate and the Company’s effective income
tax rate are as follows:
| December 31, 2022 | ||||||||||||
| Amount | Tax Effect | Effective Rate | ||||||||||
| Provision computed at statutory rate | $ | (83,484 | ) | $ | (17,532 | ) | 21.00 | % | ||||
| Dividends received deduction | (100 | ) | (21 | ) | 0.03 | % | ||||||
| IMR | (17,461 | ) | (3,667 | ) | 4.39 | % | ||||||
| FTC | 1 | — | — | % | ||||||||
| Ceding commission | (2,686 | ) | (564 | ) | 0.68 | % | ||||||
| Return to provision true up (permanent) | 152 | 32 | (0.04 | )% | ||||||||
| Tax Credits | (2 | ) | (1 | ) | — | % | ||||||
| Tax on non-admitted assets | (98 | ) | (20 | ) | 0.02 | % | ||||||
| DREs | (277 | ) | (58 | ) | 0.07 | % | ||||||
| Nontaxable Income | (124 | ) | (26 | ) | 0.03 | % | ||||||
| Nondeductible Expenses | 44 | 9 | (0.01 | )% | ||||||||
| Deferred Validation | (919 | ) | (193 | ) | 0.23 | % | ||||||
| Other Permanent Adjustments | (912 | ) | (191 | ) | 0.23 | % | ||||||
| Total | $ | (105,866 | ) | $ | (22,232 | ) | 26.63 | % | ||||
| Federal income taxes incurred | 2,696 | (3.23 | )% | |||||||||
| Realized capital gains (losses) tax | (461 | ) | 0.55 | % | ||||||||
| Change in net deferred income taxes | (24,467 | ) | 29.31 | % | ||||||||
| Total statutory income tax expense / (benefit) | $ | (22,232 | ) | 26.63 | % | |||||||
| December 31, 2021 | ||||||||||||
| Amount | Tax Effect | Effective Rate | ||||||||||
| Provision computed at statutory rate | $ | 8,614 | $ | 1,809 | 21.00 | % | ||||||
| Dividends received deduction | (200 | ) | (42 | ) | (0.49 | )% | ||||||
| IMR | 13,834 | 2,905 | 33.73 | % | ||||||||
| Ceding commission | 5,203 | 1,093 | 12.68 | % | ||||||||
| Return to provision true up (permanent) | (109 | ) | (23 | ) | (0.26 | )% | ||||||
| Tax on non-admitted assets | (1,333 | ) | (280 | ) | (3.25 | )% | ||||||
| Other | (1,186 | ) | (249 | ) | (2.88 | )% | ||||||
| Total | $ | 24,823 | $ | 5,213 | 60.53 | % | ||||||
| Federal income taxes incurred | (32 | ) | (0.37 | )% | ||||||||
| Realized capital gains (losses) tax | 2,186 | 25.38 | % | |||||||||
| Change in net deferred income taxes | 3,059 | 35.52 | % | |||||||||
| Total statutory income tax expense / (benefit) | $ | 5,213 | 60.53 | % | ||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
At
December 31, 2022, the Company has $0 in net operating loss carry-forwards, $0 in foreign tax credit carry-forwards and has $1.8
million of capital loss carry-forwards.
As
a result of tax reform (TCJA), the Company can no longer carry back future net operating losses (capital losses are still eligible
for carry back), therefore there are no available taxes for recoupment.
The
Company will file in a consolidated life/non-life federal income tax return with its parent, Global Atlantic (Fin) Company, and
its affiliates for the period ending December 31, 2022. The Company is a party to a written agreement, approved by the Company’s
Board of Directors, which sets forth the manner in which the total combined federal income tax is allocated to each entity within
the consolidated group.
The
Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of its income tax provision.
As of December 31, 2022 and 2021, the Company has no amounts accrued for the payment of interest and penalties, which does not
include the federal tax benefit of interest deductions, where applicable. The Company had no unrecognized tax benefits as of December
31, 2022 and 2021.
The
IRS routinely audits the Company’s federal income tax returns, and when appropriate, provisions are made in the financial
statements in anticipation of the results of these audits. The Company believes that its income tax filing positions and deductions
will be sustained on audit, and does not anticipate any adjustments that will result in a material, adverse effect on the Company’s
financial condition, results of operations, or cash flow. Therefore, no reasonable estimate can be made for tax loss contingencies
and none has been recorded.
The
Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for
years before 2016. The Company has no tax positions for which it believes it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly increase or decrease within the next twelve months.
In
June 2007, the Financial Accounting Standard Board (FASB) issued FASB interpretation (FIN) No. 48, According for Uncertainty
in Income Taxes (FIN No. 48). The NAIC is still evaluating the applicability of FIN No. 48 to Statutory Financial Reporting.
The Company continues to recognize tax benefits and related reserves in accordance with SSAP No. 5R, Liabilities, Contingencies
and Impairments of Assets (SSAP No. 5R). The Company believes that its income tax filing positions and deductions will be
sustained in audit, and does not anticipate any adjustments that will results in a material, adverse effect on the Company’s
financial condition, results of operations, or cash flow. Therefore, no contingent tax liabilities have been recorded pursuant
to SSAP No. 5R as modified by SSAP No. 101.
