UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2013

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

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(Exact name of Registrant as specified in its charter)


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

440 Mamaroneck Avenue

Harrison, NY 10528

(Address of Principal Executive Offices)

1-800-333-6524

(Registrant’s telephone number including area code)

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

Yes þ No ¨

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

Yes þ No ¨

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


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

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

Yes ¨ No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS:

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

Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

COMMON 220,000

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

PART 1. Financial Information

Item 1. Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

BALANCE SHEETS

(dollars in thousands, except share data)	~~June~~September 30,2013			December 31,2012
	(unaudited)			(audited)
ASSETS
Investments
Fixed maturity available-for-sale securities, at estimated fair value (amortized cost: 2013 - $145,772; 2012 - $130,665)	$	155,404		$	146,927
Fixed maturity available-for-sale securities, at estimated fair value (amortized cost: 2013 - $137,698; 2012 - $130,665)	$	146,412		$	146,927
Equity available-for-sale securities, at estimated fair value
(cost: 2013 - $1,373; 2012 - $1,372)		1,~~513~~396			1,521
Policy loans		5150,~~029~~341			53,132
Total investments		~~207~~198,~~946~~149			201,580
Cash and cash equivalents		1121,~~655~~322			22,153
Accrued investment income		32,~~202~~714			2,931
Deferred policy acquisition costs		~~350~~938			270
Deferred sales inducements		~~128~~124			98
Value of business acquired		23,~~885~~854			25,207
Goodwill		500			500
Current income taxes - net		1,381			2,830
Receivable for investments sold - net		964			-
Other assets		3,~~070~~051			2,762
Separate Accounts assets		~~520~~534,~~619~~986			526,437
Total Assets	$	~~772~~786,~~736~~602		$	~~784~~781,~~768~~938
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Policyholder liabilities and accruals
Policyholder account balances	$	98,~~541~~117		$	104,137
Future policy benefits		1718,798			16,529
Claims and claims settlement expenses		2,~~255~~311			1,777
Total policyholder liabilities and accruals		~~118~~119,~~594~~226			122,443
Deferred income taxes - net		5,991			7,976
Income taxes - net		4,473			5,146
Affiliated payables - net		~~1,415~~383			407
Reinsurance payables - net		2624			27
Payables for securities purchased - net		-			90
Payables for investments purchased - net		-			90
Other liabilities		21,~~000~~418			1,582
Separate Accounts liabilities		~~520~~534,~~619~~986			526,437
Total Liabilities		~~648~~660,~~645~~510			~~658~~656,~~962~~132
Stockholder’s Equity
Common stock ($10 par value; 220,000 shares authorized, issued and outstanding)		2,200			2,200
Additional paid-in capital		128,638			128,638
Accumulated other comprehensive income, net of taxes		5,~~987~~349			9,765
Retained deficit		(1210,~~734~~095	)		(14,797	)
Total Stockholder’s Equity		~~124~~126,~~091~~092			125,806
Total Liabilities and Stockholder’s Equity	$	~~772~~786,~~736~~602		$	~~784~~781,~~768~~938

See Notes to Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF INCOME

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
(dollars in thousands)	2013			2012			2013			2012
	(unaudited)
Revenues
Policy charge revenue	$	3,~~076~~140		$	3,~~043~~144		$	69,~~174~~314		$	69,~~529~~673
Net investment income		2,~~382~~265			2,~~291~~309			46,~~696~~961			47,~~719~~028
Net realized investment losses
Net realized investment gains (losses)
Other-than-temporary impairment losses on securities		-			-			-			-
Portion of other-than-temporary impairment losses recognized in other comprehensive income		-			-			-			-
Portion of other-than-temporary impairments previously recognized in other comprehensive income		-			(6-	)		-			(6	)
Net other-than-temporary impairment losses on securities recognized in income		-			(6-	)		-			(6	)
Net realized investment losses, excluding other-than-temporary impairment gains (losses) on securities		7			2			(8	)		(64	)
Net realized investment gains (losses), excludingother-than-temporary impairment losses on securities		386			(57	)		378			(121	)
Net realized investment gains (losses)		7386			(457	)		(8378	)		(70127	)
Net derivative gains (losses)		(106	)		124			(475	)		(658	)
Net derivative losses		(204	)		(290	)		(679	)		(948	)
Total Revenues		5,~~359~~587			5,~~454~~106			1015,~~387~~974			1015,~~520~~626
Benefits and Expenses
Interest credited to policyholder liabilities		~~1,321~~959			1,~~023~~439			23,~~334~~293			23,~~242~~681
Policy benefits (net of reinsurance recoveries: 2013 - $0; $0; 2012 - $0; $78)		2,061			1,825			2,194			165
Policy benefits (net of reinsurance recoveries: 2013 - $0; $0; 2012 - $168; $245)		1,621			(919	)		3,815			(754	)
Reinsurance premium ceded		8074			5991			~~165~~239			~~140~~231
Amortization (accretion) of deferred policy acquisition costs		12(588	)		~~(15~~35	)		(80668	)		6095
Amortization of value of business acquired		~~906~~85			~~301~~689			1,~~460~~545			~~821~~1,510
Insurance expenses and taxes		~~952~~1,234			~~1,029~~996			13,~~863~~097			12,~~980~~976
Total Benefits and Expenses		53,~~332~~385			42,~~222~~331			711,~~936~~321			57,~~408~~739
Income Before Taxes		272,202			12,~~232~~775			24,~~451~~653			57,~~112~~887
Income Tax Expense (Benefit)		(437	)		822			(49	)		2,126
Current		101			(68	)		294			113
Net Income	$	2,639		$	1,953		$	4,702		$	5,761
Deferred		(357	)		287			94			1,191
Income Tax Expense (Benefit)		(256	)		219			388			1,304
Net Income	$	283		$	1,013		$	2,063		$	3,808

See Notes to Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF COMPREHENSIVE INCOME

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
(dollars in thousands)	2013			2012			2013			2012
	(unaudited)
Net Income	$	~~283~~2,639		$	1,~~013~~953		$	24,~~063~~702		$	35,~~808~~761
Other Comprehensive Income (Loss)
Net unrealized gains (losses) on available-for-sale securities
Net unrealized holding gains (losses) arising during the period		(~~5,288~~93	)		~~892~~2,319			(6,~~386~~479	)		24,~~220~~539
Reclassification adjustment for (gains) losses included in net income		(~~119~~915	)		-171			(~~233~~1,148	)		21192
		(5,407	)		892			(6,619	)		2,241
		(1,008	)		2,490			(7,627	)		4,731
Net unrealized other-than-temporary impairments on securities
Net unrealized other-than-temporary impairment losses arising during the period		-			-			-			-
Change in previously recognized unrealized other-than-temporary impairments		22(29	)		~~(21~~255	)		(1746	)		~~(81~~174	)
Reclassification adjustment for other-than-temporary impairments included in net income		-			6-			-			6
		22			(15	)		(17	)		(75	)
		(29	)		255			(46	)		180
Adjustments
Policyholder liabilities		~~817~~-			(72591	)		641			(~~144~~735	)
Value of business acquired		447			(~~182~~41	)		~~138~~185			(95136	)
Deferred income taxes		~~1,620~~352			(~~221~~750	)		2,~~079~~431			(~~684~~1,434	)
		2,441			(475	)		2,858			(923	)
		399			(1,382	)		3,257			(2,305	)
Total other comprehensive income (loss), net of taxes		(~~2,944~~638	)		~~402~~1,363			(34,~~778~~416	)		12,~~243~~606
Comprehensive Income (Loss)	$	(2,661	)	$	1,415		$	(1,715	)	$	5,051
Comprehensive Income	$	2,001		$	3,316		$	286		$	8,367

See Notes to Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF STOCKHOLDER’S EQUITY

(dollars in thousands)	~~June~~September 30,2013			December 31,2012
	(unaudited)			(audited)
Common Stock	$	2,200		$	2,200
Additional Paid-in Capital	$	128,638		$	128,638
Accumulated Other Comprehensive Income
Balance at beginning of period	$	9,765		$	7,347
Total other comprehensive income (loss), net of taxes		(34,~~778~~416	)		2,418
Balance at end of period	$	5,~~987~~349		$	9,765
Retained Deficit
Balance at beginning of period	$	(14,797	)	$	(21,990	)
Net income		24,~~063~~702			7,193
Balance at end of period	$	(1210,~~734~~095	)	$	(14,797	)
Total Stockholder’s Equity	$	~~124~~126,~~091~~092		$	125,806

See Notes to Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

STATEMENTS OF CASH FLOWS

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
(dollars in thousands)	2013			2012
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	24,~~063~~702		$	35,~~808~~761
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Change in deferred policy acquisition costs		(80668	)		6096
Change in deferred sales inducements		(3026	)		2235
Change in value of business acquired		1,~~460~~545			~~821~~1,510
Change in benefit reserves		12,~~117~~402			(1,~~063~~931	)
Change in income tax accruals		1,~~542~~757			~~(695~~127	)
Change in claims and claims settlement expenses		~~478~~534			(12,~~593~~941	)
Change in other operating assets and liabilities, net		~~755~~(1,316	)		12,~~271~~211
Amortization of investments		~~145~~207			6190
Interest credited to policyholder liabilities		23,~~334~~293			23,~~242~~681
Net change in fixed maturity trading securities		-			(6	)
Net realized investment losses		8			70
Net realized investment (gains) losses		(378	)		127
Net derivative losses		~~475~~679			~~658~~948
Net cash and cash equivalents provided by operating activities		1012,~~267~~731			59,~~656~~708
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of available-for-sale securities		211,~~352~~224			24,~~995~~147
Maturities of available-for-sale securities		26,~~862~~372			810,~~553~~067
Purchases of available-for-sale securities		(2024,~~470~~464	)		(3,~~164~~715	)
Sales of fixed maturity trading securities		-			144
Net settlements on futures contracts		(~~475~~679	)		(~~658~~948	)
Policy loans on insurance contracts, net		2,~~103~~791			91169
Net cash and cash equivalents provided by (used in) investing activities		(134,~~628~~756	)		79,~~961~~864
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder deposits		~~155~~347			~~221~~268
Policyholder withdrawals		(79,~~292~~153	)		(35,~~352~~308	)
Net cash and cash equivalents used in financing activities		(78,~~137~~806	)		(35,~~131~~040	)
Net increase (decrease) in cash and cash equivalents (1)		(~~10,498~~831	)		1014,~~486~~532
Cash and cash equivalents, beginning of year		22,153			10,120
Cash and cash equivalents, end of period	$	1121,~~655~~322		$	2024,~~606~~652

(1) Included in net increase (decrease) in cash and cash equivalents is interest paid (2013 - $ 0; 2012 - $ 01); interest received (2013 - $ 0; 2012 - $ 01); Federal income taxes paid (2013 - $ 0; 2012 - $ 2,000).

See Notes to Financial Statements

TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK

(A WHOLLY OWNED SUBSIDIARY OF AEGON USA, LLC)

NOTES TO FINANCIAL STATEMENTS (unaudited)

(Dollars in Thousands)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

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

For a complete discussion of the Company’s 2012 financial statements and accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The interim financial statements for the three and ~~six~~nine month periods are unaudited; however in the opinion of management, ~~all~~ all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the financial statements have been included. These unaudited financial statements should be read in conjunction with the audited financial statements included in the 2012 Annual Report on Form 10-K. The nature of the Company’s business is such that results of any interim period are not necessarily indicative of results for a full year.

Basis of Reporting

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

Certain reclassifications and format changes have been made to prior period financial statements, where appropriate, to conform to the current period presentation. In particular, in the Statements of Income, derivatives activity has been reclassified from net realized investment gains (losses) to a new line item called net derivative gains (losses). This was done to present derivatives activity separate from other investment gains (losses). These reclassifications have no effect on net income or stockholder’s equity of the prior period.

Accounting Estimates and Assumptions

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

Subsequent Events

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

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

Recent Accounting Guidance

Current Adoption of Recent Accounting Guidance

Accounting Standards Codification (“ASC”) 210, Balance Sheet

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, which enhances disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement. Entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). The guidance is effective for annual reporting periods, and interim periods within those years, beginning on or after January 1, 2013. The disclosures required by this guidance should be applied retrospectively for all comparative periods presented. Currently, the Company does not have any financial investments that are subject to offsetting and therefore this guidance did not impact ~~its~~the Company’s disclosures as of ~~June~~September 30, 2013 and December 31, 2012.

ASC 220, Comprehensive Income

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), which requires an entity to provide information about significant items reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The guidance is effective prospectively for annual reporting periods, and interim periods within those years, beginning after December 15, 2012. The Company adopted the guidance on January 1, 2013, which affects disclosures ~~and~~but ~~therefore~~ did not impact the Company’s results of operations or financial position.

ASC 740, Income Taxes

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). The guidance requires that the liability related to certain unrecognized tax benefits should be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The guidance is effective prospectively for annual reporting periods, and interim periods within those years, beginning after December 15, 2013, with early application permitted. The Company early adopted the guidance in the third quarter of 2013, however this had no impact on the Company’s disclosures or results of operations or financial position. See Note 6 to the Financial Statements for further discussion.

