As filed with the Securities and Exchange Commission on April 1, 2016
FILE NO. 333-203371
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LINCOLN BENEFIT LIFE COMPANY
(Exact Name of Registrant)
Nebraska (State or Other Jurisdiction of Organization) |
6300 (Primary Standard Industrial Classification Code Number) |
470221457 (I.R.S Employer Identification Number) |
1221 N Street, Suite 200, Lincoln, Nebraska 68508
(800) 525-9287
(Address and Phone Number of Registrants Principal Executive Office)
ROBYN WYATT
LINCOLN BENEFIT LIFE COMPANY
1221 N Street, Suite 200
Lincoln, NE 68508
1-800-525-9287
(Name of Agent for Service)
Approximate date of commencement of proposed sale to the Public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Table of Contents
CALCULATION OF REGISTRATION FEE
Title of securities being registered |
Amount to be registered(1) |
Proposed maximum offering price per unit |
Proposed maximum aggregate offering price(1) |
Amount of registration fee(2) |
Deferred annuity interests and participating interests therein |
$ N/A |
$ (1) |
$ N/A |
$ N/A |
(1) The Contract does not provide for a predetermined amount or number of units.
(2) By filing dated April 13, 2015, Lincoln Benefit Life Company carried over $8,000,000 of unsold securities from registration #333-180375 filed on March 27, 2012 and registered $42,000,000 ($42 million) in market value adjusted annuity contract securities and paid a filing fee of $4,880 therefor. In this Registration Statement, Registrant continues that offering.
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 Section 8(a), may determine.
Neither the Securities and Exchange Commission nor any State securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Allstate Distributors, L.L.C. ("ADLLC") serves as distributor of the securities registered herein. The securities offered herein are sold on a continuous basis, and there is no specific end date for the offering. ADLLC is a registered broker dealer under the Securities and Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. ADLLC is not required to sell any specific number or dollar amount of securities, but will use its best efforts to sell the securities offered. Commissions earned by ADLLC are described in the notes to the insurer financial statements, under the heading "Broker-Dealer Agreements." The prospectuses, dated as of the date indicated therein, by which the securities registered in this Form S-1 are described, are included in this registration statement.
LINCOLN BENEFIT LIFE COMPANY
Supplement Dated April 29, 2016
To the following Prospectuses, as supplemented
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED APRIL 29, 2016
CONSULTANT I PROSPECTUS DATED APRIL 29, 2016
LBL ADVANTAGE PROSPECTUS DATED MAY 1, 2004
CONSULTANT II PROSPECTUS DATED MAY 1, 2004
PREMIER PLANNER PROSPECTUS DATED MAY 1, 2004
The following information supplements the prospectus for your variable annuity contract issued by Lincoln Benefit Life Company.
SUPPLEMENTAL INFORMATION ABOUT
LINCOLN BENEFIT LIFE COMPANY
Page | ||||||
Item 3(c) |
Risk Factors | 1 | ||||
Item 11(a) |
Description of Business | 11 | ||||
Item 11(b) |
Description of Property | 13 | ||||
Item 11(c) |
Legal Proceedings | 13 | ||||
Item 11(e) |
Financial Statements and Notes to Financial Statements | 14 | ||||
Item 11(f) |
Selected Financial Data | 68 | ||||
Item 11(h) |
Managements Discussion and Analysis of Financial Condition and Results of Operations. | 68 | ||||
Item 11(i) |
Changes in or Disagreements with Accountants | 90 | ||||
Item 11(j) |
Quantitative and Qualitative Disclosures About Market Risk | 90 | ||||
Item 11(k) |
Directors and Executive Officers | 90 | ||||
Item 11(l) |
Executive Compensation | 92 | ||||
Item 11(m) |
Security Ownership of Certain Beneficial Owners and Management | 99 | ||||
Item 11(n) |
Transactions with Related Persons, Promoters and Certain Control Persons | 101 | ||||
105 |
Item 3(c). | Risk Factors |
LINCOLN BENEFIT LIFE RISK FACTORS
This document contains forward-looking statements that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.
These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like plans, seeks, expects, will, should, anticipates, estimates, intends, believes, likely, targets and other words with similar meanings. These statements may address, among other things, our strategy for growth, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.
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In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer and a provider of other products and financial services. These risks constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and historical trends. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the SEC or in materials incorporated therein by reference.
Changes in actual experience could materially affect the profitability of our business.
Our liability pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of our business. We establish target returns based upon these factors and the average amount of capital that we must hold to support in-force contracts taking into account rating agencies and regulatory requirements. Profitability emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued.
Our profitability depends on the adequacy of investment spreads, the management of market and credit risks associated with investments, the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the persistency of policies, and the management of operating costs and expenses within anticipated pricing allowances. Legislation and regulation of the insurance marketplace and products could also affect the profitability of our business.
Changes in reserve estimates may adversely affect our operating results.
The reserve for life-contingent contract benefits is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, persistency and expenses. We periodically review the adequacy of these reserves on an aggregate basis and if future experience differs significantly from assumptions, adjustments to reserves may be required which could have a material effect on our operating results.
Changes in market interest rates and/or credit spreads may lead to a significant decrease in the profitability of our spread-based products.
Our ability to manage our fixed annuities and interest-sensitive life products is dependent upon maintaining profitable spreads between investment yields and interest crediting rates. When market interest rates decrease or remain at relatively low levels, cash flows from renewal premium, investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by market conditions, regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Decreases in the interest crediting rates offered on products could make those products less attractive, leading to changes in the level of policy loans, surrenders and withdrawals. Non-parallel shifts in interest rates, such as increases in short-term rates without accompanying increases in medium- and long-term rates, can influence customer demand for fixed annuities, which could impact the level and profitability of new customer deposits. Increases in market interest rates can also have negative effects on our business, for example by increasing the attractiveness of other investments to our customers, which can lead to increased surrenders at a time when our fixed income investment asset values are lower as a result of the increase in interest rates. This could lead to the sale of fixed income securities at a loss.
For certain products, principally fixed annuity and interest-sensitive life products, the earned rate on assets could lag behind rising market yields. We may react to market conditions by increasing crediting rates, which could narrow spreads and reduce profitability on our business.
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Changes in estimates of profitability on interest-sensitive life, fixed annuities and other investment products may adversely affect our profitability and financial condition through the amortization of Value of Business Acquired (VOBA).
VOBA related to interest-sensitive life, fixed annuities and other investment contracts is amortized in proportion to actual historical gross profits and estimated future gross profits (EGP) over the estimated lives of the contracts. The principal assumptions for determining the amount of EGP are mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. Updates to these assumptions (commonly referred to as VOBA unlocking) could adversely affect our profitability and financial condition.
Guarantees within certain of our products may decrease our earnings, increase the volatility of our results, result in higher risk management costs and expose us to increased counterparty risk.
Certain of our products include guaranteed benefits. These guarantees are designed to protect policyholders against significant downturns in equity markets and interest rates. Any such periods of significant and sustained downturns in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation of our liabilities associated with those products. An increase in these liabilities would result in a decrease in our net income.
We use hedging and risk management strategies to mitigate the liability exposure and the volatility of net income associated with these liabilities. These strategies involve the use of reinsurance and derivatives, which may not be completely effective. In addition, hedging instruments may not effectively offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Furthermore, we are subject to the risk that changes in policyholder behavior or mortality, combined with adverse market events, produce economic losses not addressed by the risk management techniques employed. These, individually or collectively, may have a material adverse effect on our results of operations, including net income, financial condition or liquidity.
We may not be able to mitigate the capital impact associated with statutory reinsurance reserving requirements, potentially adversely impacting the profitability of our business.
To support statutory reserves for certain term and universal life insurance products with secondary guarantees, we currently utilize reinsurance and capital markets solutions for financing a portion of our statutory reserve requirements deemed to be non-economic. If we are not able to maintain sufficient financing as a result of market conditions or otherwise, this could potentially adversely impact the profitability of our business.
Changes in tax laws and interpretations may decrease the profitability of our products and could adversely affect the Company.
Under the Internal Revenue Code of 1986, as amended (the Code), income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of our products a competitive advantage over other non-insurance products. To the extent that the Code is revised to reduce the tax-deferred status of life insurance and annuity products or to increase the tax-deferred status of competing products, all life insurance companies, including us, would be adversely affected with respect to their ability to retain policyholders who have acquired such products. Depending upon grandfathering provisions, life insurance companies would be affected by the surrenders of existing annuity contracts and life insurance policies. Changes in tax law, which have reduced the federal income tax rates on corporate dividends in certain circumstances, could make the tax advantages of investing in certain life insurance or annuity products less attractive. Additionally, changes in tax law based on proposals to establish new tax-advantaged retirement and life savings plans, if enacted, could reduce the tax advantage of investing in certain life insurance or annuity products. We cannot predict what changes to tax law or interpretations of existing tax law may ultimately be enacted or whether such changes could adversely affect us. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.
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The Company is dependent on the performance of others.
The Companys results may be affected by the performance of others because the Company has entered into various arrangements in support of our business operations involving third parties. Certain of these third parties may act on behalf of the Company or represent the Company in various capacities including the administration of its contractholders activities or the management of its invested assets on a day-to-day basis. Additionally, the Companys operations are dependent on various technologies, some of which are provided and/or maintained by third parties. Any of the third parties that the Company depends upon may default on their services or obligations to the Company due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, or other reasons. Further, the Company may be held responsible for obligations that arise from the acts or omissions of these third parties. Such defaults could have a material adverse effect on the Companys financial condition and results of operations.
If our internal controls are ineffective, our operating results could be adversely affected.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in Managements Discussion and Analysis of Financial Condition and Results of Operations. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of investors, regulators and rating agencies.
Further acquisitions by Resolution Life, Inc. could be disruptive to our operations.
Resolution Life, Inc. intends to acquire additional runoff books of business from unrelated insurers and may seek to combine portions of the related operations with ours to recognize efficiencies. The risks and uncertainties related to these transactions include, but are not limited to:
| unanticipated difficulties and expenditures resulting from the transactions; |
| disruption of current plans and operations caused by the closing of the transactions and the transition to new management and service providers over time; |
| diversion of management time and focus from operating our business to addressing transaction integration challenges; and |
| the response of customers, agents, competitors and regulators to the closing of the transactions. |
Our failure to address these risks could cause us to incur unanticipated liabilities, impose harmful disruptions to our customer service operations and harm our business generally.
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Risks Relating to Investments
We are subject to market risk and declines in credit quality which may adversely affect investment income and cause realized and unrealized losses.
We are subject to the risk that we will incur losses due to adverse changes in interest rates or credit spreads. Adverse changes to these rates and spreads may occur due to changes in fiscal policy and the economic climate, the liquidity of a market or market segment, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness and/or risk tolerance.
We are subject to risks associated with potential declines in credit quality related to specific issuers or specific industries and a general weakening in the economy, which are typically reflected through credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. Credit spreads vary (i.e., increase or decrease) in response to the markets perception of risk and liquidity in a specific issuer or specific sector and are influenced by the credit ratings, and the reliability of those ratings, published by external rating agencies. A decline in the quality of our investment portfolio as a result of adverse economic conditions or otherwise could cause additional realized and unrealized losses on securities. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to support that security to maintain our risk based capital levels. Levels of writedowns and impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell fixed maturity securities. Realized losses or impairments on these securities may have a material adverse effect on our net income in a particular period.
A decline in market interest rates or credit spreads would have an adverse effect on our investment income as we invest cash in new investments that may earn less than the portfolios average yield. In a declining interest rate environment, borrowers may prepay or redeem securities more quickly than expected as they seek to refinance at lower rates. An increase in market interest rates or credit spreads could have an adverse effect on the value of our investment portfolio by decreasing the fair values of the fixed income securities that comprise a substantial majority of our investment portfolio.
The determination of the fair value of our fixed income securities is subjective and could materially impact our operating results and financial condition.
In determining fair values we principally use the market approach which utilizes market transaction data for the same or similar instruments. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets fair values. The difference between amortized cost or cost and fair value, net of deferred income taxes, certain VOBA, and certain reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income in shareholders equity. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly.
Concentration of our investment portfolio in any particular segment of the economy may have adverse effects on our operating results and financial condition.
The concentration of our investment portfolio in any particular industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on our investment portfolio and consequently on our results of operations and financial condition. Events or developments that have a negative impact on any particular industry, group of related industries or geographic region may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated, rather than diversified.
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The determination of the amount of realized capital losses recorded for impairments of our investments is subjective and could materially impact our operating results and financial condition.
The determination of the amount of realized capital losses recorded for impairments varies by investment type and is based on our ongoing evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in our results of operations. The assessment of whether other-than-temporary impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value. We define fair value generally as the price that would be received to sell an asset or paid to transfer a liability. Our conclusions on such assessments are judgmental and include assumptions and projections of future cash flows which may ultimately prove to be incorrect as assumptions, facts and circumstances change. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.
Deteriorating financial performance impacting commercial mortgage loans, securities collateralized by residential and commercial mortgage loans, and collateralized corporate loans may lead to write-downs and impact our results of operations and financial condition.
Changes in residential or commercial mortgage delinquencies, loss severities or recovery rates, declining residential or commercial real estate prices, corporate loan delinquencies or recovery rates, changes in credit or bond insurer strength ratings and the quality of service provided by service providers on securities in our portfolio could lead us to determine that write-downs are necessary in the future.
Our investment strategies may be adversely affected by developments in the financial markets.
Our investment management strategies may be adversely affected by unexpected developments in the financial markets. There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid. These include privately-placed fixed maturity securities, mortgage loans and policy loans. If we were forced to sell certain of our investments during periods of market volatility or disruption, market prices may be lower than our carrying value in such investments.
Risks Relating to the Insurance Industry
Difficult conditions in the global economy and capital markets generally could adversely affect our business and operating results.
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part because we have a large investment portfolio and certain of our insurance liabilities are sensitive to changing market factors. Market factors, including interest rates, credit spreads, equity prices, real estate markets, consumer spending, business investment, government spending, the volatility and strength of the capital markets, deflation and inflation, all affect the business and economic environment and, ultimately, the amount and profitability of our business. Disruptions in one market or asset class can also spread to other markets or asset classes. Upheavals in the financial markets can also affect our business through their effects on general levels of economic activity, employment and customer behavior. Financial markets have also been affected periodically by concerns over U.S. fiscal policy. These issues could, on their own, or combined with the possible slowing of the global economy generally, have severe repercussions to the U.S. and global credit and financial markets, further exacerbate concerns over sovereign debt of other countries and disrupt economic activity in the U.S. and elsewhere.
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General economic conditions could adversely affect us in the form of consumer behavior and pressure investment results. Holders of some of our interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Our investment results could be adversely affected as deteriorating financial and business conditions affect the issuers of the securities in our investment portfolio.
Losses from legal and regulatory actions may be material to our operating results or cash flows and may result in harm to our reputation.
We are involved in various legal actions, some of which involve claims for substantial amounts. We are also subject to various regulatory actions and inquiries, such as information requests, market conduct examinations, books and record examinations, from state and federal regulators and other authorities. A substantial legal liability or significant regulatory action against us, as well as regulatory inquiries or investigations could harm our reputation, result in material fines or penalties, result in significant legal costs and otherwise have a material adverse effect on our business, financial condition and results of operations. Even if we ultimately prevail in the litigation, regulatory actions or investigation, our ability to retain our current contractholders and recruit and retain employees could be materially and adversely impacted.
We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs.
As an insurance company with separate accounts that are regulated as investment companies, we are subject to extensive laws and regulations. These laws and regulations are complex and subject to change. Changes may sometimes lead to additional expenses and increased legal exposure. Moreover, laws and regulations are administered and enforced by a number of different governmental authorities, each of which exercises a degree of interpretive latitude, including state insurance regulators, state securities administrators, state attorneys general, and federal agencies including the SEC, the FINRA and the U.S. Department of Justice. Consequently, we are subject to the risk that compliance with any particular regulators or enforcement authoritys interpretation of a legal issue may not result in compliance with anothers interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulators or enforcement authoritys interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulators or enforcement authoritys interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow or to improve the profitability of our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products. In many respects, these laws and regulations limit our ability to maintain the profitability of our business.
Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business and increase our capital requirements.
The federal government has enacted comprehensive regulatory reforms for financial services entities. As part of a larger effort to strengthen the regulation of the financial services market, certain reforms are applicable to the insurance industry, including the Federal Insurance Office (FIO) established within the Treasury Department.
In recent years, the state insurance regulatory framework has come under public scrutiny, members of Congress have discussed proposals to provide for federal chartering of insurance companies, and the FIO and Financial Stability Oversight Council were established. We can make no assurances regarding the potential impact of state or federal measures that may change the nature or scope of insurance and financial regulation. These regulatory reforms and any additional legislative change or regulatory requirements imposed upon us in
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connection with the federal governments regulatory reform of the financial services industry, and any more stringent enforcement of existing regulations by federal authorities, may make it more expensive for us to conduct our business, or limit our ability to grow.
Reinsurance may be unavailable at current levels and prices.
Market conditions beyond our control impact the availability and cost of the reinsurance. No assurances can be made that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as is currently available. If we were unable to renew or purchase reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we may have to accept an increase in risk exposure, seek other alternatives, or accept reduced profitability.
Reinsurance subjects us to the credit risk of our reinsurers and may not be adequate to protect us against losses arising from ceded insurance, which could have a material effect on our operating results.
The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Our ceded insurance risks include all new business generated in the thirty months following the closing of our acquisition by Resolution Life, Inc., which business will be entirely ceded to Allstate Life Insurance Company. Our inability to collect a material recovery from a reinsurer could have a material effect on our operating results.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms.
In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. In such circumstances, our ability to obtain capital to fund operating expenses, financing costs, capital expenditures or acquisitions may be limited, and the cost of any such capital may be significant. Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain additional financing on favorable terms.
A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and materially affect our financial condition and results of operations.
Financial strength ratings are published by various Nationally Recognized Statistical Rating Organizations (NRSRO) and similar entities not formally recognized as NRSROs. They indicate the NRSROs opinion regarding an insurance companys ability to meet contractholder and policyholder obligations, and are important to maintaining public confidence in our products and our competitive position.
Downgrades in our financial strength ratings could have a material adverse effect on our financial condition and results of operations in many ways, including materially increasing the number or amount of policy surrenders and withdrawals by contractholders and adversely affecting our ability to obtain reinsurance at reasonable prices or at all.
In view of the difficulties experienced by many financial institutions as a result of the financial crisis and ensuing global recession, including our competitors in the insurance industry, we believe it is possible that the NRSROs will continue to heighten the level of scrutiny that they apply to insurance companies, will continue
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to increase the frequency and scope of their credit reviews, will continue to request additional information from the companies that they rate, and may adjust upward the capital and other requirements employed in the models for maintenance of certain ratings levels. Our ratings could be downgraded at any time and without notice by any NRSRO. In addition, these regulatory reforms may also increase our minimum capital requirements.
A large scale pandemic, the continued threat of terrorism or military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, liquidity, operating results and attractiveness of product offering.
A large scale pandemic, the continued threat of terrorism, within the United States and abroad, or military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from interest rate changes, and result in loss of life, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by reduced economic activity caused by a large scale pandemic or the continued threat of terrorism. Additionally, a large scale pandemic or terrorist act could have a material effect on renewal premium, profitability, competitiveness, liquidity, operating results and attractiveness of product offering.
Changes in accounting standards issued by the Financial Accounting Standards Board or other standard- setting bodies may adversely affect our results of operations and financial condition.
Our financial statements are subject to the application of generally accepted accounting principles, which are periodically revised, interpreted and/or expanded. Accordingly, we are required to adopt new guidance or interpretations, or could be subject to existing guidance as we enter into new transactions, which may have a material effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected. For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 2 of the financial statements.
The failure in cyber or other information security systems, as well as the occurrence of events unanticipated in our disaster recovery systems, management continuity planning or a support failure from external providers, could result in a loss or disclosure of confidential information, damage to our reputation and impairment of our ability to conduct business effectively.
We depend heavily upon computer systems to perform necessary business functions. We rely on these systems throughout our business for a variety of functions, including processing claims and applications, providing information to customers and distributors, performing actuarial analyses and maintaining financial records. We also retain confidential and proprietary information on our computer systems and we rely on sophisticated technologies and our third party vendors to maintain the security of that information. Our computer systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. While, to date, we have not experienced a material breach of cybersecurity, administrative and technical controls and other preventive actions we take to reduce the risk of cyber-incidents and protect our information technology may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches to our computer systems. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.
The occurrence of a disaster such as a natural catastrophe, epidemic, industrial accident, blackout, computer virus, terrorist attack or war, cyber-attack, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our third party
9
service providers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised. These interruptions also may interfere with our third party service providers to provide services and our employees ability to perform their job responsibilities.
The failure of our computer systems and/or our disaster recovery plans for any reason could cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such a failure could harm our reputation, subject us to regulatory sanctions and legal claims, lead to a loss of customers and revenues and otherwise adversely affect our business and financial results. Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to confirm compliance with the Companys information security standards, the failure of such third parties computer systems and/or their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such a failure could harm our reputation, subject us to regulatory sanctions and legal claims, lead to a loss of policyholders and revenues and otherwise adversely affect our business and financial results.
We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.
Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Any breach of our network may result in the loss of valuable business data, misappropriation of our consumers or employees personal information or a disruption of our business, which could give rise to unwanted media attention, materially damage our customer relationships and reputation and result in lost sales, fines or lawsuits.
In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data. Any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.
Loss of key vendor relationships or failure of a vendor to protect personal information of our customers, claimants or employees could affect our operations.
We rely on services and products provided by many vendors in the United States and abroad, specifically third party administrators of our policies, our invested assets, and vendors of computer hardware and software. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect personal information of our customers, claimants or employees, we may suffer operational impairments and financial losses.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and prove unsuccessful. An inability to protect our intellectual property could have a material effect on our business.
We may be subject to claims by third parties for patent, trademark or copyright infringement or breach of usage rights. Any such claims and any resulting litigation could result in significant expense and liability. If
10
our third party providers or we are found to have infringed a third-party intellectual property right, either of us could be enjoined from providing certain products or services or from utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly work around. Any of these scenarios could have a material effect on our business and results of our operations.
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business.
We have devoted significant resources to develop and periodically update our risk management policies and procedures to reflect ongoing review of our risks and expect to continue to do so in the future. Nonetheless, our policies and procedures may not be comprehensive and may not identify every risk to which we are exposed. Many of our methods for managing risk and exposures are based upon the use of observed historical market behavior or statistics based on historical models. As a result, these methods may not fully predict future exposures, which can be significantly greater than our historical measures indicate. Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. In addition, more extensive and perhaps different risk management policies and procedures might have to be implemented under pending regulations.
Our associates may take risks not in accordance with our risk management policies which could negatively affect our financial condition and business.
As an insurance enterprise, we are in the business of accepting certain risks. The associates who conduct our business, including executive officers and other members of management, investment professionals, sales agents, and other associates, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as pricing, determining what assets to purchase for investment and when to sell them, which business opportunities to pursue, and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our associates incentives to take excessive risks; however, associates may take such risks regardless of the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor associates business decisions and prevent us from taking excessive risks, and to prevent employee misconduct, these controls and procedures may not be effective. In such instances, the impact of those risks could harm our reputation and have a material adverse effect on our financial condition and business operations.
We may be unable to retain our highly qualified employees.
We must attract and retain employees to service our policyholders and manage and grow our business. We compete with other financial services companies for employees primarily on the basis of compensation and financial position. Our reputation, operations, and internal controls could be materially adversely affected if we are unsuccessful in retaining highly qualified employees. Our inability to recruit or our failure to retain a sufficient number of qualified individuals in the future may impair our efficiency and effectiveness to service policyholders, meet regulatory deadlines, and our ability to pursue growth opportunities.
Item 11(a). | Description of Business |
Lincoln Benefit Life Company (referred to in this document as we, Lincoln Benefit, our, us or the Company) was incorporated under the laws of the State of Nebraska in 1938. Lincoln Benefit is a wholly-owned subsidiary of Resolution Life, Inc., a Delaware corporation, which is a wholly-owned, indirect subsidiary of Resolution Life L.P. (the Limited Partnership), a Bermuda limited partnership, and Resolution Life (Parallel) Partnership, a Bermuda-based partnership.
11
On April 1, 2014, Resolution Life, Inc. acquired all the outstanding capital stock in Lincoln Benefit (the Acquisition) from Allstate Life Insurance Company (ALIC). Immediately prior to the closing of the transaction, Lincoln Benefit commuted certain business previously reinsured to ALIC, including (a) all of the fixed deferred annuity, value adjusted deferred annuity and indexed deferred annuity business written by the Company that was previously reinsured to ALIC, (b) all of the life insurance business written by the Company through independent producers that was previously reinsured to ALIC, other than certain specified life business, and (c) all of the net liability of the Company with respect to the accident and health and long-term care insurance business written by the Company that was previously reinsured to ALIC ((a), (b) and (c) collectively, the Recaptured Business). In connection with the closing, Lincoln Benefit and ALIC entered into an Amended and Restated Reinsurance Agreement (the ARRA), pursuant to which ALIC continues to reinsure business that was ceded by Lincoln Benefit to ALIC before the closing, with the exception of the Recaptured Business (the ALIC Reinsured Business). ALIC continues to provide certain services with respect to the Recaptured Business on a transitional basis, including services relating to processing of Life block commissions and agent licensing, 2015 agent bonus payments, and escheatment and unclaimed property processing.
ALIC continues to reinsure all life insurance business written by Lincoln Benefit through the Allstate Financial Sales channel, all immediate annuities written by Lincoln Benefit prior to closing of the Acquisition, and certain term life policies written by Lincoln Benefit. This business will continue to be administered by ALIC under an existing administrative services agreement between Lincoln Benefit and ALIC. The Allstate Financial sales channel will continue to sell Lincoln Benefit products until they are fully transitioned to a new Allstate company in 2017. As part of the Acquisition, ALIC has agreed to indemnify the Company for certain liabilities related to the pre-closing activities of the transferred business.
Lincoln Benefits variable annuity business is reinsured by ALIC under an existing reinsurance agreement between Lincoln Benefit and ALIC. In 2006, ALIC disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. and therefore mitigated this aspect of ALICs risk. The Company was not a direct participant of this agreement and its reinsurance agreement with ALIC remains unchanged.
Prior to July 18, 2013, we sold interest-sensitive traditional and variable life insurance and fixed annuities, including deferred and immediate, through independent master brokerage agencies. Effective January 1, 2014, we no longer offer fixed annuities such as deferred and immediate annuities, however, we continue to accept deposits on existing policies.
We have reinsurance agreements whereby certain premiums, contract charges, interest credited to policyholder account balances, contract benefits and expenses are ceded to ALIC and other non-affiliated reinsurers.
In our reports, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not subject to the requirement to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. We frequently use industry publications containing statutory financial information to assess our competitive position.
Lincoln Benefit is subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state agency. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency, reserve adequacy, insurance company licensing and examination, agent licensing, policy forms, rate
12
setting, the nature and amount of investments, claims practices, participation in guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices and corporate governance.
In recent years, the state insurance regulatory framework has come under increased federal scrutiny. As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was enacted in 2010. Many regulations required pursuant to this law must still be finalized and we cannot predict what the final regulations will require, but do not expect a material impact on Lincoln Benefits operations. Dodd-Frank also created the Federal Insurance Office (FIO) within the Treasury Department. The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council, represents the U.S. on international insurance matters and studies the current regulatory system. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Lincoln Benefit.
Item 11(b). | Description of Property |
Lincoln Benefit occupies leased office space in Lincoln, Nebraska and Rosemont, Illinois.
Item 11(c). | Legal Proceedings |
Lincoln Benefit is engaged in routine lawsuits, which, in managements judgment, are not of material importance to its total assets or business prospects.
13
Item 11(e) | Financial Statements and Notes to Financial Statements |
Lincoln Benefit Life Company
(A Wholly-Owned subsidiary of Resolution Life, Inc.)
December 31,2015
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of Lincoln Benefit Life Company:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of shareholders equity and of cash flows present fairly, in all material respects, the financial position of Lincoln Benefit Life Company and its subsidiary at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, Schedule I - Summary of Investments - Other than Investments in Related Parties and Schedule IV - Reinsurance (the financial statement schedules) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
April 1, 2016
15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company
Lincoln, Nebraska
We have audited the accompanying Statements of Operations and Comprehensive Income, Shareholders Equity and Cash Flows of Lincoln Benefit Life Company (the Company) for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis). Our audits also included Schedule IV Reinsurance for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis). These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of operations, shareholders equity and cash flows of Lincoln Benefit Life Company for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis), in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule IV Reinsurance for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis), when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
April 13, 2015
16
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
December 31, 2015 and December 31, 2014
($ in thousands, except par value data and share amounts)
December 31, 2015 |
December 31, 2014 |
|||||||
ASSETS |
||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost $8,274,194 and $9,231,856) |
$ | 7,945,942 | $ | 9,390,647 | ||||
Commercial mortgage loans |
1,509,132 | 1,115,167 | ||||||
Policy loans |
186,827 | 194,385 | ||||||
Short-term investments |
184,820 | 361,369 | ||||||
Other invested assets |
18,412 | 26,897 | ||||||
|
|
|
|
|||||
Total Investments |
9,845,133 | 11,088,465 | ||||||
Cash |
49,121 | 49,730 | ||||||
Accrued investment income |
91,214 | 96,408 | ||||||
Reinsurance recoverables nonaffiliates |
5,984,458 | 5,694,965 | ||||||
Valuation of business acquired |
247,702 | 231,521 | ||||||
Deposit receivable |
1,250,328 | 1,383,388 | ||||||
Other assets |
633,091 | 592,202 | ||||||
Current income tax |
1,472 | | ||||||
Deferred tax asset, net |
65,040 | | ||||||
Separate account assets |
1,395,141 | 1,573,865 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 19,562,700 | $ | 20,710,544 | ||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Future policy benefits and other policyholder liabilities |
$ | 4,757,641 | $ | 4,528,949 | ||||
Policyholders account balances |
11,120,565 | 11,764,312 | ||||||
Accrued expenses and other liabilities |
95,826 | 188,656 | ||||||
Modified coinsurance payable |
1,250,328 | 1,383,388 | ||||||
Deferred tax liability |
| 40,732 | ||||||
Other long-term debt affiliate |
608,700 | 551,600 | ||||||
Separate account liabilities |
1,395,141 | 1,573,865 | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | 19,228,201 | $ | 20,031,502 | ||||
|
|
|
|
|||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, $100 par value, 30,000 shares authorized, 25,000 shares issued and outstanding |
$ | 2,500 | $ | 2,500 | ||||
Additional paid-in capital |
593,558 | 593,558 | ||||||
Accumulated other comprehensive income |
(154,699 | ) | 85,498 | |||||
Retained earnings (deficit) |
(106,860 | ) | (2,514 | ) | ||||
|
|
|
|
|||||
Total Shareholders Equity |
334,499 | 679,042 | ||||||
|
|
|
|
|||||
Total Liabilities and Shareholders Equity |
$ | 19,562,700 | $ | 20,710,544 | ||||
|
|
|
|
See Notes to the Consolidated Financial Statements
17
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Consolidated Statements of Operations and Comprehensive Income (Loss) (Successor) and Statements of Operations and Comprehensive Income (Loss) (Predecessor)
For the Year Ended December 31, 2015, the Period from April 1, 2014 through December 31, 2014, the Period from January 1, 2014 through March 31, 2014 and the Year Ended December 31, 2013
($ in thousands)
Successor | Predecessor | |||||||||||||||||||
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
|||||||||||||||||
Revenues |
||||||||||||||||||||
Premiums earned |
$ | 8,841 | $ | 20,384 | $ | | $ | | ||||||||||||
Fee income from policyholders |
353,932 | 259,169 | | | ||||||||||||||||
Net investment income |
398,931 | 288,571 | 2,350 | 10,935 | ||||||||||||||||
Realized investment gains, net |
113,538 | 46,092 | 285 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
$ | 875,242 | $ | 614,216 | $ | 2,635 | $ | 10,935 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Expenses |
||||||||||||||||||||
Policyholders benefits |
351,744 | 216,543 | | | ||||||||||||||||
Return credited to policyholders account balances |
301,079 | 256,703 | | | ||||||||||||||||
Operating and acquisition expenses |
93,671 | 96,050 | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total expenses |
$ | 746,494 | $ | 569,296 | $ | | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income (Loss) Before Federal Income Tax |
$ | 128,748 | $ | 44,920 | $ | 2,635 | $ | 10,935 | ||||||||||||
Federal Income Tax Expense (Benefit) |
||||||||||||||||||||
Current |
22,528 | | 914 | 3,902 | ||||||||||||||||
Deferred |
23,566 | 14,234 | 8 | (77 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total income tax expense (benefit) |
46,094 | 14,234 | 922 | 3,825 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
NET INCOME (LOSS) |
$ | 82,654 | $ | 30,686 | $ | 1,713 | $ | 7,110 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, before tax |
||||||||||||||||||||
Net unrealized investment gains (losses): |
||||||||||||||||||||
Unrealized investment gains (losses) for the period |
$ | (290,511 | ) | $ | 131,433 | $ | 2,364 | $ | (15,281 | ) | ||||||||||
Reclassification adjustment for (gains) losses included in net income |
79,023 | | 285 | 1 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net unrealized investment gains (losses) |
(369,534 | ) | 131,433 | 2,079 | (15,282 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income, before tax |
||||||||||||||||||||
Less: Income tax expense (benefit) related to: |
||||||||||||||||||||
Unrealized investment gains (losses) for the period |
(101,679 | ) | 45,935 | 828 | (5,349 | ) | ||||||||||||||
Reclassification adjustment for (gains) losses included in net income |
(27,658 | ) | | (100 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net unrealized investment gains (losses) |
(129,337 | ) | 45,935 | 728 | (5,349 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss) income |
(240,197 | ) | 85,498 | 1,351 | (9,933 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive (loss) income |
$ | (157,543 | ) | $ | 116,184 | $ | 3,064 | $ | (2,823 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
18
Lincoln Benefit Life Company
Consolidated Statements of Shareholders Equity (Successor) and Statements of Shareholders Equity (Predecessor)
For the Year Ended December 31, 2015, the Period from April 1, 2014 through December 31, 2014, the Period from January 1, 2014 through March 31, 2014, and the Year Ended December 31, 2013
($ in thousands, except par value data and share amounts)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Other Comprehensive Income (Loss) |
Total Shareholders Equity |
||||||||||||||||||||
Predecessor |
Shares | Amount | ||||||||||||||||||||||
Balance, December 31, 2012 |
25,000 | $ | 2,500 | $ | 180,000 | $ | 150,215 | $ | 13,803 | $ | 346,518 | |||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net income (loss) |
| | | 7,110 | | 7,110 | ||||||||||||||||||
Other comprehensive income (loss), net of tax |
| | | | (9,933 | ) | (9,933 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive income (loss) |
(2,823 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 31, 2013 |
25,000 | $ | 2,500 | $ | 180,000 | $ | 157,325 | $ | 3,870 | $ | 343,695 | |||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net income (loss) |
| | | 1,713 | | 1,713 | ||||||||||||||||||
Other comprehensive income (loss), net of tax |
| | | | 1,351 | 1,351 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive income (loss) |
3,064 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, March 31, 2014 |
25,000 | $ | 2,500 | $ | 180,000 | $ | 159,038 | $ | 5,221 | $ | 346,759 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Successor |
||||||||||||||||||||||||
Balance, April 1, 2014 |
25,000 | $ | 2,500 | $ | 593,308 | $ | | $ | | $ | 595,808 | |||||||||||||
Dividends to shareholder |
| | | (33,200 | ) | | (33,200 | ) | ||||||||||||||||
Capital contribution |
| | 250 | | | 250 | ||||||||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net income |
| | | 30,686 | | 30,686 | ||||||||||||||||||
Other comprehensive income (loss), net of tax |
| | | | 85,498 | 85,498 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive income (loss) |
116,184 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 31, 2014 |
25,000 | $ | 2,500 | $ | 593,558 | $ | (2,514 | ) | $ | 85,498 | $ | 679,042 | ||||||||||||
Dividends to shareholder |
| | | (187,000 | ) | | (187,000 | ) | ||||||||||||||||
Comprehensive income (loss) |
||||||||||||||||||||||||
Net income |
| | | 82,654 | | 82,654 | ||||||||||||||||||
Other comprehensive income (loss), net of tax |
| | | | (240,197 | ) | (240,197 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive income (loss) |
(157,543 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 31, 2015 |
25,000 | $ | 2,500 | $ |
593,558 |
|
$ | (106,860 | ) | $ | (154,699 | ) | $ | 334,499 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
19
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Consolidated Statements of Cash Flows (Successor) and Statements of Cash Flows (Predecessor)
For the Year Ended December 31, 2015, the Period from April 1, 2014 through December 31, 2014, the Period from January 1, 2014 through March 31, 2014 and the Year Ended December 31, 2013
($ in thousands)
Successor | Predecessor | |||||||||||||||||
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
|||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||
Net income (loss) |
$ | 82,654 | $ | 30,686 | $ | 1,713 | $ | 7,110 | ||||||||||
Adjustments to reconcile net income to net cash: |
||||||||||||||||||
Policy charges and fee income |
(353,932 | ) | (259,169 | ) | | | ||||||||||||
Interest credited |
301,079 | 256,703 | | | ||||||||||||||
Investment gains, net |
(125,986 | ) | (46,092 | ) | (285 | ) | | |||||||||||
Amortization/Accretion of bond premium, net |
44,701 | 44,112 | 94 | 630 | ||||||||||||||
Amortization of VOBA |
40,880 | 38,987 | | | ||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||
Decrease (increase) in insurance related liabilities and policy-related balances |
(24,884 | ) | (21,964 | ) | 6,402 | (6,147 | ) | |||||||||||
Decrease (increase) in receivable from/payable to affiliate |
| | 24,358 | (17,255 | ) | |||||||||||||
Deferred income tax expense (benefit) |
23,566 | 14,234 | 921 | (329 | ) | |||||||||||||
Decrease (increase) in accrued investment income |
5,194 | 6,838 | | | ||||||||||||||
Decrease (increase) in other assets and liabilities |
(27,417 | ) | 31,780 | (23,192 | ) | 16,007 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) operating activities |
(34,145 | ) | 96,115 | 10,011 | 16 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||
Fixed maturities, available for sale |
||||||||||||||||||
Proceeds from sales and maturities |
4,739,792 | 1,844,344 | 21,341 | 62,645 | ||||||||||||||
Purchases |
(3,703,237 | ) | (1,898,874 | ) | | (38,896 | ) | |||||||||||
Commercial mortgage loans |
||||||||||||||||||
Proceeds from sales and paydowns |
164,658 | 150,849 | | | ||||||||||||||
Originations and purchases |
(559,110 | ) | | | | |||||||||||||
Net purchases, sales, maturities of derivatives |
(1,379 | ) | (8,636 | ) | | | ||||||||||||
Net purchases, sales, maturities of other investments |
184,107 | 620,425 | 55,924 | (31,738 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities |
824,831 | 708,108 | 77,265 | (7,989 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||
Policyholders account deposits |
356,916 | 340,128 | | | ||||||||||||||
Policyholders account withdrawals |
(922,215 | ) | (1,141,289 | ) | | | ||||||||||||
Dividends paid to shareholder |
(187,000 | ) | (33,200 | ) | | | ||||||||||||
Change in overdrafts |
(38,996 | ) | 39,089 | | | |||||||||||||
Capital contribution |
| 250 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
(791,295 | ) | (795,022 | ) | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
(609 | ) | 9,201 | 87,276 | (7,973 | ) | ||||||||||||
Cash and cash equivalents, beginning of period |
49,730 | 40,529 | 5,100 | 13,073 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents, end of period |
$ | 49,121 | $ | 49,730 | $ | 92,376 | $ | 5,100 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Supplemental schedule of cash flow information: |
||||||||||||||||||
Cash paid during the year: |
||||||||||||||||||
Income taxes paid |
$ | 24,000 | $ | | $ | | $ | 4,200 | ||||||||||
Interest paid |
6,671 | $ | 4,585 | $ | | $ | | |||||||||||
Commutation Agreement proceeds (see Note 1): |
||||||||||||||||||
Cash received on April 1, 2014 |
$ | | $ | | $ | 143,348 | $ | | ||||||||||
Cash received subsequent to April 1, 2014 |
$ | | $ | | $ | 5,946 | $ | | ||||||||||
Invested assets transferred |
$ | | $ | | $ | 11,482,637 | $ | | ||||||||||
Noncash activities |
||||||||||||||||||
Issuance of vehicle note |
$ | | $ | 513,000 | $ | | $ | | ||||||||||
Issuance of other long-term debt |
$ | | $ | 513,000 | $ | | $ | | ||||||||||
Interest income on vehicle note |
$ | | $ | 15,711 | $ | | $ | | ||||||||||
Interest expense on other long-term debt |
$ | | $ | 15,711 | $ | | $ | | ||||||||||
Increase in vehicle note and other long-term debt |
$ | | $ | 38,600 | $ | | $ | | ||||||||||
Increase in modified coinsurance payable and deposit receivable |
$ | |
$ |
166,963 |
|
$ | | $ | |
See Notes to the Consolidated Financial Statements
20
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
1. | General |
Lincoln Benefit Life Company (the Company or Lincoln Benefit) is a stock insurance company domiciled in the State of Nebraska. It is a wholly owned subsidiary of Resolution Life, Inc. (Resolution), which in turn is a wholly owned subsidiary of Resolution Life Holdings, Inc. (Holdings). Resolution was formed on July 2, 2013 under the General Corporation Law of the State of Delaware.
On April 1, 2014, Lancaster Re Captive Insurance Company (Lancaster Re), a Nebraska domiciled captive insurance company, became a wholly owned subsidiary of Lincoln Benefit when it was contributed to Lincoln Benefit by Resolution.
The Company became a wholly owned subsidiary of Resolution on April 1, 2014 after receiving all required regulatory approvals. Prior to this date, it was a wholly owned subsidiary of Allstate Life Insurance Company (ALIC). On July 17, 2013, Holdings executed a Stock Purchase Agreement (the Purchase Agreement) to acquire 100% of the Company from ALIC (the Acquisition). In November 2013, Holdings assigned the right to acquire all of Lincoln Benefits outstanding capital stock to Resolution pursuant to an Assignment Agreement. The purchase price was $595.8 million.
The Company is authorized to sell life insurance and retirement products in all states except New York, as well as in the District of Columbia, the U.S. Virgin Islands and Guam. Prior to July 18, 2013, the Company sold interest-sensitive, traditional and variable life insurance products through both exclusive agencies (Allstate Financial Sales channel) and independent master brokerage agencies. Effective July 17, 2013, sales through the independent master brokerage agencies ceased, and sales through the Allstate Financial sales channel will continue for a period up to 30 months after the closing date of Acquisition. We operate as a single segment entity, based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.
On April 1, 2014, immediately prior to the Acquisition, the Company, pursuant to a Partial Commutation Agreement, recaptured all deferred annuity, long-term care, accident and health and life business sold through Lincoln Benefits independent master brokerage agencies, other than specified life business, previously reinsured by ALIC. The primary impacts of the Partial Commutation Agreement with ALIC were the receipt of investments, the reduction of the related reinsurance recoverable and the reestablishment of deferred acquisition costs. The Companys assets and liabilities increased by $1.33 billion and $0.19 billion, respectively. Since the Partial Commutation Agreement occurred between entities under common control, the excess of assets received and liabilities assumed was recorded as a capital contribution through additional paid-in capital.
Additionally, Lincoln Benefit and ALIC entered into an Amended and Restated Reinsurance Agreement where ALIC continues to reinsure all life insurance business written by Lincoln Benefit through the Allstate Financial Sales channel, all immediate annuities written by Lincoln Benefit prior to closing of the Acquisition, and certain term life policies written by Lincoln Benefit. Lincoln Benefits variable annuity business will remain reinsured by ALIC under an existing reinsurance agreement between Lincoln Benefit and ALIC. This business will continue to be administered by ALIC under an existing administrative services agreement between Lincoln Benefit and ALIC.
As part of the Acquisition, ALIC has agreed to indemnify the Company for certain matters. ALIC has also agreed to indemnify the Company for certain litigation, regulatory matters and other liabilities related to the pre-closing activities of the transferred business.
21
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at fair value at the date of acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed as of April 1, 2014:
($ in thousands) |
||||
Assets |
||||
Fixed maturities |
$ | 9,194,903 | ||
Commercial mortgage loans |
1,263,902 | |||
Policy loans |
196,451 | |||
Short-term investments |
979,728 | |||
Other invested assets |
1,104 | |||
Cash |
40,529 | |||
Accrued investment income |
103,246 | |||
Reinsurance recoverable |
5,606,879 | |||
Value of business acquired |
290,795 | |||
Deposit receivable |
1,550,351 | |||
Intangibles |
5,200 | |||
Other assets |
554,176 | |||
Separate account assets |
1,661,007 | |||
|
|
|||
Total assets acquired |
21,448,271 | |||
|
|
|||
Liabilities |
||||
Future policy benefits and other policyholder liabilities |
6,682,833 | |||
Policyholders account balances |
10,367,246 | |||
Accrued expenses and other liabilities |
78,026 | |||
Modified coinsurance payable |
1,550,351 | |||
Other long-term debt affiliate |
513,000 | |||
Separate account liabilities |
1,661,007 | |||
|
|
|||
Total liabilities assumed |
20,852,463 | |||
|
|
|||
Net assets acquired |
$ | 595,808 | ||
|
|
Included in the assets acquired is the value of business acquired (VOBA), which reflects the estimated fair value of in-force contracts acquired and represents the portion of the purchase price that is allocated to the future profits embedded in the acquired contracts at the acquisition date. See Note 11 for further explanation of VOBA. The assessment of fair value in accordance with ASC 805-20-25 included the establishment of intangible assets for VOBA and various state licenses.
Basis of Presentation
The Companys financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The financial statements are presented for Successor and Predecessor periods, which relate to the accounting periods after and before April 1, 2014, respectively, the date of the closing of the Acquisition. For periods after April 1, 2014, the accompanying financial statements comprise the consolidated financial statements of the Company, which include the accounts of the Company and its subsidiary. Due to the Acquisition and the application of push-down accounting, different bases of accounting have been used to prepare the Predecessor and Successor financial statements. A black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods. The principal accounting policies applied in the preparation of these financial statements are set out below and in Note 2.
22
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Consolidation
The accompanying consolidated financial statements of the Successor include the accounts of Lincoln Benefit and its subsidiary, Lancaster Re. All significant intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. | Significant Accounting Policies |
Cash
Cash includes cash on hand, amounts due from banks, money market securities, highly liquid overnight deposits, discount notes and commercial paper held in the ordinary course of business and other debt instruments with maturities of three months or less when purchased.
Investments
Fixed maturities include bonds, asset-backed securities (ABS) residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). Fixed maturities, which may be sold prior to their contractual maturity, are designated as available-for-sale (AFS) and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income. Cash received from calls, principal payments and make-whole payments and cash received from maturities and pay-downs are reflected as a component of proceeds from sales and maturities within the Consolidated Statement of Cash Flows Successor and Statement of Cash Flows Predecessor.
The Company recognizes other-than-temporary impairments (OTTI) for securities classified as AFS in accordance with ASC 320, Investments-Debt and Equity Securities. At least quarterly, management reviews impaired securities for OTTI. The Company considers several factors when determining if a security is OTTI, including but not limited to: its intent and ability to hold the impaired security until an anticipated recovery in value, the issuers ability to meet current and future principal and interest obligations for fixed maturity securities, the length and severity of the impairment, the financial condition and near term and long term prospects for the issuer. In making these evaluations, the Company exercises considerable judgment.
If the Company intends to sell or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, then the Company recognizes a charge to earnings for the full amount of the impairment (the difference between the amortized cost and fair value of the security). For fixed maturity securities that are considered OTTI and that the Company does not intend to sell and will not be required to sell, the Company separates the impairment into two components: credit loss and noncredit loss. Credit losses are charged to net realized investment losses and noncredit losses are charged to other comprehensive income. The credit loss component is the difference between the securitys amortized cost and the present value of its expected future cash flows discounted at the current effective rate. The remaining difference between the securitys fair value and the present value of its expected future cash flows is the noncredit loss. For corporate bonds, historical default (by rating) data is used as a proxy for the probability of default, and loss given default (by issuer) projections are applied to the par amount of the bond. Potential losses incurred on structured securities
23
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
are based on expected loss models rather than incurred loss models. Expected cash flows include assumptions about key systematic risks (e.g., unemployment rates, housing prices) and loan-specific information (e.g., delinquency rates, loan-to-value ratios). Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral.
Commercial mortgage loans (CMLs) acquired at fair value are carried at amortized cost using the effective interest rate method. CMLs held by the Company are diversified by property type and geographic area throughout the U.S. CMLs are considered impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement. The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value of the underlying collateral using internal valuations generally based on discounted cash flow analyses. The Company estimates an allowance for loan and lease losses (ALLL) representing potential credit losses embedded in the CML portfolio. The estimate is based on a consistently applied analysis of the loan portfolio and takes into consideration all available information, including industry, geographical, economic and political factors.
Policy loans represent loans the Company issues to policyholders. Policy loans are carried at unpaid principal balances. Interest income on such loans is recognized as earned using the contractually agreed upon interest rate and reflected in Net investment income in the Consolidated Statement of Operations and Comprehensive Income (Loss). Generally, interest is capitalized on the associated policys anniversary date.
Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates fair value.
Derivatives
As part of the Companys overall risk management policy, the Company uses listed options and exchange traded futures to economically hedge its obligation under certain fixed indexed annuity and universal life contracts. Derivative financial instruments utilized by the Company during the year ended December 31, 2015 and in the period from April 1, 2014 through December 31, 2014 (the Successor Period) included index option contracts and futures contracts. Derivatives are carried in the Companys Consolidated Balance Sheet either as assets within Other invested assets or as liabilities within Accrued expenses and other liabilities at estimated fair value. The Company offsets the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities. If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in realized investment gains, net in the Consolidated Statement of Operations and Comprehensive Income (Loss). The notional amounts specified in the contracts are used to calculate contractual payments under the agreements and are generally not representative of the potential for gain or loss on these contracts. Futures contracts are defined as commitments to buy or sell designated financial instruments based on specified prices, yields or indexes. Futures contracts provide returns at specified or optional dates based upon a specified index or interest rate applied to a notional amount. The Company uses futures to hedge exposures in indexed annuity and life contracts. Daily cash settlement of variation margins is required for futures contracts and is based on the changes in daily prices. The final settlement of futures contracts is in cash. Index option contracts provide returns at specified or optional dates based on a specified equity index applied to the options notional amount. The Company purchases and writes (sells) option contracts primarily to
24
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
reduce market risk associated with certain annuity and life contracts. When the Company purchases/sells option contracts at specific prices, it is required to pay/receive a premium to/from the counterparties. The amount of premium paid/received is based on the number of contracts purchased/sold, the specified price and the maturity date of the contract. The Company receives/pays cash equal to the premium of written/purchased options when the contract is established. If the option is exercised, the Company receives/pays cash equal to the product of the number of contracts and the specified price in the contract in exchange for the equity upon which the option is written/purchased. If the options are not exercised, then no additional cash is exchanged when the contract expires. Premiums paid are reported as a derivative asset and premiums received are reported as a derivative liability. Purchased put and call index option contracts are cash settled upon exercise and the gain or loss on the settlement is reported in net investment income. If the purchased option contract expires without being exercised, the premiums paid are reported as net investment income and the corresponding asset previously recorded is reversed. The change in the fair value of written option contracts is reported in Realized investment gains, net, with an adjustment to a corresponding liability. Written call index option contracts are cash settled upon exercise and the gain or loss on settlement is reported in Realized investment gains, net.
The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. The Companys embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders, guaranteed minimum accumulation and withdrawal benefits in variable annuity contracts. The Company has reinsurance agreements to transfer all the risk related to guarantee minimum income, accumulation and withdrawal benefits in variable annuity contracts to third party reinsurers. None of these derivatives are designated as accounting hedging instruments and all are gross liabilities reported in policyholder account balances or future policy benefits and other policyholder liabilities.
Investment Income and Realized Gains and Losses
Investment income primarily consists of interest and is recognized on an accrual basis using the effective yield method. Interest income for RMBS and CMBS is determined considering estimated pay-downs, including prepayments, obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received. For RMBS and CMBS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is recalculated on a prospective basis. Accrual of income is suspended for other-than-temporarily impaired fixed maturities when the timing and amount of cash flows expected to be received is not reasonably estimable. It is the Companys policy to cease to carry accrued interest on commercial mortgage loans that are over 90 days delinquent. The Company held no non-income producing investments as of December 31, 2015 or December 31, 2014.
Realized investment gains and losses net include gains and losses on investment sales and write-downs in value due to other-than-temporary declines in fair value. Realized capital gains and losses on investment sales, including principal payments, are determined on a specific identification basis.
Recognition of Premium Revenues and Fees, and Related Policyholders Benefits and Interest Credited
Prior to April 1, 2014 or the periods prior to April 1, 2014 (the Predecessor Periods), the Company had reinsurance agreements whereby all premiums, fee income from policyholders and returns credited to policyholders, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Amounts reflected in the Statements of Operations and Comprehensive Income (Loss) are presented net of reinsurance.
25
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Surrender values on traditional life and death benefits are reflected in policyholder benefits.
Immediate annuities with life contingencies provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. As of April 1, 2014, the Company has reinsurance agreements to transfer all the risk related to immediate annuities existing as of or prior to the Acquisition Date.
Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the policyholder, interest credited to the policyholder account balance and contract charges assessed against the policyholder account balance. Premiums from these contracts are reported as policyholder account balances. Fee income from policyholders consist of fees assessed against the policyholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the policy prior to contractually specified dates. These charges are recognized as revenue when assessed against the policyholder account balance. Policyholder benefits include life-contingent benefit payments in excess of the policyholder account balance.
Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as policyholder account balance deposits. Policy fees for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the policyholder account balance.
Return credited to policyholder funds represents interest accrued or paid on interest-sensitive life and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed life and annuities are generally based on an equity index, such as the Standard & Poors (S&P) 500 Index.
Policy charges for variable life and variable annuity products consist of fees assessed against the policyholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Policy benefits incurred for variable life and variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits.
The Company incurs costs in connection with renewal insurance business. All acquisition-related costs, including commissions, as well as all indirect costs, are expensed as incurred and reported in Other expenses on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014.
Reinsurance
Reinsurance accounting is applied for ceded and assumed transactions when the risk transfer provisions of ASC 944-40, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, have
26
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
been met. To meet risk transfer requirements, a long-duration reinsurance contract must transfer mortality or morbidity risks, and subject the reinsurer to a reasonable possibility of a significant loss. Those contracts that do not meet risk transfer requirements are accounted for using deposit accounting. For short duration contracts, to meet risk transfer requirements the reinsurer must assume significant insurance risk and have a reasonable possibility of experiencing significant loss.
With respect to ceded reinsurance, the Company values reinsurance recoverables on reported claims at the time the underlying claim is recognized in accordance with contract terms. For future policy benefits, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information. The reinsurance recoverables are based on what the Company believes are reasonable estimates and the balance is reported as an asset in the Consolidated Balance Sheets (Successor). However, the ultimate amount of the reinsurance recoverable is not known until all claims are settled. Reinsurance contracts do not relieve the Company from its obligations to policyholders, and failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible.
In the Predecessor periods, or the periods prior to April 1, 2014, the Company had reinsurance agreements whereby all insurance risks represented by premiums, fee income from policyholders, returns credited to policyholder account balances, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Additionally, investment income earned on the assets that supported policyholder account balances and future policy benefits and other policyholder funds were not included in the Companys financial statements, as those assets were owned and managed by ALIC and other reinsurers under the terms of the reinsurance agreements.
Value of Business Acquired (VOBA)
For interest-sensitive life products, VOBA is amortized over the life of the policies in relation to the emergence of estimated gross profits (EGPs) from margins on mortality, interest, expenses, and surrenders, all of which are net of reinsurance and include actual realized gains and losses on investments. For non-interest sensitive life products, such as term life insurance, VOBA is amortized in relation to premium. VOBA is reviewed periodically for loss recognition to ensure that the unamortized balance is recoverable from future earnings from the business. The carrying amount of VOBA is adjusted for the effects of realized and unrealized gains and losses on debt securities classified as AFS.
Separate Accounts
Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders claims to the related assets and are carried at an amount equal to the separate accounts 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 Companys Consolidated Statement of Operations and Comprehensive Income (Successor) or Statements of Operations and Comprehensive Income (Predecessor). Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows.
Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts funds may not meet their stated investment objectives.
27
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Future Policy Benefits and Other Policyholder Liabilities
Policy liabilities are established for future policy benefits on certain annuity, life, and long term care policies. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in-force. Changes in policy and contract claims are recorded in policyholder benefits in the Consolidated Statements of Operations and Comprehensive Income (Loss).
For ASC 944-20 products, benefit reserves are computed using the net level premium method for individual life, annuity and long-term care policies, and are based upon estimates as to future investment yield, mortality and lapse that include provisions for adverse deviation that were prevalent at the time the reserve was initially established. Mortality, morbidity and lapse assumptions for all policies are based on the Companys own experience and industry standards.
Liabilities for outstanding claims and claims adjustment expenses are estimates of payments to be made on life and health insurance contracts for reported claims and claims adjustment expenses. A liability is also held for claims adjustment expenses incurred but not reported as of the balance sheet date. These liabilities are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all claims incurred but not paid. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations.
Future policy benefit reserves for fixed indexed annuity policies with returns linked to the performance of a specified market index are equal to the excess of the sum of the fair value of the embedded derivative and the host (or guaranteed) component over the policyholder account balance. The change in the fair value of the embedded derivative is linked to the performance of the equity option. The host value is established as of the date of acquisition and is equal to the account value, plus the value of the unexpired options at the date of acquisition, less the embedded derivative, and accreted over the policys life at a constant rate of interest.
The Company holds additional liabilities for its no lapse guarantees (associated with universal life) and guaranteed minimum withdrawal benefits (associated with fixed indexed annuities). These are accounted for in accordance with ASC 944-20, Financial Services Insurance Activities.
Policy liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in-force. The amount of liabilities and accruals, however, could be revised if the estimates discussed above are revised.
Policyholders Account Balances
Policyholder account balances represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Policyholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.
Future policy benefits reserves for the portion of fixed indexed annuities earning a fixed rate of interest, and other deferred annuity products are computed under a retrospective deposit method and represent policyholders account balances before applicable surrender charges. The prior year amount of $1.9 billion has been reclassified from Future Policy Benefits and Other Policyholder Liabilities to Policyholders Account Balances to conform with the current year presentation.
The Company holds additional liabilities for guaranteed minimum income benefits (GMIB) associated with variable annuities, which are accounted for in accordance with ASC 944-20, Financial Services Insurance Activities. The reserves for certain living benefit features, including guaranteed minimum accumulation benefits
28
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
(GMAB) and guaranteed minimum withdrawal benefits (GMWB) are accounted for as embedded derivatives, with fair values calculated as the present value of expected future benefit payments to contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. The Companys GMIB, GMAB and GMWB reserves are ceded to external reinsurers. For additional information regarding the valuation of these optional living benefit features, see Note 10.
Income Taxes Successor
Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial statement and income tax bases of assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed at each reporting date and a deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized. Tax positions are assessed under a two-step approach, which requires the assessment of recognition and measurement. The Company reports interest expense related to income tax matters and tax penalties in other operating expenses in the Consolidated Statement of Operations and Comprehensive Income (Loss).
Income Taxes Predecessor
The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses, accrued expenses and reinsurance recoverables. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized.
Other Long-Term Debt
Effective April 1, 2014, and with Nebraska Department of Insurance (the NE DOI or the Department of Insurance) approval, Lancaster Re issued a variable funding Surplus Note (the Surplus Note) to its affiliate, Lanis, LLC. for $513 million and acquired from Lanis a Vehicle Note (the Vehicle Note) for $513 million. The Vehicle Note is held to support a portion of Lancaster Res reinsurance obligations and has been authorized as an acceptable form of reinsurance collateral pursuant to Nebraska Rev. Stat. §44-8216(8)(c)(i) which allows a special purpose financial captive insurer to establish any method of security that the Department deems acceptable. The scheduled maturity date of the Vehicle Note is April 1, 2034, and the scheduled maturity date of the Surplus Note is April 1, 2039, although each may be cancelled earlier or extended under certain conditions. The Surplus Note does not repay principal prior to maturity and principal payment at maturity is subject to the prior approval of the Department of Insurance. With pre-approval, the Surplus Note is increased each quarter with a corresponding increase in the Vehicle Note. With Department pre-approval, interest on the Surplus Note for the prior quarter is paid on the first day of each subsequent quarter at a rate consistent with the rate received on the Vehicle Note of 4%. The Surplus Note and Vehicle Note increased by $57.1 million and $38.6 million in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. Interest expense of $22.9 million and $15.7 million was recognized in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. The Surplus Note is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Lancaster Re.
Other Assets and Accrued Expenses and Other Liabilities
Other assets consist primarily of premiums due, intangible assets, the Vehicle Note and receivables resulting from sales of securities that had not yet settled at the balance sheet date. Other liabilities consist primarily of accrued expenses, technical overdrafts, derivatives, and payables resulting from purchases of securities that had not yet been settled at the balance sheet date.
29
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year financial statement presentation.
Adoption of New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board issued guidance requiring expanded disclosures about the amounts reclassified out of accumulated other comprehensive income by component. The guidance requires the presentation of significant amounts reclassified out of accumulated other comprehensive income by income statement line item, but only if the amount reclassified is required under accounting principles generally accepted in the United States of America (GAAP) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, cross-reference to other disclosures that provide additional detail about those amounts is required. The Company adopted the new guidance in 2013. The new guidance affects disclosures only and therefore had no impact on the Companys results of operations or financial position.
Effective November 18, 2014, the Company adopted new guidance on when, if ever, the cost of acquiring an entity should be used to establish a new accounting basis (pushdown) in the acquired entitys separate financial statements. The guidance provides an acquired entity and its subsidiaries with an irrevocable option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. If a reporting entity elects to apply pushdown accounting, its stand-alone financial statements would reflect the acquirers new basis in the acquired entitys assets and liabilities. The election to apply pushdown accounting should be determined by an acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity; however, an entity that does not elect to apply pushdown accounting in the period of a change-in-control can later elect to retrospectively apply pushdown accounting to the most recent change-in-control transaction as a change in accounting principle. The Company has applied pushdown accounting as a result of the Acquisition in the Successor Period, as disclosed in Note 1.
In January 2014, the FASB issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014. This guidance can be elected for prospective adoption or by using a modified retrospective transition method. The adoption of this new guidance in 2015 did not have a material impact on the Companys consolidated financial position, results of operations or financial statement disclosures.
In May 2014, the FASB issued a comprehensive new revenue recognition standard effective for fiscal years beginning after December 15, 2016 and interim periods within those years and should be applied retrospectively. In August 2015, the FASB amended the guidance to defer the effective date by one year, effective for the fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance will supersede nearly all existing revenue recognition guidance under GAAP; however, it will not impact the accounting for insurance contracts, leases, financial instruments and guarantees. For those contracts that are impacted by the new guidance, the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The Company is currently assessing the impact of the guidance on the Companys consolidated financial position, results of operations and financial statement disclosures.
30
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
In August 2014, the FASB issued guidance requiring that mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014, with early adoption permitted. The adoption of this guidance did not have a material impact on the Companys consolidated financial position, results of operations or financial statement disclosures.
In February 2015, the FASB issued updated guidance regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. This guidance is not expected to have a significant effect on the Companys consolidated financial position, results of operations or financial statement disclosures.
In May 2015, the FASB issued new guidance on short-duration insurance contracts. The amendments in this new guidance are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments to these estimates, including information on: (i) reconciling from the claim development table to the balance sheet liability; (ii) methodologies and judgments in estimating claims; and (iii) the timing, and frequency of claims. This guidance is not expected to have a significant effect on the Companys consolidated financial position, results of operations or financial statement disclosures.
In May 2015, the FASB issued new guidance on fair value measurement effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and which should be applied retrospectively to all periods presented. Earlier application is permitted. The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV per share (or its equivalent) practical expedient. In addition, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. This guidance is not expected to have a significant effect on the Companys consolidated financial position, results of operations or financial statement disclosures.
In April 2015, the FASB issued new guidance on accounting for fees paid in a cloud computing arrangement, effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the new guidance is permitted and an entity can elect to adopt the guidance either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The new guidance provides that all software licenses included in cloud computing arrangements be accounted for consistent with other licenses of intangible assets. However, if a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract, the accounting for which did not change. This guidance is not expected to have a significant effect on the Companys consolidated financial position, results of operations or financial statement disclosures.
In January 2016, the FASB issued new guidance on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to: (i) the classification and measurement of certain equity investments; (ii) the presentation of changes in the fair value of financial liabilities measured under
31
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
the fair value option that are due to instrument-specific credit risk; and (iii) certain disclosures associated with the fair value of financial instruments. The Company is currently assessing the impact of the guidance on the Companys consolidated financial position, results of operations and financial statement disclosures.
3. | Investments |
The amortized cost, gross unrealized gains and losses and fair value for fixed maturities as of December 31, 2015 and 2014 were as follows:
December 31, 2015 Successor ($ in thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Fixed maturities |
||||||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 163,096 | $ | 5,563 | $ | (81 | ) | $ | 168,578 | |||||||
Obligations of U.S. States and Political Subdivisions |
712,948 | 14,827 | (7,018 | ) | 720,757 | |||||||||||
Foreign government |
72,042 | 202 | (10,601 | ) | 61,643 | |||||||||||
Corporate securities |
6,060,561 | 31,263 | (353,149 | ) | 5,738,675 | |||||||||||
ABS |
542,503 | 2,517 | (8,229 | ) | 536,791 | |||||||||||
CMBS |
513,316 | 627 | (7,244 | ) | 506,699 | |||||||||||
RMBS |
209,728 | 4,600 | (1,529 | ) | 212,799 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 8,274,194 | $ | 59,599 | $ | (387,851 | ) | $ | 7,945,942 | |||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014 Successor ($ in thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Fixed maturities |
||||||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 287,077 | $ | 20,933 | $ | (58 | ) | $ | 307,952 | |||||||
Obligations of U.S. States and Political Subdivisions |
517,378 | 26,888 | (531 | ) | 543,735 | |||||||||||
Foreign government |
250,008 | 5,637 | (437 | ) | 255,208 | |||||||||||
Corporate securities |
7,279,391 | 132,481 | (34,127 | ) | 7,377,745 | |||||||||||
ABS |
378,906 | 6,145 | (2,408 | ) | 382,643 | |||||||||||
CMBS |
331,041 | 3,507 | (1,065 | ) | 333,483 | |||||||||||
RMBS |
188,055 | 2,849 | (1,023 | ) | 189,881 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 9,231,856 | $ | 198,440 | $ | (39,649 | ) | $ | 9,390,647 | |||||||
|
|
|
|
|
|
|
|
Scheduled Maturities Successor
The scheduled maturities for fixed maturities are as follows as of December 31, 2015:
($ in thousands) |
Amortized Cost |
Fair Value | ||||||
Due in one year or less |
$ | 190,261 | $ | 189,547 | ||||
Due after one year through five years |
1,461,237 | 1,459,059 | ||||||
Due after five years through ten years |
2,148,851 | 2,092,046 | ||||||
Due after ten years |
3,208,298 | 2,949,002 | ||||||
|
|
|
|
|||||
Total before asset and mortgage-backed securities |
7,008,647 | 6,689,654 | ||||||
Asset and mortgage-backed securities |
1,265,547 | 1,256,288 | ||||||
|
|
|
|
|||||
Total fixed maturities |
$ | 8,274,194 | $ | 7,945,942 | ||||
|
|
|
|
32
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. Asset and mortgage-backed securities are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.
Commercial Mortgage Loans Successor
The Company diversifies its commercial mortgage loan portfolio by geographical region to reduce concentration risk. The following table presents the Companys commercial mortgage loan portfolio by geographical region as of December 31, 2015 and December 31, 2014:
($ in thousands) |
December 31, 2015 |
December 31, 2014 |
||||||
Alabama |
$ | 1,508 | $ | 1,720 | ||||
Arizona |
34,911 | 35,481 | ||||||
California |
336,310 | 255,563 | ||||||
Colorado |
57,207 | 22,381 | ||||||
Connecticut |
25,374 | | ||||||
Florida |
86,698 | 20,779 | ||||||
Georgia |
67,213 | 27,502 | ||||||
Hawaii |
7,134 | 8,125 | ||||||
Illinois |
92,813 | 53,174 | ||||||
Iowa |
1,266 | 1,490 | ||||||
Kansas |
9,200 | | ||||||
Kentucky |
7,696 | 8,260 | ||||||
Maine |
3,905 | 4,114 | ||||||
Maryland |
33,844 | 35,536 | ||||||
Massachusetts |
90,897 | 92,963 | ||||||
Minnesota |
148,346 | 52,496 | ||||||
Missouri |
| 9,324 | ||||||
Nevada |
14,262 | 14,705 | ||||||
New Jersey |
68,720 | 84,007 | ||||||
New York |
94,985 | 72,625 | ||||||
North Carolina |
58,078 | 31,111 | ||||||
Ohio |
36,954 | 38,400 | ||||||
Oklahoma |
10,803 | 10,835 | ||||||
Pennsylvania |
41,975 | 37,688 | ||||||
South Carolina |
2,532 | 3,130 | ||||||
Tennessee |
5,278 | 5,719 | ||||||
Texas |
107,279 | 103,778 | ||||||
Utah |
44,366 | 45,914 | ||||||
Virginia |
2,353 | 18,572 | ||||||
Washington |
11,550 | 13,138 | ||||||
Wisconsin |
5,675 | 6,637 | ||||||
General allowance for loan loss |
| | ||||||
|
|
|
|
|||||
Total commercial mortgage loans |
$ | 1,509,132 | $ | 1,115,167 | ||||
|
|
|
|
33
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Credit Quality of Commercial Mortgage Loans
The credit quality of commercial mortgage loans held-for-investment were as follows at December 31, 2015 and December 31, 2014:
Recorded Investment | ||||||||||||||||||||||||||||
Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
December 31, 2015
($ in thousands) |
> 1.20x | 1.00x - 1.20x | < 1.00x | Total | % of Total | Estimated Fair Value |
% of Total | |||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
Loan-to-value ratios: |
||||||||||||||||||||||||||||
Less than 65% |
$ | 869,470 | $ | 85,869 | $ | 19,862 | $ | 975,201 | 64.6 | % | $ | 1,000,948 | 65.1 | % | ||||||||||||||
65% to 75% |
508,557 | 25,374 | | 533,931 | 35.4 | 535,690 | 34.9 | |||||||||||||||||||||
76% to 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
Greater than 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,378,027 | $ | 111,243 | $ | 19,862 | $ | 1,509,132 | 100.0 | % | $ | 1,536,638 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Recorded Investment | ||||||||||||||||||||||||||||
Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
December 31, 2014
($ in thousands) |
> 1.20x | 1.00x - 1.20x | < 1.00x | Total | % of Total | Estimated Fair Value |
% of Total | |||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||
Loan-to-value ratios: |
||||||||||||||||||||||||||||
Less than 65% |
$ | 930,592 | $ | 151,700 | $ | 29,460 | $ | 1,111,752 | 97.6 | % | $ | 1,146,030 | 97.6 | % | ||||||||||||||
65% to 75% |
16,591 | 10,537 | | 27,128 | 2.4 | 28,275 | 2.4 | |||||||||||||||||||||
76% to 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
Greater than 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 947,183 | $ | 162,237 | $ | 29,460 | $ | 1,138,880 | 100.0 | % | $ | 1,174,305 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 and December 31, 2014, the Company had no allowance for credit losses for commercial mortgage loans. As of December 31, 2015 and December 31, 2014, $1,509 million and $1,139 million, respectively, of commercial mortgage loans were in current status with no commercial mortgage or other loans classified as past due. The Company defines current in its aging of past due commercial mortgage and other loans as less than 30 days past due.
Impaired loans include those loans for which it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. As of December 31, 2015 and December 31, 2014, the Company held no impaired commercial mortgage loans.
