STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT INSURANCE DEPARTMENT ORDER ADOPTING REPORT OF EXAMINATION I, Barbara C. Spear, Acting Insurance Commissioner ofthe State of Connecticut, having fully considered and reviewed the Examination Report (the "Report") ofmml BAY STATE LIFE INSURANCE CaMPANY (the "Company") as ofdecember 31, 2009, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions, TO WIT: 1. I, Barbara C. Spear, Acting Insurance Commissioner ofthe State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions oftitle 38a ofthe Connecticut General Statutes; 2. MML BAY STATE LIFE INSURANCE CaMPANY ("Company") is a domestic insurer authorized to transact the business of insurance in the State of Connecticut; 3. On December 20, 2010, the verified Examination Report ofmml BAY STATE LIFE INSURANCE COMPANY ("Company") was filed with the Connecticut Insurance Department. 4. In accordance with Conn. Gen. Statues 38a-14(e)(3), MML BAY STATE LIFE INSURANCE CaMPANY was afforded a period ofthirty (30) days within which to submit to the Connecticut Insurance Department a written submission or rebuttal with respect to any matters contained in the Report. 5. On January 20,2011, the Company filed a written submission indicating that they were in agreement with all the recommendations contained in the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A. P.O. Box 816 Hartford, CT An Equal Opportunity Employer

2 NOW, THEREFORE, it is ordered as follows: 1. That the Examination Report ofmml SAY STATE LIFE INSURANCE COMPANY ("Company") hereby is adopted as filed with the Insurance Department. 2. That MML SAY STATE LIFE INSURANCE COMPANY ("Company") shall comply with all of the recommendations set forth in the Report, and that failure by MML SAY STATE LIFE INSURANCE COMPANY ("Company") to so comply shall result in sanctions or administrative action as provided by Title 38a of the Connecticut General Statutes. Dated at Hartford, Connecticut, this 24 th day ofjanuary ~ Acting Insurance Commissioner

3 Exhibit A ASSOCIATION EXAMINATION REPORT OF THE MML BAY STATE LIFE INSURANCE COMPANY AS OF DECEMBER 31, 2009 BY THE CONNECTICUT INSURANCE DEPARTMENT

4 TABLE OF CONTENTS Salutation Scope ofexamination History Organizational Chart Management and Control Related Party Transactions Insurance Coverage Territory and Plan ofoperation Reinsurance Information Technology Controls Accounts and Records Financial Statements Assets Liabilities, Surplus and Other Funds Summary ofoperations Capital and Surplus Investments Aggregate Reserves for Life Contracts Liability for Deposit-type Contracts Contract Claims - Life Common Capital Stock Gross Paid in and Contributed Surplus Aggregate Write-ins for Special Surplus Funds Unassigned Funds (Surplus) Separate Accounts Subsequent Event Conclusion Signature

5 December 20, 2010 The Honorable Alfred W. Gross Financial Condition (E) Committee Commissioner Bureau of Insurance Commonwealth of Virginia P.O. Box 1157 Richmond, VA The Honorable Mila Kofman Secretary, Northeastern Zone Superintendent of Insurance Bureau of Insurance 34 State House Station Augusta, Maine The Honorable Barbara C. Spear Acting Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6th Floor Hartford, CT Dear Commissioners/Superintendent: In compliance with your instructions and pursuant to the requirements of Section 38a-14 of the Connecticut General Statutes (CGS), the undersigned has conducted a Financial Examination of the condition and affairs of the: MML BAY STATE LIFE INSURANCE COMPANY (hereinafter referred to as the Company or MML), a capital stock corporation incorporated under the laws of the State of Connecticut and having its main administrative office located at 1295 State Street, Springfield, Massachusetts. The report of such examination is submitted herewith.