Accounting Guidance Adopted in 2012

ASC 944, Financial Services—Insurance

In October 2010, FASB issued ~~Accounting Standards Update~~ ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which ~~modified~~modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. An insurance entity may only capitalize incremental direct costs of contract acquisition, the portion of employees’ compensation directly related to time spent performing specified acquisition activities for a contract that has actually been acquired, other costs related directly to specified activities that would not have been incurred had the acquisition contract transaction not occurred, and advertising costs that meet capitalization criteria in other GAAP guidance. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the guidance prospectively on January 1, 2012. The only acquisition costs being capitalized are renewal commissions; therefore there was no change to the current practice of deferring costs. As a result, the adoption did not impact the Company’s results of operations or financial position.

ASC 820, Fair Value Measurements and Disclosures

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends current guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Some of the amendments represent clarifications of existing requirements. Other amendments change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company adopted the guidance on January 1, 2012. The adoption affected disclosures but did not impact the Company’s results of operations or financial position.

ASC 220, Comprehensive Income

•

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to report components of comprehensive income in either a single, continuous statement of comprehensive income or two separate but consecutive statements. Under the two statement approach, the first statement would include components of net income and the second statement would include components of other comprehensive income (“OCI”).

Regardless of format, an entity is required to present items that are reclassified from OCI to net income in both net income and OCI. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the guidance on January 1, 2012. The adoption affected disclosures but did not impact the Company’s results of operations or financial position.

•

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This guidance defers the portion of ASU 2011-05 that requires an entity to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where OCI is presented, by component of OCI. The deferral is effective at the same time as ASU 2011-05, for fiscal years, and interim periods within those years, beginning after December 15, 2011.

ASC 350, Intangibles—Goodwill and Other

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which gives entities the option of performing a qualitative assessment to determine whether it is necessary to perform the two-step goodwill impairment test. If, after assessing qualitative factors, a company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company does not need to perform further testing. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the company would have to perform the two step goodwill impairment test. The option is unconditional so it may be skipped in any reporting period and an entity may resume performing the qualitative assessment in any subsequent period. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning on or after December 15, 2011. The Company adopted the guidance on January 1, 2012. The adoption did not impact the Company’s results of operations or financial position.

Note 2. Fair Value of Financial Instruments

Fair Value Measurements

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

Fair Value Hierarchy

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

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

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

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

Quoted prices for similar assets or liabilities in active markets

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

Inputs other than quoted market prices that are observable

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

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

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

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

	June 30, 2013
	September 30, 2013
	Level 1		Level 2		Level 3			Total
Assets
Fixed maturity available-for-sale (“AFS”) securities (a)
Corporate securities	$	-	$	~~107~~100,~~703~~089	$	-		$	~~107~~100,~~703~~089
Asset-backed securities		-		34,~~826~~392		~~735~~-			4,~~561~~392
Commercial mortgage-backed securities		-		2322,~~263~~289		-			2322,~~263~~289
Residential mortgage-backed securities		-		5,~~271~~242		-			5,~~271~~242
Government and government agencies
United States		10,~~641~~527		-		-			10,~~641~~527
Foreign		2,~~526~~495		1,~~439~~378		-			3,~~965~~873
Total fixed maturity AFS securities (a)		13,~~167~~022		~~141~~133,~~502~~390		~~735~~-			~~155~~146,~~404~~412
Equity securities - banking securities (a)		-		1,~~513~~396		-			1,~~513~~396
Cash equivalents (b)		-		1121,~~902~~575		-			1121,~~902~~575
Separate Accounts assets (c)		~~520~~534,~~619~~986		-		-			~~520~~534,~~619~~986
Total assets	$	~~533~~548,~~786~~008	$	~~154~~156,~~917~~361	$	~~735~~-		$	~~689~~704,~~438~~369
Liabilities
Future policy benefits (embedded derivatives only) (d)	$	-	$	-	$	(65,~~022~~902)	)	$	(65,~~022~~902)	)
Total liabilities	$	-	$	-	$	(65,~~022~~902)	)	$	(65,~~022~~902)	)
	December 31, 2012
	Level 1		Level 2		Level 3			Total
Assets
Fixed maturity AFS securities (a)
Corporate securities	$	-	$	107,938	$	-		$	107,938
Asset-backed securities		-		4,196		-			4,196
Commercial mortgage-backed securities		-		21,942		-			21,942
Residential mortgage-backed securities		-		5,511		-			5,511
Government and government agencies
United States		3,359		-		-			3,359
Foreign		2,726		1,255		-			3,981
Total fixed maturity AFS securities (a)		6,085		140,842		-			146,927
Equity securities - banking securities (a)		-		1,521		-			1,521
Cash equivalents (b)		-		23,591		-			23,591
Separate Accounts assets (c)		526,437		-		-			526,437
Total assets	$	532,522	$	165,954	$	-		$	698,476
Liabilities
Future policy benefits (embedded derivatives only) (d)	$	-	$	-	$	(7,778	)	$	(7,778	)
Total liabilities	$	-	$	-	$	(7,778	)	$	(7,778	)

(a) Securities are classified as Level 1 if the fair value is determined by observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date. Level 1 securities primarily include highly liquid U.S. Treasury and U.S. government agency securities. Securities are classified as Level 2 if the fair value is determined by observable inputs, other than quoted prices included in Level 1, for the asset or prices for similar assets. Securities are classified as Level 3 if the valuations are derived from techniques in which one or more of the significant inputs are unobservable. Level 3 consists principally of fixed maturity securities whose fair value is estimated based on non-binding broker quotes.


	December 31, 2012
	Level 1		Level 2		Level 3			Total
Assets
Fixed maturity AFS securities (a)
Corporate securities	$	-	$	107,938	$	-		$	107,938
Asset-backed securities		-		4,196		-			4,196
Commercial mortgage-backed securities		-		21,942		-			21,942
Residential mortgage-backed securities		-		5,511		-			5,511
Government and government agencies
United States		3,359		-		-			3,359
Foreign		2,726		1,255		-			3,981

Total fixed maturity AFS securities (a)		6,085		140,842		-			146,927
Equity securities - banking securities (a)		-		1,521		-			1,521
Cash equivalents (b)		-		23,591		-			23,591
Separate Accounts assets (c)		526,437		-		-			526,437

Total assets	$	532,522	$	165,954	$	-		$	698,476


Liabilities
Future policy benefits (embedded derivatives only) (d)	$	-	$	-	$	(7,778	)	$	(7,778	)

Total liabilities	$	-	$	-	$	(7,778	)	$	(7,778	)

(a)

Securities are classified as Level 1 if the fair value is determined by observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date. Level 1 securities primarily include highly liquid U.S. Treasury and U.S. government agency securities. Securities are classified as Level 2 if the fair value is determined by observable inputs, other than quoted prices included in Level 1, for the asset or prices for similar assets. Securities are classified as Level 3 if the valuations are derived from techniques in which one or more of the significant inputs are unobservable. Level 3 consists principally of fixed maturity securities whose fair value is estimated based on non-binding broker quotes.

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

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

(d)

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

During 2013 and 2012, there were no transfers between Level 1 and 2, respectively.

~~The~~10 ~~following table provides a summary of the change in fair value of the Company’s Level 3 assets at June 30, 2013 and December 31, 2012:~~

Fixed maturity AFS securities	June 30,2013			December 31,2012
Balance at beginning of period (a)	$	-		$	1,098
Purchases		1,025			-
Transfers into Level 3		735			-
Transfers out of Level 3		(1,025	)		(1,098	)
Balance at end of period (a)	$	735		$	-

The following table provides a summary of the change in fair value of the Company’s Level 3 assets at September 30, 2013 and December 31, 2012:


Fixed maturity AFS securities	September 30, 2013			December 31, 2012
Balance at beginning of period (a)	$	-		$	1,098

Purchases		1,025			-
Transfers into Level 3		735			-
Transfers out of Level 3		(1,760	)		(1,098	)

Balance at end of period (a)	$	-		$	-

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

The change in Level 3 fixed maturity AFS securities at ~~June~~September 30, 2013 is due to the transfer from Level 3 to Level 2 of a ~~commercial~~ commercial mortgage-backed security (“CMBS”), which was purchased during the first quarter of 2013. The transfer was due to the availability of market observable data from an external source. There was also an asset-backed security (“ABS”) that transferred ~~into~~from Level 3 ~~from~~to Level 2 due to the ~~unavailability~~availability of market observable data from an external source.

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

The expected returns are based on risk-free rates, such as the current London Inter-Bank Offered Rate (“LIBOR”) forward curve. The credit spread, which is the most significant unobservable input, is set by using the credit default swap (“CDS”) spreads of a reference portfolio of life insurance companies, adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). The credit spread was 6055 basis points (“bps”) at ~~June~~September 30, 2013 and 80 bps at December 31, 2012.

For equity volatility, the Company uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the Standard & Poor’s 500 Composite Price Index (“S&P”) (expressed as a spot rate) was 24.0% and 24.4% at ~~June~~ September 30, 2013 and December 31, 2012, respectively. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities. These assumptions are reviewed at each valuation date and updated based on historical experience and observable market data as required.

1011

~~underlying~~The ~~indices~~following ~~are~~table ~~based~~provides ~~on historical market returns and their inter-relationships over~~ a ~~number~~summary of ~~years preceding~~ the ~~valuation~~changes ~~date. Assumptions regarding policyholder behavior, such as lapses, included~~ in ~~the~~fair ~~models~~value ~~are~~of ~~derived in~~ the ~~same~~Company’s Level ~~way~~3 ~~as the assumptions used to measure insurance~~ liabilities. ~~These~~(assets) ~~assumptions are reviewed~~ at ~~each~~September 30, ~~valuation~~2013 ~~date~~ and ~~updated~~December 31, ~~based~~2012: ~~on historical experience and observable market data as required.~~

The following table provides a summary of the changes in fair value of the Company’s Level 3 liabilities (assets) at June 30, 2013 and December 31, 2012:


	September 30, 2013						December 31, 2012
	GMWB			GMIB Reinsurance			GMWB			GMIB Reinsurance
Balance at beginning of period (b)	$	1,150		$	(8,928	)	$	2,776		$	(9,132	)

Changes in interest rates (a)		(602	)		1,649			(3	)		(733	)
Changes in equity markets (a)		(541	)		1,876			(782	)		883
Other (a)		94			(600	)		(841	)		54

Balance at end of period (b)	$	101		$	(6,003	)	$	1,150		$	(8,928	)

	June 30, 2013						December 31, 2012
	GMWB			GMIBReinsurance			GMWB			GMIBReinsurance
Balance at beginning of period (b)	$	1,150		$	(8,928	)	$	2,776		$	(9,132	)
Changes in interest rates (a)		(479	)		1,336			(3	)		(733	)
Changes in equity markets (a)		(222	)		1,120			(782	)		883
Other (a)		1			-			(841	)		54
Balance at end of period (b)	$	450		$	(6,472	)	$	1,150		$	(8,928	)

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

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

During the ~~six~~nine months ended ~~June~~September 30, 2013, the change in GMWB and GMIB reinsurance reserves was primarily driven by ~~higher bond~~updated ~~valuation~~policyholder ~~rates~~behavior ~~which~~assumptions ~~decreased~~and ~~reserves~~favorable equity market performance. During 2012, the change in the GMWB and GMIB reinsurance reserves was primarily driven by updated policyholder behavior assumptions, decreased risk neutral rates, changes in volatility, and favorable equity market performance.

The following table provides a summary of the quantitative inputs and assumptions of the Company’s Level 3 assets and liabilities at ~~June~~September 30, 2013 and December 31, 2012:

Description	~~June~~September 30, 2013EstimatedFair Value			Valuation Techniques	Unobservable Inputs	Range(Weighted Average)
Assets
Asset-backed securities	$	735		Broker quote	Not Applicable	Not Applicable
Total Assets	$	735
Liabilities
Future policy benefits (embedded derivatives) - GMWB	$	~~450~~101		Discounted cash flow	Own credit risk	6055 bps
					Long-term volatility	25%
Future policy benefits (embedded derivatives) - GMIB Reinsurance		(6,~~472~~003	)	Discounted cash flow	Own credit risk	6055 bps
					Long-term volatility	25%
Total liabilities	$	(65,~~022~~902	)


Description	December 31, 2012 Estimated Fair Value			Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Liabilities
Future policy benefits (embedded derivatives) - GMWB	$	1,150		Discounted cash flow	Own credit risk	80 bps
					Long-term volatility	25%
Future policy benefits (embedded derivatives) - GMIB Reinsurance		(8,928	)	Discounted cash flow	Own credit risk	80 bps
					Long-term volatility	25%

Total liabilities	$	(7,778	)

~~The~~12 ~~following table provides the estimated fair value of the Company’s assets not carried at fair value on the Balance Sheets at June 30, 2013 and December 31, 2012:~~

	June 30, 2013
	Level 1		Level 2		Level 3		Total
Assets
Policy loans (a)	$	-	$	51,029	$	-	$	51,029
Total assets	$	-	$	51,029	$	-	$	51,029
	December 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Policy loans (a)	$	-	$	53,132	$	-	$	53,132
Total assets	$	-	$	53,132	$	-	$	53,132

The following table provides the estimated fair value of the Company’s assets not carried at fair value on the Balance Sheets at September 30, 2013 and December 31, 2012:


	September 30, 2013
	Level 1		Level 2		Level 3		Total
Assets
Policy loans (a)	$	-	$	50,341	$	-	$	50,341

Total assets	$	-	$	50,341	$	-	$	50,341


	December 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Policy loans (a)	$	-	$	53,132	$	-	$	53,132

Total assets	$	-	$	53,132	$	-	$	53,132

(a)	Policy loans are stated at unpaid principal balance. Fair value is estimated as equal to the book value of the loan.