The Companys commercial mortgage may occasionally be involved in a troubled debt restructuring. As of December 31, 2015, the Company had no commitments to fund to borrowers that have been involved in a troubled debt restructuring. As of December 31, 2015 and December 31, 2014, the Company had no new troubled debt restructurings related to commercial mortgage and no payment defaults on commercial mortgages.
34
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Other Invested Assets Successor
The following table sets forth the composition of Other invested assets as of December 31, 2015 and December 31, 2014:
Amortized Cost
Successor | Successor | |||||||
($ in thousands) |
December 31, 2015 |
December 31, 2014 |
||||||
Low income housing tax credit properties |
$ | 677 | $ | 896 | ||||
Derivatives |
17,735 | 26,001 | ||||||
|
|
|
|
|||||
$ | 18,412 | $ | 26,897 | |||||
|
|
|
|
Net Investment Income
Net investment income for Successor Periods for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
Successor | Predecessor | |||||||||||||||
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
||||||||||||
Fixed maturities |
$ | 334,931 | $ | 231,972 | $ | 2,461 | $ | 11,545 | ||||||||
Commercial mortgage loans |
63,028 | 49,417 | | | ||||||||||||
Cash, cash equivalents and short-term investments |
511 | 4,786 | 16 | 23 | ||||||||||||
Other investment (loss) income |
9,543 | 7,353 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross investment income |
408,013 | 293,528 | 2,477 | 11,568 | ||||||||||||
Investment expenses |
9,082 | 4,957 | 127 | 633 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income |
$ | 398,931 | $ | 288,571 | $ | 2,350 | $ | 10,935 | ||||||||
|
|
|
|
|
|
|
|
35
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Realized Investment Gains and Losses
Realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
Successor | Predecessor | |||||||||||||||
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
||||||||||||
Realized investment gains, net |
||||||||||||||||
Fixed maturities |
$ | 120,421 | $ | 25,795 | $ | 285 | $ | | ||||||||
Commercial mortgage loans |
2,325 | 2,880 | | | ||||||||||||
Derivatives |
(9,208 | ) | 17,417 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net realized gains |
$ | 113,538 | $ | 46,092 | $ | 285 | $ | | ||||||||
|
|
|
|
|
|
|
|
There were no other-than-temporary impairment losses recorded in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014.
There were no other-than-temporary impairment losses recorded in the Predecessor Period from January 1, 2014 through March 31, 2014. Realized capital gains and losses in the Predecessor year ended December 31, 2013 included $2 thousand of other-than-temporary impairment losses related to RMBS, none of which were included in other comprehensive income. No other-than-temporary impairment losses were included in accumulated other comprehensive income as of December 31, 2015 or as of December 31, 2014.
Proceeds from sales of fixed maturities and gross realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
Successor | Predecessor | |||||||||||||||
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
||||||||||||
Fixed maturities, available-for-sale |
||||||||||||||||
Proceeds from sales |
$ | 3,864,356 | $ | 1,429,177 | $ | 5,277 | $ | 9,170 | ||||||||
Gross investment gains from sales |
147,287 | 30,403 | 317 | 3 | ||||||||||||
Gross investment losses from sales |
(26,829 | ) | (4,608 | ) | (32 | ) | (1 | ) |
Proceeds from sales excludes taxable exchanges of $72.4 million and $3.0 million for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively.
36
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Unrealized Investment Gains and Losses Successor
The following table summarizes the gross unrealized losses and fair value of fixed maturities by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and December 31, 2014:
Less than 12 months | Greater than 12 months | |||||||||||||||||||||||
December 31, 2015
($ in thousands) |
Fair Value | Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value | Gross Unrealized Losses |
||||||||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 18,639 | $ | (77 | ) | $ | 98 | $ | (4 | ) | $ | 18,737 | $ | (81 | ) | |||||||||
Obligations of U.S. States and Political Subdivisions |
207,889 | (6,983 | ) | 4,030 | (35 | ) | 211,919 | (7,018 | ) | |||||||||||||||
Foreign government |
41,507 | (8,665 | ) | 5,965 | (1,936 | ) | 47,472 | (10,601 | ) | |||||||||||||||
All other corporate securities |
3,523,371 | (293,131 | ) | 209,474 | (60,018 | ) | 3,732,845 | (353,149 | ) | |||||||||||||||
ABS |
397,884 | (7,031 | ) | 15,040 | (1,198 | ) | 412,924 | (8,229 | ) | |||||||||||||||
CMBS |
437,244 | (7,164 | ) | 8,419 | (80 | ) | 445,663 | (7,244 | ) | |||||||||||||||
RMBS |
65,470 | (776 | ) | 29,659 | (753 | ) | 95,129 | (1,529 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed income securities |
$ | 4,692,004 | $ | (323,827 | ) | $ | 272,685 | $ | (64,024 | ) | $ | 4,964,689 | $ | (387,851 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less than 12 months | Greater than 12 months | |||||||||||||||||||||||
December 31, 2014
($ in thousands) |
Fair Value | Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value | Gross Unrealized Losses |
||||||||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 14,160 | $ | (58 | ) | $ | | $ | | $ | 14,160 | $ | (58 | ) | ||||||||||
Obligations of U.S. States and Political Subdivisions |
57,605 | (531 | ) | | | 57,605 | (531 | ) | ||||||||||||||||
Foreign government |
37,543 | (437 | ) | | | 37,543 | (437 | ) | ||||||||||||||||
All other corporate securities |
1,683,186 | (34,127 | ) | | | 1,683,186 | (34,127 | ) | ||||||||||||||||
ABS |
115,568 | (2,408 | ) | | | 115,568 | (2,408 | ) | ||||||||||||||||
CMBS |
135,203 | (1,065 | ) | | | 135,203 | (1,065 | ) | ||||||||||||||||
RMBS |
92,804 | (1,023 | ) | | | 92,804 | (1,023 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed income securities |
$ | 2,136,069 | $ | (39,649 | ) | $ | | $ | | $ | 2,136,069 | $ | (39,649 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Monitoring
The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed maturity security whose carrying value may be other-than-temporarily impaired.
For each fixed maturity security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the securitys decline in fair value is considered other-than-temporary and is recorded in earnings.
37
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
If the Company has not made the decision to sell the fixed maturity security and it is not more likely than not the Company will be required to sell the fixed maturity security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the securitys original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.
The Companys portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Companys evaluation of other-than-temporary impairment for these fixed maturity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost.
38
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Net Unrealized Investment Gains and Losses in AOCI
($ in thousands)
Predecessor |
Net Unrealized Gain (Losses) on Investments |
VOBA | Future Policy Benefits and Policyholders Account Balances |
Deferred Income Tax (Liability) Benefit |
Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses) |
|||||||||||||||
Balance, December 31, 2012 |
$ | 21,236 | $ | | $ | | $ | (7,433 | ) | $ | 13,803 | |||||||||
Net investment gains and losses on investments arising during the period |
(15,281 | ) | | | 5,349 | (9,932 | ) | |||||||||||||
Reclassification adjustment for gains and losses included in net income |
1 | | | | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2013 |
$ | 5,954 | $ | | $ | | $ | (2,084 | ) | $ | 3,870 | |||||||||
Net investment gains and losses on investments arising during the period |
2,364 | | | (828 | ) | 1,536 | ||||||||||||||
Reclassification adjustment for gains and losses included in net income |
285 | | | (100 | ) | 185 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, March 31, 2014 |
$ | 8,033 | $ | | $ | | $ | (2,812 | ) | $ | 5,221 | |||||||||
Successor |
||||||||||||||||||||
Balance, April 1, 2014 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Net investment gains and losses on investments arising during the period |
159,261 | | | (55,675 | ) | 103,586 | ||||||||||||||
Reclassification adjustment for gains and losses included in net income |
| | | | | |||||||||||||||
Impact of net unrealized investment gains and losses on VOBA |
| (20,287 | ) | | 7,100 | (13,187 | ) | |||||||||||||
Impact of net unrealized investment gains and losses on future policy benefits and policyholders account balances |
| | (7,541 | ) | 2,640 | (4,901 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2014 |
$ | 159,261 | $ | (20,287 | ) | $ | (7,541 | ) | $ | (45,935 | ) | $ | 85,498 | |||||||
Net investment gains and losses on investments arising during the period |
(408,019 | ) | | | 142,807 | (265,212 | ) | |||||||||||||
Reclassification adjustment for gains and losses included in net income |
79,023 | | | (27,658 | ) | 51,365 | ||||||||||||||
Impact of net unrealized investment gains and losses on VOBA |
| 57,061 | | (19,971 | ) | 37,090 | ||||||||||||||
Impact of net unrealized investment gains and losses on future policy benefits and policyholders account balances |
| | 60,447 | (21,157 | ) | 39,290 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2015 |
$ | (327,781 | ) | $ | 36,774 | $ | 52,906 | $ | 83,402 | $ | (154,699 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
39
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
4. | Derivative Financial Instruments |
See Note 2 for a description of the Companys accounting policies for derivatives and Note 5 for information about the fair value hierarchy for derivatives.
The following table provides a summary of the notional and fair value positions of derivative financial instruments as of December 31, 2015 and 2014:
($ in thousands) |
Successor | |||||||||||||||||||||||
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Gross Fair Value | Gross Fair Value | |||||||||||||||||||||||
Notional | Assets | Liabilities | Notional | Assets | Liabilities | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Equity Options |
$ | 879,853 | $ | 28,588 | $ | (10,961 | ) | $ | 593,610 | $ | 68,776 | $ | (43,104 | ) | ||||||||||
Futures |
15,373 | 108 | | 20,195 | 329 | | ||||||||||||||||||
Liabilities |
||||||||||||||||||||||||
Policyholders account balances |
||||||||||||||||||||||||
Derivatives embedded in life and annuity contracts |
||||||||||||||||||||||||
Equity-indexed annuity contracts(2) |
$ | 1,494,084 | $ | | $ | (64,138 | ) | $ | 1,734,264 | $ | | $ | (63,660 | ) | ||||||||||
Equity-indexed life contracts |
401,511 | | (11,701 | ) | 347,610 | | (18,720 | ) | ||||||||||||||||
Guaranteed accumulation benefits(1) |
95,752 | | (7,499 | ) | 120,714 | | (6,367 | ) | ||||||||||||||||
Guaranteed withdrawal benefits(1) |
13,264 | | (315 | ) | 17,102 | | (366 | ) |
(1) | As of April 1, 2014, these amounts were ceded in accordance with the Companys reinsurance agreements |
(2) | Notional amount represents account value of equity indexed contracts |
The standardized ISDA Master Agreement under which the Companys derivative transactions are executed include provisions for payment netting. In the normal course of business activities, if there is more than one derivative transaction with a single counterparty, the Company will set-off the cash flows of those derivatives into a single amount to be exchanged in settlement of the resulting net payable or receivable with that counterparty. The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related Credit Support Annex (CSA) have been executed. At December 31, 2015 and December 31, 2014, the Company held $0.8 million and $6.4 million in cash and securities collateral delivered by trade counterparties. This cash collateral is reported in Cash on the Consolidated Balance Sheet.
The following table presents the amount and location of gains (losses) recognized in income, net of reinsurance, for derivatives that were not designated or qualifying as hedging instruments for the Successor Period for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
|||||||||||||||
($ in thousands) |
Realized Investment Gains (Losses) |
Policyholder Benefits |
Realized Investment Gains (Losses) |
Policyholder Benefits |
||||||||||||
Assets |
||||||||||||||||
Equity Options |
$ | (7,557 | ) | $ | | $ | 15,230 | $ | | |||||||
Futures |
(1,651 | ) | | 2,187 | | |||||||||||
Liabilities |
||||||||||||||||
Policyholders account balances |
||||||||||||||||
Equity-indexed annuity contracts |
$ | | $ | (478 | ) | $ | | $ | (5,622 | ) | ||||||
Equity-indexed life contracts |
| 956 | | 90 |
40
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying as hedging instruments for the Predecessor Period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013:
For the Period from January 1, 2014 through March 31, 2014 |
For the Year Ended December 31, 2013 |
|||||||||||||||
($ in thousands) |
Interest Credited(1) | Policyholder Benefits(1) |
Interest Credited(1) |
Policyholder Benefits(1) |
||||||||||||
Liabilities |
||||||||||||||||
Policyholders account balances |
||||||||||||||||
Derivatives embedded in life and annuity contracts |
$ | 16,427 | $ | 946 | $ | 36,890 | $ | 10,177 |
(1) | Prior to April 1, 2014, these amounts were ceded in accordance with the Companys reinsurance agreements. |
5. | Fair Value |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Balance Sheets (Successor) at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1 |
Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. | |
Level 2 | Assets and liabilities whose values are based on the following: | |
(a) Quoted prices for similar assets or liabilities in active markets; | ||
(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or | ||
(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. | ||
Level 3 |
Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Companys estimates of the assumptions that market participants would use in valuing the assets and liabilities. |
The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.
The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent
41
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Companys processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
Successor
There are no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2015 or December 31, 2014. The following table summarizes the Companys assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and December 31, 2014.
December 31, 2015 | ||||||||||||||||
Description for Each Class of Asset or Liability ($ in thousands) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets at fair value |
||||||||||||||||
Fixed maturities |
||||||||||||||||
U.S Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 10,621 | $ | 157,957 | $ | | $ | 168,578 | ||||||||
Obligations of U.S. States and Political Subdivisions |
| 720,757 | | 720,757 | ||||||||||||
Foreign government |
| 61,643 | | 61,643 | ||||||||||||
All Other Corporate Securities |
| 5,727,155 | 11,520 | 5,738,675 | ||||||||||||
ABS |
| 522,531 | 14,260 | 536,791 | ||||||||||||
CMBS |
| 506,699 | | 506,699 | ||||||||||||
RMBS |
| 212,799 | | 212,799 | ||||||||||||
Short term investments |
166,358 | 18,462 | | 184,820 | ||||||||||||
Other invested assets |
||||||||||||||||
Equity Options |
17,627 | | | 17,627 | ||||||||||||
Futures |
108 | | | 108 | ||||||||||||
Separate accounts assets |
1,395,141 | | | 1,395,141 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 1,589,855 | $ | 7,928,003 | $ | 25,780 | $ | 9,543,638 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities at fair value |
||||||||||||||||
Policyholders account balances |
||||||||||||||||
Equity indexed annuity contracts |
$ | | $ | | $ | (64,138 | ) | $ | (64,138 | ) | ||||||
Equity indexed life contracts |
| (11,701 | ) | | (11,701 | ) | ||||||||||
Guaranteed minimum accumulation benefits |
| | (7,499 | ) | (7,499 | ) | ||||||||||
Guaranteed minimum withdrawal benefits |
| | (315 | ) | (315 | ) | ||||||||||
Separate accounts liabilities |
(1,395,141 | ) | | | (1,395,141 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | (1,395,141 | ) | $ | (11,701 | ) | $ | (71,952 | ) | $ | (1,478,794 | ) | ||||
|
|
|
|
|
|
|
|
42
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
December 31, 2014 | ||||||||||||||||
Description for Each Class of Asset or Liability ($ in thousands) |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets at fair value |
||||||||||||||||
Fixed maturities |
||||||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 12,408 | $ | 295,544 | $ | | $ | 307,952 | ||||||||
Obligations of U.S. States and Political Subdivisions |
| 543,735 | | 543,735 | ||||||||||||
Foreign government |
| 255,208 | | 255,208 | ||||||||||||
All Other Corporate Securities |
| 7,370,409 | 7,336 | 7,377,745 | ||||||||||||
ABS |
| 377,393 | 5,250 | 382,643 | ||||||||||||
CMBS |
| 330,790 | 2,693 | 333,483 | ||||||||||||
RMBS |
| 189,881 | | 189,881 | ||||||||||||
Short term investments |
191,979 | 145,677 | 23,713 | 361,369 | ||||||||||||
Other invested assets |
||||||||||||||||
Equity Options |
25,672 | | | 25,672 | ||||||||||||
Futures |
329 | | | 329 | ||||||||||||
Separate accounts assets |
1,573,865 | | | 1,573,865 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 1,804,253 | $ | 9,508,637 | $ | 38,992 | $ | 11,351,882 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities at fair value |
||||||||||||||||
Policyholders account balances |
||||||||||||||||
Equity indexed annuity contracts |
$ | | $ | | $ | (63,660 | ) | $ | (63,660 | ) | ||||||
Equity indexed life contracts |
| (18,720 | ) | | (18,720 | ) | ||||||||||
Guaranteed minimum accumulation benefits |
| | (6,367 | ) | (6,367 | ) | ||||||||||
Guaranteed minimum withdrawal benefits |
| | (366 | ) | (366 | ) | ||||||||||
Separate accounts liabilities |
(1,573,865 | ) | | | (1,573,865 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | (1,573,865 | ) | $ | (18,720 | ) | $ | (70,393 | ) | $ | (1,662,978 | ) | ||||
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2 during the period from April 1, 2014 through December 31, 2014. In 2015, U.S. Treasury securities were transferred to Level 1 as those securities are traded in an active market. The prior year presentation has been updated to conform to the current year presentation.
Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis
Fixed Maturities
The fair values of the Companys public fixed maturity securities are generally based on prices obtained from independent pricing services. Prices for each security are generally sourced from multiple pricing vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. The pricing hierarchy is updated for new financial products and recent pricing experience with various vendors. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. U.S. Treasury securities are included within Level 1 due to the market activity. Typical inputs used by these pricing services include but are not limited to, reported trades, benchmark
43
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
yields, issuer spreads, bids, offers, and/or estimated cash flow, prepayment speeds, and default rates. If the pricing information received from third party pricing services is deemed not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service or classify the securities as Level 3. If the pricing service updates the price to be more consistent with the presented market observations, the security remains within Level 2.
Indicative broker quotes are also used to determine fair value in circumstances where vendor pricing is not available, or where the Company ultimately concludes that pricing information received from independent pricing services is not reflective of market activity. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information with an internally-developed valuation. Pricing service overrides, internally-developed valuations and indicative broker quotes are generally included in Level 3 in the fair value hierarchy.
The fair value of private fixed maturities, which are comprised of investments in private placement securities are primarily determined using discounted cash flow models. These models primarily use observable inputs that include Treasury or similar base rates plus estimated credit spreads to value each security. The credit spreads are obtained through a survey of private market intermediaries who are active in both primary and secondary transactions, and consider, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Since most private placements are valued using standard market observable inputs and inputs derived from, or corroborated by, market observable data including observed prices and spreads for similar publicly traded or privately traded issues, they have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model may incorporate significant unobservable inputs, which reflect the Companys own assumptions about the inputs that market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the price of a security, a Level 3 classification is made. No private placement securities were classified as Level 3 as of December 31, 2015 or December 31, 2014.
Short-term Investments
Short-term investments include money market instruments, highly liquid debt instruments and certain other investments. Certain money market instruments are valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in this category are generally fair valued based on market observable inputs and these investments have primarily been classified within Level 2. Short-term investments classified within Level 3 primarily consist of commercial mortgage loans. The fair value of the commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans.
Other Invested Assets
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives.
Separate Account Assets and Liabilities
Separate account assets and liabilities consist principally of investments in mutual fund shares. The fair values are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy.
44
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Policyholders Account Balances
The liabilities for guarantees primarily associated with the optional living benefit features of certain variable annuity contracts and equity indexed annuity contracts are calculated as the present value of future expected benefit payments to contractholders less the present value of assessed rider fees attributable to the optional living benefit feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management judgment.
The significant inputs to the valuation models for these embedded derivatives include capital market assumptions, such as interest rate levels and volatility assumptions, as well as actuarially determined assumptions, including contractholder behavior, such as lapse rates, benefit utilization rates, withdrawal rates, and mortality rates. Since many of these assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy.
Actuarial assumptions, including contractholder behavior and mortality, are reviewed at least annually, and updated based upon emerging experience, future expectations and other data, including any observable market data. These assumptions are generally updated annually unless a material change that the Company feels is indicative of a long term trend is observed in an interim period.
Level 3 Fair Value Measurements
The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements:
($ in thousands) |
Fair Value |
Valuation |
Unobservable |
Range | Weighted Average | |||||||
Equity indexed annuity contracts |
$ | (64,138 | ) | Option Pricing Technique | Projected Option Cost | 1.40% - 2.11% | 1.70% |
Excluded from the table above at December 31, 2015 and December 31, 2014 are approximately $26 million and $15 million, respectively, Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not reasonably available. These investments primarily consist of certain public debt securities with limited trading activity, including asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Companys reporting significantly higher or lower fair value measurements for these Level 3 investments.
The table above also excludes underlying quantitative inputs related to liabilities held for the Companys guaranteed minimum accumulation benefits and guaranteed withdrawal benefits. These liabilities are not developed by the Company as they are 100% ceded to external reinsurers. The development of these liabilities generally involve actuarially determined models and could result in the Company reporting significantly higher or lower fair value measurements for these Level 3 investments.
45
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
($ in thousands) | Balance as of January 1, 2015 |
Net income (loss) |
OCI | Transfers to Level 3 |
Transfers out of Level 3 |
Purchases | Sales | Issues | Settlements | Balance, December 31, 2015 |
||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||
Fixed income securities |
||||||||||||||||||||||||||||||||||||||||
All other corporate securities |
$ | 7,336 | $ | (282 | ) | $ | 30 | $ | 13,255 | $ | (2,386 | ) | $ | | $ | | $ | | $ | (6,433 | ) | $ | 11,520 | |||||||||||||||||
ABS |
5,250 | 134 | (2,338 | ) | 17,191 | | | (5,000 | ) | | (977 | ) | 14,260 | |||||||||||||||||||||||||||
CMBS |
2,693 | 23,506 | 314 | | | | (20,192 | ) | | (6,321 | ) | | ||||||||||||||||||||||||||||
Short-term investments |
23,713 | 14 | | | | | | | (23,727 | ) | | |||||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||||||||||
Equity indexed annuity contracts |
(63,660 | ) | (478 | ) | | | | | | | | (64,138 | ) | |||||||||||||||||||||||||||
Guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits(1) |
(6,733 | ) | (1,081 | ) | | | | | | | | (7,814 | ) | |||||||||||||||||||||||||||
($ in thousands) | Balance as of April 1, 2014 |
Net income (loss) |
OCI | Transfers to Level 3 |
Transfers out of Level 3 |
Purchases | Sales | Issues | Settlements | Balance, December 31, 2014 |
||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||
Fixed income securities |
||||||||||||||||||||||||||||||||||||||||
All other corporate securities |
$ | 396,694 | $ | 4,514 | $ | (7,472 | ) | $ | | $ | (289,172 | ) | $ | | $ | (97,228 | ) | $ | | $ | | $ | 7,336 | |||||||||||||||||
ABS |
436 | | (55 | ) | | | 4,930 | | | (61 | ) | 5,250 | ||||||||||||||||||||||||||||
CMBS |
3,397 | 2,179 | (314 | ) | | | | | | (2,569 | ) | 2,693 | ||||||||||||||||||||||||||||
Short-term investments |
24,095 | 29 | | | | | (411 | ) | | | 23,713 | |||||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||||||||||
Equity indexed annuity contracts |
(58,038 | ) | (5,622 | ) | | | | | | | | (63,660 | ) | |||||||||||||||||||||||||||
Guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits(1) |
(8,499 | ) | 1,766 | | | | | | | | (6,733 | ) |
(1) | These amount are 100% ceded in accordance with the Companys reinsurance agreements. |
Transfers into Level 3 are generally the result of unobservable inputs utilized within the valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company is able to validate.
46
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The following table presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Companys Consolidated Balance Sheet; however, in some cases, as described below, the carrying amount equals or approximates fair value as of December 31, 2015 and December 31, 2014:
December 31, 2015 ($ in thousands) |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Commercial mortgage loans |
$ | | $ | | $ | 1,536,638 | $ | 1,536,638 | ||||||||
Policy loans |
| | 186,827 | 186,827 | ||||||||||||
Cash |
49,121 | | | 49,121 | ||||||||||||
Vehicle note |
| | 638,270 | 638,270 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 49,121 | $ | | $ | 2,361,735 | $ | 2,410,856 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities at fair value |
||||||||||||||||
Policyholders account balances investment contracts |
$ | | $ | | $ | 5,967,973 | $ | 5,967,973 | ||||||||
Other long-term debt |
| | 638,270 | 638,270 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | | $ | 6,606,243 | $ | 6,606,243 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014 ($ in thousands) |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Commercial mortgage loans |
$ | | $ | | $ | 1,150,510 | $ | 1,150,510 | ||||||||
Policy loans |
| | 194,385 | 194,385 | ||||||||||||
Cash |
49,730 | | | 49,730 | ||||||||||||
Vehicle note |
| | 551,600 | 551,600 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 49,730 | $ | | $ | 1,896,495 | $ | 1,946,225 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities at fair value |
|
|||||||||||||||
Policyholders account balances investment contracts |
$ | | $ | | $ | 6,609,253 | $ | 6,609,253 | ||||||||
Other long-term debt |
| | 551,600 | 551,600 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | | $ | 7,160,853 | $ | 7,160,853 | |||||||||
|
|
|
|
|
|
|
|
The fair values presented above have been determined by using available market information and by applying market valuation methodologies, as described in more detail below.
Commercial Mortgage Loans
The fair value of most commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans.
Policy Loans
The fair value of policy loans was determined by discounting expected cash flows at the current loan coupon rate. As a result, the carrying value of the policy loans approximates the fair value.
Cash
The Company believes that due to the short-term nature of certain assets, the carrying value approximates fair value.
47
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Vehicle Note and Other Long-Term Debt
The fair value of the Vehicle note and Other long-term debt is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate.
Policyholders Account Balances Investment Contracts
Only the portion of policyholders account balances related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table above. For fixed deferred annuities fair values are derived using discounted projected cash flows based on interest rates that are representative of the Companys financial strength ratings, and hence reflect the Companys own nonperformance risk. For those balances that can be withdrawn by the customer at any time without prior notice or penalty, the fair value is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value.
Predecessor
Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis
Level 1 Measurements
| Fixed maturities: Comprise certain U.S. Treasuries. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. |
| Short-term: Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access. |
| Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested and obtained daily from the fund managers. |
Level 2 Measurements
| Fixed maturities |
U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
Corporate, including privately placed: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.
Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
48
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
RMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.
CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.
| Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. For certain short-term investments, amortized cost is used as the best estimate of fair value. |
Level 3 Measurements
| Policyholder account balances Successor; contractholder funds Predecessor: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of nonmarket observable inputs. |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the period from January 1, 2014 through March 31, 2014.
($ in thousands) |
Total gains (losses) included in: |
|||||||||||||||||||
Balance as of December 31, 2013 |
Net income(1) |
OCI | Transfers into Level 3 |
Transfers out of Level 3 |
||||||||||||||||
Liabilities |
||||||||||||||||||||
Contractholder funds: |
||||||||||||||||||||
Derivatives embedded in life and annuity contracts |
$ | (267,859 | ) | $ | 18,525 | $ | | $ | | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 liabilities |
$ | (267,859 | ) | $ | 18,525 | $ | | $ | | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Purchases | Sales | Issues | Settlements | Balance as of March 31, 2014 |
||||||||||||||||
Liabilities |
||||||||||||||||||||
Contractholder funds: |
||||||||||||||||||||
Derivatives embedded in life and annuity contracts |
$ | | $ | | $ | (3,764 | ) | $ | 2,612 | $ | (250,486 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 liabilities |
$ | | $ | | $ | (3,764 | ) | $ | 2,612 | $ | (250,486 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The amount attributable to derivatives embedded in life and annuity contracts was reported as follows: $17.6 million in interest credited to contractholder funds and $946 thousand in contract benefits. These amounts were ceded in accordance with the Companys reinsurance agreements. |
49
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2013.
($ in thousands) |
Total gains (losses) included in: |
|||||||||||||||||||
Balance as of December 31, 2012 |
Net income(1) |
OCI | Transfers into Level 3 |
Transfers out of Level 3 |
||||||||||||||||
Assets |
||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||
Corporate |
$ | 312 | $ | | $ | | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 assets |
$ | 312 | $ | | $ | | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||||
Policyholders account balances: |
||||||||||||||||||||
Derivatives embedded in life and annuity contracts |
$ | (314,926 | ) | $ | 43,244 | $ | | $ | | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 liabilities |
$ | (314,926 | ) | $ | 43,244 | $ | | $ | | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
Purchases | Sales | Issues | Settlements | Balance as of December 31, 2013 |
||||||||||||||||
Assets |
||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||
Corporate |
$ | | $ | | $ | | $ | (312 | ) | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 assets |
$ | | $ | | $ | | $ | (312 | ) | $ | | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||||
Policyholders account balances: |
||||||||||||||||||||
Derivatives embedded in life and annuity contracts |
$ | | $ | | $ | (6,621 | ) | $ | 10,444 | $ | (267,859 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total recurring Level 3 liabilities |
$ | | $ | | $ | (6,621 | ) | $ | 10,444 | $ | (267,859 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The amount attributable to derivatives embedded in life and annuity contracts was reported as follows: $33.0 million in interest credited to contractholder funds and $10.2 million in contract benefits. These amounts were ceded in accordance with the Companys reinsurance agreements. |
Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Companys independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.
There were no transfers between Level 1 and Level 2 during the period from January 1, 2014 through March 31, 2014 or 2013.
50
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities.
($ in thousands) |
Period from January 1, 2014 through March 31, 2014 |
As of December 31, 2013 |
||||||
Liabilities |
||||||||
Policyholders account balances: |
||||||||
Derivatives embedded in life and annuity contracts |
$ | 18,525 | $ | 43,244 | ||||
|
|
|
|
|||||
Total recurring Level 3 liabilities |
$ | 18,525 | $ | 43,244 | ||||
|
|
|
|
The amounts in the table above represent the change in unrealized gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $17.6 million in interest credited to contractholder funds and $946 thousand in contract benefits in the period from January 1, 2014 through March 31, 2014, $33.0 million in interest credited to contractholder funds and $10.2 million in contract benefits in 2013. These amounts are ceded in accordance with the Companys reinsurance agreements.
6. | Reinsurance |
Successor
The Company has agreements that provide for reinsurance of certain policy-related risks. Under the agreements, premiums, contract charges, interest credited to policyholder funds, policy benefits and substantially all expenses are reinsured. The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company cedes a portion of the mortality risk on certain life and long-term care policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers. As of December 31, 2015 and December 31, 2014, approximately 99% of the Companys non-affiliated reinsurance recoverables are due from companies rated A- or better by S&P. ALIC represents over 65% of the Companys reinsurance recoverables as of December 31, 2015 and 2014.
On April 1, 2014, the Company entered into an experience rated modified coinsurance and monthly renewal term reinsurance arrangement with an external reinsurer under which risk on certain universal life and fixed annuity products is transferred. No portion of the assets constituting the consideration has been transferred to the reinsurer. This agreement was structured to finance reserves on certain universal life and fixed annuity products, in exchange for a fee based on those reserves. The profit to the reinsurer expected on the modified coinsurance and monthly renewable term portions is returned through an experience refund. The Company has determined that this agreement does not fulfill the requirements of risk transfer under generally accepted accounting principles and is accounted for on a deposit method of accounting. As of December 31, 2015 and 2014, the Company had a deposit receivable and a modified coinsurance payable of $1,250 million and $1,383 million, respectively, related to this agreement.
51
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The effects of reinsurance on premiums earned and fee income from policyholders for the Successor Period for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 Through December 31, 2014 |
||||||
Direct |
$ | 1,463,472 | $ | 921,444 | ||||
Assumed |
5,939 | 5,258 | ||||||
Ceded |
(1,106,638 | ) | (702,833 | ) | ||||
|
|
|
|
|||||
Premiums and fee income, net of reinsurance |
$ | 362,773 | $ | 223,869 | ||||
|
|
|
|
The effects of reinsurance on return credited to policyholders account balances and policyholder benefits for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 Through December 31, 2014 |
||||||
Direct |
$ | 1,603,724 | $ | 1,104,420 | ||||
Assumed |
6,743 | 4,713 | ||||||
Ceded |
(957,643 | ) | (635,887 | ) | ||||
|
|
|
|
|||||
Return credited to policyholders account balances and policyholders benefits, net of reinsurance |
$ | 652,824 | $ | 473,246 | ||||
|
|
|
|
Predecessor
Prior to April 1, 2014, the Company had reinsurance agreements under which it reinsured all of its business to ALIC, Lincoln Benefit Re (LB Re) or non-affiliated reinsurers. Under the agreements, premiums, contract charges, interest credited to policyholders account balances, contract benefits and substantially all expenses were reinsured. The Company purchased reinsurance to limit aggregate and single losses on large risks. The Company ceded a portion of the mortality risk on certain life policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers.
The effects of reinsurance on premiums and contract charges are as follows:
($ in thousands) |
Period from January 1, 2014 through March 31, 2014 |
2013 | ||||||
Direct |
$ | 331,899 | $ | 1,331,597 | ||||
Assumed |
1,581 | 6,830 | ||||||
Ceded: |
||||||||
Affiliate |
(244,797 | ) | (962,576 | ) | ||||
Non-affiliate |
(88,683 | ) | (375,851 | ) | ||||
|
|
|
|
|||||
Premiums and fee income, net of reinsurance |
$ | | $ | | ||||
|
|
|
|
52
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The effects of reinsurance on return credited to policyholders account balances, policyholder benefits and other expenses are as follows:
($ in thousands) |
Period from January 1, 2014 through March 31, 2014 |
2013 | ||||||
Direct |
$ | 450,041 | $ | 1,938,015 | ||||
Assumed |
2,606 | 8,180 | ||||||
Ceded: |
||||||||
Affiliate |
(336,122 | ) | (1,505,010 | ) | ||||
Non-affiliate |
(116,525 | ) | (441,185 | ) | ||||
|
|
|
|
|||||
Return credited to policyholders, contract benefits and expenses, net of reinsurance |
$ | | $ | | ||||
|
|
|
|
7. | Income Taxes |
Successor
In connection with the Acquisition as defined in Note 1, ALIC made an election under Treasury Regulation Section 1.1502-36(d) for ALIC to eliminate tax basis in certain assets and tax attributes under the unified loss rules. As a result, the tax basis of certain of the Companys assets was reduced immediately prior to the Acquisition. The reduced tax bases were used to determine the deferred tax impact under the acquisition method of accounting as discussed in Note 1.
The Company is party to a federal income tax allocation agreement (the Tax Allocation Agreement) with Lancaster Re. The Company and Lancaster Re will file a separate consolidated federal income tax return for the period April 1, 2014 to December 31, 2014 and will continue to do so in future tax years under Internal Revenue Code Section 1504 (c)(1).
Following the Acquisition, the Company exited The Allstate Corporations consolidated federal income tax return and is no longer a party to the tax allocation agreement with its former affiliates. Final tax settlements were agreed to with The Allstate Corporation and no future tax allocations are expected to occur with The Allstate Corporation.
As part of the Acquisition, although the Company remains jointly and severally liable for consolidated tax liabilities, the Company is held harmless by ALIC in accordance with the Acquisition agreement and believes that the possibility of a tax liability for the pre-sale tax years is remote. Additionally, the Company does not believe it has any uncertain tax positions for its federal income tax return that would be material to its financial condition, results of income, or cash flows. Therefore, the Company did not record a liability for unrecognized tax contingencies/benefits at December 31, 2015 and December 31, 2014. As of December 31, 2015, there were no uncertain tax positions for which management believes it is reasonably possible that the total amounts of tax contingencies will significantly increase within 12 months of the reporting date. No amounts have been accrued for interest or penalties.
53
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The components of the deferred income tax assets and liabilities as of December 31, 2015 and December 31, 2014 are as follows:
($ in thousands) |
December 31, 2015 | December 31, 2014 | ||||||
Deferred tax assets |
||||||||
Policyholder reserves |
$ | 2,058,446 | $ | 2,057,627 | ||||
Deferred acquisition costs |
41,664 | 24,850 | ||||||
Deferred financing costs |
8,707 | 10,755 | ||||||
Net operating loss carryforward |
| 7,500 | ||||||
Investments |
120,893 | | ||||||
Other assets |
688 | 38 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
$ | 2,230,398 | $ | 2,100,770 | ||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Value of business acquired |
$ | (86,696 | ) | $ | (81,032 | ) | ||
Amounts recoverable from reinsurers |
(2,076,251 | ) | (2,010,157 | ) | ||||
Investments |
| (45,935 | ) | |||||
Intangibles |
(1,820 | ) | (1,820 | ) | ||||
Other liabilities |
(591 | ) | (2,558 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
$ | (2,165,358 | ) | $ | (2,141,502 | ) | ||
|
|
|
|
|||||
Net deferred tax asset/(liability) |
$ | 65,040 | $ | (40,732 | ) | |||
|
|
|
|
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 expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that any tax attribute carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) prudent and feasible tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The Company had no valuation allowance as of December 31, 2015 or December 31, 2014. With respect to deferred tax assets associated with investments, the Company has the ability and intent to hold these securities until recovery. Adjustments to the valuation allowance will be made if there is a change in managements assessment of the amount of deferred tax asset that is realizable.
At December 31, 2015, the Company had no net operating loss carryforwards, no capital loss carryforwards, or tax credit carryforwards.
54
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 were as follows:
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 Through December 31, 2014 |
||||||
Expected federal income tax expense |
45,062 | $ | 15,722 | |||||
Dividends received deduction |
(2,443 | ) | (1,470 | ) | ||||
Other |
3,475 | (18 | ) | |||||
|
|
|
|
|||||
Total income tax expense |
$ | 46,094 | $ | 14,234 | ||||
|
|
|
|
Other represents the establishment of additional deferred tax liabilities that existed at the time of Acquisition and identified during the completion of the consolidated federal income tax return for the 2014 tax year.
The dividends received deduction (DRD) reduces the amount of dividend income subject to U.S. tax and is the primary component of the non-taxable investment income, and, as such, is a significant component of the difference between the Companys effective tax rate and the federal statutory tax rate of 35%. The actual current year DRD can vary from the estimate based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from mutual fund investments, changes in the account balances of variable life and annuity contracts, and the Companys taxable income before the DRD.
However, there remains the possibility that the IRS and the U.S. Treasury will address, through subsequent guidance, certain issues related to the calculation of the DRD. For the last several years, the revenue proposals included in the Obama Administrations budgets included a proposal that would change the method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through guidance or legislation, could increase actual tax expense and reduce the Companys consolidated net income.
Predecessor
Prior to April 1, 2014, the Company joined The Allstate Corporation and its other subsidiaries (the Allstate Group) in the filing of a consolidated federal income tax return and was party to a federal income tax allocation agreement (the Allstate Tax Sharing Agreement). Under the Allstate Tax Sharing Agreement, the Company paid to or received from The Allstate Corporation the amount, if any, by which the Allstate Groups federal income tax liability was affected by virtue of inclusion of the Company in the consolidated federal income tax return. The Company also had a supplemental tax sharing agreement with respect to reinsurance ceded to ALIC to allocate the tax benefits and costs related to such reinsurance. Effectively, these agreements resulted in the Companys annual income tax provision being computed, with adjustments, as if the Company filed a separate return, adjusted for the reinsurance ceded to ALIC.
The IRS is currently examining the Allstate Groups 2013 and 2014 federal income tax returns. The IRS completed the audit of the Allstate Groups 2011 and 2012 federal income tax returns and issued a final Revenue Agents Report on June 10, 2015. The Allstate Groups tax years prior to 2011 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of the Allstate Groups tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.
55
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The components of income tax expense are as follows:
($ in thousands) |
Period from January 1, 2014 through March 31, 2014 |
2013 | ||||||
Current |
$ | 914 | $ | 3,902 | ||||
Deferred |
8 | (77 | ) | |||||
|
|
|
|
|||||
Total income tax expense |
$ | 922 | $ | 3,825 | ||||
|
|
|
|
The Company paid no income taxes in the period from January 1, 2014 through March 31, 2014. The Company paid income taxes of $4.2 million in 2013.
A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations is as follows:
Period from January 1, 2014 through March 31, 2014 |
2013 | |||||||
Statutory federal income tax rate |
35.0 | % | 35.0 | % | ||||
Other |
| | ||||||
|
|
|
|
|||||
Effective income tax rate |
35.0 | % | 35.0 | % | ||||
|
|
|
|
8. | Future Policy Benefits and Other Policyholder Liabilities Successor |
Life insurance liabilities include reserves for death benefits and other policy benefits. As of December 31, 2015 and 2014, future policy benefits and other policyholder liabilities consisted of the following:
($ in thousands) |
December 31, 2015 | December 31, 2014 | ||||||
Traditional life insurance |
$ | 1,567,388 | $ | 1,492,438 | ||||
Immediate fixed annuities |
584,948 | 635,858 | ||||||
Accident and health insurance |
1,580,809 | 1,462,110 | ||||||
Equity indexed annuities |
38,739 | 39,174 | ||||||
Other |
985,757 | 899,369 | ||||||
|
|
|
|
|||||
Total |
$ | 4,757,641 | $ | 4,528,949 | ||||
|
|
|
|
Future policy benefits are generally equal to the present value of future benefit payments and related expenses, less the present value of future net premiums. Assumptions as to mortality, morbidity and persistency are based on the Companys experience, industry data, and/or other factors, when the basis of the reserve is established. Interest rates used in the determination of present values range from 2.5% to 6.0% for setting reserves.
56
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
9. | Policyholder Account Balances Successor |
As of December 31, 2015 and 2014, policyholders account balances consisted of the following:
($ in thousands) |
December 31, 2015 | December 31, 2014 | ||||||
Interest-sensitive life contracts |
$ | 5,210,152 | $ | 5,085,470 | ||||
Individual annuities |
5,896,019 | 6,662,985 | ||||||
Other |
14,394 | 15,857 | ||||||
|
|
|
|
|||||
Total policyholders account balances |
$ | 11,120,565 | $ | 11,764,312 | ||||
|
|
|
|
Policyholders account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges, if applicable. These policyholders account balances also include provisions for benefits under non-life contingent payout annuities. Interest crediting rates range from 0.4% to 6.0% for interest sensitive contracts. Interest crediting rates for individual annuities range from 0.0% to 6.0%.
10. | Certain Nontraditional Long-Duration Contracts Successor |
The Company offered traditional variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also offered variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than total deposits made to the contract less any partial withdrawals (return of net deposits). In certain of these variable annuity contracts, the Company also contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals plus a minimum return (minimum return), and/or (2) the highest contract value on a specified date adjusted for any withdrawals (contract value). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. The Company also issued annuity contracts with and without market value adjusted investment options (MVAs), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a market adjusted value if surrendered prior to maturity or if funds are allocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable. All of the risks associated with the Companys variable annuity contracts are reinsured with external reinsurers.
In addition, the Company issues certain variable life, variable universal life and universal life contracts where the Company contractually guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges, whereas otherwise the contract would typically lapse (no lapse guarantee). Variable life and variable universal life contracts are offered with general and separate account options similar to variable annuities.
The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate account liabilities. Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in fee income from policyholders and changes in liabilities for minimum guarantees are generally included in policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) (Successor) and Statements of Operations and Comprehensive Income (Predecessor).
57
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Companys primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, contract lapses and contractholder mortality.
For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Companys primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, benefit utilization, timing of annuitization, contract lapses and contractholder mortality.
For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Companys primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility or contractholder behavior used in the original pricing of these products.
The Companys contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. The liabilities related to the net amount at risk are reflected within Future policy benefits and other policyholder liabilities or Policyholders account balances. As of December 31, 2015 and December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
December 31, 2015 | ||||||||||||||||
($ in millions) |
In the Event of Death |
At Annuitization/ Accumulation |
For Cumulative Periodic Withdrawals |
Accumulation at Specified Dates |
||||||||||||
Variable Annuity Contracts |
||||||||||||||||
Separate account value |
$ | 608.8 | $ | 127.4 | $ | 12.8 | $ | 91.6 | ||||||||
Net amount at risk |
$ | 66.3 | $ | 16.9 | $ | 0.1 | $ | 7.4 | ||||||||
Average attained age of contractholders |
61 years | N/A | N/A | N/A | ||||||||||||
Weighted average waiting period until guarantee date |
N/A | None | N/A | 5 years | ||||||||||||
Variable Life, Variable Universal Life and Universal Life Contracts |
||||||||||||||||
No Lapse Guarantees |
||||||||||||||||
Separate account value |
$ | 307.3 | ||||||||||||||
General account value |
$ | 3,639.6 | ||||||||||||||
Net amount at risk |
$ | 84,370.9 | ||||||||||||||
Average attained age of contractholders |
48 years |
58
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
As of December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
December 31, 2014 | ||||||||||||||||
($ in millions) |
In the Event of Death |
At Annuitization/ Accumulation |
For Cumulative Periodic Withdrawals |
Accumulation at Specified Dates |
||||||||||||
Variable Annuity Contracts |
||||||||||||||||
Separate account value |
$ | 742.7 | $ | 151.9 | $ | 16.6 | $ | 118.4 | ||||||||
Net amount at risk |
$ | 57.2 | $ | 15.2 | $ | 0.1 | $ | 6.2 | ||||||||
Average attained age of contractholders |
60 years | N/A | N/A | N/A | ||||||||||||
Weighted average waiting period until guarantee date |
N/A | None | N/A | 6 years | ||||||||||||
Variable Life, Variable Universal Life and Universal Life Contracts |
||||||||||||||||
No Lapse Guarantees |
||||||||||||||||
Separate account value |
$ | 325.1 | ||||||||||||||
General account value |
$ | 3,518.3 | ||||||||||||||
Net amount at risk |
$ | 89,942.8 | ||||||||||||||
Average attained age of contractholders |
51 years |
Liabilities for Guarantee Benefits
The liabilities for guaranteed minimum death benefits (GMDB) and secondary guarantees on interest-sensitive life and fixed annuities are included in Future policy benefits and other policyholder liabilities on the Consolidated Balance Sheet (Successor) and the related changes in the liabilities are included in Policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the Successor Period for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014. Guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum accumulation benefits (GMAB) features are accounted for as bifurcated embedded derivatives and are recorded at fair value within Policyholders account balances on the Consolidated Balance Sheet (Successor). The table below summarizes the changes in general account liabilities for guarantees on variable contracts.
59
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
GMDB | GMIB | GMWB/ GMAB |
Secondary Guarantees |
|||||||||||||||||
($ in thousands) |
Variable Annuity |
Variable Annuity |
Variable Annuity |
Interest- Sensitive Life and Fixed Annuities |
Total | |||||||||||||||
Predecessor |
||||||||||||||||||||
Net balance as of December 31, 2013 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Plus reinsurance recoverable |
8,444 | 8,743 | 9,444 | 281,771 | 308,402 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2013 |
$ | 8,444 | $ | 8,743 | $ | 9,444 | $ | 281,771 | $ | 308,402 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Less: reinsurance recoverable |
8,444 | 8,743 | 9,444 | 281,771 | 308,402 | |||||||||||||||
Net balance as of December 31, 2013 |
| | | | | |||||||||||||||
Incurred guarantee benefits |
| | | | | |||||||||||||||
Paid guarantee benefits |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change |
| | | | | |||||||||||||||
Net balance as of March 31, 2014 |
| | | | | |||||||||||||||
Plus reinsurance recoverable |
8,057 | 7,122 | 8,499 | 293,704 | 317,382 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of March 31, 2014 |
$ | 8,057 | $ | 7,122 | $ | 8,499 | $ | 293,704 | $ | 317,382 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Successor |
||||||||||||||||||||
Balance as of April 1, 2014 |
$ | 8,057 | $ | 7,122 | $ | 8,499 | $ | 552,163 | $ | 575,841 | ||||||||||
Less: reinsurance recoverable |
8,057 | 7,122 | 8,499 | 67,288 | 90,966 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net balance as of April 1, 2014 |
| | | 484,875 | 484,875 | |||||||||||||||
Incurred guarantee benefits |
| | | 159,104 | 159,104 | |||||||||||||||
Paid guarantee benefits |
| | | (108,252 | ) | (108,252 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change |
| | | 50,852 | 50,852 | |||||||||||||||
Net balance as of December 31, 2014 |
| | | 535,727 | 535,727 | |||||||||||||||
Plus reinsurance recoverable |
8,358 | 8,240 | 6,733 | 83,733 | 107,064 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2014 |
$ | 8,358 | $ | 8,240 | $ | 6,733 | $ | 619,460 | $ | 642,791 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Less: reinsurance recoverable |
8,358 | 8,240 | 6,733 | 83,733 | 107,064 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net balance as of December 31, 2014 |
| | | 535,727 | 535,727 | |||||||||||||||
Incurred guarantee benefits |
| | | 217,626 | 217,626 | |||||||||||||||
Paid guarantee benefits |
| | | (118,063 | ) | (118,063 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change |
| | | 99,563 | 99,563 | |||||||||||||||
Net balance as of December 31, 2015 |
| | | 635,290 | 635,290 | |||||||||||||||
Plus reinsurance recoverable |
8,844 | 5,663 | 7,814 | 100,317 | 122,638 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2015 |
$ | 8,844 | $ | 5,663 | $ | 7,814 | $ | 735,607 | $ | 757,928 | ||||||||||
|
|
|
|
|
|
|
|
|
|
60
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
11. | Value of Business Acquired Successor |
The following reflects the changes to the VOBA asset:
($ in thousands) |
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 Through December 31, 2014 |
||||||
Balance at beginning of period |
$ | 231,521 | $ | 290,795 | ||||
Business acquired |
| | ||||||
Amortized to expense during the year(1) |
(40,880 | ) | (38,987 | ) | ||||
Adjustment for unrealized investment losses during the year |
57,061 | (20,287 | ) | |||||
|
|
|
|
|||||
Balance at end of year |
$ | 247,702 | $ | 231,521 | ||||
|
|
|
|
(1) | Amount is included in Operating and Acquisition Expenses on the Consolidated Statements of Operations and Other Comprehensive Income (Loss) |
The following table provides estimated percentage of the VOBA balance to be amortized for the years indicated:
VOBA Amortization |
||||
2016 |
14 | % | ||
2017 |
12 | % | ||
2018 |
10 | % | ||
2019 |
8 | % | ||
2020 and thereafter |
56 | % |
12. | Commitments and Contingencies |
Regulation and Compliance
The Company is subject to changing social, economic and regulatory conditions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Companys business, if any, are uncertain.
The Company is currently being examined by certain states for compliance with unclaimed property laws. It is possible that this examination may result in additional payments of abandoned funds to states and to changes in the Companys practices and procedures for the identification of escheatable funds, which could impact benefit payments and reserves, among other consequences; however, it is not likely to have a material effect on the financial statements of the Company.
61
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The Company is assessed amounts by the state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At December 31, 2015, the Company accrued $6.7 million for guaranty fund assessments which is expected to be offset by estimated future premium tax deductions of $11.1 million.
Litigation
The Company is involved from time to time in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Companys financial condition. Given the inherent difficulty of predicting the outcome of the Companys litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, the Company cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. However, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the consolidated financial position or results of operations.
In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, information technology agreements and service agreements. The Company has also agreed to indemnify its directors, officers and employees in accordance with the Companys by-laws. The Company believes any potential liability under these agreements is neither probable nor estimable. Therefore, the Company has not recorded any associated liability.
Pledged or Restricted Assets
The Company had the following restricted assets:
| Certain bonds were on deposit with governmental authorities as required by law with market values of $8.4 million and $8.9 million at December 31, 2015 and December 31, 2014, respectively. |
| Derivative cash collateral received was reported as cash equivalents of $0.8 million and $6.4 million at December 31, 2015 and December 31, 2014, respectively. |
| Funds pledged on certain mortgage loans held in the investment portfolio to finance property improvements on underlying real estate totaling $18.4 million at December 31, 2015. |
13. | Regulatory Capital and Dividends |
The Company prepares its statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Nebraska. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.
The State of Nebraska requires insurance companies domiciled in its state to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the State of Nebraska Insurance Commissioner. Statutory accounting practices differ from GAAP primarily since they require establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments at amortized cost. Statutory accounting practices do not give recognition to purchase accounting adjustments.
62
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Statutory net income was $74 million and $226 million for the years ended December 31, 2015 and December 31, 2014, respectively. Statutory capital and surplus was $555 million and $719 million as of December 31, 2015 and December 31, 2014, respectively.
Dividend | Limitations |
The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors. The payment of shareholder dividends by the Company without the prior approval of the Department of Insurance is limited to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as, the timing and amount of dividends paid in the preceding twelve months. In connection with the Acquisition, prior approval of the Nebraska Director of Insurance is required for the Company for any dividend or distribution for five years subsequent to the Acquisition. The Company paid dividends of $187.0 million and $33.2 million during the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014, respectively.
Other
Without the prior approval of the Nebraska Director of Insurance, the Company may not:
1. | Acquire or enter into an agreement or understanding to acquire control of any insurer, assumptively acquire policies, or bulk reinsure business during the period of three years after the Acquisition. |
2. | Provide or propose to provide directly or indirectly any loans, advances, guarantees, pledges, or other financial assistance (excluding policy loans or investment portfolio transactions) during the period of three years after the Acquisition. |
3. | Engage in any material transaction during the period of three years after the Acquisition. Material transaction shall mean any transfer or encumbrance of assets that, together with all other transfers or encumbrances made within the preceding twelve months, exceeds in value the greater of five percent of Lincoln Benefits surplus as of the December 31st of the last preceding, or the net gain from operations of Lincoln Benefit for the twelve-month period ending the December 31st of the last preceding. For the purposes of this clause, Material Transaction shall exclude: (i) investment portfolio transactions; (ii) settlement of balances due to policyholders, agents or third party reinsurers under existing reinsurance agreements or; (iii) settlement of ordinary course payables including but not limited to taxes, third party administrators, suppliers or other ordinary course creditors, and intercompany payables arising under any approved intercompany services agreement |
Under state insurance laws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write. Insurance companies are also subject to risk-based capital (RBC) requirements adopted by state insurance regulators. A companys authorized control level RBC is calculated using various factors applied to certain financial balances and activity. Companies that do not maintain statutory capital and surplus at a level in excess of the company action level RBC, which is two times authorized control level RBC, are required to take specified actions. Company action level RBC is significantly in excess of the minimum capital requirements.
14. | Leases |
In December 2014, the Company entered into a lease agreement, effective February 2015, to lease office space under a non-cancellable operating lease agreement that expires in January 31, 2026. For the year ended December 31, 2015, the Company made payments of $0.1 million pursuant to this operating lease. For the period from April 1, 2014 through December 31, 2014, the Company made no payments pursuant to this operating lease.
63
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
The minimum aggregate rental commitments as of December 31, 2015 were as follows:
($ in thousands) |
||||
2015 |
$ | 194 | ||
2016 |
207 | |||
2017 |
212 | |||
2018 |
217 | |||
2019 |
222 | |||
All future years |
1,489 | |||
|
|
|||
Aggregate total |
$ | 2,541 | ||
|
|
15. | Related Parties |
Successor
On April 1, 2014, the Company entered into a management services agreement with Resolution. Under this agreement, Resolution and Lincoln Benefit provide services to each other including but not limited to compliance, legal, risk management, accounting and reporting, treasury, tax and other management related services. Services are provided at cost. Resolution provided $13.9 million and $21.1 million in services to Lincoln Benefit for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively.
Effective April 1, 2014, the Company entered into a Fee Letter (the Fee Letter) with Lanis LLC (Lanis) pursuant to which the Company will pay Lanis the risk spread due on the Vehicle Note issued by Lanis to Lancaster Re. The total expense related to this risk spread for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 was approximately $6.7 million and $4.3 million, respectively.
The Company reported the following receivables/ (payables) to affiliates as of December 31, 2015 and December 31, 2014 ($ in thousands):
December 31, 2015 | December 31, 2014 | |||||||
Resolution |
$ | (2,623 | ) | $ | (4,509 | ) | ||
Lanis |
$ | (1,742 | ) | $ | (1,564 | ) |
Intercompany receivable and payable balances are evaluated on an individual company basis. Intercompany balances are generally settled quarterly.
The Companys stock is pledged as collateral on Resolutions term loan agreement with a syndicate of lenders (Term Loan). The maturity date of the loan is June 15, 2018. The Term Loan was funded on April 1, 2014.
On April 1, 2014, the Company and RLI entered into a Letter Agreement whereby from and after the fifth anniversary of the date of the agreement, if the Company makes any payment pursuant to the Fee Letter, within ten Business Days of such payment by the Company, RLI shall reimburse the Company in cash in an amount equal to such payment by the Company.
Predecessor
All intercompany balances were settled prior to the Acquisition.
64
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Notes to Consolidated Financial Statements
Business operations
Prior to April 1, 2014, the Company used services performed by its affiliates, Allstate Insurance Company (AIC), ALIC and Allstate Investments LLC, and business facilities owned or leased and operated by AIC in conducting its business activities. In addition, the Company shared the services of employees with AIC. The Company reimbursed its affiliates for the operating expenses incurred on behalf of the Company. The Company was charged for the cost of these operating expenses based on the level of services provided. Operating expenses allocated to the Company were $50.1 million and $249.7 million in the period from January 1, 2014 through March 31, 2014, for the years ended December 31, 2013, respectively. Of these costs, the Company retained investment related expenses on the invested assets that were not transferred under the reinsurance agreements. All other costs were ceded to ALIC under the reinsurance agreements.
Broker-Dealer agreements
Prior to April 1, 2014, the Company had a service agreement with Allstate Distributors, L.L.C. (ADLLC), a broker-dealer company owned by ALIC, whereby ADLLC promoted and marketed products sold by the Company. In return for these services, the Company recorded expense of $12 thousand and $71 thousand in the period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013, respectively, that was ceded to ALIC under the terms of the reinsurance agreements.
Prior to April 1, 2014, the Company received distribution services from Allstate Financial Services, LLC, an affiliated broker-dealer company, for certain annuity and variable life insurance contracts sold by Allstate exclusive agencies. For these services, the Company incurred commission and other distribution expenses of $2.2 million and $7.7 million in the period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013, respectively, that were ceded to ALIC under the terms of the reinsurance agreements.
Reinsurance
The following table summarizes amounts that were ceded to ALIC under reinsurance agreements and reported net in the Statements of Operations and Comprehensive Income:
($ in thousands) |
Period from January 1, 2014 through March 31, 2014 |
2013 | ||||||
Premiums and contract charges |
$ | 244,797 | $ | 962,576 | ||||
Interest credited to contractholder funds, contract benefits and expenses |
336,122 | 1,505,010 |
In September 2012, the Company entered into a coinsurance reinsurance agreement with LB Re to cede certain interest-sensitive life insurance policies to LB Re.
Income taxes
Prior to April 1, 2014, the Company was a party to a federal income tax allocation agreement with The Allstate Corporation (see Note 7).
Intercompany loan agreement
Prior to April 1, 2014, the Company had an intercompany loan agreement with The Allstate Corporation.
65
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
Schedule I Summary of Investments Other Than Investments in Related Parties
December 31, 2015
($ in thousands) |
Amortized Cost |
Fair Value | Amount at which shown in the Consolidated Balance Sheet |
|||||||||
Type of Investment |
||||||||||||
Fixed maturities: |
||||||||||||
Bonds: |
||||||||||||
United States government, government agencies and authorities |
$ | 163,096 | $ | 168,578 | $ | 168,578 | ||||||
States, municipalities and political subdivisions |
712,948 | 720,757 | 720,757 | |||||||||
Foreign governments |
72,042 | 61,643 | 61,643 | |||||||||
All other corporate bonds |
6,060,561 | 5,738,675 | 5,738,675 | |||||||||
Residential mortgage-backed securities |
209,728 | 212,799 | 212,799 | |||||||||
Commercial mortgage-backed securities |
513,316 | 506,699 | 506,699 | |||||||||
Asset-backed securities |
542,503 | 536,791 | 536,791 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturities |
$ | 8,274,194 | $ | 7,945,942 | $ | 7,945,942 | ||||||
Other securities: |
||||||||||||
Mortgage loans |
$ | 1,509,132 | $ | $ | 1,509,132 | |||||||
Derivatives |
26,128 | 17,735 | 17,735 | |||||||||
Other long-term assets |
677 | 677 | ||||||||||
Policy loans |
186,827 | 186,827 | ||||||||||
Short-term investments |
184,820 | 184,820 | ||||||||||
|
|
|
|
|
|
|||||||
Total other securities |
$ | 1,907,584 | $ | 17,735 | $ | 1,899,191 | ||||||
|
|
|
|
|
|
|||||||
Total investments |
$ | 10,181,778 | $ | 7,963,677 | $ | 9,845,133 | ||||||
|
|
|
|
|
|
66
Lincoln Benefit Life Company
(A Wholly-Owned Subsidiary of Resolution Life, Inc.)
($ in thousands) |
Gross Amount | Ceded to Other Companies |
Assumed from Other Companies |
Net Amount | Percentage of Amount Assumed to Net |
|||||||||||||||
Successor |
||||||||||||||||||||
Year Ended December 31, 2015 |
||||||||||||||||||||
Life insurance in force |
$ | 390,226,197 | $ | 384,704,438 | $ | 4,601,282 | $ | 10,123,041 | 45.5 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Premiums and contract charges: |
||||||||||||||||||||
Life and annuities |
$ | 1,405,005 | $ | (1,056,276 | ) | $ | 5,939 | $ | 354,668 | 1.7 | % | |||||||||
Accident and health insurance |
58,467 | (50,362 | ) | | 8,105 | 0.0 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 1,463,472 | $ | (1,106,638 | ) | $ | 5,939 | $ | 362,773 | 1.6 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Period from April 1, 2014 through December 31, 2014 |
||||||||||||||||||||
Life insurance in force |
$ | 395,385,878 | $ | 388,790,881 | $ | 5,106,566 | $ | 11,701,563 | 43.6 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Premiums and contract charges: |
||||||||||||||||||||
Life and annuities |
$ | 869,472 | $ | (669,382 | ) | $ | 5,258 | $ | 205,348 | 2.6 | % | |||||||||
Accident and health insurance |
51,972 | (33,451 | ) | | 18,521 | 0.0 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 921,444 | $ | (702,833 | ) | $ | 5,258 | $ | 223,869 | 2.4 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
||||||||||||||||||||
Predecessor |
||||||||||||||||||||
Period from January 1, 2014 through March 31, 2014 |
||||||||||||||||||||
Premiums and contract charges: |
||||||||||||||||||||
Life and annuities |
$ | 313,410 | $ | (314,991 | ) | $ | 1,581 | $ | | 0.0 | % | |||||||||
Accident and health insurance |
18,489 | (18,489 | ) | | | 0.0 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 331,899 | $ | (333,480 | ) | $ | 1,581 | $ | | 0.0 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Year ended December 31, 2013 |
||||||||||||||||||||
Life insurance in force |
$ | 389,941,404 | $ | 395,421,202 | $ | 5,479,798 | $ | | 0.0 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Premiums and contract charges: |
||||||||||||||||||||
Life and annuities |
$ | 1,250,623 | $ | (1,257,453 | ) | $ | 6,830 | $ | | 0.0 | % | |||||||||
Accident and health insurance |
80,974 | (80,974 | ) | | | 0.0 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 1,331,597 | $ | (1,338,427 | ) | $ | 6,830 | $ | | 0.0 | % | ||||||||||
|
|
|
|
|
|
|
|
No reinsurance or coinsurance income was netted against premiums ceded in the year ended December 31, 2015, the period from April 1, 2014 through December 31, 2014, the period from January 1, 2014 to March 31, 2014, or the year ended December 31, 2013.
67
Item 11(f). | Selected Financial Data |
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA | ||||||||||||||||||||||||
Successor Period | Predecessor Period | |||||||||||||||||||||||
($ in millions) | 2015 | For the period from April 1, 2014 through December 31, 2014 |
For the period from January 1, 2014 through March 31, 2014 |
2013 | 2012 | 2011 | ||||||||||||||||||
Operating results |
||||||||||||||||||||||||
Net investment income |
$ | 398.9 | $ | 288.6 | $ | 2.4 | $ | 10.9 | $ | 11.6 | $ | 11.8 | ||||||||||||
Realized capital gains and (losses) |
113.5 | 46.1 | 0.3 | | 0.6 | 2.1 | ||||||||||||||||||
Total Revenues |
875.2 | 614.2 | 2.6 | 10.9 | 12.2 | 13.9 | ||||||||||||||||||
Net income |
82.7 | 30.7 | 1.7 | 7.1 | 7.9 | 9.1 | ||||||||||||||||||
Financial position |
||||||||||||||||||||||||
Investments |
$ | 9,845.1 | $ | 11,088.5 | $ | | $ | 346.8 | $ | 354.8 | $ | 346.6 | ||||||||||||
Total assets |
19,562.7 | 20,710.5 | | 18,844.8 | 19,782.0 | 20,863.6 | ||||||||||||||||||
Future policy benefits, other policyholder liabilities and policyholders account balances |
15,878.2 | 16,293.2 | | 16,681.5 | 17,680.5 | 18,689.1 | ||||||||||||||||||
Shareholders equity |
334.5 | 679.0 | | 343.7 | 346.5 | 338.3 |
Item 11(h). | Managements Discussion and Analysis of Financial Condition and Results of Operations |
OVERVIEW
The following discussion highlights significant factors influencing the financial position and results of operations of Lincoln Benefit. It should be read in conjunction with the financial statements and related notes found under Item 11(e) contained herein. We operate as a single segment entity, based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.
The most important factors we monitor to evaluate the financial condition and performance of our Company include:
| For operations: premiums, benefits paid, contract charges, amounts ceded to reinsurers and return on investments including exposure to market risk, credit quality/experience, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns, and asset/liability duration (asset duration). |
| For financial condition: risk based capital ratio and capital position. |
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, the Companys results of operations and financial position as reported in the Consolidated Financial Statements could change significantly.
Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates, assumptions and judgments:
| Future policy benefits and other policyholder liabilities |
| Value of business acquired (VOBA) |
68
| Investments Impairments and Fair Value Measurements |
| Income Taxes |
| Reserves for Contingencies |
Future Policy Benefits and Other Policyholder Liabilities
Policy liabilities are established for future policy benefits on certain annuity, life, and long term care policies. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in-force. Changes in policy and contract claims are recorded in policyholder benefits, in the Consolidated Statements of Operations and Comprehensive Income (Loss).
For ASC 944-20 products, benefit reserves are computed using the net level premium method for individual life, annuity and long-term care policies, and are based upon estimates as to future investment yield, mortality and lapse that include provisions for adverse deviation that were prevalent at the time the reserve was initially established. Mortality, morbidity and lapse assumptions for all policies are based on the Companys own experience and industry standards.
Liabilities for outstanding claims and claims adjustment expenses are estimates of payments to be made on life and health insurance contracts for reported claims and claims adjustment expenses. A liability is also held for claims adjustment expenses incurred but not reported as of the balance sheet date. These liabilities are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all claims incurred but not paid. These estimates are continually reviewed and adjusted as necessary; such adjustments are reflected in current operations.
Future policy benefit reserves for fixed indexed annuity policies with returns linked to the performance of a specified market index are equal to the excess of the sum of the fair value of the embedded derivative and the host (or guaranteed) component over the policyholder account balance. The change in the fair value of the embedded derivative is linked primarily to the performance of the equity option. The host value is established as of the date of acquisition and is equal to the total account value, plus the value of the unexpired options at the date of acquisition, less the embedded derivative, and accreted over the policys life at a constant rate of interest.
Future policy benefits reserves for the portion of fixed indexed annuities earning a fixed rate of interest and other deferred annuity products are computed under a retrospective deposit method and represent policyholders account balances before applicable surrender charges.
The Company holds additional liabilities for its no lapse guarantees (associated with universal life policies) and guaranteed minimum withdrawal benefits (GMWB) associated with fixed annuities, which are accounted for in accordance with ASC 944-20, Financial Services Insurance Activities. The Companys reserves related to guaranteed minimum income benefits, guaranteed minimum accumulation benefits, and guaranteed minimum withdrawal benefits associated with variable annuities are ceded to third party reinsurers.
Policy liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in-force. The amount of liabilities and accruals, however, could be revised if the estimates discussed above are revised.
Sensitivity for Future Policy Benefit Reserves
The Companys liability for future policy benefits also includes reserves based on the present value of estimated future payments to or on behalf of contractholders, where the timing and amount of payment depends on policyholder mortality. Expected mortality is generally based on the Companys experience, industry data, and/or other factors. Interest rate assumptions are based on factors such as market conditions and expected investment
69
returns. After the initial establishment of reserves, premium deficiency and loss recognition tests are performed using best estimate assumptions as of the testing date without provisions for adverse deviation. When the liabilities for future policy benefits plus the present value of expected future gross premiums for the aggregate product group are insufficient to provide for expected future policy benefits and expenses for that line of business (i.e., reserves net of any VOBA asset), VOBA would first be written off and thereafter, if required, a premium deficiency reserve would be established by a charge to earnings.
Value of Business Acquired
In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is allocated to the right to receive future gross profits from the acquired insurance policies or investment contracts. This intangible asset, called value of business acquired, represents the estimated present value of future profits from the acquired policies. The estimated present value of future cash flows is based on certain assumptions, including mortality, persistency, expenses, and interest rates that the Company expects to experience in future years. For interest sensitive products, VOBA is amortized over the life of the policies in relation to the emergence of estimated gross profits from margins on mortality, interest, expenses, and surrenders, all of which are net of reinsurance and include actual realized gains and losses on investments. For non-interest sensitive products, such as term life insurance, VOBA is amortized in relation to premium. VOBA is reviewed periodically for loss recognition to ensure that the unamortized balance is recoverable from future earnings from the business. For certain contracts, this evaluation is performed as part of our premium deficiency testing. The carrying amount of VOBA is adjusted for the effects of realized and unrealized gains and losses on debt securities classified as available-for-sale.
Annual assumptions review and quarterly adjustments
Annually, we perform a comprehensive review of the assumptions used in estimating gross profits for future periods. We perform our annual review of assumptions during the third quarter.
Updates to assumptions may cause significant variability in amortization expense in the future. The impact on our results of operations of changes in lapse experience, mortality and revisions to expected future rates of return on investments can be offsetting and therefore we are unable to predict their movement or offsetting impact over time.
The quarterly adjustments for current period experience reflect the impact of differences between actual gross profits for a given period and the previously estimated expected gross profits for that period. To the extent each periods actual experience differs from the previous estimate for that period, the assumed level of total gross profits may change. In these cases, we recognize a cumulative adjustment to all previous periods amortization, also referred to as an experience true-up adjustment.
VOBA Sensitivities
For our equity-indexed annuity, variable and universal life policies, a significant portion of our gross profits is derived from interest and mortality margins. As a result, our estimates of future gross profits are significantly influenced by our interest and mortality assumptions. Our mortality assumptions are used to estimate future death claims over the life of these policies and may be developed based on Company experience, industry experience and other factors. Unless a material change in mortality experience that we feel is indicative of a long term trend is observed in an interim period, we generally update our mortality assumptions annually. Updates to our mortality assumptions in future periods could have a significant adverse or favorable effect on our results of operations.
The following table provides a demonstration of the sensitivity of the VOBA balance relative to our future interest and mortality assumptions by quantifying the adjustments that would be required, assuming both an
70
increase and decrease in our future interest and mortality margin by 10%. The information below is for illustrative purposes only and reflects only the direct effect of changes in our interest and mortality margin on the VOBA balance with no changes in any other assumptions such as persistency or expenses included in our evaluation of VOBA.
($ in millions) | December 31, 2015 | December 31, 2014 | ||||||
Decrease in future interest and mortality margin by 10% |
$ | (4.3 | ) | $ | (2.4 | ) | ||
Increase in future interest and mortality margin by 10% |
$ | 3.8 | $ | 2.1 |
In addition to the impacts of interest and mortality experience relative to our assumptions, other factors may also drive variability in amortization expense, particularly when our annual assumption updates are performed. As noted above, however, the impact on our results of operations of changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time.
Valuation of Investments, Including Derivatives, and the Recognition of Other-than-Temporary Impairments
Our investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, other invested assets and derivative financial instruments. Derivatives are financial instruments whose values are derived from interest rates, financial indices or the values of securities. The derivative financial instruments we generally use are futures and options. Management believes the following accounting policies related to investments, including derivatives, are most dependent on the application of estimates and assumptions. Each of these policies is discussed further within other relevant disclosures related to the investments and derivatives, as referenced below:
| Valuation of investments, including derivatives; |
| Recognition of other-than-temporary impairments; and |
| Determination of the valuation allowance for losses on commercial mortgage and other loans. |
We present at fair value in the statements of financial position our investments classified as available-for-sale, including fixed maturities, derivatives, and embedded derivatives. For additional information regarding the key estimates and assumptions surrounding the determination of fair value of fixed maturity and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Notes 2 and 5 to the Consolidated Financial Statements.
