Delaware Life Insurance And Annuity Company (Bermuda) Ltd....2019/01/04 · Insurance and Annuity...

Delaware Life Insurance And Annuity Company (Bermuda) Ltd. (A Wholly-Owned Subsidiary of Delaware Life {Bermuda) Holdings, Inc.}

Condensed General Purpose Financial Statements as of December 31, 2016, and for the Year Ended December 31, 2016, and Independent Auditor's Report

pwc

July 26, 2017

Independent Auditor's Report

To the Board of Directors

We have audited the accompanying condensed financial statements of Delaware Life Insurance and Annuity Company (Bermuda) Ltd., which comprise the condensed balance sheet as of December 31, 2016, and the related condensed statement of income and condensed statement of capital and surplus for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Condensed Financial Statements

Management is responsible for the preparation and fair presentation of the condensed financial statements based on the financial reporting provisions of The Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the "Legislation"). Management is also responsible for the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these condensed financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the condensed financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the condensed financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the condensed financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the condensed financial statements 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, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the condensed financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers Ltd., Chartered Professional Accountants, P.O. Box HM 1171, Hamilton HM EX, Bermuda T: +1 (441) 295 2000, F:+1 (441) 2951242, www.pwc.comjbermuda

Basis for Adverse Opinion on accounting principles generally accepted in the United States of America ("US GAAP??)

As described in Note 3 to the condensed financial statements, the condensed financial statements are prepared by the Company based on the financial reporting provisions of the Legislation, which is a basis of accounting other than US GAAP.

The effects on the condensed financial statements of the variances between the basis of accounting described in Note 3 and US GAAP are material.

Adverse Opinion on accounting principles generally accepted in the United States of America ("US GAAP")

In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on accounting principles generally accepted in the United States of America ("US GAAP")" paragraph, the condensed financial statements referred to above do not present fairly, in accordance with US GAAP, the financial position of the Company as of December 31, 2016, or the results of its operations or its cash flows for the year then ended.

Opinion on Condensed Financial Statements

In our opinion, the condensed financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations for the year then ended, in accordance with the financial reporting provisions of the Legislation described in Note 3.

U.l. Chartered Professional Accountants

Reference: Independent Auditor's Report on the Condensed Financial Statements of Delaware Life Insurance and Annuity Company (Bermuda) Ltd. for the year ended December 31, 2016

Page 2 of2

UNENo. 2018 II 201!5

1. CASH AND CASH EQUIVALL'ITS 1o.!i!!2 I 2. QUOTtO INVESTME<nS: (I ) Bonds lnd Oobontutes

1 Hold to maturoty II II Olhor (b) Total Bonds and Debentures (C) Equoues

1. Common stocl<s

§ § 11. Preferred stocl<s Ill. Mutual f\Jnds

(d) T 0111 equities (e) Other quoted l,..stmenll I I (f) Totol quoted Investments

3. UNQUOTED INVESTMENTS: (I ) 8ondt lnd Debentures

I. Held to rniMIIY II 11. Dtl1er (b) Totol8ondt and Debentures (C) Equltlts

L Common stocl<s

§ § 11. Preferred stocks II , Mutull fundi

(d) Toll! equities (t ) Dtl1tr unquOied lrMStmenll II (!) Tot.ll unquoted invUtmenll

4 INVESTMENTS IN ANDAD\'ANCESTO~AUATES (l l Unrt(UIItod en~bes t11tt conduct tne11aty HMCIS

§ § (b) Urve(Uittod non-fino,.... operlbn& onwes (C) Unro..,a.toa ~-~~entitles (d) Ae&UII1od norHnSurt,.. !lrllflCIII_.bnC entilll$ (I ) Re ... le~ ,....,,.,.. fintnatl opertllnC erltlbes (I) Tot.ll'"-ents 1n tffillltes w Advl-. to offNtas I I (11 ) TolllwwiStments In and odvonc.s to 1flilootos

5 INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE: (I) fwsUens

II (b) Olhor tlltn ftr1t ll<lns (C) Tottl lnveslments in mort&Jc• loans on real estate

6. POLICY LOANS 6.184 1

7. REAL ESTATE: (1) Occupied by tne compony (less encumbrances) II (b) Olner properties (loss encumbrances) (C) Toto! reel estate

