NU Online News Service, Nov. 20, 8:58 a.m. – Annuity & Life Re (Holdings) Ltd., Hamilton, Bermuda, says it will be reporting a net loss of up to $20 million for the third quarter and restating its financial statements for 2000, 2001 and the first half of 2002.
The 4-year-old reinsurer, which reported earlier that it has been talking to the staff of the U.S. Securities and Exchange Commission about its accounting, says it will be changing the past financial statements to reflect the fact that some of its annuity reinsurance contracts contain what appear to be embedded derivatives.
The company says it will also reclassify the $19.5 million reserve component of a $33 million charge taken in the fourth quarter of 2001 in connection with minimum interest guarantees on its largest annuity reinsurance contract as a reduction of its carried balance for deferred acquisition costs.
Annuity & Life will also be making small changes to its 2000 statements, and it will be making changes to its first-quarter 2002 and second-quarter 2002 statements, the company says.
The third-quarter net loss will include a $7.5 million non-cash charge related to derivatives embedded in annuity reinsurance agreements and a $7.8 million reserve for variable annuity contract reserves, the company says.
Annuity & Life has filed a report with the SEC that gives details about the large annuity reinsurance contract and other reinsurance arrangements on its books.
The company says in the filing that it assumed responsibility for fixed annuity interest guarantee payments when it provided retrocessional reinsurance for Transamerica Occidental Life Insurance Company, Los Angeles, a unit of AEGON N.V., The Hague, Netherlands.
Transamerica reinsured the fixed annuity contracts for the original issuer, IL Annuity and Insurance Company, which is now a unit of the AmerUs Group Company, Des Moines, Iowa.
Since mid-1999, the surrender rate on the annuities has been higher than anticipated, and the format Transamerica used to report on the arrangement obscured the surrender problems when they first surfaced, Annuity & Life says.
Annuity & Life says it paid $13.5 million in 2001 and $21.75 million for the first three quarters of 2002 to make good on its share of the contract rate guarantees.
The SEC filing is available on the Web at http://www.sec.gov/Archives/edgar/data/1051628/000089322002001416/0000893220-02-001416.txt