6 SCOPE OF EXAMINAnON The previous examination of the Company was conducted as of December 31, The current examination, which covers the subsequent five year period, through December 31,2009, was conducted under the zone plan ofthe National Association of Insurance Commissioners (NAIC) at the primary location of the books and records of the Company. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the NAIC Financial Examiners Handbook (the Handbook). The Handbook requires that we plan and perfonn the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining infonnation about the Company, including corporate governance, identifying inherent risks within the Company, and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with Statutory Accounting Principles and Annual Statement Instructions. All accounts and activities of the Company were considered in accordance with the risk-focused examination process. The examination was perfonned in conjunction with the examination of Massachusetts Mutual Life Insurance Company (MassMutual), the lead company, being conducted simultaneously by the Massachusetts Insurance Department (MID). Wherever possible, reliance was placed on the review perfonned by the MID with respect to processes and controls common to both the Connecticut and Massachusetts domiciled companies. A concurrent examination was also conducted on C.M. Life Insurance Company (CML), an affiliated Connecticut domiciled insurance company, which is a member of the Massachusetts Mutual Group of Companies. As part of the examination planning procedures, the Financial Regulation Division of the Connecticut Insurance Department (the Division) reviewed the following materials submitted by the Company: Annual statements filed with the Division; Statements of actuarial opinion; The 2009 audit report by the Company's independent certified public accountants, KPMG, LLP (KPMG); The 2008 and 2009 statutory audit opinions by KPMG, which indicated no material concerns, with respect to financial condition or regulatory compliance issues; Reports of the Company's Internal Audit Department; Minutes of the Board of Directors (Board); affiliate and custodial agreements and; other documents related to significant transactions that require prior approval or requests for deviations from the NAIC Accounting Practices and Procedures Manual (Manual). 2

7 A comprehensive review was made of the financial analysis files and documents submitted to the Financial Analysis Unit of the Division, as well as Examination Jumpstart and Financial Analysis and Solvency Tracking System reports obtained from the NAIC database. Ernst & Young, LLP (E&Y) was engaged by the Division to assist in the review of the Company's actuarial computed loss reserves and significant ceded reinsurance treaties. E&Y was also retained to assist with the examination of the Company's investment strategies and initiatives. This included the evaluation of the adequacy of the Company's investment risk analysis and action plans, and the review of the Company's processes and policies regarding valuation ofderivatives and impairments. The accounting finn of CCR, LLP (CCR) was engaged by the Division to assist in the examination of the Company. Work papers prepared by KPMG as of December 31, 2009, in connection with its annual statutory audits, were reviewed and relied upon to the extent deemed appropriate. Infonnation technology (IT) controls review work papers prepared by E&Y for the MID, in connection with its examination of MassMutual, were reviewed and relied upon to the extent deemed appropriate. Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature. Failure of items in this report to add to totals, or for totals to agree with captioned amounts, is due to rounding. HISTORY The Company was organized in 1894 under the laws of the state of Missouri. The Company was originally incorporated as a fraternal society known as Western-Funeral Benefit Association. Its name was changed to Western Life Insurance Company when it became a stipulated premium company in MassMutual, a mutual life insurance company domiciled in the Commonwealth of Massachusetts, purchased the Company on December 30, 1981, and the Company was renamed MML Bay State Life Insurance Company, effective March 29,1982. On June 30, 1997, the Company was redomesticated from Missouri to Connecticut. Effective August 29,2002, the Commissioner of the Connecticut Insurance Department approved the contribution by MassMutual of all its shares of the Company to CML, becoming a wholly-owned-subsidiary of CML. 3