Note 3. Investments

Fixed Maturity and Equity Securities

The amortized cost/cost and estimated fair value of investments in fixed maturity and equity AFS securities at ~~June~~September 30, 2013 and December 31, 2012 were:

	June 30, 2013
	September 30, 2013
	Amortized Cost/Cost		Gross Unrealized					Estimated Fair Value
			Gains		Losses/OTTI (1)
Fixed maturity AFS securities
Corporate securities	$	~~100~~93,~~380~~255	$	7,~~826~~327	$	(~~503~~493	)	$	~~107~~100,~~703~~089
Asset-backed securities		4,~~548~~379		3936		(2623	)		4,~~561~~392
Commercial mortgage-backed securities		2120,~~468~~739		1,~~987~~751		(~~192~~201	)		2322,~~263~~289
Residential mortgage-backed securities		54,~~021~~974		~~251~~268		(1-	)		5,~~271~~242
Government and government agencies
United States		10,~~763~~764		~~211~~170		(~~333~~407	)		10,~~641~~527
Foreign		3,~~592~~587		~~432~~364		(5978	)		3,~~965~~873
Total fixed maturity AFS securities	$	~~145~~137,~~772~~698	$	109,~~746~~916	$	(1,~~114~~202	)	$	~~155~~146,~~404~~412
Equity securities - banking securities	$	1,373	$	~~140~~25	$	-(2	)	$	1,~~513~~396
Total equity securities	$	1,373	$	~~140~~25	$	-(2	)	$	1,~~513~~396

1213



	December 31, 2012
	Amortized Cost/Cost		Gross Unrealized					Estimated Fair Value
	Amortized Cost/Cost		Gains		Losses/ OTTI ₍₁₎			Estimated Fair Value
Fixed maturity AFS securities
Corporate securities	$	96,052	$	11,924	$	(37	)	$	107,939
Asset-backed securities		4,166		33		(3	)		4,196
Commercial mortgage-backed securities		19,175		2,767		-			21,942
Residential mortgage-backed securities		5,143		379		(11	)		5,511
Government and government agencies
United States		2,957		401		-			3,358
Foreign		3,172		809		-			3,981

Total fixed maturity AFS securities	$	130,665	$	16,313	$	(51	)	$	146,927


Equity securities - banking securities	$	1,372	$	153	$	(4	)	$	1,521

Total equity securities	$	1,372	$	153	$	(4	)	$	1,521

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

Excluding investments in U.S. government and government agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturity securities portfolio.

The amortized cost and estimated fair value of fixed maturity AFS securities by investment grade at ~~June~~September 30, 2013 and December 31, 2012 were:

	June 30, 2013				December 31, 2012
	September 30, 2013				December 31, 2012
	Amortized Cost		Estimated FairValue		Amortized Cost		Estimated FairValue
Investment grade	$	~~135~~129,~~565~~200	$	~~145~~137,~~027~~785	$	124,715	$	140,554
Below investment grade		108,~~207~~498		108,~~377~~627		5,950		6,373
Total fixed maturity AFS securities	$	~~145~~137,~~772~~698	$	~~155~~146,~~404~~412	$	130,665	$	146,927

The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to S&P BBB- or higher (or similar rating agency). At ~~June~~September 30, 2013 and December 31, 2012, the estimated fair value of fixed maturity securities rated BBB- were $34,~~785~~298 and $2,375, respectively, which is the lowest ~~investment~~ investment grade rating given by S&P.

The amortized cost and estimated fair value of fixed maturity AFS securities at ~~June~~ September 30, 2013 and December 31, 2012 by contractual maturities were:

	June 30, 2013				December 31, 2012
	September 30, 2013				December 31, 2012
	AmortizedCost		EstimatedFairValue		AmortizedCost		EstimatedFairValue
Fixed maturity AFS securities
Due in one year or less	$	43,~~534~~021	$	43,~~597~~090	$	4,801	$	4,894
Due after one year through five years		3743,~~394~~977		4048,~~222~~045		36,530		39,966
Due after five years through ten years		6249,~~128~~441		6551,~~901~~359		51,164		58,570
Due after ten years		1011,~~680~~167		11,~~590~~996		9,686		11,849
		114,736		122,310		102,181		115,279
		107,606		114,490		102,181		115,279
Mortgage-backed securities and other asset-backed securities		3130,~~036~~092		3331,~~094~~922		28,484		31,648
Total fixed maturity AFS securities	$	~~145~~137,~~772~~698	$	~~155~~146,~~404~~412	$	130,665	$	146,927

1314

In the preceding table, fixed maturity securities not due at a single maturity date have been included in the year of final maturity. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The Company did not hold any trading securities during the three and ~~six~~nine months ended ~~June~~September 30, 2013. For the three ~~and six~~ months ended ~~June~~September 30, 2012, there was $2no investment income on fixed maturity trading securities and $6no income (loss) recognized from the change in the fair value on fixed maturity trading securities recorded in net investment income in the Statement of Income. For the nine months ended September 30, ~~respectively~~2012, there was $6 of investment income on fixed maturity trading securities and $~~43 and $~~59, ~~respectively,~~ of income recognized from the change in the fair value on fixed maturity trading securities recorded in net investment income in the Statement of Income. The Company also recognized a loss of $53 ~~and $53, respectively,~~ during the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2012, on the conversion of a fixed maturity trading security to preferred stock.

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

The Company’s investments in fixed maturity and equity securities classified as AFS are carried at estimated fair value with unrealized gains and losses included in stockholder’s equity as a component of accumulated other comprehensive income (loss), net of taxes.

The estimated fair value and gross unrealized losses and OTTI of fixed maturity and equity AFS securities aggregated by length of time that individual securities have been in a continuous unrealized loss position at ~~June~~September 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013
	September 30, 2013
	EstimatedFair Value		AmortizedCost/Cost		GrossUnrealizedLosses andOTTI (1)
Less than or equal to six months
Fixed maturity AFS securities
Corporate securities	$	127,~~110~~880	$	128,~~609~~320	$	(~~499~~440	)
Asset-backed securities		1,~~690~~662		1,~~716~~671		(269	)
Commercial mortgage-backed securities		23,~~824~~646		3,~~016~~847		(~~192~~201	)
Residential mortgage-backed securities		126		126		-
Government and government agencies
United States		7,~~481~~410		7,~~814~~817		(~~333~~407	)
Foreign		~~829~~810		888		(5978	)
Total fixed maturity and equity securities		24,946		26,055		(1,109	)
Equity securities - banking securities		78		80		(2	)
Total fixed maturity and equity securities		21,492		22,629		(1,137	)
Greater than six months but less than or equal to one year
Fixed maturity AFS securities
Corporate securities		524		573		(49	)
Asset-backed securities		947		960		(13	)
Total fixed maturity and equity securities		1,471		1,533		(62	)
Greater than one year
Fixed maturity AFS securities
Corporate securities		~~245~~244		~~249~~248		(4	)
Asset-backed securities		~~573~~497		~~574~~498		(1	)
Residential mortgage-backed securities		148		148		-
Total fixed maturity and equity securities		~~832~~749		~~837~~754		(5	)
Total fixed maturity and equity securities	$	2523,~~778~~712	$	2624,~~892~~916	$	(1,~~114~~204	)

1415


	December 31, 2012
	Estimated Fair Value		Amortized Cost/Cost		Gross Unrealized Losses and OTTI ₍₁₎
Less than or equal to six months
Fixed maturity AFS securities
Corporate securities	$	573	$	574	$	(1	)
Asset-backed securities		1,855		1,857		(2	)

Total fixed maturity and equity securities		2,428		2,431		(3	)


Greater than six months but less than or equal to one year
Fixed maturity AFS securities
Corporate securities		240		248		(8	)
Residential mortgage-backed securities		22		24		(2	)

Total fixed maturity and equity securities		262		272		(10	)


Greater than one year
Fixed maturity AFS securities
Corporate securities		760		788		(28	)
Asset-backed securities		752		753		(1	)
Residential mortgage-backed securities		441		450		(9	)
Equity securities - banking securities		76		80		(4	)

Total fixed maturity and equity securities		2,029		2,071		(42	)

Total fixed maturity and equity securities	$	4,719	$	4,774	$	(55	)

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

The total number of securities in an unrealized loss position was 3635 and 13 at ~~June~~September 30, 2013 and December 31, 2012, respectively.

At ~~June~~September 30, 2013 and December 31, 2012, there were no securities whose fair value had declined ~~below~~ below amortized cost by greater than 20%.

Unrealized gains (losses) incurred during the first ~~six~~nine months of 2013 and 2012 ~~were~~ were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. If the Company has the intent to sell or it is more likely than not that the Company will be required to sell these securities prior to the ~~anticipated~~ anticipated recovery of the amortized cost, securities are written down to fair value. If cash flow models indicate a credit event will impact future cash flows, the security is impaired to discounted cash flows. As the remaining unrealized losses in the portfolio relate to holdings where the Company expects to receive full principal and interest, the Company does not consider the underlying investments to be impaired.

1516

The components of net unrealized gain (loss) and OTTI included in accumulated other comprehensive income, net of taxes, at ~~June~~September 30, 2013 and December 31, 2012 were as follows:

	June 30,2013			December 31,2012
	September 30,2013			December 31,2012
Assets
Fixed maturity securities	$	98,~~632~~714		$	16,262
Equity securities		~~140~~23			149
Value of business acquired		(~~490~~445	)		(632	)
		9,282			15,779
		8,292			15,779
Liabilities
Policyholder account balances		-			(640	)
Federal income taxes - deferred		(3,295	)		(5,374	)
Income taxes - deferred		(2,943	)		(5,374	)
		(3,295	)		(6,014	)
		(2,943	)		(6,014	)
Stockholder’s equity
Accumulated other comprehensive income, net of taxes	$	5,~~987~~349		$	9,765

The Company records certain adjustments to policyholder account balances in conjunction with the unrealized holding gains or losses on investments classified as available-for-sale. The Company adjusts a portion of these liabilities as if the unrealized holding gains or losses had actually been realized, with corresponding credits or charges reported in accumulated other comprehensive income (loss), net of taxes.

Derivatives

The Company uses derivatives to manage the capital market risk associated with the GMWB. The derivatives, which are S&P futures contracts, are used to hedge the equity risk associated with these types of variable guaranteed products, in particular the claim and/or revenue risks of the liability portfolio. The Company will not seek hedge accounting on these hedges because, in most cases, the derivatives’ change in value will create a natural offset in the Statements of Income with the change in reserves. Net settlements on the futures contracts occur daily. At ~~June~~September 30, 2013, the Company had 10 outstanding ~~short~~ short futures contracts with a notional value of $4,~~000~~186. At December 31, 2012, the Company had 10 outstanding short futures contracts with a notional value of $3,550. Realized losses on settlement of these futures were ($~~106~~204) and ($~~475~~679) for the ~~three~~ three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively. Realized ~~gains (~~losses) on settlement of these futures were ($~~124~~290) and ($~~658~~948) for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. These ~~gains (~~losses) have been recorded in ~~net~~ net derivative ~~gains (~~losses) in the Statements of Income.

In addition, in order to trade futures, the Company is required to ~~post~~ post collateral to an exchange (sometimes referred to as margin). The fair value of collateral posted in relation to the futures margin was $335 and $349 as of ~~June~~September 30, 2013 and December 31, 2012, respectively.

