EXHIBIT 99.6
Report of Independent Auditors
Board of Directors and Stockholder
United Life & Annuity Insurance Company
We have audited the accompanying statutory basis balance sheets of United Life &
Annuity Insurance Company ("the Company" and a wholly owned subsidiary of ING
America Insurance Holdings, Inc.) as of December 31, 2002 and 2001, and the
related statutory basis statements of operations, changes in capital and
surplus, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Iowa (Iowa Insurance
Department), which practices differ from accounting principles generally
accepted in the United States. The variances between such practices and
accounting principles generally accepted in the United States are described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of United Life & Annuity Insurance Company at December
31, 2002 and 2001 or the results of its operations or its cash flows for the
years then ended.
1
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of United Life &
Annuity Insurance Company at December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting practices prescribed or permitted by the Iowa Insurance Department.
As discussed in Note 3 to the financial statements, in 2001 the Company changed
various accounting policies to be in accordance with the revised NAIC Accounting
Practices and Procedures Manual, as adopted by the Iowa Insurance Department.
/s/ Ernst & Young LLP
April 25, 2003
2
United Life & Annuity Insurance Company
Balance Sheets - Statutory Basis
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December 31
2002 2001
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(In Thousands)
Admitted assets Cash and invested assets:
Bonds $ 608,870 $ 673,753
Common stocks 10 145
Subsidiary 25 25
Mortgage loans 34,829 31,004
Real estate, properties held for sale - 37
Policy loans 933 1,028
Other invested assets 13,908 8,323
Cash and short-term investments 14,741 18,299
-------------- --------------
Total cash and invested assets 673,316 732,614
Deferred and uncollected premiums (30) -
Accrued investment income 8,523 10,002
Reinsurance balances recoverable 112 -
Indebtedness from related parties - 19
Federal income tax recoverable, including a deferred
tax asset of $5,385 6,791 4,761
Separate account assets 64,410 103,520
Other assets 375 117
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Total admitted assets $ 753,497 $ 851,033
============== ==============
3
United Life & Annuity Insurance Company
Balance Sheets - Statutory Basis (continued)
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December 31
2002 2001
-------------- --------------
(In Thousands)
except share amounts)
Liabilities and capital and surplus
Liabilities:
Policy and contract liabilities:
Life and annuity reserves $ 586,755 $ 655,796
Deposit type contracts 14,926 16,982
Unpaid claims 25 -
-------------- --------------
Total policy and contract liabilities 601,706 672,778
Interest maintenance reserve 188 -
Accounts payable and accrued expenses 1,485 2,369
Indebtedness to related parties 1,634 926
Asset valuation reserve 5,743 8,652
Other liabilities (2,875) (3,851)
Separate account liabilities 64,410 103,520
-------------- --------------
Total liabilities 672,291 784,394
Capital and surplus:
Common stock: authorized - 4,200,528 shares of $2.00 par
value, 4,200,528 issued and outstanding 8,401 8,401
Additional paid-in capital 41,241 41,241
Unassigned surplus 31,564 16,997
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Total capital and surplus 81,206 66,639
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Total liabilities and capital and surplus $ 753,497 $ 851,033
============== ==============
See accompanying notes - statutory basis.
4
United Life & Annuity Insurance Company
Statements of Operations - Statutory Basis
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Year ended December 31
2002 2001
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(In Thousands)
Premiums and other revenues:
Life, annuity, and accident and health premiums $ 1,228 $ 2,205
Policy proceeds and dividends left on deposit 205 217
Net investment income 44,256 55,342
Amortization of interest maintenance reserve 1,656 922
Commissions, expense allowances and reserve adjustments
on reinsurance ceded 502 643
Other income 1,598 4,052
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Total premiums and other revenues $ 49,445 $ 63,381
--------------- --------------
Benefits paid or provided:
Annuity benefits 20,309 25,765
Surrender benefits 100,443 150,071
Interest on policy or contract funds 598 (2,997)
Other benefits 25 -
Life contract withdrawals 1,170 596
Decrease in life, annuity, and accident and health reserves (69,041) (112,483)
Net transfers from separate accounts (17,382) (18,868)
-------------- --------------
Total benefits paid or provided 36,122 42,084
Insurance expenses:
Commissions 611 695
General expenses 1,877 3,649
Insurance taxes, licenses and fees, excluding federal
income taxes (536) 231
Other 4 655
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Total insurance expenses 1,956 5,230
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38,078 47,314
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5
United Life & Annuity Insurance Company
Statements of Operations - Statutory Basis (continued)
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Year ended December 31
2002 2001
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(In Thousands)
Gain from operations before federal income taxes and net
realized capital (losses) gains
$ 11,367 $ 16,067
Federal income taxes (5,786) 3,039
-------------- --------------
Gain from operations before net realized capital (losses) gains 17,153 13,028
Net realized capital (losses) gains net of income taxes 2002 -
($3,926), 2001 - $0 and excluding net transfers to the
interest maintenance reserve 2002- ($2,310); 2001- ($5,545) (5,602) 333
-------------- --------------
Net income $ 11,551 $ 13,361
============== ==============
See accompanying notes - statutory basis.
6
United Life & Annuity Insurance Company
Statements of Changes in Capital and Surplus-Statutory Basis
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Year ended December 31
2002 2001
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(In Thousands)
Common stock:
Balance at beginning and end of year $ 8,401 $ 8,401
-------------- --------------
Additional paid-in capital:
Balance at beginning and end of year 41,241 41,241
-------------- --------------
Unassigned surplus:
Balance at beginning of year 16,997 (226)
Net income 11,551 13,361
Change in net unrealized capital gains or losses (1,396) 1,927
Change in nonadmitted assets (5,406) 7,268
Change in asset valuation reserve 2,909 (1,277)
Change in net deferred income tax 7,388 (505)
Change in accounting principle, net of tax - 1,528
Other adjustments (479) (5,079)
-------------- --------------
Balance at end of year 31,564 16,997
-------------- --------------
Total capital and surplus $ 81,206 $ 66,639
============== ==============
See accompanying notes - statutory basis.