8 ORGANIZATIONAL CHART The following is an organizational chart that identifies the relationship between the Company, MassMutual and CML, as of December 31, 2009: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY (Massachusetts) C.M. LIFE INSURANCE COMPANY (Connecticut) I II MMLBAYSTATE LIFE INSURANCE COMPANY (Connecticut) ~ MANAGEMENT AND CONTROL The Company is managed by employees of MassMutual pursuant to an Administrative Services Agreement (Agreement). The Agreement allows MassMutual to provide services such as accounting, legal, data processing, investment management, tax accounting, and benefit programs. The Agreement documents methods for MassMutual to be reimbursed for the cost ofproviding such services. The bylaws of the Company provide that an annual meeting of the shareholders for the election of Directors, and for the transaction of other business, shall be held on the second Wednesday in the month of April of each year. Special meetings of the shareholders may be called at any time, by the President or the Board, and shall be called by the President upon the written request of ten percent of the shareholders of record entitled to vote at such special meetings. 4

9 MM:L Bay State Life Insurance Company At all meetings of the shareholders, the shareholders present, in person or by proxy, representing a majority ofthe shares entitled to vote at the meeting, shall be sufficient to constitute a quorum for the transaction ofbusiness. The Board shall be composed of not less than three or more than fifteen directors, with the number of directors fixed from time to time by a vote of a majority ofthe Board. An annual meeting ofthe Board shall be held for the election ofofficers and for the transaction ofsuch other business as may properly come before the meeting. Special meetings of the Board may be called by the President, and shall be called by the President upon receipt of a written request ofnot less than two directors. A majority of the full Board shall constitute a quorum for the transaction ofbusiness. The Board, by the affirmative vote ofa majority ofthe Board, may appoint from its members, such committees as it may deem advisable. Each committee shall have two or more members who shall serve at the pleasure of the Board. A majority of the designated committee members shall constitute a quorum for the transaction ofbusiness, by such committee. The officers of the Company shall be a President, a Secretary, a Treasurer, and such other officers as the Board may determine. Members of the Board serving the Company at December 31, 2009 were as follows: Director Stuart H. Reese Michael R. Fanning Michael T. Rollings Mark D. Roelling Title and Principal Business Affiliation Chairman and Chief Executive Officer Massachusetts Mutual Life Insurance Company Director Massachusetts Mutual Life Insurance Company Executive Vice President and Chief Financial Officer Massachusetts Mutual Life Insurance Company Executive Vice President and General Counsel Massachusetts Mutual Life Insurance Company The executiv~ officers serving the Company at December 31, 2009 were as follows: Name Roger W. Crandall Christine C. Peaslee Todd G. Picken Isadore Jermyn Stuart H. Reese Michael T. Rollings Mark D. Roelling Title President Secretary Treasurer Actuary Chairman and ChiefExecutive Officer Executive Vice President and ChiefFinancial Officer Executive Vice President and General Counsel 5

10 RELATED PARTY TRANSACTIONS Administrative Services Agreement The Company entered into the Agreement with MassMutual on January 1, 1997, and amended February 28,2007, whereby the Company pays a management and support services fee equal to the costs or deductions incurred by MassMutual with respect to such services rendered on behalf of the Company. The service fee is determined using fair and reasonable terms based upon the direct or indirect costs related to the services provided. Those expenses are allocated to the Company in conformity with customary insurance accounting practices consistently applied, and become due and payable no later than thirty days after receipt of the quarterly billing statement. The Agreement requires the books, accounts and records of the Company to be maintained as to clearly and accurately disclose the precise nature and details of the services and the fee. Annually, a detailed written statement of amounts received and expended, pursuant to the Agreement, along with supporting documentation as requested by the Company, is provided to the Company by MassMutual. The services provided to the Company include, but are not limited to, financial accounting and reporting, tax planning and accounting, human resources, computer and data processing, treasury and custodial services, investment management and legal support. Tax Allocation Agreement The Company entered into a tax allocation agreement with MassMutual and its affiliated subsidiaries on January 1, 1997, and amended February 28,2007, whereby the Company and the collective members included in the agreement file a consolidated U.S. income tax return. The members' income tax liability is allocated in accordance to its taxable earnings. Pursuant to the agreement, the members agree to reimburse MassMutual for payment of such tax liability, compensate any member for use of its losses or tax credits, and provide for the allocation and payment of any refund arising from an overpayment, or carry back or carry forward oflosses or tax credits. Each of the members is required to maintain all records that are necessary to properly substantiate the information contained in the consolidated return. msurancecoverage The Company is covered for employee dishonesty by an insurance company blanket bond policy issued by Lloyds of London. Excess coverage layers are written through various insurers. The policies cover MassMutual and all of its major subsidiaries. The limit of liability is $100,000,000, which exceeds the suggested minimum limits of insurance noted in the Handbook. 6