In
December, 2022, the NAIC Statutory Accounting Principles Working Group adopted revisions to SSAP No. 9 – Subsequent Events and
SSAP No. 101 – Income Taxes which include outlines to the new corporate alternative minimum tax (CAMT) for tax years beginning
after third quarter 2022 through first quarter 2023. This guidance also provides subsequent event exceptions. The Company has
determined that they do not expect to be subject to the CAMT in 2023.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company seeks to diversify risk and limit its overall financial exposure by reinsuring certain levels of risk through acquisition
and cessions with other insurance companies or reinsurers. In addition, consistent with the overall business strategy, the Company
assumes certain policy risks written by other insurance companies on a coinsurance basis. Under a coinsurance arrangement, depending
upon the terms of the contract, the reinsurer may share in the risk of loss due to mortality or morbidity, lapses, and the investment
risk, if any, inherent in the underlying policy. Modified coinsurance and funds withheld coinsurance differ from coinsurance in
that the ceding company retains the assets supporting the reserves while the risk is transferred to the reinsurer.
Effective
October 1, 2022, the Company entered into a coinsurance and modified coinsurance agreement with Equitable Financial Life Insurance
Company whereby it assumed variable annuity business. The total assumed reserves were $4,061,342. Subsequently the Company entered
into a retrocession agreement where reserves of $3,756,741 were ceded to an affiliated party.
Effective
July 1, 2021, the Company entered into a coinsurance agreement with USAA Life Insurance Company whereby it assumed fixed annuity
business. The total assumed reserves were $209,326. Subsequently the Company entered into a retrocession agreement where reserves
of $62,797 were ceded to a third party.
Effective
October 1, 2020, the Company entered into a 90% quota share Funds Withheld Retrocession Reinsurance Agreement with Accordia Life
and Annuity Company (Accordia). The business covered under this agreement consists of whole life, term, and universal life policies
assumed under the No Lapse Guarantee (Non NLG), Non-Financed NLG and John Alden New York Policies (JANY) reinsurance agreements
and policies novated from Athene Life Insurance Company of New York (ALICNY). At December 31, 2020, the Company ceded $940,712
of premium revenue, $889,156 of reserves, and $32,500 of commission expense allowance to Accordia.
The
Company cedes on a coinsurance basis 100% of a block of variable annuity and life insurance business to Commonwealth Annuity.
At December 31, 2022 and 2021, the Company ceded $32,706 and $35,207, respectively, in reserves pursuant to the aforementioned
agreement.
Effective
July 1, 2016, the Company entered into an Excess of Loss Reinsurance Agreement with Partner Reinsurance Europe ES. The business
covered under this agreement consists of interest sensitive life, index universal life, whole life and term in force as of June
30, 2016 with an effective date through June 30, 2021. The reinsurance percentage is 66.2% in excess of 125% of expected claims
from the effective date of this treaty and the parties may increase the reinsurance percentage up to 100% with 30 days’
prior written notice, commencing after those 30 days by way of mutual agreement.
Reinsurance
assumed for the years ended December 31, is as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Reinsurance premiums assumed | $ | 4,007,404 | $ | 272,730 | ||||
| Coinsurance reserves | 6,823,556 | 2,730,693 | ||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Reinsurance
ceded for the years ended December 31, is as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Reinsurance premiums ceded | $ | 3,624,940 | $ | 149,503 | ||||
| Deduction from insurance liabilities including reinsurance recoverable on unpaid claims |
6,808,686 | 3,171,005 | ||||||
| Reinsurance recoverable on paid losses | 23,781 | 41,799 | ||||||
The
effects of reinsurance premiums for the years ended December 31, were as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Life and accident and health insurance | ||||||||
| Direct | $ | 49,966 | $ | 54,178 | ||||
| Reinsurance assumed – non – affiliated | 4,007,403 | 272,729 | ||||||
| Reinsurance assumed – affiliated | 1 | 1 | ||||||
| Less: Reinsurance ceded – non – affiliated | (77,859 | ) | (141,400 | ) | ||||
| Less: Reinsurance ceded – affiliated | (3,547,081 | ) | (8,103 | ) | ||||
| Net premiums | $ | 432,430 | $ | 177,405 | ||||
In
the normal course of business, the Company seeks to reduce the loss that may arise from events that cause unfavorable underwriting
results by ceding certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers.
Amounts
recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy.
Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company
determines the appropriate amount of reinsurance based on evaluation of the risks accepted and analyses prepared by consultants
and reinsurers and on market conditions (including the availability and pricing of reinsurance). The Company also believes that
the terms of its reinsurance contracts are consistent with industry practice in that they contain standard terms with respect
to lines of business covered, limit and retention, arbitration and occurrence. Based on the Company’s review of its reinsurers’
financial statements and reputations in the reinsurance marketplace, the Company believes that its reinsurers are financially
sound. There was no allowance for uncollectible amounts at December 31, 2022 and 2021.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 8. | PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED |
Deferred
and uncollected life insurance premiums represent annual or fractional premiums, either due and uncollected or not yet due, where
policy reserves have been provided on the assumption that the full life insurance premium for the current policy year has been
collected. Gross premiums as represented below are net of reinsurance. Loading is the amount added to premiums to cover operating
expenses. Net deferred and uncollected premiums represent only the portion of gross premiums related to mortality charges and
interest. As of December 31, 2022 and 2021, the Company had deferred and uncollected life insurance premiums (excluding accident
and health) as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
| Gross | Loading | Net | Non- Admitted |
Net Admitted |
Gross | Loading | Net | Non- Admitted |
Net Admitted |
|||||||||||||||||||||||||||||||
| Traditional life | $ | 1,853 | $ | 586 | $ | 2,439 | $ | (219 | ) | $ | 2,220 | $ | 2,056 | $ | 574 | $ | 2,630 | $ | (187 | ) | $ | 2,443 | ||||||||||||||||||
| Total | $ | 1,853 | $ | 586 | $ | 2,439 | $ | (219 | ) | $ | 2,220 | $ | 2,056 | $ | 574 | $ | 2,630 | $ | (187 | ) | $ | 2,443 | ||||||||||||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 9. | ANNUITY RESERVES AND DEPOSIT LIABILITIES BY WITHDRAWAL CHARACTERISTICS |
As
December 31, 2022, the Company’s annuity reserves, supplementary contract reserves and deposit liabilities that are subject
to discretionary withdrawal (without adjustment) and not subject to discretionary withdrawal provisions are summarized as follows:
Individual
Annuities:
| Year Ended December 31, 2022 |
||||||||||||||||||||
| General Account |
Separate Account With Guarantee |
Separate Account Without Guarantee |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | $ | 137,297 | $ | — | $ | — | $ | 137,297 | 5.6 | % | ||||||||||
| At book value less surrender charge of 5% or more | 7,775 | — | — | 7,775 | 0.3 | % | ||||||||||||||
| At fair value | — | — | 15,769 | 15,769 | 0.7 | % | ||||||||||||||
| Total with adjustment or at market value | 145,072 | — | 15,769 | 160,841 | 6.6 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 2,274,766 | — | — | 2,274,766 | 93.0 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 8,285 | — | 349 | 8,634 | 0.4 | % | ||||||||||||||
| Total (gross) | 2,428,123 | — | 16,118 | 2,444,241 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 1,895,228 | — | — | 1,895,228 | ||||||||||||||||
| Total (net) | $ | 532,895 | $ | — | $ | 16,118 | $ | 549,013 | ||||||||||||
Group
Annuities:
| General Account |
Separate Account With Guarantee |
Separate Account Without Guarantee |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | $ | — | $ | 172 | $ | — | $ | 172 | — | % | ||||||||||
| At book value less surrender charge of 5% or more | 361 | — | — | 361 | — | % | ||||||||||||||
| At fair value | — | — | 38,643 | 38,643 | 1.4 | % | ||||||||||||||
| Total with adjustment or at market value | 361 | 172 | 38,643 | 39,176 | 1.4 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 2,678,298 | — | — | 2,678,298 | 95.5 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 85,606 | — | 715 | 86,321 | 3.1 | % | ||||||||||||||
| Total (gross) | 2,764,265 | 172 | 39,358 | 2,803,795 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 2,481,484 | — | — | 2,481,484 | ||||||||||||||||
| Total (net) | $ | 282,781 | $ | 172 | $ | 39,358 | $ | 322,311 | ||||||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Total
Deposit-type Contracts:
| General Account | Separate Account With Guarantee |
Separate Account Without Guarantee |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | $ | — | $ | — | $ | — | $ | — | — | % | ||||||||||
| At book value less surrender charge of 5% or more | — | — | — | — | — | % | ||||||||||||||
| At fair value | — | — | 12,169 | 12,169 | 3.4 | % | ||||||||||||||
| Total with adjustment or at market value | — | — | 12,169 | 12,169 | 3.4 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 342,507 | — | — | 342,507 | 96.3 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 1,011 | — | — | 1,011 | 0.3 | % | ||||||||||||||
| Total (gross) | 343,518 | — | 12,169 | 355,687 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 70,798 | — | — | 70,798 | ||||||||||||||||
| Total (net) | $ | 272,720 | $ | — | $ | 12,169 | $ | 284,889 | ||||||||||||
Reconciliation of total annuity actuarial reserves and deposit fund liabilities amounts:
| Year Ended December 31, 2022 |
||||||||||||
| General Account |
Separate Account |
Total | ||||||||||
| Life, accident & health, and supplemental contracts with life contingencies |
1,088,396 | — | 1,088,396 | |||||||||
| Separate Accounts | — | 67,817 | 67,817 | |||||||||
| Total annuity actuarial reserves and deposit liabilities |
$ | 1,088,396 | $ | 67,817 | $ | 1,156,213 | ||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
As
of December 31, 2022, the Company’s life reserves, that are subject to discretionary withdrawal (without adjustment) and
not subject to discretionary withdrawal provisions are summarized as follows:
| Year Ended December 31, 2022 |
Year Ended December 31, 2022 |
|||||||||||||||||||||||
| General Account |