7
United Life & Annuity Insurance Company
Statements of Cash Flows - Statutory Basis
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Year ended December 31
2002 2001
-------------- --------------
(In Thousands)
Operations
Premiums, policy proceeds, and other considerations received,
net of reinsurance paid $ 1,424 $ 715
Net investment income received 47,009 55,810
Commission and expense allowances received on reinsurance ceded 27 643
Benefits paid (125,136) (173,108)
Net transfers from separate accounts 19,650 21,767
Insurance expenses paid (2,613) (4,891)
Federal income taxes received (paid) 1,697 (6,898)
Other revenues in excess of expenses 1,252 1,593
-------------- --------------
Net cash used in operations (56,690) (104,369)
Investments
Proceeds from sales, maturities, or repayments of investments:
Bonds 697,696 509,231
Common stocks - 121
Mortgage loans 3,117 10,319
Real estate 53 -
Other invested assets 82 139
Net losses on cash & short term investments (262) (150)
Miscellaneous proceeds 607 (296)
-------------- --------------
Net proceeds from sales, maturities, or repayment of investments 701,293 519,364
Cost of investments acquired:
Bonds 632,726 407,492
Mortgage loans 7,078 13,140
Real estate - 280
Other invested assets 229 528
Miscellaneous applications 9,273 -
-------------- --------------
Total cost of investments acquired 649,306 421,440
Net decrease in policy loans 95 734
-------------- --------------
Net cash provided by investment activities $ 52,082 $ 98,658
8
United Life & Annuity Insurance Company
Statements of Cash Flows - Statutory Basis (continued)
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Year ended December 31
2002 2001
-------------- --------------
(In Thousands)
Financing and miscellaneous activities
Cash provided:
Capital and surplus paid-in $ - $ 1,528
Borrowed money - 4
Net deposits on deposit-type contract funds (2,938) (5,592)
Other sources 3,988 16,762
-------------- --------------
Net cash provided by financing and miscellaneous activities 1,050 12,702
-------------- --------------
Net (decrease) increase in cash and short-term investments (3,558) 6,991
Cash and short-term investments:
Beginning of year 18,299 11,308
-------------- --------------
End of year $ 14,741 $ 18,299
============== ==============
See accompanying notes - statutory basis.
9
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis
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1. Nature of Operations and Significant Accounting Policies
United Life & Annuity Insurance Company (the Company) is domiciled in Iowa
and is a wholly owned subsidiary of ING America Insurance Holdings, Inc.
("ING AIH"). The primary insurance products offered by the Company are
annuity related. The Company also offers life and health insurance
products, however all life and health business is ceded to other insurers.
The Company is presently licensed in 47 states, the District of Columbia
and Puerto Rico.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported
in the financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known,
which could impact the amounts reported and disclosed herein.
Basis of Presentation
The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the
Insurance Department of the State of Iowa (Iowa Insurance Department),
which practices differ from accounting principles generally accepted in the
United States ("GAAP"). The most significant variances from GAAP are as
follows:
Investments: Investments in bonds and mandatorily redeemable preferred
stocks are reported at amortized cost or market value based on the National
Association of Insurance Commissioners ("NAIC") rating; for GAAP, such
fixed maturity investments are designated at purchase as held-to-maturity,
trading or available-for-sale. Held-to-maturity investments are reported at
amortized cost, and the remaining fixed maturity investments are reported
at fair value with unrealized capital gains and losses reported in
operations for those designated as trading and as a separate component of
other comprehensive income in stockholder's equity for those designated as
available-for-sale.
Investments in real estate are reported net of related obligations rather
than on a gross basis as under GAAP. Changes between depreciated cost and
admitted asset investment amounts are credited or charged directly to
unassigned surplus rather than income as would be required under GAAP.
10
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Basis of Presentation (continued)
The Company invests in structured securities including mortgage-backed
securities/collateralized mortgage obligations, asset-backed securities,
collateralized debt obligations, and commercial mortgage-backed securities.
For these structured securities, management compares the undiscounted cash
flows to the carrying value. An other than temporary impairment is
considered to have occurred when the undiscounted cash flows are less than
the carrying value. For structured securities, when a negative yield
results from a revaluation based on new prepayment assumptions (i.e.,
undiscounted cash flows are less than current book value), an other than
temporary impairment is considered to have occurred and the asset is
written down to the value of the undiscounted cash flows. For GAAP, assets
are re-evaluated based on the discounted cash flows using a current market
rate. Impairments are recognized when there has been an adverse change in
cash flows and the fair value is less than book. The asset is then written
down to fair value.
When a decline in fair value is determined to be other than temporary, the
individual security is written down to fair value and the loss accounted
for as a realized loss.
Valuation Reserves: The asset valuation reserve ("AVR") is determined by an
NAIC-prescribed formula and is reported as a liability rather than as a
valuation allowance or an appropriation of surplus. The change in AVR is
reported directly to unassigned surplus.
Under a formula prescribed by the NAIC, the Company defers 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 based on groupings of individual securities sold in five-year
bands. The net deferral is reported as the interest maintenance reserve
(IMR) in the accompanying balance sheets.
Realized gains and losses on investments are reported in operations net of
federal income tax and transfers to the IMR. Under GAAP, realized capital
gains and losses are reported in the statements of operations on a pretax
basis in the period that the asset giving rise to the gain or loss is sold
and valuation allowances are provided when there has been a decline in
value deemed other than temporary, in which case the provision for such
declines is charged to income.