11 In addition to fidelity bond insurance, the Company carried other insurance coverages, including the following lines, with the respective insurance companies: Company Continental Casualty Company Lexington Insurance Company National Union Fire Insurance Company Of Pittsburgh, PA National Union Fire Insurance Company Of Pittsburgh, PA National Union Fire Insurance Company Of Pittsburgh, PA ACE American Insurance Company ACE American Insurance Company New Hampshire Insurance Company Description Directors and Officers Liability Commercial Property Commercial General Liability Umbrella Liability Commercial Automobile Aircraft Foreign Liability Workers' Compensation and Employers'Liability TERRITORY AND PLAN OF OPERATION The Company is licensed in the District of Columbia and all states, with the exception of New York. The Company serves as the strategic unit of MassMutual that offers variable life and variable annuity products to individuals and large corporations through the general and separate accounts. The products are distributed through career agents, registered financial planners and brokers. REINSURANCE The Company, through affiliated and non-affiliated insurers, utilizes a variety of ceded reinsurance agreements. Affiliated Reinsurance Ceded The Company reinsures with MassMutual substantially all of its plans on a yearly renewable term basis amounts in excess of its retention reinsured. The maximum Company retention is $500,000. The Company also reinsures with MassMutual, on a stop loss basis, all of its life insurance business net of any other reinsurance. This 7

12 agreement covers claims that exceed the attachment point of 120% of expected claims, with the maximum annual liability of $25 million. Non-affiliated Reinsurance Ceded The Company has predominantly automatic yearly renewal term reinsurance agreements for its universal and term products with various companies. These policies are reinsured on a first dollar quota share basis with the Company typically retaining 10% up to a limit specified in the agreements, from the first $25 million to $50 million. The reinsured portion also varies by agreement. INFORMATION TECHNOLOGY CONTROLS The MID engaged E&Y to review the Company's IT Controls. This work was reviewed and relied upon by the Division. The scope of the review included identification, evaluation and assessment of the significant controls, as represented by the Company's responses to the Handbook's Information Systems Questionnaire. The focus of the evaluation of IT Controls review included the following: Management and organization Logical and physical access Environment System acquisition and development Documentation and program change Computer operations Contingency planning and disaster recovery The internal control structure of the Company and selected accounting procedures were reviewed and discussed with management through questionnaires, observation and attribute testing. The reconciliation of accounts and the internal control review noted that the operating environment is conducive to producing reliable accounting information, and the review did not disclose any material data integrity issues. ACCOUNTS AND RECORDS Financial accounting records are processed and maintained through the "SAP" general ledger system, a software application developed by an external vendor. The system maintains the Company's financial accounting records, and supports all statutory reporting and accounting requirements processed and maintained through the Company's general ledger system. The Company utilizes "Wings", a product of Eagle Technology Management, Inc., for the preparation of its annual statement. General ledger account balances for the general and separate accounts were reconciled and traced to the amounts reported in the 2009 Annual Statement. Further detailed analyses were performed on the individual accounts throughout the examination. 8