8. COLLATERAl lOANS

9. INVESTMENT INCOME DUE AND ACCRUED

10. ACCOUNTS AND PREMIUMS RECEIVABLE: (1) In cour .. of collecllon

§ § (b) Oo,.nod - not yet due (C) ROC.ivlbles from rtVoceSSIOntl controCIS (c!) Total accounts II'M:I premtums teceiv1~e

11. REINSURANCE 8ALANCES RECEIVA8lE: (I I FOfto&n llftllltel

§ § (b) Oomo~t~c:aflillltes (C) Poolt' - lions (d) All other HltUfers (o) T 0!14 rttnl<ltlnte balance <OC.flloble

CC ·.[ E~ ~E[ E~LA· Cf oHEET

UHENo. 12

13. (I I

(b)

(C)

(d) (e) (f)

'-> (h) (I) 0) (k)

14. (I) (b) (C)

(e)

15

F\JNOS HELD I1Y CEDING REI'ISURERS

SUNDRY ASSETS; DattvaiNt lnso-umonts SIIIJtCttt(laccounts companies -lone-term businfls vtrlabft annuluos SICitl'ttd occounts compan"'s · lone-term busoness . Ollltr

Sllrtl'ttd occounts comptnies • ceneral business O.poSI\uttts Oehlrrld acquisitiOn costs Net receiVables for Investments sold

lffiERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS l etters of Cltdrt Guarantees Othe<onstrumentJ Totti letters of credit. cuor•ntees and other instruments

TOTAl

lOTAL INSURAHCE RESERYfS, OTliER UA81UTIES AND STAMORI' CAPITAL AND SURPUJS

16. UNEARNED PREMilJiol RESERVE (1 ) (b)

(c) (d J

17. (I I (b)

(C)

(d)

18.

Gross unearM<I premoum roseMS Loss· Ct(lt(l uneorned pre<nium ,.,.,.. L Foreocntfllloltla ll DomtiiJC , ,._ li. Pools & IISocrtbOns tv AI Olhtt Insurers

Totti ctded uneorned pram111m reserve t-ttl unearned pttnwum reserve

LOSS AND LOSS EXPENSE PROVISIO'lS; Gtosalosa and loss ll<ptnse pr011is10ns less : Reinsurance reeovereble balance 1 Fororcn afftMatas 11. Domestic a"lllatts lo Pools & ISIO<:iatlons IV. All other reinsurers

Totti relr1aurance recoverable btlance Net lou and loss expense provisions

OTHER GENERAl BUSINESS INSURANCE RESERVES

19. TOTAL GENERAL BUSINESS INSURANCE RESERVES

LONG-TERM BUSINESS INSURANCE RESERVES

20. RESERVE FOR REPORTED CLAIMS

21. RESERVE FOR UNREPORTED CLAIMS

22. POUCY RESERVES · UfE

23. POUCY RESERVES · ACCIDENT AND HEALTH

24. POUCYHOUl£RS fUirOS ON DEPOSIT

25. UA81..1TY fOR FUTURE PDUCYHOLOERS DMDENOS

26. OTHER LOtiG-TERI\I BIJSI'jESS INSURANcr RESERVES

t---=201=8~1~---1 -=2015==-"""""

C2.737

200.825

2~ 293

244,078

260.814

.__ __ _.I ~..1 _ _ _ _J

...._ __ --.JI ._I ---.J

.__ __ _.I ~..1 __ ____,

'---'-"2~14""'' 1 L-. ___ ...J

r;r '.!Jtt.3EC> BMN.CE SHEET

DELAWNII LIFE tNIUIIANCI ANO ANNUITY COMIWn' (IIIIMUDAj L 11). As II .,..._, 81, 20111 expreued 1n 1"000&) jOnliid stitii 00411/i

LINE Ne.

27 (a) ib)

(<l (d)

28.

28.

30

31.

32.

33.

34.

35.

36. (e) (b) (<) (d) (e) (I) (t) (h)

TOlAI.LONG-TERM BUSINESS INSURANCE RESERVES Total Gross Lon&-Term Bullneu Insurance Resel\'eS less: Reonsu,.nee ....,....,.ble ~nee on lon&-Wm buSlness ro r..-eocnNNittes (lll Domesoc~

(Iii) Pools and Assoclall<)na (IV) AI Other In sur era Total Remsuranoe Recoverable 0.'-"<:e T--Lont-Tenn......__~