Valuation allowances, if necessary, are established for mortgage loans
based on the difference between the net value of the collateral, determined
as the fair value of the collateral less estimated costs to obtain and
sell, and the recorded investment in the mortgage loan. Under GAAP, such
allowances are based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, if foreclosure is
probable, on the estimated fair value of the collateral.
11
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Basis of Presentation (continued)
The initial valuation allowance and subsequent changes in the allowance for
mortgage loans as a result of a temporary impairment are charged or
credited directly to unassigned surplus, rather than being included as a
component of earnings as would be required under GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to
traditional life insurance, to the extent recoverable from future policy
revenues, are deferred and amortized over the premium-paying period of the
related policies using assumptions consistent with those used in computing
policy benefit reserves. For universal life insurance and investment
products, to the extent recoverable from future gross profits, acquisition
costs are amortized generally in proportion to the present value of
expected gross margins from surrender charges and investment, mortality,
and expense margins.
Premiums: Life premiums are recognized as revenue when due. Premiums for
annuity policies with mortality and morbidity risk, except for guaranteed
interest and group annuity contracts, are also recognized as revenue when
due. Premiums received for annuity policies without mortality or morbidity
risk and for guaranteed interest and group annuity contracts are recorded
using deposit accounting.
Under GAAP, premiums for traditional life insurance products, which include
those products with fixed and guaranteed premiums and benefits and consist
primarily of whole life insurance policies, are recognized as revenue when
due. Group insurance premiums are recognized as premium revenue over the
time period to which the premiums relate. Revenues for universal life,
annuities and guaranteed interest contracts consist of policy charges for
the cost of insurance, policy administration charges, amortization of
policy initiation fees and surrender charges assessed during the period.
Benefit and Contract Reserves: Life policy and contract reserves under
statutory accounting practices are calculated based upon both the net level
premium and Commissioners' Reserve Valuation methods using statutory rates
for mortality and interest. GAAP requires that policy reserves for
traditional products be based upon the net level premium method utilizing
reasonably conservative estimates of mortality, interest, and withdrawals
prevailing when the policies were sold. For interest-sensitive products,
the GAAP policy reserve is equal to the policy fund balance plus an
unearned revenue reserve which reflects the unamortized balance of early
year policy loads over renewal year policy loads.
12
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Basis of Presentation (continued)
Reinsurance: For business ceded to unauthorized reinsurers, statutory
accounting practices require that reinsurance credits permitted by the
treaty be recorded as an offsetting liability and charged against
unassigned surplus. Under GAAP, an allowance for amounts deemed
uncollectible would be established through a charge to earnings. Statutory
income recognized on certain reinsurance treaties representing financing
arrangements is not recognized on a GAAP basis.
Policy and contract liabilities ceded to reinsurers have been reported as
reductions of the related reserves rather than as assets as required under
GAAP.
Commissions allowed by reinsurers on business ceded are reported as income
when received rather than being deferred and amortized with deferred policy
acquisition costs as required under GAAP.
Subsidiary: The accounts and operations of the Company's subsidiary are not
consolidated with the accounts and operations of the Company as would be
required under GAAP.
Nonadmitted Assets: Certain assets designated as "nonadmitted," principally
deferred federal income tax assets, disallowed interest maintenance
reserves, non-operating software, past-due agents' balances, furniture and
equipment, intangible assets, and other assets not specifically identified
as an admitted asset within the Accounting Practices and Procedures Manual
are excluded from the accompanying balance sheets and are charged directly
to unassigned surplus. Under GAAP, such assets are included in the balance
sheet.
Universal Life and Annuity Policies: Revenues for universal life and
annuity policies consist of the entire premium received and benefits
incurred represent the total of death benefits paid and the change in
policy reserves. Under GAAP, premiums received in excess of policy charges
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.
13
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Basis of Presentation (continued)
Deferred Income Taxes Deferred tax assets are provided for and admitted to
an amount determined under a standard formula. This formula considers the
amount of differences that will reverse in the subsequent year, taxes paid
in prior years that could be recovered through carrybacks, surplus limits
and the amount of deferred tax liabilities available for offset. Any
deferred tax assets not covered under the formula are non-admitted.
Deferred taxes do not include any amounts for state taxes. Under GAAP, a
deferred tax asset is recorded for the amount of gross deferred tax assets
that are expected to be realized in future years and a valuation allowance
is established for the portion that is not realizable.
Statements of Cash Flows: 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 include cash balances and investments with
initial maturities of three months or less.
Reconciliation to GAAP
The effects of the preceding variances from GAAP on the accompanying
statutory basis financial statements have not been determined, but are
presumed to be material.
Other significant accounting practices are as follows:
Investments
Bonds, preferred stocks, common stocks, short-term investments and
derivative instruments are stated at values prescribed by the NAIC, as
follows:
Bonds not backed by other loans are principally stated at amortized
cost using the interest method.
Single class and multi-class mortgage-backed/asset-backed securities
are valued at amortized cost using the interest method including
anticipated prepayments. Prepayment assumptions are obtained from
dealer surveys or internal estimates and are based on the current
interest rate and economic environment. The retrospective adjustment
method is used to value all such securities except for higher-risk
asset backed securities, which are valued using the prospective
method.
Common stocks are reported at market value as determined by the SVO
and the related unrealized capital gains/(losses) are reported in
unassigned surplus along with adjustment for federal income taxes.
14
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Investments (continued)
The Company analyzes the general account investments to determine
whether there has been an other than temporary decline in fair value
below the amortized cost basis. Management considers the length of the
time and the extent to which the market value has been less than cost;
the financial condition and near-term prospects of the issuer; future
economic conditions and market forecasts; and the Company's intent and
ability to retain the investment in the issuer for a period of time
sufficient to allow for recovery in market value. If it is probable
that all amount due according to the contractual terms of a debt
security will not be collected, an other than temporary impairment is
considered to have occurred.