Realized Investment Gains (Losses)

The Company considers fair value at the date of sale to be equal to proceeds received. Proceeds and gross realized investment gains (losses) from the sale of AFS securities for the three and ~~six~~nine months ended ~~June~~September 30 were as follows:

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2013			2012			2013			2012
Proceeds	$	18,~~323~~872		$	~~264~~1,152		$	211,~~352~~224		$	24,~~995~~147
Gross realized investment gains		7487			2-			7494			152
Gross realized investment losses		-(109	)		-(59	)		(15124	)		(~~216~~275	)
Proceeds on AFS securities sold at a realized loss		-2,409			-1,422			13,~~029~~438			13,~~783~~205

1617

Net realized investment gains (losses) for the three and ~~six~~nine months ended ~~June~~September 30 were as as follows:

	Three Months EndedJune 30,					Six Months EndedJune 30,
	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2013		2012			2013		2012
Fixed maturity securities	$	7378	$	(459	)	$	~~(8)~~370	$	(70129	)
Net realized investment gains (losses)	$	7	$	(4	)	$	(8)	$	(70	)
Adjustment related to value of business acquired		8		2			8		2
Net realized investment gains (losses)	$	386	$	(57	)	$	378	$	(127	)

OTTI

If management determines that a decline in the value of an available-for-sale equity security is other-than-temporary, the cost basis is adjusted to estimated fair value and the decline in value is recorded as a net realized investment loss. For debt securities, the manner in which an OTTI is recorded depends on whether management intends to sell a security or it is more likely than not that it will be required to sell a security in an unrealized loss position before its anticipated recovery. If management intends to sell or more likely than not will be required to sell the debt security before recovery, the OTTI is recognized in earnings for the difference between amortized cost and fair value. If these criteria are not met, the OTTI is bifurcated into two pieces: a credit loss is recognized in earnings at an amount equal to the difference between the amortized cost of the debt security and the present value of the security’s anticipated cash flows, and a non credit loss is recognized in OCI for any difference between the fair value and the net present value of the debt security at the impairment measurement date.

The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts at ~~June~~September 30, 2013 and December 31, 2012:

	June 30,2013			December 31, 2012
	September 30,2013			December 31, 2012
Balance at beginning of period	$	31		$	36
Additional credit loss impairments recognized in the current period on securities previously impaired through other comprehensive income		-			6
Accretion of credit loss impairments previously recognized		(1218	)		(11	)
Balance at end of period	$	1913		$	31

For the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company recorded no impairment losses. For the three ~~and~~months ~~six~~ended September 30, 2012, the Company recorded no impairment losses. For the nine months ended ~~June~~September 30, 2012, the Company recorded impairment losses of $6, with no associated amortization of value of business acquired. The impairment loss was the result of the Company impairing a previously OCI impaired holding of a 2005 vintage residential mortgage-backed security (“RMBS”) in the second quarter due to an adverse change in cash flows.

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

VOBA

VOBA reflects the estimated fair value of in force contracts acquired and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, for each block of business, of future policy and contract charges, premiums, mortality, Separate Account performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. If estimated gross profits or premiums differ from expectations, the amortization of VOBA is adjusted to reflect actual experience. The long-term growth rate assumption for the amortization of VOBA, DAC and DSI was 8% and 9% at ~~both June~~September 30, 2013 and 2012, respectively.

1718

The change in the carrying amount of VOBA for the three and ~~six~~nine months ended ~~June~~September 30 was as follows:

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2013			2012			2013			2012
Accretion (amortization) expense	$	(906	)	$	280		$	(1,464)		$	(1,758)
Amortization expense	$	(228	)	$	(111	)	$	(1,691	)	$	(1,868	)
Unlocking		-143			(~~581~~578	)		4146			~~937~~358
Adjustment related to unrealized gains (losses) and OTTI on investments		4			(182	)		138			(95	)
Adjustment related to realized gains (losses) on investments		8			2			8			2
Change in VOBA carrying amount	$	(902	)	$	(483	)	$	(1,322	)	$	(916	)
Adjustment related to unrealized gains (losses) and OTTI on investments		46			(40	)		184			(136	)
Change in VOBA carrying amount	$	(31	)	$	(727	)	$	(1,353	)	$	(1,644	)

For the ~~three~~nine months ended ~~June~~September 30, 2013, the decrease in VOBA was mainly driven by an increase in in regular amortization due to positive gross profits ~~creating~~while ~~greater~~updated ~~reserve~~policyholder ~~release~~behavior asassumptions ~~compared~~resulted ~~to the same period~~ in ~~2012~~favorable unlocking. During the ~~six~~nine months ended ~~June~~September 30, ~~2013~~2012, the change in VOBA was principally driven by athe ~~combination~~decrease ofin fair ~~positive~~value ~~gross~~reserves ~~profits~~ and favorable equity market performance ~~when~~resulting ~~compared~~in toamortization ~~the~~and ~~same~~favorable ~~period 2012~~unlocking.

DAC and DSI

The change in the carrying amount of DAC and DSI for the three and ~~six~~nine months ended ~~June~~September 30 was as follows:

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
DAC	2013			2012			2013			2012
Accretion (amortization) expense		(1222	)		(4)16	)		8360			(~~128)~~144	)
Unlocking		-610			(19	)		(3608	)		6848
Change in DAC carrying amount	$	~~(12~~588	)	$	15(35	)	$	80668		$	(6096	)
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
DSI	2013			2012			2013			2012
Accretion (amortization) expense	$	(9	)	$	(6	)	$	21		$	(52	)
Unlocking		5			(7	)		5			17
Change in DSI carrying amount	$	(4	)	$	(13	)	$	26		$	(35	)

	Three Months EndedJune 30,					Six Months EndedJune 30,
DSI	2013			2012		2013		2012
Accretion (amortization) expense	$	(5	)	$	(1)	$	30	$	(46)
Unlocking		-			6		-		24
Change in DSI carrying amount	$	(5	)	$	5	$	30	$	(22	)

For the three and nine months ended September 30, 2013, the change in DAC was primarily due to updated policyholder behavior assumptions and a change in reserve calculation resulting in favorable unlocking.

For the three and six months ended June 30, 2013, the change in DAC was mainly driven by unlocking partially offset by negative amortization when compared to the same period in 2012.

Note 5. Variable Contracts Containing Guaranteed Benefits

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

The components of the changes in the variable annuity GMDB and GMIB liabilities for the three and six months ended June 30 were as follows:

	Three Months EndedJune 30,						Six Months EndedJune 30,
GMDB	2013			2012			2013			2012
Guaranteed benefits incurred	$	337		$	344		$	736		$	823
Guaranteed benefits paid		(148	)		(388	)		(147	)		(152	)
Unlocking		(36	)		555			(708	)		(668	)
Change in GMDB	$	153		$	511		$	(119	)	$	3

	Three Months EndedJune 30,					Six Months EndedJune 30,
GMIB	2013			2012		2013			2012
Guaranteed benefits incurred	$	146		$	201	$	327		$	490
Unlocking		(43	)		713		(738	)		(746	)
Change in GMIB	$	103		$	914	$	(411	)	$	(256	)

During the three months ended June 30, 2013, the change in reserves was driven by less favorable Separate Account returns expected while the same period in 2012 was driven by unfavorable equity market performance resulting in an increase in estimated future benefits. During the six months ended June 30, 2013, the decrease in reserves was driven by a decrease in unlocking due to less market growth in the second quarter when compared to the same period in 2012.

The variable annuity GMDB liability at June 30, 2013 and December 31, 2012 was $1,333 and $1,452, respectively. The variable annuity GMIB liability at June 30, 2013 and December 31, 2012 was $3,259 and $3,670, respectively.

The Company has issued variable life contracts in which the Company contractually guarantees to the contract owner a GMDB. In general, contracts containing GMDB provisions provide a death benefit equal to the amount specified in the contract regardless of the level of the contract’s account value. For the three and six months ended June 30, 2013 and 2012, an insignificant amount of variable life guaranteed benefits were recorded as policy benefits in the Statements of Income as incurred or paid.

Note 6. Income Taxes

The effective tax rate was 16% and 26% for the six months ended June 30, 2013 and 2012, respectively. Differences between the effective rate and the U.S. statutory rate of 35% principally were the result of Separate Accounts dividends-received deduction (“DRD”).

At June 30, 2013 and December 31, 2012, the Company did not have a tax valuation allowance for deferred tax assets. A tax valuation allowance was not deemed necessary as management determined that it is more likely than not that the deferred tax assets will be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies in making the assessment.

The Company has analyzed all material tax positions under the guidance of ASC 740, Income Taxes, related to the accounting for uncertainty in income tax, and determined there were tax benefits of $240 (gross $686) that should not be recognized at June 30, 2013 and December 31, 2012, which primarily relates to uncertainty regarding the sustainability of certain deductions taken on the 2011, 2010, 2009, and 2008 U.S. Federal income tax returns. To the extent these unrecognized tax benefits are ultimately recognized, they will not impact the effective tax rate in a future period. It is not anticipated that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date.

The components of the changes in the variable annuity GMDB and GMIB liabilities for the three and nine months ended September 30 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
GMDB	2013			2012			2013			2012
Guaranteed benefits incurred	$	392		$	431		$	1,128		$	1,254
Guaranteed benefits paid		74			93			(73	)		(60	)
Unlocking		(294	)		(19	)		(1,002	)		(686	)

Change in GMDB	$	172		$	505		$	53		$	508


	Three Months Ended September 30,					Nine Months Ended September 30,
GMIB	2013		2012			2013		2012
Guaranteed benefits incurred	$	222	$	222		$	549	$	711
Unlocking		782		(1,121	)		44		(1,867	)

Change in GMIB	$	1,004	$	(899	)	$	593	$	(1,156	)

During the three and nine months ended September 30, 2013, the change in reserves primarily was driven by updated policyholder assumptions and a decrease in the long-term equity growth rate assumption. During the three and nine months ended September 30, 2012, the change in reserves was primarily driven by favorable equity market performance and updates in policyholder behavior assumptions.

The variable annuity GMDB liability at September 30, 2013 and December 31, 2012 was $1,505 and $1,452, respectively. The variable annuity GMIB liability at September 30, 2013 and December 31, 2012 was $4,263 and $3,670, respectively.

The Company has issued variable life contracts in which the Company contractually guarantees to the contract owner a GMDB. In general, contracts containing GMDB provisions provide a death benefit equal to the amount specified in the contract regardless of the level of the contract’s account value. For the three and nine months ended September 30, 2013 and 2012, an insignificant amount of variable life guaranteed benefits were recorded as policy benefits in the Statements of Income as incurred or paid.

Note 6. Income Taxes

The effective tax rate was 1% and 27% for the nine months ended September 30, 2013 and 2012, respectively. Differences between the effective rate and the U.S. statutory rate of 35% principally were the result of Separate Accounts dividends-received deduction (“DRD”).

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

The provision for income tax expense (benefit) consists of the following for the three and nine months ended September 30:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Current federal income tax expense	$	579		$	55	$	873		$	168
Deferred federal income tax expense (benefit)		(1,016	)		767		(922	)		1,958

Total income tax expense (benefit)	$	(437	)	$	822	$	(49	)	$	2,126

The provision for income tax (payable) receivable consists of the following for the periods ending September 30, 2013 and December 31, 2012:


	September 30, 2013			December 31, 2012
Current federal income tax receivable	$	150		$	2,830
Deferred federal income tax payable		(4,623	)		(7,976	)

Total income tax payable	$	(4,473	)	$	(5,146	)

At September 30, 2013 and December 31, 2012, the Company did not have a tax valuation allowance for deferred tax assets. A tax valuation allowance was not deemed necessary as management determined that it is more likely than not that the deferred tax assets will be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies in making the assessment.

The Company has analyzed all material tax positions under the guidance of ASC 740, Income Taxes, related to the accounting for uncertainty in income tax, and determined there were tax benefits of $265 (gross $757) and $240 (gross $686) that should not be recognized at September 30, 2013 and December 31, 2012 respectively, which primarily relates to uncertainty regarding the sustainability of certain deductions taken on the 2012, 2011, 2010, 2009, and 2008 U.S. Federal income tax returns. To the extent these unrecognized tax benefits are ultimately recognized, they will not impact the effective tax rate in a future period. It is not anticipated that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date.

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

	June 30,2013		December 31,2012
	September 30,2013		December 31,2012
Balance at beginning of period	$	240	$	229
Additions for tax positions of prior years		-25		11
Balance at end of period	$	~~240~~265	$	240

At December 31, 2012 the Company had an operating loss carryforward for federal income tax purposes of $8,490 (net of the ASC 740 reduction of $686) with a carryforward period of fifteen years that expire at various dates up to 2026. As of ~~June~~September 30, 2013, the Company expects to utilize the entire operating loss carryforward in 2013. The Company has a foreign tax credit carryforward at December 31, 2012 of $565 with a carryforward period of ten years that will expire at various dates up to 2022. Also, the Company has an Alternative Minimum Tax credit carryforward for federal income tax purposes of $371 at December 31, 2012 with an indefinite carryforward period. As of ~~June~~September 30, 2013, the Company does not expect to utilize either of these credit carryforwards in 2013.

The Company classifies interest and penalties related to income taxes as interest expense and penalty expense, respectively. These amounts are included in insurance expenses and taxes on the Statements of Income. The Company has not incurred or recognized any penalties or interest expense in its financial statements at ~~June~~September 30, 2013 and December 31, 2012, respectively.

Effective January 1, 2013 for federal income tax purposes, the Company joined in a consolidated income tax return filing with its indirect parent company, Transamerica Corporation, and other affiliated companies. The method of allocation between the companies is subject to a written tax allocation agreement. Under the terms of the tax allocation agreement, allocations are based on separate income tax return calculations. The Company is entitled to recoup federal income taxes paid in the event the future losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in the year generated. The Company is also entitled to recoup federal income taxes paid in the event the losses and credits reduce the greater of the Company’s separately computed income tax liability or the consolidated group’s income tax liability in any carryback or carryforward year when so applied. Intercompany income tax balances are settled within thirty days of payment to or filing with the Internal Revenue Service.

