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

9 Months Ended

Sep. 30, 2016

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

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

For a complete discussion of the Company’s VOBA, DAC and DSI accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

VOBA

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Amortization expense	$	(1,131	)	$	(7,270	)	$	(14,103	)	$	(18,819	)
Unlocking		(12,887	)		(23	)		(12,904	)		(107	)
Adjustment related to realized (gains) losses on investments		(641	)		(197	)		(175	)		(141	)
Adjustment related to unrealized (gains) losses and OTTI on investments		(3,072	)		599			(15,488	)		6,318

Change in VOBA carrying amount	$	(17,731	)	$	(6,891	)	$	(42,670	)	$	(12,749	)

For the three months ended September 30, 2016, the decrease in VOBA was primarily driven by the favorable unlocking adjustment due to increased mortality assumptions and adjustments relating to unrealized gains due to the low interest rate environment. For the nine months ended September 30, 2016, the decrease in VOBA was primarily driven by the third quarter favorable unlocking adjustment, amortization due to positive gross profits and adjustments relating to unrealized gains due to the low interest rate environment.

DAC

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
DAC	2016			2015			2016			2015
Capitalization	$	14		$	70		$	34		$	144
Accretion (amortization) expense		(3,548	)		3,509			(3,964	)		(278	)
Unlocking		1,552			(1,301	)		1,526			(1,352	)

Change in DAC carrying amount	$	(1,982	)	$	2,278		$	(2,404	)	$	(1,486	)

For the three months ended September 30, 2016, DAC decreased as a result of increased amortization that was driven by high Separate Accounts performance and hedge gains, offset by beginning of period unlocking for assumption updates and model changes. For the nine months ended September 30, 2016, DAC decreased as a result of third quarter earnings that were driven by high Separate Account performance and hedge gains, offset by beginning of period unlocking for assumption updates and model changes.

DSI

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
DSI	2016			2015			2016			2015
Capitalization	$	4		$	8		$	7		$	13
Accretion (amortization) expense		(806	)		799			(900	)		(58	)
Unlocking		353			(295	)		347			(307	)

Change in DSI carrying amount	$	(449	)	$	512		$	(546	)	$	(352	)

For the three months ended September 30, 2016, DSI decreased as a result of increased amortization that was driven by high Separate Accounts performance and hedge gains, partially offset by beginning of period unlocking for assumption updates and model changes. For the nine months ended September 30, 2016, DSI decreased as a result of third quarter earnings that were driven by high Separate Account performance and hedge gains, partially offset by beginning of period unlocking for assumption updates and model changes.

TRANSAMERICA ADVISORS LIFE INSURANCE Co 10-Q