In addition, the Company invests in structured securities including
mortgage-backed securities/collateralized mortgage obligations,
asset-backed securities, collateralized debt obligations, and
commercial mortgage-backed securities. For these structured
securities, management compares the undiscounted cash flows to the
carrying value. An other than temporary impairment is considered to
have occurred when the undiscounted cash flows are less than the
carrying value.
When a decline in fair value is determined to be other than temporary,
the individual security is written down to fair value and the loss
accounted for as a realized loss.
The Company's noninsurance subsidiary is carried at cost.
Mortgage loans are reported at amortized cost, less allowance for
impairments.
Policy loans are reported at unpaid principal balances.
Real estate is reported at depreciated cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives of
the properties.
Short-term investments are reported at amortized cost. Short-term
investments include investments with maturities of less than one year
at the date of acquisition.
Other invested assets are reported at amortized cost using the
effective interest method. Other invested assets primarily consist of
joint ventures and partnership interests.
Realized capital gains and losses are determined using the specific
identification basis.
15
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Aggregate Reserve for Life Policies and Contracts
Life, annuity, and accident and health reserves are developed by actuarial
methods and are determined based on published tables using statutorily
specified interest rates and valuation methods that will provide, in the
aggregate, reserves that are greater than or equal to the minimum or
guaranteed policy cash value or the amounts required by law. Interest rates
range from 3.00% to 10.00%.
The Company waives the deduction of deferred fractional premiums upon the
death of the insured. It is the Company's practice to return a pro rata
portion of any premium paid beyond the policy month of death, although it
is not contractually required to do so for certain issues.
The methods used in valuation of substandard policies are as follows:
For life, endowment and term policies issued substandard, the standard
reserve during the premium-paying period is increased by 50% of the
gross annual extra premium. Standard reserves are held on Paid-Up
Limited Pay contracts.
For reinsurance accepted with table rating, the reserve established is
a multiple of the standard reserve corresponding to the table rating.
For reinsurance with flat extra premiums, the standard reserve is increased
by 50% of the flat extra.
The tabular interest has been determined from the basic data for the
calculation of policy reserves for all direct ordinary life insurance and
for the portion of group life insurance classified as group Section 79. The
tabular interest of funds not involving life contingencies is calculated as
the current year reserves, plus payments, less prior year reserves, less
funds added.
Reinsurance
Reinsurance premiums, commissions, expense reimbursements, and reserves
related to reinsured business are accounted for on bases consistent with
those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Reserves are based on the terms of the
reinsurance contract and are consistent with the risks assumed. Premiums
and benefits ceded to other companies have been reported as a reduction of
premium revenue and benefits expense. Amounts applicable to reinsurance
ceded for reserves and unpaid claim liabilities have been reported as
reductions of these items, and expense allowances received in connection
with reinsurance ceded have been reflected in operations.
16
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Nonadmitted Assets
Nonadmitted assets are summarized as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
except share amounts)
Deferred federal income taxes $ 12,176 $ 5,639
Agents' debit balances 22 37
Disallowed Interest Maintenance Reserves - 466
Other 180 830
-------------- --------------
Total nonadmitted assets $ 12,378 $ 6,972
============== ==============
Changes in nonadmitted assets are generally reported directly in surplus as
an increase or decrease in nonadmitted assets. Certain changes are reported
directly in surplus as a change in unrealized capital gains or losses.
Claims and Claims Adjustment Expenses
Claims expenses represent the estimated ultimate net cost of all reported
and unreported claims incurred through December 31, 2002. The Company does
not discount claims and claims adjustment expense reserves. Such estimates
are based on actuarial projections applied to historical claims payment
data. Such liabilities are considered to be reasonable and adequate to
discharge the Company's obligations for claims incurred but unpaid as of
December 31, 2002.
Cash Flow Information
Cash and short-term investments include cash on hand, demand deposits and
short-term fixed maturity instruments (with a maturity of less than one
year at date of acquisition).
The Company borrowed $91,220,000 and repaid $91,220,000 in 2002 and
borrowed $28,650,000 and repaid $28,650,000 during 2001. These borrowings
were on a short-term basis, at an interest rate that approximated current
money market rates and exclude borrowings from reverse dollar repurchase
transactions. Interest paid on borrowed money was $13,000 and $14,000
during 2002 and 2001, respectively.
17
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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1. Nature of Operations and Significant Accounting Policies (continued)
Separate Accounts
Separate account assets and liabilities held by the Company represent funds
held for the benefit of the Company's variable annuity policy and contract
holders who bear all of the investment risk associated with the policies.
Such policies are of a non-guaranteed nature. All net investment
experience, positive or negative, is attributed to the policy and contract
holders' account values. The assets and liabilities of these accounts are
carried at fair value.
Reserves related to the Company's mortality risk associated with these
policies are included in annuity reserves. The operations of the separate
accounts are not included in the accompanying statements of operations.
Reclassifications
Certain prior year amounts in the Company's statutory basis financial
statements have been reclassified to conform to the 2002 financial
statement presentation.
2. Permitted Statutory Basis Accounting Practices
The financial statements of the Company are presented on the basis of
accounting practices prescribed or permitted by the Iowa Insurance
Department. The Iowa Insurance Department recognizes only statutory
accounting practices prescribed or permitted by the State of Iowa for
determining and reporting the financial condition and results of operations
of an insurance company, for determining its solvency under the Iowa
Insurance Laws. The National Association of Insurance Commissioners' (NAIC)
Accounting Practices and Procedures Manual has been adopted as a component
of prescribed or permitted practices by the State of Iowa . The
Commissioner of Insurance has the right to permit other specific practices
that deviate from prescribed practices.