~~The~~21 Company filed a separate federal income tax return for the years 2008 through 2011. A tax return has been filed for 2011, 2010, and 2009 but no examination by the Internal Revenue Service has commenced. A tax return has not yet been filed for 2012.

The Company filed a separate federal income tax return for the years 2008 through 2012. A tax return has been filed for 2012, 2011, 2010, and 2009 but no examination by the Internal Revenue Service has commenced.

Note 7. Accumulated Other Comprehensive Income

The following table presents the change in accumulated other comprehensive income by component for the period ended ~~June~~September 30, 2013:

	June 30, 2013
	September 30, 2013
	Unrealized Holding Gains(Losses) onAFS Securities (a)
Beginning balance	$	9,765
Other comprehensive loss before reclassifications		(3,~~628~~676	)
Amounts reclassified from accumulated other comprehensive income		(~~150~~740	)
Net current period other comprehensive loss		(34,~~778~~416	)
Ending balance	$	5,~~987~~349

(a)	All amounts are net of taxes.

20The following table presents the reclassifications out of accumulated other comprehensive income for the period ended September 30, 2013:

The following table presents the reclassifications out of accumulated other comprehensive income for the period ended June 30, 2013:


	September 30, 2013
Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Unrealized holding gains (losses) on AFS securities
Available-for-sale securities	$	1,148	Net realized investment gains (losses)
		-	Portion of other-than-temporary impairments previously recognized in other comprehensive income

		1,148	Total before tax
		408	Tax expense

	$	740	Net of tax

	June 30, 2013
Accumulated Other Comprehensive IncomeComponents	AmountReclassified fromAccumulated OtherComprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains (losses) on AFS securities	$	233	Net realized investment losses
		-	Portion of other-than-temporary impairments previously recognized in other comprehensive income
		233	Total before tax
		83	Tax expense
	$	150	Net of tax

Note 8. Stockholder’s Equity and Statutory Accounting Principles

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

The Company’s statutory net income for the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 was $1420,~~365~~882 and $715,~~750~~525, respectively. Statutory capital and surplus at ~~June~~September 30, 2013 and December 31, 2012 was $8994,~~023~~672 and $77,462, respectively.

During the first ~~half~~nine months of 2013 and 2012, the Company did not pay any dividends to AUSA or receive any capital contributions from AUSA.

Note 9. Reinsurance

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

Indemnity reinsurance agreements do not relieve the Company from its obligations to contract owners. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its reinsurers so as to minimize its exposure to significant losses from reinsurer insolvencies. At ~~June~~September 30, 2013 and December 31, 2012, reinsurance payables were $2624 and $27, respectively. The Company did not have a reinsurance reserve at ~~June~~September 30, 2013 and December 31, 2012.

In addition, the Company seeks to limit its exposure to guaranteed benefit features contained in certain variable annuity contracts. Specifically, the Company reinsures certain GMIB and GMDB provisions to the extent reinsurance capacity is available in the marketplace. At ~~June~~September 30, 2013, 50% and 7% of the account value for variable annuity contracts containing GMIB and GMDB provisions, respectively, were reinsured. At December 31, 2012, 53% and 7% of the account value for variable annuity contracts containing GMIB and GMDB provisions, respectively, were reinsured.

Note 10. Related Party Transactions

At ~~June~~ September 30, 2013 the Company had the following related party agreements in effect:

The Company is party to a common cost allocation service agreement between AUSA companies in which various affiliated companies may perform specified administrative functions in connection with the operation of the Company, in consideration of reimbursement of actual costs of services rendered. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company incurred $~~161~~153 and $~~330~~482, respectively, in expenses under this agreement. During the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company incurred $~~174~~167 and $~~342~~509, respectively, in expenses under this agreement. Charges attributable to this agreement are included in insurance expenses and taxes, net of amounts capitalized.

AEGON USA Investment Management, LLC acts as a discretionary investment manager under an investment management agreement with the Company. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, ~~the~~ the Company incurred $4142 and $82124, respectively, in expenses under this agreement. During the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company incurred $4427 and $80107, respectively, in expenses under this agreement. Charges attributable to this agreement are included in net investment income.

Transamerica Capital, Inc. provides underwriting and distribution services for the Company under an underwriting agreement. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company incurred $~~552~~516 and $1,~~072~~588, respectively, in expenses under this agreement. During the three and ~~six~~ nine months ended ~~June~~September 30, 2012, the Company incurred $~~565~~532 and $1,~~105~~637, respectively, in expenses under this agreement. Charges attributable to this agreement are included in insurance expenses and taxes, net of amounts capitalized.

Transamerica Asset Management, Inc. acts as the investment advisor for certain related party funds in the Company’s Separate Accounts under multiple service agreements. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company incurred $4 and $812, respectively, in expenses under this agreement. During the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company incurred $4 and $812, respectively, in expenses under this agreement.

The Company has a participation agreement with Transamerica Series Trust to offer certain funds in the Company’s Separate Accounts. Transamerica Capital, Inc. acts as the distributor for said related party funds. The Company has also entered into a distribution and shareholder services agreement for certain of the said funds. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company received $1922 and $3860, respectively, in revenue under this agreement. During the three and ~~six~~nine months ended ~~June~~ September 30, 2012, the Company received $18 and $3755, respectively, in revenue under this agreement. Revenue attributable to this agreement is included in policy charge revenue.

The Company has a service agreement with Western Reserve Life Assurance Co. of Ohio (“WRL”) whereby WRL will perform specified administrative functions in connection with the operation of the Company except to the extent that the services are performed for the Company by another party. During the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company incurred $~~151~~ 291 and $~~300~~591, respectively, in expenses under this agreement. During the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company incurred $~~163~~195 and $~~317~~512, respectively, in expenses under this agreement.

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

Note 11. Segment Information

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

22The following tables summarize each business segment’s contribution to select Statements of Income information for the three and nine months ended:

The following tables summarize each business segment’s contribution to select Statements of Income information for the three and six months ended:


	Annuity			Life Insurance			Total
Three months ended September 30, 2013
Net revenues (a)	$	3,234		$	1,394		$	4,628
Amortization (accretion) of VOBA		(415	)		500			85
Policy benefits (net of reinsurance recoveries)		1,288			333			1,621
Income tax benefit		(350	)		(87	)		(437	)
Net income		2,309			330			2,639

Three months ended September 30, 2012
Net revenues (a)	$	2,330		$	1,337		$	3,667
Amortization (accretion) of VOBA		918			(229	)		689
Policy benefits (net of reinsurance recoveries)		(1,134	)		215			(919	)
Income tax expense		421			401			822
Net income		1,250			703			1,953

	Annuity			Life Insurance			Total
Three months ended June 30, 2013
Nine months ended September 30, 2013
Net revenues (a)	$	28,~~674~~510		$	14,~~364~~171		$	412,~~038~~681
Amortization of VOBA		~~488~~375			~~418~~1,170			~~906~~1,545
Policy benefits (net of reinsurance recoveries)		12,~~575~~531			~~486~~1,284			23,~~061~~815
Income tax expense (benefit)		(~~303~~120	)		4771			(~~256~~49	)
Net income		653,772			~~218~~930			~~283~~4,702
Three months ended June 30, 2012
Nine months ended September 30, 2012
Net revenues (a)	$	37,~~082~~881		$	14,~~349~~064		$	411,~~431~~945
Amortization (accretion) of VOBA		(226	)		527			301
Amortization of VOBA		1,319			191			1,510
Policy benefits (net of reinsurance recoveries)		~~893~~(1,980	)		~~932~~1,226			~~1,825~~(754	)
Income tax expense (benefit)		427			(208	)		219
Income tax expense		1,599			527			2,126
Net income (loss)		1,116			(103	)		1,013
Net income		4,273			1,488			5,761

	Annuity			Life Insurance		Total
Six months ended June 30, 2013
Net revenues (a)	$	5,275		$	2,778	$	8,053
Amortization of VOBA		790			670		1,460
Policy benefits (net of reinsurance recoveries)		1,242			952		2,194
Income tax expense		230			158		388
Net income		1,464			599		2,063
Six months ended June 30, 2012
Net revenues (a)	$	5,551		$	2,727	$	8,278
Amortization of VOBA		401			420		821
Policy benefits (net of reinsurance recoveries)		(846	)		1,011		165
Income tax expense		1,179			125		1,304
Net income		3,024			784		3,808

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

2324

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

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

Forward Looking Statements

Certain statements in this report may be considered forward-looking, including those about management expectations, strategic objectives, growth opportunities, business prospects, anticipated financial results and other similar matters. These forward-looking statements represent only management’s beliefs regarding future performance, which is inherently uncertain. There are a variety of factors, many of which are beyond the Company’s control, which affect its operations, performance, business strategy and results and could cause its actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, actions and initiatives taken by current and potential competitors, general economic conditions, the effects of current, pending and future legislation, regulation and regulatory actions, and the other risks and uncertainties detailed in this report. See Risk Factors in the 2012 Annual Report on Form 10-K. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. The Company does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. The reader should, however, consult further disclosures the Company may make in future filings of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Business

Overview

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

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

The Company makes available, free of charge, annual reports on Form 10-K, quarterly reports on 10-Q, and current reports on Form 8-K. This information is available through the About US – Financial Strength section of the Transamerica website at www.Transamerica.com. These reports are available through the website as soon as reasonably practicable after the Registrant electronically files such material with, or furnishes it to, the Securities and Exchange Commission.

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

•

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

•

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

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

Deposits

~~There~~Total ~~were no~~ direct deposits (including internal exchanges) ~~for~~were ~~the~~$0.2 ~~three~~million ~~months ended June 30, 2013~~ and $0.13 million for the ~~six~~three and nine months ended ~~June~~September 30, 2013, respectively. Total direct deposits (including internal exchanges) were $0.2 million and $0.24 million for the three and ~~six months~~nine months ended ~~June~~September 30, 2012, respectively. ~~There were no internal exchanges during the three and six months ended June 30, 2013. Internal exchanges during both the three and six months ended June 30, 2012 were $0.1 million.~~

2425

Financial Condition

At ~~June~~September 30, 2013, the Company’s assets were $~~772~~786.76 million or $124.17 million ~~lower~~higher than the $~~784~~781.89 million in assets at December 31, 2012. Assets excluding Separate Accounts assets decreased $63.29 million during the ~~second~~third quarter of 2013. Separate Accounts assets, which represent 6768% of total assets, ~~decreased~~increased $5.8.5 million to $~~520~~535.60 million.

Changes in Separate Accounts assets were as follows:

	SixMonths EndedJune 30,
	NineMonths EndedSeptember 30,
(dollars in millions)	2013			2012
Investment performance	$	3461.43		$	2854.79
Deposits		-0.4			0.12
Policy fees and charges		(58.63	)		(58.75	)
Surrenders, benefits and withdrawals		(3444.69	)		(3446.9	)
Net change	$	~~(5.~~8.5	)	$	(110.83	)

During the first ~~half~~nine months of 2013, ~~the~~and ~~Company had less than $0.1 million in fixed contract owner deposits. During the first half of~~ 2012, the Company did not have any fixed contract owner deposits~~. During the first half of 2013~~ and ~~2012,~~ fixed contract owner withdrawals were $34.61 million and $23.69 million, respectively.

Business Environment

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

Equity Market Performance

The investment performance of the underlying U.S. equity-based mutual funds supporting the Company’s variable products do not replicate the returns of any specific U.S. equity market index. However, investment performance will generally increase or decrease with corresponding increases or decreases of the overall U.S. equity market. There are several standard indices published on a daily basis that measure performance of selected components of the U.S. equity market. Examples include the Dow Jones Industrial Average (“Dow”), the NASDAQ Composite Index (“NASDAQ”) and the Standard & Poor’s 500 Composite Stock Price Index (“S&P”). The Dow, NASDAQ and S&P ended ~~June~~September 30, 2013 with increases of 21%, 411% and 25%, respectively, from ~~March~~June 3130, 2013. The Dow, NASDAQ and S&P ended ~~June~~ September 30, 2013 with increases of 1415%, 1325% and 1318%, respectively, from December 31, 2012.

Changes in the U.S. equity market directly affect the values of the underlying U.S. equity-based mutual funds supporting Separate Accounts assets and, accordingly, the values of variable contract owner account balances. Approximately 6970% of Separate Accounts assets were invested in equity-based mutual funds at ~~June~~September 30, 2013. Since asset-based fees collected on in force variable contracts represent a significant source of revenue, the Company’s financial condition will be impacted by fluctuations in investment performance of equity-based Separate Accounts assets. During the ~~six~~nine months ended ~~June~~September 30, 2013, average variable account balances decreased $129.61 million (or 21.37%) to $~~536~~534.8 million as compared to the same period in 2012.