Separate Account-Guaranteed and Nonguaranteed |
|||||||||||||||||||||||
| Account Value |
Cash Value |
Reserve | Account Value |
Cash Value |
Reserve | |||||||||||||||||||
| Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||||||||||||||
| Term Policies with Cash Value | $ | — | $ | 60,692 | $ | 68,351 | $ | — | $ | — | $ | — | ||||||||||||
| Universal Life | 354,582 | 359,539 | 369,030 | — | — | — | ||||||||||||||||||
| Universal Life with Secondary Guarantees | 21,432 | 20,370 | 93,960 | — | — | — | ||||||||||||||||||
| Indexed Universal Life with | 104,486 | 102,246 | 87,654 | — | — | — | ||||||||||||||||||
| Indexed Universal Life with Secondary Guarantees | 302,976 | 293,178 | 822,203 | — | — | — | ||||||||||||||||||
| Other permanent cash value life insurance | — | 373,673 | 396,765 | — | — | — | ||||||||||||||||||
| Variable Universal Life | 8,711 | 8,674 | 8,120 | 41,756 | 41,756 | 39,495 | ||||||||||||||||||
| Not subject to discretionary withdrawal or no cash value: | ||||||||||||||||||||||||
| Term Policies without Cash Value | — | — | 122,905 | — | — | — | ||||||||||||||||||
| Accidental Death Benefits | — | — | 378 | — | — | — | ||||||||||||||||||
| Disability-Active Lives | — | — | 2,924 | — | — | — | ||||||||||||||||||
| Disability-Disabled Lives | — | — | 3,767 | — | — | — | ||||||||||||||||||
| Miscellaneous Reserves | — | — | 426,221 | — | — | 2,554 | ||||||||||||||||||
| Total (gross) | 792,187 | 1,218,372 | 2,402,278 | 41,756 | 41,756 | 42,049 | ||||||||||||||||||
| Less: reinsurance ceded | 674,867 | 1,070,740 | 2,265,111 | — | — | — | ||||||||||||||||||
| Total (net) | $ | 117,320 | $ | 147,632 | $ | 137,167 | $ | 41,756 | $ | 41,756 | $ | 42,049 | ||||||||||||
Reconciliation of total life & accident &
health reserves
| Year Ended December 31, 2022 |
||||||||||||
| General Account |
Separate Account without Guarantees |
Total | ||||||||||
| Life insurance reserves | $ | 131,525 | $ | 39,495 | $ | 171,020 | ||||||
| Accidental death benefit reserves | 333 | — | 333 | |||||||||
| Disability-active lives reserves | 194 | — | 194 | |||||||||
| Disability-disabled lives reserves | 304 | — | 304 | |||||||||
| Miscellaneous reserves | 4,811 | 2,554 | 7,365 | |||||||||
| Total life and accident & health reserves | 137,167 | 42,049 | 179,216 | |||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
As
December 31, 2021, the Company’s annuity reserves, supplementary contract reserves and deposit liabilities that are subject
to discretionary withdrawal (without adjustment) and not subject to discretionary withdrawal provisions are summarized as follows:
| Year Ended December 31, 2021 |
||||||||||||||||||||
| General Account | Separate With |
Separate Without |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | — | — | — | — | — | % | ||||||||||||||
| At book value less surrender charge of 5% or more | 7,460 | — | — | 7,460 | 0.7 | % | ||||||||||||||
| At fair value | — | — | 20,719 | 20,719 | 2.0 | % | ||||||||||||||
| Total with adjustment or at market value | 7,460 | — | 20,719 | 28,179 | 2.7 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 1,020,686 | — | — | 1,020,686 | 96.4 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 9,156 | — | 286 | 9,442 | 0.9 | % | ||||||||||||||
| Total (gross) | 1,037,302 | — | 21,005 | 1,058,307 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 723,205 | — | — | 723,204 | ||||||||||||||||
| Total (net) | 314,097 | — | 21,005 | 335,103 | ||||||||||||||||
| Group Annuities: | ||||||||||||||||||||
| General Account | Separate Account With Guarantee |
Separate Account Without Guarantee |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | — | 166 | — | 166 | 0.1 | % | ||||||||||||||
| At book value less surrender charge of 5% or more | 22 | — | — | 22 | — | % | ||||||||||||||
| At fair value | — | — | 54,544 | 54,544 | 32.0 | % | ||||||||||||||
| Total with adjustment or at market value | 22 | 166 | 54,544 | 54,732 | 32.1 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 19,890 | — | — | 19,890 | 11.7 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 94,528 | — | 1,090 | 95,618 | 56.2 | % | ||||||||||||||
| Total (gross) | 114,440 | 166 | 55,634 | 170,240 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 22,343 | — | — | 22,343 | ||||||||||||||||
| Total (net) | 92,097 | 166 | 55,634 | 147,897 | ||||||||||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| Total Deposit-type Contracts: | ||||||||||||||||||||
| General Account | Separate Account With Guarantee |
Separate Account Without Guarantee |
Total | % of Total | ||||||||||||||||
| Subject to discretionary withdrawal | ||||||||||||||||||||
| With market value adjustment | — | — | — | — | — | % | ||||||||||||||
| At book value less surrender charge of 5% or more | — | — | — | — | — | % | ||||||||||||||
| At fair value | — | — | 14,848 | 14,848 | 4.0 | % | ||||||||||||||
| Total with adjustment or at market value | — | — | 14,848 | 14,848 | 4.0 | % | ||||||||||||||
| At book value without adjustment (minimal or no charge or adjustment) | 358,036 | — | — | 358,036 | 95.7 | % | ||||||||||||||
| Not subject to discretionary withdrawal | 1,308 | — | — | 1,308 | 0.3 | % | ||||||||||||||
| Total (gross) | 359,344 | — | 14,848 | 374,192 | 100.0 | % | ||||||||||||||
| Less: reinsurance ceded | 72,310 | — | — | 72,310 | ||||||||||||||||
| Total (net) | 287,034 | — | 14,848 | 301,882 | ||||||||||||||||
Reconciliation of total annuity actuarial reserves and
deposit fund liabilities amounts:
| Year Ended December 31, 2021 |
||||||||||||
| General Account |
Separate Account |
Total | ||||||||||
| Life, accident & health, and supplemental contracts with life contingencies |
693,228 | — | 693,228 | |||||||||
| Separate Accounts | — | 91,654 | 91,654 | |||||||||
| Total annuity actuarial reserves and deposit liabilites | 693,228 | 91,654 | 784,882 | |||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
As
December 31, 2021, the Company’s life reserves, that are subject to discretionary withdrawal (without adjustment) and not
subject to discretionary withdrawal provisions are summarized as follows:
| Year Ended December 31, 2021 | Year Ended December 31, 2021 | |||||||||||||||||||||||
| General Account |
Separate Account-Guaranteed and Nonguaranteed |
|||||||||||||||||||||||
| Account Value |
Cash Value |
Reserve | Account Value |
Cash Value |
Reserve | |||||||||||||||||||
| Subject to discretionary withdrawal, surrender values, or policy loans: |
||||||||||||||||||||||||
| Term Policies with Cash Value | $ | — | $ | 64,364 | $ | 69,900 | $ | — | $ | — | $ | — | ||||||||||||
| Universal Life | 367,532 | 373,387 | 384,598 | — | — | — | ||||||||||||||||||
| Universal Life with Secondary Guarantees | 22,166 | 20,684 | 89,679 | — | — | — | ||||||||||||||||||
| Indexed Universal Life with | 107,015 | 103,769 | 90,191 | — | — | — | ||||||||||||||||||
| Indexed Universal Life with Secondary Guarantees | 308,501 | 294,994 | 790,977 | — | — | — | ||||||||||||||||||
| Other permanent cash value life insurance | — | 396,820 | 421,765 | — | — | — | ||||||||||||||||||
| Variable Universal Life | 9,156 | 9,119 | 8,639 | 56,989 | 56,989 | 53,277 | ||||||||||||||||||
| Not subject to discretionary withdrawal or no cash value: | ||||||||||||||||||||||||
| Term Policies without Cash Value | — | — | 167,276 | — | — | — | ||||||||||||||||||
| Accidental Death Benefits | — | — | 402 | — | — | — | ||||||||||||||||||
| Disability-Active Lives | — | — | 3,334 | — | — | — | ||||||||||||||||||
| Disability-Disabled Lives | — | — | 4,083 | — | — | — | ||||||||||||||||||
| Miscellaneous Reserves | — | — | 411,576 | — | — | 3,708 | ||||||||||||||||||
| Total (gross) | 814,370 | 1,263,137 | 2,442,420 | 56,989 | 56,989 | 56,985 | ||||||||||||||||||
| Less: reinsurance ceded | 693,825 | 1,108,864 | 2,303,151 | — | — | — | ||||||||||||||||||
| Total (net) | $ | 120,545 | $ | 154,273 | $ | 139,269 | $ | 56,989 | $ | 56,989 | $ | 56,985 | ||||||||||||
Reconciliation of total life & accident & health
reserves
| Year Ended December 31, 2021 |
||||||||||||
| General Account |
Separate Account without Guarantees |
Total | ||||||||||
| Life insurance reserves | $ | 133,385 | $ | 53,277 | $ | 186,662 | ||||||
| Accidental death benefit reserves | 352 | — | 352 | |||||||||
| Disability-active lives reserves | 219 | — | 219 | |||||||||
| Disability-disabled lives reserves | 337 | — | 337 | |||||||||
| Miscellaneous reserves | 4,975 | 3,708 | 8,683 | |||||||||
| Total life and accident & health reserves | 139,268 | 56,985 | 196,253 | |||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 10. | ACCIDENT AND HEALTH POLICY AND CLAIMS LIABILITIES |
On
January 2, 2009, The Hanover Insurance Group, Inc. (THG) sold all the outstanding shares of capital stock of the Company to Commonwealth
Annuity pursuant to a Stock Purchase Agreement entered into on July 30, 2008. Additionally, coincident with the sale transaction,
the Company and the Hanover Insurance Company (HIC) entered into a reinsurance contract whereby HIC assumed the Company’s
accident and health insurance business through a 100% coinsurance agreement. The Company did not have any policy and claims liabilities
related to its accident and health business net of reinsurance at both December 31, 2022 and 2021.
The
Company regularly updates its estimates of policy and claims liabilities as new information becomes available and further events
occur which may impact the resolution of unsettled claims for its accident and health line of business. Changes in prior estimates
are generally reflected in results of operations in the year such changes are determined to be needed.
| 11. | CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS |
Massachusetts
has enacted laws governing the payment of dividends and other distributions to stockholders by insurers. These laws affect the
dividend paying ability of the Company. Pursuant to Massachusetts statutes, the maximum amount of dividends and other distributions
that an insurer may pay in any twelve-month period, without prior approval of the MADOI, is limited to the greater of the Company’s
statutory net gains from operations of the preceding December 31 or 10% of the statutory policyholder’s surplus as of the
preceding December 31. Dividends must be paid from unassigned funds. The maximum ordinary dividend the Company can pay in 2023
is $8,967.
On
October 3, 2022, the Company received as $50,000,000 cash contribution from Commonwealth Annuity and Life Insurance Company. In
2021 the Company did not receive any capital contributions.
Unassigned
funds (surplus) was reset to zero as of June 30, 2021, due to a quasi-reorganization.
The
Company’s unassigned surplus was impacted by each item below as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Unrealized gains (losses) | $ | 2,021 | $ | 4,153 | ||||
| Nonadmitted asset values | (5,085 | ) | (4,987 | ) | ||||
| Asset valuation reserves | (22,543 | ) | (14,251 | ) | ||||
The
Company must meet minimum capital and surplus requirements under a RBC formula. RBC is the standard measurement of an insurance
company’s required capital on a statutory basis. It is calculated by using a formula that applies factors to various assets,
premium, and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset
risk, insurance risk, interest rate risk and business risk. Regulatory action is tied to the amount of a company’s capital
position in relation to required capital as calculated under the RBC formula. Total adjusted capital for life insurance companies
is defined as statutory capital and surplus, plus asset valuation reserve plus subsidiary asset valuation reserves, plus 50% of
dividends apportioned for payment, plus 50% of subsidiary dividends apportioned for payment, and was $112,268 at December 31,
2022.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| 12. | RELATED PARTY TRANSACTIONS |
Service
Agreements
The
Company entered into a Services and Expense Agreement with GAFG under which GAFG and affiliates agreed to provide personnel, management
services, administrative support, the use of facilities and such other services as the parties may agree to from time to time.