13 FINANCIAL STATEMENTS The following statements, as filed by the Company and as detennined by the examination, reflect the assets, liabilities, surplus and other funds, and summary of operations of the Company, as of December 31,2009: ASSETS Account Description Assets Nonadmitted Assets $164,470,116 8,393 7,602,662 (2,923,818) 98,666,299 13,372 2,733,621 $7,526 Bonds Common Stocks Mortgage loans on real estate - first Liens Cash, cash equivalents and short-term investments Contract loans Aggregate write-ins for invested assets Investment income due and accrued Premiums and considerations - uncollected premium and agents' balances in the course of collection Premiums and considerations - deferred premiums, agents' balances and installments booked but deferred and not yet due Reinsurance - amounts recoverable from reinsurers Reinsurance - other amounts receivable under reinsurance contracts Current federal and foreign income tax recoverable Net deferred tax asset Guaranty funds receivable or on deposit Receivable from parent, subsidiaries and affiliates Aggregate write-ins for other than invested assets 9,889 (151,660) 2,712,010 2,163,044 4,937,447 23,923,424 1,612, , , ,241,010 4,054,756,927 3,818 Net Admitted Assets $164,470,116 8,393 7,602,662 (2,923,818) 98,666,299 13,372 2,726,095 6,071 (151,660) 2,712,010 2,163,044 4,937,447 15,579,436 8,343,988 1,612, , , ,900, ,340,326 4,054,756,927 Total assets excluding Separate Accounts From Separate Accounts Totals $4,360,997,937 $15, ~34~Q

14 LlABll..JTIES, SURPLUS AND OTHER FUNDS Aggregate reserve for life contracts Liability for deposit-type contracts Contract claims: Life Premiums and annuity considerations for life and accident and health contracts received in advance Contract liabilities not included elsewhere: Provision for experience rating refunds Other amounts payable on reinsurance Commissions to agents due or accrued-life and annuity contracts General expenses due or accrued Transfer to Separate Accounts due or accrued Taxes, licenses and fees due or accrued, excluding federal income taxes Amounts withheld or retained by company as agent or trustee Remittances and items not allocated Miscellaneous liabilities: Asset valuation reserve Payable to parent, subsidiaries and affiliates Aggregate write-ins for liabilities $115,191,603 1,798,191 3,653,970 3,953 12,461, , , ,262 (8,817,572 2,331,324 11, ,376 32,654 3,444, ,711 Total liabilities excluding Separate Accounts 132,247,365 From Separate Accounts 4,054,756,552 Total liabilities 4,187,003,917 Common capital stock 2,500,200 Gross paid in and contributed surplus 146,736,914 Aggregate write-ins for special surplus funds 4,224,637 Unassigned funds (surplus) 4,631,584 Surplus 155,593,135 Total capital and surplus 158,093,335 Total liabilities and surplus $4,345,097,252 10

15 SUMMARY OF OPERATIONS Premium and annuity considerations for life and accident and health contracts Net investment income Amortization of interest maintenance reserve Separate Accounts net gain from operations excluding unrealized gains or losses Cornrnissions and expense allowances on reinsurance ceded Reserve adjustments on reinsurance ceded Miscellaneous income: Income from fees associated with investment management, administration and contract guarantees from Separate Accounts Aggregate write-ins for miscellaneous income $38,029,328 13,926,306 45, ,623,299 (14,282,520) 81,255,994 (1,208,036) Totals 120,389,387 Death benefits 23,932,065 Annuity benefits (223,729) Disability benefits and benefits under accident and health contracts 263,077 Surrender benefits and withdrawals for life contracts 66,086,509 Interest and adjustments on contract or deposit-type contract funds 496,780 Increase in aggregate reserves for life and accident and health contracts 6,757,498 Totals 97,312,199 Cornrnissions on premiums, annuity consideration and deposit-type contract funds 4,182,095 General insurance expenses 11,258,148 Insurance taxes, licenses and fees, excluding federal income taxes 1,849,650 Increase in loading on deferred and uncollected premiums (1,757) Net transfer to or (from) Separate Accounts net of reinsurance (8,302,898) Aggregate write-ins for deductions 18,456 Totals 106,315,893 Net gain from operations before dividends to policyholders and federal income taxes 14,073,504 Net gain from operations after dividends to policyholders and before federal income taxes Federal and foreign income taxes incurred (excluding tax on capital gains) Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) Net realized capital gains or (losses) (excluding gains (losses) transferred to the Il'v1R) less 14,073,504 4,368,581 9,704,923 capital gains tax (1,980,090) Net income $7,724,83A B