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

Medium Term Interest Rates, Corporate Credit and Credit Spreads

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

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

2526

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

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

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2013			2012			2013			2012
Average medium term interest rate yield (a)		0.6461%			0.4234%			0.6461%			0.4234%
Increase (decrease) in medium term interest rates (in basis points)		25(3	)		(108	)		2324			2(6	)
Credit spreads (in basis points) (b)		~~140~~125			~~215~~160			~~140~~125			~~215~~160
Expanding (contracting) of credit spreads (in basis points)		25(15	)		16(55	)		161			(70125	)
Increase (decrease) on market valuations (in millions)
Available-for-sale (“AFS”) investment securities	$	(51.40	)	$	02.97		$	(67.6	)	$	24.29
Interest-sensitive policyholder liabilities		~~0.8~~-			(0.16	)		0.6			(0.27	)
Net change on market valuations	$	(41.60	)	$	02.81		$	(67.0	)	$	24.02

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

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

Critical Accounting Policies and Estimates

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

The Company’s critical accounting policies and estimates are discussed below. For a full description of these and other accounting policies see Note 1 of the 2012 Annual Report on Form 10-K.

Valuation of Fixed Maturity and Equity Securities

The Company’s investments consist principally of fixed maturity and equity securities that are classified as available-for-sale (“AFS”) which are reported at estimated fair value. In addition, the Company held fixed maturity securities which contain a conversion to equity feature, which is considered an embedded derivative. These fixed maturity securities have been classified as trading and are reported at estimated fair value. During 2012, the last of these securities converted so the Company no longer holds any of these securities as of December 31, 2012. The fair values of fixed maturity and equity securities are determined by management after taking into consideration several sources of data. When available, the Company uses quoted market prices in active markets to determine the fair value of its investments. The Company’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. If broker quotes are not available, then securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.

To understand the valuation methodologies used by third-party pricing services, the Company reviews and monitors their applicable methodology documents. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, the Company performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that the Company can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.

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

2627

~~quantitative factors as part of this analysis, including but not limited to, recent transactional activity for similar fixed maturities,~~ review of pricing statistics and trends, and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities. In addition, the Company performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and the transaction price are investigated to explain the cause of the difference.

The Company’s portfolio of private placement securities is valued using a matrix pricing methodology. The pricing methodology is obtained from a third party service and indicates current spreads for securities based on weighted average life, credit rating and industry sector. Monthly the Company reviews the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar securities traded in the market. In order to account for the illiquid nature of these securities, illiquidity premiums are included in the valuation and are determined based upon the pricing of recent transactions in the private placement market as well as comparing the value of the privately offered security to a similar public security. The impact of the illiquidity premium to the overall valuation is less than 1% of the value. At ~~June~~ September 30, 2013 and December 31, 2012, approximately $2.1 million (or 1.45%) and $2.0 million (or 2%), respectively, of the Company’s fixed maturity and equity securities portfolio consisted of private placement securities.

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

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

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

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

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

For the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company did not record an OTTI in income. For ~~both~~ the three ~~and~~months ~~six~~ended September 30, 2012, the Company did not incur any impairment losses. For the nine months ended ~~June~~September 30, 2012, the Company recorded impairment losses of less than $0.1 million, with no associated amortization of ~~VOBA~~value of business acquired.

2728

Derivative Instruments

Derivatives are financial instruments in which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date. The Company has entered into exchange traded derivatives, such as futures contracts, to hedge the costs of the volatility of the S&P. All derivatives recognized on the Balance Sheets are carried at fair value. All changes in fair value are recognized in the Statements of Income. The fair value for exchange traded derivatives, such as futures, is calculated net of the interest accrued to date and is based on quoted market prices. Net settlements on the futures occur daily. At ~~June~~September 30, 2013, ~~the~~ the Company had 10 outstanding short futures contracts with a notional value of $4.2 million. At December 31, 2012, the Company had 10 outstanding short futures contracts with a notional value of $3.6 million. Realized losses on settlement of ~~these~~ these futures were ($0.12) million and ($0.57) million for the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively. Realized ~~gains (~~losses) on settlement of these futures were ($0.13) million and ($0.79) million for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. These ~~gains (~~losses) have been recorded in net derivative ~~gains (~~losses) in the Statements of Income.

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

VOBA

VOBA represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, for each block of business, of future policy and contract charges, premiums, mortality, policyholder behavior, Separate Account performance, operating expenses, investment returns, and other factors. Actual experience on the purchased business may vary from these projections. Revisions in estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross profits are less than the unamortized balance. At ~~June~~September 30, 2013 and December 31, 2012, the Company’s VOBA asset was $23.9 million and $25.2 million, respectively. ~~There~~For ~~was no VOBA unlocking during~~ the three ~~months~~and ~~ended~~nine ~~June 30, 2013. For the six~~ months ended ~~June~~September 30, 2013, the favorable impact to pre-tax net income related to VOBA unlocking was ~~less than~~ $0.1 million. For the three and ~~six~~nine months ended ~~June~~ September 30, 2012, the favorable (unfavorable) impact to pre-tax net income related to VOBA unlocking was ($0.6) million and $0.9 4 million, respectively. See Note 4 to the Financial Statements for a further discussion.

DAC

The costs of acquiring business, principally commissions, certain expenses related to policy issuance, and certain variable sales expenses that relate to and vary with the production of new and renewal business are deferred and amortized based on the estimated future gross profits for a group of contracts. DAC are subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting period. At ~~June~~September 30, 2013 and December 31, 2012, variable annuities accounted for the Company’s entire DAC asset of $0.49 million and $0.3 million, respectively.

DAC for variable annuities is amortized with interest over the anticipated lives of the insurance contracts in relation to the present values of estimated future gross profits from asset-based fees, guaranteed benefit rider fees, contract fees, and surrender charges, less a provision for guaranteed death and living benefit expenses, policy maintenance expenses, and non-capitalized commissions. Future gross profit estimates are subject to periodic evaluation with necessary revisions applied against amortization to date. The impact of revisions and assumptions to estimates on cumulative amortization is recorded as a charge or benefit to current operations, commonly referred to as “unlocking”. Changes in assumptions can have a significant impact on the amount of DAC reported and the related amortization patterns. In general, increases in the estimated Separate Accounts return and decreases in surrender or mortality assumptions increase the expected future profitability of the underlying business and may lower the rate of DAC amortization. Conversely, decreases in the estimated Separate Accounts returns and increases in surrender or mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization. There was no$0.6 million in favorable DAC unlocking ~~during~~for the three ~~months~~and ~~ended~~nine ~~June 30, 2013. For the six~~ months ended ~~June~~September 30, 2013 ~~there was relatively no impact to pre-tax income related to DAC unlocking~~. For the three and ~~six~~nine months ended ~~June~~September 30, 2012, there was relatively no impact to pre-tax income related to DAC unlocking. See Note 4 to the Financial Statements for a further discussion.

DSI

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

2829

The expense and the subsequent capitalization and amortization are recorded as a component of policy benefits in the Statements of Income. At ~~both June~~September 30, 2013 and December 31, 2012, variable annuities accounted for the Company’s entire DSI asset of $0.1 million. There was no DSI unlocking during the three months ended June 30, 2013. For the six months ended June 30, 2013 there was relatively no impact to pre-tax income related to DSI unlocking. For the three and six months ended June 30, 2012, there was relatively no impact to pre-tax income related to DSI unlocking. See Note 4 to the Financial Statements for a further discussion.

The long-term equity growth rate assumption for the amortization of VOBA, DAC and DSI was 98% atand ~~both~~9% ~~June~~at September 30, 2013 and 2012, respectively.

Policyholder Account Balances

The Company’s liability for policyholder account balances represents the contract value that has accrued to the benefit of policyholders as of the Balance Sheet date. The liability is generally equal to the accumulated account deposits plus interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Policyholder account balances at ~~June~~September 30, 2013 and December 31, 2012 were $98.51 million and $104.1 million, respectively.

Future Policy Benefits

Future policy benefits are actuarially determined liabilities, which are calculated to meet future obligations and are generally payable over an extended period of time. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, surrender rates, policy expenses, equity returns, interest rates, and inflation. These estimates and assumptions are influenced by historical experience, current developments and anticipated market trends. At ~~June~~September 30, 2013 and December 31, 2012, future policy benefits were $1718.8 million and $16.5 million, respectively.

Included within future policy benefits are liabilities for GMDB and GMIB provisions contained in the variable products that the Company issued. At ~~June~~September 30, 2013 and December 31, 2012, GMDB and GMIB liabilities included within future policy benefits were as follows:

(dollars in millions)	~~June~~September 30,2013		December 31,2012
GMDB liability	$	1.35	$	1.5
GMIB liability		34.3		3.7

The Company regularly evaluates the assumptions used to establish these liabilities, as well as actual experience and adjusts GMDB and GMIB liabilities with a related charge or credit to earnings (“unlocking”), if actual experience or evidence suggests that the assumptions should be revised. For the three and ~~six~~nine months ended ~~June~~ September 30, 2013, the favorable (unfavorable) impact to pre-tax income related to GMDB and GMIB unlocking was ~~less than~~ ($0.15) million and $1.40 million, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2012, the favorable ~~(unfavorable)~~ impact to pre-tax income related to GMDB and GMIB unlocking was ($1.3)2 million and $12.46 million, respectively.

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

At ~~June~~September 30, 2013 and December 31, 2012, GMWB ~~liability~~ liability and GMIB reinsurance asset included within future policy benefits were as follows:

(dollars in millions)	~~June~~September 30,2013			December 31,2012
GMWB liability	$	0.51		$	1.1
GMIB reinsurance asset		(6.50	)		(8.9	)

Income Taxes

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

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

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

Recent Accounting Guidance

The following outlines the adoption of recent accounting guidance in 2013. See Note 1 to the Financial Statements for a further discussion.

•

Accounting Standards Codification (“ASC”) 210, Balance Sheet – Accounting Standards Update (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities – enhances disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement – adopted January 1, 2013.

•

ASC 220, Comprehensive Income – ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, requires an entity to provide information about significant items reclassified out of accumulated other comprehensive income (“AOCI”) by component – adopted January 1, 2013.

•

ASC 740, Income Taxes – ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, requires that the liability related to certain unrecognized tax benefits should be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryfoward if such settlement is required or expected in the event the uncertain tax position is disallowed – early adoption September 30, 2013.

The following outlines the adoption of recent accounting guidance in 2012. See Note 1 to the Financial Statements for a further discussion.

•

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

•

ASC 820, Fair Value Measurements and Disclosures – ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS – amends current guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”) – adopted January 1, 2012.

•

ASC 220, Comprehensive Income

•

ASU 2011-05, Presentation of Comprehensive Income – requires an entity to report components of comprehensive income in either a single continuous statement of comprehensive income or two separate but consecutive statements – adopted January 1, 2012.

•

ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 – defers the amendments in ASU 2011-05 that relate to presentation of reclassifications out of accumulated other comprehensive income – adopted January 1, 2012.

•

ASC 350, Intangibles—Goodwill and Other – ASU 2011-08, Testing Goodwill for Impairment – gives entities the option of performing a qualitative assessment to determine whether it is necessary to perform the two-step goodwill impairment test – adopted January 1, 2012.

3031

Investments

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

Fixed Maturity and Equity Securities

The amortized cost/cost and estimated fair value of investments in fixed maturity and equity AFS securities at ~~June~~September 30, 2013 and December 31, 2012 were:

	June 30, 2013
	September 30, 2013
			Gross Unrealized					Estimated		% ofEstimated
(dollars in millions)	AmortizedCost/Cost		Gains		Losses/ OTTI (1)			FairValue		FairValue
Fixed maturity AFS securities
Corporate securities
Financial services	$	25.67	$	1.87	$	(0.1	)	$	27.3		1718%
Industrial		7161.43		5.81		(0.4	)		7666.80		5045
Utility		36.43		0.34		-			36.7		26
Asset-backed securities
Housing related		3.86		-		-			3.86		2
Other		0.7		-		-			0.7		0-
Commercial mortgage-backed securities - non agency backed		2120.57		21.08		(0.2	)		2322.3		15
Residential mortgage-backed securities
Agency backed		4.4		0.2		-			4.6		43
Non agency backed		0.6		-0.1		-			0.67		0-
Government and government agencies
United States		10.8		0.2		(0.34	)		10.76		7
Foreign		3.6		0.4		(0.1	)		3.9		23
Total fixed maturity AFS securities		~~145~~137.87		109.79		(1.12	)		~~155~~146.4		99
Equity securities - banking securities		1.4		~~0.1~~-		-			1.54		1
Total equity securities		1.4		~~0.1~~-		-			1.54		1
Total fixed maturity and equity securities	$	~~147~~139.21	$	109.89	$	(1.12	)	$	~~156~~147.98		100%

	December 31, 2012
	AmortizedCost/Cost		Gross Unrealized				Estimated		% ofEstimated
(dollars in millions)			Gains		Losses/ OTTI (1)		FairValue		FairValue
Fixed maturity AFS securities
Corporate securities
Financial services	$	26.0	$	2.4	$	-	$	28.4		19%
Industrial		66.7		8.9		-		75.6		51
Utility		3.4		0.5		-		3.9		3
Asset-backed securities
Housing related		4.2		-		-		4.2		3
Commercial mortgage-backed securities - non agency backed		19.1		2.8		-		21.9		15
Residential mortgage-backed securities
Agency backed		4.4		0.4		-		4.8		3
Non agency backed		0.7		-		-		0.7		0
Government and government agencies
United States		3.0		0.4		-		3.4		2
Foreign		3.2		0.8		-		4.0		3
Total fixed maturity AFS securities		130.7		16.2		-		146.9		99
Equity securities - banking securities		1.3		0.2		-		1.5		1
Total equity securities		1.3		0.2		-		1.5		1
Total fixed maturity and equity securities	$	132.0	$	16.4	$	-	$	148.4		100%

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

The Company regularly monitors industry sectors and individual debt securities for evidence of impairment. This evidence may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations, 5) high probability of bankruptcy of the issuer, 6) nationally recognized credit rating agency downgrades, and/or 7) intent or requirement to sell before a debt security’s anticipated recovery. Additionally, for structured securities (asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”)), cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. For debt securities, an OTTI must be recognized in earnings when an entity either a) has the intent to sell the debt security or b) more likely than not will be required to sell the debt security before its anticipated recovery. If the Company meets either of these criteria, the OTTI is recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For debt securities in unrealized loss positions that do not meet these criteria, the Company must analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. The Company has evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss, and unless otherwise noted, does not consider these investments to be impaired at June 30, 2013.