The agreement was filed with the MA DOI. The Company recognized $16,363 and $0 in intercompany charges for 2022 and 2021, respectively.
On
February 1, 2021, the Company entered into an investment management agreement with Kohlberg Kravis Roberts & Co. L.P., a Delaware
limited partnership and KKR subsidiary. The Company incurred expenses for this agreement of $7,435 and 3,209 for the years ended
December 31, 2022 and 2021, respectively.
The
Company has funds withheld agreements with related parties, described in footnote 7 – Reinsurance. Net amounts due from
affiliates related to funds withheld agreements were $1,388 and $1,245 for the years ended December 31, 2022 and 2021, respectively.
Net amounts due to affiliates related to funds withheld agreements were $12,395 and $3,415 for the years ended December 31, 2022
and 2021, respectively. All intercompany balances related to funds withheld agreements are settled in the subsequent quarter.
The
Company has agreements with affiliated parties to receive and pay certain fee income and expenses related to policyholder administration.
Net income related to these agreements was $2,372 and $735 for the years ended December 31, 2022 and 2021, respectively, and net
amounts receivable were $239 and $241 at December 31, 2022 and 2021, respectively.
Payable
to/Receivable from Affiliates
The
Company reported a net payable to related parties of $5,583 and $719 for the years ended December 31, 2022 and 2021 respectively.
All intercompany balances shown as payable to or from parent, subsidiaries and affiliates are settled within 30 days of their
incurrence under the terms of the intercompany expense sharing agreements.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company and certain subsidiaries and affiliates are part of an intercompany borrowing arrangement whereby companies may borrow
from one another on a short-term basis for various purposes.
Affiliated
Investments
In
2022, the NAIC clarified that certain investments which are originated, sponsored or managed by affiliated entities shall be reported
as affiliated investments even if the underlying assets are unrelated third party investments with no credit exposure to affiliates.
The Company holds investments of this type, which are included in invested assets balances as follows:
| 2022 | ||||
| Bonds | 134,580 | |||
| Mortgages | 126,534 | |||
| Common Stocks | — | |||
| Other Invested Assets | 1,120 | |||
| $ | 262,234 | |||
| 13. | COMMITMENTS AND CONTINGENCIES |
Litigation
The
Company is involved from time to time in judicial, regulatory and arbitration proceedings concerning matters arising in connection
with the conduct of its business.
Given
the inherent difficulty of predicting the outcome of the Company’s litigation and regulatory matters, particularly in cases
or proceedings in which substantial or indeterminate damages or fines are sought, the Company cannot estimate losses, or ranges
of losses, for cases or proceedings where there is only a reasonable possibility that a loss may be incurred.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
In
connection with the process of converting over 500,000 in-force life insurance policies (representing policies for both the Company
and Accordia) from systems managed by Athene Holdings Limited to the platform of one of our third party service providers DXC
(the Conversion), the Company and Accordia expect to incur a variety of litigation-related costs. On June 28, 2018 a subsidiary
of Athene and FAFLIC entered into a consent order with the New York State Department of Financial Services, or “NYSDFS,”
relating to the NYSDFS’ market conduct examination findings that related primarily to disruptions in servicing caused by
the Conversion. Pursuant to the consent order, Athene paid the NYSDFS a fine of $15,000 and will also take corrective actions
and provide remediation to policyholders impacted by the Conversion. The agreements between the Company, Commonwealth Annuity
and Athene provide indemnities to Athene, including for fines and penalties resulting from violations of law. Commonwealth Annuity
has reimbursed Athene an amount equal to the NYSDFS fine in July, 2018. Additionally, the Company has put up a reserve of $1,522
for costs related to certain aspects of the corrective actions agreed under the consent order. The Company anticipates additional
regulatory, restitution and legal costs associated with the investigation, defense, and settlement of potential claims related
to the Conversion.
Assessments
Unfavorable
economic conditions may contribute to an increase in the number of insurance companies that are under regulatory supervision.
This may result in an increase in mandatory assessments by state guaranty funds, or voluntary payments by solvent insurance companies
to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes in some states. The Company is not able to reasonably
estimate the potential impact of any such future assessments or voluntary payments.
Commitments
The
Company has an operational servicing agreement with a third party administrator for contract / policy administration of the Company’s
traditional life business. Additionally, there is a professional services agreement to manage certain aspects of the Company’s
reinsurance portfolio.
As
of December 31, 2022 the purchase commitments related to the agreement with the third party administrator were as follows:
| 2023 | $ | 992 | ||||
| 2024 | 878 | |||||
| 2025 | 891 | |||||
| 2026 | 569 | |||||
| 2027 | 105 | |||||
| 2028 and thereafter |
153 | |||||
| Total | $ | 3,588 |
The
Company invests in certain joint ventures, limited liability companies (LLCs) and partnerships, and in some cases makes a commitment
for additional investment up to a maximum invested amount.