For our investments classified as available-for-sale, the impact of changes in fair value is recorded as an unrealized gain or loss in Accumulated other comprehensive income (loss), net (AOCI), a separate component of equity. For a discussion of our policies regarding other-than-temporary declines in investment value and the related methodology for recording other-than-temporary impairments of fixed maturity and equity securities, see Note 2 to the Consolidated Financial Statements.
Commercial mortgage loans (CMLs) acquired at fair value as a result of the Acquisition are carried at amortized cost using the effective interest rate method. CMLs held by the Company are diversified by property type and geographic area throughout the U.S. CMLs are considered impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement. The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value of the underlying collateral using internal valuations generally based on discounted cash flow analyses. The Company estimates an allowance for loan losses (ALL) representing potential credit losses embedded in the CML portfolio. The estimate is based on a consistently applied analysis of the loan portfolio and takes into consideration all available information, including industry, geographical, economic and political factors.
71
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for Federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryforward periods under the tax law in the applicable jurisdiction. Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred tax assets will not be realized. Management considers all available evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. The Companys accounting for income taxes represents managements best estimate of the tax consequences of various events and transactions.
Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities, and in evaluating the Companys tax positions including evaluating uncertainties under the guidance for Accounting for Uncertainty in Income taxes. Under the guidance, the Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. The Companys liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the Internal Revenue Service (IRS) or other taxing authorities. We do not anticipate any significant changes within the next 12 months to our total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.
Reserves for Contingencies
A contingency is an existing condition that involves a degree of uncertainty that will ultimately be resolved upon the occurrence of future events. Under GAAP, reserves for contingencies are required to be established when the future event is probable and its impact can be reasonably estimated, such as in connection with an unresolved legal matter. The initial reserve reflects managements best estimate of the probable cost of ultimate resolution of the matter and is revised accordingly as facts and circumstances change and, ultimately, when the matter is brought to closure.
OPERATIONS
Overview and strategy. Prior to July 18, 2013, we sold interest-sensitive, traditional and variable life insurance, and fixed annuities including deferred and immediate through independent master brokerage agencies. Effective January 1, 2014, we no longer offer fixed annuities such as deferred and immediate annuities, however we continue to receive deposits on existing policies.
On April 1, 2014, all of the capital stock in Lincoln Benefit was acquired by Resolution Life, Inc. Immediately prior to that closing, Lincoln Benefit signed a Partial Commutation Agreement with ALIC (the Partial Commutation), whereby we commuted certain business previously reinsured to ALIC, including: (a) all of the fixed deferred annuity, value adjusted deferred annuity and indexed deferred annuity business written by the Company that was previously reinsured to ALIC; (b) all of the life insurance business written by the Company through independent producers that was previously reinsured to ALIC, other than certain specified life business; and (c) all of the net liability of the Company with respect to the accident and health and long-term care insurance business written by the Company that was previously reinsured to ALIC.
Immediately after the announcement of the execution of the Purchase Agreement in July 2013, we ceased soliciting and selling new policies through our independent agent channel. We continued to sell new policies provided through the Allstate exclusive agency channel for a transitional period following the execution of the Purchase Agreement until they are transitioned to a new Allstate company.
72
In connection with the Acquisition, Resolution Life, Inc. and ALIC entered into a Transition Services Agreement (the TSA), pursuant to which ALIC continues to provide certain services for the Recaptured Business. In 2015, the administration of our deferred annuity and life business was outsourced to unaffiliated third-party service providers, se2, LLC and AllianceOne Services, Inc. ALIC continues to administer the ALIC Reinsured Business pursuant to the ASA.
At the closing, Lincoln Benefit entered into two transactions with Hannover Re. The first transaction provided financing for a portion of our statutory reserves associated with our universal life business with no- lapse guarantees and our level premium term life business (the AXXX/XXX Financing). The second transaction involved a reinsurance agreement with Hannover Re, structured on a combined modified coinsurance and monthly renewable term reinsurance basis.
Our parent company, Resolution Life, Inc., is focused on the management of in-force policies of life insurance companies. Pursuant to this strategy, Resolution Life, Inc. intends to acquire additional life insurance companies or runoff blocks of business from unrelated insurers. Resolution Life, Inc. may seek to combine portions of its acquired businesses in order to recognize efficiencies.
Presentation of Financial Information
The financial statements are presented for Successor and Predecessor Periods, which relate to the accounting periods after and before April 1, 2014, respectively, the date of the closing of the Acquisition. For periods after April 1, 2014, the accompanying financial statements comprise the consolidated financial statements of the Company, which include the accounts of the Company and its subsidiary. Due to the Acquisition and the application of push-down accounting, different bases of accounting have been used to prepare the Predecessor and Successor financial statements. A black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods.
Diminished Comparability of Pre- and Post-Acquisition Financial Information
As a result of the Acquisition and Partial Commutation effective April 1, 2014, comparison of the results of operations for the pre- and post-acquisition periods is not meaningful. For purposes of the Management Discussion and Analysis, the Company has provided comparative analysis of the Balance Sheet as of December 31, 2015 compared to December 31, 2014. For the Results of Operations, the Company has provided summary level information for the Successor and Predecessor Periods, but has only provided more detailed analysis of the components of operations for the Successor Period.
73
Financial Position
The following table outlines amounts reported in the Companys Balance Sheet as of December 31, 2015 as compared to December 31, 2014:
($ in millions) | December 31, 2015 | December 31, 2014 | ||||||
Assets |
||||||||
Cash and invested assets |
$ | 9,894.2 | $ | 11,138.2 | ||||
Reinsurance recoverables |
5,984.5 | 5,695.0 | ||||||
Valuation of business acquired (VOBA) |
247.7 | 231.5 | ||||||
Deposit receivable |
1,250.3 | 1,383.4 | ||||||
Other assets |
790.9 | 688.5 | ||||||
Separate account assets |
1,395.1 | 1,573.9 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 19,562.7 | $ | 20,710.5 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Future policy benefits |
$ | 4,757.7 | $ | 4,500.3 | ||||
Policyholders account balances |
11,120.6 | 11,764.3 | ||||||
ModCo payable |
1,250.3 | 1,383.4 | ||||||
Long-term debt |
608.7 | 551.6 | ||||||
Other liabilities |
95.8 | 258.0 | ||||||
Separate account liabilities |
1,395.1 | 1,573.9 | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | 19,228.2 | $ | 20,031.5 | ||||
|
|
|
|
|||||
Shareholders Equity |
||||||||
Common stock |
$ | 2.5 | $ | 2.5 | ||||
Additional paid-in capital |
593.6 | 593.6 | ||||||
Accumulated other comprehensive income |
(154.7 | ) | 85.4 | |||||
Retained earnings |
(106.9 | ) | (2.5 | ) | ||||
|
|
|
|
|||||
Total Shareholders Equity |
$ | 334.5 | $ | 679.0 | ||||
|
|
|
|
|||||
Total Liabilities and Shareholders Equity |
$ | 19,562.7 | $ | 20,710.5 | ||||
|
|
|
|
December 31, 2015 vs. December 31, 2014
Assets
Total assets decreased by $1.1 billion, from $20.7 billion at December 31, 2015 to $19.6 billion at December 31, 2015. Assets decline as the closed block of policies surrender, primarily our annuities and universal life blocks. Significant variances are as follows:
Cash and invested assets decreased by $1.2 billion, from $11.1 billion at December 31, 2014 to $9.9 billion at December 31, 2015. The asset portfolio declines as policy liabilities expire or surrender. The significant components of this balance and related decrease is described below.
The Companys fixed maturities bond portfolio decreased by $1.5 billion from $9.4 billion at December 31, 2014 to and $7.9 billion at December 31, 2015. The decline is comprised of policy liability runoff and reinvestment into mortgage loans. The fixed maturities bond portfolio is comprised of approximately 75% of publicly traded securities and approximately 25% in privately placed issuances.
Mortgage loans increased by $0.4 billion from $1.1 billion at December 31, 2014 to $1.5 billion at December 31, 2015. The increase is related to reinvestment of maturing mortgage loans and fixed maturities to new mortgage loan originations to improve both yield and asset and liability matching.
74
Policy loans decreased by $7.6 million from $194.4 million at December 31, 2014 to $186.8 million at December 31, 2015. These balances are expected to continue to decline over time in conjunction with the runoff of the retained policies.
Derivatives decreased by $8.3 million from $26.0 million at December 31, 2014 to $17.7 million at December 31, 2015. These balances are comprised primarily of options and futures that are used to economically hedge the market risk inherent in the Companys equity-indexed products. These assets are carried at fair value with changes in fair value recognized as realized investment gains for GAAP reporting purposes. The decline in these balances is primarily related to the equity market movement in 2015 and the expected runoff of our equity-indexed policies.
Cash and short-term investments decreased by $177.2 million from $411.1 million at December 31, 2014 to $233.9 million at December 31, 2015. The amount invested in cash and short-term investments fluctuates based on liquidity needs and the timing of investment decisions. Overall, short-term investments and cash range from 1% to 3% of overall invested assets.
Reinsurance recoverables arise under GAAP because reinsurance contracts do not relieve the ceding company of legal liability to contractholders, and therefore the ceding company is required to report reinsurance recoverables arising from these contracts separately as an asset while the policyholder liabilities ceded under these contracts are reported as future policyholder benefits or policyholder account balances.
Reinsurance recoverables increased by $289.5 million from $5.7 billion at December 31, 2014 to $6.0 billion as of December 31, 2015. This increase is primarily related to growth in long-term care reserves and the increase in business written by and ceded to ALIC. In 2015, ALIC continued to write new business in Lincoln Benefit, however this business is 100% ceded to ALIC under the existing coinsurance agreement.
Additionally, the Company maintains reinsurance to limit aggregate and single losses on large risks. The Company ceded a portion of the mortality risk on certain life policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers.
Valuation of Business Acquired (VOBA) arises because at the Acquisition date, the assets acquired and liabilities assumed generally are required to be measured at fair value. Fair value for financial reporting purposes is defined in ASC 820 (Fair Value Measurements and Disclosures). ASC 820 emphasizes that fair value is a market participant-based exit price measurement, and not an entity-specific measurement.
Once it has been determined that an asset exists, the VOBA as of the Acquisition date is a part of the business combination, and this asset is measured at fair value in accordance with ASC 820 (i.e., the price that would be received to sell the asset in an ordinary transaction between market participants).
The actuarial appraisal method was used to determine the VOBA by lines of business and resulted in a total VOBA of $290.8 million at the acquisition date. This was determined by projecting the present value of after tax statutory profits, discounted at a risk discount rate (RDR) of 12% and adjusted by projected cost of capital. This was compared to a fair deal RDR between 10% and 16% and determined to create a collar of reasonable values around this central value. This statutory value is then converted to VOBA by adjusting for GAAP to statutory accounting differences.
VOBA increased by $16.2 million from $231.5 million at December 31, 2014 to $247.7 at December 31, 2015. The increase is primarily attributable to the increase in the shadow adjustment resulting from the Companys increase in gross unrealized losses in 2015. VOBA balances before the impact of unrealized losses and gains were $210.9 million and $251.8 million at December 31, 2015 and December 31, 2014, respectively.
Deposit receivable and ModCo Payable decreased by $133.1 million from $1.4 billion at December 31, 2014 to $1.3 billion at December 31, 2015. The deposit receivable and modco payable arise from the modified
75
coinsurance/monthly renewable term reinsurance agreement entered into with Hannover Re. For GAAP reporting purposes, a reinsurance transaction must pass significant risk to the reinsurer for a company to record a credit for liabilities ceded. The Company has determined that the reinsurance transaction with Hannover Re does not pass GAAP risk transfer requirements and therefore must account for the transaction under deposit accounting principles. Under deposit accounting, the Company is required to establish a Deposit Receivable asset on the balance sheet that represents the reinsurance recoverable with an offsetting ModCo Liability for the same amount. The decrease in the balance is consistent with the runoff of the reinsured blocks of business. We will continue to see these balances decline as the annuity blocks run off.
Other assets increased by $102.4 million from $688.5 million at December 31, 2014 to $790.9 million at December 31, 2015. The balance is primarily comprised of an intercompany note, or Vehicle Note that the Company entered into on April 1, 2014 with its affiliate Lanis LLC (Lanis) in the initial amount of $513.0 million. The Vehicle Note balance increased by $57.1 million from $551.6 million at December 31, 2014 to $608.7 million at December 31, 2015. Please see the discussion on the related Surplus Note in the Long Term Debt section below.
Separate Account assets and liabilities decreased by $178.7 million from $1.6 billion at December 31, 2014 to $1.4 billion at December 31, 2015. This decrease was primarily driven by variable annuity surrenders and benefits during the year.
The assets of Separate Accounts are carried at fair value for GAAP. Separate Accounts liabilities represent the contractholders claims to the related assets and are carried at the fair value of the assets. In the event the asset values of certain contractholder accounts are projected to be below the value guaranteed by the Company, a liability is established through a charge to earnings.
Lincoln Benefits variable annuity business and a portion of the Variable Life business is reinsured by ALIC under an existing reinsurance agreement between Lincoln Benefit and ALIC. As of December 31, 2015 and 2014, all assets of the Separate Accounts that support the variable annuity and variable life business were legally insulated.
Liabilities
Total liabilities decreased by $0.8 billion, from $20.0 billion at December 31, 2014 to $19.2 billion at December 31, 2015. The decrease consists of the following components:
Future policy benefits increased by $228.8 million from $4.5 billion at December 31, 2014 to $4.8 billion at December 31, 2015. Such liabilities are established to meet the estimated future obligations of policies in-force. The increase in these liabilities is primarily related to the increase in reserves established for secondary guarantees on universal life products.
Policyholders Account Balances decreased by $0.7 billion, from $11.8 billion at December 31, 2014 to $11.1 billion at December 31, 2015 as a result of policyholder maturities and surrenders. Policyholders account balances represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities, and are comprised of cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses.
The Company holds additional liabilities for guaranteed minimum income benefits (GMIB) associated with variable annuities, which are accounted for in accordance with ASC 944-20, Financial Services Insurance Activities. The reserves for certain living benefit features, including guaranteed minimum accumulation benefits (GMAB) and guaranteed minimum withdrawal benefits (GMWB) are accounted for as embedded derivatives, with fair values calculated as the present value of expected future benefit payments to
76
contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. The Companys GMIB, GMAB and GMWB reserves are ceded to external reinsurers (with a small amount of retained GMWB coverage related to equity indexed annuities). For additional information regarding the valuation of these optional living benefit features, see Note 10 to the Consolidated Financial Statements.
Long-Term Debt increased by $57.1 million from $551.6 million at December 31, 2014 to $608.7 million at December 31, 2015. This balance represents a surplus note that was initially issued on April 1, 2014 in the amount of $513.0 million. With the Department of Insurance approval, Lancaster Re issued a variable funding Surplus Note (the Surplus Note) to its affiliate, Lanis, for $513.0 million and acquired from Lanis a Vehicle Note (the Vehicle Note) for $513.0 million. The Vehicle Note is held to support a portion of Lancaster Res reinsurance obligations and has been authorized as an acceptable form of reinsurance collateral pursuant to Nebraska Statutes.
With Department of Insurance pre-approval, (i) the Surplus Note is increased each quarter with a corresponding increase in the Vehicle Note, and (ii) interest on the Surplus Note for the prior quarter is paid on the first day of each subsequent quarter at a rate consistent with the rate received on the Vehicle Note of 4%. The Surplus Note and Vehicle Note increased by $57.1 million in 2015, primarily related to the increase in statutory universal life secondary guarantee reserves and term reserves. The Surplus Note is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Lancaster Re.
Other liabilities decreased from $229.4 million at December 31, 2014 to $95.8 million at December 31, 2015. This balance consists of various policyholder related liabilities, other liability balances related to general expenses, unsettled trades, etc. and the net deferred tax liability. The decrease in this balance is comprised of a decrease in our deferred income tax liability, a decrease in securities payable and a decrease in cash overdrafts. The decrease in the deferred income tax liability as of December 31, 2015 is driven by the increase in unrealized losses in 2015.
Results of Operations
The following table outlines amounts reported in Net Income for the Successor and Predecessor Periods (Successor and Predecessor Periods are not comparable):
Successor Period | Predecessor Period | |||||||||||||||
($ in millions) | For the year ended December 31, 2015 |
For the period from April 1, 2014 through December 31, 2014 |
For the period from January 1, 2014 through March 31, 2014 |
For the year ended December 31, 2013 |
||||||||||||
Income before federal income tax |
$ | 128.7 | $ | 44.9 | $ | 2.6 | $ | 10.9 | ||||||||
Federal income taxes |
46.1 | 14.2 | 0.9 | 3.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income |
$ | 82.6 | $ | 30.7 | $ | 1.7 | $ | 7.1 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Other comprehensive income (loss)(OCI) |
(240.2 | ) | 85.5 | 1.4 | (9.9 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive Income (Loss) |
$ | (157.6 | ) | $ | 116.2 | $ | 3.1 | $ | (2.8 | ) | ||||||
|
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|
|
|
|
|
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Results of Operations Successor Period
For the Year Ended December 31, 2015
Net income of $82.7 million was primarily derived from net realized capital gains arising from strategic reinvestment and our investment portfolio resegmentation in 2015 to better align our asset and liability cash flows. Other comprehensive loss of $240.2 million for year ended December 31, 2015 was primarily related to the increase in our net unrealized losses on fixed maturities of $487.0 million due to an increase in market yields on investments, partially offset by shadow adjustments related to VOBA and SOP 03-01 liabilities of $117.0 million.
For the Period from April 1, 2014 to December 31, 2014
Net income of $30.7 million for nine months of the Successor Period from April 1, 2014 to December 31, 2014 was driven by realized capital gains, net of changes in future policy benefits and VOBA and release of product margins.
Other comprehensive income for the nine months from April 1, 2014 to December 31, 2014 was primarily driven by unrealized gains on fixed maturities of $159.2 million as interest rates declined, partially offset by shadow adjustments related to VOBA and SOP 03-01 liabilities of $27.8 million.
The significant components of income in the Successor Period are summarized below.
Successor Period | ||||||||
($ in millions) | For the year ended December 31, 2015 |
For the period from April 1, 2014 through December 31, 2014 |
||||||
Revenues |
||||||||
Premiums earned |
$ | 8.8 | $ | 20.4 | ||||
Fee income from policyholders |
353.9 | 259.2 | ||||||
Net investment income |
398.9 | 288.6 | ||||||
Realized investment gains |
113.5 | 46.0 | ||||||
|
|
|
|
|||||
Total revenues |
$ | 875.1 | $ | 614.2 | ||||
Expenses |
||||||||
Policyholder benefits |
$ | 351.7 | $ | 216.6 | ||||
Interest credited to policyholders |
301.1 | 256.7 | ||||||
Other operating expenses |
52.7 | 57.0 | ||||||
Amortization of VOBA |
40.9 | 39.0 | ||||||
|
|
|
|
|||||
Total expenses |
$ | 746.4 | $ | 569.3 | ||||
|
|
|
|
|||||
Net Income before Federal Income Taxes |
$ | 128.7 | $ | 44.9 | ||||
|
|
|
|
Premiums Earned and Fee Income
Premiums earned were $8.8 million for the year ended December 31, 2015 and $20.4 for the nine-month period from April 1, 2014 to December 31, 2014. These premium relate primarily to traditional life and health insurance products and immediate annuities. Premiums from these products are recognized as revenue when received at the inception of the contract. Premiums earned are net of reinsurance premiums paid on the ceded business. We will continue to see premiums decline as we pay higher reinsurance premiums on universal life secondary guarantee and term life business.
Fee income from policyholders was $353.9 million for the year ended December 31, 2015 and $259.2 million for the nine-month period from April 1, 2014 to December 31, 2014. The fee income from policyholders consists
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of fees assessed against the policyholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the policy prior to contractually specified dates. These charges are recognized as revenue when assessed against the policyholder account balance. Fee income has been consistent on a quarterly basis since Acquisition.
Net investment income was $398.9 million for the year ended December 31, 2015 and $288.6 million for the nine-month period from April 1, 2014 to December 31, 2014. Net investment income was attributable to the following asset types:
($ in millions) | For the year ended December 31, 2015 |
For the period from April 1, 2014 through December 31, 2014 |
||||||
Fixed income securities |
$ | 334.9 | $ | 232.0 | ||||
Commercial mortgage loans |
63.0 | 49.4 | ||||||
Cash & short-term investments |
0.5 | 4.8 | ||||||
Other |
9.6 | 7.4 | ||||||
|
|
|
|
|||||
Gross investment income |
$ | 408.0 | $ | 293.6 | ||||
Investment expenses |
$ | 9.1 | $ | 5.0 | ||||
|
|
|
|
|||||
Net investment income |
$ | 398.9 | $ | 288.6 | ||||
|
|
|
|
Overall, net investment income has increased in 2015 primarily due to reinvestment efforts to better match asset and liability cash flows and to improve overall portfolio yield. Average yields have increased by asset type in 2015.
Realized investment gains were $113.5 million for the year ended December 31, 2015 and $46.0 million for the nine-month period from April 1, 2014 through December 31, 2014. The net realized gains in 2015 were related to asset liability management initiatives to improve yields and better match assets and liabilities.
Policyholder benefits were $351.7 million for the year ended December 31, 2015 and $216.6 million for the nine-month period from April 1, 2014 through December 31, 2014 includes both incurred claims and the change in liability for future policy benefits. Incurred claims decreased in 2015 compared to 2014 as mortality experience improved, but was offset by an increase in the change in the liability for future policy benefits related to secondary guarantees on universal life products.
Interest credited to policyholders was $301.1 million for the year ended December 31, 2015 and $256.7 million for the nine-month period from April 1, 2014 to December 31, 2014 and represents interest credited to liabilities arising from interest-sensitive life insurance and annuities products. Interest credited to policyholders decreased in 2015 due to lower account values resulting from runoff of business and lower amounts credited to the Companys equity-indexed annuity products, relating to equity market performance.
Operating and acquisition expenses were $52.7 million for the year ended December 31, 2015 and $57.0 million for the nine-month period from April 1, 2014 to December 31, 2014. These expenses are comprised of general operating expenses, premium taxes, and other fees associated with reinsurance. Amortization of VOBA was $40.9 million for the year ended December 31, 2015 and $39.0 million for the nine-month period from April 1, 2014 through December 31, 2014. Operating and acquisition expenses for the nine-month period from April 1, 2014 through December 31, 2014 included initial separation costs that will not be incurred in subsequent periods.
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Other Information Related to Successor Period
The following table presents surrender and withdrawal amounts and rates for major insurance product lines for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014:
For the year ended December 31, 2015 |
For the period from April 1, 2014 through December 31, 2014 |
|||||||||||||||
Amounts ($ in millions) |
Rate | Amounts ($ in millions) |
Rate | |||||||||||||
Annuities |
$ | 784.3 | 13.2 | % | $ | 866.2 | 16.7 | % | ||||||||
Variable and interest sensitive life |
$ | 129.5 | 3.8 | % | $ | 112.0 | 4.2 | % |
Surrender rates have decreased in 2015 due primarily on equity based products. Higher surrenders were reported in 2014 for products reaching the end of specific guarantee periods (i.e., expiry of market value adjustments).
General Account Investment Portfolio
The General Account Investment Assets (GAIA) portfolio consists of a well-diversified portfolio of public and private fixed maturities, commercial mortgages and other loans and other invested assets. The General Account portfolios and investment results support the insurance liabilities of Lincoln Benefits business operations. The following table reconciles the balance sheet asset amounts to GAIA:
($ in millions) | December 31, 2015 |
December 31, 2014 |
||||||
Fixed maturities, available-for-sale, at fair value |
$ | 7,945.9 | $ | 9,390.6 | ||||
Commercial mortgage loans |
$ | 1,509.1 | $ | 1,115.2 | ||||
Policy loans |
$ | 186.8 | $ | 194.4 | ||||
Short-term investments |
$ | 184.8 | $ | 361.4 | ||||
Other invested assets |
$ | 18.5 | $ | 26.9 | ||||
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|
|
|
|||||
Total Investments |
$ | 9,845.1 | $ | 11,088.5 | ||||
|
|
|
|
(1) | Assets listed in the Other category principally consist of derivative assets |
Investment Results of General Account Investment Assets
The following table summarizes investment results by asset category for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
For the Year Ended December 31, 2015 |
For the Period from April 1, 2014 through December 31, 2014 |
|||||||||||||||
($ in millions) | Amount | Yield | Amount | Yield(1) | ||||||||||||
Fixed income securities |
$ | 334.9 | 3.88 | % | $ | 232.0 | 3.48 | % | ||||||||
Commercial mortgage loans |
$ | 63.0 | 3.66 | % | $ | 49.4 | 3.14 | % | ||||||||
Cash, cash equivalents and short-term investments |
$ | 0.5 | 0.28 | % | $ | 4.8 | 0.36 | % | ||||||||
Other investment (loss) income |
$ | 9.6 | $ | 7.4 | ||||||||||||
|
|
|
|
|||||||||||||
Gross investment income |
$ | 408.0 | $ | 293.6 | ||||||||||||
|
|
|
|
(1) | Annualized |
Fixed Maturities
The fixed maturity portfolio consists largely of investment grade corporate debt securities and includes significant amounts of U.S. government and agency obligations. At December 31, 2015 and December 31, 2014, GAIA held CMBS with an amortized cost of $513 million and $331 million, respectively.
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Fixed Maturities by Industry
The General Account fixed maturities portfolios include publicly-traded and privately-placed corporate debt securities across an array of industry categories. The following tables set forth these fixed maturities by industry category as of December 31, 2015 and December 31, 2014 along with their associated gross unrealized gains and losses:
December 31, 2015 ($ in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 163.1 | $ | 5.6 | $ | (0.1 | ) | $ | 168.6 | |||||||
Obligations of U.S. States and Political Subdivisions |
712.9 | 14.8 | (7.0 | ) | 720.7 | |||||||||||
Foreign Governments |
72.0 | 0.2 | (10.6 | ) | 61.6 | |||||||||||
Corporate securities |
||||||||||||||||
Basic Materials |
406.8 | 0.9 | (56.2 | ) | 351.5 | |||||||||||
Communications |
556.1 | 1.1 | (37.2 | ) | 520.0 | |||||||||||
Consumer, Cyclical |
464.7 | 2.9 | (13.8 | ) | 453.8 | |||||||||||
Consumer, Non-cyclical |
825.1 | 7.4 | (21.8 | ) | 810.7 | |||||||||||
Diversified |
19.2 | 0.1 | (0.1 | ) | 19.2 | |||||||||||
Energy |
801.2 | 0.3 | (151.6 | ) | 649.9 | |||||||||||
Financial |
1,287.8 | 5.8 | (36.5 | ) | 1,257.1 | |||||||||||
Industrial |
1,063.4 | 9.1 | (15.2 | ) | 1,057.3 | |||||||||||
Technology |
236.8 | 1.7 | (9.0 | ) | 229.5 | |||||||||||
Utilities |
399.6 | 2.0 | (11.9 | ) | 389.7 | |||||||||||
ABS |
542.5 | 2.5 | (8.2 | ) | 536.8 | |||||||||||
CMBS |
513.3 | 0.6 | (7.2 | ) | 506.7 | |||||||||||
RMBS |
209.7 | 4.6 | (1.5 | ) | 212.8 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 8,274.2 | $ | 59.6 | $ | (387.9 | ) | $ | 7,945.9 | |||||||
|
|
|
|
|
|
|
|
December 31, 2014 ($ in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
U.S. Treasury Securities and Obligations of U.S. Government Authority and Agencies |
$ | 287.1 | $ | 20.9 | $ | | $ | 308.0 | ||||||||
Obligations of U.S. States and Political Subdivisions |
517.4 | 26.9 | (0.6 | ) | 543.7 | |||||||||||
Foreign Governments |
250.0 | 5.6 | (0.4 | ) | 255.2 | |||||||||||
Corporate securities |
||||||||||||||||
Basic Materials |
558.6 | 9.0 | (4.0 | ) | 563.6 | |||||||||||
Communications |
567.0 | 11.2 | (2.4 | ) | 575.8 | |||||||||||
Consumer, Cyclical |
470.0 | 9.0 | (1.0 | ) | 478.0 | |||||||||||
Consumer, Non-cyclical |
1,156.9 | 29.8 | (0.8 | ) | 1,185.9 | |||||||||||
Diversified |
17.2 | 0.2 | | 17.4 | ||||||||||||
Energy |
923.2 | 6.8 | (19.1 | ) | 910.9 | |||||||||||
Financial |
1,028.7 | 19.1 | (1.1 | ) | 1,046.7 | |||||||||||
Industrial |
1,668.4 | 30.3 | (3.4 | ) | 1,695.3 | |||||||||||
Technology |
208.5 | 2.8 | (0.4 | ) | 210.9 | |||||||||||
Utilities |
680.9 | 14.4 | (1.9 | ) | 693.4 | |||||||||||
ABS |
378.9 | 6.1 | (2.4 | ) | 382.6 | |||||||||||
CMBS |
331.0 | 3.5 | (1.1 | ) | 333.4 | |||||||||||
RMBS |
188.1 | 2.8 | (1.1 | ) | 189.8 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 9,231.6 | $ | 198.4 | $ | (39.7 | ) | $ | 9,390.6 | |||||||
|
|
|
|
|
|
|
|
Gross unrealized losses increased by $348.2 million from $39.7 million at December 31, 2014 to $387.9 million at December 31, 2015. The increase in unrealized losses was primarily due to a rise in interest rates in 2015 and a
81
general widening in credit spreads in select industries (especially in the energy and metals & mining sectors) and credits during the year ended December 31, 2015. The 10-year treasury yield curve rates at December 31, 2015 and 2014 were 2.27% and 2.17%, respectively.
Fixed Maturities by Credit Quality
The Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC) evaluates the investments of insurers for regulatory reporting purposes and assigns fixed maturity securities to one of six categories (NAIC Designations). NAIC designations of 1 or 2 include fixed maturities considered investment grade, which include securities rated Baa3 or higher by Moodys or BBB- or higher by Standard & Poors. NAIC Designations of 3 through 6 are referred to as below investment grade, which include securities rated Ba1 or lower by Moodys and BB+ or lower by Standard & Poors. As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.
The following table sets forth the General Accounts fixed maturities by NAIC rating at the dates indicated:
December 31, 2015 ($ in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||||
NAIC Rating | ||||||||||||||||||
1 | Aaa, Aa, A |
$ | 3,170.2 | $ | 34.7 | $ | (65.6 | ) | $ | 3,139.3 | ||||||||
2 | Baa |
3,430.2 | 15.5 | (268.7 | ) | 3,177.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Investment grade |
$ | 6,600.4 | $ | 50.2 | $ | (334.3 | ) | $ | 6,316.3 | |||||||||
3 | Ba |
391.7 | 1.0 | (33.8 | ) | 358.9 | ||||||||||||
4 | B |
16.6 | 0.7 | (2.8 | ) | 14.5 | ||||||||||||
5 | C and lower |
| | | | |||||||||||||
6 | In or near default |
| | | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Below investment grade |
$ | 408.3 | $ | 1.7 | $ | (36.6 | ) | $ | 373.4 | |||||||||
Total before asset and mortgage-backed securities |
$ | 7,008.7 | $ | 51.9 | $ | (370.9 | ) | $ | 6,689.7 | |||||||||
Asset and mortgage-backed securities |
1,265.5 | 7.7 | (17.0 | ) | 1,256.3 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
$ | 8,274.2 | $ | 59.6 | $ | (387.9 | ) | $ | 7,945.9 | |||||||||
|
|
|
|
|
|
|
|
December 31, 2014 ($ in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||||
NAIC Rating | ||||||||||||||||||
1 | Aaa, Aa, A |
$ | 4,287.4 | $ | 124.6 | $ | (4.9 | ) | $ | 4,407.1 | ||||||||
2 | Baa |
3,611.9 | 58.2 | (20.4 | ) | 3,649.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Investment grade |
$ | 7,899.3 | $ | 182.8 | $ | (25.3 | ) | $ | 8,056.8 | |||||||||
3 | Ba |
393.6 | 2.3 | (9.0 | ) | 386.9 | ||||||||||||
4 | B |
36.3 | 0.8 | (0.8 | ) | 36.3 | ||||||||||||
5 | C and lower |
4.7 | | (0.1 | ) | 4.6 | ||||||||||||
6 | In or near default |
| | | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Below investment grade |
$ | 434.6 | $ | 3.1 | $ | (9.9 | ) | $ | 427.8 | |||||||||
Total before asset and mortgage-backed securities |
$ | 8,333.9 | $ | 185.9 | $ | (35.2 | ) | $ | 8,484.6 | |||||||||
Asset and mortgage-backed securities |
898.0 | 12.5 | (4.5 | ) | 906.0 | |||||||||||||
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Total fixed maturities |
$ | 9,231.9 | $ | 198.4 | $ | (39.7 | ) | $ | 9,390.6 | |||||||||
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Below investment grade fixed maturities represented 9.4% and 25.0% of the gross unrealized losses at December 31, 2015 and December 31, 2014, respectively.
Commercial Mortgage Loans
At December 31, 2015 and December 31, 2014, approximately 15.3% and 10.1% of GAIA were in commercial mortgage loans. At December 31, 2015 and 2014, the carrying value of commercial mortgage loans was $1,509.1 million and $1,115.2 million, respectively.
The investment strategy for the mortgage loan portfolio emphasizes diversification by property type and geographic location with a primary focus on asset quality. The table below shows the breakdown of the amortized cost of the General Accounts investments in mortgage loans by geographic region as of December 31, 2015 and December 31, 2014:
($ in millions) | December 31, 2015 |
December 31, 2014 |
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Alabama |
$ | 1.5 | $ | 1.8 | ||||
Arizona |
34.9 | 35.5 | ||||||
California |
336.3 | 255.6 | ||||||
Colorado |
57.2 | 22.4 | ||||||
Connecticut |
25.3 | | ||||||
Florida |
86.7 | 20.8 | ||||||
Georgia |
67.2 | 27.5 | ||||||
Hawaii |
7.1 | 8.1 | ||||||
Illinois |
92.8 | 53.2 | ||||||
Iowa |
1.3 | 1.5 | ||||||
Kansas |
9.2 | | ||||||
Kentucky |
7.7 | 8.3 | ||||||
Maine |
3.9 | 4.1 | ||||||
Maryland |
33.8 | 35.5 | ||||||
Massachusetts |
90.9 | 92.9 | ||||||
Minnesota |
148.3 | 52.5 | ||||||
Missouri |
| 9.3 | ||||||
Nevada |
14.3 | 14.7 | ||||||
New Jersey |
68.7 | 84.0 | ||||||
New York |
94.9 | 72.6 | ||||||
North Carolina |
58.1 | 31.1 | ||||||
Ohio |
37.0 | 38.4 | ||||||
Oklahoma |
10.8 | 10.8 | ||||||
Pennsylvania |
42.0 | 37.7 | ||||||
South Carolina |
2.5 | 3.2 | ||||||
Tennessee |
5.3 | 5.7 | ||||||
Texas |
107.3 | 103.8 | ||||||
Utah |
44.4 | 45.9 | ||||||
Virginia |
2.4 | 18.6 | ||||||
Washington |
11.6 | 13.1 | ||||||
Wisconsin |
5.7 | 6.6 | ||||||
General allowance for loan loss |
| | ||||||
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Total commercial mortgage loans |
$ | 1,509.1 | $ | 1,115.2 | ||||
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Commercial Mortgage Loan by Credit Quality
The values used in these ratio calculations were developed as part of the periodic review of the commercial mortgage loan portfolio, which includes an evaluation of the underlying collateral value as of December 31, 2015 and December 31, 2014.
December 31, 2015 | Recorded Investment | |||||||||||||||||||||||||||
Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
($ in millions) | > 1.20x | 1.00x - 1.20x | < 1.00x | Total | % of Total | Estimated Fair Value | % of Total | |||||||||||||||||||||
Loan-to-value ratios: |
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Less than 65% |
$ | 869.5 | $ | 85.9 | $ | 19.8 | $ | 975.3 | 64.6 | % | $ | 1,000.9 | 65.1 | % | ||||||||||||||
65% to 75% |
508.5 | 25.4 | | 533.9 | 35.4 | 535.7 | 34.9 | |||||||||||||||||||||
76% to 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
Greater than 80% |
| | | | 0.0 | | 0.0 | |||||||||||||||||||||
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Total |
$ | 1,378.0 | $ | 111.3 | $ | 19.8 | $ | 1,509.1 | 100.0 | % | $ | 1,536.6 | 100.0 | % | ||||||||||||||
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December 31, 2014 | Recorded Investment | |||||||||||||||||||||||||||
Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
($ in millions) | > 1.20x | 1.00x - 1.20x | < 1.00x | Total | % of Total | Estimated Fair Value | % of Total | |||||||||||||||||||||
Loan-to-value ratios: |
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Less than 65% |
$ | 930.6 | $ | 151.7 | $ | 29.5 | $ | 1,111.8 | 97.6 | % | $ | 1,146.0 | 97.6 | % | ||||||||||||||
65% to 75% |
16.6 | 10.5 | | 27.1 | 2.4 | % | 28.3 | 2.4 | % | |||||||||||||||||||
76% to 80% |
| | | | 0.0 | % | | 0.0 | % | |||||||||||||||||||
Greater than 80% |
| | | | 0.0 | % | | 0.0 | % | |||||||||||||||||||
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Total |
$ | 947.2 | $ | 162.2 | $ | 29.5 | $ | 1,138.9 | 100.0 | % | $ | 1,174.3 | 100.0 | % | ||||||||||||||
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All of our mortgage loans that have a debt service coverage ratio of less than 1.0 are performing under the original contractual loan terms at December 31, 2015. At December 31, 2015, there were no mortgage loans classified as problem loans or considered a troubled debt restructuring.
Results of Operations Predecessor Period
Net income Net income for the period January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013 is presented in the following table:
($ in thousands) | For the period January 1, 2014 through March 31, 2014 |
2013 | ||||||
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | 2,350 | $ | 10,935 | ||||
Realized capital gains and losses . . . . . . . . . . . . . . . . . . . |
285 | | ||||||
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(922 | ) | (3,825 | ) | ||||
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | 1,713 | $ | 7,110 | ||||
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Under reinsurance agreements all premiums, contract charges, interest credited to policyholders account balances, contract benefits and substantially all expenses were ceded to ALIC, Lincoln Benefit Reinsurance Company (LB Re, an affiliate of Lincoln Benefit during the Predecessor Period) and other non-affiliated reinsurers, and were reflected net of such reinsurance in the Statements of Operations and Comprehensive Income. Results of operations included net investment income and realized capital gains and losses recognized in connection with the assets that were not transferred under the reinsurance agreements.
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Net income in the ninety day period ended March 31, 2014 was $1.7 million including net investment income and realized capital gains. Net income for the year ended December 31, 2013 decreased 10.5% in 2013 due to lower net investment income and the absence of net realized capital gains in 2013.
Net investment income The following table presents net investment income for the period January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013.
($ in thousands) | For the period January 1, 2014 through |
2013 | ||||||
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | 2,461 | $ | 11,545 | ||||
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . |
16 | 23 | ||||||
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Investment income, before expense . . . . . . . . . . . . . . . . . |
2,477 | 11,568 | ||||||
Investment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
(127 | ) | (633 | ) | ||||
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Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | 2,350 | $ | 10,935 | ||||
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Net investment income was $2.4 million for the ninety-day period and $10.9 million for the year ended December 31, 2013. Both periods were impacted by lower yields.
Realized capital gains and losses were $0.3 million in the ninety-day period, primarily related to sales of investments and netted to zero in 2013 with gains from sales offsetting impairment write-downs.
MARKET RISK
Market risk is the risk that we will incur losses due to adverse changes in interest rates or credit spreads. We also have certain exposures to changes in equity prices in our equity-indexed annuities and separate accounts liabilities.
Overview. In formulating and implementing guidelines for investing funds, we seek to earn returns that contribute to stable profits while also meeting the future cash flow requirements of our liabilities.
We use quantitative and qualitative market-based approaches to measure, monitor and manage market risk. We evaluate our exposure to market risk through the use of multiple measures including but not limited to duration, earnings- and capital-at-risk, scenario analysis and sensitivity analysis. Duration measures the price sensitivity of assets or liabilities to changes in interest rates. For example, if interest rates increase 100 basis points, the fair value of an asset with a duration of 5 is expected to decrease in value by 5%. Earnings- and capital-at-risk are estimates of the change in earnings or capital that might be expected to emerge over a given time horizon in various defined stress tests. Scenario analysis estimates the potential changes in the value of various financial parameters that could occur under different hypothetical market conditions defined by changes to the market risk factors of interest rates and credit spreads. Sensitivity analysis estimates the potential changes in the value of various financial parameters that could occur under different hypothetical shocks to a market risk factor. In general, we establish investment portfolio asset allocation and market risk limits based upon a combination of duration, earnings- and capital-at-risk, scenario analysis and sensitivity analysis as well as a consideration of liquidity and diversification. The asset allocation limits place restrictions on the total funds that may be invested within an asset class. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment and other risk policies.
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Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates. This risk arises when our investments are not fully matched to our liabilities, or when characteristics of the assets or liabilities change. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk- free reference yields.
One of the measures used to quantify interest rate exposure is duration. To estimate asset durations, we project asset cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate value. The asset projections include assumptions (based upon historical market experience and our experience) that are intended to reflect the effect of changing interest rates on the prepayment, leverage and/or option features of instruments, where applicable. The preceding assumptions relate primarily to mortgage-backed securities, and municipal and corporate obligations. Our asset duration was 6.2 years as of December 31, 2015 and 5.7 years as of December 31, 2014, respectively.
The difference between asset and liability duration is called the duration gap and is a measure of the mismatch between asset and liabilities. At the current time, because our asset durations are shorter than our liability durations, lower interest rate environments will in general result in more adverse financial outcomes than higher interest rate environments.
Based upon the information and assumptions used in the duration calculation, and interest rates in effect as of December 31, 2015, we estimate that a 100 basis point immediate, parallel fall in interest rates (rate shock) would increase the net fair value of the assets by $620 million, compared to $630 million as of December 31, 2014. The decrease is due to a decrease in the amount and mix of invested assets as the portfolio runs off over time. However, given the duration of our assets is shorter than the duration of our liabilities, lower interest rates will result in lower investment income on assets purchased in the future, resulting in a lower net investment income from the lower interest rates. The selection of a 100 basis point immediate, parallel change in interest rates should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.
To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. Additionally, our calculations assume that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates and/or large changes in interest rates.
Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads (spreads). This risk arises from our investment in spread-sensitive fixed income assets.
We manage the spread risk in our assets. One of the measures used to quantify this exposure is spread duration. Spread duration measures the price sensitivity of the assets to changes in spreads. For example, if spreads increase 100 basis points, the fair value of an asset exhibiting a spread duration of 5 is expected to decrease in value by 5%. Losses due to credit spread duration result only if there is a requirement to sell assets (for example, to pay claims) prior to maturity at a time when the fair market value of assets is low due to higher credit spreads.
Spread duration is calculated similarly to interest rate duration. For our portfolio, spread duration is close to the asset duration, and thus has a similar sensitivity. As of December 31, 2015, the spread duration of assets was 6.7 years, compared to 5.7 years as of December 31, 2014. Based upon the information and assumptions we use in this spread duration calculation, and spreads in effect as of December 31, 2015, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors
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and credit ratings (spread shock) would decrease the net fair value of the assets by $670 million as of December 31, 2015 compared to $630 million as of December 31, 2014. The decrease is due to a decrease in the amount and mix of invested assets as the portfolio runs off over time.
The selection of a 100 basis point immediate parallel change in spreads should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event.
Credit default risk is the risk that we will incur a loss due to non-payment of principal or interest by a borrower on a specific financial instrument we own. This risk arises primarily from our investments in fixed income securities (for example, corporate bonds) and commercial mortgage loans.
We manage credit default risk through monitoring of the creditworthiness of the underlying borrowers of the securities and loans we are invested in. We use diversification to reduce credit default risk by spreading the risk across different borrowers, different industries, and different geographical locations. Furthermore, we constrain credit default risk through limits on the amount of securities and loans we own with specific credit ratings. Credit defaults may be recognized by the Company in income prior to an actual default by the underlying borrower.
A credit default loss of 1% on the portfolio would result in a loss of $74 million as of December 31, 2015, compared to $84 million as of December 31, 2014. The decrease is due to a decrease in the amount and mix of invested assets as the portfolio runs off over time. The selection of 1% should not be construed as our prediction of future market events, but as an illustration of the potential effect of such an event.
Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the equity markets. Equity risk exists for contract charges based on account balances as well as for guarantees for living, death and/or income benefits provided by our variable and equity indexed products.
Our variable life products are partially reinsured to ALIC. For the products that are retained, there is equity exposure to contract charges and fees that are based on separate account values, but there is only small exposure to guarantees.
All variable annuity contract charges and fees, liabilities and benefits, including guarantees for death and/or income benefits, are ceded to ALIC in accordance with the reinsurance agreements, thereby limiting our equity risk exposure. In 2006, ALIC disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. and therefore mitigated this aspect of ALICs risk. The Company was not a direct participant of this agreement and its reinsurance agreements with ALIC remain unchanged. As of December 31, 2015 and 2014, we had Separate Accounts assets related to variable annuity and variable life contracts totaling $1.6 billion and $1.7 billion, respectively.
As of December 31, 2015 and December 31, 2014, we had $1.6 billion and $1.8 billion in equity-indexed life and annuity liabilities that were not reinsured that provide customers with interest crediting rates based on the performance of the S&P 500, respectively. We maintain a hedging program that aims to offset the impact of equity market performance on the value of these guarantees. As of December 31, 2015 and December 31, 2014, we had $17.7 million and $26.0 million in market value of S&P 500 options and futures under the hedging program, respectively.
Counterparty credit risk relates to the Companys potential loss if a counterparty fails to perform under the terms of a contract. The Company manages its exposure to counterparty credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master agreements and obtaining collateral where appropriate.
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Lincoln Benefits counterparty risk consists of the following two types of exposures: (1) Derivative counterparty risk: The Company only holds future contracts and option contracts which are traded on organized exchanges, which require margin deposits and guarantee the execution of trades, thereby mitigating potential credit risk. Exchanges serve as a marketplace for the buyer and the seller. The associated clearing house sits between the two sides of the trade. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance in 2015 or 2014; and (2) Reinsurance counterparty risk. The reinsurance counterparty risk is the risk of the reinsurance counterparty failing to pay reinsurance recoveries in full to Lincoln Benefit in a timely manner (i.e., unwillingness to pay, not paying them in full or inability to pay.) We attempt to mitigate this risk by diversifying the risk with multiple reinsurers and monitoring their credit ratings.
CAPITAL RESOURCES AND LIQUIDITY
Capital resources consist of shareholders equity. The following table summarizes our capital resources as of December 31, 2015 and December 31, 2014:
($ in millions) | 2015 | 2014 | ||||||
Common stock, retained earnings and additional paid-in capital |
$ | 489.2 | $ | 593.5 | ||||
Accumulated other comprehensive income |
(154.7 | ) | 85.5 | |||||
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$ | 334.5 | $ | 679.0 | |||||
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Shareholders equity decreased in 2015 primarily due to unrealized capital losses and payment of dividends to our parent, offset by net income. Shareholders equity in 2014 increased primarily due to additional paid in capital resulting from the Acquisition and unrealized capital gains, offset by a dividend to our parent.
Financial strength ratings. Our financial strength ratings as of December 31, 2015 and December 31, 2014, were A- from A.M. Best Company, Inc. and BBB+ from Standard & Poors Ratings Services, both with a stable outlook. These ratings reflect the rating agencies opinions of our relative financial strength and are not a recommendation to buy or hold any investment. Ratings may be revised or revoked at any time at the sole discretion of the issuing rating agency.
The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by insurance regulatory authorities. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined usual ranges. Generally, regulators will begin to monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the amount of insurance it can issue. Our ratios are within these ranges.
Liquidity sources and uses. Our potential sources of funds principally include the following:
| Receipt of insurance premiums |
| Contractholder fund deposits |
| Reinsurance recoveries |
| Receipts of principal and interest on investments |
| Maturity or sales of investments |
Our potential uses of funds principally include the following.
| Payment of contract benefits, surrenders and withdrawals |
| Reinsurance cessions and payments |
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| Operating costs and expenses |
| Purchase of investments |
| Repayment of intercompany balances |
| Dividends to parent |
| Tax payments/settlements |
Cash flows. As reflected in our Statements of Cash Flows, net cash provided by operating activities was $34 million, $96 million, $10 million and $16 thousand for the year ended December 31, 2015, the nine-month period from April 1, 2014 to December 31, 2014, the three months ended March 31, 2014, and the year ended December 31, 2013, respectively. Fluctuations in net cash provided by operating activities primarily occur as a result of changes in net investment income and differences in the timing of reinsurance payments as well as cash contributions resulting from the Acquisition. Prior to 2014, fluctuations in net cash provided by operating activities primarily occurred as a result of changes in net investment income and differences in the timing of reinsurance payments to and from ALIC and payments to Allstate affiliates.
Prior to our acquisition by Resolution Life, under the terms of reinsurance agreements, all premiums and deposits, excluding variable annuity and life contract deposits allocated to separate accounts and those reinsured to non-affiliated reinsurers, were transferred to ALIC, which maintained the investment portfolios supporting our products. Payments of contractholder claims, benefits, contract surrenders and withdrawals and certain operating costs (excluding investment-related expenses), were reimbursed by ALIC, under the terms of the reinsurance agreements. Notwithstanding any reinsurance arrangements, we continue to have primary liability as a direct insurer for risks reinsured. Our ability to meet liquidity demands is dependent on reinsurers ability to meet those obligations under the reinsurance programs.
Our ability to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors. The payment of shareholder dividends without the prior approval of the state insurance regulator is limited by Nebraska law to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. In addition, in connection with its approval of our acquisition by Resolution Life, the Department of Insurance order requires prior approval to pay any dividend for five years following the Acquisition. After receiving approval from the Department of Insurance, the Company paid dividends of $187.0 million and $33.2 million in the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014, respectively. No dividends were paid in 2013.
Contractual obligations. Due to the reinsurance agreements that we have in place, certain contractual obligations are ceded to ALIC, Hannover and other non-affiliated reinsurers.
REGULATION AND LEGAL PROCEEDINGS
We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 12 of the financial statements.
PENDING ACCOUNTING STANDARDS
There are pending accounting standards that we have not implemented because the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 in the consolidated financial statements. The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them.
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Item 11(i). | Changes in or Disagreements with Accountants |
None.
Item 11(j). | Quantitative and Qualitative Disclosures About Market Risk |
Information required for Item 11(j) is incorporated by reference to the material under the caption Market Risk in Item 11(h) of this report.
Item 11(k). | Directors and Executive Officers |
The biographies of each of the directors and executive officers as of April 1, 2016 are included below.
Clive Cowdery, 52, has been a director since April 2014. Mr. Cowdery is also a director and President of both Resolution Life GP Ltd. and Resolution Life (Parallel) GP Ltd., and a director of both Resolution Life Holdings, Inc. and Resolution Life, Inc. He is the Founder and Chairman of The Resolution Group. Before founding Resolution in 2003, Mr. Cowdery served as Chairman and Chief Executive of GE Insurance Holdings. Mr. Cowdery currently serves as a director of Prospect Publishing Limited, and he is the Founder and Chairman of the Resolution Foundation, a charitable organization dedicated to improving living standards for the 15 million people in Britain on low and middle incomes.
Jon Hack, 48, has been a director since April 2014. Mr. Hack is also a director of Resolution Life Holdings, Inc. and a director of Resolution Life, Inc. He currently serves as the Managing Partner for The Resolution Group. Prior to joining Resolution in 2009, Mr. Hack was a Managing Director and Head of European Financial Institutions Group for Lazard. Mr. Hack qualified as a chartered accountant in 1992 and is a member of The Institute of Chartered Accountants in England & Wales.
Ann Frohman, 52, has been a director since April 2014. Ms. Frohman is also a director of Resolution Life Holdings, Inc. and a director of Resolution Life, Inc. Ms. Frohman is currently self-employed at Frohman Law Office LLC, a law and government relations firm. From December 2010 to March 2012, Ms. Frohman served as Senior Vice President, Government and Industry for Physicians Mutual and Physicians Life Insurance Companies. Prior to that, Ms. Frohman held a number of leadership positions with the Nebraska Department of Insurance, including Director. Ms. Frohman is a licensed attorney with the Nebraska State Bar Association. Ms. Frohman has advised Resolution on issues of Nebraska law from time to time and expects to do so in the future.
Robert Stein, 67, has been a director since April 2014. Mr. Stein is also a director of Resolution Life Holdings, Inc. and a director of Resolution Life, Inc. From November 1976 to September 2011, Mr. Stein held various positions at Ernst & Young, including Partner. He currently serves on the boards of directors of Assurant, Inc. and Aviva plc. Mr. Stein is an actuary and a Certified Public Accountant. He is a Fellow of the Society of Actuaries and a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.
Grace Vandecruze, 52, has been a director since April 2014. Ms. Vandecruze is also a director of Resolution Life Holdings, Inc. and Resolution Life, Inc. Since 2006, Ms. Vandecruze has been employed with Grace Global Capital LLC, where she currently serves as Managing Director. Prior to that, she served as Managing Director at Fox-Pitt, Kelton and Vice President at Head & Company LLC. Ms. Vandecruze is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
Richard Carbone, 68, has been a director since April 2014. Mr. Carbone is also a director of Resolution Life Holdings, Inc. and a director of Resolution Life, Inc. Prior to joining Lincoln Benefit, Mr. Carbone served as Executive Vice President and Chief Financial Officer at Prudential Financial, Inc. and The Prudential Insurance Company of America. He also served as Senior Vice President and Chief Financial Officer
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of Prudential Financial, Inc. from November 2001 to January 2008 and Senior Vice President and Chief Financial Officer of The Prudential Insurance Company of America from July 1997 to January 2008. Prior to that, Mr. Carbone held various leadership roles at Salomon, Inc., Bankers Trust New York Corporation and Bankers Trust Company. Mr. Carbone is a member of the board of directors for E*Trade Financial Corporation. Mr. Carbone is a Certified Public Accountant (inactive).
Stephen Campbell, 49, has been a director since October 2015, and prior to that Mr. Campbell had been a director from May 2014 through May 2015. Mr. Campbell is also a director of Resolution Life Holdings, Inc. and a director of Resolution Life, Inc. From July 2015 through September 2015, Mr. Campbell was a counselor in the domestic finance office of the U.S. Department of Treasury. Since July 2013, Mr. Campbell has been self-employed as a consultant and investor. Prior to that, he was an Investment Banker with Lazard Freres & Co. from 2002 to July 2013. Mr. Campbell currently serves as a member of the board of directors for Hardscuffle, Inc. and American Life & Accident Insurance Company of Kentucky.
W. Weldon Wilson, 55, has been a director and Chief Executive Officer since April 2014. Mr. Wilson also serves as a director and Chief Executive Officer for Resolution Life Holdings, Inc. and Resolution Life, Inc. From 2010 to 2013, he was self-employed as a consultant. From July 1991 to December 2009, Mr. Wilson held various positions at Swiss Reinsurance Company, including Chief Executive Officer, President and Director of Swiss Re Life & Health America Inc. He is a licensed attorney with the State Bar of Texas.
Robyn Wyatt, 51, has been Executive Vice President, Chief Financial Officer and Treasurer since April 2014. Ms. Wyatt also serves as Executive Vice President, Chief Financial Officer and Treasurer of both Resolution Life Holdings, Inc. and Resolution Life, Inc. From March 2002 to September 2013, Ms. Wyatt held positions with various affiliates of Swiss Reinsurance Company, including Managing Director and Chief Financial Officer of Swiss Re Life & Health America Inc. Prior to that, she served as Vice President and Chief Accountant of Manulife Financial Corporation. Ms. Wyatt is a member of Chartered Accountants Australia and New Zealand and The Canadian Institute of Chartered Accountants.
Keith Gubbay, 61, has been President and Chief Actuarial Officer since April 2014. Mr. Gubbay also serves as President and Chief Actuarial Officer of both Resolution Life Holdings, Inc. and Resolution Life, Inc. From 2004 until he joined Resolution Life, Mr. Gubbay held various leadership positions in Sun Life Financial U.S., including Senior Vice-President and Chief Financial Officer. Prior to that, he served in various senior executive roles at ING Americas. Mr. Gubbay is a Member of the American Academy of Actuaries and a Fellow in the Society of Actuaries.
Simon Packer, 51, has been Chief Transformation Officer since April 2014. Mr. Packer also serves as Chief Transformation Officer of both Resolution Life Holdings, Inc. and Resolution Life, Inc. Prior to joining the Resolution Group in May 2006, Mr. Packer held leadership positions at a variety of U.K. life insurance companies, including Programme Manager at Clerical Medical Investment Group from August 2003 to April 2006 and Programme Manager at AXA Tech Ltd from April 2002 to January 2003.
Leigh McKegney, 32, has been Chief Legal Officer, Vice President and Secretary since May 2014. Ms. McKegney also serves as Chief Legal Officer, Vice President and Secretary of Resolution Life Holdings, Inc. and Resolution Life, Inc. From November 2010 to April 2014, Ms. McKegney was a corporate associate at Debevoise & Plimpton LLP. Ms. McKegney is a licensed attorney in the State of New York and registered as authorized house counsel in the State of Connecticut.
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Item 11(l). | Executive Compensation |
COMPENSATION DISCUSSION AND ANALYSIS
Executive officers of Lincoln Benefit also serve as officers of Resolution and other subsidiaries of Resolution and these executive officers received no compensation directly from Lincoln Benefit. They were employees of Resolution or a subsidiary. Allocations of compensation were made for each named executive based on the amount of the named executives time allocated to Lincoln Benefit under the Services Agreement by and between Resolution Life and Lincoln Benefit, effective as of April 1, 2014 (the Services Agreement). Those allocations are reflected in the Summary Compensation Table set forth below and in this Compensation Discussion and Analysis disclosure. The named executive officers may have received additional compensation for services rendered to Resolution or other Resolution subsidiaries, including Resolution Life, and those amounts are not reported.
Named Executives
This portion of the Compensation Discussion and Analysis describes Resolutions executive compensation program and specifically describes, for the following named executive officers (NEOs) of Lincoln Benefit below, the total 2015 compensation attributable to services rendered to Lincoln Benefit:
W. Weldon Wilson Chairman and Chief Executive Officer (CEO)
Robyn Wyatt Chief Financial Officer (CFO), Executive Vice President and Treasurer
Keith Gubbay President and Chief Actuary
Simon Packer Chief Transformation Officer
Karl Chappell Managing Director, Investments and Mergers and Acquisitions
2015 Compensation Philosophy
The objectives of Resolutions executive compensation program for 2015 were to (i) create a link between pay and performance, (ii) attract, motivate and retain talented employees, (iii) align the interests of executives and other employees with the interests of Resolutions shareholders and (iv) foster compliance and support sensible, but not excessive, risk taking. Resolution has designed the elements of its executive compensation program in order to meet these objectives.
Elements of the 2015 Compensation Program Design
All compensation and benefits paid to our officers is determined and paid or provided by Resolution. Resolution pays its executives, including the NEOs, base salary and bonus as set forth in each executives employment agreement. In addition, the executives, including NEOs, receive employee benefits on the same terms as other similarly situated executives of Resolution and its subsidiaries. The elements of compensation for the NEOs are determined pursuant to the terms of their individual employment agreements with Resolution. In 2015, Resolution established a compensation committee of its board of directors to oversee executive compensation matters, including advising on Resolutions compensation policies and reviewing and approving the determination of annual bonus payments earned by the executives. Resolution reviewed data metrics from third party vendors, the Hay Group and DW Simpson, in order to benchmark, using the Hay Group, its employees compensation against a broad range of industries, and using DW Simpson, its actuaries compensation against other life insurance companies. Mr. Wilson assists the compensation committee in setting compensation for the other Resolution executives.
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Employment Agreements
Each of Messrs. Wilson, Gubbay, Packer and Chappell and Ms. Wyatt is party to an employment agreement with Resolution, the parent of Resolution Life. Resolution negotiated each employment agreement at the time the officer became employed by Resolution in 2013 or 2014, prior to its acquisition of Lincoln Benefit. The terms of each agreement, including salary and target bonus opportunities, were determined based on an evaluation of appropriate compensation levels in the insurance industry and the level of compensation, benefits and other entitlements that Resolution considered necessary to attract and retain the executives. The employment agreements set each executives base salary and provide for an annual bonus opportunity expressed as a percentage of base salary, and employee benefits on the same terms as similarly situated executives of Resolution. Mr. Wilsons, Mr. Gubbays and Ms. Wyatts target annual bonus opportunity is 60%; and Mr. Chappells and Mr. Packers target annual bonus opportunity is 50%. The employment agreements of Messrs. Chappell and Packer also provide for reimbursement of certain relocation expenses. Mr. Gubbays and Ms. Wyatts employment agreement each provide for deferred sign-on bonuses payable in three equal amounts on the first through third anniversaries of the effective date of such employment agreement. The amount of each of these elements of compensation that is attributable to Lincoln Benefit is as set forth in the Summary Compensation Table.
Base Salary
For 2015, each NEO received the base salary set forth in his or her individual employment agreement, as adjusted by prior compensation committee approvals. The amount of each such NEOs base salary for 2015 that is attributable to Lincoln Benefit is as set forth in the Summary Compensation Table. No changes were made in 2016 to the salaries of each NEO.
Annual Bonus Payments
Variable cash compensation in the form of annual bonuses is provided to reward executives for results based on the past performance year. Each NEOs employment agreement provides for an annual performance-based bonus opportunity, with the target annual bonus amount expressed as a percentage of such NEOs base salary. The compensation committee of the board of directors of Resolution determines the annual bonus amount that has been earned by each NEO after considering a variety of individual- and Resolution-related performance factors. In determining the annual bonus payments for 2015, the compensation committee considered the objectives of Resolutions compensation philosophy, and considered the fact that 2015 represented the substantial completion of the build of a long-term platform for Resolution. For 2015, the compensation committee determined that Mssrs. Wilson and Gubbay and Ms. Wyatt had earned his or her annual performance-based bonus at 90% of the target performance level, and Mssrs. Packer and Chappell have earned their annual performance-based bonus at the target performance level, based on achievement of operational performance goals relating to building the Resolution business, including, completion of the migration of Lincoln Benefit policy administration from Allstate to Lincoln Benefits third-party administrators, finalizing its governance and risk framework, developing tools to better analyze and understand Lincoln Benefits results in order to make better risk mitigation decisions, and execution of key portfolio strategies. Because Resolution had not executed its acquisition strategy in 2015, the performance-based bonuses for Mssrs. Wilson and Gubbay and Ms. Wyatt were 90% of target. The amount of each such NEOs annual bonus that is attributable to Lincoln Benefit is as set forth in the Summary Compensation Table.
Long-Term Incentive Compensation
Each of Messrs. Wilson, Gubbay, Packer and Chappell and Ms. Wyatt participate in Resolutions long- term incentive compensation program, but have not received any long-term or equity-based compensation for their services to Lincoln Benefit. Grants under Resolutions long-term incentive compensation program were made to our NEOs prior to the acquisition of Lincoln Benefit, and are subject to satisfaction of vesting criteria
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based on continued service to Resolution. As such equity was awarded prior to the acquisition of Lincoln Benefit and no expense related to such equity is allocated to Lincoln Benefit under the Services Agreement, such compensation is not included in the Summary Compensation Tables or other tables below.
Other Benefits
The NEOs participate in the benefit programs available to other employees of Resolution Life. These benefits include health and welfare coverage and participation in a Resolution 401(k) plan. Resolution matches employee contributions up to 6% of eligible pay.
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Summary Compensation Table
The following table summarizes the compensation of our named executive officers for all services rendered to Lincoln Benefit for the last three fiscal years, in a manner consistent with the allocation of compensation under the Services Agreement or the Service and Expense Agreement, as applicable.
Name and Principal Position |
Year(3) | Salary ($) |
Bonus ($)(1) |
Stock ($) |
Option Awards ($) |
Non-Equity Incentive Plan |
Change in ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||||||||
W. Weldon Wilson |
||||||||||||||||||||||||||||||||||||
Chairman of the Board and |
2014 | 487,500 | 292,500 | | | | | 5,850 | 785,850 | |||||||||||||||||||||||||||
Chief Executive Officer |
2015 | 650,000 | 351,000 | | | | | 18,296 | 1,019,296 | |||||||||||||||||||||||||||
Robyn Wyatt |
||||||||||||||||||||||||||||||||||||
Executive Vice President, |
2014 | 270,000 | 356,850 | | | | | 7,020 | 633,870 | |||||||||||||||||||||||||||
Chief Financial Officer and |
2015 | 420,000 | 486,600 | | | | | 21,576 | 928,176 | |||||||||||||||||||||||||||
Treasurer |
||||||||||||||||||||||||||||||||||||
Keith Gubbay |
||||||||||||||||||||||||||||||||||||
President and Chief |
2014 | 262,500 | 357,375 | | | | | 5,850 | 625,725 | |||||||||||||||||||||||||||
Actuary |
2015 | 175,000 | 227,750 | | | | | 7,593 | 410,343 | |||||||||||||||||||||||||||
Simon Packer |
||||||||||||||||||||||||||||||||||||
Chief Transformation |
2014 | 297,000 | 148,500 | | | | | 43,277 | (2) | 488,777 | ||||||||||||||||||||||||||
Officer |
2015 | 396,000 | 198,000 | | | | | 55,451 | 649,451 | |||||||||||||||||||||||||||
Karl Chappell |
||||||||||||||||||||||||||||||||||||
Managing Director, |
2014 | 240,165 | 195,600 | | | | | 4,629 | 440,394 | |||||||||||||||||||||||||||
Investments and Mergers |
2015 | 320,000 | 160,000 | | | | | 11,680 | 491,680 | |||||||||||||||||||||||||||
and Acquisitions |
(1) | Amounts in this column for each of Ms. Wyatt and Messrs. Wilson, Gubbay, Packer and Chappell represent the portion of the NEOs annual performance-based bonus for 2015 that is attributable to services rendered to Lincoln Benefit, plus, in the case of Ms. Wyatt and Mr. Gubbay, the portion of the 2015 payment of the deferred sign-on bonus attributable to services rendered to Lincoln Benefit. |
(2) | Includes $29,315 in relocation benefits and $18,270 in 401(k) matching contributions. |
(3) | 2014 represents compensation for the period from April 1, 2014 to December 31, 2014. |
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Other Compensation Information
Potential Payments as a Result of Termination or Change in Control (CIC)
Each of the NEOs is party to an employment agreement with Resolution that provides for severance and/or other payments on certain terminations of employment. If Messrs. Gubbays, Packers or Chappells or Ms. Wyatts employment is terminated by mutual agreement between Resolution and the NEO, by Resolution without cause or by the NEO with good reason (such terminations, qualifying terminations), the NEO is entitled to the severance benefit described in the paragraph below; a pro-rated bonus for the year of termination, based on actual Resolution performance; and continued medical coverage at the same premium rate paid by active employees for the period during which the NEO receives the severance benefit. Mr. Gubbay and Ms. Wyatt are also entitled to payment of any unpaid portion of their deferred sign-on bonuses on such a qualifying termination or on a termination due to his or her death or disability. If Mr. Wilsons employment is terminated in a qualifying termination, he is entitled to a pro-rated bonus for the year of termination and continued medical coverage for twelve months at the same premium rate paid by active employees. Mr. Wilsons employment agreement does not provide for other severance payments.
On a qualifying termination of Ms. Wyatts or Mr. Gubbays employment following the second anniversary of the effective date of such NEOs employment agreement, the NEOs severance benefit is equal to one year of base salary plus target bonus. On a qualifying termination of Mr. Chappells or Mr. Packers employment following the first anniversary of the effective date of his employment agreement, he is entitled to an amount equal to one-half of the sum his annual base salary plus target bonus.
For these purposes, cause means (i) fraudulent statements or acts of the NEO with respect to the performance of his or her duties under the employment agreement, (ii) the NEOs conviction of, or plea of guilty or nolo contendere to, any crime that constitutes a felony or any crime that constitutes a misdemeanor involving moral turpitude, deceit, dishonesty or fraud and that results in material harm to Resolution, (iii) willful misconduct by the NEO with respect to Resolution or any of its subsidiaries, or (iv) a material breach by the NEO of his or her employment agreement. Good reason for these purposes means (a) a reduction in the NEOs base salary, annual bonus percentage, long-term incentive compensation percentage, for Mr. Gubbay and Ms. Wyatt only, deferred compensation, or Resolutions refusal to pay the NEO any compensation or benefits due, (b) a material diminution in the NEOs position, authority, duties or responsibilities, excluding any isolated, insubstantial and inadvertent action, (c) any willful breach by Resolution of a material term of the NEOs employment agreement, (d) Resolution requiring the NEO to engage in any unlawful or criminal act or (e) the bankruptcy of Resolution. For Mr. Gubbay, good reason also includes a termination of employment by Mr. Gubbay if (X) Resolution requests that he relocate his residence from the Boston, Massachusetts area after the second anniversary of the effective date of his agreement, (Y) he declines such request to relocate and (Z) he continues to perform his duties from the Boston, Massachusetts area for six months following his decline of the request to relocate (or such shorter period as agreed by Resolution). In order to terminate his or her employment for good reason, an NEO must give Resolution written notice and Resolution shall have 30 days to cure.
An NEOs severance payments are subject to such NEO signing a general release of claims. In addition, the NEOs are subject to covenants not to compete and not to solicit for one year following the date of termination (two years for Mr. Wilson), a non-disparagement covenant for three years following the date of termination, and an indefinite non-disclosure covenant.
96
Estimate of Potential Payments upon Termination of Employment or Change of Control
The following table summarizes estimated payments and benefits that would be provided to our NEOs pursuant to their employment agreements in connection with a termination of employment under various scenarios or a change in control and that are attributable to service to Lincoln Benefit and reimbursable under the Services Agreement, assuming such event occurred on December 31, 2015.
Name |
Event(1) | Base Salary; Bonus and Deferred Sign- On Bonus($)(2) |
Health & Welfare ($) |
Total Payments ($) |
||||||||||
W. Weldon Wilson |
Qualifying Termination | 390,000 | 6,296 | 396,296 | ||||||||||
Death or Disability | 0 | 0 | 0 | |||||||||||
Resignation | 0 | 0 | 0 | |||||||||||
Change in Control | 0 | 0 | 0 | |||||||||||
Robyn Wyatt |
Qualifying Termination | 1,183,800 | 9,976 | 1,193,776 | ||||||||||
Death or Disability | 259,800 | 0 | 259,800 | |||||||||||
Resignation | 0 | 0 | 0 | |||||||||||
Change in Control | 0 | 0 | 0 | |||||||||||
Keith Gubbay |
Qualifying Termination | 518,250 | 2,118 | 520,368 | ||||||||||
Death or Disability | 133,250 | 0 | 133,250 | |||||||||||
Resignation | 0 | 0 | 0 | |||||||||||
Change in Control | 0 | 0 | 0 | |||||||||||
Simon Packer |
Qualifying Termination | 495,000 | 9,439 | 504,439 | ||||||||||
Death or Disability | 0 | 0 | 0 | |||||||||||
Resignation | 0 | 0 | 0 | |||||||||||
Change in Control | 0 | 0 | 0 | |||||||||||
Karl Chappell |
Qualifying Termination | 400,000 | 12,088 | 412,088 | ||||||||||
Death or Disability | 0 | 0 | 0 | |||||||||||
Resignation | 0 | 0 | 0 | |||||||||||
Change in Control | 0 | 0 | 0 |
(1) | For Messrs. Wilson, Gubbay, Packer and Chappell and Ms. Wyatt, a qualifying termination is a termination by mutual agreement between Resolution and the executive, by the executive with good reason or by Resolution without cause. The amount included in the table is calculated based on the percentage of the executives time that would be allocated to Lincoln Benefit under the Services Agreement in the event of a qualifying termination on December 31, 2015. |
(2) | Because the termination of employment is deemed to occur on December 31, 2015, the pro-rated portion of any 2015 bonus payable as a result of termination would be 100%. |
Risk Management and Compensation
Resolution has performed a review of compensation policies and practices for all of its employees who provide services to Lincoln Benefit and has concluded that its compensation policies and practices are not reasonably likely to have a material adverse impact on Lincoln Benefit.
