0001193125-19-303572.txt : 20200113
0001193125-19-303572.hdr.sgml : 20200113
20191129194234
ACCESSION NUMBER: 0001193125-19-303572
CONFORMED SUBMISSION TYPE: N-6/A
PUBLIC DOCUMENT COUNT: 7
FILED AS OF DATE: 20191202
DATE AS OF CHANGE: 20191202
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AGL SEPARATE ACCOUNT VL-R
CENTRAL INDEX KEY: 0001051485
IRS NUMBER: 250598210
STATE OF INCORPORATION: TX
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-234480
FILM NUMBER: 191261914
BUSINESS ADDRESS:
STREET 1: 2727-A ALLEN PARKWAY
CITY: HOUSTON
STATE: TX
ZIP: 77019
BUSINESS PHONE: 713-522-1111
MAIL ADDRESS:
STREET 1: 2727-A ALLEN PARKWAY
CITY: HOUSTON
STATE: TX
ZIP: 77019
FORMER COMPANY:
FORMER CONFORMED NAME: AGL SEPARATE ACCOUNT VL R
DATE OF NAME CHANGE: 19990907
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT VL R
DATE OF NAME CHANGE: 19971216
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AGL SEPARATE ACCOUNT VL-R
CENTRAL INDEX KEY: 0001051485
IRS NUMBER: 250598210
STATE OF INCORPORATION: TX
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-08561
FILM NUMBER: 191261913
BUSINESS ADDRESS:
STREET 1: 2727-A ALLEN PARKWAY
CITY: HOUSTON
STATE: TX
ZIP: 77019
BUSINESS PHONE: 713-522-1111
MAIL ADDRESS:
STREET 1: 2727-A ALLEN PARKWAY
CITY: HOUSTON
STATE: TX
ZIP: 77019
FORMER COMPANY:
FORMER CONFORMED NAME: AGL SEPARATE ACCOUNT VL R
DATE OF NAME CHANGE: 19990907
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT VL R
DATE OF NAME CHANGE: 19971216
0001051485
S000000574
AGL SEPARATE ACCOUNT VL-R
C000217273
AGL EquiBuilder III VUL (fka American Franklin) Policy No. T1735
N-6/A
1
d792352dn6a.txt
N-6/A
Registration Nos. 333-234480
811-08561
As filed with the Securities and Exchange Commission on December 2, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-effective Amendment No. [1]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R
(Exact Name of Registrant)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)
2727-A Allen Parkway,
Houston, Texas 77019
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (800) 871-2000
AMERICAN HOME ASSURANCE COMPANY
(Name of Guarantor)
175 Water Street, 18/th/ Floor,
New York, New York 10038
(Address of Guarantor's Principal Offices) (Zip Code)
Guarantor's Telephone Number, Including Area Code: (212) 770-7000
Manda Ghaferi, Esq.
American General Life Insurance Company
21650 Oxnard Street, Suite 750
Woodland Hills, California 91367
(Name and Address of Agent for Service for Depositor, Registrant and Guarantor)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
It is proposed that this filing will become effective (check appropriate box)
[_]immediately upon filing pursuant to paragraph (b) of Rule 485
[_]on __________ pursuant to paragraph (b) of Rule 485
[_]60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_]on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[_]This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: (i) Units of interest in American General
Life Insurance Company Separate Account VL-R under EquiBuilder III flexible
premium variable universal life insurance Policies and (ii) guarantee related
to insurance obligations under the variable universal life insurance policies.
NOTE
Registrant is filing this Registration Statement for the purpose of registering
interests under the American General Life Insurance Company ("AGL") EquiBuilder
III Flexible Premium Variable Universal Life Insurance Policies (the "Policies)
on a new Form N-6 Registration Statement and adding supplements to the
prospectus and SAI describing the policy. The Policies were previously
registered on Form N-6 Registration Statement File No. 333-102299 and funded by
American General Life Insurance Company Separate Account VUL-2 ("Separate
Account VUL-2") (File No. 811-06366). At the close of business on November 29,
2019, Separate Account VUL-2 was consolidated with and into American General
Life Insurance Company Separate Account VL-R. Parts A and B, the Prospectus and
Statement of Additional Information dated May 1, 2019, as supplemented,
included in Post-Effective Amendment No. 20 under the Securities Act of 1933
("1933 Act") and Amendment No. 37 under the Investment Company Act of 1940
("1940 Act") to Form N-6 Registration Statement File Nos. 333-102299 and
811-06366, as filed on April 30, 2019, are hereby incorporated by reference.
EQUIBUILDER III FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED THROUGH
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENT DATED DECEMBER 2, 2019
TO THE
PROSPECTUS DATED DECEMBER 2, 2019,
AS SUPPLEMENTED
American General Life Insurance Company ("AGL") is amending the prospectus for
the EquiBuilder III flexible premium variable universal life insurance Policy
(the "Policies") for the purpose of providing information regarding the
consolidation of its American General Life Insurance Company Separate Account
VUL-2 ("Separate Account VUL-2") with American General Life Insurance Company
Separate Account VL-R ("Separate Account VL-R").
AGL no longer sells the Policies.
The following paragraph is added to the section of the prospectus entitled
"General Information" after the subsection entitled "American General Life
Insurance Company":
Separate Account Consolidation
Effective after the close of business on November 29, 2019, AGL consolidated
Separate Account VUL-2 with Separate Account VL-R, with Separate Account VL-R
being the surviving Separate Account after such consolidation (the
"Consolidation"). Accordingly, all references to Separate Account VUL-2 are
hereby replaced with Separate Account VL-R.
The Consolidation did not affect the terms of, or the rights and obligations
under your Policy, other than to reflect the change to the name of the separate
account. The number of units and the accumulation values for the variable
investment divisions in which you invest, and the variable investment divisions
available under the Policy did not change as a result of the Consolidation.
Your accumulation value immediately after the Consolidation was the same as the
value immediately before the Consolidation. The Consolidation did not result in
any adverse tax consequences for any Policy Owners. Until we amend all forms
related to the Policies, some forms may still refer to the prior name of the
separate account.
The purpose of the Consolidation was to reduce the ongoing administrative
costs, independent accountant fees, and inefficiencies associated with
maintaining multiple Separate Accounts, each with its own recordkeeping and
reporting requirements.
The heading of the section "Separate Account VUL-2" under "General Information"
is hereby changed to:
Separate Account VL-R
The following replaces the third and fourth paragraphs under the section of the
prospectus renamed "General Information - Separate Account VL-R":
We hold the Mutual Fund shares in which any of your accumulation value is
invested in Separate Account VL-R (the "Separate Account"). The Company
established Separate Account VL-R under the laws of the State of Texas on
May 6, 1997. The Separate Account is registered as a unit investment trust with
the SEC under the Investment Company Act of 1940 (the "1940 Act"). The Policies
were previously issued through AGL Separate Account VUL-2. Prior to
December 31, 2002, AGL Separate Account VUL-2 was a separate account of
American Franklin, created on April 9, 1991 under Illinois insurance law. On
December 31, 2002, and in conjunction with the merger of AGL and American
Franklin, Separate Account VUL-2 became a separate account of AGL under Texas
law. Effective on the close of business November 29, 2019, AGL Separate Account
VUL-2 was consolidated into Separate Account VL-R.
The Separate Account also issues interests under EquiBuilder II variable
universal life insurance policies, which have policy features that are similar
to those of EquiBuilder III Policies but which have a different sales charge
structure.
The following information about the American Home Assurance Company ("American
Home" or "Guarantor") Guarantee is added as the fourth paragraph under the
section entitled "General Information - Guarantee of Insurance Obligations" of
the prospectus:
Guarantees for Policies issued prior to the Consolidation will continue
after the Consolidation. As a result, the Consolidation of Separate Account
VUL-2 into Separate Account VL-R will not impact the insurance obligations
under the Guarantee.
If you have any questions, or would like to receive a copy of the prospectus
and/or Statement of Additional Information, please call the Administrative
Service Center at 1-800-340-2765.
EQUIBUILDER III not a deposit or other obligation of,
nor are they guaranteed or endorsed
FLEXIBLE PREMIUM VARIABLE UNIVERSAL by, any bank or depository
LIFE INSURANCE POLICIES issued by institution. An investment in a
American General Life Insurance variable universal life insurance
Company through its Separate Policy is subject to investment
Account VL-R risks, including possible loss of
principal invested.
This prospectus is dated
December 2, 2019 There is no guaranteed cash surrender
value for amounts allocated to the
This prospectus describes variable investment divisions.
EquiBuilder III flexible premium
variable universal life insurance If the cash surrender value (the cash
policies (the "Policy" or "Policies") value reduced by any loan balance) is
issued by American General Life insufficient to cover the charges due
Insurance Company ("AGL"). under the Policy, the Policy may
EquiBuilder III Policies are designed terminate without value.
to provide life insurance coverage
with flexibility in death benefits, Buying this Policy might not be a
premium payments and investment good way of replacing your existing
choices. We use "you" and "your" to insurance or adding more insurance if
refer to an EquiBuilder III Policy you already own a flexible premium
Owner. AGL no longer sells variable universal life insurance
EquiBuilder III Policies. Policy. You may wish to consult with
your insurance representative or
We deposit your net premium in your financial advisor.
Policy Account. You may allocate
amounts to our Guaranteed Interest Neither the SEC nor any state
Division (which is part of our securities commission has approved or
General Account and pays interest at disapproved these securities or
a declared rate) or to one or more of passed upon the adequacy or accuracy
the variable investment divisions of of this prospectus. Any
Separate Account VL-R (the "Separate representation to the contrary is a
Account"), or both. (For the first criminal offense.
fifteen days after we issue your
Policy, we require premiums to be The Policies are not available in all
invested in the Fidelity(R) VIP states. This prospectus does not
Government Money Market division.) offer the Policies in any
jurisdiction where they cannot be
Beginning on January 1, 2021, we will lawfully sold. You should rely only
no longer send you paper copies of on the information contained in this
the shareholder reports for Funds prospectus, or on sales materials we
available as investment options under have approved or that we have
your Policy unless you specifically referred you to. We have not
request paper copies from us. authorized anyone to provide you with
Instead, the reports will be information that is different.
available on a website, and we will
notify you by mail each time a report THIS PROSPECTUS GENERALLY DESCRIBES
is posted. The notice will provide ONLY THE VARIABLE PORTION OF THE
the website links to access the POLICY, EXCEPT WHERE THE GUARANTEED
reports, as well as instructions for INTEREST DIVISION IS SPECIFICALLY
requesting paper copies. If you wish MENTIONED.
to continue receiving your reports in
paper free of charge from us, please The variable investment divisions
call VUL Customer Service at each purchase shares of a
1-800-340-2765 (or for hearing corresponding portfolio of the
impaired 1-888-436-5256) or write to Fidelity(R) Variable Insurance
the Company at: VUL Administration, Products ("Fidelity(R) VIP"), the
P. O. Box 305600, Nashville, MFS(R) Variable Insurance Trust
Tennessee 37230-5600. Your election ("MFS(R) VIT"), or the MFS(R)
to receive the reports in paper will Variable Insurance Trust II ("MFS(R)/
apply to all investment options /VIT II") (each available portfolio
available under your Policy. referred to in this prospectus as, a
"Fund," and collectively, the
If you have already elected to "Funds") as listed on page 2. The
receive shareholder reports prospectuses of the Funds describe
electronically, you will not be the investment objectives, policies
affected by this change and you need and risks of each Fund.
not take any action. If you wish to
receive shareholder reports and other Your investment in the Funds through
SEC disclosure documents from the the variable investment divisions is
Company electronically, please call not guaranteed and involves varying
VUL Customer Service at the telephone degrees of risk. Net premiums and
numbers above or log into eService at Policy Account value you direct to
www.aig.com/eservice. After you sign the Guaranteed Interest Division
on, select "My Profile" and edit your earns interest at a rate guaranteed
communication preference. Once you've by us.
subscribed to VUL eDelivery, you will
get a change confirmation email. You should read the prospectuses of
the Funds underlying the variable
EquiBuilder III Policies are not investment divisions that may
insured by the FDIC, the Federal interest you. You can request free
Reserve Board or any similar agency. copies from your AGL representative
They are or from our Administrative Center
shown under "Contact Information" on
page 5.
VARIABLE INVESTMENT OPTIONS
The Funds available through this Policy are:
. Fidelity(R) VIP Asset . Fidelity(R) VIP High Income
Manager/SM/ Portfolio - Portfolio - Initial Class
Initial Class
. Fidelity(R) VIP Index 500
. Fidelity(R) VIP Asset Manager: Portfolio - Initial Class
Growth(R) Portfolio - Initial
Class . Fidelity(R) VIP Investment
Grade Bond Portfolio - Initial
. Fidelity(R) VIP Contrafund/SM/ Class
Portfolio - Initial Class
. Fidelity(R) VIP Overseas
. Fidelity(R) VIP Equity-Income Portfolio - Initial Class
Portfolio/SM/ - Initial Class
. MFS(R) VIT II Core Equity
. Fidelity(R) VIP Government Portfolio - Initial Class
Money Market Portfolio -
Initial Class . MFS(R) VIT Growth Series -
Initial Class
. Fidelity(R) VIP Growth
Portfolio - Initial Class . MFS(R) VIT Investors Trust
Series - Initial Class
. MFS(R) VIT Research Series -
Initial Class
. MFS(R) VIT Total Return Series
- Initial Class
. MFS(R) VIT Utilities Series -
Initial Class
Each of these Funds is available through a variable investment division.
TABLE OF CONTENTS
CONTACT INFORMATION................................................... 5
POLICY BENEFITS/RISKS SUMMARY......................................... 6
POLICY BENEFITS....................................................... 6
Death Benefit...................................................... 6
Death Benefit Proceeds......................................... 6
Death Benefit Option A and Option B............................ 6
Death Benefit Option A...................................... 6
Death Benefit Option B...................................... 6
Accelerated Benefit Settlement Option Rider.................... 6
Surrenders, Partial Surrenders, Transfers, and Policy Loans........ 6
Surrenders..................................................... 6
Partial Surrenders............................................. 7
Transfers...................................................... 7
Policy Loans................................................... 7
Premiums........................................................... 7
Flexibility of Premiums........................................ 7
Free Look...................................................... 7
The Policy......................................................... 7
Ownership Rights............................................... 7
2
Separate Account................................................................. 7
Guaranteed Interest Division..................................................... 8
Policy Account Value............................................................. 8
Payment Options.................................................................. 8
Tax Benefits..................................................................... 8
Supplemental Benefits and Riders..................................................... 8
POLICY RISKS............................................................................ 8
Investment Risk...................................................................... 8
Risk of Lapse........................................................................ 9
Tax Risks............................................................................ 9
Partial Surrender and Surrender Risks................................................ 9
Policy Loan Risks.................................................................... 10
PORTFOLIO RISKS......................................................................... 10
TABLES OF CHARGES....................................................................... 11
GENERAL INFORMATION..................................................................... 17
American General Life Insurance Company.............................................. 17
Separate Account Consolidation....................................................... 17
Separate Account VL-R................................................................ 17
Guarantee of Insurance Obligations................................................... 18
Communication with AGL............................................................... 19
Administrative Center............................................................ 19
eDelivery, eService, Telephone Transactions and Written Transactions............. 19
eDelivery..................................................................... 19
eService...................................................................... 19
eService Transactions, Telephone Transactions and Written Transactions........ 19
One-time Premium Payments Using eService......................................... 20
Telephone Transactions........................................................... 20
General.......................................................................... 21
Variable Investment Divisions........................................................ 21
Voting Rights of a Policy Owner...................................................... 22
The Guaranteed Interest Division..................................................... 23
Illustrations........................................................................ 24
POLICY FEATURES......................................................................... 24
Age.................................................................................. 24
Death Benefits....................................................................... 24
Maturity Benefit..................................................................... 25
Policy Issuance Information.......................................................... 25
Right to Examine..................................................................... 26
Flexible Premium Payments............................................................ 26
Premium Payments and Transaction Requests in Good Order.............................. 27
Changes in EquiBuilder III Policies.................................................. 27
Changing the Face Amount of Insurance................................................ 28
Changing Death Benefit Options....................................................... 29
When Face Amount and Death Benefit Changes Go Into Effect............................ 29
Reports To Policy Owners............................................................. 29
Policy Periods, Anniversaries, Dates and Ages........................................ 29
ADDITIONAL BENEFIT RIDERS............................................................... 30
Disability Waiver Benefit Rider...................................................... 30
Accidental Death Benefit Rider....................................................... 31
Children's Term Insurance Rider...................................................... 31
Term Insurance on an Additional Insured Person Rider................................. 31
Accelerated Benefit Settlement Option Rider.......................................... 31
POLICY ACCOUNT TRANSACTIONS............................................................. 31
eDelivery, eService, Telephone Transactions and Written Transactions................. 32
Changing Premium and Deduction Allocation Percentages................................ 32
3
Transfers of Policy Account Value Among Investment Divisions............ 32
Market Timing........................................................... 32
Restrictions Initiated By the Funds and Information Sharing Obligations. 34
Transfers from the Guaranteed Interest Division......................... 34
Borrowing from the Policy Account....................................... 34
Loan Requests........................................................... 34
Policy Loan Interest.................................................... 35
When Interest is Due.................................................... 35
Repaying the Loan....................................................... 35
The Effects of a Policy Loan on the Policy Account...................... 36
Withdrawing Money from the Policy Account............................... 37
Surrendering the Policy for Its Net Cash Surrender Value................ 38
POLICY PAYMENTS............................................................ 38
Payment Options......................................................... 38
Income Payments for a Fixed Period.................................. 39
Life Income with Payments Guaranteed for a Fixed Term of Years...... 39
Proceeds at Interest................................................ 39
Fixed Amount........................................................ 39
The Beneficiary......................................................... 39
Assignment of a Policy.................................................. 40
Payment of Proceeds..................................................... 40
Delay Required under Applicable Law..................................... 41
ADDITIONAL RIGHTS THAT WE HAVE............................................. 41
VARIATIONS IN POLICY OR INVESTMENT DIVISION TERMS AND CONDITIONS........... 41
Policies Purchased Through "Internal Rollovers"..................... 42
State Law Requirements.............................................. 42
Expenses or Risks................................................... 42
Underlying Investments.............................................. 42
CHARGES UNDER THE POLICY................................................... 42
Transaction Fees........................................................ 42
Premium Expense Charge.............................................. 42
Statutory Premium Taxes............................................. 43
Surrender Charge (for full surrenders).............................. 43
Surrender Charge (for Face Amount decreases)........................ 44
Partial Surrender Processing Fee.................................... 44
Face Amount Increase Charge......................................... 45
Transfers........................................................... 45
Policy Owner Additional Illustration Charge......................... 45
Periodic Charges........................................................ 45
Administrative Charge............................................... 45
Cost of Insurance Charge............................................ 45
Mortality and Expense Risk Charge................................... 46
Fees and Expenses and Money Market Investment Division.............. 46
Optional Rider Charges.............................................. 46
Annual Fund Expenses.................................................... 46
Allocation of Policy Account Charges.................................... 46
POLICY ACCOUNT VALUE....................................................... 47
Amounts in the Variable Investment Divisions............................ 47
Business Day and Close of Business...................................... 47
Determination of the Unit Value......................................... 48
POLICY LAPSE AND REINSTATEMENT............................................. 48
Lapse of the Policy..................................................... 48
Reinstatement of the Policy............................................. 49
FEDERAL TAX CONSIDERATIONS................................................. 49
Tax Effects............................................................. 50
4
General............................................................................. 50
Testing for Modified Endowment Contract Status.......................................... 50
Other Effects of Policy Changes......................................................... 51
Rider Benefits.......................................................................... 51
Taxation of Pre-Death Distributions if Your Policy is not a Modified Endowment Contract. 51
Taxation of Pre-Death Distributions if Your Policy is a Modified Endowment Contract..... 52
Policy Lapses and Reinstatements........................................................ 53
Diversification and Investor Control.................................................... 53
Estate and Generation Skipping Taxes.................................................... 54
Life Insurance in Split Dollar Arrangements............................................. 54
Pension and Profit-Sharing Plans........................................................ 54
Other Employee Benefit Programs......................................................... 55
ERISA................................................................................... 55
Our Taxes............................................................................... 55
When We Withhold Income Taxes........................................................... 56
Other tax withholding................................................................... 56
Foreign Account Tax Compliance ("FATCA")................................................ 56
Tax Changes............................................................................. 56
BUSINESS DISRUPTION AND CYBER SECURITY RISKS............................................... 57
LEGAL PROCEEDINGS.......................................................................... 57
FINANCIAL STATEMENTS....................................................................... 57
Rule 12h-7 disclosure............................................................... 57
REGISTRATION STATEMENTS.................................................................... 58
DEFINITIONS................................................................................ 59
CONTACT INFORMATION
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Addresses and telephone numbers: Here is how you can contact us about the EquiBuilder III policies.
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ADMINISTRATIVE CENTER: HOME OFFICE: PREMIUM PAYMENTS:
----------------------------------------------------------------------------------------------------------
(Express Delivery) (U.S. Mail) 2727-A Allen Parkway (Express Delivery)
VUL Administration VUL Houston, American General Life
340 Seven Springs Way Administration Texas 77019-2191 Insurance Company
MC430 P.O. Box 305600 1-713-831-3443 Payment Processing Center
Brentwood, Tennessee Nashville, 1-800-340-2765 8430 W. Bryn Mawr Avenue
37027-5098 Tennessee 3/rd/ Floor Lockbox 0993
1-713-831-3443, 37230-5600 Chicago, IL 60631
1-800-340-2765 (U.S. Mail)
(Hearing Impaired) Payment Processing Center
1-888-436-5256 P.O. Box 0993
Fax: 1-844-430-2639 Carol Stream, IL 60132-0993
(Except premium payments)
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5
POLICY BENEFITS/RISKS SUMMARY
This summary describes the Policy's important benefits and risks. The
sections in this prospectus following this summary discuss the Policy's
benefits and other provisions in more detail. The definitions on page 59 of
this prospectus define certain words and phrases used in this prospectus.
AGL no longer sells EquiBuilder III Policies.
POLICY BENEFITS
You may currently allocate your Policy Account value among the 16 variable
investment divisions available under the Policy, each of which invests in an
underlying mutual fund portfolio, a Fund, and the Guaranteed Interest Division,
which credits a specified rate of interest. Your Policy Account value will vary
based on the investment performance of the variable investment divisions you
choose and interest credited in the Guaranteed Interest Division.
Death Benefit
. Death Benefit Proceeds: We pay the death benefit (less any Policy loan
and loan interest and any overdue charges) to the beneficiary when the
Insured Person dies. We will increase the death benefit by the amount of
any additional insurance provided by the applicable optional benefit
rider(s).
. Death Benefit Option A and Option B: You may choose between two death
benefit options under the Policy. After the first Policy year, you may
change death benefit options and the Face Amount (which is the amount of
insurance you select) while the Policy is in force. We calculate the
amount available under each death benefit option monthly and as of the
Insured Person's date of death.
. Death Benefit Option A is equal to the greater of: (1) the Face
Amount; or (2) the "required minimum death benefit", which is the
Policy Account value multiplied by a specified percentage set forth
in the Policy.
. Death Benefit Option B is equal to the greater of: (1) the Face
Amount plus the Policy Account value; or (2) the required minimum
death benefit.
. Accelerated Benefit Settlement Option Rider: Under the Accelerated
Benefit Settlement Option Rider, you may receive accelerated payment of
part of your death benefit if the Insured Person develops a terminal
illness or is confined to a nursing care facility. We will deduct a
processing charge from the accelerated death benefit at the time it is
paid.
Federal tax law may require us to increase payment under either of the above
death benefit options. See "Death Benefits" on page 24.
Surrenders, Partial Surrenders, Transfers, and Policy Loans
.. Surrenders: At any time while the Policy is in force, you may make a written
request (by submitting our surrender form to us) to surrender your Policy
and receive the net cash surrender value. The net cash surrender value is
the cash surrender value less any outstanding loan and loan interest due. A
surrender may have adverse tax consequences.
6
. Partial Surrenders: After the first Policy year, you may make a written
request to withdraw part of the net cash surrender value. Partial
surrenders may have adverse tax consequences. Partial surrenders are
also subject to any surrender charge or fee that then applies.
. Transfers: Within certain limits, you may make transfers among the
variable investment divisions and the Guaranteed Interest Division. You
may make up to four transfers of Policy Account value among the variable
investment divisions in each Policy year without charge. We may assess a
$25 charge for each transfer after the fourth transfer in a Policy year.
Our current practice, however, is to assess the $25 charge for each
transfer after the twelfth transfer in a Policy year. There are special
limits on transfers involving the Guaranteed Interest Division.
. Policy Loans: You may take a loan (minimum $500) from your Policy at any
time. The maximum loan amount you may take is 90% of the cash surrender
value of the Policy on the business day we receive your request for a
loan. We charge you a maximum annual interest rate on your loan equal to
the greater of 5 1/2% or the Monthly Average Corporate yield published
by Moody's Investor Services, Inc. as described under "Policy Account
Transactions - Policy Loan Interest," on page 35. We credit interest on
loaned amounts; we guarantee that the annual earned interest rate will
not be lower than 4 1/2%. After the tenth Policy year, you may take a
Preferred Loan from your Policy. Loans may have adverse tax consequences.
Premiums
. Flexibility of Premiums: After you pay the initial premium, you can pay
subsequent premiums at any time (prior to the Policy maturity) and in
any amount (but not less than $100). You can select a premium payment
plan to pay planned periodic premiums monthly, quarterly, semiannually,
or annually. You are not required to pay premiums according to the plan.
You may also choose to have premiums automatically deducted from your
bank account or other source under our automatic payment plan. Under
certain circumstances, we may limit the amount of a premium payment or
reject a premium payment.
. Free Look: When you receive your Policy, the free look period begins.
You may return your Policy during this period and receive a refund. We
will refund an amount equal to the greater of: (1) the premiums paid; or
(2) the Policy Account value plus any amount deducted from premiums
prior to allocation to the Policy Account. The free look period
generally expires upon the later of: (1) 10 days after you receive the
Policy; or (2) 45 days after you signed Part I of the application. This
period will be longer if required by state law.
The Policy
. Ownership Rights: While the Insured Person is living, you, as the owner
of the Policy, may exercise all of the rights and options described in
the Policy. These rights include selecting and changing the beneficiary,
changing the owner, and assigning the Policy.
. Separate Account: You may direct the money in your Policy to any of the
variable investment divisions of the Separate Account. Each variable
investment division invests exclusively in one of the Funds listed on
the cover of this prospectus. The value of your investment division
depends on the investment results of the related Fund. We do not
guarantee any minimum cash value for amounts allocated to the variable
investment divisions. If the Fund investments go down, the value of a
Policy can decline.
7
. Guaranteed Interest Division: You may place money in the Guaranteed
Interest Division where it earns interest at the rate of 4 1/2%
annually. We may declare higher rates of interest, but are not obligated
to do so.
. Policy Account Value: Policy Account value is the sum of your amounts in
the variable investment divisions and the Guaranteed Interest Division.
Policy Account value varies from day to day, depending on the investment
performance of the variable investment divisions you choose, interest we
credit to the Guaranteed Interest Division, charges we deduct, and any
other transactions (e.g., transfers, partial surrenders and loans). We
do not guarantee a minimum Policy Account value.
. Payment Options: There are several ways of receiving proceeds under the
death benefit, surrender, and maturity provisions of the Policy, other
than in a lump sum. None of these options vary with the investment
performance of the Separate Account. More detailed information
concerning these settlement options is available on request from our
Administrative Center shown under "Contact Information" on page 5. Also
see "Payment Options" on page 38.
. Tax Benefits: The Policy is designed to afford the tax treatment
normally accorded life insurance policies under federal tax law.
Generally, under federal tax law, the death benefit under a qualifying
life insurance policy is excludable from the gross income of the
beneficiary. In addition, this means that under a qualifying life
insurance policy, cash value builds up on a tax deferred basis and
transfers of cash value among the available investment options under the
policy may be made tax free. Under a qualifying life insurance policy
that is not a modified endowment contract ("MEC"), the proceeds from
Policy loans would not be taxed. If the Policy is not a MEC,
distributions after the 15th Policy year generally will be treated first
as a return of basis or investment in the Policy and then as taxable
income. Moreover, loans will generally not be treated as distributions.
Finally, neither distributions nor loans from a Policy that is not a MEC
are subject to the 10% penalty tax.
Supplemental Benefits and Riders
You may be eligible to add an additional rider benefit to your Policy. We
offer several riders that provide supplemental benefits under the Policy, such
as the Accidental Death Benefit Rider, which provides an additional death
benefit payable if the Insured Person dies from bodily injury that results from
an accident. We generally deduct any monthly charges for these riders from
Policy Account value as part of the monthly deduction. Eligibility for and
changes in these benefits are subject to our rules and procedures as well as
Internal Revenue Service ("IRS") guidance and rules that pertain to the
Internal Revenue Code's definition of life insurance as in effect from time to
time. Your insurance representative can help you determine whether any of these
riders are suitable for you. Not all riders are available in all states. Please
contact us for further details.
POLICY RISKS
Investment Risk
The Policy is not suitable as a short-term investment. We designed the
Policy to meet long-term financial goals. In the Policy's early years, if the
total charges exceed total premiums paid or if your investment choices perform
poorly, your Policy may not have any cash surrender value. The surrender charge
is large enough in the Policy's early years so that if you fully surrender your
Policy you may receive no cash surrender value. If you take multiple partial
surrenders, your accumulation value may not cover required charges and your
Policy would lapse.
8
If you invest your Policy Account value in one or more variable investment
divisions, then you will be subject to the risk that investment performance
will be unfavorable. You will also be subject to the risk that the Policy
Account value will decrease because of the unfavorable performance and the
resulting higher insurance charges. You could lose everything you invest. You
will also be subject to the risk that the investment performance of the
variable investment divisions you choose may be less favorable than that of
other variable investment divisions, and in order to keep the Policy in force
may be required to pay more premiums than originally planned. We do not
guarantee a minimum Policy Account value.
If you allocate net premiums to the Guaranteed Interest Division, then we
credit your Policy Account value (in the Guaranteed Interest Division) with a
declared rate of interest, but you assume the risk that the rate may decrease,
although it will never be lower than a guaranteed minimum annual effective rate
of 4 1/2%.
Risk of Lapse
If your net cash surrender value is not enough to pay the charges deducted
against Policy Account value each month, your Policy may enter a 61-day grace
period. We will notify you that the Policy will lapse (terminate without value)
at the end of the grace period unless you make a sufficient payment during the
grace period. Your Policy may also lapse if outstanding Policy loans plus any
accrued interest payable exceeds the net cash surrender value. Your Policy will
not lapse at the end of a grace period if you make a premium payment equal to
at least the estimated monthly charges under the Policy for three Policy
months, plus any loan interest due, before the end of the grace period. You may
reinstate a lapsed Policy, subject to certain conditions.
Tax Risks
We anticipate that the Policy should generally qualify as a life insurance
contract under federal tax law. However, due to limited guidance under federal
tax law, there is some uncertainty about the application of the federal tax law
to the Policy, particularly if you pay the full amount of premiums permitted
under the Policy. Please consult a tax advisor about these consequences.
Depending on the total amount of premiums you pay, the Policy may be treated
as a MEC under federal tax laws. If a Policy is treated as a MEC, then
surrenders, partial surrenders, and loans under the Policy will be taxable as
ordinary income to the extent there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on surrenders, partial surrenders, and loans
taken before you reach age 59 1/2.
See "Federal Tax Considerations" on page 49. You should consult a qualified
tax advisor for assistance in all Policy-related tax matters.
Partial Surrender and Surrender Risks
The surrender charge under the Policy applies for the first 10 Policy years
after the Register Date in the event you surrender the Policy or decrease the
Face Amount. The surrender charge may be considerable. Any outstanding loan
balance reduces the amount available to you upon a surrender or partial
surrender. It is possible that you will receive no net cash surrender value if
you surrender your Policy in the first few Policy years. You should purchase
the Policy only if you have the financial ability to keep it in force for a
substantial period of time. You should not purchase the Policy if you intend to
surrender all or part of the Policy Account value in the near future. We
designed the Policy to help meet long-term financial goals.
9
Even if you do not ask to surrender your Policy, surrender charges may play
a role in determining whether your Policy will lapse (terminate without value),
because surrender charges affect the net cash surrender value which is a
measure we use to determine whether your Policy will enter a grace period (and
possibly lapse). See "Risk of Lapse," on page 9.
A surrender or partial surrender may have adverse tax consequences.
Policy Loan Risks
A Policy loan, whether or not repaid, will affect Policy Account value over
time because we subtract the amount of the loan from the variable investment
divisions and/or Guaranteed Interest Division as collateral, and this loan
collateral does not participate in the investment performance of the variable
investment divisions or receive any excess interest credited to the Guaranteed
Interest Division.
We reduce the amount we pay on the Insured Person's death by the amount of
any Policy loan and your Policy may lapse (terminate without value) if
outstanding Policy loans plus any accrued interest payable reduce the cash
surrender value to zero.
If you surrender the Policy or allow it to lapse while a Policy loan remains
outstanding, the amount of the loan, to the extent it has not been previously
taxed, is treated as a distribution from the Policy and may be subject to
federal income tax.
PORTFOLIO RISKS
A discussion of the risks of each Fund may be found in its prospectus.
Please refer to the Funds' prospectuses for more information. You may request a
copy of any or all of the Fund prospectuses by contacting us at the
Administrative Center shown under "Contact Information" on page 5.
There is no assurance that any of the Funds will achieve its stated
investment objective.
10
TABLES OF CHARGES
The following tables describe the fees and expenses that are payable, when
buying, owning and surrendering a Policy. No Policy Owner will be charged more
than the amount we show under the "Maximum Guaranteed Charge" columns.
The first tables describe the fees and expenses that are payable at the time
that you (1) buy a Policy, (2) surrender a Policy during the first ten Policy
years, (3) change a Policy's Face Amount, or (4) transfer Policy Account value
between investment divisions.
Transaction Fees
----------------------------------------------------------------------------------------------------------------------------
When Charge is Maximum Guaranteed
Charge Deducted Charge Current Charge
-----------------------------------------------------------------------------------------------------------------------------
Premium Expense Charge Upon receipt of each 5% of each premium payment 5% of each premium
premium payment up to the Target Premium for a payment up to the
Policy year/1/ Target Premium for a
Policy year/1/
-----------------------------------------------------------------------------------------------------------------------------
Statutory Premium Taxes/2/ Upon receipt of each 3.5% of each premium 3.5% of each premium
premium payment payment payment
-----------------------------------------------------------------------------------------------------------------------------
Surrender Charge/3/ Upon a full surrender or During Policy years 1-10, 50% Capped at a total limit
lapse in the first 10 Policy of one Target Premium, with of 50% of one Target
years. the maximum surrender Premium, but
charge decreasing 20% calculated as follows:
Also, in the event of a annually following the 6/th/
decrease in Face Amount Policy year . 25% of premiums
before the end of the 10/th/ paid during the
Policy year, we deduct a first Policy year
charge that is a portion of up to one Target
the surrender charge. Premium; and
. 9.0% of
additional
premiums paid in
Policy years 110,
less any
surrender charge
previously
deducted for a
decrease in Face
Amount
-----------------------------------------------------------------------------------------------------------------------------
--------
/1/ The Target Premium is a hypothetical annual premium which is based on
the age, sex and risk class of the Insured Person, the initial Face Amount of
the Policy and the types and amounts of any additional benefits included in the
Policy. The Target Premium for your Policy is shown on the Policy Information
page of the Policy.
/2/ Statutory premium tax rates vary by state. For example, the highest
premium tax rate, 3.5%, is in the state of Nevada, while the lowest premium tax
rate, 0.50%, is in the state of Illinois. Certain local jurisdictions may
assess additional premium taxes, which will increase the tax rate.
/3/ We assess a surrender charge only during the first 10 Policy years.
11
Transaction Fees
--------------------------------------------------------------------------------------------------------------------------
When Charge is Maximum Guaranteed
Charge Deducted Charge Current Charge
---------------------------------------------------------------------------------------------------------------------------
Partial Surrender Processing Fee Upon partial surrender The lesser of $25 or 2.0% of $10
the partial surrender amount
---------------------------------------------------------------------------------------------------------------------------
Face Amount Increase Charge Upon each Face Amount $1.50 for each $1,000 of Face $1.50 for each $1,000 of
increase Amount increase, up to $300 Face Amount Increase, up to
$300
---------------------------------------------------------------------------------------------------------------------------
Transfer Fee Upon transfer $25 for each transfer/1/ $25 for each transfer/2/
---------------------------------------------------------------------------------------------------------------------------
Policy Owner Additional Illustration Upon a Policy Owner's $25 for each illustration $0
Charge additional illustration request after the first
request illustration request in any
Policy year
---------------------------------------------------------------------------------------------------------------------------
--------
/1/ At a maximum, we will charge $25 for each transfer after the fourth
transfer in a Policy year.
/2/ Currently, the first 12 transfers in a Policy year are free of charge.
12
The next table describes the fees and expenses that you will pay during the
time that you own the Policy, not including Fund fees and expenses.
Periodic Charges
(other than Fund fees and expenses)
------------------------------------------------------------------------------------------------------------------------------
When Charge is Maximum Guaranteed
Charge Deducted Charge Current Charge
---------------------------------------------------------------------------------------------------------------------------------
Administrative Charge Monthly, at the $360 (deducted as $30 per $360 (deducted as $30 per
beginning of each Policy month, during the first 12 month, during the first 12
month Policy months) Policy months)
$144 (deducted as $12 per $108 (deducted as $9 per
month, after the first 12 Policy month, after the first 12
months) Policy months)
---------------------------------------------------------------------------------------------------------------------------------
Cost of Insurance Charge/1/
Maximum Charge/2/ Monthly, at the $27.50 per $1,000 of net $27.50 per $1,000 of net
beginning of each Policy amount at risk/3/ amount at risk
month
---------------------------------------------------------------------------------------------------------------------------------
Minimum Charge/4/ Monthly, at the $0.056 per $1,000 of net $0.052 per $1,000 of net
beginning of each Policy amount at risk amount at risk
month
---------------------------------------------------------------------------------------------------------------------------------
Example Charge for the first Monthly, at the $0.22 per $1,000 of net amount $0.11 per $1,000 of net
Policy year - for a 38 year old beginning of each Policy at risk amount at risk
male, non-tobacco user with a Face month
Amount of $200,000
---------------------------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk Fee Daily annual effective rate of 0.75% annual effective rate of
of accumulation value invested 0.75% of accumulation value
in variable investment divisions invested in variable
investment divisions
---------------------------------------------------------------------------------------------------------------------------------
--------
/1/ The Cost of Insurance Charge will vary based on the Insured Person's
sex, age, risk class, Policy year and Face Amount. The Cost of Insurance
Charges shown in the table may not be typical of the charges you will pay. The
Policy Information page of your Policy will indicate the guaranteed Cost of
Insurance Charge applicable to your Policy. More detailed information
concerning your Cost of Insurance Charge is available on request from our
Administrative Center shown under "Contact Information" on page 5 of this
prospectus. Also see "Illustrations" on page 24 of this prospectus.
/2/ The Maximum Charge for both the maximum guaranteed charge and the
current charge occurs during the 12 months following the policy anniversary
nearest the insured person's 94/th/ birthday. The policy anniversary nearest
the insured person's 95/th/ birthday is the Policy's maximum maturity date. The
Maximum Charge is for a male, tobacco user, age 94, with a Face Amount of
$100,000.
/3/ The net amount at risk is the difference between the current death
benefit under your Policy and the amount in your Policy Account.
/4/ The Minimum Charge for both the maximum guaranteed charge and the
current charge occurs in Policy year 1. The Minimum Charge is for a female,
non-tobacco user, age 11 at the Policy's date of issue, with a Face Amount of
$200,000.
13
The next tables describe the fees and expenses that you will pay if you choose
an optional benefit rider during the time that you own the Policy.
Periodic Charges
(optional benefit riders only)
--------------------------------------------------------------------------------------------------------------------------
Optional Benefit Rider When Charge is Maximum Guaranteed
Charge/1/ Deducted Charge Current Charge
-----------------------------------------------------------------------------------------------------------------------------
Accelerated Benefit Settlement Option At the time the accelerated $200 $200
death benefit is paid
-----------------------------------------------------------------------------------------------------------------------------
Accidental Death Benefit
Maximum Charge - for a 69 year old Monthly, at the beginning of $1.80 per $1,000 of rider $1.80 per $1,000 of rider
male or female, any risk class and each Policy month coverage amount per month coverage amount per
any Face Amount month
-----------------------------------------------------------------------------------------------------------------------------
Minimum Charge - for a 40 year old Monthly, at the beginning of $0.84 per $1,000 of rider $0.84 per $1,000 of rider
male or female, any risk class and each Policy month coverage amount per month coverage amount per
any Face Amount month
-----------------------------------------------------------------------------------------------------------------------------
Example Charge - for a 38 year old Monthly, at the beginning of $0.84 per $1,000 of rider $0.84 per $1,000 of rider
non-tobacco user, with a Face each Policy month coverage amount per month coverage amount per
Amount of $200,000 for the first month
Policy year
-----------------------------------------------------------------------------------------------------------------------------
Children's Term Insurance Rider Monthly, at the beginning of $0.50 per $1,000 of rider $0.50 per $1,000 of rider
each Policy month coverage amount per month coverage amount per
month
-----------------------------------------------------------------------------------------------------------------------------
Additional Insured Term Insurance
Maximum Charge - for a 69 year old Monthly, at the beginning of $83.33 per $1,000 of rider $26.11 per $1,000 of
male, non-tobacco user, with a each Policy month coverage amount per month rider coverage amount
Face Amount of $200,000 for the per month
first Policy year
-----------------------------------------------------------------------------------------------------------------------------
Minimum Charge - for a 10 year old Monthly, at the beginning of $0.68 per $1,000 of rider $0.68 per $1,000 of rider
female, non-tobacco user, any Face each Policy month coverage amount per month coverage amount per
Amount month
-----------------------------------------------------------------------------------------------------------------------------
Example Charge - for a 38 year old Monthly, at the beginning of $2.58 per $1,000 of rider $1.62 per $1,000 of rider
male, non-tobacco user, with a each Policy month coverage amount per month coverage amount per
Face Amount of $200,000 for the month
first Policy year
-----------------------------------------------------------------------------------------------------------------------------
--------
/1/ Charges for the Additional Insured Term Insurance rider varies based on
the insured's sex, age, risk class and Face Amount. Charges for the Accidental
Death Benefit rider vary based on the Insured Person's age. The rider charges
shown in the table may not be typical of the charges you would pay. The Policy
Information page of your Policy will indicate the rider charges applicable to
you. More detailed information concerning the charges for the optional benefit
riders is available on request from our Administrative Center, shown under
"Contact Information" on page 5 of this prospectus, or from your AGL
representative.
14
Periodic Charges
(optional benefit riders only)
----------------------------------------------------------------------------------------------------------------
Optional Benefit Rider Maximum Guaranteed
Charge When Charge is Deducted Charge Current Charge
-----------------------------------------------------------------------------------------------------------------
Disability Waiver Benefit/1/
Maximum Charge - for a 59 year old
male or female, any risk class and Monthly, at the beginning of 44% of total monthly 22% of total monthly
any Face Amount each Policy month deduction deduction
-----------------------------------------------------------------------------------------------------------------
Minimum Charge - for a 20 year old Monthly, at the beginning of 7% of total monthly 2% of total monthly
male any risk class and any Face each Policy month deduction deduction
Amount
-----------------------------------------------------------------------------------------------------------------
Example Charge - for a 38 year old Monthly, at the beginning of 12% of total monthly 6.6% of total monthly
male, any risk class, with a Face each Policy month deduction deduction
Amount of $200,000 for the first
Policy year
-----------------------------------------------------------------------------------------------------------------
--------
/1/ Charges for the Disability Waiver Benefit rider varies based on the
insured's sex, age, risk class and Face Amount. The rider charges shown in the
table may not be typical of the charges you would pay. The Policy Information
page of your Policy will indicate the rider charges applicable to you. More
detailed information concerning the charges for the optional benefit riders is
available on request from our Administrative Center, shown under "Contact
Information" on page 5 of this prospectus, or from your AGL representative.
Please consult your insurance representative or contact AGL for information
about the charges for the optional benefit riders.
15
The next table describes the current Fund fees and expenses that you will pay
periodically during the time that you own the Policy. The table shows the
maximum and minimum Total Annual Fund Operating Expenses before contractual
waiver or reimbursement for any of the Funds for the fiscal year ended
December 31, 2017. Current and future expenses for the Funds may be higher or
lower than those shown.
Annual Fund Fees and Expenses
(expenses that are deducted from the Fund assets)
-------------------------------------------------------------------------------
Charge Maximum Minimum
-------------------------------------------------------------------------------
Total Annual Fund Operating Expenses for all the funds
(expenses that are deducted from portfolio assets include
management fees, distribution (12b-1) fees, and other
expenses)/1/ 0.86% 0.10%
-------------------------------------------------------------------------------
Details concerning each Fund's specific fees and expenses are contained in
the Fund's prospectus.
--------
/1/ Currently 4 of the Funds have contractual reimbursements or fee waivers.
These reimbursements or waivers expire on April 30, 2020. These contractual
reimbursements or fee waivers do not change the maximum or minimum annual Fund
fees and expenses reflected in the table.
16
GENERAL INFORMATION
American General Life Insurance Company
We are American General Life Insurance Company ("AGL" or the "Company"). AGL
is a stock life insurance company organized under the laws of Texas. AGL's home
office is 2727-A Allen Parkway, Houston, Texas 77019-2191. AGL is a successor
in interest to a company originally organized under the laws of Delaware on
January 10, 1917. AGL is an indirect, wholly-owned subsidiary of American
International Group, Inc. ("AIG"), a Delaware corporation.
AIG is a leading global insurance organization. AIG provides a wide range of
property casualty insurance, life insurance, retirement products, and other
financial services to commercial and individual customers in more than 80
countries and jurisdictions. AIG common stock is listed on the New York Stock
Exchange.
More information about AIG may be found in the regulatory filings AIG files
from time to time with the U.S. Securities and Exchange Commission ("SEC") at
www.sec.gov.
AGL is regulated for the benefit of Policy Owners by the insurance regulator
in its state of domicile and also by all state insurance departments where it
is licensed to conduct business. AGL is required by its regulators to hold a
specified amount of reserves in order to meet its contractual obligations to
Policy Owners. Insurance regulations also require AGL to maintain additional
surplus to protect against a financial impairment; the amount of which surplus
is based on the risks inherent in AGL's operations.
Separate Account Consolidation
Effective after the close of business on November 29, 2019, AGL consolidated
Separate Account VUL-2 with Separate Account VL-R, with Separate Account VL-R
being the surviving Separate Account after such consolidation (the
"Consolidation").
The Consolidation did not affect the terms of, or the rights and obligations
under your Policy, other than to reflect the change to the name of the separate
account. The number of units and the accumulation values for the variable
investment divisions in which you invest, and the variable investment divisions
available under the Policy did not change as a result of the Consolidation.
Your accumulation value immediately after the Consolidation was the same as the
value immediately before the Consolidation. The Consolidation did not result in
any adverse tax consequences for any Policy Owners.
The purpose of the Consolidation was to reduce the ongoing administrative
costs, independent accountant fees, and inefficiencies associated with
maintaining multiple Separate Accounts, each with its own recordkeeping and
reporting requirements.
Separate Account VL-R
After we deduct certain amounts from each premium, we put the balance,
called the "net premium," into the Policy Account established for each Policy.
We credit the net premium to the Policy Account as of the date we receive it,
or, if later, the Register Date. We credit the net premium to the Policy
Account before deducting any charges against the Policy Account due on that
date. See "Charges Under the Policy" beginning on page 42.
17
We will invest the Policy Account in the Fidelity(R) VIP Government Money
Market division until the fifteenth day after we issue the Policy, or if that
is not a business day, until the following business day. We will then allocate
the Policy Account to the Guaranteed Interest Division or to one or more of the
variable investment divisions, or both, according to your instructions in the
Policy application. These instructions will apply to any subsequent premium
until you provide us with new instructions. Premium allocation percentages may
be any whole number from zero to 100, but the sum must equal 100.
We hold the Mutual Fund shares in which any of your accumulation value is
invested in Separate Account VL-R (the "Separate Account"). The Company
established Separate Account VL-R under the laws of the State of Texas on
May 6, 1997. The Separate Account is registered as a unit investment trust with
the SEC under the Investment Company Act of 1940 (the "1940 Act"). The Policies
were previously issued through AGL Separate Account VUL-2. Prior to
December 31, 2002, AGL Separate Account VUL-2 was a separate account of
American Franklin, created on April 9, 1991 under Illinois insurance law. On
December 31, 2002, and in conjunction with the merger of AGL and American
Franklin, Separate Account VUL-2 became a separate account of AGL under Texas
law. Effective on the close of business November 29, 2019, AGL Separate Account
VUL-2 was consolidated into Separate Account VL-R.
The Separate Account also issues interests under EquiBuilder II variable
universal life insurance policies, which have policy features that are similar
to those of EquiBuilder III Policies but which have a different sales charge
structure.
The assets in the Separate Account are our property. The assets in the
Separate Account may not be used to pay any liabilities of AGL other than those
arising from the Policies. AGL is obligated to pay all amounts under the
Policies due the Policy Owners.
Income, gains and losses credited to, or charged against, the Separate
Account reflect the Separate Account's own investment experience and not the
investment experience of AGL's other assets.
Guarantee of Insurance Obligations
Insurance obligations under all Policies with a date of issue prior to
December 29, 2006 at 4:00 p.m. Eastern time are guaranteed (the "Guarantee") by
American Home Assurance Company ("American Home"), an affiliate of AGL.
Insurance obligations include, without limitation, Policy values invested in
the Guaranteed Interest Division, death benefits and Policy features that
provide return of premium or protection against Policy lapse. The Guarantee
does not guarantee Policy value or the investment performance of the variable
investment divisions available under the Policies. The Guarantee provides that
Policy Owners can enforce the Guarantee directly.
As of December 29, 2006 at 4:00 p.m. Eastern time (the "Point of
Termination"), the Guarantee was terminated for prospectively issued Policies.
The Guarantee will not cover any Policies with a date of issue later than the
Point of Termination. The Guarantee will continue to cover all other Policies
until all insurance obligations under such Policies are satisfied in full.
American Home is a stock property-casualty insurance company incorporated
under the laws of the State of New York on February 7, 1899. American Home's
principal executive office is located at 175 Water Street, 18/th/ Floor,
New York, New York 10038. American Home is licensed in all 50 states
18
of the United States and the District of Columbia, as well as certain foreign
jurisdictions, and engages in a broad range of insurance and reinsurance
activities. American Home is an indirect wholly owned subsidiary of American
International Group, Inc.
Guarantees for Policies issued prior to the Consolidation will continue
after the Consolidation. As a result, the Consolidation of Separate Account
VUL-2 into Separate Account VL-R will not impact the insurance obligations
under the Guarantee.
Communication with AGL
When we refer to "you," we mean the person who is authorized to take any
action with respect to a Policy. Generally, this is the owner named in the
Policy. Where a Policy has more than one owner, each owner generally must join
in any requested action, except for transfers and changes in the allocation of
future premiums or changes among the investment options.
Administrative Center. The Administrative Center provides service to all
Policy Owners. See "Contact Information" on page 5 of this prospectus. For
applicants, your AGL representative will tell you if you should use an address
other than the Administrative Center address. All premium payments, requests,
directions and other communications should be directed to the appropriate
location. You should mail premium payments and loan repayments (or use express
delivery, if you wish) directly to the appropriate address shown on your
billing statement. If you do not receive a billing statement, send your premium
directly to the address for premium payments shown under "Contact Information"
on page 5. You should communicate notice of the insured person's death,
including any related documentation, to our Administrative Center address.
eDelivery, eService, Telephone Transactions and Written Transactions. There
are several different ways to request and receive Policy services.
eDelivery. Instead of receiving paper copies by mail of certain
documents we are required to provide to you, including annual Policy and Fund
prospectuses, you may select eDelivery. eDelivery allows you to receive
notification by E-mail when new or updated documents are available that pertain
to your Policy. You may then follow the link contained within the E-mail to
view these documents on-line. You may find electronically received documents
easier to review and retain than paper documents. To enroll for eDelivery, you
can complete certain information at the time of your Policy application (with
one required extra signature). If you prefer, you can go to
www.aig.com/eservice and at the same time you enroll for eService, enroll for
eDelivery. You do not have to enroll for eService to enroll for eDelivery
unless you enroll on-line. You may select or cancel eDelivery at any time.
There is no charge for eDelivery.
eService. You may enroll for eService to have access to on-line services
for your Policy. These services include transferring values among investment
options and changing allocations for future premiums. You can also view Policy
statements. If you have elected eService, you may choose to handle certain
Policy requests by eService, in writing or by telephone. We expect to expand
the list of available eService transactions in the future. To enroll for
eService, go to www.aig.com/eservice, click the eService login link, and
complete the on line enrollment pages. You may select or cancel the use of
eService at any time. There is no charge for eService.
eService Transactions, Telephone Transactions and Written Transactions.
Certain transaction requests currently must be made in writing. You must make
the following requests in
19
writing (unless you are permitted to make the requests by eService or by
telephone. See "Telephone transactions" on page 20).
. transfer of accumulation value;*
. change of allocation percentages for premium payments; *
. change of allocation percentages for Policy deductions; *
. telephone transaction privileges; *
. loan;*
. full surrender;
. partial surrender;*
. premium payments;**
. change of beneficiary or contingent beneficiary;
. loan repayments or loan interest payments;**
. change of death benefit Option or manner of death benefit payment;
. change in specified amount;
. addition or cancellation of, or other action with respect to any benefit
riders;
. election of a payment Option for Policy proceeds; and
. tax withholding elections.
--------
* These transactions are permitted by eService, by telephone or in writing.
** These transactions are permitted by eService or in writing.
We have special forms which should be used for loans, assignments, partial
and full surrenders, changes of owner or beneficiary, and all other contractual
changes. You will be asked to return your Policy when you request a full
surrender. You may obtain these forms from our Administrative Center, shown
under "Contact Information" on page 5, or from your AGL representative. Each
communication must include your name, Policy number and, if you are not the
insured person, that person's name. We cannot process any requested action that
does not include all required information.
One-time Premium Payments Using eService. You may use eService to schedule
one-time premium payments for your Policy. The earliest scheduled payment date
available is the next business day. For the purposes of eService one-time
premium payments only, a business day is a day the United States Federal
Reserve System ("Federal Reserve") is open. If payment scheduling is completed
after 4:00 p.m. Eastern time, then the earliest scheduled payment date
available is the second business day after the date the payment scheduling is
completed.
Generally, your payment will be applied to your Policy on the scheduled
payment date, and it will be allocated to your chosen variable investment
divisions based upon the prices set after 4:00 p.m. Eastern time on the
scheduled payment date. See "Business Day and Close of Business" on page 47.
Premium payments may not be scheduled for Federal Reserve holidays, even if
the New York Stock Exchange ("NYSE") is open. If the NYSE is closed on your
scheduled payment date, your payment will be allocated to your chosen variable
investment divisions based upon the prices set after 4:00 p.m. Eastern time on
the first day the NYSE is open following your scheduled payment date.
Telephone Transactions. If you have a completed telephone authorization form
on file with us, you may make transfers, or change the allocation of future
premium payments or deduction of charges, by telephone, subject to the terms of
the form. We will honor telephone instructions from any person who provides the
correct information, so there is a risk of possible loss to you if unauthorized
persons
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use this service in your name. Our current procedure is that only the owner or
your AGL representative may make a transfer request by phone. We are not liable
for any acts or omissions based upon instructions that we reasonably believe to
be genuine. Our procedures include verification of the Policy number, the
identity of the caller, both the insured person's and owner's names, and a form
of personal identification from the caller. We will promptly mail a written
confirmation of the transaction. If (a) many people seek to make telephone
requests at or about the same time, or (b) our recording equipment
malfunctions, it may be impossible for you to make a telephone request at the
time you wish. You should submit a written request if you cannot make a
telephone request. Also, if due to malfunction or other circumstances your
telephone request is incomplete or not fully comprehensible, we will not
process the transaction. The phone number for telephone requests is
1-800-340-2765.
General. It is your responsibility to carefully review all documents you
receive from us and immediately notify the Administrative Center of any
potential inaccuracies. We will follow up on all inquiries. Depending on the
facts and circumstances, we may retroactively adjust your Policy, provided you
notify us of your concern within 30 days of receiving the transaction
confirmation, statement or other document. Any other adjustments we deem
warranted are made as of the time we receive notice of the potential error. If
you fail to notify the Administrative Center of any potential mistakes or
inaccuracies within 30 days of receiving any document, we will deem you to have
ratified the transaction.
Variable Investment Divisions
We divided the Separate Account into variable investment divisions, each of
which invests in shares of a corresponding Fund of Fidelity(R) VIP, MFS(R) VIT
and MFS(R) VIT II. One or more of the Funds may sell its shares to other funds.
Currently, you may invest premium payments in variable investment divisions
investing in the following Funds.
Investment Adviser
Series Fund Descriptions (sub-adviser, if applicable)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Asset Manager/SM/ - High total return with Fidelity Management & Research
Initial Class reduced risk Company (FMR) (FMR Co., Inc.)
(Fidelity Investments Money
Management, Inc.)
(Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Asset Manager: Maximize total return Fidelity Management & Research
Growth(R) - Initial Class Company (FMR) (FMR Co., Inc.)
(Fidelity Investments Money
Management, Inc.)
(Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Contrafund/SM/ - Long-term capital Fidelity Management & Research
Initial Class appreciation Company (FMR) (FMR Co., Inc.)
(Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Equity-Income/SM/ - Reasonable income Fidelity Management & Research
Initial Class and potential capital Company (FMR) (FMR Co., Inc.)
appreciation (Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Government Money High level of current Fidelity Management & Research
Market - Initial Class income consistent Company (FMR) (Fidelity Investments
with preservation of Money Management, Inc.)
capital and liquidity (Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Growth - Initial Class Capital appreciation Fidelity Management & Research
Company (FMR) (FMR Co., Inc.)
(Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP High Income - Initial High level of current Fidelity Management & Research
Class income while Company (FMR) (FMR Co., Inc.)
considering growth (Other affiliates of FMR)
of capital
-----------------------------------------------------------------------------------------------------
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Investment Adviser
Series Fund Descriptions (sub-adviser, if applicable)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Index 500 - Initial Total return of Fidelity Management & Research
Class common stocks Company (FMR) (FMR Co., Inc.) (Geode
publicly traded in the Capital Management, LLC)
United States, as
represented by the
Standard & Poor's
500(R) Index
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Investment Grade Bond High level of current Fidelity Management & Research
Initial Class income consistent Company (FMR) (Fidelity Investments
with preservation of Money Management, Inc.)
capital (Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
Fidelity(R) VIP Overseas - Initial Long-term growth of Fidelity Management & Research
Class capital Company (FMR) (FMR Co., Inc.)
(Other affiliates of FMR)
-----------------------------------------------------------------------------------------------------
MFS(R) VIT II Core Equity - Initial Capital appreciation Massachusetts Financial Services
Class Company ("MFS")
-----------------------------------------------------------------------------------------------------
MFS(R) VIT Growth - Initial Class Capital appreciation MFS
-----------------------------------------------------------------------------------------------------
MFS(R) VIT Investors Trust - Initial Capital appreciation MFS
Class
-----------------------------------------------------------------------------------------------------
MFS(R) VIT Research - Initial Class Capital appreciation MFS
-----------------------------------------------------------------------------------------------------
MFS(R) VIT Total Return - Initial Total return MFS
Class
-----------------------------------------------------------------------------------------------------
MFS(R) VIT Utilities - Initial Class Total return MFS
-----------------------------------------------------------------------------------------------------
From time to time, certain Fund names are changed. When we are notified of a
name change, we will make changes so that the new name is properly shown.
However, until we complete the changes, we may provide you with various forms,
reports and confirmations that reflect a Fund's prior name.
You can learn more about the Funds, their investment policies, risks,
expenses and all other aspects of their operations by reading their
prospectuses. You should carefully read the Funds' prospectuses before you
select any investment division. We do not guarantee that any Fund will achieve
its objective. In addition, no single Fund or investment division, by itself,
constitutes a balanced investment plan. A Fund's prospectus may be supplemented
by the Fund's Investment Adviser. Please check the EquiBuilder III webpage at
www.aig.com/individual/insurance/life/variable-universal-life/equibuilder-3 to
view your Fund prospectuses and their supplements.
Affiliates of the Funds compensate us for administering the Funds as
variable funding options for the EquiBuilder III Policies. Currently,
Massachusetts Financial Services Company, the investment adviser for MFS(R) VIT
and MFS(R) VIT II, and Fidelity Management & Research Company ("FMR"), the
investment adviser for Fidelity(R) VIP, pay us fees on an annualized basis, of
a maximum of 0.35% of the aggregate net assets of each Fund attributable to the
EquiBuilder III Policies and certain other variable contracts we issue. This
fee will not be paid by the Funds, their shareholders or the Policy Owners.
Voting Rights of a Policy Owner
We invest the variable investment divisions' assets in shares of the Funds.
We are the legal owner of the shares held in the Separate Account, and we have
the right to vote on certain issues. Among other things, we may:
. vote to elect the Boards of Trustees of the Funds;
. vote to ratify the selection of independent auditors for the Funds; and
22
. vote on issues described in the Fund's current prospectus or requiring a
vote by shareholders under the 1940 Act.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your Policy Account value. We vote
the shares in accordance with your instructions at meetings of investment
portfolio shareholders. We vote any portfolio shares that are not attributable
to Policies, and any investment portfolio shares where the owner does not give
us instructions, the same way we vote where we did receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from Policy Owners if the federal securities laws, regulations, or
their interpretations change to allow this.
You may only instruct us on matters relating to the investment portfolios
corresponding to divisions where you have invested assets as of the record date
set by the investment portfolio's Board for the portfolio's shareholders
meeting. We determine the number of investment portfolio shares in each
division that we attribute to your Policy by dividing your account value
allocated to that division by the net asset value of one share of the matching
investment portfolio.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
All investment portfolio shares have the right to one vote. The votes of all
investment portfolios are cast together on a collective basis, except on issues
where the interests of the portfolios differ. In these cases, voting is done on
a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
. changes in the fundamental investment Policy of a particular investment
portfolio; or
. approval of an investment advisory agreement.
The Guaranteed Interest Division
We invest any accumulation value you have allocated to our Guaranteed
Interest Division as part of our general account assets. Unlike the Separate
Account, our general account assets may be used to pay any liabilities of AGL
in addition to those arising from the Policies. We credit interest on that
account value at a rate which we declare from time to time. We guarantee that
the interest will be credited at an annual effective rate of at least 4 1/2%.
Although this interest increases the amount of any account value that you have
in our Guaranteed Interest Division, account value will also be reduced by any
charges that are allocated to this option under the procedures described under
"Tables of Charges" beginning on page 11. The charges and expenses of the Funds
shown under "Tables of Charges" do not apply to our Guaranteed Interest
Division.
You may transfer Policy Account value into the Guaranteed Interest Division
at any time. However, there are restrictions on the amount you may transfer out
of the Guaranteed Interest Division in a Policy year. Please see "Transfers
from the Guaranteed Interest Division" on page 34.
23
Illustrations
We may provide you with illustrations for your Policy's death benefit,
Policy Account value, and cash surrender value based on hypothetical rates of
return. Hypothetical illustrations also assume costs of insurance for a
hypothetical person. These illustrations are illustrative only and should not
be considered a representation of past or future performance. Your actual rates
of return and actual charges may be higher or lower than these illustrations.
The actual return for your Policy Account value will depend on factors such as
the amounts you allocate to particular investment divisions, the amounts
deducted for the Policy's fees and charges, the variable investment divisions'
fees and charges, and your Policy loan and partial surrender history.
Upon your request, we will provide a personalized illustration that takes
into account your Policy's actual values and features as of the date the
illustration is prepared. We reserve the right to charge a maximum fee of $25
for each personalized illustration prepared if you request us to do so more
than once each year. We do not currently charge for additional personalized
illustrations.
POLICY FEATURES
Keep in mind as you review the following Policy features that we no longer
sell EquiBuilder III Policies.
Age
Generally, our use of age in your Policy and this prospectus refers to a
person who is between six months younger and six months older than the stated
age. Sometimes we refer to this as the "age nearest birthday".
Death Benefits
We will pay the death benefit (less any Policy loan and loan interest and
any overdue charges) to your beneficiary when the Insured Person dies. You may
choose one of the following two death benefit options:
. Option A - the greater of (i) the Policy's Face Amount and (ii) the
required minimum death benefit; or
. Option B - the greater of (i) the Policy's Face Amount plus the Policy
Account value and (ii) a multiple of the required minimum death benefit.
The value of the death benefit under Option B is variable and fluctuates
with Policy Account value. However; insurance under Option B costs more per
month than under Option A. The value of the Policy Account and the net cash
surrender value of the Policy under Option B will be lower than under Option A,
all other things being equal.
Under both death benefit options, the required minimum death benefit applies
if it would provide a greater benefit (before deductions for any outstanding
Policy loan and loan interest). This benefit is a percentage multiple of the
amount in your Policy Account value. The percentage declines as the Insured
Person gets older. The benefit will be your Policy Account value on the day the
Insured Person dies multiplied by the percentage for the Insured Person's age
(as of his or her nearest birthday) at the beginning of the Policy year of the
Insured Person's death. For ages that are not shown on the table set forth
below, the applicable percentages will decrease proportionately for each full
year.
24
TABLE OF DEATH BENEFITS BASED
ON POLICY ACCOUNT VALUES
----------------------------------------------------------------------------------------------------------------
Insured Person's Attained Age* 40 or under 45 50 55 60 65 70 75 95
----------------------------------------------------------------------------------------------------------------
Minimum Death Benefit as a Percentage of the Policy Account 250% 215% 185% 150% 130% 120% 115% 105% 104%
----------------------------------------------------------------------------------------------------------------
*The percentages are interpolated for ages that are not shown here.
For example, if the Insured Person is 40 years old and the Policy Account
value is $100,000, the death benefit would be at least $250,000 (250% of
$100,000).
These percentages are based on provisions of federal tax law which require a
minimum death benefit in relation to cash value for a Policy to qualify as life
insurance. See "Federal Tax Considerations," on page 49.
Under either Option A or Option B, the length of time a Policy remains in
force depends on the net cash surrender value of the Policy. Because we deduct
the charges that maintain the Policy from the Policy Account, coverage will
last as long as the net cash surrender value can cover these deductions.
See "Policy Lapse and Reinstatement," on page 48. The investment experience
(which may be either positive or negative) of any amounts in the variable
investment divisions and the interest earned in the Guaranteed Interest
Division affect your Policy Account value. As a result, the returns from these
divisions will affect the length of time a Policy remains in force.
If you prefer to have insurance coverage that varies with the investment
experience of your Policy Account, you should choose Option B. The death
benefit under Option B will always be at least the Face Amount of the Policy or
the required minimum death benefit described above (in either case, less any
outstanding Policy loan and loan interest), whichever is greater. If you prefer
to have insurance coverage that does not vary in amount and that has lower cost
of insurance charges, you should choose Option A.
Maturity Benefit
If the Insured Person is still living on the Policy anniversary nearest his
or her 95th birthday, we will pay you the Policy Account value net of any
outstanding loan and loan interest. The Policy will then end.
Policy Issuance Information
When you complete an application for a Policy, it is submitted to us. We
make the decision to issue a Policy based on the information in the application
and our standards for issuing insurance and classifying risks. If we decide not
to issue a Policy, we will refund any premium paid.
We will not issue a new Policy having a Face Amount that is less than
$50,000, nor will we issue a Policy for an Insured Person who is older than 75.
No insurance under a Policy will take effect: (a) until we deliver a Policy
and you pay the full initial premium while the Insured Person is living and
(b) unless the information in the application continues to be true and
complete, without material change, as of the time you pay the premium.
25
See "Flexible Premium Payments" on page 26 of this prospectus, for
additional information concerning procedures for obtaining a Policy.
Right to Examine
You have a right to examine your Policy. If for any reason you are not
satisfied with it, you may cancel the Policy within the time limits described
below by sending it to us with a written request to cancel.
A request to cancel the Policy must be postmarked no later than the latest
of the following two dates:
. 10 days after you receive your Policy; or
. 45 days after you sign Part 1 of the Policy application.
If you cancel the Policy, we will, within seven days of receipt of the
Policy and a duly executed, timely notice of cancellation, refund an amount
equal to the greater of (1) the premiums paid or (2) the Policy Account value
plus any amount deducted from the premiums paid prior to allocation to the
Policy Account. Insurance coverage ends when you send a request for
cancellation.
Flexible Premium Payments
You may choose the amount and frequency of your premium payments, as long as
they are within the limits described below. Even though premiums are flexible,
the Policy Information page of each Policy will show a "planned" periodic
premium. You determine the planned premium, within limits we set when you apply
for a Policy. Planned premiums may not equal the amount of premiums that will
keep your Policy in effect. Planned premiums are generally the amount you
decide you want to pay and you can change them at any time. If mandated under
applicable law, we may be required to reject a premium payment.
You must pay a minimum initial premium on or before the date on which we
deliver the Policy. The insurance will not go into effect until we receive this
minimum initial premium. We determine the applicable minimum initial premium
based on the age, sex and risk class of the Insured Person, the initial Face
Amount of the Policy and any additional benefits you select. Make the first
premium payment by check or money order payable to "American General Life
Insurance Company" or "AGL." Pay any additional premiums by check payable to
"American General Life Insurance Company" or "AGL" and send them to our
Administrative Center shown under "Contact Information" on page 5.
We will send you premium reminder notices based on your planned premium
unless you request that we not do so in your application or by writing to our
Administrative Center. Nevertheless, you may make the planned payment, skip the
planned payment or change the frequency or the amount of the payment.
Generally, you may pay other premiums at any time and in any amount, as long
as each payment is at least $100. (In some states, Policies may have different
minimum premium payments.) We may increase this minimum upon 90 days' written
notice. We may also reject premium payments in a Policy year if the payments
would cause the Policy to cease to qualify as life insurance under federal tax
law. See "Federal Tax Considerations," on page 49.
26
If you stop paying premiums temporarily or permanently, the Policy will
continue in effect until the net cash surrender value no longer covers the
monthly charges against the Policy Account for the benefits selected. Planned
premiums may not be sufficient to maintain a Policy because of investment
experience, Policy changes or other factors.
We have filed a Statement of Additional Information ("SAI") with the SEC
which includes more information about your Policy. The back cover page to this
prospectus describes how you can obtain a copy of the SAI.
Premium Payments and Transaction Requests in Good Order
We will accept the Policy Owner's instructions to allocate premium payments
to investment options, to make redemptions (including loans) or to transfer
values among the Policy Owner's investment options, contingent upon the Policy
Owner's providing us with instructions in good order. This means that the
Policy Owner's request must be accompanied by sufficient detail to enable us to
allocate, redeem or transfer assets properly.
When we receive a premium payment or transaction request in good order, it
will be treated as described in this prospectus. If we receive an instruction
that is not in good order, the requested action will not be completed, and any
premium payments that cannot be allocated will be held in a non-interest
bearing account until we receive all necessary information.
We will attempt to obtain Policy Owner guidance on requests not received in
good order for up to five business days following receipt. For instance, one of
our representatives may telephone the Policy Owner to determine the intent of a
request. If a Policy Owner's request is still not in good order after five
business days, we will cancel the request, and return any unallocated premiums
to the Policy Owner along with the date the request was canceled.
Changes in EquiBuilder III Policies
EquiBuilder III Policies provide you flexibility to choose from a variety of
strategies which enable you to increase or decrease your insurance protection.
A reduction in Face Amount lessens emphasis on the Policy's insurance
coverage by reducing both the death benefit and the net amount at risk (the
difference between the current death benefit under the Policy and the amount of
the Policy Account). The reduced net amount at risk results in lower cost of
insurance charges against the Policy Account. See "Changing the Face Amount of
Insurance," on page 28.
A partial withdrawal of net cash surrender value reduces the Policy Account
and death benefit and may reduce the Policy's Face Amount, while providing a
cash payment. It does not reduce the net amount at risk or the cost of
insurance charges. See "Policy Account Transactions - Withdrawing Money from
the Policy Account," on page 37.
Choosing not to make premium payments may have the effect of reducing the
Policy Account. Reducing the Policy Account will, under Option A, increase the
net amount at risk (and thereby increase cost of insurance charges) while
leaving the death benefit unchanged. Under Option B, it will decrease the death
benefit while leaving the net amount at risk and the cost of insurance charge
unchanged. See "Flexible Premium Payments," on page 26.
27
Increases in the Face Amount emphasize insurance coverage by increasing both
the death benefit and the net amount at risk. See "Changing the Face Amount of
Insurance," on page 28.
Additional premium payments may increase the Policy Account, which has the
effect, under Option A, of reducing the net amount at risk and cost of
insurance charge while leaving the death benefit unchanged, or, under Option B,
of increasing the death benefit while leaving the net amount at risk and cost
of insurance charge unchanged. See "Flexible Premium Payments," on page 26.
Changing the Face Amount of Insurance
Any time after the first Policy year while a Policy is in force, you may
change your Policy's Face Amount. You can do this by sending a written request
to us. Any change will be subject to our approval.
For increases in the Face Amount, we must have satisfactory evidence that
the Insured Person is still insurable. Our current procedure if the Insured
Person has become a more expensive risk is to ask you to confirm that you will
pay higher cost of insurance charges on the amount of the increase.
Any increase in the Face Amount must be at least $10,000. Monthly deductions
from the Policy Account for the cost of insurance will increase, beginning on
the date the increase in the Face Amount takes effect. In addition, we will
assess a one-time administrative charge against the Policy Account for each
Face Amount increase. This charge is currently $1.50 for each additional $1,000
of insurance, up to a maximum charge of $300. An increase in the Face Amount
will not increase the maximum surrender charge. Increasing the Face Amount may
increase the amount of premium you would need to pay to avoid a lapse of your
Policy.
You may not reduce the Face Amount below the minimum we require to issue a
Policy at the time of the reduction. We will lower monthly charges against the
Policy Account for the cost of insurance if you reduce the Face Amount. If you
reduce the Face Amount during the first ten Policy years, we will assess a pro
rata share of the applicable surrender charge against the Policy Account. See
"Charges under the Policy - Transaction Fees - Surrender Charge," on page 43.
Our current procedure is to disapprove a requested decrease in the Face
Amount if it would trigger the required minimum death benefit. (This is the
federal tax law provision, discussed earlier in this prospectus, that can
require us to pay as a death benefit a percentage multiple of the Policy
Account value.) Instead, we will ask you to make a partial withdrawal of net
cash surrender value from the Policy Account, and then we decrease the Face
Amount. See "Policy Features - Death Benefits," on page 24.
Currently, if you request a Face Amount decrease when you have previously
increased the Face Amount, we will apply the decrease first against the most
recent increase in the Face Amount. We will then apply decreases to prior
increases in the Face Amount in the reverse order in which such increases took
place, and then to the original Face Amount.
Policy changes that result in a reduction of the death benefit, such as a
decrease in the Face Amount, may cause a Policy to become a MEC or may have
other adverse tax consequences. See "Federal Tax Considerations," page 49.
28
Changing Death Benefit Options
Any time after the first Policy year while a Policy is in force, you may
change the death benefit option by sending us a written request. If you change
the death benefit from Option A to Option B, the Face Amount will go down by
the amount of Policy Account value on the date of the change. We will not allow
this change if it would reduce the Face Amount below the minimum we require to
issue a Policy. If you change the death benefit from Option B to Option A, the
Face Amount of insurance will go up by the amount of Policy Account value on
the date of the change. These increases and decreases in the Face Amount are
made so that the amount of the death benefit remains the same on the date of
the change. When the death benefit remains the same, there is no change in the
net amount at risk, which is the amount on which cost of insurance charges are
based. See "Charges under the Policy - Periodic Charges - Cost of Insurance
Charge," on page 45.
Changing the death benefit Option may have adverse tax consequences. You
should consult a tax advisor before changing the death benefit Option.
We will not require evidence of insurability for the increase in the Face
Amount when you change from Option B to Option A, nor will we charge for this
increase. We will not assess a surrender charge for the decrease in the Face
Amount when you change from Option A to Option B.
When Face Amount and Death Benefit Changes Go Into Effect
Any change in the Face Amount or death benefit option of a Policy will be
effective at the beginning of the Policy month following the date we approve
the request. Any adjustment to Policy charges on account of the change will
take effect at the same time. After we approve the request, we will send you a
written notice of the approval showing each change. You should attach this
notice to your Policy. We may also request that you return your Policy to us so
that we can make the appropriate changes.
In some cases, we may not approve a change you request because it might
disqualify the Policy as life insurance under applicable federal tax law. We
will send you a written notice of our decision to disapprove any requested
change for this reason. See "Federal Tax Considerations" on page 49.
Reports To Policy Owners
After the end of each Policy year, we will send you a report that shows the
current death benefit for your Policy, the value of your Policy Account,
information about the variable investment divisions, the cash surrender value
of your Policy, the amount of any outstanding Policy loans, the amount of any
interest you owe on the loan and information about the current loan interest
rate. The annual report will also show any transactions involving your Policy
Account that occurred during the year. Transactions include premium
allocations, deductions, and any transfers or withdrawals that you made in that
year. We will also include in reports any information required by state law.
We will send you notices of transfers of amounts between variable investment
divisions and certain other Policy transactions.
Policy Periods, Anniversaries, Dates and Ages
We measure Policy years, Policy months and Policy anniversaries from the
Register Date shown on the Policy Information page in the Policy. Each Policy
month begins on the same day in each
29
calendar month as the day of the month that the Register Date occurred. For
purposes of receiving Policy Owner requests, we are open for business at the
same time that the NYSE is open for business.
The Register Date is the earlier of the issue date or the date of payment.
The date of payment will normally be the day we receive a check for the full
initial premium. The issue date, shown on the Policy Information page of each
Policy, is the date we actually issue a Policy, and depends on the underwriting
and other requirements for issuing a particular Policy. Contestability is
measured from the issue date, as is the suicide exclusion.
If we receive your premiums through payroll allotment, such as salary
deduction or salary reduction programs, we consider that we receive your
premium on the day we actually receive it, rather than the day the deduction
from your payroll occurs. This is important for you to know because your
premium receives no interest or earnings for the time between the deduction
from your payroll and our receipt of the payment. We do not accept military
allotment programs.
We will put the initial net premium in the Policy Account as of the date of
payment. We will allocate it to the Fidelity(R) VIP Government Money Market
division of the Separate Account, regardless of your premium allocation
percentages, until the first business day 15 days after the issue date. We will
allocate any other net premium we receive during that period to the
Fidelity(R) VIP Government Money Market division. On the first business day 15
days after the issue date, we will reallocate the amount in the Policy Account
in accordance with your premium allocation percentages. The first time that we
assess charges and deductions under the Policy is as of the Register Date. See
"Policy Features - Policy Issuance Information," on page 25, regarding the
commencement of insurance coverage.
The final Policy date is the Policy anniversary nearest the Insured Person's
95th birthday. The Policy ends on that date if the Insured Person is still
alive and the maturity benefit is paid.
ADDITIONAL BENEFIT RIDERS
You may be eligible to add additional benefit riders to your Policy. We will
assess a monthly charge against the Policy Account for each additional benefit
rider, other than the Accelerated Benefit Settlement Option Rider. You can
cancel these benefit riders at any time. Some of the riders provide guaranteed
benefits that are obligations against our general account assets and not of the
Separate Account. See "The Guaranteed Interest Division" on page 23. Please see
the "Tables of Charges" on page 11 of this prospectus for the fees associated
with these riders. Your Policy will have more details if you select any of
these benefits. Eligibility for and changes in these benefits are subject to
our rules and procedures as well as Internal Revenue Service guidance and rules
that pertain to the Internal Revenue Code's definition of life insurance as in
effect from time to time. The following additional benefit riders are currently
available:
Disability Waiver Benefit Rider
With this benefit, we waive monthly charges from the Policy Account if the
Insured Person becomes totally disabled on or after the Insured Person's fifth
birthday and the disability continues for six months. There is a charge for
this rider. If the disability starts before the Policy anniversary nearest the
Insured Person's 60th birthday, we will waive monthly charges for life as long
as the disability continues. If the disability starts after that, we will waive
monthly charges only up to the Policy anniversary nearest the Insured Person's
65th birthday (as long as the disability continues). You may later elect to
terminate this rider. If you do so, the charge will cease.
30
Accidental Death Benefit Rider
We will pay an additional benefit if the Insured Person dies from bodily
injury that results from an accident, provided the Insured Person dies before
the Policy anniversary nearest his or her 70th birthday. There is a charge for
this rider. You may later elect to terminate this rider. If you do so, the
charge will cease.
Children's Term Insurance Rider
This benefit provides term life insurance on the lives of the Insured
Person's children, including natural children, stepchildren and legally adopted
children. There is a charge for this rider. Coverage for an insured child must
begin before the child has reached age eighteen. Coverage lasts only until the
Insured Person reaches age 65 or the child reaches age 25, whichever happens
first. You may terminate this rider at any time. If you do so, the charge will
cease.
Term Insurance on an Additional Insured Person Rider
This rider allows you to obtain term insurance for another person, such as
the Insured Person's spouse. There is a charge for this rider. This rider is a
level death benefit term insurance rider with annually increasing cost of
insurance charges. The minimum amount of coverage is $25,000 and the maximum is
five times the Policy's Face Amount. The coverage and deductions expire on the
Policy anniversary nearest the Insured Person's age 70. You may later elect to
terminate this rider. If you do so, the charge will cease.
Accelerated Benefit Settlement Option Rider
This rider allows you to receive an accelerated benefit in the event the
Insured Person becomes terminally ill or is confined to a nursing facility, as
those terms are defined in the rider. In determining the accelerated benefit,
we will adjust the death benefit to reflect the payment option you select, the
Insured Person's sex and age, the length of time the Policy has been in force,
our current assumptions as to the Insured Person's life expectancy, interest
rates, cost of insurance rates, and administrative charges, and a processing
charge of not over $200.
This Accelerated Benefit Settlement Option Rider is available with
EquiBuilder III Policies in those states where the rider has been approved. You
can get information on approval of this rider in a particular state from us or
from a registered representative authorized to sell the Policies. There is no
premium charge for this rider, and you may not add the rider after we have
issued a Policy. Receipt of an accelerated benefit may be subject to income
tax. You should seek assistance from your personal tax advisor before electing
a payment option under this rider.
POLICY ACCOUNT TRANSACTIONS
The following transactions may have different effects on the Policy Account,
death benefit, Face Amount or cost of insurance. You should consider the net
effects before requesting Policy Account transactions. See "Policy Features -
Changes in EquiBuilder III Policies," on page 27. Certain transactions also
include charges. For information regarding other charges, see "Charges Under
the Policy" on page 42.
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eDelivery, eService, Telephone Transactions and Written Transactions
See page 19 for information regarding eDelivery, eService, telephone
transactions and written transactions.
Changing Premium and Deduction Allocation Percentages
You may change the allocation percentages of your net premiums or your
monthly deductions by giving instructions to us. These changes will go into
effect as of the date we receive the request, and they will affect transactions
on and after that date.
Transfers of Policy Account Value Among Investment Divisions
You may transfer amounts from any variable investment division to any other
variable investment division or to the Guaranteed Interest Division. You may
make up to four transfers of Policy Account value among the variable investment
divisions in each Policy year without charge. We consider your instruction to
transfer from or to more than one investment division at the same time to be
one transfer. Depending on the overall cost of performing these transactions,
we may charge up to $25 for each additional transfer, except that we will
impose no charge for a transfer of all amounts in the variable investment
divisions to the Guaranteed Interest Division. Our current practice is to
assess the $25 charge for each transfer after the twelfth transfer in a Policy
year. To make a transfer, give us instructions at our Administrative Center,
shown under "Contact Information" on page 5.
If there is a charge for making a transfer, we will allocate the charge as
described under "Charges under the Policy - Allocation of Policy Account
Charges," on page 46. All simultaneous transfers included in one transfer
request count as one transfer for purposes of any fee.
A transfer from a variable investment division will take effect as of the
business day we receive instructions to make the transfer. The minimum amount
we will transfer on any date will be shown on the Policy Information page in
each Policy and is usually $500. This minimum need not come from any one
variable investment division or be transferred to any one variable investment
division as long as the total amount transferred that day equals or exceeds the
minimum. However, we will transfer the entire amount in any variable investment
division even if it is less than the minimum specified in a Policy. Note that
we will allocate future premiums and deductions to variable investment
divisions or the Guaranteed Interest Division in accordance with existing
allocations unless you also instruct us to change them.
Special rules apply to transfers from the Guaranteed Interest Division. See
"Policy Account Transactions - Transfers from the Guaranteed Interest
Division," on page 34.
Market Timing
The Policies are not designed for professional market timing organizations
or other entities or individuals using programmed and frequent transfers
involving large amounts. Market timing carries risks with it, including:
. dilution in the value of Fund shares underlying investment options of
other Policy Owners;
. interference with the efficient management of the Fund's portfolio; and
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. increased administrative costs.
We have policies and procedures affecting your ability to make transfers
within your Policy. A transfer can be your allocation of all or a portion of a
new premium payment to an investment option. You can also transfer your
accumulation value in one investment option (all or a portion of the value) to
another investment option.
We are required to monitor the Policies to determine if a Policy Owner
requests:
. a transfer out of a variable investment division within two calendar
weeks of an earlier transfer into that same variable investment
division; or
. a transfer into a variable investment division within two calendar weeks
of an earlier transfer out of that same variable investment division; or
. a transfer out of a variable investment division followed by a transfer
into that same variable investment division, more than twice in any one
calendar quarter; or
. a transfer into a variable investment division followed by a transfer
out of that same variable investment division, more than twice in any
one calendar quarter.
If any of the above transactions occurs, we will suspend such Policy Owner's
same day or overnight delivery transfer privileges (including website, e-mail
and facsimile communications) with notice to prevent market timing efforts that
could be harmful to other Policy Owners or beneficiaries. Such notice of
suspension will take the form of either a letter mailed to your last known
address, or a telephone call from our Administrative Center to inform you that
effective immediately, your same day or overnight delivery transfer privileges
have been suspended. A Policy Owner's first violation of this policy will
result in the suspension of Policy transfer privileges for ninety days. A
Policy Owner's subsequent violation of this policy will result in the
suspension of Policy transfer privileges for six months.
In most cases, transfers into and out of the money market investment
division are not considered market timing; however, we examine all of the above
transactions without regard to any transfer into or out of the money market
investment division. We treat such transactions as if they are transfers
directly into and out of the same variable investment division. For instance:
(1)if a Policy Owner requests a transfer out of any variable investment
division into the money market investment division, and
(2)the same Policy Owner, within two calendar weeks requests a transfer out
of the money market investment division back into that same variable
investment division, then
(3)the second transaction above is considered market timing.
Transfers under dollar cost averaging, automatic rebalancing or any other
automatic transfer arrangements to which we have agreed are not affected by
these procedures.
The procedures above will be followed in all circumstances, and we will
treat all Policy Owners the same.
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In addition, Policy Owners incur a $25 charge for each transfer in excess of
12 each Policy year.
Restrictions Initiated By the Funds and Information Sharing Obligations
The Funds have policies and procedures restricting transfers into the Fund.
For this reason or for any other reason the Fund deems necessary, a Fund may
instruct us to reject a Policy Owner's transfer request. Additionally, a Fund
may instruct us to restrict all purchases or transfers into the Fund by a
particular Policy Owner. We will follow the Fund's instructions. The
availability of transfers from any investment option offered under the Policy
is unaffected by the Fund's policies and procedures.
Please read the Funds' prospectuses and supplements for information about
restrictions that may be initiated by the Funds.
In order to prevent market timing, the Funds have the right to request
information regarding Policy Owner transaction activity. If a Fund requests, we
will provide mutually agreed upon information regarding Policy Owner
transactions in the Fund.