As
of December 31, 2022, commitments to make additional investments to LLCs total $4,605.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
The
Company has evaluated subsequent events from December 31, 2022 through April 12, 2023, the date that these financial statements
were available to be issued, and determined that there are no Type – I Recognized, or Type – II, Non Recognized events.
| 15. | COMPOSITION OF OTHER ASSETS, LIABILITIES AND EXPENSES |
Other
assets consist of the following:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Pension annuity contract | $ | 1,189 | $ | 1,372 | ||||
| Miscellaneous receivables | 105 | (198 | ) | |||||
| Guaranty funds receivable or on deposit | 37 | 41 | ||||||
| Total other assets | $ | 1,331 | $ | 1,215 | ||||
Other
liabilities consist of the following:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Remittances and items not allocated | $ | 12,095 | $ | 15,342 | ||||
| Payable for securities | 10,259 | — | ||||||
| Miscellaneous liabilities | 178 | 3,177 | ||||||
| Tax liabilities | (57 | ) | 2,482 | |||||
| Policyholder liabilities | 905 | 45 | ||||||
| Derivatives | 16 | — | ||||||
| Total other liabilities | $ | 23,396 | $ | 21,046 | ||||
Other
expenses consist of the following:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| FwH Realized Bonds Ceded | $ | — | $ | — | ||||
| Captive financing fee | 1,778 | 1,766 | ||||||
| Total other expenses | $ | 1,778 | $ | 1,766 | ||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Effective
May 1, 2014 the Company assumed, and received assets for, a nonqualified defined contribution pension plan covering career distribution
systems agents for $3,600. The plan was in an “inactive” state when it was assumed by the Company and the balance
was related to liabilities remaining payable to agents receiving periodic distributions under annuity contracts at the time the
plan was assumed. The balance of the plan obligation was $0 and $1,244 for the years ended December 31, 2022 and 2021, respectively.
There were no expenses recognized in association with this plan for the years ended December 31, 2022 and 2021.
In
connection with the February 1, 2021 acquisition of Global Atlantic by KKR & Co., Inc., and pursuant to Treasury Regulation
§ 1.409A-3(j)(4)(ix)(B), on October 22, 2021, the Company approved the termination and liquidation of all benefit plans for
its financial professionals, including the nonqualified defined contribution agent pension plan, with an effective date of December
31, 2021.
Regular
distributions under the plan continued through May 31, 2022 and on June 22, 2022, Company made an aggregate final payment to the
agents of $1,184, which represented the present-value of the outstanding annuity contracts, as determined for value date December
31, 2021 by a 3rd-party actuarial analysis. As of December 31, 2022, there were no liabilities outstanding under the plan.
The
Company utilizes separate accounts to record and account for assets and liabilities for variable annuity and variable life transactions.
In accordance with the products/transactions recorded within the separate account, assets are considered legally insulated. The
legal insulation of the separate account assets prevents such assets from being generally available to satisfy claims resulting
from the general account.
The
Company’s separate account statement includes legally insulated assets of $111,015 and $149,630 as of December 31, 2022
and 2021, respectively. The assets legally insulated from the general account as of December 31, 2022 are attributed to the following
products/transactions:
| Product/Transaction | Legally Insulated Assets |
(Not Legally Insulated) | ||||||
| Variable annuities | $ | 69,127 | $ | — | ||||
| Variable life insurance products | 41,888 | — | ||||||
| Total | $ | 111,015 | $ | — | ||||
Separate
accounts assets held by the Company generally relate to variable annuities or life insurance of a non-guaranteed
return nature. The net investment return of the separate account is credited directly to the policyholder and can be positive
or negative. The variable annuities generally provide a minimum guaranteed death benefit, the nature of which has varied over
time. In 1996, the company began offering a minimum guaranteed death benefit which is adjusted annually to the current account
value. The maximum amount associated with death benefit guarantees for 2022 was $10,140 with associated risk charges paid by the
separate account to compensate for these risks of $0.
The
maximum amount associated with death benefit guarantees for 2021 was $2,365 with associated risk charges paid by the separate
account to compensate for these risks of $1.
The
maximum amount associated with death benefit guarantees for 2020 was $2,451 with associated risk charges paid by the separate
account to compensate for these risks of $1.
The
maximum amount associated with death benefit guarantees for 2019 was $2,547 with associated risk charges paid by the separate
account to compensate for these risks of $2.