INSURANCE AND REINSURANCE BAlANCES PAYABLE

COMMISSIONS, EXPENSES. FEES ANO TAXES PAYABlE

lOANS AND NOTES PAYABLE

(I ) INCOME TAXES PAYABLE

(b) DEFERRED INCOJ.4E TAXES

AMOUNTS DUE TO Affl.IATES

ACCOUNTS PAYABlE AND ACCRUED UABil/TlES

FUNDS HElD UNDER REINSURANCE CONTRACTS:

DIVIDENDS PAYABlE

SUNDRY LIABiliTIES: Oenvatrve Instruments Sefle~~~ted aooounts companies Depos~ rtabollloes Net payable for Investments purohesed Oth~ sundoy llabil~ies (OAC load) Other sundoy Habi~ties (Polley loan eolloteral) Other sundoy fiabUitles (SI*l(y) Total Sundry ltal>ollllel

20111 I I 20111

(214)

158 1 L'---....J 1~s 1 ~I ==~

L---~' ~'---~

L---~1 L.l ----l

137j L'- ----'

L--- - -'1 ~' ----l

243.~2

131 6.180

249.879

I

CC'.[!U oll• EALA'.CE 3HEf:T

DEIAWNI! LRIII&IMNCENIIJANNUI1YCOMPANY ~ LlD. /IS at ~11, 2011 OJqJ<tsstd In fOOOII IOnftiO S1itii DOIIiii

liNE No.

37. II ) (~)

{C) (d)

38

39.

40.

41.

lETTERS Of CIIEOIT. GIJARANTEES AND OTH£R t<STRUMENTS: LetteBofC<edn

Other ~nstrumtnll Total letters of credit. cuarenteu and omer Instruments

TOTAL OTHER LIASIUTIES

TOTALINSUIWICE RESERVES AND OTHER UABIUTIES

TOTAL CAPrTAL AND SURPLUS

TOTAL

250.332

2W.us

10,696

260.814

I

CC·~. DEr. ~ED STATEME~. T C·r If, COME

DELAWARE LifE IN8URAHCE AND ANNUilY COMPANY (BERMUDA) LlD. As at lleolmber 31, 2018 expressed m ['OOOs] Unbd at-. Dollela

UNENo. GENERAl. 8USINESS UNDERWRITING INCOME

1. GROSS PREMIUMS WRmEN (a) Direct gross premiums wtllten (b) Assumed gross premiums written (c) Total cross premiums written

2. REINSURANCE PREMIUMS CEDED

3. NET PREMIUMS WRilTEN

4. INCREASE (DECREASE) IN UNEARNED PREMIUMS

5. NET PREMIUMS EARNED

6. OTHER INSURANCE INCOME

7. TOTAl. GENERAL BUSINESS UNDERWRITING INCOME

GENERAl. 8USINESS UNDERWRITING EXPENSES

8. NET LOSSES INCURRED AND NET LOSS EXPENSES INCURRED

9. COMMISSIONS AND BROKERAGE

10. TOTAl. GENERAL BUSINESS UNDERWRITING EXPENSES

11. NET UNDERWRITING PROfiT (L.OSS) ·GENERAl. BUSINESS

LONG-TERM BUSINESS INCOME

12. GROSS PREMIUMS AND 011-IER CONSIDERATIONS: (a) Direct gross premrums and otller consldetations

13.

14.

15.

16.

(b) Assumed gross premiums and other consrderatJons (c) Total gross premiums and other consl<loralions

PREMIUMS CEDED

NET PREMIUMS AND OTHER CONSIDERATIONS: (a) Ufe (b) Annuities (e) ACcident and heatth (d) Total net premiums and other considerations

OTHER INSURANCE INCOME

TOTAl. LONG· TERM BUSINESS INCOME

LONG-TERM BUSINESS DEDUCTlOHS AND EXPENSES

17. CLAIMS · UFE

18. POLICYHOLDERS' DMDENOS

19. SURRENDERS

20. MATURITIES

21. ANNUITIES

22. ACCIDENT AND HEALTH BENEFITS

23. COMMISSIONS

24. OTHER

25.

26.

27.

28.