Transfers from the Guaranteed Interest Division
You may request a transfer of unloaned amounts in the Guaranteed Interest
Division to one or more of the variable investment divisions. We will make the
transfer as of the date we receive a written request for it, but we will only
process a transfer out of the Guaranteed Investment Division if we receive it
within 30 days after a Policy anniversary. The maximum amount that you may
transfer is the greater of 25% of the unloaned value in the Guaranteed Interest
Division on the date the transfer takes effect or the minimum transfer amount
shown in the Policy when we issued it. The smallest amount that you may
transfer is the lesser of the unloaned value in the Guaranteed Interest
Division on the date the transfer takes effect or the minimum transfer amount
shown in the Policy.
Borrowing from the Policy Account
At any time that a Policy has a net cash surrender value, you may borrow
money from us using only your Policy as security for the loan. The maximum
aggregate amount that we will loan is 90% of the cash surrender value of the
Policy on the business day we receive the request for a loan. Any new loan must
be at least the minimum amount shown on the Policy Information page of a
Policy, usually $500. Any amount that secures a loan remains part of the Policy
Account but is assigned to the Guaranteed Interest Division. This loaned amount
earns interest at a rate that we expect will be different from the interest
rate for unloaned amounts in the Guaranteed Interest Division. See "Federal Tax
Considerations," on page 49, with respect to the federal income tax
consequences of a loan.
Loan Requests
Send requests for loans to us. You may specify how much of the loan should
be taken from the unloaned amount, if any, of your Policy Account allocated to
the Guaranteed Interest Division and how much should be taken from the amounts
allocated to the variable investment divisions. If you request a loan from a
variable investment division, we will redeem units sufficient to cover that
part of the loan and transfer the amount to the loaned portion of the
Guaranteed Interest Division. We determine the amounts in each division as of
the day we receive the request for a loan.
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If you do not specify how to allocate a loan, we will allocate it according
to your deduction allocation percentages. If we cannot allocate it based on
these percentages, we will allocate it based on the proportions of the unloaned
amount, if any, of your Policy Account allocated to the Guaranteed Interest
Division and the respective amounts allocated to each variable investment
division to the unloaned value of the Policy Account.
Policy Loan Interest
Interest on a Policy loan accrues daily at an adjustable interest rate. We
determine the rate at the beginning of each Policy year. The same rate applies
to any outstanding Policy loans and any new amounts borrowed during the year.
We will notify you of the current rate when you request a loan. We determine
loan rates as follows:
The maximum rate is the greater of:
. 5 1/2%; or
. the "Published Monthly Average" for the calendar month that ends two
months before the interest rate is set. The "Published Monthly Average"
is the Monthly Average Corporate yield shown in Moody's Corporate Bond
Yield Averages published by Moody's Investor Services, Inc.
If this average is no longer published, we will use any successor or the
average established by the insurance supervisory official of the jurisdiction
in which we delivered the Policy.
We will not charge more than the maximum rate permitted by applicable law.
We may also set a rate lower than the maximum.
Any change in the rate from one year to the next will be at least 1/2 of
1%. The current loan interest rate will only change, therefore, if the
Published Monthly Average differs from the previous loan interest rate by at
least 1/2 of 1%. We will give advance notice of any increase in the interest
rate on any loans outstanding.
When Interest is Due
Interest on any money you borrow from your Policy Account is due on each
Policy anniversary. If you do not pay interest when it is due, we will add it
to the outstanding loan and allocate it based on the deduction allocation
percentages for the Policy Account then in effect. This means that we make an
additional loan to pay the interest, and transfer amounts from the variable
investment divisions and the unloaned portion of the Guaranteed Interest
Division to make the loan. If we cannot allocate the interest based on these
percentages, we will allocate it as described above for allocating the loan.
Repaying the Loan
You may repay all or part of a Policy loan at any time while the Insured
Person is alive and a Policy is in force, provided that any loan repayment
currently must be at least $100 (unless the amount of the outstanding loan and
loan interest is less than $100). While a Policy loan is outstanding, we will
apply all amounts we receive in respect to that Policy as a loan repayment
unless you include with the payment written instructions that we should apply
it as a premium payment.
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We will first allocate loan repayments to the Guaranteed Interest Division
until the amount of any loans originally allocated to that division is repaid.
For example, if you borrowed $500 from the Guaranteed Interest Division and
$500 from the Fidelity(R) VIP Equity - Income Division, we will not allocate
repayments to the Fidelity(R) VIP Equity - Income Division until the $500
borrowed from the Guaranteed Interest Division is repaid. After you have repaid
this amount, you may specify how we should allocate subsequent repayments. If
you do not give us instructions, we will allocate repayments based on current
premium allocation percentages at the time you make the repayment.
The Effects of a Policy Loan on the Policy Account
A loan against a Policy will have a permanent effect on the value of the
Policy Account and, therefore, on benefits under the Policy, even if you repay
it. When we make a loan against a Policy, the amount of the loan is set aside
in the Guaranteed Interest Division where it earns a declared rate for loaned
amounts. The loan amount will not be available for investment in the variable
investment divisions or in the unloaned portion of the Guaranteed Interest
Division.
We expect the interest rate credited to loaned amounts in the Guaranteed
Interest Division to be different from the rate that applies to unloaned
amounts in the Guaranteed Interest Division. The interest rate for loaned
amounts in all years in the Guaranteed Interest Division will never be less
than 4 1/2%. Currently:
. for the first ten Policy years, it will be 2% less than the interest
rate charged on the loan, minus any charge for taxes or reserves for
taxes, and
. after the tenth Policy year, (a) the interest rate applied to Preferred
Loan amounts (as defined below) in the Guaranteed Interest Division will
be equal to the interest rate charged on the loan, minus any charge for
taxes or reserves for taxes and (b) the interest rate for other loaned
amounts in the Guaranteed Interest Division will be as set out in the
first bullet.
Each month, we add this interest to unloaned amounts of the Policy Account
in the Guaranteed Interest Division.
"Preferred Loans" are Policy loans made after the tenth Policy year which do
not in the aggregate exceed a specified percentage of the cash surrender value.
We will charge a lower interest rate on these loans. The maximum amount
eligible for Preferred Loans for any year is:
. 10% of your Policy Account value or "accumulation value" (which includes
any amount we are holding in the Guaranteed Interest Division as
collateral for your Policy loans) at the Policy anniversary; or
. if less, your Policy's maximum remaining loan value at that Policy
anniversary.
We will always credit your Preferred Loan collateral amount at a guaranteed
annual effective rate of 4 1/2%. We intend to set the rate of interest you are
paying to the same 4 1/2% rate we credit to your Preferred Loan collateral
amount, resulting in a zero net cost (0.00%) of borrowing for that amount. We
have full discretion to vary the rate we charge you, provided that the rate:
. will always be greater than or equal to the guaranteed Preferred Loan
collateral rate of 4 1/2%; and
36
. will never exceed an annual effective rate of the greater of:
(1)5 1/2%; or
(2)the "Published Monthly Average" for the calendar month that ends two
months before the interest rate is set. See "Policy Loan Interest" on
page 35 for a description of the Published Monthly Average.
The impact of a loan on a Policy Account will depend, on one hand, on the
investment experience of the variable investment divisions and the rates
declared for the unloaned portion of the Guaranteed Interest Division and, on
the other hand, the rates declared for the loaned portion of the Guaranteed
Interest Division. For example, if $1,000 is borrowed against $5,000 in the
Fidelity(R) VIP Government Money Market division, the $1,000 will be set aside
in the Guaranteed Interest Division. This $1,000 would not be affected by any
increases or decreases in the value of units in the Fidelity(R) VIP Government
Money Market division. However, the $1,000 earns interest at a declared
interest rate.
A Policy loan may also affect the amount of time that the insurance provided
by a Policy remains in force. For example, a Policy may lapse more quickly when
a loan is outstanding because you cannot use the loaned amount to cover monthly
charges against the Policy Account. This may have negative tax consequences. If
the monthly charges exceed the net cash surrender value of the Policy, then the
lapse provisions of the Policy will apply. Since the Policy permits loans up to
90% of the cash surrender value, you may have to pay additional premium
payments to keep the Policy in force if you borrowed the maximum amount. For
more information about these provisions, see "Policy Lapse and Reinstatement,"
on page 48 of this prospectus.
Withdrawing Money from the Policy Account
After a Policy has been in effect for a year, you may request a partial
surrender of the net cash surrender value by sending us a written request. The
partial surrender and any reductions in Face Amount and net cash surrender
value will be effective as of the business day we receive the request for them.
Any partial surrender is subject to certain conditions. It must:
. be at least $500;
. not cause the death benefit or Face Amount to fall below the minimum for
which we would issue the Policy; and
. not cause the Policy to fail to qualify as life insurance under
applicable law.
You may specify how much of the partial surrender you want taken from each
investment division. If you do not give us instructions, we will make the
partial surrender on the basis of the then-current deduction allocation
percentages. If we cannot withdraw the amount based on your directions or on
the deduction allocation percentages, we will withdraw the amount based on the
proportions of the unloaned amount, if any, of the Policy Account allocated to
the Guaranteed Interest Division and the respective amounts allocated to the
variable investment divisions to the total unloaned value of the Policy
Account. For example, if 50% of a Policy Account were in the Guaranteed
Interest Division and 50% were in the Fidelity(R) VIP Government Money Market
Division and you wanted to withdraw $1,000, we would take $500 from each
division.
When you make a partial surrender of net cash surrender value, we assess a
partial surrender processing fee against the Policy Account of a maximum of the
lesser of $25 or 2% of the partial
37
surrender amount. This charge is currently $10. We will allocate this charge
equally among the divisions from which the partial surrender was made. If we
cannot allocate the charge in this manner, we will allocate it as described
under "Charges under the Policy - Allocation of Policy Account Charges," on
page 46.
A partial surrender of net cash surrender value reduces the amount in the
Policy Account. It also reduces the cash surrender value and the death benefit
on a dollar-for-dollar basis. If the death benefit based on a percentage
multiple applies, the reduction in death benefit can be greater. See "Policy
Features - Death Benefits," on page 24.
If you elected death benefit Option A, we will also reduce the Face Amount
of the Policy by the amount of the partial surrender so there will be no change
in the net amount at risk. We will not assess a surrender charge in connection
with the reduction in Face Amount. We will send you an endorsement to reflect
this change. We may ask you to return the Policy to us so that we can make a
change. A partial surrender will not affect the Face Amount of the Policy if
death benefit Option B is in effect. See "Federal Tax Considerations," on
page 49, for the tax consequences of a partial surrender. A Policy loan may be
more advantageous if your need for cash is temporary.
Surrendering the Policy for Its Net Cash Surrender Value
During the first ten Policy years, the cash surrender value of a Policy is
the amount in the Policy Account minus the surrender charge described under
"Charges under the Policy - Transaction Fees - Surrender Charge," on page 43.
After ten Policy years, the cash surrender value and Policy Account are the
same. Especially during the initial Policy years, the applicable surrender
charge may be a substantial portion of the premiums paid.
You may surrender a Policy for its net cash surrender value at any time
while the Insured Person is living. You can do this by sending to us the Policy
and a written request in a form satisfactory to us. The net cash surrender
value of the Policy equals the cash surrender value minus any outstanding loan
and loan interest. We will compute the net cash surrender value as of the
business day we receive a request for surrender and the Policy, and all
insurance coverage under the Policy will end on that date. See "Federal Tax
Considerations," on page 49, for the tax consequences of a surrender.
POLICY PAYMENTS
Payment Options
We can pay Policy benefits or other payments, such as the net cash surrender
value or death benefit, immediately in one sum, or in another form of payment
described below. Payments under these options do not depend on the investment
experience of any variable investment division because none of the payment
options is a variable payment option. Instead, interest accrues pursuant to the
options chosen. (Such interest will be appropriately includable in federal
gross income of the beneficiary). If you do not arrange for a specific form of
payment before the Insured Person dies, the beneficiary will have the choice.
However, if you make an arrangement for payment of the money, the beneficiary
cannot change that choice after the Insured Person dies. Payment options will
also be subject to our rules at the time of selection. Currently, you can pick
these alternate payment options only if the proceeds applied are $1,000 or more
and any periodic payment will be at least $20.
The following payment options are generally available:
38
Income Payments for a Fixed Period. We will pay the amount applied in equal
installments (including applicable interest) for a specific number of years,
for up to 30 years.
Life Income with Payments Guaranteed for a Fixed Term of Years. We will make
payment at agreed intervals for a definite number of equal payments and as
long thereafter as the payee lives. You (or the beneficiary in some cases)
may choose any one of four definite periods: 5, 10, 15 or 20 years.
Proceeds at Interest. The money will stay on deposit with us while the payee
is alive. Interest will accrue on the money at a declared interest rate, and
interest will be paid at agreed-upon intervals.
Fixed Amount. We will pay the sum in installments in a specified amount.
Installments will be paid until the original amount, together with any
interest, has been exhausted.
We guarantee interest under the foregoing options at the rate of 3% a year.
We may also pay or credit excess interest on the options from time to time.
We will determine the rate and manner of payment or crediting. Under the second
option we will pay no excess interest on the part of the proceeds used to
provide payments beyond the fixed term of years.
The beneficiary or any other person who is entitled to receive payment may
name a successor to receive any amount that would otherwise be paid to that
person's estate if that person died. No successor may be named if a payment
option chosen is contingent on the life of a beneficiary. The person who is
entitled to receive payment may change the successor at any time.
We must approve any arrangements that involve more than one of the payment
options, or a payee who is not a natural person (for example, a corporation),
or a payee who is a fiduciary. Also, the details of all arrangements will be
subject to our rules at the time the arrangements take effect. This includes
rules on the minimum amount payable under an option, minimum amounts for
installment payments, withdrawal or commutation rights (rights to cancel an
arrangement involving payments over time in return for a lump sum payment), the
naming of people who are entitled to receive payment and their successors and
the ways of proving age and survival.
You may change your choice of a payment option (and may make later changes)
and that change will take effect in the same way as it would if a beneficiary
were being changed. See "The Beneficiary," on page 39. Any amounts we pay under
the payment options will not be subject to the claims of creditors or to legal
process, to the extent that the law provides.
We may be required under applicable law to block a request for payment under
a Policy until we receive instructions from the appropriate regulator.
The Beneficiary
You must name a beneficiary when you apply for a Policy. The beneficiary is
entitled to the insurance benefits of the Policy. You may change the
beneficiary during the Insured Person's lifetime by sending us written notice
satisfactory to us. The change will take effect on the date the notice is
signed. However, the change will be subject to all payments made and actions we
took under the Policy before we received the notice. Changing the beneficiary
will cancel any previous arrangement made as to a payment option for benefits.
You can pick a payment option for the new beneficiary.
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At the time of the Insured Person's death, we will pay the benefit equally
to the primary beneficiaries, or, if no primary beneficiaries are living, the
first contingent beneficiaries (if any), or, if no primary or first contingent
beneficiaries are living, the second contingent beneficiaries (if any). If no
beneficiary is living when the Insured Person dies, we will pay the death
benefit to you or to your executors or administrators.
Assignment of a Policy
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason. We will not be bound by an
assignment unless it is received in writing. You must provide us with two
copies of the assignment. We are not responsible for any payment we make or any
action we take before we receive a complete notice of the assignment in good
order. We are also not responsible for the validity of the assignment. An
absolute assignment is a change of ownership. Because there may be unfavorable
tax consequences, including recognition of taxable income and the loss of
income tax-free treatment for any death benefit payable to the beneficiary, you
should consult a qualified tax advisor before making an assignment.
Payment of Proceeds
We generally will pay any death benefits, net cash surrender value or loan
proceeds within seven days after we receive the required form or request (and
other documents that may be required) at our Administrative Center, shown under
"Contact Information" on page 5. We determine death benefits as of the date of
death of the Insured Person. Subsequent changes in the unit values of the
variable investment divisions will not affect death benefits. We will pay
interest covering the period from the date of death to the date of payment.
We may defer determination of values and payment for one or more of the
following reasons:
. We contest the Policy, or we are deciding whether or not to contest the
Policy;
. the NYSE is closed other than weekend and holiday closings;
. trading on the NYSE is restricted;
. an emergency exists as determined by the SEC or other appropriate
regulatory authority such that disposal of securities or determination
of the value of the variable investment divisions is not reasonably
practicable;
. the SEC by order so permits for the protection of Policy Owners; or
. we are on notice that the Policy is the subject of a court proceeding,
an arbitration, a regulatory matter or other legal action.
We may defer payment of any net cash surrender value or loan amount from the
Guaranteed Interest Division for up to six months after receipt of a request.
We will pay interest of at least 3% a year from the date we receive a request
for withdrawal of net cash surrender value if payment from the Guaranteed
Interest Division is delayed more than 30 days.
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Delay Required under Applicable Law
We may be required under applicable law to block a request for payment under
a Policy until we receive instructions from the appropriate regulator.
ADDITIONAL RIGHTS THAT WE HAVE
We have the right at any time to:
. transfer the resulting balance in an investment division in accordance
with any transfer request you make that reduces your accumulation value
for that division to below $500;
. transfer the entire balance in proportion to any other investment
divisions you then are using, if the accumulation value in an investment
division is below $500 for any other reason;
. replace the underlying Fund that any investment division uses with
another fund, subject to SEC and other required regulatory approvals;
. add, delete or limit investment divisions, combine two or more
investment divisions or withdraw assets relating to the Policies from
one investment division and put them into another, subject to SEC and
other required regulatory approvals;
. operate the Separate Account under the direction of a committee or
discharge such a committee at any time;
. change our underwriting and risk class guidelines;
. operate the Separate Account, or one or more investment options, in any
other form the law allows, including a form that allows us to make
direct investments. The Separate Account may be charged an advisory fee
if its investments are made directly rather than through another
investment company. In that case, we may make any legal investments we
wish; or
. make other changes in the Policy that in our judgment are necessary or
appropriate to ensure that the Policy continues to qualify for tax
treatment as life insurance, or that do not reduce any cash surrender
value, death benefit, accumulation value, or other accrued rights or
benefits.
VARIATIONS IN POLICY OR INVESTMENT DIVISION
TERMS AND CONDITIONS
We have the right to make some variations in the terms and conditions of a
Policy or its investment divisions. Any variations will be made only in
accordance with uniform rules that we establish. We intend to comply with all
applicable laws in making any changes and, if necessary, we will seek Policy
Owner approval and SEC and other regulatory approvals. Here are some of the
potential variations:
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Policies Purchased Through "Internal Rollovers"
We maintain published rules that describe the procedures necessary to
replace life insurance policies we have issued. Not all types of other
insurance are eligible to be replaced with a Policy. Our published rules may be
changed from time to time, but are evenly applied to all our customers.
State Law Requirements
AGL is subject to the insurance laws and regulations in every jurisdiction
in which the Policies are sold. As a result, various time periods and other
terms and conditions described in this prospectus may vary depending on where
you reside. These variations will be reflected in your Policy and related
endorsements.
Expenses or Risks
AGL may vary the charges and other terms within the limits of the Policy
where special circumstances result in sales, administrative or other expenses,
mortality risks or other risks that are different from those normally
associated with the Policy.
Underlying Investments
You will be notified as required by law if there are any material changes in
the underlying investments of an investment division that you are using.
CHARGES UNDER THE POLICY
Generally, we allocate monthly charges or certain transaction fees among the
variable investment divisions and the unloaned portion of the Guaranteed
Interest Division in accordance with the deduction allocation percentages you
specify in your application, or in accordance with your subsequent
instructions. However, we generally make deductions for the first Policy month
from the Fidelity(R) VIP Government Money Market division.
The following information describes the charges under the Policy as shown
beginning on page 11 in the "Tables of Charges" section. Please review both
prospectus sections, and the Policy form itself for information on charges. We
deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Policies. The amount of a charge may not
necessarily correspond to the cost of providing the services or benefits
indicated by the designation of the charge or associated with the particular
Policy. For example, the premium expense charge and the surrender charge may
not fully cover all of the sales and distribution expenses we actually incur,
and we may use proceeds from other charges, including the mortality and expense
risk charge and the cost of insurance charge, to cover such expenses.
Transaction Fees
Premium Expense Charge. We deduct 5% of each Policy premium payment we
receive as a Premium Expense Charge. We deduct this charge for each premium
paid during a Policy year until the total amount of premiums for that Policy
year equal the Target Premium. We do not deduct a Premium Expense Charge for
premiums that you pay during that Policy year which exceed the Target Premium.
During the next Policy year, we will again deduct a Premium Expense Charge of
5% until total premiums paid during that Policy year equal the Target Premium.
42
You can reduce aggregate Premium Expense Charges by concentrating premium
payments in a few Policy years so that the premiums paid in each of those years
exceed a Target Premium. However, concentrating premium payments during a
Policy's early Policy years, and in particular during the first Policy year,
may increase the surrender charge if you surrender your Policy or, in some
instances, if you reduce your Policy's Face Amount or let it lapse during the
first ten Policy years. In addition, concentrating premium payments during the
first seven Policy years can increase the likelihood that a Policy will be
considered a MEC. See "Federal Tax Considerations," on page 49.
We deduct a Premium Expense Charge to recover some of the costs of
distributing the EquiBuilder III Policies. These expenses include agents'
commissions and printing prospectuses and sales literature. We do not profit
from this charge.
Statutory Premium Taxes. All states and certain other jurisdictions tax
premium payments. Taxes currently range up to 3.5%. We deduct the applicable
tax from each premium payment. This is a tax to AGL, so you cannot deduct it on
your income tax return. The amount of the tax will vary depending on where you
live. Since the tax deduction is a percentage of your premium, the amount of
the tax will also vary with the amount of the premium payment. If you change
your place of residence, we will change the deduction to match the new tax
rate. Please notify us if you move.
Surrender Charge (for full surrenders). Your Policy Information page shows
the maximum surrender charge, which will equal 50% of one Target Premium. This
maximum will not vary with the amount of premiums paid or when they are paid.
At the end of the sixth Policy year, and at the end of each of the four
succeeding Policy years, the maximum surrender charge will decrease by 20% of
the initial maximum surrender charge. After the end of the tenth Policy year,
there is no surrender charge.
The maximum surrender charge will not be more than 50% of one Target
Premium. Subject to the maximum surrender charge, we calculate the surrender
charge based on actual premium payments. The surrender charge we currently
assess equals the sum of
. 25% of premium payments you make during the first Policy year up to the
amount of one Target Premium, and
. 9% of any additional premiums you pay during the first through tenth
Policy years.
Under the Policy's formula used to calculate surrender charges, paying less
than one Target Premium in the first Policy year results in a surrender charge
of less than the maximum surrender charge in the first year. If you continue to
pay less than one Target Premium in the following years, you can surrender your
Policy and pay less than the maximum surrender charge. Keep in mind, however,
that the less premiums you pay, the less value your Policy will have to pay
monthly charges, which increases the possibility your Policy will lapse. In
addition, paying less premiums may increase cost of insurance charges (which
are based on amount at risk).
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--------------------------------------------------------------------------------
Assume a $200,000 initial Face Amount Policy for a male age 40. This Policy
would have a Target Premium of $2,280 and a maximum surrender charge of $1,140
($2,280 x 50%). Also, assume that all premium payments are made at the
beginning of each Policy year and that no benefit riders have been selected.
The following table shows the surrender charge only which would apply under
different premium payment assumptions if surrender of the Policy were to occur
during the indicated Policy year.
--------------------------------------------------------------------------------
Premium Premium Premium
Payment Payment Payment
During Year Assumptions Charge Assumptions Charge Assumptions Charge
-------------------------------------------------------------------------------
1 $3,000 $ 635 $2280 $ 570 $1140 $ 285
-------------------------------------------------------------------------------
2 3000 905 2280 775 3420 593
-------------------------------------------------------------------------------
3 3000 1140 2280 980 2280 790
-------------------------------------------------------------------------------
4 3000 1140 2280 1140 2280 1003
-------------------------------------------------------------------------------
5 3000 1140 2280 1140 2280 1140
-------------------------------------------------------------------------------
6 3000 1140 2280 1140 2280 1140
-------------------------------------------------------------------------------
7 3000 912 2280 912 2280 912
-------------------------------------------------------------------------------
8 3000 684 2280 684 2280 684
-------------------------------------------------------------------------------
9 3000 456 2280 456 2280 456
-------------------------------------------------------------------------------
10 3000 228 2280 228 2280 228
-------------------------------------------------------------------------------
We reduce the maximum surrender charge by the amount of any pro rata
surrender charge we previously imposed in connection with a decrease in the
Face Amount.
Surrender Charge (for Face Amount decreases). During the first ten Policy
years, we will treat a decrease in the Face Amount of a Policy as a surrender,
and we will deduct a portion of the surrender charge. If the Face Amount of a
Policy increases and then decreases, a surrender charge will apply only to a
decrease below the original Face Amount (i.e., the Face Amount when we issue
the Policy). Generally, we determine the pro rata surrender charge for a
partial surrender by dividing the amount of the Face Amount decrease (excluding
the portion that merely reverses a prior increase) by the original Face Amount
and multiplying the fraction by the surrender charge that would apply to a
total surrender.
--------------------------------------------------------------------------------
For example, assume that we issue a Policy for a male age 40 with a Face
Amount of $200,000. In the third Policy year, you decide to decrease this Face
Amount by $100,000. Assume also that you paid an annual premium of $3,000 for
each of the first three Policy years and that the maximum surrender charge for
the third Policy year is $1,140. To determine the pro rata surrender charge:
Divide the amount of the Face Amount decrease by the initial Face Amount.
($100,000 / $200,000 = .5)
Then multiply this fraction by the surrender charge in effect before the
decrease.
Pro rata surrender charge = .5 x $1,140 = $570.
Thus, you would be charged $570 for decreasing the Face Amount of this
Policy from $200,000 to $100,000 during the third Policy year. The maximum
surrender charge you might pay in the future would be reduced proportionately.
We would send you a new Policy Information page that shows the new maximum
charges. You will pay the maximum only if you surrender the Policy or let the
Policy lapse after you pay enough premiums to reach the maximum.
--------------------------------------------------------------------------------
Partial Surrender Processing Fee. For withdrawals of less than your full
Policy Account value, we will deduct a maximum fee equal to the lesser of 2% of
the amount withdrawn or $25 for each partial surrender you make. This charge is
currently $10. We use this charge to help pay for the expense of making a
partial surrender. See "Policy Account Transactions - Withdrawing Money from
the Policy Account" on page 37.
We do not charge a partial surrender processing fee for Face Amount
decreases.
44
Face Amount Increase Charge. There is an administrative charge that is
currently $1.50 for each $1,000 of Face Amount increase up to a maximum charge
of $300. See "Policy Features - Changes in EquiBuilder III Policies," on
page 27.
Transfers. If you make more than four transfers of Policy Account value in a
Policy year among variable investment divisions, we may charge up to $25 for
each additional transfer in that Policy year. Our current practice is to assess
the $25 charge for each transfer after the twelfth transfer in a Policy year.
However, if you transfer all of the assets to the Guaranteed Interest Division,
we will not impose any transfer charge. See "Policy Account Transactions -
Transfers of Policy Account Value Among Investment Divisions," on page 32. We
will consider a request for transfer involving the simultaneous transfer of
funds from or to more than one investment division to be one transfer.
Policy Owner Additional Illustration Charge. If you request more than one
illustration of projected death benefits and Policy Account and cash surrender
values in a Policy year, we may charge a $25 fee.
Periodic Charges
At the beginning of each Policy month, we deduct the following charges from
each Policy Account.
Administrative Charge. At the beginning of each of the first 12 Policy
months that a Policy is in effect, we will also deduct an administrative charge
of $30 per month. After the first 12 Policy months, the current charge will be
$9 per month. We may raise this $9 charge to reflect higher costs, but we
guarantee it will never be more than $12 per month.
For the first 12 Policy months, we use this charge to recover costs of
issuing and placing the Policy such as application processing, medical
examinations, establishment of Policy records and underwriting costs
(determining insurability and assigning the Insured Person to a risk class).
After the first 12 Policy months, this charge is used to cover the continuing
costs of maintaining the EquiBuilder III Policies, such as premium billing and
collection, claim processing, Policy transactions, record keeping, other
expenses, overhead, and communications with Policy Owners, such as regulatory
mailings and responding to Policy Owners' requests.
Cost of Insurance Charge. The monthly cost of insurance is our current
monthly cost of insurance rate multiplied by the net amount at risk at the
beginning of the Policy month divided by $1,000. The net amount at risk is the
difference between the current death benefit and the amount in the Policy
Account. If the current death benefit for the month rises due to the
requirements of federal tax law (see "Policy Features - Death Benefits," on
page 24), the net amount at risk for the month will also rise.
For this purpose we determine the amount of each Policy Account before
deducting the cost of insurance charge, but after all other charges due on that
date. The cost of insurance charge will vary from month to month with changes
in the net amount at risk and with the Insured Person's increasing age.
We base the cost of insurance rates on the Insured Person's sex, age and
risk class and the Face Amount of the Policy at the time of the charge. We may
change these rates from time to time, but they will never be more than the
maximum guaranteed rates set forth in a particular Policy. We base the
45
maximum guaranteed charges on the Commissioner's 1980 Standard Ordinary Male
and Female Mortality Tables.
In Montana and Massachusetts cost of insurance rates will not vary based on
sex. Where required, we will provide cost of insurance charges that do not
distinguish between males and females. See "Employee Benefit Plans" on page 8
of the SAI.
Mortality and Expense Risk Charge. We deduct a charge from the variable
investment divisions for assuming mortality and expense risks. The mortality
risk that we assume is that Insured Persons will live for shorter periods than
estimated. When this happens, we have to pay a larger death benefit than
expected in relation to the cost of insurance charges we received. The expense
risk we assume is that the cost of issuing and administering Policies will be
greater than we expected. We assess a daily charge for mortality and expense
risks at an annual effective rate of 0.75% of the value of the assets in the
Separate Account attributable to EquiBuilder III Policies. This charge affects
the unit values for the variable investment divisions. See "Policy Account
Value - Determination of the Unit Value" on page 48.
We may profit from this charge and may use such profits for any lawful
purpose including paying distribution expenses.
Fees and Expenses and Money Market Investment Division. During periods of
low short-term interest rates, and in part due to Policy fees and expenses that
are assessed as frequently as daily, the yield of the money market investment
division may become extremely low and possibly negative. If the daily dividends
paid by the underlying mutual fund for the money market investment division are
less than the Policy's fees and expenses, the money market investment
division's unit value will decrease. In the case of negative yields, your
accumulation value in the money market investment division will lose value.
Optional Rider Charges. We will deduct the cost of any additional (optional)
benefit riders on a monthly basis. We may change these charges, but each Policy
contains tables showing the guaranteed maximum rates for all of these insurance
costs. See "Tables of Charges" on page 11.
Annual Fund Expenses
The value of the net assets of each variable investment division reflects
the management fees and other expenses incurred by the corresponding Fund in
which the variable investment division invests. For further information,
consult the Funds' prospectuses and the "Tables of Charges" section in this
prospectus.
We guarantee that the fees for partial withdrawals, increases in Face
Amounts and for transfers will never exceed the Maximum Guaranteed Charges
shown in the "Tables of Charges". See also "Charges Under the Policy -
Transaction Fees - Surrender Charge," on page 43.
Allocation of Policy Account Charges
Allocation percentages for deductions may be any whole numbers (from zero to
one hundred) which add up to one hundred. You may change deduction allocation
percentages by giving us instructions. Changes will be effective as of the date
we receive your instructions in good order.
46
We will subtract charges for partial withdrawals of net cash surrender value
and transfers of Policy Account values equally among the divisions from which
the transactions were made. If we cannot make the charge this way, we will make
it based on the proportion of the unloaned amounts in the Guaranteed Interest
Division, if any, and the amounts in the variable investment divisions, to the
total unloaned value of the Policy Account.
POLICY ACCOUNT VALUE
The amount in a Policy Account is the sum of the amounts allocated to the
Guaranteed Interest Division and to the variable investment divisions. The
amount in a Policy Account also reflects various deductions and charges. We
deduct monthly charges on the first day of each Policy month. We deduct
transaction charges or surrender charges on the effective date of the
transaction.
Charges against the Separate Account are reflected daily. Any amount you
allocate to a variable investment division will increase or decrease depending
on the investment experience of that division, and there is no guaranteed
minimum cash value. We guarantee the value of amounts in a Policy Account you
allocate to the Guaranteed Interest Division, and interest credited to those
amounts. See "The Guaranteed Interest Division" on page 23.
Amounts in the Variable Investment Divisions
We use amounts you allocate, transfer or add to the variable investment
divisions to purchase units representing undivided interests in the various
divisions. The value of the units we credit to the Policy Account for a
division represents the amount in that division. We calculate the number of
units purchased or redeemed in a variable investment division by dividing the
dollar amount of the transaction by the division's unit value next calculated
at the close of business on the effective date of the transaction. (See "Policy
Account Transactions" on page 31 regarding the effective dates of Policy
Account transactions.)
The number of units changes only when you purchase or redeem them, but the
value of a unit will change with the investment performance of the
corresponding Fund. The value of a unit also reflects charges we assess against
the Separate Account. On any given day, the value your Policy Account has in a
variable investment division is the unit value times the number of units you
have in that division. The units of each variable investment division have
different unit values.
You purchase units of a variable investment division when you allocate
premiums, repay loans or transfer amounts to that division. You redeem or sell
units when you make withdrawals or transfer amounts from a variable investment
division (including transfers for loans) or when we pay a death benefit when
the Insured Person dies. We also redeem units for monthly charges or other
charges from the Separate Account.
Business Day and Close of Business
We compute unit values for each variable division on each day that the NYSE
is open for business. We call each such day a "business day." We compute Policy
values as of the time the NYSE closes on each business day, which usually is
3:00 p.m. Central time. We call this our "close of business." We are closed
only on those holidays the NYSE is closed.
Generally we consider that we have received a premium payment or another
communication from you on the day we actually receive it in good order at any
of the addresses shown on page 5 of this
47
prospectus. If we receive it after the close of business on any business day,
however, we consider that we have received it on the business day following
that business day. Any premium payments we receive after our close of business
are held in our general account until the next business day.
Determination of the Unit Value
The initial unit value for each investment division was set at $100.
Subsequently, the unit value for any business day equals the unit value for the
preceding business day multiplied by the net investment factor for that
division on that business day.
We determine a net investment factor for each variable investment division
every business day as follows:
. First, each Fund produces a price per Fund share following each close of
the NYSE and provides that price to us;
. Next, we determine the value of the shares belonging to the division in
the corresponding Fund at the close of business that day (before giving
effect to any Policy transactions for that day, such as premium payments
or surrenders);
. Then, we add any dividends or capital gains distributions paid for the
corresponding Fund on that day;
. Then, we divide this sum by the value of the amounts in the investment
division at the close of business on the immediately preceding business
day (after giving effect to any Policy transactions on that day);
. Then, we subtract a daily mortality and expense risk charge for each
calendar day between business days. (For example, a Monday calculation
may include charges for Saturday and Sunday). The daily charge is
0.00002063, which is an annual effective rate of 0.75%; and
. Finally, we subtract any daily charge for taxes or amounts set aside as
a reserve for taxes.
Generally, this means that unit values are adjusted to reflect what happens
to the Funds, and also for the mortality and expense risk charge and any charge
for taxes.
POLICY LAPSE AND REINSTATEMENT
Lapse of the Policy
If the net cash surrender value is insufficient to pay the charges that are
made against the Policy Account each month, or if the total of any Policy loan
plus loan interest exceeds the cash surrender value, we will start procedures
to terminate the Policy. We will notify you and any assignee shown on our
records in writing that the net cash surrender value is insufficient to pay
monthly charges or that an outstanding Policy loan plus loan interest exceeds
the cash surrender value of the Policy. In either case, we will notify you and
give you a grace period of 61 days to pay an additional premium to prevent
lapse of the Policy, and that you must pay an amount of premium that we
determine will cover estimated monthly charges for three months, plus any loan
interest due, to avoid lapse of the Policy. The grace period begins with the
first day of the Policy month for which all charges could not be paid.
48
If we receive at least the amount to cover three months' charges, plus any
loan interest due, before the end of the grace period, we will use the payment
to satisfy the overdue charges. We will place any remaining balance in the
Policy Account, and will allocate it in the same manner as previous premium
payments. We will apply a payment of less than the specified amount we receive
before the end of the grace period to overdue charges. This will not prevent
lapse of the Policy.
If we do not receive at least the amount to cover three months' charges,
plus any loan interest due, within the 61 days, the Policy will lapse without
value. We will withdraw any amount left in your Policy Account and apply this
amount to the charges owed us, including any applicable surrender charge. We
will inform you that your Policy has ended without value.
If the Insured Person dies during the grace period, we will pay the
insurance benefits to the beneficiary, minus any outstanding Policy loan and
loan interest and overdue charges.
Reinstatement of the Policy
You may reinstate your Policy within three years after it lapses if:
. you provide evidence that the Insured Person is still insurable; and
. you send us a premium payment sufficient to keep the Policy in force for
three months after the date it is reinstated.
The effective date of the reinstated Policy will be the beginning of the
Policy month which coincides with or follows the date we approve the
reinstatement application. Upon reinstatement, we will reduce your maximum
surrender charge by the amount of all surrender charges you have already paid.
We will calculate future surrender charges as if the Policy had been in force
since the original Register Date. We will not reinstate previous loans.
FEDERAL TAX CONSIDERATIONS
Generally, the death benefit paid under a Policy is not subject to income
tax. Earnings on your accumulation value are not subject to income tax as long
as we do not pay them out to you. If we do pay any amount of your Policy's
accumulation value upon surrender, partial surrender, or maturity of your
Policy, all or part of that distribution may be treated as a return of the
premiums you paid, which is not subject to income tax.
Amounts you receive as Policy loans are not taxable to you, unless you have
paid such a large amount of premiums that your Policy becomes what the tax law
calls a "modified endowment contract." In that case, the loan will be taxed as
if it were a partial surrender. Furthermore, loans, partial surrenders and
other distributions from a modified endowment contract may require you to pay
additional taxes and penalties that otherwise would not apply. If your Policy
lapses, or you surrender your policy, you may have to pay income tax on a
portion of any outstanding loan.
49
Tax Effects
Discussions regarding the tax treatment of any life insurance policy are
intended for general purposes only and are not intended as tax advice, either
general or individualized, nor should they be interpreted to provide any
predictions or guarantees of a particular tax treatment. This discussion
generally is based on current federal income tax law and interpretations, and
may include areas of those rules that are more or less clear or certain. Tax
laws are subject to legislative modification, and while many such modifications
will have only a prospective application, it is important to recognize that a
change could have retroactive effect as well. Any verbal/written
communications, including this form, you have with and/or received from us are
intended solely to educate you or facilitate the education with respect to our
products and services or to facilitate the administration of this contract. You
must consult with your insurance agent or financial advisor in order to receive
advice or recommendations regarding this contract or any contract purchased. We
are not/will not provide advice/guidance/recommendations that create a
fiduciary relationship with you. You should seek competent tax or legal advice,
as you deem necessary or appropriate, regarding your own circumstances.
Except as described in the Foreign Account Tax Compliance section on page 56
this discussion assumes that the policy owner is a natural person who is a
U.S. citizen and resident. The consequences for corporate taxpayers,
non-U.S. residents or non-U.S. citizens, may be different. The following
discussion of federal income tax treatment is general in nature and is not
intended as tax advice.
General. The Policy will be treated as "life insurance" for federal income
tax purposes (a) if it meets the definition of life insurance under
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") and
(b) for as long as the investments made by the underlying Mutual Funds satisfy
certain investment diversification requirements under Section 817(h) of the
Code. We believe that the Policy will at issue meet these requirements and that:
. the death benefit received by the beneficiary under your Policy will
generally not be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of interest or
investment experience will not be subject to federal income tax unless
and until there is a distribution from your Policy, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Policy can
be affected by whether your Policy is determined to be a "modified endowment
contract," as explained in the following discussion. In all cases, however, the
character of all income that is described as taxable to the payee will be
ordinary income (as opposed to capital gain).
Testing for Modified Endowment Contract Status
The Code provides for a "seven-pay test." This test determines if your
Policy will be a "modified endowment contract."
If, at any time during the first seven Policy years:
. you have paid a cumulative amount of premiums;
. the cumulative amount exceeds the premiums you would have paid by the
same time under a similar fixed-benefit insurance policy; and
50
. the fixed benefit policy was designed (based on certain assumptions
mandated under the Code) to provide for paid-up future benefits
("paid-up" means no future premium payments are required) after the
payment of seven level annual premiums;
then your Policy will be a modified endowment contract.
Whenever there is a "material change" under a policy, the policy will
generally be (a) treated as a new contract for purposes of determining whether
the policy is a modified endowment contract and (b) subjected to a new
seven-pay period and a new seven-pay limit. The new seven-pay limit would be
determined taking into account, under a prescribed formula, the accumulation
value of the policy at the time of such change. A materially changed policy
would be considered a modified endowment contract if it failed to satisfy the
new seven-pay limit at any time during the new seven-pay period. A "material
change" for these purposes could occur as a result of a change in death benefit
option. A material change will occur as a result of an increase in your
Policy's specified amount, and certain other changes.
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in the specified amount that
you request or that results from a partial surrender). If the premiums
previously paid are greater than the recalculated seven-payment premium level
limit, the Policy will become a modified endowment contract.
We will attempt to notify you on a timely basis to prevent additional
premium payments from causing your Policy to become a modified endowment
contract.
A life insurance Policy that is received in a tax free exchange under
Section 1035 of the Code for a modified endowment contract will also be
considered a modified endowment contract.
Other Effects of Policy Changes
Changes made to your Policy (for example, adding a rider to your policy) may
also have other effects on your Policy. Such effects may include impacting the
maximum amount of premiums that can be paid under your Policy, as well as the
maximum amount of accumulation value that may be maintained under your Policy.
Under Notice 2016-63 published by the Internal Revenue Service, certain policy
changes, not expressly provided for in your Policy, may have adverse federal
income tax effects. You should consult your own competent, professional tax
advisor on this issue.
Rider Benefits
We believe that premium payments and any death benefits or other benefits to
be paid under any rider you may purchase under your Policy will not disqualify
your Policy as life insurance for tax purposes. However, the tax law related to
rider benefits is complex and some uncertainty exists. You should consult a
qualified tax advisor regarding the impact of any rider you may purchase.
Taxation of Pre-Death Distributions if Your Policy is not a Modified Endowment
Contract
As long as your Policy remains in force during the insured person's lifetime
and not as a modified endowment contract, a Policy loan will be treated as
indebtedness, and no part of the loan
51
proceeds will be subject to current federal income tax. Interest on the Policy
loan generally will not be tax deductible.
After the first 15 Policy years, the proceeds from a partial surrender will
not be subject to federal income tax except to the extent such proceeds exceed
your "basis" in your Policy. (Your basis generally will equal the premiums you
have paid, less the amount of any previous distributions from your Policy that
were not taxable.) During the first 15 Policy years, however, the proceeds from
a partial surrender could be subject to federal income tax, under a complex
formula, to the extent that your accumulation value exceeds your basis in your
Policy.
On the maturity date or upon full surrender, any excess in the amount of
proceeds we pay (including amounts we use to discharge any Policy loan) over
your basis in the Policy, will be subject to federal income tax. In addition,
if a Policy ends after a grace period while there is a Policy loan, the
cancellation of such loan and any accrued loan interest will be treated as a
distribution and could be subject to federal income tax under the above rules.
Finally, if you make an assignment of rights or benefits under your Policy you
may be deemed to have received a distribution from your Policy, all or part of
which may be taxable.
Taxation of Pre-Death Distributions if Your Policy is a Modified Endowment
Contract
If your Policy is a modified endowment contract, any distribution from your
Policy while the insured person is still living will be taxed on an
"income-first" basis. Distributions:
. include loans (including any increase in the loan amount to pay interest
on an existing loan, or an assignment or pledge to secure a loan) and
partial surrenders;
. will be considered taxable income to you to the extent your accumulation
value exceeds your basis in the Policy; and
. have their taxability determined by aggregating all modified endowment
contracts issued by the same insurer (or its affiliates) to the same
owner (excluding certain qualified plans) during any calendar year.
For modified endowment contracts, your basis:
. is similar to the basis described above for other Policies; and
. will be increased by the amount of any prior loan under your Policy that
was considered taxable income to you.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a Policy that is a modified endowment contract. The
penalty tax will not, however, apply:
. to taxpayers 59 1/2 years of age or older;
. in the case of a disability (as defined in the Code); or
52
. to distributions received as part of a series of substantially equal
periodic annuity payments for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer
and his or her beneficiary.
If your Policy ends after a grace period while there is a Policy loan, the
cancellation of the loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date, policy
lapse or upon a full surrender, any excess of the proceeds we pay (including
any amounts we use to discharge any Policy loan) over your basis in the Policy,
will be subject to federal income tax and, unless one of the above exceptions
applies, the 10% penalty tax.
Distributions that occur during a Policy year in which your Policy becomes a
modified endowment contract, and during any subsequent Policy years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a Policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a Policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract.
Policy Lapses and Reinstatements
A Policy which has lapsed may have the tax consequences described above,
even though you may be able to reinstate that Policy. For tax purposes, some
reinstatements may be treated as the purchase of a new insurance contract.
Diversification and Investor Control
Under Section 817(h) of the Code, the Treasury Department has issued
regulations that implement investment diversification requirements. Our failure
to comply with these regulations would disqualify your Policy as a life
insurance Policy under Section 7702 of the Code. If this were to occur, you
would be subject to federal income tax on the income under the Policy for the
period of the disqualification and for subsequent periods. Also, if the insured
person died during such period of disqualification or subsequent periods, a
portion of the death benefit proceeds would be taxable to the beneficiary. The
Separate Account, through the Mutual Funds, intends to comply with these
requirements. Although we do not have direct control over the investments or
activities of the Mutual Funds, we will enter into agreements with them
requiring the Mutual Funds to comply with the diversification requirements of
the Section 817(h) Treasury Regulations.
The Treasury Department has provided only limited guidance describing the
circumstances in which the ability of a Policy Owner to direct his or her
investment to particular Mutual Funds within the Separate Account may cause the
Policy Owner, rather than the insurance company, to be treated as the owner of
the assets in the account. Due to the lack of specific guidance on investor
control, there is some uncertainty about when a Policy Owner is considered the
owner of the assets for tax purposes. If you were considered the owner of the
assets of the Separate Account, income and gains from the account would be
included in your gross income for federal income tax purposes. Under current
law, however, we believe that AGL, and not the owner of a Policy, would be
considered the owner of the assets of the Separate Account. However, we reserve
the right to make changes that we deem necessary to insure that the Policy
qualifies as a life insurance contract.
53
Estate and Generation Skipping Taxes
If the insured person is the Policy's owner, the death benefit under the
Policy will generally be includable in the owner's estate for purposes of
federal estate tax. If the owner is not the insured person, under certain
conditions, only an amount approximately equal to the cash surrender value of
the Policy would be includable. In addition, an unlimited marital deduction may
be available for federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that
would be subject to the gift and estate tax rules. You should consult with a
qualified tax advisor for specific information, especially where benefits are
passing to younger generations.
The particular situation of each Policy Owner, insured person or beneficiary
will determine how ownership or receipt of Policy proceeds will be treated for
purposes of federal estate and generation skipping taxes, as well as state and
local estate, inheritance and other taxes.
Life Insurance in Split Dollar Arrangements
The IRS and Treasury have issued regulations on split dollar life insurance
arrangements. In general, a split dollar insurance arrangement involves two
parties agreeing to split the premium and/or benefits of a life insurance
policy. These arrangements are often used as a type of employee compensation or
for making gifts among family members. The regulations provide two mutually
exclusive regimes for taxing split dollar life insurance arrangements: the
"economic benefit" regime and the "loan" regime. The economic benefit regime,
under which the non-owner of the policy is treated as receiving certain
economic benefits from its owner, applies to endorsement arrangements and most
non-equity split dollar life insurance arrangements. The loan regime applies to
collateral assignment arrangements and other arrangements in which the
non-owner could be treated as loaning amounts to the owner.
In addition, it should be noted that split dollar arrangements characterized
as loans for tax purposes may be affected by the Corporate Responsibility Act
of 2002 also referred to as the Sarbanes-Oxley Act of 2002 (the "Act"). The Act
prohibits loans from companies publicly traded in the United States to their
executives and officers. The status of split dollar arrangements under the Act
is uncertain, in part because the SEC may view the tax treatment of such
arrangements as instructive.
Purchasers of life insurance policies are strongly advised to consult with a
qualified tax advisor to determine the tax treatment resulting from a split
dollar arrangement.
Pension and Profit-Sharing Plans
If a life insurance policy is purchased by a trust or other entity that
forms part of a pension or profit-sharing plan qualified under Section 401(a)
of the Code for the benefit of participants covered under the plan, the federal
income tax treatment of such policies will be somewhat different from that
described above.
The reasonable net premium cost for such amount of insurance that is
purchased as part of a pension or profit-sharing plan is required to be
included annually in the plan participant's gross income. This cost (generally
referred to as the "P.S. 58" cost) is reported to the participant annually. If
the plan
54
participant dies while covered by the plan and the Policy proceeds are paid to
the participant's beneficiary, then the excess of the death benefit over the
Policy's accumulation value will not be subject to federal income tax. However,
the Policy's accumulation value will generally be taxable to the extent it
exceeds the participant's cost basis in the Policy. The participant's cost
basis will generally include the costs of insurance previously reported as
income to the participant. Special rules may apply if the participant had
borrowed from the Policy or was an owner-employee under the plan. The rules for
determining "P.S. 58" costs are currently provided under Notice 2002-8, 2002-1
CB 398.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan. You should consult a qualified tax advisor. As of the
publication date, AIG has confirmed its position that it will not sell life
insurance into a qualified plan under the Employee Retirement Security Act of
1974, as amended ("ERISA").
Other Employee Benefit Programs
Complex rules may also apply when a Policy is held by an employer or a
trust, or acquired by an employee, in connection with the provision of other
employee benefits. These Policy Owners must consider whether the Policy was
applied for by or issued to a person having an insurable interest under
applicable state law and with the insured person's consent. The lack of an
insurable interest or consent may, among other things, affect the qualification
of the Policy as life insurance for federal income tax purposes and the right
of the beneficiary to receive a death benefit.
ERISA
Employers and employer-created trusts holding the policy may be subject to
reporting, disclosure and fiduciary obligations under ERISA.
Our Taxes
We report the operations of the Separate Account in our federal income tax
return, but we currently pay no income tax on the Separate Account's investment
income and capital gains, because these items are, for tax purposes, reflected
in our variable universal life insurance Policy reserves. We currently make no
charge to any Separate Account division for taxes. We reserve the right to make
a charge in the future for taxes incurred; for example, a charge to the
Separate Account for income taxes we incur that are allocable to the Policy.
We may have to pay state, local or other taxes in addition to applicable
taxes based on premiums. At present, these taxes are not substantial. If they
increase, we may make charges for such taxes when they are attributable to the
Separate Account or allocable to the Policy.
Certain Mutual Funds in which your accumulation value is invested may elect
to pass through to AGL taxes withheld by foreign taxing jurisdictions on
foreign source income. Such an election will result in additional taxable
income and income tax to AGL. The amount of additional income tax, however, may
be more than offset by credits for the foreign taxes withheld which are also
passed through. These credits may provide a benefit to AGL.
55
When We Withhold Income Taxes
Generally, unless you provide us with an election to the contrary before we
make the distribution, we are required to withhold income tax from any proceeds
we distribute as part of a taxable transaction under your Policy. In some
cases, where generation skipping taxes may apply, we may also be required to
withhold for such taxes unless we are provided satisfactory written
notification that no such taxes are due.
Note: In the case of non-resident aliens who own a Policy, the withholding
rules may be different. With respect to distributions from modified endowment
contracts, non-resident aliens are generally subject to federal income tax
withholding at a statutory rate of 30% of the distributed amount. In some
cases, the non-resident alien may be subject to lower or even no withholding if
the United States has entered into a tax treaty with his or her country of
residence.
Other tax withholding. Any owner not exempt from United States federal tax
withholding should consult a tax advisor as to the availability of an exemption
from, or reduction of, such tax withholding under an applicable income tax
treaty, if any.
Foreign Account Tax Compliance ("FATCA"). An owner who is not a "United
States person," which is defined under the Code to mean:
. a citizen or resident of the United States
. a partnership or corporation created or organized in the United States
or under the law of the United States or of any state, or the District
of Columbia
. any estate or trust other than a foreign estate or foreign trust (see
Code section 7701(a)(31) for the definition of a foreign estate and a
foreign trust)
. a person that meets the substantial presence test
. any other person that is not a foreign person
should be aware that FATCA, enacted in 2010, provides that a 30% withholding
tax will be imposed on certain gross payments (which could include
distributions from cash value life insurance or annuity products) made to a
foreign entity if such entity fails to provide applicable certifications under
a Form W-9, Form W-8-BEN-E, Form W-8-IMY, or other applicable form, each of
which is effective for three years from the date of signature unless a change
in circumstances makes any information on the form incorrect. Notwithstanding
the preceding sentence, certain withholding certifications will remain
effective until a change in circumstances makes any information on the form
incorrect. The Policy owner must inform the Company within 30 days of any
change in circumstances that makes any information on the form incorrect by
furnishing a new IRS Form W-8 or acceptable substitute form. An entity, for
this purpose, will be considered a foreign entity unless it provides an
applicable certification to the contrary.
Tax Changes
The U.S. Congress frequently considers legislation that, if enacted, could
change the tax treatment of life insurance policies. In addition, the Treasury
Department may amend existing regulations, issue regulations on the
qualification of life insurance and modified endowment contracts, or adopt new
interpretations of existing law. State and local tax law or, if you are not a
U.S. citizen and resident, foreign tax law, may also affect the tax
consequences to you, the insured person or your beneficiary, and are subject to
change. Any changes in federal, state, local or foreign tax law or
interpretation could have a retroactive effect. We suggest you consult a
qualified tax advisor.
56
BUSINESS DISRUPTION AND CYBER SECURITY RISKS
We rely heavily on interconnected computer systems and digital data to
conduct our variable product business activities. Because our variable product
business is highly dependent upon the effective operation of our computer
systems and those of our business partners, our business is vulnerable to
disruptions from physical disruptions and utility outages, and susceptible to
operational and information security risks resulting from information systems
failure (e.g., hardware and software malfunctions) and cyber-attacks. These
risks include, among other things, the theft, misuse, corruption and
destruction of data maintained online or digitally, interference with or denial
of service attacks on websites and other operational disruption and
unauthorized release of confidential customer information. Such systems
failures and cyber-attacks affecting us, any third party administrator, the
underlying funds, intermediaries and other affiliated or third-party service
providers, as well as our distribution partners, may adversely affect us and
your contract value. For instance, systems failures and cyber-attacks may
interfere with our processing of contract transactions, including the
processing of orders from our website, our distribution partners, or with the
Underlying Funds, impact our ability to calculate Accumulation Unit Values
("AUVs"), cause the release and possible destruction of confidential customer
or business information, impede order processing, subject us and/or our service
providers, distribution partners and other intermediaries to regulatory fines
and financial losses and/or cause reputational damage. Cyber security risks may
also impact the issuers of securities in which the Underlying Funds invest,
which may cause the funds underlying your contract to lose value. Despite our
implementation of administrative and technical controls and other preventative
actions to reduce the risk of cyber-incident, there can be no assurance that we
or our distribution partners or the Underlying Funds or our service providers
will avoid losses affecting your contract and personal information due to
cyber-attacks or information security breaches in the future.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Various
federal, state or other regulatory agencies may from time to time review,
examine or inquire into the operations, practices and procedures of the
Company, such as through financial examinations, subpoenas, investigations,
market conduct exams or other regulatory inquiries. Based on the current status
of pending regulatory examinations, investigations and inquiries involving the
Company, the Company believes it is not likely that these regulatory
examinations, investigations or inquiries will have a material adverse effect
on the financial position, results of operations or cash flows of the Company.
Various lawsuits against the Company have arisen in the ordinary course of
business. As of October 30, 2019, the Company believes it is not likely that
contingent liabilities arising from the above matters will have a material
adverse effect on the financial condition of the Company.
FINANCIAL STATEMENTS
The Financial Statements of AGL, the Separate Account and American Home can
be found in the SAI. You may obtain a free copy of these Financial Statements
if you write us at our Administrative Center at American General Life Insurance
Company, VUL Administration, P.O. Box 305600, Nashville, Tennessee 37230-5600,
or call us at 1-800-340-2765.
Rule 12h-7 disclosure. In reliance on the exemption provided by Rule 12h-7
of the Securities Exchange Act of 1934 ("34 Act"), AGL does not intend to file
periodic reports as required under the '34 Act.
57
REGISTRATION STATEMENTS
Registration statements under the Securities Act of 1933, as amended,
related to the Policies offered by this prospectus are on file with the SEC.
This prospectus does not contain all of the information contained in the
registration statements and exhibits. For further information regarding the
Separate Account, AGL and its general account, the variable investment
divisions and the Policy, please refer to the registration statements and
exhibits.
58
DEFINITIONS
Here are definitions of certain terms used in this prospectus:
Administrative Center - The address of the Administrative Center of AGL is VUL
Administration, P.O. Box 305600, Nashville, Tennessee 37230-5600. See "Contact
Information" on page 5.
Age - The age of the Insured Person on his or her birthday nearest the date on
which a determination of the Insured Person's age is made.
AGL, We, Our, Us - American General Life Insurance Company, a Texas stock life
insurance company and the issuer of the EquiBuilder III individual flexible
premium variable universal life insurance Policies described in this prospectus.
Face Amount - The face amount of insurance shown on the Policy Information page
of a Policy. The Face Amount is the minimum death benefit payable under a
Policy while the Policy remains in effect. The death benefit proceeds will be
reduced by any outstanding loan and loan interest on the Policy and any due and
unpaid charges.
Fund(s) - Portfolio(s) of Fidelity(R) Variable Insurance Products and MFS(R)
Variable Insurance Trust, which are all "series" type mutual funds. Each
portfolio is referred to as a Fund or Mutual Fund, and collectively, as the
Funds or Mutual Funds.
Guaranteed Interest Division - A part of AGL's General Account in which amounts
in a Policy Account other than those allocated to the Separate Account earn
interest at a rate stipulated in advance and guaranteed by AGL.
Insured Person - The person whose life is insured under a Policy.
Policy Account - The sum of amounts allocated to the investment divisions of
the Separate Account and AGL's Guaranteed Interest Division for a particular
Policy.
Policy anniversary - An anniversary of the Register Date of a Policy while the
Policy is in effect.
Policy month - A month-long period beginning on the Register Date and on the
same day in each subsequent calendar month while a Policy is in effect.
Policy Owner, You, Your - The person designated as Policy Owner on the Policy
Information page of a Policy.
Policy year - An annual period beginning on the Register Date and on each
anniversary of the Register Date while the Policy is in effect.
Register Date - The date we issue a Policy or the date we receive a full
initial premium payment, whichever is earlier.
SEC - The Securities and Exchange Commission.
Separate Account - Separate Account VL-R, a segregated investment account of
AGL established under the Insurance Laws of the State of Texas in which amounts
in a Policy Account other than those in the
59
Guaranteed Interest Division are held for investment in one of the portfolios
of the Funds. The value of amounts in the Separate Account will fluctuate in
accordance with the performance of the corresponding Funds.
Statement of Additional Information - The Statement of Additional Information
("SAI") is a document, separate from this prospectus, that contains additional
information about the EquiBuilder III Policies.
Target Premium - A hypothetical annual premium which is based on the age and
sex of the Insured Person, the initial Face Amount of the Policy and the types
and amounts of any additional benefits included in the Policy. The Target
Premium for each EquiBuilder III Policy is shown on the Policy Information page
of the Policy.
60
[LOGO OF AIG]
For additional information about the For eService and
EquiBuilder III Policies and the Separate Account, eDelivery, or to view and
you may request a copy of the Statement of Print Policy or Fund
Additional Information (the "SAI"), dated prospectuses visit us at
December 2, 2019. We have filed the SAI with the www.aig.com/eservice
SEC and have incorporated it by reference into this
prospectus. You may obtain a free copy of the SAI
and the Policy or Fund prospectuses if you write us
at our Administrative Center, which is located at
VUL Administration, P.O. Box 305600, Nashville,
Tennessee 37230-5600 or call us at 1-800-340-2765.
You may also obtain the SAI from your AGL
representative through which the Policies may be
purchased. Additional information about the
EquiBuilder III Policies, including personalized
illustrations of death benefits, cash surrender
values, and Policy Account values is available
without charge to individuals considering
purchasing a Policy, upon request to the same
address or phone number printed above. We may
charge current Policy Owners $25 per illustration
if they request more than one personalized
illustration in a Policy year.
Information about the Separate Account, including
the SAI, can also be reviewed and copied at the
SEC's Office of Investor Education and Advocacy in
Washington, D.C. Inquiries on the operations of the
Office of Investor Education and Advocacy may be
made by calling the SEC at 1-202-942-8090. Reports
and other information about the Separate Account
are available on the SEC's Internet site at
http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee,
by writing the Office of Investor Education and
Advocacy of the SEC, 100 F Street N.E., Washington,
D.C. 20549.
Policies issued by:
American General Life Insurance Company
2727-A Allen Parkway, Houston, TX 77019
EquiBuilder III Flexible Premium Variable Universal
Life Insurance
Policy Form Number T1735
Not available in the state of New York
Distributed by AIG Capital Services, Inc.
Member FINRA
The underwriting risks, financial obligations and
support functions associated with the products
issued by American General Life Insurance Company
("AGL") are its responsibility. AGL is responsible
for its own financial condition and contractual
obligations and is a member of American
International Group, Inc. ("AIG"). The commitments
under the Policies are AGL's and AIG has no legal
obligation to back those commitments. AGL does not
solicit business in the state of New York. The
Policies are not available in all states.
(C) 2019 American International Group, Inc. All ICA File No. 811-06366
Rights Reserved
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
EQUIBUILDER III
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
VUL ADMINISTRATION DEPARTMENT
P.O. BOX 305600, NASHVILLE, TENNESSEE 37230-5600
TELEPHONE: 1-800-340-2765; 1-713-831-3443; HEARING IMPAIRED: 1-888-436-5256
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 2, 2019
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the prospectus for American General Life
Insurance Company Separate Account VL-R (the "Separate Account" or "Separate
Account VL-R") dated December 2, 2019, describing the EquiBuilder III flexible
premium variable universal life insurance policies (the "Policy" or
"Policies"). The prospectus sets forth information that a prospective investor
should know before investing. For a copy of the prospectus, and any prospectus
supplements, contact American General Life Insurance Company ("AGL" or
"Company") at the address or telephone numbers given above. Each term used in
this SAI that is defined in the related prospectus has the same meaning as the
prospectus' definition.
TABLE OF CONTENTS
GENERAL INFORMATION........................................................ 3
AGL..................................................................... 3
Separate Account Consolidation.......................................... 3
Separate Account VL-R................................................... 3
American Home Assurance Company......................................... 4
SERVICES................................................................... 4
MORE INFORMATION ON LAPSE OF THE POLICY.................................... 5
DISTRIBUTION OF THE POLICIES............................................... 5
ADDITIONAL INFORMATION..................................................... 5
Material Conflicts...................................................... 6
Cost of insurance rates................................................. 6
Limits on AGL's Right to Challenge a Policy............................. 6
Special Purchase Plans.................................................. 7
Underwriting Procedures and Cost of Insurance Charges................... 7
Employee Benefit Plans.................................................. 8
Dividends............................................................... 8
ACTUARIAL EXPERT........................................................... 8
FINANCIAL STATEMENTS....................................................... 8
2
GENERAL INFORMATION
AGL
We are American General Life Insurance Company ("AGL"). AGL is a stock life
insurance company organized under the laws of the State of Texas. AGL is a
successor in interest to a company originally organized under the laws of
Delaware on January 10, 1917. AGL is an indirect, wholly-owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
AIG is a leading global insurance organization. AIG provides a wide range of
property casualty insurance, life insurance, retirement products, and other
financial services to commercial and individual customers in more than 80
countries and jurisdictions. AIG common stock is listed on the New York Stock
Exchange.
More information about AIG may be found in the regulatory filings AIG files
from time to time with the U.S. Securities and Exchange Commission ("SEC") at
www.sec.gov.
The commitments under the Contracts are AGL's, and American International
Group, Inc. has no legal obligation to back those commitments.
Separate Account Consolidation
Effective after the close of business on November 29, 2019, AGL consolidated
Separate Account VUL-2 with Separate Account VL-R, with Separate Account VL-R
being the surviving Separate Account after such consolidation (the
"Consolidation"). Accordingly, all references to Separate Account VUL-2 are
hereby replaced with Separate Account VL-R.
The Consolidation did not affect the terms of, or the rights and obligations
under your Policy, other than to reflect the change to the name of the separate
account. The number of units and the accumulation values for the variable
investment divisions in which you invest, and the variable investment divisions
available under the Policy did not change as a result of the Consolidation.
Your accumulation value immediately after the Consolidation was the same as the
value immediately before the Consolidation. The Consolidation did not result in
any adverse tax consequences for any Policy Owners. Until we amend all forms
related to the Policies, some forms may still refer to the prior name of the
separate account.
The purpose of the Consolidation was to reduce the ongoing administrative
costs, independent accountant fees, and inefficiencies associated with
maintaining multiple Separate Accounts, each with its own recordkeeping and
reporting requirements.
Separate Account VL-R
We hold the Mutual Fund shares in which any of your accumulation value is
invested in Separate Account VL-R. The Company established Separate Account
VL-R under the laws of the State of Texas on May 6, 1997. Separate Account VL-R
is registered as a unit investment trust with the SEC under the Investment
Company Act of 1940 (the "1940 Act"). The Policies were previously issued
through AGL Separate Account VUL-2. Prior to December 31, 2002, Separate
Account VUL-2 was a separate account of American Franklin, created on April 9,
1991 under Illinois insurance law. On December 31, 2002, and in conjunction
with the merger of AGL and American Franklin, Separate Account VUL-2 became a
separate account of AGL under Texas law. Effective after the close of business
November 29, 2019, AGL Separate Account VUL-2 was consolidated into Separate
Account VL-R.
3
For record keeping and financial reporting purposes, the Separate Account
VL-R is divided into 163 separate "divisions," 16 of which correspond to the 16
variable "investment options" under the Policy. The remaining 147 divisions,
and all of these 16 divisions, represent variable investment options available
under other variable universal life policies we offer. We hold the Fund shares
in which we invest your accumulation value for an investment option in the
division that corresponds to that investment option. One or more of the Funds
may sell its shares to other funds.
The assets in Separate Account VL-R are our property. The assets in the
Separate Account may not be used to pay any liabilities of AGL other than those
arising from the Policies. AGL is obligated to pay all amounts under the
Policies due the Policy Owners. We act as custodian for the Separate Account's
assets.
American Home Assurance Company
All references in this SAI to American Home Assurance Company ("American
Home") apply only to Policies with a date of issue prior to December 29, 2006
at 4:00 p.m. Eastern time.
American Home is a stock property-casualty insurance company incorporated
under the laws of the State of New York on February 7, 1899. American Home's
principal executive office is located at 175 Water Street, 18/th/ Floor, New
York, New York 10038. American Home is licensed in all 50 states of the United
States and the District of Columbia, as well as certain foreign jurisdictions,
and engages in a broad range of insurance and reinsurance activities. American
Home is an indirect wholly-owned subsidiary of American International Group,
Inc.
Guarantees for Policies issued prior to the Consolidation will continue
after the Consolidation. As a result, the Consolidation of Separate Account
VUL-2 into Separate Account VL-R will not impact the insurance obligations
under the Guarantee.
SERVICES
AGL and American General Life Companies, LLC ("AGLC"), were previously
parties to a services agreement. AGL and AGLC are each indirect wholly-owned
subsidiaries of American International Group, Inc. and therefore affiliates of
one another. AGLC was a Delaware limited liability company established on
August 30, 2002. Prior to that date, AGLC was a Delaware business trust. Its
address is 2727-A Allen Parkway, Houston, Texas 77019-2191. Under the services
agreement, AGLC provided shared services to AGL and certain other life
insurance companies under the American International Group, Inc. holding
company system at cost. Those services include data processing systems,
customer services, product development, actuarial, internal auditing,
accounting and legal services.
AGLC was merged into AGL at the end of 2011. AIG now provides the services
that were previously provided by AGLC. During 2018, 2017, and 2016, AGL paid
AIG for these services $163,225,360, $108,138,878, and $89,508,561,
respectively. AGL is reimbursed by the Affiliates at cost, to the extent the
services apply to the Affiliates.
We have not designed the Policies for professional market timing
organizations or other entities or individuals using programmed and frequent
transfers involving large amounts. We currently have no contractual agreements
or any other formal or informal arrangements with any entity or individual
permitting such transfers and receive no compensation for any such contract or
arrangement.
4
MORE INFORMATION ON LAPSE OF THE POLICY
A Policy which has lapsed may have tax consequences, even though you may be
able to reinstate that Policy. For tax purposes, some reinstatements may be
treated as the purchase of a new insurance contract.
If your Policy lapses, you will not be able to take any loans or surrenders
from your Policy unless you make a full surrender (subject to applicable
surrender charges). You will also not be permitted to transfer Policy Account
value between investment divisions while your Policy is in lapse.
DISTRIBUTION OF THE POLICIES
The Policies are offered on a continuous basis through AIG Capital Services,
Inc. ("ACS"), located at 21650 Oxnard Street, Suite 750, Woodland Hills, CA
91367-4997. ACS is registered as a broker-dealer under the Securities Exchange
Act of 1934, as amended, and a member of the Financial Industry Regulatory
Authority ("FINRA"). The Company and ACS are each an indirect, wholly owned
subsidiary of AIG. No underwriting fees are paid in connection with the
distribution of the policies.
We and ACS have sales agreements with various broker-dealers and banks under
which the Policies will be sold by registered representatives of the
broker-dealers or employees of the banks. These registered representatives and
employees are also required to be authorized under applicable state regulations
as life insurance agents to sell variable universal life insurance. The
broker-dealers are ordinarily required to be registered with the SEC and must
be members of FINRA.
Broker-dealers earn commissions on Policy sales of up to 90% of premiums
paid during the first Policy year. For Policies issued on or after October 8,
1997, annual trail commissions are earned at an annual rate of 0.25% on the
amount in the Policy Account that is in the Separate Account. These commissions
(and other distribution expenses, such as production incentive bonuses, agent's
insurance and pensions benefits, agency management compensation and bonuses and
expense allowances) are paid by AGL. They do not result in any additional
charges against the Policy that are not described in the Policy prospectus.
Under the Public Disclosure Program, FINRA Regulation ("FINRA") provides
certain information regarding the disciplinary history of FINRA member
broker-dealers and their associated persons in response to written, electronic
or telephonic inquiries. FINRA's toll-free Public Disclosure Program Hotline
telephone number is 1-800-289-9999 and their Web site address is www.finra.org.
An investor brochure that includes information describing the Public Disclosure
Program is available from FINRA.
ADDITIONAL INFORMATION
The purpose of this section is to provide you with information to help
clarify certain discussion found in the related prospectus. Many topics, such
as Policy sales loads and increases in your Policy's death benefit, have been
fully described in the related prospectus. For any topics that we do not
discuss in this SAI, please see the related prospectus.
5
Material Conflicts
We are required to track events to identify any material conflicts from
using investment portfolios for both variable universal life and variable
annuity separate accounts. The boards of the Funds, AGL, and other insurance
companies participating in the Funds have this same duty. There may be a
material conflict if:
. state insurance law or federal income tax law changes;
. investment management of an investment portfolio changes; or
. voting instructions given by owners of variable universal life insurance
Policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). One or more of the investment
portfolios may sell its shares to other investment portfolios. Therefore, there
is a possibility that a material conflict may arise between the interests of
owners in general, or certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment
options. We may take other action to protect Policy Owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require us, we may ignore
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in the next semi-annual report to owners.
Cost of insurance rates.
Because of specified amount increases, different cost of insurance rates may
apply to different increments of specified amount under your Policy. If so, we
attribute your accumulation value proportionately to each increment of
specified amount to compute our net amount at risk.
Limits on AGL's Right to Challenge a Policy
We can challenge the validity of an insurance Policy (based on material
misstatements in the application or, with respect to any Policy change, in the
application for the change) if it appears that the Insured Person is not
actually covered by the Policy under our rules. However, there are some limits
on how and when we can challenge the Policy.
Except on the basis of fraud, we cannot challenge the Policy after it has
been in effect, during the Insured Person's lifetime, for two years from the
date the Policy was issued or reinstated. (Some states may require this time to
be measured in some other way.)
Except on the basis of fraud, we cannot challenge any Policy change that
requires evidence of insurability (such as an increase in Face Amount) after
the change has been in effect for two years during the Insured Person's
lifetime.
We can challenge at any time an additional benefit that provides benefits to
the Insured Person in the event that the Insured Person becomes totally
disabled. We can also require proof of continuing disability.
6
If the Insured Person dies within the time that the validity of the Policy
may be challenged, we may delay payment until we decide whether to challenge
the Policy.
If the Insured Person's age or sex is misstated on any application, we can
provide the death benefit and any additional benefits that would have been
purchased by the most recent deduction for the cost of insurance and the cost
of any additional benefits at the Insured Person's correct age and sex.
If the Insured Person commits suicide within two years after the date on
which the Policy was issued or reinstated, we will limit the proceeds payable
to the total of all premiums that you paid to the time of death minus the
amount of any outstanding Policy loan and loan interest and minus any partial
withdrawals of net cash surrender value. If the Insured Person commits suicide
within two years after the effective date of an increase in death benefit that
you requested, we will pay the death benefit which was in effect before the
increase, plus the monthly cost of insurance deductions for the increase
(including the expense charge). (Some states require this time to be measured
by some other date.)
Special Purchase Plans
Special purchase plans provide for variations in, or elimination of, certain
Policy charges, and would be available to a defined group of individuals. We
currently do not provide for or support any special purchase plans.
Underwriting Procedures and Cost of Insurance Charges
Cost of insurance charges for the Policies will not be the same for all
Policy Owners. The chief reason is that the principle of pooling and
distribution of mortality risks is based upon the assumption that each Policy
Owner pays a cost of insurance charge related to the Insured Person's mortality
risk which is actuarially determined based upon factors such as age, sex and
risk class of the Insured Person and the face amount size band of the Policy.
In the context of life insurance, a uniform mortality charge (the "cost of
insurance charge") for all Insured Persons would discriminate unfairly in favor
of those Insured Persons representing greater mortality risks to the
disadvantage of those representing lesser risks. Accordingly, although there
will be a uniform "public offering price" for all Policy Owners, because
premiums are flexible and amounts allocated to the Separate Account will be
subject to some charges that are the same for all owners, there will be a
different "price" for each actuarial category of Policy Owners because
different cost of insurance rates will apply. The "price" will also vary based
on net amount at risk. The Policies will be offered and sold pursuant to this
cost of insurance schedule and our underwriting standards and in accordance
with state insurance laws. Such laws prohibit unfair discrimination among
Insured Persons, but recognize that premiums must be based upon factors such as
age, sex, health and occupation. A table showing the maximum cost of insurance
charges will be delivered as part of the Policy.
Our underwriting procedures are designed to treat applicants for Policies in
a uniform manner. Collection of required medical information is conducted in a
confidential manner. We maintain underwriting standards designed to avoid
unfair or inconsistent decisions about which underwriting class should apply to
a particular proposed insured person. In some group or employment-related
situations, we may offer what we call simplified or guaranteed issue
underwriting classes. These underwriting classes provide for brief or no
medical underwriting. Our offer to insure a person under either class results
in cost of insurance charges that are the same for each insured person.
7
Employee Benefit Plans
Employers and employee organizations should consider, in consultation with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the
purchase of Policies in connection with an employment-related insurance or
benefit plan. The United States Supreme Court held, in a 1983 decision, that,
under Title VII, optional annuity benefits under a deferred compensation plan
could not vary on the basis of sex. We did not design the Policies for use in
connection with qualified plans or trusts under federal tax laws.
Dividends
We pay no dividends on the Policies offered by this Prospectus.
ACTUARIAL EXPERT
Actuarial matters have been examined by Tim Donovan, who is Chief Life
Pricing Actuary - Life, Health and Disability of AGL. An opinion on actuarial
matters is filed as an exhibit to the registration statement we have filed with
the SEC in connection with the Policies.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, located at 1000 Louisiana Street, Suite 5800,
Houston, Texas 77002, serves as the independent registered public accounting
firm for Separate Account VL-R, Separate Account VUL-2, American General Life
Insurance Company and American Home Assurance Company.
You may obtain a free copy of these financial statements if you write us at
our Administrative Service Center or call at 1-800-340-2765. The financial
statements have also been filed with the SEC and can be obtained through its
website at http://www.sec.gov.
The following financial statements are included in the Statement of
Additional Information in reliance on the report of PricewaterhouseCoopers LLP,
an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting:
. Pro Forma Narrative description of the effects of the Consolidation.
. The Audited Financial Statements of Separate Account VL-R of American
General Life Insurance Company as of December 31, 2018 and for each of
the two years in the period ended December 31, 2018.
. The Audited Financial Statements of Separate Account VUL-2 of American
General Life Insurance Company as of December 31, 2018 and for each of
the two years in the period ended December 31, 2018.
. The Audited Statutory Financial Statements of American General Life
Insurance Company as of December 31, 2018 and December 31, 2017 and for
each of the three years in the period ended December 31, 2018.
. The Audited Statutory Financial Statements of American Home Assurance
Company as of December 31, 2018 and December 31, 2017 and for each of
the three years in the period ended December 31, 2018.
8
The financial statements of AGL should be considered only as bearing on the
ability of AGL to meet its obligation under the Policies. You should only
consider the statutory financial statements of American Home Assurance Company
("American Home") that we include in the Statement of Additional Information as
bearing on the ability of American Home, as guarantor, to meet its obligations
under the guarantee of insurance obligations under Policies issued prior to
December 29, 2006, at 4:00 p.m. Eastern Time ("Point of Termination"). Policies
with an issue date after the Point of Termination are not covered by the
American Home guarantee.
Description of Separate Account Consolidation and Impact on Financial Statement
Presentation
Effective after the close of business November 29, 2019, American General
Life Insurance Company ("AGL") consolidated AGL Separate Account VUL-2
("Separate Account VUL-2") with AGL Separate Account VL-R ("Separate Account
VL-R"), with Separate Account VL-R being the surviving Separate Account after
such consolidation. Financial statements issued on and after December 2, 2019
will reflect the consolidation transaction.
Pursuant to Regulation S-X, Rule 11-02(b), the following is a narrative
description of the pro forma effects of the consolidation described above.
The consolidation will result in the financial statements of Separate
Account VUL-2 being combined with the financial statements of Separate Account
VL-R. In effect, the consolidation will result in the transfer of the
subaccounts in Separate Account VUL-2 to Separate Account VL-R. Each subaccount
will remain unchanged and will continue to reflect the number and value of
units currently outstanding.
The statements of net assets, statements of operations and statements of
changes in net assets will reflect each of the individual subaccount holdings
and results, respectively, and the footnotes to the financial statements will
reflect the individual subaccounts similar to what has historically been
presented with the exception that the information will be presented in a single
set of financial statements.
The purpose of the Consolidation is to reduce the ongoing administrative
costs, independent accountant fees, and inefficiencies associated with
maintaining multiple Separate Accounts, each with its own recordkeeping and
reporting requirements.
9
American General
Life Companies
Separate Account VL-R
American General Life Insurance Company
2018
Annual Report
December 31, 2018
Report of Independent Registered Public Accounting Firm
To the Board of Directors of American General Life Insurance Company and the
Contract Owners of Separate Account VL-R.
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, of each of the sub-accounts
of Separate Account VL-R indicated in the table below as of December 31, 2018,
and the related statement of operations and changes in net assets for each of
the two years in the period then ended or each of the periods indicated in the
table below, including the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of each of the
sub-accounts in the Separate Account VL-R as of December 31, 2018, and the
results of each of their operations and the changes in each of their net assets
for the two years in the period then ended or each of the periods indicated in
the table below, in conformity with accounting principles generally accepted in
the United States of America.
Alger Capital Appreciation Portfolio Alger Mid Cap Growth Portfolio
Class I-2 Shares Class I-2 Shares
American Century VP Value Fund Class I American Funds IS Growth-Income Fund
Class 2
American Funds IS Asset Allocation American Funds IS High-Income Bond
Fund Class 2 Fund Class 2
American Funds IS Global Growth Fund American Funds IS International Fund
Class 2 Class 2
American Funds IS Growth Fund Class 2 AST SA Wellington Government and
Quality Bond Portfolio Class 3
AST SA Wellington Capital Appreciation Dreyfus VIF Quality Bond Portfolio
Portfolio Class 3 Initial Shares
Dreyfus IP MidCap Stock Portfolio Fidelity VIP Freedom 2030 Portfolio
Initial Shares Service Class 2
Dreyfus VIF International Value Fidelity VIP Government Money Market
Portfolio Initial Shares Portfolio Service Class 2
Dreyfus VIF Opportunistic Small Cap Fidelity VIP Growth Portfolio Service
Portfolio Initial Shares Class 2
Fidelity VIP Asset Manager Portfolio Fidelity VIP Mid Cap Portfolio Service
Service Class 2 Class 2
Fidelity VIP Contrafund Portfolio FTVIP Franklin U.S. Government
Service Class 2 Securities VIP Fund Class 2
Fidelity VIP Equity-Income Portfolio FTVIP Templeton Foreign VIP Fund
Service Class 2 Class 2
Fidelity VIP Freedom 2020 Portfolio Invesco V.I. Growth and Income Fund
Service Class 2 Series I
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 Invesco V.I. High Yield Fund Series I
FTVIP Franklin Mutual Shares VIP Fund Invesco V.I. International Growth Fund
Class 2 Series I
FTVIP Franklin Small Cap Value VIP Janus Henderson Global Research
Fund Class 2 Portfolio Service Shares
FTVIP Franklin Small-Mid Cap Growth Janus Henderson Overseas Portfolio
VIP Fund Class 2 Service Shares
Goldman Sachs VIT Strategic Growth JPMorgan Insurance Trust Small Cap
Fund Institutional Shares Core Portfolio Class 1
Invesco V.I. American Franchise Fund
Series I MFS VIT Research Series Initial Class
Invesco V.I. Core Equity Fund Series I MFS VIT Total Return Series Initial
Class
Invesco V.I. Global Real Estate Fund Neuberger Berman AMT Sustainable
Series I Equity Portfolio Class I
Invesco V.I. Government Securities Oppenheimer Global Strategic Income
Fund Series I Fund/VA Non-Service Shares
Janus Henderson Enterprise Portfolio PIMCO Short-Term Portfolio
Service Shares Administrative Class
Janus Henderson Forty Portfolio PIMCO Total Return Portfolio
Service Shares Administrative Class
JPMorgan Insurance Trust Core Bond Pioneer Select Mid Cap Growth VCT
Portfolio Class 1 Portfolio Class I
JPMorgan Insurance Trust Mid Cap Value Putnam VT International Value Fund
Portfolio Class 1 Class IB
MFS VIT Growth Series Initial Class Putnam VT Small Cap Value Fund Class IB
MFS VIT II Core Equity Portfolio Putnam VT Sustainable Leaders Fund
Initial Class Class IB
MFS VIT New Discovery Series Initial SAST SA WellsCap Aggressive Growth
Class Portfolio Class 1
Morgan Stanley VIF Growth Portfolio
Class I VALIC Company I Mid Cap Index Fund
Neuberger Berman AMT Large Cap Value
Portfolio Class I VALIC Company I Nasdaq-100 Index Fund
Neuberger Berman AMT Mid Cap Growth VALIC Company I Science & Technology
Portfolio Class I Fund
Oppenheimer Conservative Balanced
Fund/VA Non Service Shares VALIC Company I Small Cap Index Fund
Oppenheimer Global Fund/VA Non Service
Shares VALIC Company I Stock Index Fund
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class VALIC Company II Strategic Bond Fund
PIMCO Global Bond Opportunities Vanguard VIF Real Estate Index
Portfolio (Unhedged) Adminstrative Portfolio
Class
PIMCO Real Return Portfolio
Administrative Class
Pioneer Fund VCT Portfolio Class I
Pioneer Mid Cap Value VCT Portfolio
Class I
Putnam VT Diversified Income Fund
Class IB
Putnam VT Equity Income Fund Class IB
(1) (2)
Putnam VT Growth Opportunities Fund
Class IB
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3
SAST SA JPMorgan Diversified Balanced
Portfolio Class 1
VALIC Company I Dynamic Allocation Fund
VALIC Company I Emerging Economies Fund
VALIC Company I Government Money
Market I Fund
VALIC Company I International Equities
Index Fund
VALIC Company I International Value
Fund
VALIC Company II Mid Cap Value Fund
VALIC Company II Socially Responsible
Fund
Vanguard VIF High Yield Bond Portfolio
(1)The Putnam VT Growth and Income Fund, in operation for the period January 1,
2016 to May 12, 2017 (cessation of operations), merged into the Putnam VT
Equity Income Fund, in operation for the period May 12, 2017 (commencement
of operations) to December 31, 2017.
(2)Where there was a cessation of operations, only a statement of operations
and changes in net assets is included for the respective period presented.
Basis for Opinions
These financial statements are the responsibility of American General Life
Insurance Company management. Our responsibility is to express an opinion on
the financial statements of each of the sub-accounts in the Separate Account
VL-R based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to each of the subaccounts in the
Separate Account VL-R in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits of these financial statements in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our procedures
included confirmation of investments owned as of December 31, 2018 by
correspondence with the transfer agents of the investee mutual funds. We
believe that our audits provide a reasonable basis for our opinions.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
April 22, 2019
We have served as the auditor of one or more of the sub-accounts in the AIG
Life and Retirement Separate Account Group since at least 1994. We have not
been able to determine the specific year we began serving as auditor.
