-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjZbomFCz7zJXUX1TSHlFXotg3S+7j8vclepk4Zz9UpY+R8dvZnMllJG5BdgMT0n 4aNxXyRE1We9xq/wicldeg== 0000945094-02-000442.txt : 20020514 0000945094-02-000442.hdr.sgml : 20020514 ACCESSION NUMBER: 0000945094-02-000442 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN BENEFIT LIFE CO CENTRAL INDEX KEY: 0000910739 IRS NUMBER: 470766853 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-59765 FILM NUMBER: 02646836 BUSINESS ADDRESS: STREET 1: P O BOX 80469 STREET 2: 2940 SOUTH 84TH ST CITY: LINCOLN STATE: NE ZIP: 68501 BUSINESS PHONE: 4024794061 MAIL ADDRESS: STREET 1: PO BOX 80469 STREET 2: 206 S 13TH STREET CITY: LINCOLN STATE: NE ZIP: 68501 10-Q 1 lbl1q.txt LINCOLN BENEFIT LIFE COMPANY 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format. [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 333-66452 LINCOLN BENEFIT LIFE COMPANY (Exact name of registrant as specified in its charter) Nebraska 47-0221457 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2940 South 84th Street Lincoln, Nebraska 68506-4142 (Address of principal executive offices) (zip code) Registrant's telephone number, including are code: 1-800-525-9287 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No As of April 30, 2002, Registrant had 25,000 shares of common capital stock outstanding, par value $100 per share all of which shares are held by Allstate Life Insurance Company. LINCOLN BENEFIT LIFE COMPANY INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 31, 2002
PART 1. FINANCIAL INFORMATION Item 1. Condensed Statements of Operations for the Three Months Ended March 31, 2002 and 2001 (unaudited) 3 Condensed Statements of Financial Position as of March 31, 2002 (unaudited) and December 31, 2001 4 Condensed Statements of Cash Flows for the Three Month Periods Ended March 31, 2002 and 2001 (unaudited) 5 Notes to Condensed Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature Page 15
2 PART 1. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS LINCOLN BENEFIT LIFE COMPANY CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 2002 2001 ---- ---- (unaudited) REVENUES Net investment income $ 2,953 $ 3,137 Realized capital gains and losses 450 (844) ------- ------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 3,403 2,293 Income tax expense 1,189 800 ------- ------- NET INCOME $ 2,214 $ 1,493 ======= =======
See notes to condensed financial statements. 3 LINCOLN BENEFIT LIFE COMPANY CONDENSED STATEMENTS OF FINANCIAL POSITION
MARCH 31, DECEMBER 31, 2002 2001 ---- ---- (IN THOUSANDS, EXCEPT PAR VALUE DATA) (unaudited) ASSETS Investments Fixed income securities, at fair value (amortized cost $164,283 and $179,124) $ 169,370 $ 186,709 Short-term 24,965 6,856 ------------ ------------ Total investments 194,335 193,565 Cash 85,128 43,796 Reinsurance recoverable from Allstate Life Insurance Company, net 9,943,065 9,564,440 Reinsurance recoverable from non-affiliates, net 473,752 458,563 Receivable from affiliate, net - 17,027 Other assets 3,142 2,924 Separate Accounts 1,621,150 1,565,708 ------------ ------------ TOTAL ASSETS $ 12,320,572 $ 11,846,023 ============ ============ LIABILITIES Contractholder funds $ 9,638,144 $ 9,287,599 Reserve for life-contingent contract benefits 769,994 724,044 Current income taxes payable 4,865 3,645 Deferred income taxes 5,281 6,187 Payable to affiliates, net 27,441 - Other liabilities and accrued expenses 64,503 70,237 Separate Accounts 1,621,150 1,565,708 ------------ ------------ TOTAL LIABILITIES 12,131,378 11,657,420 ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4) SHAREHOLDER'S EQUITY Common stock, $100 par value, 30,000 shares authorized, 25,000 shares issued and outstanding 2,500 2,500 Additional capital paid-in 126,750 126,750 Retained income 56,637 54,423 Accumulated other comprehensive income: Unrealized net capital gains and losses 3,307 4,930 ------------ ------------ Total accumulated other comprehensive income 3,307 4,930 ------------ ------------ TOTAL SHAREHOLDER'S EQUITY 189,194 188,603 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 12,320,572 $ 11,846,023 ============ ============
See notes to condensed financial statements. 4 LINCOLN BENEFIT LIFE COMPANY CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, --------- (IN THOUSANDS) 2002 2001 ---- ---- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,214 $ 1,493 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and other non-cash items (71) (130) Realized capital gains and losses (450) 844 Changes in: Life-contingent contract benefits and contractholder funds, net of reinsurance recoverables 2,681 3,237 Income taxes payable 1,189 801 Receivable/payable to affiliates, net 44,468 (9,874) Other operating assets and liabilities (6,053) 15,265 ------- ------- Net cash provided by operating activities 43,978 11,636 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed income securities Proceeds from sales 11,087 3,175 Investment collections 6,289 1,944 Investments purchases (1,913) (8,245) Change in short-term investments, net (18,109) 793 ------- ------- Net cash used in investing activities (2,646) (2,333) ------- ------- NET INCREASE IN CASH 41,332 9,303 CASH AT BEGINNING OF PERIOD 43,796 76 ------- ------- CASH AT END OF PERIOD $ 85,128 $ 9,379 ======== =======
See notes to condensed financial statements. 5 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONDENSED FINANCIAL STATEMENS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed financial statements include the accounts of Lincoln Benefit Life Company ("the Company"), a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"). The condensed financial statements and notes as of March 31, 2002, and for the three month periods ended March 31, 2002 and 2001, are unaudited. The condensed financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Lincoln Benefit Life Company Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. To conform with the 2002 presentation, certain prior year amounts have been reclassified. 2. REINSURANCE The Company has reinsurance agreements whereby premiums, contract charges, credited interest, policy benefits and expenses are ceded to ALIC and certain non-affiliates, and reflected net of such reinsurance in the condensed statements of operations. Reinsurance recoverable and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the condensed statements of financial position. The Company continues to have primary liability as the direct insurer for risks reinsured. Investment income earned on the assets which support contractholder funds and the reserve for life-contingent contract benefits is not included in the Company's condensed financial statements as those assets are owned and managed by ALIC under terms of the reinsurance agreements. The following table summarizes amounts ceded to ALIC and non-affiliates under reinsurance agreements. The effects of reinsurance on premiums written and earned and contract charges are as follows:
THREE MONTHS ENDED MARCH 31, 2002 2001 ---- ---- (IN THOUSANDS) PREMIUMS AND CONTRACT CHARGES Direct $ 145,809 $ 101,071 Assumed - 1 Ceded Affiliate (88,485) (57,653) Non-affiliate (57,324) (43,419) --------- --------- Premiums and contract charges, net of reinsurance $ - $ - ========= ========= The effects of reinsurance on credited interest, policy benefits and other expenses are as follows: THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 2002 2001 ---- ---- CREDITED INTEREST, POLICY BENEFITS AND OTHER EXPENSES Direct $ 284,327 $ 188,695 Assumed - - Ceded Affiliate (207,318) (135,747) Non-affiliate (77,009) (52,948) --------- --------- Credited interest, policy benefits and other expenses, net of reinsurance $ - $ - ========= =========
6 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONDENSED FINANCIAL STATEMENS (UNAUDITED) 3. COMPREHENSIVE INCOME The components of other comprehensive income on a pretax and after-tax basis are as follows:
THREE MONTHS ENDED MARCH 31, ------------------------------------------------------------------ (IN THOUSANDS) 2002 2001 --------------------------------- ----------------------------- After- After- Pretax Tax tax Pretax Tax tax ------ --- ----- ------ --- ------ UNREALIZED CAPITAL GAINS AND LOSSES: Unrealized holding (losses) gains arising during the period $ (2,048) $ 717 $ (1,331) $ 1,845 $ (646) $ 1,199 Less: reclassification adjustments 450 (158) 292 (844) 295 (549) -------- ------ -------- ------- ------ ------- Unrealized net capital (losses) gains (2,498) 875 (1,623) 2,689 (941) 1,748 -------- ------ --------- ------- ------ ------- Other comprehensive (loss) income $ (2,498) $ 875 (1,623) $ 2,689 $ (941) 1,748 ======== ======= ======= ====== Net income 2,214 1,493 -------- ------- Comprehensive income $ 591 $ 3,241 ========= =======