16 CAPITAL AND SURPLUS Capital and surplus, December 31, prior year $191,775,691 Net income 7,724,834 Change in net unrealized capital gains (losses) less capital gains tax 2,242 Change in net deferred income tax (103,296) Change in nonadmitted assets (525,807) Change in asset valuation reserve 22,636 Surplus (contributed to) withdrawn from Separate Accounts during period 6,549 Other changes in surplus in Separate Accounts statement (7) Cumulative effect of changes in accounting principles 135,173 Dividends to stockholders (45,000,000) Aggregate write-ins for gains and losses in surplus 4,055,321 Net change in capital and surplus for the year (33,682,356\ Capital and surplus, December 31, current year $158,093,335 INVESTMENTS The Division engaged E&Y to examine the Company's and CML's investment and general risk management practices. The scope of the review included the following: Gain an understanding of the investment strategy and portfolio composition to assess the investment strategy and initiatives compared to the business objectives; Assess the investment risk management function and practices to identify, measure, manage and monitor/report risks; Assess the valuation and price verification process; Review the watch list and impairment processes. The focus ofe&y's review and analysis included the following risk areas: Asset pricing and fair value determination; Other-than-temporary impairment (OTT!) determinations; Commercial mortgage backed securities (CMBS) and other securitized assets; Derivative investment and hedge programs; Mortgage loans and collateralized real estate; Private placement program; Liquidity and funding risks.

17 E&Y's approach to conducting the risk review included the following: Reviewed investment policy and guideline documentation; Reviewed investment strategy documentation for a sample of product lines; Reviewed audited statutory financial statements as of December 31, 2009; Interviewed key senior staff; Reviewed operating plan and key priorities; Reviewed investment management monthly operating reports; Analyzed investment portfolio by asset class, bond type, credit ratings and other similar characteristics; Reviewed derivative program and counterparty exposure reports; Reviewed commercial mortgage loan portfolio monitoring and reporting; Reviewed problem asset and impairment review meeting materials, including underwater securities report, problem bond report and commercial mortgage problem loan reports; Reviewed accounting policy on OTT!; Reviewed documentation of valuation policies and methodology for each asset class; Reviewed derivatives use plan quarterly program review reports. The Company's investment strategy appears to be fundamentally sound and portfolio strategies exist at the product level, which recognize the product liability and liquidity needs. The Company employs numerous reports used to manage investment risk and performance and analyzes investment performance relative to plan. Internal committees and senior management review forums' focus on risk management and provides for a disciplined impairment review process. AGGREGATE RESERVE FOR LIFE CONTRACTS $115,1 91,603 LIABILITY FOR DEPOSIT-TYPE CONTRACTS $1,798,191 CONTRACTCL~S-LWE $3,653,970 The Division retained E&Y to assist in reviewing the accuracy and theoretical correctness of reserve calculations and to review the asset adequacy analysis performed by the appointed actuary as of December 31, Consistent with the risk focused approach to the examination, E&Y relied upon analyses and tests documented by the Company and in the working papers of the Company's independent auditors along with supplemental analyses created by E&Y to perform its work. Formula Reserves-Scope Reviews of the Company's primary lines of business were conducted to determine whether the Company's reserves were established in accordance with minimum standards for the valuation ofliabilities specified in the Connecticut Standard Valuation Law, Actuarial Guidelines and applicable Actuarial Standards of Practice. In performing the reserve review and analysis, E&Y conducted the following tests: 13