Director compensation
Our independent directors receive an annual cash retainer fee for their services on the boards of directors of Resolution and its subsidiaries, including Lincoln Benefit, a portion of which is allocated to Lincoln Benefit pursuant to the Services Agreement. The portion of the annual retainer allocated to Lincoln Benefit for 2015 is set forth in the table below. A non-employee director may also elect to defer receipt of all or a portion of his or
97
her annual retainer fee into a notional percentage equity interest in Resolution Life L.P. and Resolution Life (Parallel) Partnership (together, the Partnerships). The elected percentage of the Board retainer for a calendar year of service is converted into a notional percentage interest in the Partnerships when the year-end valuation of the Partnerships for the immediately prior year is available. The notional interest will be unvested until December 31st of the relevant year of service, and, as a general rule, if the directors Board service ends before December 31st, the unvested portion of the notional interest will be forfeited except that, in the case of a qualifying termination, a pro rata portion of the directors unvested portion of the notional interest will vest. If the Partnerships pay a distribution to their partners, the electing director will be paid, on a current basis, a distribution in cash based on notional interest (both vested and unvested) held by such director as of the record date of the distribution. Vested portions of notional interests will be settled in cash on the first to occur of (1) a liquidity event of the Partnerships and (2) termination of the directors board service, in which case settlement would occur in the year following the year in which the directors board service ends.
The following table summarizes the allocation of compensation of each of Lincoln Benefits independent directors during 2015 for his or her services as a member of the Board of Directors of Lincoln Benefit and its committees in a manner consistent with the allocation of compensation under the Services Agreement. Directors who are officers or employees of Resolution and its subsidiaries and other non-independent directors do not receive any additional compensation for their services as a director of Lincoln Benefit.
Name of Non-Employee Director | Fees Earned or Paid in Cash(1) ($) |
All Other Compensation(2) ($) |
Total ($) |
|||||||||
Stephen Campbell |
$ | 54,808 | | $ | 54,808 | |||||||
Richard Carbone |
$ | 98,438 | $ | 21,806 | $ | 120,244 | ||||||
Ann Frohman |
$ | 98,438 | $ | 30,496 | $ | 128,934 | ||||||
Robert Stein |
$ | 98,438 | $ | 21,806 | $ | 120,244 | ||||||
Grace Vandecruze |
$ | 98,438 | $ | 8,219 | $ | 106,657 |
(1) | Includes the portion of the cash retainer paid in the form of a deferred notional interest in the Partnerships at the election of the director. The following table sets forth, by grant date, the allocation of the number of Resolution deferred notional interest of the Partnerships credited to each director, the grant date fair value of each award and the percentage of such notional interest held at December 31, 2015 with respect to service as a Lincoln Benefit director in 2015 in a manner consistent with the allocation of compensation under the Services Agreement. All deferred notional interests vested on December 31, 2015. |
(2) | Reflects (i) for Messrs. Carbone and Stein and Ms. Vandecruze, distributions paid on their respective notional interests of the Partnerships and; (ii) for Ms. Frohman, the portion of a legal fee retainer for services as regulatory counsel with respect to Lincoln Benefit in 2015 in a manner consistent with the allocation of compensation under the Services Agreement. |
Grant Date |
Percentage of |
Grant Date |
Percentage of |
|||||||||||||
Richard Carbone |
|
April 1, July 1, October 1, 2015 |
|
0.0065 | % | 32,813 | 0.0276 | % | ||||||||
Robert Stein |
|
April 1, July 1, October 1, 2015 |
|
0.0065 | % | 32,813 | 0.0276 | % | ||||||||
Grace Vandecruze |
|
April 1, July 1, October 1, 2015 |
|
0.0016 | % | 8,203 | 0.0097 | % |
98
Compensation Committee Interlocks and Insider Participation
In February 2015, the Board of Directors of Resolution Life Holdings, Inc. established a compensation committee, whose primary function is to assist the Board with its oversight role with respect to the compensation of Resolution Life Holdings, Inc.s and its subsidiaries executive officers and other employees. No executive officer of Lincoln Benefit serves as a member of the compensation committee of another entity for which any executive officer served as a director for Lincoln Benefit.
Item 11(m). | Security Ownership of Certain Beneficial Owners and Management Security |
Ownership of Certain Beneficial Owners
The following table shows the number of Lincoln Benefit shares owned by any beneficial owner who owns more than five percent of any class of Lincoln Benefits voting securities.
Title of Class |
Name and Address of Beneficial Owner (b) |
Amount and Nature of Beneficial Ownership (c) |
Percent of Class (d) |
|||||
Capital Stock |
Resolution Life, Inc. One Station Place Metro Center, 7th Fl. Stamford, CT 06902 |
25,000 | 100 | % | ||||
N/A |
Resolution Life Holdings, Inc. One Station Place Metro Center, 7th Fl. Stamford, CT 06902 |
Indirect voting and investment power of shares owned by Resolution Life, Inc. |
N/A | |||||
N/A |
Resolution Life L.P. Canons Court 22 Victoria Street Hamilton, HM 12 Bermuda |
Indirect voting and investment power of shares owned by Resolution Life, Inc. |
N/A | |||||
N/A |
Resolution Life GP, Ltd. Canons Court 22 Victoria Street Hamilton, HM 12 Bermuda |
Indirect voting and investment power of shares owned by Resolution Life, Inc. | N/A | |||||
N/A |
Resolution Capital Limited 2 Queen Annes Gate London SW1H 9AA United Kingdom |
Indirect voting and investment power of shares owned by Resolution Life, Inc. |
N/A | |||||
N/A |
Clive Cowdery 2 Queen Annes Gate London SW1H 9AA United Kingdom |
Indirect voting and investment power of shares owned by Resolution Life, Inc. |
N/A |
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Security Ownership of Directors and Executive Officers
The following table shows the number of shares of stock in Lincoln Benefit or its parents beneficially owned by each director and named executive officer of Lincoln Benefit individually, and by all executive officers and directors of Lincoln Benefit as a group. Shares reported as beneficially owned include certain shares held indirectly, as well as shares subject to stock options exercisable on or prior to March 31, 2016 and restricted stock units for which restrictions expire on or prior to March 31, 2016. The following share amounts are as of March 31, 2016.
Entity |
Title of Class of Equity Securities |
Number of Shares |
Statement Concerning Beneficial | |||
Lincoln Benefit, Resolution Life, | n/a | n/a | Lincoln Benefit is an indirect | |||
Inc., Resolution Life Holdings, Inc., | wholly-owned subsidiary of (i) | |||||
Resolution Life L.P., Resolution | Resolution Life L.P., which is | |||||
Life GP Ltd., Resolution Life | controlled by its general partner | |||||
(Parallel) Partnership, Resolution | Resolution Life GP Ltd. and (ii) | |||||
Life (Parallel) GP Ltd. | Resolution Life (Parallel) | |||||
Partnership, which is controlled by | ||||||
its managing partners, which | ||||||
includes Resolution Life (Parallel) | ||||||
GP Ltd. Resolution Life (Parallel) | ||||||
GP Ltd. is wholly-owned by | ||||||
Resolution Life GP Ltd. | ||||||
Resolution Life GP Ltd. is wholly- | ||||||
owned by Resolution Capital | ||||||
Limited, which is wholly-owned | ||||||
by Clive Cowdery. | ||||||
Resolution Life L.P. | n/a | n/a | Clive Cowdery has made an | |||
indirect commitment of $19.84 | ||||||
million to Resolution Life L.P., | ||||||
which currently accounts for 1.8% | ||||||
of the current total $1.1 billion of | ||||||
aggregate commitment of | ||||||
Resolution Life L.P. and | ||||||
Resolution Life (Parallel) | ||||||
Partnership. |
Changes in Control
On December 31, 2013, Resolution Life Holdings, Inc. and Resolution Life, Inc. entered into a Credit Agreement with Royal Bank of Canada (RBC), The Royal Bank of Scotland, PLC, RBC Capital Markets, RBS Securities Inc. and Lloyds Securities Inc. (the Credit Agreement). On April 1, 2014, Resolution Life Holdings, Inc. and Resolution Life, Inc. entered into a Guarantee and Collateral Agreement with Royal Bank of Canada (the Guarantee and Collateral Agreement). Pursuant to the Guarantee and Collateral Agreement, Resolution Life Holdings, Inc. pledged the securities of Resolution Life, Inc. to the Secured Parties (as defined in the Guarantee and Collateral Agreement) in order to secure a term loan to Resolution Life, Inc. for the acquisition of Lincoln Benefit. Pursuant to the Credit Agreement and the Guarantee and Collateral Agreement, Resolution Life, Inc. also pledged the securities of Lincoln Benefit to the Secured Parties (as defined in the Guarantee and Collateral Agreement).
If Resolution Life, Inc. defaults on its obligations under the Credit Agreement, RBC (as collateral agent), will have the option to receive all of the Resolution Life, Inc. and Lincoln Benefit stock pledged under the Credit Agreement and Guarantee and Collateral Agreement, including all voting and corporate rights to such stock.
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Item 11(n). Transactions with Related Persons, Promoters and Certain Control Persons
On April 1, 2014, all of the capital stock in Lincoln Benefit was acquired by Resolution Life, Inc. Prior to this transaction, Lincoln Benefit was a wholly-owned subsidiary of ALIC.
Transactions with Related Persons
Prior to the acquisition of Lincoln Benefit from ALIC by Resolution Life, Inc., Lincoln Benefit was a party to certain intercompany agreements involving amounts greater than $120,000 between Lincoln Benefit and the following companies:
| Allstate Life Insurance Company (ALIC), the former direct parent of Lincoln Benefit; |
| Allstate Insurance Company (AIC), a former indirect parent of Lincoln Benefit; |
| Allstate Insurance Holdings, LLC (AIH), a former indirect parent of Lincoln Benefit; and |
| The Allstate Corporation (AllCorp), the former ultimate indirect parent of Lincoln Benefit. |
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year1 |
Related Person(s)
involved in the transaction2 and the Related Persons interest in the transaction ($) |
||||||||||||||||||||||
($) | ALIC | AIC | AIH | AllCorp | ||||||||||||||||||||
Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2004, as amended by Amendment No. 1 effective January 1, 2009, and as supplemented by New York Insurer Supplement to Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation, Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, effective March 5, 2005. |
|
2013
2014 |
|
|
4,594,114,658
4,351,172,343 |
3
3 |
|
219,150,824
157,557,526 |
3
3 |
|
1,783,214,605
1,451,026,309 |
3
3 |
|
0
0 |
|
|
12,439,714
10,193,363 |
3
3 |
101
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year1 |
Related Person(s)
involved in the transaction2 and the Related Persons interest in the transaction ($) |
||||||||||||||||||||||
($) | ALIC | AIC | AIH | AllCorp | ||||||||||||||||||||
Tax Sharing Agreement among The Allstate Corporation and certain affiliates dated as of November 12, 1996, as supplemented by Supplemental Intercompany Tax Sharing Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company effective December 21, 2000. |
|
2013
2014 |
|
|
403,752,626
991,183,410 |
4
4 |
|
(28,599,632
(118,361,063 |
)
) |
|
805,259,656
822,197,758 |
|
|
0
0 |
|
|
(361,417,973
16,223,615 |
)
| ||||||
Agreement for the Settlement of State and Local Tax Credits among Allstate Insurance Company and certain affiliates effective January 1, 2007. |
|
2013
2014 |
|
|
0
3,024,265 |
5 |
|
0
287,214 |
5 |
|
0
2,645,462 |
5 |
N/A | N/A | ||||||||||
Assignment and Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, LLC, Charter National Life Insurance Company, Intramerica Life Insurance Company, Allstate Financial Services, LLC, and Lincoln Benefit Life Company. |
|
2013
2014 |
|
|
12,927,091
4,119,257 |
6
6 |
|
(4,938,625
(140,501 |
)
) |
N/A | N/A | N/A | ||||||||||||
Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2007. |
|
2013
2014 |
|
|
174,642,625
129,435,627 |
3
3 |
|
82,062,732
49,913,891 |
3
3 |
|
79,465,291
68,450,895 |
3
3 |
N/A |
|
0
0 |
|
102
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year1 |
Related Person(s)
involved in the transaction2 and the Related Persons interest in the transaction ($) |
||||||||||||||||||||
($) | ALIC | AIC | AIH | AllCorp | ||||||||||||||||||
Reinsurance Agreements between Lincoln Benefit Life Company and Allstate Life Insurance Company: Coinsurance Agreement effective December 31, 2001; Modified Coinsurance Agreement effective December 31, 2001; Modified Coinsurance Agreement effective December 31, 2001. |
|
2013
2014 |
|
|
528,831,836
(97,926,475 |
7
)8 |
|
(528,831,836
(97,926,475 |
)7
)8 |
N/A | N/A | N/A | ||||||||||
Reinsurance Agreement between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company effective September 30, 2012. |
|
2013
2014 |
|
|
201,639
(99,556 |
7
)8 |
N/A | N/A | N/A | N/A | ||||||||||||
Administrative Services Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, dated April 1, 2014. | 2014 | 8,459,377 | 9 | 8,459,377 | 9 | N/A | N/A | N/A | ||||||||||||||
Amended and Restated Reinsurance Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014. | 2014 | 83,830,677 | 7 | 83,830,677 | 7 | N/A | N/A | N/A |
(1) | Amounts are not included for fiscal year 2015 because ALIC, AIC, AIH and AllCorp were not related persons in 2015. |
(2) | Each identified Related Person is a Party to the transaction. |
(3) | Gross amount of expense received under the transaction. |
(4) | Total amounts paid to the Internal Revenue Service. |
(5) | Value of transfer transactions. |
(6) | Gross amount of the transaction. |
(7) | Net reinsurance income. |
(8) | Net reinsurance expense. |
(9) | Gross amount of the transaction. |
After Lincoln Benefit was acquired by Resolution Life, Inc., Lincoln Benefit is a party to certain intercompany agreements involving amounts greater than $120,000 between Lincoln Benefit and the following companies:
| Resolution Life, Inc. (RLI), the direct parent of Lincoln Benefit. |
| Resolution Life Holdings, Inc. (RLH), an indirect parent of Lincoln Benefit. |
| Lancaster Re Captive Insurance Company (Lancaster Re), a direct subsidiary of Lincoln Benefit |
| Lanis LLC, an affiliate of Lincoln Benefit |
103
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year |
Approximate dollar value of the amount transaction, per fiscal year |
||||||||||||||||
($) | RLH | RLI | Lanis LLC | |||||||||||||||
Services Agreement between Resolution Life, Inc. and Lincoln Benefit Life Company effective April 1, 2014 |
|
2014 2015 |
|
|
(21,087,752 (13,864,952 |
)¹ )¹ |
N/A N/A |
|
21,087,752 13,864,952 |
¹ ¹ |
|
N/A N/A |
| |||||
Surplus Note Purchase Agreement between Lancaster Re Captive Insurance Company and Lanis LLC effective April 1, 2014 |
|
2014 2015 |
|
|
(15,711,000 (22,880,000 |
)² )² |
N/A N/A |
|
N/A N/A |
|
|
15,711,000 22,880,000 |
² ² | |||||
Vehicle Note Purchase Agreement between Lancaster Re Captive Insurance Company and Lanis LLC effective April 1, 2014 |
|
2014 2015 |
|
|
15,711,000 22,880,000 |
² ² |
N/A N/A |
|
N/A N/A |
|
|
(15,711,000 (22,880,000 |
)² )² | |||||
Fee Letter between Lincoln Benefit Life Company and Lanis LLC effective April 1, 2014 |
|
2014 2015 |
|
|
(4,584,514 (6,670,882 |
)3 )3 |
N/A N/A |
|
N/A N/A |
|
|
4,584,514 6,670,882 |
3 3 |
1 | Total expense amount reimbursed / (paid) under the transaction |
2 | Surplus/Vehicle Note Interest received (paid) |
3 | Payment of risk spread fee |
The agreements listed in the table immediately above relate to a transaction that Resolution Life, Inc., Resolution Life Holdings, Inc., Lancaster Re Captive Insurance Company, Lanis LLC and Lincoln Benefit Life Company have entered into with Hannover Life Reassurance Company of America, an unrelated party, in order to finance a portion of the insurance reserves held by Lincoln Benefit with respect to universal life insurance policies with secondary guarantees written by Lincoln Benefit.
Review and Approval of Related Person Transactions
For the Period Prior to April 1, 2014
Prior to the acquisition of Lincoln Benefit from ALIC by Resolution Life, Inc., all intercompany agreements to which Lincoln Benefit was a party were approved by Lincoln Benefits Board of Directors as well as by the board of any other affiliate of The Allstate Corporation that was a party to the agreement. When required, intercompany agreements were submitted for approval to the Nebraska Department of Insurance, Lincoln Benefits domestic regulator, and any additional states in which Lincoln Benefit might be commercially domiciled pursuant to the applicable states insurance holding company systems act. This process was documented in an internal procedure that captured the review and approval process of all intercompany agreements. All approvals were maintained in Lincoln Benefits corporate records.
Prior to the transaction with Resolution, while there was no formal process for the review and approval of related person transactions between unaffiliated entities specific to Lincoln Benefit, all directors and executive officers of Lincoln Benefit were subject to the Allstate Code of Ethics (Allstate Code). The Allstate Code includes a written conflict of interest policy that was adopted by the Board of Directors of the Allstate Corporation, the former ultimate parent company of Lincoln Benefit. Any potential relationship or activity that could impair independent thinking and judgment, including holding a financial interest in a business venture that is similar to Allstate, or in a business that has a relationship with Allstate, was required to be disclosed to Human Resources. Human Resources worked with representatives from the Law Department, including Enterprise Business Conduct, to determine whether an actual conflict of interest existed. Each director and executive officer was required to sign a Code of Ethics certification annually.
104
For the Period Beginning April 1, 2014
All intercompany agreements to which Lincoln Benefit is a party are approved by Lincoln Benefits Board of Directors as well as by the board of any other affiliate of Lincoln Benefit that is a party to the agreement. When required, intercompany agreements are submitted for approval to the Nebraska Department of Insurance, Lincoln Benefits domestic regulator, and any additional states in which Lincoln Benefit might be commercially domiciled pursuant to the applicable states insurance holding company systems act. This process is documented in an internal procedure that captures the review and approval process of all intercompany agreements. All approvals are maintained in Lincoln Benefits corporate records.
Subsequent to the acquisition by Resolution Life, Inc., while there is no formal process for the review and approval of related person transactions between unaffiliated entities specific to Lincoln Benefit, all directors, officers and employees of Lincoln Benefit are subject to Resolution Lifes Code of Conduct and its Conflict of Interest Guideline. The Resolution Code of Conduct includes a written conflict of interest policy that was adopted by the Board of Directors of Resolution Life, the parent company of Lincoln Benefit, and the Board of Directors of Lincoln Benefit. Any potential relationship or activity that could impair independent thinking and judgment, including holding a financial interest in a business venture that is similar to Lincoln Benefit and/or Resolution Life, or in a business that has a relationship with either entity, is required to be disclosed to Human
Resources and Compliance. Human Resources works with representatives from the Law Department, including Compliance, and the Audit Committee, if necessary, to determine whether an actual conflict of interest existed. All directors, officers and employees are required to sign a Code of Conduct certification and complete a Conflict of Interest Questionnaire annually.
Independence Standards for Directors
Although not subject to the independence standards of the New York Stock Exchange, for purposes of this registration statement, Lincoln Benefit has applied the independence standards required for listed companies of the New York Stock Exchange to the Board of Directors. Applying these standards, Lincoln Benefit has determined that five of its directors are independent: Stephen Campbell, Richard Carbone, Ann Frohman, Robert Stein and Grace Vandecruze.
A section entitled Experts is added to your prospectus as follows:
EXPERTS
The financial statements and related financial schedule of Lincoln Benefit Life Company for the year ended December 31, 2013 and for the period from January 1, 2014 through March 31, 2014 included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements and financial statement schedule are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The financial statements of Lincoln Benefit Life Company as of December 31, 2015 and December 31, 2014 and for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 included in this Prospectus have been so included 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.
105
The following change is made to the prospectuses for the LBL Advantage, Consultant II and Premier Planner:
Under the More Information section, the subsection entitled Legal Matters is deleted and replaced with the following:
LEGAL MATTERS
Matters of Nebraska law pertaining to the Contract, including the validity of the Contract and our right to issue the Contract under Nebraska law, have been passed upon by Lamson Dugan & Murray LLP, Omaha, Nebraska.
PRINCIPAL UNDERWRITER
Allstate Distributors, L.L.C. (ADLLC) serves as distributor of the securities registered herein. The securities offered herein are sold on a continuous basis, and there is no specific end date for the offering. ADLLC is a registered broker dealer under the Securities and Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. ADLLC is not required to sell any specific number or dollar amount of securities, but will use its best efforts to sell the securities offered.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the Variable Account. We entered into an administrative services agreement with Allstate Life. Allstate Life entered into an administrative services agreement with The Prudential Insurance Company of America (PICA) pursuant to which PICA or an affiliate provides administrative services to the Variable Account and the Contracts on our behalf. In addition, PICA entered into a master services agreement with se2, LLC, of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se2, LLC provides certain business process outsourcing services with respect to the Contracts. se2, LLC may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2015, consisted of the following: NTT DATA, Inc. (administrative services) located at 100 City Square, Boston, MA 02129; RR Donnelley Global Investment Markets, a division of RR Donnelley & Sons Company (compliance printing and mailing) located at 111 South Wacker Drive, Chicago, IL 60606; Jayhawk File Express, LLC (file storage and document destruction) located at 601 E. 5th Street, Topeka, KS 66601-2596; Co-Sentry.net, LLC (back-up printing and disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114; Convey Compliance Systems, Inc. (withholding calculations and tax statement mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447; Spangler Graphics, LLC (compliance mailings) located at 29305 44th Street, Kansas City, KS 66106; Veritas Document Solutions, LLC (compliance mailings) located at 913 Commerce Ct, Buffalo Grove, IL 60089; Records Center of Topeka, a division of Underground Vaults & Storage, Inc. (back-up tapes storage) located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; Venio LLC, d/b/a Keane (lost shareholder search) located at PO Box 1508, Southeastern, PA 19399-1508; DST Systems, Inc. (FAN mail, positions, prices) located at 333 West 11 Street, 5th Floor, Kansas City, MO 64105.
In administering the Contracts, the following services are provided, among others:
| maintenance of Contract Owner records; |
| Contract Owner services; |
| calculation of unit values; |
| maintenance of the Variable Account; and |
| preparation of Contract Owner reports. |
106
We will send you Contract statements at least annually. We will also send you transaction confirmations. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement or a confirmation. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. Correspondence you send by regular mail to our service center should be sent to P.O. Box 758566, Topeka, KS 66675-8566. Your correspondence will be picked up at this address and then delivered to our service center. Your correspondence is not considered received by us until it is received at our service center. Where this prospectus refers to the day when we receive a purchase payment, request, election, notice, transfer or any other transaction request from you, we mean the day on which that item (or the last requirement needed for us to process that item) arrives in complete and proper form at our service center or via the appropriate telephone or fax number if the item is a type we accept by those means. There are two main exceptions: if the item arrives at our service center (1) on a day that is not a business day, or (2) after the close of a business day, then, in each case, we are deemed to have received that item on the next business day.
We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
107
Supplement dated February 29, 2016, to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
The following Portfolios will be liquidated effective on April 29, 2016 (Liquidation Date):
Morgan Stanley VIS Money Market Portfolio Class X
Morgan Stanley VIS Money Market Portfolio Class Y
On the Liquidation Date, the above Portfolios will no longer be available under your Annuity contract, and any Contract Value allocated to either of these liquidated Portfolios will be transferred, as of the close of business on the Liquidation Date, to the Default Transfer Portfolios, as follows:
Liquidated Portfolio | Default Transfer Portfolio | |
Morgan Stanley VIS Money Market Portfolio Class X | Fidelity VIP ® Government Money Market Portfolio Initial Class | |
Morgan Stanley VIS Money Market Portfolio Class Y | Fidelity VIP ® Government Money Market Portfolio Service Class 2 |
Please note that you have the ability to transfer out of the above Liquidated Portfolios any time prior to the Liquidation Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your Annuity contract. Also, for a period of 60 days after the Liquidation Date, any Contract Value that was transferred to the Fidelity VIP ® Government Money Market Portfolio Initial Class or to the Fidelity VIP ® Government Money Market Portfolio Service Class 2 as the result of the liquidations can be transferred free of charge and will not count as one of your annual free transfers. It is important to note that any Portfolio into which you make your transfer will be subject to the transfer limitations described in your prospectus. Please refer to your prospectus for detailed information about investment options.
After the Liquidation Date, the above-listed Liquidated Portfolios will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates any of the above Liquidated Portfolios will be deemed instruction for the Fidelity VIP ® Government Money Market Portfolio Initial Class or the Fidelity VIP ® Government Money Market Portfolio Service Class 2, as applicable. This includes but is not limited to, systematic withdrawals, Dollar Cost Averaging, and Auto Rebalancing.
You may wish to consult with your financial representative to determine if your existing allocation instructions should be changed before or after the Liquidation Date.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated November 2, 2015, to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
Effective December 1, 2015, the Portfolios listed below will implement several changes to enable them to operate as government money market funds. Specifically, the Portfolios will: (i) modify the Portfolios fundamental concentration policy so that the Portfolios will be prohibited from investing more than 25% of its total assets in the financial services industry; and (ii) adopt a principal investment strategy to normally invest at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully.
In addition, the names of the following Portfolios will be changed as follows:
Previous Name | New Name | |
Fidelity ® VIP Money Market Portfolio Initial Class | Fidelity ® VIP Government Money Market Portfolio Initial Class | |
Fidelity ® VIP Money Market Portfolio Service Class 2 | Fidelity ® VIP Government Money Market Portfolio Service Class 2 |
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated October 30, 2015, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company, Allstate Life Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Allstate Life Insurance Company, Allstate Life Insurance Company of New York, and Lincoln Benefit Life Company (the Companies) have filed an application with the Securities and Exchange Commission (SEC) requesting an order to allow the Companies to remove the PIMCO Total Return Portfolio Administrative Shares and the PIMCO Total Return Portfolio Advisor Shares (collectively, the Replaced Portfolios) as investment options under your variable annuity contract and substitute a new investment option, the BlackRock Total Return V.I. Portfolio Class I Shares (the Replacement Portfolio), as described below.
The Companies believe that the proposed substitution is in the best interests of contract owners. The investment objectives of the Replaced Portfolios and the Replacement Portfolio are substantially similar. The Companies will bear all expenses related to the substitution, and there will be no tax consequences for you. The Companies anticipate that, if such order is granted, the proposed substitution will occur during the second quarter of 2016.
The proposed substitution and adviser for the Replaced Portfolio and the Replacement Portfolio are:
Proposed Substitution | ||||
Replaced Portfolios | Replacement Portfolio | |||
Portfolio Names | PIMCO Total Return Portfolio Administrative Shares
PIMCO Total Return Portfolio Advisor Shares |
BlackRock Total Return V.I. Portfolio | ||
Adviser | Pacific Investment Management Company LLC | BlackRock, Inc. |
Please note that:
●¨¨ |
No action is required on your part at this time, nor will you need to take any action if the SEC approves the substitution. | |
●¨¨ |
On the date of the substitution, Account Values and/or Purchase Payments currently allocated to the Replaced Portfolios will be redirected to the Replacement Portfolio unless you have changed your selection and transferred your Account Values before the substitution takes place. If you are enrolled in a Dollar Cost Averaging, Automatic Rebalancing or comparable program, your Account Value invested in the Replaced Portfolios will be transferred automatically to the Replacement Portfolio on the date of the substitution. Your enrollment instructions will be automatically updated to reflect the Replacement Portfolio for any continued and future investments. | |
●¨¨ |
You may transfer amounts in your variable annuity contract among the investment options as usual. The substitution itself will not be treated as a transfer for purposes of the transfer provisions of your Annuity, subject to the issuing Companys restrictions on transfers to prevent or limit market timing activities by Owners or agents of Owners. | |
●¨¨ |
If you make one transfer from a Replaced Portfolio into one or more Sub-accounts before the substitution, or from the Replacement Portfolio after the substitution, any transfer fee that might otherwise be imposed will be waived from the date of this Supplement through the date that is 30 days after the substitution. In addition, if you make one transfer from a Replaced Portfolio into a Sub-account before the substitution or from the Replacement Portfolio within 30 days after the substitution, the transfer will not be treated as one of a limited number of transfers (or exchanges) permitted under your Annuity. | |
●¨¨ |
On the effective date of the substitution, your Account Value will be the same as before the substitution. However, the number of units you receive in the Replacement Portfolio may be different from the number of units in the Replaced Portfolio. | |
●¨¨ |
There will be no tax consequences to you. |
In connection with the substitution, we will send you a prospectus for the Replacement Portfolio that contains complete information concerning the Replacement Portfolio, including information on all Replacement Portfolio fees and charges, as well as notice of the actual date of the substitution and confirmation of transfers.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated October 2, 2015, to the
Prospectus for your Variable Annuity
Issued By
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
Effective October 23, 2015 (the Closure Date), the following variable sub-account available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-account as of the Closure Date:
Alger Small Cap Growth Portfolio Class I-2
Contract owners who have contract value invested in the variable sub-account as of the Closure Date may continue to submit additional investments into the variable sub-account thereafter, although they will not be permitted to invest in the variable sub-account if they withdraw or otherwise transfer their entire contract value from the variable sub-account following the Closure Date. Contract owners who do not have contract value invested in the variable sub-account as of the Closure Date will not be permitted to invest in the variable sub-account thereafter.
Dollar cost averaging, category models and/or auto-rebalancing programs, if elected by a Contract owner prior to the Closure Date, will not be affected by the closure unless a contract owner withdraws or otherwise transfers his entire Account Value from the sub-account.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated January 3, 2014, to the Prospectus for your Variable Annuity Issued by LINCOLN BENEFIT LIFE COMPANY This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company. Effective as of January 31, 2014 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date: Alger Mid Cap Growth -- Class S Alger Mid Cap Growth -- Class I-2 Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter. If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time. Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner prior to the Closure Date, will not be affected by the closure. Please keep this supplement for future reference together with your prospectus. No other action is required of you.
LINCOLN BENEFIT LIFE COMPANY Supplement Dated September 30, 2013 To the following Prospectuses, as supplemented CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED MAY 1, 2013 CONSULTANT I PROSPECTUS DATED MAY 1, 2013 LBL ADVANTAGE PROSPECTUS DATED MAY 1, 2004 CONSULTANT II PROSPECTUS DATED MAY 1, 2004 PREMIER PLANNER PROSPECTUS DATED MAY 1, 2004 INVESTOR'S SELECT PROSPECTUS DATED MAY 1, 2007 The following information supplements the prospectus for your variable annuity contract issued by Lincoln Benefit Life Company. The following paragraphs are added to the "Lincoln Benefit Life Company" provision under the "More Information" section or the "Description of Lincoln Benefit Life Company and the Separate Account" section of your prospectus: On July 17, 2013, Allstate Life entered into an agreement with Resolution Life Holdings, Inc. ("Resolution"), a Delaware corporation established by Resolution Life L.P., pursuant to which Allstate Life agreed to sell Lincoln Benefit to Resolution or a wholly-owned subsidiary of Resolution (the "Transaction"). The Prudential Insurance Company of America or an affiliate will continue to reinsure and administer the Variable Account and the Contracts. The benefits and provisions of the Contracts will not be changed by the Transaction. Also, the Transaction will not change the fact that Lincoln Benefit is the named insurer under your Contract. Following the Transaction, Lincoln Benefit will no longer be an affiliate of Allstate Life. The Transaction and certain related agreements are subject to required regulatory approvals. Subject to the receipt of such regulatory approvals, the Transaction is targeted to close in the 4 th quarter of 2013. Upon receipt of regulatory approvals, Lincoln Benefit will amend and restate its existing reinsurance arrangements with Allstate Life. Lincoln Benefit will recapture, and Allstate Life no longer will reinsure: (i) all fixed deferred annuity, value adjusted deferred annuity and indexed deferred annuity business written by Lincoln Benefit, (ii) all of the life insurance business written by Lincoln Benefit through independent life insurance producers other than certain specified life insurance policies and (iii) all of the net liability of Lincoln Benefit with respect to the accident and health and long-term care insurance business written by Lincoln Benefit (the "Recapture"). The benefits and provisions of the Contracts will not be changed by the Recapture, and the Recapture will not change the fact that Lincoln Benefit is the named insurer under your Contract. Pursuant to the Recapture, Allstate Life will transfer to Lincoln Benefit, for inclusion in its general account reserves, cash and specified assets with an aggregate statutory book value equal to net statutory general account reserves attributable to the recaptured business, adjusted for the final settlement amount under the applicable existing reinsurance agreements between Lincoln Benefit and Allstate Life that are being amended and restated in connection with the Transaction. If you have any questions, please contact your financial representative or our Variable Annuity Service Center at (800) 457-7617. Our representatives are available to assist you from 7:30 a.m. to 5 p.m. Central time. Please read the prospectus supplement carefully and then file it with your important papers. No other action is required of you.
CONSULTANT I VARIABLE ANNUITY PROSPECTUS
FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
Lincoln Benefit Life Company
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 5801 SW 6th Ave., Topeka, KS 66636
MAILING ADDRESS: P.O. Box 758561, Topeka, KS 66675-8561
Telephone Number: 1-800-457-7617
Fax Number: 1-785-228-4584
The Contract is a deferred annuity contract designed to aid you in long-term financial planning. You may purchase it on either a tax qualified or non-tax qualified basis. Lincoln Benefit no longer offers this Contract. If you have already purchased the Contract you may continue to make purchase payments according to the Contract.
Because this is a flexible premium annuity contract, you may pay multiple premiums. We allocate your premium to the investment options under the Contract and our Fixed Account in the proportions that you choose. The Contract currently offers various options, each of which is a Sub-Account of the Lincoln Benefit Life Variable Annuity Account (Separate Account). Each Sub-Account invests exclusively in shares of Portfolios in one of the following underlying Funds:
Invesco Variable Insurance Funds (Series I)
The Alger Portfolios (Class O)
Deutsche Variable Series I (Class A)
Deutsche Variable Series II (Class A)
Federated Insurance Series
Fidelity® Variable Insurance Products (Initial Class)
Janus Aspen Series (Institutional Shares and Service Shares) |
Legg Mason Partners Variable Equity Trust (Class I) MFS® Variable Insurance Trust(SM) (Initial Class)
Oppenheimer Variable Account Funds (Service Shares)
PIMCO Variable Insurance Trust (Administrative Shares)
Putnam Variable Trust (Class IB)
T. Rowe Price Equity Series, Inc. (I)
T. Rowe Price International Series, Inc. (I)
Wells Fargo Variable Trust Funds |
The Securities and Exchange Commission has not Approved or Disapproved these Securities nor has it Passed on the Accuracy or the Adequacy of this Prospectus. Any Representation to the Contrary is a Criminal Offense.
The Contracts are not FDIC insured.
The Date of this Prospectus is April 29, 2016.
Some of the portfolios described in this prospectus may not be available in your Contract. We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are older than 90 years before we receive your application.
Your Contract Value will vary daily as a function of the investment performance of the Sub-Accounts to which you have allocated Purchase Payments and any interest credited to the Fixed Account. We do not guarantee any minimum Contract Value for amounts allocated to the Sub-Accounts. Benefits provided by this Contract, when based on the Fixed Account, are subject to a Market Value Adjustment, which may result in an upwards or downwards adjustment in withdrawal benefits, death benefits, settlement values, transfers to the Sub-Accounts.
In certain states the Contract may be offered as a group contract with individual ownership represented by Certificates. The discussion of Contracts in this prospectus applies equally to Certificates under group contracts, unless the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract. You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and Exchange Commission (SEC). The current Statement of Additional Information is dated April 29, 2016. The information in the Statement of Additional Information is incorporated by reference in this prospectus. You can obtain a free copy by writing us or calling us at the telephone number given above. The Table of Contents of the Statement of Additional Information appears on page 43 of this prospectus.
At least once each year we will send you an annual statement. The annual statement details values and specific information for your Contract. It does not contain our financial statements. Our financial statements are set forth in the Statement of Additional Information. Lincoln Benefit will file financial reports and other information with the SEC on an annual basis. You may read and copy any reports, statements or other information we file at the SECs public reference room in Washington, D.C. You can obtain copies of these documents by writing to the SEC and paying a duplicating fee. Please call the SEC at 1-202-551-8090 for further information as to the operation of the public reference room. Our SEC filings are also available to the public on the SEC Internet site (http://www.sec.gov).
Please read this prospectus carefully and retain it for your future reference.
Table of Contents
Definitions |
1 |
Fee Tables |
3 |
Questions and Answers About Your Contract |
5 |
Condensed Financial Information |
9 |
Description of the Contracts |
9 |
Summary |
9 |
Contract Owner |
9 |
Annuitant |
9 |
Modification of the Contract |
9 |
Assignment |
9 |
Free Look Period |
9 |
Purchases and Contract Value |
10 |
Minimum Purchase Payment |
10 |
Automatic Payment Plan |
10 |
Allocation of Purchase Payments |
10 |
Contract Value |
10 |
Separate Account Accumulation Unit Value |
10 |
Transfer During Accumulation Period |
11 |
Market Timing & Excessive Trading |
11 |
Trading Limitations |
12 |
Short Term Trading Fees |
12 |
Automatic Dollar Cost Averaging Program |
12 |
Portfolio Rebalancing |
13 |
The Investment and Fixed Account Options |
13 |
Separate Account Investments |
13 |
The Portfolios |
13 |
Voting Rights |
16 |
Additions, Deletions, and Substitutions of Securities |
16 |
The Fixed Account |
16 |
General |
16 |
Guaranteed Maturity Fixed Account Option |
16 |
Market Value Adjustment |
18 |
Dollar Cost Averaging Fixed Account Option |
18 |
Annuity Benefits |
18 |
Annuity Date |
18 |
Annuity Options |
19 |
Other Options |
19 |
Annuity Payments: General |
19 |
Variable Annuity Payments |
20 |
Fixed Annuity Payments |
21 |
Transfers During the Annuity Period |
21 |
Death Benefit During Annuity Period |
21 |
Certain Employee Benefit Plans |
21 |
Other Contract Benefits |
21 |
Death Benefit: General |
21 |
Due Proof of Death |
21 |
Death Benefit Payments |
22 |
Beneficiary |
25 |
Contract Loans for 403(b) Contracts |
26 |
Withdrawals (Redemptions) |
27 |
Written Requests and Forms in Good Order |
27 |
Systematic Withdrawal Program |
28 |
ERISA Plans |
28 |
Minimum Contract Value |
28 |
Contract Charges |
28 |
Mortality and Expense Risk Charge |
28 |
Administrative Charges |
29 |
Contract Maintenance Charge |
29 |
Administrative Expense Charge |
29 |
Transfer Fee |
29 |
Sales Charges |
29 |
Waiver Benefits |
30 |
Premium Taxes |
31 |
Deduction for Separate Account Income Taxes |
31 |
Other Expenses |
31 |
Taxes |
32 |
Taxation of Lincoln Benefit Life Company |
32 |
Taxation of Variable Annuities in General |
32 |
Income Tax Withholding |
35 |
Tax Qualified Contracts |
35 |
(i)
Description of Lincoln Benefit Life Company and the Separate Account |
40 |
Lincoln Benefit Life Company |
40 |
Separate Account |
40 |
State Regulation of Lincoln Benefit |
40 |
Financial Statements |
40 |
Administration |
40 |
Distribution of Contracts |
41 |
Legal Proceedings |
41 |
Legal Matters |
41 |
Registration Statement |
41 |
About Lincoln Benefit Life Company |
42 |
Table of Contents of Statement of Additional Information |
43 |
Appendix A Accumulation Unit Values |
A-1 |
Appendix B Illustration of a Market Value Adjustment |
B-1 |
This Prospectus does not constitute an offering in any jurisdiction in which such offering may not lawfully be made. We do not authorize anyone to provide any information or representations regarding the offering described in this Prospectus other than as contained in this Prospectus.
(ii)
Definitions
Please refer to this list for the meaning of the following terms:
Accumulation Period - The period, beginning on the Issue Date, during which Contract Value builds up under Your Contract.
Accumulation Unit - A unit of measurement which we use to calculate Contract Value.
Annuitant - The living person on whose life the annuity benefits under a Contract are based.
Annuitization - The process to begin annuity payments under the Contract.
Annuitized Value - The Contract Value adjusted by any applicable Market Value Adjustment and less any applicable taxes.
Annuity Date - The date on which annuity payments are scheduled to begin.
Annuity Period - The period during which annuity payments are paid. The Annuity Period begins on the Annuity Date.
Annuity Unit - A unit of measurement which we use to calculate the amount of Variable Annuity payments.
Beneficiary(ies) - The person(s) designated to receive any death benefits under the Contract.
Company (We, Us, Our, Lincoln Benefit) - Lincoln Benefit Life Company.
Contract Anniversary - Each anniversary of the Issue Date.
Contract Owner (You, Your) - The person(s) having the privileges of ownership defined in the Contract. If Your Contract is issued as part of a retirement plan, Your ownership privileges may be modified by the plan.
Contract Value - The sum of the values of Your investment in the Sub-Accounts of the Separate Account and the Fixed Account.
Contract Year - Each twelve-month period beginning on the Issue Date and each Contract Anniversary.
Contribution Year - Each twelve-month period beginning on the date a Purchase Payment is allocated to a Sub-Account, or each anniversary of that date.
Fixed Account - The portion of the Contract Value allocated to Our general account.
Fixed Annuity - A series of annuity payments that are fixed in amount.
Guarantee Periods - A period of years for which we have guaranteed a specific effective annual interest rate on an amount allocated to the Fixed Account.
Issue Date - The date when the Contract becomes effective.
Latest Annuity Date - The latest date by which you must begin annuity payments under the Contract.
Loan Account - An account established for amounts transferred from the Sub-Accounts or the Fixed Account as security for outstanding Contract loans.
Market Value Adjustment - An amount added to or subtracted from certain transactions involving Your interest in the Fixed Account, to reflect the impact of changing interest rates.
Net Investment Factor - The factor used to determine the value of an Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net Investment Factor separately for each Sub-Account.
Non-Qualified Plan - A retirement plan which does not receive special tax treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
Portfolio(s) - The underlying funds in which the Sub- Accounts invest. Each Portfolio is an investment company registered with the SEC or a separate investment series of a registered investment company.
Purchase Payments - Amounts paid to Us as premium for the Contract by you or on Your behalf.
Qualified Plan - A retirement plan which receives special tax treatment under Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation plan for a state and local government or another tax exempt organization under Section 457 of the Tax Code.
Separate Account - The Lincoln Benefit Life Variable Annuity Account, which is a segregated investment account of the Company.
Sub-Account - A subdivision of the Separate Account, which invests wholly in shares of one of the Portfolios.
Surrender Value - The amount paid upon complete surrender of the Contract, equal to the Contract Value, less any applicable premium taxes, Withdrawal Charge, and the contract maintenance charge and increased or decreased by any Market Value Adjustment.
Tax Code - The Internal Revenue Code of 1986, as amended.
Treasury Rate - The U.S. Treasury Note Constant Maturity Yield for the preceding week as reported in Federal Reserve Bulletin Release H.15.
1
Valuation Date - Each day the New York Stock Exchange is open for business.
Valuation Period - The period of time over which we determine the change in the value of the Sub-Accounts in order to price Accumulation Units and Annuity Units. Each Valuation Period begins at the close of normal trading on the New York Stock Exchange (NYSE) currently 4:00 p.m. Eastern time on each Valuation Date and ends at the close of the NYSE on the next Valuation Date.
Variable Annuity - A series of annuity payments that vary in amount based on changes in the value of the Sub- Accounts to which Your Contract Value has been allocated.
Withdrawal Charge - The contingent deferred sales charge that may be required upon some withdrawals.
2
Fee Tables
The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, surrender the Contract, or transfer cash value between investment options. State premium taxes may also be deducted.
Maximum Contingent Deferred Sales Charge - Withdrawal Charge (as a percentage of Purchase Payments) - 7%
CONTRIBUTION YEAR |
APPLICABLE CHARGE |
1-2 |
7 % |
3-4 |
6 % |
5 |
5 % |
6 |
4 % |
7 |
3 % |
8 + |
0 % |
TRANSFER FEE (Applies solely to the second and subsequent transfers within a calendar month. We are currently
waiving the |
$ 10.00 |
The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including Portfolio fees and expenses.
Annual Contract Maintenance Charge |
$ 35.00 |
Separate Account Annual Expenses |
|
Base Contract (without optional riders) |
|
Mortality and Expense Risk Charge |
1.15% |
Administrative Expense Charge |
0.10% |
Total Separate Account Annual Expenses |
1.25% |
Base Contract (with Enhanced Death Benefit Rider) |
|
Mortality and Expense Risk Charge |
1.35% |
Administrative Expense Charge |
0.10% |
Total Separate Account Annual Expenses |
1.45% |
Base Contract (with Enhanced Income Benefit Rider) |
|
Mortality and Expense Risk Charge |
1.50% |
Administrative Expense Charge |
0.10% |
Total Separate Account Annual Expenses |
1.60% |
Base Contract (with Enhanced Death and Income Benefit Riders) |
|
Mortality and Expense Risk Charge |
1.55% |
Administrative Expense Charge |
0.10% |
Total Separate Account Annual Expenses |
1.65% |
Base Contract (with Enhanced Death and Income Benefit Riders II) |
|
Mortality and Expense Risk Charge |
1.70% |
Administrative Expense Charge |
0.10% |
Total Separate Account Annual Expenses |
1.80% |
The next table shows the minimum and maximum total annual operating expenses charged by the Portfolios that you may pay periodically during the time that you own the Contract. Advisers and/or other service providers of certain Portfolios may have agreed to waive their fees and/or reimburse Portfolio expenses in order to keep the Portfolios expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement. More detail concerning each Portfolios fees and expenses is contained in the prospectus for each Portfolio.
Minimum |
Maximum | |
Total Annual Portfolio Operating Expenses(1) (expenses that are deducted from Portfolio assets, which may include management fees, distribution and/or service (12b-1) fees, and other expenses) (without waivers or reimbursements) |
0.10% |
1.32% |
(1) Expenses are shown as a percentage of Portfolio average daily net assets before any waiver or reimbursement as of December 31, 2015.
Example 1
This Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Separate Account annual expenses, and Portfolio fees and expenses and assumes no transfers or exchanges were made. The Example shows the dollar amount of expenses that you would bear directly or indirectly if you:
Invested $10,000 in the Contract for the time periods indicated,
earned a 5% annual return on your investment,
3
surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period, and,
elected the Enhanced Death and Income Benefit Riders II (with total Separate Account expenses of 1.80%).
The first line of the example assumes that the maximum fees and expenses of any of the Portfolios are charged. The second line of the example assumes that the minimum fees and expenses of any of the Portfolios are charged. Your actual expenses may be higher or lower than those shown below.
The example does not include any taxes or tax penalties you may be required to pay if you surrender your Contract.
1 Year |
3 Years |
5 Years |
10 Years | |
Costs Based on Maximum Annual Portfolio Expenses |
$ 911 |
$ 1,476 |
$ 2,064 |
$ 3,434 |
Costs Based on Minimum Annual Portfolio Expenses |
$ 792 |
$ 1,118 |
$ 1,469 |
$ 2.257 |
Example 2
This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
1 Year |
3 Years |
5 Years |
10 Years | |
Costs Based on Maximum Annual Portfolio Expenses |
$ 316 |
$ 966 |
$ 1,639 |
$ 3,434 |
Costs Based on Minimum Annual Portfolio Expenses |
$ 197 |
$ 608 |
$ 1,044 |
$ 2,257 |
Explanation of Expense Examples
Please remember that you are looking at examples and not a representation of past or future expenses. Your rate of return may be higher or lower than 5%, which is not guaranteed. The examples do not assume that any Portfolio expense waivers or reimbursement arrangements are in effect for the periods presented. Examples 1 and 2 assume the election of the Enhanced Death and Income Benefit Riders II (total Separate Account expenses of 1.80%). If these riders were not elected, the expense figures shown would be slightly lower. The Examples reflect the Free Withdrawal amounts, if any, and an annual Contract maintenance charge of $35.
4
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of the more important features of the Contract. The Contract is more fully described in the rest of the prospectus. Please read the prospectus carefully.
1. What is the Contract?
The Contract is a flexible premium deferred variable annuity contract. It is designed for tax-deferred retirement investing. The Contract is available for non- qualified or qualified retirement plans. The Contract, like all deferred annuity contracts, has two phases: the Accumulation Period and the Annuity Period. During the Accumulation Period, earnings accumulate on a tax- deferred basis and are taxed as income when you make a withdrawal. The Annuity Period begins when you begin receiving payments under one of the annuity payment options described in the answer to Question 2. The amount of money accumulated under your Contract during the Accumulation Period will be used to determine the amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Sub- Accounts of the Separate Account or allocated to the Fixed Account, as you instruct us. You may allocate your Contract Value to up to twenty-one options under the Contract, counting each Sub-Account and the Fixed Account as one option. We will treat all of your Contract Value allocated to the Fixed Account as one option for purposes of this limit, even if you have chosen more than one Guarantee Period. The value of your Contract will depend on the investment performance of the Sub- Accounts and the amount of interest we credit to the Fixed Account.
Each Sub-Account will invest in a single investment portfolio (a Portfolio) of an underlying fund. The Portfolios offer a range of investment objectives, from conservative to aggressive. You bear the entire investment risk on amounts allocated to the Sub-Accounts. The investment policies and risks of each Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the Fixed Account, as described in the answer to Question 5.
2. What Annuity Options does the Contract offer?
You may receive annuity payments on a fixed or a variable basis or a combination of the two. We offer a variety of annuity options including:
a life annuity with payments guaranteed for zero to thirty years;
a joint and full survivorship annuity, with payments guaranteed for zero to thirty years; and
fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may select the date to annuitize the Contract. The date you select, however, may be no later than the later of the tenth Contract Anniversary or the youngest Annuitants 90th birthday. If your Contract was issued in connection with a qualified plan, different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments to you will be affected by the investment performance of the Sub-Accounts you have selected. The fixed portion of your annuity payments, on the other hand, generally will be equal in amount to the initial payment we determine. As explained in more detail below, however, during the Annuity Period you will have a limited ability to change the relative weighting of the Sub-Accounts on which your variable annuity payments are based or to increase the portion of your annuity payments consisting of Fixed Annuity payments.
3. How do I buy a Contract?
Please note that these Contracts are no longer available for new sales. The information provided in this section is for informational purposes only.
You can obtain a Contract application from your Lincoln Benefit agent. You must pay at least $1,200 in Purchase Payments during the first Contract Year. Purchase Payments must be at least $100, unless you enroll in an automatic payment plan. Your periodic payments in an automatic payment plan must be at least $25 per month. We may lower these minimums at our sole discretion. The maximum age of the oldest Contract Owner and Annuitant cannot exceed age 90 as of the date we receive the completed application.
4. What are my investment choices under the Contract?
You can allocate and reallocate your investment among the Sub-Accounts, each of which in turn invests in a single Portfolio. Under the Contract, the Separate Account currently invests in the Portfolios described in The Investment and Fixed Account Options: Separate Account Investments.
Some of the Portfolios described in this prospectus may not be available in your Contract.
Each Portfolio holds its assets separately from the assets of the other Portfolios. Each Portfolio has distinct investment objectives and policies which are described in the prospectuses for the Portfolios.
5
5. What is the Fixed Account option?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
You may allocate Purchase Payments to the Sub- Account(s) and the Fixed Account(s). Loan payments may not be allocated to the Fixed Account(s). You may not transfer amounts into the DCA Fixed Account. The minimum amount that may be transferred into any one of the Guarantee Maturity Fixed Account Options is $500.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed Account Option at a specified rate for a specified Guarantee Period. You select the Guarantee Period for each amount that you allocate to the Guaranteed Maturity Fixed Account Option. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. At the end of each Guarantee Period, you may select a new Guarantee Period from among the choices we are then making available or transfer or withdraw the relevant amount from the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are currently offering Guarantee Periods of one, three, five, seven, and ten years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until the end of the relevant Guarantee Period. From time to time, however, we may change the interest rate that we offer to credit to new allocations to the Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may designate amounts to be held in the Dollar Cost Averaging Fixed Account Option until they are transferred monthly to the Sub-Accounts or Guarantee Periods of your choosing. When you make an allocation to the Fixed Account for this purpose, we will set an interest rate applicable to that amount. We will then credit interest at that rate to that amount until it has been entirely transferred to your chosen Sub-Accounts or Guarantee Periods. We will complete the transfers within one year of the allocation. In our discretion we may change the rate that we set for new allocations to the Fixed Account for the dollar cost averaging program. We will never, however, set a rate less than an effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain transactions involving the Fixed Account, to reflect changes in interest rates. As a general rule, we will apply a Market Value Adjustment to the following transactions:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in an amount greater than the Free Withdrawal Amount (which is described in the answer to Question 6);
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to the Sub-Accounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed Account Option to a new Guarantee Period before the end of the existing Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction to the extent that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to the funds involved in the transaction;
2) it is necessary to meet IRS minimum withdrawal requirements; or
3) it is a transfer that is part of a Dollar Cost Averaging program.
We determine the amount of a Market Value Adjustment using a formula that takes into consideration:
1) whether current interest rates differ from interest rates at the beginning of the applicable Guarantee Period; and
2) how many years are left until the end of the Guarantee Period.
As a general rule, if interest rates have dropped, the Market Value Adjustment will be an addition; if interest rates have risen, the Market Value Adjustment will be a deduction. It is therefore possible that if you withdraw an amount from the Fixed Account during a Guarantee Period, a Market Value Adjustment may cause you to receive less than you initially allocated to the Fixed Account.
6. What are my expenses under the Contract?
Contract Maintenance Charge. During the Accumulation Period, each year we subtract an annual contract maintenance charge of $35 from your Contract Value allocated to the Sub-Accounts. We will waive this charge if you pay $50,000 or more in Purchase Payments or if you allocate all of your Contract Value to the Fixed Account.
During the Annuity Period, we will subtract the annual contract maintenance charge in equal parts from your annuity payments. We waive this charge if on the Annuity Date your Contract Value is $50,000 or more or if all payments are Fixed Annuity payments.
6
Administrative Expense Charge and Mortality and Expense Risk Charge. We impose a mortality and expense risk charge at an annual rate of 1.15% of average daily net assets and an administrative expense charge at an annual rate of .10% of average daily net assets. If you select one of our optional enhanced benefit riders, however, we may charge you a higher mortality and expense risk charge. These charges are assessed each day during the Accumulation Period and the Annuity Period. We guarantee that we will not raise these charges.
Transfer Fee. Although we currently are not charging a transfer fee, the Contract permits us to charge you up to $10 per transfer for each transfer after the first transfer in each month.
Withdrawal Charge (Contingent Deferred Sales Charge). During the Accumulation Period, you may withdraw all or part of the value of your Contract before your death or, if the Contract is owned by a company or other legal entity, before the Annuitants death. Certain withdrawals may be made without payment of any Withdrawal Charge, which is a contingent deferred sales charge. Other withdrawals are subject to the Withdrawal Charge.
The Withdrawal Charge will vary depending on how many complete years have passed since you paid the Purchase Payment being withdrawn. The Withdrawal Charge applies to each Purchase Payment for seven complete years from the date of the Payment (each a Contribution Year) as follows:
Contribution Year
|
Applicable Charge
|
1-2 |
7 % |
3-4 |
6 % |
5 |
5 % |
6 |
4 % |
7 |
3 % |
8 + |
0 % |
In determining Withdrawal Charges, we will deem your Purchase Payments to be withdrawn on a first-in, first- out basis.
Each year, free of Withdrawal Charges or any otherwise applicable Market Value Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of: earnings not previously withdrawn; or 15% of your total Purchase Payments made in the most recent seven years; plus
(b) an amount equal to your total Purchase Payments made more than seven years ago, to the extent not previously withdrawn.
In most states, we also may waive the Withdrawal Charge if you:
1) require long-term medical or custodial care outside the home;
2) become unemployed; or
3) are diagnosed with a terminal illness.
These provisions will apply to the Annuitant, if the Contract is owned by a company or other legal entity. Additional restrictions and costs may apply to Contracts issued in connection with qualified plans. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. You should consult with your tax counselor to determine what effect a withdrawal might have on your tax liability. As described in the answer to Question 5, we may increase or decrease certain withdrawals by a Market Value Adjustment.
Premium Taxes. Certain states impose a premium tax on annuity purchase payments received by insurance companies. Any premium taxes relating to the Contract may be deducted from Purchase Payments or the Contract Value when the tax is incurred or at a later time. State premium taxes generally range from 0% to 3.5%.
Other Expenses. In addition to our charges under the Contract, each Portfolio deducts amounts from its assets to pay its investment advisory fees and other expenses.
7. How will my investment in the Contract be taxed?
You should consult a qualified tax adviser for personalized answers. Generally, earnings under variable annuities are not taxed until amounts are withdrawn or distributions are made. This deferral of taxes is designed to encourage long-term personal savings and supplemental retirement plans. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
Special rules apply if the Contract is owned by a company or other legal entity. Generally, such an owner must include in income any increase in the excess of the Contract Value over the investment in the contract during the taxable year.
8. Do I have access to my money?
At any time during the Accumulation Period, we will pay you all or part of the value of your Contract, minus any applicable charge, if you surrender your Contract or request a partial withdrawal. Under some qualified plans, you may also take a loan against the value of your Contract. Generally, a partial withdrawal must equal at least $50, and after the withdrawal your remaining Contract Value must at least equal $500.
7
Although you have access to your money during the Accumulation Period, certain charges, such as the contract maintenance charge, the Withdrawal Charge, and premium tax charges, may be deducted on a surrender or withdrawal. You may also incur federal income tax liability or tax penalties. In addition, if you have allocated some of the value of your Contract to the Fixed Account, the amount of your surrender proceeds or withdrawal may be increased or decreased by a Market Value Adjustment.
After annuitization, under certain settlement options you may be entitled to withdraw the commuted value of the remaining payments.
9. What is the Death Benefit?
We will pay a death benefit while the Contract is in force and before the Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the Contract Owner is not a living person. To obtain payment of the Death Benefit, the Beneficiary must submit to us a complete request for payment of the death benefit, which includes due proof of death as specified in the Contract.
The standard death benefit is the greatest of the following:
1) your total Purchase Payments reduced by a withdrawal adjustment;
2) your Contract Value;
3) the amount you would have received by surrendering your Contract; or
4) your Contract Value on each Contract Anniversary which may be evenly divisible by seven increased by the total Purchase Payments since that anniversary and reduced by a withdrawal adjustment.
We also offer an optional enhanced death benefit rider, which is described later in this prospectus.
We will determine the value of the death benefit on the day that we receive all of the information that we need to process the claim.
10. What else should I know?
Please note that these Contracts are no longer available for new sales. The information provided in this section is for informational purposes only.
Allocation of Purchase Payments. You allocate your initial Purchase Payment among the Sub-Accounts and the Fixed Account in your Contract application. You may make your allocations in specific dollar amounts or percentages, which must be whole numbers that add up to 100%. When you make subsequent Purchase Payments, you may again specify how you want your payments allocated. If you do not, we will automatically allocate the payment based on your most recent instructions. You may not allocate Purchase Payments to the Fixed Account if it is not available in your state.
Transfers. During the Accumulation Period, you may transfer Contract Value among the Sub-Accounts and from the Sub-Accounts to the Fixed Account. You may not make a transfer, however, that would result in your allocating your Contract Value to more than twenty-one options under the Contract. While you may also transfer amounts from the Fixed Account, a Market Value Adjustment may apply. You may instruct us to transfer Contract Value by writing or calling us.
You may also use our Automatic Dollar Cost Averaging or Portfolio Rebalancing programs. You may not use both programs at the same time.
Under the Dollar Cost Averaging program, amounts are automatically transferred at regular intervals from the Fixed Account or a Sub-Account of your choosing, including other Sub-Accounts or the Fixed Account. Transfers from the Dollar Cost Averaging Fixed Account may be made monthly only. Transfers from Sub-Accounts may be made monthly, quarterly, or annually.
Under the Portfolio Rebalancing Program, you can maintain the percentage of your Contract Value allocated to each Sub-Account at a pre-set level. Investment results will shift the balance of your Contract Value allocations. If you elect rebalancing, we will automatically transfer your Contract Value back to the specified percentages at the frequency (monthly, quarterly, semiannually, annually) that you specify. We will automatically terminate this program if you request a transfer outside of the program. You may not include the Fixed Account in a Portfolio Rebalancing Program. You also may not elect rebalancing after annuitization.
During the Annuity Period, you may not make any transfers for the first six months after the Annuity Date. Thereafter, you may make transfers among the Sub- Accounts or from the Sub-Accounts to increase your Fixed Annuity payments. Your transfers, however, must be at least six months apart. You may not, however, convert any portion of your right to receive Fixed Annuity payments into Variable Annuity payments.
Free Look Period. You may cancel the Contract by returning it to us within 10 days after you receive it, or after whatever longer period may be permitted by state law. You may return it by delivering it or mailing it to us. If you return the Contract, the Contract terminates and, in most states, we will pay you an amount equal to the Contract Value on the date we receive the Contract from you. The Contract Value may be more or less than your Purchase Payments. In some states, we are required to send you the amount of your Purchase Payments. Since state laws differ as to the consequences of returning a Contract, you should refer to your Contract for specific information about your circumstances. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value.
11. Who can I contact for more information?
You can write to us at Lincoln Benefit Life Company, P.O. Box 758565, Topeka, KS 66675-8565, or call us at (800) 457-7617.
8
FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning Accumulation Unit Values for each Sub-Account for 2005 through 2015. Accumulation Unit Value is the unit of measure that we use to calculate the value of your interest in a Sub-Account. Accumulation Unit Value does not reflect the deduction of certain charges that are subtracted from your Contract Value, such as the Contract Administration Charge. The Separate Accounts financial statements, which are comprised of the financial statements of the underlying sub-accounts, as of December 31, 2015, are included in the Statement of Additional Information. Lincoln Benefits financial statements as of December 31, 2015, are included in the Statement of Additional Information.
DESCRIPTION OF THE CONTRACTS
Summary. The Contract is a deferred annuity contract designed to aid you in long-term financial planning. You may add to the Contract Value by making additional Purchase Payments. In addition, the Contract Value will change to reflect the performance of the Sub-Accounts to which you allocate your Purchase Payments and your Contract Value, as well as to reflect interest credited to amounts allocated to the Fixed Account. You may withdraw your Contract Value by making a partial withdrawal or by surrendering your Contract. Upon Annuitization, we will pay you benefits under the Contract in the form of an annuity, either for the life of the Annuitant or for a fixed number of years. All of these features are described in more detail below.
Contract Owner. As the Contract Owner, you are the person usually entitled to exercise all rights of ownership under the Contract. You usually are also the person entitled to receive benefits under the Contract or to choose someone else to receive benefits. The Contract can also be purchased as an IRA or TSA (also known as a 403(b)). The endorsements required to qualify these annuities under the Code may limit or modify your rights and privileges under the Contract. The maximum age of the oldest Contract Owner and Annuitant cannot exceed age 90 as of the date we receive the completed application. The Contract cannot be jointly owned by both a non-living person and a living person. Changing ownership of this contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. If the Contract Owner is a grantor trust, the Contract Owner will be considered a non-living person for purposes of this section and the Death Benefit section.
Annuitant. The Annuitant is the living person whose life span is used to determine annuity payments. You initially designate an Annuitant in your application. You may change the Annuitant at any time before annuity payments begin. If a non-Qualified contract is held by a non-living person, any change in the Annuitant will be treated as the death of the Annuitant and will activate the distribution requirements outlined in the Death Benefit section. If your Contract was issued under a plan qualified under Section 403(b), 408 or 408A of the Tax Code, you must be the Annuitant. If the Contract is a non-qualified Contract, you may also designate a Joint Annuitant, who is a second person on whose life annuity payments depend. Additional restrictions may apply in the case of Qualified Plans. If you are not the Annuitant and the Annuitant dies before annuity payments begin, then either you become the new Annuitant or you must name another person as the new Annuitant. You must attest that the Annuitant is alive in order to annuitize your Contract.
Modification of the Contract. Only a Lincoln Benefit officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to comply with changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law.
Assignment. Before the Annuity Date, if the Annuitant is still alive, you may assign an interest in the Contract if it is a non-qualified Contract. If a Contract is issued pursuant to a Qualified Plan, the law prohibits some types of assignments, pledges and transfers and imposes special conditions on others. An assignment may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it. Accordingly, until we receive written notice of an assignment, we will continue to act as though the assignment had not occurred. We are not responsible for the validity of any assignment.
Because of the potential tax consequences and ERISA issues arising from an assignment, you should consult with an attorney before trying to assign your Contract.
Free Look Period. You may cancel the Contract by returning it to us within 10 days after you receive it, or within whatever longer period may be permitted by state law. You may return it by delivering it to your agent or mailing it to us. If you return the Contract, the Contract terminates and, in most states, we will pay you an amount equal to the Contract Value on the date we receive the Contract from you. The Contract Value at that time may be more or less than your Purchase Payments.
In some states, if you exercise your free look rights, we are required to return the amount of your Purchase Payments. Currently, if you live in one of those states, on the Issue Date we will allocate your Purchase Payment to the Sub-Accounts and the Fixed Account Options as you specified in your application. However, we reserve the right in the future to delay allocating your Purchase Payments to the Sub-Accounts you have selected or to the Fixed Account until 20 days after the Issue Date or, if your states free look period is longer than ten days, for ten days plus the period required by state law. During that time, we will allocate your Purchase Payment to the Fidelity® VIP Government Money Market Portfolio Sub-Account. Your Contract will contain specific information about your free-look rights in your state.
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PURCHASES AND CONTRACT VALUE
Please note that these Contracts are no longer available for new sales. The information provided in this section is for informational purposes only.
Minimum Purchase Payment. The minimum initial Purchase Payment for a Contract is $1,200. You may pay it in a lump sum or in installments of your choice over the first Contract Year. You may not pay more than $1 million in Purchase Payments without our prior approval. As a general rule, subsequent Purchase Payments may be made in amounts of $100 or more. Subsequent Purchase Payments made as part of an Automatic Payment Plan, however, may be as small as $25 per month. However, each purchase payment made to the Dollar Cost Averaging Fixed Account must be at least $1,200. If we receive purchase payments designated for the Dollar Cost Averaging Fixed Account that are lower than the required minimum of $1,200, or purchase payments designated for the Guaranteed Maturity Fixed Account Option that are lower than $500, such amounts will be allocated to the Fidelity® VIP Government Money Market Portfolio. We may lower these minimums if we choose. We may refuse any Purchase Payment at any time. We may apply certain limitations, restrictions, and/or underwriting standards as a condition of acceptance of purchase payments.
Automatic Payment Plan. You may make scheduled Purchase Payments of $25 or more per month by automatic payment through your bank account. Call or write us for an enrollment form.
Allocation of Purchase Payments. Your Purchase Payments are allocated to the Sub-Account(s) and the Fixed Account in the proportions that you have selected. You must specify your allocation in your Contract application, either as percentages or specific dollar amounts. If you make your allocation in percentages, the total must equal 100%. We will allocate your subsequent Purchase Payments in those percentages, until you give us new allocation instructions. You may not allocate Purchase Payments to the Fixed Account if it is not available in your state.
You initially may allocate your Purchase Payments to up to twenty-one options, counting each Sub-Account and the Fixed Account as one option. For this purpose, we will treat all of your allocations to the Fixed Account as one option, even if you choose more than one Guarantee Period. You may add or delete Sub-Accounts and/or the Fixed Account from your allocation instructions, but we will not execute instructions that would cause you to have Contract Value in more than twenty-one options. In the future, we may waive this limit.
If your application is complete, we will issue your Contract within two business days of its receipt at our P.O. Box shown on the first page of this prospectus. If your application for a Contract is incomplete, we will notify you and seek to complete the application within five business days. For example, if you do not fill in allocation percentages, we will contact you to obtain the missing percentages. If we cannot complete your application within five business days after we receive it, we will return your application and your Purchase Payment, unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Sub-Accounts and the Fixed Account, as you have instructed us, on the Issue Date. We will allocate your subsequent Purchase Payments on the date that we receive them at the next computed Accumulation Unit Value.
There may be circumstances where the New York Stock Exchange is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Contract Value may fluctuate based on changes in the Accumulation Unit Values, but you may not be able to transfer Contract Value, or make a purchase or redemption request.
With respect to any purchase payment that is pending investment in our Variable Account, we may hold the amount temporarily in a suspense account and may earn interest on amounts held in that suspense account. You will not be credited with any interest on amounts held in that suspense account.
In some states, however, we are required to return at least your Purchase Payment if you cancel your Contract during the free-look period. In those states, we currently will allocate your Purchase Payments on the Issue Date as you have instructed us, as described above. In the future, however, we reserve the right, if you live in one of those states, to allocate all Purchase Payments received during the free-look period to the Fidelity® VIP Government Money Market Sub-Account. If we exercise that right and your states free look period is ten days, we will transfer your Purchase Payments to your specified Sub-Accounts or the Fixed Account 20 days after the Issue Date; if your states free look period is longer, we will transfer your Purchase Payment after ten days plus the period required by state law have passed.
We determine the number of Accumulation Units in each Sub-Account to allocate to your Contract by dividing that portion of your Purchase Payment allocated to a Sub-Account by that Sub-Accounts Accumulation Unit Value on the Valuation Date when the allocation occurs.
Contract Value. We will establish an account for you and will maintain your account during the Accumulation Period. The total value of your Contract at any time is equal to the sum of the value of your Accumulation Units in the Sub-Accounts you have selected, plus the value of your investment in the Fixed Account.
Separate Account Accumulation Unit Value. As a general matter, the Accumulation Unit Value for each Sub-Account will rise or fall to reflect changes in the share price of the Portfolio in which the Sub-Account invests. In addition, we subtract from Accumulation Unit Value amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that
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have accrued since we last calculated the Accumulation Unit Value. We determine Withdrawal Charges, transfer fees and contract maintenance charges separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Sub-Account. We also determine a separate set of Accumulation Unit Values reflecting the cost of the enhanced benefit riders described beginning on page 23. If we elect or are required to assess a charge for taxes, we may calculate a separate Accumulation Unit Value for Contracts issued in connection with Non-Qualified and Qualified Plans, respectively, within each Sub-Account. We determine the Accumulation Unit Value for each Sub-Account Monday through Friday on each day that the New York Stock Exchange is open for business.
You should refer to the prospectuses for the Portfolios for a description of how the assets of each Portfolio are valued, since that determination has a direct bearing on the Accumulation Unit Value of the corresponding Sub- Account and, therefore, your Contract Value.
Transfer During Accumulation Period. During the Accumulation Period, you may transfer Contract Value among the Fixed Account and the Sub-Accounts in writing or by telephone. Currently, there is no minimum transfer amount. The Contract permits us to set a minimum transfer amount in the future. You may not make a transfer that would result in your allocating your Contract Value to more than twenty-one options under the Contract at one time.
As a general rule, we only make transfers on days when the NYSE is open for business. If we receive your request on one of those days, we will make the transfer that day. Requests received before 4:00 p.m. will be effected on that day at that days price. Requests received after 4:00 p.m. will be effected on the next day on which the NYSE is open for business, at that days price. If you transfer an amount from the Fixed Account to a Sub-Account before the end of the applicable Guarantee Period or you allocate an amount in the Fixed Account to a new Guarantee Period before the end of the existing Guarantee Period, we usually will increase or decrease the amount by a Market Value Adjustment. The calculation of the Market Value Adjustment is described in Market Value Adjustment on page 18.
Transfers within 30 days after the end of the applicable Guarantee Period are not subject to a Market Value Adjustment.