4. REGULATION AND LEGAL PROCEEDINGS The Company's business is subject to the effects of a changing social, economic and regulatory environment. State and federal regulatory initiatives have varied and have included employee benefit regulations, removal of barriers preventing banks from engaging in the securities and insurance businesses, tax law changes affecting the taxation of insurance companies, the tax treatment of insurance products and its impact on the relative desirability of various personal investment vehicles and the overall expansion of regulation. The ultimate changes and eventual effects, if any, of these initiatives are uncertain. From time to time the Company is involved in pending and threatened litigation in the normal course of its business in which claims for monetary damages are asserted. In the opinion of management, the ultimate liability, if any, in one or more of these actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial position of the Company. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 The following discussion highlights significant factors influencing results of operations and changes in financial position of Lincoln Benefit Life Company (the "Company"). It should be read in conjunction with the condensed financial statements and related notes thereto found under Part I Item 1 contained herein and with the discussion, analysis, financial statements and notes thereto in Part I Item 1 and Part II Items 7 and 8 of the Lincoln Benefit Life Company Annual Report on Form 10-K for the year ended December 31, 2001. OVERVIEW The Company, a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"), markets a diversified group of products to meet consumer's lifetime needs in the areas of protection and retirement solutions through independent insurance agents and broker/dealers, including master brokerage agencies. Products distributed through independent insurance agents include term life insurance; whole life; universal life; variable universal life; single premium life; fixed annuities, including market value adjusted annuities and equity-indexed annuities; immediate annuities; variable annuities and long-term care products. Variable annuities and variable universal life products are also distributed through independent broker/dealers. ALFS, Inc. ("ALFS") is the principal underwriter for certain Lincoln Benefit products, such as variable universal life, variable annuities and market value adjusted annuities. ALFS is a wholly owned subsidiary of ALIC and is a registered broker/dealer under the Securities Exchange Act of 1934. The Company has identified itself as a single segment entity. The assets and liabilities related to variable contracts are legally segregated and reflected as Separate Accounts. The assets of the Separate Accounts are carried at fair value. Separate Accounts liabilities represent the contractholders' claims to the related assets and are carried at the fair value of the assets. Investment income and realized capital gains and losses of the Separate Accounts accrue directly to the contractholders and therefore, are not included in the Company's condensed statements of operations. Revenues to the Company from the Separate Accounts consist of contract maintenance and administration fees and mortality, surrender and expense charges all of which are ceded to ALIC. Absent any contract provision wherein the Company guarantees either a minimum return of account value upon death or annuitization, variable annuity and variable life contractholders bear the investment risk that the Separate Accounts' funds may not meet their stated objectives. RESULTS OF OPERATIONS
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, ----------------------------------- 2002 2001 ---------------- --------------- Net investment income $ 2,953 $ 3,137 Realized capital gains and losses 450 (844) Income tax expense 1,189 800 ------- ------- Net income $ 2,214 $ 1,493 ======= =======
The Company has reinsurance agreements whereby premiums, contract charges, credited interest, policy benefits and expenses are ceded to ALIC and certain non-affiliates, and reflected net of such reinsurance in the condensed statements of operations. The Company's results of operations include net investment income and realized capital gains and losses earned on the assets of the Company that are not transferred under the reinsurance agreements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 Net income for the first three months of 2002 increased 48.3% to $2.2 million compared to the same period last year, due to realized capital gains during the first three months of 2002 partially offset by a decrease in net investment income. Net investment income for the first three months of 2002 decreased 5.9% to $3.0 million compared to the same period last year, due to lower investment yields partially offset by increased investment balances. Investment balances, excluding Separate Accounts and unrealized gains and losses on fixed income securities, increased 5.3% to $189.2 million at March 31, 2002 from $179.8 million at March 31, 2001. This increase was due to positive cash flows from operations. Realized capital gains, after-tax, were $293 thousand for the first three months of 2002 compared to realized capital losses of $549 thousand for the same period last year. Realized capital gains and losses result from the sale of fixed income securities. Period to period fluctuations in realized capital gains and losses are the result of timing of sales decisions reflecting management's decision on positioning the portfolio, assessments of individual securities, overall market conditions and write-downs when an assessment is made by the Company that a decline in value of a security is other than temporary. FINANCIAL POSITION
(IN THOUSANDS) MARCH 31, DECEMBER 31, 2002 2001 ---- ---- Fixed income securities (1) $ 169,370 $ 186,709 Short-term investments 24,965 6,856 ----------- ----------- Total investments $ 194,335 $ 193,565 =========== =========== Cash $ 85,128 $ 43,796 =========== =========== Reinsurance recoverable from ALIC, net $ 9,943,065 $ 9,564,440 =========== =========== Contractholder funds $ 9,638,144 $ 9,287,599 =========== =========== Reserve for life-contingent contract benefits $ 769,994 $ 724,044 =========== =========== Separate Accounts assets and liabilities $ 1,621,150 $ 1,565,708 =========== ===========
(1) Fixed income securities are carried at fair value. Amortized cost for these securities was $164.3 million and $179.1 million at March 31, 2002 and December 31, 2001, respectively. Total investments were $194.3 million at March 31, 2002 compared to $193.6 million at December 31, 2001. The increase was due to positive cash flows generated from operations offset in part by fewer unrealized gains on fixed income securities. Unrealized net capital gains on fixed income securities were $5.1 million at March 31, 2002 compared to $7.6 million at December 31, 2001. Investments at March 31, 2002, excluding unrealized gains on fixed income securities, grew 1.8% from December 31, 2001. At March 31, 2002, 97.9% of the Company's fixed income securities portfolio was rated investment grade, which is defined by the Company as a security having a National Association of Insurance Commissioners ("NAIC") rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company internal rating. At March 31, 2002, cash was $85.1 million compared to $43.8 million at December 31, 2001. Cash increased due to a change in the settlement process for intercompany balances. At March 31, 2002, Contractholder funds increased to $9.64 billion from $9.29 billion at December 31, 2001 as the result of additional deposits from fixed annuities and credited interest that were partially offset by surrenders and withdrawals. Reserves for life-contingent contract benefits increased $46.0 million to $770.0 million at March 31, 2002 resulting from increased sales of term products that was partially offset by benefits paid. Reinsurance recoverable from ALIC increased correspondingly by $378.6 million due to the increase in contractholder funds. Separate Accounts assets and liabilities increased 3.5% to $1.62 billion at March 31, 2002 as compared to the December 31, 2001 balance. The increases were primarily attributable to additional sales of variable annuity contracts and transfers from the fixed account option contract to variable Separate Accounts funds partially offset by surrenders and withdrawals and expense charges. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 CAPITAL RESOURCES AND LIQUIDITY CAPITAL RESOURCES The company's capital resources consist of shareholder's equity. The following table summarizes the capital resources:
MARCH 31, DECEMBER 31, (IN THOUSANDS) 2002 2001 ---- ---- Common stock and retained income $ 185,887 $ 183,673 Other comprehensive income 3,307 4,930 ---------- ----------- Total shareholder's equity $ 189,194 $ 188,603 ========== ===========
SHAREHOLDER'S EQUITY Shareholder's equity increased for March 31, 2002 due to net income partially offset by a decrease in unrealized net capital gains and losses. DEBT The Company had no outstanding debt at March 31, 2002 and December 31, 2001. The Company has entered into an intercompany loan agreement with the Corporation. The amount of funds available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. No amounts were outstanding under the intercompany loan agreement at March 31, 2002 and December 31, 2001. The Corporation uses commercial paper borrowings and can use bank lines of credit to fund intercompany borrowings. FINANCIAL RATINGS AND STRENGTHS Financial strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies and, generally, may be expected to have an effect on an insurance company's sales. On an ongoing basis, rating agencies review the financial performance and condition of insurers. A multiple level downgrade, while not expected, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company shares its financial strength ratings with its parent, ALIC, due to the 100% reinsurance agreements. The Company's current financial strength ratings are listed below:
RATING AGENCY RATING RATING STRUCTURE ------------- ------ ---------------- Moody's Investors Service, Inc. Aa2 Second highest of nine ratings ("Excellent") categories and mid-range within the category based on modifiers (e.g., Aa1, Aa2 and Aa3 are "Excellent") Standard & Poor's Ratings Services AA+ Second highest of nine ratings ("Very Strong") categories and highest within the category based on modifiers (e.g., AA+, AA and AA- are "Very Strong") A.M. Best Company, Inc. A+ Highest of nine ratings categories ("Superior") and second highest within the category based on modifiers (e.g., A++ and A+ are "Superior" while A and A- are "Excellent")