18 :MJ'vfL Bay State Life Insurance Company Reviewed and analyzed statutory Annual Statements for 2009 and inquired into other recent years covered under the examination period; Met with Company management to understand the business of the Company, its procedures around actuarial calculations, its approach to risk management and its likely areas of financial and business risk; Analyzed assumptions and methodologies used to calculate reserves and related actuarial items and compared them to statutory guidance, focusing on new products and new guidance introduced since the last examination. This primarily meant the application of Actuarial Guideline 43 as it applies to variable annuities with guaranteed minimum benefits; Reviewed tests performed by the Company's actuaries and its independent auditors, and performed independent supplemental reserve calculation tests; Reviewed experience study information compiled and provided by the Company in support of the major assumptions used in the asset adequacy analysis; Reviewed and analyzed the Company's Statement of Actuarial Opinion, including the 2009 Actuarial Memorandum, and inquired into other recent years covered under the examination period. Reinsurance Agreements-Scope A review was performed of items recorded on Schedule S of the Company's Annual Statement. The review included an understanding of reinsurance reserve implications. As no new reinsurance treaties or significant amendments were entered into during the examination period, treaty language was not evaluated to ensure compliance with Connecticut Regulations and risk transfer requirements. However, significant reinsurance reserve credits were identified and reviewed for continued applicability of prior treatment. Asset Adequacy-Scope The appropriateness of the assumptions and methods used to project asset and liability cash flows, by major line of business, was independently analyzed and validated to ensure assets supporting the Company's reserves were adequate based on various environmental scenarios. In reviewing the asset adequacy analysis, E&Y conducted the following tests: Reconciled assets and liabilities to the annual statement; Reviewed and analyzed material liabilities in relation to contract provisions that impact future liability cash flows; Reviewed material asset types, changes in the mix and structure, and the employment of derivatives instruments; Reviewed experience studies and unit expense analysis supporting the lapse, mortality, partial withdrawal, morbidity and expense assumptions used in the asset adequacy analysis; Reviewed testing methodology, including the interaction of assets and liabilities; Reviewed the testing results and sensitivity tests that the Company used to arrive at its conclusions ofasset adequacy. 14

19 It was detennined that the Company's cited reserve base and methods make adequate provision for Connecticut minimum statutory reserves and are consistent with actuarial guidelines. COMMON CAPITAL STOCK $2,500,200 At December 31,2009, the Company reported 25,000 shares of common stock authorized, with 12,501 shares outstanding, having a par value of$200. All issued shares are owned by CML. The Division approved the following dividends that the Company paid to its parent during the examination period: Dividend Type Form Year Paid Amount Ordinary Cash 2005 $47,000,000 Ordinary Cash 2006 $73,500,000 Ordinary Cash 2007 $37,000,000 Extraordinary Cash 2009 $45,000,000 GROSS PAID IN AND CONTRIBUTED SURPLUS $146,736,914 The account remained unchanged during the period under review. AGGREGATE WRITE-INS FOR SPECIAL SURPLUS FUNDS $4,224,637 The account was established in 2009 to account for an additional deferred tax liability in accordance with SSAP lor of the Manual. UNASSIGNED FUNDS (SURPLUS) $4,631,584 The following exhibit reflects the balance of this account during the period under review: 2008 $42,538, $34,120, $62,342, $68,520,770 IS