2
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2018
Due from
(to)
Company's
Investments at General
Sub-accounts Fair Value Account, Net Net Assets
------------ -------------- ------------ -----------
Alger Capital Appreciation Portfolio Class I-2 Shares $ 7,356,556 $ -- $ 7,356,556
Alger Mid Cap Growth Portfolio Class I-2 Shares 2,737,895 -- 2,737,895
American Century VP Value Fund Class I 13,539,464 -- 13,539,464
American Funds IS Asset Allocation Fund Class 2 2,326,604 -- 2,326,604
American Funds IS Global Growth Fund Class 2 727,645 -- 727,645
American Funds IS Growth Fund Class 2 1,770,815 -- 1,770,815
American Funds IS Growth-Income Fund Class 2 2,061,677 -- 2,061,677
American Funds IS High-Income Bond Fund Class 2 361,464 -- 361,464
American Funds IS International Fund Class 2 525,792 -- 525,792
AST SA Wellington Capital Appreciation Portfolio Class 3 232,885 -- 232,885
AST SA Wellington Government and Quality Bond Portfolio Class 3 116,518 -- 116,518
Dreyfus IP MidCap Stock Portfolio Initial Shares 3,970,163 -- 3,970,163
Dreyfus VIF International Value Portfolio Initial Shares 117,604 -- 117,604
Dreyfus VIF Opportunistic Small Cap Portfolio Initial Shares 6,407,578 -- 6,407,578
Dreyfus VIF Quality Bond Portfolio Initial Shares 4,096,694 -- 4,096,694
Fidelity VIP Asset Manager Portfolio Service Class 2 3,780,901 -- 3,780,901
Fidelity VIP Contrafund Portfolio Service Class 2 28,392,983 -- 28,392,983
Fidelity VIP Equity-Income Portfolio Service Class 2 15,004,507 -- 15,004,507
Fidelity VIP Freedom 2020 Portfolio Service Class 2 360,714 -- 360,714
Fidelity VIP Freedom 2025 Portfolio Service Class 2 559,815 -- 559,815
Fidelity VIP Freedom 2030 Portfolio Service Class 2 2,359,621 -- 2,359,621
Fidelity VIP Government Money Market Portfolio Service Class 2 1,023,453 -- 1,023,453
Fidelity VIP Growth Portfolio Service Class 2 17,707,184 -- 17,707,184
Fidelity VIP Mid Cap Portfolio Service Class 2 8,071,996 -- 8,071,996
FTVIP Franklin Mutual Shares VIP Fund Class 2 5,989,211 -- 5,989,211
FTVIP Franklin Small Cap Value VIP Fund Class 2 6,322,587 -- 6,322,587
FTVIP Franklin Small-Mid Cap Growth VIP Fund Class 2 22,210 -- 22,210
FTVIP Franklin U.S. Government Securities VIP Fund Class 2 1,599,147 -- 1,599,147
FTVIP Templeton Foreign VIP Fund Class 2 4,126,561 -- 4,126,561
Goldman Sachs VIT Strategic Growth Fund Institutional Shares 3,181,316 -- 3,181,316
Invesco V.I. American Franchise Fund Series I 13,001 -- 13,001
Invesco V.I. Core Equity Fund Series I 6,977,216 -- 6,977,216
Invesco V.I. Global Real Estate Fund Series I 438,602 -- 438,602
Invesco V.I. Government Securities Fund Series I 12,050 -- 12,050
Invesco V.I. Growth and Income Fund Series I 9,134,590 -- 9,134,590
Invesco V.I. High Yield Fund Series I 1,769,886 -- 1,769,886
Invesco V.I. International Growth Fund Series I 6,414,590 -- 6,414,590
Janus Henderson Enterprise Portfolio Service Shares 6,331,865 -- 6,331,865
Janus Henderson Forty Portfolio Service Shares 713,863 -- 713,863
Janus Henderson Global Research Portfolio Service Shares 2,818,406 -- 2,818,406
Janus Henderson Overseas Portfolio Service Shares 5,966,055 -- 5,966,055
JPMorgan Insurance Trust Core Bond Portfolio Class 1 1,265,297 -- 1,265,297
JPMorgan Insurance Trust Mid Cap Value Portfolio Class 1 663,877 -- 663,877
JPMorgan Insurance Trust Small Cap Core Portfolio Class 1 3,101,349 -- 3,101,349
MFS VIT Growth Series Initial Class 11,673,310 -- 11,673,310
MFS VIT II Core Equity Portfolio Initial Class 4,274,993 -- 4,274,993
MFS VIT New Discovery Series Initial Class 5,251,759 -- 5,251,759
MFS VIT Research Series Initial Class 2,911,066 -- 2,911,066
MFS VIT Total Return Series Initial Class 215,588 -- 215,588
Morgan Stanley VIF Growth Portfolio Class I 3,911,601 -- 3,911,601
Neuberger Berman AMT Large Cap Value Portfolio Class I 25,534 -- 25,534
Neuberger Berman AMT Mid Cap Growth Portfolio Class I 5,479,092 -- 5,479,092
Neuberger Berman AMT Sustainable Equity Portfolio Class I 129,447 -- 129,447
Oppenheimer Conservative Balanced Fund/VA Non Service Shares 1,199,241 -- 1,199,241
Oppenheimer Global Fund/VA Non Service Shares 6,402,814 -- 6,402,814
Oppenheimer Global Strategic Income Fund/VA Non-Service Shares 3,510 -- 3,510
PIMCO CommodityRealReturn Strategy Portfolio Administrative Class 587,286 -- 587,286
PIMCO Global Bond Opportunities Portfolio (Unhedged) Adminstrative Class 305,520 -- 305,520
PIMCO Real Return Portfolio Administrative Class 7,524,253 -- 7,524,253
PIMCO Short-Term Portfolio Administrative Class 3,671,595 -- 3,671,595
PIMCO Total Return Portfolio Administrative Class 12,129,200 -- 12,129,200
Pioneer Fund VCT Portfolio Class I 1,656,011 -- 1,656,011
Pioneer Mid Cap Value VCT Portfolio Class I 793,307 -- 793,307
Pioneer Select Mid Cap Growth VCT Portfolio Class I 2,559,747 -- 2,559,747
The accompanying Notes to Financial Statements are an integral part of this
statement.
1
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2018
Due from
(to)
Company's
Investments General
Sub-accounts at Fair Value Account, Net Net Assets
------------ ------------- ------------ ----------
Putnam VT Diversified Income Fund Class IB 5,665,739 -- 5,665,739
Putnam VT Equity Income Fund Class IB 11,718,433 -- 11,718,433
Putnam VT Growth Opportunities Fund Class IB 177,616 -- 177,616
Putnam VT International Value Fund Class IB 3,090,053 -- 3,090,053
Putnam VT Small Cap Value Fund Class IB 157,042 -- 157,042
Putnam VT Sustainable Leaders Fund Class IB 40,670 -- 40,670
SST SA Multi-Managed Mid Cap Value Portfolio Class 3 47,183 -- 47,183
SAST SA JPMorgan Diversified Balanced Portfolio Class 1 2,654,340 -- 2,654,340
SAST SA WellsCap Aggressive Growth Portfolio Class 1 1,593,822 -- 1,593,822
VALIC Company I Dynamic Allocation Fund 3,439,714 -- 3,439,714
VALIC Company I Emerging Economies Fund 97,387 -- 97,387
VALIC Company I Government Money Market I Fund 8,312,365 -- 8,312,365
VALIC Company I International Equities Index Fund 2,593,223 -- 2,593,223
VALIC Company I International Value Fund 56,732 -- 56,732
VALIC Company I Mid Cap Index Fund 13,017,944 -- 13,017,944
VALIC Company I Nasdaq-100 Index Fund 6,330,427 -- 6,330,427
VALIC Company I Science & Technology Fund 3,978,318 -- 3,978,318
VALIC Company I Small Cap Index Fund 6,289,434 -- 6,289,434
VALIC Company I Stock Index Fund 18,931,067 -- 18,931,067
VALIC Company II Mid Cap Value Fund 60,871 -- 60,871
VALIC Company II Socially Responsible Fund 39,595 -- 39,595
VALIC Company II Strategic Bond Fund 202,859 -- 202,859
Vanguard VIF High Yield Bond Portfolio 6,229,346 -- 6,229,346
Vanguard VIF Real Estate Index Portfolio 11,664,388 -- 11,664,388
The accompanying Notes to Financial Statements are an integral part of this
statement.
2
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018
Net Asset
Value per Shares at Fair Cost of Shares
Sub-accounts Shares Share Value Held Level*
------------ --------- --------- -------------- -------------- ------
Alger Capital Appreciation Portfolio Class I-2 Shares 108,073 $68.07 $ 7,356,556 $ 8,076,713 1
Alger Mid Cap Growth Portfolio Class I-2 Shares 140,046 19.55 2,737,895 2,940,250 1
American Century VP Value Fund Class I 1,352,594 10.01 13,539,464 12,107,650 1
American Funds IS Asset Allocation Fund Class 2 110,370 21.08 2,326,604 2,490,090 1
American Funds IS Global Growth Fund Class 2 28,535 25.50 727,645 782,560 1
American Funds IS Growth Fund Class 2 25,487 69.48 1,770,815 1,893,230 1
American Funds IS Growth-Income Fund Class 2 45,917 44.90 2,061,677 2,190,642 1
American Funds IS High-Income Bond Fund Class 2 39,332 9.19 361,464 398,318 1
American Funds IS International Fund Class 2 29,875 17.60 525,792 599,392 1
AST SA Wellington Capital Appreciation Portfolio Class 3 6,281 37.08 232,885 263,214 1
AST SA Wellington Government and Quality Bond Portfolio Class 3 7,937 14.68 116,518 117,508 1
Dreyfus IP MidCap Stock Portfolio Initial Shares 236,319 16.80 3,970,163 4,678,232 1
Dreyfus VIF International Value Portfolio Initial Shares 11,714 10.04 117,604 132,974 1
Dreyfus VIF Opportunistic Small Cap Portfolio Initial Shares 155,524 41.20 6,407,578 6,753,019 1
Dreyfus VIF Quality Bond Portfolio Initial Shares 361,261 11.34 4,096,694 4,307,402 1
Fidelity VIP Asset Manager Portfolio Service Class 2 283,638 13.33 3,780,901 4,336,983 1
Fidelity VIP Contrafund Portfolio Service Class 2 906,834 31.31 28,392,983 29,466,654 1
Fidelity VIP Equity-Income Portfolio Service Class 2 755,895 19.85 15,004,507 16,310,629 1
Fidelity VIP Freedom 2020 Portfolio Service Class 2 28,857 12.50 360,714 375,634 1
Fidelity VIP Freedom 2025 Portfolio Service Class 2 42,701 13.11 559,815 583,258 1
Fidelity VIP Freedom 2030 Portfolio Service Class 2 182,775 12.91 2,359,621 2,462,889 1
Fidelity VIP Government Money Market Portfolio Service Class 2 1,023,453 1.00 1,023,453 1,023,453 1
Fidelity VIP Growth Portfolio Service Class 2 286,015 61.91 17,707,184 16,515,632 1
Fidelity VIP Mid Cap Portfolio Service Class 2 276,249 29.22 8,071,996 9,175,553 1
FTVIP Franklin Mutual Shares VIP Fund Class 2 344,208 17.40 5,989,211 6,950,293 1
FTVIP Franklin Small Cap Value VIP Fund Class 2 433,054 14.60 6,322,587 7,974,697 1
FTVIP Franklin Small-Mid Cap Growth VIP Fund Class 2 1,459 15.22 22,210 27,301 1
FTVIP Franklin U.S. Government Securities VIP Fund Class 2 135,636 11.79 1,599,147 1,682,640 1
FTVIP Templeton Foreign VIP Fund Class 2 323,906 12.74 4,126,561 4,735,560 1
Goldman Sachs VIT Strategic Growth Fund Institutional Shares 325,288 9.78 3,181,316 3,860,587 1
Invesco V.I. American Franchise Fund Series I 227 57.15 13,001 13,336 1
Invesco V.I. Core Equity Fund Series I 225,508 30.94 6,977,216 7,598,178 1
Invesco V.I. Global Real Estate Fund Series I 28,260 15.52 438,602 466,303 1
Invesco V.I. Government Securities Fund Series I 1,074 11.22 12,050 12,557 1
Invesco V.I. Growth and Income Fund Series I 521,678 17.51 9,134,590 11,177,815 1
Invesco V.I. High Yield Fund Series I 349,780 5.06 1,769,886 1,914,143 1
Invesco V.I. International Growth Fund Series I 194,499 32.98 6,414,590 6,796,705 1
Janus Henderson Enterprise Portfolio Service Shares 100,522 62.99 6,331,865 5,865,408 1
Janus Henderson Forty Portfolio Service Shares 21,534 33.15 713,863 792,773 1
Janus Henderson Global Research Portfolio Service Shares 61,071 46.15 2,818,406 2,217,650 1
Janus Henderson Overseas Portfolio Service Shares 232,685 25.64 5,966,055 6,932,203 1
JPMorgan Insurance Trust Core Bond Portfolio Class 1 118,696 10.66 1,265,297 1,266,488 1
JPMorgan Insurance Trust Mid Cap Value Portfolio Class 1 65,342 10.16 663,877 658,029 1
JPMorgan Insurance Trust Small Cap Core Portfolio Class 1 146,983 21.10 3,101,349 3,337,233 1
MFS VIT Growth Series Initial Class 248,315 47.01 11,673,310 9,095,822 1
MFS VIT II Core Equity Portfolio Initial Class 197,186 21.68 4,274,993 4,598,254 1
MFS VIT New Discovery Series Initial Class 300,788 17.46 5,251,759 5,519,382 1
MFS VIT Research Series Initial Class 116,770 24.93 2,911,066 3,150,741 1
MFS VIT Total Return Series Initial Class 9,898 21.78 215,588 233,070 1
Morgan Stanley VIF Growth Portfolio Class I 136,674 28.62 3,911,601 4,056,362 1
Neuberger Berman AMT Large Cap Value Portfolio Class I 1,751 14.58 25,534 26,113 1
Neuberger Berman AMT Mid Cap Growth Portfolio Class I 227,443 24.09 5,479,092 5,677,244 1
Neuberger Berman AMT Sustainable Equity Portfolio Class I 5,703 22.70 129,447 140,673 1
Oppenheimer Conservative Balanced Fund/VA Non Service Shares 83,107 14.43 1,199,241 1,225,283 1
Oppenheimer Global Fund/VA Non Service Shares 168,495 38.00 6,402,814 6,767,468 1
Oppenheimer Global Strategic Income Fund/VA Non-Service Shares 753 4.66 3,510 3,769 1
PIMCO CommodityRealReturn Strategy Portfolio Administrative Class 97,556 6.02 587,286 665,321 1
PIMCO Global Bond Opportunities Portfolio (Unhedged) Adminstrative
Class 27,876 10.96 305,520 332,757 1
PIMCO Real Return Portfolio Administrative Class 634,958 11.85 7,524,253 8,202,826 1
PIMCO Short-Term Portfolio Administrative Class 356,812 10.29 3,671,595 3,680,531 1
PIMCO Total Return Portfolio Administrative Class 1,157,366 10.48 12,129,200 12,665,646 1
Pioneer Fund VCT Portfolio Class I 122,486 13.52 1,656,011 2,167,901 1
Pioneer Mid Cap Value VCT Portfolio Class I 51,082 15.53 793,307 1,009,254 1
Pioneer Select Mid Cap Growth VCT Portfolio Class I 103,132 24.82 2,559,747 2,747,680 1
* Represents the level within the fair value hierarchy under which the
portfolio is classified as defined in ASC 820 and described in Note 3 to the
financial statements.
The accompanying Notes to Financial Statements are an integral part of this
statement.
3
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018
Net Asset
Value per Shares at Fair Cost of Shares
Sub-accounts Shares Share Value Held Level*
------------ --------- --------- -------------- -------------- ------
Putnam VT Diversified Income Fund Class IB 971,825 $ 5.83 $ 5,665,739 $ 6,571,067 1
Putnam VT Equity Income Fund Class IB 506,853 23.12 11,718,433 12,058,655 1
Putnam VT Growth Opportunities Fund Class IB 18,560 9.57 177,616 146,163 1
Putnam VT International Value Fund Class IB 330,134 9.36 3,090,053 3,399,618 1
Putnam VT Small Cap Value Fund Class IB 17,725 8.86 157,042 227,783 1
Putnam VT Sustainable Leaders Fund Class IB 1,217 33.42 40,670 35,373 1
SST SA Multi-Managed Mid Cap Value Portfolio Class 3 3,417 13.81 47,183 59,344 1
SAST SA JPMorgan Diversified Balanced Portfolio Class 1 153,076 17.34 2,654,340 2,962,437 1
SAST SA WellsCap Aggressive Growth Portfolio Class 1 89,340 17.84 1,593,822 1,818,203 1
VALIC Company I Dynamic Allocation Fund 299,627 11.48 3,439,714 3,578,462 1
VALIC Company I Emerging Economies Fund 12,950 7.52 97,387 102,722 1
VALIC Company I Government Money Market I Fund 8,312,365 1.00 8,312,365 8,312,365 1
VALIC Company I International Equities Index Fund 400,189 6.48 2,593,223 2,789,855 1
VALIC Company I International Value Fund 6,339 8.95 56,732 63,217 1
VALIC Company I Mid Cap Index Fund 539,269 24.14 13,017,944 13,562,171 1
VALIC Company I Nasdaq-100 Index Fund 497,675 12.72 6,330,427 5,386,045 1
VALIC Company I Science & Technology Fund 147,127 27.04 3,978,318 3,870,050 1
VALIC Company I Small Cap Index Fund 331,721 18.96 6,289,434 6,617,048 1
VALIC Company I Stock Index Fund 512,898 36.91 18,931,067 17,338,576 1
VALIC Company II Mid Cap Value Fund 3,356 18.14 60,871 71,827 1
VALIC Company II Socially Responsible Fund 1,963 20.17 39,595 38,975 1
VALIC Company II Strategic Bond Fund 18,994 10.68 202,859 211,317 1
Vanguard VIF High Yield Bond Portfolio 827,270 7.53 6,229,346 6,532,804 1
Vanguard VIF Real Estate Index Portfolio 1,008,158 11.57 11,664,388 12,938,216 1
* Represents the level within the fair value hierarchy under which the
portfolio is classified as defined in ASC 820 and described in Note 3 to the
financial statements.
The accompanying Notes to Financial Statements are an integral part of this
statement.
4
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Alger Capital Alger Mid Cap American
Appreciation Growth American Funds IS American
Portfolio Portfolio Century VP Asset Funds IS
Class I-2 Class I-2 Value Fund Allocation Global Growth
Shares Shares Class I Fund Class 2 Fund Class 2
------------- ------------- ----------- ------------ -------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 6,846 $ -- $ 260,761 $ 39,540 $ 5,099
Mortality and expense risk
and administrative
charges (35,412) (15,272) (68,954) (6,188) (1,563)
----------- ----------- ----------- ---------- ---------
Net investment income
(loss) (28,566) (15,272) 191,807 33,352 3,536
Net realized gain (loss) 409,107 432,143 864,988 20,304 27,299
Capital gain distribution
from mutual funds 1,310,404 430,316 1,018 87,295 40,158
Change in unrealized
appreciation
(depreciation) of
investments (1,663,311) (1,045,698) (2,479,234) (270,411) (139,002)
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets from operations 27,634 (198,511) (1,421,421) (129,460) (68,009)
----------- ----------- ----------- ---------- ---------
From contract transactions:
Payments received from
contract owners 366,615 174,140 754,379 437,362 162,561
Payments for contract
benefits or terminations (847,573) (308,278) (1,305,026) (714) (27,690)
Policy loans (5,480) (184,657) (25,252) (3,326) 14
Transfers between
sub-accounts (including
fixed account), net (97,008) (3,146) (273,344) 918,363 196,053
Contract maintenance
charges (239,333) (136,447) (745,914) (369,406) (72,365)
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets from contract
transactions (822,779) (458,388) (1,595,157) 982,279 258,573
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets (795,145) (656,899) (3,016,578) 852,819 190,564
Net assets at beginning of
period 8,151,701 3,394,794 16,556,042 1,473,785 537,081
----------- ----------- ----------- ---------- ---------
Net assets at end of period $ 7,356,556 $ 2,737,895 $13,539,464 $2,326,604 $ 727,645
=========== =========== =========== ========== =========
Beginning units 322,741 184,834 761,205 110,852 37,874
Units issued 43,445 48,463 60,971 108,959 34,876
Units redeemed (63,968) (64,505) (130,360) (22,728) (11,282)
----------- ----------- ----------- ---------- ---------
Ending units 302,218 168,792 691,816 197,083 61,468
=========== =========== =========== ========== =========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 12,455 $ -- $ 267,484 $ 20,857 $ 3,154
Mortality and expense risk
and administrative
charges (32,374) (14,795) (72,926) (1,801) (314)
----------- ----------- ----------- ---------- ---------
Net investment income
(loss) (19,919) (14,795) 194,558 19,056 2,840
Net realized gain (loss) 146,934 151,773 1,187,435 13,277 3,399
Capital gain distribution
from mutual funds 484,283 74,821 -- 52,328 12,071
Change in unrealized
appreciation
(depreciation) of
investments 1,280,885 539,247 (87,416) 87,138 96,485
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets from operations 1,892,183 751,046 1,294,577 171,799 114,795
----------- ----------- ----------- ---------- ---------
From contract transactions:
Payments received from
contract owners 256,583 179,294 782,895 60,904 8,090
Payments for contract
benefits or terminations (211,827) (76,404) (709,204) -- (50,884)
Policy loans (21,916) 1,766 (84,126) -- 6,475
Transfers between
sub-accounts (including
fixed account), net 250,481 122,211 (474,798) 442,996 140,497
Contract maintenance
charges (185,087) (131,820) (771,592) (24,062) (6,320)
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets from contract
transactions 88,234 95,047 (1,256,825) 479,838 97,858
----------- ----------- ----------- ---------- ---------
Increase (decrease) in net
assets 1,980,417 846,093 37,752 651,637 212,653
Net assets at beginning of
period 6,171,284 2,548,701 16,518,290 822,148 324,428
----------- ----------- ----------- ---------- ---------
Net assets at end of period $ 8,151,701 $ 3,394,794 $16,556,042 $1,473,785 $ 537,081
=========== =========== =========== ========== =========
Beginning units 308,315 177,407 819,555 71,357 29,438
Units issued 57,242 33,730 119,692 56,676 16,288
Units redeemed (42,816) (26,303) (178,042) (17,181) (7,852)
----------- ----------- ----------- ---------- ---------
Ending units 322,741 184,834 761,205 110,852 37,874
=========== =========== =========== ========== =========
The accompanying Notes to Financial Statements are an integral part of this
statement.
5
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
AST SA
American American Wellington
American Funds IS Funds IS American Capital
Funds IS Growth- High-Income Funds IS Appreciation
Growth Fund Income Fund Bond Fund International Portfolio
Class 2 Class 2 Class 2 Fund Class 2 Class 3
----------- ----------- ----------- ------------- ------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 7,269 $ 28,336 $ 21,368 $ 9,126 $ --
Mortality and expense risk
and administrative
charges (3,092) (4,708) (867) (1,064) (577)
---------- ---------- -------- --------- --------
Net investment income
(loss) 4,177 23,628 20,501 8,062 (577)
Net realized gain (loss) 23,030 50,769 1,422 30,503 11,033
Capital gain distribution
from mutual funds 103,509 119,796 -- 14,148 27,151
Change in unrealized
appreciation
(depreciation) of
investments (216,155) (257,155) (32,358) (116,553) (43,556)
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets from operations (85,439) (62,962) (10,435) (63,840) (5,949)
---------- ---------- -------- --------- --------
From contract transactions:
Payments received from
contract owners 336,432 648,304 68,368 84,362 41,301
Payments for contract
benefits or terminations (12,178) (33,894) (11,964) (14,711) (16,527)
Policy loans 408 11 5 -- --
Transfers between
sub-accounts (including
fixed account), net 969,100 369,464 102,917 166,959 75,806
Contract maintenance
charges (249,289) (323,855) (50,101) (59,467) (24,279)
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets from contract
transactions 1,044,473 660,030 109,225 177,143 76,301
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets 959,034 597,068 98,790 113,303 70,352
Net assets at beginning of
period 811,781 1,464,609 262,674 412,489 162,533
---------- ---------- -------- --------- --------
Net assets at end of period $1,770,815 $2,061,677 $361,464 $ 525,792 $232,885
========== ========== ======== ========= ========
Beginning units 52,954 102,846 23,439 32,925 10,103
Units issued 102,941 98,674 16,901 36,745 9,763
Units redeemed (17,391) (43,233) (6,263) (17,998) (3,090)
---------- ---------- -------- --------- --------
Ending units 138,504 158,287 34,077 51,672 16,776
========== ========== ======== ========= ========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 3,582 $ 18,187 $ 16,574 $ 4,225 $ --
Mortality and expense risk
and administrative
charges (308) (797) (286) (193) (80)
---------- ---------- -------- --------- --------
Net investment income
(loss) 3,274 17,390 16,288 4,032 (80)
Net realized gain (loss) 11,211 36 681 1,657 716
Capital gain distribution
from mutual funds 56,942 65,229 -- 2,255 12,739
Change in unrealized
appreciation
(depreciation) of
investments 80,855 130,384 (4,835) 49,639 22,601
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets from operations 152,282 213,039 12,134 57,583 35,976
---------- ---------- -------- --------- --------
From contract transactions:
Payments received from
contract owners 14,146 19,415 8,173 10,476 6,163
Payments for contract
benefits or terminations -- (7,855) -- -- --
Policy loans -- (30) (19) -- --
Transfers between
sub-accounts (including
fixed account), net 163,312 512,775 110,053 199,312 25,342
Contract maintenance
charges (8,205) (12,736) (6,542) (3,795) (3,047)
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets from contract
transactions 169,253 511,569 111,665 205,993 28,458
---------- ---------- -------- --------- --------
Increase (decrease) in net
assets 321,535 724,608 123,799 263,576 64,434
Net assets at beginning of
period 490,246 740,001 138,875 148,913 98,099
---------- ---------- -------- --------- --------
Net assets at end of period $ 811,781 $1,464,609 $262,674 $ 412,489 $162,533
========== ========== ======== ========= ========
Beginning units 40,194 62,791 13,125 15,568 8,075
Units issued 20,071 50,684 11,519 20,237 3,575
Units redeemed (7,311) (10,629) (1,205) (2,880) (1,547)
---------- ---------- -------- --------- --------
Ending units 52,954 102,846 23,439 32,925 10,103
========== ========== ======== ========= ========
The accompanying Notes to Financial Statements are an integral part of this
statement.
6
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
AST SA
Wellington Dreyfus VIF Dreyfus VIF
Government Dreyfus IP International Opportunistic Dreyfus VIF
and Quality MidCap Stock Value Small Cap Quality Bond
Bond Portfolio Portfolio Initial Portfolio Initial Portfolio Initial Portfolio Initial
Class 3 Shares Shares Shares Shares
-------------- ----------------- ----------------- ----------------- -----------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 1,812 $ 28,014 $ 2,385 $ -- $ 124,122
Mortality and expense risk
and administrative
charges (225) (21,129) (292) (37,347) (20,722)
-------- ----------- -------- ----------- ----------
Net investment income
(loss) 1,587 6,885 2,093 (37,347) 103,400
Net realized gain (loss) (706) 71,741 8,105 285,707 (42,742)
Capital gain distribution
from mutual funds 35 574,389 -- 1,395,678 --
Change in unrealized
appreciation
(depreciation) of
investments (1,049) (1,412,062) (34,101) (3,191,794) (206,089)
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets from operations (133) (759,047) (23,903) (1,547,756) (145,431)
-------- ----------- -------- ----------- ----------
From contract transactions:
Payments received from
contract owners 20,448 196,637 10,276 407,667 282,291
Payments for contract
benefits or terminations -- (239,028) (9,465) (367,016) (196,816)
Policy loans -- (7,618) 193 (70,404) (2,382)
Transfers between
sub-accounts (including
fixed account), net 37,099 134,675 (238) 120,188 (239,676)
Contract maintenance
charges (20,281) (385,446) (5,072) (450,321) (428,090)
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets from contract
transactions 37,266 (300,780) (4,306) (359,886) (584,673)
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets 37,133 (1,059,827) (28,209) (1,907,642) (730,104)
Net assets at beginning of
period 79,385 5,029,990 145,813 8,315,220 4,826,798
-------- ----------- -------- ----------- ----------
Net assets at end of period $116,518 $ 3,970,163 $117,604 $ 6,407,578 $4,096,694
======== =========== ======== =========== ==========
Beginning units 7,570 215,289 11,834 361,865 341,206
Units issued 6,813 15,753 8,454 22,739 21,087
Units redeemed (3,083) (28,710) (9,348) (38,620) (64,001)
-------- ----------- -------- ----------- ----------
Ending units 11,300 202,332 10,940 345,984 298,292
======== =========== ======== =========== ==========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 1,202 $ 52,173 $ 1,861 $ -- $ 102,333
Mortality and expense risk
and administrative
charges (32) (20,853) (371) (33,747) (22,134)
-------- ----------- -------- ----------- ----------
Net investment income
(loss) 1,170 31,320 1,490 (33,747) 80,199
Net realized gain (loss) (176) 124,544 109 277,080 (10,213)
Capital gain distribution
from mutual funds -- 77,080 -- 87,673 --
Change in unrealized
appreciation
(depreciation) of
investments 772 442,726 29,719 1,316,412 121,401
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets from operations 1,766 675,670 31,318 1,647,418 191,387
-------- ----------- -------- ----------- ----------
From contract transactions:
Payments received from
contract owners 4,141 209,653 10,941 422,761 290,134
Payments for contract
benefits or terminations -- (160,233) (1,976) (295,089) (187,139)
Policy loans -- (28,573) 2,523 24,072 (99)
Transfers between
sub-accounts (including
fixed account), net 16,155 (149,085) (1,739) (54,102) 94,236
Contract maintenance
charges (865) (352,460) (5,216) (462,342) (426,887)
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets from contract
transactions 19,431 (480,698) 4,533 (364,700) (229,755)
-------- ----------- -------- ----------- ----------
Increase (decrease) in net
assets 21,197 194,972 35,851 1,282,718 (38,368)
Net assets at beginning of
period 58,188 4,835,018 109,962 7,032,502 4,865,166
-------- ----------- -------- ----------- ----------
Net assets at end of period $ 79,385 $ 5,029,990 $145,813 $ 8,315,220 $4,826,798
======== =========== ======== =========== ==========
Beginning units 5,735 237,494 11,400 379,560 357,140
Units issued 2,450 8,947 1,071 14,772 22,272
Units redeemed (615) (31,152) (637) (32,467) (38,206)
-------- ----------- -------- ----------- ----------
Ending units 7,570 215,289 11,834 361,865 341,206
======== =========== ======== =========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
7
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Fidelity VIP
Asset Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP
Manager Contrafund Equity-Income Freedom Freedom
Portfolio Portfolio Portfolio 2020 Portfolio 2025 Portfolio
Service Class Service Class Service Class Service Class Service Class
2 2 2 2 2
------------- ------------- ------------- -------------- --------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 61,021 $ 142,561 $ 346,425 $ 5,031 $ 7,356
Mortality and expense risk
and administrative
charges (19,926) (141,076) (73,257) (1,785) (2,635)
---------- ----------- ----------- --------- ---------
Net investment income
(loss) 41,095 1,485 273,168 3,246 4,721
Net realized gain (loss) (52,826) 1,020,086 172,399 3,453 19,843
Capital gain distribution
from mutual funds 145,905 2,940,930 808,618 14,687 11,836
Change in unrealized
appreciation
(depreciation) of
investments (379,970) (5,990,205) (2,734,734) (48,186) (79,560)
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets from operations (245,796) (2,027,704) (1,480,549) (26,800) (43,160)
---------- ----------- ----------- --------- ---------
From contract transactions:
Payments received from
contract owners 297,719 1,624,260 865,446 38,435 93,002
Payments for contract
benefits or terminations (355,118) (2,094,141) (814,655) (101,917) (1,136)
Policy loans (98,209) (203,241) (29,974) (219) (8,529)
Transfers between
sub-accounts (including
fixed account), net 5,021 (177,649) (363,986) 90,196 1,881
Contract maintenance
charges (317,402) (2,144,916) (846,768) (26,111) (93,679)
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets from contract
transactions (467,989) (2,995,687) (1,189,937) 384 (8,461)
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets (713,785) (5,023,391) (2,670,486) (26,416) (51,621)
Net assets at beginning of
period 4,494,686 33,416,374 17,674,993 387,130 611,436
---------- ----------- ----------- --------- ---------
Net assets at end of period $3,780,901 $28,392,983 $15,004,507 $ 360,714 $ 559,815
========== =========== =========== ========= =========
Beginning units 288,419 1,633,046 980,078 24,020 35,817
Units issued 27,517 145,196 83,391 19,751 9,480
Units redeemed (57,341) (266,076) (145,502) (20,233) (9,999)
---------- ----------- ----------- --------- ---------
Ending units 258,595 1,512,166 917,967 23,538 35,298
========== =========== =========== ========= =========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 70,788 $ 248,345 $ 256,126 $ 4,647 $ 7,217
Mortality and expense risk
and administrative
charges (20,738) (141,748) (76,304) (1,904) (3,214)
---------- ----------- ----------- --------- ---------
Net investment income
(loss) 50,050 106,597 179,822 2,743 4,003
Net realized gain (loss) (17,254) 1,210,979 230,958 20,455 58,685
Capital gain distribution
from mutual funds 491,751 1,754,467 362,070 10,800 19,840
Change in unrealized
appreciation
(depreciation) of
investments 19,173 3,076,774 1,197,102 22,809 26,453
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets from operations 543,720 6,148,817 1,969,952 56,807 108,981
---------- ----------- ----------- --------- ---------
From contract transactions:
Payments received from
contract owners 341,564 1,475,522 838,441 44,862 89,139
Payments for contract
benefits or terminations (220,652) (1,391,806) (992,090) (38,621) (113,343)
Policy loans (28,783) (172,093) (73,935) (19,613) 14,952
Transfers between
sub-accounts (including
fixed account), net 2,243 (1,253,080) (148,117) (11,275) (132,795)
Contract maintenance
charges (334,127) (1,891,023) (841,026) (19,860) (86,486)
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets from contract
transactions (239,755) (3,232,480) (1,216,727) (44,507) (228,533)
---------- ----------- ----------- --------- ---------
Increase (decrease) in net
assets 303,965 2,916,337 753,225 12,300 (119,552)
Net assets at beginning of
period 4,190,721 30,500,037 16,921,768 374,830 730,988
---------- ----------- ----------- --------- ---------
Net assets at end of period $4,494,686 $33,416,374 $17,674,993 $ 387,130 $ 611,436
========== =========== =========== ========= =========
Beginning units 302,946 1,776,410 1,042,442 26,732 49,071
Units issued 29,035 198,644 122,043 6,711 21,317
Units redeemed (43,562) (342,008) (184,407) (9,423) (34,571)
---------- ----------- ----------- --------- ---------
Ending units 288,419 1,633,046 980,078 24,020 35,817
========== =========== =========== ========= =========
The accompanying Notes to Financial Statements are an integral part of this
statement.
8
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Fidelity VIP
Fidelity VIP Government Fidelity VIP Fidelity VIP FTVIP
Freedom Money Market Growth Mid Cap Franklin
2030 Portfolio Portfolio Portfolio Portfolio Mutual
Service Class Service Class Service Class Service Class Shares VIP
2 2 2 2 Fund Class 2
-------------- ------------- ------------- ------------- ------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 29,664 $ 7,316 $ 8,330 $ 39,912 $ 158,589
Mortality and expense risk
and administrative
charges (10,710) (1,321) (90,672) (43,073) (29,868)
---------- ----------- ----------- ----------- -----------
Net investment income
(loss) 18,954 5,995 (82,342) (3,161) 128,721
Net realized gain (loss) 108,234 -- 921,279 173,582 130,770
Capital gain distribution
from mutual funds 69,300 -- 2,879,611 905,353 246,943
Change in unrealized
appreciation
(depreciation) of
investments (418,023) -- (3,723,760) (2,494,588) (1,121,010)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations (221,535) 5,995 (5,212) (1,418,814) (614,576)
---------- ----------- ----------- ----------- -----------
From contract transactions:
Payments received from
contract owners 117,054 8,827,294 915,784 592,165 474,830
Payments for contract
benefits or terminations (182,946) (232) (1,723,956) (1,170,477) (469,588)
Policy loans (2,586) -- (46,747) (69,492) (97,216)
Transfers between
sub-accounts (including
fixed account), net 968 (8,041,766) (138,415) (84,584) 68,407
Contract maintenance
charges (93,191) (285,598) (955,263) (494,237) (355,937)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from contract
transactions (160,701) 499,698 (1,948,597) (1,226,625) (379,504)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets (382,236) 505,693 (1,953,809) (2,645,439) (994,080)
Net assets at beginning of
period 2,741,857 517,760 19,660,993 10,717,435 6,983,291
---------- ----------- ----------- ----------- -----------
Net assets at end of period $2,359,621 $ 1,023,453 $17,707,184 $ 8,071,996 $ 5,989,211
========== =========== =========== =========== ===========
Beginning units 156,726 51,864 909,510 493,472 416,827
Units issued 36,366 1,035,869 85,763 55,101 67,229
Units redeemed (43,548) (986,560) (159,438) (106,486) (83,419)
---------- ----------- ----------- ----------- -----------
Ending units 149,544 101,173 835,835 442,087 400,637
========== =========== =========== =========== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 29,867 $ 1,145 $ 14,538 $ 50,011 $ 156,695
Mortality and expense risk
and administrative
charges (10,802) 1,392 (81,237) (46,114) (32,615)
---------- ----------- ----------- ----------- -----------
Net investment income
(loss) 19,065 2,537 (66,699) 3,897 124,080
Net realized gain (loss) 27,902 -- 803,586 177,491 168,770
Capital gain distribution
from mutual funds 88,664 -- 1,267,763 490,637 284,164
Change in unrealized
appreciation
(depreciation) of
investments 322,677 -- 3,112,700 1,222,195 (47,877)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from operations 458,308 2,537 5,117,350 1,894,220 529,137
---------- ----------- ----------- ----------- -----------
From contract transactions:
Payments received from
contract owners 123,636 369,652 756,490 501,850 397,025
Payments for contract
benefits or terminations (65,382) -- (751,208) (576,056) (295,848)
Policy loans (6,262) -- (75,919) (32,637) (29,326)
Transfers between
sub-accounts (including
fixed account), net 90,477 (278,793) 206,393 (723,633) (176,443)
Contract maintenance
charges (90,807) (19,805) (813,537) (445,510) (314,258)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets from contract
transactions 51,662 71,054 (677,781) (1,275,986) (418,850)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in net
assets 509,970 73,591 4,439,569 618,234 110,287
Net assets at beginning of
period 2,231,887 444,169 15,221,424 10,099,201 6,873,004
---------- ----------- ----------- ----------- -----------
Net assets at end of period $2,741,857 $ 517,760 $19,660,993 $10,717,435 $ 6,983,291
========== =========== =========== =========== ===========
Beginning units 152,631 45,162 934,128 543,458 438,899
Units issued 25,183 299,892 95,765 111,740 70,503
Units redeemed (21,088) (293,190) (120,383) (161,726) (92,575)
---------- ----------- ----------- ----------- -----------
Ending units 156,726 51,864 909,510 493,472 416,827
========== =========== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
9
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FTVIP Goldman
FTVIP Franklin FTVIP Sachs VIT
Franklin Small Small-Mid Franklin U.S. FTVIP Strategic
Cap Value Cap Growth Government Templeton Growth Fund
VIP Fund VIP Fund Securities VIP Foreign VIP Institutional
Class 2 Class 2 Fund Class 2 Fund Class 2 Shares
-------------- ---------- -------------- ------------ -------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 69,487 $ -- $ 49,594 $ 131,722 $ 15,810
Mortality and expense risk
and administrative
charges (33,323) (129) (8,436) (22,376) (8,426)
----------- ------- ---------- ----------- -----------
Net investment income
(loss) 36,164 (129) 41,158 109,346 7,384
Net realized gain (loss) (236,869) (662) (35,622) (5,299) 81,885
Capital gain distribution
from mutual funds 1,183,385 2,568 -- -- 1,585,519
Change in unrealized
appreciation
(depreciation) of
investments (1,955,757) (3,020) (11,915) (897,039) (1,703,314)
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets from operations (973,077) (1,243) (6,379) (792,992) (28,526)
----------- ------- ---------- ----------- -----------
From contract transactions:
Payments received from
contract owners 383,833 513 125,011 393,300 --
Payments for contract
benefits or terminations (905,553) (1,377) (282,838) (303,973) (3,844)
Policy loans (159,857) -- 4,481 12,697 (73)
Transfers between
sub-accounts (including
fixed account), net (135,857) (364) (24,058) (55,481) (4,059)
Contract maintenance
charges (338,793) (1,097) (145,683) (419,623) (166,616)
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets from contract
transactions (1,156,227) (2,325) (323,087) (373,080) (174,592)
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets (2,129,304) (3,568) (329,466) (1,166,072) (203,118)
Net assets at beginning of
period 8,451,891 25,778 1,928,613 5,292,633 3,384,434
----------- ------- ---------- ----------- -----------
Net assets at end of period $ 6,322,587 $22,210 $1,599,147 $ 4,126,561 $ 3,181,316
=========== ======= ========== =========== ===========
Beginning units 385,185 1,286 151,946 422,235 147,120
Units issued 44,957 24 12,910 63,618 1
Units redeemed (92,721) (133) (39,021) (88,915) (7,045)
----------- ------- ---------- ----------- -----------
Ending units 337,421 1,177 125,835 396,938 140,076
=========== ======= ========== =========== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 40,778 $ -- $ 51,612 $ 132,862 $ 16,284
Mortality and expense risk
and administrative
charges (36,215) (118) (11,073) (24,713) (7,252)
----------- ------- ---------- ----------- -----------
Net investment income
(loss) 4,563 (118) 40,539 108,149 9,032
Net realized gain (loss) 33,634 (462) (39,737) 5,352 50,993
Capital gain distribution
from mutual funds 557,711 2,363 -- -- 141,109
Change in unrealized
appreciation
(depreciation) of
investments 199,424 2,596 22,666 655,534 605,731
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets from operations 795,332 4,379 23,468 769,035 806,865
----------- ------- ---------- ----------- -----------
From contract transactions:
Payments received from
contract owners 301,029 140 138,653 373,546 --
Payments for contract
benefits or terminations (236,379) -- (56,593) (231,490) (1,088)
Policy loans (17,307) -- (2,309) 52,959 --
Transfers between
sub-accounts (including
fixed account), net (454,042) 1,760 (802,689) (122,465) (15)
Contract maintenance
charges (316,211) (1,182) (173,044) (421,377) (129,246)
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets from contract
transactions (722,910) 718 (895,982) (348,827) (130,349)
----------- ------- ---------- ----------- -----------
Increase (decrease) in net
assets 72,422 5,097 (872,514) 420,208 676,516
Net assets at beginning of
period 8,379,469 20,681 2,801,127 4,872,425 2,707,918
----------- ------- ---------- ----------- -----------
Net assets at end of period $ 8,451,891 $25,778 $1,928,613 $ 5,292,633 $ 3,384,434
=========== ======= ========== =========== ===========
Beginning units 417,273 1,247 222,589 443,064 153,434
Units issued 94,077 99 59,391 76,070 --
Units redeemed (126,165) (60) (130,034) (96,899) (6,314)
----------- ------- ---------- ----------- -----------
Ending units 385,185 1,286 151,946 422,235 147,120
=========== ======= ========== =========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
10
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Invesco V.I. Invesco V.I. Invesco V.I. Invesco V.I.
American Invesco V.I. Global Real Government Growth and
Franchise Core Equity Estate Fund Securities Income Fund
Fund Series I Fund Series I Series I Fund Series I Series I
------------- ------------- ------------ ------------- ------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ -- $ 71,264 $ 17,397 $ 268 $ 219,829
Mortality and expense risk
and administrative
charges (74) (36,775) (1,063) (76) (47,578)
------- ----------- -------- -------- -----------
Net investment income
(loss) (74) 34,489 16,334 192 172,251
Net realized gain (loss) 263 315,256 2,323 (449) 85,956
Capital gain distribution
from mutual funds 927 510,400 5,440 -- 1,001,921
Change in unrealized
appreciation
(depreciation) of
investments (1,642) (1,608,396) (52,728) 100 (2,704,455)
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets from operations (526) (748,251) (28,631) (157) (1,444,327)
------- ----------- -------- -------- -----------
From contract transactions:
Payments received from
contract owners 300 522,117 73,826 205 651,329
Payments for contract
benefits or terminations (354) (459,727) (5,517) (9,341) (679,246)
Policy loans -- (60,052) (405) (40) (140,988)
Transfers between
sub-accounts (including
fixed account), net (4) (175,713) 19,852 285 224,538
Contract maintenance
charges (349) (542,560) (28,299) (1,092) (634,745)
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets from contract
transactions (407) (715,935) 59,457 (9,983) (579,112)
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets (933) (1,464,186) 30,826 (10,140) (2,023,439)
Net assets at beginning of
period 13,934 8,441,402 407,776 22,190 11,158,029
------- ----------- -------- -------- -----------
Net assets at end of period $13,001 $ 6,977,216 $438,602 $ 12,050 $ 9,134,590
======= =========== ======== ======== ===========
Beginning units 630 472,905 28,044 1,994 532,628
Units issued 11 26,164 11,362 36 86,522
Units redeemed (28) (66,075) (7,322) (948) (103,263)
------- ----------- -------- -------- -----------
Ending units 613 432,994 32,084 1,082 515,887
======= =========== ======== ======== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 11 $ 84,594 $ 13,373 $ 472 $ 161,273
Mortality and expense risk
and administrative
charges (70) (37,152) (692) (130) (47,160)
------- ----------- -------- -------- -----------
Net investment income
(loss) (59) 47,442 12,681 342 114,113
Net realized gain (loss) 1,184 206,503 4,240 (179) 93,546
Capital gain distribution
from mutual funds 1,031 423,732 6,787 -- 443,127
Change in unrealized
appreciation
(depreciation) of
investments 1,131 300,836 23,660 266 725,330
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets from operations 3,287 978,513 47,368 429 1,376,116
------- ----------- -------- -------- -----------
From contract transactions:
Payments received from
contract owners 375 550,396 33,119 56 450,307
Payments for contract
benefits or terminations (3,493) (366,136) (46,880) -- (354,851)
Policy loans 44 (31,120) 4,655 (39) 3,618
Transfers between
sub-accounts (including
fixed account), net (7) (43,990) 37,366 (5,187) (87,510)
Contract maintenance
charges (489) (565,060) (8,555) (2,690) (538,155)
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets from contract
transactions (3,570) (455,910) 19,705 (7,860) (526,591)
------- ----------- -------- -------- -----------
Increase (decrease) in net
assets (283) 522,603 67,073 (7,431) 849,525
Net assets at beginning of
period 14,217 7,918,799 340,703 29,621 10,308,504
------- ----------- -------- -------- -----------
Net assets at end of period $13,934 $ 8,441,402 $407,776 $ 22,190 $11,158,029
======= =========== ======== ======== ===========
Beginning units 815 499,400 26,458 2,700 547,160
Units issued 18 20,855 10,126 26 86,284
Units redeemed (203) (47,350) (8,540) (732) (100,816)
------- ----------- -------- -------- -----------
Ending units 630 472,905 28,044 1,994 532,628
======= =========== ======== ======== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
11
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Janus
Janus Henderson
Henderson Global
Invesco V.I. Enterprise Janus Research
Invesco V.I. International Portfolio Henderson Portfolio
High Yield Growth Fund Service Forty Portfolio Service
Fund Series I Series I Shares Service Shares Shares
------------- ------------- ----------- --------------- ----------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 101,308 $ 151,528 $ 7,587 $ -- $ 31,458
Mortality and expense risk
and administrative
charges (13,586) (32,280) (32,925) (2,638) (14,549)
---------- ----------- ----------- --------- ----------
Net investment income
(loss) 87,722 119,248 (25,338) (2,638) 16,909
Net realized gain (loss) (7,135) 256,524 647,127 33,772 114,637
Capital gain distribution
from mutual funds -- 51,316 349,729 108,290 --
Change in unrealized
appreciation
(depreciation) of
investments (159,290) (1,604,543) (1,007,675) (127,366) (359,271)
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets from operations (78,703) (1,177,455) (36,157) 12,058 (227,725)
---------- ----------- ----------- --------- ----------
From contract transactions:
Payments received from
contract owners 39,692 586,926 246,838 66,618 218,241
Payments for contract
benefits or terminations (220,963) (566,882) (928,909) (23,342) (163,378)
Policy loans (1,269) (67,808) (42,720) (11,260) 3,059
Transfers between
sub-accounts (including
fixed account), net 10,594 8,398 595,556 6,970 (19,958)
Contract maintenance
charges (45,711) (442,898) (268,843) (23,938) (232,164)
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets from contract
transactions (217,657) (482,264) (398,078) 15,048 (194,200)
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets (296,360) (1,659,719) (434,235) 27,106 (421,925)
Net assets at beginning of
period 2,066,246 8,074,309 6,766,100 686,757 3,240,331
---------- ----------- ----------- --------- ----------
Net assets at end of period $1,769,886 $ 6,414,590 $ 6,331,865 $ 713,863 $2,818,406
========== =========== =========== ========= ==========
Beginning units 152,651 549,092 264,281 31,036 201,456
Units issued 8,733 94,627 52,792 27,035 8,626
Units redeemed (25,342) (118,230) (56,238) (24,750) (20,731)
---------- ----------- ----------- --------- ----------
Ending units 136,042 525,489 260,835 33,321 189,351
========== =========== =========== ========= ==========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 82,929 $ 111,233 $ 8,766 $ -- $ 20,678
Mortality and expense risk
and administrative
charges (12,715) (34,214) (29,785) (2,639) (13,294)
---------- ----------- ----------- --------- ----------
Net investment income
(loss) 70,214 77,019 (21,019) (2,639) 7,384
Net realized gain (loss) 1,897 248,397 238,108 566 96,689
Capital gain distribution
from mutual funds -- -- 400,708 33,657 --
Change in unrealized
appreciation
(depreciation) of
investments 40,802 1,178,348 814,447 126,439 578,225
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets from operations 112,913 1,503,764 1,432,244 158,023 682,298
---------- ----------- ----------- --------- ----------
From contract transactions:
Payments received from
contract owners 43,426 451,321 219,254 39,309 262,884
Payments for contract
benefits or terminations (38,234) (436,684) (300,755) (6,433) (95,242)
Policy loans (4,128) (29,007) (28,529) 8,120 (8,462)
Transfers between
sub-accounts (including
fixed account), net (12,431) 265,674 163,063 (40,703) (19,049)
Contract maintenance
charges (49,098) (412,720) (205,667) (15,429) (232,818)
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets from contract
transactions (60,465) (161,416) (152,634) (15,136) (92,687)
---------- ----------- ----------- --------- ----------
Increase (decrease) in net
assets 52,448 1,342,348 1,279,610 142,887 589,611
Net assets at beginning of
period 2,013,798 6,731,961 5,486,490 543,870 2,650,720
---------- ----------- ----------- --------- ----------
Net assets at end of period $2,066,246 $ 8,074,309 $ 6,766,100 $ 686,757 $3,240,331
========== =========== =========== ========= ==========
Beginning units 157,151 551,286 264,025 32,085 207,662
Units issued 2,398 94,332 38,074 3,758 12,937
Units redeemed (6,898) (96,526) (37,818) (4,807) (19,143)
---------- ----------- ----------- --------- ----------
Ending units 152,651 549,092 264,281 31,036 201,456
========== =========== =========== ========= ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
12
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Janus JPMorgan JPMorgan
Henderson JPMorgan Insurance Insurance
Overseas Insurance Trust Mid Cap Trust Small
Portfolio Trust Core Value Cap Core MFS VIT
Service Bond Portfolio Portfolio Portfolio Growth Series
Shares Class 1 Class 1 Class 1 Initial Class
----------- -------------- ------------- ----------- -------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 119,399 $ 20,198 $ 7,533 $ 14,549 $ 11,743
Mortality and expense risk
and administrative
charges (30,738) (2,737) (3,539) (15,806) (60,085)
----------- ---------- --------- ---------- -----------
Net investment income
(loss) 88,661 17,461 3,994 (1,257) (48,342)
Net realized gain (loss) (83,110) (15,476) 25,924 111,378 732,234
Capital gain distribution
from mutual funds -- 1,376 12,591 249,635 871,426
Change in unrealized
appreciation
(depreciation) of
investments (1,107,497) 4,787 (135,388) (785,705) (1,246,129)
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets from operations (1,101,946) 8,148 (92,879) (425,949) 309,189
----------- ---------- --------- ---------- -----------
From contract transactions:
Payments received from
contract owners 620,464 223,302 -- 168,996 556,738
Payments for contract
benefits or terminations (525,758) (27,920) (17,946) (348,636) (625,524)
Policy loans (7,208) 556 (3,694) (6,124) (12,419)
Transfers between
sub-accounts (including
fixed account), net (107,981) 458,086 19 24,562 (19,558)
Contract maintenance
charges (543,198) (118,543) (31,529) (218,388) (733,405)
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets from contract
transactions (563,681) 535,481 (53,150) (379,590) (834,168)
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets (1,665,627) 543,629 (146,029) (805,539) (524,979)
Net assets at beginning of
period 7,631,682 721,668 809,906 3,906,888 12,198,289
----------- ---------- --------- ---------- -----------
Net assets at end of period $ 5,966,055 $1,265,297 $ 663,877 $3,101,349 $11,673,310
=========== ========== ========= ========== ===========
Beginning units 811,335 64,724 22,040 161,743 500,388
Units issued 134,905 82,865 454 14,172 21,903
Units redeemed (173,885) (29,113) (1,922) (28,936) (53,765)
----------- ---------- --------- ---------- -----------
Ending units 772,355 118,476 20,572 146,979 468,526
=========== ========== ========= ========== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 112,622 $ 14,738 $ 6,412 $ 12,115 $ 11,763
Mortality and expense risk
and administrative
charges (31,897) (914) (3,592) (16,304) (51,635)
----------- ---------- --------- ---------- -----------
Net investment income
(loss) 80,725 13,824 2,820 (4,189) (39,872)
Net realized gain (loss) (324,704) (1,094) 17,897 179,245 528,911
Capital gain distribution
from mutual funds -- -- 35,756 26,599 445,108
Change in unrealized
appreciation
(depreciation) of
investments 2,062,885 6,424 42,360 316,527 2,027,743
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets from operations 1,818,906 19,154 98,833 518,182 2,961,890
----------- ---------- --------- ---------- -----------
From contract transactions:
Payments received from
contract owners 530,568 26,545 -- 166,548 554,811
Payments for contract
benefits or terminations (283,748) (36,488) (30,411) (207,091) (448,819)
Policy loans (37,313) 6,554 (5,036) (53,444) (86,801)
Transfers between
sub-accounts (including
fixed account), net 63,033 218,230 (2,938) 7,766 26,143
Contract maintenance
charges (547,012) (9,473) (30,780) (203,567) (702,094)
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets from contract
transactions (274,472) 205,368 (69,165) (289,788) (656,760)
----------- ---------- --------- ---------- -----------
Increase (decrease) in net
assets 1,544,434 224,522 29,668 228,394 2,305,130
Net assets at beginning of
period 6,087,248 497,146 780,238 3,678,494 9,893,159
----------- ---------- --------- ---------- -----------
Net assets at end of period $ 7,631,682 $ 721,668 $ 809,906 $3,906,888 $12,198,289
=========== ========== ========= ========== ===========
Beginning units 805,816 45,740 24,041 177,044 530,331
Units issued 159,997 26,844 -- 40,547 23,728
Units redeemed (154,478) (7,860) (2,001) (55,848) (53,671)
----------- ---------- --------- ---------- -----------
Ending units 811,335 64,724 22,040 161,743 500,388
=========== ========== ========= ========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
13
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Morgan
MFS VIT II MFS VIT New MFS VIT MFS VIT Stanley VIF
Core Equity Discovery Research Total Return Growth
Portfolio Initial Series Initial Series Initial Series Initial Portfolio
Class Class Class Class Class I
----------------- -------------- -------------- -------------- -----------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 32,336 $ -- $ 22,551 $ 5,187 $ --
Mortality and expense risk
and administrative
charges (21,192) (26,067) (13,854) (1,274) (19,930)
---------- ----------- ---------- --------- ----------
Net investment income
(loss) 11,144 (26,067) 8,697 3,913 (19,930)
Net realized gain (loss) 22,064 233,033 80,129 9,177 265,113
Capital gain distribution
from mutual funds 498,732 790,901 372,530 10,568 800,996
Change in unrealized
appreciation
(depreciation) of
investments (711,070) (1,062,069) (603,714) (39,364) (765,726)
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets from operations (179,130) (64,202) (142,358) (15,706) 280,453
---------- ----------- ---------- --------- ----------
From contract transactions:
Payments received from
contract owners 206,900 291,660 209,589 2,394 162,846
Payments for contract
benefits or terminations (171,766) (309,091) (130,397) (79,883) (360,841)
Policy loans (21,769) (2) (46,093) (16) 728
Transfers between
sub-accounts (including
fixed account), net (44,699) (139,667) 30,397 2,197 296,457
Contract maintenance
charges (237,896) (300,212) (152,850) (22,879) (185,040)
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets from contract
transactions (269,230) (457,312) (89,354) (98,187) (85,850)
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets (448,360) (521,514) (231,712) (113,893) 194,603
Net assets at beginning of
period 4,723,353 5,773,273 3,142,778 329,481 3,716,998
---------- ----------- ---------- --------- ----------
Net assets at end of period $4,274,993 $ 5,251,759 $2,911,066 $ 215,588 $3,911,601
========== =========== ========== ========= ==========
Beginning units 352,760 238,545 147,051 18,689 130,942
Units issued 8,003 33,613 14,974 126 24,233
Units redeemed (27,327) (44,076) (17,098) (5,794) (26,646)
---------- ----------- ---------- --------- ----------
Ending units 333,436 228,082 144,927 13,021 128,529
========== =========== ========== ========= ==========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 42,257 $ -- $ 41,522 $ 7,735 $ --
Mortality and expense risk
and administrative
charges (19,104) (23,036) (12,415) (1,656) (15,184)
---------- ----------- ---------- --------- ----------
Net investment income
(loss) 23,153 (23,036) 29,107 6,079 (15,184)
Net realized gain (loss) 1,895 89,482 80,357 8,092 119,290
Capital gain distribution
from mutual funds 260,351 99,253 203,937 9,000 280,817
Change in unrealized
appreciation
(depreciation) of
investments 666,971 1,033,454 303,679 13,738 703,408
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets from operations 952,370 1,199,153 617,080 36,909 1,088,331
---------- ----------- ---------- --------- ----------
From contract transactions:
Payments received from
contract owners 250,242 277,292 169,560 4,375 176,980
Payments for contract
benefits or terminations (226,186) (250,696) (215,180) (11,977) (244,373)
Policy loans (12,699) (40,034) (5,033) 125 (395)
Transfers between
sub-accounts (including
fixed account), net 36,632 165,416 46,265 (5,902) 317,338
Contract maintenance
charges (252,635) (239,486) (158,793) (19,935) (176,927)
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets from contract
transactions (204,646) (87,508) (163,181) (33,314) 72,623
---------- ----------- ---------- --------- ----------
Increase (decrease) in net
assets 747,724 1,111,645 453,899 3,595 1,160,954
Net assets at beginning of
period 3,975,629 4,661,628 2,688,879 325,886 2,556,044
---------- ----------- ---------- --------- ----------
Net assets at end of period $4,723,353 $ 5,773,273 $3,142,778 $ 329,481 $3,716,998
========== =========== ========== ========= ==========
Beginning units 368,979 233,442 152,465 20,656 127,750
Units issued 21,498 44,178 19,357 360 22,042
Units redeemed (37,717) (39,075) (24,771) (2,327) (18,850)
---------- ----------- ---------- --------- ----------
Ending units 352,760 238,545 147,051 18,689 130,942
========== =========== ========== ========= ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
14
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Neuberger Neuberger Neuberger Oppenheimer
Berman AMT Berman AMT Berman AMT Conservative Oppenheimer
Large Cap Mid Cap Sustainable Balanced Global
Value Growth Equity Fund/VA Non Fund/VA Non
Portfolio Portfolio Portfolio Service Service
Class I Class I Class I Shares Shares
---------- ----------- ----------- ------------ -----------
For the Year Ended December 31, 2018
From operations:
Dividends $ 320 $ -- $ 687 $ 25,560 $ 75,854
Mortality and expense risk and
administrative charges (138) (28,241) (556) (5,444) (32,501)
------- ----------- -------- ---------- -----------
Net investment income (loss) 182 (28,241) 131 20,116 43,353
Net realized gain (loss) 450 86,706 581 16,393 385,539
Capital gain distribution from
mutual funds 2,843 475,343 7,689 30,224 536,282
Change in unrealized appreciation
(depreciation) of investments (3,909) (899,181) (16,983) (139,762) (1,948,806)
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets from
operations (434) (365,373) (8,582) (73,029) (983,632)
------- ----------- -------- ---------- -----------
From contract transactions:
Payments received from contract
owners 300 306,498 7,161 130,937 429,791
Payments for contract benefits or
terminations (1,327) (883,774) -- (59,350) (827,633)
Policy loans 206 (8,936) (335) (10,759) (68,969)
Transfers between sub-accounts
(including fixed account), net (98) 55,115 (4) (16,783) (126,100)
Contract maintenance charges (2,131) (265,232) (1,114) (90,669) (349,074)
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets from
contract transactions (3,050) (796,329) 5,708 (46,624) (941,985)
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets (3,484) (1,161,702) (2,874) (119,653) (1,925,617)
Net assets at beginning of period 29,018 6,640,794 132,321 1,318,894 8,328,431
------- ----------- -------- ---------- -----------
Net assets at end of period $25,534 $ 5,479,092 $129,447 $1,199,241 $ 6,402,814
======= =========== ======== ========== ===========
Beginning units 1,873 309,688 6,411 104,560 400,569
Units issued 33 55,776 393 14,338 55,103
Units redeemed (232) (80,405) (118) (17,998) (96,514)
------- ----------- -------- ---------- -----------
Ending units 1,674 285,059 6,686 100,900 359,158
======= =========== ======== ========== ===========
For the Year Ended December 31, 2017
From operations:
Dividends $ 166 $ -- $ 637 $ 24,957 $ 69,540
Mortality and expense risk and
administrative charges (145) (26,876) (722) (5,787) (33,034)
------- ----------- -------- ---------- -----------
Net investment income (loss) 21 (26,876) (85) 19,170 36,506
Net realized gain (loss) 2,802 (115,465) 33,483 43,152 268,739
Capital gain distribution from
mutual funds 775 120,492 4,584 -- --
Change in unrealized appreciation
(depreciation) of investments (154) 1,351,362 (18,669) 44,479 1,963,196
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets from
operations 3,444 1,329,513 19,313 106,801 2,268,441
------- ----------- -------- ---------- -----------
From contract transactions:
Payments received from contract
owners 5,230 238,213 8,390 108,987 398,341
Payments for contract benefits or
terminations (3,532) (172,269) -- (34,285) (398,619)
Policy loans 240 (13,058) -- (10,082) (4,144)
Transfers between sub-accounts
(including fixed account), net (2,765) 50,058 (4) 21,070 9,031
Contract maintenance charges (2,686) (242,825) (1,138) (91,070) (312,538)
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets from
contract transactions (3,513) (139,881) 7,248 (5,380) (307,929)
------- ----------- -------- ---------- -----------
Increase (decrease) in net assets (69) 1,189,632 26,561 101,421 1,960,512
Net assets at beginning of period 29,087 5,451,162 105,760 1,217,473 6,367,919
------- ----------- -------- ---------- -----------
Net assets at end of period $29,018 $ 6,640,794 $132,321 $1,318,894 $ 8,328,431
======= =========== ======== ========== ===========
Beginning units 2,118 308,428 6,209 103,959 409,562
Units issued 390 53,855 6,294 24,289 83,539
Units redeemed (635) (52,595) (6,092) (23,688) (92,532)
------- ----------- -------- ---------- -----------
Ending units 1,873 309,688 6,411 104,560 400,569
======= =========== ======== ========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
15
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Oppenheimer PIMCO PIMCO
Global CommodityRe Global Bond
Strategic alReturn Opportunities PIMCO Real
Income Strategy Portfolio Return PIMCO Short-
Fund/VA Non- Portfolio (Unhedged) Portfolio Term Portfolio
Service Administrative Adminstrative Administrative Administrative
Shares Class Class Class Class
------------ -------------- ------------- -------------- --------------
For the Year Ended December 31, 2018
From operations:
Dividends $ 212 $ 15,285 $ 18,987 $ 195,417 $ 79,969
Mortality and expense risk and
administrative charges (22) (3,237) (844) (34,354) (15,421)
------- --------- --------- ----------- ----------
Net investment income (loss) 190 12,048 18,143 161,063 64,548
Net realized gain (loss) (65) 33,504 (4,306) (160,442) 5,990
Capital gain distribution from
mutual funds -- -- 845 -- 4,636
Change in unrealized appreciation
(depreciation) of investments (338) (146,982) (25,736) (214,914) (34,478)
------- --------- --------- ----------- ----------
Increase (decrease) in net assets from
operations (213) (101,430) (11,054) (214,293) 40,696
------- --------- --------- ----------- ----------
From contract transactions:
Payments received from contract
owners -- 91,823 60,129 649,447 289,410
Payments for contract benefits or
terminations -- (113,572) (2,775) (731,322) (257,019)
Policy loans 206 11,546 (4,142) (2) (13,061)
Transfers between sub-accounts
(including fixed account), net 2 (28,291) 227,866 (75) 183,264
Contract maintenance charges (1,519) (66,656) (150,283) (705,277) (287,759)
------- --------- --------- ----------- ----------
Increase (decrease) in net assets from
contract transactions (1,311) (105,150) 130,795 (787,229) (85,165)
------- --------- --------- ----------- ----------
Increase (decrease) in net assets (1,524) (206,580) 119,741 (1,001,522) (44,469)
Net assets at beginning of period 5,034 793,866 185,779 8,525,775 3,716,064
------- --------- --------- ----------- ----------
Net assets at end of period $ 3,510 $ 587,286 $ 305,520 $ 7,524,253 $3,671,595
======= ========= ========= =========== ==========
Beginning units 447 133,947 15,207 635,394 318,961
Units issued 23 27,708 19,623 48,837 69,291
Units redeemed (143) (51,611) (6,624) (106,766) (74,838)
------- --------- --------- ----------- ----------
Ending units 327 110,044 28,206 577,465 313,414
======= ========= ========= =========== ==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 131 $ 87,516 $ 3,556 $ 215,470 $ 64,842
Mortality and expense risk and
administrative charges (22) (3,794) (536) (39,352) (16,833)
------- --------- --------- ----------- ----------
Net investment income (loss) 109 83,722 3,020 176,118 48,009
Net realized gain (loss) 22 63,425 (1,481) (155,852) 5,430
Change in unrealized appreciation
(depreciation) of investments 88 (135,776) 11,328 269,502 20,629
------- --------- --------- ----------- ----------
Increase (decrease) in net assets from
operations 219 11,371 12,867 289,768 74,068
------- --------- --------- ----------- ----------
From contract transactions:
Payments received from contract
owners 4,854 88,145 18,962 650,535 289,187
Payments for contract benefits or
terminations (4) (25,215) (35,628) (319,449) (308,743)
Policy loans 197 7,549 4,732 (30,157) 23,639
Transfers between sub-accounts
(including fixed account), net -- (32,095) 19,634 (951,265) 52,067
Contract maintenance charges (1,210) (68,477) (8,337) (771,113) (272,100)
------- --------- --------- ----------- ----------
Increase (decrease) in net assets from
contract transactions 3,837 (30,093) (637) (1,421,449) (215,950)
------- --------- --------- ----------- ----------
Increase (decrease) in net assets 4,056 (18,722) 12,230 (1,131,681) (141,882)
Net assets at beginning of period 978 812,588 173,549 9,657,456 3,857,946
------- --------- --------- ----------- ----------
Net assets at end of period $ 5,034 $ 793,866 $ 185,779 $ 8,525,775 $3,716,064
======= ========= ========= =========== ==========
Beginning units 92 147,382 15,724 736,554 335,790
Units issued 470 34,337 7,971 75,406 64,205
Units redeemed (115) (47,772) (8,488) (176,566) (81,034)
------- --------- --------- ----------- ----------
Ending units 447 133,947 15,207 635,394 318,961
======= ========= ========= =========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
16
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
PIMCO Total Pioneer Select
Return Pioneer Mid Mid Cap Putnam VT
Portfolio Pioneer Fund Cap Value Growth Diversified
Administrative VCT Portfolio VCT Portfolio VCT Portfolio Income Fund
Class Class I Class I Class I Class IB
-------------- ------------- ------------- -------------- -----------
For the Year Ended December 31, 2018
From operations:
Dividends $ 310,738 $ 20,821 $ 7,404 $ -- $ 255,487
Mortality and expense risk and
administrative charges (53,369) (8,606) (4,737) (14,003) (24,592)
----------- ---------- ---------- ---------- ----------
Net investment income (loss) 257,369 12,215 2,667 (14,003) 230,895
Net realized gain (loss) (136,738) (156,113) (15,778) 63,710 (141,947)
Capital gain distribution from
mutual funds 144,721 447,271 85,658 382,782 --
Change in unrealized appreciation
(depreciation) of investments (392,951) (327,763) (273,426) (614,592) (159,683)
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets from
operations (127,599) (24,390) (200,879) (182,103) (70,735)
----------- ---------- ---------- ---------- ----------
From contract transactions:
Payments received from contract
owners 963,887 53,627 60,411 123,605 209,580
Payments for contract benefits or
terminations (1,025,645) (66,637) (219,900) (149,562) (346,262)
Policy loans 28,198 (6,820) (2,497) (66,421) (13,890)
Transfers between sub-accounts
(including fixed account), net 537,976 (69,472) (39,580) (994) 68,408
Contract maintenance charges (1,017,685) (68,233) (32,362) (126,328) (363,946)
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets from
contract transactions (513,269) (157,535) (233,928) (219,700) (446,110)
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets (640,868) (181,925) (434,807) (401,803) (516,845)
Net assets at beginning of period....... 12,770,068 1,837,936 1,228,114 2,961,550 6,182,584
----------- ---------- ---------- ---------- ----------
Net assets at end of period $12,129,200 $1,656,011 $ 793,307 $2,559,747 $5,665,739
=========== ========== ========== ========== ==========
Beginning units 846,327 93,667 62,494 115,493 325,506
Units issued 170,654 10,179 14,627 13,702 32,714
Units redeemed (188,141) (17,895) (26,697) (22,252) (57,376)
----------- ---------- ---------- ---------- ----------
Ending units 828,840 85,951 50,424 106,943 300,844
=========== ========== ========== ========== ==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 264,943 $ 20,209 $ 9,991 $ 2,076 $ 333,763
Mortality and expense risk and
administrative charges (59,393) (7,831) (5,932) (12,424) (25,174)
----------- ---------- ---------- ---------- ----------
Net investment income (loss) 205,550 12,378 4,059 (10,348) 308,589
Net realized gain (loss) (111,164) (18,789) 11,891 31,538 (167,659)
Capital gain distribution from
mutual funds -- 237,929 93,697 33,137 --
Change in unrealized appreciation
(depreciation) of investments 482,212 93,925 29,970 638,150 250,164
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets from
operations 576,598 325,443 139,617 692,477 391,094
----------- ---------- ---------- ---------- ----------
From contract transactions:
Payments received from contract
owners 887,705 58,511 64,810 121,671 165,969
Payments for contract benefits or
terminations (630,242) (42,137) (20,550) (174,159) (122,303)
Policy loans (1,677) 3,506 (7,148) 5,707 942
Transfers between sub-accounts
(including fixed account), net (603,602) (4,133) (28,659) (34,142) 153,769
Contract maintenance charges (907,637) (68,230) (40,251) (124,358) (338,995)
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets from
contract transactions (1,255,453) (52,483) (31,798) (205,281) (140,618)
----------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets (678,855) 272,960 107,819 487,196 250,476
Net assets at beginning of period 13,448,923 1,564,976 1,120,295 2,474,354 5,932,108
----------- ---------- ---------- ---------- ----------
Net assets at end of period $12,770,068 $1,837,936 $1,228,114 $2,961,550 $6,182,584
=========== ========== ========== ========== ==========
Beginning units 917,603 96,575 63,173 124,890 329,860
Units issued 162,859 1,628 22,597 4,099 47,439
Units redeemed (234,135) (4,536) (23,276) (13,496) (51,793)
----------- ---------- ---------- ---------- ----------
Ending units 846,327 93,667 62,494 115,493 325,506
=========== ========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
17
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Putnam VT Putnam VT Putnam VT Putnam VT
Putnam VT Growth and Growth International Small Cap
Equity Income Income Fund Opportunities Value Fund Value Fund
Fund Class IB IB Fund Class IB Class IB Class IB
------------- ------------ ------------- ------------- ----------
For the Year Ended December 31, 2018
From operations:
Dividends $ 93,111 $ -- $ -- $ 83,041 $ 886
Mortality and expense risk and
administrative charges (57,489) -- (952) (17,925) (906)
----------- ------------ -------- ----------- --------
Net investment income (loss) 35,622 -- (952) 65,116 (20)
Net realized gain (loss) 129,977 -- 923 136,377 (18,722)
Capital gain distribution from
mutual funds 597,217 -- 10,975 -- 67,607
Change in unrealized appreciation
(depreciation) of investments (1,891,144) -- (7,827) (912,709) (89,956)
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets from
operations (1,128,328) -- 3,119 (711,216) (41,091)
----------- ------------ -------- ----------- --------
From contract transactions:
Payments received from contract
owners 554,775 20 6,187 344,288 6,392
Payments for contract benefits or
terminations (657,956) -- -- (505,926) (42,695)
Policy loans (38,919) (38) (38) (17,213) (869)
Transfers between sub-accounts
(including fixed account), net 168,182 952 (896) (98,820) (207)
Contract maintenance charges (767,213) (934) (4,356) (301,702) (7,644)
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets from
contract transactions (741,131) -- 897 (579,373) (45,023)
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets (1,869,459) -- 4,016 (1,290,589) (86,114)
Net assets at beginning of period 13,587,892 -- 173,600 4,380,642 243,156
----------- ------------ -------- ----------- --------
Net assets at end of period $11,718,433 $ -- $177,616 $ 3,090,053 $157,042
=========== ============ ======== =========== ========
Beginning units 804,976 -- 41,838 401,810 11,455
Units issued 37,605 9 819 57,820 1,969
Units redeemed (80,953) (9) (636) (107,807) (4,384)
----------- ------------ -------- ----------- --------
Ending units 761,628 -- 42,021 351,823 9,040
=========== ============ ======== =========== ========
For the Year Ended December 31, 2017
From operations:
Dividends $ -- $ 256,780 $ 162 $ 61,649 $ 1,615
Mortality and expense risk and
administrative charges (34,644) (19,400) (805) (20,233) (1,057)
----------- ------------ -------- ----------- --------
Net investment income (loss) (34,644) 237,380 (643) 41,416 558
Net realized gain (loss) 31,354 2,198,732 2,310 165,323 1,218
Capital gain distribution from
mutual funds -- 1,427,565 2,085 -- 9,169
Change in unrealized appreciation
(depreciation) of investments 1,550,922 (3,270,214) 38,278 680,135 5,888
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets from
operations 1,547,632 593,463 42,030 886,874 16,833
----------- ------------ -------- ----------- --------
From contract transactions:
Payments received from contract
owners 354,579 213,497 6,187 346,186 7,195
Payments for contract benefits or
terminations (218,976) (191,848) -- (239,961) (884)
Policy loans (15,618) (6,588) (36) (18,292) (2,613)
Transfers between sub-accounts
(including fixed account), net 12,981,324 (12,359,272) (8,703) (77,289) (285)
Contract maintenance charges (1,061,049) (280,264) (4,913) (319,259) (7,053)
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets from
contract transactions 12,040,260 (12,624,475) (7,465) (308,615) (3,640)
----------- ------------ -------- ----------- --------
Increase (decrease) in net assets 13,587,892 (12,031,012) 34,565 578,259 13,193
Net assets at beginning of period -- 12,031,012 139,035 3,802,383 229,963
----------- ------------ -------- ----------- --------
Net assets at end of period $13,587,892 $ -- $173,600 $ 4,380,642 $243,156
=========== ============ ======== =========== ========
Beginning units -- 663,437 43,644 422,085 11,580
Units issued 846,943 11,495 1,016 92,263 321
Units redeemed (41,967) (674,932) (2,822) (112,538) (446)
----------- ------------ -------- ----------- --------
Ending units 804,976 -- 41,838 401,810 11,455
=========== ============ ======== =========== ========
The accompanying Notes to Financial Statements are an integral part of this
statement.
18
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
SAST SA SAST SA
SST SA Multi- JPMorgan WellsCap VALIC
Putnam VT Managed Mid Diversified Aggressive Company I
Sustainable Cap Value Balanced Growth Dynamic
Leaders Fund Portfolio Portfolio Portfolio Allocation
Class IB Class 3 Class 1 Class 1 Fund
------------ ------------- ----------- ---------- ----------
For the Year Ended December 31, 2018
From operations:
Dividends $ -- $ 348 $ 42,444 $ -- $ 28,190
Mortality and expense risk and
administrative charges (226) (135) (11,584) (8,146) (6,965)
------- --------- ---------- ---------- ----------
Net investment income (loss) (226) 213 30,860 (8,146) 21,225
Net realized gain (loss) 973 (413) 37,073 175,517 60,521
Capital gain distribution from
mutual funds 5,521 3,565 167,938 258,158 85,259
Change in unrealized appreciation
(depreciation) of investments (6,986) (9,961) (465,685) (591,676) (417,988)
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets from
operations (718) (6,596) (229,814) (166,147) (250,983)
------- --------- ---------- ---------- ----------
From contract transactions:
Payments received from contract
owners 813 12,832 182,218 110,573 670,230
Payments for contract benefits or
terminations -- (419) (286,923) (405,129) (15,602)
Policy loans -- 408 (4,585) (26,051) --
Transfers between sub-accounts
(including fixed account), net (1,024) 3,125 205,003 414,885 1,576,000
Contract maintenance charges (993) (7,414) (156,206) (60,335) (639,870)
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets from
contract transactions (1,204) 8,532 (60,493) 33,943 1,590,758
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets (1,922) 1,936 (290,307) (132,204) 1,339,775
Net assets at beginning of period 42,592 45,247 2,944,647 1,726,026 2,099,939
------- --------- ---------- ---------- ----------
Net assets at end of period $40,670 $ 47,183 $2,654,340 $1,593,822 $3,439,714
======= ========= ========== ========== ==========
Beginning units 1,635 3,519 160,121 93,007 174,429
Units issued 28 1,407 32,937 44,050 198,425
Units redeemed (69) (675) (28,228) (45,117) (53,070)
------- --------- ---------- ---------- ----------
Ending units 1,594 4,251 164,830 91,940 319,784
======= ========= ========== ========== ==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 248 $ 450 $ 45,484 $ -- $ 24,552
Mortality and expense risk and
administrative charges (195) (75) (10,934) (7,978) (447)
------- --------- ---------- ---------- ----------
Net investment income (loss) 53 375 34,550 (7,978) 24,105
Net realized gain (loss) 1,722 6,824 58,768 254,902 5,178
Capital gain distribution from
mutual funds 2,815 5,371 136,905 -- 9,509
Change in unrealized appreciation
(depreciation) of investments 5,078 (1,805) 133,634 140,418 261,005
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets from
operations 9,668 10,765 363,857 387,342 299,797
------- --------- ---------- ---------- ----------
From contract transactions:
Payments received from contract
owners 515 1,366 135,109 82,532 16,058
Payments for contract benefits or
terminations (3,516) -- (33,958) (140,636) --
Policy loans 44 -- (9,114) (5,024) --
Transfers between sub-accounts
(including fixed account), net 1,060 (100,669) 54,534 157,555 593,303
Contract maintenance charges (745) (430) (132,575) (61,286) (12,943)
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets from
contract transactions (2,642) (99,733) 13,996 33,141 596,418
------- --------- ---------- ---------- ----------
Increase (decrease) in net assets 7,026 (88,968) 377,853 420,483 896,215
Net assets at beginning of period 35,566 134,215 2,566,794 1,305,543 1,203,724
------- --------- ---------- ---------- ----------
Net assets at end of period $42,592 $ 45,247 $2,944,647 $1,726,026 $2,099,939
======= ========= ========== ========== ==========
Beginning units 1,756 11,944 157,818 91,749 120,660
Units issued 92 1,076 24,336 42,182 72,716
Units redeemed (213) (9,501) (22,033) (40,924) (18,947)
------- --------- ---------- ---------- ----------
Ending units 1,635 3,519 160,121 93,007 174,429
======= ========= ========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
19
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
VALIC VALIC VALIC
Company I Company I Company I VALIC VALIC
Emerging Government International Company I Company I
Economies Money Market Equities International Mid Cap
Fund I Fund Index Fund Value Fund Index Fund
--------- ------------ ------------- ------------- -----------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 1,286 $ 114,383 $ 56,860 $ 1,145 $ 175,550
Mortality and expense risk
and administrative
charges (252) (39,995) (12,146) (187) (70,766)
-------- ----------- ---------- -------- -----------
Net investment income
(loss) 1,034 74,388 44,714 958 104,784
Net realized gain (loss) 3,912 -- 67,874 2,107 524,310
Capital gain distribution
from mutual funds -- -- -- -- 1,037,039
Change in unrealized
appreciation
(depreciation) of
investments (24,894) -- (545,872) (14,616) (3,432,032)
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets from operations (19,948) 74,388 (433,284) (11,551) (1,765,899)
-------- ----------- ---------- -------- -----------
From contract transactions:
Payments received from
contract owners 19,278 875,880 191,009 19,998 632,074
Payments for contract
benefits or terminations (9,536) (2,088,176) (117,285) (7,961) (1,522,446)
Policy loans -- 234,710 977 -- (5,830)
Transfers between
sub-accounts (including
fixed account), net 35,754 1,070,857 217,876 5,847 (59,249)
Contract maintenance
charges (12,781) (1,006,312) (131,408) (8,728) (698,765)
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets from contract
transactions 32,715 (913,041) 161,169 9,156 (1,654,216)
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets 12,767 (838,653) (272,115) (2,395) (3,420,115)
Net assets at beginning of
period 84,620 9,151,018 2,865,338 59,127 16,438,059
-------- ----------- ---------- -------- -----------
Net assets at end of period $ 97,387 $ 8,312,365 $2,593,223 $ 56,732 $13,017,944
======== =========== ========== ======== ===========
Beginning units 7,103 934,888 248,253 5,498 689,546
Units issued 5,982 546,118 79,139 3,158 77,406
Units redeemed (2,849) (641,574) (63,699) (2,105) (145,239)
-------- ----------- ---------- -------- -----------
Ending units 10,236 839,432 263,693 6,551 621,713
======== =========== ========== ======== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 839 $ 41,439 $ 64,411 $ 877 $ 180,860
Mortality and expense risk
and administrative
charges (81) (51,218) (12,010) (5) (70,475)
-------- ----------- ---------- -------- -----------
Net investment income
(loss) 758 (9,779) 52,401 872 110,385
Net realized gain (loss) 1,835 -- 65,409 1,283 524,113
Capital gain distribution
from mutual funds -- -- -- -- 1,238,490
Change in unrealized
appreciation
(depreciation) of
investments 19,343 -- 427,544 5,522 373,094
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets from operations 21,936 (9,779) 545,354 7,677 2,246,082
-------- ----------- ---------- -------- -----------
From contract transactions:
Payments received from
contract owners 3,281 1,298,202 177,509 2,416 569,595
Payments for contract
benefits or terminations -- (6,757,284) (137,033) -- (609,599)
Policy loans -- 82,190 107,095 -- (19,966)
Transfers between
sub-accounts (including
fixed account), net 10,518 4,757,694 73,461 7,258 (127,826)
Contract maintenance
charges (1,867) (1,227,828) (118,566) (509) (677,655)
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets from contract
transactions 11,932 (1,847,026) 102,466 9,165 (865,451)
-------- ----------- ---------- -------- -----------
Increase (decrease) in net
assets 33,868 (1,856,805) 647,820 16,842 1,380,631
Net assets at beginning of
period 50,752 11,007,823 2,217,518 42,285 15,057,428
-------- ----------- ---------- -------- -----------
Net assets at end of period $ 84,620 $ 9,151,018 $2,865,338 $ 59,127 $16,438,059
======== =========== ========== ======== ===========
Beginning units 6,051 1,113,874 230,323 4,634 723,227
Units issued 1,847 1,323,439 76,488 1,727 89,019
Units redeemed (795) (1,502,425) (58,558) (863) (122,700)
-------- ----------- ---------- -------- -----------
Ending units 7,103 934,888 248,253 5,498 689,546
======== =========== ========== ======== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
20
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
VALIC
VALIC Company I VALIC VALIC VALIC
Company I Science & Company I Company I Company II
Nasdaq-100 Technology Small Cap Stock Index Mid Cap
Index Fund Fund Index Fund Fund Value Fund
---------- ---------- ----------- ----------- ----------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 37,320 $ -- $ 80,068 $ 366,524 $ 252
Mortality and expense risk
and administrative
charges (33,919) (18,749) (35,335) (97,047) (185)
---------- ---------- ----------- ----------- --------
Net investment income
(loss) 3,401 (18,749) 44,733 269,477 67
Net realized gain (loss) 693,128 207,649 356,301 1,363,580 (79)
Capital gain distribution
from mutual funds 324,355 323,690 453,203 802,333 4,585
Change in unrealized
appreciation
(depreciation) of
investments (982,797) (665,958) (1,654,971) (3,393,048) (14,880)
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets from operations 38,087 (153,368) (800,734) (957,658) (10,307)
---------- ---------- ----------- ----------- --------
From contract transactions:
Payments received from
contract owners 222,177 169,972 402,345 1,001,680 23,685
Payments for contract
benefits or terminations (629,542) (154,700) (1,086,327) (1,832,673) (891)
Policy loans 38,449 (96) 391 (63,761) --
Transfers between
sub-accounts (including
fixed account), net (406,816) 632,427 (35,698) (568,658) 3,163
Contract maintenance
charges (215,479) (119,856) (351,878) (1,323,367) (10,571)
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets from contract
transactions (991,211) 527,747 (1,071,167) (2,786,779) 15,386
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets (953,124) 374,379 (1,871,901) (3,744,437) 5,079
Net assets at beginning of
period 7,283,551 3,603,939 8,161,335 22,675,504 55,792
---------- ---------- ----------- ----------- --------
Net assets at end of period $6,330,427 $3,978,318 $ 6,289,434 $18,931,067 $ 60,871
========== ========== =========== =========== ========
Beginning units 222,786 120,251 359,948 1,022,435 4,131
Units issued 32,350 40,304 54,780 103,478 2,063
Units redeemed (54,540) (23,138) (98,590) (221,538) (772)
---------- ---------- ----------- ----------- --------
Ending units 200,596 137,417 316,138 904,375 5,422
========== ========== =========== =========== ========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 47,345 $ -- $ 79,571 $ 313,909 $ 240
Mortality and expense risk
and administrative
charges (33,613) (13,847) (35,488) (95,436) (56)
---------- ---------- ----------- ----------- --------
Net investment income
(loss) 13,732 (13,847) 44,083 218,473 184
Net realized gain (loss) 860,555 103,203 365,642 796,500 (228)
Capital gain distribution
from mutual funds 295,435 188,684 379,745 920,795 2,494
Change in unrealized
appreciation
(depreciation) of
investments 693,608 689,665 214,375 2,083,858 3,760
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets from operations 1,863,330 967,705 1,003,845 4,019,626 6,210
---------- ---------- ----------- ----------- --------
From contract transactions:
Payments received from
contract owners 252,634 115,588 339,464 962,673 3,031
Payments for contract
benefits or terminations (281,207) (81,834) (320,022) (654,736) --
Policy loans 29,587 (25,726) 107,154 110,050 --
Transfers between
sub-accounts (including
fixed account), net (348,935) 355,175 (21,370) (207,311) 15,498
Contract maintenance
charges (218,209) (90,186) (284,373) (1,229,586) (2,326)
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets from contract
transactions (566,130) 273,017 (179,147) (1,018,910) 16,203
---------- ---------- ----------- ----------- --------
Increase (decrease) in net
assets 1,297,200 1,240,722 824,698 3,000,716 22,413
Net assets at beginning of
period 5,986,351 2,363,217 7,336,637 19,674,788 33,379
---------- ---------- ----------- ----------- --------
Net assets at end of period $7,283,551 $3,603,939 $ 8,161,335 $22,675,504 $ 55,792
========== ========== =========== =========== ========
Beginning units 240,528 110,255 362,797 1,064,879 2,807
Units issued 47,811 28,092 82,456 124,941 1,605
Units redeemed (65,553) (18,096) (85,305) (167,385) (281)
---------- ---------- ----------- ----------- --------
Ending units 222,786 120,251 359,948 1,022,435 4,131
========== ========== =========== =========== ========
The accompanying Notes to Financial Statements are an integral part of this
statement.