In February 2002, Standard & Poor's affirmed its December 31, 2001 ratings. Standard & Poor's revised its outlook for ALIC and its rated subsidiaries and affiliates to "negative" from "stable". This revision is part of an ongoing life insurance industry review recently initiated by Standard & Poor's. Moody's and A.M. Best reaffirmed their ratings and outlook for the Company and ALIC. LIQUIDITY Under the terms of reinsurance agreements, premiums and deposits, excluding those relating to Separate Accounts, are transferred primarily to ALIC, which maintains the investment portfolios supporting the Company's products. Payments of policyholder claims, benefits, contract maturities, 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 contract surrenders and withdrawals and certain operating costs, excluding those relating to Separate Accounts, are also reimbursed primarily by ALIC, under the terms of the reinsurance agreements. The Company continues to have primary liability as a direct insurer for risks reinsured. The Company's ability to meet liquidity demands is dependent on ALIC's ability to meet those demands. ALIC's financial strength was rated Aa2, AA+, and A+ by Moody's, Standard & Poor's and A.M. Best, respectively, at March 31, 2002. The primary sources of funds for the Company are collection of principal and interest from the investment portfolio, capital contributions from ALIC and intercompany loans from the Corporation. The primary uses of these funds are to purchase investments, pay costs associated with the maintenance of the Company's investment portfolio, income taxes, dividends to ALIC, and the repayment of intercompany loans from the Corporation. FORWARD-LOOKING STATEMENTS AND RISK FACTORS This document contains "forward-looking statements" that anticipate results based on management's plans are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like "plans," "expects," "will," "anticipates," "estimates," "intends," "believes," "likely," and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, regulatory approvals, market position, expenses, financial results and reserves. Forward-looking statements are based on management's current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate. However, we believe that our forward-looking statements are based on reasonable, current expectations and assumptions. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments. If the expectations or assumptions underlying our forward-looking statements prove inaccurate or if risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. In addition to the normal risks of business, the Company is subject to significant risk factors, including those listed below which apply to it as an insurance business and a provider of other financial services. o There is uncertainty involved in estimating the availability of reinsurance and the collectibility of reinsurance and recoverables. This uncertainty arises from a number of factors, including whether losses meet the qualifying conditions of the reinsurance contracts and if the reinsurers have the financial capacity and willingness to pay. o Currently, the Corporation is examining the potential exposure, if any, of its insurance operations from acts of terrorism. The Corporation is also examining how best to address this exposure, if any, considering the interests of policyholders, shareholders, the lending community, regulators and others. The Company generally does not have exclusions for terrorist events included in its life insurance policies. In the event that a terrorist act occurs, the Company may be adversely impacted, depending on the nature of the event. With respect to the Company's investment portfolio, in the event that commercial insurance coverage for terrorism becomes unavailable or very expensive, there could be significant adverse impacts on some portion of the Company's portfolio, particularly in sectors such as airlines and real estate. For example, certain debt obligations might be adversely affected due to the inability to obtain coverage to restore the related real estate or other property, thereby creating the potential for increased default risk. o Changes in market interest rates can have adverse effects on the Company's investment portfolio and investment income. Increasing market interest rates have an adverse impact on the value of the investment portfolio, for example, by decreasing unrealized capital gains on fixed income securities. In addition, increases in market interest rates as compared to rates offered on some of the Company's products could make those products less attractive and lead to lower sales and/or increase the level of surrenders on these products. Declining market interest rates could have an adverse impact on the Company's investment income as the Company reinvests proceeds from positive cash flows from operations and proceeds from maturing and called investments into new investments that could be yielding less than the portfolio's average rate. o The impact of decreasing Separate Accounts balances resulting from volatile market conditions, underlying fund performance and sales management performance could cause contract charges realized by the Company, as well as ALIC, to decrease and lead to an increase of exposure to pay guaranteed minimum income and death benefits. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 o The Company amortizes deferred policy acquisition costs ("DAC") related to contractholder funds in proportion to gross profits over the estimated lives of the contract periods. Periodically, the Company updates the assumptions underlying the gross profits, which include estimated future fees, investment margins and expenses, in order to reflect actual experience. Updates to these assumptions result in adjustments to the cumulative amortization of DAC. These adjustments may have a material effect on results of operations. DAC and any related adjustments are ceded to ALIC. o In order to manage interest rate risk, from time to time the Company adjusts the effective duration of assets in the investment portfolio. Those adjustments may have an impact on the value of the investment portfolio and on investment income. o It is possible that the assumptions and projections used by the Company in establishing prices for the guaranteed minimum death benefits and guaranteed minimum income benefits on variable annuities, particularly assumptions and projections about investment performance, do not accurately anticipate the level of costs the Company will ultimately incur and cede to ALIC in providing those benefits. o Management believes the reserves for life-contingent contract benefits are adequate to cover ultimate policy benefits, despite the underlying risks and uncertainties associated with their determination when payments will not occur until well into the future. Reserves are based on many assumptions and estimates, including estimated premiums received over the assumed life of the policy, the timing of the event covered by the insurance policy, the amount of contract benefits to be paid and the investment returns on the assets purchased with the premium received. The Company periodically reviews and revises its estimates. If future experience differs from assumptions, it may have a material impact on results of operations ceded to ALIC. o Under current U.S. tax law and regulations, deferred and immediate annuities and life insurance, including interest-sensitive products, receive favorable policyholder tax treatment. Any legislative or regulatory changes that adversely alter this treatment are likely to negatively affect the demand for these products. In addition, recent changes in the federal estate tax laws will affect the demand for the types of life insurance used in estate planning. o The Company distributes its products under agreements with other members of the financial services industry that are not affiliated with the Company. Termination of one or more of these agreements due to, for example, changes in control of any of these entities, could have a detrimental effect on the Company's sales. This risk may be exacerbated due to the enactment of the Gramm-Leach-Bliley Act of 1999, which eliminated many federal and state law barriers to affiliations among banks, securities firms, insurers and other financial service providers. o While positive operating cash flows are expected to continue to meet the Corporation's liquidity requirements, the Corporation's liquidity could be constrained by a catastrophe which results in extraordinary losses, a downgrade of the Corporation's current long-term debt rating of A1 and A+ (from Moody's and Standard & Poor's, respectively) to non-investment grade status of below Baa3/BBB-, a downgrade in AIC's financial strength rating from Aa2, AA and A+ (from Moody's, Standard & Poor's and A.M. Best, respectively) to below Baa/BBB/B, or a downgrade in ALIC's or the Company's financial strength rating from Aa2, AA+ and A+ (from Moody's, Standard & Poor's and A.M. Best, respectively) to below Aa3/AA-/A-. In the event of a downgrade of the Corporation's ratings, ALIC and its rated subsidiaries could also experience a similar downgrade. o The events of September 11 and the resulting disruption in the financial markets revealed weaknesses in the physical and operational infrastructure that underlies the U.S. and worldwide financial systems. Those weaknesses did not impair the Company's liquidity in the wake of September 11. However, if an event of similar or greater magnitude occurs in the future and if the weaknesses in the physical and operational infrastructure of the U.S. and worldwide financial systems are not remedied, the Company could encounter significant difficulties in transferring funds, buying and selling securities and engaging in other financial transactions that support its liquidity. o Financial strength ratings have become an increasingly important factor in establishing the competitive position of insurance companies and, generally, may be expected to have an effect on an insurance company's business. On an ongoing basis, rating agencies review the financial performance and condition of insurers. A multiple level downgrade of either the Company or ALIC, while not expected, could have a material adverse effect on the Company's sales, including the competitiveness of the Company's product offerings, its ability to market products, and its financial condition and results of operations. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 o State insurance regulatory authorities require insurance companies to maintain specified levels of statutory capital and surplus. In addition, competitive pressures require the Company to maintain financial strength ratings. These restrictions affect the Company's ability to pay shareholder dividends to ALIC and to use its capital in other ways. o Following enactment of the Gramm-Leach-Bliley Act of 1999, federal legislation that allows mergers that combine commercial banks, insurers and securities firms, state insurance regulators have been collectively participating in a reexamination of the regulatory framework that currently governs the United States insurance business in an effort to determine the proper role of state insurance regulation in the U. S. financial services industry. We cannot predict whether any state or federal measures will be adopted to change the nature or scope of the regulation of the insurance business or what affect any such measures would have on the Company. o The Gramm-Leach-Bliley Act of 1999 permits mergers that combine commercial banks, insurers and securities firms under one holding company. Until passage of the Gramm-Leach-Bliley Act, the Glass Steagall Act of 1933 had limited the ability of banks to engage in securities-related businesses and the Bank Holding Company Act of 1956 had restricted banks from being affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act, bank holding companies may acquire insurers and insurance holding companies may acquire banks. In addition, grand-fathered unitary thrift holding companies, including The Allstate Corporation, may engage in activities that are not financial in nature. The ability of banks to affiliate with insurers may materially adversely affect all of the Company's product lines by substantially increasing the number, size and financial strength of potential competitors. o In some states, mutual insurance companies can convert to a hybrid structure known as a mutual holding company. This process converts insurance companies owned by their policyholders to become stock insurance companies owned (through one or more intermediate holding companies) partially by their policyholders and partially by stockholders. Also, some states permit the conversion of mutual insurance companies into stock insurance companies (demutualization). The ability of mutual insurance companies to convert to mutual holding companies or to demutualize may materially adversely affect all of our product lines by substantially increasing competition for capital in the financial services industry. 13 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The discussion "Regulation and Legal Proceedings" in Part I, Item 1, Note 4 of this Form 10-Q is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits An Exhibit Index has been filed as part of this report on page E-1 (b) Reports on Form 8-K None. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated May 13, 2002. LINCOLN BENEFIT LIFE COMPANY - -------------------------------------------------------------- (Registrant) /s/THOMAS J. WILSON, II Thomas J. Wilson, II CHAIRMAN AND CHIEF EXECUTIVE OFFICER (Authorized Officer of Registrant) /s/SAMUEL H. PILCH Samuel H. Pilch GROUP VICE PRESIDENT AND CONTROLLER (Chief Accounting Officer) 15 Exhibit Index
Exhibit No. Description 3(i) Amended and Restated Articles of Incorporation of Lincoln Benefit Life Company dated September 26, 2000. 3(ii) Amended and Restated By-Laws of Lincoln Benefit Life Company dated July 23, 1997. Incorporated herein by reference to Exhibit 6(b) to Lincoln Benefit Life Variable Life Account Registration Statement No. 333-47717 on Form S-6 filed March 11, 1998. 10.1 Service and Expense Agreement among Allstate Insurance Company and The Allstate Corporation and Certain Insurance Subsidiaries dated January 1, 1999. Incorporated herein by reference to Exhibit 10.2 to Northbrook Life Insurance Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.2 Investment Management Agreement and Amendment to Certain Service and Expense Agreements Among Allstate Investments, LLC and Allstate Insurance Company and The Allstate Corporation and Certain Affiliates effective as of January 1, 2002. Incorporated herein by reference to Exhibit 10.3 to Northbrook Life Insurance Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.3 Tax Sharing Agreement dated as of November 12, 1996 among The Allstate Corporation and certain affiliates. Incorporated herein by reference to Exhibit 10.4 to Northbrook Life Insurance Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.4 Cash Management Services Master Agreement between Allstate Insurance Company and Allstate Bank (fka Allstate Federal Savings Bank) dated March 16, 1999. 10.5 Amendment No.1 to Cash Management Services Master Agreement effective January 5, 2001.
E-1 EX-3 3 exh3i.txt AMENDED AND RESTATED ARTICLES OF INCORPORATION Exhibit 3(i) AMENDED AND RESTATED ARTICLES OF INCORPORATION OF LINCOLN BENEFIT LIFE COMPANY September 26, 2000 ARTICLE I Name and Location Section 1. The name of this Corporation shall be LINCOLN BENEFIT LIFE COMPANY, and its principal place of business shall be in the City of Lincoln, Lancaster County, Nebraska. Section 2. The principal office of the Corporation shall be located at 2940 South 84th Street, Lincoln, Nebraska. ARTICLE II Nature of Business Section 2. The nature of the business to be transacted, and the objects and purposes of the Company are: (a) To make insurance upon the lives of persons, including endowments and annuities and every insurance pertaining thereto and disability benefits. (b) To make insurance against loss or expense resulting from the sickness of the insured, or from bodily injury or death of the insured by accident, or both, and every insurance pertaining thereto, including quarantine. Section 2. The Company may issue every kind of insurance permitted by the Statutes of the State of Nebraska, and any amendments thereto. Section 3. The Company may issue all types of life insurance and sickness and accident insurance permitted by the laws of the State of Nebraska, and any amendments thereto, to individuals, to "groups of persons" and to "groups of insureds." Section 4. The Company, in addition to the powers herein conferred, shall have all the privileges and powers, and may engage in any activity, permitted insurance corporations organized under the laws of the State of Nebraska; and may do and perform all and every lawful act required as deemed expedient for the conduct of its business, the ownership of its property, or the maintenance, perpetuity, prosperity or welfare of the Company. Section 5. The Company shall be authorized to establish separate accounts for amounts which, pursuant to applicable contracts, are paid to the Company in connection with pension, retirement or profit sharing plans or annuities. The income, if any, and the gains or losses, realized or unrealized, on each such account may be credited to or charged against the amount allocated to such account in accordance with such contract without regard to other income, gains or losses of the Company. ARTICLE III Investments The Company shall be authorized to invest its funds in a manner not prohibited by the laws of the State of Nebraska. ARTICLE IV Additional Powers Section 1. The Board of Directors may from time to time vote to indemnify and reimburse any director or officer or former director or officer of the corporation, or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, his or her heirs, estate or personal representatives, for any loss, cost or expense he or she may suffer, including court costs, attorneys' fees and incidental expenses, and further including the amount of any payment properly made to settle or compromise any proceedings in which such director or officer is made a party to any legal proceedings, including appeals therefrom, because of his or her being or having been a director or officer of the Company. Provided, however, the directors shall have no power to indemnify or reimburse a director or officer or former director or officer of the Corporation in any cause in which he or she shall finally be adjudged in such proceedings to be liable for negligence or misconduct in the performance of his or her duties as such officer or director or former director or officer. The foregoing right of indemnity and reimbursement shall not be exclusive of other rights to which a director or officer may be entitled by law, agreement, vote of stockholders, or otherwise. ARTICLE V Plan and Capital Stock Section 1. The Company shall do business upon the stock legal reserve plan. Section 2. The authorized capital stock of this Company shall be $3,000,000 divided into 30,000 shares of a par value of $100 each. Section 3. The stock shall be transferable only by the actual delivery of the stock certificate or certificates properly endorsed, and the transfer duly recorded on the stock transfer books of the Company. The Board of Directors, after an affirmative vote at an annual or special shareholders' meeting of at least one-half of the outstanding shares, shall be authorized and empowered to issue and dispose of all or any of the authorized but unissued shares of the capital stock of the Company, at not less than par, from time to time as it may determine to be in the best interests of the Company and the stockholders thereof. ARTICLES VI Time of Commencement The Corporation shall begin transaction of business under these articles when the same have been filed and approved according to the laws of the State of Nebraska, and shall have perpetual existence, unless sooner resolved by or in accordance with the laws of the State of Nebraska. ARTICLE VII Property of Shareholders The private property of the shareholders shall not be subject to the debts of the Corporation. The shares of the Corporation shall be fully paid and nonassessable. ARTICLE VIII Officers and Directors Section 1. The Board of Directors shall consist of not less than five (5) nor more than twenty-one (21) persons. At each annual meeting of the stockholders the number to be elected and their election shall take place as provided by the By-Laws of the Company. The personnel of the directors shall be made up of qualified persons, as provided under the laws of the State of Nebraska. Section 2. The Board of Directors shall have the general management and control of the business of the Company. Section 3. The officers of the Company shall consist of a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and such other officers as may be provided for in the By-Laws, and all the officers shall be elected by the Board of Directors in such manner and for such terms as the By-Laws may prescribe. ARTICLE IX Annual Meeting of the Stockholders Section 1. The stockholders shall meet annually on a date prescribed in the By-Laws at the home office of the Company for the purpose of electing directors and transacting such other business as may properly