The Company is required to identify those significant accounting practices
that are permitted, and obtain written approval of the practices from the
Iowa Department of Insurance. As of December 31, 2002 and 2001, the Company
had no such permitted accounting practices.
18
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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3. Accounting Changes and Corrections of Errors
The Company prepares its statutory financial statements in conformity with
accounting practices prescribed or permitted by the State of Iowa.
Effective January 1, 2001, the State of Iowa required that insurance
companies domiciled in the State of Iowa prepare their statutory basis
financial statements in accordance with the NAIC Accounting Practices and
Procedures Manual subject to any deviations prescribed or permitted by the
State of Iowa insurance commissioner.
Accounting changes adopted to conform to the provisions of the NAIC
Accounting Practices and Procedures Manual are reported as changes in
accounting principles. The cumulative effect of changes in accounting
principles is reported as an adjustment to unassigned surplus in the period
of the change in accounting principle. The cumulative effect is the
difference between the amount of capital and surplus at the beginning of
the year and the amount of capital and surplus that would have been
reported at that date if the new accounting principles had been applied
retroactively for all prior periods.
As a result of these changes, the Company reported a change of accounting
principle, as an adjustment that increased unassigned surplus, by
$1,528,000 as of January 1, 2001.
19
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
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4. Investments
The amortized cost and fair value of bonds and equity securities are as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(In Thousands)
At December 31, 2002:
U.S. Treasury securities and obligations of U.S. government
corporations and agencies $ 112,154 $ 3,593 $ - $ 115,747
States, municipalities, and political subdivisions 452 39 - 491
Public utilities securities 22,776 853 780 22,849
Corporate securities 288,160 12,781 1,452 299,489
Mortgage-backed securities 128,750 6,063 1,149 133,664
Other structured securities 32,357 330 6,202 26,485
Commercial mortgage-backed securities 24,221 1,465 62 25,624
---------- ---------- ---------- ----------
Total fixed maturities 608,870 25,124 9,645 624,349
Common stocks 20 8 18 10
---------- ---------- ---------- ----------
Total equity securities 20 8 18 10
---------- ---------- ---------- ----------
Total $ 608,890 $ 25,132 $ 9,663 $ 624,359
========== ========== ========== ==========
At December 31, 2001:
U.S. Treasury securities and obligations of U.S. government
corporations and agencies $ 83,712 $ 1,013 $ 662 $ 84,063
States, municipalities, and political subdivisions 430 22 - 452
Public utilities securities 1,392 58 - 1,450
Corporate securities 336,745 10,010 4,478 342,277
Mortgage-backed securities 184,916 6,257 2,031 189,142
Other structured securities 43,242 370 6,608 37,004
Commercial mortgage-backed securities 23,381 211 1,815 21,777
---------- ---------- ---------- ----------
Total fixed maturities 673,818 17,941 15,594 676,165
Common stocks 67 120 42 145
---------- ---------- ---------- ----------
Total equity securities 67 120 42 145
---------- ---------- ---------- ----------
Total $ 673,885 $ 18,061 $ 15,636 $ 676,310
========== ========== ========== ==========
20
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
4. Investments (continued)
The amortized cost and fair value of investments in bonds at December 31,
2002, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
-------------- --------------
(In Thousands)
December 31, 2002
Maturity:
Due in 1 year or less $ 45,649 $ 46,347
Due after 1 year through 5 years 176,154 184,182
Due after 5 years through 10 years 138,555 143,770
Due after 10 years 63,184 64,277
-------------- --------------
423,542 438,576
Mortgage-backed securities 128,750 133,664
Other structured securities 32,357 26,485
Commercial mortgage-backed securities 24,221 25,624
-------------- --------------
Total $ 608,870 $ 624,349
============== ==============
At December 31, 2002, investments in certificates of deposit and bonds,
with an admitted asset value of $23,570,000, were on deposit with state
insurance departments to satisfy regulatory requirements.
Reconciliation of bonds from amortized cost to carrying value as of
December 31, 2002 and 2001 is as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
Amortized cost $ 608,870 $ 673,818
Less nonadmitted bonds - 65
-------------- --------------
Carrying value $ 608,870 $ 673,753
============== ==============
Proceeds from the sales of investments in bonds and other fixed maturity
interest securities were $578,426,000 and $340,168,000 in 2002 and 2001,
respectively. Gross gains of $14,407,000 and $9,174,000 and gross losses of
$12,961,000 and $4,778,000 during 2002 and 2001, respectively, were
realized on those sales. A portion of the gains realized in 2002 and 2001
has been deferred to future periods in the interest maintenance reserve.
21
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
4. Investments (continued)
Major categories of net investment income are summarized as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
Income:
Bonds $ 42,754 $ 53,574
Mortgage loans 2,617 2,683
Policy loans 27 7
Company-occupied property - 40
Other 635 979
-------------- --------------
Total investment income 46,033 57,283
Investment expenses 1,777 1,941
-------------- --------------
Net investment income $ 44,256 $ 55,342
============== ==============
As part of its overall investment strategy, the Company has entered into
agreements to purchase securities as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
Investment purchase commitments $ 558 $ 3,182
============== ==============
The maximum and minimum lending rates for long-term mortgage loans during
2002 were 7.13% and 3.04%. Fire insurance is required on all properties
covered by mortgage loans and must at least equal the excess of the loan
over the maximum loan which would be permitted by law on the land without
the buildings.
The maximum percentage of any loan to the value of collateral at the time
of the loan, exclusive of insured or guaranteed or purchase money
mortgages, was 57.0% on commercial properties. As of December 31, 2002, the
Company held no mortgages with interest more than 180 days overdue.
22
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
5. Concentrations of Credit Risk
The Company held less-than-investment-grade bonds with an aggregate book
value of $40,723,000 and $65,103,000 and with an aggregate market value of
$40,582,000 and $60,181,000 at December 31, 2002 and 2001, respectively.