21
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
VALIC
Company II VALIC
Socially Company II Vanguard VIF Vanguard VIF
Responsible Strategic High Yield Real Estate
Fund Bond Fund Bond Portfolio Index Portfolio
----------- ---------- -------------- ---------------
For the Year Ended
December 31, 2018
From operations:
Dividends $ 672 $ 6,950 $ 321,566 $ 379,988
Mortality and expense risk
and administrative
charges (168) (546) (33,487) (55,268)
------- -------- ---------- -----------
Net investment income
(loss) 504 6,404 288,079 324,720
Net realized gain (loss) 1,019 (132) (23,855) (75,523)
Capital gain distribution
from mutual funds 768 -- -- 465,939
Change in unrealized
appreciation
(depreciation) of
investments (4,673) (13,481) (476,870) (1,441,103)
------- -------- ---------- -----------
Increase (decrease) in net
assets from operations (2,382) (7,209) (212,646) (725,967)
------- -------- ---------- -----------
From contract transactions:
Payments received from
contract owners 8,793 31,500 467,492 746,179
Payments for contract
benefits or terminations -- (11,531) (562,468) (849,205)
Policy loans -- (2,074) 19,612 12,462
Transfers between
sub-accounts (including
fixed account), net (1,909) 37,959 39,013 (38,275)
Contract maintenance
charges (5,367) (18,048) (431,445) (626,555)
------- -------- ---------- -----------
Increase (decrease) in net
assets from contract
transactions 1,517 37,806 (467,796) (755,394)
------- -------- ---------- -----------
Increase (decrease) in net
assets (865) 30,597 (680,442) (1,481,361)
Net assets at beginning of
period 40,460 172,262 6,909,788 13,145,749
------- -------- ---------- -----------
Net assets at end of period $39,595 $202,859 $6,229,346 $11,664,388
======= ======== ========== ===========
Beginning units 2,605 15,518 358,684 697,040
Units issued 489 6,962 47,160 71,634
Units redeemed (393) (3,164) (70,171) (107,833)
------- -------- ---------- -----------
Ending units 2,701 19,316 335,673 660,841
======= ======== ========== ===========
For the Year Ended
December 31, 2017
From operations:
Dividends $ 486 $ 5,526 $ 328,849 $ 332,776
Mortality and expense risk
and administrative
charges (92) (187) (35,552) (61,883)
------- -------- ---------- -----------
Net investment income
(loss) 394 5,339 293,297 270,893
Net realized gain (loss) 98 73 14,263 190,217
Capital gain distribution
from mutual funds 2,392 -- -- 593,451
Change in unrealized
appreciation
(depreciation) of
investments 3,717 5,131 119,791 (486,562)
------- -------- ---------- -----------
Increase (decrease) in net
assets from operations 6,601 10,543 427,351 567,999
------- -------- ---------- -----------
From contract transactions:
Payments received from
contract owners 5,783 8,921 454,584 753,037
Payments for contract
benefits or terminations -- (37,501) (240,629) (818,346)
Policy loans -- 4,320 1,068 (61,665)
Transfers between
sub-accounts (including
fixed account), net 912 51,890 42,342 (421,825)
Contract maintenance
charges (3,693) (5,232) (440,295) (626,822)
------- -------- ---------- -----------
Increase (decrease) in net
assets from contract
transactions 3,002 22,398 (182,930) (1,175,621)
------- -------- ---------- -----------
Increase (decrease) in net
assets 9,603 32,941 244,421 (607,622)
Net assets at beginning of
period 30,857 139,321 6,665,367 13,753,371
------- -------- ---------- -----------
Net assets at end of period $40,460 $172,262 $6,909,788 $13,145,749
======= ======== ========== ===========
Beginning units 2,355 13,302 366,167 752,358
Units issued 675 6,960 70,682 100,183
Units redeemed (425) (4,744) (78,165) (155,501)
------- -------- ---------- -----------
Ending units 2,605 15,518 358,684 697,040
======= ======== ========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
22
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Organization
Separate Account VL-R (the Separate Account) is a segregated investment account
established by American General Life Insurance Company (the Company) to receive
and invest premium payments from variable universal life insurance policies
issued by the Company. The Company is a wholly owned subsidiary of AGC Life
Insurance Company, an indirect, wholly owned subsidiary of American
International Group, Inc. (AIG).
The Separate Account includes the following products:
AG Corporate Investor/(b)/ Platinum Investor II/(b)/
AG Income Advantage VUL/(b)/ Platinum Investor III/(b)/
AG Legacy Plus/(b)/ Platinum Investor IV/(b)/
AG Platinum Choice VUL 2/(a)/ Platinum Investor PLUS/(b)/
Corporate America/(b)/ Platinum Investor Survivor/(b)/
Corporate Investor Select/(b)/ Platinum Investor Survivor II/(b)/
Income Advantage Select/(b)/ Platinum Investor VIP/(b)/
Platinum Investor FlexDirector/(b)/ Protection Advantage Select/(b)/
Platinum Investor I/(b)/ Survivor Advantage/(b)/
(a)On November 6, 2014 this product was introduced and is currently offered for
sale. The name was changed from AG Platinum Choice VUL to AG Platinum Choice
VUL 2 on July 3, 2017.
(b)These products are no longer available for sale.
The Separate Account is registered with the Securities and Exchange Commission
as a Unit Investment Trust under the Investment Company Act of 1940, as
amended. The Separate Account consists of various sub-accounts. Each
sub-account invests all its investible assets in a corresponding eligible
mutual fund, which is registered under the 1940 Act as open-ended management
investment companies. The names in bold in the table below are the diversified,
open-ended management investment companies and the names below them are the
names of the sub-accounts/corresponding eligible mutual funds. Collectively,
all of the mutual funds are referred to as "Funds" throughout these financial
statements.
For each sub-account, the financial statements are comprised of a Statement of
Assets and Liabilities, including a Schedule of Portfolio Investments, as of
December 31, 2018 and related Statements of Operations and Changes in Net
Assets for each of the years in the period then ended, all periods to reflect a
full twelve month period, except as noted below.
The Alger Portfolios (Alger)
Alger Capital Appreciation Portfolio Alger Mid Cap Growth Portfolio
Class I-2 Shares Class I-2 Shares
American Century Variable Portfolios, Inc. (American Century VP)
American Century VP Value Fund Class I
American Funds Insurance Series (American Funds IS)
American Funds IS Asset Allocation American Funds IS Growth-Income Fund
Fund Class 2 Class 2
American Funds IS Global Growth Fund American Funds IS High-Income Bond
Class 2 Fund Class 2
American Funds IS Growth Fund Class 2 American Funds IS International Fund
Class 2
Anchor Series Trust (AST)/(a)/
AST SA Wellington Capital Appreciation AST SA Wellington Government and
Portfolio Class 3 Quality Bond Portfolio Class 3
Dreyfus Investment Portfolios (Dreyfus IP)
Dreyfus IP MidCap Stock Portfolio
Initial Shares
23
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dreyfus Variable Investment Fund
(Dreyfus VIF)
Dreyfus VIF International Value Dreyfus VIF Quality Bond Portfolio
Portfolio Initial Shares Initial Shares
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares
Fidelity Variable Insurance Products
(Fidelity VIP)
Fidelity VIP Asset Manager Portfolio Fidelity VIP Freedom 2030 Portfolio
Service Class 2 Service Class 2
Fidelity VIP Contrafund Portfolio Fidelity VIP Government Money Market
Service Class 2 Portfolio Service Class 2
Fidelity VIP Equity-Income Portfolio Fidelity VIP Growth Portfolio Service
Service Class 2 Class 2
Fidelity VIP Freedom 2020 Portfolio Fidelity VIP Mid Cap Portfolio Service
Service Class 2 Class 2
Fidelity VIP Freedom 2025 Portfolio
Service Class 2
Franklin Templeton Variable Insurance
Products Trust (FTVIP)
FTVIP Franklin Mutual Shares VIP Fund FTVIP Franklin U.S. Government
Class 2 Securities VIP Fund Class 2
FTVIP Franklin Small Cap Value VIP FTVIP Templeton Foreign VIP Fund
Fund Class 2 Class 2/(b)/
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2
Goldman Sachs Variable Insurance Trust
(Goldman Sachs VIT)
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares
Invesco Variable Insurance Funds
(Invesco V.I.)
Invesco V.I. American Franchise Fund Invesco V.I. Growth and Income Fund
Series I Series I
Invesco V.I. Core Equity Fund Series I Invesco V.I. High Yield Fund Series I
Invesco V.I. Global Real Estate Fund Invesco V.I. International Growth Fund
Series I Series I
Invesco V.I. Government Securities
Fund Series I
Janus Aspen Series
Janus Henderson Enterprise Portfolio Janus Henderson Global Research
Service Shares Portfolio Service Shares
Janus Henderson Forty Portfolio Janus Henderson Overseas Portfolio
Service Shares Service Shares
JP Morgan Insurance Trust (JP Morgan)
JPMorgan Insurance Trust Core Bond JPMorgan Insurance Trust Small Cap
Portfolio Class 1 Core Portfolio Class 1
JPMorgan Insurance Trust Mid Cap Value
Portfolio Class 1
MFS Variable Insurance Trust (MFS VIT)
MFS VIT Growth Series Initial Class MFS VIT Research Series Initial Class
MFS VIT II Core Equity Portfolio MFS VIT Total Return Series Initial
Initial Class Class
MFS VIT New Discovery Series Initial
Class
Morgan Stanley Variable Insurance
Fund, Inc. (Morgan Stanley VIF)
Morgan Stanley VIF Growth Portfolio
Class I
Neuberger Berman Advisers Management
Trust (Neuberger Berman AMT)
Neuberger Berman AMT Large Cap Value Neuberger Berman AMT Sustainable
Portfolio Class I Equity Portfolio Class I/(c)/
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I
Oppenheimer Variable Account Funds
(Oppenheimer)
Oppenheimer Conservative Balanced Oppenheimer Global Strategic Income
Fund/VA Non Service Shares Fund/VA Non-Service Shares
Oppenheimer Global Fund/VA Non Service
Shares
PIMCO Variable Insurance Trust (PIMCO)
PIMCO CommodityRealReturn Strategy PIMCO Short-Term Portfolio
Portfolio Administrative Class Administrative Class
PIMCO Global Bond Opportunities PIMCO Total Return Portfolio
Portfolio (Unhedged) Adminstrative Administrative Class
Class/(i)/
PIMCO Real Return Portfolio
Administrative Class
Pioneer Variable Contracts Trust
(Pioneer)
Pioneer Fund VCT Portfolio Class I Pioneer Select Mid Cap Growth VCT
Pioneer Mid Cap Value VCT Portfolio Portfolio Class I
Class I
24
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Putnam Variable Trust (Putnam VT)
Putnam VT Diversified Income Fund Putnam VT International Value Fund
Class IB Class IB
Putnam VT Equity Income Fund Putnam VT Small Cap Value Fund
Class IB/(j)/ Class IB
Putnam VT Growth Opportunities Fund Putnam VT Sustainable Leaders Fund
Class IB Class IB/(d)/
Seasons Series Trust (SST)/(a)/
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3
SunAmerica Series Trust (SAST)/(a)/
SAST SA JPMorgan Diversified Balanced SAST SA WellsCap Aggressive Growth
Portfolio Class 1/(e)/ Portfolio Class 1
VALIC Company I/(f)/
VALIC Company I Dynamic Allocation VALIC Company I Mid Cap Index Fund
Fund
VALIC Company I Emerging Economies VALIC Company I Nasdaq-100 Index Fund
Fund
VALIC Company I Government Money VALIC Company I Science & Technology
Market I Fund Fund
VALIC Company I International VALIC Company I Small Cap Index Fund
Equities Index Fund
VALIC Company I International Value VALIC Company I Stock Index Fund
Fund/(h)/
VALIC Company II/(f)/
VALIC Company II Mid Cap Value Fund VALIC Company II Strategic Bond Fund
VALIC Company II Socially Responsible
Fund
Vanguard Variable Insurance Fund
(Vanguard VIF)
Vanguard VIF High Yield Bond Portfolio Vanguard VIF Real Estate Index
Portfolio/(g)/
(a)These are affiliated investment companies. SunAmerica Asset Management
Corp., an affiliate of the Company, serves as the investment advisor to
Anchor Series Trust, Seasons Series Trust, and SunAmerica Series Trust.
(b)Formerly FTVIP Templeton Foreign Securities Fund.
(c)Formerly Neuberger Berman AMT Socially Responsive Portfolio.
(d)Formerly Putnam VT Multi-Cap Growth Fund.
(e)Formerly SAST SA JPMorgan Balanced Portfolio
(f)VALIC Company I and II are affiliated investment companies. The Variable
Annuity Life Insurance Company (VALIC), an affiliate of the Company, serves
as the investment advisor to VALIC Company I and II series. VALIC Retirement
Services Company, a direct, wholly owned subsidiary of VALIC, serves as the
transfer agent and accounting services agent to VALIC Company I and II
series. SunAmerica Asset Management LLC (SAAMCO), an affiliate of the
Company, serves as investment sub-advisor to certain underlying mutual funds
of VALIC Company I and II series.
(g)Formerly Vanguard VIF REIT Index Portfolio.
(h)Formerly VALIC Company I Foreign Value Fund.
(i)Formerly PIMCO VIT Global Bond Portfolio (Unhedged).
(j)The Putnam VT Growth and Income Fund, in operation for the period January 1,
2016 to May 12, 2017 (cessation of operations), merged into the Putnam VT
Equity Income Fund, in operation for the period May 12, 2017 (commencement
of operations) to December 31, 2017.
In addition to the sub-accounts above, a contract owner may allocate contract
funds to a fixed account, which is part of the Company's General Account and
not included in these financial statements. Contract owners should refer to the
product prospectus for the available Funds and fixed account.
The assets of the Separate Account are segregated from the Company's assets.
The operations of the Separate Account are part of the Company. Net premiums
from the contracts are allocated to the sub-accounts and invested in the Funds
in accordance with contract owner instructions and are recorded as contract
transactions in the Statements of Operations and Changes in Net Assets.
2. Summary of Significant Accounting Policy
The financial statements of the Separate Account have been prepared in
conformity with accounting principles generally accepted in the United States
(GAAP). The following is a summary of significant accounting policies
consistently followed by the Separate Account in the preparation of its
financial statements.
25
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates: The preparation of financial statements in conformity with
GAAP requires the application of accounting policies that often involve a
significant degree of judgment. These accounting estimates require the use of
assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from assumptions used, the
financial statements of the Separate Account could be materially affected.
Investments: Investments in mutual funds are valued at their closing net asset
value per share as determined by the respective mutual funds, which generally
value their securities at fair value. Purchases and sales of shares of the
Funds are made at the net asset values of such Funds. Transactions are recorded
on a trade date basis. Realized gains and losses on the sales of investments
are recognized at the date of sale and are determined on a first-in, first-out
basis. Dividends and capital gain distributions from the Funds are recorded on
the ex-dividend date and reinvested upon receipt.
Policy Loans: When a policy loan is made, the loan amount is transferred to the
Company from the contract owner's selected investment, and held as collateral.
Interest on this collateral amount is credited to the policy. Loan repayments
are invested in the contract owner's selected investment, after they are first
used to repay all loans taken from the declared fixed interest account option.
Accumulation Unit: This is the basic valuation unit used to calculate the
contract owner's interest. Such units are valued daily to reflect investment
performance and the prorated daily deduction for expense charges.
Internal Rollovers: A contract owner with an eligible Company life insurance
policy may elect to replace their existing policy with another insurance policy
offered by the Company. Internal rollovers are included on the payments for
contract benefits or terminations line in the Statements of Operations and
Changes in Net Assets under contract transactions.
Income Taxes: The operations of the Separate Account are included in the
federal income tax return of the Company, which is taxed as a life insurance
company under the provision of the Internal Revenue Code (the Code). Under the
current provisions of the Code, the Company does not expect to incur federal
income taxes on the earnings of the Separate Account to the extent that the
earnings are credited under the contracts. As a result, no charge is currently
made to the Separate Account for federal income taxes. The Separate Account is
not treated as a regulated investment company under the Code. The Company will
periodically review changes in the tax law. A charge may be made in future
years for any federal income taxes that would be attributable to the contracts.
3. Fair Value Measurements
Assets recorded at fair value in the Separate Account's Statement of Assets and
Liabilities are measured and classified in a hierarchy for disclosure purposes
consisting of three "levels" based on the observability of valuation inputs:
.. Level 1-- Fair value measurements based on quoted prices (unadjusted) in
active markets that the Separate Account has the ability to access for
identical assets or liabilities. Market price data generally is obtained
from exchange or dealer markets. The Separate Account does not adjust the
quoted price for such instruments.
.. Level 2-- Fair value measurements based on inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, and inputs
other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly
quoted intervals.
.. Level 3-- Fair value measurements based on valuation techniques that use
significant inputs that are unobservable. Both observable and unobservable
inputs may be used to determine the fair value positions in Level 3. The
circumstances in which there is little, if any, market activity for the
asset or liability. Therefore, the Separate Account makes certain
assumptions about the inputs a hypothetical market participant would use to
value that asset or liability.
26
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety falls is
determined based on the lowest level input that is significant to the fair
value measurement in its entirety.
The Separate Account assets measured at fair value as of December 31, 2018
consist of investments in registered mutual funds that generally trade daily
and are measured at fair value using quoted prices in active markets for
identical assets, which are classified as Level 1 throughout the year. As such,
no transfers between fair value hierarchy levels occurred during the year. See
the Schedule of Portfolio Investments for the table presenting information
about assets measured at fair value on a recurring basis at December 31, 2018,
and respective hierarchy levels.
4. Expenses
Expense charges are applied against the current value of the Separate Account
and are paid as follows:
Separate Account Annual Charges: Deductions for the mortality and expense risk
charges and administrative charges are calculated daily, at an annual rate, on
the actual prior day's net asset value of the underlying Funds comprising the
sub-accounts attributable to the contract owners and are paid to the Company.
The mortality risk charge represents compensation to the Company for the
mortality risks assumed under the contract, which is the obligation to provide
payments during the payout period for the life of the contract and to provide
the standard death benefit. The expense risk charge represents compensation to
the Company for assuming the risk that the current contract administration
charges will be insufficient to cover the cost of administering the contract in
the future. The administrative charge reimburses the Company for any
administrative expenses incurred under the contract. This includes the expenses
for administration and marketing. These charges are included on the mortality
and expense risk and administrative charges line in the Statements of
Operations and Changes in Net Assets.
The exact rate depends on the particular product issued. Expense charges for
each product are as follows:
Mortality and
Expense Risk
Maximum Annual First Reduction in Second Reduction in
Rate and Mortality and Mortality and
Administrative Expense Risk and Expense Risk and
Charges Maximum Administrative Administrative
Products Annual Rate Charges Rate/(a)/ Charges Rate/(b)/
-------- --------------- ------------------ -------------------
AG Corporate Investor 0.65% 0.25% 0.25%
AG Income Advantage VUL 0.70% 0.35% 0.15%
AG Legacy Plus 0.90% 0.25% 0.25%
AG Platinum Choice VUL 2 0.70% 0.35% 0.20%
Corporate America 0.35% 0.10% 0.10%
Corporate America (reduced surrender charge) 0.65% 0.25% 0.25%
Corporate Investor Select 0.65% 0.25% 0.25%
Income Advantage Select 0.70% 0.35% 0.20%
Platinum Investor FlexDirector 0.70% 0.25% 0.35%
Platinum Investor I 0.75% 0.25% 0.25%
Platinum Investor II 0.75% 0.25% 0.25%
Platinum Investor III 0.70% 0.25% 0.35%
Platinum Investor IV 0.70% 0.35% 0.25%
Platinum Investor PLUS 0.70% 0.25% 0.35%
Platinum Investor Survivor 0.40% 0.20% 0.10%
Platinum Investor Survivor II 0.75% 0.25% 0.35%
Platinum Investor VIP 0.70% 0.35% 0.20%
Protection Advantage Select 0.70% 0.35% 0.20%
Survivor Advantage 0.70% 0.35% 0.20%
27
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(a) After 10th policy year.
(b) After 20th policy year.
Contract Maintenance Charge: Monthly contract maintenance charges are paid to
the Company for the administrative services provided under the current
policies. The Company may deduct an additional monthly expense charge for
expenses associated with acquisition, administrative and underwriting of your
policy. The monthly expense charge is applied only against each $1,000 of
coverage (if the policy offers both base and supplement coverage, then only
each $1,000 of base coverage). This charge varies according to the ages, gender
and the premium class of the insured, as well as the amount of coverage. These
charges are included as part of the contract maintenance charges line in the
Statements of Operations and Changes in Net Assets.
The Company may charge a maximum fee of $12 for the monthly contract
maintenance charge.
Withdrawal Charge: A withdrawal charge is applicable to certain contract
withdrawals pursuant to the contract and is payable to the Company. The
withdrawal charges are included as part of the payments for contract benefits
or terminations line in the Statements of Operations and Changes in Net Assets.
The amount of the withdrawal charge depends on the age and other insurance
characteristics of the insured person. For partial withdrawals, the Company may
charge a maximum transaction fee per partial withdrawal equal to the lesser of
2 percent of the amount withdrawn or $25. Currently, a $10 transaction fee per
policy is charged for each partial withdrawal.
Cost of Insurance Charge: Since determination of both the insurance rate and
the Company's net amount at risk depends upon several factors, the cost of
insurance deduction may vary from month to month. Policy accumulation value,
specified amount of insurance and certain characteristics of the insured person
are among the variables included in the calculation for the monthly cost of
insurance deduction. The cost of insurance charge is included as part of the
contract maintenance charges line of the Statements of Operations and Changes
in Net Assets.
Transfer Fee: A transfer fee may be assessed on each transfer of funds in
excess of the maximum transactions allowed within a contract year depending on
the contract provision. The transfer fee is included as part of the payments
for contract benefits or terminations line in the Statements of Operations and
Changes in Net Assets.
A transfer fee of $25 is assessed on each transfer in excess of 12 transfers
during the policy year.
Premium Tax Charge: Certain states charge taxes on purchase payments up to a
maximum of 3.5 percent. The Company deducts from each premium payment a charge
to cover costs associated with the issuance of the policy, administrative
services the Company performs and a premium tax that is applicable to the
Company in the state or other jurisdiction of the policy owner. Premium tax
charges are included as part of the contract maintenance charges line in the
Statements of Operations and Changes in Net Assets.
A summary of premium tax charges follows:
Products Premium Tax Charge
-------- ----------------------------------------------------
AG Corporate Investor/*/ 4.00% up to the "target premium" and 5.00% on any
premium amounts in excess of the "target premium"
for policy years 1-3. 9.00% up to the "target
premium" and 5.00% on any premium amounts in excess
of the "target premium" for policy years 4-7. 5.00%
of all premium payments in policy years 8 and
thereafter.
AG Income Advantage VUL 5.00% of after-tax premium payment
AG Platinum Choice VUL 2 9.00% of after-tax premium payment
Corporate America/*/ 9.00% up to the "target premium" and 5.00% on any
premium amounts in excess of the "target premium"
for policy years 1-7. 5.00% of all premium payments
in policy years 8 and thereafter.
28
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Corporate Investor Select/*/ 4.00% up to the "target premium" and 5.00% on
any premium amounts in excess of the "target
premium" for policy years 1-3. 9.00% up to the
"target premium" and 5.00% on any premium
amounts in excess of the "target premium" for
policy years 4-7. 5.00% of all premium
payments in policy years 8 and thereafter.
Income Advantage Select 3.50% of each premium payment
Platinum Investor FlexDirector 3.50% of each premium payment
Platinum Investor I 3.50% of each premium payment
Platinum Investor II 3.50% of each premium payment
Platinum Investor III 3.50% of each premium payment
Platinum Investor IV 3.50% of each premium payment
Platinum Investor PLUS 3.50% of each premium payment
Platinum Investor Survivor 3.50% of each premium payment
Platinum Investor Survivor II 3.50% of each premium payment
Platinum Investor VIP 3.50% of each premium payment
Protection Advantage Select 3.50% of each premium payment
Survivor Advantage 3.50% of each premium payment
* The target premium is an amount of premium that is approximately equal to
the seven-pay premium, which is the maximum amount of premium that may be
paid without the policy becoming a modified endowment contract.
Optional Rider Charge: Monthly charges are deducted if the contract owner
selects additional benefit riders. The charges for any rider selected will vary
by policy within a range based on either the personal characteristics of the
insured person or the specific coverage chosen under the rider. The rider
charges are included as part of contract maintenance charges line in the
Statements of Operations and Changes in Net Assets.
Guaranteed Minimum Withdrawal Benefit (GMWB) Charge: Daily charges for the GMWB
rider are assessed through the daily unit value calculation on all policies
that have elected this option. These charges are included as part of the
contract maintenance charges line in the Statements of Operations and Changes
in Net Assets.
The annualized GMWB charge is 0.75 percent, which may be increased to a maximum
of 1.50 percent.
29
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Purchases and Sales of Investments
For the year ended December 31, 2018, the aggregate cost of purchases and
proceeds from the sales of investments were:
Cost of Proceeds
Sub-accounts Purchases from Sales
------------ ---------- ----------
Alger Capital Appreciation Portfolio Class I-2 Shares $2,369,946 $1,910,884
Alger Mid Cap Growth Portfolio Class I-2 Shares 1,293,608 1,336,950
American Century VP Value Fund Class I 1,505,936 2,908,269
American Funds IS Asset Allocation Fund Class 2 1,358,374 255,448
American Funds IS Global Growth Fund Class 2 449,908 147,641
American Funds IS Growth Fund Class 2 1,337,409 185,251
American Funds IS Growth-Income Fund Class 2 1,271,037 467,583
American Funds IS High-Income Bond Fund Class 2 195,729 66,004
American Funds IS International Fund Class 2 404,108 204,755
AST SA Wellington Capital Appreciation Portfolio Class 3 155,586 52,712
AST SA Wellington Government and Quality Bond Portfolio Class 3 69,923 31,032
Dreyfus IP MidCap Stock Portfolio Initial Shares 961,592 681,099
Dreyfus VIF International Value Portfolio Initial Shares 98,719 100,932
Dreyfus VIF Opportunistic Small Cap Portfolio Initial Shares 1,903,492 905,045
Dreyfus VIF Quality Bond Portfolio Initial Shares 410,062 891,334
Fidelity VIP Asset Manager Portfolio Service Class 2 629,059 910,046
Fidelity VIP Contrafund Portfolio Service Class 2 5,875,742 5,929,015
Fidelity VIP Equity-Income Portfolio Service Class 2 2,520,826 2,628,977
Fidelity VIP Freedom 2020 Portfolio Service Class 2 336,411 318,095
Fidelity VIP Freedom 2025 Portfolio Service Class 2 179,732 171,637
Fidelity VIP Freedom 2030 Portfolio Service Class 2 763,616 836,062
Fidelity VIP Government Money Market Portfolio Service Class 2 7,412,788 6,907,095
Fidelity VIP Growth Portfolio Service Class 2 4,564,347 3,715,677
Fidelity VIP Mid Cap Portfolio Service Class 2 1,977,788 2,302,219
FTVIP Franklin Mutual Shares VIP Fund Class 2 1,424,568 1,428,408
FTVIP Franklin Small Cap Value VIP Fund Class 2 2,102,017 2,038,695
FTVIP Franklin Small-Mid Cap Growth VIP Fund Class 2 3,060 2,946
FTVIP Franklin U.S. Government Securities VIP Fund Class 2 204,341 486,269
FTVIP Templeton Foreign VIP Fund Class 2 877,822 1,141,556
Goldman Sachs VIT Strategic Growth Fund Institutional Shares 1,601,340 183,028
Invesco V.I. American Franchise Fund Series I 1,193 747
Invesco V.I. Core Equity Fund Series I 1,039,846 1,210,893
Invesco V.I. Global Real Estate Fund Series I 167,233 86,001
Invesco V.I. Government Securities Fund Series I 653 10,445
Invesco V.I. Growth and Income Fund Series I 2,773,176 2,178,117
Invesco V.I. High Yield Fund Series I 219,254 350,500
Invesco V.I. International Growth Fund Series I 1,438,610 1,750,309
Janus Henderson Enterprise Portfolio Service Shares 1,684,863 1,758,551
Janus Henderson Forty Portfolio Service Shares 697,809 577,111
Janus Henderson Global Research Portfolio Service Shares 169,544 346,836
Janus Henderson Overseas Portfolio Service Shares 1,303,219 1,778,241
JPMorgan Insurance Trust Core Bond Portfolio Class 1 828,698 274,381
JPMorgan Insurance Trust Mid Cap Value Portfolio Class 1 37,180 73,744
JPMorgan Insurance Trust Small Cap Core Portfolio Class 1 618,738 749,949
MFS VIT Growth Series Initial Class 1,469,593 1,480,682
MFS VIT II Core Equity Portfolio Initial Class 636,759 396,177
MFS VIT New Discovery Series Initial Class 1,444,986 1,137,464
MFS VIT Research Series Initial Class 662,808 370,934
MFS VIT Total Return Series Initial Class 17,903 101,609
Morgan Stanley VIF Growth Portfolio Class I 1,589,490 894,271
30
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Cost of Proceeds
Sub-accounts Purchases from Sales
------------ ---------- ----------
Neuberger Berman AMT Large Cap Value Portfolio Class I $ 3,686 $ 3,711
Neuberger Berman AMT Mid Cap Growth Portfolio Class I 1,484,207 1,833,434
Neuberger Berman AMT Sustainable Equity Portfolio Class I 16,297 2,769
Oppenheimer Conservative Balanced Fund/VA Non Service Shares 233,121 229,406
Oppenheimer Global Fund/VA Non Service Shares 1,623,431 1,985,781
Oppenheimer Global Strategic Income Fund/VA Non-Service Shares 462 1,583
PIMCO CommodityRealReturn Strategy Portfolio Administrative Class 211,978 305,079
PIMCO Global Bond Opportunities Portfolio (Unhedged) Adminstrative Class 219,209 69,426
PIMCO Real Return Portfolio Administrative Class 809,049 1,435,215
PIMCO Short-Term Portfolio Administrative Class 876,469 892,450
PIMCO Total Return Portfolio Administrative Class 2,725,886 2,837,065
Pioneer Fund VCT Portfolio Class I 676,395 374,444
Pioneer Mid Cap Value VCT Portfolio Class I 369,204 514,807
Pioneer Select Mid Cap Growth VCT Portfolio Class I 742,837 593,757
Putnam VT Diversified Income Fund Class IB 767,788 983,003
Putnam VT Equity Income Fund Class IB 1,457,750 1,566,041
Putnam VT Growth and Income Fund IB 158 158
Putnam VT Growth Opportunities Fund Class IB 14,677 3,757
Putnam VT International Value Fund Class IB 653,864 1,168,121
Putnam VT Small Cap Value Fund Class IB 111,845 89,281
Putnam VT Sustainable Leaders Fund Class IB 6,304 2,213
SST SA Multi-Managed Mid Cap Value Portfolio Class 3 20,705 8,395
SAST SA JPMorgan Diversified Balanced Portfolio Class 1 644,252 505,946
SAST SA WellsCap Aggressive Growth Portfolio Class 1 1,154,609 870,653
VALIC Company I Dynamic Allocation Fund 2,159,902 462,661
VALIC Company I Emerging Economies Fund 61,424 27,675
VALIC Company I Government Money Market I Fund 5,547,140 6,385,793
VALIC Company I International Equities Index Fund 941,629 735,746
VALIC Company I International Value Fund 31,715 21,601
VALIC Company I Mid Cap Index Fund 3,029,672 3,542,065
VALIC Company I Nasdaq-100 Index Fund 1,374,431 2,037,886
VALIC Company I Science & Technology Fund 1,574,445 741,758
VALIC Company I Small Cap Index Fund 1,712,745 2,285,975
VALIC Company I Stock Index Fund 3,406,789 5,121,756
VALIC Company II Mid Cap Value Fund 26,990 6,951
VALIC Company II Socially Responsible Fund 8,172 5,382
VALIC Company II Strategic Bond Fund 75,308 31,098
Vanguard VIF High Yield Bond Portfolio 1,177,872 1,357,590
Vanguard VIF Real Estate Index Portfolio 2,121,273 2,086,008
31
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Financial Highlights
The summary of unit values and units outstanding for sub-accounts, investment
income ratios, total return and expense ratios, excluding expenses of the
underlying mutual funds, for each of the five years in the period ended
December 31, 2018, follows:
December 31, 2018 For the Year Ended December 31, 2018
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Alger Capital Appreciation
Portfolio Class I-2 Shares 302,218 23.25 26.13 7,356,556 0.09 0.00 1.10 -1.20 -0.10
Alger Mid Cap Growth Portfolio
Class I-2 Shares 168,792 30.25 30.73 2,737,895 0.00 0.00 0.75 -8.14 -7.44
American Century VP Value Fund
Class I 691,816 20.37 27.99 13,539,464 1.73 0.00 0.75 -9.83 -9.15
American Funds IS Asset Allocation
Fund Class 2 197,083 13.70 14.09 2,326,604 2.08 0.20 0.70 -5.27 -4.15
American Funds IS Global Growth
Fund Class 2 61,468 14.68 15.10 727,645 0.81 0.20 0.70 -9.68 -8.60
American Funds IS Growth Fund
Class 2 138,504 17.97 18.48 1,770,815 0.56 0.20 0.70 -0.95 0.23
American Funds IS Growth-Income
Fund Class 2 158,287 16.79 17.27 2,061,677 1.61 0.20 0.70 -2.48 -1.31
American Funds IS High-Income Bond
Fund Class 2 34,077 11.27 11.42 361,464 6.85 0.20 0.70 -3.03 -1.87
American Funds IS International
Fund Class 2 51,672 11.87 12.16 525,792 1.95 0.20 0.70 -13.74 -12.71
AST SA Wellington Capital
Appreciation Portfolio Class 3 16,776 18.85 19.39 232,885 0.00 0.20 0.70 -1.69 -0.51
AST SA Wellington Government and
Quality Bond Portfolio Class 3 11,300 10.29 10.58 116,518 1.85 0.20 0.70 -0.91 0.27
Dreyfus IP MidCap Stock Portfolio
Initial Shares 202,332 19.86 30.35 3,970,163 0.62 0.20 0.75 -16.12 -15.66
Dreyfus VIF International Value
Portfolio Initial Shares 10,940 9.20 14.73 117,604 1.81 0.00 0.70 -17.40 -16.81
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares 345,984 19.01 20.64 6,407,578 0.00 0.20 0.75 -19.69 -19.24
Dreyfus VIF Quality Bond Portfolio
Initial Shares 298,292 14.02 16.05 4,096,694 2.78 0.20 0.75 -3.28 -2.74
Fidelity VIP Asset Manager
Portfolio Service Class 2 258,595 15.10 19.97 3,780,901 1.47 0.00 0.75 -6.32 -5.61
Fidelity VIP Contrafund Portfolio
Service Class 2 1,512,166 17.46 30.95 28,392,983 0.46 0.00 1.10 -7.67 -6.64
Fidelity VIP Equity-Income
Portfolio Service Class 2 917,967 15.25 27.22 15,004,507 2.12 0.00 1.10 -9.54 -8.54
Fidelity VIP Freedom 2020 Portfolio
Service Class 2 23,538 14.96 15.83 360,714 1.35 0.00 0.70 -6.74 -6.08
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 35,298 15.65 16.55 559,815 1.26 0.00 0.70 -7.43 -6.78
Fidelity VIP Freedom 2030 Portfolio
Service Class 2 149,544 14.55 16.35 2,359,621 1.16 0.00 1.10 -9.07 -8.05
Fidelity VIP Government Money
Market Portfolio Service Class 2 101,173 9.79 10.07 1,023,453 0.95 0.20 0.70 0.69 1.88
Fidelity VIP Growth Portfolio
Service Class 2 835,835 25.70 34.90 17,707,184 0.04 0.00 0.75 -1.18 -0.43
Fidelity VIP Mid Cap Portfolio
Service Class 2 442,087 16.57 29.25 8,071,996 0.42 0.00 1.10 -15.71 -14.77
FTVIP Franklin Mutual Shares VIP
Fund Class 2 400,637 13.99 22.68 5,989,211 2.45 0.00 1.10 -10.07 -9.07
FTVIP Franklin Small Cap Value VIP
Fund Class 2 337,421 17.30 29.44 6,322,587 0.94 0.00 1.10 -13.84 -12.88
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2 1,177 18.87 22,210 0.00 0.50 -5.85
FTVIP Franklin U.S. Government
Securities VIP Fund Class 2 125,835 12.54 15.22 1,599,147 2.81 0.20 0.75 -0.42 0.14
FTVIP Templeton Foreign VIP Fund
Class 2 396,938 10.45 17.46 4,126,561 2.80 0.20 0.75 -16.08 -15.61
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares 140,076 22.08 22.80 3,181,316 0.48 0.20 0.50 -1.53 -1.24
Invesco V.I. American Franchise
Fund Series I 613 21.20 13,001 0.00 0.50 -4.11
Invesco V.I. Core Equity Fund
Series I 432,994 16.53 17.86 6,977,216 0.92 0.20 0.75 -10.08 -9.58
Invesco V.I. Global Real Estate
Fund Series I 32,084 11.09 21.33 438,602 4.11 0.00 0.70 -6.81 -6.15
Invesco V.I. Government Securities
Fund Series I 1,082 11.14 12,050 1.57 0.50 0.05
Invesco V.I. Growth and Income Fund
Series I 515,887 25.63 26.06 9,134,590 2.17 0.00 0.75 -14.03 -13.38
Invesco V.I. High Yield Fund Series
I 136,042 12.86 13.42 1,769,886 5.28 0.20 0.75 -4.08 -3.55
Invesco V.I. International Growth
Fund Series I 525,489 11.17 20.01 6,414,590 2.09 0.00 1.10 -15.91 -14.98
Janus Henderson Enterprise
Portfolio Service Shares 260,835 25.39 42.85 6,331,865 0.12 0.00 0.75 -1.41 -0.66
Janus Henderson Forty Portfolio
Service Shares 33,321 18.56 35.34 713,863 0.00 0.00 0.70 1.01 1.72
Janus Henderson Global Research
Portfolio Service Shares 189,351 15.24 17.49 2,818,406 1.04 0.20 0.75 -7.78 -7.27
Janus Henderson Overseas Portfolio
Service Shares 772,355 7.01 7.87 5,966,055 1.76 0.00 1.10 -16.07 -15.14
JPMorgan Insurance Trust Core Bond
Portfolio Class 1 118,476 10.61 14.54 1,265,297 2.03 0.00 0.70 -0.65 0.05
JPMorgan Insurance Trust Mid Cap
Value Portfolio Class 1 20,572 31.34 33.06 663,877 1.02 0.20 0.75 -12.50 -12.01
JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 146,979 21.43 32.25 3,101,349 0.42 0.20 0.75 -12.59 -12.11
MFS VIT Growth Series Initial Class 468,526 25.60 33.16 11,673,310 0.10 0.20 0.75 1.90 2.46
MFS VIT II Core Equity Portfolio
Initial Class 333,436 12.66 12.93 4,274,993 0.72 0.20 0.75 -4.55 -4.02
MFS VIT New Discovery Series
Initial Class 228,082 23.32 26.20 5,251,759 0.00 0.00 1.10 -2.56 -1.48
MFS VIT Research Series Initial
Class 144,927 22.04 28.40 2,911,066 0.75 0.00 0.75 -5.09 -4.37
MFS VIT Total Return Series Initial
Class 13,021 16.56 215,588 1.90 0.50 -6.09
Morgan Stanley VIF Growth Portfolio
Class I 128,529 31.25 39.41 3,911,601 0.00 0.20 0.75 6.73 7.32
Neuberger Berman AMT Large Cap
Value Portfolio Class I 1,674 15.26 25,534 1.17 0.50 -1.54
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I 285,059 18.43 31.72 5,479,092 0.00 0.00 1.10 -7.43 -6.40
Neuberger Berman AMT Sustainable
Equity Portfolio Class I 6,686 18.82 29.51 129,447 0.52 0.20 0.70 -6.39 -5.91
Oppenheimer Conservative Balanced
Fund/VA Non Service Shares 100,900 12.07 16.57 1,199,241 2.03 0.00 0.75 -6.03 -5.32
Oppenheimer Global Fund/VA Non
Service Shares 359,158 16.24 28.58 6,402,814 1.03 0.00 1.10 -14.14 -13.18
Oppenheimer Global Strategic Income
Fund/VA Non-Service Shares 327 10.72 3,510 4.96 0.50 -4.88
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class 110,044 7.33 14.62 587,286 2.21 0.00 1.10 -15.08 -14.13
PIMCO Global Bond Opportunities
Portfolio (Unhedged)
Adminstrative Class 28,206 9.87 13.67 305,520 7.73 0.00 0.70 -4.87 -4.20
32
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2018 For the Year Ended December 31, 2018
------------------------------------------ -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ ------- ------ ------- -------------- ------------- ------ ------- ------ -------
PIMCO Real Return Portfolio
Administrative Class 577,465 14.93 18.82 7,524,253 2.44 0.00 0.75 -2.95 -2.21
PIMCO Short-Term Portfolio
Administrative Class 313,414 10.88 12.26 3,671,595 2.16 0.00 1.10 0.41 1.53
PIMCO Total Return Portfolio
Administrative Class 828,840 13.91 16.14 12,129,200 2.50 0.00 1.10 -1.63 -0.54
Pioneer Fund VCT Portfolio Class I 85,951 19.78 23.63 1,656,011 1.19 0.20 0.70 -2.20 -1.71
Pioneer Mid Cap Value VCT Portfolio
Class I 50,424 16.18 16.25 793,307 0.73 0.00 0.75 -19.95 -19.34
Pioneer Select Mid Cap Growth VCT
Portfolio Class I 106,943 23.78 24.54 2,559,747 0.00 0.20 0.50 -6.95 -6.67
Putnam VT Diversified Income Fund
Class IB 300,844 15.62 17.08 5,665,739 4.31 0.00 0.95 -1.92 -0.98
Putnam VT Equity Income Fund Class IB 761,628 19.25 21.47 11,718,433 0.74 0.20 0.75 -9.18 -8.67
Putnam VT Growth Opportunities Fund
Class IB 42,021 4.23 177,616 0.00 0.50 1.87
Putnam VT International Value Fund
Class IB 351,823 7.93 8.72 3,090,053 2.22 0.20 1.10 -18.52 -17.78
Putnam VT Small Cap Value Fund Class IB 9,040 16.75 17.86 157,042 0.44 0.00 0.70 -20.49 -19.93
Putnam VT Sustainable Leaders Fund
Class IB 1,594 25.52 40,670 0.00 0.50 -2.02
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3 4,251 13.03 13.40 47,183 0.75 0.20 0.70 -12.71 -11.67
SAST SA JPMorgan Diversified Balanced
Portfolio Class 1 164,830 18.54 20.63 2,654,340 1.52 0.00 0.75 -8.40 -7.70
SAST SA WellsCap Aggressive Growth
Portfolio Class 1 91,940 16.12 18.12 1,593,822 0.00 0.00 1.10 -7.81 -6.78
VALIC Company I Dynamic Allocation Fund 319,784 11.94 12.28 3,439,714 1.02 0.20 0.70 -7.60 -6.50
VALIC Company I Emerging Economies Fund 10,236 9.63 9.90 97,387 1.41 0.20 0.70 -19.90 -18.94
VALIC Company I Government Money
Market I Fund 839,432 9.18 10.32 8,312,365 1.31 0.00 1.10 0.21 1.32
VALIC Company I International Equities
Index Fund 263,693 10.17 14.54 2,593,223 2.08 0.00 0.75 -14.39 -13.74
VALIC Company I International Value
Fund 6,551 8.64 9.96 56,732 1.98 0.25 0.70 -18.39 -18.02
VALIC Company I Mid Cap Index Fund 621,713 19.58 22.00 13,017,944 1.19 0.00 1.10 -12.41 -11.43
VALIC Company I Nasdaq-100 Index Fund 200,596 29.94 33.65 6,330,427 0.55 0.00 1.10 -1.72 -0.63
VALIC Company I Science & Technology
Fund 137,417 31.55 31.93 3,978,318 0.00 0.00 0.75 -2.20 -1.46
VALIC Company I Small Cap Index Fund 316,138 20.93 32.50 6,289,434 1.11 0.00 0.75 -11.89 -11.23
VALIC Company I Stock Index Fund 904,375 21.94 26.28 18,931,067 1.76 0.00 0.75 -5.43 -4.72
VALIC Company II Mid Cap Value Fund 5,422 13.15 13.52 60,871 0.43 0.20 0.70 -15.62 -14.61
VALIC Company II Socially Responsible
Fund 2,701 16.36 16.83 39,595 1.68 0.20 0.70 -5.87 -4.75
VALIC Company II Strategic Bond Fund 19,316 10.77 11.07 202,859 3.71 0.20 0.70 -4.21 -3.07
Vanguard VIF High Yield Bond Portfolio 335,673 16.21 18.22 6,229,346 4.89 0.00 1.10 -3.80 -2.73
Vanguard VIF Real Estate Index
Portfolio 660,841 16.02 27.22 11,664,388 3.06 0.00 1.10 -6.39 -5.35
December 31, 2017 For the Year Ended December 31 2017
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Alger Capital Appreciation Portfolio
Class I-2 Shares 322,741 23.54 26.15 8,151,701 0.17 0.00 1.10 29.65 31.08
Alger Mid Cap Growth Portfolio
Class I-2 Shares 184,834 13.61 32.09 3,394,794 0.00 0.20 0.95 28.57 29.53
American Century VP Value Fund
Class I 761,205 22.42 31.05 16,556,042 1.62 0.00 0.75 7.94 8.75
American Funds IS Asset Allocation
Fund Class 2 110,852 14.46 14.80 1,473,785 1.82 0.20 0.70 15.42 16.79
American Funds IS Global Growth Fund
Class 2 37,874 16.25 16.63 537,081 0.73 0.20 0.70 30.56 32.10
American Funds IS Growth Fund Class 2 52,954 18.14 18.56 811,781 0.55 0.20 0.70 27.40 28.91
American Funds IS Growth-Income Fund
Class 2 102,846 17.21 17.61 1,464,609 1.65 0.20 0.70 21.53 22.97
American Funds IS High-Income Bond
Fund Class 2 23,439 11.62 11.71 262,674 8.26 0.20 0.70 6.14 7.40
American Funds IS International Fund
Class 2 32,925 13.77 14.03 412,489 1.51 0.20 0.70 31.23 32.78
AST SA Wellington Capital
Appreciation Portfolio Class 3 10,103 19.18 19.62 162,533 0.00 0.20 0.70 31.53 33.09
AST SA Wellington Government and
Quality Bond Portfolio Class 3 7,570 10.38 10.63 79,385 1.75 0.20 0.70 2.04 3.25
Dreyfus IP MidCap Stock Portfolio
Initial Shares 215,289 23.55 36.18 5,029,990 1.06 0.20 0.75 14.52 15.15
Dreyfus VIF International Value
Portfolio Initial Shares 11,834 9.46 11.41 145,813 1.46 0.00 0.95 27.31 28.52
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares 361,865 23.53 25.70 8,315,220 0.00 0.20 0.75 23.75 24.43
Dreyfus VIF Quality Bond Portfolio
Initial Shares 341,206 14.42 16.59 4,826,798 2.11 0.20 0.75 3.72 4.29
Fidelity VIP Asset Manager Portfolio
Service Class 2 288,419 21.32 22.12 4,494,686 1.63 0.20 0.75 12.90 13.52
Fidelity VIP Contrafund Portfolio
Service Class 2 1,633,046 18.91 21.01 33,416,374 0.78 0.00 1.10 20.26 21.59
Fidelity VIP Equity-Income Portfolio
Service Class 2 980,078 16.86 29.22 17,674,993 1.48 0.20 1.10 11.42 12.43
Fidelity VIP Freedom 2020 Portfolio
Service Class 2 24,020 16.04 23.12 387,130 1.22 0.20 0.70 15.45 16.03
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 35,817 16.91 24.79 611,436 1.08 0.20 0.70 16.75 17.33
Fidelity VIP Freedom 2030 Portfolio
Service Class 2 156,726 16.00 25.94 2,741,857 1.20 0.20 1.10 19.38 20.45
Fidelity VIP Government Money Market
Portfolio Service Class 2 51,864 9.73 9.95 517,760 0.24 0.20 0.70 -0.27 0.91
Fidelity VIP Growth Portfolio
Service Class 2 909,510 26.00 34.41 19,660,993 0.08 0.20 0.75 33.81 34.55
Fidelity VIP Mid Cap Portfolio
Service Class 2 493,472 19.66 21.85 10,717,435 0.48 0.00 1.10 19.22 20.54
FTVIP Franklin Mutual Shares VIP
Fund Class 2 416,827 15.55 24.49 6,983,291 2.26 0.20 1.10 7.17 8.13
FTVIP Franklin Small Cap Value VIP
Fund Class 2 385,185 20.07 22.31 8,451,891 0.48 0.00 1.10 9.44 10.65
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2 1,286 20.04 25,778 0.00 0.50 20.79
FTVIP Franklin U.S. Government
Securities VIP Fund Class 2 151,946 12.52 15.28 1,928,613 2.18 0.20 0.75 0.58 1.14
FTVIP Templeton Foreign VIP Fund
Class 2 422,235 12.38 20.81 5,292,633 2.61 0.20 0.75 15.82 16.46
33
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2017 For the Year Ended December 31 2017
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares 147,120 22.43 23.08 3,384,434 0.53 0.20 0.50 30.01 30.40
Invesco V.I. American Franchise Fund
Series I 630 22.11 13,934 0.08 0.50 26.71
Invesco V.I. Core Equity Fund Series
I 472,905 18.28 19.86 8,441,402 1.03 0.20 0.75 12.33 12.95
Invesco V.I. Global Real Estate Fund
Series I 28,044 11.90 14.12 407,776 3.57 0.00 0.70 12.26 13.05
Invesco V.I. Government Securities
Fund Series I 1,994 11.13 22,190 1.82 0.50 1.45
Invesco V.I. Growth and Income Fund
Series I 532,628 18.24 22.12 11,158,029 1.50 0.00 0.95 13.24 14.32
Invesco V.I. High Yield Fund Series I 152,651 13.41 13.91 2,066,246 4.07 0.20 0.75 5.51 6.09
Invesco V.I. International Growth
Fund Series I 549,092 13.29 14.76 8,074,309 1.50 0.00 1.10 21.66 23.00
Janus Henderson Enterprise Portfolio
Service Shares 264,281 41.27 43.46 6,766,100 0.14 0.20 0.75 26.14 26.83
Janus Henderson Forty Portfolio
Service Shares 31,036 18.73 20.27 686,757 0.00 0.00 0.95 28.77 29.99
Janus Henderson Global Research
Portfolio Service Shares 201,456 16.44 18.96 3,240,331 0.70 0.20 0.75 25.74 26.43
Janus Henderson Overseas Portfolio
Service Shares 811,335 8.35 9.10 7,631,682 1.64 0.20 1.10 29.38 30.54
JPMorgan Insurance Trust Core Bond
Portfolio Class 1 64,724 10.68 14.28 721,668 2.42 0.20 0.70 2.85 3.37
JPMorgan Insurance Trust Mid Cap
Value Portfolio Class 1 22,040 35.82 37.57 809,906 0.81 0.20 0.75 12.92 13.54
JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 161,743 24.39 36.90 3,906,888 0.32 0.20 0.75 14.37 15.00
MFS VIT Growth Series Initial Class 500,388 24.98 32.55 12,198,289 0.11 0.20 0.75 30.43 31.14
MFS VIT II Core Equity Portfolio
Initial Class 352,760 13.27 13.47 4,723,353 0.97 0.20 0.75 23.90 24.58
MFS VIT New Discovery Series Initial
Class 238,545 23.93 41.01 5,773,273 0.00 0.20 1.10 25.27 26.40
MFS VIT Research Series Initial Class 147,051 16.45 33.31 3,142,778 1.42 0.20 0.70 22.51 23.12
MFS VIT Total Return Series Initial
Class 18,689 17.63 329,481 2.36 0.50 11.74
Morgan Stanley VIF Growth Portfolio
Class I 130,942 29.11 39.11 3,716,998 0.00 0.20 0.75 42.08 42.86
Neuberger Berman AMT Large Cap Value
Portfolio Class I 1,873 15.49 29,018 0.57 0.50 12.80
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I 309,688 19.91 22.13 6,640,794 0.00 0.00 1.10 23.92 25.29
Neuberger Berman AMT Sustainable
Equity Portfolio Class I 6,411 20.11 31.37 132,321 0.54 0.20 0.70 17.61 18.19
Oppenheimer Conservative Balanced
Fund/VA Non Service Shares 104,560 17.63 18.18 1,318,894 1.97 0.20 0.75 8.44 9.03
Oppenheimer Global Fund/VA Non
Service Shares 400,569 18.91 21.01 8,328,431 0.95 0.00 1.10 35.17 36.66
Oppenheimer Global Strategic Income
Fund/VA Non-Service Shares 447 11.27 5,034 4.36 0.50 5.74
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class 133,947 8.36 8.63 793,866 10.90 0.20 1.10 -49.03 1.04
PIMCO Global Bond Opportunities
Portfolio (Unhedged) Adminstrative
Class 15,207 10.37 15.87 185,779 1.98 0.20 0.70 7.87 8.41
PIMCO Real Return Portfolio
Administrative Class 635,394 14.99 19.39 8,525,775 2.37 0.20 0.75 2.88 3.45
PIMCO Short-Term Portfolio
Administrative Class 318,961 10.84 12.05 3,716,064 1.71 0.00 1.10 1.28 2.40
PIMCO Total Return Portfolio
Administrative Class 846,327 14.14 15.71 12,770,068 2.02 0.00 1.10 3.77 4.91
Pioneer Fund VCT Portfolio Class I 93,667 20.13 24.16 1,837,936 1.19 0.20 0.70 20.87 21.47
Pioneer Mid Cap Value VCT Portfolio
Class I 62,494 20.14 20.21 1,228,114 0.85 0.00 0.75 12.33 13.17
Pioneer Select Mid Cap Growth VCT
Portfolio Class I 115,493 25.55 26.30 2,961,550 0.08 0.20 0.50 29.38 29.77
Putnam VT Diversified Income Fund
Class IB 325,506 17.42 18.66 6,182,584 5.51 0.20 0.95 6.11 6.91
Putnam VT Equity Income Fund Class IB 804,976 21.08 23.64 13,587,892 0.00 0.20 0.75 12.67 13.06
Putnam VT Growth and Income Fund IB -- 18.64 20.98 -- 4.27 0.20 0.75 4.85 5.06
Putnam VT Growth Opportunities Fund
Class IB 41,838 4.15 173,600 0.10 0.50 30.25
Putnam VT International Value Fund
Class IB 401,810 9.73 10.61 4,380,642 1.51 0.20 1.10 23.34 24.45
Putnam VT Small Cap Value Fund
Class IB 11,455 21.07 33.23 243,156 0.68 0.20 0.70 7.12 7.66
Putnam VT Sustainable Leaders Fund
Class IB 1,635 26.04 42,592 0.63 0.50 28.58
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3 3,519 14.92 15.27 45,247 0.50 0.20 0.70 11.85 13.18
SAST SA JPMorgan Diversified
Balanced Portfolio Class 1 160,121 22.52 25.60 2,944,647 1.65 0.20 0.75 13.71 14.33
SAST SA WellsCap Aggressive Growth
Portfolio Class 1 93,007 17.49 34.17 1,726,026 0.00 0.20 1.10 28.17 29.33
VALIC Company I Dynamic Allocation
Fund 174,429 12.92 13.22 2,099,939 1.49 0.20 0.70 19.38 20.80
VALIC Company I Emerging Economies
Fund 7,103 12.02 12.30 84,620 1.24 0.20 0.70 40.28 41.95
VALIC Company I Government Money
Market I Fund 934,888 9.16 10.16 9,151,018 0.41 0.20 1.10 -0.72 0.18
VALIC Company I International
Equities Index Fund 248,253 16.98 19.46 2,865,338 2.53 0.20 0.75 23.42 24.10
VALIC Company I International Value
Fund 5,498 10.54 12.20 59,127 1.73 0.25 0.70 16.18 18.37
VALIC Company I Mid Cap Index Fund 689,546 22.35 38.03 16,438,059 1.15 0.20 1.10 14.64 15.68
VALIC Company I Nasdaq-100 Index Fund 222,786 30.47 33.22 7,283,551 0.71 0.20 1.10 30.85 32.03
VALIC Company I Science & Technology
Fund 120,251 32.65 49.22 3,603,939 0.00 0.20 0.75 40.23 41.00
VALIC Company I Small Cap Index Fund 359,948 32.29 36.89 8,161,335 1.03 0.20 0.75 13.53 14.15
VALIC Company I Stock Index Fund 1,022,435 27.79 33.05 22,675,504 1.48 0.20 0.75 20.51 21.17
VALIC Company II Mid Cap Value Fund 4,131 15.58 15.94 55,792 0.54 0.20 0.70 13.67 15.02
VALIC Company II Socially
Responsible Fund 2,605 17.38 17.78 40,460 1.36 0.20 0.70 19.82 21.24
VALIC Company II Strategic Bond Fund 15,518 11.24 11.50 172,262 3.55 0.20 0.70 6.06 7.32
Vanguard VIF High Yield Bond
Portfolio 358,684 16.85 18.73 6,909,788 4.84 0.00 1.10 5.84 7.00
Vanguard VIF Real Estate Index
Portfolio 697,040 17.12 19.02 13,145,749 2.47 0.00 1.10 3.63 4.78
34
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2016 For the Year Ended December 31 2016
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Alger Capital Appreciation
Portfolio Class I-2 Shares 308,315 23.79 30.60 6,171,284 0.19 0.20 1.45 -0.94 0.30
Alger Mid Cap Growth Portfolio
Class I-2 Shares 177,407 10.59 24.77 2,548,701 0.00 0.20 0.95 0.02 0.77
American Century VP Value Fund
Class I 819,555 26.70 28.76 16,518,290 1.69 0.20 0.75 19.58 20.24
American Funds IS Asset Allocation
Fund Class 2 71,357 11.13 12.67 822,148 1.85 0.20 0.70 8.65 9.19
American Funds IS Global Growth
Fund Class 2 29,438 10.65 12.59 324,428 1.20 0.20 0.70 -0.08 0.42
American Funds IS Growth Fund
Class 2 40,194 11.95 14.40 490,246 1.09 0.20 0.70 8.73 9.27
American Funds IS Growth-Income
Fund Class 2 62,791 11.48 14.32 740,001 1.89 0.20 0.70 10.74 11.30
American Funds IS High-Income Bond
Fund Class 2 13,125 10.46 10.98 138,875 7.43 0.20 0.70 16.88 17.46
American Funds IS International
Fund Class 2 15,568 9.39 10.64 148,913 1.92 0.20 0.70 2.81 3.33
AST SA Wellington Capital
Appreciation Portfolio Class 3 8,075 11.55 14.74 98,099 0.00 0.20 0.70 1.02 1.53
AST SA Wellington Government and
Quality Bond Portfolio Class 3 5,735 10.10 10.29 58,188 0.99 0.20 0.70 0.51 1.01
Dreyfus IP MidCap Stock Portfolio
Initial Shares 237,494 20.45 31.60 4,835,018 1.04 0.20 0.75 14.61 15.24
Dreyfus VIF International Value
Portfolio Initial Shares 11,400 7.43 13.56 109,962 1.68 0.20 0.95 -2.38 -1.64
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares 379,560 18.91 20.77 7,032,502 0.00 0.20 0.75 16.20 16.84
Dreyfus VIF Quality Bond Portfolio
Initial Shares 357,140 13.83 16.00 4,865,166 1.80 0.20 0.75 0.76 1.32
Fidelity VIP Asset Manager
Portfolio Service Class 2 302,946 18.89 19.49 4,190,721 1.28 0.20 0.75 2.07 2.63
Fidelity VIP Contrafund Portfolio
Service Class 2 1,776,410 17.53 26.82 30,500,037 0.59 0.20 1.45 6.18 7.52
Fidelity VIP Equity-Income
Portfolio Service Class 2 1,042,442 15.72 25.99 16,921,768 2.08 0.20 1.45 16.02 17.47
Fidelity VIP Freedom 2020 Portfolio
Service Class 2 26,732 13.89 19.93 374,830 1.25 0.20 0.70 5.07 5.59
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 49,071 15.76 21.13 730,988 1.36 0.20 0.75 5.19 5.77
Fidelity VIP Freedom 2030 Portfolio
Service Class 2 152,631 14.72 21.54 2,231,887 1.21 0.20 1.45 4.85 6.16
Fidelity VIP Government Money
Market Portfolio Service Class 2 45,162 9.75 9.86 444,169 0.01 0.20 0.70 -0.68 -0.19
Fidelity VIP Growth Portfolio
Service Class 2 934,128 19.43 25.58 15,221,424 0.00 0.20 0.75 -0.20 0.35
Fidelity VIP Mid Cap Portfolio
Service Class 2 543,458 16.49 28.01 10,099,201 0.31 0.20 1.10 10.70 11.70
FTVIP Franklin Mutual Shares VIP
Fund Class 2 438,899 14.51 22.65 6,873,004 1.91 0.20 1.10 14.79 15.83
FTVIP Franklin Small Cap Value VIP
Fund Class 2 417,273 18.34 30.04 8,379,469 0.79 0.20 1.10 28.77 29.93
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2 1,247 16.59 20,681 0.00 0.50 3.65
FTVIP Franklin U.S. Government
Securities VIP Fund Class 2 222,589 12.38 15.19 2,801,127 2.67 0.20 0.75 -0.09 0.46
FTVIP Templeton Foreign VIP Fund
Class 2 443,064 10.63 17.97 4,872,425 1.83 0.20 0.75 6.38 6.96
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares 153,434 17.25 17.70 2,707,918 0.56 0.20 0.50 1.48 1.78
Invesco V.I. American Franchise
Fund Series I 815 17.45 14,217 0.00 0.50 1.76
Invesco V.I. Core Equity Fund
Series I 499,400 16.19 17.68 7,918,799 0.76 0.20 0.75 9.44 10.04
Invesco V.I. Global Real Estate
Fund Series I 26,458 9.96 19.78 340,703 1.81 0.20 0.70 1.33 1.84
Invesco V.I. Government Securities
Fund Series I 2,700 10.97 29,621 1.89 0.50 0.73
Invesco V.I. Growth and Income Fund
Series I 547,160 16.11 25.89 10,308,504 1.08 0.20 0.95 18.57 19.46
Invesco V.I. High Yield Fund Series
I 157,151 12.71 13.11 2,013,798 4.17 0.20 0.75 10.38 10.99
Invesco V.I. International Growth
Fund Series I 551,286 10.92 18.82 6,731,961 1.37 0.20 1.10 -1.54 -0.65
Janus Henderson Enterprise
Portfolio Service Shares 264,025 32.54 34.46 5,486,490 0.02 0.20 0.75 11.27 11.88
Janus Henderson Forty Portfolio
Service Shares 32,085 14.55 26.29 543,870 0.00 0.20 0.95 0.98 1.74
Janus Henderson Global Research
Portfolio Service Shares 207,662 13.00 15.08 2,650,720 0.92 0.20 0.75 1.06 1.62
Janus Henderson Overseas Portfolio
Service Shares 805,816 6.97 10.03 6,087,248 4.44 0.20 1.45 -8.05 -6.89
JPMorgan Insurance Trust Core Bond
Portfolio Class 1 45,740 10.26 13.82 497,146 2.37 0.20 0.70 1.40 1.91
JPMorgan Insurance Trust Mid Cap
Value Portfolio Class 1 24,041 31.72 33.09 780,238 0.85 0.20 0.75 13.84 14.47
JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 177,044 21.21 32.26 3,678,494 0.48 0.20 0.75 19.32 19.97
MFS VIT Growth Series Initial Class 530,331 19.05 24.95 9,893,159 0.04 0.20 0.75 1.68 2.24
MFS VIT II Core Equity Portfolio
Initial Class 368,979 10.71 10.81 3,975,629 0.74 0.20 0.75 10.55 11.15
MFS VIT New Discovery Series
Initial Class 233,442 19.10 32.45 4,661,628 0.00 0.20 1.10 7.86 8.83
MFS VIT Research Series Initial
Class 152,465 24.44 27.05 2,688,879 0.76 0.20 0.75 7.93 8.52
MFS VIT Total Return Series Initial
Class 20,656 15.78 325,886 2.85 0.50 8.55
Morgan Stanley VIF Growth Portfolio
Class I 127,750 20.38 25.99 2,556,044 0.00 0.20 0.75 -2.37 -1.83
Neuberger Berman AMT Large Cap
Value Portfolio Class I 2,118 13.74 29,087 0.83 0.50 26.73
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I 308,428 16.07 26.61 5,451,162 0.00 0.20 1.10 3.26 4.19
Neuberger Berman AMT Sustainable
Equity Portfolio Class I 6,209 17.10 26.54 105,760 0.71 0.20 0.70 9.10 9.64
Oppenheimer Conservative Balanced
Fund/ VA Non Service Shares 103,959 16.26 16.67 1,217,473 2.40 0.20 0.75 4.48 5.05
Oppenheimer Global Fund/VA Non
Service Shares 409,562 14.90 23.69 6,367,919 1.04 0.20 1.45 -1.36 -0.12
Oppenheimer Global Strategic Income
Fund/ VA Non-Service Shares 92 10.66 978 4.88 0.50 6.00
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class 147,382 8.54 16.39 812,588 1.09 0.20 1.10 13.90 14.93
PIMCO Global Bond Opportunities
Portfolio (Unhedged)
Adminstrative Class 15,724 9.42 14.64 173,549 1.55 0.20 0.70 3.32 3.83
PIMCO Real Return Portfolio
Administrative Class 736,554 14.49 18.85 9,657,456 2.28 0.20 0.75 4.41 4.99
PIMCO Short-Term Portfolio
Administrative Class 335,790 10.70 11.74 3,857,946 1.58 0.20 1.10 1.25 2.17
PIMCO Total Return Portfolio
Administrative Class 917,603 13.62 15.52 13,448,923 2.09 0.20 1.10 1.56 2.47
Pioneer Fund VCT Portfolio Class I 96,575 16.57 19.87 1,564,976 1.28 0.20 0.75 9.00 9.60
Pioneer Mid Cap Value VCT Portfolio
Class I 63,173 17.99 25.75 1,120,295 0.69 0.20 0.75 15.69 16.32
Pioneer Select Mid Cap Growth VCT
Portfolio Class I 124,890 19.62 20.26 2,474,354 0.00 0.20 0.75 2.96 3.53
Putnam VT Diversified Income Fund
Class IB 329,860 16.41 17.45 5,932,108 7.05 0.20 0.95 4.43 5.21
Putnam VT Growth and Income Fund IB 663,437 17.74 20.01 12,031,012 1.62 0.20 0.75 14.16 14.79
Putnam VT Growth Opportunities Fund
Class IB 43,644 3.19 139,035 0.00 0.50 0.67
35
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2016 For the Year Ended December 31 2016
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Putnam VT International Value Fund
Class IB 422,085 8.52 9.25 3,802,383 2.40 0.20 1.45 -0.35 0.90
Putnam VT Small Cap Value Fund
Class IB 11,580 19.67 30.87 229,963 1.17 0.20 0.70 26.61 27.24
Putnam VT Sustainable Leaders Fund
Class IB 1,756 20.25 35,566 0.73 0.50 7.25
Putnam VT Voyager Fund IB -- -- -- -- 1.94 0.00 0.00 0.00 0.00
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3 11,944 11.21 13.34 134,215 1.49 0.70 14.95
SAST SA JPMorgan Diversified
Balanced Portfolio Class 1 157,818 19.80 22.39 2,566,794 1.66 0.20 0.75 6.37 6.95
SAST SA WellsCap Aggressive Growth
Portfolio Class 1 91,749 13.64 26.42 1,305,543 0.00 0.20 1.10 6.21 7.17
VALIC Company I Dynamic Allocation
Fund 120,660 9.94 10.95 1,203,724 1.10 0.20 0.70 4.12 4.64
VALIC Company I Emerging Economies
Fund 6,051 8.33 8.67 50,752 1.69 0.20 0.70 10.70 11.25
VALIC Company I Government Money
Market I Fund 1,113,874 9.23 10.15 11,007,823 0.01 0.20 1.10 -1.08 -0.19
VALIC Company I International
Equities Index Fund 230,323 13.76 15.68 2,217,518 2.90 0.20 0.75 0.50 1.06
VALIC Company I International Value
Fund 4,634 8.90 10.50 42,285 1.98 0.70 11.31
VALIC Company I Mid Cap Index Fund 723,227 20.86 32.87 15,057,428 1.20 0.20 1.45 18.89 20.38
VALIC Company I Nasdaq-100 Index
Fund 240,528 23.29 25.16 5,986,351 0.67 0.20 1.10 5.60 6.55
VALIC Company I Science &
Technology Fund 110,255 23.28 34.91 2,363,217 0.00 0.20 0.75 6.54 7.12
VALIC Company I Small Cap Index Fund 362,797 28.29 32.49 7,336,637 1.17 0.20 0.75 20.28 20.94
VALIC Company I Stock Index Fund 1,064,879 23.06 27.28 19,674,788 2.45 0.20 0.75 10.76 11.37
VALIC Company II Mid Cap Value Fund 2,807 11.32 13.86 33,379 0.21 0.20 0.70 13.27 13.83
VALIC Company II Socially
Responsible Fund 2,355 11.79 14.67 30,857 1.51 0.20 0.70 9.88 10.43
VALIC Company II Strategic Bond Fund 13,302 10.24 10.72 139,321 3.83 0.20 0.70 7.42 7.95
Vanguard VIF High Yield Bond
Portfolio 366,167 15.92 22.61 6,665,367 5.48 0.20 1.10 10.14 11.13
Vanguard VIF Real Estate Index
Portfolio 752,358 17.03 27.00 13,753,371 2.70 0.20 1.45 6.80 8.14
December 31, 2015 For the Year Ended December 31 2015
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Alger Capital Appreciation
Portfolio Class I-2 Shares 306,548 14.22 24.01 6,405,391 0.09 0.20 1.45 4.66 5.98
Alger Mid Cap Growth Portfolio
Class I-2 Shares 182,860 13.03 13.83 2,669,937 0.00 0.20 1.45 -2.98 -1.76
American Century VP Value Fund
Class I 870,970 16.86 24.05 14,908,764 2.13 0.20 0.75 -4.60 -4.08
American Funds IS Asset Allocation
Fund Class 2 45,797 11.53 11.68 482,133 2.40 0.20 0.70 0.69 1.20
American Funds IS Global Growth
Fund Class 2 9,466 12.46 12.62 112,003 1.15 0.20 0.70 6.19 6.72
American Funds IS Growth Fund
Class 2 10,934 13.09 13.27 123,244 0.92 0.20 0.70 6.11 6.64
American Funds IS Growth-Income
Fund Class 2 25,944 10.36 12.96 284,389 1.75 0.20 0.70 0.75 1.25
American Funds IS High-Income Bond
Fund Class 2 6,865 8.95 9.35 62,767 7.96 0.20 0.70 -6.14 -8.86
American Funds IS International
Fund Class 2 5,694 9.13 10.30 53,220 2.32 0.20 0.70 -5.09 -5.03
AST SA Wellington Capital
Appreciation Portfolio Class 3 4,639 14.43 14.62 57,172 0.00 0.20 0.70 7.70 8.24
AST SA Wellington Government and
Quality Bond Portfolio Class 3 2,574 10.13 10.26 26,013 2.41 0.20 0.70 -0.41 0.09
Dreyfus IP MidCap Stock Portfolio
Initial Shares 271,786 17.75 27.57 4,828,014 0.63 0.20 0.75 -3.02 -2.48
Dreyfus VIF International Value
Portfolio Initial Shares 14,834 7.61 13.78 143,386 2.24 0.20 0.95 -3.64 -2.91
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares 424,523 16.19 19.77 6,796,573 0.00 0.20 0.75 -3.01 -2.47
Dreyfus VIF Quality Bond Portfolio
Initial Shares 394,856 13.65 18.83 5,385,617 2.05 0.20 0.75 -2.38 -1.85
Fidelity VIP Asset Manager
Portfolio Service Class 2 309,899 18.50 18.99 4,248,819 1.36 0.20 0.75 -0.81 -0.26
Fidelity VIP Contrafund Portfolio
Service Class 2 1,897,435 16.51 24.95 31,784,963 0.80 0.20 1.45 -1.03 0.21
Fidelity VIP Equity-Income
Portfolio Service Class 2 1,099,574 13.55 13.91 15,777,973 2.93 0.20 1.45 -5.62 -4.43
Fidelity VIP Freedom 2020 Portfolio
Service Class 2 27,297 14.47 18.87 370,220 1.66 0.20 0.70 -1.15 -0.66
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 44,989 14.98 19.97 640,820 1.66 0.20 0.75 -1.25 -0.70
Fidelity VIP Freedom 2030 Portfolio
Service Class 2 154,093 12.57 14.04 2,147,681 2.06 0.20 1.45 -1.96 -0.73
Fidelity VIP Government Money
Market Portfolio Service Class 2 90,441 9.82 9.95 894,457 0.00 0.20 0.70 -0.69 -0.19
Fidelity VIP Growth Portfolio
Service Class 2 964,228 16.37 19.47 16,073,318 0.03 0.20 0.75 6.11 6.69
Fidelity VIP Mid Cap Portfolio
Service Class 2 564,487 12.33 16.66 9,995,340 0.26 0.20 1.45 -3.05 -1.83
FTVIP Franklin Mutual Shares VIP
Fund Class 2 454,155 12.35 13.34 6,270,133 3.13 0.20 1.45 -6.31 -5.13
FTVIP Franklin Small Cap Value VIP
Fund Class 2 408,261 14.67 14.70 6,935,707 0.63 0.20 1.45 -8.72 -7.57
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2 2,534 16.01 40,559 0.00 0.50 -3.14
FTVIP Franklin U.S. Government
Securities VIP Fund Class 2 232,614 12.32 15.20 2,995,988 2.86 0.20 0.75 -0.28 0.27
FTVIP Templeton Foreign VIP Fund
Class 2 454,864 9.94 16.89 5,101,290 3.37 0.20 0.75 -7.19 -6.68
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares 187,977 17.39 19.29 3,341,287 0.36 0.20 0.75 2.62 3.19
Invesco V.I. American Franchise
Fund Series I 298 17.14 5,116 0.00 0.50 4.48
Invesco V.I. Core Equity Fund
Series I 526,582 14.71 16.16 7,610,942 1.12 0.20 0.75 -6.47 -5.96
Invesco V.I. Global Real Estate
Fund Series I 19,199 10.46 10.60 256,355 3.83 0.20 0.70 -2.17 -1.68
Invesco V.I. Government Securities
Fund Series I 3,342 10.89 36,400 2.21 0.50 -0.16
Invesco V.I. Growth and Income Fund
Series I 573,664 13.58 15.92 9,397,249 2.88 0.20 0.95 -3.98 -3.26
Invesco V.I. High Yield Fund Series
I 161,859 11.51 11.81 1,874,637 4.77 0.20 0.75 -3.89 -3.36
Invesco V.I. International Growth
Fund Series I 575,992 10.91 13.66 7,464,549 1.51 0.20 1.45 -3.75 -2.54
Janus Henderson Enterprise
Portfolio Service Shares 282,411 17.67 30.97 5,309,566 0.53 0.20 0.75 2.99 3.56
36
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2015 For the Year Ended December 31 2015
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
Janus Henderson Forty Portfolio
Service Shares 25,998 14.25 14.41 445,910 0.00 0.20 0.95 10.88 11.71
Janus Henderson Global Research
Portfolio Service Shares 226,554 12.79 14.92 2,857,036 0.55 0.20 0.75 -3.26 -2.73
Janus Henderson Overseas Portfolio
Service Shares 843,160 7.01 10.91 7,496,099 0.54 0.20 1.45 -10.12 -8.99
JPMorgan Insurance Trust Core Bond
Portfolio Class 1 24,910 10.11 10.38 278,198 2.31 0.20 0.70 0.41 0.92
JPMorgan Insurance Trust Mid Cap
Value Portfolio Class 1 26,415 27.87 28.91 747,190 1.02 0.20 0.75 -3.38 -2.85
JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 201,877 17.67 27.04 3,491,842 0.15 0.20 0.75 -5.99 -5.47
MFS VIT Core Equity Series-Initial
Class -- -- -- -- 1.90 0.20 0.75 0.00 0.00
MFS VIT Growth Series Initial Class 592,534 18.63 25.59 10,847,200 0.16 0.20 0.75 6.76 7.34
MFS VIT II Core Equity Portfolio
Initial Class 398,790 9.69 9.73 3,874,431 1.18 0.20 0.75 -3.14 -2.73
MFS VIT New Discovery Series
Initial Class 249,507 17.83 18.97 4,696,667 0.00 0.20 1.45 -3.30 -2.08
MFS VIT Research Series Initial
Class 151,314 12.60 22.64 2,574,658 0.72 0.20 0.75 0.05 0.60
MFS VIT Total Return Series Initial
Class 25,915 14.53 376,652 2.60 0.50 -0.87
Morgan Stanley VIF Growth Portfolio
Class I 154,144 20.76 26.62 3,154,713 0.00 0.20 0.75 11.40 12.01
Neuberger Berman AMT Large Cap
Value Portfolio Class I 2,629 10.84 28,491 0.78 0.50 -12.24
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I 322,635 16.66 17.89 5,601,819 0.00 0.20 1.45 -0.18 1.07
Neuberger Berman AMT Sustainable
Equity Portfolio Class I 5,802 15.67 24.21 90,687 0.59 0.20 0.70 -1.16 -0.66
Oppenheimer Conservative Balanced
Fund/ VA Non Service Shares 116,211 15.56 15.87 1,309,698 2.27 0.20 0.75 0.08 0.63
Oppenheimer Global Fund/VA Non
Service Shares 430,410 12.02 15.11 6,918,180 1.36 0.20 1.45 2.45 3.74
Oppenheimer Global Strategic Income
Fund/VA Non-Service Shares 119 9.98 10.06 1,192 54.19 0.50 0.75 -2.99 -2.75
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class 157,941 5.45 748,201 4.72 0.20 1.45 -26.78 -25.85
PIMCO Global Bond Opportunities
Portfolio (Unhedged)
Adminstrative Class 9,924 9.43 12.22 112,453 1.84 0.20 0.70 -4.69 -4.22
PIMCO Real Return Portfolio
Administrative Class 768,137 12.46 19.29 9,823,635 3.98 0.20 0.75 -3.43 -2.90
PIMCO Short-Term Portfolio
Administrative Class 356,593 10.93 11.32 4,051,596 0.97 0.20 1.45 -0.34 0.91
PIMCO Total Return Portfolio
Administrative Class 960,916 10.17 14.72 14,091,840 4.94 0.20 1.45 -0.98 0.27
Pioneer Fund VCT Portfolio Class I 105,109 15.12 18.23 1,558,132 1.08 0.20 0.75 -0.81 -0.26
Pioneer Mid Cap Value VCT Portfolio
Class I 67,069 15.55 22.14 1,034,676 0.79 0.20 0.75 -6.84 -6.33
Pioneer Select Mid Cap Growth VCT
Portfolio Class I 138,650 19.05 19.57 2,660,062 0.00 0.20 0.75 0.87 1.43
Putnam VT Diversified Income Fund
Class IB 353,185 13.76 15.72 6,043,586 9.47 0.20 0.95 -3.26 -2.54
Putnam VT Growth and Income Fund IB 714,172 15.45 17.53 11,296,683 1.87 0.20 0.75 -8.22 -7.71
Putnam VT International Value Fund
Class IB 454,450 8.45 9.28 4,218,894 1.37 0.20 1.45 -3.41 -2.20
Putnam VT Small Cap Value Fund
Class IB 13,733 24.26 31.09 214,083 0.86 0.20 0.75 -4.95 -4.43
Putnam VT Sustainable Leaders Fund
Class IB 2,141 18.64 18.89 40,437 0.51 0.50 0.75 -1.03 -0.79
Putnam VT Voyager Fund IB 10,278 17.58 180,671 1.14 0.50 -6.58
SST SA Multi-Managed Mid Cap Value
Portfolio Class 3 973 11.61 9,593 0.60 0.70 -6.69
SAST SA JPMorgan Diversified
Balanced Portfolio Class 1 137,230 12.01 18.62 2,184,924 1.81 0.20 0.75 -0.72 -0.17
SAST SA WellsCap Aggressive Growth
Portfolio Class 1 95,675 12.10 24.65 1,276,068 0.00 0.20 1.45 -2.61 -1.38
VALIC Company I Dynamic Allocation
Fund 44,433 10.40 10.53 426,336 0.00 0.20 0.70 -5.22 -4.74
VALIC Company I Emerging Economies
Fund 1,266 7.74 7.84 9,783 1.64 0.20 0.70 -15.14 -14.71
VALIC Company I Government Money
Market I Fund 1,157,120 9.70 9.99 11,540,062 0.01 0.20 1.45 -1.43 -0.19
VALIC Company I International
Equities Index Fund 261,372 10.28 13.69 2,498,488 3.69 0.20 0.75 -1.74 -1.20
VALIC Company I International Value
Fund 3,100 9.43 25,424 0.49 0.70 -7.95
VALIC Company I Mid Cap Index Fund 767,547 17.50 17.54 13,632,876 1.04 0.20 1.45 -3.90 -2.69
VALIC Company I Nasdaq-100 Index
Fund 278,122 15.56 24.79 6,538,380 0.86 0.20 1.45 7.62 8.97
VALIC Company I Science &
Technology Fund 122,249 15.52 21.85 2,513,308 0.00 0.20 0.75 7.07 7.66
VALIC Company I Small Cap Index Fund 356,597 16.75 27.01 6,123,899 1.02 0.20 0.75 -5.19 -4.67
VALIC Company I Stock Index Fund 1,174,358 12.89 21.57 19,822,358 1.66 0.20 0.75 0.30 0.85
VALIC Company II Mid Cap Value Fund 1,425 10.00 12.26 15,590 0.18 0.20 0.70 -2.10 -1.61
VALIC Company II Socially
Responsible Fund 1,167 13.20 13.37 15,000 0.92 0.20 0.70 0.41 0.91
VALIC Company II Strategic Bond Fund 10,346 9.86 9.99 101,212 3.38 0.20 0.70 -2.62 -2.13
Vanguard VIF High Yield Bond
Portfolio 377,721 15.03 15.42 6,281,947 5.53 0.20 1.45 -3.00 -1.77
Vanguard VIF Real Estate Index
Portfolio 814,685 15.95 24.97 14,170,899 1.81 0.20 1.45 0.75 2.02
December 31, 2014 For the Year Ended December 31 2014
------------------------------------------ -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ ------- ------ ------- -------------- ------------- ------ ------- ------ -------
Alger Capital Appreciation Portfolio
Class I-2 Shares 274,166 22.94 28.79 5,759,903 0.10 0.20 1.45 12.12 13.53
Alger Mid Cap Growth Portfolio
Class I-2 Shares 192,686 11.46 14.25 2,958,031 0.00 0.20 1.45 6.46 7.80
American Century VP Value Fund Class I 919,159 12.57 28.62 16,723,661 1.54 0.20 0.75 12.23 12.85
American Funds IS Asset Allocation
Fund Class 2 6,802 11.45 11.54 77,912 2.40 0.20 0.70 4.66 5.19
American Funds IS Global Growth Fund
Class 2 5,685 11.73 11.83 67,216 0.68 0.20 0.70 1.60 2.11
American Funds IS Growth Fund Class 2 899 12.34 12.44 11,137 0.01 0.20 0.70 7.75 8.29
American Funds IS Growth-Income Fund
Class 2 5,674 12.70 12.80 72,411 0.02 0.20 0.70 9.86 10.41
American Funds IS High-Income Bond
Fund Class 2 2,617 10.17 10.26 26,459 0.08 0.20 0.70 -0.07 0.43
37
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2014 For the Year Ended December 31 2014
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
American Funds IS International
Fund Class 2 400 10.76 10.85 4,308 2.60 0.20 0.70 -3.33 -2.85
AST SA Wellington Capital
Appreciation Portfolio Class 3 1,023 13.40 13.51 13,792 0.00 0.20 0.70 14.15 14.73
AST SA Wellington Government and
Quality Bond Portfolio Class 3 337 10.17 10.25 3,454 3.42 0.20 0.70 4.18 4.70
Dreyfus IP MidCap Stock Portfolio
Initial Shares 301,137 18.20 28.43 5,588,214 0.93 0.20 0.75 11.25 11.87
Dreyfus VIF International Value
Portfolio Initial Shares 14,043 7.90 8.34 139,628 1.65 0.20 0.95 -10.18 -9.50
Dreyfus VIF Opportunistic Small Cap
Portfolio Initial Shares 467,865 16.60 20.39 7,676,329 0.00 0.20 0.75 0.84 1.39
Dreyfus VIF Quality Bond Portfolio
Initial Shares 400,797 13.90 19.29 5,594,333 2.14 0.20 0.75 4.01 4.58
Fidelity VIP Asset Manager
Portfolio Service Class 2 327,100 18.65 19.04 4,533,991 1.26 0.20 0.75 4.75 5.33
Fidelity VIP Contrafund Portfolio
Service Class 2 1,992,046 16.68 24.89 34,117,348 0.74 0.20 1.45 10.05 11.43
Fidelity VIP Equity-Income
Portfolio Service Class 2 1,176,181 14.36 23.15 17,933,840 2.62 0.20 1.45 6.92 8.26
Fidelity VIP Freedom 2020 Portfolio
Service Class 2 26,350 14.64 19.00 362,588 1.45 0.20 0.70 3.87 4.39
Fidelity VIP Freedom 2025 Portfolio
Service Class 2 44,417 15.17 20.12 637,712 1.32 0.20 0.75 4.07 4.64
Fidelity VIP Freedom 2030 Portfolio
Service Class 2 68,363 12.66 14.32 1,009,535 1.36 0.20 1.45 3.24 4.53
Fidelity VIP Government Money
Market Portfolio Service Class 2 2,363 9.89 9.97 23,368 0.03 0.20 0.70 -0.69 -0.19
Fidelity VIP Growth Portfolio
Service Class 2 1,073,695 15.34 15.47 16,916,744 0.00 0.20 0.75 10.18 10.79
Fidelity VIP Mid Cap Portfolio
Service Class 2 564,784 12.56 17.18 10,828,585 0.02 0.20 1.45 4.51 5.82
FTVIP Franklin Mutual Shares VIP
Fund Class 2 470,937 14.24 20.61 7,010,955 2.05 0.20 1.45 5.58 6.91
FTVIP Franklin Small Cap Value VIP
Fund Class 2 430,935 16.08 25.01 8,238,202 0.62 0.20 1.45 -0.88 0.37
FTVIP Franklin Small-Mid Cap Growth
VIP Fund Class 2 2,703 16.52 44,664 0.00 0.50 6.94
FTVIP Franklin U.S. Government
Securities VIP Fund Class 2 229,369 12.29 15.25 3,005,162 2.50 0.20 0.75 2.61 3.18
FTVIP Templeton Foreign VIP Fund
Class 2 478,259 10.65 18.20 5,837,832 2.01 0.20 0.75 -11.80 -11.31
Goldman Sachs VIT Strategic Growth
Fund Institutional Shares 192,544 16.85 18.80 3,320,170 0.23 0.20 0.75 12.79 13.41
Invesco V.I. American Franchise
Fund Series I 315 16.41 5,172 0.05 0.50 7.90
Invesco V.I. Core Equity Fund
Series I 578,270 15.64 17.27 8,957,278 0.85 0.20 0.75 7.34 7.93
Invesco V.I. Global Real Estate
Fund Series I 15,016 12.10 19.75 210,658 1.52 0.20 0.70 13.82 14.39
Invesco V.I. Government Securities
Fund Series I 3,486 10.91 38,030 2.39 0.50 3.62
Invesco V.I. Growth and Income Fund
Series I 604,758 14.15 16.46 10,490,134 1.79 0.20 0.95 9.24 10.06
Invesco V.I. High Yield Fund Series
I 215,634 11.98 12.22 2,592,381 4.73 0.20 0.75 0.97 1.52
Invesco V.I. International Growth
Fund Series I 602,190 11.19 14.19 8,210,933 1.55 0.20 1.45 -1.11 0.13
Janus Henderson Enterprise
Portfolio Service Shares 285,729 17.06 30.07 5,329,079 0.03 0.20 0.75 11.40 12.02
Janus Henderson Forty Portfolio
Service Shares 32,828 12.75 12.99 492,985 0.03 0.20 0.95 7.44 8.25
Janus Henderson Global Research
Portfolio Service Shares 244,595 13.15 15.43 3,195,683 0.97 0.20 0.75 6.38 6.97
Janus Henderson Overseas Portfolio
Service Shares 823,066 8.23 12.14 8,434,733 3.17 0.20 1.45 -13.37 -12.28
JPMorgan Insurance Trust Core Bond
Portfolio Class 1 13,975 10.20 13.43 166,280 2.80 0.20 0.70 4.19 4.71
JPMorgan Insurance Trust
International Equity Portfolio -- -- -- -- 3.53 0.00 0.00 -3.92 -3.23
JPMorgan Insurance Trust Mid Cap
Value Portfolio Class 1 28,625 28.84 29.76 834,494 0.78 0.20 0.75 14.25 14.88
JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 214,401 18.70 28.76 3,980,905 0.13 0.20 0.75 8.78 9.38
MFS VIT Core Equity Series-Initial
Class 253,650 12.96 16.81 4,227,249 0.76 0.20 0.75 10.41 11.02
MFS VIT Growth Series Initial Class 639,531 17.36 23.97 10,962,846 0.10 0.20 0.75 8.13 8.73
MFS VIT New Discovery Series
Initial Class 262,079 18.44 19.37 5,102,989 0.00 0.20 1.45 -8.59 -7.44
MFS VIT Research Series Initial
Class 159,337 12.52 22.63 2,760,517 0.81 0.20 0.75 9.38 9.98
MFS VIT Total Return Series Initial
Class 28,197 14.66 413,403 1.79 0.50 7.96
Morgan Stanley VIF Growth Portfolio
Class I 164,298 18.53 23.89 3,024,443 0.00 0.20 0.75 5.57 6.15
Neuberger Berman AMT Large Cap
Value Portfolio Class I 2,860 12.35 35,318 0.74 0.50 9.30
Neuberger Berman AMT Mid Cap Growth
Portfolio Class I 340,994 12.60 14.70 5,935,633 0.00 0.20 0.75 6.78 7.37
Neuberger Berman AMT Sustainable
Equity Portfolio Class I 5,345 15.86 24.37 84,617 0.37 0.20 0.70 9.61 10.16
Oppenheimer Conservative Balanced
Fund/ VA Non Service Shares 112,858 10.30 15.55 1,313,231 2.24 0.20 0.75 7.39 7.98
Oppenheimer Global Fund/VA Non
Service Shares 428,197 13.10 14.75 7,020,158 1.12 0.20 1.45 0.82 2.09
Oppenheimer Global Strategic Income
Fund/VA Non-Service Shares 435 10.28 10.34 4,497 6.00 0.50 0.75 2.07 2.33
PIMCO CommodityRealReturn Strategy
Portfolio Administrative Class 141,574 7.35 7.45 939,699 0.39 0.20 1.45 -19.60 -18.59
PIMCO Global Bond Opportunities
Portfolio (Unhedged)
Adminstrative Class 9,366 12.82 14.72 109,767 2.02 0.20 0.70 1.55 2.06
PIMCO Real Return Portfolio
Administrative Class 846,961 12.83 19.98 11,432,689 1.46 0.20 0.75 2.32 2.89
PIMCO Short-Term Portfolio
Administrative Class 389,111 10.97 11.22 4,444,798 0.70 0.20 1.45 -0.74 0.51
PIMCO Total Return Portfolio
Administrative Class 1,018,466 14.81 14.87 15,298,326 2.21 0.20 1.45 2.78 4.07
Pioneer Fund VCT Portfolio Class I 112,417 15.16 18.38 1,675,091 1.19 0.20 0.75 10.20 10.81
Pioneer Mid Cap Value VCT Portfolio
Class I 78,736 14.69 16.04 1,295,160 0.86 0.20 1.45 13.43 14.86
Pioneer Select Mid Cap Growth VCT
Portfolio Class I 159,076 18.89 19.30 3,016,671 0.00 0.20 0.75 8.61 9.21
Putnam VT Diversified Income Fund
Class IB 373,499 14.12 16.25 6,577,843 8.12 0.20 0.95 -0.60 0.15
Putnam VT Growth and Income Fund IB 753,606 16.75 19.09 12,972,211 1.32 0.20 0.75 9.91 10.51
Putnam VT International Value Fund
Class IB 472,647 8.64 9.61 4,609,199 1.38 0.20 1.45 -10.79 -9.67
Putnam VT Small Cap Value Fund
Class IB 13,863 14.61 32.71 227,886 0.48 0.20 0.75 2.66 3.23
Putnam VT Sustainable Leaders Fund
Class IB 2,290 18.83 19.04 43,591 0.34 0.50 0.75 12.64 12.92
Putnam VT Voyager Fund IB 10,716 18.82 201,633 0.75 0.50 9.17
SAST SA JPMorgan Diversified
Balanced Portfolio Class 1 127,688 18.75 12.03 2,073,068 1.34 0.20 0.75 10.61 11.22
SAST SA WellsCap Aggressive Growth
Portfolio Class 1 93,919 11.81 17.37 1,296,355 0.00 0.20 0.75 -0.20 0.35
38
SEPARATE ACCOUNT VL-R
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2014 For the Year Ended December 31 2014
-------------------------------------------- -------------------------------------------
Expense Total
Unit Value ($)/(a)/ Investment Ratio (%)/(d)/ Return (%)/(e)/
------------------- Net Income -------------- --------------
Sub-accounts Units Lowest Highest Assets ($)/(b)/ Ratio (%)/(c)/ Lowest Highest Lowest Highest
------------ --------- ------ ------- -------------- ------------- ------ ------- ------ -------
VALIC Company I Dynamic Allocation
Fund 1,709 10.97 11.06 18,755 2.66 0.20 0.70 3.51 4.03
VALIC Company I Emerging Economies
Fund 676 9.12 9.20 6,209 0.00 0.20 0.70 -6.23 -5.76
VALIC Company I Government Money
Market I Fund 1,134,201 9.84 10.01 11,413,517 0.01 0.20 1.45 -1.43 -0.19
VALIC Company I International
Equities Index Fund 247,583 10.86 15.70 2,483,499 2.51 0.20 0.75 -6.15 -5.63
VALIC Company I International Value
Fund 134 10.25 1,369 0.00 0.70 -12.25
VALIC Company I Mid Cap Index Fund 832,872 12.36 18.26 15,463,977 1.11 0.20 1.45 7.84 9.19
VALIC Company I Nasdaq-100 Index
Fund 264,337 14.28 25.69 5,678,276 0.78 0.20 0.75 17.80 18.45
VALIC Company I Science &
Technology Fund 111,094 20.41 30.27 2,117,057 0.12 0.20 0.75 13.57 14.20
VALIC Company I Small Cap Index Fund 451,716 17.57 28.49 8,200,643 1.14 0.20 0.75 3.98 4.55
VALIC Company I Stock Index Fund 1,288,580 12.78 21.51 21,735,503 1.60 0.20 0.75 12.44 13.06
VALIC Company II Mid Cap Value Fund 180 12.36 12.46 2,227 0.00 0.20 0.70 5.98 6.51
VALIC Company II Socially
Responsible Fund 1,076 13.15 13.25 14,158 0.00 0.20 0.70 14.72 15.30
VALIC Company II Strategic Bond Fund 4,924 10.13 10.21 50,223 0.00 0.20 0.70 3.22 3.74
Vanguard VIF High Yield Bond
Portfolio 444,782 15.49 15.70 7,720,929 5.45 0.20 1.45 2.90 4.20
Vanguard VIF Real Estate Index
Portfolio 833,523 15.35 15.83 14,892,265 3.38 0.20 1.45 28.24 29.85
(a)Because the unit values are presented as a range of lowest to highest, based
on the product grouping representing the minimum and maximum expense ratio
amounts, some individual contract unit values are not within the ranges
presented.