come before the stockholders. Section 2. Each stockholder shall have the right to vote in person or by proxy, and shall be entitled to one vote for each share of stock held by him or her according to the stock transfer books of the Company at the annual meetings and at all special meetings legally called. They By-Laws of the Company shall provide a date when the stock transfer books of the Company shall be closed for the purposes of determining the stockholders of record for the annual or special meeting to be held. ARTICLE X Amendments Amendments to these Articles of Incorporation shall be adopted by two-thirds vote of all the directors, thereafter approved by the Department of Insurance, and thereafter approved by two-thirds vote of all the stock voting in person or by proxy at that annual or legally called special meeting. Notice of such proposed amendments to these Articles of Incorporation shall be sent to all stockholders of record as required in the By-Laws of the Company. ARTICLE XI Corporate Seal The corporate seal of the Company shall contain the words, "Lincoln Benefit Life Company", surrounding the words "Corporate Seal". LINCOLN BENEFIT LIFE COMPANY By: ________________________________ B. Eugene Wraith, President Attest: - ----------------------------- Carol S. Watson, Secretary SEAL EX-10 4 exh10.txt AGREEMENTS Exhibit 10.4 ALLSTATE FEDERAL SAVINGS BANK CASH MANAGEMENT SERVICES MASTER AGREEMENT This AGREEMENT is made as of March 16, 1999 between ALLSTATE INSURANCE COMPANY ("Customer"), operating under tax identification number 36-0719665 and having its principal place of business at 2775 Sanders Road, Northbrook, IL 60062, and ALLSTATE FEDERAL SAVINGS BANK, a Federal savings association ("AFSB"), having its principal place of business at 2775 Sanders Road, Northbrook, IL 60062. Section 1. Description of Cash Management Services. Subject to the provisions of this Agreement, AFSB agrees to provide the products and services (the "Services") described in Service Supplements (the "Supplements") which are entered into by Customer and AFSB. All references to the term "Agreement" will include all supplements unless otherwise stated. Each Service is subject to the provisions of this Agreement and the Supplement applicable to such Service. When provisions of a Supplement are inconsistent with the provisions of this Agreement, the provisions of the Supplement will apply to the Service covered by that Supplement. Section 2. Fees. The Customer agrees to pay AFSB fees for each Service which will be calculated according to AFSB current fee schedule attached hereto as then in effect. The Customer's payment of fees will be in accordance with the terms of this Agreement. AFSB may amend all fees for Services from time to time upon thirty (30) days' written notice to the Customer. Section 3. Funds Transfers. a) All credits to the Customer's accounts for funds transfers which AFSB receives are provisional until AFSB receives final settlement for the funds according to the rules of the funds transfer system by which such funds have been transmitted. The Customer acknowledges and agrees that AFSB is entitled to a refund of the amount credited to the Customer's account for a transfer if AFSB does not receive final settlement, or if such transfer has been credited in error to the Customer's account. (b) The periodic statements provided to the Customer by AFSB will notify the Customer of funds transfer payments received by AFSB for credit to the Customer's accounts at AFSB, including wire transfers, ACH credit entries and internal AFSB transfers. The Customer is hereby notified and agrees that AFSB shall not be required to provide any other notice to the Customer of such receipt of payments. (c) AFSB is not responsible for detecting errors in any payment order issued by the Customer or any other person. The Customer is responsible for the contents of each funds transfer payment order which the Customer sends to AFSB. AFSB may rely on the information contained in any payment order, including the identifying number of any intermediary bank or beneficiary's bank, even if such number does not correspond to the bank identified by name. The beneficiary's bank and any intermediary bank may rely on the beneficiary's account number specified in any payment order originated by the Customer, even if such number does not correspond to the person or account identified by name. Section 4. Electronic Communication and Related Software. Some Services allow the Customer to electronically (a) receive information about the balance of, or transactional activity in, the Customer's accounts at AFSB or its affiliates, (b) issue payment orders or other instructions regarding Services or its accounts at AFSB or its affiliates, and (c) initiate certain electronic transactions. Account balances change on a frequent basis, and account information provided electronically to the Customer is subject to updating, verification, and correction. Accordingly, AFSB assumes no responsibility for the reliance by the Customer on such electronically communicated information which is subsequently updated or corrected. If AFSB furnishes computer software to the Customer in connection with any Services, AFSB warrants to the Customer that on the day such software is delivered or installed by AFSB, it performs substantially according to the detailed specifications that accompany such software. If the Customer discovers that such software does not perform properly, the Customer shall report it promptly and AFSB will repair or replace the software as promptly as practicable. This is the customer's exclusive remedy if such software fails to perform according to this limited warranty. AFSB may recommend certain hardware for use by the Customer in connection with the Services, but AFSB makes no representations or warranties with respect to that hardware. Section 5. Vendors. Any third party servicer or vendor hired by the Customer in connection with any Service ("Vendor") shall be the Customer's agent and the Customer will be liable for (a) any Vendor's failure to comply with any security procedures or operating requirements relating to the applicable Service, (b) all fees, costs and expenses owed to each Vendor for its services on behalf of the Customer, and (c) any claims, damages, costs and expenses incurred as a result of any Vendor's failure to perform, or delay or error in performing its services on behalf of the Customer. Section 6. Limits an Liability and Force Majeure. AFSB's liability to the Customer for any loss or damage arising from or relating to this Agreement or any of the Services, regardless of the form of action, shall be limited to direct losses attributable to AFSB's gross negligence or willful misconduct, and in no event shall AFSB be liable far any indirect consequential or special damages. Neither the Customer nor AFSB shall incur any liability for any failure or delay in carrying out any of its obligations under this Agreement if failure or delay results from such party's acting in accordance with applicable laws, regulations or rules or from acts of God, strike or stoppage of labor, power failure, equipment failure, adverse weather conditions or any other cause beyond such party's control. AFSB shall have no responsibility and shall incur no liability for any act or failure to act by any other financial institution or any other third party. Section 7. Indemnities. The Customer agrees to indemnify and hold AFSB and AFSB's agents harmless from and against any and all actions, claims, demands, loss, liability or expenses whatsoever, including attorneys' fees and court costs, resulting directly or indirectly from (i) the Customer's breach of any of its representations, warranties or covenants under this Agreement, (ii) AFSB's actions or omissions in connection with Services under this Agreement unless such actions or omissions are determined to result from AFSB's gross negligence or willful misconduct, and (iii) the failure, error, or delay by any Vendor (as defined in Section 5) in performing its services for the Customer. The fees payable by the Customer to AFSB for the Services are net of any sales, use, value added excise or similar taxes, and the Customer shall be responsible for the payment of any such taxes. This Section shall survive the termination of this Agreement. Section 8. Representations and Warranties. (a) In addition to any representations and warranties in the Supplements, the Customer represents and warrants that (i) this Agreement and each Supplement have been authorized by all necessary corporate and governmental action and do not violate any provision of law or of the Customer's charter or by-laws or any other agreement binding upon the Customer, and (ii) the persons signing this Agreement and the Supplements on behalf of the Customer are authorized to do so. (b) AFSB represents and warrants that (i) this Agreement and each Supplement have been authorized by all necessary corporate and governmental action and do not violate any provision of law or of AFSB's charter or by-laws or any other agreement binding upon AFSB, and (ii) the persons signing this Agreement and the Supplements on behalf of AFSB are authorized to do so. AFSB MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, OF ANY KIND WITH RESPECT TO ANY SERVICE OR AFSB's PERFORMANCE OF SERVICES UNDER THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY PROVIDED FOR IN A SUPPLEMENT. NO DESCRIPTIONS OR SPECIFICATIONS, WHETHER OR NOT INCORPORATED INTO ANY SUPPLEMENT, SHALL CONSTITUTE REPRESENTATIONS OR WARRANTIES OF ANY KIND. Section 9. Confidentiality. The Customer agrees to safeguard all information relating to the security procedures for the Services, including, without limitation, personal identification numbers, codes and passwords used in connection with the security procedures. The Customer agrees that such information will not be disclosed to anyone other than the Customer's employees who the Customer reasonably believes need to have such information, and the Customer agrees to establish appropriate internal policies to ensure such information will be treated as confidential among the Customer's employees and between the Customer and third parties. This Section will survive termination