Those holdings amounted to 6.69% of the Company's investments in bonds and
5.40% of total admitted assets at December 31, 2002. The holdings of
less-than-investment-grade bonds are widely diversified and of satisfactory
quality based on the Company's investment policies and credit standards.
The Company held unrated bonds of $17,624,000 and $17,683,000 with an
aggregate NAIC market value of $17,726,000 and $17,206,000 at December 31,
2002 and 2001, respectively. The carrying value of these holdings amounted
to 2.89% of the Company's investment in bonds and 2.34% of the Company's
total admitted assets at December 31, 2002.
At December 31, 2002, the Company's commercial mortgages involved a
concentration of properties located in California (50%) and Pennsylvania
(14%). The remaining commercial mortgages relate to properties located in
10 other states. The portfolio is well diversified; covering many different
types of income-producing properties on which the Company has first
mortgage liens. The maximum mortgage outstanding on any individual property
is $6,430,000.
23
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
6. Annuity Reserves
At December 31, 2002 and 2001, the Company's annuity reserves, including
those held in separate accounts and deposit fund liabilities that are
subject to discretionary withdrawal with adjustment, subject to
discretionary withdrawal without adjustment, and not subject to
discretionary withdrawal provisions are summarized as follows:
December 31, 2002
Amount Percent
-------------- --------------
(In Thousands)
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $ 890 - %
At book value less surrender charge 94,326 14
At fair value 61,499 9
-------------- --------------
Subtotal 156,715 23
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment 482,267 73
Not subject to discretionary withdrawal 25,543 4
-------------- --------------
Total annuity reserves and deposit fund liabilities
before reinsurance 664,525 100 %
==============
Less reinsurance ceded 1,925
--------------
Net annuity reserves and deposit fund liabilities $ 662,600
==============
December 31, 2001
Amount Percent
-------------- --------------
(In Thousands)
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $ 701 - %
At book value less surrender charge 130,812 17
At fair value 98,449 13
-------------- --------------
Subtotal 229,962 30
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment 515,134 66
Not subject to discretionary withdrawal 28,311 4
-------------- --------------
Total annuity reserves and deposit fund liabilities
before reinsurance 773,407 100 %
==============
Less reinsurance ceded 2,391
--------------
Net annuity reserves and deposit fund liabilities $ 771,016
==============
24
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
7. Separate Accounts
Most separate account assets and liabilities held by the Company represent
funds held for the benefit of the Company's variable life and annuity
policy and contract holders who bear all the investment risk associated
with the policies. Such policies are of a non-guaranteed nature. All net
investment experience, positive or negative, is attributed to the policy
and contract holders' account values. The assets of these accounts are
carried at fair value.
Premiums, deposits, and other considerations received for the years ended
December 31, 2002 and 2001 were $408,000 and $1,022,000, respectively.
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
December 31
2002 2001
-------------- --------------
(In Thousands)
Transfers as reported in the summary of operations
of the Separate Accounts Statement:
Transfers to separate accounts $ 408 $ 1,022
Transfers from separate accounts 17,790 19,908
-------------- --------------
Net transfers from separate accounts (17,382) (18,886)
Reconciling adjustments:
Miscellaneous transfers - 18
-------------- --------------
Transfers as reported in the Statement of Operations $ (17,382) $ (18,868)
============== ==============
Reserves for separate accounts by withdrawal characteristics:
Subject to discretionary withdrawal:
With market value adjustment $ - $ -
At book value without market value adjustment less current
surrender charge of 5% or more - -
At market value 61,500 98,450
At book value without market value adjustment less current
surrender charge of less than 5% - -
-------------- --------------
Subtotal 61,500 98,450
Not subject to discretionary withdrawal - -
-------------- --------------
Total separate account liabilities $ 61,500 $ 98,450
============== ==============
25
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
8. Reinsurance
The Company is involved in ceded reinsurance with other companies for the
purpose of diversifying risk and limiting exposure on larger risks. To the
extent that the assuming companies become unable to meet their obligations
under these treaties, the Company remains contingently liable to its
policyholders for the portion reinsured. To minimize its exposure to
significant losses from retrocessionaire insolvencies, the Company
evaluates the financial condition of the retrocessionaire and monitors
concentrations of credit risk.
The Company's ceded reinsurance arrangements reduced certain items in the
accompanying financial statements by the following amounts:
December 31
2002 2001
-------------- --------------
(In Thousands)
Premiums $ 2,832 $ 3,090
Benefits paid or provided 6,101 6,440
Policy and contract liabilities at year end 91,095 92,451
9. Federal Income Taxes
The Company files a separate Federal income tax return.