(b)These amounts represent the net asset value before adjustments allocated to
the contracts in payout period.
(c)These amounts represent the dividends, excluding distributions of capital
gains, received by the sub-account from the Funds, net of management fees
assessed by the portfolio manager, divided by the average net assets. These
ratios exclude those expenses, such as mortality and expense charges, that
are assessed against contract owner accounts either through reductions in
the unit values or the redemption of units. The recognition of investment
income by the sub-account is affected by the timing of the declaration of
dividends by the Funds in which the sub-account invests. The average net
assets are calculated using the net asset balances at the beginning and end
of the year.
(d)These amounts represent the annualized contract expenses of the sub-account,
consisting of distribution, mortality and expense charges, for each period
indicated. The ratios include only those expenses that result in direct
reduction to unit values. Charges made directly to contract owners account
through the redemption of units and expenses of the Funds have been
excluded. For additional information on charges and deductions, see Note 4.
(e)These amounts represent the total return for the periods indicated,
including changes in the value of the Funds, and expenses assessed through
the reduction of unit values. These ratios do not include any expenses
assessed through redemption of units. Investment options with a date
notation indicate the effective date of that investment option in the
variable account. The total return is calculated for each of the periods
indicated or from the effective date through the end of the reporting
period. Because the total return is presented as a range of minimum and
maximum values, based on the product grouping representing the minimum and
maximum expense ratios, some individual contract total returns are not
within the ranges presented.
7. Subsequent Events
Management considered Separate Accounts related events and transactions that
occurred after the date of the Statement of Assets and Liabilities, but before
the financial statements are issued to provide additional evidence relative to
certain estimates or to identify matters that required additional disclosures.
Management has evaluated events through April 22, 2019, the date the financial
statements were issued, and has determined that no additional items require
disclosure.
39
American General
Life Companies
Separate Account VUL-2
American General Life Insurance Company
2018
Annual Report
December 31, 2018
Report of Independent Registered Public Accounting Firm
To the Board of Directors of American General Life Insurance Company and the
Contract Owners of Separate Account VUL-2.
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, of each of the sub-accounts
of Separate Account VUL-2 indicated in the table below as of December 31, 2018,
and the related statement of operations and changes in net assets for each of
the two years in the period then ended, including the related notes
(collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial
position of each of the sub-accounts in the Separate Account VUL-2 as of
December 31, 2018, and the results of each of their operations and the changes
in each of their net assets for the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States
of America.
Fidelity VIP Asset Manager: Growth Fidelity VIP Growth Portfolio Initial
Portfolio Initial Class Class
Fidelity VIP Asset Manager Portfolio Fidelity VIP High Income Portfolio
Initial Class Initial Class
Fidelity VIP Contrafund Portfolio Fidelity VIP Index 500 Portfolio
Initial Class Initial Class
Fidelity VIP Equity-Income Portfolio Fidelity VIP Investment Grade Bond
Initial Class Portfolio Initial Class
Fidelity VIP Government Money Market Fidelity VIP Overseas Portfolio
Portfolio Initial Class Initial Class
MFS VIT Growth Series Initial Class MFS VIT Research Series Initial Class
MFS VIT II Core Equity Portfolio MFS VIT Total Return Series Initial
Initial Class Class
MFS VIT Investors Trust Series Initial MFS VIT Utilities Series Initial Class
Class
Basis for Opinions
These financial statements are the responsibility of American General Life
Insurance Company management. Our responsibility is to express an opinion on
the financial statements of each of the sub-accounts in the Separate Account
VUL-2 based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to each of the subaccounts in the
Separate Account VUL-2 in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits of these financial statements in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our procedures
included confirmation of investments owned as of December 31, 2018 by
correspondence with the transfer agents of the investee mutual funds. We
believe that our audits provide a reasonable basis for our opinions.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
April 22, 2019
We have served as the auditor of one or more of the sub-accounts in the AIG
Life and Retirement Separate Account Group since at least 1994. We have not
been able to determine the specific year we began serving as auditor.
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2018
Due from
(to)
Company's
Investments at General
Sub-accounts Fair Value Account, Net Net Assets
------------ -------------- ------------ -----------
Fidelity VIP Asset Manager: Growth Portfolio Initial Class $ 5,946,660 $-- $ 5,946,660
Fidelity VIP Asset Manager Portfolio Initial Class 9,879,355 -- 9,879,355
Fidelity VIP Contrafund Portfolio Initial Class 33,309,439 -- 33,309,439
Fidelity VIP Equity-Income Portfolio Initial Class 27,454,170 -- 27,454,170
Fidelity VIP Government Money Market Portfolio Initial Class 1,628,735 -- 1,628,735
Fidelity VIP Growth Portfolio Initial Class 52,156,663 -- 52,156,663
Fidelity VIP High Income Portfolio Initial Class 1,797,986 -- 1,797,986
Fidelity VIP Index 500 Portfolio Initial Class 33,448,397 -- 33,448,397
Fidelity VIP Investment Grade Bond Portfolio Initial Class 2,519,921 -- 2,519,921
Fidelity VIP Overseas Portfolio Initial Class 6,251,305 -- 6,251,305
MFS VIT Growth Series Initial Class 13,273,188 -- 13,273,188
MFS VIT II Core Equity Portfolio Initial Class 6,226,606 -- 6,226,606
MFS VIT Investors Trust Series Initial Class 2,881,806 -- 2,881,806
MFS VIT Research Series Initial Class 4,797,480 -- 4,797,480
MFS VIT Total Return Series Initial Class 4,316,665 -- 4,316,665
MFS VIT Utilities Series Initial Class 7,478,024 -- 7,478,024
The accompanying Notes to Financial Statements are an integral part of this
statement.
1
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2018
Net Asset
Value per Shares at Fair Cost of Shares
Sub-accounts Shares Share Value Held Level*
------------ --------- --------- -------------- -------------- ------
Fidelity VIP Asset Manager: Growth Portfolio Initial Class 354,813 $ 16.76 $ 5,946,660 $ 5,644,184 1
Fidelity VIP Asset Manager Portfolio Initial Class 722,175 13.68 9,879,355 10,794,753 1
Fidelity VIP Contrafund Portfolio Initial Class 1,036,708 32.13 33,309,439 28,501,298 1
Fidelity VIP Equity-Income Portfolio Initial Class 1,347,775 20.37 27,454,170 27,218,756 1
Fidelity VIP Government Money Market Portfolio Initial Class 1,628,735 1.00 1,628,735 1,628,735 1
Fidelity VIP Growth Portfolio Initial Class 826,310 63.12 52,156,663 53,338,288 1
Fidelity VIP High Income Portfolio Initial Class 361,768 4.97 1,797,986 2,000,231 1
Fidelity VIP Index 500 Portfolio Initial Class 132,490 252.46 33,448,397 19,491,369 1
Fidelity VIP Investment Grade Bond Portfolio Initial Class 204,208 12.34 2,519,921 2,622,082 1
Fidelity VIP Overseas Portfolio Initial Class 326,780 19.13 6,251,305 5,573,413 1
MFS VIT Growth Series Initial Class 282,348 47.01 13,273,188 8,815,949 1
MFS VIT II Core Equity Portfolio Initial Class 287,205 21.68 6,226,606 6,698,656 1
MFS VIT Investors Trust Series Initial Class 106,536 27.05 2,881,806 2,561,406 1
MFS VIT Research Series Initial Class 192,438 24.93 4,797,480 4,523,609 1
MFS VIT Total Return Series Initial Class 198,194 21.78 4,316,665 4,178,342 1
MFS VIT Utilities Series Initial Class 254,528 29.38 7,478,024 6,996,969 1
* Represents the level within the fair value hierarchy under which the
portfolio is classified as defined in ASC 820 and described in Note 3 to the
financial statements.
The accompanying Notes to Financial Statements are an integral part of this
statement.
2
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Fidelity VIP
Asset Fidelity VIP Fidelity VIP
Manager: Asset Fidelity VIP Fidelity VIP Government
Growth Manager Contrafund Equity-Income Money Market
Portfolio Initial Portfolio Initial Portfolio Initial Portfolio Initial Portfolio Initial
Class Class Class Class Class
----------------- ----------------- ----------------- ----------------- -----------------
For the Year Ended December 31, 2018
From operations:
Dividends $ 95,501 $ 181,400 $ 268,269 $ 693,639 $ 25,469
Mortality and expense risk and
administrative charges (50,603) (82,219) (290,057) (234,471) (11,722)
----------- ----------- ----------- ----------- ----------
Net investment income (loss) 44,898 99,181 (21,788) 459,168 13,747
Net realized gain (loss) 183,757 23,140 1,420,127 659,457 --
Capital gain distribution from
mutual funds 264,716 359,712 3,334,005 1,456,741 --
Change in unrealized appreciation
(depreciation) of investments (1,029,978) (1,123,094) (7,175,209) (5,314,702) --
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
operations (536,607) (641,061) (2,442,865) (2,739,336) 13,747
----------- ----------- ----------- ----------- ----------
From contract transactions:
Payments received from contract
owners 501,980 758,703 1,715,863 1,839,503 253,960
Payments for contract benefits or
terminations (461,872) (511,839) (2,263,746) (1,748,222) (379,211)
Policy loans (22,612) 2,645 (150,965) (23,040) 1,887
Transfers between sub-accounts
(including fixed account), net 29,932 (10,292) (288,756) (258,129) 468,017
Contract maintenance charges (566,809) (1,025,506) (2,167,639) (2,435,438) (257,507)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
contract transactions (519,381) (786,289) (3,155,243) (2,625,326) 87,146
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets (1,055,988) (1,427,350) (5,598,108) (5,364,662) 100,893
Net assets at beginning of period 7,002,648 11,306,705 38,907,547 32,818,832 1,527,842
----------- ----------- ----------- ----------- ----------
Net assets at end of period $ 5,946,660 $ 9,879,355 $33,309,439 $27,454,170 $1,628,735
=========== =========== =========== =========== ==========
Beginning units 17,729 22,533 45,987 37,089 9,189
Units issued 473 287 396,270 313,497 6,562
Units redeemed (1,776) (1,862) (18,554) (9,706) (6,041)
----------- ----------- ----------- ----------- ----------
Ending units 16,426 20,958 423,703 340,880 9,710
=========== =========== =========== =========== ==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 85,069 $ 206,687 $ 370,392 $ 541,464 $ 11,731
Mortality and expense risk and
administrative charges (51,707) (83,461) (280,135) (239,711) (13,376)
----------- ----------- ----------- ----------- ----------
Net investment income (loss) 33,362 123,226 90,257 301,753 (1,645)
Net realized gain (loss) 223,230 47,352 1,414,909 702,818 --
Capital gain distribution from
mutual funds 904,377 1,240,773 1,978,069 662,988 --
Change in unrealized appreciation
(depreciation) of investments (29,329) (23,020) 3,602,196 1,989,256 --
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
operations 1,131,640 1,388,331 7,085,431 3,656,815 (1,645)
----------- ----------- ----------- ----------- ----------
From contract transactions:
Payments received from contract
owners 520,089 773,554 1,781,311 1,929,587 324,390
Payments for contract benefits or
terminations (651,247) (701,531) (2,621,731) (2,008,371) (346,962)
Policy loans (15,536) (16,273) (181,068) (24,244) (2,639)
Transfers between sub-accounts
(including fixed account), net (45,920) (29,077) (142,926) (249,417) (61,274)
Contract maintenance charges (598,559) (1,077,943) (2,232,795) (2,523,260) (407,120)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
contract transactions (791,173) (1,051,270) (3,397,209) (2,875,705) (493,605)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in net assets 340,467 337,061 3,688,222 781,110 (495,250)
Net assets at beginning of period 6,662,181 10,969,644 35,219,325 32,037,722 2,023,092
----------- ----------- ----------- ----------- ----------
Net assets at end of period $ 7,002,648 $11,306,705 $38,907,547 $32,818,832 $1,527,842
=========== =========== =========== =========== ==========
Beginning units 19,876 24,758 50,356 40,570 12,159
Units issued 315 333 257 275 3,194
Units redeemed (2,462) (2,558) (4,626) (3,756) (6,164)
----------- ----------- ----------- ----------- ----------
Ending units 17,729 22,533 45,987 37,089 9,189
=========== =========== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
3
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Fidelity VIP
Fidelity VIP Fidelity VIP Fidelity VIP Investment Fidelity VIP
Growth High Income Index 500 Grade Bond Overseas
Portfolio Initial Portfolio Initial Portfolio Initial Portfolio Initial Portfolio Initial
Class Class Class Class Class
----------------- ----------------- ----------------- ----------------- -----------------
For the Year Ended December 31, 2018
From operations:
Dividends $ 131,714 $ 106,877 $ 693,164 $ 63,027 $ 113,934
Mortality and expense risk and
administrative charges (423,785) (14,802) (284,487) (19,144) (56,937)
------------ ---------- ----------- ---------- -----------
Net investment income (loss) (292,071) 92,075 408,677 43,883 56,997
Net realized gain (loss) 20,600,680 (18,421) 1,835,432 (17,935) 283,247
Capital gain distribution from
mutual funds 6,218,193 -- 181,613 15,991 --
Change in unrealized appreciation
(depreciation) of investments (26,089,899) (150,232) (4,163,337) (76,060) (1,498,653)
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets from
operations 436,903 (76,578) (1,737,615) (34,121) (1,158,409)
------------ ---------- ----------- ---------- -----------
From contract transactions:
Payments received from contract
owners 2,628,881 156,284 2,023,717 231,660 564,416
Payments for contract benefits or
terminations (3,583,208) (185,046) (2,081,798) (148,200) (461,290)
Policy loans 63,356 5,882 (190,119) (5,738) 11,432
Transfers between sub-accounts
(including fixed account), net (698,615) (657) (82,889) 72,004 (125,990)
Contract maintenance charges (3,505,055) (221,512) (2,488,958) (293,448) (698,141)
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets from
contract transactions (5,094,641) (245,049) (2,820,047) (143,722) (709,573)
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets (4,657,738) (321,627) (4,557,662) (177,843) (1,867,982)
Net assets at beginning of period 56,814,401 2,119,613 38,006,059 2,697,764 8,119,287
------------ ---------- ----------- ---------- -----------
Net assets at end of period $ 52,156,663 $1,797,986 $33,448,397 $2,519,921 $ 6,251,305
============ ========== =========== ========== ===========
Beginning units 58,736 6,689 49,044 7,895 20,349
Units issued 1,453,728 285 378 518 595
Units redeemed (968,262) (1,063) (3,888) (943) (2,414)
------------ ---------- ----------- ---------- -----------
Ending units 544,202 5,911 45,534 7,470 18,530
============ ========== =========== ========== ===========
For the Year Ended December 31, 2017
From operations:
Dividends $ 116,142 $ 113,568 $ 643,605 $ 67,584 $ 108,961
Mortality and expense risk and
administrative charges (400,131) (16,506) (268,731) (21,221) (56,701)
------------ ---------- ----------- ---------- -----------
Net investment income (loss) (283,989) 97,062 374,874 46,363 52,260
Net realized gain (loss) 2,961,888 (25,017) 1,765,460 (13,639) 210,349
Capital gain distribution from
mutual funds 3,837,655 -- 114,370 13,646 7,117
Change in unrealized appreciation
(depreciation) of investments 8,849,756 60,897 4,546,885 50,446 1,639,206
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets from
operations 15,365,310 132,942 6,801,589 96,816 1,908,932
------------ ---------- ----------- ---------- -----------
From contract transactions:
Payments received from contract
owners 2,829,791 167,640 2,082,323 249,256 588,762
Payments for contract benefits or
terminations (4,220,393) (203,976) (2,311,198) (493,022) (563,761)
Policy loans (166,829) 5,924 (112,321) (7,385) (12,395)
Transfers between sub-accounts
(including fixed account), net (433,315) (6,695) (178,391) 41,813 190,932
Contract maintenance charges (3,632,026) (239,201) (2,541,052) (310,639) (701,845)
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets from
contract transactions (5,622,772) (276,308) (3,060,639) (519,977) (498,307)
------------ ---------- ----------- ---------- -----------
Increase (decrease) in net assets 9,742,538 (143,366) 3,740,950 (423,161) 1,410,625
Net assets at beginning of period 47,071,863 2,262,979 34,265,109 3,120,925 6,708,662
------------ ---------- ----------- ---------- -----------
Net assets at end of period $ 56,814,401 $2,119,613 $38,006,059 $2,697,764 $ 8,119,287
============ ========== =========== ========== ===========
Beginning units 65,271 7,579 53,416 9,447 21,742
Units issued 319 289 483 480 970
Units redeemed (6,854) (1,179) (4,855) (2,032) (2,363)
------------ ---------- ----------- ---------- -----------
Ending units 58,736 6,689 49,044 7,895 20,349
============ ========== =========== ========== ===========
The accompanying Notes to Financial Statements are an integral part of this
statement.
4
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
MFS VIT II MFS VIT MFS VIT MFS VIT
MFS VIT Core Equity Investors Research Total Return
Growth Series Portfolio Initial Trust Series Series Initial Series Initial
Initial Class Class Initial Class Class Class
------------- ----------------- ------------- -------------- --------------
For the Year Ended December 31, 2018
From operations:
Dividends $ 13,397 $ 47,831 $ 20,768 $ 38,096 $ 103,423
Mortality and expense risk and administrative
charges (112,571) (53,207) (25,066) (41,458) (35,623)
----------- ----------- ---------- ----------- ----------
Net investment income (loss) (99,174) (5,376) (4,298) (3,362) 67,800
Net realized gain (loss) 846,905 30,035 156,802 234,389 136,254
Capital gain distribution from mutual funds 994,157 737,719 144,329 629,323 210,734
Change in unrealized appreciation
(depreciation) of investments (1,388,663) (1,038,349) (483,035) (1,106,946) (709,003)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from operations 353,225 (275,971) (186,202) (246,596) (294,215)
----------- ----------- ---------- ----------- ----------
From contract transactions:
Payments received from contract owners 736,803 374,865 149,761 313,503 348,475
Payments for contract benefits or terminations (1,011,013) (407,093) (195,170) (358,540) (257,944)
Policy loans (39,277) (28,281) (5,457) (27,259) (14,547)
Transfers between sub-accounts (including
fixed account), net (37,958) 24,710 (49,513) 38,151 (6,819)
Contract maintenance charges (860,092) (451,558) (215,226) (364,334) (409,653)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from contract
transactions (1,211,537) (487,357) (315,605) (398,479) (340,488)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets (858,312) (763,328) (501,807) (645,075) (634,703)
Net assets at beginning of period 14,131,500 6,989,934 3,383,613 5,442,555 4,951,368
----------- ----------- ---------- ----------- ----------
Net assets at end of period $13,273,188 $ 6,226,606 $2,881,806 $ 4,797,480 $4,316,665
=========== =========== ========== =========== ==========
Beginning units 43,214 219,759 13,063 19,579 17,322
Units issued 631 5,463 341 623 656
Units redeemed (4,012) (20,123) (1,543) (2,019) (1,857)
----------- ----------- ---------- ----------- ----------
Ending units 39,833 205,099 11,861 18,183 16,121
=========== =========== ========== =========== ==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 13,876 $ 63,036 $ 23,067 $ 70,547 $ 114,241
Mortality and expense risk and administrative
charges (99,244) (50,090) (23,799) (39,096) (36,823)
----------- ----------- ---------- ----------- ----------
Net investment income (loss) (85,368) 12,946 (732) 31,451 77,418
Net realized gain (loss) 675,318 (6,693) 106,283 233,952 171,965
Capital gain distribution from mutual funds 525,084 388,369 124,485 346,498 132,934
Change in unrealized appreciation
(depreciation) of investments 2,348,278 1,034,762 410,347 439,846 152,666
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from operations 3,463,312 1,429,384 640,383 1,051,747 534,983
----------- ----------- ---------- ----------- ----------
From contract transactions:
Payments received from contract owners 749,052 397,021 167,259 319,492 373,340
Payments for contract benefits or terminations (817,804) (433,421) (153,519) (373,212) (501,402)
Policy loans (130,753) (40,205) (20,135) (30,454) (7,046)
Transfers between sub-accounts (including
fixed account), net (63,680) (202,640) 3,813 (52,228) 86,999
Contract maintenance charges (860,578) (464,606) (219,543) (378,332) (412,570)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from contract
transactions (1,123,763) (743,851) (222,125) (514,734) (460,679)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets 2,339,549 685,533 418,258 537,013 74,304
Net assets at beginning of period 11,791,951 6,304,401 2,965,355 4,905,542 4,877,064
----------- ----------- ---------- ----------- ----------
Net assets at end of period $14,131,500 $ 6,989,934 $3,383,613 $ 5,442,555 $4,951,368
=========== =========== ========== =========== ==========
Beginning units 47,031 245,569 14,015 21,609 19,018
Units issued 689 2,737 372 352 677
Units redeemed (4,506) (28,547) (1,324) (2,382) (2,373)
----------- ----------- ---------- ----------- ----------
Ending units 43,214 219,759 13,063 19,579 17,322
=========== =========== ========== =========== ==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
5
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
MFS VIT
Utilities Series
Initial Class
----------------
For the Year Ended December 31, 2018
From operations:
Dividends $ 87,861
Mortality and expense risk and administrative charges (60,646)
----------
Net investment income (loss) 27,215
Net realized gain (loss) 219,769
Capital gain distribution from mutual funds 30,506
Change in unrealized appreciation (depreciation) of investments (241,986)
----------
Increase (decrease) in net assets from operations 35,504
----------
From contract transactions:
Payments received from contract owners 434,420
Payments for contract benefits or terminations (681,679)
Policy loans (8,221)
Transfers between sub-accounts (including fixed account), net (116,934)
Contract maintenance charges (563,715)
----------
Increase (decrease) in net assets from contract transactions (936,129)
----------
Increase (decrease) in net assets (900,625)
Net assets at beginning of period 8,378,649
----------
Net assets at end of period $7,478,024
==========
Beginning units 18,595
Units issued 381
Units redeemed (2,430)
----------
Ending units 16,546
==========
For the Year Ended December 31, 2017
From operations:
Dividends $ 365,401
Mortality and expense risk and administrative charges (63,475)
----------
Net investment income (loss) 301,926
Net realized gain (loss) 187,863
Change in unrealized appreciation (depreciation) of investments 611,949
----------
Increase (decrease) in net assets from operations 1,101,738
----------
From contract transactions:
Payments received from contract owners 500,581
Payments for contract benefits or terminations (647,167)
Policy loans (58,167)
Transfers between sub-accounts (including fixed account), net (19,184)
Contract maintenance charges (598,404)
----------
Increase (decrease) in net assets from contract transactions (822,341)
----------
Increase (decrease) in net assets 279,397
Net assets at beginning of period 8,099,252
----------
Net assets at end of period $8,378,649
==========
Beginning units 20,487
Units issued 519
Units redeemed (2,411)
----------
Ending units 18,595
==========
The accompanying Notes to Financial Statements are an integral part of this
statement.
6
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Organization
Separate Account VUL-2 (the Separate Account) was established in September 30,
1991 to receive and invest premium payments from variable universal life
insurance policies issued by The American Franklin Life Insurance Company
(AMFLIC). On December 31, 2002, AMFLIC merged with and into its parent company,
The Franklin Life Insurance Company (Franklin). This was followed by an
immediate merger of Franklin with an affiliate, American General Life Insurance
Company (the Company). The Company is a wholly owned subsidiary of AGC Life
Insurance Company, an indirect, wholly owned subsidiary of American
International Group, Inc. (AIG).
As a result of the mergers, the Company became the depositor of the Separate
Account and its assets are the property of the Company. The Company is
responsible for all policies funded through the Separate Account. The mergers
did not affect the rights of the policy owners. The products in the Separate
Account, (EquiBuilder II and EquiBuilder III), are no longer available for sale.
The Separate Account is registered with the Securities and Exchange Commission
as a Unit Investment Trust under the Investment Company Act of 1940, as
amended. The Separate Account consists of various sub-accounts. Each
sub-account invests all its investible assets in a corresponding eligible
mutual fund, which is registered under the 1940 Act as open-ended management
investment companies. The names in bold in the table below are the diversified,
open-ended management investment companies and the names below them are the
names of the sub-accounts/corresponding eligible mutual funds. Collectively,
all of the mutual funds are referred to as "Funds" throughout these financial
statements.
For each sub-account, the financial statements are comprised of a Statement of
Assets and Liabilities, including a Schedule of Portfolio Investments, as of
December 31, 2018 and related Statements of Operations and Changes in Net
Assets for each of the two years in the period then ended.
Fidelity Variable Insurance Products
(Fidelity VIP)
Fidelity VIP Asset Manager: Growth Fidelity VIP Growth Portfolio Initial
Portfolio Initial Class Class
Fidelity VIP Asset Manager Portfolio Fidelity VIP High Income Portfolio
Initial Class Initial Class
Fidelity VIP Contrafund Portfolio Fidelity VIP Index 500 Portfolio
Initial Class Initial Class
Fidelity VIP Equity-Income Portfolio Fidelity VIP Investment Grade Bond
Initial Class Portfolio Initial Class
Fidelity VIP Government Money Market Fidelity VIP Overseas Portfolio
Portfolio Initial Class Initial Class
MFS Variable Insurance Trust (MFS VIT)
MFS VIT Growth Series Initial Class MFS VIT Research Series Initial Class
MFS VIT II Core Equity Portfolio MFS VIT Total Return Series Initial
Initial Class Class
MFS VIT Investors Trust Series Initial
Class MFS VIT Utilities Series Initial Class
In addition to the sub-accounts above, a contract owner may allocate contract
funds to a fixed account, which is part of the Company's General Account and
not included in these financial statements. Contract owners should refer to the
product prospectus for the available Funds and fixed account.
The assets of the Separate Account are segregated from the Company's assets.
The operations of the Separate Account are part of the Company. Net premiums
from the contracts are allocated to the sub-accounts and invested in the Funds
in accordance with contract owner instructions and are recorded as contract
transactions in the Statements of Operations and Changes in Net Assets.
7
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policy
The financial statements of the Separate Account have been prepared in
conformity with accounting principles generally accepted in the United States
(GAAP). The following is a summary of significant accounting policies
consistently followed by the Separate Account in the preparation of its
financial statements.
Use of Estimates: The preparation of financial statements in conformity with
GAAP requires the application of accounting policies that often involve a
significant degree of judgment. These accounting estimates require the use of
assumptions about matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from assumptions used, the
financial statements of the Separate Account could be materially affected.
Investments: Investments in mutual funds are valued at their closing net asset
value per share as determined by the respective mutual funds, which generally
value their securities at fair value. Purchases and sales of shares of the
Funds are made at the net asset values of such Funds. Transactions are recorded
on a trade date basis. Realized gains and losses on the sales of investments
are recognized at the date of sale and are determined on a first-in, first-out
basis. Dividends and capital gain distributions from the Funds are recorded on
the ex-dividend date and reinvested upon receipt.
Policy Loans: When a policy loan is made, the loan amount is transferred to the
Company from the contract owner's selected investment, and held as collateral.
Interest on this collateral amount is credited to the policy. Loan repayments
are invested in the contract owner's selected investment, after they are first
used to repay all loans taken from the declared fixed interest account option.
Accumulation Unit: This is the basic valuation unit used to calculate the
contract owner's interest. Such units are valued daily to reflect investment
performance and the prorated daily deduction for expense charges.
Income Taxes: The operations of the Separate Account are included in the
federal income tax return of the Company, which is taxed as a life insurance
company under the provision of the Internal Revenue Code (the Code). Under the
current provisions of the Code, the Company does not expect to incur federal
income taxes on the earnings of the Separate Account to the extent that the
earnings are credited under the contracts. As a result, no charge is currently
made to the Separate Account for federal income taxes. The Separate Account is
not treated as a regulated investment company under the Code. The Company will
periodically review changes in the tax law. A charge may be made in future
years for any federal income taxes that would be attributable to the contracts.
3. Fair Value Measurements
Assets recorded at fair value in the Separate Account's Statement of Assets and
Liabilities are measured and classified in a hierarchy for disclosure purposes
consisting of three "levels" based on the observability of valuation inputs:
.. Level 1-- Fair value measurements based on quoted prices (unadjusted) in
active markets that the Separate Account has the ability to access for
identical assets or liabilities. Market price data generally is obtained
from exchange or dealer markets. The Separate Account does not adjust the
quoted price for such instruments.
.. Level 2-- Fair value measurements based on inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, and inputs
other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly
quoted intervals.
.. Level 3-- Fair value measurements based on valuation techniques that use
significant inputs that are unobservable. Both observable and unobservable
inputs may be used to determine the fair value positions in Level 3. The
circumstances in which there is little, if any, market activity for the
asset or liability. Therefore, the Separate Account makes certain
assumptions about the inputs a hypothetical market participant would use to
value that asset or liability.
8
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety falls is
determined based on the lowest level input that is significant to the fair
value measurement in its entirety.
The Separate Account assets measured at fair value as of December 31, 2018
consist of investments in registered mutual funds that generally trade daily
and are measured at fair value using quoted prices in active markets for
identical assets, which are classified as Level 1 throughout the year. As such,
no transfers between fair value hierarchy levels occurred during the year. See
the Schedule of Portfolio Investments for the table presenting information
about assets measured at fair value on a recurring basis at December 31, 2018,
and respective hierarchy levels.
4. Expenses
Expense charges are applied against the current value of the Separate Account
and are paid as follows:
Separate Account Annual Charges: Deductions for the mortality and expense risk
charges and administrative charges are calculated daily, at an annual rate, on
the actual prior day's net asset value of the underlying Funds comprising the
sub-accounts attributable to the contract owners and are paid to the Company.
The mortality risk charge represents compensation to the Company for the
mortality risks assumed under the contract, which is the obligation to provide
payments during the payout period for the life of the contract and to provide
the standard death benefit. The expense risk charge represents compensation to
the Company for assuming the risk that the current contract administration
charges will be insufficient to cover the cost of administering the contract in
the future. The administrative charge reimburses the Company for any
administrative expenses incurred under the contract. This includes the expenses
for administration and marketing. These charges are included on the mortality
and expense risk and administrative charges line in the Statements of
Operations and Changes in Net Assets.
The separate account annual charge is calculated as a percentage of the net
asset value and deducted at an annual rate of 0.75 percent.
Monthly Administrative Charge: The Company makes a monthly charge against each
policy account for the administrative expenses. These charges are included as
part of the contract maintenance charges line in the Statements of Operations
and Changes in Net Assets.
The Company currently charges $9 per month guaranteed to be no more than $12
per month.
Withdrawal Charge: A withdrawal charge is applicable to certain contract
withdrawals pursuant to the contract and is payable to the Company. The
withdrawal charges are included as part of the payments for contract benefits
or terminations line in the Statements of Operations and Changes in Net Assets.
During the first ten years a policy is in effect, a withdrawal charge may be
assessed by the Company. The maximum withdrawal charge is equal to 50 percent
of one "target" premium. This maximum will not vary with premiums paid or when
premiums are paid. At the end of the sixth policy year, and at the end of each
of the four succeeding policy years, the maximum withdrawal charge will
decrease by 20 percent. The current withdrawal charge for EquiBuilder II and
EquiBuilder III will equal 30 percent and 25 percent, respectively, of premium
payments made during the first policy year up to one "target" premium and
9 percent of any additional premiums paid during the first ten policy years.
Cost of Insurance Charge: Since determination of both the insurance rate and
the Company's net amount at risk depends upon several factors, the cost of
insurance deduction may vary from month to month. Policy accumulation value,
specified amount of insurance and certain characteristics of the insured person
are among the variables included in the calculation for the monthly cost of
insurance deduction. The cost of insurance charge is included as part of the
contract maintenance charges line of the Statements of Operations and Changes
in Net Assets.
Face Amount Increase Charge: The Company charges for an increase in the face
amount of insurance. These charges are included as part of the contract
maintenance charges line in the Statements of Operations and Changes in Net
Assets.
9
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The face amount increase charge is $1.50 per $1,000 increase in the face amount
of insurance up to a maximum charge of $300.
Policy Loan Interest Charge: A loan may be requested against a policy while the
policy has a net cash surrender value. The daily interest charge on the loan is
paid to the Company for the expenses of administering and providing policy
loans. The interest charge is collected through any loan repayment from the
policyholder.
Transfer Fee: A transfer fee may be assessed on each transfer of funds in
excess of the maximum transactions allowed within a contract year depending on
the contract provision. The transfer fee is included as part of the payments
for contract benefits or terminations line in the Statements of Operations and
Changes in Net Assets.
A transfer fee of $25 is assessed on each transfer in excess of four transfers
during the policy year.
Premium Tax Charge: Certain states charge taxes on premium payments made up to
a maximum of 3.50 percent. The Company deducts from each premium payment a
charge to cover costs associated with the issuance of the policy,
administrative services the Company performs and a premium tax that is
applicable to the Company in the state or other jurisdiction of the policy
owner. Premium tax charges are included as part of the contract maintenance
charges line in the Statements of Operations and Changes in Net Assets.
For EquiBuilder III, the Company makes a sales expense deduction equal to
5 percent of each premium paid during any policy year up to a target premium,
which is based on the annual premium for a fixed whole life insurance policy on
the life of the insured person (no sales expense deduction is made for premium
in excess of the target premium paid during that policy year).
Optional Rider Charge: Monthly charges are deducted if the contract owner
selects additional benefit riders. The charges for any rider selected will vary
by policy within a range based on either the personal characteristics of the
insured person or the specific coverage chosen under the rider. The rider
charges are included as part of contract maintenance charges line in the
Statements of Operations and Changes in Net Assets.
5. Purchases and Sales of Investments
For the year ended December 31, 2018, the aggregate cost of purchases and
proceeds from the sales of investments were:
Sub-accounts Cost of Purchases Proceeds from Sales
------------ ----------------- -------------------
Fidelity VIP Asset Manager: Growth Portfolio Initial Class $ 535,130 $ 744,896
Fidelity VIP Asset Manager Portfolio Initial Class 668,334 995,731
Fidelity VIP Contrafund Portfolio Initial Class 3,957,917 3,800,942
Fidelity VIP Equity-Income Portfolio Initial Class 2,410,636 3,120,053
Fidelity VIP Government Money Market Portfolio Initial Class 1,115,187 1,014,294
Fidelity VIP Growth Portfolio Initial Class 60,109,688 59,278,207
Fidelity VIP High Income Portfolio Initial Class 193,754 346,728
Fidelity VIP Index 500 Portfolio Initial Class 1,132,930 3,362,688
Fidelity VIP Investment Grade Bond Portfolio Initial Class 247,455 331,302
Fidelity VIP Overseas Portfolio Initial Class 332,790 985,367
MFS VIT Growth Series Initial Class 1,210,807 1,527,361
MFS VIT II Core Equity Portfolio Initial Class 953,058 708,071
MFS VIT Investors Trust Series Initial Class 248,454 424,028
MFS VIT Research Series Initial Class 836,346 608,864
MFS VIT Total Return Series Initial Class 487,993 549,947
MFS VIT Utilities Series Initial Class 279,191 1,157,598
10
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Financial Highlights
The summary of unit values and units outstanding for sub-accounts, investment
income ratios, total return and expense ratios, excluding expenses of the
underlying mutual funds, for each of the five years in the period ended
December 31, 2018, follows:
December 31, 2018 For the Year Ended December 31, 2018
------------------------- ------------------------------------
Unit Investment Expense Total
Value Net Income Ratio Return
Sub-accounts Units ($) Assets ($) Ratio (%)/(a)/ (%)/(b)/ (%)/(c)/
------------ ------- ------ ---------- ------------- ------- -------
Fidelity VIP Asset Manager: Growth
Portfolio Initial Class 16,426 362.04 5,946,660 1.47 0.75 -8.34
Fidelity VIP Asset Manager Portfolio
Initial Class 20,958 471.38 9,879,355 1.71 0.75 -6.06
Fidelity VIP Contrafund Portfolio
Initial Class 423,703 78.62 33,309,439 0.74 0.75 -7.08
Fidelity VIP Equity-Income Portfolio
Initial Class 340,880 80.54 27,454,170 2.30 0.75 -8.98
Fidelity VIP Government Money Market
Portfolio Initial Class 9,710 167.74 1,628,735 1.61 0.75 0.89
Fidelity VIP Growth Portfolio Initial
Class 544,202 95.84 52,156,663 0.24 0.75 -0.92
Fidelity VIP High Income Portfolio
Initial Class 5,911 304.18 1,797,986 5.46 0.75 -4.01
Fidelity VIP Index 500 Portfolio
Initial Class 45,534 734.58 33,448,397 1.94 0.75 -5.21
Fidelity VIP Investment Grade Bond
Portfolio Initial Class 7,470 337.34 2,519,921 2.42 0.75 -1.28
Fidelity VIP Overseas Portfolio
Initial Class 18,530 337.37 6,251,305 1.59 0.75 -15.45
MFS VIT Growth Series Initial Class 39,833 333.22 13,273,188 0.10 0.75 1.90
MFS VIT II Core Equity Portfolio
Initial Class 205,099 30.36 6,226,606 0.72 0.75 -4.55
MFS VIT Investors Trust Series
Initial Class 11,861 242.97 2,881,806 0.66 0.75 -6.20
MFS VIT Research Series Initial Class 18,183 263.84 4,797,480 0.74 0.75 -5.09
MFS VIT Total Return Series Initial
Class 16,121 267.77 4,316,665 2.23 0.75 -6.32
MFS VIT Utilities Series Initial Class 16,546 451.95 7,478,024 1.11 0.75 0.30
December 31, 2017 For the Year Ended December 31, 2017
------------------------- ------------------------------------
Unit Investment Expense Total
Value Net Income Ratio Return
Sub-accounts Units ($) Assets ($) Ratio (%)/(a)/ (%)/(b)/ (%)/(c)/
------------ ------- ------ ---------- ------------- ------- -------
Fidelity VIP Asset Manager: Growth
Portfolio Initial Class 17,729 394.99 7,002,648 1.25 0.75 17.84
Fidelity VIP Asset Manager Portfolio
Initial Class 22,533 501.79 11,306,705 1.86 0.75 13.25
Fidelity VIP Contrafund Portfolio
Initial Class 45,987 846.05 38,907,547 1.00 0.75 20.97
Fidelity VIP Equity-Income Portfolio
Initial Class 37,089 884.86 32,818,832 1.67 0.75 12.05
Fidelity VIP Government Money Market
Portfolio Initial Class 9,189 166.26 1,527,842 0.66 0.75 -0.08
Fidelity VIP Growth Portfolio Initial
Class 58,736 967.29 56,814,401 0.22 0.75 34.13
Fidelity VIP High Income Portfolio
Initial Class 6,689 316.90 2,119,613 5.18 0.75 6.14
Fidelity VIP Index 500 Portfolio
Initial Class 49,044 774.94 38,006,059 1.78 0.75 20.81
Fidelity VIP Investment Grade Bond
Portfolio Initial Class 7,895 341.71 2,697,764 2.32 0.75 3.44
Fidelity VIP Overseas Portfolio
Initial Class 20,349 399.01 8,119,287 1.47 0.75 29.31
MFS VIT Growth Series Initial Class 43,214 327.02 14,131,500 0.11 0.75 30.43
MFS VIT II Core Equity Portfolio
Initial Class 219,759 31.81 6,989,934 0.95 0.75 23.90
MFS VIT Investors Trust Series
Initial Class 13,063 259.03 3,383,613 0.73 0.75 22.43
MFS VIT Research Series Initial Class 19,579 277.98 5,442,555 1.36 0.75 22.45
MFS VIT Total Return Series Initial
Class 17,322 285.84 4,951,368 2.32 0.75 11.46
MFS VIT Utilities Series Initial Class 18,595 450.59 8,378,649 4.44 0.75 13.98
December 31, 2016 For the Year Ended December 31, 2016
------------------------- ------------------------------------
Unit Investment Expense Total
Value Net Income Ratio Return
Sub-accounts Units ($) Assets ($) Ratio (%)/(a)/ (%)/(b)/ (%)/(c)/
------------ ------- ------ ---------- ------------- ------- -------
Fidelity VIP Asset Manager: Growth
Portfolio Initial Class 19,876 335.19 6,662,181 1.34 0.75 1.70
Fidelity VIP Asset Manager Portfolio
Initial Class 24,758 443.07 10,969,644 1.44 0.75 2.30
Fidelity VIP Contrafund Portfolio
Initial Class 50,356 699.40 35,219,325 0.78 0.75 7.20
Fidelity VIP Equity-Income Portfolio
Initial Class 40,570 789.68 32,037,722 2.23 0.75 17.14
Fidelity VIP Government Money Market
Portfolio Initial Class 12,159 166.39 2,023,092 0.21 0.75 -0.54
Fidelity VIP Growth Portfolio Initial
Class 65,271 721.18 47,071,863 0.04 0.75 0.05
Fidelity VIP High Income Portfolio
Initial Class 7,579 298.57 2,262,979 5.24 0.75 13.75
Fidelity VIP Index 500 Portfolio
Initial Class 53,416 641.48 34,265,109 1.41 0.75 11.03
Fidelity VIP Investment Grade Bond
Portfolio Initial Class 9,447 330.35 3,120,925 2.35 0.75 3.96
Fidelity VIP Overseas Portfolio
Initial Class 21,742 308.56 6,708,662 1.38 0.75 -5.77
MFS VIT Growth Series Initial Class 47,031 250.73 11,791,951 0.04 0.75 1.68
MFS VIT II Core Equity Portfolio
Initial Class 245,569 25.67 6,304,401 0.75 0.75 10.55
MFS VIT Investors Trust Series
Initial Class 14,015 211.58 2,965,355 0.86 0.75 7.78
MFS VIT Research Series Initial Class 21,609 227.02 4,905,542 0.77 0.75 7.93
MFS VIT Total Return Series Initial
Class 19,018 256.45 4,877,064 2.91 0.75 8.28
MFS VIT Utilities Series Initial Class 20,487 395.34 8,099,252 3.96 0.75 10.64
11
SEPARATE ACCOUNT VUL-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2015 For the Year Ended December 31, 2015
------------------------- ------------------------------------
Unit Investment Expense Total
Value Net Income Ratio Return
Sub-accounts Units ($) Assets ($) Ratio (%)/(a)/ (%)/(b)/ (%)/(c)/
------------ ------- ------ ---------- ------------- ------- -------
Fidelity VIP Asset Manager: Growth
Portfolio Initial Class 21,766 329.58 7,173,810 1.20 0.75 -0.67
Fidelity VIP Asset Manager Portfolio
Initial Class 27,184 433.10 11,773,211 1.55 0.75 -0.61
Fidelity VIP Contrafund Portfolio
Initial Class 55,107 652.42 35,952,951 1.02 0.75 -0.08
Fidelity VIP Equity-Income Portfolio
Initial Class 44,418 674.15 29,944,360 3.10 0.75 -4.68
Fidelity VIP Government Money Market
Portfolio Initial Class 12,945 167.30 2,165,680 0.03 0.75 -0.72
Fidelity VIP Growth Portfolio Initial
Class 71,151 720.82 51,286,916 0.26 0.75 6.37
Fidelity VIP High Income Portfolio
Initial Class 8,339 262.47 2,188,608 6.64 0.75 -4.35
Fidelity VIP Index 500 Portfolio
Initial Class 59,049 577.77 34,116,797 1.95 0.75 0.58
Fidelity VIP Investment Grade Bond
Portfolio Initial Class 10,105 317.76 3,211,240 2.52 0.75 -1.34
Fidelity VIP Overseas Portfolio
Initial Class 24,159 327.45 7,910,816 1.37 0.75 2.85
MFS VIT Growth Series Initial Class 51,341 246.59 12,660,118 0.16 0.75 6.76
MFS VIT II Core Equity Portfolio
Initial Class 271,013 23.22 6,293,859 1.16 0.75 132.23
MFS VIT Investors Trust Series
Initial Class 15,238 196.31 2,991,568 0.92 0.75 -0.53
MFS VIT Research Series Initial Class 23,841 210.35 5,014,777 0.73 0.75 0.05
MFS VIT Total Return Series Initial
Class 20,053 236.83 4,749,235 2.62 0.75 -1.12
MFS VIT Utilities Series Initial Class 23,188 357.32 8,285,488 4.27 0.75 -15.16
December 31, 2014 For the Year Ended December 31, 2014
------------------------ ------------------------------------
Unit Investment Expense Total
Value Net Income Ratio Return
Sub-accounts Units ($) Assets ($) Ratio (%)/(a)/ (%)/(b)/ (%)/(c)/
------------ ------ ------ ---------- ------------- ------- -------
Fidelity VIP Asset Manager: Growth
Portfolio Initial Class 24,079 331.79 7,989,205 1.08 0.75 5.08
Fidelity VIP Asset Manager Portfolio
Initial Class 30,542 435.74 13,308,223 1.49 0.75 5.04
Fidelity VIP Contrafund Portfolio
Initial Class 60,561 652.95 39,543,372 0.94 0.75 11.11
Fidelity VIP Equity-Income Portfolio
Initial Class 49,647 707.26 35,113,328 2.79 0.75 7.91
Fidelity VIP Government Money Market
Portfolio Initial Class 13,102 168.51 2,207,817 0.01 0.75 -0.74
Fidelity VIP Growth Portfolio Initial
Class 77,420 677.63 52,461,617 0.18 0.75 10.47
Fidelity VIP High Income Portfolio
Initial Class 8,925 274.40 2,448,885 5.52 0.75 0.40
Fidelity VIP Index 500 Portfolio
Initial Class 65,257 574.46 37,487,230 1.60 0.75 12.72
Fidelity VIP Investment Grade Bond
Portfolio Initial Class 10,972 322.07 3,533,890 2.14 0.75 5.04
Fidelity VIP Overseas Portfolio
Initial Class 26,138 318.38 8,321,591 1.31 0.75 -8.76
MFS VIT Growth Series Initial Class 55,844 230.98 12,899,045 0.10 0.75 8.13
MFS VIT Investors Trust Series
Initial Class 16,176 197.36 3,192,530 0.93 0.75 10.18
MFS VIT Research Series Initial Class 25,526 210.24 5,366,578 0.81 0.75 9.38
MFS VIT Total Return Series Initial
Class 21,721 239.50 5,202,296 1.88 0.75 7.69
MFS VIT Utilities Series Initial Class 25,735 421.16 10,838,321 2.15 0.75 11.89
(a)These amounts represent the dividends, excluding distributions of capital
gains, received by the sub-account from the Funds, net of management fees
assessed by the portfolio manager, divided by the average net assets. These
ratios exclude those expenses, such as mortality and expense charges, that
are assessed against contract owner accounts either through reductions in
the unit values or the redemption of units. The recognition of investment
income by the sub-account is affected by the timing of the declaration of
dividends by the Funds in which the sub-account invests. The average net
assets are calculated using the net asset balances at the beginning and end
of the year.
(b)These amounts represent the annualized contract expenses of the sub-account,
consisting of distribution, mortality and expense charges, for each period
indicated. The ratios include only those expenses that result in direct
reduction to unit values. Charges made directly to contract owners account
through the redemption of units and expenses of the Funds have been
excluded. For additional information on charges and deductions, see Note 4.
(c)These amounts represent the total return for the periods indicated,
including changes in the value of the Funds, and expenses assessed through
the reduction of unit values. These ratios do not include any expenses
assessed through redemption of units. Investment options with a date
notation indicate the effective date of that investment option in the
variable account. The total return is calculated for each of the periods
indicated or from the effective date through the end of the reporting
period. Because the total return is presented as a range of minimum and
maximum values, based on the product grouping representing the minimum and
maximum expense ratios, some individual contract total returns are not
within the ranges presented.
7. Subsequent Events
Management considered Separate Accounts related events and transactions that
occurred after the date of the Statement of Assets and Liabilities, but before
the financial statements are issued to provide additional evidence relative to
certain estimates or to identify matters that required additional disclosures.
Management has evaluated events through April 22, 2019, the date the financial
statements were issued, and has determined that no additional items require
disclosure.
12
American General Life
Insurance Company
Audited Statutory Financial Statements
At December 31, 2018 and 2017 and
for each of the three years ended December 31, 2018
AMERICAN GENERAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS TO AUDITED STATUTORY FINANCIAL STATEMENTS AND SUPPLEMENTAL
INFORMATION
Page
----
STATUTORY FINANCIAL STATEMENTS
Independent Auditor's Report.............................................................................................. 2
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus at December 31, 2018 and 2017................ 4
Statutory Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016................................... 6
Statutory Statements of Changes in Capital and Surplus for the Years Ended December 31, 2018, 2017 and 2016............... 7
Statutory Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016................................... 8
NOTES TO STATUTORY FINANCIAL STATEMENTS
1. Nature of Operations................................................................................................. 9
2. Summary of Significant Accounting Policies........................................................................... 10
3. Investments.......................................................................................................... 21
4. Securities Lending and Repurchase Agreements......................................................................... 29
5. Restricted Assets.................................................................................................... 32
6. Subprime Mortgage Risk Exposure...................................................................................... 32
7. Derivatives.......................................................................................................... 33
8. Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of 36
Credit Risk........................................................................................................
9. Fair Value Measurements.............................................................................................. 36
10. Aggregate Policy Reserves and Deposit Fund Liabilities............................................................... 42
11. Separate Accounts.................................................................................................... 43
12. Reserves for Guaranteed Policy Benefits and Enhancements............................................................. 46
13. Participating Policy Contracts....................................................................................... 46
14. Premium and Annuity Considerations Deferred and Uncollected.......................................................... 47
15. Reinsurance.......................................................................................................... 47
16. Federal Income Taxes................................................................................................. 50
17. Capital and Surplus.................................................................................................. 56
18. Retirement Plans and Share-Based and Deferred Compensation Plans..................................................... 57
19. Debt................................................................................................................. 58
20. Commitments and Contingencies........................................................................................ 60
21. Related Party Transactions........................................................................................... 62
22. Subsequent Events.................................................................................................... 67
23. Loan-Backed and Structured Security Impairments and Structured Notes Holdings........................................ 68
SUPPLEMENTAL INFORMATION
Supplemental Schedule of Assets and Liabilities........................................................................... 74
Supplemental Investment Risks Interrogatories............................................................................. 76
Supplemental Summary Investment Schedule.................................................................................. 82
1
Report of Independent Auditors
To the Board of Directors and Shareholder of
American General Life Insurance Company
We have audited the accompanying statutory financial statements of American
General Life Insurance Company (the "Company"), an indirect, wholly-owned
subsidiary of American International Group, Inc., which comprise the statutory
statements of admitted assets, liabilities and capital and surplus as of
December 31, 2018 and 2017, and the related statutory statements of operations
and changes in capital and surplus, and of cash flows for each of the three
years in the period ended December 31, 2018.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with the accounting practices prescribed or
permitted by the Texas Department of Insurance. Management is also responsible
for the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on the financial statements based
on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the
Company's preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements
are prepared by the Company on the basis of the accounting practices prescribed
or permitted by the Texas Department of Insurance, which is a basis of
accounting other than accounting principles generally accepted in the
United States of America.
The effects on the financial statements of the variances between the statutory
basis of accounting described in Note 2 and accounting principles generally
accepted in the United States of America, although not reasonably determinable,
are presumed to be material.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the
"Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles"
paragraph, the financial statements referred to above do not present fairly, in
accordance with accounting principles generally accepted in the United States
of America, the financial position of the Company as of December 31, 2018 and
2017, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 2018.
Opinion on Statutory Basis of Accounting
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and surplus of the
Company as of December 31, 2018 and 2017, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2018, in accordance with the accounting practices prescribed or permitted by
the Texas Department of Insurance described in Note 2.
2
Other Matter
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The Supplemental
Schedule of Assets and Liabilities, Supplemental Investment Risks
Interrogatories and Supplemental Summary Investment Schedule (collectively, the
"supplemental schedules") of the Company as of December 31, 2018 and for the
year then ended are presented to comply with the National Association of
Insurance Commissioners' Annual Statement Instructions and Accounting Practices
and Procedures Manual and for purposes of additional analysis and are not a
required part of the statutory-basis financial statements. The supplemental
schedules are the responsibility of management and were derived from and relate
directly to the underlying accounting and other records used to prepare the
statutory-basis financial statements. The supplemental schedules have been
subjected to the auditing procedures applied in the audit of the
statutory-basis financial statements and certain additional procedures,
including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the statutory-basis financial
statements or to the statutory-basis financial statements themselves and other
additional procedures, in accordance with auditing standards generally accepted
in the United States of America. In our opinion, the supplemental schedules are
fairly stated, in all material respects, in relation to the statutory-basis
financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
April 22, 2019
3
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS
December 31,
-----------------
(in millions) 2018 2017
------------- -------- --------
Admitted assets
Cash and investments......................................
Bonds................................................. $ 94,693 $ 94,338
Preferred stock....................................... 303 211
Common stock.......................................... 312 93
Cash, cash equivalents and short-term investments..... 1,547 119
Mortgage loans........................................ 18,928 15,845
Real estate........................................... 197 223
Contract loans........................................ 1,307 1,340
Derivatives........................................... 1,635 655
Securities lending reinvested collateral assets....... 352 2,418
Derivative cash collateral............................ 20 1,027
Other invested assets................................. 4,364 5,033
-------- --------
Total cash and investments................................ 123,658 121,302
Amounts recoverable from reinsurers....................... 306 426
Amounts receivable under reinsurance contracts............ 372 352
Current federal income tax recoverable.................... 266 241
Deferred tax asset........................................ 517 689
Due and accrued investment income......................... 1,379 1,096
Premiums due, deferred and uncollected.................... 142 48
Receivables from affiliates............................... 363 316
Other assets.............................................. 164 131
Separate account assets................................... 49,618 54,104
-------- --------
Total admitted assets........................................ $176,785 $178,705
======== ========
See accompanying Notes to Statutory Financial Statements.
4
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS
(CONTINUED)
December 31,
------------------
(in millions, except per share data) 2018 2017
------------------------------------ -------- --------
Liabilities
Policy reserves and contractual liabilities......................................
Life and annuity reserves.................................................... $ 91,355 $ 87,540
Liabilities for deposit-type contracts....................................... 12,012 9,663
Accident and health reserves................................................. 788 812
Premiums received in advance................................................. 11 1
Policy and contract claims................................................... 573 576
Policyholder dividends....................................................... 15 19
-------- --------
Total policy reserves and contractual liabilities................................ 104,754 98,611
Payable to affiliates............................................................ 372 425
Interest maintenance reserve..................................................... 1,278 1,411
Derivatives...................................................................... 209 454
Payable for securities lending................................................... 447 2,460
Repurchase agreements............................................................ 119 1,174
Collateral for derivatives program............................................... 835 45
Funds held under coinsurance..................................................... 10,863 10,435
Accrued expenses and other liabilities........................................... 1,750 1,740
Net transfers from separate accounts due or accrued.............................. (1,394) (1,591)
Asset valuation reserve.......................................................... 1,583 1,536
Separate account liabilities..................................................... 49,618 54,021
-------- --------
Total liabilities................................................................... 170,434 170,721
-------- --------
Commitments and contingencies (see Note 20)
Capital and surplus
Common stock, $10 par value; 600,000 shares authorized, issued and outstanding... 6 6
Preferred stock, $100 par value; 8,500 shares authorized, issued and outstanding. 1 1
Gross paid-in and contributed surplus............................................ 3,510 3,510
Unassigned surplus............................................................... 2,834 4,467
-------- --------
Total capital and surplus........................................................... 6,351 7,984
-------- --------
Total liabilities and capital and surplus........................................... $176,785 $178,705
======== ========
See accompanying Notes to Statutory Financial Statements.
5
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF OPERATIONS
Years Ended December 31,
---------------------------
(in millions) 2018 2017 2016
------------- -------- ------- --------
Revenues
Premiums and annuity considerations.................................................... $(10,325) $11,031 $ 7,561
Net investment income.................................................................. 6,243 5,881 6,090
Amortization of interest maintenance reserve........................................... 141 128 99
Reserve adjustments on reinsurance ceded............................................... 17,732 (1,160) (10,314)
Commissions and expense allowances..................................................... 814 798 768
Separate account fees.................................................................. 1,167 1,216 1,025
Other income........................................................................... 437 472 429
-------- ------- --------
Total revenues............................................................................ 16,209 18,366 5,658
-------- ------- --------
Benefits and expenses
Death benefits......................................................................... 260 760 1,089
Annuity benefits....................................................................... 1,537 3,374 3,276
Surrender benefits..................................................................... 7,119 6,452 6,125
Other benefits......................................................................... 271 565 591
Change in reserves..................................................................... 3,792 742 (10,216)
Commissions............................................................................ 1,131 1,023 1,045
General insurance expenses............................................................. 828 969 1,049
Net transfers (from) to separate accounts.............................................. (774) 1,306 303
Other expenses......................................................................... 638 592 238
-------- ------- --------
Total benefits and expenses............................................................... 14,802 15,783 3,500
-------- ------- --------
Net gain from operations before dividends to policyholders and federal income taxes....... 1,407 2,583 2,158
Dividends to policyholders................................................................ (13) 18 19
-------- ------- --------
Net gain from operations after dividends to policyholders and before federal income taxes. 1,420 2,565 2,139
Federal income tax expense................................................................ 513 1,025 1,182
-------- ------- --------
Net gain from operations.................................................................. 907 1,540 957
Net realized capital (losses) gains....................................................... (342) (928) 634
-------- ------- --------
Net income................................................................................ $ 565 $ 612 $ 1,591
======== ======= ========
See accompanying Notes to Statutory Financial Statements.
6
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
Gross Paid-
Common & In and
Preferred Contributed Unassigned Total Capital
(in millions) Stock Surplus Surplus and Surplus
------------- --------- ----------- ---------- -------------
Balance, January 1, 2016............................................ $ 7 $4,318 $ 4,569 $ 8,894
--- ------ ------- -------
Net income....................................................... -- -- 1,591 1,591
Change in net unrealized capital gains (losses).................. -- -- (380) (380)
Change in net unrealized foreign exchange capital gains (losses). -- -- (277) (277)
Change in deferred tax........................................... -- -- 290 290
Change in non-admitted assets.................................... -- -- (243) (243)
Change in asset valuation reserve................................ -- -- 310 310
Change in surplus from separate accounts......................... -- -- 48 48
Other changes in surplus in separate accounts.................... -- -- (6) (6)
Capital Changes:
Return of capital............................................ -- (630) -- (630)
Dividends to parent recorded as return of capital................ -- -- 2,185 2,185
Dividends to stockholder......................................... -- -- (2,740) (2,740)
Prior period corrections (see Note 2)............................ -- -- (41) (41)
--- ------ ------- -------
Balance, December 31, 2016.......................................... $ 7 $3,688 $ 5,306 $ 9,001
=== ====== ======= =======
Net income....................................................... -- -- 612 612
Change in net unrealized capital gains (losses).................. -- -- 36 36
Change in net unrealized foreign exchange capital gains (losses). -- -- 271 271
Change in deferred tax........................................... -- -- (1,286) (1,286)
Change in non-admitted assets.................................... -- -- 1,001 1,001
Change in asset valuation reserve................................ -- -- 19 19
Change in surplus from separate accounts......................... -- -- 178 178
Other changes in surplus in separate accounts.................... -- -- (178) (178)
Cumulative effect of changes in accounting principles............ -- -- 132 132
Capital Changes:
Return of capital............................................ -- (178) -- (178)
Dividends to parent recorded as return of capital................ -- -- 107 107
Dividends to stockholder......................................... -- -- (1,722) (1,722)
Prior period corrections (see Note 2)............................ -- -- (9) (9)
--- ------ ------- -------
Balance, December 31, 2017.......................................... $ 7 $3,510 $ 4,467 $ 7,984
=== ====== ======= =======
Net income....................................................... -- -- 565 565
Change in net unrealized capital gains (losses).................. -- -- 32 32
Change in net unrealized foreign exchange capital gains (losses). -- -- (256) (256)
Change in deferred tax........................................... -- -- 24 24
Change in non-admitted assets.................................... -- -- (292) (292)
Change in asset valuation reserve................................ -- -- (47) (47)
Change in surplus from separate accounts......................... -- -- 74 74
Other changes in surplus in separate accounts.................... -- -- (74) (74)
Dividends to stockholder......................................... -- -- (1,697) (1,697)
Prior period corrections (see Note 2)............................ -- -- 38 38
--- ------ ------- -------
Balance, December 31, 2018.......................................... $ 7 $3,510 $ 2,834 $ 6,351
=== ====== ======= =======
See accompanying Notes to Statutory Financial Statements.
7
AMERICAN GENERAL LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------
(in millions) 2018 2017 2016
------------- ------- ------- -------
Cash from operations
Premium and annuity considerations, collected, net of reinsurance... $11,771 $10,601 $11,433
Net investment income............................................... 5,468 5,143 5,156
Other income (1,848) 1,148 1,056
------- ------- -------
Total revenue received.............................................. 15,391 16,892 17,645
------- ------- -------
Benefits paid....................................................... 9,107 11,051 10,938
Net transfers to (from) separate accounts........................... (971) 1,450 838
Commissions and expenses paid....................................... 2,907 2,959 2,631
Dividends paid to policyholders..................................... (10) 19 22
Federal income taxes................................................ 540 902 1,047
------- ------- -------
Total benefits and expenses paid.................................... 11,573 16,381 15,476
------- ------- -------
Net cash provided by operations........................................ 3,818 511 2,169
======= ======= =======
Cash from investments
Proceeds from investments sold, matured or repaid:
Bonds........................................................... 18,960 23,013 20,993
Stocks.......................................................... 10 25 558
Mortgage loans.................................................. 1,594 1,727 1,079
Real estate..................................................... 36 32 115
Other invested assets........................................... 882 1,630 2,840
Derivatives..................................................... -- -- 1,185
Securities lending reinvested collateral assets................. 2,066 -- --
Miscellaneous proceeds.......................................... 1,235 1,281 --
------- ------- -------
Total proceeds from investments sold, matured or repaid............. 24,783 27,708 26,770
------- ------- -------
Cost of investments acquired:
Bonds........................................................... 19,254 21,006 21,386
Stocks.......................................................... 325 64 102
Mortgage loans.................................................. 4,157 4,136 3,190
Real estate..................................................... 36 92 18
Other invested assets........................................... 1,343 1,714 1,147
Securities lending reinvested collateral assets................. -- 279 1,178
Miscellaneous purchases......................................... 1,309 341 1,937
------- ------- -------
Total cost of investments acquired.................................. 26,424 27,632 28,958
------- ------- -------
Net adjustment in contract loans.................................... (33) (29) (69)
------- ------- -------
Net cash (used in) provided by investing activities.................... (1,608) 105 (2,119)
======= ======= =======
Cash from financing and miscellaneous sources
Cash provided (applied):
Return of capital............................................... -- (178) (551)
Federal Home Loan Bank advance payments......................... -- -- (100)
Net deposits on deposit-type contracts.......................... 1,983 173 359
Dividends to Parent............................................. (1,697) (1,240) (669)
Change in securities lending.................................... (2,013) 314 1,183
Other, net...................................................... 945 245 (204)
------- ------- -------
Net cash (used) provided in financing and miscellaneous activities..... (782) (686) 18
======= ======= =======
Net increase (decrease) in cash, cash equivalents and short-term
investments.......................................................... 1,428 (70) 67
Cash, cash equivalents and short-term investments at beginning of year. 119 189 121
------- ------- -------
Cash, cash equivalents and short-term investments at end of year....... $ 1,547 $ 119 $ 189
======= ======= =======
Non-cash activities, excluded from above:
Non-cash dividends and return of capital............................ $ -- $ -- $(2,156)
Non-cash transfer from other invested assets to mortgage loans...... 787 1,468 --
Non-cash AIG Global Real Estate transactions........................ 644 -- --
Non-cash Fortitude Re settlement.................................... 230 -- --
Non-cash tax payment................................................ -- 671 --
Non-cash dividends reclass.......................................... -- 482 --
Non-cash Investment Real Estate sale................................ 128 -- --
See accompanying Notes to Statutory Financial Statements.
8
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
American General Life Insurance Company (AGL or the Company), including its
wholly owned subsidiaries, is a wholly owned subsidiary of AGC Life Insurance
Company (AGC Life or the Parent), an indirect, wholly owned subsidiary of
American International Group, Inc. (AIG Parent). AIG Parent is a holding
company, which through its subsidiaries provides a wide range of property
casualty insurance, life insurance, retirement products and other financial
services to commercial and individual customers in more than 80 countries and
jurisdictions. The term "AIG Parent" means American International Group, Inc.
and not any of AIG Parent's consolidated subsidiaries.
The Company is a stock life insurance company domiciled and licensed under the
laws of the State of Texas and is subject to regulation by the Texas Department
of Insurance (TDI). The Company is also subject to regulation by the states in
which it is authorized to transact business. The Company is licensed in 49
states and the District of Columbia.
The Company is a leading provider in the United States of individual term and
universal life insurance solutions to middle-income and high-net-worth
customers, as well as a leading provider in the United States of fixed and
variable annuities. AGL's primary products include term life insurance,
universal, variable universal and whole life insurance, accident and health
insurance, single- and flexible-premium deferred fixed and variable annuities,
fixed index deferred annuities, single-premium immediate and delayed-income
annuities, private placement variable annuities, private placement variable
universal life, structured settlements, corporate- and bank-owned life
insurance, terminal funding annuities, guaranteed investment contracts, funding
agreements, stable value wrap products and group benefits. The Company
distributes its products through a broad multi-channel distribution network,
which includes independent marketing organizations, independent insurance
agents and financial advisors, banks, broker dealers, structured settlement
brokers and benefit consultants and direct-to-consumer through AIG Direct
Insurance Services, Inc. (AIG Direct).
SunAmerica Asset Management LLC (SAAMCo), together with its wholly owned
distributor, AIG Capital Services, Inc., and its wholly owned servicing agent,
SunAmerica Fund Services, Inc., represent the Company's asset management
operations. These companies earn fee income by managing, distributing and
administering a diversified family of mutual funds, and variable subaccounts
offered within the variable annuity and variable universal life products, and
by distributing retail mutual funds and providing professional management of
individual, corporate and pension plan portfolios.
In February 2018, the Company and its U.S. life insurance company affiliates,
Variable Annuity Life Insurance Company (VALIC) and The United States Life
Insurance Company in the City of New York (USL), each executed their respective
Modified Coinsurance (ModCo) Agreements (The Agreements) with Fortitude
Reinsurance Company, Ltd (FRL), (formerly DSA Reinsurance Company Limited), a
wholly owned AIG subsidiary and registered Class 4 and Class E reinsurer in
Bermuda. The Agreements were effective as of January 1, 2017 in respect of
certain closed blocks of business (including structured settlements and single
premium immediate annuities). Please refer to Note 15 - Reinsurance for further
details relating to this agreement.
In May 2016, the Company sold AIG Advisor Group, its network of independent
broker-dealers, to investment funds affiliated with Lightyear Capital LLC and
PSP Investments.
The operations of the Company are influenced by many factors, including general
economic conditions, financial condition of AIG Parent, monetary and fiscal
policies of the United States federal government and policies of state and
other regulatory authorities. The level of sales of the Company's insurance and
financial products is influenced by many factors, including general market
rates of interest, the strength, weakness and volatility of equity markets and
terms and conditions of competing products. The Company is exposed to the risks
normally associated with a portfolio of fixed income securities, which include
interest rate, option, liquidity and credit risks. The Company controls its
exposure to these risks by, among other things, closely monitoring and managing
the duration and cash flows of its assets and liabilities, monitoring and
limiting prepayments and extension risk in its portfolio, maintaining a large
percentage of the Company's portfolio in highly liquid securities, engaging in
a disciplined process of underwriting, and reviewing and monitoring credit risk.
The Company is also exposed to market risk, policyholder behavior risk and
mortality/longevity risk. Market volatility and other equity market conditions
may affect the Company's exposure to risks related to guaranteed death benefits
and
9
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
guaranteed living benefits on variable annuity products, and may reduce fee
income on variable product assets held in separate accounts. Such guaranteed
benefits are sensitive to equity and interest rate market conditions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company are presented on the basis of
accounting practices prescribed or permitted by the TDI. These accounting
practices vary in certain respects from accounting principles generally
accepted in the United States of America (U.S. GAAP), as described herein.
The TDI recognizes only statutory accounting practices (SAP) prescribed or
permitted by the State of Texas for determining and reporting the financial
condition and results of operations of an insurance company and for determining
its solvency under the Texas Insurance Law. The National Association of
Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual
(NAIC SAP) has been adopted as a component of prescribed or permitted practices
by the State of Texas.
The state has adopted certain prescribed accounting practices that differ from
those found in the NAIC SAP. In 1984, the Company increased the value of its
home office real estate properties to reflect the then current market value in
accordance with prescribed guidance.
Effective December 31, 2015 and subsequent reporting periods through
September 30, 2019, AGL received approval from the TDI to apply a permitted
practice in its financial statements allowing AGL to use the criteria
established in Actuarial Guideline 43, instead of the criteria established in
Statement of Statutory Accounting Principles (SSAP) No. 86, "Accounting for
Derivative Instruments and Hedging, Income Generation, and Replication
(Synthetic Asset) Transactions" to determine if a hedge is effective for
certain interest rate swaps that are used to hedge guaranteed minimum
withdrawal benefits. Thus, specific interest rate swaps that AGL has determined
are effective hedges were reported at amortized cost, pursuant to the
accounting guidance set forth in SSAP 86.
Effective December 31, 2017, AGL received approval from the TDI expanding the
aforementioned permitted practice to also include swaptions in its 2017 Annual
Statement and subsequent reporting periods through September 30, 2019 or any
earlier date relative to changes in the SAP framework that addresses this
issue. Upon adoption, the effect of this permitted practice was reported as a
change in accounting principle, consistent with SSAP No. 3, "Accounting Changes
and Corrections of Errors," as of January 1, 2015, while the effect of the
expanded permitted practice to include swaptions was reported as a change in
accounting principle as of January 1, 2017 and increased surplus by
$132 million.
The Insurance Commissioner of the State of Texas has the right to permit other
specific practices that deviate from prescribed practices.
10
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents a reconciliation of the Company's net income and
capital and surplus between NAIC SAP basis and the basis including practices
prescribed or permitted by the State of Texas:
December 31,
----------------------
(in millions) SSAP# 2018 2017 2016
------------- ----- ------ ------ ------
NET INCOME
State basis................................................... $ 565 $ 612 $1,591
State permitted practices that increase (decrease) NAIC SAP:
Effective interest rate hedges - NII....................... 86 47 6 (12)
Effective interest rate hedges - RG(L)..................... 12 (6) (12)
State prescribed practices that increase (decrease) NAIC SAP:
Depreciation of home office property....................... 40R -- -- --
------ ------ ------
Net income, NAIC SAP.......................................... $ 624 $ 612 $1,567
====== ====== ======
SURPLUS
State basis................................................... $6,351 $7,984 $9,001
State permitted practices that increase (decrease) NAIC SAP:
Effective interest rate hedges............................. 86 (403) (430) (645)
State prescribed practices that increase (decrease) NAIC SAP:
Depreciation of home office property....................... 40R (24) (24) (24)
------ ------ ------
Statutory capital and surplus, NAIC SAP....................... $5,924 $7,530 $8,332
====== ====== ======
In the event AGL had not employed any or all of these permitted and prescribed
practices, AGL's risk-based capital (RBC) would not have triggered a regulatory
event.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting practices
prescribed or permitted by the TDI requires management to make estimates and
assumptions that affect the reported amounts in the statutory financial
statements and the accompanying notes. It also requires disclosure of
contingent assets and liabilities at the date of the statutory financial
statements and the reported amounts of revenue and expense during the period.
The areas of significant judgments and estimates include the following:
.. application of other-than-temporary impairments (OTTI);
.. estimates with respect to income taxes, including recoverability of
deferred tax assets (DTA);
.. fair value measurements of certain financial assets; and
.. policy reserves for life, annuity and accident and health insurance
contracts, including guarantees.
These accounting estimates require the use of assumptions about matters, some
of which are highly uncertain at the time of estimation. To the extent actual
experience differs from the assumptions used, the Company's Statutory
Statements of Admitted Assets, Liabilities and Capital and Surplus, Statutory
Statements of Operations and Statutory Statements of Cash Flows could be
materially affected.
On December 22, 2017, the United States enacted Public Law 115-97, known as the
Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act reduces the statutory rate
of U.S. federal corporate income tax to 21 percent and enacts numerous other
changes generally impacting the Company in tax years beginning January 1, 2018.
As of December 31, 2018, the Company has fully completed its accounting for the
tax effects of the Tax Act. Although the prescribed measurement period has
ended, there are aspects of the Tax Act that remain unclear and additional
guidance from the U.S. tax authority is pending. As further guidance is issued
by the U.S. tax authority, any resulting changes in the Company's estimates
will be treated in accordance with the relevant accounting guidance. The
Company does not believe such revisions would have a material impact on
statutory capital and surplus.
11
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Significant Accounting Policies
Bonds not backed by other loans are carried at amortized cost except for those
with a NAIC designation of "6" or "6*". Bonds with a NAIC 6 designation are
carried at the lower of amortized cost or fair value, with unrealized losses
charged directly to unassigned surplus. Bonds that have not been filed and have
not received a designation in over one year from the NAIC's Investment Analysis
Office (IAO) receive a "6*" designation and are carried at zero, with the
unrealized loss charged directly to unassigned surplus. Bonds filed with the
IAO which receive a "6*" designation may carry a value greater than zero.
Securities are assigned a NAIC 5* designation if the Company certifies that
(1) the documentation necessary to permit a full credit analysis does not
exist, (2) the issuer or obligor is current on all contracted interest and
principal payments and (3) the Company has an actual expectation of ultimate
repayment of all contracted interest and principal. Securities with NAIC 5*
designations are deemed to possess the credit characteristics of securities
assigned a NAIC 5 designation. The discount or premium on bonds is amortized
using the effective yield method.
Loan-backed and structured securities (LBaSS) include residential
mortgage-backed securities (RMBS), commercial mortgage-backed securities
(CMBS), asset-backed securities (ABS), pass-thru securities, lease-backed
securities, equipment trust certificates, loan-backed securities issued by
special purpose corporations or trusts, and securities where there is not
direct recourse to the issuer. LBaSS are carried on a basis consistent with
that of bonds not backed by loans. Income recognition for LBaSS is determined
using the effective yield method and estimated cash flows. Prepayment
assumptions for single-class and multi-class mortgage-backed securities (MBS)
and ABS were obtained from an outside vendor or internal estimates. The Company
uses independent pricing services and broker quotes in determining the fair
value of its LBaSS. The Company uses the retrospective adjustment method to
account for the effect of unscheduled payments affecting high credit quality
securities, while securities with less than high credit quality and securities
for which the collection of all contractual cash flows is not probable are both
accounted for using the prospective adjustment method.
RBC charges for LBaSS are based on the final NAIC designations, which are
determined with a multi-step approach. The initial designation is used to
determine the carrying value of the security. The final NAIC designation is
used for reporting and affects RBC. The final NAIC designation is determined in
one of three ways. The final NAIC designation for most RMBS and CMBS is
determined by financial modeling conducted by BlackRock. RMBS and CMBS that are
not financially modeled, primarily due to a lack of publicly available
information and most remaining LBaSS are subject to a modified designation
based on an NAIC matrix and the Company's statement value for the security. For
credit tenant loans, equipment trust certificates, any corporate-like
securities rated by the NAIC's IAO, interest only securities, and those
securities with an original NAIC designation of 5, 5*, 6 or 6*, the final NAIC
designation is based on the IAO or Credit Rating Provider rating and is not
subject to a modified designation or financial modeling.
Short sale is the sale of a security which is not owned by the Company at the
time of sale. Short sales are normally settled by the delivery of a security
borrowed by or on behalf of seller. A short sale as defined in Statement of
Statutory Accounting Principle (SSAP) No. 103 "Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" is reported as a
contra-asset (negative asset) initially reported at fair value, with changes in
fair value recognized as unrealized gains and losses.
Preferred stocks with NAIC designations of "1" through "3" are carried at
amortized cost. All other preferred stocks are stated at the lower of cost,
amortized cost or fair value, with unrealized capital losses charged directly
to unassigned surplus. Provisions made for impairment are recorded as realized
capital losses when declines in fair value are determined to be other than
temporary.
Unaffiliated common stocks are carried at fair value, with unrealized capital
gains and losses credited or charged directly to unassigned surplus. Provisions
made for impairment are recorded as realized capital losses when declines in
fair value are determined to be other than temporary. For Federal Home Loan
Bank (FHLB) capital stock, which is only redeemable at par, the fair value
shall be presumed to be par, unless considered other-than-temporarily impaired.
The Company has no investments in insurance subsidiary, controlled, and
affiliated (SCA) entities. Investments in non-insurance SCA entities are
recorded based on the equity of the investee per audited financial statements
prepared pursuant to U.S. GAAP, which is adjusted to a statutory basis of
accounting, if applicable. All investments in non-insurance SCA entities for
which either audited U.S. GAAP financial statements or audited foreign GAAP
basis financial
12
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
statements that include a footnote reconciling net income and equity on a
foreign GAAP basis to U.S. GAAP are not available, are non-admitted as assets.
Undistributed equity in earnings of affiliates is included in unassigned
surplus as a component of unrealized capital gains or losses. Dividends
received from such affiliates are recorded as investment income when declared.
Mortgage and mezzanine real estate loans are carried at unpaid principal
balances less allowances for credit losses and plus or minus adjustments for
the accretion or amortization of discount or premium. Interest income on
performing loans is accrued as earned.
Mortgage loans are considered impaired when collection of all amounts due under
contractual terms is not probable. Impairment is measured using either i) the
present value of expected future cash flows discounted at the loan's effective
interest rate, ii) the loan's observable market price, if available, or iii)
the fair value of the collateral if the loan is collateral dependent. An
allowance is typically established for the difference between the impaired
value of the loan and its current carrying amount. Additional allowance is
established for incurred but not specifically identified impairments, based on
statistical models primarily driven by past due status, debt service coverage,
loan-to-value ratio, property occupancy, profile of the borrower and of the
major property tenants, and economic trends in the market where the property is
located. When all or a portion of a loan is deemed uncollectible, the
uncollectible portion of the carrying amount of the loan is charged off against
the allowance.
Real estate consists of properties occupied by the Company, properties held for
the production of income and properties held for sale. Properties occupied by
the Company and held for the production of income are carried at depreciated
cost, less encumbrances, unless events or circumstances indicate the carrying
amount of the asset (amount prior to reduction for encumbrances) may not be
recoverable. Properties held for sale are carried at the lower of its
depreciated cost or fair value less estimated costs to sell the property and
net of encumbrances. Real estate obtained through foreclosure, in satisfaction
of a loan, is recorded at the time of foreclosure at the lower of fair value as
determined by acceptable appraisal methodologies, or the carrying amount of the
related loan. Land is reported at cost.
Cash, cash equivalents and short-term investments include cash on hand and
amounts due from banks and highly liquid debt instruments that have original
maturities within one year of date of purchase and are carried at amortized
cost. Short-term investments include interest-bearing money market funds,
investment pools and other investments with original maturities within one year
from the date of purchase.
Contract loans are carried at unpaid balances, which include unpaid principal
plus accrued interest, including 90 days or more past due. All loan amounts in
excess of the contract cash surrender value are considered non-admitted assets.
Derivative instruments used in hedging transactions that meet the criteria of a
highly effective hedge are reported in a manner consistent with the hedged
asset or liability (hedge accounting). Changes in statement value or cash flow
of derivatives that qualify for hedge accounting are recorded consistent with
the changes in the statement value or cash flow of the hedged asset or
liability. Derivative instruments used in hedging transactions that do not meet
or no longer meet the criteria of an effective hedge (ineffective hedges) are
accounted for at fair value and the changes in fair value are recorded as
unrealized gains or losses.
Hedge accounting was not used for any derivative instruments in 2018, except as
allowed under the permitted practice described above related to certain hedges
beginning in 2015.
Other invested assets principally consist of investments in limited
partnerships and limited liability companies. Investments in these assets,
except for joint ventures, partnerships and limited liability companies with a
minor ownership interest, are reported using the equity method. Under SAP, such
investments are generally reported based on audited U.S. GAAP equity of the
investee, with subsequent adjustment to a statutory basis of accounting, if
applicable.
Joint ventures, partnerships and limited liability companies in which the
Company has a minor ownership interest (i.e., less than 10 percent) or lacks
control, are generally recorded based on the underlying audited U.S. GAAP
equity of the investee, with some prescribed exceptions. SAP allows the use of
(a) the U.S. GAAP equity as set forth in the footnote reconciliation of foreign
GAAP equity and income to U.S. GAAP within audited foreign GAAP financial
statements or (b) the International Financial Reporting Standards (IFRS) basis
equity in audited IFRS financial statements as an
13
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
acceptable basis for the valuation of minor/non-controlled investments. The
audited U.S. tax basis equity may also be used in certain circumstances.
All other investments in entities for which audited U.S. GAAP financial
statements, or another acceptable audited basis of accounting as described
above were not available have been non-admitted as assets. Undistributed
accumulated earnings of such entities are included in unassigned surplus as a
component of unrealized capital gains or losses. Distributions received that
are not in excess of the undistributed accumulated earnings are recognized as
investment income. Impairments that are determined to be other than temporary
are recognized as realized capital losses.