of this Agreement. Section 10. Termination (a) This Agreement will continue in full force and effect until all Services have been terminated. Any Service may be terminated at any time by either party upon at least thirty (30) days' prior written notice to the other party. Only the Service(s) specified in such notice will be terminated, and no other Services will be affected. (b) AFSB may terminate this Agreement or any or all Services immediately in the event of (i) Customer's breach of a material obligation under this Agreement, (ii) Customer's insolvency, receivership or voluntary or involuntary bankruptcy, or the institution of any proceeding therefor, or any assignment for the benefit of the Customer's creditors, or if in the opinion of AFSB the financial condition of the Customer has become impaired, or (iii) the Customer's default under any agreement or instrument relating to indebtedness owed by the Customer to AFSB, and such default shall continue for a period of time sufficient to permit the acceleration of the maturity of such indebtedness. Even if this Agreement or any or all Services are terminated under this subsection, this Agreement shall continue in full force and effect as to all transactions that AFSB began processing before such termination. (c) Upon termination of any or all Services under this Agreement, all computer software licenses granted by AFSB to the Customer with respect to those terminated Services under the applicable Supplements shall automatically terminate. The Customer shall immediately return to AFSB the original and all copies made of all computer software programs licensed by AFSB to the Customer and all other documentation or materials provided to the Customer by AFSB in connection with the terminated Services, and the Customer shall promptly pay to AFSB all sums due or to become due under this Agreement relating to such Services which accrued prior to the date of termination. Section 11. Notices. Except as may be otherwise specified in a Supplement, all notices and other communications by the Customer or AFSB relating to this Agreement generally shall be in writing and, if to the Customer, addressed to the Customer's primary mailing address as shown on AFSB's records, and if to AFSB, addressed to 2775 Sanders Road, Northbrook, IL 60062, or at such other address as AFSB may specify in writing. Any notice or communication to AFSB will be effective when AFSB has actually received, and has had a reasonable time to act on, any such notice. Any notice or communication to the Customer will be effective either on the date it is actually received or 3 days after it was mailed by first class certified or registered mail, return receipt requested and addressed as provided in this Section (or to such other address the Customer may specify in writing), whichever is earlier. Section 12. Miscellaneous. (a) This Agreement (including the Supplements) constitutes the entire agreement of the Customer and AFSB and with respect to the Services (except as otherwise expressly provided in this Agreement or a Supplement), and supersedes and replaces any previously made proposals, representations, warranties or agreements, express or implied, either oral or in writing, between the parties. The Customer agrees that the mutual rights and duties of the parties under this Agreement shall also be governed by the terms and conditions applicable to the Customer's deposit accounts at AFSB, except that in the event of any conflict between this Agreement and such terms and conditions, the provisions of this Agreement will control. (b) AFSB may amend this Agreement by written notice to the Customer. Any amendment to this Agreement will be effective 30 days after notice of such amendment is sent to the Customer in accordance with Section 11, unless the Customer notifies AFSB in writing within that 30-day period of the Customer's unwillingness to be bound by the amendment. If the Customer is unwilling to be bound by the amendment, either party may terminate this Agreement for any or all Services as provided in Section 10. AFSB may amend the operating instructions for any Service by written notice to the Customer, which amendment will be effective at the time provided in Section 11 above, provided, however, that AFSB will endeavor to give the Customer prior written notice of amendments to operating policies or procedures when practicable. (c) The Customer may not assign this Agreement without AFSB's prior written consent. AFSB may not assign this Agreement without the Customer's prior written consent, except that AFSB may assign this Agreement, in whole or in part, without such consent to any subsidiary or affiliate of AFSB. (d) No party's failure or delay in exercising any right or remedy under this Agreement will operate as a waiver of such right or remedy, and no single or partial exercise by a party of any right or remedy under this Agreement will preclude any additional or further exercise of such right or remedy or the exercise of any other right. (e) Even if a provision of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, or enforceability of the other provisions of this Agreement will not be affected or impaired by such holding. (f) This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective legal representatives, successors and assigns. This Agreement is not for the benefit of any other person, and no other person shall have any right against the Customer or AFSB under this Agreement. (g) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. The Customer hereby irrevocably consents and submits to the jurisdiction of any State Court of Illinois, or the United States District Court for the Northern District of Illinois and the Customer waives any and all objections which it may have to venue in such courts or the issuance of service of process in any such proceedings. The Customer agrees that any legal action or proceeding with respect to this Agreement, whether instituted by AFSB or the Customer will be commenced in such courts. AFSB and the Customer each irrevocably waives any right to trial by jury in any proceeding relating to this Agreement.
NOTE: If required by resolution, a second - -------------------------------------------- officer must sign below ALLSTATE INSURANCE COMPANY Signed: /s/ James P. Zils Signed: /s/ Nancy M. Bufalino ----------------- --------------------- By: James P. Zils By: Nancy M. Bufalino Its: Treasurer Its: Assistant Treasurer ALLSTATE FEDERAL SAVINGS BANK Signed: /s/ Thomas W. Buckley By: Thomas W. Buckley Its: President/CEO Date: 3/25/99
ALLSTATE FEDERAL SAVINGS BANK CORPORATE BILLING POLICY (Effective July 1, 1998) Accounts are analyzed on a monthly basis to determine the net excess/deficit allowance. The basis for the net excess/deficit allowance is the monthly Account Analysis Statement. The net excess/deficit allowance is determined by taking the earning allowance less total service charges. A net deficit position will result in an amount owed to Allstate Federal Savings Bank. Payment of the deficit amount will occur according to the following guidelines: SETTLEMENT CYCLE OPTIONS The standard settlement cycle is monthly and the standard payment method is a direct debit against the client's account. Options exist for a quarterly billing cycle and receipt of a bill versus a direct debit. EXCESS COMPENSATION POSITION An excess position on the Account Analysis Statement will result in no bill or direct debit for the current settlement cycle. Carryover of an excess compensation position is not permitted from one settlement cycle to another. If the settlement cycle is quarterly, an excess compensation position in any month can be used to offset a deficit compensation position for any other month within that quarter. The billing year ends on December 31. Carryover of an excess is not permitted from one calendar year to another. PAYMENT TERMS FOR BILLED ACCOUNTS The bill is Payable Upon Receipt. If payment is not received within the number of days specified on the bill, a debit for the bill amount will be charged against the client's Key account as identified on the bill. If the Key account is closed, another account within the relationship will be charged. This debit will be clearly identified on the checking account statement as a Balance Deficiency Charge. Any additional terms of non-payment are contained on the bill. CLIENT RESPONSIBILITIES It is the client's responsibility to review the monthly account analysis statement for accuracy. If a discrepancy is identified, the client has 30 days after generation of the analysis statement or the bill, to notify the bank of a dispute. Failure to notify the bank within the above time frame means the client agrees with the results shown on the Account Analysis Statement, including the net excess/deficit allowance. Inquiries regarding the Corporate Billing Policy, Account Analysis results, or the billed amount should be referred to your Relationship Manger. NOTE: No earnings allowance to pay for services occurs on Interest Bearing Accounts since interest is paid on these accounts. ALLSTATE FEDERAL SAVINGS BANK CASH MANAGER CONCENTRATION MODULE SECURITY PROCEDURES SERVICE DESCRIPTION This Service enables the Customer to initiate Entries between its own Allstate Federal Savings Bank ("AFSB") account and its own or third-party accounts at other banks. AFSB is the "originating" Bank, and the other banks are "receiving" banks. For "on-us" Entries, AFSB is both the originating and receiving bank. The Entries can be ACH Credits (disbursements) to be paid from the Customer's AFSB account, or ACH Debits (collections) for deposit to the Customer's AFSB account. For a receiving bank not eligible to receive an ACH Debit, a paper depository transfer check call be prepared for deposit to the Customer's AFSB account. All bank accounts must be corporate business accounts and not consumer accounts. The AFSB Cash Manager Concentration Module is used for repetitive Entries only, using the location number which AFSB establishes for each receiving bank account during setup. Each location will be set up to initiate a collection Entry only or a disbursement Entry only. The Customer can access the system by one or more of the following methods. Security procedures