The Contract permits us to defer transfers from the Fixed Account for up to six months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account Option. You may not transfer Contract Value out of the Dollar Cost Averaging Fixed Account Option except as part of a Dollar Cost Averaging program.
We may charge you the transfer fee described on page 3, although we currently are waiving it. At any time, without notice, we may suspend, modify or terminate your privilege to make transfers via the phone, or via other electronic or automated means previously approved by the Company, including, but not limited to, automated telephone services, facsimile machine, e-mail and electronic services via online access. Among other things, we reserve the right to limit the number of such transfers among the Variable Sub-Accounts in any Contract year, or to refuse any Variable Sub-Account transfer request. We also reserve the right to restrict such transfers in any manner reasonably designed to prevent transfers that we consider disadvantageous to the Contract Owners.
We use procedures that we believe provide reasonable assurance that telephone authorized transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts/Policies are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Portfolio and raise its expenses, which can impair Portfolio performance and adversely affect your Contract/Policy Value. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading. Accordingly, you should not invest in the Contract/Policy if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract/Policy.
We seek to detect market timing or excessive trading activity by reviewing trading activities. Portfolios also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Portfolio, we will impose the trading limitations as described below under Trading Limitations. Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances.
While we seek to deter market timing and excessive trading in Variable Sub-Accounts, because our procedures involve the exercise of reasonable judgment, we may not identify or prevent some market timing or excessive trading. Moreover, imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it is detected. As a result, some investors may be able to engage in market timing and excessive trading, while others are prohibited, and the Portfolio may experience the adverse effects of market timing and excessive trading described above.
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TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in any Contract/Policy year, require that all future transfer requests be submitted through U.S. Postal Service First Class Mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery, or to refuse any transfer request, if:
we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract/Policy Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Portfolio or otherwise would be to the disadvantage of other Contract/Policy Owners; or
we are informed by one or more of the Portfolios that they intend to restrict the purchase, exchange, or redemption of Portfolio shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Portfolio shares.
In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things:
the total dollar amount being transferred, both in the aggregate and in the transfer request;
the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a Variable Sub-Account in a short period of time can constitute market timing);
whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Variable Sub-Account underlying Portfolios that we have identified as being susceptible to market timing activities (e.g., International, High Yield, and Small Cap Variable Sub-Accounts);
whether the manager of the underlying Portfolio has indicated that the transfers interfere with Portfolio management or otherwise adversely impact the Portfolio; and
the investment objectives and/or size of the Variable Sub-Account underlying Portfolio.
We seek to apply these trading limitations uniformly. However, because these determinations involve the exercise of discretion, it is possible that we may not detect some market timing or excessive trading activity. As a result, it is possible that some investors may be able to engage in market timing or excessive trading activity, while others are prohibited, and the Portfolio may experience the adverse effects of market timing and excessive trading described above.
If we determine that a Contract/Policy Owner has engaged in market timing or excessive trading activity, we will require that all future transfer requests be submitted through U.S. Postal Service First Class Mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery. If we determine that a Contract/Policy Owner continues to engage in a pattern of market timing or excessive trading activity we will restrict that Contract/Policy Owner from making future additions or transfers into the impacted Variable Sub-Account(s) or will restrict that Contract/Policy Owner from making future additions or transfers into the class of Variable Sub-Account(s) if the Variable Sub-Accounts(s) involved are vulnerable to arbitrage market timing trading activity (e.g., International, High Yield, and Small Cap Variable Sub-Accounts).
In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements.
SHORT TERM TRADING FEES
The underlying Portfolios are authorized by SEC regulation to adopt and impose redemption fees if a Portfolios Board of Directors determines that such fees are necessary to minimize or eliminate short-term transfer activity that can reduce or dilute the value of outstanding shares issued by the Portfolio. The Portfolio will set the parameters relating to the redemption fee and such parameters may vary by Portfolio. If a Portfolio elects to adopt and charge redemption fees, these fees will be passed on to the Contract/Policy Owner(s) responsible for the short-term transfer activity generating the fee.
We will administer and collect redemption fees in connection with transfers between the Variable Sub- Accounts and forward these fees to the Portfolio. Please consult the Portfolios prospectus for more complete information regarding the fees and charges associated with each Portfolio.
Automatic Dollar Cost Averaging Program. Under our Automatic Dollar Cost Averaging program, you may authorize us to transfer a fixed dollar amount at fixed intervals from the Dollar Cost Averaging Fixed Account Option or a Sub-Account of your choosing. The interval between transfers from the Dollar Cost Averaging Fixed Account may be monthly only. The interval between transfers from Sub-Accounts may be monthly, quarterly, or annually, at your option. The transfers will be made at the Accumulation Unit Value on the date of the transfer. The transfers will continue until you instruct us otherwise, or until your chosen source of transfer payments is exhausted. Currently, the minimum transfer amount is $100 per transfer. However, if you wish to Dollar Cost Average to a Guaranteed Maturity Fixed Account Option, the minimum amount that must be transferred into any one Option is $500. We may change this minimum or grant exceptions. For each purchase payment allocated to this Option, your first monthly transfer will occur 25 days after such purchase payment. If we do not receive an allocation from you within 25 days of the purchase payment, we will transfer the payment plus associated interest to the Fidelity® VIP Government Money Market Variable Sub-Account in equal
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monthly payments. You may not use the Dollar Cost Averaging program to transfer amounts from the Guaranteed Maturity Fixed Account Option.
Your request to participate in this program will be effective when we receive your completed application at the P.O. Box given on the first page of this prospectus. Call or write us for a copy of the application. You may elect to increase, decrease or change the frequency or amount of transfers under a Dollar Cost Averaging program. We will not charge a transfer fee for Dollar Cost Averaging.
By investing amounts on a regular basis instead of investing the total amount at one time, Dollar Cost Averaging may decrease the effect of market fluctuations on the investment of your Purchase Payment. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. We do not deduct a charge for participating in a Dollar Cost Averaging program.
Portfolio Rebalancing. Portfolio Rebalancing allows you to maintain the percentage of your Contract Value allocated to each Sub-Account at a pre-set level. Over time, the variations in each Sub-Accounts investment results will shift the balance of your Contract Value allocations. Under the Portfolio Rebalancing feature, each period, if the allocations change from your desired percentages, we will automatically transfer your Contract Value, including new Purchase Payments (unless you specify otherwise), back to the percentages you specify. Portfolio Rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or annually. We will not charge a transfer fee for Portfolio Rebalancing. A one-time request to rebalance the amounts allocated to the Sub-Accounts is not part of a Portfolio Rebalancing program and is subject to all of the requirements that are applicable to transfers. We will automatically terminate this program if you request any transfers outside the Portfolio Rebalancing program. If you wish to resume Portfolio Rebalancing after it has been canceled, then you must complete a new Portfolio Rebalancing form and send it to our home office. You may not include the Fixed Account in a Portfolio Rebalancing program.
You may request Portfolio Rebalancing at any time by submitting a completed written request to us at the P.O. Box given on the first page of this prospectus. Please call or write us for a copy of the request form. If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your request, you may specify a date for your first rebalancing. If you specify a date fewer than 30 days after your Issue Date, your first rebalance will be delayed one month. If you request Portfolio Rebalancing in your Contract application and do not specify a date for your first rebalancing, your first rebalance will occur one period after the Issue Date. For example, if you specify quarterly rebalancing, your first rebalance will occur three months after your Issue Date. Otherwise, your first rebalancing will occur twenty-five days after we receive your completed request form. All subsequent rebalancing will occur at the intervals you have specified on the day of the month that coincides with the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of Sub-Accounts at any time. If your total Contract Value subject to rebalancing falls below any minimum value that we may establish, we may prohibit or limit your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and Portfolio Rebalancing at the same time. We may change, terminate, limit, or suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS: Separate Account Investments
The Portfolios. Each of the Sub-Accounts of the Separate Account invests in the shares of one of the Portfolios. Each Portfolio is either an open-end management investment company registered under the Investment Company Act of 1940 or a separate investment series of an open-end management investment company. We have briefly described the Portfolios below. You should consult the current prospectuses for the Portfolios for more detailed and complete information concerning the Portfolios. If you do not have a prospectus for a Portfolio, contact us and we will send you a copy.
We do not promise that the Portfolios will meet their investment objectives. Amounts you have allocated to Sub-Accounts may grow in value, decline in value, or grow less than you expect, depending on the investment performance of the Portfolios in which those Sub-Accounts invest. You bear the investment risk that those Portfolios possibly will not meet their investment objectives. You should carefully review their prospectuses before allocating amounts to the Sub-Accounts of the Separate Account.
Portfolio |
Each Portfolio Seeks |
Investment Adviser |
Invesco Variable Insurance Funds | ||
Invesco V.I. American Value Fund - Series I |
Above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities. |
Invesco Advisers, Inc. |
Invesco V.I. Mid Cap Growth Fund, Series II |
Capital growth | |
Invesco V.I. Growth and Income Fund, Series II |
Long-term growth of capital and income. | |
Invesco V.I. Value Opportunities Fund - Series I(2) |
Long-term growth of capital | |
The Alger Portfolios | ||
Alger Large Cap Growth Portfolio - Class I-2 |
Long-term capital appreciation |
Fred Alger Management, Inc. |
Alger Growth & Income Portfolio - Class I-2 |
Capital appreciation and current income | |
Alger Capital Appreciation Portfolio - Class I-2 |
Long-term capital appreciation | |
Alger Mid Cap Growth Portfolio - Class I-2(4) |
Long-term capital appreciation | |
Alger Small Cap Growth Portfolio - Class I-2(6) |
Long-term capital appreciation | |
Deutsche Variable Series I | ||
Deutsche Bond VIP Class A |
To maximize total return consistent with preservation of capital and prudent investment management, by investing for both current |
Deutsche Investment Management Americas Inc. |
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Portfolio |
Each Portfolio Seeks |
Investment Adviser |
|
income and capital appreciation |
|
Deutsche VSI Global Small Cap Class A |
Above-average capital appreciation over the long term | |
Deutsche VSI Core Equity VIP - Class A |
Long-term growth of capital, current income and growth of income | |
Deutsche CROCI® International VIP Class A |
Long-term growth of capital | |
Deutsche Variable Series II | ||
Deutsche Global Income Builder VIP Class A |
Maximize income while maintaining prospects for capital appreciation |
Deutsche Investment Management Americas Inc. |
Federated Insurance Series | ||
Federated Managed Volatility Fund II |
High
current income and moderate capital appreciation |
Federated Equity Management Company of Pennsylvania |
Federated Fund for U.S. Government Securities II |
Current income |
Federated Investment Management Company |
Federated High Income Bond Fund II |
High current income | |
Fidelity® Variable Insurance Products | ||
Fidelity® VIP Asset Manager(SM) Portfolio - Initial
Class |
High total return with reduced risk over the long term by allocating its assets among stocks, bonds, and short-term instruments. |
Fidelity Management & Research Company |
Fidelity® VIP Contrafund® Portfolio - Initial Class |
Long-term capital appreciation. | |
Fidelity® VIP Equity-Income Portfolio - Initial
Class |
Reasonable Income. The fund will also consider the potential for capital appreciation. The funds goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poors 500(SM) Index (S&P 500®). | |
Fidelity® VIP Growth Portfolio - Initial Class |
To achieve capital appreciation. | |
Fidelity® VIP Index 500 Portfolio - Initial
Class |
Investment results that correspond to the total return of common stocks publicly traded in the United States, as represented by the Standard & Poors 500(SM) Index (S&P 500®). | |
Fidelity® VIP Government Money Market Portfolio - Initial Class (formerly,
Fidelity® VIP Money Market Portfolio - Initial Class) |
As high a level of current income as is consistent with preservation of capital and liquidity. | |
Fidelity® VIP Overseas Portfolio - Initial Class |
Long-term growth of capital. | |
Janus Aspen Series | ||
Janus Aspen Series Balanced Portfolio - |
Long-term capital growth, consistent with preservation of capital and balanced by current income. |
Janus Capital Management LLC |
Janus Aspen Series Flexible Bond Portfolio - Institutional Shares |
To obtain maximum total return, consistent with preservation of capital. | |
Janus Aspen Series Overseas Portfolio - |
Long-term
growth of capital. | |
Janus Aspen Series Janus Portfolio - |
Long-term growth of capital. | |
Janus Aspen Series Enterprise Portfolio - Institutional Shares |
Long-term
growth of capital. | |
Janus Aspen Series Global Research Portfolio - Institutional Shares |
Long-term
growth of capital. | |
Legg Mason Partners Variable Equity Trust |
||
ClearBridge Variable Large Cap Value Portfolio - Class I |
Long-term growth of capital. Current income is a secondary objective |
Legg Mason Partners Fund Advisor, LLC, adviser; ClearBridge Investments, LLC, sub-adviser. (Western Asset Management Company manages the portion of the fund's cash and short term investments allocated to it) |
MFS ® Variable Insurance Trust(SM) |
||
MFS® Growth Series - Initial Class |
Capital appreciation |
MFS Investment Management |
MFS® Investors Trust Series - Initial Class |
Capital appreciation | |
MFS® New Discovery Series - Initial Class |
Capital appreciation | |
MFS® Research Series - Initial Class |
Capital appreciation | |
MFS® Total Return Series - Initial Class |
Total return | |
Oppenheimer Variable Account Funds | ||
Oppenheimer Main Street Small Cap Fund - Service Shares |
Capital
appreciation. |
OppenheimerFunds, Inc. |
PIMCO Variable Insurance Trust |
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PIMCO Foreign Bond Portfolio (U.S. Dollar-Hedged) - Administrative Shares |
Maximum total return, consistent with preservation of capital and prudent investment management. |
Pacific Investment Management Company LLC | ||
PIMCO Total Return Portfolio Administrative Shares(5) |
Maximum total return, consistent with preservation of capital and prudent investment management. | |||
Putnam Variable Trust | ||||
Putnam VT International Value Fund - Class IB |
Capital growth. Current income is a secondary objective. |
|||
Portfolio |
Each Portfolio Seeks |
Investment Adviser |
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Portfolio |
Each Portfolio Seeks |
Investment Adviser |
T. Rowe Price Equity Series, Inc. |
||
T. Rowe Price Equity Income Portfolio - I |
High level of dividend income and long-term capital growth primarily through investments in stocks |
T. Rowe Price Associates, Inc. |
T. Rowe Price Mid-Cap Growth Portfolio - I(1) |
Long-term capital appreciation by investing earnings in the common stocks of medium-sized companies with the potential for above-average growth. | |
T. Rowe Price New America Growth Portfolio - I |
Long-term growth of capital by investing primarily in the common stocks of companies operating in sectors that T. Rowe Price believes will be the fastest growing in the U.S. | |
T. Rowe Price International Series, Inc. |
||
T. Rowe Price International Stock Portfolio - I |
Long-term growth of capital by investing primarily in the common stocks of established non-U.S. companies. |
T. Rowe Price Associates, Inc. |
Wells Fargo Variable Trust Funds |
||
Wells Fargo VT Discovery Fund (formerly, Wells Fargo Advantage VT Discovery Fund) |
Long-term capital appreciation. |
Wells Fargo Funds Management, LLC
Sub-advisor: Wells Capital Management Incorporated |
Wells Fargo VT Opportunity Fund(SM) (formerly, Wells Fargo Advantage VT Opportunity Fund) |
Long-term capital appreciation. | |
(1) Effective May 1, 2004, the T. Rowe Price Mid-Cap Growth Portfolio - I is no longer available for new investments. If you are currently invested in the Variable Sub-account that invests in this Portfolio you may continue your investment. If, prior to May 1, 2004, you enrolled in one of our automatic transaction programs, such as automatic additions, portfolio rebalancing, or dollar cost averaging, we will continue to effect automatic transactions into the Variable Sub-Account in accordance with that program. Outside of these automatic transaction programs, additional allocations will not be allowed.
(2) Effective August 19, 2011, the Invesco V.I. Value Opportunities Series I Sub-Account closed to all Contract Owners except those Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date. Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date may continue to submit additional investments into the Variable Sub-Account thereafter, although they will not be permitted to invest in the Variable Sub-Account if they withdraw or otherwise transfer their entire contract value from the Variable Sub-Account following the closure date. Contract Owners who did not have contract value invested in the Variable Sub-Account as of the closure date may not invest in the Variable Sub-Account.
(3) Effective as of January 27, 2012, the Deutsche VSI: Bond VIP Class A Variable Sub-Account closed to all Contract Owners except those Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date.
Contract Owners who had contract value invested in this Variable Sub-Account as of the closure date may continue to submit additional investments into the Variable Sub-Account thereafter, although they will not be permitted to invest in the Variable Sub-Account if they withdraw or otherwise transfer their entire contract value from the Variable Sub-account following the closure date. Contract Owners who did not have contract value invested in this Variable Sub-Account as of the specified closure date may not invest in the Variable Sub-Account.
(4) Effective as of January 31, 2014, the Alger Mid-Cap Growth Class I-2 Sub-Account was closed to all Contract Owners except those Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date. Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date may continue to submit additional investments into the Variable Sub-Account thereafter, although they will not be permitted to invest in the Variable Sub-Account if they withdrew or otherwise transferred their entire contract value from the Variable Sub-Account following the closure date. Contract Owners who did not have contract value invested in the Variable Sub-Account as of the closure date will not be permitted to invest in the Variable Sub-Account.
(5) Effective May 1, 2015, the PIMCO Total Return Advisor Shares Sub Account is closed to all contract owners except those contract owners who have contract value invested in the variable sub-account as of the closure date. Contract owners who have contract value invested in the variable sub-account as of the closure date may continue to submit additional investments into the variable sub-account thereafter, although they will not be permitted to invest in the variable sub-account if they withdraw or otherwise transfer their entire contract value from the variable sub-account following the closure date. Contract owners who do not have contract value invested in the variable sub-account as of the closure date will not be permitted to invest in the variable sub-account thereafter. An application is pending with the Securities and Exchange Commission requesting an order to allow Lincoln Benefit to remove the PIMCO Total Return Portfolio Administrative Shares as an investment option under your variable annuity contract and substitute a new investment option, the BlackRock Total Return V.I. Portfolio Class I Shares. Lincoln Benefit anticipates that, if such order is granted, the proposed substitution will occur during the second quarter of 2016.
(6) Effective October 23, 2015, the Alger Small Cap Growth Class I-2 Sub-Account was closed to all Contract Owners except those Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date. Contract Owners who had contract value invested in the Variable Sub-Account as of the closure date may continue to submit additional investments into the Variable Sub-Account thereafter, although they will not be permitted to invest in the Variable Sub-Account if they withdrew or otherwise transferred their entire contract value from the Variable Sub-Account following the closure date. Contract Owners who did not have contract value invested in the Variable Sub-Account as of the closure date will not be permitted to invest in the Variable Sub-Account.
Each Portfolio is subject to certain investment restrictions and policies which may not be changed without the approval of a majority of the shareholders of the Portfolio. See the accompanying Prospectuses of the Portfolios for further information.
We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. The income and realized and unrealized gains or losses on the assets of each Sub-Account are separate and are credited to or charged against the particular Sub-Account without regard to income, gains or losses from any other Sub-Account or from any other part of our business. We will use the net Purchase Payments you allocate to a Sub-Account to purchase shares in the corresponding Portfolio and will redeem shares in the Portfolios to meet Contract obligations or make adjustments in reserves. The Portfolios are required to redeem their shares at net asset value and to make payment within seven days.
Some of the Portfolios have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the Portfolios may be similar to, and may in fact be modeled after publicly traded
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mutual funds, you should understand that the Portfolios are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any similarly named Portfolio may differ substantially.
Certain of the Portfolios sell their shares to separate accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance separate accounts and variable annuity separate accounts to invest in the same Portfolio. Although neither we nor any of the Portfolios currently foresees any such disadvantages either to variable life insurance or variable annuity contract owners, each Portfolios Board of Directors intends to monitor events in order to identify any material conflicts between variable life and variable annuity contract owners and to determine what action, if any, should be taken in response thereto. If a Board of Directors were to conclude that separate investment funds should be established for variable life and variable annuity separate accounts, Lincoln Benefit will bear the attendant expenses.
Voting Rights. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. We will notify you when your instructions are needed. We will also provide proxy materials or other information to assist you in understanding the matter at issue. We will determine the number of shares for which you may give voting instructions as of the record date set by the relevant Portfolio for the shareholder meeting at which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give voting instructions. After the Annuity Date, the payee is that person. Retirement plans, however, may have different rules for voting by plan participants.
If you send us written voting instructions, we will follow your instructions in voting the Portfolio shares attributable to your Contract. If you do not send us written instructions, we will vote the shares attributable to your Contract in the same proportions as we vote the shares for which we have received instructions from other Contract Owners. We will vote shares that we hold in the same proportions as we vote the shares for which we have received instructions from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard Contract Owner voting instructions if the instructions require that the shares be voted so as to cause a change in the sub-classification or investment objective of one or more of the Portfolios or to approve or disapprove an investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated by Contract Owners in the investment objectives or the investment adviser of the Portfolios if we reasonably disapprove of the proposed change. We would disapprove a proposed change only if the proposed change is contrary to state law or prohibited by state regulatory authorities or we reasonably conclude that the proposed change would not be consistent with the investment objectives of the Portfolio or would result in the purchase of securities for the Portfolio which vary from the general quality and nature of investments and investment techniques utilized by the Portfolio. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law changes or our interpretation of the law changes, we may decide that we are permitted to vote the Portfolio shares without obtaining instructions from our Contract Owners, and we may choose to do so.
Additions, Deletions, and Substitutions of Securities. If the shares of any of the Portfolios are no longer available for investment by the Separate Account or if, in the judgment of our Board of Directors, further investment in the shares of a Portfolio is no longer appropriate in view of the purposes of the Contract, we may add or substitute shares of another Portfolio or underlying fund for Portfolio shares already purchased or to be purchased in the future by Purchase Payments under the Contract. Any substitution of securities will comply with the requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the Separate Account and the Sub-Accounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total charges do not exceed the maximum amount that may be charged the Separate Account and the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal requirements.
The Fixed Account
General. You may allocate part or all of your Purchase Payments to the Fixed Account in states where it is available. Amounts allocated to the Fixed Account become part of the general assets of Lincoln Benefit. Loan payments may not be allocated to the Fixed Account(s). Lincoln Benefit invests the assets of the general account in accordance with applicable laws governing the investments of insurance company general accounts. Please contact us at 1-800-457-7617 for current information.
Guaranteed Maturity Fixed Account Option. We will credit interest to each amount allocated to the Guaranteed Maturity Fixed Account Option at a specified rate for a specified Guarantee Period. You select the Guarantee Period for each amount that you allocate
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to this option. We will declare the interest rate that we will guarantee to credit to that amount for that Guarantee Period. Each amount allocated to a Guarantee Period under this option must be at least $500. We reserve the right to limit the number of additional Purchase Payments that may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may offer Guarantee Periods ranging from one to ten years in length. We will decide in our discretion which Guarantee Periods to offer. Currently, we offer Guarantee Periods of one, three, five, seven and ten years. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period under this option at a rate which compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period. We will not change the interest rate credited to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this option would grow, given an assumed Guarantee Period and effective annual interest rate:
Example |
|
Purchase Payment |
$ 10,000 |
Guarantee Period |
5 years |
Effective Annual Rate |
4.50 % |
|
End of Contract Year | ||||
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 | |
Beginning Contract Value |
$ 10,000.00 |
|
|
|
|
× (1 + Effective Annual Rate) |
× 1.045 |
|
|
|
|
|
$ 10,450.00 |
|
|
|
|
Contract Value at end of Contract Year |
|
$ 10,450.00 |
|
|
|
× (1 + Effective Annual Rate) |
|
× 1.045 |
|
|
|
|
|
$ 10,920.25 |
|
|
|
Contract Value at end of Contract Year |
|
|
$ 10,920.25 |
|
|
× (1 + Effective Annual Rate) |
|
|
× 1.045 |
|
|
|
|
|
$ 11,411.66 |
|
|
Contract Value at end of Contract Year |
|
|
|
$ 11,411.66 |
|
× (1 + Effective Annual Rate) |
|
|
|
× 1.045 |
|
|
|
|
|
$ 11,925.19 |
|
Contract Value at end of Contract Year |
|
|
|
|
$ 11,925.19 |
× (1 + Effective Annual Rate) |
|
|
|
|
× 1.045 |
|
|
|
|
|
$ 12,461.82 |
Total Interest Credited During Guarantee Period = $2,461.82= ($12,461.82 - $10,000)
Note: This example assumes no withdrawals during the entire five-year Guarantee Period. If you were to make a partial withdrawal, you might be required to pay a Withdrawal Charge and the amount withdrawn might be increased or decreased by a Market Value Adjustment. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract.
We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on relevant factors such as then current interest rates, regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. For current interest rate information, please contact us at 1-800-457-7617.
We will determine the interest rates to be declared in our sole discretion. We can neither predict nor guarantee what those rates will be in the future.
At the end of each Guarantee Period, we will mail you a notice asking you what to do with the relevant amount, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may:
1) take no action. If so, we will automatically keep the relevant amount in the Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the same length as the expiring Guarantee Period and will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for Guarantee Periods of that length; or
2) allocate the relevant Contract Value to one or more new Guarantee Periods of your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or
3) instruct us to transfer all or a portion of the relevant amount to one or more Sub-Accounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment; or
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4) withdraw all or a portion of the relevant amount through a partial withdrawal. You may be required to pay a Withdrawal Charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. The amount withdrawn will be deemed to have been withdrawn on the day the Guarantee Period ends.
Under our Automatic Laddering Program, you may choose, in advance, to use Guarantee Periods of the same length for all renewals in the Guaranteed Maturity Fixed Account Option. You can select this program at any time during the Accumulation Period, including on the Issue Date. We will apply renewals to Guarantee Periods of the selected length until you direct us in writing to stop. We may stop offering this program at any time.
Market Value Adjustment. We may increase or decrease the amount of some transactions involving your investment in the Guaranteed Maturity Fixed Account Option to include a Market Value Adjustment. The formula for determining Market Value Adjustments reflects changes in interest rates since the beginning of the relevant Guarantee Period. As a result, you will bear some of the investment risk on amounts allocated to the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following transactions involving your Fixed Account balance:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in an amount greater than the Free Withdrawal Amount, as described on page 30;
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to the Sub-Accounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed Account Option to a new Guarantee Period before the end of the existing Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to the funds involved in the transaction;
2) you make a withdrawal to satisfy the IRS required minimum distribution rules for this Contract; or
3) it is a transfer that is part of a Dollar Cost Averaging program.
The formula for calculating Market Value Adjustments is set forth in Appendix B to this prospectus, which also contains additional examples of the application of the Market Value Adjustment. This formula primarily compares:
1) the Treasury Rate at the time of the relevant transaction for a maturity equal in length to the relevant Guarantee Period; and
2) the Treasury Rate at the beginning of the Guarantee Period for a maturity equal in length to the Guarantee Period.
Generally, if the Treasury Rate at the beginning of the Guarantee Period is higher than the corresponding current Treasury Rate, then the Market Value Adjustment will increase the amount payable to you or transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee Period is lower than the corresponding current Treasury Rate, then the Market Value Adjustment will reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial Guarantee Period of five years and the five-year Treasury Rate for that duration is 4.50%. Assume that at the end of three years, you make a partial withdrawal. If, at that later time, the current five-year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Similarly, if the current five-year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you.
Dollar Cost Averaging Fixed Account Option. You may also allocate Purchase Payments to the Dollar Cost Averaging Fixed Account Option. We will credit interest to Purchase Payments allocated to this option for up to one year at the current rate that we declare when you make the allocation. The effective annual rate will never be less than 3%. You may not transfer funds to this option from the Sub-Accounts or the Guaranteed Maturity Fixed Account Option. We will follow your instructions in transferring amounts from this option to the Sub-Accounts or the Guaranteed Maturity Fixed Account Option on a monthly basis only, as described in Automatic Dollar Cost Averaging Program on page 12 of this prospectus.
ANNUITY BENEFITS
Annuity Date. You may select the Annuity Date, which is the date on which annuity payments are to begin, in your application. The Annuity Date must always be the business day on or immediately following the tenth day of a calendar month.
The Annuity Date may be no later than the Latest Annuity Date. As a general rule, the Latest Annuity Date is on or immediately following the later of the 10th Contract Anniversary or the youngest Annuitants 90th birthday. If your Contract was issued pursuant to a Qualified Plan, however, the Tax Code generally requires you to begin to take at least a minimum distribution by the later of:
the year of your separation from service; or
April 1 of the calendar year following the calendar year in which you attain age 70 1/2.
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If your Contract is issued pursuant to Section 408 of the Tax Code (traditional IRAs), you must begin taking minimum distributions by April 1 of the calendar year following the calendar year in which you reach age 70 1/2. No minimum distributions are required by the Tax Code for Contracts issued pursuant to Section 408A (Roth IRAs).
If your Contract was purchased by a Qualified Plan, we may require you to annuitize by the date required by the Tax Code.
If you do not select an Annuity Date, the Latest Annuity Date will automatically become the Annuity Date. You may change the Annuity Date by writing to us at the address given on the first page of the prospectus.
Annuity Options. You may elect an Annuity Option at any time before the Annuity Date. As part of your election, you may choose the length of the applicable guaranteed payment period within the limits available for your chosen Option. If you do not select an Annuity Option, we will pay monthly annuity payments in accordance with the applicable default Option. The default Options are:
Option A with 10 years (120 months) guaranteed, if you have designated only one Annuitant; and
Option B with 10 years (120 months) guaranteed, if you have designated joint Annuitants.
You may freely change your choice of Annuity Option, as long as you request the change at least thirty days before the Annuity Date.
Three Annuity Options are generally available under the Contract. Each is available in the form of:
a Fixed Annuity;
a Variable Annuity; or
a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
Option A: Life Income With Guaranteed Payments. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay income payments to the Beneficiary until the guaranteed number of payments has been paid. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
Option B: Joint and Survivor Life Income With Guaranteed Payments. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint Annuitant die before we have made all of the guaranteed income payments, we will continue to pay income payments to the Beneficiary until the guaranteed number of payments has been paid. The number of months guaranteed may be 0 months, or range from 60 to 360 months.
Option C: Payments For A Specified Period Certain Of 5 Years To 30 Years. We make periodic payments for the period you have chosen. If the Annuitant dies before all of the guaranteed payments have been made, we will pay the remaining guaranteed payments to the Beneficiary. If you elect this option, and request Variable Annuity payments, you may at any time before the period expires request a lump sum payment. If you elected Variable Annuity payments, the lump sum payment will depend on:
the investment results of the Sub-Accounts you have selected,
the Contract Value at the time you elected annuitization, and
the length of the remaining period for which the payee would be entitled to payments.
No lump sum payment is available if you request Fixed Annuity payments. If you purchased your Contract under a retirement plan, you may have a more limited selection of Annuity Options to choose from. You should consult your Plan documents to see what is available.
If you choose Income Plan A or B, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant are alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on.
You may not annuitize your Contract for a lump sum payment. Instead, before the Annuity Date you may surrender your Contract for a lump sum. As described on page 27 below, however, we will subtract any applicable Withdrawal Charge and increase or decrease your surrender proceeds by any applicable Market Value Adjustment.
Other Options. We may have other Annuity Options available. You may obtain information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax Code, we will only make payments to you and/or your spouse.
Annuity Payments: General. On the Annuity Date, we will apply the Annuitized Value of your Contract to the Annuity Option you have chosen. Your annuity payments may consist of Variable Annuity payments or Fixed Annuity payments or a combination of the two. We will determine the amount of your annuity payments as described in Variable Annuity Payments and Fixed Annuity Payments beginning on page 20.
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You must notify us in writing at least 30 days before the Annuity Date how you wish to allocate your Annuitized Value between Variable Annuity and Fixed Annuity payments. You must apply at least the Contract Value in the Fixed Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any portion of your Fixed Account balance to your Variable Annuity payments, you should plan ahead and transfer that amount to the Sub-Accounts prior to the Annuity Date. If you do not tell us how to allocate your Contract Value among Fixed and Variable Annuity payments, we will apply your Contract Value in the Separate Account to Variable Annuity payments and your Contract Value in the Fixed Account to Fixed Annuity payments.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments on the tenth of the month or, if the NYSE is closed on that day, the next day on which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual installments as you select. If the amount available to apply under an Annuity Option is less than $5,000, however, and state law permits, we may pay you a lump sum instead of the periodic payments you have chosen. In addition, if the first annuity payment would be less than $50, and state law permits us, we may reduce the frequency of payments so that the initial payment will be at least $50.
We may defer for up to 15 days the payment of any amount attributable to a Purchase Payment made by check to allow the check reasonable time to clear.
You may not withdraw Contract Value during the Annuity Period, if we are making payments to you under any Annuity Option, such as Option A or B above, involving payment to the payee for life or any combination of payments for life and minimum guarantee period for a predetermined number of years.
Variable Annuity Payments. One basic objective of the Contract is to provide Variable Annuity Payments which will to some degree respond to changes in the economic environment. The amount of your Variable Annuity Payments will depend upon the investment results of the Sub-Accounts you have selected, any premium taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We guarantee that the Payments will not be affected by (1) actual mortality experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The Variable Annuity payments may be more or less than your total Purchase Payments because (a) Variable Annuity payments vary with the investment results of the underlying Portfolios; and (b) Annuitants may die before their actuarial life expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option will affect the dollar amounts of each Variable Annuity payment. As a general rule, longer guarantee periods result in lower periodic payments, all other things being equal. For example, if a life Annuity Option with no minimum guaranteed payment period is chosen, the Variable Annuity payments will be greater than Variable Annuity payments under an Annuity Option for a minimum specified period and guaranteed thereafter for life.
The investment results of the Sub-Accounts to which you have allocated your Contract Value will also affect the amount of your periodic payment. In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3 1/2%. If the actual net investment return is less than the assumed investment rate, then the dollar amount of the Variable Annuity payments will decrease. The dollar amount of the Variable Annuity payments will stay level if the net investment return equals the assumed investment rate and the dollar amount of the Variable Annuity payments will increase if the net investment return exceeds the assumed investment rate. You should consult the Statement of Additional Information for more detailed information as to how we determine Variable Annuity Payments.
Fixed Annuity Payments. You may choose to apply a portion of your Annuitized Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment amount by applying the applicable Annuitized Value to the Annuity Option you have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to the initial payment. However, as described in Transfers During the Annuity Period below, after the Annuity Date, you will have a limited ability to increase the amount of your Fixed Annuity payments by making transfers from the Sub-Accounts.
We may defer making Fixed Annuity payments for a period of up to six months or whatever shorter time state law may require. During the deferral period, we credit any applicable interest at a rate at least as high as state law requires.
Transfers During The Annuity Period. During the Annuity Period, you will have a limited ability to make transfers among the Sub-Accounts so as to change the relative weighting of the Sub-Accounts on which your Variable Annuity payments will be based. In addition, you will have a limited ability to make transfers from the Sub-Accounts to increase the proportion of your annuity payments consisting of Fixed Annuity payments. You may not, however, convert any portion of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date. Thereafter, you may make transfers among the Sub-Accounts or make transfers from the Sub-Accounts to increase your Fixed Annuity payments. Your transfers must be at least six months apart.
Death Benefit During Annuity Period. If any Contract Owner dies after the Annuity Date, the successor Contract Owner will receive any guaranteed annuity payments scheduled to continue. If the successor Owner dies before all of the guaranteed payments have been made, we will continue the guaranteed payments to the Beneficiary(ies). After annuity payments begin, upon
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the death of the Annuitant and any Joint Annuitant, we will make any remaining guaranteed payments to the Beneficiary. The amount and number of these guaranteed payments will depend on the Annuity Option in effect at the time of the Annuitants death. After the Annuitants death, any remaining guaranteed payments will be distributed at least as rapidly as under the method of distribution in effect at the Annuitants death.
Certain Employee Benefit Plans. The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by applicable law. In certain employment related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate.
OTHER CONTRACT BENEFITS
Death Benefit: General. We will pay a distribution on death, if:
1) the Contract is in force;
2) annuity payments have not begun; and
3) either:
(a) any Owner dies; or
(b) any Annuitant dies and the Owner is a non-living person.
Due Proof of Death. A complete request for settlement of the Death Proceeds must be submitted before the Annuity Date. Where there are multiple Beneficiaries, we will value the Death Benefit at the time the first Beneficiary submits a complete request for settlement of the Death Proceeds. A complete request must include Due Proof of Death. We will accept the following documentation as Due Proof of Death:
a certified original copy of the Death Certificate;
a certified copy of a court decree as to the finding of death; or
a written statement of a medical doctor who attended the deceased at the time of death.
In addition, in our discretion we may accept other types of proof.
Death Proceeds. If we receive a complete request for settlement of the Death Proceeds within 180 days of the date of your death, the Death Proceeds are equal to the Death Benefit described below. Otherwise, the Death Proceeds are equal to the greater of the Contract Value or the Surrender Value. We reserve the right to waive or extend, on a nondiscriminatory basis, the 180-day period in which the Death Proceeds will equal the Death Benefit as described below. This right applies only to the amount payable as Death Proceeds and in no way restricts when the claim may be filed.
Death Benefit Amount. The standard Death Benefit under the Contract is the greatest of the following:
1) the total Purchase Payments, less a withdrawal adjustment for any prior partial withdrawals;
2) the Contract Value on the date as of which we calculate the Death Benefit.
3) the Surrender Value;
4) the Contract Value on the seventh Contract Anniversary and each subsequent Contract Anniversary evenly divisible by seven, increased by the total Purchase Payments since that anniversary and reduced by a withdrawal adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the withdrawal.
As described on page 23, you may add optional riders that in some circumstances may increase the Death Benefit under your contract.
Death Benefit Payments
1. If your spouse is the sole beneficiary:
(a) Your spouse may elect to receive the Death Proceeds in a lump sum; or
22
(b) Your spouse may elect to receive the Death Proceeds paid out under one of the annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity payments must be payable:
(i) over the life of your spouse; or
(ii) for a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse; or
(iii) over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse.
(c) If your spouse chooses to continue the Contract, or does not elect one of these options, then the Contract will continue in the Accumulation Period as if the death had not occurred. If the Contract is continued in the Accumulation Period, the following conditions apply.
Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-Accounts. This excess will be allocated in proportion to your Contract Value in those Sub-Accounts as of the end of the Valuation Period during which we receive the complete request for settlement of the Death Proceeds, except that any portion of this excess attributable to the fixed account options will be allocated to the Money Market Sub-Account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee:
(i) transfer all or a portion of the excess among the Sub-Accounts;
(ii) transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or
(iii) transfer all or a portion of the excess into a combination of Sub-Accounts and the Guaranteed Maturity Fixed Account.
Any such transfer does not count as the free transfer allowed each calendar month and is subject to any minimum allocation amount specified in your Contract.
The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment.
Prior to the Annuity Date, the death benefit of the continued Contract will be as defined in the Death Benefit provision.
Only one spousal continuation is allowed under this Contract.
If there is no Annuitant at that time, the new Annuitant will be the surviving spouse. Note that if you elected to receive required minimum distributions under a Minimum Distribution Option, the program will be discontinued upon receipt of notification of death. The final required minimum distribution must be distributed prior to establishing a beneficiary payment option for the balance of the Contract.
2. If the Beneficiary is not your spouse but is a living person:
(a) The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
(b) The Beneficiary may elect to receive the Death Proceeds paid out under one of the annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity payments must be payable:
(i) over the life of the Beneficiary; or
(ii) for a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the Beneficiary; or
(iii) over the life of the Beneficiary with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the Beneficiary.
(c) If the Beneficiary does not elect one of the options above, then the Beneficiary must receive the Contract Value payable within 5 years of your date of death. We will determine the Death Proceeds as of the date we receive the complete request for settlement of the Death Proceeds. Unless otherwise instructed by the Beneficiary, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Money Market Sub-Account and the Contract Value will be adjusted accordingly. The Beneficiary may exercise all rights as set forth in Transfer During the Accumulation Period on page 11 and Transfer Fees on page 29 during this 5-year period. If we do not receive instructions on where to send the payment within 5 years of the date of death, the funds will be escheated.
The Beneficiary may not pay additional purchase payments into the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5-year period.
We reserve the right to offer additional options upon the death of the Contract Owner.
If the Beneficiary dies before the complete liquidation of the Contract Value, then the Beneficiarys named Beneficiary(ies) will receive the greater of the Surrender Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owners death.
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3. If the Beneficiary is a corporation or other type of non-living person:
(a) The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
(b) If the Beneficiary does not elect to receive the option above, then the Beneficiary must receive the Contract Value payable within 5 years of your date of death. We will determine the Death Proceeds as of the date we receive the complete request for settlement of the Death Proceeds. Unless otherwise instructed by the Beneficiary, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Money Market Sub-Account. The Beneficiary may exercise all rights as set forth in Transfer During the Accumulation Period on page 11 and Transfer Fees on page 29 during this 5-year period.
The Beneficiary may not pay additional purchase payments into the contract under this election. Withdrawal charges will be waived during this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
If any Beneficiary is a non-living person, all Beneficiaries will be considered to be non-living persons for the above purposes.
Under any of these options, all contract rights, subject to any restrictions previously placed upon the Beneficiary, are available to the Beneficiary from the date of your death to the date on which the Death Proceeds are paid.
Different rules may apply to Contracts issued in connection with Qualified Plans.
We offer different optional riders under this Contract. If you elect an optional rider, we will charge you a higher mortality and expense charge. We may discontinue offering one or more Riders at any time. The benefits under the Riders are described below. The benefits in the riders discussed below may not be available in all states. For example, the Enhanced Death Benefit, Enhanced Income Benefit and all versions of the Enhanced Death and Income Benefit riders issued in Washington state do not contain the Enhanced Death Benefit B or Enhanced Income Benefit B provisions that are described below. Further they may be offered in certain states as a benefit of the base contract rather than as a separate rider. In those states, the expense charge will remain the same for the benefit.
Enhanced Death Benefit Rider: When you purchase your Contract, you may select the Enhanced Death Benefit Rider. This Rider is available if the oldest Owner or Annuitant is age 80 or less at issue. If you are not an individual, the Enhanced Death Benefit applies only to the Annuitants death. As described below, we will charge a higher mortality and expense risk charge if you select this Rider. If you select this Rider, the Death Benefit will be the greater of the value provided in your Contract or the Enhanced Death Benefit. The Enhanced Death Benefit will be the greater of the Enhanced Death Benefit A or Enhanced Death Benefit B, defined below.
Enhanced Income Benefit Rider: When you purchase your Contract you may select the Enhanced Income Benefit Rider if available in your state. Lincoln Benefit Life no longer offers this Rider in most states. This Rider is available if the oldest Owner or Annuitant is age 75 or less at issue. If you select this Rider, you may be able to receive higher annuity payments in certain circumstances. As described below, we will charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the greater of Enhanced Income Benefit A or Enhanced Income Benefit B, defined below, on the Annuity Date. We will not increase or decrease the Enhanced Income Benefit amount by any Market Value Adjustment. To be eligible for the Enhanced Income Benefit, you must select an Annuity Date that is:
(a) on or after the tenth Contract Anniversary;
(b) before the Annuitants age 90; and
(c) within a 30-day period on or following a Contract Anniversary.
On the Annuity Date, you may apply the Enhanced Income Benefit to an Annuity Option that provides for fixed payments on the basis guaranteed in the Contract for either a single life with a period certain, or joint lives with a period certain of at least:
(a) 10 years, if the youngest Annuitants age is 80 or less on the Annuity Date; or
(b) 5 years, if the youngest Annuitants age is greater than 80 on the Annuity Date.
If you wish to select a different Annuity Option, you must apply the Annuitized Value and not the Enhanced Income Benefit.
The Enhanced Income Benefit under this Rider only applies to the determination of income payments under the income options described above. It is not a guarantee of Contract Value or performance. The benefit does not enhance the amounts paid in partial withdrawals, surrenders or death benefits. In addition, under some circumstances, you will receive higher initial income payments by applying your Contract Annuitized Value to one of the standard Annuity Options instead of utilizing this optional benefit. If you surrender your Contract, you will not receive any benefit under this Rider.
Enhanced Income Benefit A. At issue, the Enhanced Income Benefit A is equal to the initial purchase payment. After issue, Enhanced Income Benefit A is recalculated as follows:
When you make a Purchase Payment, we will increase the Enhanced Income Benefit A by the amount of your Purchase Payment;
When you make a withdrawal, we will decrease Enhanced Income Benefit A by a withdrawal adjustment as defined below;
On each Contract Anniversary, the Enhanced Income Benefit A is equal to the greater of the Contract Value or the most recently calculated Enhanced Income Benefit A.
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If you do not make any additional Purchase Payments or withdrawals, the Enhanced Income Benefit A will be the greatest of all Contract Anniversary Contract Values prior to the date we calculate the Enhanced Income Benefit.
We will continuously adjust Enhanced Income Benefit A; as described above, until the oldest Contract Owners 85th birthday, or if the Contract Owner is not a living individual, the oldest Annuitants 85th birthday. Thereafter, we will adjust Enhanced Income Benefit A only for Purchase Payments and withdrawals.
Enhanced Income Benefit B. Enhanced Income Benefit B is equal to your total Purchase Payments reduced by any withdrawal adjustments, accumulated daily at an effective annual interest rate of 5% per year, until the earlier of:
(a) the date we determine the income benefit;
(b) the first day of the month following the oldest Contract Owners 85th birthday, or the first day of the month following the oldest Annuitants 85th birthday, if the Contract Owner is not a living individual.
The withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c) where,
(a) is the withdrawal amount;
(b) is the Contract Value immediately prior to the withdrawal;
(c) is the most recently calculated Enhanced Income Benefit A or B, as applicable.
Enhanced Death and Income Benefit Rider II: When you purchase your Contract and if available in your state, you may select the Enhanced Death and Income Benefit Rider II. Lincoln Benefit Life no longer offers this Rider in most states. This Rider is available if the oldest Owner or Annuitant is age 75 or less at issue. This Rider provides the same Enhanced Death Benefit as the Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive higher annuity payments in certain circumstances. As described below, we will charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the greater of Enhanced Death Benefit A or Enhanced Death Benefit B, defined below, on the Annuity Date. We will not increase or decrease the Enhanced Income Benefit amount by any Market Value Adjustment. To be eligible for the Enhanced Income Benefit, you must select an Annuity Date that is:
(a) on or after the tenth Contract Anniversary;
(b) before the Annuitants age 90; and
(c) within a 30-day period on or following a Contract Anniversary.
On the Annuity Date, you may apply the Enhanced Income Benefit to an Annuity Option that provides for fixed payments on the basis guaranteed in the contract for either a single life with a period certain, or joint lives with a period certain of at least:
(a) 10 years, if the youngest Annuitants age is 80 or less on the Annuity Date; or
(b) 5 years, if the youngest Annuitants age is greater than 80 on the Annuity Date.
If you wish to select a different Annuity Option, you must apply the Annuitized Value and not the Enhanced Income Benefit.
Enhanced Death and Income Benefit Rider. This Rider was previously available if the oldest Owner or Annuitant is age 75 or less at issue. This rider is no longer available. This Rider provides the same Enhanced Death Benefit as the Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive higher annuity payments in certain circumstances. As described below, we will charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the value of the Enhanced Death Benefit on the Annuity Date. We will not increase or decrease the Enhanced Income Benefit amount by any Market Value Adjustment. To be eligible for the Enhanced Income Benefit, you must select an Annuity Date that is on or after the tenth Contract Anniversary, but before the Annuitants age 90. On the Annuity Date, you may apply the Enhanced Income Benefit to an Annuity Option that provides for payments guaranteed for either a single life with a period certain or joint lives with a period certain of at least:
(a) 10 years, if the youngest Annuitants age is 80 or less on the Annuity Date; or
(b) at least 5 years, if the youngest Annuitants age is greater than 80 on the Annuity Date.
If you wish to select a different Annuity Option, you must apply the Annuitized Value and not the Enhanced Income Benefit.
Enhanced Death Benefit A. At issue, Enhanced Death Benefit A is equal to the initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted whenever you pay a Purchase Payment or make a withdrawal and on each Contract Anniversary as follows:
When you pay a Purchase Payment, we will increase Enhanced Death Benefit A by the amount of the Purchase Payment;
When you make a withdrawal, we will decrease Enhanced Death Benefit A by a withdrawal adjustment, as described below; and
On each Contract Anniversary, we will set Enhanced Death Benefit A equal to the greater of the Contract Value on that Contract Anniversary or the most recently calculated Enhanced Death Benefit A.
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If you do not pay any additional purchase payments or make any withdrawals, Enhanced Death Benefit A will equal the greatest of the Contract Value on the Issue Date and all Contract Anniversaries prior to the date we calculate any death benefit.
We will continuously adjust Enhanced Death Benefit A as described above until the oldest Contract Owners 85th birthday or, if the Contract Owner is not a living individual, the Annuitants 85th birthday. Thereafter, we will adjust Enhanced Death Benefit A only for Purchase Payments and withdrawals.
Enhanced Death Benefit B. Enhanced Death Benefit B is equal to your total Purchase Payments, reduced by any withdrawal adjustments, accumulated daily at an effective annual rate of 5% per year, until the earlier of:
(a) the date we determine the death benefit,
(b) the first day of the month following the oldest Contract Owners 85th birthday; or
(c) the first day of the month following the oldest Annuitants 85th birthday, if the Contract Owner is not a living individual.
Thereafter, we will only adjust Enhanced Death Benefit B to reflect additional Purchase Payments and withdrawals. Enhanced Death Benefit B will never be greater than the maximum death benefit allowed by any nonforfeiture laws that govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death Benefit B will equal (a) divided by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Benefit A or B, as appropriate.
Beneficiary. You name the Beneficiary. You may name a Beneficiary in the application. You may also name one or more contingent Beneficiaries who are entitled to receive benefits under the contract if all primary Beneficiaries are deceased at the time a Contract Owner, or Annuitant if the Contract Owner is not a living person, dies. You may change the Beneficiary or add additional Beneficiaries at any time before the Annuity Date. We will provide a form to be signed and filed with us.
Your changes in Beneficiary take effect when we accept them, effective as of the date you signed the form. Until we accept your change instructions, we are entitled to rely on your most recent instructions in our files. We are not liable for making a payment to a Beneficiary shown in our files or treating that person in any other respect as the Beneficiary prior to accepting a change. Accordingly, if you wish to change your beneficiary, you should deliver your instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer living, the Beneficiary will be:
your spouse if he or she is still alive; or, if he or she is no longer alive,
your surviving children equally; or if you have no surviving children,
your estate.
Unless you have provided directions to the contrary, the Beneficiaries will take equal shares. If there is more than one Beneficiary in a class and one of the Beneficiaries predeceases the Contract Owner or Annuitant, the remaining Beneficiaries in that class will divide the deceased Beneficiarys share in proportion to the original shares of the remaining beneficiaries.
If more than one Beneficiary shares in the Death Proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share. Each Beneficiary will exercise all rights related to his or her share, including the sole right to select a payout option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the payout option chosen by the original Beneficiary.
If there is more than one Beneficiary and one of the Beneficiaries is a corporation or other type of non-living person, all beneficiaries will be considered to be non-living persons.
You may specify that the Death Benefit be paid under a specific income Plan by submitting a written request to our Service Center. If you so request, your Beneficiary may not change to a different Income Plan or lump sum. Once we accept the written request, the change or restriction will take effect as of the date you signed the request. Any change is subject to any payment we make or other action we take before we accept the changes.
Different rules may apply to Contracts issued in connection with Qualified Plans.
Contract Loans For 403(b) Contracts. Subject to the restrictions described below, we will make loans to the Owner of a Contract used in connection with a Tax Sheltered Annuity Plan (TSA Plan) under Section 403(b) of the Tax Code. Loans are not available under Non-Qualified Contracts. We will only make loans after the free look period and before annuitization. All loans are subject to the terms of the Contract, the relevant Plan, and the Tax Code, which impose restrictions on loans.
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We will not make a loan to you if the total of the requested loan and your unpaid outstanding loans will be greater than the Surrender Value of your Contract on the date of the loan. In addition, we will not make a loan to you if the total of the requested loan and all of the plan participants Contract loans under TSA plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or half of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan, write to us at the address given on the first page of the prospectus. You alone are responsible for ensuring that your loan and repayments comply with tax requirements. Some of these requirements are stated in Section 72 of the Tax Code. Please seek advice from your plan administrator or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from the Separate Account and/or the Fixed Account to the Loan Account as collateral for the loan. We will transfer to the Loan Account amounts from the Separate Account in proportion to the assets in each Sub-Account. If your loan amount is greater than your Contract Value in the Sub-Accounts, we will transfer the remaining required collateral from the Guaranteed Maturity Fixed Account Options. If your loan amount is greater than your contract value in the Sub-Accounts and the Guaranteed Maturity Fixed Account Options, we will transfer the remaining required collateral from the Dollar Cost Averaging Fixed Account Option.
We will not charge a Withdrawal Charge on the loan or on the transfer from the Sub-Accounts or the Fixed Account. We may, however, apply a Market Value Adjustment to a transfer from the Fixed Account to the Loan Account. If we do, we will increase or decrease the amount remaining in the Fixed Account by the amount of the Market Value Adjustment, so that the net amount transferred to the Loan Account will equal the desired loan amount. We will charge a Withdrawal Charge and apply a Market Value Adjustment, if applicable, on a distribution to repay the loan in full, in the event of loan default.
We will credit interest to the amounts in the Loan Account. The annual interest rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the loan interest rate minus 2.25%. The value of the amounts in the Loan Account are not affected by the changes in the value of the Sub-Accounts.
When you take out a loan, we will set the loan interest rate. That rate will apply to your loan until it is repaid. From time to time, we may change the loan interest rate applicable to new loans. We also reserve the right to change the terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but unpaid interest, from:
1) the Death Proceeds;
2) surrender proceeds;
3) the amount available for partial withdrawal;
4) the amount applied on the Annuity Date to provide annuity payments; and
5) the amount applied on the Annuity Date to provide annuity payments under the Enhanced Income Benefit Rider, Enhanced Death and Income Benefit Rider, or the Enhanced Death and Income Benefit Rider II.
Usually you must repay a Contract loan within five years of the date the loan is made. Scheduled payments must be level, amortized over the repayment period, and made at least quarterly. We may permit a repayment period of 15 or 30 years if the loan proceeds are used to acquire your principal residence. We may also permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment received from you is a Purchase Payment, unless you tell us otherwise. Generally, loan payments are allocated to the Sub-Account(s) in the proportion that you have selected for Purchase Payments. Allocations of loan payments are not permitted to the Fixed Accounts (Guaranteed Maturity Fixed Account and Dollar Cost Averaging Fixed Account Option). If your Purchase Payment allocation includes any of the Fixed Accounts, the percentages allocated to the Fixed Accounts will be allocated instead to the Fidelity® VIP Government Money Market Sub-Account.
If you do not make a loan payment when due, we will continue to charge interest on your loan. We also will declare the entire loan in default. We will subtract the defaulted loan balance plus accrued interest from any future distribution under the Contract and keep it in payment of your loan. Any defaulted amount plus interest will be treated as a distribution for tax purposes (as permitted by law). As a result, you may be required to pay taxes on the defaulted amount and incur the early withdrawal tax penalty. We will capitalize interest on a loan in default.
If the total loan balance exceeds the Surrender Value, we will mail written notice to your last known address. The notice will state the amount needed to maintain the Contract in force. If we do not receive payment of this amount within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless the loan is to pay a premium to us.
Withdrawals (Redemptions). Except as explained below, you may redeem a Contract for all or a portion of its Contract Value before the Annuity Date. We may impose a Withdrawal Charge, which would reduce the amount paid to you upon redemption. The
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Withdrawal Charges are described on page 29. Withdrawals from the Fixed Account may be increased or decreased by a Market Value Adjustment, as described in Market Value Adjustment on page 18.
In general, you must withdraw at least $50 at a time. You may also withdraw a lesser amount if you are withdrawing your entire interest in a Sub-Account. If your request for a partial withdrawal would reduce the Contract Value to less than $500, we may treat it as a request for a withdrawal of your entire Contract Value, as described in Minimum Contract Value on page 28. Your Contract will terminate if you withdraw all of your Contract Value.
Withdrawals taken prior to annuitization are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distribution of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty.
We may be required to withhold 20% of withdrawals and distributions from Contracts issued in connection with certain Qualified Plans, as described on page 37.
To make a withdrawal, you must send us a written withdrawal request or systematic withdrawal program enrollment form. You may obtain the required forms from us at the address and phone number given on the first page of this prospectus.
WRITTEN REQUESTS AND FORMS IN GOOD ORDER.
Written requests must include sufficient information and/or documentation, and be sufficiently clear, to enable us to complete your request without the need to exercise discretion on our part to carry it out. You may contact our Customer Service Center to learn what information we require for your particular request to be in good order. Additionally, we may require that you submit your request on our form. We reserve the right to determine whether any particular request is in good order, and to change or waive any good order requirements at any time.
For partial withdrawals, you may allocate the amount among the Sub-Accounts and the Fixed Accounts. If we do not receive allocation instructions from you, we usually will allocate the partial withdrawal proportionately among the Sub-Accounts and the Guaranteed Maturity Fixed Account Options based upon the balance of the Sub-Accounts and the Guaranteed Maturity Fixed Account Options, with any remainder being distributed from the Dollar Cost Averaging Fixed Account Option. You may not make a partial withdrawal from the Fixed Account in an amount greater than the total amount of the partial withdrawal multiplied by the ratio of the value of the Fixed Account to the Contract Value immediately before the partial withdrawal.
If you request a total withdrawal, you must send us your Contract. The Surrender Value will equal the Contract Value minus any applicable Withdrawal Charge and adjusted by any applicable Market Value Adjustment. We also will deduct a contract maintenance charge of $35, unless we have waived the contract maintenance charge on your Contract as described on page 29. We determine the Surrender Value based on the Contract Value next computed after we receive a properly completed surrender request. We will usually pay the Surrender Value within seven days after the day we receive a completed request form. However, we may suspend the right of withdrawal from the Separate Account or delay payment for withdrawals for more than seven days in the following circumstances:
1) whenever the New York Stock Exchange (NYSE) is closed (other than customary weekend and holiday closings);
2) when trading on the NYSE is restricted or an emergency exists, as determined by the SEC, so that disposal of the Separate Accounts investments or determination of Accumulation Unit Values is not reasonably practicable; or
3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account for up to 6 months or a shorter period if required by law. If we delay payment from the Fixed Account for more than 30 days, we will pay interest as required by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only in the following circumstances:
1) when you attain age 59 1/2;
2) when you terminate your employment with the plan sponsor;
3) upon your death;
4) upon your disability as defined in Section 72(m)(7) of the Tax Code;
5) or in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to your Purchase Payments; you may not withdraw any earnings. These limitations on withdrawals apply to:
1) salary reduction contributions made after December 31, 1988;
2) income attributable to such contributions; and
3) income attributable to amounts held as of December 31, 1988.
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The limitations on withdrawals do not affect transfers between certain Qualified Plans. Additional restrictions and limitations may apply to distributions from any Qualified Plan. Tax penalties may also apply. You should seek tax advice regarding any withdrawals or distributions from Qualified Plans.
Systematic Withdrawal Program. If your Contract is a non-Qualified Contract or IRA, you may participate in our Systematic Withdrawal Program. You must complete an enrollment form and send it to us. You must complete the withholding election section of the enrollment form before the systematic withdrawals will begin. You may choose withdrawal payments of a flat dollar amount, earnings, or a percentage of Purchase Payments. You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis. Systematic withdrawals will be deducted from your Sub-Account and Fixed Account balances, excluding the Dollar Cost Averaging Fixed Account, on a pro rata basis.
Depending on fluctuations in the net asset value of the Sub-Accounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected.
ERISA Plans. A married participant may need spousal consent to receive a distribution from a Contract issued in connection with a Qualified Plan or a Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an adviser.
Minimum Contract Value. If as a result of withdrawals your Contract Value would be less than $500 and you have not made any Purchase Payments during the previous three full calendar years, we may terminate your Contract and distribute its Surrender Value to you. Before we do this, we will give you 60 days notice. We will not terminate your Contract on this ground if the Contract Value has fallen below $500 due to either a decline in Accumulation Unit Value or the imposition of fees and charges. In addition, in some states we are not permitted to terminate Contracts on this ground. Different rules may apply to Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
1) as deductions from Contract Value for contract maintenance charges and, if applicable, for premium taxes;
2) as charges against the assets of the Separate Account for administrative expenses and for the assumption of mortality and expense risks; and
3) as Withdrawal Charges (contingent deferred sales charges) subtracted from withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for investment management fees and expenses. Those fees and expenses are summarized in the Fee Tables on page 3, and described more fully in the Prospectuses and Statements of Additional Information for the Portfolios.
Mortality and Expense Risk Charge. We deduct a mortality and expense risk charge from each Sub-Account during each Valuation Period. The mortality and expense risk charge is equal, on an annual basis, to 1.15% of the average net asset value of each Sub-Account. The mortality risks arise from our contractual obligations:
1) to make annuity payments after the Annuity Date for the life of the Annuitant(s);
2) to waive the Withdrawal Charge upon your death; and
3) to provide the Death Benefit prior to the Annuity Date. A detailed explanation of the Death Benefit may be found beginning on page 21.
The expense risk is that it may cost us more to administer the Contracts and the Separate Account than we receive from the contract maintenance charge and the administrative expense charge. We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk charge will be 1.35% of average net asset value of each Sub-Account. If you select the Enhanced Income Rider, your mortality and expense risk charge will be 1.50% of average daily net asset value of each Sub-Account. If you select the Enhanced Death and Income Benefit Rider, your mortality and expense risk charge will be 1.55% of average daily net asset value of each Sub-Account. If you select the Enhanced Death and Income Benefit Rider II, your mortality and expense risk charge will be 1.70% of average daily net asset value of each Sub-Account. We charge a higher mortality and expense risk charge for the Riders to compensate us for the additional risk that we accept by providing the Riders. We will calculate a separate Accumulation Unit Value for the base Contract, and for Contracts with each type of Rider, in order to reflect the difference in the mortality and expense risk charges.
ADMINISTRATIVE CHARGES
Contract Maintenance Charge. We charge an annual contract maintenance charge of $35 on your Contract. The amount of this charge is guaranteed not to increase. This charge reimburses us for our expenses incurred in maintaining your Contract.
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Before the Annuity Date, we assess the contract maintenance charge on each Contract Anniversary. To obtain payment of this charge, on a pro rata basis we will allocate this charge among the Sub-Accounts to which you have allocated your Contract Value, and redeem Accumulation Units accordingly. We will waive this charge if you pay more than $50,000 in Purchase Payments or if you allocate all of your Contract Value to the Fixed Account. If you surrender your Contract, we will deduct the full $35 charge as of the date of surrender, unless your Contract qualifies for a waiver.
After the Annuity Date and if allowed in your state, we will subtract this charge in equal parts from each of your annuity payments. We will waive this charge if on the Annuity Date your Contract Value is $50,000 or more or if all of your annuity payments are Fixed Annuity payments.
Administrative Expense Charge. We deduct an administrative expense charge from each Sub-Account during each Valuation Period. This charge is equal, on an annual basis, to 0.10% of the average net asset value of the Sub-Accounts. This charge is designed to compensate us for the cost of administering the Contracts and the Separate Account. The administrative expense charge is assessed during both the Accumulation Period and the Annuity Period.
Transfer Fee. We currently are waiving the transfer fee. The Contract, however, permits us to charge a transfer fee of $10 on the second and each subsequent transaction in each calendar month in which transfer(s) are effected between Subaccount(s) and/or the Fixed Account. We will notify you if we begin to charge this fee. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging or Portfolio Rebalancing program.
The transfer fee will be deducted from Contract Value that remains in the Subaccount(s) or Fixed Account from which the transfer was made. If that amount is insufficient to pay the transfer fee, we will deduct the fee from the transferred amount.
SALES CHARGES.
Withdrawal Charge. We may charge a Withdrawal Charge, which is a contingent deferred sales charge, upon certain withdrawals.
As a general rule, the Withdrawal Charge equals a percentage of Purchase Payments withdrawn that are: (a) less than seven years old; and (b) not eligible for a free withdrawal. The applicable percentage depends on how many years ago you made the Purchase Payment being withdrawn, as shown in this chart:
CONTRIBUTION YEAR |
WITHDRAWAL CHARGE PERCENTAGE |
First and Second |
7 % |
Third and Fourth |
6 % |
Fifth |
5 % |
Sixth |
4 % |
Seventh |
3 % |
Eighth and later |
0 % |
When we calculate the Withdrawal Charge, we do not take any applicable Market Value Adjustment into consideration. Beginning on January 1, 2004, if you make a withdrawal before the Annuity Date, we will apply the withdrawal charge percentage in effect on the date of the withdrawal, or the withdrawal charge percentage in effect on the following day, whichever is lower.
We subtract the Withdrawal Charge from the Contract Value remaining after your withdrawal. As a result, the decrease in your Contract Value will be greater than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed to be withdrawn in the following order:
First. Earnings - the current Contract Value minus all Purchase Payments that have not previously been withdrawn;
Second. Old Purchase Payments - Purchase Payments received by us more than seven years before the date of withdrawal that have not been previously withdrawn;
Third. Any additional amounts available as a Free Withdrawal, as described on page 30;
Fourth. New Purchase Payments - Purchase Payments received by us less than seven years before the date of withdrawal. These Payments are deemed to be withdrawn on a first-in, first-out basis.
No Withdrawal Charge is applied in the following situations:
on annuitization;
the payment of a Death Benefit;
a free withdrawal amount, as described on page 30;
certain withdrawals for Contracts issued under 403(b) plans or 401 plan under our prototype as described on page 31;
withdrawals taken to satisfy IRS minimum distribution rules;
withdrawals that qualify for one of the waiver benefits described on page 30; and
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withdrawal under Contracts issued to employees of Lincoln Benefit Life Company or its affiliates, Surety Life Insurance Company and Allstate Financial Services, L.L.C., or to their spouses or minor children if those individuals reside in the State of Nebraska.
We will never waive or eliminate a Withdrawal Charge where such waiver or elimination would be unfairly discriminatory to any person or where it is prohibited by state law.
We may waive withdrawal charges if this Contract is surrendered, and the entire proceeds of the surrender are directly used to purchase a new Contract also issued by us or any affiliated company. Such waivers will be granted on a non-discriminatory basis.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the Withdrawal Charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference.
Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. The amount of your withdrawal may be affected by a Market Value Adjustment. Additional restrictions may apply to Contracts held in Qualified Plans. We outline the tax requirements applicable to withdrawals on page 33. You should consult your own tax counsel or other tax advisers regarding any withdrawals.
Free Withdrawal. Withdrawals of the following amounts are never subject to the Withdrawal Charge:
In any Contract Year, the greater of: (a) earnings that have not previously been withdrawn; or (b) 15 percent of New Purchase Payments; and
Any Old Purchase Payments that have not been previously withdrawn.
However, even if you do not owe a Withdrawal Charge on a particular withdrawal, you may still owe taxes or penalty taxes, or be subject to a market Value Adjustment. The tax treatment of withdrawals is summarized on page 33.
Waiver Benefits
General. If approved in your state, we will offer the three waiver benefits described below. In general, if you qualify for one of these benefits, we will permit you to make one or more partial or full withdrawals without paying any otherwise applicable Withdrawal Charge or Market Value Adjustment. While we have summarized those benefits here, you should consult your Contract for the precise terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even if you do not need to pay our Withdrawal Charge because of these benefits, you still may be required to pay taxes or tax penalties on the amount withdrawn. You should consult your tax adviser to determine the effect of a withdrawal on your taxes.
Confinement Waiver Benefit. Under this benefit, we will waive the Withdrawal Charge and Market Value Adjustment on all withdrawals under your Contract if the following conditions are satisfied:
1) Any Contract Owner or the Annuitant, if the Contract is owned by a company or other legal entity, is confined to a long term care facility or a hospital for at least 90 consecutive days. The Owner or Annuitant must enter the long term care facility or hospital at least 30 days after the Issue Date;
2) You request the withdrawal no later than 90 days following the end of the Owner or Annuitants stay at the long term care facility or hospital. You must provide written proof of the stay with your withdrawal request; and
3) A physician must have prescribed the stay and the stay must be medically necessary.
You may not claim this benefit if the physician prescribing the Owner or Annuitants stay in a long term care facility is the Owner or Annuitant or a member of the Owner or Annuitants immediate family.
Terminal Illness Waiver Benefit. Under this benefit, we will waive any Withdrawal Charge and Market Value Adjustment on all withdrawals under your Contract if, at least 30 days after the Issue Date, you, or the Annuitant if the Owner is not a living person, are diagnosed with a terminal illness. We may require confirmation of the diagnosis as provided in the Contract.
Unemployment Waiver Benefit. Under this benefit, we will waive any Withdrawal Charge and Market Value Adjustment on one partial or full withdrawal from your Contract, if you meet the following requirements:
1) you become unemployed at least 1 year after the Issue Date;
2) you receive unemployment compensation for at least 30 consecutive days as a result of that unemployment; and
3) you claim this benefit within 180 days of your initial receipt of unemployment compensation.
You may exercise this benefit once before the Annuity Date.
Waiver of Withdrawal Charge For Certain Qualified Plan Withdrawals. For Contracts issued under a Section 403(b) plan or a Section 401 plan under our prototype, we will waive the Withdrawal Charge when:
1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax Code;
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2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed since the Contract was issued;
3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan. This plan may be established as a Money Purchase plan, a Profit Sharing plan, or a paired plan (Money Purchase and Profit Sharing). For more information about our prototype plan, call us at 1-800-457-7617.
Premium Taxes. We will charge premium taxes or other state or local taxes against the Contract Value, including Contract Value that results from amounts transferred from existing policies (Section 1035 exchange) issued by us or other insurance companies. Some states assess premium taxes when Purchase Payments are made; others assess premium taxes when annuity payments begin. We will deduct any applicable premium taxes upon full surrender, death, or annuitization. Premium taxes generally range from 0% to 3.5%.
Deduction For Separate Account Income Taxes. We are not currently maintaining a provision for taxes. In the future, however, we may establish a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Separate Account. We will deduct for any taxes we incur as a result of the operation of the Separate Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Tax Code is briefly described in the Statement of Additional Information.
Other Expenses. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Sub-Accounts to which you allocate your Contract value. For a summary of current estimates of those charges and expenses, see page 3. For more detailed information about those charges and expenses, please refer to the prospectuses for the appropriate Portfolios. We receive compensation from the investment advisers or administrators or the Portfolios in connection with administrative service and cost savings experienced by the investment advisers or administrators. We collect this compensation under agreements between us and the Portfolios investment adviser, administrators or distributors, and is calculated based on a percentage of the average assets allocated to the Portfolio.
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Taxes
The following discussion is general and is not intended as tax advice. Lincoln Benefit makes no guarantee regarding the tax treatment of any Contract or transaction involving a Contract.
Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser.
TAXATION OF LINCOLN BENEFIT LIFE COMPANY
Lincoln Benefit is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Separate Account is not an entity separate from Lincoln Benefit, and its operations form a part of Lincoln Benefit, it will not be taxed separately. Investment income and realized capital gains of the Separate Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Lincoln Benefit believes that the Separate Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Lincoln Benefit does not anticipate that it will incur any federal income tax liability attributable to the Separate Account, and therefore Lincoln Benefit does not intend to make provisions for any such taxes. If Lincoln Benefit is taxed on investment income or capital gains of the Separate Account, then Lincoln Benefit may impose a charge against the Separate Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
Tax Deferral. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where:
the Contract Owner is a natural person,
the investments of the Separate Account are adequately diversified according to Treasury Department regulations, and
Lincoln Benefit is considered the owner of the Separate Account assets for federal income tax purposes.
Non-Natural Owners. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year.
Exceptions to the Non-Natural Owner Rule. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain Qualified Plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period.
Trusts are required to complete and submit a Certificate of Entity form, and we will tax report based on the information provided on this form.
Grantor Trust Owned Annuity. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the beneficiary. A trust named beneficiary, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment, or 2) payment deferred up to five years from date of death.
Diversification Requirements. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Separate Account must be adequately diversified consistent with standards under Treasury Department regulations. If the investments in the Separate Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Lincoln Benefit does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements.
Ownership Treatment. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account.
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Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Separate Account. If this occurs, income and gain from the Separate Account assets would be includible in your gross income. Lincoln Benefit does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Separate Account. However, we make no guarantee that such modification to the Contract will be successful.