Securities lending and repurchase agreements: The Company has a securities
lending program, which was approved by its Board of Directors and lends
securities from its investment portfolio to supplement liquidity or for other
uses as deemed appropriate by management. Under the program, securities are
lent to financial institutions, and in return the Company receives cash as
collateral equal to 102 percent of the fair value of the loaned securities. The
cash collateral received is invested in short-term investments that may be sold
or repledged or partially used for short-term liquidity purposes based on
conservative cash flow forecasts. Securities lent by the Company under these
transactions may be sold or repledged by the counterparties. The liability for
cash collateral received is reported in payable for securities lending in the
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus.
The Company monitors the fair value of securities loaned and obtains additional
collateral as necessary. At the termination of the transactions, the Company
and its counterparties are obligated to return the collateral provided and the
securities lent, respectively. These transactions are treated as secured
financing arrangements.
In addition, the Company is a party to secured financing transactions involving
securities sold under agreements to repurchase (repurchase agreements), in
which the Company transfers securities in exchange for cash, with an agreement
by the Company to repurchase the same or substantially similar securities on
agreed upon dates specified in the agreements.
Investment income due and accrued is non-admitted from investment income for
bonds and other invested assets when collection of interest is overdue by more
than 90 days, or is uncertain, and for mortgage loans when loans are
foreclosed, or delinquent in payment for greater than 90 days, or when
collection of interest is uncertain.
Net realized capital gains and losses, which are determined by using the
specific identification method, are reflected in income net of applicable
federal income taxes and transfers to the interest maintenance reserve.
The Company regularly evaluates its investments for other-than-temporary
impairment (OTTI) in value. The determination that a security has incurred an
OTTI in value and the amount of any loss recognition requires the judgment of
the Company's management and a continual review of its investments.
For bonds, other than LBaSS, an OTTI shall be considered to have occurred if it
is probable that the Company will not be able to collect all amounts due under
the contractual terms in effect at the acquisition date of the debt security.
If it is determined an OTTI has occurred, the cost basis of bonds are written
down to fair value and the amount of the write-down is recognized as a realized
capital loss.
For LBaSS, a non-interest related OTTI resulting from a decline in value due to
fundamental credit problems of the issuer is recognized when the projected
discounted cash flows for a particular security are less than its amortized
cost. When a non-interest related OTTI occurs, the LBaSS is written down to the
present value of future cash flows expected to be collected. An OTTI is also
deemed to have occurred if the Company intends to sell the LBaSS or does not
have the intent and ability to retain the LBaSS until recovery. If the decline
is interest-related, the LBaSS is written down to fair value.
In periods subsequent to the recognition of an OTTI loss, the Company generally
accretes the difference between the new cost basis and the future cash flows
expected to be collected, if applicable, as interest income over the remaining
life of the security based on the amount and timing of estimated future cash
flows.
Non-admitted assets are excluded from admitted assets and the change in the
aggregate amount of such assets is reflected as a separate component of
unassigned surplus. Non-admitted assets include all assets specifically
designated as non-admitted and assets not designated as admitted, such as a
negative IMR, a certain portion of DTAs,
14
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
prepaid expenses, electronic data processing (EDP) equipment assets, agents'
balances or other receivables over 90 days. Non-admitted assets were
$2.9 billion and $2.6 billion at December 31, 2018 and 2017, respectively.
Interest maintenance reserve (IMR) is calculated based on methods prescribed by
the NAIC and was established to prevent large fluctuations in interest-related
investment gains and losses resulting from sales (net of taxes) and
interest-related OTTI (net of taxes). An OTTI occurs when the Company, at the
reporting date, has the intent to sell an investment or does not have the
intent and ability to hold the security before recovery of the cost of the
investment. For LBaSS, if the Company recognizes an interest-related OTTI, the
non-interest-related OTTI is recorded to the asset valuation reserve, and the
interest-related portion to IMR. Such gains and losses are deferred into the
IMR and amortized into income using the grouped method over the remaining
contractual lives of the securities sold.
Asset valuation reserve (AVR) is used to stabilize surplus from fluctuations in
the market value of bonds, stocks, mortgage loans, real estate, limited
partnerships and other investments. Changes in the AVR are recorded as direct
increases or decreases in surplus.
Separate account assets and liabilities generally represent funds for which the
contract holder, rather than the Company, bears the investment risk. Separate
account contract holders have no claim against the assets of the general
account of the Company, except for certain guaranteed products. Separate
account assets are generally reported at fair value. In addition, certain
products with fixed guarantees and market-value-adjusted (MVA) fixed annuity
contracts in which the assets are generally carried at amortized cost are
required by certain states to be carried in a separate account. The operations
of the separate accounts are excluded from the Statutory Statements of
Operations and Statutory Statements of Cash Flows of the Company. The Company
receives fees for assuming mortality and certain expense risks. Such fees are
included in separate account fees in the Statutory Statements of Operations.
Reserves for variable annuity contracts are provided in accordance with the
Variable Annuity Commissioners' Annuity Reserve Valuation Method (VACARVM)
under Actuarial Guideline 43 (AG 43). Reserves for variable universal life
accounts are provided in accordance with the Commissioners' Reserve Valuation
Method (CRVM).
Policy reserves are established according to different methods.
Life, annuity, and health reserves are developed by actuarial methods and are
determined based on published tables using specified interest rates, mortality
or morbidity assumptions, and valuation methods prescribed or permitted by
statutes that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required
by the TDI.
The Company waives the deduction of deferred fractional premiums on the death
of the life and annuity policy insured and returns any premium beyond the date
of death. The Company reported additional reserves for surrender values in
excess of the corresponding policy reserves.
The Company performs annual cash flow testing in accordance with the Actuarial
Opinion and Memorandum Regulation to ensure adequacy of the reserves.
Additional reserves are established where the results of cash flow testing
under various interest rate scenarios indicate the need for such reserves or
where the net premiums exceed the gross premiums on any insurance in force.
Total cash flow testing reserves were $90 million at December 31, 2018.
A majority of the Company's variable annuity products are issued with a
guaranteed minimum death benefit (GMDB) which provides that, upon the death of
a contractholder, the contractholder's beneficiary will receive the greater of
(1) the contractholder's account value, or (2) a GMDB that varies by product.
Depending on the product, the GMDB may equal the principal invested, adjusted
for withdrawals; or the greatest contract value, adjusted for withdrawals, at
the specified contract anniversaries; or the principal invested, adjusted for
withdrawals, accumulated at the specified rate per annum. These benefits have
issue age and other restrictions to reduce mortality risk exposure. The Company
bears the risk that death claims following a decline in the financial markets
may exceed contract holder account balances, and that the fees collected under
the contract are insufficient to cover the costs of the benefit to be provided.
Death benefits on GMDB policies generally reduce on a proportional basis or on
a dollar-for-dollar basis when a partial withdrawal occurs.
Reserves for GMDB benefits are included in the VACARVM reserve. AG 43 requires
the Company to perform a stochastic valuation analysis of the total reserves
held for all variable annuity contracts with GMDB. These reserves are
15
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
derived by using the 70 percent Conditional Tail Expectation of the modeled
reserves and are based on prudent estimate assumptions. In addition, a
deterministic valuation is also performed using assumptions prescribed in AG
43. The greater of these two reserve balances is the AG 43 reserve. However,
the Company is currently holding reserves at the C3 Phase II Total Asset
Requirement level, which is higher than the AG 43 amount.
Life policies underwritten as substandard are charged extra premiums. Reserves
are computed for a substandard policy by adding the reserve for an otherwise
identical non-substandard policy plus a factor times the extra premium charge
for the year. The factor varies by duration, type of plan, and underwriting. In
addition, an extra mortality reserve is reported for ordinary life insurance
policies classified as group conversions. Substandard structured settlement
annuity reserves are determined by making a constant addition to the mortality
rate of the applicable valuation mortality table so that the life expectancy on
the adjusted table is equal to the life expectancy determined by the Company's
underwriters at issue.
The Company had $66.3 billion of insurance in-force and $1.5 billion of
reserves as of December 31, 2018, and $56.8 billion of insurance in-force and
$1.3 billion of reserves as of December 31, 2017, for which the gross premiums
are less than the net premiums according to the standard of valuation set by
the TDI.
Tabular interest, tabular less actual reserves released, and tabular cost have
been determined by formula, except for universal life insurance and deferred
annuity reserves, which include fund accumulations for which tabular interest
has been determined from basic data. For the determination of tabular interest
on funds not involving life contingencies, the actual credited interest is used.
Liabilities for deposit-type contracts, which include supplementary contracts
without life contingencies and annuities certain, are based on the discounting
of future payments at an annual statutory effective rate. Tabular interest on
other funds not involving life contingencies is based on the interest rate at
which the liability accrues.
Policy and contract claims represent the ultimate net cost of all reported and
unreported claims incurred during the year. Reserves for unpaid claims are
estimated using individual case-basis valuations and statistical analyses.
Those estimates are subject to the effects of trends in claim severity and
frequency. The estimates are continually reviewed and adjusted as necessary, as
experience develops or new information becomes known; such adjustments are
included in current operations.
Reserves for future policy benefits to be paid on life and accident and health
policies, incurred in the statement period, but not yet reported, were
established using historical data from claim lag experience. The data is
aggregated from product specific studies performed on the Company's business.
Premiums and annuity considerations and related expenses are recognized over
different periods. Life premiums are recognized as income over the premium
paying periods of the related policies. Annuity considerations are recognized
as revenue when received. Premiums for deposit-type products are credited
directly to the respective reserves and are not recorded in the Statutory
Statement of Operations. Health premiums are earned ratably over the terms of
the related insurance and reinsurance contracts or policies. Acquisition costs
such as commissions and other expenses related to the production of new
business are charged to the Statutory Statements of Operations as incurred.
Reinsurance premiums and benefits paid or provided are accounted for on a basis
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts.
Annuity and deposit-type contract surrender benefits are reported on a cash
basis, and include annuity benefits, payments under supplementary contracts
with life contingencies, surrenders and withdrawals. Withdrawals from
deposit-type contracts directly reduce the liability for deposit-type contracts
and are not reported in the Statutory Statements of Operations.
General insurance expenses include allocated expenses pursuant to a cost
allocation agreement. The Company purchases administrative, accounting,
marketing and data processing services from AIG Parent or its subsidiaries and
is charged based on estimated levels of usage, transactions or time incurred in
providing the respective services. The allocation of costs for investment
management services purchased from AIG Parent or its subsidiaries is based on
the level of assets under management.
16
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Federal income tax expense (benefit) is recognized and computed on a separate
company basis pursuant to a tax sharing agreement with AIG Parent, because the
Company is included in the consolidated federal income tax return of its
ultimate parent, AIG Parent. To the extent that benefits for net operating
losses, foreign tax credits or net capital losses are utilized on a
consolidated basis, the Company would recognize tax benefits based upon the
amount of those deductions and credits utilized in the consolidated federal
income tax return. The federal income tax expense or benefit reflected in the
Statutory Statements of Operations represents income taxes provided on income
that is currently taxable, but excludes tax on the net realized capital gains
or losses.
Income taxes on capital gains or losses reflect differences in the recognition
of capital gains or losses on a statutory accounting basis versus a tax
accounting basis. The most significant of such differences involve impairments
of investments, which are recorded as realized losses in the Statutory
Statements of Operations but are not recognized for tax purposes, and the
deferral of net capital gains and losses into the IMR for statutory income but
not for taxable income. Capital gains and losses on certain related-party
transactions are recognized for statutory financial reporting purposes but are
deferred for income tax reporting purposes until the security is sold to an
outside party.
A deferred tax asset (DTA) or deferred tax liability (DTL) is included in the
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus,
which reflects the expected future tax consequences of temporary differences
between the statement values of assets and liabilities for statutory financial
reporting purposes and the amounts used for income tax reporting purposes. The
change in the net DTA or DTL is reflected in a separate component of unassigned
surplus. Net DTA are limited in their admissibility.
Accounting Changes
There were no new accounting standards that were effective during the periods
covered by this statement that had a material impact on the operations of the
Company.
Correction of Errors
SAP requires that corrections of errors related to prior periods be reported as
adjustments to unassigned surplus to the extent that they are not material to
prior periods.
In 2018, six out-of-period errors were identified and corrected, which
increased unassigned surplus by $38 million. The most significant of these were
in universal life business reflecting a reduction in reserves and adjustments
to reinsurance premiums, partially offset by an increase in annuity reserves.
In 2017, certain prior year errors were identified and corrected, which
increased reserves and decreased unassigned surplus by $9 million. The most
significant of these was an increase in universal life reserves and a decrease
in deferred annuity reserves from the correction of the cash values in the
policy administration system.
In 2016, certain prior year errors were identified and corrected, which
decreased unassigned surplus by $41 million.
Differences in Statutory Accounting and U.S. GAAP Accounting
The accompanying statutory financial statements have been prepared in
accordance with accounting practices prescribed or permitted by the TDI. These
accounting practices vary in certain respects from U.S. GAAP. The primary
differences between NAIC SAP and U.S. GAAP are as follows.
The objectives of U.S. GAAP differ from the objectives of SAP. U.S. GAAP is
designed to measure the entity as a going concern and to produce general
purpose financial statements to meet the varying needs of the different users
of financial statements. SAP is designed to address the accounting requirements
of regulators, who are the primary users of statutory-basis financial
statements and whose primary objective is to measure solvency. As a result,
U.S. GAAP stresses measurement of earnings and financial condition of a
business from period to period, while SAP stresses measurement of the ability
of the insurer to pay claims in the future.
17
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Investments. Under SAP, investments in bonds and preferred stocks are generally
reported at amortized cost. However, if bonds are designated category "6" and
preferred stocks are designated categories "4 - 6" by the NAIC, these
investments are reported at the lesser of amortized cost or fair value with a
credit or charge to unrealized investment gains or losses. For U.S. GAAP, such
fixed-maturity investments are designated at purchase as held-to-maturity,
trading, or available-for-sale. Held-to-maturity fixed-maturity investments are
reported at amortized cost, and the remaining fixed-maturity investments are
reported at fair value, with unrealized capital gains and losses reported in
operations for those designated as trading and as a component of other
comprehensive income for those designated as available-for-sale.
Under SAP, all single- and multi-class MBS or other ABS (e.g., Collateralized
Mortgage Obligations (CMO) are adjusted for the effects of changes in
prepayment assumptions on the related accretion of discount or amortization of
premium with respect to such securities using either the retrospective or
prospective method. For LBaSS subsequent to July 1, 2009, if it is determined
that a decline in fair value is other than temporary the cost basis of the
security is written down to the discounted estimated future cash flows. Bonds,
other than LBaSS, that are other-than-temporarily impaired are written down to
fair value. For U.S. GAAP purposes, all securities, purchased or retained, that
represent beneficial interests in securitized assets (e.g., CMO, MBS and ABS
securities), other than high credit quality securities, would be adjusted using
the prospective method when there is a change in estimated future cash flows.
If high-credit quality securities must be adjusted, the retrospective method
would be used. For all bonds, if it is determined that a decline in fair value
is other-than-temporary, the cost basis of the security would be written down
to the discounted estimated future cash flows, while the non-credit portion of
the impairment would be recorded as an unrealized loss in other comprehensive
income.
Under SAP, when it is probable that the insurer will be unable to collect all
amounts due according to the contractual terms of the mortgage agreement,
valuation allowances are established for temporarily-impaired mortgage loans
based on the difference between the unpaid loan balance and the estimated fair
value of the underlying real estate, less estimated costs to obtain and sell.
The initial valuation allowance and subsequent changes in the allowance for
mortgage loans are charged or credited directly to unassigned surplus rather
than as a component of earnings as would be required under U.S. GAAP. If the
impairment is other-than-temporary, a direct write down is recognized as a
realized loss, and a new cost basis is established. Under U.S. GAAP, valuation
allowances would be established when the insurer determines it is probable that
it will be unable to collect principal and interest due according to the
contractual terms of the loan agreement. Such U.S. GAAP allowances would be
based on the difference between the unpaid loan balance and the present value
of expected future cash flows discounted at the loan's original effective
interest rate or, if foreclosure is probable, on the estimated fair value of
the underlying real estate.
Under SAP, joint ventures, partnerships and limited liability companies in
which the insurer has a minor ownership interest (i.e., less than 10 percent)
or lacks control are generally recorded based on the underlying audited U.S.
GAAP basis equity of the investee. Under U.S. GAAP, joint ventures,
partnerships and limited liability companies in which the insurer has a
significant ownership interest or is deemed to have control are accounted for
under the equity method, where that is not the case, such investments are
carried at fair value with changes in fair value recognized in earnings in 2018
for equity securities previously designated as available-for-sale and through
net income for equity securities measured at fair value at the Company's
election. Prior to 2018, equity securities designated as available-for-sale
were carried at fair value with changes in fair value recorded through other
comprehensive income.
Real Estate. Under SAP, investments in real estate are reported net of related
obligations; under U.S. GAAP, investments in real estate are reported on a
gross basis. Under SAP, real estate owned and occupied by the insurer is
included in investments; under U.S. GAAP, real estate owned and occupied by the
insurer is reported as an operating asset, and operating income and expenses
include rent for the insurer's occupancy of those properties.
Derivatives. Under SAP, derivative instruments used in hedging transactions
that do not meet or no longer meet the criteria of an effective hedge are
accounted for at fair value with the changes in fair value recorded as
unrealized capital gains or losses. Under U.S. GAAP, such derivative
instruments are accounted for at fair value with the changes in fair value
recorded as realized capital gains or losses. Under U.S. GAAP, fair value
measurement for free standing derivatives incorporate either counterparty's
credit risk for derivative assets or the insurer's credit risk for derivative
liabilities by determining the explicit cost to protect against credit
exposure. This credit exposure evaluation takes into consideration observable
credit default swap rates. Under SAP, non-performance risk (own credit-risk) is
not reflected in the fair value calculations for derivative liabilities. Under
U.S. GAAP, index life insurance features in certain variable universal life
contracts and certain guaranteed features of variable annuities are bifurcated
and accounted for
18
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
separately as embedded policy derivatives. Under SAP, embedded derivatives are
not bifurcated or accounted for separately from the host contract.
Interest Maintenance Reserve. Under SAP, the insurer is required to maintain an
IMR. IMR is calculated based on methods prescribed by the NAIC and was
established to prevent large fluctuations in interest-related capital gains and
losses realized through sales or OTTI. IMR applies to all types of fixed
maturity investments, including bonds, preferred stocks, MBS, ABS and mortgage
loans. After-tax capital gains or losses realized upon the sale or impairment
of such investments resulting from changes in the overall level of interest
rates are excluded from current period net income and transferred to the IMR.
The transferred after-tax net realized capital gains or losses are then
amortized into income over the remaining period to maturity of the divested
asset. Realized capital gains and losses are reported net of tax and transfers
to the IMR, after net gain from operations. Any negative IMR balance is treated
as non-admitted asset. This reserve is not required under U.S. GAAP and pre-tax
realized capital gains and losses are reported as component of total revenues,
with related taxes included in taxes from operations.
Asset Valuation Reserve. Under SAP, the insurer is required to maintain an AVR,
which is computed in accordance with a prescribed formula and represents a
provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate, and other invested assets. The level of AVR is
based on both the type of investment and its credit rating. Under SAP, AVR is
included in total adjusted capital for RBC analysis purposes. Changes to AVR
are charged or credited directly to unassigned surplus. This reserve is not
required under U.S. GAAP.
Subsidiaries. Under SAP, investments in insurance subsidiaries are recorded
based upon the underlying audited statutory equity of a subsidiary with all
undistributed earnings or losses shown as an unrealized capital gain or loss in
unassigned surplus. Dividends received by the parent company from its
subsidiaries are recorded through net investment income. Under U.S. GAAP,
subsidiaries' financial statements are combined with the parent company's
financial statements through consolidation. All intercompany balances and
transactions are eliminated under U.S. GAAP. Dividends received by the parent
company from its subsidiaries reduce the parent company's investment in the
subsidiaries.
Policy Acquisition Costs and Sales Inducements. Under SAP, policy acquisition
costs are expensed when incurred. Under U.S. GAAP, acquisition costs that are
incremental and directly related to the successful acquisition of new and
renewal of existing insurance and investment-type contracts, are deferred and
amortized, generally in proportion to the present value of expected future
gross profit margins. For all other insurance contracts, to the extent
recoverable from future policy revenues, deferred policy acquisition costs
(DAC) are amortized, with interest, over the premium-paying period of the
related contracts, using assumptions that are consistent with those used in
computing policy benefit reserves. Under SAP, sales inducements are expensed
when incurred. Under U.S. GAAP, certain sales inducements on interest-sensitive
life insurance contracts and deferred annuities are deferred and amortized over
the life of the contract using the same methodology and assumptions used to
amortize DAC.
Deferred Premiums. Under SAP, when deferred premiums exist, statutory deferred
premiums are held as a statutory asset, while under U.S. GAAP, deferred
premiums are held as a contra-liability in the future policy benefits liability.
Non-admitted Assets. Certain assets designated as "non-admitted," principally
any negative IMR, agents' balances or unsecured loans or advances to agents,
certain DTAs, furniture, equipment and computer software, receivables over 90
days and prepaid expenses, as well as other assets not specifically identified
as admitted assets within the NAIC SAP, are excluded from the Statutory
Statements of Admitted Assets, Liabilities, Capital and Surplus and are charged
directly to unassigned surplus. Under U.S. GAAP, such assets are included in
the balance sheet.
Universal Life and Annuity Policies. Under SAP, revenues for universal life and
annuity policies containing mortality or morbidity risk considerations consist
of the entire premium received, and benefits incurred consist of the total of
death benefits paid and the change in policy reserves. Payments received on
contracts that do not incorporate any mortality or morbidity risk
considerations (deposit-type contracts) are credited directly to an appropriate
liability for deposit-type contract account without recognizing premium income.
Interest credited to deposit-type contracts is recorded as an expense in the
Statutory Statements of Operations as incurred. Payments that represent a
return of policyholder balances are recorded as a direct reduction of the
liability for deposit-type contracts, rather than a benefit expense. Under U.S.
GAAP, premiums received in excess of policy charges are not recognized as
premium revenue, and benefits represent the excess of benefits paid over the
policy account value and interest credited to the account values.
19
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Benefit Reserves. Under SAP, loading is the difference between the gross and
valuation net premium. Valuation net premium is calculated using valuation
assumptions which are different for statutory and U.S. GAAP. Statutory
valuation assumptions are set by the insurer within limits as defined by
statutory law. U.S. GAAP valuation assumptions are set by the insurer based on
management's estimates and judgment.
Policyholder funds not involving life contingencies use different valuation
assumptions for SAP and U.S. GAAP. Under SAP, prescribed rates of interest
related to payout annuities are used in the discounting of expected benefit
payments, while under U.S. GAAP, the insurer's best estimates of interest rates
are used.
Under SAP, the Commissioners' Reserve Valuation Method is used for the majority
of individual insurance reserves. Under U.S. GAAP, individual insurance
policyholder liabilities for traditional forms of insurance are generally
established using the net level premium method. For interest-sensitive
policies, a liability for policyholder account balances is established under
U.S. GAAP based on the contract value that has accrued to the benefit of the
policyholder. Policy assumptions used in the estimation of policyholder
liabilities are generally prescribed under SAP. Under U.S. GAAP, policy
assumptions are based upon best estimates as of the date the policy was issued,
with provisions for the risk of adverse deviation.
Under SAP, the CARVM is used for the majority of individual deferred annuity
reserves, while under U.S. GAAP, individual deferred annuity policyholder
liabilities are generally equal to the contract value that has accrued to the
benefit of the policyholder, together with liabilities for certain contractual
guarantees, if applicable.
Under SAP, reserves for fixed rate deposit-type contracts are based upon their
accumulated values, discounted at an annual statutory effective rate, while
under U.S. GAAP, reserves for deposit-type contracts are recorded at their
accumulated values.
Reinsurance. Under SAP, policy and contract liabilities ceded to reinsurers are
reported as reductions of the related reserves rather than as assets as
required under U.S. GAAP. Under SAP, a liability for reinsurance balances has
been provided for unsecured policy reserves, unearned premiums, and unpaid
losses ceded to reinsurers not licensed to assume such business. Changes to
these amounts are credited or charged directly to unassigned surplus. Under
U.S. GAAP, an allowance for amounts deemed uncollectible would be established
through a charge to earnings. Under SAP, the criteria used to demonstrate risk
transfer varies from U.S. GAAP, which may result in transactions that are
accounted for as reinsurance for SAP and deposit accounting for U.S. GAAP.
Under SAP, the reserve credit permitted for unauthorized reinsurers is less
than or equal to the amount of letter of credit or funds held in trust by the
reinsurer. Under U.S. GAAP, assumed and ceded reinsurance is reflected on a
gross basis in the balance sheet, and certain commissions allowed by reinsurers
on ceded business are deferred and amortized on a basis consistent with DAC.
Policyholder Dividend Liabilities. Under SAP, policyholder dividends are
recognized when declared. Under U.S. GAAP, policyholder dividends are
recognized over the term of the related policies.
Separate Accounts. Under SAP, separate account surplus created through the use
of the CRVM, the VACARVM or other reserving methods is reported by the general
account as an unsettled transfer from the separate account. The net change on
such transfers is included as a part of the net gain from operations in the
general account. This is not required under U.S. GAAP.
Separate accounts include certain non-unitized assets which primarily represent
MVA fixed options of variable annuity contracts issued in various states. Under
SAP, these contracts are accounted for in the separate account financial
statements, while under U.S. GAAP, they are accounted for in the general
account.
Deferred Income Taxes. Under SAP, statutory DTAs that are more likely than not
to be realized are limited to: 1) the amount of federal income taxes paid in
prior years that can be recovered through loss carrybacks for existing
temporary differences that reverse by the end of the subsequent calendar year,
plus 2) the lesser of the remaining gross DTA expected to be realized within a
maximum three years of the reporting date or a maximum 15 percent of the
capital and surplus excluding any net DTA, EDP equipment and operating software
and any net positive goodwill, plus 3) the amount of the remaining gross DTA
that can be offset against existing gross DTLs. The remaining DTAs are
non-admitted. Deferred taxes do not include amounts for state taxes. Under U.S.
GAAP, state taxes are included in the computation of deferred taxes, all DTAs
are recorded and a valuation allowance is established if it is more likely than
not that some portion of the DTA will not be realized. Under SAP, income tax
expense is based upon taxes currently
20
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
payable. Changes in deferred taxes are reported in surplus and subject to
admissibility limits. Under U.S. GAAP, changes in deferred taxes are recorded
in income tax expense.
Offsetting of Assets and Liabilities. Under SAP, offsetting of assets and
liabilities is not permitted when there are master netting agreements unless
four requirements for valid right of offset are met. The requirements include
1) each of the two parties owes the other determinable amounts, 2) the
reporting party has the right to set off the amount owed with the amount owed
by the other party, 3) the reporting party intends to set off, and 4) the right
of setoff is enforceable. The prohibition against offsetting extends to
derivatives and collateral posted against derivative positions, repurchase and
reverse repurchase agreements, and securities borrowing and lending
transactions. Under U.S. GAAP, these amounts under master netting arrangements
may be offset and presented on a net basis.
3. INVESTMENTS
Bonds and Equity Securities
The following table presents the statement value, gross unrealized gain, gross
unrealized loss and the estimated fair value of bonds and equity securities by
major security type:
Gross Gross
Statement Unrealized Unrealized
(in millions) Value Gains Losses Fair Value
------------- --------- ---------- ---------- ----------
December 31, 2018
Bonds:
U.S. government obligations................................... $ 1,754 $ 45 $ (42) $ 1,757
All other governments......................................... 3,046 77 (144) 2,979
States, territories and possessions........................... 309 22 (1) 330
Political subdivisions of states, territories and possessions. 376 36 (4) 408
Special revenue............................................... 8,642 357 (135) 8,864
Industrial and miscellaneous.................................. 79,780 3,574 (1,954) 81,400
Hybrid securities............................................. 785 132 (19) 898
Parent, subsidiaries and affiliates........................... -- -- -- --
------- ------ ------- --------
Total bonds...................................................... 94,692 4,243 (2,299) 96,636
------- ------ ------- --------
Preferred stock............................................... 303 12 (1) 314
Common stock*................................................. 312 -- -- 312
------- ------ ------- --------
Total equity securities.......................................... 615 12 (1) 626
------- ------ ------- --------
Total............................................................ $95,307 $4,255 $(2,300) $ 97,262
======= ====== ======= ========
December 31, 2017................................................
Bonds:
U.S. government obligations................................... $ 1,215 $ 59 $ (9) $ 1,265
All other government.......................................... 2,878 210 (31) 3,057
States, territories and possessions........................... 396 46 -- 442
Political subdivisions of states, territories and possessions. 398 63 (1) 460
Special revenue............................................... 8,360 567 (56) 8,871
Industrial and miscellaneous.................................. 76,098 6,461 (418) 82,141
Hybrid securities............................................. 578 207 (3) 782
Parent, subsidiaries and affiliates........................... 4,415 437 -- 4,852
------- ------ ------- --------
Total bonds...................................................... 94,338 8,050 (518) 101,870
------- ------ ------- --------
Preferred stock............................................... 211 18 -- 229
Common stock*................................................. 93 -- -- 93
------- ------ ------- --------
Total equity securities.......................................... 304 18 -- 322
------- ------ ------- --------
Total............................................................ $94,642 $8,068 $ (518) $102,192
======= ====== ======= ========
* Common stock includes $109 million and $6 million of investments in
affiliates at December 31, 2018 and 2017, respectively.
21
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Bonds and Equity Securities in Loss Positions
The following table summarizes the fair value and gross unrealized losses
(where fair value is less than amortized cost) on bonds and equity securities,
including amounts on NAIC 6 and 6* bonds, aggregated by major investment
category and length of time that individual securities have been in a
continuous unrealized loss position:
Less than 12 Months 12 Months or More Total
----------------- ----------------- -----------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(in millions) Value Losses Value Losses Value Losses
------------- ------- ---------- ------- ---------- ------- ----------
December 31, 2018
Bonds:
U.S. government obligations........................ $ 317 $ (11) $ 751 $ (31) $ 1,068 $ (42)
All other government............................... 1,295 (85) 610 (58) 1,905 (143)
U.S. States, territories and possessions........... 67 (1) -- -- 67 (1)
Political subdivisions of states, territories and
possessions...................................... 85 (1) 34 (3) 119 (4)
Special revenue.................................... 1,698 (46) 2,313 (89) 4,011 (135)
Industrial and miscellaneous....................... 26,952 (1,193) 9,726 (778) 36,678 (1,971)
Hybrid securities.................................. 174 (11) 58 (8) 232 (19)
Parent, subsidiaries and affiliates................ -- -- -- -- -- --
------- ------- ------- ----- ------- -------
Total bonds........................................... 30,588 (1,348) 13,492 (967) 44,080 (2,315)
======= ======= ======= ===== ======= =======
Preferred stock.................................... 95 (1) 5 -- 100 (1)
Common stock....................................... 61 (14) -- -- 61 (14)
------- ------- ------- ----- ------- -------
Total equity securities............................... 156 (15) 5 -- 161 (15)
------- ------- ------- ----- ------- -------
Total................................................. $30,744 $(1,363) $13,497 $(967) $44,241 $(2,330)
======= ======= ======= ===== ======= =======
December 31, 2017
Bonds:
U.S. government obligations........................ $ 336 $ (4) $ 76 $ (5) $ 412 $ (9)
All other government............................... 473 (25) 145 (6) 618 (31)
U.S States, territories and possessions............ 25 -- 5 -- 30 --
Political subdivisions of states, territories and
possessions...................................... -- -- -- -- -- --
Special revenue.................................... 1,609 (23) 758 (33) 2,367 (56)
Industrial and miscellaneous....................... 7,272 (235) 3,713 (191) 10,985 (426)
Hybrid securities.................................. 54 (3) 8 -- 62 (3)
Parent, subsidiaries and affiliates................ 136 -- -- -- 136 --
------- ------- ------- ----- ------- -------
Total bonds........................................... 9,905 (290) 4,705 (235) 14,610 (525)
======= ======= ======= ===== ======= =======
Preferred stock.................................... 5 -- 5 -- 10 --
Common stock....................................... 1 -- -- -- 1 --
------- ------- ------- ----- ------- -------
Total equity securities............................... 6 -- 5 -- 11 --
------- ------- ------- ----- ------- -------
Total................................................. $ 9,911 $ (290) $ 4,710 $(235) $14,621 $ (525)
======= ======= ======= ===== ======= =======
As of December 31, 2018 and 2017, the number of bonds and equity securities in
an unrealized loss position was 3,983 and 1,814, respectively. Bonds comprised
3,916 of the total, of which 1,397 were in a continuous loss position greater
than 12 months at December 31, 2018. Bonds comprised 1,778 of the total, of
which 526 were in a continuous loss position greater than 12 months at
December 31, 2017.
The Company did not recognize the unrealized losses in earnings on these fixed
maturity securities at December 31, 2018 and 2017, respectively, because the
Company neither intends to sell the securities nor does the Company believe
that it is more likely than not that the Company will be required to sell these
securities before recovery of their amortized cost basis. For fixed maturity
securities with significant declines, the Company performed fundamental credit
analyses on a security-by-security basis, which included consideration of
credit enhancements, expected defaults on underlying collateral, review of
relevant industry analyst reports and forecasts and other available market data.
22
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Contractual Maturities of Bonds
The following table presents the statement value and fair value of bonds by
contractual maturity:
Statement Fair
(in millions) Value Value
------------- --------- -------
December 31, 2018
Due in one year or less................ $ 1,217 $ 1,226
Due after one year through five years.. 10,609 10,687
Due after five years through ten years. 15,586 15,475
Due after ten years.................... 37,210 37,552
LBaSS.................................. 30,129 31,757
------- -------
Total.................................. $94,751 $96,697
======= =======
Actual maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay certain obligations with or without
call or prepayment penalties.
Bonds in or near default as to payment of principal or interest had a statement
value of $154 million and $175 million at December 31, 2018 and 2017,
respectively, which is the fair value. At December 31, 2018 and 2017, the
Company had no income excluded from due and accrued for bonds.
At December 31, 2018, the Company's bond portfolio included bonds totaling
$6.0 billion not rated investment grade by the NAIC designations (categories
3-6). These bonds accounted for 3 percent of the Company's total assets and
5 percent of invested assets. These below investment grade securities,
excluding structured securities, span across 16 industries. At December 31,
2017, the Company's bond portfolio included bonds totaling $5.5 billion not
rated investment grade by the NAIC designations (categories 3-6). These bonds
accounted for 3 percent of the Company's total assets and 5 percent of invested
assets. These below investment grade securities, excluding structured
securities, span across 15 industries.
The following table presents the industries that constitute more than 10% of
the below investment grade securities:
December 31,
----------
2018 2017
---- ----
Consumer cyclical.... 17.2% 14.9%
Consumer Noncyclical. 16.9 14.2
Energy............... 12.0 16.8
LBaSS
The Company determines fair value of LBaSS based on the amount at which a
security could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The majority of the Company's ABS,
RMBS, CMBS, and collateralized debt obligations (CDO) are priced by approved
independent third-party valuation service providers and broker dealer
quotations. Small portions of the LBaSS that are not traded in active markets
are priced by market standard internal valuation methodologies, which include
discounted cash flow methodologies and matrix pricing. The estimated fair
values are based on available market information and management's judgments.
The following table presents the statement value and fair value of LBaSS:
December 31, 2018 December 31, 2017
----------------- -----------------
Statement Fair Statement Fair
(in millions) Value Value Value Value
------------- --------- ------- --------- -------
Loan-backed and structured securities. $30,129 $31,757 $31,991 $34,474
======= ======= ======= =======
Prepayment assumptions for single class, multi-class mortgage-backed and ABS
were obtained from independent third-party valuation service providers or
internal estimates. These assumptions are consistent with the current interest
rate and economic environment.
23
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
At December 31, 2018 and 2017, the Company had exposure to a variety of LBaSS.
These securities could have significant concentrations of credit risk by
country, geographical region, property type, servicer or other characteristics.
As part of the quarterly surveillance process, the Company takes into account
many of these characteristics in making the OTTI assessment.
At December 31, 2018 and 2017, the Company did not have any LBaSS with a
recognized OTTI due to the intent to sell or an inability or lack of intent to
retain the security for a period of time sufficient to recover the amortized
cost basis.
During 2018, 2017 and 2016, the Company recognized total OTTI of $47 million,
$54 million and $118 million, respectively, on LBaSS that were still held by
the Company. In addition, at December 31, 2018 and 2017, the Company held
loan-backed impaired securities (fair value is less than cost or amortized
cost) for which an OTTI had not been recognized in earnings as a realized loss.
Such impairments include securities with a recognized OTTI for non-interest
(credit) related declines that were recognized in earnings, but for which an
associated interest-related decline has not been recognized in earnings as a
realized capital loss.
The following table summarizes the fair value and aggregate amount of
unrealized losses on LBaSS and length of time that individual securities have
been in a continuous unrealized loss position:
Less than 12 Months 12 Months or More Total
------------------ ---------------- -----------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(in millions) Value Losses Value Losses Value Losses
------------- ------ ---------- ------ ---------- ------- ----------
December 31, 2018
LBaSS.......... $6,672 $(143) $3,696 $(137) $10,368 $(280)
December 31, 2017.
LBaSS.......... $3,896 $ (59) $1,667 $ (81) $ 5,563 $(140)
====== ===== ====== ===== ======= =====
In its OTTI assessment, the Company considers all information relevant to the
collectability of the security, including past history, current conditions and
reasonable forecasts when developing an estimate of future cash flows. Relevant
analyst reports and forecasts for the asset class also receive appropriate
consideration. The Company also considers how credit enhancements affect the
expected performance of the security. In addition, the Company generally
considers its cash and working capital requirements and expected cash flows in
relation to its business plans and how such forecasts affect the intent and
ability to hold such securities to recovery of their amortized cost.
The Company does not have any LBaSS for which it is not practicable to estimate
fair values.
The following table presents the rollforward of non-interest related OTTI for
LBaSS:
December 31,
-------------
(in millions) 2018 2017
------------- ------ ------
Balance, beginning of year.............................................................................. $1,535 $1,481
Increases due to:
Credit impairment on new securities subject to impairment losses..................................... 9 31
Additional credit impairment on previously impaired investments...................................... 38 30
Reduction due to:
Credit impaired securities fully disposed for which there was no prior intent or requirement to sell. 180 7
------ ------
Balance, end of year.................................................................................... $1,402 $1,535
====== ======
See Note 23 for a list with each LBaSS at a CUSIP level where the present value
of cash flows expected to be collected is less than the amortized cost basis
during the current year and a list of the Company's structured notes holding at
December 31, 2018.
Mortgage Loans
Mortgage loans had outstanding principal balances of $19.1 billion and
$16.0 billion at December 31, 2018 and 2017, respectively. Contractual interest
rates range from 1.90 percent to 10.10 percent. The mortgage loans at
December 31, 2018 had maturity dates ranging from 2019 to 2055.
24
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The Company's mortgage loans are collateralized by a variety of commercial real
estate property types located throughout the U.S. and Canada. The commercial
mortgage loans are non-recourse to the borrower.
The following tables present the geographic and property-type distribution of
the Company's mortgage loan portfolio:
December 31,
------------
2018 2017
----- -----
Geographic distribution:
Mid-Atlantic............. 26.3% 28.2%
Foreign.................. 21.9 16.0
Pacific.................. 15.6 17.3
South Atlantic........... 12.6 12.9
West South Central....... 7.4 6.8
New England.............. 5.6 7.0
East North Central....... 5.1 5.1
Mountain................. 4.1 4.8
East South Central....... 0.8 0.8
West North Central....... 0.6 1.1
----- -----
Total....................... 100.0% 100.0%
===== =====
Property type distribution:
Multi-family............. 31.1% 24.0%
Office................... 28.6 28.7
Retail................... 13.9 15.2
Industrial............... 8.1 6.9
Hotel/Motel.............. 7.6 9.1
Other.................... 10.7 16.1
----- -----
Total....................... 100.0% 100.0%
===== =====
At December 31, 2018, there were 244 mortgage loans with outstanding balances
of $20 million or more, which loans collectively, aggregated approximately
82 percent of this portfolio.
The following table presents the minimum and maximum lending rates for new
mortgage loans during 2018 and 2017:
Years Ended December 31,
------------------------------
2018 2017
-------------- --------------
(in millions) Maximum Minimum Maximum Minimum
------------- ------- ------- ------- -------
Multi-family.. 5.75% 2.05% 7.37% 2.10%
Retail........ 5.48 3.82 5.06 2.53
Office........ 5.10 3.02 9.17 1.90
Hotel......... 4.80 3.00 4.61 4.25
Industrial.... 4.53 2.11 4.97 2.15
Other......... 5.39 3.16 5.00 3.00
The Company did not reduce any interest rates during 2018 and 2017.
The maximum percentage of any one loan to the value of security at the time of
the loan, exclusive of insured or guaranteed or purchase money mortgage was
95.0 percent for both 2018 and 2017.
At December 31, 2018, the Company held $181 million in impaired mortgages with
$12 million of related allowances for credit losses and $169 million in
impaired loans without a related allowance. At December 31, 2017, the Company
held $217 million in impaired mortgages with $12 million of related allowances
for credit losses and $205 million in impaired loans without a related
allowance. The Company's average recorded investment in impaired loans was
$201 million and $273 million, at December 31, 2018 and 2017, respectively. The
Company recognized interest income of $5 million, $3 million and $12 million,
in 2018, 2017 and 2016, respectively.
25
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents a rollforward of the changes in the allowance for
losses on mortgage loans receivable:
December 31,
---------------
(in millions) 2018 2017 2016
------------- ---- ---- ----
Balance, beginning of year............................................ $129 $ 89 $72
Additions (reductions) charged to unrealized capital loss.......... 43 53 17
Direct write-downs charged against allowance....................... -- (13) --
---- ---- ---
Balance, end of year.................................................. $172 $129 $89
==== ==== ===
During 2018, the Company did not derecognize any mortgage loans and did not
recognize any real estate collateral as a result of foreclosure.
The mortgage loan portfolio has been originated by the Company under strict
underwriting standards. Commercial mortgage loans on properties such as
offices, hotels and shopping centers generally represent a higher level of risk
than do mortgage loans secured by multi-family residences. This greater risk is
due to several factors, including the larger size of such loans and the more
immediate effects of general economic conditions on these commercial property
types. However, due to the Company's strict underwriting standards, the Company
believes that it has prudently managed the risk attributable to its mortgage
loan portfolio while maintaining attractive yields.
The following table presents the age analysis of mortgage loans:
December 31,
---------------
(in millions) 2018 2017
------------- ------- -------
Current................................. $18,922 $15,834
30 - 59 days past due................... 4 8
60 - 89 days past due................... 1 2
90 - 179 days past due.................. 1 1
------- -------
Total................................... $18,928 $15,845
======= =======
At December 31, 2018 and 2017, the Company had mortgage loans outstanding under
participant or co-lender agreements of $15.8 billion and $13.2 billion,
respectively.
The Company had $169 million and $205 million in restructured loans at
December 31, 2018 and 2017, respectively.
Troubled Debt Restructuring
The Company held no restructured debt for which impairment was recognized for
both December 31, 2018 and 2017. At December 31, 2018, the Company had no
outstanding commitments to debtors that hold loans with restructured terms. The
Company has an outstanding commitment of $4 million to debtors that hold loans
with restructured terms, at December 31, 2017.
Real Estate
The following table presents the components of the Company's investment in real
estate:
December 31,
------------
(in millions) 2018 2017
------------- ---- ----
Properties occupied by the Company.......................... $ 53 $ 42
Properties held for production of income.................... 110 181
Properties held for sale.................................... 34 --
---- ----
Total....................................................... $197 $223
==== ====
The Company recognized gains of $1 million, $13 million and $16 million on the
sale of real estate property in 2018, 2017 and 2016, respectively. The Company
recognized $11 million of impairment write-downs for its investment in real
estate during 2018. The Company did not recognize any impairment write-downs
for its investment in real estate during 2017. The Company recognized
$2 million of impairment write-downs for its investment in real estate during
2016.
26
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Other Invested Assets
The following table presents the components of the Company's other invested
assets:
December 31,
--------------
(in millions) 2018 2017
------------- ------ ------
Investments in limited liability companies........ $1,474 $2,201
Investments in limited partnerships............... 1,877 1,759
Other unaffiliated investments.................... 1,026 693
Receivable for securities......................... 138 541
Initial margin for futures........................ 2 20
Non-admitted assets............................... (153) (181)
------ ------
Total............................................. $4,364 $5,033
====== ======
The Company utilizes the look-through approach in valuing its investments in
affiliated joint ventures or partnerships that have the characteristics of real
estate investments. These affiliated real estate investments had an aggregate
value of $912 million at December 31, 2018. The financial statements for the
related holding companies are not audited and the Company has limited the value
of its investment in these holding companies to the value contained in the
audited financial statements of the lower tier entities owned by each of the
respective intermediate holding company entities as adjusted by SAP, if
applicable. All liabilities, commitments, contingencies, guarantees, or
obligations of these holding company entities, which are required to be
recorded as liabilities, commitments, contingencies, guarantees or obligations
under applicable accounting guidance, are reflected in the Company's
determination of the carrying value of the investment in each of the respective
holding company entities, if applicable.
The Company recorded impairment write-downs in joint ventures was $44 million,
$89 million and $148 million during 2018, 2017 and 2016, respectively.
Net Investment Income
The following table presents the components of net investment income:
Years ended December 31,
----------------------
(in millions) 2018 2017 2016
------------- ------ ------ ------
Bonds............................................. $4,897 $4,788 $5,026
Preferred stocks.................................. 13 11 15
Common stocks..................................... 5 3 2
Cash and short-term investments................... 29 22 4
Mortgage loans.................................... 798 675 508
Real estate*...................................... 50 53 60
Contract loans.................................... 82 87 90
Derivatives....................................... 210 (121) (106)
Investment income from affiliates................. 165 372 426
Other invested assets............................. 239 250 325
------ ------ ------
Gross investment income........................... 6,488 6,140 6,350
Investment expenses............................... (245) (259) (260)
------ ------ ------
Net investment income............................. $6,243 $5,881 $6,090
====== ====== ======
* Includes amounts for the occupancy of Company-owned property of $11 million
in both 2018 and 2017, and $16 million in 2016.
27
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Net Realized and Unrealized Capital Gains (Losses)
The following table presents the components of Net realized capital gains
(losses):
Years Ended December 31,
---------------------
(in millions) 2018 2017 2016
------------- ----- ------- -----
Bonds............................................. $ (81) $ 109 $(406)
Preferred stocks.................................. -- 1 --
Common stocks..................................... -- -- 303
Cash and short-term investments................... (2) (13) (8)
Mortgage loans.................................... (26) 6 (13)
Real estate....................................... (10) 7 41
Derivatives....................................... (330) (1,412) 377
Other invested assets............................. 28 65 504
----- ------- -----
Realized capital (losses) gains................... (421) (1,237) 798
Federal income tax benefit (expense).............. 88 433 (279)
Net (gains) losses transferred to IMR............. (9) (124) 115
----- ------- -----
Net realized capital (losses) gains............... $(342) $ (928) $ 634
===== ======= =====
During 2018, 2017 and 2016, the Company recognized $192 million, $98 million
and $237 million, respectively, of impairment write-downs in accordance with
the impairment policy described in Note 2.
The following table presents the proceeds from sales of bonds and equities and
the related gross realized capital gains and gross realized capital losses:
Years Ended December 31,
-----------------------
(in millions) 2018 2017 2016
------------- ------ ------ -------
Proceeds.......................................... $8,165 $7,403 $11,470
------ ------ -------
Gross realized capital gains...................... $ 191 $ 330 $ 337
Gross realized capital losses..................... (176) (87) (446)
------ ------ -------
Net realized capital gains (losses)............... $ 15 $ 243 $ (109)
====== ====== =======
The following table presents the net change in unrealized capital gains
(losses) of investments (including foreign exchange capital gains (losses):
Years Ended December 31,
-----------------------
(in millions) 2018 2017 2016
------------- ----- ----- -----
Bonds................................................................. $(171) $ 253 $(107)
Preferred and common stocks........................................... (12) (3) (53)
Mortgage loans........................................................ (248) 179 (203)
Derivatives........................................................... 88 (107) 207
Other invested assets................................................. (6) 32 (865)
Other................................................................. 32 (71) --
Federal income tax benefit............................................ 93 24 364
----- ----- -----
Net change in unrealized (losses) gains of investments................ $(224) $ 307 $(657)
===== ===== =====
28
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
5* Securities Measured at Aggregate Book Adjusted Carrying Value and Fair Value
The following table presents 5* Securities measured at aggregate book adjusted
carrying value (BACV) and aggregate fair value at December 31:
Number Aggregate
of 5* Aggregate Fair
Investment Securities BACV Value
---------- ---------- --------- ---------
(in millions)
-------------
2018
Bonds - AC........................................ 23 $296 $294
LBass - AC........................................ 2 34 34
Preferred Stock - AC.............................. 4 5 8
Preferred Stock - FV.............................. -- -- --
-- ---- ----
Total............................................. 29 $336 $336
== ==== ====
2017
Bonds - AC........................................ 16 $135 $135
LBass - AC........................................ -- -- --
Preferred Stock - AC.............................. -- -- --
Preferred Stock - FV.............................. -- -- --
-- ---- ----
Total............................................. 16 $135 $135
== ==== ====
AC - Amortized Cost
FV - Fair Value
4. SECURITIES LENDING AND REPURCHASE AGREEMENTS
Securities Lending
As of December 31, 2018 and 2017, the Company had bonds loaned with a fair
value of approximately $438 million and $2.4 billion, respectively, pursuant to
the securities lending program.
The following table presents the aggregate fair value of cash collateral
received related to the securities lending program and the terms of the
contractually obligated collateral positions:
December 31,
-----------
(in millions) 2018 2017
------------- ---- ------
30 days or less................................... $148 $ 514
31 to 60 days..................................... 68 899
61 to 90 days..................................... 231 1,047
---- ------
Subtotal.......................................... 447 2,460
Securities collateral received.................... -- --
---- ------
Total collateral received......................... $447 $2,460
==== ======
The following table presents the aggregate amortized cost and fair value of
cash collateral reinvested related to the securities lending program by
maturity date:
December 31, 2018 December 31, 2017
-------------------- --------------------
Amortized Amortized
(in millions) Cost Fair Value Cost Fair Value
------------- --------- ---------- --------- ----------
Open positions.............. $352 $352 $2,418 $2,418
---- ---- ------ ------
Subtotal.................... 352 352 2,418 2,418
Securities collateral
received.................. -- -- -- --
---- ---- ------ ------
Total collateral reinvested. $352 $352 $2,418 $2,418
==== ==== ====== ======
29
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Repurchase Agreements
At December 31, 2018 and 2017, bonds with a fair value of approximately
$124 million and $1.2 billion, respectively, were subject to repurchase
agreements to secure amounts borrowed by the Company.
The following table presents the aggregate fair value of cash collateral
received related to the repurchase agreement program and the terms of the
contractually obligated collateral positions:
December 31,
-----------
(in millions) 2018 2017
------------- ---- ------
Open positions.................................... $119 $ --
30 days or less................................... -- 354
31 to 60 days..................................... -- 439
61 to 90 days..................................... -- 381
Greater than 90 days.............................. -- --
---- ------
Subtotal.......................................... 119 1,174
Securities collateral received.................... -- --
---- ------
Total collateral received......................... $119 $1,174
==== ======
The following table presents the original (flow) and residual maturity for
bi-lateral repurchase agreement transactions for the year ended December 31,
2018:
FIRST QUARTER SECOND QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
(in millions) Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------------- ------- ------- ------- ------- ------- ------- ------- -------
Open - No Maturity...................... $ 47 $262 $110 $148 $ 98 $ 225 $119 $ 24
Overnight............................... -- 366 32 -- -- 318 61 --
2 Days to 1 Week........................ -- 357 107 -- -- 732 172 5
> 1 Week to 1 Month..................... -- 512 199 -- 176 1,044 624 65
> 1 Month to 3 Months................... -- 861 290 -- 34 1,615 636 31
> 3 Months to 1 Year.................... -- 128 13 -- -- -- -- --
> 1 Year................................ -- -- -- -- -- -- -- --
THIRD QUARTER FOURTH QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
(in millions) Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------------- ------- ------- ------- ------- ------- ------- ------- -------
Open - No Maturity...................... $107 $158 $125 $137 $111 $ 140 $128 $119
Overnight............................... -- 93 16 93 1 121 11 --
2 Days to 1 Week........................ -- -- -- -- 13 13 13 --
> 1 Week to 1 Month..................... -- -- -- -- -- -- -- --
> 1 Month to 3 Months................... -- -- -- -- -- -- -- --
> 3 Months to 1 Year.................... -- -- -- -- -- -- -- --
> 1 Year................................ -- -- -- -- -- -- -- --
30
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents the Company's liability to return collateral for
the year ended December 31, 2018:
FIRST QUARTER SECOND QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
(in millions) Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------------- ------- ------- ------- ------- ------- ------- ------- -------
Cash (Collateral - All).............. $ 47 $2,485 $751 $148 $308 $3,933 $1,612 $124
THIRD QUARTER FOURTH QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------- ------- ------- ------- ------- ------- ------- -------
Cash (Collateral - All).............. $107 $ 251 $140 $230 $124 $ 273 $ 151 $119
The Company requires a minimum of 95 percent of the fair value of securities
sold under the repurchase agreements to be maintained as collateral. Cash
collateral received is invested in corporate bonds and the offsetting
collateral liability for repurchase agreements is included in other liabilities.
The following table presents the aggregate amortized cost and fair value of
cash collateral reinvested related to the repurchase agreement program by
maturity date:
December 31, 2018 December 31, 2017
----------------- ----------------
Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value
------------- --------- ----- --------- ------
Open positions.......................... $129 $124 $ -- $ --
Greater than three years................ -- -- 1,095 1,196
---- ---- ------ ------
Subtotal................................ 129 124 1,095 1,196
Securities collateral received.......... -- -- -- --
---- ---- ------ ------
Total collateral reinvested............. $129 $124 $1,095 $1,196
==== ==== ====== ======
The following table presents the fair value of securities under bi-lateral
repurchase agreement transactions for the year ended December 31, 2018:
FIRST QUARTER SECOND QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
(in millions) Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------------- ------- ------- ------- ------- ------- ------- ------- -------
BACV.................................... $-- $-- $-- $128 $-- $-- $-- $109
Non-admitted - Subset of BACV........... -- -- -- -- -- -- -- --
Fair Value.............................. -- -- -- 134 -- -- -- 108
THIRD QUARTER FOURTH QUARTER
------------------------------- -------------------------------
Average Average
Daily Ending Daily Ending
(in millions) Minimum Maximum Balance Balance Minimum Maximum Balance Balance
------------- ------- ------- ------- ------- ------- ------- ------- -------
BACV.................................... $-- $-- $-- $242 $-- $-- $-- $129
Non-admitted - Subset of BACV........... -- -- -- -- -- -- -- --
Fair Value.............................. -- -- -- 233 -- -- -- 124
31
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents the fair value of securities under bi-lateral
repurchase agreement transactions for the year ended December 31, 2018:
1 2 3 4 5 6 7 8
Non-
(in millions) None NAIC 1 NAIC 2 NAIC 3 NAIC 4 NAIC 5 NAIC 6 Admitted
------------- ---- ------ ------ ------ ------ ------ ------ --------
Bonds - FV... $-- $27 $66 $16 $16 $-- $-- $--
=== === === === === === === ===
5. RESTRICTED ASSETS
The Company has restricted assets as detailed below. Assets under restriction
are general account assets and are not part of the Separate Accounts.
The following table presents the carrying value of the Company's restricted
assets:
December 31,
-------------
(in millions) 2018 2017
------------- ------ ------
On deposit with states............ $ 48 $ 48
Securities lending................ 425 2,112
Collateral held on securities
lending......................... 447 2,460
FHLB stock and collateral pledged. 3,851 1,042
Subject to repurchase agreements.. 129 1,095
Collateral for derivatives........ 580 1,559
Guaranteed interest contracts..... 44 117
Other restricted assets........... 78 --
------ ------
Total............................. $5,602 $8,433
====== ======
6. SUBPRIME MORTGAGE RISK EXPOSURE
The following features are commonly recognized characteristics of subprime
mortgage loans:
.. An interest rate above prime to borrowers who do not qualify for prime rate
loans;
.. Borrowers with low credit ratings (FICO scores);
.. Interest-only or negative amortizing loans;
.. Unconventionally high initial loan-to-value ratios;
.. Low initial payments based on a fixed introductory rate that expires after
a short initial period, then adjusts to a variable index rate plus a margin
for the remaining term of the loan;
.. Borrowers with less than conventional documentation of their income and/or
net assets;
.. Very high or no limits on how much the payment amount or the interest rate
may increase at reset periods, potentially causing a substantial increase
in the monthly payment amount; and/or,
.. Substantial prepayment penalties and/or prepayment penalties that extend
beyond the initial interest rate adjustment period.
Non-agency RMBS can belong to one of several different categories depending on
the characteristics of the borrower, the property and the loan used to finance
the property. Categorization is a function of FICO score, the type of loan,
loan-to-value ratio, and property type and loan documentation.
Generally, subprime loans are made to borrowers with low FICO scores, low
levels of equity and reduced income/asset documentation. Due to these
characteristics, subprime borrowers pay a substantially higher interest rate
than prime borrowers. In addition, they often utilize mortgage products that
reduce their monthly payments in the near-term. These include adjustable-rate
mortgages with low initial rates or interest-only loans. Borrowers in products
like this often experience significant "payment shock" when the teaser payment
resets upwards after the initial fixed period.
The primary classification mechanism the Company uses for subprime loans is
FICO score. Specifically, a pool with an average FICO at origination less than
650 is considered to be subprime. However, the Company may subjectively adjust
this classification based on an assessment of the other parameters mentioned
above.
32
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
To monitor subprime securities, the Company uses a model with vintage-specific
assumptions for delinquency roll rates, loss severities and the timing of
losses. As and when needed, these vintage-based assumptions are supplemented
with deal-specific information including, but not limited to, geographic
distribution, realized loss severities, trigger status and scenario analysis.
The Company has no direct exposure through investments in subprime mortgage
loans. The Company's exposure is through other investments, primarily in RMBS,
as described above.
The following table presents information regarding the Company's investments
with subprime exposures:
Book
Adjusted OTTI
Statement Recognized
(in millions) Actual Cost Value Fair Value to Date
------------- ----------- --------- ---------- ----------
December 31, 2018
In general account:
RMBS................................. $1,210 $1,167 $1,390 $(15)
CDOs................................. 911 923 957 (8)
CMBS................................. 11 11 10 --
------ ------ ------ ----
Total subprime exposure................. $2,132 $2,101 $2,357 $(23)
====== ====== ====== ====
December 31, 2017
In general account:
RMBS................................. $1,152 $1,174 $1,419 $(22)
CDOs................................. 1,013 1,017 1,055 (22)
------ ------ ------ ----
Total subprime exposure................. $2,165 $2,191 $2,474 $(44)
====== ====== ====== ====
The Company has no underwriting exposure to subprime mortgage risk through
mortgage guaranty or financial guaranty insurance coverage.
7. DERIVATIVES
The Company has taken positions in certain derivative financial instruments to
mitigate or hedge the impact of changes in interest rates, foreign currencies,
equity markets, swap spreads, volatility, correlations and yield curve risk on
cash flows from investment income, policyholder liabilities and equity.
Financial instruments used by the Company for such purposes include interest
rate swaps, interest rate swaptions, cross-currency swaps, futures and futures
options on equity indices, and futures and futures options on government
securities. The Company does not engage in the use of derivative instruments
for speculative purposes and is neither a dealer nor trader in derivative
instruments.
All derivative instruments are recognized in the financial statements. As
discussed in Note 2, the Company received approval from the TDI to apply a
permitted practice, whereby certain interest rate swaps and swaptions that are
used to hedge guaranteed minimum withdrawal benefits are reported at amortized
cost. The cost basis of these swaps is carried on the balance sheet and
amortized into net investment income over the life of the swap. Periodic cash
settlements are also recognized in net investment income. All other derivative
financial instruments that do not qualify for hedge accounting are carried at
fair value and the changes in fair value are recorded in surplus as unrealized
gains or losses, net of deferred taxes. The statement value of the Company's
exchange traded futures contracts reflects the one-day lag in the net cash
settlement of these contracts.
The Company recognized a net unrealized capital gain of $88 million in 2018, an
unrealized capital loss of $107 million in 2017 and an unrealized gain of
$207 million in 2016, related to derivatives that did not qualify for hedge
accounting.
Refer to Note 3 for disclosures related to net realized capital gains (losses).
Swaps, Options, and Futures
Interest rate or cross-currency swap agreements are agreements to exchange with
a counterparty, at specified intervals, payments of differing character (for
example, variable-rate payments exchanged for fixed-rate payments) or in
33
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
different currencies, based on an underlying principal balance, notional
amount. Generally no cash is exchanged at the outset of the contract and no
principal payments are made by either party. A single net payment is usually
made by one counterparty at each contractual payment due date, and this net
payment is included in the Statutory Statement of Operations.
Options are contracts that grant the purchaser, for a premium payment, the
right, but not the obligation, either to purchase or sell a financial
instrument at a specified price within a specified period of time. The Company
purchases call options on the S&P 500 Index to offset the risk of certain
guarantees of specific equity-index annuity and universal life policy values.
The Company also purchases put options on the S&P 500 Index to offset
volatility risk arising from minimum guarantees embedded in variable annuities.
The options are carried at fair value, with changes in fair value recognized in
unrealized investment gains and losses.
Financial futures are contracts between two parties that commit one party to
purchase and the other to sell a particular commodity or financial instrument
at a price determined on the final settlement day of the contract. Futures
contracts detail the quality and quantity of the underlying asset; they are
standardized to facilitate trading on a futures exchange. Some futures
contracts may call for physical delivery of the asset, while others are settled
in cash. The Company uses futures contracts on Euro dollar deposits, U.S.
Treasury Notes, U.S. Treasury Bonds, the S&P 500 Index, MidCap 400, Russell
2000, MSCI EAFE, foreign government debt securities, and foreign denominated
equity indices to offset the risk of certain guarantees on annuity policy
values.
Interest Rate Risk
Interest rate derivatives are used to manage interest rate risk associated with
certain guarantees of variable annuities and equity indexed annuities and
certain bonds. The Company's interest rate hedging derivative instruments
include (1) interest rate swaps and swaptions; (2) listed futures on government
securities; and (3) listed futures options on government securities.
Currency Risk
Foreign exchange contracts used by the Company include cross-currency swaps,
which are used to reduce risks from changes in currency exchange rates with
respect to investments denominated in foreign currencies that the Company holds.
Equity Risk
Equity derivatives are used to mitigate financial risk embedded in certain
insurance liabilities.
Credit Risk
The Company is exposed to credit-related losses in the event of non-performance
by counterparties to financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their high credit
ratings. For over-the-counter (OTC) derivatives, the Company's net credit
exposure is determined based on master netting agreements, which take into
consideration all derivative positions with the counterparty, as well as
collateral posted by the counterparty at the balance sheet date. The Company is
exposed to credit risk when the net position with a particular counterparty
results in an asset that exceeds collateral pledged by that counterparty.
For OTC contracts, the Company generally uses an International Swaps and
Derivative Association Master Agreement (ISDA Master Agreement) and Credit
Support Annexes with bilateral collateral provisions to reduce counterparty
credit exposures. An ISDA Master Agreement is an agreement between two
counterparties, which may cover multiple derivative transactions and such ISDA
Master Agreement generally provides for the net settlement of all or a
specified group of these derivative transactions, as well as transferred
collateral, through a single payment, in a single currency, in the event of a
default affecting any one derivative transaction or a termination event
affecting all or a specified group of the transactions. The Company minimizes
the risk that counterparties might be unable to fulfill their contractual
obligations by monitoring counterparty credit exposure and collateral value and
may require additional collateral to be posted upon the occurrence of certain
events or circumstances. In the unlikely event of a failure to perform by any
of the
34
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
counterparties to these derivative transactions, there would not be a material
effect on the Company's admitted assets, liabilities or capital and surplus.
The Company has also entered into exchange-traded options and futures
contracts. Under exchange-traded futures contracts, the Company agrees to
purchase a specified number of contracts with other parties and to post or
receive variation margin on a daily basis in an amount equal to the difference
in the daily market values of those contracts. The parties with whom the
Company enters into exchange-traded futures are regulated futures commission
merchants who are members of a trading exchange. The credit risk of
exchange-traded futures is partially mitigated because variation margin is
settled daily in cash. Exchange-traded option contracts are not subject to
daily margin settlements and amounts due to the Company based upon favorable
movements in the underlying securities or indices are owed upon exercise.
The following table presents the notional amounts, statement values and fair
values of the Company's derivative instruments:
December 31, 2018 December 31, 2017
----------------------------- -----------------------------
Contract or Contract or
Notional Statement Fair Notional Statement Fair
(in millions) Amount Value Value Amount Value Value
------------- ----------- --------- ------- ----------- --------- -------
Assets:
Interest rate contracts.............. $26,901 $ 1,360 $ 1,080 $24,647 $ 669 $ 349
Foreign exchange contracts........... 6,331 511 511 2,302 398 398
Equity contracts..................... 45,769 902 902 25,379 1,137 1,137
------- ------- ------- ------- ------- -------
Derivative assets, gross................ 79,001 2,773 2,493 52,328 2,204 1,884
Counter party netting*............... -- (1,138) (1,399) -- (1,549) (1,549)
------- ------- ------- ------- ------- -------
Derivative assets, net.................. $79,001 $ 1,635 $ 1,094 $52,328 $ 655 $ 335
======= ======= ======= ======= ======= =======
Liabilities:
Interest rate contracts.............. $16,121 $ 426 $ 549 $20,310 $ 661 $ 771
Foreign exchange contracts........... 2,328 266 266 4,796 448 448
Equity contracts..................... 33,886 649 649 11,318 889 889
Other contracts...................... 58 6 6 59 5 5
------- ------- ------- ------- ------- -------
Derivative liabilities, gross........... 52,393 1,347 1,470 36,483 2,003 2,113
Counter party netting*............... -- (1,138) (1,399) -- (1,549) (1,549)
------- ------- ------- ------- ------- -------
Derivative liabilities, net............. $52,393 $ 209 $ 71 $36,483 $ 454 $ 564
======= ======= ======= ======= ======= =======
* Represents netting of derivative exposures covered by a qualifying master
netting agreement.
The Company has a right of offset of its derivatives asset and liability
positions with various counterparties. The following table presents the effect
of the right of offsets:
December 31, 2018 December 31, 2017
------------------- -------------------
(in millions) Assets Liabilities Assets Liabilities
------------- ------- ----------- ------- -----------
Gross amount recognized.................................................... $ 2,773 $(1,347) $ 2,204 $(2,003)
Amount offset.............................................................. (1,138) 1,138 (1,549) 1,549
------- ------- ------- -------
Net amount presented in the Statement of Admitted Assets, Liabilities, and
Capital and Surplus...................................................... $ 1,635 $ (209) $ 655 $ (454)
======= ======= ======= =======
35
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
8. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The following table presents the Company's derivative financial instruments
with concentrations of credit risk:
December 31, 2018 December 31, 2017
----------------- -----------------
Contract Contract
or Final or Final
Notional Maturity Notional Maturity
(in millions) Amount Date Amount Date
------------- -------- -------- -------- --------
Derivative assets:
Interest rate contracts.... $26,901 2055 $24,646 2049
Foreign exchange contracts. 6,331 2056 2,302 2035
Equity contracts........... 45,769 2028 25,379 2028
Derivative liabilities:
Interest rate contracts.... 16,121 2056 20,310 2056
Foreign exchange contracts. 2,328 2051 4,796 2056
Equity contracts........... 33,886 2022 11,318 2022
Other contracts............ 58 2042 59 2042
The credit exposure to the Company's derivative contracts is limited to the
fair value of such contracts that are favorable to the Company at the reporting
date.
The credit exposure to the Company's derivative contracts aggregated
$466 million and $710 million at December 31, 2018 and 2017, respectively.
9. FAIR VALUE MEASUREMENTS
Fair Value Measurements
The Company carries certain financial instruments at fair value. The Company
defines the fair value of a financial instrument as the amount that would be
received from the sale of an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
Company is responsible for the determination of the value of the investments
carried at fair value and the supporting methodologies and assumptions.
The degree of judgment used in measuring the fair value of financial
instruments generally inversely correlates with the level of observable
valuation inputs. The Company maximizes the use of observable inputs and
minimizes the use of unobservable inputs when measuring fair value. Financial
instruments with quoted prices in active markets generally have more pricing
observability and less judgment is used in measuring fair value. Conversely,
financial instruments for which no quoted prices are available have less
observability and are measured at fair value using valuation models or other
pricing techniques that require more judgment. Pricing observability is
affected by a number of factors, including the type of financial instrument,
whether the financial instrument is new to the market and not yet established,
the characteristics specific to the transaction, liquidity and general market
conditions.
Fair Value Hierarchy
Assets and liabilities recorded at fair value are measured and classified in
accordance with a fair value hierarchy consisting of three "levels" based on
the observability of valuation inputs:
.. Level 1: Fair value measurements based on quoted prices (unadjusted) in
active markets that the Company has the ability to access for identical
assets or liabilities. Market price data generally is obtained from
exchange or dealer markets. The Company does not adjust the quoted price
for such instruments.
.. Level 2: Fair value measurements based on inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, and inputs
other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly
quoted intervals.
36
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
.. Level 3: Fair value measurements based on valuation techniques that use
significant inputs that are unobservable. Both observable and unobservable
inputs may be used to determine the fair values of positions classified in
Level 3. The circumstances for using these measurements include those in
which there is little, if any, market activity for the asset or liability.
Therefore, the Company must make certain assumptions as to the inputs a
hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In those cases, the level in
the fair value hierarchy within which the fair value measurement in its
entirety falls is determined based on the lowest level input that is
significant to the fair value measurement in its entirety.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value.
Bonds: Fair value is based principally on value from independent third-party
valuation service providers, broker quotes and other independent information.
Preferred stocks: Fair value of unaffiliated preferred stocks is based
principally on value from independent third-party service providers, broker
quotes and other independent information.
Cash, cash equivalents and short term investments: Carrying amount approximate
fair value because of the relatively short period of time between origination
and expected realization and their limited exposure to credit risk.
Mortgage loans: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
Contract loans: Carrying amounts, which approximate fair value, are generally
equal to unpaid principal amount as of each reporting date. No consideration is
given to credit risk because contract loans are effectively collateralized by
the cash surrender value of the policies.
Securities lending reinvested collateral assets: Securities lending assets are
generally invested in short-term investments and thus carrying amounts
approximate fair values because of the relatively short period of time between
origination and expected realizations.
Separate account assets: Variable annuity and variable universal life assets
are carried at the market value of the underlying securities. Certain separate
account assets related to market value adjustment fixed annuity contracts are
carried at book value. Fair value is based principally on the value from
independent third-party valuation service providers, broker quotes and other
independent information.
Policy reserves and contractual liabilities: Fair value for investment
contracts (those without significant mortality risk) not accounted for at fair
value were estimated for disclosure purposes using discounted cash flow
calculations based upon interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. When no similar contracts are being offered, the discount rate is
the appropriate swap rates (if available) or current risk-free interest rates
consistent with the currency in which cash flows are denominated.
Payable for securities lending: Cash collateral received from the securities
lending program is invested in short-term investments and the offsetting
liability is included in payable for securities lending. The carrying amount of
this liability approximates fair value because of the relatively short period
between origination of the liability and expected settlement.
Receivables/payables for securities: Such amounts represent transactions of a
short-term nature for which the statement value is considered a reasonable
estimate of fair value.
37
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Fair Value Information about Financial Instruments Not Measured at Fair Value
The following table presents the aggregate fair values of the Company's
financial instruments not measured at fair value compared to their statement
values:
Admitted
Aggregate Assets or
(in millions) Fair Value Liabilities Level 1 Level 2 Level 3
------------- ---------- ----------- ------- ------- -------
December 31, 2018
Assets:
Bonds............................................. $ 96,620 $94,675 $ 35 $79,744 $16,841
Preferred stocks.................................. 240 228 6 220 14
Common stocks..................................... 138 138 -- 138 --
Cash, cash equivalents and short-term investments. 1,547 1,547 1,228 319 --
Mortgage loans.................................... 19,182 18,928 -- -- 19,182
Contract loans.................................... 1,307 1,307 -- -- 1,307
Derivatives....................................... 404 807 -- 404 --
Receivables for securities........................ 138 138 -- 138 --
Securities lending reinvested collateral assets... 352 352 -- 352 --
Separate account assets........................... 5,484 5,618 -- 5,484 --
Liabilities:
Policy reserves and contractual liabilities....... 11,843 11,191 -- 339 11,504
Payable for securities............................ 362 362 -- 362 --
Payable for securities lending.................... 447 447 -- 447 --
======== ======= ====== ======= =======
December 31, 2017....................................
Assets:
Bonds............................................. $101,792 $94,260 $ 200 $82,367 $19,225
Preferred stocks.................................. 229 211 11 205 13
Common stocks..................................... 38 38 -- 38 --
Cash, cash equivalents and short-term investments. 119 119 (96) 215 --
Mortgage loans.................................... 16,156 15,845 -- -- 16,156
Contract loans.................................... 1,340 1,340 -- -- 1,340
Receivables for securities........................ 541 541 -- 541 --
Securities lending reinvested collateral assets... 2,418 2,418 -- 2,418 --
Separate account assets........................... 4,470 4,553 -- 4,092 378
Liabilities:
Policy reserves and contractual liabilities....... 7,673 6,507 -- 386 7,287
Derivatives....................................... 548 118 -- 548 --
Payable for securities............................ 554 554 -- 554 --
Payable for securities lending.................... 2,460 2,460 -- 2,460 --
======== ======= ====== ======= =======
Valuation Methodologies of Financial Instruments Measured at Fair Value
Bonds
Bonds with NAIC 6 or 6* designations and preferred stocks with NAIC 4, 5 or 6
designations are carried at the lower of amortized cost or fair value. The
Company maximizes the use of observable inputs and minimizes the use of
unobservable inputs when measuring fair value. Whenever available, the Company
obtains quoted prices in active markets for identical assets at the balance
sheet date to measure bonds at fair value. Market price data generally is
obtained from exchange or dealer markets.
The Company estimates the fair value of securities not traded in active
markets, by referring to traded securities with similar attributes, using
dealer quotations, a matrix pricing methodology, discounted cash flow analyses
or internal valuation models. This methodology considers such factors as the
issuer's industry, the security's rating and tenor, its coupon rate, its
position in the capital structure of the issuer, yield curves, credit curves,
prepayment rates and other relevant factors. For bonds that are not traded in
active markets or that are subject to transfer restrictions, valuations are
adjusted to reflect illiquidity and/or non-transferability, and such
adjustments generally are based on available market evidence. In the absence of
such evidence, management's best estimate is used.
38
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Fair values for bonds and preferred stocks based on observable market prices
for identical or similar instruments implicitly include the incorporation of
counterparty credit risk. Fair values for bonds and preferred stocks based on
internal models incorporate counterparty credit risk by using discount rates
that take into consideration cash issuance spreads for similar instruments or
other observable information.
Common Stocks (Unaffiliated)
Whenever available, the Company obtains quoted prices in active markets for
identical assets at the balance sheet date to measure equity securities at fair
value. Market price data is generally obtained from exchanges or dealer markets.
Freestanding Derivatives
Derivative assets and liabilities can be exchange-traded or traded OTC. The
Company generally values exchange-traded derivatives, such as futures and
options, using quoted prices in active markets for identical derivatives at the
balance sheet date.
OTC derivatives are valued using market transactions and other observable
market evidence whenever possible, including market-based inputs to models,
model calibration to market clearing transactions, broker or dealer quotations
or alternative pricing sources with reasonable levels of price transparency.
When models are used, the selection of a particular model to value an OTC
derivative depends on the contractual terms of, and specific risks inherent in,
the instrument as well as the availability of pricing information in the
market. The Company generally uses similar models to value similar instruments.
Valuation models can require a variety of inputs, including contractual terms,
market prices and rates, yield curves, credit curves, measures of volatility,
prepayment rates and correlations of such inputs. For OTC derivatives that
trade in liquid markets, such as generic forwards, swaps and options, model
inputs can generally be corroborated by observable market data by correlation
or other means, and model selection does not involve significant management
judgment.
Certain OTC derivatives trade in less liquid markets with limited pricing
information, and the determination of fair value for these derivatives is
inherently more difficult. When the Company does not have corroborating market
evidence to support significant model inputs and cannot verify the model using
market transactions, the transaction price is initially used as the best
estimate of fair value. Accordingly, when a pricing model is used to value such
an instrument, the model is adjusted so the model value at inception equals the
transaction price. Subsequent to initial recognition, the Company updates
valuation inputs when corroborated by evidence such as similar market
transactions, independent third-party valuation services and/or broker or
dealer quotations, or other empirical market data. When appropriate, valuations
are adjusted for various factors such as liquidity, bid/offer spreads and
credit considerations. Such adjustments are generally based on available market
evidence. In the absence of such evidence, management's best estimate is used.
Separate Account Assets
Separate account assets are comprised primarily of registered and open-ended
variable funds that trade daily and are measured at fair value using quoted
prices in active markets for identical assets. Certain separate account assets
are carried at amortized cost.
39
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Assets and Liabilities Measured at Fair Value
The following table presents information about assets and liabilities measured
at fair value:
Counterparty
(in millions) Level 1 Level 2 Level 3 Netting* Total
------------- ------- ------- ------- ------------ -------
December 31, 2018
Assets at fair value:
Bonds..................................
U.S. special revenue................ $ -- $ -- $ 1 $ -- $ 1
Industrial and miscellaneous........ -- 4 13 -- 17
------- ------ ---- ------- -------
Total bonds......................... -- 4 14 -- 18
------- ------ ---- ------- -------
Preferred stock........................
Industrial and miscellaneous........ -- -- 75 -- 75
------- ------ ---- ------- -------
Total preferred stock............... -- -- 75 -- 75
------- ------ ---- ------- -------
Common stock...........................
Industrial and miscellaneous........ 21 -- 3 -- 24
Mutual funds........................ 41 -- -- -- 41
------- ------ ---- ------- -------
Total common stock.................. 62 -- 3 -- 65
------- ------ ---- ------- -------
Derivative assets:
Interest rate contracts............. -- 212 -- -- 212
Foreign exchange contracts.......... -- 511 -- -- 511
Equity contracts.................... 129 704 69 -- 902
Counterparty netting................ -- -- -- (1,138) (1,138)
------- ------ ---- ------- -------
Total derivative assets................ 129 1,427 69 (1,138) 487
------- ------ ---- ------- -------
Separate account assets................ 42,094 1,905 -- -- 43,999
------- ------ ---- ------- -------
Total assets at fair value............. $42,285 $3,336 $161 $(1,138) $44,644
======= ====== ==== ======= =======
Liabilities at fair value:
Derivative liabilities:
Interest rate contracts............. $ 3 $ 82 $ -- $ -- $ 85
Foreign exchange contracts.......... -- 266 -- -- 266
Equity contracts.................... 9 640 -- -- 649
Other contracts..................... -- -- 6 -- 6
Counterparty netting................ -- -- -- (1,138) (1,138)
------- ------ ---- ------- -------
Total derivative liabilities........... 12 988 6 (1,138) (132)
------- ------ ---- ------- -------
Total liabilities at fair value........ $ 12 $ 988 $ 6 $(1,138) $ (132)
======= ====== ==== ======= =======
December 31, 2017......................
Assets at fair value:
Bonds..................................
Industrial and miscellaneous........ $ -- $ 76 $ 2 $ -- $ 78
------- ------ ---- ------- -------
Total bonds......................... -- 76 2 -- 78
------- ------ ---- ------- -------
Common stock...........................
Industrial and miscellaneous........ 2 -- 3 -- 5
Mutual funds........................ 44 -- -- -- 44
Parent, subsidiaries and affiliates. 6 -- -- -- 6
------- ------ ---- ------- -------
Total common stock.................. 52 -- 3 -- 55
------- ------ ---- ------- -------
Derivative assets:
Interest rate contracts............. -- 232 -- -- 232
Foreign exchange contracts.......... -- 398 -- -- 398
Equity contracts.................... 181 877 78 -- 1,136
Counterparty netting................ -- -- -- (1,549) (1,549)
------- ------ ---- ------- -------
Total derivative assets................ 181 1,507 78 (1,549) 217
------- ------ ---- ------- -------
Separate account assets................ 47,609 1,941 -- -- 49,550
------- ------ ---- ------- -------
Total assets at fair value............. $47,842 $3,524 $ 83 $(1,549) $49,900
======= ====== ==== ======= =======
Liabilities at fair value:
Derivative liabilities:
Interest rate contracts............. $ 2 $ 105 $ -- $ -- $ 107
Foreign exchange contracts.......... -- 448 -- -- 448
Equity contracts.................... 1 888 -- -- 889
Other contracts..................... -- -- 5 -- 5
Counterparty netting................ -- -- -- (1,549) (1,549)
------- ------ ---- ------- -------
Total derivative liabilities........... 3 1,441 5 (1,549) (100)
------- ------ ---- ------- -------
Total liabilities at fair value........ $ 3 $1,441 $ 5 $(1,549) $ (100)
======= ====== ==== ======= =======
* Represents netting of derivative exposures covered by a qualifying master
netting agreement.
40
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Changes in Level 3 Fair Value Measurements
The following tables present changes in Level 3 assets and liabilities measured
at fair value and the gains (losses) related to the Level 3 assets and
liabilities that remained on the Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus:
Preferred Common Derivative Total Derivative
(in millions) Bonds Stocks Stocks Assets Assets Liabilities
------------- ----- --------- ------ ---------- ------ -----------
Balance, January 1, 2016........................... $ 163 -- $-- $ 53 $ 216 $ 8
Total realized/unrealized capital gains or losses:
Included in net income.......................... 20 -- -- 4 24 2
Included in surplus............................. 2 -- -- 3 5 (3)
Purchases, issuances and settlements............... 210 -- -- (5) 205 (2)
Transfers into Level 3............................. 81 -- -- -- 81 --
Transfers out of Level 3........................... (316) -- -- -- (316) --
----- -- --- ---- ----- ---
Balance, December 31, 2016......................... $ 160 -- $-- $ 55 $ 215 $ 5
===== == === ==== ===== ===
Total realized/unrealized capital gains or losses:
Included in net income.......................... (5) -- -- 15 10 1
Included in surplus............................. 17 -- -- 24 41 --
Purchases, issuances and settlements............... 45 -- 3 (15) 33 (1)
Transfers into Level 3............................. 1 -- -- -- 1 --
Transfers out of Level 3........................... (216) -- -- -- (216) --
----- -- --- ---- ----- ---
Balance, December 31, 2017......................... $ 2 -- $ 3 $ 79 $ 84 $ 5
===== == === ==== ===== ===
Total realized/unrealized capital gains or losses:
Included in net income.......................... (1) -- -- 13 12 1
Included in surplus............................. (1) -- 6 (44) (39) 1
Purchases, issuances and settlements............... 12 75 1 21 109 (1)
Transfers into Level 3............................. 17 -- -- -- 17 --
Transfers out of Level 3........................... (15) -- (7) -- (22) --
----- -- --- ---- ----- ---
Balance, December 31, 2018 $ 14 75 $ 3 $ 69 $ 161 $ 6
===== == === ==== ===== ===
Assets are transferred out of Level 3 when circumstances change such that
significant inputs can be corroborated with market observable data or when the
asset is no longer carried at fair value. This may be due to a significant
increase in market activity for the asset, a specific event, one or more
significant inputs becoming observable or when a long-term interest rate
significant to a valuation becomes short-term and thus observable. Transfers
out of level 3 can also occur due to favorable credit migration resulting in a
higher NAIC designation. Securities are generally transferred into Level 3 due
to a decrease in market transparency, downward credit migration and an overall
increase in price disparity for certain individual security types. The
Company's policy is to recognize transfers in and out at the end of the
reporting period, consistent with the date of the determination of fair value.
In both 2018 and 2017, there were no transfers between Level 1 and Level 2
securities and transfers between Level 2 and Level 3 securities were less than
one million.
Both observable and unobservable inputs may be used to determine the fair
values of positions classified in Level 3 in the tables above. As a result, the
unrealized capital gains (losses) on instruments held at December 31, 2018 and
2017 may include changes in fair value that were attributable to both
observable and unobservable inputs.
Quantitative Information About Level 3 Fair Value Measurements
The Company had no quantitative information about level 3 fair value
measurements to report at December 31, 2018.
41
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Gross Basis Fair Value Measurements
The following table presents the Company's derivative assets and liabilities
measured at fair value, on a gross basis, before counterparty and cash
collateral netting:
(in millions) Level 1 Level 2 Level 3 Total
------------- ------- ------- ------- ------
December 31, 2018
Derivative assets at fair value...... $129 $1,427 $69 $1,625
Derivative liabilities at fair value. 12 988 6 1,006
December 31, 2017....................
Derivative assets at fair value...... $181 $1,508 $78 $1,767
Derivative liabilities at fair value. 3 1,441 5 1,449
10. AGGREGATE POLICY RESERVES AND DEPOSIT FUND LIABILITIES
The following table presents the Company's reserves by major category:
Years ended
December 31,
------------------
(in millions) 2018 2017
------------- -------- --------
Life insurance........................................................ $ 37,837 $ 36,825
Annuities (excluding supplementary contracts with life contingencies). 72,274 69,334
Supplementary contracts with life contingencies....................... 517 467
Accidental death benefits............................................. 20 21
Disability - active lives............................................. 34 36
Disability - disabled lives........................................... 255 269
Excess of AG 43 reserves over basic reserves.......................... 1,303 910
Deficiency reserves................................................... 1,497 1,266
Other miscellaneous reserve........................................... 832 688
-------- --------
Gross life and annuity reserves.................................... 114,569 109,816
Reinsurance ceded.................................................. (23,214) (22,276)
-------- --------
Net life and annuity reserves......................................... 91,355 87,540
-------- --------
Accident and health reserves..........................................
Unearned premium reserves.......................................... 11 13
Present value of amounts not yet due on claims..................... 255 282
Additional contract reserves....................................... 544 547
-------- --------
Gross accident and health reserves................................. 810 842
Reinsurance ceded.................................................. (22) (30)
-------- --------
Net accident and health reserves...................................... 788 812
-------- --------
Aggregate policy reserves............................................. $ 92,143 $ 88,352
======== ========
42
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents the withdrawal characteristics of annuity
actuarial reserves and deposit-type contract funds and other liabilities
without life contingencies:
Separate Separate
Accounts Accounts
General With Non-
(in millions) Account Guarantee* Guaranteed* Total Percent
------------- ------- ---------- ----------- -------- -------
December 31, 2018
Subject to discretionary withdrawal...............................
With fair value adjustment..................................... $16,120 $1,482 $ -- $ 17,602 13.6%
At book value less current surrender charge of 5% or more...... 9,677 -- -- 9,677 7.5
At fair value.................................................. -- 71 39,763 39,834 30.8
------- ------ ------- -------- -----
Total with adjustment or at fair value............................ 25,797 1,553 39,763 67,113 51.9
At book value with minimal or no charge or no adjustment.......... 31,229 -- 1 31,230 24.1
Not subject to discretionary withdrawal........................... 27,794 3,187 83 31,064 24.0
------- ------ ------- -------- -----
Annuity reserves and deposit fund liabilities, before reinsurance. 84,820 4,740 39,847 129,407 100.0%
=====
Less: Reinsurance ceded........................................... 321 -- -- 321
------- ------ ------- --------
Net annuity reserves and deposit fund liabilities................. $84,499 $4,740 $39,847 $129,086
======= ====== ======= ========
December 31, 2017.................................................
Subject to discretionary withdrawal...............................
With fair value adjustment..................................... $13,452 $1,254 $ -- $ 14,706 11.5%
At book value less current surrender charge of 5% or more...... 7,872 -- -- 7,872 6.1
At fair value.................................................. -- 88 44,892 44,980 35.1
------- ------ ------- -------- -----
Total with adjustment or at fair value............................ 21,324 1,342 44,892 67,558 52.7
At book value with minimal or no charge or no adjustment.......... 32,754 -- 2 32,756 25.5
Not subject to discretionary withdrawal........................... 25,419 2,500 86 28,005 21.8
------- ------ ------- -------- -----
Annuity reserves and deposit fund liabilities, before reinsurance. 79,497 3,842 44,980 128,319 100.0%
=====
Less: Reinsurance ceded........................................... 321 -- -- 321
------- ------ ------- --------
Net annuity reserves and deposit fund liabilities................. $79,176 $3,842 $44,980 $127,998
======= ====== ======= ========
* Represents annuity reserves reported in separate accounts liabilities.