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Information
regarding the Separate Accounts of the Company as of December 31, 2022 is as follows:
| 2022 | Indexed | Non-Indexed Guarantee Less than / equal to 4% |
Non-Indexed Guarantee More than 4% |
Non-Guaranteed Separate Accounts |
Total | |||||||||||||||
| Premiums, considerations or deposits | $ | — | $ | — | $ | — | $ | 1,637 | $ | 1,637 | ||||||||||
| Reserves | ||||||||||||||||||||
| For accounts with assets at: | ||||||||||||||||||||
| Fair value | — | 172 | — | 97,525 | 97,697 | |||||||||||||||
| By withdrawal characteristics | ||||||||||||||||||||
| With MV adjustment | — | 172 | — | — | 172 | |||||||||||||||
| At fair value | — | — | — | 96,509 | 96,509 | |||||||||||||||
| Not subject to discretionary withdrawal | — | — | — | 1,016 | 1,016 | |||||||||||||||
| Total | $ | — | $ | 172 | $ | — | $ | 97,525 | $ | 97,697 | ||||||||||
Reconciliation
of net transfers to / (from) separate accounts as reported in the statements of operations for the year ended December 31, 2022
is as follows:
| Transfers to separate accounts | $ | 1,637 | ||
| Transfers from separate accounts | 7,821 | |||
| Net transfers to/(from) separate accounts | (6,184 | ) | ||
| Reconciling adjustments: | 322 | |||
| Administration and policy fees | (2,593 | ) | ||
| Matured deferred contracts | (224 | ) | ||
| Reinsurance | 8,982 | |||
| Transfers as reported in the statements of operations |
$ | 303 |
Information
regarding the Separate Accounts of the Company as of December 31, 2021 is as follows:
| 2021 | Indexed | Non-Indexed Guarantee Less than / equal to 4% |
Non-Indexed Guarantee More than 4% |
Non-Guaranteed Separate Accounts |
Total | |||||||||||||||
| Premiums, considerations or deposits | $ | — | $ | — | $ | — | $ | 1,571 | $ | 1,571 | ||||||||||
| Reserves | ||||||||||||||||||||
| For accounts with assets at: | ||||||||||||||||||||
| Fair value | — | 166 | — | 133,625 | 133,791 | |||||||||||||||
| By withdrawal characteristics | ||||||||||||||||||||
| With MV adjustment | — | 166 | — | — | 166 | |||||||||||||||
| At fair value | — | — | — | 132,394 | 132,394 | |||||||||||||||
| Not subject to discretionary withdrawal | — | — | — | 1,231 | 1,231 | |||||||||||||||
| Total | $ | — | $ | 166 | $ | — | $ | 133,625 | $ | 133,791 | ||||||||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
Reconciliation
of net transfers to / (from) separate accounts as reported in the statements of operations for the year ended December 31, 2021
is as follows:
| Transfers to separate accounts | $ | 1,571 | ||
| Transfers from separate accounts | 12,177 | |||
| Net transfers to/(from) separate accounts | (10,606 | ) | ||
| Reconciling adjustments: | ||||
| Administration and policy fees | (2,473 | ) | ||
| Matured deferred contracts | 207 | |||
| Reinsurance | 12,164 | |||
| Transfers as reported in the statements of operations |
$ | (708 | ) |
Effective
December 1, 2015, and following the approval of the MADOI, the Company entered into a coinsurance agreement with Ameritas Life
Insurance Corp whereby it ceded substantially all of its closed block of business. The closed block consists of individual whole
life insurance participating policies, term life policies and individual deferred annuity contracts which were inforce as of October
16, 1995. As a result of the transaction, the Company ceded $571,400 policyholder
liabilities, and transferred associated assets.
The
table below presents financial schedule for the closed block, prior to the impact of reinsurance at December 31, 2022 and 2021.
Summarized
financial information of the Closed Block for the years ended December 31, was as follows:
| BALANCE SHEET | 2022 | 2021 | ||||||
| Assets: | ||||||||
| Bonds, at amortized cost | $ | 375,543 | $ | 396,150 | ||||
| Cash & short-term investments | 6,191 | 5,648 | ||||||
| Policy loans | 51,657 | 58,299 | ||||||
| Investment income due & accrued | 6,429 | 6,817 | ||||||
| Premiums deferred and uncollected | 1,370 | 1,626 | ||||||
| Aggregate write-ins for other than invested assets |
2,352 | — | ||||||
| Current federal & foreign income tax recoverable |
3,342 | 2,906 | ||||||
| Total admitted assets | $ | 446,884 | $ | 471,446 | ||||
| Liabilities: | ||||||||
| Policy liabilities & accruals | $ | 467,833 | $ | 493,736 | ||||
| Other liabilities | 1,889 | 2,028 | ||||||
| Total liabilities | $ | 469,722 | $ | 495,764 | ||||
First Allmerica Financial Life Insurance Company
(A wholly-owned subsidiary of Commonwealth Annuity and Life Insurance Company)
Notes to Financial Statements- Statutory Basis
For the Years Ended December 31, 2022 and 2021
(Dollars in thousands)
| INCOME STATEMENT | 2022 | 2021 | ||||||
| Revenues: | ||||||||
| Premiums and other considerations | $ | 10,215 | $ | 10,823 | ||||
| Net investment income | 23,782 | 22,044 | ||||||
| Realized gains | 74 | 50 | ||||||
| Total revenue | $ | 34,071 | $ | 32,917 | ||||
| Benefits & expenses: | ||||||||
| Policy benefits | $ | 33,037 | $ | 30,690 | ||||
| Operating & selling expenses | (11 | ) | (34 | ) | ||||
| Taxes, excluding capital gains tax |
(436 | ) | (821 | ) | ||||
| Total benefits & expenses |
$ | 32,590 | $ | 29,835 | ||||
| Closed Block Net Income |
$ | 1,481 | $ | 3,082 | ||||
| CASH FLOWS | 2022 | 2021 | ||||||
| Cash from Operations: | ||||||||
| Premiums & annuity considerations | $ | 10,491 | $ | 11,016 | ||||
| Net investment income | 25,037 | 22,562 | ||||||
| Claims, surrenders & other benefits | (43,048 | ) | (39,277 | ) | ||||
| Commissions & expenses paid | — | — | ||||||
| Dividends to policyholders | (12,489 | ) | (8,586 | ) | ||||
| Federal income taxes | — | — | ||||||
| Net cash used in operations | $ | (20,009 | ) | $ | (14,285 | ) | ||
| Cash from Investments: | ||||||||
| Proceeds from investments sold, matured or repaid | ||||||||
| Bonds | $ | 21,309 | $ | 18,833 | ||||
| Cost of investments acquired | ||||||||
| Bonds | (1,494 | ) | (8,707 | ) | ||||
| Net decrease in policy loans | 6,642 | |||||||