Taxation of Partial and Full Withdrawals. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract.
Taxation of Annuity Payments. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year.
Partial Annuitization
Effective January 1, 2011, an individual may partially annuitize their non-qualified annuity if the contract so permits. The Small Business Jobs Act of 2010 included a provision which allows for a portion of a non-qualified annuity, endowment or life insurance contract to be annuitized while the balance is not annuitized. The annuitized portion must be paid out over 10 or more years or over the lives of one or more individuals. The annuitized portion of the contract is treated as a separate contract for purposes of determining taxability of the payments under IRC section 72. We do not currently permit partial annuitization.
Taxation of Level Monthly Variable Annuity Payments. You may have an option to elect a variable income payment stream consisting of level monthly payments that are recalculated annually. Although we will report your levelized payments to the IRS in the year distributed, it is possible the IRS could determine that receipt of the first monthly payout of each annual amount is constructive receipt of the entire annual amount. If the IRS were to take this position, the taxable amount of your levelized payments would be accelerated to the time of the first monthly payout and reported in the tax year in which the first monthly payout is received.
Withdrawals After the Payout Start Date. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine.
Distribution at Death Rules. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide:
if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owners death;
if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owners death. These requirements are satisfied if any portion of the Contract Owners interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owners death. If the Contract Owners designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner;
if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner.
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Prior to a 2013 Supreme Court decision, and consistent with Section 3 of the federal Defense of Marriage Act (DOMA), same sex marriages under state law were not recognized as same sex marriages for purposes of federal law. However, in United States v. Windsor, the U.S. Supreme Court struck down Section 3 of DOMA as unconstitutional, thereby recognizing a valid same sex marriage for federal law purposes. On June 26, 2015, the Supreme Court ruled in Obergefell v. Hodges that same-sex couples have a constitutional right to marry, thus requiring all states to allow same-sex marriage. The Windsor and Obergefell decisions mean that the federal and state tax law provisions applicable to an opposite sex spouse will also apply to a same sex spouse. Please note that a civil union or registered domestic partnership is generally not recognized as a marriage.
Please consult with your tax or legal advisor for more information.
Taxation of Annuity Death Benefits. Death Benefit amounts are included in income as follows:
if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or
if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments.
Medicare Tax on Net Investment Income. The Patient Protection and Affordable Care Act, enacted in 2010, included a Medicare tax on investment income. This tax assesses a 3.8% surtax on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a threshold amount. The threshold amount is $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, $200,000 for single taxpayers, and approximately $12,400 for trusts. The taxable portion of payments received as a withdrawal, surrender, annuity payment, death benefit payment or any other actual or deemed distribution under the contract will be considered investment income for purposes of this surtax.
Penalty Tax on Premature Distributions. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
made on or after the date the Contract Owner attains age 59 1/2,
made as a result of the Contract Owners death or becoming totally disabled,
made in substantially equal periodic payments (as defined by the Code) over the Contract Owners life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
made under an immediate annuity and the annuity start date is no more than one year from the date of purchase (the first annuity payment must commence within 13 months of the date of purchase), or
attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
Substantially Equal Periodic Payments. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owners attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
Tax Free Exchanges under Internal Revenue Code Section 1035. A 1035 exchange is a tax-free exchange of a non-Qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. After you elect an Annuity Option, as described in the Annuity Options section earlier in the prospectus, you are not eligible for a tax-free exchange under Section 1035.
Partial Exchanges. The IRS has issued rulings that permit partial exchanges of annuity contracts. Effective for exchanges on or after October 24, 2011, where there is a surrender or distribution from either the initial annuity contract or receiving annuity contract within 180 days of the date on which the partial exchange was completed, the IRS will apply general tax rules to determine the substance and treatment of the original transfer.
If a partial exchange is retroactively negated, the amount originally transferred to the recipient contract is treated as a withdrawal from the source contract, taxable to the extent of any gain in that contract on the date of the exchange. An additional 10% tax penalty may also apply if the Contract Owner is under age 59 1/2. Your Contract may not permit partial exchanges.
Taxation of Ownership Changes. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax.
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Aggregation of Annuity Contracts. The Code requires that all non-Qualified deferred annuity contracts issued by Lincoln Benefit (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution.
INCOME TAX WITHHOLDING
Generally, Lincoln Benefit is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made or no U.S. taxpayer identification number is provided we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory.
Lincoln Benefit is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Lincoln Benefit as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. We require an original IRS Form W-8BEN at issue to certify the owners foreign status. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident aliens country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (ITIN). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
Certain payees may be subject to the Foreign Accounts Tax Compliance Act (FATCA) which may require 30% mandatory withholding for certain entities. Please consult with your tax advisor for additional information regarding FATCA.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with:
Individual Retirement Annuities (IRAs) under Code Section 408(b);
Roth IRAs under Code Section 408A;
Simplified Employee Pension (SEP IRA) under Code Section 408(k);
Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p);
Tax Sheltered Annuities under Code Section 403(b);
Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and
State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457.
Lincoln Benefit reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if Qualified Plan limits on distributions and other conditions are not met. Please consult your Qualified Plan administrator for more information. Lincoln Benefit no longer issues deferred annuities to employer sponsored qualified retirement plans.
The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Lincoln Benefit can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedents IRA, TSA, or employer sponsored retirement plan under which the decedents surviving spouse is the beneficiary. Lincoln Benefit does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedents IRA, TSA, or employer sponsored qualified retirement plan. Note that in 2014, the U.S. Supreme Court ruled that Inherited IRAs, other than IRAs inherited by the owners spouse, do not qualify as retirement assets for purposes of protection under the federal bankruptcy laws.
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Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain Qualified Plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract.
Taxation of Withdrawals from an Individually Owned Tax Qualified Contract. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable.
Qualified distributions from Roth IRAs are not included in gross income. Qualified distributions are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are:
made on or after the date the Contract Owner attains age 59 1/2,
made to a beneficiary after the Contract Owners death,
attributable to the Contract Owner being disabled, or
made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000).
Nonqualified distributions from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions.
Required Minimum Distributions. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Effective December 31, 2005, the IRS requires annuity contracts to include the actuarial present value of other benefits for purposes of calculating the required minimum distribution amount. These other benefits may include accumulation, income, or death benefits. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor.
The Death Benefit and Tax Qualified Contracts. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations.
It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under Qualified Plans, such as in connection with a TSA or employer sponsored qualified retirement plan.
Lincoln Benefit reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above.
Penalty Tax on Premature Distributions from Tax Qualified Contracts. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions:
made on or after the date the Contract Owner attains age 59 1/2,
made as a result of the Contract Owners death or total disability,
made in substantially equal periodic payments (as defined by the Code) over the Contract Owners life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary,
made after separation from service after age 55 (does not apply to IRAs),
made pursuant to an IRS levy,
made for certain medical expenses,
made to pay for health insurance premiums while unemployed (applies only for IRAs),
made for qualified higher education expenses (applies only for IRAs),
made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs), and
from an IRA or attributable to elective deferrals under a 401(k) plan, 403(b) annuity, or certain similar arrangements made to individuals who (because of their being members of a reserve component) are ordered or called to active duty after Sept. 11, 2001, for a period of more than 179 days or for an indefinite period; and made during the period beginning on the date of the order or call to duty and ending at the close of the active duty period.
37
During the first 2 years of the individuals participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may apply to your situation.
Substantially Equal Periodic Payments on Tax Qualified Contracts. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayers attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream.
Income Tax Withholding on Tax Qualified Contracts. Generally, Lincoln Benefit is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered eligible rollover distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, or if no U.S. taxpayer identification number is provided, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Lincoln Benefit is required to withhold federal income tax at a rate of 20% on all eligible rollover distributions unless you elect to make a direct rollover of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of:
required minimum distributions, or,
a series of substantially equal periodic payments made over a period of at least 10 years, or,
a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or,
hardship distributions.
With respect to any Contract held under a Section 457 plan or by the trustee of a Section 401 Pension or Profit Sharing Plan, we will not issue payments directly to a plan participant or beneficiary. Consequently, the obligation to comply with the withholding requirements described above will be the responsibility of the plan.
For all annuitized distributions that are not subject to the 20% withholding requirement, Lincoln Benefit is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Lincoln Benefit as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. We require an original IRS Form W-8BEN at issue to certify the owners foreign status. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident aliens country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number (ITIN). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities.
Certain payees may be subject to the Foreign Accounts Tax Compliance Act (FATCA) which may require 30% mandatory withholding for certain entities. Please consult with your tax advisor for additional information regarding FATCA.
Charitable IRA Distributions. Certain qualified IRA distributions for charitable purposes are eligible for an exclusion from gross income, up to $100,000 for otherwise taxable IRA distributions from a traditional or Roth IRA. A qualified charitable distribution is a distribution that is made (1) directly by the IRA trustee to certain qualified charitable organizations and (2) on or after the date the IRA owner attains age 70 1/2. Distributions that are excluded from income under this provision are not taken into account in determining the individuals deductions, if any, for charitable contributions.
The IRS has indicated that an IRA trustee is not responsible for determining whether a distribution to a charity is one that satisfies the requirements of the charitable giving incentive. Consistent with the applicable IRS instructions, we report these distributions as normal IRA distributions on Form 1099-R. Individuals are responsible for reflecting the distributions as charitable IRA distributions on their personal tax returns.
Individual Retirement Annuities. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount
38
that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be rolled over on a tax-deferred basis into an Individual Retirement Annuity. For IRA rollovers, an individual can only make an IRA to IRA rollover if the individual has not made a rollover involving any IRAs owned by the individual in the prior 12 months. An IRA transfer is a tax-free trustee-to-trustee transfer from one IRA account to another. IRA transfers are not subject to this 12 month rule.
Roth Individual Retirement Annuities. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence.
A traditional Individual Retirement Account or Annuity may be converted or rolled over to a Roth Individual Retirement Annuity. For distributions after 2007, the Pension Protection Act of 2006 allows distributions from qualified retirement plans including tax sheltered annuities and governmental Section 457 plans to be rolled over directly into a Roth IRA, subject to the usual rules that apply to conversions from a traditional IRA into a Roth IRA. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. Prior to January 1, 2010, income and filing status limitations applied to rollovers from non-Roth accounts to a Roth IRA. Effective January 1, 2005, the IRS requires conversions of annuity contracts to include the actuarial present value of other benefits for purposes of valuing the taxable amount of the conversion.
Annuities Held By Individual Retirement Accounts (commonly known as Custodial IRAs). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account.
If you have a contract issued as an IRA under Code Section 408(b) and request to change the ownership to an IRA custodian permitted under Section 408, we will treat a request to change ownership from an individual to a custodian as an indirect rollover. We will send a Form 1099R to report the distribution and the custodian should issue a Form 5498 for the contract value contribution.
Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitants surviving spouse as the new Annuitant, if the following conditions are met:
1) The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement Account;
3) We receive a complete request for settlement for the death of the Annuitant; and
4) The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following:
(a) The Annuitants surviving spouse is the sole beneficiary of the Individual Retirement Account;
(b) The Annuitants surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouses election.
Simplified Employee Pension IRA. (SEP IRA) Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice.
Savings Incentive Match Plans for Employees (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice. SIMPLE IRA plans must include the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2007 (EGTRRA) to avoid adverse tax consequences. If your current SIMPLE IRA plan uses IRS Model Form 5304-SIMPLE with a revision date of March 2012 or later, then your plan is up to date. If your plan has a revision date prior to March 2012, please consult with your tax or legal advisor to determine the action you need to take in order to comply with this requirement.
To determine if you are eligible to contribute to any of the above listed IRAs (traditional, Roth, SEP, or SIMPLE), please refer to IRS Publication 590 and your competent tax advisor.
Tax Sheltered Annuities. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee:
attains age 59 1/2,
39
severs employment,
dies,
becomes disabled, or
incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed to transfer some or all of the Contract Value to another 403(b) plan. Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
Caution: Under IRS regulations we can accept contributions, transfers and rollovers only if we have entered into an information-sharing agreement, or its functional equivalent, with the applicable employer or its plan administrator. Unless your contract is grandfathered from certain provisions in these regulations, we will only process certain transactions (e.g, transfers, withdrawals, hardship distributions and, if applicable, loans) with employer approval. This means that if you request one of these transactions we will not consider your request to be in good order, and will not therefore process the transaction, until we receive the employers approval in written or electronic form.
Corporate and Self-Employed Pension and Profit Sharing Plans.
Section 401(a) of the Code permits corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees (commonly referred to as H.R.10 or Keogh). Such retirement plans may permit the purchase of annuity contracts. Lincoln Benefit no longer issues annuity contracts to employer sponsored qualified retirement plans.
There are two owner types for contracts intended to qualify under Section 401(a): a qualified plan fiduciary or an annuitant owner.
A qualified plan fiduciary exists when a qualified plan trust that is intended to qualify under Section 401(a) of the Code is the owner. The qualified plan trust must have its own tax identification number and a named trustee acting as a fiduciary on behalf of the plan. The annuitant should be the person for whose benefit the contract was purchased.
An annuitant owner exists when the tax identification number of the owner and annuitant are the same, or the annuity contract is not owned by a qualified plan trust. The annuitant should be the person for whose benefit the contract was purchased.
If a qualified plan fiduciary is the owner of the contract, the qualified plan must be the beneficiary so that death benefits from the annuity are distributed in accordance with the terms of the qualified plan. Annuitant owned contracts require that the beneficiary be the annuitants spouse (if applicable), which is consistent with the required IRS language for qualified plans under Section 401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary form is required in order to change the beneficiary of an annuitant owned Qualified Plan contract.
State and Local Government and Tax-Exempt Organization Deferred Compensation Plans. Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees gross income until distributed from the plan. Lincoln Benefit no longer issues annuity contracts to 457 plans.
Gifts and Generation-skipping Transfers
The transfer of the contract or designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate, and generation-skipping transfer taxes. For example, the transfer of the contract to, or the designation as a beneficiary of, or the payment of proceeds to, a person who is assigned to a generation which is two or more generations below the generation assignment of the owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each contract owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of contract proceeds will be treated for purposes of federal, state and local estate, inheritance, generation skipping and other taxes. Under certain circumstances, the Tax Code may impose a generation-skipping transfer (GST) tax when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the owner. Regulations issued under the Tax Code may require us to deduct the tax from your contract, or from any applicable payment, and pay it directly to the IRS. Additionally, if you transfer your Annuity to another person for less than adequate consideration, there may be federal or state income tax consequences. The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.
40
Description of Lincoln Benefit Life Company and the Separate Account
Lincoln Benefit Life Company
Lincoln Benefit is a stock life insurance company organized under the laws of the state of Nebraska in 1938. Our legal domicile and principal business address is 1221 N Street, Suite 200, Lincoln, NE 68508. Lincoln Benefit is a wholly-owned subsidiary of Resolution Life, Inc., a Delaware corporation, which is a wholly-owned, indirect subsidiary of Resolution Life L.P., a Bermuda limited partnership and Resolution Life (Parallel) Partnership, a Bermuda-based partnership.
We are authorized to conduct life insurance and annuity business in the District of Columbia, Guam, U.S. Virgin Islands and all states except New York. We will market the Contract everywhere we conduct variable annuity business. The Contracts offered by this prospectus are issued by us and will be funded in the Separate Account and/or the Fixed Account.
Lincoln Benefit has reinsurance agreements whereby certain premiums, contract charges, interest credited to contractholder funds, benefits and expenses are ceded to Allstate Life Insurance Company (Allstate Life) and other non-affiliated reinsurers. The benefits and provisions of the Contracts have not been changed by these transactions and agreements. None of these transactions or agreements has changed the fact that we are primarily liable to you for your Contract.
Separate Account. Lincoln Benefit Life Variable Annuity Account was originally established in 1992, as a segregated asset account of Lincoln Benefit. The Separate Account meets the definition of a separate account under the federal securities laws and is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise the management of the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our other assets. To the extent that these assets are attributable to the Contract Value of the Contracts offered by this prospectus, these assets are not chargeable with liabilities arising out of any other business we may conduct. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to our other income, gains, or losses. Our obligations arising under the Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Sub-Accounts. The assets of each Sub-Account are invested in the shares of one of the Portfolios. We do not guarantee the investment performance of the Separate Account, its Sub-Accounts or the Portfolios. Values allocated to the Separate Account and the amount of Variable Annuity payments will rise and fall with the values of shares of the Portfolios and are also reduced by Contract charges. We may also use the Separate Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the Statement of Additional Information. You may obtain a copy of the Statement of Additional Information by writing to us or calling us at 1-800-457-7617. We have reproduced the Table of Contents of the Statement of Additional Information on page 43.
State Regulation of Lincoln Benefit. We are subject to the laws of Nebraska and regulated by the Nebraska Department of Insurance. Every year we file an annual statement with the Department of Insurance covering our operations for the previous year and our financial condition as of the end of the year. We are inspected periodically by the Department of Insurance to verify our contract liabilities and reserves. Our books and records are subject to review by the Department of Insurance at all times. We are also subject to regulation under the insurance laws of every jurisdiction in which we operate.
Financial Statements. The financial statements of Lincoln Benefit and the financial statements of the Separate Account, which are comprised of the financial statements of the underlying Sub-Accounts, are set forth in the Statement of Additional Information.
Administration. We have primary responsibility for all administration of the Contracts and the Variable Account. We entered into an administrative services agreement with Allstate Life. Allstate Life entered into an administrative services agreement with The Prudential Insurance Company of America (PICA) pursuant to which PICA or an affiliate provides administrative services to the Variable Account and the Contracts on our behalf. In addition, PICA entered into a master services agreement with se2, LLC, of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se2, LLC provides certain business process outsourcing services with respect to the Contracts. se2, LLC may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2015, consisted of the following: NTT DATA, Inc. (administrative services) located at 100 City Square, Boston, MA 02129; RR Donnelley Global Investment Markets, a division of RR Donnelley & Sons Company (compliance printing and mailing) located at 111 South Wacker Drive, Chicago, IL 60606; Jayhawk File Express, LLC (file storage and document destruction) located at 601 E. 5th Street, Topeka, KS 66601-2596; Co-Sentry.net, LLC (back-up printing and disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114; Convey Compliance Systems, Inc. (withholding calculations and tax statement mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447; Spangler Graphics, LLC (compliance mailings) located at 29305 44th Street, Kansas City, KS 66106; Veritas Document Solutions, LLC (compliance mailings) located at 913 Commerce Ct, Buffalo Grove, IL 60089; Records Center of Topeka, a division of Underground Vaults & Storage, Inc. (back-up tapes storage) located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; Venio LLC, d/b/a Keane (lost shareholder search) located at
41
PO Box 1508, Southeastern, PA 19399-1508; DST Systems, Inc. (FAN mail, positions, prices) located at 333 West 11 Street, 5th Floor, Kansas City, MO 64105.
In administering the Contracts, the following services are provided, among others:
maintenance of Contract Owner records;
Contract Owner services;
calculation of unit values;
maintenance of the Variable Account; and
preparation of Contract Owner reports.
We will send you Contract statements at least annually. We will also send you transaction confirmations. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement or a confirmation. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. Correspondence you send by regular mail to our service center should be sent to P.O. Box 758566, Topeka, KS 66675-8566. Your correspondence will be picked up at this address and then delivered to our service center. Your correspondence is not considered received by us until it is received at our service center. Where this prospectus refers to the day when we receive a purchase payment, request, election, notice, transfer or any other transaction request from you, we mean the day on which that item (or the last requirement needed for us to process that item) arrives in complete and proper form at our service center or via the appropriate telephone or fax number if the item is a type we accept by those means. There are two main exceptions: if the item arrives at our service center (1) on a day that is not a business day, or (2) after the close of a business day, then, in each case, we are deemed to have received that item on the next business day.
We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
We provide information about cyber security risks associated with this Contract in the Statement of Additional Information.
DISTRIBUTION OF CONTRACTS
Please note that these Contracts are no longer available for new sales. The information provided in this section is for informational purposes only.
The Contracts described in this prospectus are sold by registered representatives of broker-dealers who are our licensed insurance agents, either individually or through an incorporated insurance agency. Commissions paid to broker-dealers may vary, but we estimate that the total commissions paid on all Contract sales will not exceed 6% of all Purchase Payments (on a present value basis). From time to time, we may offer additional sales incentives of up to 1% of Purchase Payments to broker-dealers who maintain certain sales volume levels.
Allstate Distributors, LLC (ADLLC), located at 3075 Sanders Road, Northbrook, IL 60062-7154 serves as distributor of the Contracts. ADLLC is a wholly owned subsidiary of Allstate Life. ADLLC is a registered broker dealer under the Securities and Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority.
Lincoln Benefit does not pay ADLLC a commission for distribution of the Contracts. The underwriting agreement with ADLLC provides that we will reimburse ADLLC for expenses incurred in distributing the Contracts, including liability arising out of services we provide on the Contracts.
Lincoln Benefit and ADLLC have also entered into wholesaling agreements with certain independent contractors and their broker-dealers. Under these agreements, compensation based on a percentage of premium payments and/or Contract values is paid to the wholesaling broker-dealer for the wholesaling activities of their registered representative.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Lincoln Benefit is engaged in routine lawsuits which, in our managements judgment, are not of material importance to their respective total assets or material with respect to the Separate Account.
LEGAL MATTERS
Matters of Nebraska law pertaining to the Contract, including the validity of the Contract and Lincoln Benefits right to issue the Contract under Nebraska law, have been passed upon by Lamson Dugan & Murray LLP, Omaha, Nebraska.
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REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act of 1933 as amended, with respect to the Contracts covered by this prospectus. This prospectus does not contain all the information set forth in the registration statement and the exhibits filed as part of the registration statement. You should refer to the registration statement and the exhibits for further information concerning the Separate Account, Lincoln Benefit, and the Contracts. The descriptions in this prospectus of the Contracts and other legal instruments are summaries. You should refer to those instruments as filed for the precise terms of those instruments. You may inspect and obtain copies of the registration statement as described on the cover page of this prospectus.
ABOUT LINCOLN BENEFIT LIFE COMPANY
Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the Exchange Act) exempts an insurance company from filing reports under the Exchange Act when the insurance company issues certain types of insurance products that are registered under the Securities Act of 1933 and such products are regulated under state law. The variable annuities described in this prospectus fall within the exemption provided under rule 12h-7. We rely on the exemption provided under rule 12h-7 and do not file reports under the Exchange Act.
43
Table of Contents of Statement of Additional Information
The Contract |
|
Annuity Payments |
|
Initial Monthly Annuity Payment |
|
Subsequent Monthly Payments |
|
Transfers After Annuity Date |
|
Annuity Unit Value |
|
Illustrative Example of Annuity Unit Value Calculation |
|
Illustrative Example of Variable Annuity Payments |
|
Experts |
|
Financial Statements |
44
APPENDIX A ACCUMULATION UNIT VALUES
Appendix A presents the Accumulation Unit Values and number of Accumulation Units outstanding for each Sub-Account since the Sub-Accounts were first offered under the Contracts. This Appendix includes Accumulation Unit Values representing the highest and lowest available combinations of Contract charges that affect Accumulation Unit Values for each Contract. The Statement of Additional Information, which is available upon request without charge, contains the Accumulation Unit Values for all other available combinations of Contract charges that affect Accumulation Unit Values for each Contract. Please contact us at 1-800-457-7617 to obtain a copy of the Statement of Additional Information.
The LBL Consultant Variable Annuity I Contracts and all of the Variable Sub-Accounts shown below were first offered under the Contracts on September 9, 1998, except for the Janus Aspen Series Foreign Stock Service Shares Sub-Account, LSA Balanced, Oppenheimer Main Street Small- & Mid-Cap Fund/VA Service Shares Sub-Account, PIMCO Foreign Bond (U.S. Dollar-Hedged) Administrative Shares Sub-Account, PIMCO Total Return Administrative Shares Sub-Account, Premier VIT OpCap Balanced Sub-Account, Premier VIT NACM Small Cap Portfolio Class 1 Sub-Account, Putnam VT International Value Fund Class IB Sub-Account, Invesco Van Kampen V.I. Growth and Income Fund Series II Sub-Account which were first offered under the Contracts on May 1, 2002; the Invesco Van Kampen V.I. Value Opportunities Fund Series I Sub-Account, Legg Mason ClearBridge Variable Large Cap Value Portfolio Class I Sub-Account, Invesco Van Kampen V.I. American Value Fund Series I Sub-Account which were first offered under the Contracts on April 30, 2004; the Wells Fargo Advantage VT Discovery Sub-Account, Wells Fargo Advantage VT Opportunity Sub-Account which were first offered under the Contracts on April 8, 2005; and the DWS VSII: Global Income Builder VIP Class A Sub-Account which was first offered under the Contracts on April 29, 2005 and Janus Aspen Overseas Portfolio Service Share Sub-Account which was first offered under the Contracts on April 30, 2008. Accumulation unit value: unit of measure used to calculate the value or a Contract Owners interest in a Sub-Account for any Valuation Period. An Accumulation Unit Value does not reflect deduction of certain charges under the Contract that are deducted from your Contract Value, such as the Contract Maintenance Charge.
A-1
LBL CONSULTANT I VARIABLE ANNUITY PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING
FOR EACH VARIABLE SUB-ACCOUNT*
Basic Policy
Mortality & Expense = 1.15
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Alger Capital Appreciation Portfolio
|
||||||||||||||||
2006 | $14.559 | $17.148 | 318,953 | |||||||||||||
2007 | $17.148 | $22.613 | 307,354 | |||||||||||||
2008 | $22.613 | $12.252 | 182,353 | |||||||||||||
2009 | $12.252 | $18.283 | 147,379 | |||||||||||||
2010 | $18.283 | $20.589 | 125,277 | |||||||||||||
2011 | $20.589 | $20.272 | 102,062 | |||||||||||||
2012 | $20.272 | $23.684 | 78,761 | |||||||||||||
2013 | $23.684 | $31.621 | 65,750 | |||||||||||||
2014 | $31.621 | $35.523 | 58,244 | |||||||||||||
2015 | $35.523 | $37.254 | 52,334 | |||||||||||||
Alger Growth & Income Portfolio Class I-2 |
||||||||||||||||
2006 | $12.665 | $13.673 | 412,877 | |||||||||||||
2007 | $13.673 | $14.870 | 289,123 | |||||||||||||
2008 | $14.870 | $8.889 | 189,627 | |||||||||||||
2009 | $8.889 | $11.603 | 144,735 | |||||||||||||
2010 | $11.603 | $12.865 | 102,497 | |||||||||||||
2011 | $12.865 | $13.533 | 80,128 | |||||||||||||
2012 | $13.533 | $15.013 | 64,595 | |||||||||||||
2013 | $15.013 | $19.263 | 55,508 | |||||||||||||
2014 | $19.263 | $21.405 | 51,188 | |||||||||||||
2015 | $21.405 | $21.345 | 44,622 | |||||||||||||
Alger Large Cap Growth Portfolio
|
||||||||||||||||
2006 | $11.756 | $12.208 | 452,187 | |||||||||||||
2007 | $12.208 | $14.460 | 340,976 | |||||||||||||
2008 | $14.460 | $7.689 | 252,531 | |||||||||||||
2009 | $7.689 | $11.206 | 202,899 | |||||||||||||
2010 | $11.206 | $12.549 | 159,401 | |||||||||||||
2011 | $12.549 | $12.350 | 114,291 | |||||||||||||
2012 | $12.350 | $13.399 | 90,699 | |||||||||||||
2013 | $13.399 | $17.875 | 81,073 | |||||||||||||
2014 | $17.875 | $19.592 | 72,833 | |||||||||||||
2015 | $19.592 | $19.681 | 65,250 | |||||||||||||
Alger Mid Cap Growth Portfolio Class I-2 |
||||||||||||||||
2006 | $18.482 | $20.104 | 495,198 | |||||||||||||
2007 | $20.104 | $26.119 | 395,122 | |||||||||||||
2008 | $26.119 | $10.741 | 307,529 | |||||||||||||
2009 | $10.741 | $16.093 | 251,589 | |||||||||||||
2010 | $16.093 | $18.974 | 201,160 | |||||||||||||
2011 | $18.974 | $17.188 | 154,396 | |||||||||||||
2012 | $17.188 | $19.725 | 126,168 | |||||||||||||
2013 | $19.725 | $26.462 | 97,572 | |||||||||||||
2014 | $26.462 | $28.226 | 82,799 | |||||||||||||
2015 | $28.226 | $27.440 | 74,353 |
A-2
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Alger SmallCap Growth Portfolio
|
||||||||||||||||
2006 | $10.913 | $12.935 | 399,147 | |||||||||||||
2007 | $12.935 | $14.976 | 268,659 | |||||||||||||
2008 | $14.976 | $7.898 | 187,715 | |||||||||||||
2009 | $7.898 | $11.349 | 171,410 | |||||||||||||
2010 | $11.349 | $14.043 | 140,374 | |||||||||||||
2011 | $14.043 | $13.427 | 117,145 | |||||||||||||
2012 | $13.427 | $14.918 | 92,887 | |||||||||||||
2013 | $14.918 | $19.780 | 75,544 | |||||||||||||
2014 | $19.780 | $19.619 | 61,624 | |||||||||||||
2015 | $19.619 | $18.733 | 55,890 | |||||||||||||
ClearBridge Variable Large Cap Value Portfolio Class I |
||||||||||||||||
2006 | $11.525 | $13.461 | 49,417 | |||||||||||||
2007 | $13.461 | $13.811 | 35,322 | |||||||||||||
2008 | $13.811 | $8.781 | 26,875 | |||||||||||||
2009 | $8.781 | $10.796 | 20,239 | |||||||||||||
2010 | $10.796 | $11.671 | 17,945 | |||||||||||||
2011 | $11.671 | $12.098 | 17,154 | |||||||||||||
2012 | $12.098 | $13.919 | 16,971 | |||||||||||||
2013 | $13.919 | $18.195 | 17,545 | |||||||||||||
2014 | $18.195 | $20.073 | 15,298 | |||||||||||||
2015 | $20.073 | $19.255 | 9,148 | |||||||||||||
Deutsche VSI: Bond VIP Class A |
||||||||||||||||
2006 | $13.219 | $13.671 | 362,090 | |||||||||||||
2007 | $13.671 | $14.064 | 339,879 | |||||||||||||
2008 | $14.064 | $11.560 | 255,646 | |||||||||||||
2009 | $11.560 | $12.566 | 186,602 | |||||||||||||
2010 | $12.566 | $13.253 | 155,647 | |||||||||||||
2011 | $13.253 | $13.833 | 108,411 | |||||||||||||
2012 | $13.833 | $14.722 | 82,736 | |||||||||||||
2013 | $14.722 | $14.099 | 69,186 | |||||||||||||
2014 | $14.099 | $14.847 | 50,085 | |||||||||||||
2015 | $14.847 | $14.620 | 46,046 | |||||||||||||
Deutsche VSI: Core Equity VIP Class A |
||||||||||||||||
2006 | $10.109 | $11.345 | 102,347 | |||||||||||||
2007 | $11.345 | $11.355 | 73,259 | |||||||||||||
2008 | $11.355 | $6.918 | 49,772 | |||||||||||||
2009 | $6.918 | $9.164 | 38,191 | |||||||||||||
2010 | $9.164 | $10.354 | 21,260 | |||||||||||||
2011 | $10.354 | $10.211 | 20,105 | |||||||||||||
2012 | $10.211 | $11.678 | 17,593 | |||||||||||||
2013 | $11.678 | $15.838 | 17,088 | |||||||||||||
2014 | $15.838 | $17.491 | 15,990 | |||||||||||||
2015 | $17.491 | $18.180 | 14,822 | |||||||||||||
Deutsche VSI: CROCI® International VIP Class A formerly, Deutsche VSI: International VIP Class A |
||||||||||||||||
2006 | $11.232 | $13.967 | 127,598 | |||||||||||||
2007 | $13.967 | $15.805 | 113,896 | |||||||||||||
2008 | $15.805 | $8.083 | 101,279 | |||||||||||||
2009 | $8.083 | $10.658 | 69,353 | |||||||||||||
2010 | $10.658 | $10.697 | 54,718 | |||||||||||||
2011 | $10.697 | $8.803 | 41,799 | |||||||||||||
2012 | $8.803 | $10.488 | 31,677 | |||||||||||||
2013 | $10.488 | $12.453 | 41,029 | |||||||||||||
2014 | $12.453 | $10.851 | 33,147 | |||||||||||||
2015 | $10.851 | $10.129 | 15,779 |
A-3
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Deutsche VSI: Global Small Cap VIP Class A |
||||||||||||||||
2006 | $20.357 | $24.544 | 166,415 | |||||||||||||
2007 | $24.544 | $26.499 | 131,794 | |||||||||||||
2008 | $26.499 | $13.094 | 97,138 | |||||||||||||
2009 | $13.094 | $19.164 | 83,558 | |||||||||||||
2010 | $19.164 | $23.968 | 72,183 | |||||||||||||
2011 | $23.968 | $21.328 | 61,099 | |||||||||||||
2012 | $21.328 | $24.300 | 42,306 | |||||||||||||
2013 | $24.300 | $32.623 | 35,943 | |||||||||||||
2014 | $32.623 | $30.887 | 29,476 | |||||||||||||
2015 | $30.887 | $30.858 | 22,688 | |||||||||||||
Deutsche VSII: Global Income Builder VIP Class A |
||||||||||||||||
2006 | $10.602 | $11.543 | 346,262 | |||||||||||||
2007 | $11.543 | $11.950 | 249,164 | |||||||||||||
2008 | $11.950 | $8.576 | 165,654 | |||||||||||||
2009 | $8.576 | $10.454 | 114,278 | |||||||||||||
2010 | $10.454 | $11.483 | 87,837 | |||||||||||||
2011 | $11.483 | $11.179 | 63,813 | |||||||||||||
2012 | $11.179 | $12.473 | 52,594 | |||||||||||||
2013 | $12.473 | $14.366 | 46,688 | |||||||||||||
2014 | $14.366 | $14.731 | 41,478 | |||||||||||||
2015 | $14.731 | $14.338 | 38,344 | |||||||||||||
Federated Fund for U.S. Government Securities II |
||||||||||||||||
2006 | $13.104 | $13.478 | 722,780 | |||||||||||||
2007 | $13.478 | $14.146 | 603,659 | |||||||||||||
2008 | $14.146 | $14.568 | 494,396 | |||||||||||||
2009 | $14.568 | $15.136 | 374,113 | |||||||||||||
2010 | $15.136 | $15.721 | 305,850 | |||||||||||||
2011 | $15.721 | $16.423 | 238,391 | |||||||||||||
2012 | $16.423 | $16.701 | 220,033 | |||||||||||||
2013 | $16.701 | $16.155 | 179,191 | |||||||||||||
2014 | $16.155 | $16.692 | 132,457 | |||||||||||||
2015 | $16.692 | $16.570 | 116,141 | |||||||||||||
Federated High Income Bond Fund II |
||||||||||||||||
2006 | $11.960 | $13.088 | 539,007 | |||||||||||||
2007 | $13.088 | $13.368 | 432,506 | |||||||||||||
2008 | $13.368 | $9.770 | 344,383 | |||||||||||||
2009 | $9.770 | $14.748 | 260,044 | |||||||||||||
2010 | $14.748 | $16.710 | 201,597 | |||||||||||||
2011 | $16.710 | $17.356 | 164,486 | |||||||||||||
2012 | $17.356 | $19.659 | 148,235 | |||||||||||||
2013 | $19.659 | $20.771 | 133,814 | |||||||||||||
2014 | $20.771 | $21.065 | 112,577 | |||||||||||||
2015 | $21.065 | $20.269 | 100,418 | |||||||||||||
Federated Managed Volatility Fund II |
||||||||||||||||
2006 | $8.738 | $9.980 | 220,546 | |||||||||||||
2007 | $9.980 | $10.253 | 154,739 | |||||||||||||
2008 | $10.253 | $8.062 | 102,548 | |||||||||||||
2009 | $8.062 | $10.213 | 101,513 | |||||||||||||
2010 | $10.213 | $11.305 | 68,578 | |||||||||||||
2011 | $11.305 | $11.698 | 50,687 | |||||||||||||
2012 | $11.698 | $13.118 | 46,621 | |||||||||||||
2013 | $13.118 | $15.772 | 46,726 | |||||||||||||
2014 | $15.772 | $16.185 | 40,121 | |||||||||||||
2015 | $16.185 | $14.776 | 38,435 |
A-4
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Fidelity VIP Asset Manager Portfolio Initial Class |
||||||||||||||||
2006 | $11.973 | $12.690 | 338,607 | |||||||||||||
2007 | $12.690 | $14.474 | 252,896 | |||||||||||||
2008 | $14.474 | $10.189 | 202,629 | |||||||||||||
2009 | $10.189 | $12.992 | 144,646 | |||||||||||||
2010 | $12.992 | $14.661 | 116,581 | |||||||||||||
2011 | $14.661 | $14.108 | 93,211 | |||||||||||||
2012 | $14.108 | $15.672 | 74,411 | |||||||||||||
2013 | $15.672 | $17.908 | 63,012 | |||||||||||||
2014 | $17.908 | $18.717 | 54,882 | |||||||||||||
2015 | $18.717 | $18.511 | 44,855 | |||||||||||||
Fidelity VIP Contrafund® Portfolio Initial Class |
||||||||||||||||
2006 | $16.809 | $18.546 | 1,308,454 | |||||||||||||
2007 | $18.546 | $21.536 | 1,005,803 | |||||||||||||
2008 | $21.536 | $12.226 | 742,971 | |||||||||||||
2009 | $12.226 | $16.386 | 631,023 | |||||||||||||
2010 | $16.386 | $18.969 | 511,344 | |||||||||||||
2011 | $18.969 | $18.261 | 383,384 | |||||||||||||
2012 | $18.261 | $20.994 | 335,707 | |||||||||||||
2013 | $20.994 | $27.220 | 271,301 | |||||||||||||
2014 | $27.220 | $30.092 | 238,198 | |||||||||||||
2015 | $30.092 | $29.918 | 205,942 | |||||||||||||
Fidelity VIP Equity-Income Portfolio Initial Class |
||||||||||||||||
2006 | $13.896 | $16.496 | 941,565 | |||||||||||||
2007 | $16.496 | $16.539 | 684,837 | |||||||||||||
2008 | $16.539 | $9.366 | 412,487 | |||||||||||||
2009 | $9.366 | $12.044 | 308,304 | |||||||||||||
2010 | $12.044 | $13.697 | 252,183 | |||||||||||||
2011 | $13.697 | $13.658 | 198,587 | |||||||||||||
2012 | $13.658 | $15.823 | 163,437 | |||||||||||||
2013 | $15.823 | $20.025 | 133,321 | |||||||||||||
2014 | $20.025 | $21.500 | 117,357 | |||||||||||||
2015 | $21.500 | $20.391 | 95,842 | |||||||||||||
Fidelity VIP Government Money Market Portfolio Initial Class formerly, Fidelity VIP Money Market Portfolio Initial Class |
||||||||||||||||
2006 | $11.601 | $12.017 | 1,166,577 | |||||||||||||
2007 | $12.017 | $12.487 | 1,221,039 | |||||||||||||
2008 | $12.487 | $12.705 | 1,305,720 | |||||||||||||
2009 | $12.705 | $12.637 | 985,343 | |||||||||||||
2010 | $12.637 | $12.511 | 775,634 | |||||||||||||
2011 | $12.511 | $12.369 | 634,224 | |||||||||||||
2012 | $12.369 | $12.232 | 505,511 | |||||||||||||
2013 | $12.232 | $12.083 | 410,477 | |||||||||||||
2014 | $12.083 | $11.934 | 320,879 | |||||||||||||
2015 | $11.934 | $11.789 | 228,320 | |||||||||||||
Fidelity VIP Growth Portfolio Initial Class |
||||||||||||||||
2006 | $10.897 | $11.500 | 769,995 | |||||||||||||
2007 | $11.500 | $14.418 | 618,823 | |||||||||||||
2008 | $14.418 | $7.523 | 492,708 | |||||||||||||
2009 | $7.523 | $9.531 | 405,357 | |||||||||||||
2010 | $9.531 | $11.688 | 320,051 | |||||||||||||
2011 | $11.688 | $11.566 | 270,601 | |||||||||||||
2012 | $11.566 | $13.100 | 225,513 | |||||||||||||
2013 | $13.100 | $17.638 | 186,919 | |||||||||||||
2014 | $17.638 | $19.387 | 165,248 | |||||||||||||
2015 | $19.387 | $20.520 | 139,306 |
A-5
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Fidelity VIP Index 500 Portfolio Initial Class |
||||||||||||||||
2006 | $11.578 | $13.233 | 1,319,112 | |||||||||||||
2007 | $13.233 | $13.778 | 1,041,479 | |||||||||||||
2008 | $13.778 | $8.572 | 756,199 | |||||||||||||
2009 | $8.572 | $10.718 | 592,792 | |||||||||||||
2010 | $10.718 | $12.176 | 493,294 | |||||||||||||
2011 | $12.176 | $12.270 | 410,778 | |||||||||||||
2012 | $12.270 | $14.046 | 343,300 | |||||||||||||
2013 | $14.046 | $18.344 | 307,792 | |||||||||||||
2014 | $18.344 | $20.574 | 249,167 | |||||||||||||
2015 | $20.574 | $20.590 | 202,228 | |||||||||||||
Fidelity VIP Overseas Portfolio Initial Class |
||||||||||||||||
2006 | $13.526 | $15.773 | 366,639 | |||||||||||||
2007 | $15.773 | $18.273 | 327,028 | |||||||||||||
2008 | $18.273 | $10.141 | 276,821 | |||||||||||||
2009 | $10.141 | $12.672 | 211,336 | |||||||||||||
2010 | $12.672 | $14.155 | 161,268 | |||||||||||||
2011 | $14.155 | $11.580 | 132,738 | |||||||||||||
2012 | $11.580 | $13.808 | 109,420 | |||||||||||||
2013 | $13.808 | $17.787 | 90,942 | |||||||||||||
2014 | $17.787 | $16.147 | 81,429 | |||||||||||||
2015 | $16.147 | $16.525 | 70,824 | |||||||||||||
Invesco V.I. American Value Fund Series I |
||||||||||||||||
2006 | $12.570 | $14.984 | 276,970 | |||||||||||||
2007 | $14.984 | $15.958 | 210,481 | |||||||||||||
2008 | $15.958 | $9.252 | 158,166 | |||||||||||||
2009 | $9.252 | $12.720 | 131,570 | |||||||||||||
2010 | $12.720 | $15.356 | 113,395 | |||||||||||||
2011 | $15.356 | $15.306 | 92,596 | |||||||||||||
2012 | $15.306 | $17.731 | 76,421 | |||||||||||||
2013 | $17.731 | $23.511 | 52,878 | |||||||||||||
2014 | $23.511 | $25.483 | 40,485 | |||||||||||||
2015 | $25.483 | $22.869 | 31,596 | |||||||||||||
Invesco V.I. Growth and Income Fund
|
||||||||||||||||
2006 | $12.570 | $14.397 | 396,566 | |||||||||||||
2007 | $14.397 | $14.576 | 306,627 | |||||||||||||
2008 | $14.576 | $9.758 | 199,062 | |||||||||||||
2009 | $9.758 | $11.960 | 183,308 | |||||||||||||
2010 | $11.960 | $13.252 | 150,424 | |||||||||||||
2011 | $13.252 | $12.792 | 100,474 | |||||||||||||
2012 | $12.792 | $14.445 | 78,301 | |||||||||||||
2013 | $14.445 | $19.082 | 62,871 | |||||||||||||
2014 | $19.082 | $20.723 | 41,000 | |||||||||||||
2015 | $20.723 | $19.788 | 34,836 | |||||||||||||
Invesco V.I. Mid Cap Growth Fund Series II |
||||||||||||||||
2006 | $12.242 | $12.686 | 45,228 | |||||||||||||
2007 | $12.686 | $14.732 | 39,490 | |||||||||||||
2008 | $14.732 | $7.735 | 29,220 | |||||||||||||
2009 | $7.735 | $11.945 | 38,907 | |||||||||||||
2010 | $11.945 | $15.014 | 25,399 | |||||||||||||
2011 | $15.014 | $13.440 | 18,967 | |||||||||||||
2012 | $13.440 | $14.816 | 15,527 | |||||||||||||
2013 | $14.816 | $19.988 | 11,807 | |||||||||||||
2014 | $19.988 | $21.258 | 12,458 | |||||||||||||
2015 | $21.258 | $21.213 | 13,061 |
A-6
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Invesco V.I. Value Opportunities Fund Series I |
||||||||||||||||
2006 | $11.301 | $12.634 | 235,944 | |||||||||||||
2007 | $12.634 | $12.669 | 199,610 | |||||||||||||
2008 | $12.669 | $6.034 | 176,998 | |||||||||||||
2009 | $6.034 | $8.820 | 148,589 | |||||||||||||
2010 | $8.820 | $9.351 | 119,425 | |||||||||||||
2011 | $9.351 | $8.953 | 77,525 | |||||||||||||
2012 | $8.953 | $10.407 | 62,452 | |||||||||||||
2013 | $10.407 | $13.747 | 56,742 | |||||||||||||
2014 | $13.747 | $14.475 | 43,123 | |||||||||||||
2015 | $14.475 | $12.808 | 41,630 | |||||||||||||
Janus Aspen Enterprise Portfolio Institutional Shares |
||||||||||||||||
2006 | $13.812 | $15.497 | 434,028 | |||||||||||||
2007 | $15.497 | $18.677 | 344,083 | |||||||||||||
2008 | $18.677 | $10.380 | 288,564 | |||||||||||||
2009 | $10.380 | $14.846 | 221,943 | |||||||||||||
2010 | $14.846 | $18.452 | 186,653 | |||||||||||||
2011 | $18.452 | $17.965 | 157,425 | |||||||||||||
2012 | $17.965 | $20.809 | 139,793 | |||||||||||||
2013 | $20.809 | $27.204 | 119,634 | |||||||||||||
2014 | $27.204 | $30.230 | 106,398 | |||||||||||||
2015 | $30.230 | $31.058 | 94,655 | |||||||||||||
Janus Aspen Global Research Portfolio Institutional Shares |
||||||||||||||||
2006 | $10.788 | $12.594 | 775,658 | |||||||||||||
2007 | $12.594 | $13.634 | 562,020 | |||||||||||||
2008 | $13.634 | $7.451 | 410,898 | |||||||||||||
2009 | $7.451 | $10.132 | 336,082 | |||||||||||||
2010 | $10.132 | $11.591 | 263,086 | |||||||||||||
2011 | $11.591 | $9.874 | 207,953 | |||||||||||||
2012 | $9.874 | $11.709 | 180,063 | |||||||||||||
2013 | $11.709 | $14.851 | 152,881 | |||||||||||||
2014 | $14.851 | $15.758 | 126,783 | |||||||||||||
2015 | $15.758 | $15.207 | 115,550 | |||||||||||||
Janus Aspen Janus Portfolio Institutional Shares |
||||||||||||||||
2006 | $10.614 | $11.676 | 645,480 | |||||||||||||
2007 | $11.676 | $13.270 | 469,901 | |||||||||||||
2008 | $13.270 | $7.900 | 371,128 | |||||||||||||
2009 | $7.900 | $10.637 | 290,538 | |||||||||||||
2010 | $10.637 | $12.031 | 230,669 | |||||||||||||
2011 | $12.031 | $11.252 | 195,033 | |||||||||||||
2012 | $11.252 | $13.177 | 155,917 | |||||||||||||
2013 | $13.177 | $16.961 | 128,313 | |||||||||||||
2014 | $16.961 | $18.927 | 117,019 | |||||||||||||
2015 | $18.927 | $19.691 | 109,573 | |||||||||||||
Janus Aspen Overseas Portfolio Service Shares |
||||||||||||||||
2008 | $10.000 | $7.495 | 62,852 | |||||||||||||
2009 | $7.495 | $13.254 | 86,323 | |||||||||||||
2010 | $13.254 | $16.365 | 71,833 | |||||||||||||
2011 | $16.365 | $10.935 | 59,162 | |||||||||||||
2012 | $10.935 | $12.222 | 39,058 | |||||||||||||
2013 | $12.222 | $13.794 | 31,628 | |||||||||||||
2014 | $13.794 | $11.975 | 26,783 | |||||||||||||
2015 | $11.975 | $10.785 | 23,810 |
A-7
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Janus Aspen Series Balanced Portfolio Institutional Shares |
||||||||||||||||
2006 | $15.805 | $17.282 | 970,410 | |||||||||||||
2007 | $17.282 | $18.865 | 747,492 | |||||||||||||
2008 | $18.865 | $15.679 | 535,796 | |||||||||||||
2009 | $15.679 | $19.493 | 427,444 | |||||||||||||
2010 | $19.493 | $20.865 | 348,978 | |||||||||||||
2011 | $20.865 | $20.945 | 284,742 | |||||||||||||
2012 | $20.945 | $23.501 | 258,732 | |||||||||||||
2013 | $23.501 | $27.887 | 196,994 | |||||||||||||
2014 | $27.887 | $29.883 | 169,459 | |||||||||||||
2015 | $29.883 | $29.695 | 151,948 | |||||||||||||
Janus Aspen Series Flexible Bond Portfolio Institutional Shares |
||||||||||||||||
2006 | $13.619 | $14.017 | 393,774 | |||||||||||||
2007 | $14.017 | $14.816 | 327,277 | |||||||||||||
2008 | $14.816 | $15.514 | 272,856 | |||||||||||||
2009 | $15.514 | $17.346 | 231,270 | |||||||||||||
2010 | $17.346 | $18.496 | 202,832 | |||||||||||||
2011 | $18.496 | $19.499 | 171,010 | |||||||||||||
2012 | $19.499 | $20.862 | 146,755 | |||||||||||||
2013 | $20.862 | $20.575 | 105,740 | |||||||||||||
2014 | $20.575 | $21.322 | 81,060 | |||||||||||||
2015 | $21.322 | $21.104 | 71,503 | |||||||||||||
Janus Aspen Series Foreign Stock Portfolio Service Shares |
||||||||||||||||
2006 | $12.526 | $14.605 | 84,464 | |||||||||||||
2007 | $14.605 | $17.055 | 73,894 | |||||||||||||
2008 | $17.055 | $16.058 | 0 | |||||||||||||
MFS® Growth Series Initial Class |
||||||||||||||||
2006 | $10.821 | $11.531 | 165,550 | |||||||||||||
2007 | $11.531 | $13.798 | 126,996 | |||||||||||||
2008 | $13.798 | $8.528 | 102,015 | |||||||||||||
2009 | $8.528 | $11.594 | 78,308 | |||||||||||||
2010 | $11.594 | $13.207 | 66,211 | |||||||||||||
2011 | $13.207 | $13.001 | 60,057 | |||||||||||||
2012 | $13.001 | $15.071 | 50,368 | |||||||||||||
2013 | $15.071 | $20.369 | 39,799 | |||||||||||||
2014 | $20.369 | $21.915 | 31,469 | |||||||||||||
2015 | $21.915 | $23.279 | 27,675 | |||||||||||||
MFS® Investors Trust Series Initial Class |
||||||||||||||||
2006 | $10.596 | $11.824 | 171,767 | |||||||||||||
2007 | $11.824 | $12.880 | 126,138 | |||||||||||||
2008 | $12.880 | $8.512 | 100,457 | |||||||||||||
2009 | $8.512 | $10.668 | 84,052 | |||||||||||||
2010 | $10.668 | $11.704 | 56,558 | |||||||||||||
2011 | $11.704 | $11.307 | 36,636 | |||||||||||||
2012 | $11.307 | $13.308 | 32,003 | |||||||||||||
2013 | $13.308 | $17.356 | 24,351 | |||||||||||||
2014 | $17.356 | $19.026 | 17,070 | |||||||||||||
2015 | $19.026 | $18.831 | 16,801 | |||||||||||||
MFS® New Discovery Series Initial Class |
||||||||||||||||
2006 | $17.209 | $19.241 | 161,666 | |||||||||||||
2007 | $19.241 | $19.479 | 139,957 | |||||||||||||
2008 | $19.479 | $11.671 | 119,273 | |||||||||||||
2009 | $11.671 | $18.809 | 94,439 | |||||||||||||
2010 | $18.809 | $25.325 | 80,183 | |||||||||||||
2011 | $25.325 | $22.443 | 58,617 | |||||||||||||
2012 | $22.443 | $26.868 | 53,041 | |||||||||||||
2013 | $26.868 | $37.551 | 49,336 | |||||||||||||
2014 | $37.551 | $34.393 | 39,916 | |||||||||||||
2015 | $34.393 | $33.325 | 35,322 |
A-8
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
MFS® Research Series Initial Class |
||||||||||||||||
2006 | $11.085 | $12.095 | 119,287 | |||||||||||||
2007 | $12.095 | $13.521 | 86,910 | |||||||||||||
2008 | $13.521 | $8.534 | 55,904 | |||||||||||||
2009 | $8.534 | $11.002 | 49,781 | |||||||||||||
2010 | $11.002 | $12.593 | 38,970 | |||||||||||||
2011 | $12.593 | $12.381 | 34,033 | |||||||||||||
2012 | $12.381 | $14.339 | 29,467 | |||||||||||||
2013 | $14.339 | $18.732 | 21,713 | |||||||||||||
2014 | $18.732 | $20.387 | 15,365 | |||||||||||||
2015 | $20.387 | $20.296 | 14,416 | |||||||||||||
MFS® Total Return Series Initial Class |
||||||||||||||||
2006 | $14.714 | $16.260 | 802,883 | |||||||||||||
2007 | $16.260 | $16.734 | 661,560 | |||||||||||||
2008 | $16.734 | $12.868 | 464,793 | |||||||||||||
2009 | $12.868 | $15.000 | 347,219 | |||||||||||||
2010 | $15.000 | $16.285 | 279,717 | |||||||||||||
2011 | $16.285 | $16.368 | 217,821 | |||||||||||||
2012 | $16.368 | $17.983 | 185,517 | |||||||||||||
2013 | $17.983 | $21.143 | 153,519 | |||||||||||||
2014 | $21.143 | $22.654 | 114,901 | |||||||||||||
2015 | $22.654 | $22.290 | 81,974 | |||||||||||||
Oppenheimer Main Street Small Cap Fund/VA Service Shares |
||||||||||||||||
2006 | $14.256 | $16.144 | 279,529 | |||||||||||||
2007 | $16.144 | $15.720 | 219,803 | |||||||||||||
2008 | $15.720 | $9.625 | 151,992 | |||||||||||||
2009 | $9.625 | $13.011 | 120,823 | |||||||||||||
2010 | $13.011 | $15.812 | 98,906 | |||||||||||||
2011 | $15.812 | $15.244 | 74,721 | |||||||||||||
2012 | $15.244 | $17.714 | 78,073 | |||||||||||||
2013 | $17.714 | $24.600 | 71,129 | |||||||||||||
2014 | $24.600 | $27.126 | 52,019 | |||||||||||||
2015 | $27.126 | $25.157 | 38,809 | |||||||||||||
PIMCO Foreign Bond Portfolio (U.S. Dollar-Hedged) Administrative Shares |
||||||||||||||||
2006 | $11.550 | $11.657 | 247,334 | |||||||||||||
2007 | $11.657 | $11.929 | 175,543 | |||||||||||||
2008 | $11.929 | $11.501 | 185,837 | |||||||||||||
2009 | $11.501 | $13.133 | 139,898 | |||||||||||||
2010 | $13.133 | $14.072 | 137,307 | |||||||||||||
2011 | $14.072 | $14.838 | 121,733 | |||||||||||||
2012 | $14.838 | $16.243 | 102,765 | |||||||||||||
2013 | $16.243 | $16.122 | 103,151 | |||||||||||||
2014 | $16.122 | $17.698 | 84,730 | |||||||||||||
2015 | $17.698 | $17.529 | 67,505 | |||||||||||||
PIMCO Total Return Portfolio Administrative Shares |
||||||||||||||||
2006 | $11.476 | $11.771 | 944,261 | |||||||||||||
2007 | $11.771 | $12.643 | 737,286 | |||||||||||||
2008 | $12.643 | $13.088 | 699,373 | |||||||||||||
2009 | $13.088 | $14.744 | 709,743 | |||||||||||||
2010 | $14.744 | $15.743 | 639,674 | |||||||||||||
2011 | $15.743 | $16.109 | 508,815 | |||||||||||||
2012 | $16.109 | $17.434 | 464,493 | |||||||||||||
2013 | $17.434 | $16.880 | 289,601 | |||||||||||||
2014 | $16.880 | $17.383 | 226,411 | |||||||||||||
2015 | $17.383 | $17.244 | 169,773 |
A-9
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Premier VIT NACM Small Cap Portfolio Class 1 |
||||||||||||||||
2006 | $11.669 | $14.300 | 198,198 | |||||||||||||
2007 | $14.300 | $14.203 | 142,608 | |||||||||||||
2008 | $14.203 | $8.186 | 108,005 | |||||||||||||
2009 | $8.186 | $9.344 | 85,491 | |||||||||||||
2010 | $9.344 | $10.843 | 0 | |||||||||||||
Premier VIT OpCap Balanced Portfolio |
||||||||||||||||
2006 | $10.971 | $12.005 | 99,054 | |||||||||||||
2007 | $12.005 | $11.330 | 58,167 | |||||||||||||
2008 | $11.330 | $7.700 | 43,630 | |||||||||||||
2009 | $7.700 | $7.432 | 0 | |||||||||||||
Putnam VT International Value Fund Class IB |
||||||||||||||||
2006 | $15.027 | $18.881 | 158,576 | |||||||||||||
2007 | $18.881 | $19.952 | 125,260 | |||||||||||||
2008 | $19.952 | $10.636 | 74,027 | |||||||||||||
2009 | $10.636 | $13.254 | 56,664 | |||||||||||||
2010 | $13.254 | $14.022 | 39,029 | |||||||||||||
2011 | $14.022 | $11.940 | 26,096 | |||||||||||||
2012 | $11.940 | $14.350 | 21,954 | |||||||||||||
2013 | $14.350 | $17.320 | 21,131 | |||||||||||||
2014 | $17.320 | $15.482 | 16,908 | |||||||||||||
2015 | $15.482 | $14.984 | 15,321 | |||||||||||||
Ridgeworth Large Cap Growth Stock Fund |
||||||||||||||||
2006 | $8.929 | $9.773 | 67,263 | |||||||||||||
2007 | $9.773 | $11.125 | 88,003 | |||||||||||||
2008 | $11.125 | $6.517 | 81,011 | |||||||||||||
2009 | $6.517 | $6.634 | 0 | |||||||||||||
Ridgeworth Large Cap Value Equity Fund |
||||||||||||||||
2006 | $10.696 | $12.937 | 142,829 | |||||||||||||
2007 | $12.937 | $13.229 | 83,673 | |||||||||||||
2008 | $13.229 | $8.781 | 59,269 | |||||||||||||
2009 | $8.781 | $8.309 | 0 | |||||||||||||
T. Rowe Price Equity Income Portfolio I |
||||||||||||||||
2006 | $15.306 | $17.984 | 762,467 | |||||||||||||
2007 | $17.984 | $18.339 | 575,733 | |||||||||||||
2008 | $18.339 | $11.571 | 402,473 | |||||||||||||
2009 | $11.571 | $14.353 | 288,947 | |||||||||||||
2010 | $14.353 | $16.304 | 227,597 | |||||||||||||
2011 | $16.304 | $15.987 | 165,957 | |||||||||||||
2012 | $15.987 | $18.495 | 147,085 | |||||||||||||
2013 | $18.495 | $23.694 | 114,417 | |||||||||||||
2014 | $23.694 | $25.126 | 91,032 | |||||||||||||
2015 | $25.126 | $23.113 | 78,126 | |||||||||||||
T. Rowe Price International Stock Portfolio I |
||||||||||||||||
2006 | $11.847 | $13.934 | 244,192 | |||||||||||||
2007 | $13.934 | $15.553 | 191,891 | |||||||||||||
2008 | $15.553 | $7.879 | 149,103 | |||||||||||||
2009 | $7.879 | $11.858 | 116,835 | |||||||||||||
2010 | $11.858 | $13.403 | 95,977 | |||||||||||||
2011 | $13.403 | $11.538 | 69,775 | |||||||||||||
2012 | $11.538 | $13.495 | 78,643 | |||||||||||||
2013 | $13.495 | $15.201 | 65,383 | |||||||||||||
2014 | $15.201 | $14.826 | 30,868 | |||||||||||||
2015 | $14.826 | $14.510 | 29,451 |
A-10
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
T. Rowe Price Mid-Cap
Growth |
||||||||||||||||
2006 | $20.534 | $21.626 | 404,390 | |||||||||||||
2007 | $21.626 | $25.097 | 295,779 | |||||||||||||
2008 | $25.097 | $14.931 | 222,831 | |||||||||||||
2009 | $14.931 | $21.476 | 160,985 | |||||||||||||
2010 | $21.476 | $27.173 | 125,304 | |||||||||||||
2011 | $27.173 | $26.495 | 92,948 | |||||||||||||
2012 | $26.495 | $29.801 | 73,521 | |||||||||||||
2013 | $29.801 | $40.231 | 65,296 | |||||||||||||
2014 | $40.231 | $44.942 | 56,067 | |||||||||||||
2015 | $44.942 | $47.296 | 46,953 | |||||||||||||
T. Rowe Price New America Growth Portfolio I |
||||||||||||||||
2006 | $10.271 | $10.888 | 129,696 | |||||||||||||
2007 | $10.888 | $12.233 | 117,852 | |||||||||||||
2008 | $12.233 | $7.461 | 92,406 | |||||||||||||
2009 | $7.461 | $11.035 | 64,870 | |||||||||||||
2010 | $11.035 | $13.040 | 49,935 | |||||||||||||
2011 | $13.040 | $12.740 | 45,311 | |||||||||||||
2012 | $12.740 | $14.232 | 48,686 | |||||||||||||
2013 | $14.232 | $19.398 | 28,832 | |||||||||||||
2014 | $19.398 | $20.945 | 25,891 | |||||||||||||
2015 | $20.945 | $22.464 | 17,669 | |||||||||||||
Wells Fargo VT Discovery Fund formerly, Wells Fargo Advantage VT Discovery Fund |
||||||||||||||||
2006 | $11.481 | $12.999 | 225,795 | |||||||||||||
2007 | $12.999 | $15.702 | 161,353 | |||||||||||||
2008 | $15.702 | $8.628 | 115,632 | |||||||||||||
2009 | $8.628 | $11.956 | 82,156 | |||||||||||||
2010 | $11.956 | $16.004 | 68,993 | |||||||||||||
2011 | $16.004 | $15.872 | 55,858 | |||||||||||||
2012 | $15.872 | $18.455 | 53,856 | |||||||||||||
2013 | $18.455 | $26.209 | 42,675 | |||||||||||||
2014 | $26.209 | $25.975 | 35,208 | |||||||||||||
2015 | $25.975 | $25.277 | 29,411 | |||||||||||||
Wells Fargo VT Opportunity Fund Class 2 formerly, Wells Fargo Advantage VT Opportunity Fund Class 2 |
||||||||||||||||
2006 | $11.040 | $12.235 | 431,405 | |||||||||||||
2007 | $12.235 | $12.884 | 339,846 | |||||||||||||
2008 | $12.884 | $7.622 | 257,232 | |||||||||||||
2009 | $7.622 | $11.120 | 196,311 | |||||||||||||
2010 | $11.120 | $13.591 | 157,062 | |||||||||||||
2011 | $13.591 | $12.682 | 117,739 | |||||||||||||
2012 | $12.682 | $14.468 | 100,940 | |||||||||||||
2013 | $14.468 | $18.672 | 73,852 | |||||||||||||
2014 | $18.672 | $20.362 | 64,044 | |||||||||||||
2015 | $20.362 | $19.489 | 53,089 |
* | The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.15% and an administrative expense charge of 0.10%. |
A-11
LBL CONSULTANT I VARIABLE ANNUITY PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING
FOR EACH VARIABLE SUB-ACCOUNT*
Basic Policy plus Death Benefit and Income Benefit Rider II
Mortality & Expense = 1.7
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Alger Capital Appreciation Portfolio Class I-2 |
||||||||||||||||
2006 | $6.506 | $7.621 | 732,706 | |||||||||||||
2007 | $7.621 | $9.995 | 759,050 | |||||||||||||
2008 | $9.995 | $5.385 | 521,910 | |||||||||||||
2009 | $5.385 | $7.992 | 457,894 | |||||||||||||
2010 | $7.992 | $8.951 | 466,843 | |||||||||||||
2011 | $8.951 | $8.765 | 505,465 | |||||||||||||
2012 | $8.765 | $10.184 | 243,023 | |||||||||||||
2013 | $10.184 | $13.522 | 262,580 | |||||||||||||
2014 | $13.522 | $15.108 | 223,337 | |||||||||||||
2015 | $15.108 | $15.757 | 167,264 | |||||||||||||
Alger Growth & Income Portfolio Class I-2 |
||||||||||||||||
2006 | $7.252 | $7.786 | 339,270 | |||||||||||||
2007 | $7.786 | $8.421 | 308,605 | |||||||||||||
2008 | $8.421 | $5.006 | 254,925 | |||||||||||||
2009 | $5.006 | $6.499 | 249,853 | |||||||||||||
2010 | $6.499 | $7.166 | 199,795 | |||||||||||||
2011 | $7.166 | $7.496 | 169,075 | |||||||||||||
2012 | $7.496 | $8.271 | 171,101 | |||||||||||||
2013 | $8.271 | $10.554 | 135,343 | |||||||||||||
2014 | $10.554 | $11.663 | 100,392 | |||||||||||||
2015 | $11.663 | $11.567 | 92,201 | |||||||||||||
Alger Large Cap Growth Portfolio Class I-2 |
||||||||||||||||
2006 | $7.041 | $7.271 | 413,156 | |||||||||||||
2007 | $7.271 | $8.565 | 371,317 | |||||||||||||
2008 | $8.565 | $4.529 | 324,912 | |||||||||||||
2009 | $4.529 | $6.565 | 298,212 | |||||||||||||
2010 | $6.565 | $7.311 | 266,498 | |||||||||||||
2011 | $7.311 | $7.156 | 160,824 | |||||||||||||
2012 | $7.156 | $7.721 | 136,867 | |||||||||||||
2013 | $7.721 | $10.244 | 111,785 | |||||||||||||
2014 | $10.244 | $11.167 | 132,723 | |||||||||||||
2015 | $11.167 | $11.156 | 98,878 | |||||||||||||
Alger Mid Cap Growth Portfolio Class I-2 |
||||||||||||||||
2006 | $10.424 | $11.277 | 894,467 | |||||||||||||
2007 | $11.277 | $14.569 | 822,716 | |||||||||||||
2008 | $14.569 | $5.959 | 721,972 | |||||||||||||
2009 | $5.959 | $8.878 | 656,392 | |||||||||||||
2010 | $8.878 | $10.410 | 560,969 | |||||||||||||
2011 | $10.410 | $9.379 | 432,244 | |||||||||||||
2012 | $9.379 | $10.704 | 356,543 | |||||||||||||
2013 | $10.704 | $14.281 | 307,935 | |||||||||||||
2014 | $14.281 | $15.150 | 241,703 | |||||||||||||
2015 | $15.150 | $14.647 | 200,464 |
A-12
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Alger SmallCap Growth Portfolio Class I-2 |
||||||||||||||||
2006 | $6.651 | $7.840 | 400,994 | |||||||||||||
2007 | $7.840 | $9.027 | 386,201 | |||||||||||||
2008 | $9.027 | $4.734 | 324,933 | |||||||||||||
2009 | $4.734 | $6.765 | 302,059 | |||||||||||||
2010 | $6.765 | $8.326 | 273,464 | |||||||||||||
2011 | $8.326 | $7.917 | 210,162 | |||||||||||||
2012 | $7.917 | $8.747 | 163,618 | |||||||||||||
2013 | $8.747 | $11.535 | 126,657 | |||||||||||||
2014 | $11.535 | $11.379 | 107,060 | |||||||||||||
2015 | $11.379 | $10.805 | 94,529 | |||||||||||||
ClearBridge Variable Large Cap Value Portfolio Class I |
||||||||||||||||
2006 | $11.419 | $13.264 | 47,405 | |||||||||||||
2007 | $13.264 | $13.534 | 46,980 | |||||||||||||
2008 | $13.534 | $8.557 | 42,904 | |||||||||||||
2009 | $8.557 | $10.464 | 43,855 | |||||||||||||
2010 | $10.464 | $11.250 | 44,795 | |||||||||||||
2011 | $11.250 | $11.597 | 35,396 | |||||||||||||
2012 | $11.597 | $13.269 | 103,883 | |||||||||||||
2013 | $13.269 | $17.251 | 42,635 | |||||||||||||
2014 | $17.251 | $18.927 | 26,998 | |||||||||||||
2015 | $18.927 | $18.056 | 11,475 | |||||||||||||
Deutsche VSI: Bond VIP Class A |
||||||||||||||||
2006 | $12.544 | $12.902 | 203,670 | |||||||||||||
2007 | $12.902 | $13.200 | 192,164 | |||||||||||||
2008 | $13.200 | $10.790 | 162,984 | |||||||||||||
2009 | $10.790 | $11.665 | 139,150 | |||||||||||||
2010 | $11.665 | $12.234 | 131,495 | |||||||||||||
2011 | $12.234 | $12.700 | 95,813 | |||||||||||||
2012 | $12.700 | $13.442 | 74,674 | |||||||||||||
2013 | $13.442 | $12.803 | 68,152 | |||||||||||||
2014 | $12.803 | $13.408 | 61,385 | |||||||||||||
2015 | $13.408 | $13.130 | 54,641 | |||||||||||||
Deutsche VSI: Core Equity VIP Class A |
||||||||||||||||
2006 | $8.847 | $9.874 | 79,081 | |||||||||||||
2007 | $9.874 | $9.829 | 76,673 | |||||||||||||
2008 | $9.829 | $5.955 | 67,583 | |||||||||||||
2009 | $5.955 | $7.846 | 85,215 | |||||||||||||
2010 | $7.846 | $8.815 | 73,664 | |||||||||||||
2011 | $8.815 | $8.646 | 63,481 | |||||||||||||
2012 | $8.646 | $9.834 | 48,726 | |||||||||||||
2013 | $9.834 | $13.264 | 44,715 | |||||||||||||
2014 | $13.264 | $14.568 | 42,080 | |||||||||||||
2015 | $14.568 | $15.059 | 64,556 | |||||||||||||
Deutsche VSI: CROCI® International VIP Class A formerly, Deutsche VSI: International VIP Class A |
||||||||||||||||
2006 | $7.768 | $9.606 | 229,934 | |||||||||||||
2007 | $9.606 | $10.810 | 202,975 | |||||||||||||
2008 | $10.810 | $5.498 | 253,788 | |||||||||||||
2009 | $5.498 | $7.210 | 164,420 | |||||||||||||
2010 | $7.210 | $7.197 | 126,785 | |||||||||||||
2011 | $7.197 | $5.890 | 106,508 | |||||||||||||
2012 | $5.890 | $6.979 | 98,904 | |||||||||||||
2013 | $6.979 | $8.241 | 70,952 | |||||||||||||
2014 | $8.241 | $7.142 | 48,579 | |||||||||||||
2015 | $7.142 | $6.630 | 33,935 |
A-13
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Deutsche VSI: Global Small Cap VIP Class A |
||||||||||||||||
2006 | $10.942 | $13.120 | 368,488 | |||||||||||||
2007 | $13.120 | $14.087 | 319,396 | |||||||||||||
2008 | $14.087 | $6.922 | 292,135 | |||||||||||||
2009 | $6.922 | $10.076 | 295,598 | |||||||||||||
2010 | $10.076 | $12.533 | 247,927 | |||||||||||||
2011 | $12.533 | $11.091 | 194,798 | |||||||||||||
2012 | $11.091 | $12.567 | 162,040 | |||||||||||||
2013 | $12.567 | $16.779 | 115,189 | |||||||||||||
2014 | $16.779 | $15.799 | 127,708 | |||||||||||||
2015 | $15.799 | $15.697 | 106,456 | |||||||||||||
Deutsche VSII: Global Income Builder VIP Class A |
||||||||||||||||
2006 | $10.562 | $11.437 | 117,438 | |||||||||||||
2007 | $11.437 | $11.776 | 108,626 | |||||||||||||
2008 | $11.776 | $8.404 | 99,008 | |||||||||||||
2009 | $8.404 | $10.189 | 96,552 | |||||||||||||