11. SEPARATE ACCOUNTS
Separate Accounts
The separate accounts held by the Company consist primarily of variable life
insurance policies and variable annuities. These contracts generally are
non-guaranteed in nature such that the benefit is determined by the performance
and/or market value of the investments held in the separate account. The net
investment experience of the separate account is credited directly to the
policyholder and can be positive or negative.
Certain other separate accounts relate to MVA fixed annuity contracts in which
the assets are carried at amortized cost. These policies are required to be
held in the Company's separate account by certain states, including Texas.
Certain other separate accounts relate to flexible premium adjustable life
insurance and terminal funding annuities in which the assets are carried at
amortized cost. These contracts provide the greater of guaranteed interest
returns defined in the policy or interest in excess of the guaranteed rate as
defined by the Company.
The Company does not engage in securities lending transactions within the
separate accounts.
In accordance with the products/transactions recorded within the separate
account, some assets are considered legally insulated whereas others are not
legally insulated from the general account. The legal insulation of the
separate account assets prevents such assets from being generally available to
satisfy claims resulting from the general account.
43
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents separate account assets by product or transaction:
December 31, 2018 December 31, 2017
-------------------- --------------------
Separate Separate
Accounts Accounts
Assets Assets
Legally (Not Legally (Not
Insulated Legally Insulated Legally
(in millions) Assets Insulated) Assets Insulated)
------------- --------- ---------- --------- ----------
Variable annuities.................................. $40,920 $ -- $46,234 $ --
Variable life....................................... 3,055 -- 3,286 --
Bank-owned life insurance--hybrid................... 804 -- 653 --
Deferred annuities with MVA features................ 225 -- 387 --
Terminal funding.................................... 3,175 -- 2,489 --
Annuities with MVA features......................... -- 1,243 -- 866
Fixed annuities excess interest adjustment features. -- 196 -- 189
------- ------ ------- ------
Total............................................... $48,179 $1,439 $53,049 $1,055
======= ====== ======= ======
Some separate account liabilities are guaranteed by the general account. To
compensate the general account for the risks taken, the separate accounts pay
risk charges to the general account.
If claims were filed on all contracts, the current total maximum guarantee the
general account would provide to the separate account as of December 31, 2018
and 2017 is $6.7 billion and $5.8 billion, respectively.
There was no separate account business seed money at December 31, for both 2018
and 2017.
The following table presents the risk charges paid by the separate accounts and
the guarantees paid by the general account:
Risk
Charge
paid by Guarantees
the Paid by the
Separate General
(in millions) Account Account
------------- -------- -----------
2018...... $324 $41
2017...... 292 40
2016...... 330 52
2015...... 279 52
2014...... 204 43
44
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents information regarding the separate accounts:
Non-indexed Non-indexed
Guarantee Guarantee Non-guaranteed
less than or more than Separate
(in millions) Indexed equal to 4% 4% Accounts Total
------------- ------- ------------ ----------- -------------- -------
December 31, 2018
Premiums, considerations or deposits............ $241 $ -- $ 43 $ 3,090 $ 3,374
==== ====== ==== ======= =======
Reserves for accounts with assets at:
Market value................................. $ -- $ -- $ -- $42,885 $42,885
Amortized costs.............................. 958 3,769 415 -- 5,142
---- ------ ---- ------- -------
Total reserves.................................. $958 $3,769 $415 $42,885 $48,027
==== ====== ==== ======= =======
By withdrawal characteristics:
Subject to discretionary withdrawal with MVA. $958 $2,199 $415 $ -- $ 3,572
At market value.............................. -- -- -- 42,802 42,802
---- ------ ---- ------- -------
Subtotal........................................ 958 2,199 415 42,802 46,374
Not subject to discretionary withdrawal......... -- 1,570 -- 83 1,653
---- ------ ---- ------- -------
Total reserves.................................. $958 $3,769 $415 $42,885 $48,027
==== ====== ==== ======= =======
December 31, 2017...............................
Premiums, considerations or deposits............ $185 $ -- $ 70 $ 4,444 $ 4,699
==== ====== ==== ======= =======
Reserves for accounts with assets at:
Market value................................. $ -- $ -- $ -- $48,116 $48,116
Amortized costs.............................. 739 3,096 395 -- 4,230
---- ------ ---- ------- -------
Total reserves.................................. $739 $3,096 $395 $48,116 $52,346
==== ====== ==== ======= =======
By withdrawal characteristics:
Subject to discretionary withdrawal with MVA. $739 $ 596 $395 $ -- $ 1,730
At market value.............................. -- -- -- 48,030 48,030
---- ------ ---- ------- -------
Subtotal........................................ 739 596 395 48,030 49,760
Not subject to discretionary withdrawal......... -- 2,500 -- 86 2,586
---- ------ ---- ------- -------
Total reserves.................................. $739 $3,096 $395 $48,116 $52,346
==== ====== ==== ======= =======
December 31, 2016...............................
Premiums, considerations or deposits............ $222 $ 1 $106 $ 3,040 $ 3,369
==== ====== ==== ======= =======
Reserves for accounts with assets at:
Market value................................. $ -- $ -- $ -- $42,715 $42,715
Amortized costs.............................. 586 1,075 343 -- 2,004
---- ------ ---- ------- -------
Total reserves.................................. $586 $1,075 $343 $42,715 $44,719
==== ====== ==== ======= =======
By withdrawal characteristics:
Subject to discretionary withdrawal with MVA. $586 $ 621 $343 $ -- $ 1,550
At market value.............................. -- -- -- 42,632 42,632
---- ------ ---- ------- -------
Subtotal........................................ 586 621 343 42,632 44,182
Not subject to discretionary withdrawal......... -- 454 -- 83 537
---- ------ ---- ------- -------
Total reserves.................................. $586 $1,075 $343 $42,715 $44,719
==== ====== ==== ======= =======
Reconciliation of Net Transfers to or from Separate Accounts
The following table presents a reconciliation of the net transfers to (from)
separate accounts:
Years ended December 31,
-------------------------
(in millions) 2018 2017 2016
------------- ------- ------- -------
Transfers to separate accounts.................................. $ 3,373 $ 4,699 $ 3,356
Transfers from separate accounts................................ (4,147) (3,393) (3,055)
------- ------- -------
Net transfers to (from) separate accounts....................... (774) 1,306 301
Reconciling adjustments:
Deposit-type contracts....................................... -- -- 2
------- ------- -------
Total reconciling adjustments................................... -- -- 2
------- ------- -------
Transfers as reported in the Statutory Statements of Operations. $ (774) $ 1,306 $ 303
======= ======= =======
45
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
12. RESERVES FOR GUARANTEED POLICY BENEFITS AND ENHANCEMENTS
Variable annuity contracts may include certain contractually guaranteed
benefits to the contract holder. These guaranteed features include GMDB that
are payable in the event of death, and living benefits that are payable in the
event of annuitization, or, in other instances, at specified dates during the
accumulation period. Living benefits include guaranteed minimum withdrawal
benefits (GMWB) and, to a lesser extent, guaranteed minimum accumulation
benefits (GMAB), which are no longer offered. A variable annuity contract may
include more than one type of guaranteed benefit feature; for example, it may
have both a GMDB and a GMWB. However, a policyholder generally can only receive
payout from one guaranteed feature on a contract containing a death benefit and
a living benefit, i.e. the features are mutually exclusive. A policyholder
cannot purchase more than one living benefit on one contract. The net amount at
risk for each feature is calculated irrespective of the existence of other
features; as a result, the net amount at risk for each feature is not additive
to that of other features.
Reserves for GMDB, GMIB and GMWB were included in the VACARVM reserves. Total
reserves in excess of basic reserves were $1.3 billion and $910 million at
December 31, 2018 and 2017, respectively. The Company chose to record reserves
in excess of AG 43 minimum reserves at both December 31, 2018 and 2017, such
that the reserves in both periods equal the C3 Phase II Total Asset Requirement
level.
GMDB and GMIB
Depending on the product, the GMDB feature may provide a death benefit of
either (a) total deposits made to the contract less any partial withdrawals
plus a minimum return or (b) the highest contract value attained, typically on
any anniversary date minus any subsequent withdrawals following the contract
anniversary. GMIB guarantees a minimum level of periodic income payments upon
annuitization. GMDB is the Company's most widely offered benefit; variable
annuity contracts may also include GMIB to a lesser extent, which is no longer
offered.
The net amount at risk, which represents the guaranteed benefit exposure in
excess of the current account value if death claims were filed on all contracts
related to GMDB, was $2.3 billion and $1.0 billion at December 31, 2018 and
2017, respectively.
GMWB
Certain of the Company's variable annuity contracts offer optional GMWB. With a
GMWB, the contract holder can monetize the excess of the guaranteed amount over
the account value of the contract only through a series of withdrawals that do
not exceed a specific percentage per year of the guaranteed amount. If, after
the series of withdrawals, the account value is exhausted, the contract holder
will receive a series of annuity payments equal to the remaining guaranteed
amount, and, for lifetime GMWB products, the annuity payments continue as long
as the covered person(s) are living.
The net amount at risk for GMWB represents the present value of minimum
guaranteed withdrawal payments, in accordance with contract terms, in excess of
account value. The net amount at risk related to these guarantees was
$185 million and $375 million at December 31, 2018 and 2017, respectively. The
Company uses derivative instruments and other financial instruments to mitigate
a portion of the exposure that arises from GMWB.
13. PARTICIPATING POLICY CONTRACTS
Participating policy contracts entitle a policyholder to share in earnings
through dividend payments. These contracts represented 0.01 percent,
0.01 percent and 0.75 percent of gross insurance in-force at December 31, 2018,
2017 and 2016, respectively. Policyholder dividends for the years ended
December 31, 2018 and 2017 were ($13) million, $18 million and $19 million,
respectively.
46
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
14. PREMIUM AND ANNUITY CONSIDERATION DEFERRED AND UNCOLLECTED
The following table presents the deferred and uncollected insurance premiums
and annuity consideration (before deduction for amounts non-admitted):
December 31, 2018 December 31, 2017
---------------- ----------------
Net of Net of
(in millions) Gross Loading Gross Loading
------------- ----- ------- ----- -------
Ordinary new business. $ (10) $(10) $ (4) $(4)
Ordinary renewal...... (395) 147 (473) 41
Group life............ 1 1 6 6
----- ---- ----- ---
Total................. $(404) $138 $(471) $43
===== ==== ===== ===
15. REINSURANCE
In the ordinary course of business, the Company utilizes internal and
third-party reinsurance relationships to manage insurance risks and to
facilitate capital management strategies. Long-duration reinsurance is effected
principally under yearly renewable term treaties. Pools of highly-rated third
party reinsurers are utilized to manage net amounts at risk in excess of
retention limits. Reinsurance agreements do not relieve the Company of its
direct obligations from its beneficiaries. Thus, a credit exposure exists with
respect to reinsurance ceded to the extent that any reinsurer fails to meet the
obligations assumed under any reinsurance agreement. In addition, the Company
assumes reinsurance from other insurance companies.
Reinsurance premiums assumed in 2018, 2017 and 2016 were $26 million,
$30 million and $33 million, respectively. Reinsurance premiums ceded in 2018,
2017 and 2016 were $25.2 billion, $2.6 billion and $6.1 billion, respectively.
Additionally, reserves on reinsurance assumed were $1.4 billion at both
December 31, 2018, 2017 and 2016. The reserve credit taken on reinsurance ceded
was $23.3 billion, $22.3 billion and $21.2 billion at December 31, 2018, 2017
and 2016, respectively. Amounts payable or recoverable for reinsurance on
policy and contract liabilities are not subject to periodic or maximum limits.
At December 31, 2018 and 2017, the Company's reinsurance recoverables were
$306 million and $426 million, respectively.
The Company does not have any reinsurance agreements in effect under which the
reinsurer may unilaterally cancel any reinsurance for reasons other than for
nonpayment of premium or other similar credits. The Company has no reinsurance
agreements in effect such that the amount of losses paid or accrued through the
statement date may result in a payment to the reinsurer of amounts which, in
aggregate and allowing for offset of mutual credits from other reinsurance
agreements with the same reinsurer, exceed the total revenue collected under
the reinsured policies.
The NAIC Model Regulation "Valuation of Life Insurance Policies" (Regulation
XXX) requires U.S. life insurers to establish additional statutory reserves for
term life insurance policies with long-term premium guarantees and universal
life policies with secondary guarantees (ULSGs). In addition, NAIC Actuarial
Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to
these guarantees, including certain ULSGs. Prior to 2016, the Company managed
the capital impact of statutory reserve requirements under Regulation XXX and
Guideline AXXX through intercompany reinsurance transactions. Regulation XXX
and Guideline AXXX reserves related to new and in-force business (term and
universal life) were ceded to the Parent under a coinsurance/modified
coinsurance agreement effective January 1, 2011 (the AGC Co/Modco Agreement),
prior to the recapture of in-force business effective December 31, 2016. New
business is still ceded under this treaty.
In 2018, the AGC Life Co/Modco Agreement increased the Company's pre-tax
earnings by $382 million, while in 2017, the AGC Life Co/Modco Agreement
increased pre-tax earnings by $289 million. In 2016, the AGC Life Co/Modco
Agreement decreased pre-tax earnings by $6.3 billion. The pretax loss from the
2016 recapture was $6.5 billion.
In September 2016, the Company entered into a reinsurance agreement with
Hannover Life Reassurance Company of America (Hannover), effective July 1,
2016, under which the Company ceded approximately $5 billion of reserves to
Hannover, which included a block of whole life policies on a coinsurance with
funds withheld basis and a block of current assumption universal life business
on a yearly renewable term basis. This reinsurance agreement released
47
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
excess statutory capital of approximately $1 billion, which was included in
dividends paid ultimately by the Company to AIG in September 2016.
Effective December 31, 2016, the Company recaptured certain term and universal
life reserves that had been ceded to AGC Life and concurrently amended the
July 1, 2016 reinsurance treaty with Hannover to add this in-force term and
guaranteed universal life business on a coinsurance basis and additional
universal life on a yearly renewable term basis. The Company ceded
approximately $14 billion of such reserves to Hannover under the treaty
amendment, which was effective December 31, 2016.
In 2017, the coinsurance reserve was increased as a result of actuarial reserve
changes impacting prior periods. The amount of the reserve increase as of
January 1, 2017 was $155 million, with the after tax increase of $107 million
reported as an adjustment to the Change in Surplus as a Result of Reinsurance.
December 31, 2016
July 1, 2016 -------------------
Increase (Decrease) Cession to Cession to Net Impact of
(in millions) Hannover Recapture Hannover Reinsurance
------------------- ------------ --------- ---------- -------------
Statement of Admitted Assets, Liabilities and Capital and
Surplus.................................................
Deferred and uncollected premium....................... $ (38) $ -- $ (764) $ (802)
Aggregate reserve for life contracts................... (5,349) 6,482 (14,266) (13,133)
Current federal income taxes due....................... 47 (1,790) 2,501 758
Funds held under coinsurance........................... 4,492 -- 5,482 9,974
------- ------- -------- --------
Total capital and surplus.............................. $ 772 $(4,692) $ 5,519 $ 1,599
------- ------- -------- --------
Statement of Operations...................................
Premiums.................................................. $(5,349) $15,806 $(14,266) $ (3,809)
Commissions on reinsurance ceded.......................... 47 (6,482) 6,607 172
Reserve adjustments on reinsurance ceded.................. -- (9,324) -- (9,324)
------- ------- -------- --------
Total revenue............................................. (5,302) -- (7,659) (12,961)
Increase in aggregate reserves for life................... (5,349) 6,482 (14,266) (13,133)
Federal income tax expense (benefit)...................... 47 (1,790) 2,501 758
------- ------- -------- --------
Net income................................................ $ -- $(4,692) $ 4,106 $ (586)
------- ------- -------- --------
Capital and Surplus Account
Change in surplus as a result of reinsurance.............. $ 772 $ -- $ 1,413 $ 2,185
------- ------- -------- --------
In February 2018, the Company and its U.S. life insurance company affiliates,
VALIC and USL, each executed their respective Modified Coinsurance (ModCo)
Agreements (The Agreements) with Fortitude Reinsurance Company, Ltd (FRL),
(formerly DSA Reinsurance Company Limited), a wholly owned AIG subsidiary and
registered Class 4 and Class E reinsurer in Bermuda. The Agreements were
effective as of January 1, 2017 in respect of certain closed blocks of business
(including structured settlements and single premium immediate annuities).
Fortitude Group Holdings, LLC (Fortitude Holdings) was formed by AIG to act as
a holding company for FRL. On November 13, 2018, AIG completed the sale of a
19.9 percent ownership interest in Fortitude Holdings to TC Group Cayman
Investment Holdings, L.P. (TCG), an affiliate of The Carlyle Group L.P.
Subsequent to this sale, Fortitude Holdings owns 100 percent of the outstanding
common shares of FRL and AIG has an 80.1 percent ownership interest in
Fortitude Holdings.
The initial consideration represented the book value of ModCo Assets held by
the Company on behalf of FRL and was equal to the ModCo Reserves ceded at the
effective date. While there was no net impact from the initial accounting as of
the effective date, there was a significant offsetting impact on certain
individual line items in the Summary of Operations. Pursuant to the regulatory
approval received in February 2018, the Company has reported all of the ceded
activity for this Agreement from the effective date (January 1, 2017) through
December 31, 2018 in its 2018 Annual Statement.
Total returns on the ModCo Assets subsequent to the effective date inure to the
benefit of FRL and are reported with the ModCo reserve adjustments. The Company
did not receive a ceding commission at contract inception.
48
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The Company completed its initial settlement with FRL in June 2018 and settles
all payable or receivable balances quarterly.
The table below presents the impact of this transaction by line item in the
Company's statements of assets, liabilities, surplus and other funds and on the
summary of operations:
Balance as of
December 31,
2018
-------------
Statutory Statements of Assets, Liabilities and Capital and Surplus
Funds withheld...................................................... $152
----
As of and Year As of and Year
Ended Ended
Increase (Decrease) Initial December 31, December 31,
(in millions) Accounting 2017 2018 Total
------------------- ---------- -------------- -------------- --------
Statutory Statement of Operations
Premiums and annuity considerations........................................... $(22,152) $ (311) $ (291) $(22,754)
Commissions and expense allowances............................................ -- 57 53 110
Reserve adjustments on reinsurance ceded...................................... 22,152 (1,699) (1,778) 18,675
-------- ------- ------- --------
Total revenues................................................................ -- (1,953) (2,016) (3,969)
-------- ------- ------- --------
Death benefits................................................................ -- (249) (249) (498)
Annuity benefits.............................................................. -- (1,040) (1,019) (2,059)
Surrender benefits............................................................ -- (131) (133) (264)
Other benefits................................................................ -- (164) (334) (498)
Other expenses................................................................ -- -- (1) (1)
-------- ------- ------- --------
Total benefits and expenses................................................... -- (1,584) (1,736) (3,320)
-------- ------- ------- --------
Net gain from operations before dividends to policyholders and federal income
taxes -- (369) (280) (649)
Dividends to policyholders.................................................... -- (13) (12) (25)
-------- ------- ------- --------
Net gain from operations after dividends to policyholders and before federal
income taxes $ -- $ (356) $ (268) $ (624)
-------- ------- ------- --------
During 2018, 2017 and 2016, the Company commuted reinsurance treaties with
non-affiliated reinsurers, which resulted in increases in the Company's pre-tax
earnings of $529 thousand, $500 thousand and $1.7 million, respectively.
The Company has an annuity Co/Modco agreement with an affiliate, AIG Life of
Bermuda, Ltd. (AIGB), in which AIGB reinsures certain deferred annuity
contracts issued between 2003 and 2007. The agreement is such that the Company
retains and controls assets held in relation to the related reserve. As of
December 31, 2018 and 2017, the assets and liabilities resulting from the
agreement and recorded in the accompanying financial statements were
$7.2 billion and $8.1 billion, respectively. In 2018, the Agreement decreased
the Company's pre-tax earnings by $1 million and $2 million in 2017 and 2016,
respectively.
49
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
16. FEDERAL INCOME TAXES
U.S. Tax Reform Overview
On December 22, 2017, the United States enacted Public Law 115-97, known as the
Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act reduced the statutory rate
of U.S. federal corporate income tax to 21 percent and enacted numerous other
changes impacting the Company.
Consistent with Staff Accounting Bulletin No. 118 released by the Securities
and Exchange Commission, the NAIC issued INT 18-01: Updated Tax Estimates under
the Tax Cuts and Jobs Act ("INT 18-01"), which provided guidance on statutory
accounting for the tax effects of the Tax Act. INT 18-01 addressed situations
where accounting for certain income tax effects of the Tax Act under SSAP 101,
Income Taxes, ("SSAP 101") may be incomplete upon issuance of an entity's
financial statements and provides a one-year measurement period from enactment
date to complete the accounting under SSAP 101. In accordance with INT 18-01, a
company was required to reflect the following:
.. Income tax effects of those aspects of the Tax Act for which accounting
under SSAP 101 is complete.
.. Provisional estimate of income tax effects of the Tax Act to the extent
accounting is incomplete but a reasonable estimate is determinable.
.. If a provisional estimate cannot be determined, SSAP 101 should still be
applied on the basis of tax law provisions that were in effect immediately
before the enactment of the Tax Act.
At December 31, 2017, the Company originally recorded a provisional estimate of
income tax effects of the Tax Act of $1.7 billion attributable to the reduction
in the U.S. corporate income tax. The Company's provisional estimate was based
in part on a reasonable estimate of the effects of the statutory income tax
rate reduction on existing deferred tax balances and of certain provisions of
the Tax Act. The Company filed its 2017 consolidated U.S. income tax return and
has completed its review of the primary impact of the Tax Act provisions on its
deferred taxes. As a result, the Company considers the accounting for the
effects of the rate change on deferred tax balances to be complete and no
material measurement period changes were recorded for this item. As further
guidance is issued by the U.S. tax authority, any resulting changes in the
Company's estimates will be treated in accordance with the relevant accounting
guidance.
The Tax Act includes provisions for Global Intangible Low-Taxed Income
("GILTI"), under which taxes on foreign income are imposed on the excess of a
deemed return on tangible assets of foreign corporations and for Base Erosion
and Anti-Abuse Tax ("BEAT"), under which taxes are imposed on certain base
eroding payments to affiliated foreign companies. There are substantial
uncertainties in the interpretation of BEAT and GILTI and while certain formal
guidance was issued by the U.S. tax authority, there are still aspects of the
Tax Act that remain unclear and additional guidance is expected in 2019. Such
guidance may result in changes to the interpretations and assumptions the
Company made and actions the Company may take, which may impact amounts
recorded with respect to international provisions of the Tax Act, possibly
materially. Consistent with accounting guidance, the Company treats BEAT as a
period tax charge in the period the tax is incurred and has made an accounting
policy election to treat GILTI taxes in a similar manner. No provision for
income tax related to GILTI or BEAT was recorded as of December 31, 2018.
Tax effects for which a reasonable estimate can be determined
Provisions Impacting Life Insurance Companies
The Tax Act modified computations of insurance reserves for Life insurance
companies. Specifically, the Act directs that tax reserves be computed with
reference to the NAIC reserves. Adjustments related to the differences in
insurance reserves balances computed historically versus under the Tax Act have
to be taken into income over eight years. Accordingly, these changes give rise
to new deferred tax liabilities. At December 31, 2017, the Company recorded a
provisional estimate of $499 million with respect to such deferred tax
liabilities. This increase in deferred tax liabilities
50
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
was offset by an increase in the deferred tax asset related to insurance
reserves as a result of applying the new provisions of the Tax Act.
As of December 31, 2018, the Company has completed the review and accounting of
the tax reserve computations, and recorded offsetting decreases of $192 million
to both deferred tax liabilities and deferred tax assets.
Provisions Impacting Projections of Taxable Income and Admissibility of
Deferred Tax Assets
Certain provisions of the Tax Act impact the Company's projections of future
taxable income used in analyzing realizability of its deferred tax assets. In
certain instances, provisional estimates have been included in the Company's
future taxable income projections for these specific provisions to reflect
application of the new tax law. The Company does not currently anticipate that
its reliance on provisional estimates would have a material impact on its
determination of realizability of its deferred tax assets.
Tax effects for which no estimate can be determined
The Tax Act may affect the results in certain investments and partnerships in
which the Company is a non-controlling interest owner. At December 31, 2017,
the information needed to determine a provisional estimate was not available
(such as for interest deduction limitations in those entities and the changed
definition of a U.S. Shareholder), and accordingly, no provisional estimates
were recorded. The Company has since completed its review of these investments
and partnerships. The Company considers the accounting for this item to be
complete and no measurement period change was recorded.
U.S. Tax Reform - INT 18-01 Measurement Period Completion
As of December 31, 2018, the Company has fully completed its accounting for the
tax effects of the Tax Act. Although the prescribed measurement period has
ended, there are aspects of the Tax Act that remain unclear and additional
guidance from the U.S. tax authority is pending. As further guidance is issued
by the U.S. tax authority, any resulting changes in the Company's estimates
will be treated in accordance with the relevant accounting guidance.
The following table presents the components of the net deferred tax assets and
liabilities:
December 31, 2018 December 31, 2017 Change
----------------------- ----------------------- ----------------------
(in millions) Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
------------- -------- ------- ------ -------- ------- ------ -------- ------- -----
Gross DTA................................ $1,837 $1,645 $3,482 $1,916 $1,395 $3,311 $ (79) $250 $ 171
Statutory valuation allowance adjustment. -- 220 220 -- -- -- -- 220 220
------ ------ ------ ------ ------ ------ ----- ---- -----
Adjusted gross DTA....................... 1,837 1,425 3,262 1,916 1,395 3,311 (79) 30 (49)
DTA non-admitted......................... 928 1,425 2,353 670 1,395 2,065 258 30 288
------ ------ ------ ------ ------ ------ ----- ---- -----
Net admitted DTA......................... 909 -- 909 1,246 -- 1,246 (337) -- (337)
DTL...................................... 392 -- 392 557 -- 557 (165) -- (165)
------ ------ ------ ------ ------ ------ ----- ---- -----
Total.................................... $ 517 $ -- $ 517 $ 689 $ -- $ 689 $(172) $ -- $(172)
====== ====== ====== ====== ====== ====== ===== ==== =====
51
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents the ordinary and capital DTA admitted assets as
the result of the application of SSAP 101:
December 31, 2018 December 31, 2017 Change
----------------------- ----------------------- ----------------------
(in millions) Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
------------- -------- ------- ------ -------- ------- ------ -------- ------- -----
Admission calculation components...................
SSAP 101
Federal income taxes paid in prior years
recoverable through loss carry backs.......... $ -- $-- $ -- $ -- $-- $ -- $ -- $-- $ --
Adjusted gross DTA expected to be realized
(excluding amount of DTA from above) after
application of the threshold limitation....... 517 -- 517 689 -- 689 (172) -- (172)
1. Adjusted gross DTA expected to be
realized following the reporting date..... 517 -- 517 689 -- 689 (172) -- (172)
2. Adjusted gross DTA allowed per
limitation threshold...................... -- -- 1,114 -- -- 1,301 -- -- (187)
Adjusted gross DTA (excluding the amount of
DTA from above) offset by gross DTL........... 392 -- 392 557 -- 557 (165) -- (165)
---- --- ------ ------ --- ------ ----- --- -----
DTA admitted as the result of application of SSAP
101.............................................. $909 $-- $ 909 $1,246 $-- $1,246 $(337) $-- $(337)
==== === ====== ====== === ====== ===== === =====
The following table presents the ratio percentage and amount of adjusted
capital to determine the recovery period and threshold limitation amount:
Years ended
December 31,
--------------
($ in millions) 2018 2017
--------------- ------ ------
Ratio percentage used to determine recovery period and threshold limitation
amount..................................................................... 738% 869%
Amount of adjusted capital and surplus used to determine recovery period and
threshold limitation amount................................................ $7,423 $8,676
====== ======
The Company has no tax planning strategies used in the determination of
adjusted gross DTA's or net admitted DTA's.
The Company's planning strategy does not include the use of reinsurance.
The Company is not aware of any significant DTLs that are not recognized in the
statutory financial statements.
52
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following tables present the major components of the current income tax
expense and net deferred tax assets (liabilities):
Years Ended December 31,
------------------------
(in millions) 2018 2017 2016
------------- ---- ------ ------
Current income tax expense..........................
Federal.......................................... $513 $1,025 $1,182
Foreign.......................................... -- -- --
---- ------ ------
Subtotal......................................... 513 1,025 1,182
Federal income tax on net capital gains (losses). (88) (433) 279
---- ------ ------
Federal income tax incurred...................... $425 $ 592 $1,461
==== ====== ======
Years Ended
December 31,
-------------
(in millions) 2018 2017 Change
------------- ------ ------ ------
Deferred tax assets:
Ordinary:
Policyholder reserves...................................................... $ 812 $ 959 $(147)
Investments................................................................ 50 70 (20)
Deferred acquisition costs................................................. 366 366 --
Fixed assets............................................................... 373 282 91
Compensation and benefits accrual.......................................... 41 3 38
Tax credit carryforward.................................................... 151 160 (9)
Other (including items less than 5% of total ordinary tax assets).......... 44 76 (32)
------ ------ -----
Subtotal................................................................... 1,837 1,916 (79)
Statutory valuation allowance adjustment................................... -- -- --
Non-admitted............................................................... 928 670 258
------ ------ -----
Admitted ordinary deferred tax assets...................................... 909 1,246 (337)
------ ------ -----
Capital:
Investments................................................................ 1,645 1,395 250
------ ------ -----
Subtotal................................................................... 1,645 1,395 250
Statutory valuation allowance adjustment....................................... 220 -- 220
Non-admitted................................................................... 1,425 1,395 30
------ ------ -----
Admitted capital deferred tax assets........................................... -- -- --
------ ------ -----
Admitted deferred tax assets...................................................... 909 1,246 (337)
------ ------ -----
Deferred tax liabilities:
Ordinary:
Deferred and uncollected premium........................................... 78 58 20
Policyholder reserves...................................................... 269 499 (230)
Other (including items less than 5% of total ordinary tax liabilities)..... 45 -- 45
------ ------ -----
Subtotal................................................................... 392 557 (165)
------ ------ -----
Capital:
Other (including items less than 5% of total capital tax liabilities)...... -- -- --
------ ------ -----
Subtotal................................................................... -- -- --
------ ------ -----
Deferred tax liabilities.......................................................... 392 557 (165)
------ ------ -----
Net deferred tax assets (liabilities)............................................. $ 517 $ 689 $(172)
------ ------ -----
53
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The change in net deferred income taxes is comprised of the following (this
analysis is exclusive of non-admitted assets as the change in non-admitted
assets and the change in net deferred income taxes are reported in separate
components of capital and surplus):
Years Ended
December 31,
-------------
(in millions) 2018 2017 Change
------------- ------ ------ ------
Total adjusted deferred tax assets. $3,262 $3,311 $ (49)
Total deferred tax liabilities..... 392 557 (165)
------ ------ -----
Net adjusted deferred tax assets... $2,870 $2,754 116
====== ======
Tax effect of unrealized gains
(losses)......................... (93)
Transfer of deferred item to
subsidiary....................... 1
-----
Change in net deferred income tax.. $ 24
=====
The provision for incurred federal taxes is different from that which would be
obtained by applying the statutory federal income tax rate to income before
income taxes. The following table presents the significant items causing this
difference:
December 31, 2018 December 31, 2017 December 31, 2016
--------------- ---------------- ----------------
Effective Effective Effective
(in millions) Amount Tax Rate Amount Tax Rate Amount Tax Rate
------------- ------ --------- ------ --------- ------ ---------
Income tax expense at applicable rate...... $208 21.0% $ 465 35.0% $1,028 35.0%
Change in valuation adjustment............. 220 22.2 (366) (27.6) (554) (18.9)
Amortization of interest maintenance
reserve.................................. (30) (3.0) (43) (3.3) (35) (1.2)
Disregarded entities....................... 20 2.1 23 1.8 67 2.3
Dividends received deduction............... (20) (2.1) (47) (3.6) (69) (2.3)
Change in non-admitted assets.............. (13) (1.3) (1) (0.1) 10 0.4
Surplus adjustments........................ 8 0.8 (3) (0.2) (15) (0.5)
Prior year return true-ups and adjustments. 7 0.7 (32) (2.4) (29) (1.0)
Other permanent adjustments................ 1 0.1 9 0.7 7 0.3
Impact of Tax Act.......................... -- -- 1,836 138.3 -- --
Reinsurance................................ -- -- 37 2.8 765 26.0
Gain on sale of subsidiaries............... -- -- -- -- (22) (0.8)
Separate account income.................... -- -- -- -- 18 0.6
---- ---- ------ ----- ------ -----
Statutory income tax expense (benefit)..... $401 40.5% $1,878 141.4% $1,171 39.9%
==== ==== ====== ===== ====== =====
Federal income taxes incurred.............. $425 42.9% $ 592 44.6% $1,461 49.8%
Change in net deferred income taxes........ (24) (2.4) 1,286 96.8 (290) (9.9)
---- ---- ------ ----- ------ -----
Statutory income tax expense............... $401 40.5% $1,878 141.4% $1,171 39.9%
==== ==== ====== ===== ====== =====
At December 31, 2018, the Company had the following foreign tax credits
carryforwards:
(in millions)
-------------
Year Expires Amount
------------ ------
2019....... $ 4
2020....... 8
2021....... 8
2022....... 7
2023....... 1
2024....... 1
---
Total...... $29
===
At December 31, 2018, the Company had no operating loss carryforwards or
capital loss carryforwards.
At December 31, 2018, the Company had an alternative minimum tax credit of
$6 million.
54
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
At December 31, 2018, the Company had the following general business credit
carryforwards:
(in millions)
-------------
Year Expires Amount
------------ ------
2025....... $ 9
2026....... 9
2027....... 13
2028....... 13
2029....... 19
2030....... 38
2031....... 7
2032....... 8
----
Total...... $116
====
At December 31, 2018, the Company had $273 thousand in charitable contribution
carryforwards, which expire in 2021.
The following table presents income tax incurred that is available for
recoupment in the event of future net losses:
(in millions)
-------------
December 31, Capital
------------ -------
2016....... $202
2017....... 198
2018....... 13
----
Total...... $413
====
In general, realization of DTAs depends on a company's ability to generate
sufficient taxable income of the appropriate character within the carryforward
periods in the jurisdictions in which the net operating losses and deductible
temporary differences were incurred. In accordance with the requirements
established in SSAP 101, the Company assessed its ability to realize DTAs of
$3.5 billion and concluded that a valuation allowance of $220 million was
required at December 31, 2018. Similarly, the Company concluded that no
valuation allowance was required on the DTAs of $3.3 billion at December 31,
2017.
The Company had no deposits admitted under Internal Revenue Code Section 6603.
The Company joins in the filing of a consolidated federal income tax return
with AIG Parent.
The Company has a written agreement with AIG Parent under which each subsidiary
agrees to pay AIG Parent an amount equal to the consolidated federal income tax
expense multiplied by the ratio that the subsidiary's separate return tax
liability bears to the consolidated tax liability, plus one hundred percent of
the excess of the subsidiary's separate return tax liability over the allocated
consolidated tax liability. AIG Parent agrees to pay each subsidiary for the
tax benefits, if any, of net operating losses, net capital losses and tax
credits which are not usable by the subsidiary but which are used by other
members of the consolidated group.
The following table presents a reconciliation of the beginning and ending
balances of the total amounts of gross unrecognized tax benefits, excluding
interest and penalties:
Years Ended
December 31,
-----------
(in millions) 2018 2017
------------- ---- ----
Gross unrecognized tax benefits at beginning of year. $16 $22
Increases in tax position for prior years......... 1 --
Decreases in tax position for prior years......... -- (6)
--- ---
Gross unrecognized tax benefits at end of year....... $17 $16
=== ===
As of December 31, 2018 and 2017, the amounts of unrecognized tax benefits
that, if recognized, would favorably affect the effective tax rate were
$17 million and $16 million respectively.
Interest and penalties related to unrecognized tax benefits are recognized in
income tax expense. At December 31, 2018 and 2017, the Company had accrued
liabilities of $5.7 million and $4 million, respectively, for the payment of
55
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
interest (net of the federal benefit) and penalties. In both 2018 & 2017, the
Company recognized expense of less than $1 million interest (net of the federal
benefit) and penalties. In 2016, the Company recognized income of $3 million of
interest (net of the federal benefit) and penalties.
The Company regularly evaluates proposed adjustments by taxing authorities. At
December 31, 2018, such proposed adjustments would not have resulted in a
material change to the Company's financial condition, although it is possible
that the effect could be material to the Company's results of operations for an
individual reporting period. Although it is reasonably possible that a change
in the balance of unrecognized tax benefits may occur within the next twelve
months, based on the information currently available, the Company does not
expect any change to be material to its financial condition.
The Company is currently under Internal Revenue Service (IRS) examinations for
the taxable years 2007-2013. Although the final outcome of possible issues
raised in any future examination are uncertain, the Company believes that the
ultimate liability, including interest, will not materially exceed amounts
recorded in the financial statements. The Company's taxable years 2001-2018
remain subject to examination by major tax jurisdictions.
17. CAPITAL AND SURPLUS
RBC standards are designed to measure the adequacy of an insurer's statutory
capital and surplus in relation to the risks inherent in its business. The RBC
standards consist of formulas that establish capital requirements relating to
asset, insurance, business and interest rate risks. The standards are intended
to help identify companies that are under-capitalized, and require specific
regulatory actions in the event an insurer's RBC is deficient. The RBC formula
develops a risk-adjusted target level of adjusted statutory capital and surplus
by applying certain factors to various asset, premium and reserve items. Higher
factors are applied to more risky items and lower factors are applied to less
risky items. Thus, the target level of statutory surplus varies not only
because of the insurer's size, but also on the risk profile of the insurer's
operations. At December 31, 2018, the Company exceeded RBC requirements that
would require any regulatory action.
Dividends that the Company may pay to the Parent in any year without prior
approval of the TDI are limited by statute. The maximum amount of dividends in
a 12-month period, measured retrospectively from the date of payment, which the
Company can pay without the Company obtaining the prior approval of the TDI is
limited to the greater of: (1) 10 percent of the Company's statutory surplus as
regards to policyholders at the preceding December 31; or (2) the preceding
year's statutory net gain from operations. Additionally, unless prior approval
of the TDI is obtained, dividends can only be paid out of the Company's
unassigned surplus. Subject to the TDI requirements, the maximum dividend
payout that may be made in 2019 without prior approval of the TDI is
$906 million. Dividend payments in excess of positive retained earnings are
classified and reported as a return of capital.
56
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Dividends are paid as determined by the Board of Directors and are
noncumulative. The following table presents the dividends paid by the Company
during 2018, 2017 and 2016:
Amount
Date Type Cash or Non-cash (in millions)
---- ---- ---------------- -------------
2018
March 27, 2018............. Extraordinary Cash $ 337
June 26, 2018.............. Extraordinary Cash 680
September 24, 2018......... Extraordinary Cash 680
2017
March 30, 2017............. Extraordinary Cash $ 452
March 30, 2017............. Extraordinary Non-Cash 482
March 30, 2017............. Return of Capital Cash 178
June 29, 2017.............. Extraordinary Cash 538
September 28, 2017......... Extraordinary Cash 50
December 26, 2017.......... Extraordinary Cash 200
2016
March 28, 2016............. Ordinary Cash $ 80
March 28, 2016............. Ordinary Non-Cash 420
June 28, 2016.............. Return of Capital Cash 233
June 28, 2016.............. Extraordinary Cash 288
September 27, 2016......... Extraordinary Non-Cash 1,154
September 27, 2016......... Extraordinary Cash 23
September 28, 2016......... Extraordinary Cash 267
September 28, 2016......... Return of Capital Cash 318
December 27, 2016.......... Extraordinary Non-Cash 497
December 27, 2016.......... Return of Capital Non-Cash 85
December 28, 2016.......... Extraordinary Cash 11
The Company's cumulative preferred stock has an $80 dividend rate and is
redeemable at $1,000 per share. The holder of this stock, the Parent, is
entitled to one vote per share.
18. RETIREMENT PLANS AND SHARE-BASED AND DEFERRED COMPENSATION PLANS
The Company does not directly sponsor any defined benefit or defined
contribution plans and does not participate in any multi-employer plans.
Employee Retirement Plan
The Company's employees participate in various AIG Parent-sponsored defined
benefit pension and postretirement plans. AIG Parent, as sponsor, is ultimately
responsible for the maintenance of these plans in compliance with applicable
laws. The Company is not directly liable for obligations under these plans; its
obligation results from AIG Parent's allocation of the Company's share of
expenses from the plans based on participants' earnings for the pension plans
and on estimated claims less contributions from participants for the
postretirement plans.
Effective January 1, 2016, the U.S. defined benefit pension plans were frozen.
Consequently, these plans are closed to new participants and current
participants no longer earn benefits. However, interest credits continue to
accrue on the existing cash balance accounts and participants are continuing to
accrue years of service for purposes of vesting and early retirement
eligibility and subsidies as they continue to be employed by AIG Parent and its
subsidiaries.
57
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents information about employee-related costs (expense
credits) allocated to the Company:
Years ended
December 31,
---------------
(in millions) 2018 2017 2016
------------- ---- ---- ----
Defined benefit plans.................................. $(12) $2 $20
Postretirement medical and life insurance plans........ 1 2 2
---- -- ---
Total.................................................. $(11) $4 $22
==== == ===
Defined Contribution Plan
AIG Parent sponsors a 401(k) plan which provides for pre-tax salary reduction
contributions by its U.S. employees. The Company made matching contributions of
100 percent of the first six percent of participant contributions, subject to
IRS-imposed limitations.
Effective January 1, 2016, AIG Parent provides participants in the plan an
additional fully vested, non-elective, non-discretionary employer contribution
equal to three percent of the participant's annual base compensation for the
plan year, paid each pay period regardless of whether the participant currently
contributes to the plan, and subject to the IRS-imposed limitations.
The Company's pre-tax expense associated with this plan was $27 million,
$26 million and $28 million in 2018, 2017 and 2016, respectively.
Share-based and Deferred Compensation Plans
During 2016 and 2015, certain Company employees were granted performance share
units under the AIG Parent 2013 Long Term Incentive Plan that provide them the
opportunity to receive shares of AIG Parent common stock based on AIG Parent
achieving specified performance goals at the end of a three-year performance
period and the employee satisfies service requirements. The Company recognized
compensation expense of $28 million, $33 million and $20 million for awards
granted in 2018, 2017 and 2016, respectively.
Prior to 2013, some of the Company's officers and key employees were granted
restricted stock units and stock appreciation rights that provide for cash
settlement linked to the value of AIG Parent common stock if certain
requirements were met. The Company did not recognize any expense for unsettled
awards during 2018, 2017 and 2016.
19. DEBT
The Company is a member of the Federal Home Loan Bank (FHLB) of Dallas. The
Company's interest in the stock of FHLB of San Francisco was redeemed on
March 24, 2016.
Membership with the FHLB provides the Company with collateralized borrowing
opportunities, primarily as an additional source of liquidity or for other uses
deemed appropriate by management. The Company's ownership in the FHLB stock is
reported as common stock. Pursuant to the membership terms, the Company elected
to pledge such stock to the FHLB as collateral for the Company's obligations
under agreements entered into with the FHLB.
Cash advances obtained from the FHLB are reported in and accounted for as
borrowed money. The Company may periodically obtain cash advances on a same-day
basis, up to a limit determined by management and applicable laws. The Company
is required to pledge certain mortgage-backed securities, government and agency
securities and other qualifying assets to secure advances obtained from the
FHLB. To provide adequate collateral for potential advances, the Company has
pledged securities to the FHLB in excess of outstanding borrowings. Upon any
event of default by the Company, the recovery by the FHLB would generally be
limited to the amount of the Company's liability under advances borrowed.
58
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The following table presents the aggregate carrying value of stock held with
the FHLB of Dallas and the classification of the stock:
December 31,
-------------
(in millions) 2018 2017
------------- ------ ------
Membership stock - Class B................................................................ $ 7 $ 7
Activity stock............................................................................ 129 25
Excess stock.............................................................................. 2 6
------ ------
Total..................................................................................... $ 138 $ 38
====== ======
Actual or estimated borrowing capacity as determined by the insurer....................... $4,928 $7,039
====== ======
The Company did not hold any Class A at December 31, 2018 or 2017.
The following table presents the amount of collateral pledged, including FHLB
common stock held, to secure advances from the FHLB:
December 31, 2018 December 31, 2017
-------------------- --------------------
Amortized Amortized
(in millions) Cost Fair Value Cost Fair Value
------------- --------- ---------- --------- ----------
Amount pledged......................................... $3,851 $3,833 $1,042 $1,067
Maximum amount pledged during reporting period......... 4,389 4,349 1,310 1,352
====== ====== ====== ======
The Company's borrowing capacity determined quarterly based upon the borrowing
limit imposed by statute in the state of domicile.
The following table presents the outstanding funding agreements and maximum
borrowings from the FHLB:
December 31,
-------------
(in millions) 2018 2017
------------- ------ ------
Amount outstanding..................................... $3,148 $ 606
Maximum amount borrowed during reporting period........ $3,323 $1,005
------ ------
. While the funding agreements are presented herein to show all amounts
received from FHLB, the funding agreements are treated as deposit-type
contracts, consistent with the other funding agreements for which the
Company's intent is to earn a spread and not to fund operations. The
Company had no debt outstanding with the FHLB at December 31, 2018 or
2017.
The following table reflects the principal amounts of the funding agreements
issued to the FHLB:
(in millions)
-------------
Funding Agreements Date Issued Amounts
------------------ ----------------- -------
10-year floating rate................... February 15, 2018 $1,148
10-year floating rate................... February 15, 2018 1,277
10-year floating rate................... February 15, 2018 175
10-year floating rate................... February 6, 2018 87
10-year floating rate................... January 25, 2018 31
10-year floating rate................... January 13, 2017 57
10-year floating rate................... February 1, 2017 67
7-year floating rate.................... May 24, 2017 52
10-year floating rate................... July 20, 2016 254
59
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
20. COMMITMENTS AND CONTINGENCIES
Commitments
The Company had commitments to provide funding to various limited partnerships
totaling $2.4 billion and $763 million at December 31, 2018 and 2017,
respectively. The commitments to invest in limited partnerships and other funds
may be called at the discretion of each fund, as needed and subject to the
provisions of such fund's governing documents, for funding new investments,
follow-on investments and/or fees and other expenses of the fund. Of the total
commitments at December 31, 2018, $744 million are currently expected to expire
in 2019, and the remainder by 2020 based on the expected life cycle of the
related funds and the Company's historical funding trends for such commitments.
At December 31, 2018 and 2017, the Company had $1.3 billion and $1.1 billion,
respectively, of outstanding commitments related to various funding obligations
associated with its investments in commercial mortgage loans. Of the total
current commitments, $659 million are expected to expire in 2019 and the
remainder by 2033, based on the expected life cycle of the related loans and
the Company's historical funding trends for such commitments.
The Company has various long-term, noncancelable operating leases, primarily
for office space and equipment, which expire at various dates over the next
several years. At December 31, 2018, the future minimum lease payments under
the operating leases are as follows:
(in millions)
-------------
2019.................................... $16
2020.................................... 16
2021.................................... 16
2022.................................... 20
2023.................................... 12
Remaining years after 2023.............. 17
---
Total................................... $97
===
Rent expense was $17 million, $20 million and $22 million in 2018, 2017 and
2016, respectively.
Contingencies
Legal Matters
Various lawsuits against the Company have arisen in the ordinary course of
business. The Company believes it is unlikely that contingent liabilities
arising from such lawsuits will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Regulatory Matters
All fifty states and the District of Columbia have laws requiring solvent life
insurance companies, through participation in guaranty associations, to pay
assessments to protect the interests of policyholders of insolvent life
insurance companies. These state insurance guaranty associations generally levy
assessments, up to prescribed limits, on member insurers in a particular state
based on the proportionate share of the premiums written by member insurers in
the lines of business in which the impaired, insolvent or failed insurer is
engaged. Such assessments are used to pay certain contractual insurance
benefits owed pursuant to insurance policies issued by impaired, insolvent or
failed insurers. Some states permit member insurers to recover assessments paid
through full or partial premium tax offsets. The Company accrues liabilities
for guaranty fund assessments when an assessment is probable and can be
reasonably estimated. The Company estimates the liability using the latest
information available from the National Organization of Life and Health
Insurance Guaranty Associations. While the Company cannot predict the amount and
60
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
timing of any future guaranty fund assessments, the Company has established
reserves it believes are adequate for assessments relating to insurance
companies that are currently subject to insolvency proceedings.
The Company had accrued $40 million for these guarantee fund assessments at
both December 31, 2018 and 2017, respectively. The Company has recorded
receivables of $34 million at both December 31, 2018 and 2017, for expected
recoveries against the payment of future premium taxes.
During 1997 and 1998, the Company participated in a workers' compensation
underwriting pool with a third party insurance company. Both companies share
equally in the pool. Collectively, the workers' compensation business is
assumed from over 50 ceding companies and retro-ceded to 15 programs. The
business covers risks primarily from the 1997 and 1998 underwriting years but
also includes risk from the 1996 underwriting year. There were no reinsurance
recoverables on claim liabilities and reserves included in these financial
statements related to the workers' compensation business at both December 31,
2018 and 2017. While not included in these statutory financial statements, the
Company is contingently liable for losses incurred by its 50 percent pool
participant should that third party become insolvent or otherwise unable to
meet its obligations under the pool agreement.
At December 31, 2018 and 2017, the Company had admitted assets of $142 million
and $48 million, respectively, in premiums receivable due from policyholders
(or agents). The Company routinely evaluates the collectability of these
receivables. Based upon Company experience, the potential for any loss is not
believed to be material to the Company's financial condition.
During 2018 and 2017, the Company wrote accident and health insurance premiums
that were subject to the risk-sharing provisions of the Affordable Care Act
(ACA). However, the Company had no balances for the risk corridors program due
to exclusion from the program. There was no financial impact of risk-sharing
provisions on assets, liabilities or operations, related to the Permanent ACA
Risk Adjustment Program. In addition, there was no financial impact of
risk-sharing provisions on assets and liabilities related to the Transitional
ACA Reinsurance Program. Under this program, the Company has recorded an
insignificant amount in reinsurance recoveries due to ACA Reinsurance payments.
Various federal, state or other regulatory agencies may from time to time
review, examine or inquire into the operations, practices and procedures of the
Company, such as through financial examinations, subpoenas, investigations,
market conduct exams or other regulatory inquiries. Based on the current status
of pending regulatory examinations, investigations, and inquiries involving the
Company, the Company believes it is not likely that these regulatory
examinations, investigations, or inquiries will have a material adverse effect
on the financial position, results of operations or cash flows of the Company.
The Company provides products and services that are subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA), or the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code). Plans subject to
ERISA include certain pension and profit sharing plans and welfare plans,
including health, life and disability plans. As a result, the Company's
activities are subject to the restrictions imposed by ERISA and the Internal
Revenue Code, including the requirement under ERISA that fiduciaries must
perform their duties solely in the interests of ERISA plan participants and
beneficiaries, and that, fiduciaries may not cause a covered plan to engage in
certain prohibited transactions.
The SEC, federal and state lawmakers and state insurance regulators continue
their efforts at evaluating what is an appropriate regulatory framework around
a standard of care for the sale of investment products and services. For
example, on April 18, 2018, the SEC proposed a package of rulemakings and
interpretations designed to address the standard of care issues and the
transparency of retail investors' relationships with investment advisors and
broker-dealers. Additionally, on July 18, 2018, the New York State Department
of Financial Services adopted a best interest standard of care regulation
applicable to annuity and life transactions through issuance of the First
Amendment to Insurance Regulation 187 - Suitability and Best Interests in Life
Insurance and Annuity Transactions (Regulation 187). The compliance date for
Regulation 187 is August 1, 2019 for annuity products and February 1, 2020 for
life products. As amended, Regulation 187 requires producers to act in their
client's best interest when making point-of-sale and inforce recommendations,
and provide in writing the basis for the recommendation, as well as the facts
and analysis to support the recommendation. The amended regulation also imposes
additional duties on life insurance companies in relation to these
transactions, such as requiring insurers to establish and maintain procedures
designed to prevent
61
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
financial exploitation and abuse. The Company will implement and enhance
processes and procedures, where needed, to comply with this regulation. Other
states, such as Nevada, Maryland and New Jersey, have also proposed similar
standard of care regulations applicable to insurance producers and/or insurance
companies. The Company continues to closely follow these proposals and other
relevant federal and state-level regulatory and legislative developments in
this area. While management cannot predict the long-term impact of these
developments on the Company's businesses, the Company believes its diverse
product offerings and distribution relationships position the Company to
compete effectively in this evolving marketplace.
Business Interruption Insurance Recoveries
In 2017, the Company recorded $6 million in business interruption insurance
recoveries related to the flooding and property damage that occurred at the
Company's main administrative office located in Houston, Texas. In August 2017,
Hurricane Harvey made landfall in Texas and Louisiana causing widespread
flooding and property damage in various southern counties within the region.
The recoveries were included within aggregate write-ins for miscellaneous
income on the Summary of Operations.
21. RELATED PARTY TRANSACTIONS
Events Related to AIG Parent
AIG Parent formed Fortitude Group Holdings, LLC (Fortitude Holdings) to act as
a holding company for Fortitude Re. On November 13, 2018, AIG Parent completed
the sale of a 19.9 percent ownership interest in Fortitude Holdings to TC Group
Cayman Investment Holdings, L.P. (TCG), an affiliate of The Carlyle Group L.P.
(Carlyle) (the Fortitude Re Closing). Fortitude Holdings owns 100 percent of
the outstanding common shares of Fortitude Re and AIG Parent has an
80.1 percent ownership interest in Fortitude Holdings. In connection with the
sale, AIG Parent agreed to certain investment commitment targets into various
Carlyle strategies and to certain minimum investment management fee payments
within thirty-six months following the Fortitude Re Closing. AIG Parent also
will be required to pay a proportionate amount of an agreed make-whole fee to
the extent AIG Parent fails to satisfy such investment commitment targets. In
connection with the Fortitude Re Closing, the Company's insurance company
subsidiaries, VALIC and USL, have each also entered into an investment
management agreement with a Carlyle affiliate pursuant to which such subsidiary
retained the Carlyle affiliate to manage certain assets in its general account
investment portfolio.
On September 25, 2017, AIG Parent announced organizational changes designed to
position AIG Parent a growing, more profitable insurer that is focused on
underwriting excellence. In the fourth quarter of 2017, AIG Parent finalized
its plan to reorganize its operating model. Commercial Insurance and Consumer
Insurance segments transitioned to General Insurance and Life and Retirement,
respectively. AIG Parent's core businesses include General Insurance, Life and
Retirement and Other Operations. General Insurance consists of two operating
segments - North America and International. Life and Retirement consists of
four operating segments - Individual Retirement, Group Retirement, Life
Insurance and Institutional Markets. Blackboard U.S. Holdings, Inc.
(Blackboard), AIG Parent's technology-driven subsidiary, is reported within
Other Operations. AIG Parent also reports a Legacy Portfolio consisting of
run-off insurance lines and legacy investments, which are considered non-core.
AIG Parent continues to execute initiatives focused on organizational
simplification, operational efficiency, and business rationalization. In
keeping with AIG's broad and ongoing efforts to transform for long-term
competitiveness, AIG Parent recognized restructuring costs of $395 million,
$413 million and $694 million of pre-tax restructuring and other costs in 2018,
2017 and 2016, respectively, primarily comprised of employee severance charges.
Additional information on AIG Parent is publicly available in AIG Parent's
regulatory filings with the SEC, which can be found at www.sec.gov. Information
regarding AIG Parent as described herein is qualified by regulatory filings AIG
Parent files from time to time with the SEC.
62
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Selkirk Transactions
During 2013 and 2014, the Company entered into securitization transactions in
which portfolios of the Company's commercial mortgage loans were transferred to
special purpose entities, with the Company retaining a significant beneficial
interest in the securitized loans. As consideration for the transferred loans,
the Company received beneficial interests in certain special purpose entities
and cash proceeds from the securitized notes issued to third party investors by
other special purpose entities. The transfer was accounted for as a sale and
the Company derecognized the commercial mortgage loans transferred. The
beneficial interests in loan-backed and structured securities and equity
interests received by the Company were initially recognized at fair value as
unaffiliated investments, as these securities are non-recourse to the issuer,
and interest and principal payments are dependent upon the cash flows from the
underlying unaffiliated mortgage loans.
Lighthouse VI
During 2013, the Company, along with an affiliate, executed three transactions
in which a portfolio of securities was, in each transaction, transferred into a
newly established Common Trust Fund (CTF) in exchange for proportionate
interests in all assets within each CTF as evidenced by specific securities
controlled by and included within the Company's Representative Security Account
(RSA).
In each transaction, a portion of the Company's securities were transferred to
the RSA of the affiliate, VALIC, in exchange for other VALIC securities.
During 2015, the Company transferred securities to two separate CTFs, of which
20% were then transferred to the RSA of VALIC. The transfer was accounted for
as a sale by the Company to VALIC. The remaining 80% of the securities were
transferred to the Company's RSA.
Ambrose
During 2013 and 2014, the Company entered into securitization transactions in
which the Company transferred portfolios of high grade corporate securities,
and structured securities acquired from AIG, to newly formed special purpose
entities (the Ambrose entities). As consideration for the transferred
securities, the Company received beneficial interests in tranches of structured
securities issued by each Ambrose entity. These structured securities were
designed to closely replicate the interest and principal amortization payments
of the transferred securities.
The Ambrose entities received capital commitments from a non-U.S. subsidiary of
AIG, which are guaranteed by AIG. Pursuant to these capital commitments, the
promissor will contribute funds to the respective Ambrose entity upon demand.
These capital commitments received by the Ambrose entities range from
$300 million to $400 million per entity.
American Home and National Union Guarantees
The Company has a General Guarantee Agreement with American Home Assurance
Company (American Home), an indirect wholly owned subsidiary of AIG Parent.
Pursuant to the terms of this agreement, American Home has unconditionally and
irrevocably guaranteed insurance policies the Company issued between March 3,
2003 and December 29, 2006.
The Company, as successor-in-interest to American General Life and Accident
Insurance Company (AGLA) has a General Guarantee Agreement with American Home.
Pursuant to the terms of this agreement, American Home has unconditionally and
irrevocably guaranteed policies of insurance issued by AGLA between March 3,
2003 and September 30, 2010.
63
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
The Company, as successor-in-interest to SunAmerica Annuity and Life Assurance
Company (SAAL) and SunAmerica Life Insurance Company (SALIC) has a General
Guarantee Agreement with American Home. Pursuant to the terms of this
agreement, American Home has unconditionally and irrevocably guaranteed
policies of insurance issued by SAAL and SALIC between January 4, 1999 and
December 29, 2006.
The Company, as successor-in-interest to American General Life Insurance
Company of Delaware, formerly known as AIG Life Insurance Company (AIG Life),
has a General Guarantee Agreement with National Union Fire Insurance Company of
Pittsburg, Pa. (National Union), an indirect wholly owned subsidiary of AIG
Parent. Pursuant to the terms of this agreement, National Union has
unconditionally and irrevocably guaranteed insurance policies issued by AIG
Life between July 13, 1998 and April 30, 2010.
American Home's and National Union's audited statutory financial statements are
filed with the SEC in the Company's registration statements for variable
products that are subject to the Guarantees.
Cut-Through Agreement
The Company and AIG Life of Bermuda, Ltd. ("AIGB") entered into a Cut-through
Agreement in which insureds, their beneficiaries and owners were granted a
direct right of action against the Company in the event AIGB becomes insolvent
or otherwise cannot or refuses to perform its obligations under certain life
insurance policies issued by AIGB. The Cut-through Agreement was approved by
the TDI. The amount of the retained liability on AIGB's books related to this
agreement was approximately $330,000 and $355,000 at December 31, 2018 and
2017, respectively. The Company believes the probability of loss under this
agreement is remote. No liability has been recognized in relation to this
guarantee due to immateriality.
Affiliate Transactions
The Company purchases or sells securities, at fair market value, to or from
affiliates in the ordinary course of business.
In 2018, the Company and several of its U.S. insurance company affiliates
restructured their respective ownership interests in certain real estate equity
investments previously originated by an affiliate, AIG Global Real Estate
Investment Corp. (including its investment management affiliates, "AIGGRE"), by
contributing such interests to three separate real estate investment funds
managed by AIGGRE - AIGGRE U.S. Real Estate Fund I, LP ("U.S. Fund I"), AIGGRE
U.S. Real Estate Fund II, LP ("U.S. Fund II" and, together with U.S. Fund I,
the "U.S. Funds"), and AIGGRE Europe Real Estate Fund I S.C.SP ("Europe Fund
I"). The U.S. Funds each closed on November 1, 2018. In connection with the
closing of U.S. Fund I, the Company made a capital commitment to the fund of up
to $288 million (representing an approximately 24% equity interest therein),
and contributed to the fund a combination of the Company's interests in certain
real estate equity investments (with an aggregate fair value of approximately
$150.8 million) and cash (approximately $41.7 million). In connection with the
closing of U.S. Fund II, the Company made a capital commitment to the fund of
up to $675 million (representing approximately 25% equity interest therein),
and contributed to the fund the Company's interests in certain real estate
equity investments with an aggregate fair value of approximately $527.4 million
and received a cash payment from the fund of approximately $7.4 million.
Further, Europe Fund I closed on November 2, 2018. In connection with the
closing of Europe Fund I, the Company made a capital commitment to the fund of
up to $189.1 million (representing an approximately 29% equity interest
therein), and contributed to the fund the Company's interests in certain real
estate equity investments with an aggregate fair value of approximately
$143 million and received a cash payment from the fund of approximately
$18.9 million.
As a result of this transaction, the Company received equity in the Funds
equaling the fair value of the assets transferred. The transfer is accounted
for at fair value with any gain deferred until permanence of transfer of risk
and rewards can be established. Any loss is recognized immediately, if any. The
difference between the carrying value of the assets transferred and
consideration received is recorded as a basis difference, which will be
admitted subject to applicable limits and amortized over the duration of the
Funds.
At December 31, 2018, the Company's unfunded capital commitment to U.S. Fund I,
U.S. Fund II and Europe Fund I were approximately $94.9 million, $145.5 million
and $86 million, respectively.
64
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
In February 2018, the Company executed a Modified Coinsurance (ModCo) Agreement
with Fortitude Reinsurance Company, Ltd (FRL), (formerly DSA Reinsurance
Company Limited), an AIG subsidiary and registered Class 4 and Class E
reinsurer in Bermuda. See Note 15 for additional information regarding this
reinsurance transaction.
In October 2017, the Company's subsidiary, AIG Home Loan 2, transferred a
portfolio of U.S. residential mortgage loans with a carrying value of
$410 million to a newly formed special purpose vehicle. The transaction
involved securitization of the transferred loans and the special purpose
vehicle issued residential mortgage-backed securities. The residential
mortgage-backed securities purchased by the Company from the special purpose
vehicle are accounted for as non-affiliated securities and are valued and
reported in accordance with the designation assigned by the NAIC Securities
Valuation Office and SSAP 43 - Revised - Loan-Backed and Structured Securities.
In May 2017, the Company's wholly owned subsidiary, AIG Home Loan 2, LLC,
transferred certain residential mortgage loans (RMLs) to the Company as a
return of capital distribution. The RMLs were recorded by the Company in the
amount of $1.5 billion, which was the loans' adjusted carrying value at the
time of transfer. Prior to the transfer, the RMLs were indirectly owned by the
Company through its investment in AIG Home Loan 2, LLC, which was reported on
Schedule BA. After the transfer, the RMLs are directly owned by the Company and
reported as Schedule B assets.
In February 2017, the Company purchased commercial mortgage loans from certain
affiliated AIG domestic property casualty insurance companies for initial cash
consideration totaling approximately $843 million, based on the outstanding
principal balance of each loan, which was ultimately trued up to fair value
based on underlying property appraisals and valuations.
In January and February 2017, the Company purchased investment grade private
placement bonds from certain affiliated AIG domestic property casualty
insurance companies, at fair market value, for cash consideration totaling
approximately $425 million.
During 2016, the Company transferred certain hedge fund and private equity
investments at fair market value to American Home, in exchange for cash and
marketable securities totaling approximately $284 million as part of an
initiative to improve asset-liability management in AIG Parent's domestic life
and property casualty insurance companies.
Financing Agreements
On January 1, 2015, the Company and certain of its affiliates entered into a
revolving loan facility with AIG Parent, in which the Company and each such
affiliate can borrow monies from AIG Parent subject to certain terms and
conditions. Principal amounts borrowed under this facility may be repaid and
re-borrowed, in whole or in part, from time to time, without penalty. However,
the total aggregate amount of loans borrowed by all borrowers under the
facility cannot exceed $500 million. The loan facility also sets forth
individual borrowing limits for each borrower, with the Company's maximum
borrowing limit being $500 million.
At both December 31, 2018 and 2017, the Company did not have notes payable
balance outstanding under this facility.
65
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Investments in Subsidiary, Controlled and Affiliated
The following table presents information regarding the Company's investments in
non-insurance SCA entities as of December 31, 2018:
Gross Non-admitted Admitted Asset
(in millions) Amount Amount Amount Date of NAIC Filing
------------- ------ ------------ -------------- -------------------
AIG Inc........................................... $ 4 $ -- $ 4 7/27/2018
AIG Direct - SER B................................ 3 3 -- NA
AIG Direct - SER A................................ 3 3 -- NA
AIG Direct - NON VOTING........................... 1 1 -- NA
UG Corp COM....................................... 2 2 -- NA
AGL Assignment Co LLC............................. 5 5 -- NA
AGLIC INVESTMENTS BERMUDA LTD..................... 105 -- 105 Not Applicable
AIG Home Loan 2, LLC.............................. 80 -- 80 Not Applicable
SunAmerica Affordable Housing LLC................. 682 -- 682 Not Applicable
SunAmerica Asset Management LLC................... 123 123 -- Not Applicable
Selkirk No. 1 Investments......................... 13 -- 13 Not Applicable
Selkirk No. 3A Investments........................ 5 -- 5 Not Applicable
------ ---- ----
Total............................................. $1,026 $137 $889
====== ==== ====
Operating Agreements
The Company's short-term investments included investments in a Liquidity Pool,
which are funds managed by an affiliate, AIG Capital Management Corporation, in
the amount of $261 million and $215 million at December 31, 2018 and 2017,
respectively.
Pursuant to service and expense agreements, AIG and affiliates provide, or
cause to be provided, administrative, marketing, investment management,
accounting, occupancy, and data processing services to the Company. The
allocation of costs for services is based generally on estimated levels of
usage, transactions or time incurred in providing the respective services.
Generally, these agreements provide for the allocation of costs upon either the
specific identification basis or a proportional cost allocation basis which
management believes to be reasonable. In all cases, billed amounts pursuant to
these agreements do not exceed the cost to AIG or the affiliate providing the
service. The Company was charged $97 million and $86 million, as part of the
cost sharing expenses attributed to the Company but incurred by AIG and
affiliates in 2018 and 2017, respectively. The Company is also party to several
other service and/or cost sharing agreements with its affiliates. The Company
was charged $106 million, $114 million and $109 million under such agreements
for expenses attributed to the Company but incurred by affiliates in 2018, 2017
and 2016, respectively.
Pursuant to an amended and restated investment advisory agreement, the majority
of the Company's invested assets are managed by an affiliate. The investment
management fees incurred were $104 million in 2018 and $103 million in 2017 and
2016, respectively.
The majority of the Company's Swap agreements are entered into with an
affiliated counterparty, AIG Markets, Inc. (See Note 7).
Other
The Company engages in structured settlement transactions, certain of which
involve affiliated property and casualty insurance companies that are
subsidiaries of AIG Parent. In a structured settlement arrangement, a property
and casualty insurance policy claimant has agreed to settle a casualty
insurance claim in exchange for fixed payments over either a fixed determinable
period of time or a life contingent period. In such claim settlement
arrangements, a casualty insurance claim payment provides the funding for the
purchase of a single premium immediate annuity issued by the Company for the
ultimate benefit of the claimant. In certain structured settlement
arrangements, the affiliated property and casualty insurance company remains
contingently liable for the payments to the claimant.
66
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
22. SUBSEQUENT EVENTS
Management considers events or transactions that occur after the reporting
date, but before the financial statements are issued to provide additional
evidence relative to certain estimates or to identify matters that require
additional disclosures. The Company has evaluated subsequent events through
April 22, 2019, the date the financial statements were issued.
In January 2019, AGL and several of its U.S. insurance company affiliates
established AIGGRE U.S. Real Estate Fund III, LP ("U.S. Fund III"), a real
estate investment fund managed by AIGGRE. At the closing of U.S. Fund III on
January 2, 2019, the Company made a capital commitment to the fund of up to
$655 million, which represents approximately 43.7% equity interests in the
fund. In connection with the closing of U.S. Fund III, the Company contributed
to the fund its interests in certain real estate equity investments with an
aggregate fair value of approximately $142.5 million and received a cash
payment of approximately $39 million. The Company's unfunded capital commitment
to U.S. Fund III at January 2, 2019 upon the closing of U.S. Fund III was
approximately $551.4 million.
67
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
23. LOAN-BACKED AND STRUCTURED SECURITY IMPAIRMENTS AND STRUCTURED NOTES
HOLDINGS
LBaSS
The following table presents the LBaSS held by the Company at December 31, 2018
for which it had recognized non-interest related OTTI subsequent to the
adoption of SSAP 43R:
(in thousands)
Amortized
Cost Present Date of
Before Value of Financial
Current Projected Amortized Fair Value Statement
Period Cash Recognized Cost After at Time of Where
CUSIP OTTI Flows OTTI OTTI OTTI Reported
----- --------- --------- ---------- ---------- ---------- ----------
02660LAB6....... $ 8,229 $ 7,963 $ 266 $ 7,963 $ 7,428 03/31/2018
75114NAA2....... 5,616 5,421 195 5,421 5,127 03/31/2018
17307G2Z0....... 3,252 3,212 40 3,212 3,133 03/31/2018
02660KAA0....... 15,540 14,921 619 14,921 14,648 03/31/2018
94985JBP4....... 1,979 1,880 99 1,880 1,816 03/31/2018
02147HAD4....... 7,479 7,213 266 7,213 7,069 03/31/2018
761118WQ7....... 8,639 8,277 362 8,277 7,559 03/31/2018
02147HAF9....... 3,920 3,855 65 3,855 3,808 03/31/2018
93934FNJ7....... 20,785 20,473 312 20,473 18,745 03/31/2018
59020UZ57....... 15,154 15,056 98 15,056 14,702 03/31/2018
43710EAD2....... 4,554 4,450 104 4,450 4,307 03/31/2018
12498FAC4....... 94 -- 94 -- 48 03/31/2018
94979XAD9....... 157 62 95 62 5 03/31/2018
74160MCZ3....... 223 217 6 217 218 03/31/2018
05946XMG5....... 602 273 329 273 386 03/31/2018
74160MEH1....... 1,086 1,026 60 1,026 1,077 03/31/2018
026930AA5....... 4,542 4,493 49 4,493 4,394 03/31/2018
43709XAF8....... 8,552 8,174 378 8,174 8,087 03/31/2018
466247KL6....... 506 292 214 292 481 03/31/2018
25702@AA4....... 1,499 898 601 898 898 03/31/2018
25702@AB2....... 1,499 898 601 898 898 03/31/2018
76110WLB0....... 890 708 182 708 888 03/31/2018
-------- -------- ------ -------- --------
Quarterly Total $114,797 $109,762 $5,035 $109,762 $105,722
======== ======== ====== ======== ========
25702@AA4....... $ 1,996 $ 1,804 $ 192 $ 1,804 $ 1,795 06/30/2018
25702@AB2....... 1,996 1,804 192 1,804 1,795 06/30/2018
007036UQ7....... 8,853 8,520 333 8,520 7,884 06/30/2018
32051GPM1....... 6,874 6,704 170 6,704 6,658 06/30/2018
94983KAA7....... 38,051 37,984 67 37,984 37,386 06/30/2018
32051GJ55....... 2,606 2,587 19 2,587 2,596 06/30/2018
02147HAC6....... 2,718 2,684 34 2,684 2,703 06/30/2018
69371VBH9....... 1,369 1,318 51 1,318 1,360 06/30/2018
12489WQX5....... 16,318 16,260 58 16,260 16,092 06/30/2018
466247PE7....... 7,410 7,375 35 7,375 7,313 06/30/2018
36298NBA1....... 5,702 5,175 527 5,175 5,620 06/30/2018
617451CZ0....... 186 -- 186 -- 148 06/30/2018
-------- -------- ------ -------- --------
Quarterly Total $ 94,079 $ 92,215 $1,864 $ 92,215 $ 91,350
======== ======== ====== ======== ========
92922F3L0....... $ 31,808 $ 29,215 $2,593 $ 29,215 $ 30,712 09/30/2018
264407AA5....... 39,067 35,474 3,593 35,474 33,995 09/30/2018
45660L6N4....... 21,021 20,763 258 20,763 19,245 09/30/2018
92925VAF7....... 11,068 10,637 431 10,637 11,047 09/30/2018
93364FAD3....... 11,844 11,484 360 11,484 11,233 09/30/2018
68384CAB2....... 32,305 31,916 389 31,916 31,753 09/30/2018
939355AD5....... 25,805 25,601 204 25,601 25,620 09/30/2018
152314DP2....... 5,999 5,823 176 5,823 5,964 09/30/2018
-------- -------- ------ -------- --------
68
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
(in thousands)
Amortized
Cost Present Date of
Before Value of Financial
Current Projected Amortized Fair Value Statement
Period Cash Recognized Cost After at Time of Where
CUSIP OTTI Flows OTTI OTTI OTTI Reported
----- --------- --------- ---------- ---------- ---------- ----------
92990GAA1....... $ 6,416 $ 6,342 $ 74 $ 6,342 $ 6,254 09/30/2018
59020UFA8....... 1,720 1,643 77 1,643 1,533 09/30/2018
126671Z74....... 493 491 2 491 479 09/30/2018
466247KL6....... 317 170 147 170 248 09/30/2018
12669E2X3....... 1,778 1,767 11 1,767 1,689 09/30/2018
073868AA9....... 2,338 2,238 100 2,238 2,331 09/30/2018
04542BGW6....... 561 560 1 560 543 09/30/2018
12489WHZ0....... 599 598 1 598 576 09/30/2018
31359UPW9....... 916 791 125 791 740 09/30/2018
939336ZV8....... 650 591 59 591 649 09/30/2018
92922FEC8....... 1,677 1,669 8 1,669 1,647 09/30/2018
161546HD1....... 1,653 1,651 2 1,651 1,638 09/30/2018
939336C92....... 870 866 4 866 863 09/30/2018
94981XAF0....... 913 912 1 912 839 09/30/2018
94979XAC1....... 433 430 3 430 354 09/30/2018
43739EBC0....... 1,986 1,981 5 1,981 1,871 09/30/2018
45254NJN8....... 378 376 2 376 365 09/30/2018
03072SNF8....... 1,940 1,939 1 1,939 1,896 09/30/2018
12669FTC7....... 2,531 2,153 378 2,153 2,387 09/30/2018
466247BG7....... 112 101 11 101 106 09/30/2018
03072SKS3....... 634 633 1 633 620 09/30/2018
5899297K8....... 8,054 8,053 1 8,053 7,993 09/30/2018
35729PPX2....... 9,797 9,747 50 9,747 9,796 09/30/2018
94984MAB0....... 2,201 2,187 14 2,187 2,183 09/30/2018
94979UAL7....... 1,593 1,585 8 1,585 1,336 09/30/2018
94980PAL5....... 385 385 -- 385 365 09/30/2018
12652CBB4....... 12,814 12,796 18 12,796 12,120 09/30/2018
12652CBC2....... 4,406 4,392 14 4,392 4,263 09/30/2018
126694PP7....... 6,295 6,228 67 6,228 6,216 09/30/2018
22541QQK1....... 896 710 186 710 767 09/30/2018
76110WVJ2....... 6,681 5,899 782 5,899 6,101 09/30/2018
949769AJ2....... 550 550 -- 550 519 09/30/2018
466247DF7....... 1,619 1,610 9 1,610 1,603 09/30/2018
32027NGD7....... 808 806 2 806 796 09/30/2018
45254NJP3....... 180 180 -- 180 173 09/30/2018
05948XTP6....... 292 240 52 240 280 09/30/2018
81746VCD0....... 5,271 5,253 18 5,253 5,184 09/30/2018
65535VMW5....... 156 156 -- 156 156 09/30/2018
36228FZA7....... 1,077 1,071 6 1,071 1,077 09/30/2018
059511AQ8....... 70,956 62,300 8,656 62,300 63,781 09/30/2018
94974SAF0....... 1,202 1,197 5 1,197 1,185 09/30/2018
92922FEC8....... 667 664 3 664 655 09/30/2018
949802AC6....... 408 407 1 407 388 09/30/2018
94981DAP2....... 746 743 3 743 666 09/30/2018
43739EBD8....... 868 864 4 864 771 09/30/2018
466247GH0....... 1,141 1,139 2 1,139 999 09/30/2018
-------- -------- ------- -------- --------
Quarterly Total $346,895 $327,977 $18,918 $327,977 $326,570
======== ======== ======= ======== ========
88522NAA1....... $ 8,588 $ 8,448 $ 140 $ 8,448 $ 8,323 12/31/2018
125439AA7....... 11,318 11,252 66 11,252 11,047 12/31/2018
07401EAE9....... 56,776 56,568 208 56,568 54,818 12/31/2018
94986QAA1....... 61,577 61,099 478 61,099 59,211 12/31/2018
17308FAA7....... 8,512 8,447 65 8,447 8,440 12/31/2018
45670BAL3....... 31,586 31,353 233 31,353 30,293 12/31/2018
02148BAA2....... 30,980 30,868 112 30,868 30,489 12/31/2018
-------- -------- ------- -------- --------
69
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
(in thousands)
Amortized
Cost Date of
Before Financial
Current Present Value of Amortized Fair Value Statement
Period Projected Cash Recognized Cost After at Time of Where
CUSIP OTTI Flows OTTI OTTI OTTI Reported
----- --------- ---------------- ---------- ---------- ---------- ----------
92926UAF8....... $ 50,362 $ 49,329 $ 1,033 $ 49,329 $ 49,459 12/31/2018
61748HLA7....... 20,943 20,289 654 20,289 19,045 12/31/2018
02660LAF7....... 249,880 248,330 1,550 248,330 245,826 12/31/2018
61745M4M2....... 31,210 30,827 383 30,827 30,029 12/31/2018
12628LAE0....... 16,163 15,997 166 15,997 15,030 12/31/2018
362290AM0....... 1,102 1,030 72 1,030 1,086 12/31/2018
12668BKA0....... 15,547 15,485 62 15,485 15,490 12/31/2018
65539CAW6....... 47,629 47,485 144 47,485 47,115 12/31/2018
61748HJY8....... 4,532 4,386 146 4,386 4,452 12/31/2018
94984GAD9....... 4,915 4,878 37 4,878 4,822 12/31/2018
07384YPN0....... 2,675 2,543 132 2,543 2,269 12/31/2018
17025TAR2....... 2,382 2,341 41 2,341 2,336 12/31/2018
59020UAY1....... 1,061 1,059 2 1,059 909 12/31/2018
94986DAA0....... 4,058 4,032 26 4,032 3,972 12/31/2018
949808BD0....... 4,133 4,111 22 4,111 3,875 12/31/2018
466247BE2....... 1,533 1,525 8 1,525 1,423 12/31/2018
5899296T0....... 438 436 2 436 366 12/31/2018
466247EC3....... 2,316 2,289 27 2,289 1,992 12/31/2018
12669DPR3....... 877 819 58 819 786 12/31/2018
45254NEJ2....... 1,403 1,397 6 1,397 1,384 12/31/2018
466247CP6....... 4,236 4,176 60 4,176 4,102 12/31/2018
92977TAE2....... 2,530 2,526 4 2,526 2,477 12/31/2018
05952GAE1....... 13,321 12,793 528 12,793 13,296 12/31/2018
36185NG87....... 230 228 2 228 209 12/31/2018
040104SN2....... 3,216 3,206 10 3,206 3,122 12/31/2018
07386HJT9....... 3,750 3,738 12 3,738 3,736 12/31/2018
93934FGB2....... 5,015 5,014 1 5,014 5,013 12/31/2018
65535VPY8....... 10,380 7,952 2,428 7,952 10,373 12/31/2018
362348AS3....... 4,836 4,478 358 4,478 4,834 12/31/2018
88156EAD8....... 6,809 6,539 270 6,539 6,713 12/31/2018
655378AH0....... 12,173 11,700 473 11,700 11,996 12/31/2018
073879BB3....... 1,945 1,559 386 1,559 1,595 12/31/2018
466247WT6....... 8,393 8,375 18 8,375 8,349 12/31/2018
94983JAG7....... 7,771 7,582 189 7,582 7,674 12/31/2018
12559QAG7....... 78,613 77,943 670 77,943 75,565 12/31/2018
46630GBD6....... 11,258 11,219 39 11,219 10,978 12/31/2018
94983TAE0....... 6,089 6,033 56 6,033 5,979 12/31/2018
94979UAM5....... 896 742 154 742 518 12/31/2018
74160MGT3....... 1,446 798 648 798 1,338 12/31/2018
94983YAK5....... 2,233 2,204 29 2,204 2,227 12/31/2018
073852AB1....... 9,012 6,054 2,958 6,054 8,882 12/31/2018
126694JS8....... 2,700 2,685 15 2,685 2,698 12/31/2018
12667FM77....... 7,980 7,939 41 7,939 7,853 12/31/2018
12667FUZ6....... 4,010 3,975 35 3,975 3,997 12/31/2018
693680BG4....... 1,865 1,851 14 1,851 1,749 12/31/2018
07384YPN0....... 1,824 1,733 91 1,733 1,543 12/31/2018
466247GJ6....... 2,702 2,528 174 2,528 2,084 12/31/2018
25702@AA4....... 3,540 898 2,642 898 898 12/31/2018
25702@AB2....... 3,540 898 2,642 898 898 12/31/2018
-------- --------------- ------- -------- --------
Quarterly Total $894,809 $ 873,989 $20,820 $873,989 $864,983
======== =============== ======= ======== ========
Year-end total $46,637
=======
70
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
Structured Notes
The following table presents the structured notes held by the Company at
December 31, 2018:
(in thousands)
Book/Adjusted
CUSIP Actual Cost Fair Value Carrying Value
----- ----------- ---------- --------------
03350FAA4.... $ 2,601 $ 2,303 $ 2,600
039483BC5.... 24,278 26,529 24,007
054536AC1.... 400 394 400
05565AAB9.... 15,941 16,320 15,943
05954TAJ0.... 10,430 10,154 10,031
05968DAA8.... 18,500 19,425 18,500
06051GGG8.... 19,082 18,260 19,080
06051GGM5.... 3,632 3,510 3,634
06051GGR4.... 12,178 11,854 12,195
06051GHA0.... 98,682 93,525 98,723
06051GHD4.... 3,133 2,946 3,134
064058AB6.... 20,000 17,219 20,000
06738CAG4.... 53,546 87,098 54,528
06738EBD6.... 13,962 13,498 13,964
111021AE1.... 42,445 50,042 40,630
13643EAA3.... 5,344 5,576 5,165
172967LJ8.... 12,184 10,910 12,176
172967LS8.... 43,000 40,101 43,000
172967LU3.... 20,000 17,865 20,000
21987DAB0.... 1,498 1,496 1,498
225401AF5.... 16,005 15,118 16,013
23311PAA8.... 6,892 6,227 6,894
25156PAC7.... 77,328 86,455 75,639
35177PAL1.... 66,489 70,209 62,371
38141GWV2.... 7,000 6,535 7,000
38148YAA6.... 12,847 12,320 12,868
404280BK4.... 7,174 7,128 7,170
404280BT5.... 5,069 4,956 5,066
46625HRY8.... 1,423 1,427 1,423
46647PAF3.... 1,983 1,993 1,985
46647PAJ5.... 4,000 3,633 4,000
46647PAK2.... 29,000 25,954 29,000
46647PAL0.... 63,570 57,978 63,586
46647PAN6.... 17,805 17,541 17,817
539439AQ2.... 25,000 22,238 25,000
59156RAP3.... 443 451 443
59156RBF4.... 17,031 17,742 17,536
60687YAT6.... 22,758 23,229 22,760
61744YAK4.... 1,901 1,891 1,905
61744YAP3.... 23,058 22,833 23,092
636792AB9.... 10,500 10,430 10,500
693475AK1.... 6,399 6,503 6,399
726503AE5.... 5,521 4,791 5,523
744320AM4.... 13,299 13,025 13,301
780097AH4.... 20,289 50,982 22,798
780097BG5.... 24,000 22,909 24,000
80281LAG0.... 1,800 1,627 1,800
80928HAA1.... 11,280 11,196 11,280
82669GAS3.... 27,600 28,177 27,600
------- ------- -------
71
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
(in thousands)
Book/Adjusted
CUSIP Actual Cost Fair Value Carrying Value
----- ----------- ---------- --------------
853254BM1.... $ 2,765 $ 2,737 $ 2,765
912810FH6.... 1,013 1,409 1,206
984121CQ4.... 3,132 3,166 3,134
98417EAR1.... 22,025 19,338 21,978
98417EAT7.... 3,396 3,489 3,449
G2214RAE1.... 2,214 2,153 2,180
M88269TJ0.... 3,052 1,069 1,306
-------- ---------- --------
Total $985,897 $1,037,884 $979,995
======== ========== ========
None of the structured notes held by the Company are defined as a
Mortgage-Referenced Security by the IAO.
72
Supplemental Information
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
December 31,
(in millions) 2018
------------- ------------
Investment income earned:
Government bonds......................................................... $ 55
Bonds exempt from U.S. tax............................................... --
Other bonds (unaffiliated)............................................... 4,843
Bonds of affiliates...................................................... (2)
Preferred stocks (unaffiliated).......................................... 13
Common stocks (unaffiliated)............................................. 5
Common stocks of affiliates.............................................. --
Cash and short-term investments.......................................... 29
Mortgage loans........................................................... 801
Real estate.............................................................. 50
Contract loans........................................................... 82
Other invested assets.................................................... 395
Derivative instruments................................................... 210
Miscellaneous income..................................................... 7
-------
Gross investment income..................................................... $ 6,488
=======
Real estate owned - book value less encumbrances............................ $ 197
=======
Mortgage loans - book value:
Commercial mortgages..................................................... $17,325
Residential mortgages.................................................... 1,661
Mezzanine loans.......................................................... 114
-------
Total mortgage loans........................................................ $19,100
=======
Mortgage loans by standing - book value:
Good standing............................................................ $18,930
Good standing with restructured terms.................................... 169
Interest overdue more than 90 days, not in foreclosure................... 1
-------
Total mortgage loans........................................................ $19,100
=======
Partnerships - statement value.............................................. $ 4,224
=======
Bonds and stocks of parents, subsidiaries and affiliates - statement value:
Bonds.................................................................... $ --
Common stocks............................................................ 123
=======
Bonds and short-term investments by class and maturity:
Bonds and short-term investments by maturity - statement value:
Due within one year or less.......................................... $ 6,685
Over 1 year through 5 years.......................................... 24,267
Over 5 years through 10 years........................................ 22,732
Over 10 years through 20 years....................................... 14,716
Over 20 years........................................................ 26,613
-------
Total maturity........................................................... $95,013
=======
Bonds and short-term investments by class - statement value:
Class 1.............................................................. $54,946
Class 2.............................................................. 34,005
Class 3.............................................................. 3,043
Class 4.............................................................. 2,153
Class 5.............................................................. 711
Class 6.............................................................. 155
-------
Total by class........................................................... $95,013
=======
Total bonds and short-term investments publicly traded................... $59,010
Total bonds and short-term investments privately placed.................. 36,003
=======
Preferred stocks - statement value....................................... $ 303
Common stocks - market value............................................. 326
Short-term investments - book value...................................... 319
Options, caps and floors owned - statement value......................... 478
Collar, swap and forward agreements open - statement value............... 959
Futures contracts open - current value................................... (12)
Cash on deposit.......................................................... 1,102
=======
74
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (Continued)
December 31,
(in millions) 2018
------------- ------------
Life insurance in-force:
Industrial................................................ $ 808
Ordinary.................................................. 74,696
Group..................................................... 4,317
Amount of accidental death insurance in-force under ordinary
policies................................................... 5,342,532
Life insurance policies with disability provisions in-force:
Industrial................................................ 217
Ordinary.................................................. 35,918
Group life................................................ 41
Supplementary contracts in-force:
Ordinary - not involving life contingencies:
Amount on deposit..................................... 798
Income payable........................................ 97
Ordinary - involving life contingencies:
Amount on deposit..................................... 229
Income payable........................................ 77
Group - not involving life contingencies:
Amount on deposit..................................... 2
==========
Annuities:
Ordinary:
Immediate - amount of income payable.................. $ 1,366
Deferred, fully paid - account balance................ 47,341
Deferred, not fully paid - account balance............ 29,333
Group:
Amount of income payable.............................. 394
Fully paid - account balance.......................... 636
Not fully paid - account balance...................... 20,347
==========
Accident and health insurance - premiums in-force:
Other..................................................... $ 105
Group..................................................... 2
Credit.................................................... --
==========
Deposit funds and dividend accumulations:
Deposit funds - account balance........................... $ 6,514
Dividend accumulations - account balance.................. 591
==========
Claim payments in 2018:
Group accident & health:
2018.................................................. $ 146
2017.................................................. 3,611
2016.................................................. 2,896
2015.................................................. 1,669
2014.................................................. 558
Prior................................................. 7,157
Other accident & health:
2018.................................................. (22,664)
2017.................................................. (12,607)
2016.................................................. (7,122)
2015.................................................. (2,914)
2014.................................................. (2,047)
Prior................................................. (4,627)
==========
75
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES
DECEMBER 31, 2018
(in millions)
1. The Company's total admitted assets as of December 31, 2018 are
$176.8 billion.