TOTAl. LONG· TERM BUSINESS DEDUCTIONS AND EXPENSES

INCREASE (DECREASE) IN POLICY RESERVES (ACTUARIAl. LIABILITIES~ (a ) Lifo

(b)Mnulbes (c)Accklent and heatth (d) Total Increase (decrease) in policy reserves

TOTALLONG·TERM BUSINESS EXPENSES

NET UNDERWRITING PROFIT (LOSS)· LONG-TERM BUSINESS

29. COMBINED NET UNDERWRmNG IIESUI.lS BEFORE

1---lll-1 - -I

L_ _ _ ...JI ._1 __ _J

L_ __ _JI ._I _ _ _

~1~----1 ---1

(1.8611(

8§ (1,861)

3,039 )

1.178

187

187

187

991

Cc' C'U '[ C ~TAIEMEt.T r r lt. ;UM[

DElAWARE LR INIUIWICE AND ANNU11Y COMPANY~ LTD. Aset Deaemblr 1:1,, 2011 expressed In rOOOsJ l.-...cl--DaMN

UNENo. 2011 I 2011 THE UIIDERNOTEl> ITEMS 991

UNDERNOTED ITEMS

30. COMBINED OPERATING EXPENSE (a) Genorol and odmlniStrotion B § (b) Personnel cost (c) Oinet

1

(d) TIMI com- ol)eri\Jrl& OJq>enses 510

31. COMBtt;EO INVESNEtiT INCOME· NET 274 1

32. COMBINED OTHER INCOME (DEDUCTIONS) 123~)1

33 COMBINED INCOME BEFORE TAXES 520

34 COMBlNEO INCOME TAXES (IF APPliCABLE~ (a) CUrrant q (b) Delmed (C)TOUI 7

1

35 COMBINED INCOME BEFORE REAliZED GAINS (LOSSES) 347

36 COMBINED REAliZED GAINS (lOSSES)

37. COMBI'iED INTEREST CHARGES

38. NET INCOME lit

CONDEri~fD STATEMEtH U CAPITAL AND SI!Rf'Lllc;

l.IIENo.

(1)

(b)

(C)

(d)

Copbi510Ck

(I) Common S;.:;h•::.••::•:.....--,==:<"1 eutllorlztd 250.000 0111111 of p11 value 1.000 tech Issued and fuly peod 250.000 .,.., ..

(ol)

(A) Ptefttred ;:."'=":.:"'=·-- - --., autbonzed snares of par value each i6Sutd and fully peld Shares aurepte Hqu IUOn value for-

2016f--- ----l 20151... ____ _J

(B) Preferred shires rssued by 1 sul)sodlery:

authoriZed I llllerts o1 par value each Issued and fully pei<l . shares ewepte liquidation vai<Je for-

2016f---- - --l 201SL.. --- ---1

(lof) Treasury Shl<;;;::;:.:•s:_ ___ .., ~~chased I llharea of par ·~ L.. ___ _ _ .J_NCh ISSued

Contnbuted eurplus

Any other flxed cepbl (1) HyOOd Clpilll instruments (I) ~IIIIlS lnd Olllet$ (lil) Tollleny other tbed capital

Tolll Coprlll

2 SURPlUS:

(I I SUrplus · BtCin"'nl ofYear

ib) Add: Income lor the year

(c) Less: Dividends peod end payable

(d) Add (Otduct) thence on unreatiltd appreCJaUon (depreelaUon) of Investments

(e) Add (Otduct) chenp tn any oltltt surpllls

(I) Surplus . End of YHf

3. MIIOIIITY INTEREST

4. TOTAl. CN'ITAI.AND SURPlUS

J.7b0 I

1-------l, f----1 --------l

4,000

6,349 1

347

6.696

16.696

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly-Owned Subsidiary of Delaware Life (Bermuda) Holdings, Inc.)

Notes to Condensed General Purpose Financial Statements As of and for the Year Ended December 31, 2016 (In United States Dollars)

GENERAL NOTES TO THE FINANCIAL STATEMENTS

1. Delaware Life Insurance and Annuity Company (Bermuda) Ltd. ("DLIAC" or the "Company") is a wholly--owned subsidiary of Delaware Life (Bermuda) Holdings, Inc. ("DL Bermuda Holdings"). The Company was incorporated in Bermuda pursuant to a private act entitled "Keyport Ltd. Act 1999" on May 10, 2000 as an exempt limited liability company. The Company is licensed under the Insurance Act 1978 of Bermuda, amendments thereto (the "Act"}, to write long·term business.

At its inception, DLIAC's principal activities were related to the issuance of private placement variable universal life insurance ("PPVULn) and private placement variable annuities ("PPVg) to high net worth clients residing outside of Bermuda. Following a strategic review in early 2009, the Company determined not to accept new customers for its PPVUL and PPVA lines of business. DLIAC continues to administer its existing block of in~force business and to ensure contractual and regulatory compliance.