apply to each method, as described in this Appendix. Access methods are: o PC or terminal input direct to the AFSB Cash Manager system. o Telephone "touch tone" deposit reporting input. o Telephone voice deposit reporting instructions. To initiate an Entry, the Customer inputs or reports Entry Data comprised of a location number and an associated dollar amount, which is processed by AFSB's Computer systems to originate the collection or disbursement Entry. A PC or terminal Customer can also use location numbers to produce various historical transaction reports for its accounts. The procedures described in this Appendix are a Security Procedure to be used by AFSB to verify the authenticity of input to the Concentration Module in the name of the Customer. SERVICE SETUP SECURITY PROCEDURES An Officer(s) authorized by the Customer's corporate resolution on file at AFSB Bank to designate an individual(s) to originate or arrange funds transfers, will specify a person to be the "Designated Contact" to receive all confidential codes and passwords from AFSB. The Designated Contact will issue specific instructions to AFSB for each location to be established, including receiving bank routing number, account number at that bank, and collection or disbursement function for Entries to be originated using that location. The Designated contact will also issue instructions to AFSB for each location to be deleted. Such instructions will be submitted in writing in a form acceptable to AFSB. In addition to the Designated Contact, the officer(s) authorized by the Customer's corporate resolution may authorize one or more other persons to facilitate ongoing Service operation: "Operations Contact" for ongoing Service administration, including: o to send Entry Data to AFSB o to call AFSB with any deletions to Entry Data reversals of Entries o to be called by AFSB for Service-related problem resolution. Such authorization of the Designated Contact and any other persons will be submitted in writing to AFSB in a form acceptable to AFSB. Only the Designated Contact will be authorized to issue new Service instructions to AFSB, or change existing Service instructions. The Designated Contact will be authorized to perform all functions, even if additional persons are specified to serve as the Operations Contact. AFSB personnel will set up the Service acting upon instructions received from the Designated Contact. Instructions for Service usage, principally consisting of a service guide, instruction cards, identification codes, passwords, company numbers and location numbers, are sent to the Designated Contact for distribution to the personnel who will use the Service. At each stage of setup, AFSB will treat all Customer information as confidential and handle such information in a secure manner. After delivery by the Bank, the Customer's Designated Contact and other Customer personnel shall treat all service guides, instruction cards, identification codes, passwords, company numbers and location numbers in a confidential and secure manner. SERVICE OPERATION SECURITY PROCEDURES PC or Terminal Dialup - this access method employs a dual-level identification code and password security procedure. A "Customer Identification Code" and a password are issued for the Customer at the company-wide level. An additional "Operator Identification Code" and password is issued for each Service user. The number of such Operator Identification Codes is specified by the Customer, and such Operator Identification Codes are assigned by AFSB for the convenience of the Customer, and AFSB does not assign such Operator Identification Codes to specific Customer employees or other individuals. The Customer calls into the Bank's telecommunications network provider, and enters the Customer Identification Code and password, followed by the Operator Identification Code and password. If these codes are accepted by the Bank's system, and if the Concentration Module is established for that Operator Identification Code, the Customer gains access to the Service. The Customer is prompted for location code and dollar amount Entry Data. The Customer can also obtain historical transaction information reporting. Any individual who gains access to the Service using the Customer's Identification Codes and passwords, and using the Customer's location numbers, can initiate Entries for any and all of the Customer's locations. AFSB cannot restrict an Identification Code to usage of only part of the Service. THE CUSTOMER MUST CONTROL INDIVIDUAL ACCESS TO IDENTIFICATION CODES, PASSWORDS AND LOCATION NUMBERS. AFSB shall conclusively presume that all Entry Data input data the Concentration Module, using such Identification Codes and passwords, as having been made by a person authorized to initiate Entries, and AFSB will regard Entry Data input by such a person as being a funds transfer instruction authorized by the Customer. Telephone "Touch-Tone" - the Customer calls the Bank's service bureau and follows an audio response script provided by AFSB. The Customer inputs Entry Data comprised of a Company Number and Identification Number issued by AFSB, and a dollar amount. This access method restricts the Customer to initiating an Entry for the single location identified by the Company Number and Identification Number. Each Customer location set up for this access method will also be set up for the Telephone Voice access method. as described below, to provide a back-up procedure if the audio response system should not be available. Telephone Voice Reporting - the Customer calls AFSB's service bureau and follows a conversation script provided by AFSB. The Customer reports Entry Data to the operator, comprised of a Company Number and Identification Number issued by AFSB, and a dollar amount. This access method restricts the Customer to initiating an Entry for the single location identified by the Company Number and Identification Number. AFSB shall conclusively presume that any caller to the Bank's Concentration Module service bureau, possessing the appropriate Company Number and Identification Number for a location, is authorized to initiate Entries, and AFSB will regard Entry Data from such a caller as being a funds transfer instruction authorized by the Customer. AMENDMENT OR CANCELLATION SECURITY PROCEDURES Irrespective of the input method used, AFSB's standard procedure is to issue to the Customer at least one set of Identification Codes and passwords enabling the Customer to access the Service via PC or terminal. This permits the Customer to review today's Entry Data, and change or cancel today's Entry Data for any of the Customer's locations, at the Customer's discretion, up to a pre-established deadline time. THE CUSTOMER MUST CONTROL INDIVIDUAL ACCESS TO IDENTIFICATION CODES, PASSWORDS AND LOCATION NUMBERS. ALLSTATE FEDERAL SAVINGS BANK Appendix To ACH Origination Payment Service Supplement ACH SECURITY PROCEDURES The security procedures are to verify the authenticity of Entry Data delivered in the Customer's name to AFSB. The security procedures are not used to detect an error in the transmission, delivery, or content of the Entry Data. The security procedure which AFSB recommends as commercially reasonable for the origination of ACH transactions is the Computer Transmission of Entry Data files to AFSB, containing Customer Identification Codes and passwords assigned by AFSB. AFSB also requires confirmation of each Entry Data entry file, and recommends the electronic acknowledgment confirmation sent by AFSB to the Customer. These security procedures are more fully described in the remainder of this document. SERVICE DESCRIPTION The Service is being provided to the Customer to facilitate the regular collection or disbursement of payments, whereby the Customer initiates Entries between its own AFSB account and its own or third party accounts at AFSB or at other banks. The Customer delivers Entry Data to AFSB for processing, and based on that Entry Data, AFSB will create electronic credits or debits (credit or debit Entries) to be submitted for Settlement to the Automated Clearing House (ACH) network. The Customer must comply with all the requirements of the National Automated Clearing House Association (NACHA), including the format specifications for processing Entries through the ACH system. The Customer must deliver the Entry Data to AFSB in the required format as specified by AFSB, including any identification numbers and passwords required for a security procedure. If payments represent consumer transactions, then prenotification my be required. Corporate transactions do not require prenotification. It is the Customer's responsibility to comply with any prenotification requirement. SERVICE SETUP The Customer contracts with AFSB to originate or arrange funds transfers on its behalf. AFSB acts upon the instructions from the persons who are authorized to act for the Customer (by resolution, agreement or course of dealing) to set-up and utilize this Service, including all testing, operations, implementation and support not limited to the following: o Submit test Entry Data and receive and verify test results. o Send Entry Data to AFSB o Confirm with AFSB Entry Data Control Totals o Call AFSB with any deletions to Entry Data or reversals of Entries o Resolve service-related problems. AFSB will treat all Customer information as confidential and handle such information in a secure manner. AFSB personnel set up the Service acting upon instructions from the Customer. AFSB delivers to the Customer the Identification Code, passwords, instructions, reports, and any information related to the Service for distribution to the Customer personnel involved in using the Service. This Information is under the control of the Customer and must be treated by Customer personnel in a confidential and secure manner. In particular, identification codes required for a security procedure must be restricted to persons using the Service. SERVICE OPERATION AFSB presumes that the Customer will restrict access to the Identification Codes and passwords to only those individuals using the Service, and that those individuals in possession of the Identification Codes and passwords are authorized to act on the Customer's behalf to submit Entry Data and give other instructions. If at any time the Customer determines that its Identification Codes or passwords have been compromised, AFSB should be contacted immediately to assist in changing the affected Identification Codes or passwords. SUBMISSION OF ENTRY DATA 1. Computer Transmission: AFSB's communication system identifies the Customer by verifying the Identification Codes and passwords which have been previously established for the Customer. The ACH processing system further interrogates the File/Batch Header Identification Codes to verify that the Customer's file is authorized for processing. AFSB shall conclusively presume that all Entry Data using such Identification Codes have been submitted by a person authorized to initiate Entries, and AFSB will regard that Entry Data as being a funds transfer instruction authorized by the Customer. 