2010 | $10.189 | $11.130 | 85,675 | |||||||||||||
2011 | $11.130 | $10.777 | 62,067 | |||||||||||||
2012 | $10.777 | $11.958 | 55,722 | |||||||||||||
2013 | $11.958 | $13.697 | 45,570 | |||||||||||||
2014 | $13.697 | $13.968 | 45,285 | |||||||||||||
2015 | $13.968 | $13.521 | 37,109 | |||||||||||||
Federated Fund for U.S. Government Securities II |
||||||||||||||||
2006 | $12.243 | $12.523 | 381,051 | |||||||||||||
2007 | $12.523 | $13.072 | 721,964 | |||||||||||||
2008 | $13.072 | $13.388 | 610,475 | |||||||||||||
2009 | $13.388 | $13.834 | 473,221 | |||||||||||||
2010 | $13.834 | $14.289 | 324,041 | |||||||||||||
2011 | $14.289 | $14.846 | 269,692 | |||||||||||||
2012 | $14.846 | $15.014 | 209,711 | |||||||||||||
2013 | $15.014 | $14.444 | 173,446 | |||||||||||||
2014 | $14.444 | $14.842 | 170,920 | |||||||||||||
2015 | $14.842 | $14.653 | 146,826 | |||||||||||||
Federated High Income Bond Fund II |
||||||||||||||||
2006 | $11.968 | $13.026 | 430,206 | |||||||||||||
2007 | $13.026 | $13.231 | 379,607 | |||||||||||||
2008 | $13.231 | $9.617 | 307,223 | |||||||||||||
2009 | $9.617 | $14.437 | 275,990 | |||||||||||||
2010 | $14.437 | $16.268 | 242,351 | |||||||||||||
2011 | $16.268 | $16.804 | 195,932 | |||||||||||||
2012 | $16.804 | $18.930 | 179,749 | |||||||||||||
2013 | $18.930 | $19.891 | 128,657 | |||||||||||||
2014 | $19.891 | $20.062 | 108,552 | |||||||||||||
2015 | $20.062 | $19.197 | 63,913 | |||||||||||||
Federated Managed Volatility Fund II |
||||||||||||||||
2006 | $7.726 | $8.776 | 100,300 | |||||||||||||
2007 | $8.776 | $8.966 | 65,968 | |||||||||||||
2008 | $8.966 | $7.012 | 98,652 | |||||||||||||
2009 | $7.012 | $8.834 | 87,864 | |||||||||||||
2010 | $8.834 | $9.725 | 54,559 | |||||||||||||
2011 | $9.725 | $10.008 | 30,900 | |||||||||||||
2012 | $10.008 | $11.161 | 104,369 | |||||||||||||
2013 | $11.161 | $13.345 | 27,541 | |||||||||||||
2014 | $13.345 | $13.619 | 15,762 | |||||||||||||
2015 | $13.619 | $12.365 | 7,046 |
A-14
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Fidelity VIP Asset Manager Portfolio Initial Class |
||||||||||||||||
2006 | $9.929 | $10.466 | 129,882 | |||||||||||||
2007 | $10.466 | $11.872 | 125,667 | |||||||||||||
2008 | $11.872 | $8.311 | 130,724 | |||||||||||||
2009 | $8.311 | $10.540 | 122,598 | |||||||||||||
2010 | $10.540 | $11.828 | 129,616 | |||||||||||||
2011 | $11.828 | $11.320 | 72,461 | |||||||||||||
2012 | $11.320 | $12.506 | 62,231 | |||||||||||||
2013 | $12.506 | $14.212 | 34,548 | |||||||||||||
2014 | $14.212 | $14.772 | 28,682 | |||||||||||||
2015 | $14.772 | $14.529 | 28,433 | |||||||||||||
Fidelity VIP Contrafund® Portfolio Initial Class |
||||||||||||||||
2006 | $11.826 | $12.977 | 1,273,768 | |||||||||||||
2007 | $12.977 | $14.986 | 1,188,207 | |||||||||||||
2008 | $14.986 | $8.461 | 1,080,956 | |||||||||||||
2009 | $8.461 | $11.277 | 1,046,007 | |||||||||||||
2010 | $11.277 | $12.983 | 998,155 | |||||||||||||
2011 | $12.983 | $12.430 | 709,229 | |||||||||||||
2012 | $12.430 | $14.212 | 690,676 | |||||||||||||
2013 | $14.212 | $18.326 | 549,301 | |||||||||||||
2014 | $18.326 | $20.149 | 482,522 | |||||||||||||
2015 | $20.149 | $19.922 | 383,861 | |||||||||||||
Fidelity VIP Equity-Income Portfolio Initial Class |
||||||||||||||||
2006 | $12.255 | $14.468 | 396,481 | |||||||||||||
2007 | $14.468 | $14.426 | 349,218 | |||||||||||||
2008 | $14.426 | $8.125 | 273,985 | |||||||||||||
2009 | $8.125 | $10.390 | 270,828 | |||||||||||||
2010 | $10.390 | $11.751 | 237,804 | |||||||||||||
2011 | $11.751 | $11.654 | 185,670 | |||||||||||||
2012 | $11.654 | $13.427 | 142,532 | |||||||||||||
2013 | $13.427 | $16.899 | 116,569 | |||||||||||||
2014 | $16.899 | $18.045 | 96,979 | |||||||||||||
2015 | $18.045 | $17.020 | 83,523 | |||||||||||||
Fidelity VIP Government Money Market Portfolio Initial Class formerly, Fidelity VIP Money Market Portfolio Initial Class |
||||||||||||||||
2006 | $10.435 | $10.750 | 725,670 | |||||||||||||
2007 | $10.750 | $11.108 | 714,035 | |||||||||||||
2008 | $11.108 | $11.240 | 1,173,850 | |||||||||||||
2009 | $11.240 | $11.119 | 894,758 | |||||||||||||
2010 | $11.119 | $10.947 | 697,719 | |||||||||||||
2011 | $10.947 | $10.764 | 551,078 | |||||||||||||
2012 | $10.764 | $10.586 | 452,033 | |||||||||||||
2013 | $10.586 | $10.400 | 331,128 | |||||||||||||
2014 | $10.400 | $10.216 | 325,818 | |||||||||||||
2015 | $10.216 | $10.036 | 257,184 | |||||||||||||
Fidelity VIP Growth Portfolio Initial Class |
||||||||||||||||
2006 | $6.415 | $6.732 | 682,021 | |||||||||||||
2007 | $6.732 | $8.394 | 682,803 | |||||||||||||
2008 | $8.394 | $4.356 | 663,776 | |||||||||||||
2009 | $4.356 | $5.488 | 676,234 | |||||||||||||
2010 | $5.488 | $6.693 | 597,279 | |||||||||||||
2011 | $6.693 | $6.587 | 435,815 | |||||||||||||
2012 | $6.587 | $7.420 | 377,416 | |||||||||||||
2013 | $7.420 | $9.936 | 310,756 | |||||||||||||
2014 | $9.936 | $10.861 | 284,700 | |||||||||||||
2015 | $10.861 | $11.432 | 233,240 |
A-15
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Fidelity VIP Index 500 Portfolio Initial Class |
||||||||||||||||
2006 | $8.407 | $9.557 | 1,346,569 | |||||||||||||
2007 | $9.557 | $9.896 | 1,295,792 | |||||||||||||
2008 | $9.896 | $6.123 | 1,150,557 | |||||||||||||
2009 | $6.123 | $7.614 | 1,043,678 | |||||||||||||
2010 | $7.614 | $8.602 | 911,514 | |||||||||||||
2011 | $8.602 | $8.621 | 744,841 | |||||||||||||
2012 | $8.621 | $9.814 | 646,616 | |||||||||||||
2013 | $9.814 | $12.747 | 569,038 | |||||||||||||
2014 | $12.747 | $14.219 | 505,643 | |||||||||||||
2015 | $14.219 | $14.152 | 451,144 | |||||||||||||
Fidelity VIP Overseas Portfolio Initial Class |
||||||||||||||||
2006 | $9.406 | $10.909 | 513,031 | |||||||||||||
2007 | $10.909 | $12.569 | 470,601 | |||||||||||||
2008 | $12.569 | $6.937 | 476,598 | |||||||||||||
2009 | $6.937 | $8.620 | 469,624 | |||||||||||||
2010 | $8.620 | $9.577 | 413,895 | |||||||||||||
2011 | $9.577 | $7.792 | 323,321 | |||||||||||||
2012 | $7.792 | $9.240 | 281,150 | |||||||||||||
2013 | $9.240 | $11.837 | 229,142 | |||||||||||||
2014 | $11.837 | $10.687 | 249,029 | |||||||||||||
2015 | $10.687 | $10.877 | 209,121 | |||||||||||||
Invesco V.I. American Value Fund Series I |
||||||||||||||||
2006 | $12.455 | $14.765 | 311,438 | |||||||||||||
2007 | $14.765 | $15.638 | 269,763 | |||||||||||||
2008 | $15.638 | $9.017 | 244,967 | |||||||||||||
2009 | $9.017 | $12.329 | 201,588 | |||||||||||||
2010 | $12.329 | $14.802 | 159,248 | |||||||||||||
2011 | $14.802 | $14.672 | 123,833 | |||||||||||||
2012 | $14.672 | $16.904 | 96,739 | |||||||||||||
2013 | $16.904 | $22.292 | 87,271 | |||||||||||||
2014 | $22.292 | $24.029 | 76,406 | |||||||||||||
2015 | $24.029 | $21.446 | 73,197 | |||||||||||||
Invesco V.I. Growth and Income Fund Series II |
||||||||||||||||
2006 | $12.319 | $14.033 | 291,195 | |||||||||||||
2007 | $14.033 | $14.129 | 213,247 | |||||||||||||
2008 | $14.129 | $9.407 | 187,559 | |||||||||||||
2009 | $9.407 | $11.466 | 182,380 | |||||||||||||
2010 | $11.466 | $12.635 | 151,891 | |||||||||||||
2011 | $12.635 | $12.129 | 114,411 | |||||||||||||
2012 | $12.129 | $13.621 | 84,341 | |||||||||||||
2013 | $13.621 | $17.896 | 65,957 | |||||||||||||
2014 | $17.896 | $19.329 | 56,013 | |||||||||||||
2015 | $19.329 | $18.355 | 43,036 | |||||||||||||
Invesco V.I. Mid Cap Growth Fund Series II |
||||||||||||||||
2006 | $12.130 | $12.500 | 60,010 | |||||||||||||
2007 | $12.500 | $14.437 | 59,849 | |||||||||||||
2008 | $14.437 | $7.538 | 46,687 | |||||||||||||
2009 | $7.538 | $11.577 | 51,595 | |||||||||||||
2010 | $11.577 | $14.472 | 53,523 | |||||||||||||
2011 | $14.472 | $12.884 | 45,673 | |||||||||||||
2012 | $12.884 | $14.125 | 28,551 | |||||||||||||
2013 | $14.125 | $18.951 | 27,068 | |||||||||||||
2014 | $18.951 | $20.045 | 22,224 | |||||||||||||
2015 | $20.045 | $19.892 | 13,397 |
A-16
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Invesco V.I. Value Opportunities Fund Series I |
||||||||||||||||
2006 | $11.197 | $12.450 | 294,765 | |||||||||||||
2007 | $12.450 | $12.415 | 241,174 | |||||||||||||
2008 | $12.415 | $5.881 | 236,766 | |||||||||||||
2009 | $5.881 | $8.549 | 231,753 | |||||||||||||
2010 | $8.549 | $9.014 | 197,346 | |||||||||||||
2011 | $9.014 | $8.583 | 140,959 | |||||||||||||
2012 | $8.583 | $9.922 | 122,553 | |||||||||||||
2013 | $9.922 | $13.034 | 99,437 | |||||||||||||
2014 | $13.034 | $13.649 | 71,338 | |||||||||||||
2015 | $13.649 | $12.011 | 62,300 | |||||||||||||
Janus Aspen Enterprise Portfolio Institutional Shares |
||||||||||||||||
2006 | $4.860 | $5.423 | 510,006 | |||||||||||||
2007 | $5.423 | $6.499 | 505,513 | |||||||||||||
2008 | $6.499 | $3.592 | 433,329 | |||||||||||||
2009 | $3.592 | $5.110 | 419,789 | |||||||||||||
2010 | $5.110 | $6.316 | 360,339 | |||||||||||||
2011 | $6.316 | $6.116 | 287,583 | |||||||||||||
2012 | $6.116 | $7.045 | 245,055 | |||||||||||||
2013 | $7.045 | $9.159 | 211,368 | |||||||||||||
2014 | $9.159 | $10.123 | 174,695 | |||||||||||||
2015 | $10.123 | $10.343 | 170,349 | |||||||||||||
Janus Aspen Global Research Portfolio Institutional Shares |
||||||||||||||||
2006 | $5.947 | $6.905 | 335,256 | |||||||||||||
2007 | $6.905 | $7.434 | 327,739 | |||||||||||||
2008 | $7.434 | $4.040 | 279,358 | |||||||||||||
2009 | $4.040 | $5.464 | 445,607 | |||||||||||||
2010 | $5.464 | $6.216 | 264,635 | |||||||||||||
2011 | $6.216 | $5.266 | 213,672 | |||||||||||||
2012 | $5.266 | $6.211 | 195,301 | |||||||||||||
2013 | $6.211 | $7.834 | 175,354 | |||||||||||||
2014 | $7.834 | $8.267 | 159,472 | |||||||||||||
2015 | $8.267 | $7.934 | 134,398 | |||||||||||||
Janus Aspen Janus Portfolio Institutional Shares |
||||||||||||||||
2006 | $6.042 | $6.610 | 266,266 | |||||||||||||
2007 | $6.610 | $7.471 | 225,942 | |||||||||||||
2008 | $7.471 | $4.423 | 195,932 | |||||||||||||
2009 | $4.423 | $5.923 | 193,524 | |||||||||||||
2010 | $5.923 | $6.662 | 183,375 | |||||||||||||
2011 | $6.662 | $6.197 | 129,587 | |||||||||||||
2012 | $6.197 | $7.217 | 107,789 | |||||||||||||
2013 | $7.217 | $9.239 | 89,643 | |||||||||||||
2014 | $9.239 | $10.253 | 84,701 | |||||||||||||
2015 | $10.253 | $10.608 | 97,418 | |||||||||||||
Janus Aspen Overseas Portfolio Service Shares |
||||||||||||||||
2008 | $10.000 | $7.225 | 81,678 | |||||||||||||
2009 | $7.225 | $12.707 | 127,139 | |||||||||||||
2010 | $12.707 | $15.603 | 120,730 | |||||||||||||
2011 | $15.603 | $10.369 | 236,411 | |||||||||||||
2012 | $10.369 | $11.526 | 64,984 | |||||||||||||
2013 | $11.526 | $12.937 | 54,455 | |||||||||||||
2014 | $12.937 | $11.168 | 47,779 | |||||||||||||
2015 | $11.168 | $10.003 | 38,109 |
A-17
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Janus Aspen Series Balanced Portfolio Institutional Shares |
||||||||||||||||
2006 | $10.473 | $11.389 | 664,165 | |||||||||||||
2007 | $11.389 | $12.364 | 559,884 | |||||||||||||
2008 | $12.364 | $10.220 | 522,134 | |||||||||||||
2009 | $10.220 | $12.636 | 495,193 | |||||||||||||
2010 | $12.636 | $13.451 | 424,233 | |||||||||||||
2011 | $13.451 | $13.428 | 402,662 | |||||||||||||
2012 | $13.428 | $14.984 | 302,661 | |||||||||||||
2013 | $14.984 | $17.683 | 251,992 | |||||||||||||
2014 | $17.683 | $18.846 | 202,417 | |||||||||||||
2015 | $18.846 | $18.624 | 174,813 | |||||||||||||
Janus Aspen Series Flexible Bond Portfolio Institutional Shares |
||||||||||||||||
2006 | $12.767 | $13.069 | 350,195 | |||||||||||||
2007 | $13.069 | $13.738 | 380,041 | |||||||||||||
2008 | $13.738 | $14.306 | 355,482 | |||||||||||||
2009 | $14.306 | $15.908 | 323,948 | |||||||||||||
2010 | $15.908 | $16.870 | 295,938 | |||||||||||||
2011 | $16.870 | $17.687 | 252,052 | |||||||||||||
2012 | $17.687 | $18.819 | 193,648 | |||||||||||||
2013 | $18.819 | $18.458 | 167,369 | |||||||||||||
2014 | $18.458 | $19.024 | 147,083 | |||||||||||||
2015 | $19.024 | $18.726 | 126,920 | |||||||||||||
Janus Aspen Series Foreign Stock Portfolio Service Shares |
||||||||||||||||
2006 | $12.276 | $14.235 | 72,800 | |||||||||||||
2007 | $14.235 | $16.532 | 78,321 | |||||||||||||
2008 | $16.532 | $15.537 | 0 | |||||||||||||
MFS® Growth Series Initial Class |
||||||||||||||||
2006 | $5.273 | $5.588 | 247,942 | |||||||||||||
2007 | $5.588 | $6.650 | 220,878 | |||||||||||||
2008 | $6.650 | $4.087 | 314,346 | |||||||||||||
2009 | $4.087 | $5.527 | 175,017 | |||||||||||||
2010 | $5.527 | $6.261 | 155,208 | |||||||||||||
2011 | $6.261 | $6.130 | 113,799 | |||||||||||||
2012 | $6.130 | $7.067 | 98,625 | |||||||||||||
2013 | $7.067 | $9.499 | 67,784 | |||||||||||||
2014 | $9.499 | $10.164 | 57,852 | |||||||||||||
2015 | $10.164 | $10.737 | 71,819 | |||||||||||||
MFS® Investors Trust Series Initial Class |
||||||||||||||||
2006 | $8.724 | $9.682 | 134,594 | |||||||||||||
2007 | $9.682 | $10.488 | 127,128 | |||||||||||||
2008 | $10.488 | $6.893 | 180,349 | |||||||||||||
2009 | $6.893 | $8.591 | 197,186 | |||||||||||||
2010 | $8.591 | $9.375 | 86,881 | |||||||||||||
2011 | $9.375 | $9.007 | 59,938 | |||||||||||||
2012 | $9.007 | $10.543 | 53,533 | |||||||||||||
2013 | $10.543 | $13.674 | 32,594 | |||||||||||||
2014 | $13.674 | $14.908 | 34,154 | |||||||||||||
2015 | $14.908 | $14.674 | 20,675 | |||||||||||||
MFS® New Discovery Series Initial Class |
||||||||||||||||
2006 | $7.975 | $8.868 | 514,110 | |||||||||||||
2007 | $8.868 | $8.928 | 480,804 | |||||||||||||
2008 | $8.928 | $5.320 | 407,025 | |||||||||||||
2009 | $5.320 | $8.527 | 412,667 | |||||||||||||
2010 | $8.527 | $11.418 | 350,753 | |||||||||||||
2011 | $11.418 | $10.063 | 280,613 | |||||||||||||
2012 | $10.063 | $11.981 | 214,325 | |||||||||||||
2013 | $11.981 | $16.653 | 215,511 | |||||||||||||
2014 | $16.653 | $15.169 | 156,877 | |||||||||||||
2015 | $15.169 | $14.617 | 133,921 |
A-18
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
MFS® Research Series Initial Class |
||||||||||||||||
2006 | $7.502 | $8.141 | 49,634 | |||||||||||||
2007 | $8.141 | $9.050 | 50,049 | |||||||||||||
2008 | $9.050 | $5.681 | 46,891 | |||||||||||||
2009 | $5.681 | $7.284 | 43,067 | |||||||||||||
2010 | $7.284 | $8.291 | 38,811 | |||||||||||||
2011 | $8.291 | $8.107 | 26,137 | |||||||||||||
2012 | $8.107 | $9.337 | 155,546 | |||||||||||||
2013 | $9.337 | $12.132 | 42,010 | |||||||||||||
2014 | $12.132 | $13.131 | 19,004 | |||||||||||||
2015 | $13.131 | $13.000 | 32,400 | |||||||||||||
MFS® Total Return Series Initial Class |
||||||||||||||||
2006 | $12.959 | $14.243 | 569,919 | |||||||||||||
2007 | $14.243 | $14.577 | 589,170 | |||||||||||||
2008 | $14.577 | $11.148 | 454,138 | |||||||||||||
2009 | $11.148 | $12.923 | 417,681 | |||||||||||||
2010 | $12.923 | $13.953 | 393,032 | |||||||||||||
2011 | $13.953 | $13.947 | 283,231 | |||||||||||||
2012 | $13.947 | $15.240 | 249,819 | |||||||||||||
2013 | $15.240 | $17.819 | 220,864 | |||||||||||||
2014 | $17.819 | $18.989 | 195,280 | |||||||||||||
2015 | $18.989 | $18.581 | 169,003 | |||||||||||||
Oppenheimer Main Street Small Cap Fund/VA Service Shares |
||||||||||||||||
2006 | $13.972 | $15.735 | 325,308 | |||||||||||||
2007 | $15.735 | $15.238 | 316,074 | |||||||||||||
2008 | $15.238 | $9.278 | 291,787 | |||||||||||||
2009 | $9.278 | $12.473 | 266,203 | |||||||||||||
2010 | $12.473 | $15.075 | 255,321 | |||||||||||||
2011 | $15.075 | $14.454 | 208,709 | |||||||||||||
2012 | $14.454 | $16.704 | 184,340 | |||||||||||||
2013 | $16.704 | $23.071 | 188,258 | |||||||||||||
2014 | $23.071 | $25.301 | 140,674 | |||||||||||||
2015 | $25.301 | $23.335 | 106,694 | |||||||||||||
PIMCO Foreign Bond Portfolio (U.S. Dollar-Hedged) Administrative Shares |
||||||||||||||||
2006 | $11.319 | $11.362 | 99,214 | |||||||||||||
2007 | $11.362 | $11.563 | 106,231 | |||||||||||||
2008 | $11.563 | $11.086 | 122,885 | |||||||||||||
2009 | $11.086 | $12.591 | 135,635 | |||||||||||||
2010 | $12.591 | $13.417 | 119,213 | |||||||||||||
2011 | $13.417 | $14.070 | 85,468 | |||||||||||||
2012 | $14.070 | $15.317 | 51,144 | |||||||||||||
2013 | $15.317 | $15.120 | 37,907 | |||||||||||||
2014 | $15.120 | $16.507 | 32,734 | |||||||||||||
2015 | $16.507 | $16.260 | 22,035 | |||||||||||||
PIMCO Total Return Portfolio Administrative Shares |
||||||||||||||||
2006 | $11.247 | $11.473 | 512,461 | |||||||||||||
2007 | $11.473 | $12.255 | 483,376 | |||||||||||||
2008 | $12.255 | $12.616 | 572,089 | |||||||||||||
2009 | $12.616 | $14.135 | 536,002 | |||||||||||||
2010 | $14.135 | $15.010 | 502,876 | |||||||||||||
2011 | $15.010 | $15.275 | 328,409 | |||||||||||||
2012 | $15.275 | $16.441 | 247,570 | |||||||||||||
2013 | $16.441 | $15.831 | 198,615 | |||||||||||||
2014 | $15.831 | $16.214 | 162,790 | |||||||||||||
2015 | $16.214 | $15.996 | 132,480 |
A-19
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
Premier VIT NACM Small Cap Portfolio Class 1 |
||||||||||||||||
2006 | $11.436 | $13.938 | 205,170 | |||||||||||||
2007 | $13.938 | $13.767 | 172,785 | |||||||||||||
2008 | $13.767 | $7.892 | 167,008 | |||||||||||||
2009 | $7.892 | $8.958 | 160,896 | |||||||||||||
2010 | $8.958 | $10.376 | 0 | |||||||||||||
Premier VIT OpCap Balanced Portfolio |
||||||||||||||||
2006 | $10.870 | $11.829 | 97,834 | |||||||||||||
2007 | $11.829 | $11.102 | 94,157 | |||||||||||||
2008 | $11.102 | $7.504 | 80,619 | |||||||||||||
2009 | $7.504 | $7.230 | 0 | |||||||||||||
Putnam VT International Value Fund Class IB |
||||||||||||||||
2006 | $14.727 | $18.403 | 109,461 | |||||||||||||
2007 | $18.403 | $19.339 | 175,336 | |||||||||||||
2008 | $19.339 | $10.253 | 80,251 | |||||||||||||
2009 | $10.253 | $12.707 | 72,272 | |||||||||||||
2010 | $12.707 | $13.369 | 62,701 | |||||||||||||
2011 | $13.369 | $11.322 | 51,749 | |||||||||||||
2012 | $11.322 | $13.532 | 44,267 | |||||||||||||
2013 | $13.532 | $16.243 | 35,363 | |||||||||||||
2014 | $16.243 | $14.440 | 28,523 | |||||||||||||
2015 | $14.440 | $13.898 | 23,083 | |||||||||||||
Ridgeworth Large Cap Growth Stock Fund |
||||||||||||||||
2006 | $8.157 | $8.879 | 51,761 | |||||||||||||
2007 | $8.879 | $10.052 | 47,830 | |||||||||||||
2008 | $10.052 | $5.856 | 43,139 | |||||||||||||
2009 | $5.856 | $5.951 | 0 | |||||||||||||
Ridgeworth Large Cap Value Equity Fund |
||||||||||||||||
2006 | $12.925 | $15.546 | 93,618 | |||||||||||||
2007 | $15.546 | $15.810 | 49,278 | |||||||||||||
2008 | $15.810 | $10.437 | 30,278 | |||||||||||||
2009 | $10.437 | $9.859 | 0 | |||||||||||||
T. Rowe Price Equity Income Portfolio I |
||||||||||||||||
2006 | $13.909 | $16.254 | 661,730 | |||||||||||||
2007 | $16.254 | $16.483 | 601,481 | |||||||||||||
2008 | $16.483 | $10.343 | 537,201 | |||||||||||||
2009 | $10.343 | $12.759 | 523,378 | |||||||||||||
2010 | $12.759 | $14.414 | 428,716 | |||||||||||||
2011 | $14.414 | $14.056 | 307,413 | |||||||||||||
2012 | $14.056 | $16.172 | 260,866 | |||||||||||||
2013 | $16.172 | $20.605 | 241,316 | |||||||||||||
2014 | $20.605 | $21.730 | 218,509 | |||||||||||||
2015 | $21.730 | $19.880 | 175,297 | |||||||||||||
T. Rowe Price International Stock Portfolio I |
||||||||||||||||
2006 | $8.554 | $10.006 | 257,698 | |||||||||||||
2007 | $10.006 | $11.107 | 256,965 | |||||||||||||
2008 | $11.107 | $5.596 | 188,929 | |||||||||||||
2009 | $5.596 | $8.375 | 202,112 | |||||||||||||
2010 | $8.375 | $9.415 | 262,241 | |||||||||||||
2011 | $9.415 | $8.060 | 158,565 | |||||||||||||
2012 | $8.060 | $9.376 | 121,404 | |||||||||||||
2013 | $9.376 | $10.503 | 128,895 | |||||||||||||
2014 | $10.503 | $10.187 | 103,817 | |||||||||||||
2015 | $10.187 | $9.915 | 79,820 |
A-20
Sub-Accounts | For the Year Ending December 31 |
Accumulation Unit Value at Beginning of Period |
Accumulation Unit Value at End of Period |
Number of Units Outstanding at End of Period |
||||||||||||
T. Rowe Price Mid-Cap
Growth |
||||||||||||||||
2006 | $13.476 | $14.114 | 575,076 | |||||||||||||
2007 | $14.114 | $16.289 | 538,625 | |||||||||||||
2008 | $16.289 | $9.638 | 472,274 | |||||||||||||
2009 | $9.638 | $13.787 | 438,741 | |||||||||||||
2010 | $13.787 | $17.348 | 371,524 | |||||||||||||
2011 | $17.348 | $16.823 | 257,098 | |||||||||||||
2012 | $16.823 | $18.818 | 214,315 | |||||||||||||
2013 | $18.818 | $25.264 | 179,849 | |||||||||||||
2014 | $25.264 | $28.068 | 155,681 | |||||||||||||
2015 | $28.068 | $29.376 | 129,291 | |||||||||||||
T. Rowe Price New America Growth Portfolio I |
||||||||||||||||
2006 | $8.140 | $8.581 | 132,467 | |||||||||||||
2007 | $8.581 | $9.589 | 126,622 | |||||||||||||
2008 | $9.589 | $5.816 | 125,436 | |||||||||||||
2009 | $5.816 | $8.555 | 120,111 | |||||||||||||
2010 | $8.555 | $10.054 | 108,637 | |||||||||||||
2011 | $10.054 | $9.769 | 81,021 | |||||||||||||
2012 | $9.769 | $10.853 | 68,813 | |||||||||||||
2013 | $10.853 | $14.711 | 43,587 | |||||||||||||
2014 | $14.711 | $15.797 | 41,020 | |||||||||||||
2015 | $15.797 | $16.850 | 35,137 | |||||||||||||
Wells Fargo VT Discovery Fund formerly, Wells Fargo Advantage VT Discovery Fund |
||||||||||||||||
2006 | $11.435 | $12.876 | 174,427 | |||||||||||||
2007 | $12.876 | $15.468 | 167,923 | |||||||||||||
2008 | $15.468 | $8.453 | 150,363 | |||||||||||||
2009 | $8.453 | $11.648 | 130,113 | |||||||||||||
2010 | $11.648 | $15.507 | 125,559 | |||||||||||||
2011 | $15.507 | $15.296 | 90,356 | |||||||||||||
2012 | $15.296 | $17.686 | 106,448 | |||||||||||||
2013 | $17.686 | $24.980 | 120,720 | |||||||||||||
2014 | $24.980 | $24.621 | 48,514 | |||||||||||||
2015 | $24.621 | $23.828 | 46,932 | |||||||||||||
Wells Fargo VT Opportunity Fund Class 2 formerly, Wells Fargo Advantage VT Opportunity Fund Class 2 |
||||||||||||||||
2006 | $10.996 | $12.120 | 420,788 | |||||||||||||
2007 | $12.120 | $12.692 | 391,679 | |||||||||||||
2008 | $12.692 | $7.467 | 344,261 | |||||||||||||
2009 | $7.467 | $10.835 | 303,876 | |||||||||||||
2010 | $10.835 | $13.169 | 278,789 | |||||||||||||
2011 | $13.169 | $12.221 | 163,451 | |||||||||||||
2012 | $12.221 | $13.865 | 116,811 | |||||||||||||
2013 | $13.865 | $17.796 | 101,343 | |||||||||||||
2014 | $17.796 | $19.300 | 80,714 | |||||||||||||
2015 | $19.300 | $18.371 | 62,042 |
* | The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.70% and an administrative expense charge of 0.10%. |
A-21
APPENDIX B
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: |
$40,000.00 |
Guarantee Period: |
5 Years |
Guaranteed Interest Rate: |
5% Annual Effective Rate |
5-year Treasury Rate at Time of Purchase Payment: |
6% |
The following examples illustrate how the Market Value Adjustment and the Withdrawal Charge may affect the values of a Contract upon a withdrawal. The 5% assumed Guaranteed Interest Rate is the rate required to be used in the Summary of Expenses. In these examples, the withdrawal occurs one year after the Issue Date. The Market Value Adjustment operates in a similar manner for transfers, except that there is no free amount for transfers. No Withdrawal Charge applies to transfers.
Assuming that the entire $40,000.00 Purchase Payment is allocated to the Guaranteed Maturity Fixed Account for the Guarantee Period specified above, at the end of the five-year Guarantee Period the Contract Value would be $51,051.26. After one year, when the withdrawals occur in these examples, the Contract Value would be $42,000.00. We have assumed that no prior partial withdrawals or transfers have occurred.
The Market Value Adjustment and the Withdrawal Charge only apply to the portion of a withdrawal that is greater than the Free Withdrawal Amount. Accordingly, the first step is to calculate the Free Withdrawal Amount.
The Free Withdrawal Amount is equal to:
(a) the greater of:
earnings not previously withdrawn; or
15% of your total Purchase Payments in the most recent seven years; plus
(b) an amount equal to your total Purchase Payments made more than seven years ago, to the extent not previously withdrawn.
Here, (a) equals $6,000.00, because 15% of the total Purchase Payments in the most recent seven years ($6,000.00 = 15% × $40,000.00) is greater than the earnings not previously withdrawn ($2,000.00). (b) equals $0, because all of the Purchase Payments were made less than seven years age. Accordingly, the Free Withdrawal Amount is $6,000.00.
The formula that we use to determine the amount of the Market Value Adjustment is:
.9 × (I - J) × N
where: I = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week preceding our receipt of your withdrawal request, death benefit request, transfer request, or annuity option request; and
N = the number of whole and partial years from the date we receive your request until the end of the relevant Guarantee Period.
We will base the Market Value Adjustment on the current Treasury Rate for a maturity corresponding in length to the relevant Guarantee Period. These examples also show the Withdrawal Charge (if any), which would be calculated separately from the Market Value Adjustment.
Example of a Downward Market Value Adjustment
A downward Market Value Adjustment results from a full or partial withdrawal that occurs when interest rates have increased. Assume interest rates have increased one year after the Purchase Payment, such that the five-year Treasury Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would be:
.9 × (.06 - .065) × 4 = -.0180
The Market Value Adjustment is a reduction of $648.00 from the amount withdrawn:
$ - 648.00 = -.0180 × ($42,000.00 - $6,000.00)
A Withdrawal Charge of 7% would be assessed against the Purchase Payments withdrawn that are less than seven years old and are not eligible for free withdrawal. Under the Contract, earnings are deemed to be withdrawn before Purchase Payments. Accordingly, in this example, the amount of the Purchase Payment eligible for free withdrawal would equal the Free Withdrawal Amount less the interest credited or $4,000.00 ($6,000.00 - $2,000.00).
Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% × (40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$38,832.00 = $42,000.00-$648.00 - $2,520.00
B-1
Example of an Upward Market Value Adjustment
An upward Market Value Adjustment results from a withdrawal that occurs when interest rates have decreased. Assume interest rates have decreased one year after the Purchase Payment, such that the five-year
Treasury Rate is now 5.5%. Upon a withdrawal, the market value adjustment factor would be:
.9 × (.06 - .055) × 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as follows:
$648.00 = .0180 × ($42,000.00 - $6,000.00)
As above, in this example, the amount of the Purchase Payment eligible for free withdrawal would equal the Free Withdrawal Amount less the interest credited or $4,000.00 ($6,000.00 - $2,000.00). Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% × ($40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$40,128.00 = $42,000.00 + $648.00 - $2,520.00
Example of a Partial Withdrawal
If you request a partial withdrawal from a Guarantee Period, we can either (1) withdraw the specified amount of Contract Value and pay you that amount as adjusted by any applicable Market Value Adjustment or (2) pay you the amount requested, and subtract an amount from your Contract Value that equals the requested amount after application of the Market Value Adjustment and Withdrawal Charge. Unless you instruct us otherwise, when you request a partial withdrawal we will assume that you wish to receive the amount requested. We will make the necessary calculations and on your request provide you with a statement showing our calculations.
For example, if in the first example you wished to receive $20,000.00 as a partial withdrawal, the Market Value Adjustment and Withdrawal Charge would be calculated as follows:
Let: |
AW |
= |
the total amount to be withdrawn from your Contract Value |
|
MVA |
= |
Market Value Adjustment |
|
WC |
= |
Withdrawal Charge |
|
AW |
= |
amount subject to Market Value Adjustment and Withdrawal Charge |
Then |
AW |
- |
$20,000.00 = WC - MVA |
Since neither the Market Value Adjustment nor the Withdrawal Charge apply to the free withdrawal amount, we can solve directly for the amount subject to the Market Value Adjustment and the Withdrawal Charge (i.e., AW), which equals AW - $6,000.00. Then, AW = AW + $6,000, and AW + $6,000.00 - $20,000.00 = WC - MVA.
MVA |
= |
- .018 × AW |
WC |
= |
.07 × AW |
WC |
- |
MVA = .088AW |
AW |
- |
$14,000.00 = .088AW |
AW |
= |
$14,000.00 / (1 - .088) = $15,350.88 |
MVA |
= |
- .018 × $15,350.88 = - $276.32 |
WC |
= |
.07 × $15,350.88 = $1,074.56 |
AW = Total amount withdrawn = $15,350.88 + $6,000.00 = $21,350.88
You receive $20,000.00; the total amount subtracted from your contract is $21,350.88; the Market Value Adjustment is $276.32; and the Withdrawal Charge is $1,074.56. Your remaining Contract Value is $20,649.12.
If, however, in the same example, you wished to withdraw $20,000.00 from your Contract Value and receive the adjusted amount, the calculations would be as follows:
By definition, AW = total amount withdrawn from your Contract Value = $20,000.00
AW |
= |
amount that MVA & WC are applied to |
|
= |
amount withdrawn in excess of Free Amount = $20,000.00 - $6,000.00 = $14,000.00 |
MVA |
= |
- .018 × $14,000.00 = - $252.00 |
WC |
= |
.07 × $14,000.00 = $980.00 |
You would receive $20,000.00 - $252.00 - $980.00 = $18,768.00; the total amount subtracted from your Contract Value is $20,000.00. Your remaining Contract Value would be $22,000.00.
B-2
Example of Free Withdrawal Amount
Assume that in the foregoing example, after four years $8,620.25 in interest had been credited and that the Contract Value in the Fixed Account equaled $48,620.25. In this example, if no prior withdrawals have been made, you could withdraw up to $8,620.25 without incurring a Market Value Adjustment or a Withdrawal Charge. The Free Withdrawal Amount would be $8,620.25, because the interest credited ($8,620.25) is greater than 15% of the Total Purchase Payments in the most recent seven years ($40,000.00 × .15 = $6,000.00).
B-3
LBL3055-7
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registrant anticipates that it will incur the following approximate expenses in connection with the issuance and distribution of the securities to be registered:
Registration fees Cost of printing and engraving Legal fees ......................... Accounting fees Mailing fees |
$0 $6,895 $0 $0 $7,948 |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of Lincoln Benefit Life Company (Registrant) provide for the indemnification of its directors and officers against expenses, judgments, fines and amounts paid in settlement as incurred by such person, so long as such person shall not have been adjudged to be liable for negligence or misconduct in the performance of a duty to the Company. This right of indemnity is not exclusive of other rights to which a director or officer may otherwise be entitled.
Resolution Life, Inc. has obtained directors and officers insurance, which includes indemnification for liability arising under the Securities Act of 1933 that the directors and officers of Resolution Life, Inc. and its subsidiaries may, in such capacities, incur.
Insofar as indemnification for liability arising under the Securities Act of 1933 (the Act) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
16(a)
Exh. No. Description
1 Form of Principal Underwriting Agreement. Incorporated herein by reference to Post-Effective Amendment to Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-50545, 811-07924) filed January 28, 1999.
1(a) Amended and Restated Principal Underwriting Agreement by and between Lincoln Benefit Life Company and Allstate Distributors, LLC, effective April 1, 2014. Incorporated herein by reference to Lincoln Benefit Life Companys Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180375)
3(i) Amended and Restated Articles of Incorporation of Lincoln Benefit Life Company dated September 26, 2000, as amended by the Articles of Amendment to the Articles of Incorporation of Lincoln Benefit Life Company dated January 21, 2015. Incorporated herein by reference to Exhibit 3(i) to Lincoln Benefit Life Companys Registration Statement on Form S-1 filed on April 13, 2015 (File No. 333-203371).
3(ii) Amended and Restated By-Laws of Lincoln Benefit Life Company effective March 10, 2006. Incorporated herein by reference to Exhibit 3.2 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. (SEC File No. 333-111553).
4(a) Form of Variable Annuity Contract. Incorporated herein by reference to Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-82427, 811-07924) filed July 8, 1999.
4(b) Form of Application. Incorporated herein by reference to Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-82427, 811-07924) filed July 8, 1999.
5(a) Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Post-Effective Amendment to Form S-3 on Form S-1 for Lincoln Benefit Life Variable Annuity Account (File No. 333-88045) filed April 6, 2000.
5(b) Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Registrant's Form S-3 Registration Statement (File No. 333-158181) dated March 24, 2009.
5(c) Opinion and Consent of Counsel regarding legality. (Incorporated by reference to Registrant's Form S-1 Registration Statement (File No. 333-180371) dated March 27, 2012).
5(d) Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(d) to Lincoln Benefit Life Companys Registration Statement on Form S-1 filed on April 13, 2015 (File No. 333-203371).
5(e) Opinion and Consent of Counsel regarding legality. Filed herewith.
8 None
9 None
10 Material Contracts
10.1 Administrative Services Agreement between Lincoln Benefit Life Company and Allstate Life Insurance Company effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. (SEC File No. 333-111553)
10.2 Principal Underwriting Agreement by and among Lincoln Benefit Life Company and Allstate Distributors, LLC (ALFS, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) effective November 25, 1998. (Variable Universal Life Account). Incorporated herein by reference to Exhibit 10.6 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-66452)
10.3 Amended and Restated Principal Underwriting Agreement between Lincoln Benefit Life Company and Allstate Distributors, LLC (ALFS, Inc. merged with and into Allstate Distributors, LLC effective September 1, 2011) effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company's Current Report on Form 8-K filed December 20, 2007. (SEC File No. 333-111553)
10.4 Selling Agreement between Lincoln Benefit Life Company, Allstate Distributors, LLC (ALFS, Inc., f/k/a Allstate Financial Services, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.) effective August 2, 1999. Incorporated herein by reference to Exhibit 10.8 to Allstate Life Insurance Company's Annual Report on Form 10-K for 2003. (SEC File No. 000-31248)
10.5 Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.11 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-66452)
10.6 Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.12 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-111553)
10.7 Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.13 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-66452)
10.8 Administrative Services Agreement between Allstate Distributors, LLC, (ALFS, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) Allstate Life Insurance Company, Lincoln Benefit Life Company and Charter National Life Insurance Company effective January 1, 2000. Incorporated herein by reference to Exhibit 10.22 to Lincoln Benefit Life Company's Annual Report on Form 10-K for the year ended December 31, 2008. (SEC File No. 333-111553)
10.9 Assignment & Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, LLC, Charter National Life Insurance Company, Intramerica Life Insurance Company, Allstate Financial Services, LLC, and Lincoln Benefit Life Company. Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Current Report on Form 8-K filed September 1, 2011. (SEC File No. 000-31248)
10.10 Reinsurance Agreement between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company effective September 30, 2012, Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Current Report on Form 8-K filed October 3, 2012. (SEC File No. 000-31248)
10.11 Recapture Agreement between Allstate Life Insurance Company ("ALIC") and Lincoln Benefit Life Company ("LBL"), effective September 30, 2012. Incorporated herein by reference to Lincoln Benefit Life Company's Form S-1 Post-Effective Amendment No. 1 to Registration Statement filed on April 3, 2013.(SEC File No. 333-180375)
10.12 Voluntary Separation Agreement and Release by and between Allstate Insurance Company and Anurag Chandra, dated October 17, 2013. Incorporated herein by reference to Exhibit 10.22 of Lincoln Benefit Life Companys Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180375)
10.13 Voluntary Separation Agreement and Release by and between Allstate Insurance Company and Lawrence W. Dahl, dated August 1, 2013. Incorporated herein by reference to Exhibit 10.23 of Lincoln Benefit Life Companys Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180375)
10.14 Amended and Restated Administrative Services Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014. Filed herewith.
10.15 Amended and Restated Reinsurance Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014. Incorporated herein by reference to Exhibit 10.25 of Lincoln Benefit Life Companys Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180375)
10.16 Partial Commutation Agreement by and between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective April 1, 2014. Incorporated herein by reference to Exhibit 10.26 of Lincoln Benefit Life Companys Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180375)
11 None
12 None
15 Not applicable.
16 None
21 Subsidiaries of the registrant. Incorporated herein by reference to Exhibit 21 to Lincoln Benefit Life Companys Registration Statement on Form S-1 filed on April 13, 2015 (File No. 333-203371)
23 Consents of Independent Registered Public Accounting Firms. Filed herewith.
24 Powers of Attorney for Stephen Campbell, Richard Carbone, Clive Cowdery, Ann Frohman, Jon Hack, Robert Stein and Grace Vandecruze. Filed herewith.
25 None
26 None
99 Experts. Filed herewith.
Exhibit List for XBRL Docs:
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
16(b)
Financial statement schedules required by Regulation S-X (17 CFR Part 210) and Item 11(e) of Form S-1 are included in Part I.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford in the State of Connecticut on 1st day of April, 2016.
LINCOLN BENEFIT LIFE COMPANY
(REGISTRANT)
By: |
/s/ W. Weldon Wilson W. Weldon Wilson Director and Chief Executive Officer |
Pursuant to the Securities Act of 1933, this Registration Statement has been signed below by the following directors and principal officers of Lincoln Benefit Life Company in the capacity
indicated on 1st day of April, 2016.
SIGNATURE |
TITLE |
*Richard Carbone Richard Carbone |
Director |
*Clive Cowdery Clive Cowdery |
Director |
*Ann Frohman Ann Frohman |
Director |
*Jon Hack Jon Hack |
Director |
*Robert Stein |
Director |
Robert Stein |
|
*Grace Vandecruze Grace Vandecruze |
Director |
*Stephen Paul Campbell |
Director |
Stephen Paul Campbell |
|
/s/ W. Weldon Wilson W. Weldon Wilson |
Director and Chief Executive Officer (Principal Executive Officer) |
/s/ Robyn Wyatt Robyn Wyatt |
Chief Financial Officer, Treasurer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) |
*By: /s/ Robyn Wyatt, pursuant to Power of Attorney.
EXHIBIT LIST
5(e) Opinion and Consent of Counsel regarding legality.
10.14 Amended and Restated Administrative Services Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014.
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 Consent of Independent Registered Public Accounting Firm.
24 Powers of Attorney for Stephen Campbell, Richard Carbone, Clive Cowdery, Ann Frohman, Jon Hack, Robert Stein and Grace Vandecruze.
99 Experts
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
|
Exhibit 5(e)
March 22, 2016
Lincoln Benefit Life Company 1221 N Street, Suite 200 Lincoln, NE 68508
Re: Post-Effective Amendment No. 1 on Form S-1 Registration Statement of Securities Act of 1933 Consultant I Variable Annuity; Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select); Consultant II Variable Annuity; LBL Advantage Variable Annuity; Premier Planner Variable Annuity
Ladies and Gentlemen:
We have acted as special Nebraska counsel to Lincoln Benefit Life Company, a stock life insurance company domiciled in the State of Nebraska (the Company), in connection with the following:
1. Consultant I Variable Annuity contract filed with the Securities and Exchange Commission by the Post-Effective Amendment No. 1 on Form S-1 Registration Statement filed by the Company, as Registrant,
2. Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select) contracts filed with the Securities and Exchange Commission by the Post-Effective Amendment No. 1 on Form S-1 Registration Statement filed by the Company, as Registrant,
3. Consultant II Variable Annuity contract filed with the Securities and Exchange Commission by the Post-Effective Amendment No. 1 on Form S-1 Registration Statement filed by the Company, as Registrant,
4. LBL Advantage Variable Annuity contract filed with the Securities and Exchange Commission by the Post-Effective Amendment No. 1 on Form S-1 Registration Statement filed by the Company, as Registrant, and
5. Premier Planner Variable Annuity contract filed with the Securities and Exchange Commission by the Post-Effective Amendment No. 1 on Form S-1 Registration Statement filed by the Company, as Registrant. |
Lincoln Benefit Life Company
March 22, 2016
Page 2
The above referenced Post-Effective Amendment No. 1 on Form S-1 Registration Statements are hereinafter collectively referred to as the Registration Statements. The above referenced Variable Annuity contracts are hereinafter collectively referred to as the Contracts.
For purposes of rendering this opinion, we have examined the following:
1. The Registration Statements;
2. The Contracts;
3. Such other corporate documents and records of the Company and such other instruments and certificates of public officials, officers and representatives of the Company and other persons as we have deemed necessary or appropriate for purposes of this opinion.
We have not conducted any investigation, examination or inquiry of factual matters in rendering the opinions set forth below other than the document examination described herein and our opinion is qualified in all respects by the scope of such document examination.
In rendering the opinions expressed herein, we have assumed, and express no opinion as to (i) the authenticity and completeness of all documents submitted to us, (ii) the genuineness of all signatures on all documents submitted to us that we examined, (iii) the conformity to authentic originals and completeness of documents submitted to us as certified, conformed or reproduction copies, and (iv) the legal capacity of all natural persons executing documents.
We have assumed there was not any fraud, misrepresentation, omission or deceit by any person in connection with the negotiation and execution, delivery and performance of the Contracts. We have also assumed the absence of any mutual mistake of fact or misunderstanding, duress or undue influence in the negotiation, execution or delivery of the Contracts. We have further assumed there are not any agreements or understandings, written or oral, between and among the Company and another party to the Contracts or any waiver of a right or remedy or usage of trade or course of prior dealings among the parties that would define, alter, supplement or qualify the terms of the Contracts.
On the basis of and subject to the foregoing, an in reliance thereon, and subject to the limitations, qualifications, caveats and exceptions set forth below, we are of the opinion that:
1. The Company is duly organized and existing under the laws of the State of Nebraska and has been duly authorized to do business and to issue the Contracts by the Director of Insurance of the State of Nebraska.
2. The Contracts registered by the above Registration Statements when issued will be
Lincoln Benefit Life Company
March 22, 2016
Page 3
valid and legally binding obligations of the Company enforceable against the Company in accordance with the terms to the extent, if any, the validity and binding effect and enforceability is governed by the laws of the State of Nebraska.
Our opinion set forth above is subject to the effects of (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization and moratorium laws and other similar laws relating to or affecting creditors rights or remedies generally, (ii) general equitable principles, whether considered in the proceedings in equity or law, (iii) concepts of good faith, diligence, reasonableness and fair dealing and standards of materiality, (iv) possible judicial action giving effect to foreign laws or foreign governmental or judicial action affecting or relating to the rights or remedies of creditors.
We express no opinion as to the laws of any jurisdiction other than the laws of the State of Nebraska, as currently in effect, in each case that in our experience are normally applicable to transactions of the type contemplated by the Contracts without regard to the particular nature of the business conducted by the Company. We express no opinion with respect to federal securities laws or regulations.
We hereby consent to the filing of this opinion as an exhibit to the above referenced Registration Statements and to the use of our firm name under the caption Legal Matters in the prospectus constituting part of each of the Registration Statements.
Very truly yours, |
LAMSON, DUGAN & MURRAY, LLP |
/s/ Lawrence F. Harr |
FOR THE FIRM |
Exhibit 10.14
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
by and between
LINCOLN BENEFIT LIFE COMPANY
and
ALLSTATE LIFE INSURANCE COMPANY
Effective as of April 1, 2014
TABLE OF CONTENTS
ARTICLE |
Page | |||||
ARTICLE I |
DEFINITIONS |
2 | ||||
Section 1.1 |
Definitions |
2 | ||||
ARTICLE II |
AUTHORITY; RETAINED SERVICES |
6 | ||||
Section 2.1 |
Authority |
6 | ||||
Section 2.2 |
Violations of Applicable Law and Applicable Contracts |
6 | ||||
Section 2.3 |
Retained Services |
7 | ||||
Section 2.4 |
Power of Attorney |
7 | ||||
ARTICLE III |
STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC. |
8 | ||||
Section 3.1 |
Services; Standard for Services |
8 | ||||
Section 3.2 |
Facilities and Personnel |
8 | ||||
Section 3.3 |
Subcontracting |
8 | ||||
Section 3.4 |
Independent Contractor |
9 | ||||
Section 3.5 |
Limitation on Services |
9 | ||||
Section 3.6 |
Disaster Recovery |
9 | ||||
ARTICLE IV |
UNDERWRITING; CONVERSION AND REPLACEMENT; PRODUCERS |
9 | ||||
Section 4.1 |
Post-Closing Contracts |
9 | ||||
Section 4.2 |
Parties Responsibilities |
10 | ||||
Section 4.3 |
Conversion and Replacement |
11 | ||||
Section 4.4 |
Producers |
14 | ||||
ARTICLE V |
COLLECTIONS |
14 | ||||
Section 5.1 |
Collection Services |
14 | ||||
ARTICLE VI |
CLAIMS HANDLING |
15 | ||||
Section 6.1 |
Claim Administration Services |
15 | ||||
Section 6.2 |
Description of Claim Administration Services |
15 | ||||
ARTICLE VII |
REGULATORY AND LEGAL PROCEEDINGS |
15 | ||||
Section 7.1 |
Notice of Action |
15 | ||||
Section 7.2 |
Defense of Regulatory Complaints and Actions |
16 | ||||
Section 7.3 |
Other Actions |
17 | ||||
Section 7.4 |
Cooperation |
18 | ||||
ARTICLE VIII |
SEPARATE ACCOUNT ADMINISTRATIVE SERVICES |
18 | ||||
Section 8.1 |
Separate Account Administrative Services |
18 | ||||
Section 8.2 |
Changes to Fund Options |
18 | ||||
Section 8.3 |
Changes to Separate Account Fees |
19 |
i
ARTICLE IX |
MISCELLANEOUS SERVICES |
20 | ||||
Section 9.1 |
Ceded Reinsurance Contracts |
20 | ||||
Section 9.2 |
Amendments and Replacements |
21 | ||||
Section 9.3 |
Vermont Captive Reinsurance Agreement |
22 | ||||
Section 9.4 |
Non-Guaranteed Elements |
22 | ||||
Section 9.5 |
Contractholder Services |
23 | ||||
Section 9.6 |
Principal Underwriting Agreement |
23 | ||||
Section 9.7 |
Other Services |
23 | ||||
ARTICLE X |
NOTIFICATION TO CONTRACTHOLDERS |
23 | ||||
Section 10.1 |
Notification to Contractholders |
23 | ||||
ARTICLE XI |
QUARTERLY PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS |
24 | ||||
Section 11.1 |
Quarterly Accountings |
24 | ||||
Section 11.2 |
Adjustments Regarding Quarterly Accountings |
24 | ||||
ARTICLE XII |
CERTAIN ACTIONS BY COMPANY |
24 | ||||
Section 12.1 |
Filings |
24 | ||||
Section 12.2 |
Annual Adjustment |
24 | ||||
ARTICLE XIII |
REGULATORY MATTERS AND REPORTING |
25 | ||||
Section 13.1 |
Regulatory Compliance and Reporting |
25 | ||||
Section 13.2 |
Additional Reports and Updates |
26 | ||||
Section 13.3 |
Additional Reports |
27 | ||||
ARTICLE XIV |
BOOKS AND RECORDS |
27 | ||||
Section 14.1 |
Maintenance of Books and Records |
27 | ||||
ARTICLE XV |
COOPERATION |
28 | ||||
Section 15.1 |
Cooperation |
28 | ||||
ARTICLE XVI |
PRIVACY REQUIREMENTS |
28 | ||||
Section 16.1 |
Confidentiality Obligations |
28 | ||||
Section 16.2 |
Security Incidents |
29 | ||||
ARTICLE XVII |
CONSIDERATION FOR ADMINISTRATIVE SERVICES |
30 | ||||
Section 17.1 |
Consideration for Administrative Services |
30 | ||||
ARTICLE XVIII |
BANK ACCOUNTS; TRADEMARKS |
30 | ||||
Section 18.1 |
Establishment of Bank Accounts |
30 | ||||
Section 18.2 |
Trademarks |
31 | ||||
ARTICLE XIX |
INDEMNIFICATION |
33 | ||||
Section 19.1 |
Administrators Obligation to Indemnify |
33 | ||||
Section 19.2 |
Companys Obligation to Indemnify |
34 | ||||
Section 19.3 |
Definitions |
34 | ||||
Section 19.4 |
Applicability of Stock Purchase Agreement |
35 |
ii
Section 19.5 |
No Duplication |
35 | ||||
ARTICLE XX |
DURATION; TERMINATION |
35 | ||||
Section 20.1 |
Duration |
35 | ||||
Section 20.2 |
Termination |
35 | ||||
ARTICLE XXI |
GENERAL PROVISIONS |
37 | ||||
Section 21.1 |
Schedules and Exhibits |
37 | ||||
Section 21.2 |
Notices |
37 | ||||
Section 21.3 |
Interpretation |
38 | ||||
Section 21.4 |
Entire Agreement; Third Party Beneficiaries |
39 | ||||
Section 21.5 |
Governing Law |
39 | ||||
Section 21.6 |
Assignment |
39 | ||||
Section 21.7 |
Jurisdiction; Enforcement |
39 | ||||
Section 21.8 |
Severability; Amendment; Modification; Waiver |
40 | ||||
Section 21.9 |
Specific Performance |
40 | ||||
Section 21.10 |
Counterparts |
40 | ||||
Section 21.11 |
Survival |
41 |
iii
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
This AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT (this Agreement), effective as of April 1, 2014 (the Inception Date), is entered into by and between LINCOLN BENEFIT LIFE COMPANY, a Nebraska domiciled stock life insurance company (the Company), and ALLSTATE LIFE INSURANCE COMPANY, an Illinois domiciled stock life insurance company (the Administrator, and together with the Company, the Parties, and each a Party) on this 31st day of December, 2015.
RECITALS:
WHEREAS, the Administrator, Resolution Life Holdings, Inc., a corporation organized under the laws of the State of Delaware (the Buyer) and, solely for the purposes of Section 5.25 and Article X thereof, Resolution Life L.P., a Bermuda limited partnership, have entered into a Stock Purchase Agreement dated as of July 17, 2013, as amended (the Stock Purchase Agreement), pursuant to which the Administrator sold, and Resolution Life, Inc., a subsidiary of the Buyer, purchased, 100% of the issued and outstanding capital stock of the Company;
WHEREAS, in connection with the Stock Purchase Agreement, the Parties entered into that certain Administrative Services Agreement effective April 1, 2014 (the Original ASA) and the Parties now desire to amend and restate, in its entirety, the Original ASA;
WHEREAS, pursuant to the Amended and Restated Reinsurance Agreement entered into between the Company and the Administrator, effective as of 12:01 a.m. Central Time on April 1, 2014 (the Reinsurance Agreement), the Administrator (in its capacity as Reinsurer) has agreed to indemnify the Company for (i) on a coinsurance basis, one hundred percent (100%) of the General Account Liabilities of the Company, (ii) on a modified coinsurance basis, one hundred percent (100%) of the Separate Account Liabilities of the Company and (iii) one hundred percent (100%) of the Reinsurer Extra Contractual Obligations (each as defined in the Reinsurance Agreement);
WHEREAS, the Company wishes to appoint the Administrator to provide the administrative services with respect to the LBL Contracts, the Ceded Reinsurance Contracts and the Shared Separate Account (each as defined below) set forth in this Agreement, and the Administrator desires to provide such administrative services;
WHEREAS, the Company and the Administrator are parties to the General Account Reinsurance Agreement and the Variable Annuity Reinsurance Agreement, pursuant to which the Administrator reinsures liabilities in respect of the variable annuity contracts written by the Company (the VA Business), and the VA ASA, pursuant to which the Administrator is obligated to provide administrative services to the Company in respect of the VA Business, and such agreements will continue in full force and effect in accordance with its terms following the Inception Date;
WHEREAS, the Company is also a party to a reinsurance agreement, effective September 30, 2012 (the Vermont Captive Reinsurance Agreement), pursuant to which the Company cedes to its former Affiliate, Lincoln Benefit Reinsurance Company, a Vermont domiciled captive insurance company (the Vermont Captive), one hundred percent (100%) of the policy
1
benefits under specified universal life insurance policies written by the Company with issue dates within the range set forth in the Vermont Captive Reinsurance Agreement (the Vermont Captive Contracts);
WHEREAS, the Company also wishes to appoint the Administrator to provide the administrative services with respect to the Vermont Captive Contracts and the Vermont Captive Reinsurance Agreement set forth in this Agreement, and the Administrator desires to provide such administrative services.
NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Any capitalized term used but not defined herein, unless otherwise indicated, shall have the meaning set forth in the Reinsurance Agreement. As used in this Agreement, the following terms shall have the following meanings:
Action shall have the meaning specified in the Stock Purchase Agreement.
Administered Business shall mean the LBL Contracts, the Shared Separate Account, the Vermont Captive Contracts, the Vermont Captive Reinsurance Agreement and the portion of the Ceded Reinsurance Contracts that relates to LBL Contracts.
Administrative Services shall have the meaning specified in Section 2.1.
Administrator shall have the meaning specified in the Preamble.
Administrator Breach shall have the meaning specified in Section 19.1.
Administrator Indemnified Parties shall have the meaning set forth in Section 19.2.
Affiliate shall have the meaning specified in the Stock Purchase Agreement.
Agreement shall have the meaning specified in the Preamble.
Annual Adjustment shall have the meaning specified in Section 12.2.
Applicable Law shall have the meaning specified in the Stock Purchase Agreement.
Approved Conversion Forms shall have the meaning specified in Section 4.3(b).
Business Day shall have the meaning specified in the Stock Purchase Agreement.
2
Buyer shall have the meaning specified in the Preamble.
Cap shall have the meaning specified in Section 19.3.
Capped Losses shall have the meaning specified in Section 19.1.
Claims shall have the meaning specified in the Section 6.1.
Claimants shall have the meaning specified in the Section 6.2.
Company shall have the meaning specified in the Preamble.
Company Breach shall have the meaning specified in Section 19.2.
Company Business shall have the meaning specified in the Stock Purchase Agreement.
Company Indemnified Parties shall have the meaning specified in Section 19.1.
Covered Insurance Policies means the LBL Contracts and the Vermont Captive Contracts.
Customer Information shall have the meaning specified in the Section 16.1.
Customers shall have the meaning specified in the Section 16.1.
Designated Company Conversion Policies means (i) Underwriting Period Conversion Policies and (ii) Post-Underwriting Period Conversion Policies.
Disaster Recovery Policies shall have the meaning specified in the Section 3.6.
Excluded Conversion Policies means policies issued from and after the Inception Date as a result of the exercise of a policyholder of any conversion right in a Pre-Closing Policy or a Post-Closing Policy, other than Designated Company Conversion Policies.
Final True-Up Period shall have the meaning specified in Section 8.4.
Governmental Entity shall have the meaning specified in the Stock Purchase Agreement.
Inception Date has the meaning specified in the Preamble.
Information Security Program shall have the meaning specified in the Section 16.1.
Insolvency Fund Quarterly Accounting shall have the meaning specified in Section 11.1.
3
LBL Contracts shall have the meaning specified in the Reinsurance Agreement; provided, however, that for purposes of this Agreement, LBL Contracts shall not include any Non-Administered Post-Underwriting Period Conversion Policies.
LBL Convertible Policy shall have the meaning specified in Section 4.3(f).
LBL Reinsured Replacement Policy shall have the meaning specified in Section 4.3(f).
LBL Replacement Policy shall have the meaning specified in Section 4.3(f).
Liability shall have the meaning specified in the Stock Purchase Agreement.
Licensed Names and Marks shall have the meaning specified in Section 18.2.
Licensor Standards shall have the meaning specified in Section 18.2.
Materials shall have the meaning specified in Section 18.2.
Monthly Separate Account Administrative Fee shall have the meaning specified in Schedule A.
New Conversion Policy Form shall have the meaning specified in Section 4.3(b).
New York Court shall have the meaning specified in Section 21.7.
Non-Administered Post-Underwriting Period Conversion Policies shall have the meaning specified in Section 4.3(b).
Person shall have the meaning specified in the Stock Purchase Agreement.
Post-Inception Date Assessments shall have the meaning specified in Section 11.1.
Post-Underwriting Period Conversion Policies shall have the meaning specified in Section 4.3(b).
Pre-Closing Date Period shall have the meaning specified in Section 8.4.
Premium Tax Credits shall have the meaning specified in Section 12.2.
Principal Underwriting Agreement shall have the meaning specified in the Stock Purchase Agreement.
Quarterly Accountings shall have the meaning specified in Section 11.1.
Quarterly Premium Tax Accounting shall have the meaning specified in Section 11.1.
4
Reinsurance Agreement shall have the meaning specified in the Preamble.
Reinsurance Election shall have the meaning specified in Section 4.3(f).
Reinsured Convertible Policy shall have the meaning specified in Section 4.3(a).
Reinsurer means the Administrator in its capacity as reinsurer under the Reinsurance Agreement.
Replacement Policy shall have the meaning specified in Section 4.3(a).
Retained Services shall have the meaning specified in Section 2.3.
Security Incident shall have the meaning specified in Section 16.2.
Shared Separate Account means the Lincoln Benefit Life Variable Life Account 40 Act File No. 811-9154.
Stock Purchase Agreement shall have the meaning specified in the Preamble.
Subcontractor shall have the meaning specified in Section 3.3.
Tax Return shall have the meaning specified in the Stock Purchase Agreement.
Taxes shall have the meaning specified in the Stock Purchase Agreement.
Transaction Agreements shall have the meaning specified in the Stock Purchase Agreement.
True-Up Period shall have the meaning specified in Section 8.4.
True-Up Sum shall have the meaning specified in Section 8.4.
Underwriting Period Conversion Policy shall have the meaning specified in Section 4.1(a).
Underwriting Termination Date means (i) with respect to annuity contracts, December 31, 2013, (ii) with respect to life insurance policies other than variable universal life insurance policies, December 31, 2015 and (iii) with respect to variable universal life insurance policies, June 30, 2017.
VA ASA means the Administrative Services Agreement by and between the Administrator and the Company, effective as of June 1, 2006.
VA Business shall have the meaning specified in the Preamble.
Variances shall have the meaning specified in Section 8.4.
5
Variance Limit shall have the meaning specified in Section 8.4.
Vermont Captive shall have the meaning specified in the Preamble.
Vermont Captive Bank Accounts shall have the meaning specified in Section 18.2.
Vermont Captive Contracts shall have the meaning specified in the Preamble.
Vermont Captive Reinsurance Agreement shall have the meaning specified in the Preamble.
ARTICLE II
AUTHORITY; RETAINED SERVICES
Section 2.1 Authority. Subject to Section 2.3, the Company hereby appoints the Administrator, and the Administrator hereby accepts appointment, to provide as an independent contractor of the Company, from and after the Inception Date, on the terms and subject to the limitations as set forth in this Agreement, all administrative services necessary or appropriate with respect to the Administered Business, including those provided by or on behalf of the Administrator specifically with respect to the Administered Business prior to the Inception Date (unless the Administrator and the Company mutually decide any such services are no longer necessary or appropriate, which decision of each of the Parties shall not be unreasonably withheld, conditioned or delayed), and those set forth in this Agreement and on Schedule A, other than the Retained Services (the Administrative Services). At all times during the term of this Agreement, the Administrator shall hold, possess and maintain, either directly or through the appointment of Subcontractors permitted pursuant to Section 3.3, any and all licenses, franchises, permits, privileges, immunities, approvals and authorizations from any Governmental Entity that are necessary to perform the Administrative Services.
Section 2.2 Violations of Applicable Law and Applicable Contracts. Notwithstanding any other provision of this Agreement to the contrary, the Company shall have the right to direct the Administrator to perform any action necessary for the Administered Business or the administration thereof to comply with Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, or to cease performing any action that constitutes a violation of Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, to the extent such action, inaction or administration is within the control of the Administrator, taking into account the recommendations of the Administrator provided to the Company hereunder, which the Company shall only reject in good faith and in light of the intent of the parties to and the stated purposes of the Stock Purchase Agreement, this Agreement and the other Transaction Agreements. The Administrator shall have the right to direct the Company to perform any action necessary for the Administered Business or the administration thereof to comply with Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, or to cease performing any action that constitutes a violation of Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, in either case to the extent such action, inaction or administration constitutes a Retained Service.
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Section 2.3 Retained Services. The Parties hereby agree that, notwithstanding anything herein to the contrary, the Company shall, for the term of this Agreement, continue to provide on its own behalf (i) those administrative services described in Schedule B, (ii) those administrative services that the Company is required by Applicable Law to perform without the Administrator or a third party acting on its behalf and (iii) the preparation of accounting reports, tax returns, guaranty fund reports, and other reports and certifications contemplated in Articles XI and XII, in each instance, where applicable, based on information with respect to the LBL Contracts and Vermont Captive Contracts provided by the Administrator as contemplated therein (collectively, the Retained Services), in each case, (i) in accordance with the applicable terms of this Agreement, (ii) in compliance with Applicable Law, (iii) in a professional, competent and workmanlike manner, with the skill, diligence and expertise that would reasonably be expected from experienced and qualified personnel performing such duties in like circumstances, and (iv) at a level no lower than the service standards applied by the Company to other comparable insurance business administered by the Company for its own account. The Administrator shall have no obligation to provide such Retained Services but shall provide assistance with respect to the Administered Business reasonably requested by the Company in connection therewith in a timely manner to enable the Company to perform such Retained Services. The Company shall not be deemed to be in breach of this Agreement as a result of any failure to perform, or inadequacy in the performance of, Retained Services hereunder to the extent the performance of such Retained Services is reasonably dependent upon Administrative Services or the performance by the Administrator or its Affiliates of their obligations under the Transaction Agreements that have not been performed. The Administrator shall promptly reimburse the Company for any documented and reasonable out-of-pocket costs or expenses incurred by it in the performance of the Retained Services to the extent (a) such Retained Services (1) relate solely to the Administered Business but not the Company Business, (2) do not constitute entity-level services required to be performed by or on behalf of the Company and (3) are not in the ordinary course of business of the Company, and (b) such out-of-pocket costs and expenses in aggregate exceed $15,000 in the calendar month for which such costs and expenses are being sought for reimbursement or $120,000 in the calendar year for which such costs and expenses are being sought for reimbursement. For the avoidance of doubt, but subject to the other terms and conditions of this Agreement, the Administrator shall have no obligation under this Agreement to perform any services other than with respect to the Administered Business (which includes the services with respect to the Shared Separate Account set forth in Schedule A).
Section 2.4 Power of Attorney. Subject to the terms and conditions herein, the Company hereby appoints and names the Administrator, acting through its authorized Subcontractors, and each of their respective officers and employees, as the Companys lawful attorney-in-fact, from and after the Inception Date for so long as the Administrator is authorized to perform the Administrative Services and solely to the extent necessary to provide the Administrative Services, (a) to do any and all lawful acts that the Company might have done with respect to the Administered Business, and (b) to proceed by all lawful means (i) to perform any and all of the Companys obligations with respect to the Administered Business, (ii) to enforce any right and defend (in the name of the Company, when necessary) against any liability arising with respect to the Administered Business, (iii) to sue or defend (in the name of the
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Company, when necessary) any Action arising from or relating to the Administered Business, (iv) to collect any and all Recoveries due or payable under or relating to the LBL Contracts, the Shared Separate Account with respect to the LBL Contracts, and the Ceded Reinsurance Contracts; (v) to collect any and all amounts due or payable to the Company under or relating to the Vermont Captive Contracts; (vi) to sign (in the Companys name, when necessary) vouchers, receipts, releases and other papers in connection with any of the foregoing matters, (vii) to enforce the rights and perform the obligations of the Company under any agency, distribution or service arrangements to the extent related to the LBL Contracts or the Vermont Captive Contracts; (viii) to take actions necessary, as may be reasonably determined by the Administrator, to maintain the Administered Business in compliance with Applicable Law; (ix) to request rate and form changes for the LBL Contracts in accordance with Article IV herein; and (x) to do everything lawful in connection with the satisfaction of the Administrators obligations and the exercise of its rights under this Agreement.
ARTICLE III
STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC.
Section 3.1 Services; Standard for Services. Subject to Article II, from and after the Inception Date and thereafter during the term of this Agreement (unless otherwise specified), the Administrator shall perform the Administrative Services, and the Administrators performance of the Administrative Services shall comply with and be subject in all events to the standards set forth in this Section 3.1. The Administrator shall provide the Administrative Services in all material respects in accordance with the terms of the LBL Contracts, the Ceded Reinsurance Contracts, the Vermont Captive Contracts and the Vermont Captive Reinsurance Agreement and, if applicable, their respective registration statements. In addition, the Administrator shall provide the Administrative Services (i) in accordance with the applicable terms of this Agreement, (ii) in compliance with Applicable Law, (iii) in a professional, competent and workmanlike manner, with the skill, diligence and expertise that would reasonably be expected from experienced and qualified personnel performing such duties in like circumstances, and (iv) at a level no lower than the service standards applied by Administrator to other comparable insurance business administered by the Administrator for its own account.