2. The PPVUL and PPVA products issued by the Company offer no embedded policyholder options. The Company's PPVUL products have no secondary or lapse guarantees. The Company's PPVA products have no guaranteed minimum death benefits, guaranteed minimum income benefits, guaranteed minimum accumulation benefits, or guaranteed minimum withdrawal benefits. The Company's PPVUL and PPVA contract account values are entirely invested in segregated accounts and both the account value and the underlying assets are carried at fair value. The Company cedes all mortality risk related to its PPVUL and PPVA products to third-party reinsurers.

3. The Company's condensed general purpose financial statements have been prepared in conformity with the financial reporting provisions of the Act and the Insurance Account Rules 2016 (the "Insurance Rules") with respect to Condensed General Purpose Financial Statements collectively (the "Legislation"). The Company's condensed general purpose financial statements are based upon accounting principles generally accepted in the United States of America ("US GAAP"), but are in accordance with the reporting requirements of the Legislation, which varies in certain respects from US GAAP. The most significant variances are as follows:

• A statement of cash flows is not included in the condensed general purpose financial statements but is required for financial statements prepared under US GAAP;

• A statement of comprehensive income is not included in the condensed general purpose financial statements but is required for financial statements prepared under US GAAP;

• The presentation and classification of financial statement tine items are in accordance with Schedules IX and XI of the Insurance Rules and differ from the expected presentation and classification under US GAAP; and

• The notes included in the condensed general purpose financial statements have been prepared in accordance with Schedule X of the Insurance Rules which excludes certain disclosures required under US GAAP.

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly..Qwned Subsidiary of Delaware Life {Bermuda) Holdings, Inc.)


GENERAL NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. The principal accounting policies applied in the preparation of these financial statements are set out below:

(a) Use of Estimates

The preparation of financial statements in conformity with the Legislation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. Although these estimates are based on management's best knowledge of current events and conditions, actual results could differ from these estimates. The most significant estimates are those used in determining the fair value of policy loans, accruals, the valuation allowance on deferred tax assets, and the provision for income taxes.

(b) Cash and cash equivalents

Cash and cash equivalents are highly liquid assets. The Company's cash equivalents primarily include money market investments which have an original term to maturity of less than three months. Cash equivalents are held at amortized cost, which approximates fair value.

(c) Policy loans

Policy loans are carried at the amount of outstanding principal balance plus accrued interest. Policy loans are collateralized by the related insurance policies and do not exceed the net cash surrender value of the policies.

(d) Reinsurance recoverable balance

The Company's reinsurance recoverable balance represents the ceded policy reserve which is actuariaUy calculated to estimate the present value of future reported death benefits paid by DUAC, assuming that the policyholder dies before the valuation date. For the year ended December 31, 2016, the reinsurance recoverable balance was calculated as one-half monthly coverage using the standard and ultimate tables of the 1980 Commissioners Standard Ordinary Mortality Tables and an assumed interest rate of 4% per year.

(e) Segregated accounts

The Company has established segregated accounts for its PPVUL and PPVA contracts which provide variable benefits. The related investments are held in the segregated accounts. Segregated account investments are carried at fair value and the investment risk of such securities is retained by the contracthofders. Investment income and changes in the fair value of investments in the segregated accounts are allocated to policyholders and therefore do not affect the operating results of the Company. The Company earns segregated account fees for providing administrative services and bearing the mortality risks related to these contracts.

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly ..Owned Subsidiary of Delaware Life (Bermuda) Holdings, Inc.)



4. (Continued)

(e) Segregated accounts (continued)

The activities in the segregated accounts are not reflected in the financial statements except for fees that the Company receives. These fees are assessed periodically and recognized as revenue when assessed. Earned fees are reported as other insurance income in the Company's condensed statement of income.

Segregated account assets are offset by segregated account liabilities due to policyholders and are reported in the Company's balance sheet. Segregated account assets constituted 93% of DLIAC's total assets at December 31, 2016.

{f) Income taxes

As an insurer organized under the laws of Bermuda, DLIAC is not subject to taxation in Bermuda, as Bermuda does not impose any form of taxation on receipts, dividends, capital gains, gifts or net income. In the event that such taxes are levied, DLIAC has received an assurance from the Bermuda government to be exempted from all such taxes until March 31, 2035. However, DLIAC is subject to income tax by the government of the United States of America {'U.S.") and will file a stand·alone U.S. federal income tax return for 2016. DUAC has made an election under Internal Revenue Code §953{d) to be taxed as a U.S. corporation and, therefore, the Company is taxed at the same U.S. federal statutory income tax rate of 35% as its parent, Dl Bermuda Holdings.