The Company's total admitted assets, excluding separate accounts, as of
December 31, 2018 are $127.2 billion.
2. Following are the 10 largest exposures to a single
issuer/borrower/investment, by investment category, excluding: (i) U.S.
Government, U.S. Government agency securities and those U.S. Government money
market funds listed in the Appendix to the IAO Practices and Procedures Manual
as exempt, (ii) property occupied by the Company, and (iii) policy loans:
Percentage
of Total
Admitted
Issuer Description of Exposure Amount Assets
- ---------------------- ---------------------------- ------ ----------
a. Ambrose 2013-5 BONDS $1,230 1.00%
b. Ambrose 2013-3 BONDS 1,122 0.90
c. L Street II LLC BONDS 958 0.80
d. JPMORGAN BONDS 866 0.70
e. Ambrose 2013-2 BONDS 816 0.60
f. SUNAMERICA INVESTMENT
INC. OIA PSA 683 0.50
g. MORGAN STANLEY BONDS 638 0.50
h. WELLS FARGO BONDS 601 0.50
i. CITIGROUP BONDS 598 0.50
j. Varagon BONDS/OTHER INVESTED ASSETS 598 0.50
3. The Company's total admitted assets held in bonds and preferred stocks, by
NAIC rating, are:
Bonds and Short-Term Investments Preferred Stocks
-------------------------------- -------------------------
Percentage Percentage
of Total of Total
Admitted NAIC Admitted
NAIC Rating Amount Assets Rating Amount Assets
----------- ------- ---------- -------- ------ ----------
NAIC - 1.... $54,946 43.20% P/RP - 1 $107 0.10%
NAIC - 2.... 34,005 26.70 P/RP - 2 113 0.10
NAIC - 3.... 3,043 2.40 P/RP - 3 -- --
NAIC - 4.... 2,153 1.70 P/RP - 4 -- --
NAIC - 5.... 711 0.60 P/RP - 5 83 0.10
NAIC - 6.... 155 0.10 P/RP - 6 -- --
4. Assets held in foreign investments:
Percentage
of Total
Admitted
Amount Assets
-------- ----------
a. Total admitted assets held in foreign investments............... $26,697 21.00%
b. Foreign currency denominated investments........................ 7,038 5.50
c. Insurance liabilities denominated in that same foreign currency. -- --
5. Aggregate foreign investment exposure categorized by NAIC sovereign rating:
Percentage
of Total
Admitted
Amount Assets
-------- ----------
a. Countries rated NAIC - 1.......... $23,446 18.40%
b. Countries rated NAIC - 2.......... 2,130 1.70
c. Countries rated NAIC - 3 or below. 1,120 0.90
76
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED)
DECEMBER 31, 2018
(in millions)
6. Two largest foreign investment exposures to a single country, categorized by
the country's NAIC sovereign rating:
Percentage
of Total
Admitted
Amount Assets
------ ----------
a. Countries rated NAIC - 1
Country 1: United Kingdom $7,799 6.10%
Country 2: Australia 2,014 1.60
b. Countries rated NAIC - 2
Country 1: Mexico 483 0.40
Country 2: Colombia 276 0.20
c. Countries rated NAIC - 3 or below
Country 1: Brazil 456 0.40
Country 2: Guernsey, States of 153 0.10
7. Aggregate unhedged foreign currency exposure:
Percentage
of Total
Admitted
Amount Assets
------ ----------
Aggregate unhedged foreign currency exposure. $7,038 5.50%
8. Aggregate unhedged foreign currency exposure categorized by NAIC sovereign
rating:
Percentage
of Total
Admitted
Amount Assets
------- ----------
a. Countries rated NAIC - 1 $6,971 5.50%
b. Countries rated NAIC - 2 5 --
c. Countries rated NAIC - 3 or below 61 --
9. Two largest unhedged foreign currency exposures to a single country,
categorized by the country's NAIC sovereign rating:
Percentage
of Total
Admitted
Amount Assets
------ ----------
a. Countries rated NAIC - 1
Country 1: United Kingdom $3,890 3.10%
Country 2: Ireland 979 0.80
b. Countries rated NAIC - 2
Country 1: Peru 3 --
Country 2: Mexico 2 --
c. Countries rated NAIC - 3 or below
Country 1: Guernsey, States of 51 --
Country 2: Turkey 5 --
77
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED)
DECEMBER 31, 2018
(in millions)
10. Ten largest non-sovereign (i.e. non-governmental) foreign issues:
Percentage
of Total
Admitted
NAIC Rating Amount Assets
----------- ------ ----------
COMMERCIAL
MORTGAGE
a. BAILEY ACQUISITIONS LIMITED.................................. LOAN $373 0.30%
b. Intrepid Mines Limited....................................... NAIC 1 340 0.30
COMMERCIAL
MORTGAGE
c. DK Resi Holdco I ApS......................................... LOAN 307 0.20
COMMERCIAL
MORTGAGE
d. Downing Students (Exeter) Limited Partnership Incorporated... LOAN 282 0.20
COMMERCIAL
MORTGAGE
e. GS LONDON PORTFOLIO II UNIT TRUST............................ LOAN 264 0.20
f. AstraZeneca PLC.............................................. NAIC 1 253 0.20
COMMERCIAL
MORTGAGE
g. Atlantic Estates Limited..................................... LOAN 253 0.20
h. Anheuser-Busch InBev Worldwide Inc........................... NAIC 1 249 0.20
COMMERCIAL
MORTGAGE
i. The Blanchardstown Fund, a sub fund of BRE Ireland Retail Fu. LOAN 245 0.20
COMMERCIAL
MORTGAGE
j. Divanyx Investments Limited.................................. LOAN 243 0.20
11. Assets held in Canadian investments are less than 2.5% of the reporting
entity's total admitted assets.
12. Assets held in investments with contractual sales restrictions are less
than 2.5 percent of the Company's total admitted assets.
13. The Company's admitted assets held in the ten largest equity interests
(including investments in the shares of mutual funds, preferred stocks,
publicly traded equity securities, and other equity securities and excluding
money market and bond mutual funds listed in the Appendix to the SVO Practices
and Procedures Manual as exempt or Class 1) are:
Percentage
of Total
Admitted
Amount Assets
------ ----------
a. SUNAMERICA AFFORDABLE HOUSING LLC....... $683 0.50%
b. AIGGRE U.S. Real Estate Fund II LP...... 445 0.30
c. FEDERAL HOME LOAN BANK OF DALLAS........ 138 0.10
d. Metropark Investor LLC.................. 133 0.10
e. Marina.................................. 128 0.10
f. AIGGRE U.S. Real Estate Fund I LP....... 113 0.10
g. Think Investments Fund LP............... 103 0.10
h. CENTAUR FUNDING CORPORATION............. 102 0.10
i. CADIAN FUND LP.......................... 93 0.10
j. AIGGRE Europe Real Estate Fund I S.C.SP. 90 0.10
78
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES
DECEMBER 31, 2018
(in millions)
14. Assets held in nonaffiliated, privately placed equities:
Percentage
of Total
Admitted
Amount Assets
------ ----------
Aggregate statement value of investment held in nonaffiliated, privately placed
equities:..................................................................... $2,398 1.90%
Largest three investments held in nonaffiliated, privately placed equities:
a. Marina..................................................................... $ 128 0.10
b. Think Investments Fund LP.................................................. 103 0.10
c. CADIAN FUND LP............................................................. 93 0.10
15. Assets held in general partnership interests are less than 2.5 percent of
the Company's total admitted assets.
16. Mortgage loans reported in Schedule B, include the following ten largest
aggregate mortgage interests. The aggregate mortgage interest represents the
combined value of all mortgages secured by the same property or same group of
properties:
Percentage
of Total
Admitted
Amount Assets
------ ----------
a. COMMERCIAL MORTGAGE LOAN, Loan No. 8002341, NY $366 0.30%
b. COMMERCIAL MORTGAGE LOAN, Loan No. 5555094, GBR 328 0.30
c. COMMERCIAL MORTGAGE LOAN, Loan No. 5555147, DK 294 0.20
d. COMMERCIAL MORTGAGE LOAN, Loan No. 5555143, GBR 266 0.20
e. COMMERCIAL MORTGAGE LOAN, Loan No. 8002507, NY 258 0.20
f. COMMERCIAL MORTGAGE LOAN, Loan No. 5555161, GBR 255 0.20
g. COMMERCIAL MORTGAGE LOAN, Loan No. 5555093, IR 247 0.20
h. COMMERCIAL MORTGAGE LOAN, Loan No. 8002372, NY 221 0.20
i. COMMERCIAL MORTGAGE LOAN, Loan No. 5555138, GBR 219 0.20
j. COMMERCIAL MORTGAGE LOAN, Loan No. 8002457, NY 214 0.20
Amount and percentage of the reporting entity's total admitted assets held in
the following categories of mortgage loans:
Percentage
of Total
Admitted
Amount Assets
------ ----------
a. Construction loans $235 0.20%
b. Mortgage loans over 90 days past due -- --
c. Mortgage loans in the process of foreclosure -- --
d. Mortgage loans foreclosed -- --
e. Restructured mortgage loans 169 0.10
79
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED)
DECEMBER 31, 2018
(in millions)
17. Aggregate mortgage loans having the following loan-to-value ratios as
determined from the most current appraisal as of the annual statement date:
Residential Commercial Agricultural
---------------- ----------------- ----------------
Percentage Percentage Percentage
of Total of Total of Total
Admitted Admitted Admitted
Loan-to-Value Amount Assets Amount Assets Amount Assets
------------- ------ ---------- ------- ---------- ------ ----------
a. above 95%.. $ -- --% $ 6 --% $-- --%
b. 91% to 95%. 11 -- -- -- -- --
c. 81% to 90%. 512 0.40 84 0.10 -- --
d. 71% to 80%. 694 0.50 513 0.40 -- --
e. below 70%.. 443 0.30 16,665 13.10 -- --
18. Assets held in each of the five largest investments in one parcel or group
of contiguous parcels of real estate reported in Schedule A are less than
2.5 percent of the Company's total admitted assets.
19. Assets held in mezzanine real estate loans are less than 2.5 percent of
the Company's total admitted assets.
20. The Company's total admitted assets subject to the following types of
agreements as of the following dates:
Unaudited At End of Each Quarter
--------------------------------
1st 2nd 3rd
At Year-End Quarter Quarter Quarter
---------------- ------- ------- -------
Percentage
of Total
Admitted
Amount Assets Amount Amount Amount
------ ---------- ------- ------- -------
a. Securities lending (do not include assets.
held as collateral for such transactions). $447 0.40% $2,245 $1,254 $717
b. Repurchase agreements..................... 129 0.10 128 110 242
c. Reverse repurchase agreements............. -- -- -- -- --
d. Dollar repurchase agreements.............. -- -- -- -- --
e. Dollar reverse repurchase agreements...... -- -- -- -- --
21. The Company's potential exposure to warrants not attached to other
financial instruments, options, caps, and floors:
Owned Written
---------------- ----------------
Percentage Percentage
of Total of Total
Admitted Admitted
Amount Assets Amount Assets
------ ---------- ------ ----------
a. Hedging........... $-- --% $-- --%
b. Income generation. -- -- -- --
c. Other............. -- -- -- --
80
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED)
DECEMBER 31, 2018
(in millions)
22. The Company's potential exposure (defined as the amount determined in
accordance with the NAIC Annual Statement Instructions) for collars, swaps, and
forwards as of the following dates:
Unaudited At End of Each Quarter
--------------------------------
1st 2nd 3rd
At Year-End Quarter Quarter Quarter
---------------- ------- ------- -------
Percentage
of Total
Admitted
Amount Assets Amount Amount Amount
------ ---------- ------- ------- -------
a. Hedging........... $461 0.40% $447 $425 $415
b. Income generation. -- -- -- -- --
c. Replications...... -- -- -- -- --
d. Other............. -- -- -- -- --
23. The Company's potential exposure (defined as the amount determined in
accordance with the NAIC Annual Statement Instructions) for futures contracts
as of the following dates:
Unaudited At End of Each Quarter
--------------------------------
1st 2nd 3rd
At Year-End Quarter Quarter Quarter
---------------- ------- ------- -------
Percentage
of Total
Admitted
Amount Assets Amount Amount Amount
------ ---------- ------- ------- -------
a. Hedging........... $-- --% $167 $146 $--
b. Income generation. -- -- -- -- --
c. Replications...... -- -- -- -- --
d. Other............. -- -- -- -- --
81
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SUMMARY INVESTMENT SCHEDULE
DECEMBER 31, 2018
Gross Investment Admitted Assets as Reported in the Annual
Holdings Statement
(in millions) ----------------- ----------------------------------------
Securities
Lending
Reinvested
Collateral Total
Investment Categories Amount Percentage Amount Amount Amount Percentage
--------------------- ------- ---------- ------- ---------- ------- ----------
Bonds:
U.S. treasury securities.......................................... $ 729 0.6% $ 729 $-- $ 729 0.6%
U.S. government agency obligations (excluding mortgage-
backed securities):
Issued by U.S. government agencies............................ -- -- -- -- -- --
Issued by U.S. government sponsored agencies.................. 219 0.2 219 -- 219 0.2
Non-U.S. government (including Canada, excluding
mortgage- backed securities).................................... 3,025 2.4 3,025 -- 3,025 2.4
Securities issued by states, territories and possessions and
political subdivisions in the U.S.:
States, territories and possessions general obligations....... 304 0.2 304 -- 304 0.2
Political subdivisions of states, territories and
possessions and political subdivisions general
obligations................................................. 331 0.3 331 -- 331 0.3
Revenue and assessment obligations............................ 2,634 2.1 2,634 -- 2,634 2.1
Industrial development and similar obligations................ 77 0.1 77 -- 77 0.1
Mortgage-backed securities (includes residential and
commercial MBS):
Pass-through securities:
Issued or guaranteed by GNMA............................... 43 -- 43 -- 43 --
Issued or guaranteed by FNMA and FHLMC..................... 2,357 1.9 2,357 -- 2,357 1.9
All other.............................................. 3,468 2.8 3,468 -- 3,468 2.8
CMOs and REMICs:
Issued or guaranteed by GNMA, FNMA, FHLMC
or VA.................................................... 4,407 3.6 4,407 -- 4,407 3.6
Issued by non-U.S. Government issuers and
collateralized by mortgage-based securities
issued or guaranteed by agencies shown in Line
1.521.................................................... -- -- -- -- -- --
All other.............................................. 7,722 6.2 7,722 -- 7,722 6.2
Other debt and other fixed income securities (excluding short-
term):
Unaffiliated domestic securities (includes credit tenant
loans and hybrid securities)................................ 48,119 38.9 48,119 -- 48,119 38.9
Unaffiliated non-U.S. securities (including Canada)........... 21,258 17.2 21,258 -- 21,258 17.2
Affiliated securities......................................... -- -- -- -- -- --
82
AMERICAN GENERAL LIFE INSURANCE COMPANY
SUPPLEMENTAL SUMMARY INVESTMENT SCHEDULE (Continued)
DECEMBER 31, 2018
Gross Investment Admitted Assets as Reported in the Annual
Holdings Statement
(in millions) ------------------ --------------------------------------
Securities
Lending
Reinvested
Collateral Total
Investment Categories Amount Percentage Amount Amount Amount Percentage
--------------------- -------- ---------- -------- ---------- -------- ----------
Equity interests:
Investments in mutual funds.................................. $ 41 --% $ 41 $ -- $ 41 --%
Preferred stocks:
Affiliated............................................... -- -- -- -- -- --
Unaffiliated............................................. 303 0.2 303 -- 303 0.2
Publicly traded equity securities (excluding preferred
stocks):
Affiliated............................................... 109 0.1 109 -- 109 0.1
Unaffiliated............................................. 159 0.1 159 -- 159 0.1
Other equity securities:
Affiliated............................................... -- -- -- -- -- --
Unaffiliated............................................. 3 -- 3 -- 3 --
Other equity interests including tangible personal property
under lease:
Affiliated............................................... -- -- -- -- -- --
Unaffiliated............................................. -- -- -- -- -- --
Mortgage loans:
Construction and land development............................ 1,224 1.0 1,224 -- 1,224 1.0
Agricultural................................................. -- -- -- -- -- --
Single family residential properties......................... 1,661 1.3 1,661 -- 1,661 1.3
Multifamily residential properties........................... 4,786 4.0 4,786 -- 4,786 4.0
Commercial loans............................................. 11,143 9.0 11,143 -- 11,143 9.0
Mezzanine real estate loans.................................. 114 0.1 114 -- 114 0.1
Real estate investments:
Property occupied by company................................. 53 -- 53 -- 53 --
Property held for production of income (includes
$2 million of property acquired in satisfaction of
debt)...................................................... 111 0.1 111 -- 111 0.1
Property held for sale (includes $34 million of property
acquired in satisfaction of debt).......................... 33 -- 33 -- 33 --
Contract loans.................................................. 1,307 1.1 1,307 -- 1,307 1.1
Derivatives..................................................... 1,635 1.3 1,635 -- 1,635 1.3
Receivables for securities...................................... 138 0.1 138 -- 138 0.1
Securities lending reinvested collateral assets................. 352 0.3 352 XXX XXX XXX
Cash, cash equivalents and short-term investments............... 1,547 1.3 1,547 352 1,899 1.5
Other invested assets........................................... 4,246 3.4 4,246 -- 4,246 3.4
-------- --- -------- ---- -------- ---
Total invested assets........................................... $123,658 100% $123,658 $352 $123,658 100%
======== === ======== ==== ======== ===
83
American Home Assurance Company
An AIG Company
NAIC Code: 19380
Statutory Basis Financial Statements
As of December 31, 2018 and 2017
and for the years ended December 31, 2018, 2017 and 2016
[LOGO OF AIG]
American Home Assurance Company
Statutory Basis Financial Statements
As of December 31, 2018 and 2017 and for the years ended December 31, 2018,
2017 and 2016
Table of Contents
Report of Independent Auditors 3
Statements of Admitted Assets 5
Statements of Liabilities, Capital and Surplus 6
Statements of Operations and Changes in Capital and Surplus 7
Statements of Cash Flows 8
Note 1 Organization and Summary of Significant Statutory Basis Accounting Policies 9
Note 2 Accounting Adjustments to Statutory Basis Financial Statements 22
Note 3 Investments 25
Note 4 Fair Value of Financial Instruments 29
Note 5 Reserves for Losses and Loss Adjustment Expenses 31
Note 6 Related Party Transactions 36
Note 7 Reinsurance 40
Note 8 Income Taxes 43
Note 9 Capital and Surplus and Dividend Restrictions 52
Note 10 Contingencies 52
Note 11 Other Significant Matters 55
Note 12 Subsequent Events 57
Report of Independent Auditors
To the Board of Directors of American Home Assurance Company:
We have audited the accompanying statutory financial statements of American
Home Assurance Company (the "Company"), which comprise the statutory statements
of admitted assets and liabilities, capital and surplus as of December 31, 2018
and 2017, and the related statutory statements of operations and changes in
capital and surplus, and of cash flows for each of the three years in the
period ended December 31, 2018.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with the accounting practices prescribed or
permitted by the New York State Department of Financial Services. Management is
also responsible for the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditors' Responsibility
Our responsibility is to express an opinion on the financial statements based
on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the
Company's preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 1B to the financial statements, the financial statements
are prepared by the Company on the basis of the accounting practices prescribed
or permitted by the New York State Department of Financial Services, which is a
basis of accounting other than accounting principles generally accepted in the
United States of America.
The effects on the financial statements of the variances between the statutory
basis of accounting described in Notes 1B and 1D and accounting principles
generally accepted in the United States of America, although not reasonably
determinable, are presumed to be material.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the
"Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles"
paragraph, the financial statements referred to above do not present fairly, in
accordance with accounting principles generally accepted in the United States
of America, the financial position of the Company as of December 31, 2018 and
2017, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 2018.
Opinion on Statutory Basis of Accounting
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus of
the Company as of December 31, 2018 and 2017, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2018, in accordance with the accounting practices prescribed or permitted by
the New York State Department of Financial Services described in Note 1B.
Emphasis of Matter
As discussed in Notes 1, 5, 6 and 7 to the financial statements, the Company
has entered into significant transactions with certain affiliated entities. Our
opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
New York, NY
April 22, 2019
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Statements of Admitted Assets
December 31, December 31,
2018 2017
------------ ------------
Cash and invested assets:
Bonds, primarily at amortized cost (fair value: 2018 - $14,935; 2017 - $15,831) $14,534 $15,153
Common stocks, at carrying value (cost: 2018 - $321; 2017 - $584) 356 576
Preferred stocks, at carrying value (cost: 2018 - $49; 2017 - $49) 49 49
Other invested assets (cost: 2018 - $2,982 ; 2017 - $3,504) 3,003 3,901
Mortgage loans 2,679 2,067
Derivative instruments 5 --
Short-term investments, at amortized cost (approximates fair value) 46 --
Cash and cash equivalents 230 238
Receivable for securities sold 104 82
------- -------
Total cash and invested assets $21,006 $22,066
------- -------
Investment income due and accrued $ 166 $ 169
Agents' balances or uncollected premiums:
Premiums in course of collection 941 940
Premiums and installments booked but deferred and not yet due 241 367
Accrued retrospective premiums 511 567
High deductible policy receivables 63 43
Reinsurance recoverable on paid losses 365 325
Funds held by or deposited with reinsurers 212 217
Net deferred tax assets 772 814
Receivables from parent, subsidiaries and affiliates 284 5
Other assets 159 197
Allowance for uncollectible accounts (53) (72)
------- -------
Total admitted assets $24,667 $25,638
======= =======
See Notes to Statutory Basis Financial Statements
-------------------------------------------------------------------------------
5 STATEMENTS OF ADMITTED ASSETS - As of December 31, 2018 and 2017
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions, Except Share Information)
--------------------------------------------------------------------------------
Statements of Liabilities, Capital and Surplus
December 31, December 31,
2018 2017
------------ ------------
Liabilities
Reserves for losses and loss adjustment expenses $10,935 $12,115
Unearned premium reserves 3,234 3,301
Commissions, premium taxes, and other expenses
payable 140 140
Reinsurance payable on paid loss and loss
adjustment expenses 249 244
Current federal taxes payable to parent 9 12
Funds held by company under reinsurance treaties 2,288 1,695
Provision for reinsurance 30 20
Ceded reinsurance premiums payable, net of ceding
commissions 337 324
Collateral deposit liability 369 393
Payable for securities purchased 112 38
Payable to parent, subsidiaries and affiliates 565 674
Other liabilities 476 444
------- -------
Total liabilities $18,744 $19,400
------- -------
Capital and Surplus
Common capital stock, $17 par value, 1,758,158
shares authorized, 1,695,054 shares issued and
outstanding $ 29 $ 29
Capital in excess of par value 6,989 6,839
Unassigned surplus (2,021) (1,324)
Special surplus funds from reinsurance 926 694
------- -------
Total capital and surplus $ 5,923 $ 6,238
------- -------
Total liabilities, capital and surplus $24,667 $25,638
======= =======
See Notes to Statutory Basis Financial Statements
-------------------------------------------------------------------------------
6 STATEMENTS OF LIABILITIES, CAPITAL and SURPLUS - As of December 31, 2018
and 2017
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Statements of Operations and Changes in Capital and Surplus
For the Years Ended December 31,
-------------------------------
2018 2017 2016
-------- -------- --------
Statements of Operations
Underwriting income:
Premiums earned $ 5,009 $ 5,170 $ 6,052
-------- -------- --------
Underwriting deductions:
Losses incurred 3,945 4,400 5,212
Loss adjustment expenses 315 577 267
Other underwriting expenses 1,858 1,624 1,875
-------- -------- --------
Total underwriting deductions 6,118 6,601 7,354
-------- -------- --------
Net underwriting loss (1,109) (1,431) (1,302)
-------- -------- --------
Investment gain:
Net investment income earned 1,027 1,058 1,187
Net realized capital losses (net of capital
gains tax expense: 2018 - $69; 2017 - $82;
2016 - $61) (111) (110) (106)
-------- -------- --------
Net investment gain 916 948 1,081
-------- -------- --------
Net loss from agents' or premium balances
charged-off (3) (19) (36)
Other (expense) income (136) 39 (20)
-------- -------- --------
Net loss after capital gains taxes and before
federal income taxes (332) (463) (277)
Federal and foreign income tax benefit (54) (69) (34)
-------- -------- --------
Net loss $ (278) $ (394) $ (243)
======== ======== ========
Change in Capital and Surplus
Capital and surplus, as of December 31, previous
year $ 6,238 $ 6,448 $ 6,641
Adjustment to beginning surplus (Note 2) 71 38 66
-------- -------- --------
Capital and surplus, as of January 1, 6,309 6,486 6,707
Other changes in capital and surplus:
Net loss (278) (394) (243)
Change in net unrealized capital gain
(loss) (net of capital gain (loss) tax
expense (benefit): 2018 - ($50) $; 2017
- $2; 2016 - ($16) (137) 204 (48)
Change in net deferred income tax 31 (394) 118
Change in nonadmitted assets (91) 410 (157)
Change in provision for reinsurance (10) 17 (3)
Capital contribution 150 -- 700
Dividends to stockholder -- -- (600)
Foreign exchange translation (20) (54) 22
Change in statutory contingency reserve (31) (39) (44)
Other surplus adjustments -- 2 (4)
-------- -------- --------
Total changes in capital and surplus (386) (248) (259)
-------- -------- --------
Capital and Surplus, as of December 31, $ 5,923 $ 6,238 $ 6,448
======== ======== ========
See Notes to Statutory Basis Financial Statements
-------------------------------------------------------------------------------
7 STATEMENTS OF OPERATIONS and CHANGES IN CAPITAL AND SURPLUS - for the
years ending December 31, 2018, 2017 and 2016
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Statements of Cash Flows
For the Years Ended December 31,
-------------------------------
2018 2017 2016
-------- -------- --------
Cash from Operations:
Premiums collected, net of reinsurance $ 5,292 $ 5,395 $ 6,477
Net investment income 839 920 974
Miscellaneous income (expense) 4 (17) 17
-------- -------- --------
Sub-total 6,135 6,298 7,468
-------- -------- --------
Benefit and loss related payments 4,832 7,209 2,750
Commission and other expense paid 2,599 3,407 2,236
Federal and foreign income taxes recovered (1) (98) 9
-------- -------- --------
Net cash (used in) provided from operations (1,295) (4,220) 2,473
-------- -------- --------
Cash from Investments:
Proceeds from investments sold, matured, or repaid
Bonds 3,990 7,709 5,646
Stocks 339 324 35
Mortgage loans 111 615 118
Other investments 1,790 1,591 1,026
-------- -------- --------
Total proceeds from investments sold, matured,
or repaid 6,230 10,239 6,825
-------- -------- --------
Cost of investments acquired
Bonds 3,766 4,278 7,584
Stocks 56 454 59
Mortgage loans 748 763 871
Other investments 870 853 1,035
-------- -------- --------
Total cost of investments acquired 5,440 6,348 9,549
-------- -------- --------
Net cash provided from investing activities 790 3,891 (2,724)
-------- -------- --------
Cash from Financing and Miscellaneous Sources:
Borrowed funds repaid (65) (180) 216
Intercompany receipts 599 577 (61)
Net deposit activity on deposit-type contracts
and other insurance (27) (13) (24)
Collateral deposit liability (payments)
receipts (24) 8 50
Other receipts 60 30 84
-------- -------- --------
Net cash provided from financing and
miscellaneous activities 543 422 265
-------- -------- --------
Net change in cash, cash equivalents, and
short-term investments 38 93 14
Cash, cash equivalents, and short-term investments
-------- -------- --------
Beginning of year 238 145 131
-------- -------- --------
End of year $ 276 $ 238 $ 145
======== ======== ========
Refer to Note 11D for description of non-cash items.
See Notes to Statutory Basis Financial Statements
-------------------------------------------------------------------------------
8 STATEMENT OF CASH FLOW - for the years ended December 31, 2018, 2017 and
2016
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
1. Organization and Summary of Significant Statutory Basis Accounting Policies
--------------------------------------------------------------------------------
A. Basis of Organization and Presentation
--------------------------------------------------------------------------------
Organization
--------------------------------------------------------------------------------
American Home Assurance Company ("the Company" or "American Home") is a direct
wholly-owned subsidiary of AIG Property Casualty U.S., Inc. ("AIG PC US"), a
Delaware corporation, which is in turn owned by AIG Property Casualty Inc.
("AIG PC"), a Delaware corporation. The Company's ultimate parent is American
International Group, Inc. (the "Ultimate Parent" or "AIG"). AIG conducts its
property and casualty operations through multiple line companies writing
substantially all commercial (casualty, property, specialty and financial
liability) and consumer (accident & health and personal lines) insurance both
domestically and abroad.
The Company is party to an inter-company pooling agreement (the "Combined
Pooling Agreement"), among the twelve companies listed below, collectively
named the Combined Pool. Effective January 1, 2017, the Combined Pooling
Agreement was amended and restated among the twelve member companies.
The member companies of the Combined Pool, their National Association of
Insurance Commissioners ("NAIC") company codes, inter-company pooling
participation percentages under the Combined Pooling Agreement and states of
domicile are as follows:
Pool
NAIC Participation State of
Company Company Percentage Domicile
------- ------- ------------- ------------
National Union Fire Insurance Company of
Pittsburgh, Pa. (National Union)* 19445 35% Pennsylvania
American Home Assurance Company (American Home) 19380 35% New York
Lexington Insurance Company (Lexington) 19437 30% Delaware
AIG Property Casualty Company (APCC) 19402 0% Pennsylvania
Commerce and Industry Insurance Company (C&I) 19410 0% New York
The Insurance Company of the State of
Pennsylvania (ISOP) 19429 0% Illinois
New Hampshire Insurance Company (New Hampshire) 23841 0% Illinois
AIG Specialty Insurance Company (Specialty) 26883 0% Illinois
AIG Assurance Company (Assurance) 40258 0% Illinois
Granite State Insurance Company (Granite) 23809 0% Illinois
Illinois National Insurance Co. (Illinois
National) 23817 0% Illinois
AIU Insurance Company (AIU) 19399 0% New York
* Lead Company of the Combined Pool
Refer to Note 6 for additional information on the Combined Pool and the effects
of the changes in the intercompany pooling arrangements (the "2017 Pooling
Restructure Transaction").
The Company accepts commercial business primarily through a network of
independent retail and wholesale brokers and through an independent agency
networks. In addition, the Company accepts consumer business primarily through
agents and brokers, as well as through direct marketing and partner
organizations. There were no Managing Agents or Third Party Administrators who
placed direct written premium with the Company in an amount exceeding more than
5.0 percent of surplus of the Company for the years ending December 31, 2018,
2017, and 2016.
The Company is diversified in terms of classes of its business, distribution
network and geographic locations. The Company has direct written premium
concentrations of 5.0 percent or more in the following locations:
-------------------------------------------------------------------------------
9 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
State / Location 2018 2017 2016
---------------- ---- ---- ----
California $103 $124 $70
Florida 68 86 78
United Arab Emirates 66 71 88
New York 36 65 97
Texas 26 48 48
Basis of Presentation
--------------------------------------------------------------------------------
The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the New York
State Department of Financial Services ("NY SAP"). Certain balances relating to
prior periods have been reclassified to conform to the current year's
presentation.
Additionally, the financial statements include the Company's U.S. operations,
its Dubai, Caribbean, Jamaica and Argentina branch operations and its
participation in the American International Overseas Association (the
"Association").
The Company's financial information as of and for the years ended December 31,
2018, 2017 and 2016 have been presented in accordance with the terms of the
Combined Pooling Agreement. Refer to Note 6 for additional information
regarding the changes in the pooling percentages.
B. Permitted and Prescribed Practices
--------------------------------------------------------------------------------
NY SAP recognizes only statutory accounting practices prescribed or permitted
by the New York State Department of Financial Services ("NY DFS") for
determining and reporting the financial position and results of operations of
an insurance company and for the purpose of determining its solvency under the
New York Insurance Code. The NAIC Statutory Accounting Principles included
within the Accounting Practices and Procedures Manual ("NAIC SAP") have been
adopted as a component of prescribed practices by the NY DFS. The
Superintendent of the NY DFS (the "Superintendent") has the right to permit
other specific practices that differ from prescribed practices.
NY SAP has prescribed the practice of discounting workers' compensation known
case loss reserves on a non-tabular basis. This practice is not prescribed
under NAIC SAP.
For the affiliated loss portfolio transfer ("LPT") agreement entered into
during 2018, the Company received permitted practices to present the
consideration paid in relation to statutory reserves ceded to Fortitude
Reinsurance Company Limited ("Fortitude Re") and Eaglestone Reinsurance Company
("Eaglestone") within paid losses rather than as premium written and earned.
The classification change has no effect on net income or surplus. Refer to Note
5 for further details.
In 2016, the Company applied a permitted practice to present the consideration
received in relation to loss reserves transferred other than via commutation as
part of the updated and amended Combined Pooling Agreement transaction within
paid losses rather than as premiums written and earned. The classification
change had no effect on net income or surplus.
Insurance Department of the Commonwealth of Pennsylvania ("PA SAP") has
prescribed the availability of certain offsets in the calculation of the
Provision for reinsurance, which offsets are not prescribed under NAIC SAP. The
Company has received approval to reflect the transfer of collection risk on
certain of the Company's asbestos related reinsurance recoverable balances, to
an authorized third party reinsurer, as another form of collateral acceptable
to the Commissioner with respect to the reinsurance recoverable balance from
the original reinsurers.
In 2016, the Company applied a permitted practice to recognize the effects of a
retroactive aggregate excess of loss reinsurance agreement (the "ADC" or
"Adverse Development Cover") entered into in January 2017 with National
Indemnity Company ("NICO"), a subsidiary of Berkshire Hathaway, Inc. In
addition, the Company applied a permitted practice to record the impact of the
ADC as prospective reinsurance. The permitted practice also allowed the Company
to reflect the consideration as paid losses rather than a reduction in premiums
earned. The surplus gain associated with the ADC has been reported in a
segregated surplus account and does not form part of the Company's Unassigned
surplus, subject to the applicable dividend restrictions; such amounts must be
restricted in surplus until such time as payments received by NICO exceed
premiums paid for the retrocession.
The use of the aforementioned permitted and prescribed practices has not
affected the Company's ability to comply with the NY DFS's risk based capital
("RBC") and surplus requirements for the 2018, 2017 or 2016 reporting periods.
-------------------------------------------------------------------------------
10 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
A reconciliation of the net income (loss) and capital and surplus between NAIC
SAP and practices prescribed or permitted by NY SAP is shown below:
SSAP # FS Ref 2018 2017 2016
------ ------ ------ ------ ------
Net loss, NY SAP $ (278) $ (394) $ (243)
State prescribed or permitted practices - addition (charge):
Change in non-tabular discounting 65 (a) 13 73 147
Adverse Development Cover 62R (a) -- -- (514)
Present the consideration received/paid in relation to
the loss reserves within paid losses 62R (b) -- -- --
--- -- ------ ------ ------
Net loss, NAIC SAP $ (265) $ (321) $ (610)
--- -- ------ ------ ------
Statutory surplus, NY SAP $5,923 $6,238 $6,448
State prescribed or permitted practices - addition (charge):
Non-tabular discounting 65 (a) (73) (86) (159)
Credits for collection risk on certain asbestos
reinsurance recoveries 62R (c) (61) (43) (58)
Adverse Development Cover 62R (d) (920) (689) (514)
Present the consideration received/paid in relation to
the loss reserves within paid losses 62R (b) -- -- --
--- -- ------ ------ ------
Statutory surplus, NAIC SAP $4,869 $5,420 $5,717
=== == ====== ====== ======
(a)Impacts Reserves for losses and loss adjustment expenses within the
Statements of Liabilities, Capital and Surplus and Losses incurred within
the Statements of Operations and Changes in Capital and Surplus.
(b)Impacts Losses incurred and Premiums earned within the Statements of
Operations and Changes in Capital and Surplus.
(c)Impacts Provision for reinsurance within the Statements of Liabilities,
Capital and Surplus and the change in Provision for reinsurance within the
Statements of Operations and Changes in Capital and Surplus.
(d)Impacts Special surplus funds from reinsurance within the Statements of
Liabilities, Capital and Surplus. Although the application of prospective
reinsurance treatment to the ADC results in no overall change to surplus,
the permitted practice applied results in any gain being restricted and
reported in segregated surplus and does not form part of the Company's
Unassigned surplus.
C. Use of Estimates in the Preparation of the Financial Statements
--------------------------------------------------------------------------------
The preparation of statutory financial statements in accordance with NY SAP
requires the application of accounting policies that often involve a
significant degree of judgment. The Company's accounting policies that are most
dependent on the application of estimates and assumptions are considered
critical accounting estimates and are related to the determination of:
. Reserves for losses and loss adjustment expenses ("LAE") including
estimates and recoverability of the related reinsurance assets;
. Legal contingencies;
. Other than temporary impairment ("OTTI") losses on investments;
. Fair value of certain financial assets, impacting those investments
measured at fair value in the Statements of Admitted Assets and
Liabilities, Capital and Surplus, as well as unrealized gains (losses)
included in Capital and Surplus; and
. Income tax assets and liabilities, including the recoverability and
admissibility of net deferred tax assets and the predictability of
future tax operating profitability of the character necessary to realize
the net deferred tax asset.
These accounting estimates require the use of assumptions, including some that
are highly uncertain at the time of estimation. It is reasonably possible that
actual experience may materially differ from the assumptions used and therefore
the Company's statutory financial condition, results of operations and cash
flows could be materially affected.
On December 22, 2017, the United States enacted Public Law 115-97, known as the
Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act reduces the statutory rate
of U.S. federal corporate income tax to 21 percent and enacts numerous other
changes generally impacting the Company in tax years beginning January 1, 2018.
As of December 31, 2018, the Company has fully completed the accounting for the
tax effects of the Tax Act. Although the prescribed measurement period has
ended, there are aspects of the Tax Act that remain unclear and additional
guidance from the U.S. tax authority is pending. As further guidance is issued
by the U.S. tax authority, any resulting changes in the Company's estimates
will be treated in accordance with the relevant accounting guidance. The
Company does not believe such revisions would have a material impact on surplus.
-------------------------------------------------------------------------------
11 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
D. Accounting Policy Differences
--------------------------------------------------------------------------------
NAIC SAP is a comprehensive basis of accounting other than accounting
principles generally accepted in the United States of America ("US GAAP"). NAIC
SAP varies from US GAAP in certain significant respects, including:
Transactions NAIC SAP Treatment US GAAP Treatment
------------ ---------------------------------- -----------------------------------
Policy Acquisition Costs Costs are immediately expensed and Costs directly related to the
Principally brokerage commissions are included in Other Underwriting successful acquisition of new or
and premium taxes arising from the Expenses, except for reinsurance renewal insurance contracts are
issuance of insurance contracts. ceding commissions received in deferred and amortized over the
excess of the cost to acquire term of the related insurance
business which are recognized as a coverage.
deferred liability and amortized
over the period of the reinsurance
agreement.
Unearned Premiums, Unpaid Losses Presented net of reinsurance Presented gross of reinsurance
and Loss Expense Liabilities recoverable. with corresponding reinsurance
recoverable assets for ceded
unearned premiums and reinsurance
recoverable on unpaid losses,
respectively.
Retroactive reinsurance contracts Gains and losses are recognized in Gains are deferred and amortized
earnings immediately and surplus over the settlement period of the
is segregated to the extent pretax ceded claim recoveries. Losses are
gains are recognized. Certain immediately recognized in the
retroactive affiliate or related Statements of Operations.
party reinsurance contracts are
accounted for as prospective
reinsurance if there is no gain in
surplus as a result of the
transaction.
Investments in Bonds held as: Investment grade securities (rated All available for sale investments
1) available for sale by NAIC as class 1 or 2) are are carried at fair value with
2) fair value option carried at amortized cost. Non- changes in fair value, net of
investment grade securities (NAIC applicable taxes, reported in
rated 3 to 6) are carried at the accumulated other comprehensive
lower of amortized cost and fair income within shareholder's equity.
value.
Fair value option investments are
carried at fair value with changes
in fair value, net of applicable
projected income taxes, reported
in net investment income.
Investments in Equity Securities Carried at fair value with All equity securities that do not
unrealized gains and losses follow the equity method of
reported, net of applicable taxes, accounting, are measured at fair
in the Statements of Changes in value with changes in fair value
Capital and Surplus. recognized in earnings.
Investments in Limited Carried at the underlying US GAAP If aggregate interests allow the
Partnerships, Hedge Funds and equity with results from the holding entity to exercise more
Private Equity Interests investment's operations recorded, than minor influence (typically
net of applicable taxes, as more than 3%), the investment is
unrealized gains (losses) directly carried at Net Asset Value ("NAV")
in the Statements of Changes in with changes in value recorded to
Capital and Surplus. net investment income.
Where the aggregate interests
allow the entity to exercise only
minor influence (typically less
than 3%), the investment is
recorded at NAV with changes in
value recorded, net of tax, as a
component of accumulated other
comprehensive income in
shareholder's equity.
-------------------------------------------------------------------------------
12 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Transactions NAIC SAP Treatment US GAAP Treatment
------------ ---------------------------------- ----------------------------------
Investments in Subsidiary, Subsidiaries are not consolidated. Consolidation is required when
Controlled and Affiliated Entities there is a determination that the
(SCAs) affiliated entity is a variable
interest entity ("VIE") and the
entity has a variable interest and
the power to direct the activities
of the VIE. The VIE assessment
would consider various factors
including limited partnership (LP)
The equity investment in SCAs are status and inherent rights of
accounted for under the equity equity investors.
method and recorded as Common
stock investments. Dividends are Investments in SCAs that are
recorded within Net Investment voting interest entities (VOE)
Income. with majority voting rights are
generally consolidated.
Investments in SCAs where the
holding entity exercises
significant influence (generally
ownership of>3% voting interests
for LPs and similar entities and
between 20 percent and 50 percent
for other entities) are recorded
at equity value. The change in
equity is included within
operating income.
Statement of Cash Flows Statutory Statements of Cash Flows The Statements of Cash Flows can
must be presented using the direct be presented using the direct or
method. Changes in cash, cash indirect methods, however are
equivalents, and short-term typically presented using the
investments and certain sources of indirect method. Presentation is
cash are excluded from operational limited to changes in cash and
cash flows. Non-cash items are cash equivalents (short-term
required to be excluded in the investments are excluded). All
Statements of Cash Flows and non-cash items are excluded from
should be disclosed accordingly. the presentation of cash flows.
Deferred Federal Income Taxes Deferred income taxes are The provision for deferred income
established for the temporary taxes is recorded as a component
differences between tax and book of income tax expense, as a
assets and liabilities, subject to component of the Statements of
limitations on admissibility of Operations, except for changes
tax assets. associated with items that are
included within other
Changes in deferred income taxes comprehensive income where such
are recorded within capital and items are recorded net of
surplus and have no impact on the applicable income taxes.
Statements of Operations.
Statutory Adjustments Certain asset balances designated All assets and liabilities are
(applied to certain assets as nonadmitted, such as intangible included in the financial
including goodwill, furniture and assets and certain investments in statements. Provisions for
equipment, deferred taxes in affiliated entities are excluded uncollectible receivables are
excess of limitations, prepaid from the Statements of Admitted established as valuation
expenses, overdue receivable Assets and are reflected as allowances and are recognized as
balances and unsecured reinsurance deductions from capital and expense within the Statements of
amounts) surplus. Operations.
A Provision for reinsurance is
established for unsecured
reinsurance amounts recoverable
from unauthorized and certain
authorized reinsurers with a
corresponding reduction to
Unassigned surplus.
The effects on the financial statements of the variances between NAIC SAP and
US GAAP, although not reasonably determinable, are presumed to be material.
-------------------------------------------------------------------------------
13 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
E. Significant Statutory Accounting Policies
--------------------------------------------------------------------------------
Premiums
--------------------------------------------------------------------------------
Premiums for insurance and reinsurance contracts are recorded as gross premiums
written as of the effective date of the policy. Premiums are earned primarily
on a pro-rata basis over the term of the related insurance coverage. Premiums
collected prior to the effective date of the policy are recorded as advance
premiums, reported as a liability and not considered income until due. Extended
reporting endorsements are reflected as premiums written and are earned on a
pro-rata basis over the stated term of the endorsement unless the term of the
endorsement is indefinite in which case premiums are fully earned at inception
of the endorsement along with the recognition of associated loss and LAE.
Unearned premium reserves are established on an individual policy basis,
reflecting the terms and conditions of the coverage being provided. Unearned
premium reserves represent the portion of premiums written relating to the
unexpired terms of coverage as of the date of the financial statements. For
policies with coverage periods equal to or greater than thirteen months and
generally not subject to cancellation or modification by the Company, premiums
are earned using a prescribed percentage of completion method. Additional
unearned premium reserves for policies exceeding thirteen months are
established as greater of three prescribed tests.
Reinsurance premiums are typically earned over the same period as the
underlying policies, or risks, covered by the contracts. As a result, the
earnings pattern of a reinsurance contract generally written for a 12-month
term may extend up to 24 months, reflecting the inception dates of the
underlying attaching policies throughout the 12-month period of the reinsurance
contract. Reinsurance premiums ceded are recognized as a reduction in revenues
over the period reinsurance coverage is provided.
Insurance premiums billed and outstanding for 90 days or more are nonadmitted
and charged against Unassigned surplus.
Premiums for retrospectively rated contracts are initially recorded based on
the expected loss experience and are earned on a pro-rata basis over the term
of the related insurance coverage. Additional or returned premium is recorded
if the estimated loss experience differs from the initial estimate and is
immediately recognized in earned premium. The Company records accrued
retrospectively rated premiums as written premiums. Adjustments to premiums for
changes in the level of exposure to insurance risk are generally determined
based upon audits conducted after the policy expiration date.
Gross written premiums net of ceded written premiums ("Net written premiums")
that were subject to retrospective rating features as of December 31, 2018,
2017 and 2016 were as follows:
Years ended December 31, 2018 2017 2016
------------------------ ---- ---- ----
Net written premiums subject to retrospectively rated contracts $ 93 $105 $ 72
Percentage of total net written premiums 1.9% 2.1% 1.1%
As of December 31, 2018 and 2017, the admitted portion of accrued premiums
related to the Company's retrospectively rated contracts were $511 and $567,
respectively, which will be billed in future periods based primarily on the
payment of the underlying expected losses and LAE. Unsecured amounts associated
with these accrued retrospective premiums were $60 and $58 as of December 31,
2018 and 2017, respectively. Ten percent of the amount of accrued retrospective
premiums receivable not offset by retrospective return premiums or other
liabilities to the same party, other than loss and LAE reserves, or collateral
(collectively referred to as the unsecured amount) have been nonadmitted in the
amount of $10 and $13 as of December 31, 2018 and 2017, respectively.
High Deductible
--------------------------------------------------------------------------------
The Company establishes loss reserves for high deductible policies net of the
insured's contractual deductible (such deductibles are referred to as "reserve
credits"). The Company establishes a nonadmitted asset for ten percent of paid
losses recoverable in excess of collateral held on an individual insured basis,
or for one hundred percent of paid losses recoverable where no collateral is
held and amounts are outstanding for more than ninety days. Additionally, the
Company establishes an allowance for doubtful accounts for such paid losses
recoverable in excess of collateral and after nonadmitted assets. Similarly,
the Company does not recognize reserve credit offsets to its estimate of loss
reserves where such credits are deemed uncollectible, as the Company ultimately
bears credit risk on the underlying policies' insurance obligations.
-------------------------------------------------------------------------------
14 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
The following table shows the counterparty exposure on unpaid claims and billed
recoverable on paid claims for high deductibles by line of business as of
December 31, 2018 and 2017:
Reserve Credits on Recoverable on Paid
December 31, 2018 Gross Loss Reserves Unpaid Claims Claims Total
----------------- ------------------- ------------------ ------------------- ----------
Allied Lines $ 390 $ 390 $ 10 $ 400
General Liabilities 464 464 9 473
Workers Compensation 3,419 3,419 51 3,470
---------- ---------- --------- ----------
Total $ 4,273 $ 4,273 $ 70 $ 4,343
---------- ---------- --------- ----------
As of December 31, 2018, both on-balance sheet and off-balance sheet collateral
pledged to the Company related to deductible and paid recoverables was $206 and
$3,068, respectively. Unsecured high deductible amounts related to unpaid
claims and for paid recoverables for 2018 were $1,069, or 25% of the total high
deductible. Additionally, as of December 31, 2018, the Company had recoverables
on paid claims greater than 90 days overdue of $72, of which $7 have been
nonadmitted.
Reserve Credits on Recoverable on Paid
December 31, 2017 Gross Loss Reserves Unpaid Claims Claims Total
----------------- ------------------- ------------------ ------------------- ----------
Allied Lines $ 394 $ 394 $ 8 $ 402
General Liabilities 445 445 6 451
Workers Compensation 3,550 3,550 39 3,589
---------- ---------- --------- ----------
Total $ 4,389 $ 4,389 $ 53 $ 4,442
---------- ---------- --------- ----------
As of December 31, 2017, both on-balance sheet and off-balance sheet collateral
pledged to the Company related to deductible and paid recoverables was $230 and
$3,142, respectively. Unsecured high deductible amounts related to unpaid
claims and for paid recoverables for 2017 were $1,202, or 27% of the total high
deductible. Additionally, as of December 31, 2017, the Company had recoverables
on paid claims greater than 90 days overdue of $51, of which $9 have been
nonadmitted.
The following table shows the deductible amounts for the highest ten unsecured
high deductible policies as of December 31, 2018 and 2017:
Counterparty* Unsecured High Deductible Amounts
------------- ---------------------------------
December 31, 2018 2017
------------ ---------------- ----------------
Counterparty 1 $ 129 $ 188
Counterparty 2 103 107
Counterparty 3 75 90
Counterparty 4 55 64
Counterparty 5 54 50
Counterparty 6 54 49
Counterparty 7 48 47
Counterparty 8 48 39
Counterparty 9 21 26
Counterparty 10 20 20
* Actual counterparty is not named and may vary year over year. Additionally,
a group of entities under common control is regarded as a single
counterparty.
Deposit Accounting
--------------------------------------------------------------------------------
Direct insurance transactions where management determines there is insufficient
insurance risk transfer are recorded as deposits unless the policy was issued
(i) in respect of the insured's requirement for evidence of coverage pursuant
to applicable statutes (insurance statutes or otherwise), contractual terms or
normal business practices, (ii) in respect of an excess insurer's requirement
for an underlying primary insurance policy in lieu of self-insurance, or
(iii) in compliance with filed forms, rates and/or rating plans.
-------------------------------------------------------------------------------
15 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Assumed and ceded reinsurance contracts which do not transfer a sufficient
amount of insurance risk are recorded as deposits with the net consideration
paid or received recognized as a deposit asset or liability, respectively.
Deposit assets are admitted if (i) the assuming company is licensed, accredited
or qualified by the PA DOI, or (ii) the collateral (i.e., funds withheld,
letters of credit or trusts) provided by the reinsurer meets all the
requirements of the NY SAP, as applicable. The deposit asset or liability is
adjusted by calculating the effective yield on the deposit to reflect the
actual payments made or received to date and expected future payments with a
corresponding credit or charge to Other income (expense) in the Statements of
Operations.
Deposit assets are recorded to Other assets within the Statements of Admitted
Assets, refer to Note 11A. Deposit liabilities are recorded to Other
liabilities within the Statements of Liabilities, Capital and Surplus, refer to
Note 11B.
Premium Deficiency
--------------------------------------------------------------------------------
The Company periodically reviews its expected ultimate losses with respect to
its unearned premium reserves. A premium deficiency loss and related liability
is established if the unearned premium reserves and related future investment
income are collectively not sufficient to cover the expected ultimate loss
projection. For purposes of premium deficiency tests, contracts are grouped in
a manner consistent with how policies are marketed, serviced, and measured for
the profitability of such contracts. As of December 31, 2018 and 2017, the
Company did not incur any premium deficiency losses.
Retroactive Reinsurance
--------------------------------------------------------------------------------
Transactions involving the transfer of loss and LAE reserves associated with
loss events that occurred prior to the effective date of the transfer are
recorded as retroactive reinsurance and reported separately from Reserves for
losses and loss adjustment expenses in the Statements of Liabilities, Capital
and Surplus. Initial pre-tax gains or losses are recorded in Retroactive
reinsurance gain within the Statements of Operations and Changes in Capital and
Surplus with surplus gains recorded as Special surplus funds from reinsurance
which is a component of Capital and Surplus that is restricted from dividend
payment. Amounts recorded in Special surplus funds from reinsurance are
considered to be earned surplus (i.e., transferred to Unassigned surplus) only
when, and to the extent that, cash recoveries from the assuming entity exceed
the consideration paid by the ceding entity. Special surplus funds from
retroactive reinsurance are maintained separately for each respective
retroactive reinsurance agreement; Special surplus funds from retroactive
reinsurance account write-in entry on the balance sheet is adjusted, upward or
downward, to reflect any subsequent increase or reduction in reserves ceded.
The reduction in the special surplus funds is limited to the lesser of amounts
recovered by the Company in excess of consideration paid or the surplus gain in
relation to such agreement.
To the extent that the transfer of loss and LAE reserves associated with loss
events that occurred prior to the effective date of the transfer is between
affiliated entities and neither entity records a gain or loss in surplus, the
transaction qualifies as an exception in the NAIC SAP accounting guidance and
is accounted for as prospective reinsurance.
Insurance Related Acquisition Costs
--------------------------------------------------------------------------------
Commissions, premium taxes, and certain underwriting costs are expensed as
incurred and are included in Other underwriting expenses. The Company records
an unearned ceding commission accrual equal to the excess of the ceding
commissions received from reinsurers compared to the anticipated acquisition
cost of the business ceded. This amount is amortized as an increase to income
over the effective period of the reinsurance agreement in proportion to the
amount of insurance coverage provided.
Provisions for Allowances and Unauthorized or Overdue Reinsurance
--------------------------------------------------------------------------------
The recoverability of certain assets, including insurance receivables with
counterparties, is reviewed periodically by management. A minimum reserve, as
required under the NAIC Annual Statement Instructions for Property and Casualty
Companies for Schedule F-Provision for Overdue Reinsurance for uncollectible
reinsurance is recorded with an additional reserve required if an entity's
experience indicates that a higher amount should be provided. The minimum
reserve is recorded as a liability and the change between years is recorded as
a gain or loss directly to Unassigned fund (surplus) in the Statement of
Liabilities, Capital and Surplus. Any reserve over the minimum amount is
recorded on the statement of operations by reversing the accounts previously
utilized to establish the reinsurance recoverable. Various factors are taken
into consideration when assessing the recoverability of these asset balances
including: the age of the related amounts due and the nature of the unpaid
balance; disputed balances, historical recovery rates and any significant
decline in the credit standing of the counterparty. PA SAP is applied in the
determination of the Company's Provision for reinsurance.
-------------------------------------------------------------------------------
16 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Reserves for Losses and Loss Adjustment Expenses
--------------------------------------------------------------------------------
Reserves for case incurred but not reported ("IBNR") and LAE losses are
determined on the basis of actuarial specialists' evaluations and other
estimates, including historical loss experience. The methods of making such
estimates and for establishing the resulting reserves are reviewed and updated
based on available information, and any resulting adjustments are recorded in
the current period. Accordingly, newly established reserves for losses and LAE,
or subsequent changes, are charged to income as incurred. In the event of loss
recoveries through reinsurance agreements, loss and LAE reserves are reported
net of reinsurance amounts recoverable for unpaid losses and LAE. Losses and
LAE ceded through reinsurance are netted against losses and LAE incurred.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsurance policy based upon the terms
of the underlying contract. See Note 5 for further discussion of policies and
methodologies for estimating the liabilities and losses.
Workers' compensation reserves are discounted in accordance with NY DFS
statutes; see Note 5 for further details.
Salvage and subrogation recoverables are estimated using past experience
adjusted for current trends, and any other factors that would modify past
experience. Estimated salvage and subrogation recoveries (net of associated
expenses) are deducted from the liability for unpaid claims or losses.
Structured Settlements
--------------------------------------------------------------------------------
In the ordinary course of business, the Company enters into structured
settlements to settle certain claims. Structured settlements involve the
purchase of an annuity by the Company, generally from life insurers, to fund
future claim obligations. In the event the life insurers providing the annuity
do not meet their obligations, the Company would, in certain cases, become
liable for the payments of benefits. As of December 31, 2018 there were no
incurred losses, there has been no default by any of the participating life
insurers and the Company has not reduced its loss reserves for any annuities
purchased where it is both the owner and the payee. Management believes that
based on the financial strength of the life insurers involved (mostly
affiliates) the likelihood of the Company becoming liable, or incurring an
incremental loss, is remote.
The estimated loss reserves eliminated by such structured settlement annuities
and the unrecorded loss contingencies as of December 31, 2018 and 2017 were
$1,328 and $1,321, respectively.
As of December 31, 2018, the Company had annuities with aggregate statement
values in excess of one percent of its policyholders' surplus with life insurer
affiliates as follows:
Licensed in
Life Insurance Company State of Domicile New York Statement Value
---------------------- ----------------- ----------- ---------------
American General Life Insurance Company of Texas Texas No $166
American General Life Insurance Company of Delaware Delaware No 270
The United State Life Insurance Company in the City of New New
York York Yes 837
Fair Value of Financial Instruments
--------------------------------------------------------------------------------
The degree of judgment used in measuring the fair value of financial
instruments generally inversely correlates with the level of observable
valuation inputs. The Company maximizes the use of observable inputs and
minimizes the use of unobservable inputs when measuring fair value. Financial
instruments with quoted prices in active markets generally have more pricing
observability and less judgment is used in measuring fair value. Conversely,
financial instruments for which no quoted prices are available have less
observability and are measured at fair value using valuation models or other
pricing techniques that require more judgment. Pricing observability is
affected by a number of factors, including the type of financial instrument,
whether the financial instrument is new to the market and not yet established,
the characteristics specific to the transaction, liquidity and general market
conditions.
Assets and liabilities recorded at fair value are measured and classified in
accordance with a fair value hierarchy consisting of three 'levels' based upon
the observability of inputs available in the marketplace as discussed below:
. Level 1: Fair value measurements that are based upon quoted prices
(unadjusted) in active markets that we have the ability to access for
identical assets or liabilities. Market price data generally is obtained
from exchange or dealer markets. The quoted price for such instruments
is not subject to adjustment.
-------------------------------------------------------------------------------
17 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
. Level 2: Fair value measurements based on inputs other than quoted
prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that
are not active, and inputs other than quoted prices that are observable
for the asset or liability, such as interest rates and yield curves that
are observable at commonly quoted intervals.
. Level 3: Fair value measurements based on valuation techniques that use
significant inputs that are unobservable. Both observable and
unobservable inputs may be used to determine the fair values of
positions classified in Level 3. The circumstances for using these
measurements include those in which there is little, if any, market
activity for the asset or liability. Therefore, we must make certain
assumptions as to the inputs a hypothetical market participant would use
to value that asset or liability. In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy within
which the fair value measurement in its entirety falls is determined
based on the lowest level input that is significant to the fair value
measurement in its entirety.
The Company's policy is to recognize transfers in and out at the end of the
reporting period, consistent with the date of the determination of fair value
(See Note 4 for the balance and activity of financial instruments). The
valuation methods and assumptions used in estimating the fair values of
financial instruments are as follows:
. The fair values of bonds, mortgage loans, unaffiliated common stocks and
preferred stocks are based on fair values that reflect the price at
which a security would sell in an arm's length transaction between a
willing buyer and seller. As such, sources of valuation include third
party pricing sources, stock exchanges, brokers or custodians or the
NAIC Capital Markets and Investment Analysis Office ("NAIC IAO").
. The fair value of derivatives is determined using quoted prices in
active markets and other market evidence whenever possible, including
market-based updates, broker or dealer quotations or alternative pricing
sources.
. The carrying value of all other financial instruments approximates fair
value due to the short term nature.
Cash Equivalents and Short Term Investments
--------------------------------------------------------------------------------
Cash equivalents are short-term, highly liquid investments, with original
maturities of three months or less, that are both; (a) readily convertible to
known amounts of cash; and (b) so near their maturity that they present
insignificant risk of changes in value because of changes in interest rates.
Highly liquid debt securities with maturities of greater than three months but
less than twelve months from the date of purchase are classified as short-term
investments. Short-term investments are carried at amortized cost which
approximates fair value.
Bonds (including Loan Backed and Structured Securities)
--------------------------------------------------------------------------------
Bonds include any securities representing a creditor relationship, whereby
there is a fixed schedule for one or more future payments such as US government
agency securities, municipal securities, corporate and convertible bonds, and
fixed income instruments. Loan-backed and structured securities ("LBaSS")
include residential mortgage-backed securities ("RMBS"), commercial
mortgage-backed securities ("CMBS"), and asset-backed securities ("ABS"),
pass-through securities, lease-backed securities, equipment trust certificates,
loan-backed securities issued by special purpose corporations or trusts, and
securities where there is not direct recourse to the issuer.
Bonds and LBaSS with an NAIC IAO designation of "1" or "2" (considered to be
investment grade) are carried at amortized cost. Bonds and LBaSS with an NAIC
designation of "3", "4", "5", "5*", "6" or "6*" (considered to be
non-investment grade) are carried at the lower of amortized cost or fair value.
LBaSS fair values are primarily determined using independent pricing services
and broker quotes. Bonds and LBaSS that have not been filed and have not
received a designation in over a year, from the NAIC IAO, are assigned a 6*
designation and carried at zero, with unrealized losses charged to surplus.
Bond and LBaSS securities that have been filed and received a 6* designation
can carry a value greater than zero. Bond and LBaSS securities are assigned a
5* designation when the following conditions are met: a) the documentation
required for a full credit analysis did not exist, b) the issuer/obligor has
made all contractual interest and principal payments, and c) an expectation of
repayment of interest and principal exists. Amortization of premium or discount
on bonds and LBaSS is calculated using the effective yield method.
Additionally, mortgage-backed securities ("MBS") and ABS prepayment assumptions
are obtained from an outside vendor or internal estimates. The retrospective
adjustment method is used to account for the effect of unscheduled payments
affecting high credit quality securities, while securities with less than high
credit quality and securities for which the collection of all contractual cash
flows is not probable are both accounted for using the prospective adjustment
method.
-------------------------------------------------------------------------------
18 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Mortgage Loans
--------------------------------------------------------------------------------
Mortgage loans on real estate are carried at unpaid principal balances, net of
unamortized premiums, discounts and impairments. Pre-payments of principal are
recorded as a reduction in the mortgage loan balance. If a mortgage loan
provides for a prepayment penalty or acceleration fee in the event the loan is
liquidated prior to its scheduled termination date, such fees is reported as
investment income when received. Interest income includes interest collected,
the change in interest income due and accrued, the change in unearned interest
income as well as amortization of premiums, discounts, and deferred fees and
recorded as earned in investment income in the statement of operations.
Impaired loans are identified by management as loans in which it is probable
that all amounts due according to the contractual terms of the loan agreement
will not be collected. The Company accrues income on impaired loans to the
extent it is deemed collectible and the loan continues to perform under its
original or restructured contractual terms. Non-performing loan interest income
that is delinquent more than 90 days is generally recognized on a cash basis.
Mortgage loans are considered impaired when collection of all amounts due under
contractual terms is not probable. Impairment is measured using either i) the
present value of expected future cash flows discounted at the loan's effective
interest rate, ii) the loan's observable market price, if available, or iii)
the fair value of the collateral if the loan is collateral dependent. An
allowance is typically established for the difference between the impaired
value of the loan and its current carrying amount. Additional allowance amounts
are established for incurred but not specifically identified impairments, based
on statistical models primarily driven by past due status, debt service
coverage, loan-to-value ratio, property occupancy, profile of the borrower and
of the major property tenants, and economic trends in the market where the
property is located. When all or a portion of a loan is deemed uncollectible,
the uncollectible portion of the carrying amount of the loan is charged off
against the allowance.
Internal credit risk ratings are assigned based on the consideration of risk
factors including past due status, debt service coverage, loan-to-value ratio
or the ratio of the loan balance to the estimated value of the property,
property occupancy, profile of the borrower and of the major property tenants,
economic trends in the market where the property is located, and condition of
the property.
Preferred Stocks
--------------------------------------------------------------------------------
Perpetual preferred stocks with an NAIC rating of "P1" or "P2", having
characteristics of equity securities are carried at fair value. Redeemable
preferred stocks with an NAIC rating of "RP1" or "RP2", which have
characteristics of debt securities, are carried at book value. All preferred
stocks with an NAIC rating of "3" through "6" are carried at the lower of book
or fair value.
Unaffiliated Common Stock Securities
--------------------------------------------------------------------------------
Unaffiliated common stock investments are carried at fair value with changes in
fair value recorded as unrealized gains (losses) in Unassigned surplus, or as
realized losses in the event a decline in value is determined to be other than
temporary. For FHLB capital stock, which is only redeemable at par, the fair
value shall be presumed to be par, unless considered other-than-temporarily
impaired.
Investments in subsidiaries and affiliated companies
--------------------------------------------------------------------------------
Investments in non-publicly traded affiliates are recorded based on the
underlying equity of the respective entity's financial statements as presented
on a basis consistent with the nature of the affiliates operations (including
any nonadmitted amounts). The Company's share of undistributed earnings and
losses of affiliates is recorded as unrealized gains (losses) in Unassigned
surplus.
Investments in joint ventures, partnerships and limited liability companies
--------------------------------------------------------------------------------
Other invested assets include joint ventures and partnerships and are accounted
for under the equity method, based on the most recent financial statements of
the entity. Changes in carrying value are recorded as unrealized gains (losses)
in Unassigned surplus. Additionally, other invested assets include investments
in collateralized loans that are recorded at the lower of amortized cost and
the fair value of the underlying collateral. Changes in carrying value
resulting from adjustments where the fair value is less than amortized cost are
recorded as unrealized gains (losses) in Unassigned surplus, while changes
resulting from amortization are recorded as Net investment income.
Derivatives
--------------------------------------------------------------------------------
Derivative financial instruments are accounted for at fair value using quoted
prices in active markets and other market evidence whenever possible, including
market-based inputs to valuation models, broker or dealer quotations or
alternative pricing sources, reduced by the amount of collateral held or posted
by the Company with respect to the derivative position. Changes in carrying
value are recorded as unrealized gains (losses) in Unassigned surplus.
-------------------------------------------------------------------------------
19 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Net investment income and gain/loss
--------------------------------------------------------------------------------
Investment income is recorded as earned and includes interest, dividends and
earnings from subsidiaries, loans and joint ventures. Realized gains or losses
on the disposition or impairment of investments are determined on the basis of
specific identification.
Investment income due and accrued is assessed for collectability. The Company
records a valuation allowance on investment income receivable when it is
probable that an amount is uncollectible by recording a charge against
investment income in the period such determination is made. Any amounts
receivable over 90 days past due, or 180 days past due for mortgage loans, that
do not have a valuation allowance are nonadmitted by the Company.
Evaluating Investments for Other-Than-Temporary Impairment
--------------------------------------------------------------------------------
If a bond is determined to have an OTTI in value the cost basis is written down
to fair value as its new cost basis, with the corresponding charge to Net
realized capital gains (losses) as a realized loss.
For bonds, other than loan-backed and structured securities, an OTTI shall be
considered to have occurred if it is probable that the Company will not be able
to collect all amounts due under the original contractual terms..
For loan-backed and structured securities, an OTTI shall be considered to have
occurred if the fair value of a security is below its amortized cost and
management intends to sell or does not have the ability and intent to retain
the security until recovery of the amortized cost (i.e., intent based
impairment). When assessing the intent to sell a security, management evaluates
relevant facts and circumstances including, but not limited to, decisions to
rebalance the investment portfolio, sales of securities to meet cash flow needs
and sales of securities to take advantage of favorable pricing.
In general, a security is considered a candidate for OTTI evaluation if it
meets any of the following criteria:
. The Company may not realize a full recovery on their investment based on
lack of ability or intent to hold a security to recovery;
. Fundamental credit risk of the issuer exists; and/or
. Other qualitative/quantitative factors exist indicating an OTTI has
occurred.
When a credit-related OTTI is present, the amount of OTTI recognized as a
realized capital loss is equal to the difference between the investment's
amortized cost basis and the present value of cash flows expected to be
collected regardless of management's ability or intent to hold the security.
Common and preferred stock investments whose fair value is less than their
carrying value or is at a significant discount to acquisition value are
considered to be potentially impaired. For securities with unrealized losses,
an analysis is performed. Factors include:
. If management intends to sell a security that is in an unrealized loss
position then an OTTI loss is considered to have occurred;
. If the investments are trading at a significant (25 percent or more)
discount to par, amortized cost (if lower) or cost for an extended
period of time based on facts and circumstances of the investment; or
. If a discrete credit event occurs resulting in: (i) the issuer
defaulting on a material outstanding obligation; (ii) the issuer seeking
protection from creditors under bankruptcy law or any similar laws
intended for court supervised reorganization of insolvent enterprises;
or, (iii) the issuer proposing a voluntary reorganization pursuant to
which creditors are asked to exchange their claims for cash or
securities having a fair value substantially lower than par value of
their claims; or
. If there are other factors precluding a full recovery of the investment.
Limited partnership investments whose fair value is less than its book value
with a significant unrealized loss are considered candidates for OTTI. OTTI
factors that are periodically considered include:
. If an order of liquidation or other fundamental credit issues with the
partnership exists;
. If there is a significant reduction in scheduled cash flow activities
between the Company and the partnership or fund during the year;
. If there is an intent to sell, or the Company may be required to sell,
the investment prior to the recovery of cost of the investment; or
. If other qualitative/quantitative factors indicating an OTTI exist based
on facts and circumstances of the investment.
-------------------------------------------------------------------------------
20 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Equities in Pools & Associations
--------------------------------------------------------------------------------
The Company accounts for its participation in the business pooled via the
Association (see Note 6) and its deposit in the Association by recording the
Company's share of:
. direct and assumed premium as gross premium,
. underwriting and net investment income results in the Statements of
Operations and Changes in Capital and Surplus,
. insurance and reinsurance balances in the Statements of Admitted Assets,
. all other non-insurance assets and liabilities held by the Association,
all of which are on its members' behalf, as Equities in Underwriting
Pools and Associations in the Statements of Admitted Assets, and
. cashflows in the Statements of Cash Flows.
Foreign Currency Translation
--------------------------------------------------------------------------------
Foreign currency denominated assets and liabilities are translated into U.S.
dollars using rates of exchange prevailing at the period end date. Revenues,
expenses, gains, losses and surplus adjustments, of non-U.S. operations are
translated into U.S. dollars based on weighted average exchange rate for the
period. All gains or losses due to translation adjustments recorded as
unrealized gains (losses) within Unassigned surplus in the Statements of
Liabilities, Capital and Surplus. All realized gains and losses due to exchange
differences between settlement date and transaction date resulting from foreign
currency transactions, not in support of foreign insurance operations, are
included in Net realized capital gains (losses) in the Statements of Operations
and Changes in Capital and Surplus.
Retirement Plans, Deferred Compensation, Postemployment Benefits and
Compensated Absences and Other Postretirement Benefit Plans
--------------------------------------------------------------------------------
The Company's employees participate in various AIG-sponsored defined benefit
pension and postretirement plans. AIG, as sponsor, is ultimately responsible
for the maintenance of these plans in compliance with applicable laws. The
Company is not directly liable for obligations under these plans. AIG charges
the Company and its insurance company affiliates pursuant to intercompany
expense sharing agreements; the expenses are then shared by the pool
participants in accordance with the pooling agreement.
In August 2015, AIG amended the defined benefit pension plans, to freeze
benefit accruals effective January 1, 2016. Consequently, these plans were
closed to new participants and current participants ceased earning additional
benefits as of December 31, 2015. However, interest credits continue to accrue
on the existing cash balance accounts and participants are continuing to accrue
years of service for purposes of vesting and early retirement eligibility and
subsidies as they continue to be employed by AIG and its subsidiaries.
AIG sponsors various defined contribution plans that provide for pre-tax salary
reduction contributions by its U.S. employees. The most significant plan is the
AIG Incentive Savings Plan, to which the Company makes matching contributions
of 100 percent of the first six percent of employee contributions, subject to
Internal Revenue Service imposed limitations. Effective January 1, 2016,
participants began receiving an additional fully vested, non-elective,
non-discretionary employer contribution equal to three percent of the
participant's annual base compensation for the plan year, paid each pay period
regardless of whether the participant currently contributes to the plan, and
subject to the Internal Revenue Service ("IRS")-imposed limitations.
The Company incurred employee related costs related to defined benefit and
defined contribution plans during 2018, 2017 and 2016 of $5, $10 and $10,
respectively.
Depreciation
--------------------------------------------------------------------------------
Certain assets, principally electronic data processing ("EDP") equipment,
software and leasehold improvements are designated as nonadmitted assets and
their net book value is deducted from surplus. EDP equipment primarily consists
of non-operating software and is depreciated over its useful life, generally
not exceeding five years. Leasehold improvements are amortized over the lesser
of the remaining lease term or the estimated useful life of the leasehold
improvement.
Income Taxes
--------------------------------------------------------------------------------
The Company files a consolidated U.S. federal income tax return with AIG. AIG
has more than 300 subsidiaries which form part of this tax return. A complete
listing of the participating subsidiaries is included in Note 8.
The Company is allocated U.S. federal income taxes based upon a tax sharing
agreement (the "Tax Sharing Agreement") with AIG, effective January 1, 2018,
and approved by the Company's Board of Directors. This agreement provides that
the Company shall incur tax results that would have been paid or received by
such company if it had filed a separate federal income tax return, with limited
exceptions.
-------------------------------------------------------------------------------
21 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Additionally, while the agreement described above governs the current and
deferred income tax recorded in the income tax provision, the amount of cash
that will be paid or received for U.S. federal income taxes may at times be
different. The terms of this agreement are based on principles consistent with
the allocation of income tax expense or benefit on a separate company basis,
except that:
. The sections of the Internal Revenue Code relating to the Base Erosion
Anti-abuse Tax ("BEAT") are applied, but only if the AIG consolidated
group is subject to BEAT in the Consolidated Tax Liability, and;
. The impact of Deferred Intercompany Transactions (as defined in Treas.
Reg. (S)1.1502-13(b)(1), if the "intercompany items" from such
transaction, as defined in Treas. Reg. (S)1.1502-13(b)(2), have not been
taken into account pursuant to the "matching rule" of Treas. Reg.
(S)1.1502-13(c)), are excluded from current taxation, provided however,
that the Company records the appropriate deferred tax asset and/or
deferred tax liability related to the gain or loss and includes such
gain or loss in its separate return tax liability in the subsequent tax
year when the deferred tax liability or deferred tax asset becomes
current.
The Company has an enforceable right to recoup federal income taxes in the
event of future net losses that it may incur or to recoup its net losses
carried forward as an offset to future net income subject to federal income
taxes.
Under the Tax Sharing Agreement, income tax liabilities related to uncertain
tax positions and tax authority audit adjustments ("TAAAs") shall remain with
the Company for which the income tax liabilities relate. Furthermore, if and
when such income tax liabilities are realized or determined to no longer be
necessary, the responsibility for any additional income tax liabilities,
benefits or rights to any refunds due, remains with the Company.
In accordance with Circular Letter 1979-33 issued by the NY DFS, AIG shall
establish and maintain an escrow account for amounts where the Company's
separate return liability exceeds the AIG consolidated tax liability. As of
December 31, 2018, the Company's separate return liability did not exceed the
AIG consolidated tax liability and therefore no amounts were maintained in
escrow.
Deferred Taxes
--------------------------------------------------------------------------------
The Company evaluates the recoverability of deferred tax assets and establishes
a valuation allowance, if necessary, to reduce the deferred tax asset to an
amount that is more likely than not to be realized ("adjusted gross deferred
tax asset"). The evaluation of the recoverability of the deferred tax asset and
the need for a valuation allowance requires management to weigh all positive
and negative evidence to reach a conclusion that it is more likely than not
that all or some portion of the deferred tax asset will not be realized. The
weight given to the evidence is commensurate with the extent to which it can be
objectively verified. The more negative evidence that exists, the more positive
evidence is necessary and the more difficult it would be to support a
conclusion that a valuation allowance is not needed.
The Company's framework for assessing the recoverability of deferred tax assets
requires it to consider all available evidence, including:
. the nature, frequency, and amount of cumulative financial reporting
income and losses in recent years;
. the sustainability of recent operating profitability of the Company's
subsidiaries;
. the predictability of future operating profitability of the character
necessary to realize the net deferred tax asset;
. the carryforward periods for the net operating loss, capital loss and
foreign tax credit carryforwards, including the effect of reversing
taxable temporary differences; and
. prudent and feasible actions and tax planning strategies that would be
implemented, if necessary, to protect against the loss of the deferred
tax asset.
The adjusted gross deferred tax asset is then assessed for statutory
admissibility. The reversing amount eligible for loss carryback or the amount
expected to be realized in three years is admissible, subject to the defined
surplus limitation. The remaining adjusted gross deferred tax asset can be
admitted to the extent of offsetting deferred tax liabilities.
2. Accounting Adjustments to Statutory Basis Financial Statements
--------------------------------------------------------------------------------
A. Change in Accounting Principles
--------------------------------------------------------------------------------
2018 and 2017 Changes
--------------------------------------------------------------------------------
The Company did not adopt any material change in accounting principles in 2018
or 2017.
-------------------------------------------------------------------------------
22 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
2016 Changes
--------------------------------------------------------------------------------
In 2016, the Company adopted the following change in the SSAP:
Going Concern: In June 2015, the Statutory Accounting Principles Working Group
adopted changes to SSAP No.1, , Disclosures of Accounting Policies, Risks &
Uncertainties, and Other Disclosures ("SSAP 1"), with a December 31, 2016
effective date, requiring management to evaluate whether there are conditions
that give rise to substantial doubt over the Company's ability to continue as a
going concern within one year from the financial statement issuance date.
Conditions that would give rise to substantial doubt ordinarily relate to the
Company's ability to meet its obligations as they become due. If substantial
doubt arises over the Company's ability to continue as a going concern, the
Company shall provide disclosure detailing management's evaluation and the
consideration of management's plans to alleviate any substantial doubt. The
adoption of this change did not have an effect on the Company's financial
condition, results of operations or cash flows.
B. Adjustments to Surplus
--------------------------------------------------------------------------------
During 2018, 2017 and 2016 the Company identified corrections that resulted in
after-tax statutory adjustments to beginning capital and surplus of $72, $38
and $66, respectively. In accordance with SSAP No. 3, Accounting Changes and
Corrections of Errors ("SSAP 3"), the corrections of errors have been reported
in the 2018, 2017 and 2016 statutory financial statements as adjustments to
Unassigned surplus. The impact of these corrections would have decreased the
2017 pre-tax income by $10 and decreased the 2016 pre-tax income by $20.
Management has concluded that the effects of these errors on the previously
issued financial statements were immaterial based on a quantitative and
qualitative analysis. The impact to surplus, assets and liabilities as of
January 1, 2018, 2017 and 2016 is presented in the following tables:
Policyholders' Total Admitted
2018 Adjustments Surplus Assets Total Liabilities
---------------- -------------- -------------- -----------------
Balance at December 31, 2017 $6,238 $25,638 $19,400
Adjustments to beginning Capital and Surplus:
Asset corrections 56 56 --
Liability corrections 6 -- (6)
Income tax corrections 10 10 --
------ ------- -------
Total adjustments to beginning Capital and
Surplus 72 66 (6)
------ ------- -------
Balance at January 1, 2018 as adjusted $6,310 $25,704 $19,394
====== ======= =======
An explanation for each of the adjustments for prior period corrections is
described below:
Asset corrections - The increase in net admitted assets is primarily the result
of a) an understatement in the carrying value of an investment impacting 2017
financials; b) deposit accounting not recorded within contract terms.
Liability corrections - The decrease in total liabilities is primarily the
result of a) a net decrease in unearned premium reserves on multi-year direct
policies; partially offset by b) an increase due to an over-cession of premiums
and losses on a specific program.
Income tax corrections - The increase in the tax assets is primarily the result
of a) corrections to prior period balances for adjustments to the current and
deferred tax assets and liabilities and b) the tax effect of the corresponding
change in asset realization and liability corrections.
-------------------------------------------------------------------------------
23 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
Policyholders' Total Admitted
2017 Adjustments Surplus Assets Total Liabilities
---------------- -------------- -------------- -----------------
Balance at December 31, 2016 $6,448 $29,684 $23,236
Adjustments to beginning Capital and Surplus:
Asset corrections 27 27 --
Liability corrections 3 -- (3)
Income tax corrections 8 8 --
------ ------- -------
Total adjustments to beginning Capital and Surplus 38 35 (3)
------ ------- -------
Balance at January 1, 2017 as adjusted $6,486 $29,719 $23,233
====== ======= =======
An explanation for each of the adjustments for prior period corrections is
described below:
Asset corrections - The increase in net admitted assets is primarily the result
of the recording of real estate step up gains.
Liability corrections - The decrease in total liabilities is primarily the
result of a) a decrease due to an over-accrual of insurance taxes, licenses and
fees; partially offset by b) an increase resulting from the understatement of
losses; c) an increase due to understatement of interest expense on
environmental funds held and d) an increase for direct business which was being
accounted for as Deposit Accounting in error.
Income tax corrections - The increase in the tax assets is primarily the result
of a) corrections to prior period balances for adjustments to the current and
deferred tax assets and liabilities and b) the tax effect of the corresponding
change in asset realization and liability corrections.
Policyholders' Total Admitted
2016 Adjustments Surplus Assets Total Liabilities
---------------- -------------- -------------- -----------------
Balance at December 31, 2015 $6,641 $26,103 $19,462
Adjustments to beginning Capital and Surplus:
Asset corrections 42 42 --
Liability corrections (3) -- 3
Income tax corrections 27 27 --
------ ------- -------
Total adjustments to beginning Capital and Surplus 66 69 3
------ ------- -------
Balance at January 1, 2016 as adjusted $6,707 $26,172 $19,465
====== ======= =======
An explanation for each of the adjustments for prior period corrections is
described below:
Asset corrections - The increase in net admitted assets is primarily the result
of a) an increase due to an overcharge of claims service fees related to an
internally developed system; partially offset by b) a decrease due to
understatement of the prior year expense allocation; and c) a decrease related
to unsupported ceded premiums.
Liability corrections - The increase in total liabilities is primarily the
result of a) an increase due to ceded losses reversed without consideration of
contract limits; b) an increase due to recording of unsupported ceded reserves;
and c) an increase resulting from losses understated on certain client
accounts; partially offset by d) a decrease related to an overstatement of
profit share between AIG PC Pool companies and AIG Warranty Guard Agency.
Income tax corrections - The increase in the tax assets is primarily the result
of a) corrections to prior period balances for adjustments to the current and
deferred tax assets and liabilities and b) the tax effect of the corresponding
change in asset realization and liability corrections.
-------------------------------------------------------------------------------
24 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
3. Investments
--------------------------------------------------------------------------------
A. Bond Investments
--------------------------------------------------------------------------------
The reconciliations from carrying value to fair value of the Company's bond
investments as of December 31, 2018 and 2017 are outlined in the tables below:
Gross Gross
Carrying Unrealized Unrealized Fair
December 31, 2018 Value Gains Losses Value
----------------- --------- ---------- ---------- ---------
U.S. governments $ 57 $ 1 $ -- $ 58
All other governments 258 1 (4) 255
States, territories and possessions 432 20 (3) 449
Political subdivisions of states, territories and possessions 382 13 (1) 394
Special revenue and special assessment obligations and all non-guaranteed
obligations of agencies and authorities and their political subdivisions 2,636 53 (27) 2,662
Industrial and miscellaneous 10,769 461 (113) 11,117
--------- -------- ----- ---------
Total $ 14,534 $ 549 $(148) $ 14,935
========= ======== ===== =========
Gross Gross
Carrying Unrealized Unrealized Fair
December 31, 2017 Value Gains Losses Value
----------------- --------- ---------- ---------- ---------
U.S. governments $ 109 $ 2 $ -- $ 111
All other governments 207 1 (1) 207
States, territories and possessions 664 41 (1) 704
Political subdivisions of states, territories and possessions 752 36 (1) 787
Special revenue and special assessment obligations and all non-guaranteed
obligations of agencies and authorities and their political subdivisions 2,944 101 (13) 3,032
Industrial and miscellaneous 10,477 565 (52) 10,990
--------- -------- ---- ---------
Total $ 15,153 $ 746 $(68) $ 15,831
========= ======== ==== =========
The carrying values and fair values of bonds at December 31, 2018, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
certain obligations with or without call or prepayment penalties.
Carrying Fair
December 31, 2018 Value Value
----------------- ---------- ----------
Due in one year or less $ 487 $ 487
Due after one year through five years 2,557 2,567
Due after five years through ten years 1,882 1,873
Due after ten years 1,959 1,986
Structured securities 7,693 8,065
---------- ----------
Total $ 14,578 $ 14,978
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25 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2018 and 2017 and for
years ended December 31, 2018, 2017 and 2016.
American Home Assurance Company
Statutory Basis Financial Statements
(Dollars in Millions)
--------------------------------------------------------------------------------
B. Mortgage Loan Investments
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The minimum and maximum lending rates for mortgage loans during 2018 were:
Minimum Maximum
Category Lending Rate % Lending Rate %
-------- -------------- --------------
Office 4.3% 5.0%
Industrial 3.0% 4.5%
Multi-Family 2.1% 4.3%
Residential 2.9% 5.2%
The maximum percentage of any one loan to the value of security at the time of
the loan, exclusive of insured or guaranteed or purchase money mortgages was
95 percent. The Company's mortgage loan portfolio is current as to payments of
principal and interest, for both periods presented. There were no significant
amounts of nonperforming mortgages (defined as those loans where payment of
contractual principal or interest is more than 90 days past due) during any of
the periods presented. The Company did not have any advanced amounts for taxes
or assessments. The following table details an analysis of mortgage loans as of
December 31, 2018 and 2017:
Residential Commercial
----------------- ---------------------------
Farm Insured All Other Insured All Other Mezzanine Total
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