2. Tape Delivery: AFSB does not regard the delivery of Entry Data on tape as a commercially reasonable security procedure. If the Customer uses Tape Delivery, then AFSB will inform the Customer of limited security procedures used by some other customers for tape delivery and Customer may choose to use such a procedure. If AFSB accepts such Entry Data or funds transfer instruction in good faith, then the Customer agrees to be bound by such Entry Data or funds transfer instruction, whether or not authorized, and the Customer will be deemed to have refused the security procedures that AFSB offers and recommends as commercially reasonable. CONFIRMATION PROCEDURES Following submission of Entry Data, AFSB requires that each Entry Data file be confirmed by the Customer. AFSB recommends the Automated Acknowledgment Confirmation procedure. If a Customer currently using the Manual Confirmation procedure desires to convert to the recommended Automated Acknowledgment Confirmation procedure, the Customer should request setup information and assistance by calling its assigned AFSB Product Marketing Representative or Implementation Coordinator. 1. Automated Acknowledgment Confirmation Procedure: AFSB calls the Customer at a telephone number specified in advance by the Customer during service setup. AFSB then transmits control total information from the Customer Entry Data which AFSB has received. The information may be delivered to the Customer as either a data transmission or a telecopy, or both. If the Customer elects to receive a telecopy to their designated number, it is the Customer's responsibiliry to ensure that the receiving telecopy ("fax") machine is maintained in good working order and in a secure location. The Bank recommends that the Customer protect the confidentiality of the information delivered by either data transmission or fax. o For both data transmission and telecopy, the Customer will verify the control total information received from AFSB. The Customer is responsible for reviewing the confirmation to authenticate the funds transfer instruction submitted to AFSB in the Customer's name: o If the acknowledgment confirmation does not contain funds transfer instructions subrnitted by the Customer, or if the Customer detects an error in the funds transfer instructions, the Customer is responsible for notifying AFSB. o If the Customer has submitted an Entry Data file to AFSB and has not received an acknowledgment confirmation within the usual and expected time frame, the Customer is responsible for notifying AFSB of non-receipt. o If the Customer receives an acknowledgment confirmation and has not submitted an Entry Data file to AFSB, the Customer is responsible for notifying AFSB. In each circumstance, AFSB recommends and urges the Customer to notify AFSB immediately of the exception condition detected by the Customer. A correct acknowledgment confirmation does not require any response from the Customer. AFSB will presume that by NOT receiving a response from the Customer, that the Customer has verified the correctness of the control total information, and AFSB will proceed with normal ACH processing. 2. Manual Confirmation Procedure: ------------------------------ If the Customer declines the recommended Automated Acknowledgment Confirmation security procedure, then the Customer will use the Manual Confirmation procedure: o The Customer will call AFSB at the time of transmission of the Entry Data file, or promptly following transmission of the Entry Data file. o The Customer will provide file control total information from the Entry Data file submitted to AFSB. This information consists of the dollar value of the payments, intended settlement date(s) and the number of payment transactions. This information will be captured by the Bank, on a recorded telephone line. o AFSB compares the Entry Data File totals with the information received from the Customer. If the Customer information matches, AFSB will perform normal ACH processing. If the Customer information does not match, AFSB will notify the Customer and suspend file processing until the Customer resolves the inconsistency between the Entry Data File AFSB received and the control total information provided by the Customer. CANCELLATION OR REVERSAL OF ENTRY DATA The following Security Procedure applies to Customer instructions to Entry Data not yet released to the ACH, or to reverse Entries already completed and released to the ACH: If the Customer wishes to perform a deletion or reversal, the Customer contacts AFSB ACH operations, at the telephone number specified during the service setup, to initiate the transaction request. The Customer provides AFSB with the appropriate information to complete the request. AFSB will verify, by comparison to the Entry Data File, the deletion or reversal request received from the Customer. If the information does not match the original Customer Entry Data, AFSB will contact the Customer to resolve the problem prior to processing the request. This information is captured on recorded telephone line. Note: This; procedure does nor allow for the addition of new transactions, It only allows for the deletion or reversal of transactions previously received. ACH Pricing Allstate Federal Savings Bank
Price per Pricing Categories Unit DEBIT/CREDIT MEMO: $ .75 ACH Return Item $ .25 ACH Receiver File $15.00 ACH Collections/Credits Originated: Less than 1,000,000 items per month $0.034 ACH Collections/Credits Originated: Over 1,000,000 items per month $0.0325 Regular Billing Deadline or Premium Surcharge (late delivery) $ 0.01 ACH CCD/PPD Addenda Origination $ 0.02 ACH Pre-Authorized Check Surcharge $ 0.25 Monthly Account Maintenance $ 17.50 ACH Deletes-Reversals $ 7.50 Auto Wire-Outgoing Repetitive $ 7.00 Auto Wire-Book Repetitive $ 2.50 Manual Outgoing Wire $15.00 Manual Wire-Book Non-Repetitive $ 5.00 Domestic Wire Incoming $ 6.00 January 13, 1999
Exhibit 10.5 Amendment No. 1 to the Cash Management Services Master Agreement between Allstate Bank and Allstate Insurance Company This AMENDMENT No. 1 (the "Amendment") is made and entered into this 5th day of January 2001 by and among Allstate Bank (formerly Allstate Federal Savings Bank, herein the "Bank"), Allstate Insurance Company (herein "AIC"), Allstate Life Insurance Company (herein "ALIC"), Lincoln Benefit Life Company (herein "LBL") and American Heritage Life Insurance Company (herein "AHL"). WHEREAS, Bank and AIC are parties to a Cash Management Services Master Agreement dated March 16, 1999, ("the Agreement"); and WHEREAS, the parties desire to amend the Agreement to add additional parties to include ALIC, LBL and AHL; NOW THEREFORE, the parties agree that the Agreement shall hereby be amended as follows: 1. The definition of "Customer" in the first paragraph of the Agreement shall include ALIC, LBL and AHL in addition to AIC. 2. Section 1 is amended to include the following: Separate Supplements will be developed for each entity that is a Customer. Customer and Bank further agree to comply with the ACH Security Procedures which are attached to this Agreement and incorporated herein. 3. Section 8(a) is amended by adding the following: (iii) Customer will perform its obligations under this Agreement in accordance with, and will be bound by, all applicable laws and regulations, including the rules of the National Automated Clearing House Network ("NACHA Rules"); (iv) Customer will transmit entries to Bank to the location(s) and in compliance with the formatting and other requirements set forth in the applicable Supplement attached to this Agreement; (v) each party shown on an entry received by Bank from Customer has authorized the initiation and posting of such entry to its account in the amount and the effective entry date shown on such entry; (vi) such authorization is operative at the time of transmittal or crediting by Bank as provide herein; (vii) Customer will obtain all consents and authorizations required under the NACHA Rules and shall retain such consents and authorizations for a period not to exceed two (2) years after the effective expiration date ; (vii) Customer will give written notice ten (10) business days in advance to Bank for variable debit amounts and billing date changes; and (ix) entries transmitted to Bank by Customer are limited to those types of entries set forth in the Supplement. 4. The following attachments to the Agreement are deleted in their entirety: (a) Corporate Billing Policy dated July 1, 1998; and (b) Cash Manager Concentration Module Security Procedures. Except as otherwise amended hereby, the Agreement shall remain unchanged. IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be duly executed in duplicate by their respective officers on the dates shown below. ALLSTATE BANK ALLSTATE LIFE INSRUANCE COMPANY By: ___________________________ By: ___________________________ Title: ________________________ Title: ________________________ Date: _________________________ Date: _________________________ ALLSTATE INSURANCE COMPANY LINCOLN BENEFIT LIFE COMPANY By: ___________________________ By: ___________________________ Title: ________________________ Title: ________________________ Date: _________________________ Date: _________________________ AMERICAN HERITAGE LIFE INSURANCE COMPANY By: ___________________________ Title: ________________________ Date: _________________________ -----END PRIVACY-ENHANCED MESSAGE-----