Significant components of income taxes incurred as of December 31 are:
December 31
2002 2001
-------------- --------------
(In Thousands)
Current income taxes incurred for the year ended December 31,
consist of the following major components:
Federal tax on operations $ (5,786) $ 3,039
Federal tax on capital gains 3,926 -
Capital loss on carryovers utilized (675) -
-------------- --------------
Total current taxes incurred $ (2,535) $ 3,039
============== ==============
26
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
9. Federal Income Taxes (continued)
The components of deferred tax assets and deferred tax liabilities as of
December 31 are as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
Deferred tax assets resulting from book/tax differences in:
Deferred acquisition costs $ 1,096 $ 1,304
Insurance reserves 113 1,324
Investments 3,270 -
Capital loss carry forward 3,445 6,282
Present value of insurance in force 8,751 -
Unrealized loss on investments 1,019 5
Other 725 538
-------------- --------------
Total deferred tax assets 18,419 9,453
Deferred tax assets nonadmitted 12,175 5,640
-------------- --------------
Admitted deferred tax assets $ 6,244 $ 3,813
============== ==============
Deferred tax liabilities resulting from book/tax differences in:
Investments $ 725 $ 295
Other 134 -
-------------- --------------
Total deferred tax liabilities 859 295
-------------- --------------
Net admitted deferred tax asset $ 5,385 $ 3,518
============== ==============
The change in net deferred income taxes is comprised of the following:
December 31
2002 2001 Change
-------------- -------------- --------------
(In Thousands)
Total deferred tax assets $ 18,419 $ 9,453 $ 8,966
Total deferred tax liabilities 859 295 564
-------------- -------------- --------------
Net deferred tax asset $ 17,560 $ 9,158 8,402
============== ==============
Tax effect of items in surplus:
Nonadmitted assets 241
Unrealized losses (1,014)
--------------
Change in net deferred income tax $ 7,629
==============
27
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
9. Federal Income Taxes (continued)
The provision for federal income taxes expense and change in deferred taxes
differs from the amount obtained by applying the statutory Federal income
tax rate to income (including capital losses) before income taxes for the
following reasons:
Year ended
December 31,
2002
--------------
Ordinary income $ 11,367
Capital gains 634
--------------
Total pre-tax book income $ 12,001
==============
Provision computed at statutory rate $ 4,200
Refinement of deferred tax balances (14,813)
Interest maintenance reserve (579)
Other 1,028
--------------
Total $ (10,164)
==============
Federal income taxes incurred $ (2,535)
Change in net deferred income taxes (7,629)
--------------
Total statutory income taxes $ (10,164)
==============
The amount of federal income taxes incurred that will be available for
recoupment in the event of future net losses is $1,285,000 and $1,366,000
from 2002 and 2001 respectively.
The Company has a recoverable of $1,406,000 at December 31, 2002 and
$3,976,000 at December 31, 2001 from the United States Treasury for federal
income taxes.
The Company has capital loss carry forwards, which expire as follows:
Expiration Year Amount
--------------- ----------------
2005 $ 9,844,000
28
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
10. Investment in and Advances to Subsidiaries
The Company has one wholly owned noninsurance subsidiary at December 31,
2002, United Variable Services, Inc.
Amounts invested in and advanced to the Company's subsidiary is summarized
as follows:
December 31
2002 2001
-------------- --------------
(In Thousands)
Common stock (cost-$25,000 in 2002 and 2001) $ 25 $ 25
(Payable) receivable from subsidiary - -
11. Capital and Surplus
Under Iowa insurance regulations, the Company is required to maintain a
minimum total capital and surplus of $7,806,000. Additionally, the amount
of dividends which can be paid by the Company to its stockholder without
prior approval of the Iowa Insurance Department is limited to the greater
of 10% of statutory surplus or the statutory net gain from operations.
29
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
12. Fair Values of Financial Instruments
Life insurance liabilities that contain mortality risk and all nonfinancial
instruments have been excluded from the disclosure requirements. However,
the fair values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate risk,
such that the Company's exposure to changing interest rates is minimized
through the matching of investment maturities with amounts due under
insurance contracts. The carrying amounts and fair values of the Company's
financial instruments are summarized as follows:
December 31
2002 2001
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands)
Assets:
Bonds $ 608,870 $ 624,349 $ 673,753 $ 676,101
Unaffiliated common stocks 10 10 145 145
Mortgage loans 34,829 39,729 31,004 29,900
Policy loans 933 933 1,028 1,028
Short-term investments 14,450 14,450 4,000 4,000
Cash 291 291 14,299 14,299
Indebtedness from related parties - - 19 19
Separate account assets 64,410 64,410 103,520 103,520
Receivable for securities 8,308 8,308 476 476
Liabilities:
Individual and group annuities 578,170 575,913 646,841 675,314
Deposit type contract 14,926 14,939 16,982 17,907
Indebtedness to related parties 1,634 1,634 926 926
Separate account liabilities 64,410 64,410 103,520 103,520
Payable for securities - - 1,000 1,000
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments in the
accompanying financial statements and notes thereto:
Cash and short-term investments: The carrying amounts reported in the
accompanying balance sheets for these financial instruments
approximate their fair values.
30
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
12. Fair Values of Financial Instruments (continued)
Fixed maturities and equity securities: The fair values for bonds and
common stocks, reported herein, are based on quoted market prices,
where available. For securities not actively traded, fair values are
estimated using values obtained from independent pricing services or,
in the case of private placements, collateralized mortgage obligations
and other mortgage derivative investments, are estimated by
discounting the expected future cash flows. The discount rates used
vary as a function of factors such as yield, credit quality, and
maturity, which fall within a range between 2% and 15% over the total
portfolio. Fair values determined on this basis can differ from values
published by the NAIC Securities Valuation Office. Market value as
determined by the NAIC as of December 31, 2002 and 2001 is
$611,948,000 and $676,788,000, respectively.
Mortgage loans: Estimated market values for commercial real estate
loans were generated using a discounted cash flow approach. Loans in
good standing are discounted using interest rates determined by U.S.
Treasury yields on December 31 and spreads applied on new loans with
similar characteristics. The amortizing features of all loans are
incorporated in the valuation. Where data on option features is
available, option values are determined using a binomial valuation
method, and are incorporated into the mortgage valuation. Restructured
loans are valued in the same manner; however, these loans were
discounted at a greater spread to reflect increased risk. All
residential loans are valued at their outstanding principal balances,
which approximate their fair values.
Other investment-type insurance contracts: The fair values of the
Company's deferred annuity contracts are estimated based on the cash
surrender values. The carrying values of other policyholder
liabilities, including immediate annuities, dividend accumulations,
supplementary contracts without life contingencies, and premium
deposits, approximate their fair values.
The carrying value of all other financial instruments approximates
their fair value.
