9. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS
The Company has entered into long duration contracts that subject the Company to mortality, longevity and morbidity risks and which are accounted for as life and annuity premiums earned. Life and annuity benefit reserves are established using assumptions for investment yields, mortality, morbidity, lapse and expenses, including a provision for adverse deviation. The Company establishes and reviews its life and annuity reserves regularly based upon cash flow projections. The Company establishes and maintains its life and annuity reinsurance reserves at a level that the Company estimates will, when taken together with future premium payments and investment income expected to be earned on associated premiums, be sufficient to support all future cash flow benefit obligations and third party servicing obligations as they become payable. The assumptions used to determine policy benefit reserves are best estimate assumptions that are locked-in throughout the life of the contract unless a premium deficiency develops. The assumptions are reviewed no less than annually and are unlocked if they result in a material reserve change. The Company establishes these estimates based upon transaction specific historical experience, information provided by the ceding company and industry experience studies. Actual results could differ materially from these estimates. As the experience on the contracts emerges, the assumptions are reviewed by management. The Company determines whether actual and anticipated experience indicates that existing policy reserves, together with the present value of future gross premiums, are sufficient to cover the present value of future benefits, settlement and maintenance costs. If such a review produces reserves in excess of those currently held then the lock-in assumptions are revised and an additional life and annuity benefit reserve is recognized at that time.
Policy benefits for life and annuity contracts as at December 31, 2013 and 2012 were as follows:
| 2013 | 2012 | |||||||
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Life |
$ | 380,874 | $ | 11,027 | ||||
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Annuities |
963,323 | — | ||||||
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| 1,344,197 | 11,027 | |||||||
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Fair value adjustments |
(71,097 | ) | — | |||||
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| $ | 1,273,100 | $ | 11,027 | |||||
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