Income tax payments are made periodically during the year based on estimated amounts due. Any difference between estimated and actual tax expense is recorded as income tax receivable or payable.

The Company accounts for current and deferred ·Income taxes and recognizes reserves for income tax contingencies in accordance with the legislation.

Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities Is recognized in income in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based upon the Company's assessment of the realizability of such amounts. Please refer to Note 31 to the Company's balance sheet for further discussion of the Company's income taxes.

(g) Revenue

Other insurance income primarily includes charges for the cost of insurance {mortality), initiation, premium load and admin.lstrat\on of the policy, and surrender charges. Revenue is recognized when the charges are assessed, except that any portion of an assessment that relates to services to be provided in future years is deferred and recognized over the period during which the services are provided.




5. Premium income - Not applicable

Commission income- Not applicable

Investment income

Investment income consists of interest income on cash and cash equivalents, and interest on policy loans. The Company records interest income when earned.

6-7. Not applicable

8. The Company is not aware of any contingent liabilities arising from litigation or other matters that could have a material impact on its financial condit!on or results of operations.

9-14. Not applicable




15. The Company has significant transactions with affiliates. Management believes intercompany revenues and expenses are calculated on a reasonable basis. However, these amounts may not necessarily be indicative of the costs that would be incurred if the Company operated on a standalone basis and these transactions were with unrelated parties.

The Company has an agreement with Delaware Life Insurance Company {uDelaware Life"), an affiliate, under which the Company receives, as requested, certain administrative services on a cost~reimbursement basis (the "Service Agreement"). Amounts due to affiliates at December 31, 2016 included $63,757 due and payable to Delaware Life related to the Service Agreement. The Company expensed $234,135 during the year ended December 31, 2016 related to the Service Agreement.

Amounts due to affiliates also include letter of credit fees payable to Guggenheim Life and Annuity Company ("GLAC"), a related party. The Company accrues letter of credit expenses monthly and the amounts due to GLAC are settled twice a year. There was no amount due to GLAC at December 31, 2016. During the year ended December 31, 2016, the Company expensed $7,500 for letter of credit fees. Refer to Note 14 to the Company's balance sheet for additional information on the Company's letter of credit agreement.

The Company also issued a revolving credit note payable to Delaware Life. Refer to Note 14 to the Company's balance sheet for additional information regarding this note. This note matured on June 30, 2017 and was replaced with the note described in Note 16.

16. Management has evaluated events subsequentto December 31, 2016 through July 26, 2017, the date that financial statements were available for issuance, and determined that, other than the event disclose below, there were no other subsequent events requiring disclosure or adjustment to the financial statements.

For liquidity management purposes, the Company issued a demand promissory note (the uNote") on June 30, 2017 payable to Delaware Life, pursuant to which DLIAC can borrow up to $40.0 million from Delaware Life. The interest on outstanding principal is based on LIBOR plus 1.15%. The Company will also pay a commitment fee on the average daily undrawn and available balance to the Company under the Note at a yearly rate of 0.48%. The accrued interest and fees under the Note will be payable on the last business day of each calendar month.

17. Not applicable

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly-Qwned Subsidiary of Delaware Life (Bermuda) Holdings, Inc.)

Notes to Condensed General Purpose Financial Statements As of and for the Year Ended December 31,2016 (In United States Dollars)

GENERAL NOTES TO STATEMENTS OF CAPITAL AND SURPLUS

1.(a) Capital Stock

DUAC was originally capitalized with an authorized and minimum ordinary share capital of $12,000, consisting of 12,000 shares with a par value of $1 each. Upon its application to become a Long Term Insurer, DUAC increased its ordinary share capital to 250,000 shares with a par value $1 each. At December 31, 2016, there were 250,000 shares of common stock issued and fully paid. No preferred shares were issued at December 31, 2016.

(b) Contributed surplus

Not applicable

2.(c) Dividend paid and payable

Not applicable



NOTES TO THE BALANCE SHEET

1. Cash and cash equivalents

DLIAC has four operating checking and money market accounts with The Bank of N. T. Butterfield & Son Limited. Three of these accounts are identified by management as surplus accounts and the last account is an investment transfer account. At December 31, 2016, the Company's cash balance was $10.6 million which included no restricted cash.