Seven issuers represent more than 5% of the total unrealized loss position, comprised of one corporate non-convertible bond, three commercial mortgage backed securities (“CMBS”), two emerging markets holdings, and one treasury security. The Company’s unrealized losses for the three CMBS are $0.2 million. The Company owns one investment grade corporate non-convertible security with unrealized losses totaling $0.1 million and two investment grade emerging markets holdings with $0.2 million of unrealized losses related to the industrial sector. The Company owns one investment grade treasury holding with $0.3 million of unrealized losses.

At June 30, 2013 and December 31, 2012, approximately $4.6 million (or 16%) and $4.8 million (or 18%), respectively, of RMBS and CMBS holdings were fully collateralized by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. RMBS and CMBS securities are structured to allow the investor to determine, within certain limits, the amount of interest rate risk, prepayment risk and default risk that the investor is willing to accept. It is this level of risk that determines the degree to which the yields on RMBS and CMBS will exceed the yields that can be obtained from corporate securities with similar credit ratings.

Unrealized gains (losses) incurred during the first six months of 2013 and 2012, were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. If the Company has the intent to sell or it is more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, securities are written down to fair value. If cash flow models indicate a credit event will impact future cash flows, the security is impaired to discounted cash flows. As the remaining unrealized losses in the portfolio relate to holdings where the Company expects to receive full principal and interest, the Company does not consider the underlying investments to be impaired.


	December 31, 2012
			Gross Unrealized				Estimated		% of Estimated
(dollars in millions)	Amortized Cost/Cost		Gains		Losses/ OTTI ₍₁₎		Fair Value		Fair Value
Fixed maturity AFS securities
Corporate securities
Financial services	$	26.0	$	2.4	$	-	$	28.4		19%
Industrial		66.7		8.9		-		75.6		51
Utility		3.4		0.5		-		3.9		3
Asset-backed securities - housing related		4.2		-		-		4.2		3
Commercial mortgage-backed securities - non agency backed		19.1		2.8		-		21.9		15
Residential mortgage-backed securities
Agency backed		4.4		0.4		-		4.8		3
Non agency backed		0.7		-		-		0.7		-
Government and government agencies
United States		3.0		0.4		-		3.4		2
Foreign		3.2		0.8		-		4.0		3

Total fixed maturity AFS securities		130.7		16.2		-		146.9		99

Equity securities - banking securities		1.3		0.2		-		1.5		1

Total equity securities		1.3		0.2		-		1.5		1

Total fixed maturity and equity securities	$	132.0	$	16.4	$	-	$	148.4		100%

~~At June 30, 2013 the Industrial sector had unrealized losses of~~ (~~$425~~1) ~~thousand~~Subsequent ofunrealized ~~which~~gains (~~$391~~losses) ~~thousand~~on ~~were~~OTTI ~~investment grade~~ securities ~~and~~are ~~($34)~~included ~~thousand~~in ~~were below investment grade securities~~OCI-OTTI. ~~There were no sectors with unrealized losses greater than $36 thousand at December 31, 2012.~~

The ~~amortized~~Company ~~cost~~regularly monitors industry sectors and individual debt securities for evidence of impairment. This evidence may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations, 5) high probability of bankruptcy of the issuer, 6) nationally recognized credit rating agency downgrades, and/or 7) intent or requirement to sell before a debt security’s anticipated recovery. Additionally, for structured securities (asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”)), cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. For debt securities, an OTTI must be recognized in earnings when an entity either a) has the intent to sell the debt security or b) more likely than not will be required to sell the debt security before its anticipated recovery. If the Company meets either of these criteria, the OTTI is recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value ofat ~~fixed~~the ~~maturity~~balance ~~AFS~~sheet date. For debt securities atin ~~June 30~~unrealized loss positions that do not meet these criteria, ~~2013~~the Company must analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. The Company has evaluated the near-term prospects of the issuers in relation to the severity and ~~December 31~~duration of the unrealized loss, ~~2012~~and byunless ~~rating~~otherwise ~~agency~~noted, ~~equivalent~~does ~~were:~~not consider these investments to be impaired at September 30, 2013.

	June 30, 2013				December 31, 2012
(dollars in millions)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
AAA	$	23.0	$	24.8	$	21.0	$	23.6
AA		27.1		28.4		19.4		22.0
A		58.5		63.4		58.4		66.5
BBB		27.0		28.4		26.0		28.4
Below investment grade		10.2		10.4		5.9		6.4
Total fixed maturity AFS securities	$	145.8	$	155.4	$	130.7	$	146.9
Investment grade		93%		93%		95%		96%
Below investment grade		7%		7%		5%		4%

Five issuers represent more than 5% of the total unrealized loss position: comprised of three CMBS, one emerging markets holding, and one Treasury security. The Company’s CMBS unrealized loss is $0.2 million. The emerging markets holding has an unrealized loss of $0.1 million. Finally, the Treasury holding has an unrealized loss of $0.4 million. These unrealized losses are the result of a general rise in interest rates.

~~The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to S&P’s BBB- or higher (or similar rating agency).~~ At ~~June~~September 30, 2013 and December 31, 2012 , approximately $34.86 million (or 217%) and $2.4.8 million (or 218%), respectively, of ~~fixed~~RMBS ~~maturity~~and ~~securities~~CMBS holdings were ~~rated~~fully ~~BBB-,~~collateralized ~~which is~~by the ~~lowest~~Government ~~investment~~National ~~grade~~Mortgage ~~rating~~Association, ~~given~~the byFederal ~~S&P.~~National ~~Below~~Mortgage ~~investment~~Association ~~grade~~or ~~securities~~the ~~are~~Federal ~~speculative~~Home Loan Mortgage Corporation. RMBS and CMBS securities are ~~subject~~structured to ~~significantly~~allow ~~greater~~the ~~risks~~investor ~~related~~ to determine, within certain limits, the ~~creditworthiness~~amount of ~~the~~interest ~~issuers~~rate risk, prepayment risk and default risk that the ~~liquidity~~investor is willing to accept. It is this level of risk that determines the ~~market~~degree ~~for~~to ~~such securities.~~which ~~The~~the ~~Company~~yields ~~closely~~on ~~monitors~~RMBS ~~such~~and ~~investments~~CMBS will exceed the yields that can be obtained from corporate securities with similar credit ratings.

~~The~~33 Company did not hold any trading securities during the three and six months ended June 30, 2013. For the three and six months ended June 30, 2012, there was less than $0.1 million and less than $0.1 million, respectively, of investment income on fixed maturity trading securities and less than $0.1 million and $0.1 million, respectively, of income recognized from the change in the fair value on fixed maturity trading securities recorded in net investment income in the Statements of Income. The Company also recognized a loss of $0.1 million and $0.1 million, respectively, during the three and six months ended June 30, 2012, on the conversion of a fixed maturity trading security to preferred stock.

Unrealized gains (losses) incurred during the first nine months of 2013 and 2012, were primarily due to price fluctuations resulting from changes in interest rates and credit spreads. If the Company has the intent to sell or it is more likely than not that the Company will be required to sell these securities prior to the anticipated recovery of the amortized cost, securities are written down to fair value. If cash flow models indicate a credit event will impact future cash flows, the security is impaired to discounted cash flows. As the remaining unrealized losses in the portfolio relate to holdings where the Company expects to receive full principal and interest, the Company does not consider the underlying investments to be impaired.

At September 30, 2013 the Industrial sector and the United States Government sector had unrealized losses of ($343) thousand and ($407) thousand, of which ($285) thousand and ($407) thousand were investment grade, respectively. The Industrial sector also has two securities with an unrealized loss of ($58) thousand that were below investment grade. There were no sectors with unrealized losses greater than ($36) thousand at December 31, 2012.

The amortized cost and estimated fair value of fixed maturity AFS securities at September 30, 2013 and December 31, 2012 by rating agency equivalent were:


	September 30, 2013				December 31, 2012
(dollars in millions)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
AAA	$	22.2	$	23.7	$	21.0	$	23.6
AA		27.0		28.2		19.4		22.0
A		52.0		56.5		58.4		66.5
BBB		28.0		29.4		26.0		28.4
Below investment grade		8.5		8.6		5.9		6.4

Total fixed maturity AFS securities	$	137.7	$	146.4	$	130.7	$	146.9


Investment grade		94%		94%		95%		96%
Below investment grade		6%		6%		5%		4%

The Company defines investment grade securities as unsecured debt obligations that have a rating equivalent to S&P’s BBB- or higher (or similar rating agency). At September 30, 2013 and December 31, 2012 approximately $4.3 million (or 3%) and $2.4 million (or 2%), respectively, of fixed maturity securities were rated BBB-, which is the lowest investment grade rating given by S&P. Below investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. The Company closely monitors such investments.

Subprime Mortgage Investments

Subprime mortgages are loans to homebuyers who have weak or impaired credit histories. Through 2008, the market for these loans had expanded rapidly. During that time, however, lending practices and credit assessment standards grew steadily weaker. As a result, the market experienced a sharp increase in the number of loan defaults. Investors in subprime mortgage assets include not only mortgage lenders, but also brokers, hedge funds, and insurance companies. The Company does not currently invest in or originate whole loan residential mortgages. The Company categorizes ABS issued by a securitization trust as having subprime mortgage exposure when the average credit score of the underlying mortgage borrowers in a securitization trust is below 660 at issuance. The Company also categorizes ABS issued by a securitization trust with second lien mortgages as subprime mortgage exposure, even though a significant percentage of second lien mortgage borrowers may not necessarily have credit scores below 660 at issuance.

3334

The following tables provide the ABS subprime mortgage exposure by rating and estimated fair value by vintage at ~~June~~September 30, 2013 and December 31, 2012:

	June 30, 2013
	September 30, 2013
(dollars in millions)	Amortized Cost		Estimated Fair Value		GrossUnrealized Loss and OTTI
First lien - fixed
AAA	$	1.5	$	1.5	$	-
Below BBB		2.32		2.32		-
Total	$	3.87	$	3.87	$	-
	December 31, 2012
(dollars in millions)	Amortized Cost		Estimated Fair Value		GrossUnrealized Loss and OTTI
First lien - fixed
AAA	$	1.7	$	1.7	$	-
Below BBB		2.5		2.5		-
Total	$	4.2	$	4.2	$	-
	June 30, 2013
	September 30, 2013
	Estimated Fair Value by Vintage
(dollars in millions)	2004&Prior		2005		Total
First lien - fixed
AAA	$	1.5	$	-	$	1.5
Below BBB		1.54		0.8		2.32
Total	$	32.09	$	0.8	$	3.87
	December 31, 2012
	Estimated Fair Value by Vintage
(dollars in millions)	2004&Prior		2005		Total
First lien - fixed
AAA	$	1.7	$	-	$	1.7
Below BBB		0.9		1.6		2.5
Total	$	2.6	$	1.6	$	4.2

OTTI

For the three and ~~six~~nine months ended ~~June~~September 30, 2013, the Company had no impairment losses. For ~~both~~ the three ~~and~~months ~~six~~ended September 30, 2012, the Company did not incur any impairment losses. For the nine months ended ~~June~~September 30, 2012, the Company recorded impairment losses of less than $0.1 million, with no associated amortization of VOBA. The impairment loss was the result of the Company impairing a previously OCI impaired holding of a 2005 vintage RMBS in the second quarter due to an adverse change in cash flows.