13. Commitments and Contingencies
The Company is a party to threatened or pending lawsuits arising from the
normal conduct of business. Due to the climate in insurance and business
litigation, suits against the Company sometimes include claims for
substantial compensatory, consequential or punitive damages and other types
of relief. Moreover, certain claims are asserted as class actions,
purporting to represent a group of similarly situated individuals. While it
is not possible to forecast the outcome of pending lawsuits, in light of
existing insurance, reinsurance and established reserves, it is the opinion
of management that the disposition of such lawsuits will not have a
materially adverse effect on the Company's operations or financial
position.
31
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
14. Financing Agreements
The Company maintains a revolving loan agreement with SunTrust Bank,
Atlanta (the "Bank"). Under this agreement, which expires July 31, 2003,
the Company can borrow up to $75,000,000 from the Bank. Interest on any
borrowing accrues at an annual rate equal to the cost of funds for the Bank
for the period applicable for the advance plus 0.225% or a rate quoted by
the Bank to the Company for the borrowing. Under this agreement, the
Company incurred interest expense of $3,000 for the year ended December 31,
2002. At December 31, 2002, the Company had $0 payable to the Bank.
The Company also maintains a revolving loan agreement with Bank of New
York, New York (the "Bank"). Under this agreement, the Company can borrow
up to $50,000,000 from the Bank. Interest on any of the Company borrowing
accrues at an annual rate equal to: the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or a rate quoted by the Bank
to the Company for the borrowing. Under this agreement, the Company
incurred no interest expense for the year ended December 31, 2002. At
December 31, 2002, the Company had $0 payable to the Bank.
15. Related Party Transactions
Affiliates
Management and service contracts and all cost sharing arrangements with
other affiliated ING US life insurance companies are allocated among
companies in accordance with normal, generally accepted expense and cost
allocation methods.
Investment Management: The Company has entered into an investment advisory
agreement and an administrative services agreement with ING Investment
Management, LLC ("IIM") under which IIM provides the Company with
investment management and asset liability management services. Total fees
under this agreement were approximately $1,617,000 and $1,287,000 for the
year ended December 31, 2002 and 2001, respectively.
Inter-insurer Services Agreement: The Company has entered into a services
agreement with certain of its affiliated insurance companies in the United
States ("affiliated insurers") whereby the affiliated insurers provide
certain administrative, management, professional, advisory, consulting and
other services to each other. Net amounts paid under these agreements were
$384,000 and $816,000 for the year ended December 31, 2002 and 2001,
respectively.
32
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
15. Related Party Transactions (continued)
Reciprocal Loan Agreement: The Company has entered into a reciprocal or
revolving loan agreement with ING America Insurance Holdings, Inc. ("ING
AIH") a Delaware corporation and affiliate, to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Under this
agreement, which expires April 1, 2011, the Company and ING AIH can borrow
up to $22,400,000 from one another. Interest on any borrowing is charged at
the rate of ING AIH's cost of funds for the interest period plus 0.15%.
Interest on any ING AIH borrowings is charged at the rate based on the
prevailing interest rate of U.S. commercial paper available for purchase
with a similar duration. Under this agreement, the company incurred
interest expense of $10,000 and interest income of $40,000 for the year
ended December 31, 2002. At December 31, 2002, the company had $0 payable
to ING AIH and $0 receivable from ING AIH.
16. Guaranty Fund Assessments
Insurance companies are assessed the costs of funding the insolvencies of
other insurance companies by the various state guaranty associations,
generally based on the amount of premiums companies collect in that state.
The Company accrues the cost of future guaranty fund assessments based on
estimates of insurance company insolvencies provided by the National
Organization of Life and Health Insurance Guaranty Associations (NOLHGA)
and the amount of premiums written in each state. The Company reduces the
accrual by credits allowed in some states to reduce future premium taxes by
a portion of assessments in that state. The Company has estimated this
liability to be $474,000 and $474,000 as of December 31, 2002 and 2001,
respectively and has recorded a reserve. The Company has also recorded an
asset of $351,000 and $95,000 as of December 31, 2002 and 2001,
respectively, for future credits to premium taxes for assessments already
paid.
17. Regulatory Risk-Based Capital
Life and health insurance companies are subject to certain Risk-Based
Capital ("RBC") requirements as specified by the NAIC. Under those
requirements, the amount of capital and surplus maintained by a life and
health insurance company is to be determined based on the various risk
factors related to it. At December 31, 2002, the Company meets the RBC
requirements.
33
United Life & Annuity Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
- --------------------------------------------------------------------------------
18. Reconciliation to the Annual Statement
Subsequent to the filing of the 2001 Annual Statement, the Company
discovered adjustments that were recorded in the 2001 audited financial
statement but not the 2001 Annual Statement. During 2002, the Company
corrected these adjustments in its Summary of Operations in the 2002 Annual
Statement. As a result, the differences below exist between the 2002 Annual
Statement and the accompanying statutory basis financial statements:
Capital and
Net Income Surplus
-------------- --------------
(In Thousands)
Amounts as reported in the 2002 Annual Statement $ 8,817 $ 82,852
Capital gains tax (1,935) -
Mortgage loan income 198 -
Federal income taxes 4,471 -
Asset valuation reserve - (1,646)
-------------- --------------
$ 11,551 $ 81,206
============== ==============
At December 31, 2001, differences in amounts reported in the 2001 Annual
Statement, as revised, and amounts in the accompanying statutory-basis
financial statements are due to the following:
Capital and
Net Income Surplus
-------------- --------------
(In Thousands)
Amounts as reported in the 2001 Annual Statement $ 11,058 $ 67,443
Capital gains tax benefit 1,935 1,935
Mortgage loan income 368 (198)
Deferred tax asset - 1,930
Federal income tax recoverable - (4,471)
-------------- --------------
$ 13,361 $ 66,639
============== ==============
34