2-5. No applicable

6. Policy loans

Policy loans are carried at the amount of outstanding principal balance plus accrued interest. The Legislation requires disclosure of the fair value of certain financial instruments including those that are not carried at fair value. The fair value of policy loans is determined by estimating future policy loan cash flows and discounting the cash flows at a current market interest rate. At December 31, 2016, the fair value of the Company's policy loans was $6.8 million.

7-11. Not applicable

12. Not applicable

13. Sundry assets

The Company's sundry assets include investments in segregated accounts, an income tax receivable and deferred income tax assets.

The Company's segregated account investments are comprised of quoted and unquoted investments and cash equivalents. Quoted investments consist of quoted bonds and debentures, quoted equities, and other quoted investments. These fixed income and equity securities are listed on an exchange or traded over the counter. Securities listed on an exchange are valued at the closing sale price for the day of valuation as quoted on the exchange. Securities traded over the counter are valued by fund administrators using pricing methods including, but not limited to, third-party pricing services, independent non-binding broker quotes, and pricing matrices. As of December 31, 2016, the Company's segregated accounts included $159.7 million in quoted investments.

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly-owned Subsidiary of Delaware Life (Bermuda) Holdings, Inc.)


NOTES TO THE BALANCE SHEET (Continued)

13. Sundry assets (continued)

Unquoted investments in the segregated accounts consist of (1) unquoted bonds and debentures, and (2) unquoted equities, mutual funds, and all other unquoted investments. Other unquoted investments include multi-strategy investment vehicles containing a mix of bonds and equities, as well as alternative investments (such as commodities, distressed securities, etc.). All unquoted investments are carried at fair value calculated by fund administrators which are not affiliated with the Company's investment operations. As of December 31, 2016, the Company's segregated accounts included $73.3 million in unquoted investments.

The cash equivalents included in the Company's segregated accounts are primarily in the form of cash, commercial paper and money market investments which have an original term to maturity of less than three months. Cash equivalents are highly liquid and held at amortized cost, which approximates fair value. As of December 31, 2016, cash and cash equivalents in the Company's segregated accounts were $10.6 million.

The income tax receivable includes overpayment of income taxes to be applied to future tax liabilities. Please refer to Note 31 to the Company's balance sheet for further discussion on the Company's income tax receivable and deferred tax assets.

14. Letters of credit, guarantees and other instruments

At December 31, 2016, DUAC provided a letter of credit of $1.0 million in favor of the beneficiary, the U.S. Department of the Treasury, Internal Revenue Service {the "IRS"). The letter of credit was issued to cover potential income tax liabilities.

The letter of credit under the GLAC facility was issued on October 24, 2013 for $1.0 million. This letter of credit has a one~year term that automatically renews on an annual basis. The Company pays an annual rate of 0.75 percent of the average daily balance outstanding related to this letter of credit. No assets of DUAC are pledged against this Jetter of credit.

For liquidity management purposes, DLIAC issued a floating rate revolving credit note payable to Delaware Life on June 29, 2015, pursuant to which DLIAC could borrow up to $40.0 million from Delaware Life. The interest on outstanding principal was based on LIBOR plus 1.15%. Interest accrued monthly and was payable on the last day of the fiscal quarter. This note matured on June 30, 2017. At December 31, 2016, the Company had no outstanding balance due to Delaware Life related to this note.




16~17 Not applicable

20·26 Not applicable

27. (a) Not applicable

(b) Reinsurance recoverable balance

The Company's reinsurance recoverable balance represents the ceded policy reserve which is actuarially calculated to estimate the present value of future reported death benefits paid by DUAC, assuming that the policyholder dies before the valuation date.

28. Insurance and reinsurance balances payable

The Company's insurance and reinsurance balances payable represents reinsurance premiums due to non-affiliated reinsurance companies. The Company had $157,770 that was payable to non-affiliated reinsurance companies at December 31, 2016.

29. Commissions, expenses, fees and taxes payable

The Company's commissions, expense, fees and taxes payable represents accrued commission and general expenses due as of the balance sheet date. Commission and general expenses accrued and payable at December 31, 2016 were $68,729 and $89,103, respectively.

30. Not applicable

31. (a) Not applicable

(b) Deferred income taxes

The Company accounts for current and deferred income taxes in the manner prescribed by FASB ASC Topic 740. The following is a summary of the components of the income tax expense {benefit) in the Company's statement of income for the year ended December 31, 2016:

Income tax (benefit) expense Current Deferred

Total income tax expense

$

$

2016

(24,060) 196.828

172.768

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. (A Wholly...Qwned Subsidiary of Delaware Life {Bermuda) Holdings, Inc.)