20 SEPARATE ACCOUNTS Under the authority granted by Section 33a-459 of the CGS, the Company has established separate accounts to which it allocates certain amounts received under variable life and variable annuity business. The allocation is in accordance with the provisions of Section 38a-433 of the CGS. The Company, through its general and separate accounts, offers individual and group variable life insurance, and individual and group variable annuity products. Compensation is earned in the form of investment management fees, investment margin and asset value expense charges. The following exhibit summarizes the balance sheet ofthe separate accounts as of December 31, 2009: ASSETS General Account Basis Fair Value Basis Total Bonds Preferred Stocks Common Stocks Mortgage loans on real estate Cash and cash equivalents Short-term investments Aggregate write-ins for invested assets $754,476,115 40,514, ,110,860 16,730,450 95,453 $1,552,521, , ,588, ,529, ,849, ,832,631 $2,306,997, , ,588,560 40,514, ,640, ,579, ,928,084 Subtotals, cash and invested assets 931,927,401 3,093,241,228 4,025,168,629 Investment income due and accrued 7,480,900 7,698,921 15,179,821 Receivables for securities 4,487,335 9,849,886 14,337,221 Net adjustment in assets and liabilities due to foreign exchange rates 6,835 6,835 Aggregate write-ins for other than invested assets 64,420 64,420 Total $ $ $4054, Aggregate reserve for life, annuity and accident and health contracts Interest Maintenance Reserve Charges for investment management, administration and contract guarantees due or accrued Investment expenses due or accrued Other transfers to general account due or accrued Payable for securities Aggregate write-ins for liabilities LIABILITIES AND SURPLUS General Account Basis $916,440,717 9,090,515 1,910,327 (3,302,338) 14,562,519 5,193,896 Fair Value Basis $3,082,773,439 1,164,539 53,806 9,045,044 14,673,263 3,150,825 Total $3,999,214,156 9,090,515 3,074,866 53,806 5,742,706 29,235,782 8,344,721 Total Liabilities 943,895,636 3,110,860,916 4,054,756,552 Unassigned funds Surplus Totals ~Q4':\ ln5.636 $3, ,2Q.$l.,054,

21 SUBSEQUENT EVENT Commencing in 2010, the Company and CML ceased writing new business. All new business will be written through MassMutual. CONCLUSION The results of this examination disclosed that, as of December 31, 2009, the Company had admitted assets of $4,345,097,252, liabilities of $4, 187,003,917, and surplus of $158,093,335. During the period under examination, admitted assets increased $37,884,140, liabilities increased $102,312,694, and surplus as regards policyholders decreased $64,428,554. It was detennined that the Company's assets were fairly stated in accordance with guidance outlined in the Manual. Assets were acceptable under Section 38a-102 of the CGS. The liabilities established were adequate to cover the Company's obligations to policyholders. 17

22 SIGNATURE In addition to the undersigned, the following members of the State of Connecticut Insurance Department participated in the examination: William Arfanis, CFE; Daniel Levine, CPA; Robert Linnell, CFE; Kenneth Roulier, AFE, AES, CISA; Alan Sundell, AFE; the CPA finn of CCR; and the actuarial and investment consulting finn of E&Y. I, Thomas H. Corrigan, CFE, solemnly swear that the foregoing report on examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as ofdecember 31,2009, to the best of my infonnation, knowledge and belief. Respectfully submitted, I Tho Exa. er-in-charge State f Connecticut Insurance Department State of Connecticut ss. Hartford County of Hartford Subscribed and sworn to before me, t{cia ~1'r). fhjj;,j'e{ Notary Public on this ;20% day of t/..an,2010. Qlli~futJicb7,~ My Commission Expires?/30!cJ-o I.s 18

23 STATE OF CONNECTICUT INSURANCE DEPARTMENT CERTIFIED COPY I, BARBARA C. SPEAR, ACTING INSURANCE COMMISSIONER OF THE STATE OF CONNECTICUT, HAVE COMPARED THE ANNEXED COpy WITH THE ORIGINAL RECORD ON FILE WITH THE DEPARTMENT OF INSURANCE AND DO HEREBY CERTIFY THAT IT IS A WHOLE, TRUE AND CORRECT COpy OF THE ORIGINAL RECORD. WITNESS MY HAND AND SEAL OF THE INSURANCE COMMISSIONER OF THE STATE OF CONNECTICUT THIS 24th DAY OF JANUARY 2011 Ba ara C. Spear Acting Insurance Commissioner P.O. Box816 Hartford,CT An Equal Opportunity Employer