Liquidity and Capital Resources

Liquidity

The Company’s liquidity requirements include the payment of sales commissions and other underwriting expenses and the funding of its contractual obligations for the life insurance and annuity contracts it has in force. The Company has developed and utilizes a cash flow projection system and regularly performs asset/liability duration matching in the management of its asset and liability portfolios. The Company anticipates funding its cash requirements utilizing cash from operations, normal investment maturities and anticipated calls and repayments, consistent with prior years. At ~~June~~September 30, 2013 and December 31, 2012, the Company’s assets included $~~178.5 million and $~~185.1 million, ~~respectively,~~ of cash, short-term investments and investment grade publicly traded AFS securities that could be liquidated if funds were required.

Capital Resources

During the first ~~half~~nine months of 2013 and 2012, the Company did not receive a capital contribution from AUSA nor did the Company pay a dividend to AUSA.

Ratings

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

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

•

S&P – AAA to R

•

A.M. Best – A++ to S

•

Fitch – AAA to C

The following table summarizes the Company’s ratings at ~~August~~November 13, 2013:

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

Commitments and Contingencies

The following table summarizes the Company’s policyholders’ obligations at ~~June~~September 30, 2013:

(dollars in millions)	Less Than One Year		One To Three Years		Four To Five Years		More Than Five Years		Total
General accounts (a)	$	13.6	$	25.23	$	21.63	$	9386.67	$	~~154~~146.09
Separate Accounts (a)		7466.56		~~129~~118.53		~~112~~99.2		~~394~~437.61		~~710~~721.82
	$	8880.12	$	~~154~~143.76	$	~~133~~120.85	$	~~488~~523.28	$	~~864~~868.81

(a)

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

The Company has utilized public information to estimate the future assessments it will incur as a result of life insurance company insolvencies. At ~~both June~~September 30, 2013 and December 31, 2012, the Company’s estimated liability for future guaranty fund assessments was $0.3 million. In addition, the Company has a receivable for future premium tax deductions of $0.1 million and less than $0.1 million at ~~June~~September 30, 2013 and December 31, 2012, respectively. The Company regularly monitors public information regarding insurer insolvencies and adjusts its estimated liability as appropriate.

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

Results of Operations

For the three months ended ~~June~~ September 30, 2013 and 2012, the Company recorded net income of ~~less than~~ $02.16 million and $12.0 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012, the Company recorded net income of $24.07 million and $35.8 million, respectively. The decrease in income during the three and six months ended June 30, 2013 as compared to the same period in 2012 was primarily due to increases in policy benefits and amortization of VOBA driven by stronger equity markets.

Policy charge revenue ~~increased~~had ~~$0.1~~no ~~million~~change during the three months ended ~~June~~September 30, 2013 as compared to the same period in 2012. Policy charge revenue decreased $0.34 million during the ~~six~~nine months ended ~~June~~ September 30, 2013 as compared to the same period in 2012.

The following table provides the changes in policy charge revenue by type for each respective period:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2013		2012		2013		2012
Asset-based policy charge revenue	$	21.09	$	1.78	$	35.98	$	45.09
Guaranteed benefit based policy charge revenue		0.23		0.3		0.58		0.58
Non-asset based policy charge revenue		0.9		1.0		12.87		23.0
Total policy charge revenue	$	3.1	$	3.01	$	69.23	$	69.57

Net derivative ~~gains (~~losses) ~~increased~~decreased $0.21 million and ~~decreased~~ $0.2 million, respectively, during the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, as compared to the same period in 2012. These losses relate to the futures contracts which fluctuate relative to the volatility in the S&P.

Policy benefits increased $02.35 million during the three months ended ~~June~~September 30, 2013 as compared to the same period in 2012. ~~Policy~~ Policy benefits increased $24.06 million during the ~~six~~nine months ended ~~June~~September 30, 2013 as compared to the same period in 2012. The following table provides the changes in policy benefits by type:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2013			2012			2013			2012
Annuity benefit unlocking	$	(0.15	)	$	(1.30	)	$	(1.40	)	$	(12.45	) (a)
Annuity benefit expense		10.68			(0.41	)		23.65			0.65	(b)
Life insurance mortality expense		0.63			0.92			1.03			1.02
Total policy benefits	$	2.1.6		$	1(0.89	)	$	23.28		$	(0.28	)

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

(b) The increase in annuity benefit expense was ~~related to~~ a ~~decrease~~result inof ~~Separate~~benefits ~~Account~~paid ~~returns~~exceeding inthe ~~2013~~release ~~when~~of ~~compared~~fair tovalue ~~2012~~reserves.

Amortization of VOBA was less than $0.91 million and $1.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, which included ~~no unlocking and~~ favorable unlocking of ~~less than~~ $0.1 million~~, respectively~~. Amortization of VOBA was $0.37 million and $01.85 million for the three and ~~six~~nine months ended ~~June~~September 30, 2012, ~~respectively,~~ which included favorable (unfavorable) unlocking of ($0.6) million and $0.94 million, respectively.

The following table provides the changes in insurance expenses and taxes for each respective period:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2013		2012		2013		2012
Commissions	$	0.65	$	0.6	$	1.27	$	1.39
General insurance expenses		0.47		0.4		01.74		01.71
Total insurance expenses and taxes	$	1.02	$	1.0	$	13.91	$	23.0

Segment Information

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

ITEM 4. Controls and Procedures

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

In addition, no change in the Company’s internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the ~~second~~third fiscal quarter of 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

3738

PART II Other Information

Item 1. Legal Proceedings.

The Company, like other life insurance companies, is subject to regulatory and legal proceedings, including class action lawsuits, in the ordinary course of our business. Such legal and regulatory matters include proceedings specific to us and other proceedings generally applicable to business practices in the industry in which the Company operates. In some lawsuits and regulatory proceedings involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation or regulatory proceeding cannot be predicted with certainty, at the present time, the Company believes that there are no pending or threatened proceedings or lawsuits that are likely to have a material adverse impact on our ability to meet our obligations.

The Company recently reached an agreement to end ~~the~~a multi-state exam ofwith several state insurance regulators and state controllers’ offices regarding compliance with laws and regulations concerning the identification, reporting, and escheatment of unclaimed benefits or abandoned funds. In ~~The~~addition, the Company is also the subject of other inquiries and market conduct examinations with a similar focus on the handling of unreported claims and abandoned property. The audits and related examination activity may result in additional payments to beneficiaries, escheatment of funds deemed abandoned, administrative penalties and changes in our procedures for the identification of unreported claims and handling of escheatable property. The Company does not believe that any regulatory actions or agreements that result from these examinations will have a material adverse impact on our ability to meet our obligations.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2012. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition, and/or operating results.

Item 2. Unregistered Sales of Equity Securities and use of Proceeds.

Not applicable.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

(a)	Nothing to report.

(b)	Nothing to report.

3839

Item 6. Exhibits.



3.1		Certificate of Amendment of the Charter of ML Life Insurance Company of New York. (Incorporated by reference to Exhibit 6(a)(ii) to Post-Effective Amendment No. 10 to ML of New York Variable Annuity Account A’s registration statement on Form N-4, File No. 33-43654, filed December 9, 1996.)

3.2		Certificate of Amendment of the Charter of ML Life Insurance Company of New York. (Incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, abd 333-133224, filed on August 12, 2010.)

3.3		By-Laws of Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, abd 333-133224, filed on August 12, 2010.)

4.1		Modified Guaranteed Annuity Contract. (Incorporated by reference to Exhibit 4(a) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

4.2		Modified Guaranteed Annuity Contract Application. (Incorporated by reference to Exhibit 4(b) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

4.3		Qualified Retirement Plan Endorsement. (Incorporated by reference to Exhibit 4(c) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

4.4		IRA Endorsement. (Incorporated by reference to Exhibit 4(d) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

4.5		Company Name Change Endorsement. (Incorporated by reference to Exhibit 4(e) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)

4.6		IRA Endorsement, MLNY009 (Incorporated by reference to Exhibit 4(d)(2) to Post-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 31, 1994).

4.7		Modified Guaranteed Annuity Contract MLNY-AY-991/94. (Incorporated by reference to Exhibit 4(a)(2) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed December 7, 1994).

4.8		Qualified Retirement Plan Endorsement MLNY-AYQ-991/94. (Incorporation by reference to Exhibit 4(c)(2) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed December 7, 1994).

10.1		General Agency Agreement between Royal Tandem Life Insurance Company and Merrill Lynch Life Agency Inc. (Incorporated by reference to Exhibit 10(a) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

10.2		Investment Management Agreement by and between Royal Tandem Life Insurance Company and Equitable Capital Management Corporation. (Incorporated by reference to Exhibit 10(b) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

10.3		Shareholders’ Agreement by and among The Equitable Life Assurance Society of the United States and Merrill Lynch & Co., Inc. and Tandem Financial Group, Inc. (Incorporated by reference to Exhibit 10(c) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

10.4		Service Agreement by and between Royal Tandem Life Insurance Company and Tandem Financial Group, Inc. (Incorporated by reference to Exhibit 10(d) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)

10.5		Service Agreement by and between Tandem Financial Group, Inc. and Merrill Lynch & Co., Inc. (Incorporated by reference to Exhibit 10(e) to Pre-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed October 16, 1990.)



10.6		Form of Investment Management Agreement by and between Royal Tandem Life Insurance Company and Merrill Lynch Asset Management, Inc. (Incorporated by reference to Exhibit 10(f) to Post-Effective Amendment No. 1 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 7, 1991.)

10.7		Assumption Reinsurance Agreement between Merrill Lynch Life Insurance Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance Company and Family Life Insurance Company. (Incorporated by reference to Exhibit 10(g) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)

10.8		Indemnity Agreement between ML Life Insurance Company of New York and Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit 10(h) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)

10.9		Amended General Agency Agreement between ML Life Insurance Company of New York and Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit 10(i) to Post-Effective Amendment No. 3 to the Registrant’s registration statement on Form S-1, File No. 33-34562, filed March 30, 1992.)

10.10		Amended Management Agreement between ML Life Insurance Company of New York and Merrill Lynch Asset Management, Inc. (Incorporated by reference to Exhibit 10(j) to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 30, 1993.)

10.11		Mortgage Loan Servicing Agreement between ML Life Insurance Company of New York and Merrill Lynch & Co., Inc. (Incorporated by reference to Exhibit 10(k) to Post-Effective Amendment No. 4 to the Registrant’s registration statement on Form S-1, File No. 33-60288, filed March 29, 1995.)

10.12		Master Distribution Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.2 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed January 4, 2008.)

10.13		Non-Affiliated Broker-Dealer Wholesaling Agreement between ML Life Insurance Company of New York, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Transamerica Capital, Inc. (Incorporated by Reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, and 333-133224, Filed March 27, 2008.)

10.14		Selling Agreement between ML Life Insurance Company of New York, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch Life Agency, Inc. (Incorporated by Reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, and 333-133224, Filed March 27, 2008.)

10.15		Purchase Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.1 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed August 17, 2007.)

10.16		First Amendment to Purchase Agreement between Merrill Lynch Insurance Group, Inc., Merrill Lynch & Co., Inc., and AEGON USA, Inc. (Incorporated by reference to Exhibit 10.1 to ML Life Insurance Company of New York’s Current Report on Form 8-K, File No. 33-34562, filed January 4, 2008.)

10.17		Principal Underwriting Agreement between Transamerica Capital, Inc. and ML Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of ML Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed on March 26, 2009.)

10.18		Amended and Restated Principal Underwriting Agreement between Transamerica Capital, Inc. and Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed March 25, 2011.)

10.19		Investment Management Services Agreement among Transamerica Asset Management, Inc., Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. (Incorporated by reference to the Annual Report on Form 10-K of Transamerica Advisors Life Insurance Company of New York, File Nos. 33-34562, 33-60288, 333-48983, 333-133224, filed March 25, 2011.)

31.1		Certification by the Chief Executive Officer pursuant to Rule 15d-14(a), is filed herewith.

31.2		Certification by the Chief Financial Officer pursuant to Rule 15d-14(a), is filed herewith.

32.1		Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is filed herewith.

32.2		Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is filed herewith.

101.INS		XBRL Instance Document, is filed herewith.

101.SCH		XBRL Taxonomy Extension Schema, is filed herewith.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase, is filed herewith.

101.DEF		XBRL Taxonomy Definition Linkbase, is filed herewith.

101.LAB		XBRL Taxonomy Extension Label Linkbase, is filed herewith.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase, is filed herewith.

SIGNATURES

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

EXHIBIT INDEX



31.1		Certification by the President pursuant to Rule 15d-14(a), is filed herewith.

31.2		Certification by the Chief Financial Officer pursuant to Rule 15d-14(a), is filed herewith.

32.1		Certification by the President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is filed herewith.

32.2		Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is filed herewith.

101.INS		XBRL Instance Document, is filed herewith.

101.SCH		XBRL Taxonomy Extension Schema, is filed herewith.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase, is filed herewith.

101.DEF		XBRL Taxonomy Definition Linkbase, is filed herewith.

101.LAB		XBRL Taxonomy Extension Label Linkbase, is filed herewith.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase, is filed herewith.

(4th out of 21)

(2nd out of 16)

(4th out of 19)

Filing Compare · TRANSAMERICA ADVISORS LIFE INSURANCE Co OF NEW YORK