31. (b) Deferred income taxes (continued)

Income taxes attributable to the Company's statement of income are different from the amounts determined by multiplying income before federal income taxes by the expected federal income tax rate of 35%. The following is a summary of the differences between the expected income tax expense at the prescribed U.S. federal statutory income tax rate and the total amount of income tax expense that the Company has recorded for the year ended December 31, 2016:

Expected federal income tax expense Other items

Total income tax expense

$

$

2016

12,768

The net deferred tax asset represents the tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax reporting purposes. The components of the Company's net deferred tax asset as of December 31, 2016 were as follows:

Deferred tax assets Actuarial liabilities Tax loss carry forwards Deferred acquisition cost Other assets

Gross deferred tax assets Valuation allowance

Total deferred tax assets

2016

$ 47.950 22,300

152,600

222,850

$ 222,850

The Company's net deferred tax asset at December 31, 2016 was comprised of gross deferred tax assets and gross deferred tax liabilities. The gross deferred tax asset was primarily related to actuarial liabilities, net operating loss carryforwards and deferred acquisition costs.

Delaware Life Insurance and Annuity Company (Bermuda) Ltd. {A Wholly-Owned Subsidiary of Delaware Life (Bermuda) Holdings, Inc.)



31 (b) Deferred income taxes (continued)

The Company performs the required recoverability (realizability) test in order to assess its ability to realize its recorded net deferred tax asset. In making this determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income and recent financial operations. In projecting future taxable income and sources of capital gains, the Company utilizes historical and current operating results and incorporates assumptions including the amount of future federal and state pre~tax operating income and the reversal of temporary differences.

The Legislation requires a recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return, as well as policies on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company does not believe it has any uncertain tax positions for its federal income tax returns that would be material to its financial statements. Therefore, the Company did not record a liability for unrecognized tax benefits ("UTBs") at December 31, 2016.

The Company has elected to recognize interest and penalties accrued related to UTBs in interest {income) expense. The Company had no interest accrued at December 31, 2016.

The Company will file a separate federal income tax return for the tax year ended December 31, 2016.




32. Amounts due to Affiliates

Amounts due to affiliates represent the balance due and payable to Delaware Life at the balance sheet date related to the Service Agreement and are settled within ninety days from the date the balance is due. The amount payable under the Service Agreement is non-interest bearing.

Amounts due to affiliates also include letter of credit fees payable to GLAC. Refer to Note 14 to the Company's balance sheet for repayment terms and additional information on the Company's letter of credit agreements.

33~35 Not applicable

36. Sundry Liabilities

The Company's sundry liabilities include segregated account liabilities, policy loan collateral and deferred acquisition cost ("DAC~) load liabilities.

Segregated account liabilities represent the PPVUL and PPVA account value due to the policyholder on demand and are supported by the underlying assets invested in the segregated accounts. As of December 31, 2016, the Company's segregated account liabilities were $243.6 million.

Policy loan collateral represents the portion of the policyholders account value taken as collateral for loans to policyholders plus interest credited. At December 31, 2016, the related account value was $6.2 million which included interest credited of $234,677 for the year ended December 31, 2016.

DAC load liabilities represent a 1% premium load charge on PPVUL policies to reimburse the Company for the effect on federal income tax liability of mandated tax treatment of certain DAC related to the payment of premium ("DAC Tax"). The DAC load charge was amortized over the IRS 10 year DAC Tax amortization schedule. As of December 31, 2016, DAC load liabilities were $136,989, and the related premium load revenue recorded in the Company's statement of income was $97,033 for the year ended December 31, 2016.

37. Not applicable



NOTES TO THE STATEMENT OF INCOME

6. Not applicable

15. Other insurance income

The Company's $3.0 million other insurance income represents charges for the cost of insurance (mortality), premium load, initiation and administration of the policy, and surrender charges.

32. Combined other income (deductions)

The Company's combined other deductions represent interest credited to the portion of the policyholders' account value taken as collateral for loans to policyholders.

36. Not applicable

Delaware Life Insurance And Annuity Company (Bermuda) Ltd....2019/01/04 · Insurance and Annuity...

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Transcript of Delaware Life Insurance And Annuity Company (Bermuda) Ltd....2019/01/04 · Insurance and Annuity...