Section 3.2 Facilities and Personnel. The Administrator shall at all times maintain either directly or through the appointment of Subcontractors, sufficient facilities and trained personnel of the kind necessary to perform its obligations under this Agreement in accordance with the performance standards set forth herein.
Section 3.3 Subcontracting. The Administrator may subcontract for the performance of any Administrative Service to: (a) any Person if the service to be subcontracted is primarily a routine task or function; (b) an Affiliate of the Administrator; (c) any reinsurer under a Ceded Reinsurance Contract or an ALIC Outward Reinsurance Contract or its Affiliates; (d) an existing subcontractor that was providing such service to the Company immediately before the Closing Date; (e) any subcontractor to which Administrator or an Affiliate subcontracts the same or similar services for business administered for its own account; and (f) any other Person with the prior written consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed (each such subcontracting party, a Subcontractor), provided that no such
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subcontracting shall relieve the Administrator from any of its obligations or liabilities hereunder, and the Administrator shall remain responsible for all obligations or liabilities of such Subcontractor with respect to the providing of such service or services as if provided by the Administrator.
Section 3.4 Independent Contractor. For all purposes hereof, except as explicitly set forth herein, the Administrator shall at all times act as an independent contractor and the Administrator and its Affiliates, on the one hand, and the Company and its Affiliates, on the other hand, shall not be deemed an agent, lawyer, employee, representative, joint venturer or fiduciary of one another, nor shall this Agreement or the Administrative Services or any activity or any transaction contemplated hereby be deemed to create any partnership or joint venture between the Parties or among their Affiliates.
Section 3.5 Limitation on Services. The Administrator shall not be deemed to be in breach of this Agreement as a result of any failure to perform, or inadequacy in the performance of, Administrative Services hereunder to the extent the performance of such Administrative Services is reasonably dependent upon Retained Services or the performance by Buyer or its Affiliates of their obligations under the Transaction Agreements (other than the Companys obligations under the Principal Underwriting Agreement with respect to the LBL Contracts, solely to the extent that the Administrator is responsible hereunder for the Companys performance of such obligations) that have not been performed. This Section 3.5 shall not be construed to limit the rights and remedies otherwise available to the Administrator or its Affiliates in the event of any breach by the Company, Buyer or any of their Affiliates of any of the Transaction Agreements.
Section 3.6 Disaster Recovery. The Administrator has made available to the Company its backup, business continuation and disaster recovery plans applicable to the business of the Administrator (the Disaster Recovery Policies) in effect as of the Inception Date. From time to time upon the Companys written request, the Administrator shall deliver a copy of its then-current Disaster Recovery Policies to the Company. For as long as Administrative Services are provided hereunder, the Administrator shall, and shall cause its Affiliates to, abide by the Disaster Recovery Policies with respect to the Administered Business. At all times during the term of this Agreement, the Disaster Recovery Policies applicable to the Administered Business shall be no less protective of the Administered Business than the backup, business continuation and disaster recovery plans applicable to insurance business administered by the Administrator for its own account.
ARTICLE IV
UNDERWRITING; CONVERSION AND REPLACEMENT; PRODUCERS
Section 4.1 Post-Closing Contracts. Subject to the terms of this Article IV:
(a) from the Inception Date until the first to occur of (i) the Underwriting Termination Date or (ii) the termination of this Agreement, the Administrator shall be authorized to receive, in the name of the Company, applications for life insurance policies and annuity contracts of the types included in the Pre-Closing Policies. The Administrator shall be
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authorized to issue, in the name of the Company, such life insurance policies and annuity contracts utilizing the same forms, rates and prospectuses as are in use for the Pre-Closing Policies, with amendments to such forms, rates and prospectuses from time to time as are necessary for the issuance of such policies or contracts to comply with Applicable Law or for any other business purpose, and shall be authorized to file and seek necessary approvals from applicable Governmental Entities, in the name of the Company, with respect to any such amendments; provided that the Administrators authority to file amendments to any such rates shall be subject to the prior written consent of the Company (not to be unreasonably withheld, conditioned or delayed). From the Inception Date until the first to occur of (i) the Underwriting Termination Date or (ii) the termination of this Agreement, the Administrator shall be authorized to withdraw such products, forms, rates and prospectuses. Life insurance policies issued by the Administrator pursuant to this Section 4.1(a) upon conversion of a Pre-Closing Policy or a Post-Closing Policy produced by an Exclusive Producer are referred to herein as Underwriting Period Conversion Policies.
(b) the Administrator shall be authorized to issue, in the name of the Company from and after the Inception Date, solely to the extent required to comply with Applicable Law, life insurance policies and annuity contracts as required to replace or remediate LBL Contracts or Vermont Captive Contracts.
Section 4.2 Parties Responsibilities.
(a) The Administrator, at its sole cost and expense (but without duplication of amounts payable under the Reinsurance Agreement), shall assume all responsibility for (i) the provision of all applications and other contractholder materials to agents and persons seeking to apply for Post-Closing Policies (other than the Non-Administered Post-Underwriting Period Conversion Policies), (ii) all underwriting necessary or appropriate with respect to such applicants pursuant to the underwriting guidelines utilized by the Company as of the Inception Date, or as may be otherwise agreed by the Parties (the agreement of the Company not to be unreasonably withheld, conditioned or delayed), (iii) the processing of underwriting-related transactions in respect of the Post-Closing Policies (other than the Non-Administered Post-Underwriting Period Conversion Policies) and (iv) the issuance of Post-Closing Policies (other than the Non-Administered Post-Underwriting Period Conversion Policies).
(b) The Company shall assume all responsibility for (i) the provision of all applications and other contractholder materials to agents and persons seeking to apply for Non-Administered Post-Underwriting Period Conversion Policies and Excluded Conversion Policies, (ii) with respect to Non-Administered Post-Underwriting Period Conversion Policies, all underwriting necessary or appropriate with respect to such applicants pursuant to the underwriting guidelines as may be agreed by the Parties (the agreement of the Parties not to be unreasonably withheld, conditioned or delayed), (iii) if needed, with respect to Excluded Conversion Policies, all underwriting necessary or appropriate with respect to such applicants, (iv) the processing of underwriting-related transactions in respect of the Non-Administered Post-Underwriting Period Conversion Policies and Excluded Conversion Policies and (v) the issuance of Non-Administered Post-Underwriting Period Conversion Policies and Excluded Conversion Policies. Without limiting the generality of Article XV or any other provision of this Agreement, the Administrator shall reasonably cooperate and provide all assistance, information and records reasonably available to it as may reasonably be requested by the Company in connection with the Companys performance of the foregoing obligations.
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(c) The Administrator shall promptly notify the Company of all revisions to the LBL Contracts and Vermont Captive Contracts made pursuant to Section 4.1 and shall, on behalf of the Company, prepare and provide to Contractholders all such revisions to the LBL Contracts and Vermont Captive Contracts to be made by the Company.
Section 4.3 Conversion and Replacement.
(a) From and after the Inception Date, the Administrator shall be entitled, to the extent permitted by Applicable Law, to offer to any holder of a Pre-Closing Policy or a Post-Closing Policy, in each case that entitles the holder thereof to convert such policy to another policy written by the Company (a Reinsured Convertible Policy), the opportunity to convert such Reinsured Convertible Policy into a policy written by the Administrator or one of its Affiliates (a Replacement Policy). If such offer is not accepted, or if no such offer is timely made, then subject to the terms of this Article IV, (i) the Administrator shall issue, in the name of the Company, an Underwriting Period Conversion Policy upon exercise by the policyholder of a Reinsured Convertible Policy, on or prior to December 31, 2015, of such policyholders right to receive a conversion policy issued by the Company, and (ii) the Company shall issue a Post-Underwriting Period Conversion Policy upon exercise by the policyholder of a Reinsured Convertible Policy, on or after January 1, 2016, of such policyholders right to receive a conversion policy issued by the Company, as applicable.
(b) From and after January 1, 2016 with respect to life insurance policies other than variable universal life insurance policies, and from and after July 1, 2017 with respect to variable universal life insurance policies, the Company may (i) amend any of its policy forms, rates and prospectuses from time to time, (ii) cease offering any such policy forms, rates and prospectuses and (iii) withdraw any such product, form, rate or prospectus, provided, however, that until such time as no Reinsured Convertible Policies are outstanding, the Company shall maintain in effect at least one (1) new life policy form and associated rate filing developed jointly by the Parties, that meets the requirements of each Reinsured Convertible Policy for a conversion policy issued by the Company. In connection with the Companys requirement to maintain such policy form and associated rate filings, the Parties hereby agree that the Companys policies listed on Exhibit 1 (the Approved Conversion Forms) meet the requirements of each Reinsured Convertible Policy for a conversion policy issued by the Company. At either Partys reasonable request, the Parties will work together in good faith to develop and submit to appropriate Governmental Entities additional life insurance policy forms and associated rate filings that (i) meet the requirements of each Reinsured Convertible Policy for a conversion policy and (ii) are mutually acceptable to the Parties (the New Conversion Policy Form). Any policy issued on an Approved Conversion Form or a New Conversion Policy Form pursuant to the exercise of a conversion right made after the Underwriting Termination Date to meet the conversion requirements of a Reinsured Convertible Policy originally produced by an Exclusive Producer shall constitute a Post-Underwriting Period Conversion Policy. The Administrator shall administer any Post-Underwriting Period Conversion Policy issued on an Approved Conversion Form existing as of the date of this Agreement. The Administrator and the Company shall discuss in good faith and mutually agree
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whether the Administrator will administer policies issued on an amended Approved Conversion Form or a New Conversion Policy Form (such policy that will not be so administered by the Administrator, a Non-Administered Post-Underwriting Period Conversion Policy). Any amendments to an Approved Conversion Form or the New Conversion Policy Form (including the associated rate filings) shall require the prior written consent of each Party in order for any such amended policy to continue to be eligible for issuance as a Post-Underwriting Period Conversion Policy. For the avoidance of doubt: (x) other than the Approved Conversion Form or the New Conversion Policy Form, no policy issued to satisfy the conversion requirements of a Reinsured Convertible Policy produced by an Exclusive Producer shall constitute a Post-Underwriting Period Conversion Policy, and (y) subject to the Administrators rights pursuant to Section 4.1(a), nothing contained herein shall be construed to limit the Companys right to develop and maintain policy forms, rates and prospectuses other than the New Conversion Policy Form, or require the Company to discontinue offering any policy form, associated rate or prospectus; provided, however, that if, after the Inception Date, the Company chooses to issue new variable products, it shall form a new registered separate account of the Company for the issuance of such products and shall not issue such products through the Shared Separate Account.
(c) Subject to the foregoing, (i) if the Administrator is the party requesting the development of the New Conversion Policy Form as set forth in Section 4.3(b), the Administrator will bear the costs associated with the Company and Administrators joint development, filing, approval and maintenance of a New Conversion Policy Form and (ii) if the Company is the party requesting the development of the New Conversion Policy Form as set forth in Section 4.3(b), the Company will bear the costs associated with the Company and Administrators joint development, filing, approval and maintenance of a New Conversion Policy Form.
(d) The Company shall not, and shall cause each of its Affiliates not to, target any LBL Contract for replacement with another policy written by the Company or any other Person other than in accordance with the terms of this Article IV, provided, however, that the restrictions in this Section 4.3(d) shall not restrict general marketing and solicitation activities (i) not specifically targeted or directed to holders of LBL Contracts or (ii) subject to clause (i), targeted or directed to holders of insurance policies and contracts included in the Company Business regardless of whether such holders are also holders of LBL Contracts. From and after the Inception Date, Company shall not, directly or indirectly, sell, convey or transfer all or substantially all of its properties or assets to, any Person, in one transaction or a series of transactions that are part of a common plan, or any transaction that constitutes the functional equivalent of any of the foregoing, unless the acquiring Person in such transaction or transactions expressly agrees to assume all of the obligations of the Company under this Section 4.3(d).
(e) Upon a specific written request by the Administrator, and at the Administrators sole cost and expense, the Company shall provide such information to Administrator for the use of the Exclusive Producers as is reasonably necessary to permit Exclusive Producers to offer Designated Company Conversion Policies on behalf of the Company to the holders of Reinsured Convertible Policies.
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(f) If, after the Inception Date, any holder of a term life policy that was included in the Company Business as of the Inception Date and that entitles the holder thereof to convert such policy into another policy written by the Company (an LBL Convertible Policy) desires to convert such policy into a conversion policy issued by the Company, the Administrator shall offer, or shall cause one or more of its Affiliates, as applicable, to offer, to the holder thereof the opportunity to convert such LBL Convertible Policy into any of the Replacement Policies that are then being offered to the holders of the Reinsured Convertible Policies. The Administrators obligation to offer a holder of an LBL Convertible Policy the opportunity to convert such policy into a Replacement Policy shall be subject to receipt by the Administrator of any required policyholder information from the Company as contemplated in this Section 4.3(f). Any Replacement Policy issued by the Administrator or one of its Affiliates to a holder of an LBL Convertible Policy pursuant to this Section 4.3(f) (an LBL Replacement Policy) shall be issued through an Exclusive Producer. If and when the Administrator or its Affiliates contemplate offering new Replacement Policies to holders of the Reinsured Convertible Policies, the Administrator shall, or shall cause its Affiliates to, provide the Company with copies of the policy forms of such new Replacement Policies. If the cumulative face value of the LBL Convertible Policies converted into LBL Replacement Policies exceeds thirty million dollars ($30,000,000) or the total number of LBL Replacement Policies exceeds fifty (50), the Company may request in writing (the Reinsurance Election), on or prior to December 31, 2016, that all LBL Replacement Policies (including all LBL Replacement Policies that may be issued by the Administrator or its Affiliates on or after the date of the Reinsurance Election) be ceded to the Company by the Administrator or its Affiliates pursuant to one or more 100% quota share reinsurance agreements on such terms and conditions as are mutually agreed by the Parties consistent with the provisions of this Section 4.3(f) (the LBL Replacement Policy Reinsurance Agreements and any policy reinsured thereunder, an LBL Reinsured Replacement Policy). The Parties agree to, and the Administrator agrees to cause its applicable Affiliates to, negotiate in good faith the terms of the LBL Replacement Policy Reinsurance Agreements following the Reinsurance Election, such terms to include LBLs payment of a ceding commission of up to five hundred thousand dollars ($500,000) and a reimbursement of any Exchange Fees paid to the Company since the Inception Date to compensate the Administrator or its Affiliates, as applicable, for costs incurred by the Administrator or its applicable Affiliates in connection with the issuance of the LBL Reinsured Replacement Policies and the establishment of the LBL Replacement Policy Reinsurance Agreements. The Parties agree to negotiate in good faith with third party reinsurers to attempt to novate any inuring third party reinsurance to the Company in connection with the cessions under the LBL Replacement Policy Reinsurance Agreements. The Parties agree that the Administrator or its Affiliates issuing the LBL Reinsured Replacement Policies will retain administration of the LBL Reinsured Replacement Policies in exchange for an expense allowance from the Company to be negotiated between the Parties in good faith following the Reinsurance Election. Subject to any limitations under Applicable Law or contractual obligations and subject to obtaining any required consents from policyholders, the Company shall provide such information to the Administrator for the use of the Exclusive Producers as is reasonably necessary to permit Exclusive Producers to offer Replacement Policies to the holders of LBL Convertible Policies as contemplated in this Section 4.3(f). The timing and format of such reporting shall be negotiated by the Parties in good faith following the Inception Date. In exchange for such reporting, the Parties agree that the Administrator or its Affiliates issuing the LBL Replacement Policies will pay to the Company a fee to be negotiated in good faith for each LBL Replacement Policy (the Exchange Fee).
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Section 4.4 Producers. From and after the Inception Date, the Administrator shall have the sole and exclusive right and obligation, on behalf of the Company, to (i) appoint and enter into agreements with Exclusive Producers for the LBL Contracts, (ii) monitor the performance and licensing of the Exclusive Producers for the LBL Contracts to the extent required by Applicable Law, (iii) calculate and pay all commissions to Exclusive Producers in respect of the LBL Contracts and (iv) terminate Exclusive Producers authority and agreements with Exclusive Producers with respect to the LBL Contracts, provided, that the Administrator shall indemnify and hold harmless the Company Indemnified Parties from and against any and all Indemnifiable Losses incurred by any of them in connection with such actions.
ARTICLE V
COLLECTIONS
Section 5.1 Collection Services. From and after the Inception Date and subject to Section 2.3, the Administrator shall assume all responsibility for the receipt and processing of all premiums, deposits, policy loan interest or repayments and other Recoveries with respect to the LBL Contracts and the Vermont Captive Contracts and the allocation of such amounts between the General Account of the Company and, if applicable, the Shared Separate Account in accordance with the terms of the LBL Contracts, the Vermont Captive Contracts, the Reinsurance Agreement and this Agreement. The Administrator, on behalf of the Company, shall process payment of any amounts to be paid out of the Shared Separate Account in accordance with the terms of the applicable LBL Contract or Vermont Captive Contract, to the extent of sufficient funds therein. The Parties shall cooperate to establish procedures to prevent the commingling of assets attributable to the Administered Business, on the one hand, and the business of the Company that is not Administered Business, on the other hand, including by establishment of separate lockboxes with respect to the LBL Contracts and Vermont Captive Contracts, on the one hand, and the business of the Company that is not Administered Business, on the other hand, and otherwise to ensure that funds are traceable to the appropriate Company insurance policy.
(a) The Company shall promptly remit to the Administrator all premiums, deposits, policy loan interest and repayments, claims expenses, expense allowance and all other Recoveries received by it with respect to the LBL Contracts, the Shared Separate Account with respect to the LBL Contracts, the Vermont Captive Contracts or the Vermont Captive Reinsurance Agreement and the Administrator shall promptly remit to the Company all premiums, deposits, policy loans, interest and repayments received by it with respect to the Company Business.
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ARTICLE VI
CLAIMS HANDLING
Section 6.1 Claim Administration Services. From and after the Inception Date, subject to Section 2.3, the Administrator shall acknowledge, consider, review, investigate, deny, settle, pay or otherwise dispose of each claim for benefits and disbursements reported under each LBL Contract and Vermont Captive Contract (each, a Claim and collectively the Claims).
Section 6.2 Description of Claim Administration Services. Without limiting the foregoing, the Administrator shall:
(i) provide claimants under the LBL Contracts and Vermont Captive Contracts and their authorized representatives (collectively, Claimants) with Claim forms and provide reasonable explanatory guidance to Claimants in connection therewith;
(ii) establish, maintain and organize Claim files and maintain and organize other Claims-related records;
(iii) review all Claims and determine whether the Claimant is eligible for benefits and if so, the nature and extent of such benefits;
(iv) prepare and distribute to the appropriate recipients and Governmental Entities any Claims reports as required by Applicable Law;
(v) respond to all written or oral Claims-related communications that the Administrator reasonably believes to require a response;
(vi) maintain a complaint log with respect to the LBL Contracts and Vermont Captive Contracts in accordance with applicable requirements of Governmental Entities, and at the Companys request, provide a copy of such log; and
(vii) respond to and manage any Claims-related matters pursuant to Article VII.
ARTICLE VII
REGULATORY AND LEGAL PROCEEDINGS
Section 7.1 Notice of Action. If the Company or the Administrator receives notice of or otherwise becomes aware of any examination or Action instituted or threatened in writing against the Company that relates exclusively or in part to the Administered Business, such Party shall promptly notify the other Party thereof, and in no event more than five (5) Business Days after receipt of notice thereof, and shall promptly furnish to such other Party copies of all pleadings in connection therewith.
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Section 7.2 Defense of Regulatory Complaints and Actions.
(a) From and after the Inception Date, with respect to any examination or Action initiated by a Governmental Entity with respect to the Administered Business, the Administrator shall supervise and control the investigation, contest, defense and/or settlement of all such Actions at its own cost and expense, in the name of the Company when necessary, subject to Sections 2.3 and clauses (b), (c) and (d) below. The Administrators supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.
(b) The Company authorizes the Administrator to prepare, with a copy to the Company, a response to any such examination or Action initiated by a Governmental Entity with respect to the Administered Business within the Governmental Entitys requested time frame for response or, if no such time frame is provided, within the time frame as allowed by Applicable Law; provided, that, subject to meeting such time frames, the Administrator shall provide its proposed response to the Company for its prior review and comment; provided, further, that with respect to such examinations or Actions that relate in part to the Company Business, the Administrator shall not respond to any such examinations or Actions without taking into account in good faith any recommendations of the Company provided to the Administrator with respect to such matters and shall not unreasonably reject such recommendations.
(c) Notwithstanding anything in this Agreement to the contrary, the Company, upon written notice to the Administrator and at its own cost and expense, shall have the right at any time to supervise and exclusively control the defense and/or settlement of any examination or Action initiated by a Governmental Entity that, if successful, would reasonably be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates; provided, however, the Company shall not respond to any such examinations or Actions that relate to the Administered Business without taking into account in good faith any recommendation of the Administrator provided to the Company with respect to such matters and shall not unreasonably reject such recommendation, and shall not settle or compromise any such examinations or Actions without the Administrators prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned). The Companys supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.
(d) The Administrator shall not settle or compromise any examination or Action described in Section 7.2(a) without the Companys prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned) unless (i) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Person by the Company or any of its Affiliates, (ii) the sole relief provided is monetary damages that are paid in full by the Administrator or its Affiliates and a full and complete release is provided to the Company and its Affiliates and (iii) the settlement does not encumber any of the assets of the Company or its Affiliates or contain any restriction or condition that would materially adversely affect the Company or its Affiliates.
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Section 7.3 Other Actions.
(a) From and after the Inception Date, with respect to any Action with respect to the Administered Business by any Person other than a Governmental Entity, the Administrator shall:
(i) subject to Sections 2.3 and clauses (b), (c) and (d) below, supervise and control the investigation, contest, defense and/or settlement of all such Actions at its own cost and expense, in the name of the Company when necessary; and
(ii) keep the Company fully informed of the progress of all Actions supervised or controlled by the Administrator in which the Company is a named party and, at the Companys request, provide to the Company a report summarizing the nature of such Action, the alleged actions or omissions giving rise to such Actions and copies of any files or other documents that the Company may reasonably request in connection with its review of such matters, in each case other than such files, documents and other information as would, in the judgment of counsel to the Administrator, lead to the loss or waiver of legal privilege.
The Administrators supervision and control of such Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.
(b) The Company shall have the right to engage its own separate legal representation, at its own expense, and to participate fully in the defense of any Action (other than Actions brought by a Governmental Entity, which are the subject of Section 7.2) relating to the Administered Business with respect to which the Company is a named party if such Action, if successful, reasonably could be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates, without waiving any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.
(c) The Administrator shall not settle or compromise any Action described in Section 7.3(b) without the Companys prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned) unless (i) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Person by the Company or any of its Affiliates, (ii) the sole relief provided is monetary damages that are paid in full by the Administrator or its Affiliates and a full and complete release is provided to the Company and its Affiliates, (iii) the settlement does not encumber any of the assets of the Company or its Affiliates or contain any restriction or condition that would materially adversely affect the Company or its Affiliates and (iv) the Action neither is certified, nor seeks certification, as a class action.
(d) The Company, upon written notice to the Administrator and at its own cost and expense, shall have the right at any time to assume sole and exclusive control over the response, defense, settlement or other resolution of any Action (other than Actions brought by a
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Governmental Entity, which are the subject of Section 7.2) that, if successful, reasonably could be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates; provided, however, the Company shall not respond to any such Actions without taking into account in good faith any recommendation of the Administrator provided to the Company with respect to such Actions and shall not unreasonably reject such recommendation, and shall not settle or compromise any such Actions without the Administrators prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned). The Companys supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.
Section 7.4 Cooperation. Each Party hereto shall cooperate with and assist the controlling Party in responding to, defending, prosecuting and settling any examination or Action under this Article VII; provided, that neither Party shall be required to waive any applicable attorney-client, attorney work product or other evidentiary privileges, and provided, further that neither Party shall be required to provide the other Party access to any federal, state, or local consolidated income Tax Return that includes the responding Party or its Affiliates. Without limiting the generality of the foregoing, each of the Parties shall assist each other and cooperate with the other Party in doing all things necessary, proper or advisable in a commercially reasonable manner in connection with any and all market conduct or other Governmental Entity examinations to the extent related to the Administered Business. Notwithstanding anything to the contrary contained in this Agreement, neither the Company nor the Administrator shall have the authority to institute, prosecute or maintain any regulatory proceeding on behalf of the other Party without the prior written consent of such other Party, except as expressly contemplated in this Agreement.
ARTICLE VIII
SEPARATE ACCOUNT ADMINISTRATIVE SERVICES
Section 8.1 Separate Account Administrative Services. From and after the Inception Date, subject to Section 2.3, in addition to the services described in any Article of this Agreement, the Administrative Services with respect to, or as a result of, the Shared Separate Account shall include those services set forth on Schedule A attached hereto.
Section 8.2 Changes to Fund Options.
(a) From and after the Inception Date, the Administrator may make recommendations to the Company as to changes in Fund options for the Shared Separate Account from and after the Inception Date and the Company shall not unreasonably reject such recommendations, but the Administrator will not change Fund options for the Shared Separate Account unless such changes are made: (a) with the prior written consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed, (b) in fulfillment of the fiduciary obligations of the Company or (c) by the Board of Trustees of a Fund to liquidate, merge or remove a Fund pursuant to the terms of the then-existing fund participation agreements or through a regulatory process. If the Administrator makes a change in the LBL Contracts or
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the Shared Separate Account in connection with the change of a Fund option as permitted above, the Administrator shall, at its own expense, prepare for signature by the Company and transmit on behalf of the Company to the appropriate Governmental Entity any SEC exemptive application, no-action letter or other regulatory filing necessary to reflect or implement such change; provided however, that the Administrator shall give the Company a reasonable opportunity to review and comment thereon.
(b) From and after the Inception Date, the Company will not change Fund options for the Shared Separate Account unless such changes are made: (a) with the prior written consent of the Administrator, such consent not to be unreasonably withheld, conditioned or delayed, (b) in fulfillment of the fiduciary obligations of the Company or (c) by the Board of Trustees of a Fund to liquidate, merge or remove a Fund pursuant to the terms of the then-existing fund participation agreements or through a regulatory process. If the Company makes a change in the Company Business or the Shared Separate Account in connection with the change of a Fund option as permitted above, the Company shall, at its own expense, prepare and transmit to the appropriate Governmental Entity any SEC exemptive application, no-action letter or other regulatory filing necessary to reflect or implement such change; provided however, that the Company shall give the Administrator a reasonable opportunity to review and comment thereon. In the event that the Company adds any Fund options to the Shared Separate Account, the Monthly Separate Account Administrative Fee shall be adjusted to reflect any changes in the Administrators costs of administration of the Shared Separate Account resulting from the new Fund option, in accordance with Schedule A.
(c) In the event that the Parties mutually agree (such agreement not to be unreasonably withheld, conditioned or delayed) that it is impracticable for the Shared Separate Account to continue to include assets in respect of LBL Contracts and Company Business, the Company and the Administrator shall cooperate in the formation of a new registered separate account of the Company and the transfer from the Shared Separate Account to such new separate account of all assets and amounts held in the Shared Separate Account in respect of the LBL Contracts (the Separate Account Separation). In such event, the Company and the Administrator shall mutually discuss in good faith and agree on (i) how the Parties will share the fees, costs and expenses associated with the Separate Account Separation and (ii) revisions to this Agreement (including the Schedules hereto) to define their respective rights and obligations with respect to the Shared Separate Account and the newly formed separate account from and after the Separate Account Separation.
Section 8.3 Changes to Separate Account Fees. From and after the Inception Date, either Party may propose changes to any fees or other amounts receivable from or in respect of Fund options for the Shared Separate Account for approval by the other Party, which approval shall not be unreasonably withheld, conditioned or delayed. In the event of any such changes in fees or other amounts, the Monthly Separate Account Administrative Fee shall be adjusted to reflect any changes in the Administrators costs of administration of the Shared Separate Account resulting therefrom, in accordance with Schedule A . Nothing in this Section 8.3 shall apply to any changes to any Non-Guaranteed Elements, which changes shall be made solely in accordance with Section 3.2 of the Reinsurance Agreement.
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Section 8.4 Variances. Until termination or expiration of the Transition Services Agreement, Section 2.4 of the Transition Services Agreement will govern the rights of the Parties with respect to Variances (as defined below) occurring while such agreement is in effect. Upon termination or expiration of the Transition Services Agreement, Administrator shall provide to the Company (a) such daily reports as the Administrator and/or its Affiliates produced during the nine (9) months prior to the Inception Date (the Pre-Closing Date Period) summarizing (i) the discrepancies arising in the execution and recording of investment transactions with respect to Company Business that are caused by Administrators errors, and (ii) gains or losses to the Company resulting from late or incorrect prices being sent to the Company, if such late or incorrect prices were caused by an Administrator error (collectively, the items summarized in (a)(i) and (a)(ii) are the Variances), and (b) such weekly and monthly reconciliation reports as the Administrator and/or its Affiliates produce during the Pre-Closing Date Period. The Administrator shall notify the Company within twenty-four (24) hours of identifying any Variance. At the end of every twelve (12) month period following the termination or expiration of the Transition Services Agreement (each, a True-Up Period) and once at the termination of this Agreement (the Final True-Up Period), Administrator shall aggregate the Variances over the months occurring during the applicable True-Up Period or Final True-Up Period (such aggregate being the True-Up Sum). If the True-Up Sum for a True-Up Period or the Final True-Up Period, as applicable, is negative and the absolute value of such negative amount exceeds an amount equal to the product of ten thousand dollars ($10,000) per month times the number of months of such True-Up Period or Final True-Up Period (the Variance Limit), the Administrator shall remit such amount in excess of the Variance Limit to the Company but not in excess of the Cap (determined as of the last day of the applicable True-Up Period or the Final True-Up Period, as applicable).
ARTICLE IX
MISCELLANEOUS SERVICES
Section 9.1 Ceded Reinsurance Contracts.
(a) From and after the Inception Date, subject to Section 2.3, the Administrator shall have the authority and responsibility to, and shall, manage and administer the portion of the Ceded Reinsurance Contracts that relates to the LBL Contracts, including providing all reports and notices that relate to the LBL Contracts required with respect to the Ceded Reinsurance Contracts to the reinsurers within the time required by the applicable Ceded Reinsurance Contract and doing all other things necessary to comply with the terms and conditions of the Ceded Reinsurance Contracts. Without limiting the foregoing, the Administrator shall timely pay all reinsurance premiums due to reinsurers under the Ceded Reinsurance Contracts with respect to the LBL Contracts, and collect from such reinsurers all reinsurance recoverables due thereunder with respect to the LBL Contracts. The Administrator shall also have the authority to exercise any of the Companys rights with respect to trust accounts, letters of credit or other security posted for the benefit of the Company in respect of the LBL Contracts under any Ceded Reinsurance Contract that is not a Shared Reinsurance Agreement. Notwithstanding the foregoing, in the event that the Administrator materially fails to perform its obligations under this Section 9.1(a) with respect to any Shared Reinsurance Agreement, then upon written notice to the Administrator, the Company may assume the
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authority and responsibility to manage and administer the portion of such Shared Reinsurance Agreement that relates to the LBL Contracts, and the Administrator shall use reasonable best efforts timely to provide any data, information, premiums and other amounts necessary in connection with such management and administration and shall otherwise cooperate in good faith with the Company in connection therewith. Notwithstanding the foregoing, the Company shall reasonably cooperate with Administrator, at Administrators expense, in the administration of the Ceded Reinsurance Contracts to the extent that the Companys participation is required thereunder or is reasonably requested by the counterparty to any Ceded Reinsurance Contract.
(b) The Company shall have the authority and responsibility to, and shall, manage and administer the portion of the Shared Reinsurance Agreements that does not relate to the LBL Contracts, including providing all reports and notices that relate to policies other than the LBL Contracts required with regard to such Shared Reinsurance Agreements to the reinsurer within the time required by such Shared Reinsurance Agreements and doing all other things necessary to comply with the terms and conditions of such Shared Reinsurance Agreements. Without limiting the foregoing, the Company shall timely pay all reinsurance premiums due to the reinsurer under such Ceded Reinsurance Contracts with respect to the policies other than LBL Contracts, and collect from such reinsurer all reinsurance recoverables due thereunder with respect to the policies other than the LBL Contracts. Notwithstanding the foregoing, in the event that the Company materially fails to perform its obligations under this Section 9.1(b) with respect to such Shared Reinsurance Agreement, then upon written notice to the Company, the Administrator may assume the authority and responsibility to manage and administer the portion of such Shared Reinsurance Agreement that does not relate to the LBL Contracts, and the Company shall use reasonable best efforts timely to provide any data, information, premiums and other amounts necessary in connection with such management and administration and shall otherwise cooperate in good faith with the Administrator in connection therewith. In the event that (i) the Company has not materially failed to perform its obligation under this Section 9.1(b) with respect to a Shared Reinsurance Agreement but (ii) the Company is determined to be obligated to provide consolidated reporting with respect to such Shared Reinsurance Agreement, the Parties shall cooperate in good faith to develop a mutually agreeable method to manage and administer such Shared Reinsurance Agreement. The Company shall have the right to exercise all of its rights with respect to trust accounts, letters of credit or other security posted for the benefit of the Company under any Shared Reinsurance Agreement; provided that it shall hold in trust for the benefit of the Administrator, and transfer to the Administrator, any amounts withdrawn by the Company from any such trust accounts, letters of credit or other security that relate to the LBL Contracts (which amounts constitute Recoveries under the Reinsurance Agreement); provided, however, that the Company shall honor Administrators requests for collateral draws with respect to the LBL Contracts to the extent permitted under such Shared Reinsurance Agreement.
Section 9.2 Amendments and Replacements. From and after the Inception Date, the Administrator shall have the right to terminate, amend or replace with a new reinsurance agreement between the Administrator and the applicable reinsurer, in whole or in part, any of the Ceded Reinsurance Contracts to the extent such termination, amendment or replacement relates to the LBL Contracts or Vermont Captive Contracts, respectively; provided such termination, amendment or replacement does not affect the reinsurance coverage or other reinsurance terms provided thereunder with respect to the Company Business. The Company shall, upon the
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Reinsurers request, cooperate with the Administrator and take all actions reasonably requested by the Administrator to cause such terminations, amendments or replacements of Ceded Reinsurance Contracts or to cause such new Ceded Reinsurance Contracts to be entered into. The Administrator shall reimburse the Company for all reasonable and documented out-of-pocket costs and expenses incurred by the Company or its Affiliates in connection with such terminations, amendments or replacements of Ceded Reinsurance Contracts or the entering into of such new Ceded Reinsurance Contracts.
Section 9.3 Vermont Captive Reinsurance Agreement. The Administrator shall have the authority and responsibility on behalf of the Company to manage and administer the Vermont Captive Reinsurance Agreement, including providing all reports and notices required thereunder to be provided by the Company within the time required thereby.
Section 9.4 Non-Guaranteed Elements.
(a) With respect to the LBL Contracts, in accordance with the terms of the Reinsurance Agreement, the Administrator may provide recommendations to the Company as to the setting of all Non-Guaranteed Elements.
(b) With respect to the Vermont Captive Contracts, the Administrator, in consultation with the Vermont Captive, may, from time to time, make recommendations to the Company with respect to Non-Guaranteed Elements so long as the recommendations comply with the written terms of the Vermont Captive Contracts, Applicable Law and Actuarial Standards of Practice promulgated by the Actuarial Standard Board governing redetermination of non-guaranteed charges. The Company shall establish Non-Guaranteed Elements, taking into account the recommendations of the Administrator (in consultation with the Vermont Captive) with respect thereto. The Company shall fully consider any such recommendations and act reasonably and in good faith in determining whether any such recommendations should be accepted and shall not unreasonably delay implementation of any accepted recommendations after such recommendations are provided in writing, except to the extent that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitutes Company Business.
(c) Notwithstanding anything to the contrary contained herein, in the event that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of Administrators recommendations with respect to one or more LBL Contracts or Vermont Captive Contracts to apply to any policy or contract that constitutes Company Business (a) the Parties shall cooperate in good faith to develop a mutually agreeable plan to set Non-Guaranteed Elements with respect to such LBL Contracts or Vermont Captive Contracts and such Company Business, and the Parties shall implement any such plan so agreed and (b) the Company shall not be liable for any Indemnified Losses incurred by the Administrator as a result of the Companys failure to implement Administrators recommendations. In the event that the Company is notified by an applicable Governmental Entity that it proposes making a determination that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitute Company Business, the Company shall promptly notify the Administrator of such notification. The Parties will thereafter cooperate in good faith and use their reasonable best efforts to reach agreements with such Governmental
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Entity that will avoid a final determination to such effect. The Administrator acknowledges that the Company has certain indemnification rights under the Reinsurance Agreement for Indemnifiable Losses resulting from the Companys acceptance and implementation of the Administrators recommendations in accordance with this Section 9.4.
Section 9.5 Contractholder Services. From and after the Inception Date subject to Section 2.3, the Administrator shall provide all contractholder services in connection with the LBL Contracts and Vermont Captive Contracts.
Section 9.6 Principal Underwriting Agreement. The Administrator shall have the authority and responsibility on behalf of the Company to perform the services and other obligations required of the Company, and to enforce the Companys rights, under (a) the Principal Underwriting Agreement and (b) that certain Selling Agreement dated August 2, 1999 by and between the Company, Allstate Life Financial Services, Inc. and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.), as amended, in each case to the extent relating to the LBL Contracts and the Shared Separate Account covered thereunder; provided, however, that the Administrator shall have no responsibility to perform any indemnification obligations of the Company under the Principal Underwriting Agreement or such Selling Agreement to the extent such obligations arise out of any act or omission of the Company (other than an act or omission for which Administrator is responsible hereunder).
Section 9.7 Other Services. Subject to Section 2.3, the Administrator shall provide such other administrative services as are necessary or appropriate to fully effectuate the purpose of the Reinsurance Agreement, the Vermont Captive Reinsurance Agreement and this Agreement, including such services as are not performed by or on behalf of Company on the date hereof but the need for which may arise due to changes or developments in Applicable Law and are consistent with the allocation of the services set forth herein between the Administrator and the Company.
ARTICLE X
NOTIFICATION TO CONTRACTHOLDERS
Section 10.1 Notification to Contractholders. If required by Applicable Law, the Administrator shall send to applicable contractholders under the LBL Contracts and the Vermont Captive Contracts a written notice prepared by the Administrator and reasonably acceptable to the Company to the effect that the Administrator has been appointed by the Company to provide the Administrative Services with respect to the LBL Contracts and the Vermont Captive Contracts, as applicable. The Administrator shall send such notice by first class U.S. mail at a time reasonably acceptable to the Company and the Administrator and in all events in accordance with Applicable Law. Unless otherwise required by Applicable Law, the Administrator may include such notice in a regularly scheduled mailing to such contractholders in lieu of a separate mailing.
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ARTICLE XI
QUARTERLY PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS
Section 11.1 Quarterly Accountings. Subject to Section 2.3, from and after the Inception Date, within ten (10) Business Days after the end of each calendar quarter that this Agreement is in effect (or more frequently as mutually agreed by the Parties), the Company shall submit to the Administrator a written statement of accounting in a form and containing such information to be agreed upon by the Parties hereto (each, an Insolvency Fund Quarterly Accounting) setting forth the insolvency fund amounts assessed against or payable by the Company, to the extent that such assessments constitute the Companys General Account Liabilities in respect of the LBL Contracts and the Vermont Captive Contracts (collectively, the Post-Inception Date Assessments). In addition, within twenty (20) Business Days after the last day of each calendar quarter that this Agreement is in effect (or more frequently as mutually agreed by the Parties), the Administrator shall submit to the Company a written statement of accounting in a form and containing such information to be agreed upon by the Parties hereto (each, a Quarterly Premium Tax Accounting, and together with the Insolvency Fund Quarterly Accountings, the Quarterly Accountings) setting forth the estimated premium taxes due with respect to the LBL Contracts and the Vermont Captive Contracts as a result of premiums collected or annuitizations occurring during such quarter. Concurrent with the delivery of each Quarterly Premium Tax Accounting, the Administrator shall remit to the Company the amount set forth on such Quarterly Premium Tax Accounting with respect to such estimated premium taxes due and the amount set forth in such Insolvency Fund Quarterly Accounting with respect to the Post-Inception Date Assessments, and any other amounts owed to the Company pursuant to this Agreement.
Section 11.2 Adjustments Regarding Quarterly Accountings. In the event that subsequent data or calculations require revision of any of the Quarterly Accountings, the required revision and appropriate payments thereunder shall be made within twenty (20) Business Days after the Parties hereto mutually agree as to the appropriate revision.
ARTICLE XII
CERTAIN ACTIONS BY COMPANY
Section 12.1 Filings. Subject to Section 2.3, the Company shall prepare and timely file any filings required to be made with any Governmental Entity that relate to the Company generally and not just to the LBL Contracts or the Vermont Captive Contracts, including filings with guaranty associations and filings and premium tax returns with taxing authorities. The Administrator shall timely provide to the Company upon request all information in the possession of the Administrator with respect to the LBL Contracts and the Vermont Captive Contracts that may be reasonably required for the Company to prepare such filings and tax returns.
Section 12.2 Annual Adjustment. The Company shall pay or provide to the Administrator the benefit of any Post-Inception Date Assessments which have been applied to reduce the Companys premium tax liability (Premium Tax Credits). The Company shall
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provide to the Administrator by April 15 of each year a statement of the amount (the Annual Adjustment) of (i) premium taxes (including retaliatory taxes) paid with respect to premiums collected or annuitizations occurring during the prior calendar year (to the extent that such taxes constitute the Companys General Account Liabilities), less (ii) estimated premium taxes paid by the Administrator to the Company with respect to such premiums under the provisions of Article XI, less (iii) Premium Tax Credits for the prior calendar year. By May 31 of each year the Administrator shall pay to the Company the Annual Adjustment, if a positive amount, and the Company shall pay or credit to the Administrator the absolute value of the Annual Adjustment, if a negative amount.
ARTICLE XIII
REGULATORY MATTERS AND REPORTING
Section 13.1 Regulatory Compliance and Reporting. Subject to Section 2.3, upon the timely and reasonable request of the Company, the Administrator shall provide to the Company such information with respect to the LBL Contracts and the Vermont Captive Contracts as is reasonably required to enable the Company timely to comply with regulatory and financial reporting requirements applicable to the Company from time to time, other than such regulatory and financial reporting requirements that are required because the Company or its Affiliates are subject to non-U.S. legal or regulatory requirements and industry standards. Without limiting the foregoing, the Administrator shall provide the reports and information set forth on Schedule A within the timeframes indicated therein. In addition, and without limiting the Administrators obligation to provide the Administrative Services hereunder, upon the timely and reasonable request of the Company, the Administrator shall promptly provide to the Company copies of all existing records relating to the Administered Business (including, with respect to records maintained in machine readable form, hard copies) that are reasonably necessary to satisfy any requirements imposed by Applicable Law or any Governmental Entity upon the Company with respect to the Administered Business. All (i) such information and (ii) such records furnished in the ordinary course of business relating to the Administered Business shall be furnished at the Administrators sole cost and expense. Without limiting the generality of the foregoing, upon the timely and reasonable request of the Company, the Administrator shall promptly prepare and furnish to Governmental Entities, to the extent permitted by Applicable Law, all reports and related summaries (including statistical summaries), certificates of compliance and other reports required or requested by any such Governmental Entity with respect to the Administered Business, other than such reports, summaries and certificates that are required or requested because the Company or its Affiliates are subject to non-U.S. legal or regulatory requirements and industry standards. Without limiting the foregoing:
(i) As soon as practicable but not more than ten (10) Business Days after the end of each month that this Agreement is in effect (or, with respect to any January, within fifteen (15) Business Days after the end of such month), the Administrator shall provide to the Company reports and summaries of transactions (and upon the reasonable request of the Company, detailed supporting records) related to the LBL Contracts and the Vermont Captive Contracts as may be reasonably required for use in connection with the preparation of the Companys GAAP financial statements (or any consolidated GAAP financial statements of the Company or its Affiliates, as applicable), including all premiums received and all benefits paid. The Parties shall cooperate in good faith to establish the manner for the providing of such reports.
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(ii) As soon as practicable but not more than twelve (12) Business Days after the end of each calendar quarter that this Agreement is in effect, (or more frequently as mutually agreed by the Parties), the Administrator shall timely provide to the Company reports and summaries of transactions (and upon the reasonable request of the Company, detailed supporting records) related to the LBL Contracts and the Vermont Captive Contracts as may be reasonably required for use in connection with the preparation of the Companys statutory financial statements, U.S. tax returns and other required U.S. financial reports and to comply with the requirements of the U.S. regulatory authorities having jurisdiction over the Company (or any consolidated statutory financial statements, U.S. tax returns or other U.S. financial reports of the Company or its Affiliates, as applicable), including all premiums received and all benefits paid. The Parties shall cooperate in good faith to establish the manner for the providing of such reports.
(iii) The Administrator shall promptly provide notice to the Company of any changes in the reserve methodology used by the Administrator in calculating statutory reserves for the LBL Contracts and the Vermont Captive Contracts.
(iv) Within thirty (30) Business Days after each calendar year end (or such longer time as may be agreed by the Parties) that this Agreement is in effect, the Administrator shall provide to the Company an actuarial analysis of statutory reserves for the LBL Contracts and the Vermont Captive Contracts, reasonably adequate to support opinions prepared according to accepted actuarial standards of practice to be issued by the Company, and as otherwise required for regulatory reporting purposes. The Administrator shall also provide supporting documentation as reasonably requested by the Company or as required by Governmental Entities or actuarial standards of practice. In the event that Applicable Law imposes (a) a legal requirement on the Administrator, in its capacity as reinsurer under the Reinsurance Agreement or administrator under this Agreement, to provide an actuarial opinion as to the adequacy of statutory reserves for the LBL Contracts or the Vermont Captive Contracts, or (b) a legal requirement on the Company to obtain such an actuarial opinion from the Administrator in any such capacity, the Administrator shall timely provide such opinion directly to the applicable Governmental Entity in substantially the form required by Applicable Law.
Section 13.2 Additional Reports and Updates. For so long as this Agreement remains in effect, upon reasonable notice, each Party shall from time to time furnish to the other such other reports and information related to Administered Business as may be reasonably required by such other Party for regulatory, tax or similar purposes and reasonably available to it, and such reports or information shall be prepared and delivered on a timely basis in order for the receiving Party to comply with any filing deadlines required by Applicable Law or by contract. In addition, until December 31, 2016, the Administrator shall provide monthly reports to the Company with respect to the number of LBL Replacement Policies issued by the Administrator and its Affiliates.
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Section 13.3 Additional Reports. The Administrator shall provide such subcertifications with respect to the LBL Contracts and the Vermont Captive Contracts to enable the Company to meet its requirements under Section 302 of the Sarbanes-Oxley Act of 2002 or any Applicable Law requiring the making of certifications by an unaffiliated third party, in a form to be mutually agreed upon by the Parties hereto. In addition, the Administrator shall notify the Company of any significant control deficiencies or material weaknesses in the Administrators internal controls over financial reporting or pricing process relating to the Administered Business as soon as reasonably practicable after becoming aware of such deficiency or weakness. The Administrator shall remediate and/or mitigate any such deficiency or weakness, and shall provide the Company evidence of such remediation or weakness, as applicable.
ARTICLE XIV
BOOKS AND RECORDS
Section 14.1 Maintenance of Books and Records.
(a) As of and following the Inception Date, the Administrator shall maintain books and records of all transactions pertaining to the Administered Business (i) in accordance with any and all Applicable Laws, (ii) in accordance with the Administrators internal record retention procedures and policies, and (iii) in a format accessible by the Company and its representatives. All original books and records with respect to the LBL Contracts and Vermont Captive Contracts shall be or remain the property of the Company and shall not be destroyed without the consent of the Company; provided, that the Administrator shall continue to have custody of such books and records for so long as is reasonably required for the Administrator to carry out its duties under this Agreement.
(b) During the term of this Agreement, upon any reasonable request from the Company or its representatives, the Administrator shall (i) provide to the Company and its representatives reasonable access during normal business hours to the books and records under the control of the Administrator pertaining to the Administered Business; provided that such access shall not unreasonably interfere with the conduct of the business of the Administrator, (ii) permit the Company and its representatives to make copies of such records and provide reasonable access to employees concerning the information in such records and (iii) permit the Company and its representatives to review or copy any Tax Returns for which the Administrator is responsible that relate to the Administrative Services. Nothing herein shall require the Administrator to disclose any information to the Company or its representatives to the extent such information does not pertain to the Administered Business or if such disclosure would jeopardize any attorney-client privilege, the work product immunity or any other legal privilege or similar doctrine or contravene any Applicable Law or any contract (including any confidentiality agreement to which the Administrator or any of its Affiliates is a party) (it being understood that the Administrator shall use its reasonable best efforts to enable such information to be furnished or made available to the Company or its representatives without so jeopardizing privilege or contravening such Applicable Law or contract) or require the Administrator to disclose any personnel or related records.
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(c) During the term of this Agreement, upon any reasonable request from the Administrator or its representatives, the Company shall (i) provide to the Administrator and its representatives reasonable access during normal business hours to the books and records under the control of the Company pertaining to the Administered Business or the Retained Services; provided that such access shall not unreasonably interfere with the conduct of the business of the Company, and (ii) permit the Administrator and its representatives to make copies of such records. Nothing herein shall require the Company to disclose any information to the Administrator or its representatives if such disclosure would jeopardize any attorney-client privilege, the work product immunity or any other legal privilege or similar doctrine or contravene any Applicable Law or contract (including any confidentiality agreement to which the Company or any of its Affiliates is a party) (it being understood that the Company shall use its reasonable best efforts to enable such information to be furnished or made available to the Administrator or its representatives without so jeopardizing privilege or contravening such Applicable Law or contract) or require the Company to disclose its tax records (other than premium tax filings) or any personnel or related records.
(d) The Administrator shall maintain facilities and procedures that are in accordance with Applicable Law and commercially reasonable standards of insurance recordkeeping for safekeeping the books and records maintained by the Administrator or its Affiliates that pertain to the Administered Business. The Administrator shall back up all of its computer files relating to the Administered Business or otherwise used in the performance of the Administrative Services under this Agreement on a daily basis and shall maintain back-up files in an off-site location.
ARTICLE XV
COOPERATION
Section 15.1 Cooperation. Each Party hereto shall cooperate fully with the other in all reasonable respects in order to accomplish the objectives of this Agreement including making available to each their respective officers and employees for interviews and meetings with Governmental Entities and furnishing any additional assistance, information and documents as may be reasonably requested by a Party from time to time.
ARTICLE XVI
PRIVACY REQUIREMENTS
Section 16.1 Confidentiality Obligations. In providing the Administrative Services provided for under this Agreement, and in connection with maintaining, administering, handling and transferring the data of the Contractholders and other recipients of benefits under the LBL Contracts and Vermont Captive Contracts, the Administrator shall, and shall cause its Affiliates to, comply with any Applicable Law and/or regulations with respect to privacy or data security relative to Customer Information (as defined below), and shall implement and maintain an effective information security program (the Information Security Program) designed to protect Customer Information in compliance with all applicable privacy laws and other Applicable Law:
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(i) to ensure the security, integrity and confidentiality of Customer Information;
(ii) to protect against any anticipated threats or hazards to the security or integrity of such Customer Information; and
(iii) to protect against unauthorized access to or use of Customer Information which could result in substantial harm or inconvenience to the owner thereof or its Affiliates, or to Customers or potential Customers thereof.
The Administrator has made a copy of such Information Security Program in effect as of the Inception Date available to the Company. From time to time upon the Companys written request, the Administrator shall deliver a copy of its then-current Information Security Program to the Company. For as long as Administrative Services are provided hereunder, the Administrator shall, and shall cause its Affiliates to, abide by the Information Security Program with respect to the Administered Business. At all times during the term of this Agreement, the Information Security Program shall be no less protective of the Administered Business than the information security program of the Administrator applicable to the insurance business administered by the Administrator for its own account.
Customer Information is defined as all tangible and intangible information provided or disclosed hereunder about present or former contract holders, annuitants, or other beneficiaries (collectively, hereinafter Customers) or potential Customers of any Party or its Affiliates, including, but not limited to, name, address, telephone number, email address, account or policy information, and any list, description, or other grouping of Customers or potential Customers, and any medical records or other medical information of such Customers or potential Customers and any other type of information deemed nonpublic and protected by privacy laws and any other Applicable Law.
Section 16.2 Security Incidents.
(a) In the event that any Party discovers a security breach that has resulted or may reasonably result in unauthorized access to or disclosure of, or have any material adverse effect on, the security of any Customer Information related to the LBL Contracts or the Vermont Captive Contracts (a Security Incident) such Party shall (i) within 24 hours, notify the other Party of said Security Incident; and (ii) work with the other Party to take all measures reasonably necessary to restore the security of such Customer Information. The Company shall have the exclusive right to provide notice of any Security Incident to any Customers of the LBL Contracts or the Vermont Captive Contracts, any law enforcement Person or any other Governmental Authorities and to determine the content and timing of any such notice; provided, any such notice shall be subject to review and approval by the Administrator.
(b) Each Party acknowledges that the breach of its obligations under this Section 16.2 may cause irreparable injury and damages, which may be difficult to ascertain. Therefore a Party shall be entitled to seek injunctive relief with respect to any breach or threatened breach of this Section 16.2 by the other Party and its Affiliates. This provision shall not in any way limit such other remedies as may be available to any Party at law or in equity.
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ARTICLE XVII
CONSIDERATION FOR ADMINISTRATIVE SERVICES
Section 17.1 Consideration for Administrative Services. Except as set forth herein, with respect to the LBL Contracts, apart from the performance by the Company of its obligations under the Reinsurance Agreement, there shall be no fee or other consideration due to the Administrator for the performance of the Administrative Services and the Administrators other obligations under this Agreement. With respect to the Vermont Captive Contracts, the Administrator shall be entitled to collect and retain all claims expense, expense allowance or similar amounts due to the Company under the terms of the Vermont Captive Reinsurance Agreement, and the Company hereby sells, assigns, transfers and delivers to the Administrator all of its rights, title and interest in one hundred percent of such amounts actually received or receivable at or after the Inception Date by the Company or the Administrator. With respect to the performance by the Administrator of the services in respect of the Shared Separate Account, the Company shall pay to the Administrator the Monthly Separate Account Administrative Fee set forth in Schedule A.
ARTICLE XVIII
BANK ACCOUNTS; TRADEMARKS
Section 18.1 Establishment of Bank Accounts.
(a) The Administrator shall have the right to open and maintain the Bank Accounts in respect of the LBL Contracts in accordance with the terms of the Reinsurance Agreement, provided that the Administrator shall notify the Company in writing upon opening any such Bank Account in the name of the Company.
(b) During the term of this Agreement, the Administrator may use such Bank Accounts or open and maintain one or more additional bank accounts with banking institutions with respect to the Vermont Captive Contracts (the Vermont Captive Bank Accounts). The Administrator shall have the exclusive authority over the Vermont Captive Bank Accounts including, without limitation, the exclusive authority to (a) open the Vermont Captive Bank Accounts in the name of the Company, (b) designate the authorized signatories on the Vermont Captive Bank Accounts, (c) issue drafts on and make deposits in the Vermont Captive Bank Accounts in the name of the Company, (d) make withdrawals from the Vermont Captive Bank Accounts and (e) enter into agreements with respect to the Vermont Captive Bank Accounts on behalf of the Company; provided, that in no event shall the Company be responsible for any fees, overdraft charges or other payments, liabilities or obligations with respect to any such Bank Accounts or be obligated to provide funding for the Bank Accounts. The Company shall do all things necessary at the Reinsurers expense to (x) enable and authorize the Administrator to use the Companys existing lockboxes with respect to the Vermont Captive Contracts, if any, and (y) enable the Administrator to open and maintain the Vermont Captive Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions. The Company agrees that without the Reinsurers prior written consent it shall not make any changes to the authorized signatories on the Vermont Captive Bank Accounts nor attempt to withdraw any funds therefrom.
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Section 18.2 Trademarks. Administrator hereby acknowledges that the Company has adopted and is using the names and marks listed on Schedule C hereto in connection with the LBL Contracts and Vermont Captive Contracts (collectively, the Licensed Names and Marks). The Company and Administrator agree as follows:
(a) The Company hereby grants to the Administrator and Administrator hereby accepts a non-exclusive, non-transferable, royalty-free license to use the Licensed Names and Marks in connection with the Administrative Services, including Post-Closing Policies, during the term of, and subject to the terms and conditions set forth in this Agreement. Any of the rights in the foregoing license may be sublicensed by the Administrator in connection with any contract permitted by Section 3.3; provided, that such sublicense is limited to the use of the Licensed Names and Marks in connection with the Administrative Services, including Post-Closing Policies and does not extend the right to further sublicense any such Licensed Names and Marks. If the Administrator sublicenses any of the rights in the foregoing license, the Administrator shall remain liable for any actions or omissions by the sublicensee. The Administrator is granted no rights to use the Licensed Names and Marks, other than those rights specifically described and expressly licensed in this Agreement and no right is granted hereunder for the use of the Licensed Names and Marks in connection with any services other than the Administrative Services, including Post-Closing Policies. Other than in connection with the Administrative Services, including Post-Closing Policies, none of the rights licensed to the Administrator under this Section 18.2 may be assigned, sublicensed or otherwise transferred by the Administrator, nor shall such rights inure to the benefit of any trustee in bankruptcy, receiver or successor of the Administrator, whether by operation of law or otherwise, without the prior written consent of the Company, and any assignment, sublicense or other transfer without such consent shall be null and void. The merger of Administrator with or into another entity shall not constitute an assignment or other transfer of the rights licensed to the Administrator under this Section 18.2.
(b) The Administrator agrees that it will use the Licensed Names and Marks as the Company used them prior to the Closing and that the nature of such use on the Materials (as defined below) shall be at least equal to the standard of quality maintained by the Company in connection with such Licensed Names and Marks immediately prior to the Closing and consistent with established industry practice (collectively, the Licensor Standards). The Administrator agrees to make available for review, upon the Companys request, all materials that incorporate the Licensed Names and Marks including, but not limited to, advertising copy, labels, stickers, policies, brochures or other materials, including any applicable materials in connection with the Administrators performance under this Agreement (collectively, the Materials). If the Company objects to the manner in which a Licensed Name or Mark is used in connection with any Materials, the Company may request that the Administrator take, and the Administrator shall promptly take, all steps necessary to remedy any such deficiencies within 15 days after such notification, including to promptly discontinue the use of any such Materials. The Administrator shall promptly notify the Company of any material complaints received in writing from third parties regarding the products or services offered or provided under the Licensed Names and Marks and, at the request of the Company, shall reasonably cooperate with
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the Company in addressing and mitigating the circumstances giving rise to such complaints. The Administrator shall (a) permit the Company or its representatives reasonable access to such of the Administrators facilities and personnel as are actively involved in use of the Licensed Names and Marks on reasonable prior written notice, and (b) make available to the Company or its representatives for inspection specimens demonstrating the Administrators use of the Licensed Names and Marks on the Materials or otherwise in connection with the Licensed Names and Marks, as requested by the Company from time to time for the purpose of verifying that the Administrators use complies with Licensor Standards and to the extent reasonably necessary to maintain the validity of the Licensed Names and Marks and the valuable goodwill and reputation established by the Licensed Names and Marks.
(c) The Administrator agrees not to adopt or use any service mark, logo or design confusingly similar to the Licensed Names and Marks. It is understood that the Company retains the right, in its sole discretion, to modify the Licensed Names and Marks, upon reasonable prior notice to the Administrator. Any material costs incurred by the Administrator associated with any mailings to Contractholders required under Applicable Law as a result of such modification shall be reimbursed by the Company.
(d) The Administrator recognizes the value of the goodwill associated with the Licensed Names and Marks and acknowledges that, as between the Administrator and the Company, all proprietary rights therein and the goodwill attached thereto belong exclusively to the Company. All uses of the Licensed Names and Marks by the Administrator shall, with respect to service mark ownership only, inure solely to the benefit of the Company and any registration of the Licensed Names and Marks shall be registered by the Company in its name, it being understood that the present license shall not in any way affect the ownership by the Company of the Licensed Names and Marks, each of which shall continue to be the exclusive property of the Company. The Company shall, in its own name and at its own expense, maintain appropriate service mark protection for the Licensed Names and Marks. The Administrator shall not at any time during the term of this Agreement or at any time thereafter do or cause to be done any act contesting the validity of the Licensed Names and Marks, contesting or in any way impairing or tending to impair the Companys entire right, title and interest in the Licensed Names and Marks and the registrations thereof or adversely affecting the value of the Licensed Names and Marks or the reputation and goodwill of the Company. The Administrator shall not represent that it has any right, title or interest in the reputation and good will of the Company. The Administrator shall not represent that it has any right, title or interest in the Licensed Names and Marks other than the rights expressly granted by this Agreement.
(e) Subject to the provisions of Article XIX hereof, except with respect to any uses of the Licensed Names and Marks not authorized under this Agreement, the Company will indemnify, defend and hold the Administrator harmless from any Losses from claims that the Licensed Names and Marks infringe on the rights of third parties. Subject to the provisions of Article XIX, the Administrator will indemnify, defend and hold the Company harmless from any Losses that arise in connection with the Administrators use of the Licensed Names and Marks other than as authorized under this Agreement. This Section 18.2 shall survive the termination or expiration of this Agreement.
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(f) The right to institute and prosecute actions for infringement of the Licensed Names and Marks is reserved exclusively to the Company, and the Company shall have the right to join the Administrator in any such actions as a formal party. The Company may also request, and the Administrator shall provide, assistance with respect to any such infringement action. Any such action shall be conducted at the Companys expense. The Administrator shall provide prompt written notice to the Company of any infringement or unauthorized use of the Licensed Names and Marks of which it is aware, and agrees to assist the Company at the Companys expense in any such action brought by the Company. It is understood, however, that the Company is not obligated to institute and prosecute any such actions in any case in which it, in its sole judgment, may consider it inadvisable to do so. Any recovery obtained by the Company as a result of any such action shall belong solely to Company.
(g) The agreements and covenants contained in this Section 18.2 shall continue in effect until such time as this Agreement is terminated. Upon termination of this Agreement, the Administrator shall discontinue all use of the Licensed Names and Marks (but in no event will such use extend beyond sixty (60) calendar days after termination). Upon any such termination, the Administrator shall take all commercially reasonable actions necessary to effect such discontinuance. Upon termination, all of the Administrators rights to the Licensed Names and Marks shall revert to and continue to reside with and be owned exclusively by the Company.
ARTICLE XIX
INDEMNIFICATION
Section 19.1 Administrators Obligation to Indemnify. The Administrator shall indemnify, defend and hold harmless the Company and its Affiliates and their respective officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the Company Indemnified Persons) from and against any and all Indemnifiable Losses incurred by the Company Indemnified Persons to the extent arising from (i) any breach by the Administrator of the covenants and agreements of the Administrator contained in this Agreement (an Administrator Breach), (ii) any violations of Applicable Law by the Administrator or its Affiliates or Subcontractors (including without limitation under the Securities Act of 1933) or otherwise arising from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, contained in any registration statement or prospectus or other product materials relating to an LBL Contract or Vermont Captive Contract or any interest offered under an LBL Contract or Vermont Captive Contract or any amendment thereof, but only to the extent prepared or updated by Administrator and excluding any such statement or omission made in reliance upon and in conformity with information furnished in writing to Administrator by LBL or its Affiliates after the date hereof expressly for use therein, (iii) any indemnification payment by the Company pursuant to the Principal Underwriting Agreement in respect of LBL Contracts covered thereunder (except to the extent arising out of any act or omission of the Company for which Administrator is not responsible pursuant to this Agreement) and (iv) any successful enforcement of this indemnity; provided that, the Administrator shall have no obligation to indemnify any Company Indemnified Party to the extent such Indemnifiable Loss results from (i) any act or omission resulting from the negligence or willful misconduct of the Company after the
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Inception Date, or (ii) any Company Breach; and provided, further, that with respect to any Indemnifiable Losses under this Agreement (other than any Indemnifiable Losses to the extent arising from the Administrators gross negligence or willful misconduct) arising from the Administrators provision of Administrative Services for the Shared Separate Account in respect of the Company Business (such Indemnifiable Losses, the Capped Losses), the liability of the Administrator to the Company Indemnified Persons for any such Capped Losses shall be the Cap, determined as of the date the applicable Indemnifiable Losses were incurred.
Section 19.2 Companys Obligation to Indemnify. The Company hereby agrees to indemnify, defend and hold harmless the Administrator and its Affiliates and their respective officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the Administrator Indemnified Persons) from and against any and all Indemnifiable Losses incurred by the Administrator Indemnified Persons to the extent arising from (i) any breach by the Company of the covenants and agreements of the Company contained in this Agreement (a Company Breach), (ii) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, contained in any registration statement or prospectus or other product materials relating to an LBL Contract, Vermont Captive Contract, or the Company Business that is associated with the Shared Separate Account, or any interest offered under an LBL Contract, Vermont Captive Contract or the Company Business that is associated with the Shared Separate Account or any amendment thereof, in each case, that is made in reliance upon and in conformity with information provided in writing by the Company or an Affiliate after the Inception Date expressly for use by the Administrator in the preparation of such registration statement or prospectus, including audited financial statements for the Company or the Shared Separate Account, but excluding any such information to the extent contained in or derived from any data or report furnished to the Company by or on behalf of the Administrator or its Affiliates after the date hereof in accordance with this Agreement; and (iii) any successful enforcement of this indemnity; provided that, the Company shall have no obligation to indemnify any Administrator Indemnified Party to the extent such Indemnifiable Loss results from (i) any act or omission resulting from the negligence or willful misconduct of the Administrator or a Subcontractor, or (ii) any Administrator Breach.
Section 19.3 Definitions. As used in this Agreement:
Cap means, as of any date of determination, an amount equal to the Monthly Separate Account Administrative Fee actually paid by the Company to the Administrator under this Agreement in respect of the twelve (12) calendar months prior to such date of determination (or, if twelve (12) months have not yet elapsed since the Inception Date, then twelve (12) times the average Monthly Separate Account Administrative Fee during such shorter period), reduced by the sum of the Capped Losses actually paid by the Administrator to the Company Indemnified Persons and the amount actually paid by the Administrator to the Company in respect of any Variances pursuant to Section 8.4, in each case, that were incurred during the twelve (12) calendar months prior to such date of determination (or, if less than twelve (12) months have elapsed since the Inception Date, then since the Inception Date).
Indemnitee means any Person entitled to indemnification under this Agreement;
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Indemnitor means any Person required to provide indemnification under this Agreement;
Indemnifiable Losses means any and all damages, losses, Liabilities, obligations, costs and expenses (including reasonable attorneys fees and expenses); provided, that any Indemnity Payment (x) shall in no event include any amounts constituting punitive damages relating to the breach or alleged breach of this Agreement (except to the extent actually paid to a third party in connection with a Third Party Claim) and (y) and shall be net of any amounts recovered by or recoverable by the Indemnitee for the Indemnifiable Losses for which such Indemnity Payment is made under any insurance policy, reinsurance agreement, warranty or indemnity or otherwise from any Person other than a Party hereto, and the Indemnitee shall promptly reimburse the Indemnitor for any such amount that is received by it from any such other Person with respect to an Indemnifiable Losses after any indemnification with respect thereto has actually been paid pursuant to this Agreement;
Indemnity Payment means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement; and
Third Party Claim means any claim, action, suit, or proceeding made or brought by any Person that is not an Indemnitee.
Section 19.4 Applicability of Stock Purchase Agreement. The procedures set forth in Section 7.5 of the Stock Purchase Agreement shall apply to Losses indemnified under this Article XIX.
Section 19.5 No Duplication. To the extent that an Indemnitee has received payment in respect of an Indemnifiable Loss pursuant to the provisions of any other Transaction Agreement, such Indemnitee shall not be entitled to indemnification for such Indemnifiable Loss under this Agreement to the extent of such payment.
ARTICLE XX
DURATION; TERMINATION
Section 20.1 Duration. This Agreement shall commence on the Inception Date and continue with respect to each LBL Contract and each Vermont Captive Contract until no further Administrative Services in respect of such LBL Contract or Vermont Captive Contract are required, unless this Agreement is earlier terminated under Section 20.2.
Section 20.2 Termination.
(a) This Agreement is subject to immediate termination at the option of the Company, upon written notice to the Administrator, upon the occurrence of any of the following events:
(i) A voluntary or involuntary proceeding is commenced in any jurisdiction by or against the Administrator for the purpose of conserving, rehabilitating or liquidating the Administrator, and such proceeding shall continue undismissed for 60 days; or
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(ii) There is a material and continuing breach by the Administrator of this Agreement and such breach is not cured within twenty (20) Business Days following receipt by Administrator of written notice of such breach from the Company; provided, however, if such material breach is not curable within such twenty (20) Business Day period, the Company may not terminate the Administrators performance of the Administrative Services if the Administrator has, within such twenty (20) Business Day period, provided the Company with a detailed, written description of the Administrators good faith plan to cure such material and continuing breach; provided, further, if such material and continuing breach is not cured within forty-five (45) days following the Administrators delivery to the Company of such plan, the Company may terminate the Administrators performance of the Administrative Services.
(b) This Agreement may be terminated at any time upon the mutual written consent of the Parties hereto, which writing shall state the effective date of termination.
(c) In the event that this Agreement is terminated under any of the provisions of Section 20.2(a):
(i) the Administrator and the Company shall each cooperate in the prompt transfer of the applicable Administrative Services and any books and records and other materials maintained by the Administrator related to such Administrative Services (or, where required by Applicable Law, copies thereof) to the Company or the Companys designee reasonably acceptable to the Administrator;
(ii) in the event there has occurred a Change in Control at or prior to such termination, the Administrator shall use its reasonable best efforts to provide the Company or a replacement servicer designated by the Company with a license to, or seek to obtain consents of third parties for the use of, software and systems used by the Administrator in performing the Administrative Services as reasonably necessary to permit the Company or such replacement servicer to perform the Administrative Services for a reasonable period following such termination, such that the Company or such replacement servicer shall be able to perform the applicable Services without interruption following termination of this Agreement; and
(iii) the Administrator shall reimburse the Company for (A) reasonable out-of-pocket costs for transitioning the Administrative Services to a substitute provider reasonably acceptable to the Company (provided that in the event the Reinsurance Agreement is in effect at the time of such termination, the Company shall obtain the Administrators consent to such substitute provider, such consent not to be unreasonably withheld, conditioned or delayed, and the Administrator shall notify the Company of its decision with respect to such consent as soon as reasonably practicable and in any event within thirty (30) days following delivery of the Companys request for such consent), (B) any reasonable fees paid to any such substitute provider in connection with the performance of any Administrative Services and (C) any reasonable out-of-pocket costs
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incurred by the Company with respect to the Administrative Services after termination of this Agreement; provided, however, that the Administrator shall not be liable for the fees and expenses set forth in clauses (B) and (C) of this Section 20.2(c)(iii) that are incurred following the termination of the Reinsurance Agreement.
ARTICLE XXI
GENERAL PROVISIONS
Section 21.1 Schedules and Exhibits. The Schedules and Exhibits to this Agreement that are specifically referred to herein are a part of this Agreement as if fully set forth herein. Promptly following the occurrence of a Change of Control, the Administrator and the Company shall negotiate in good faith and use commercially reasonable efforts to agree upon an amended and restated Schedule A, which schedule shall contain a more detailed list of services theretofore provided by the Administrator hereunder and any services otherwise necessary or appropriate with respect to the Administered Business, including, without limitation, services relating to policy administration, claims handling, policyholders settlements and communications, administration of ceded reinsurance, regulatory and financial reporting, Shared Separate Account matters, regulatory and legal matters, actuarial matters, information technology, treasury functions and Tax matters. Promptly upon such agreement (as reflected in a writing signed by each of the Administrator and the Company), such amended and restated schedule shall become Schedule A for all purposes hereof.
Section 21.2 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):
(a) | if to the Company: |
Lincoln Benefit Life Company
Suite 300
Columbia Centre I
5600 North River Road
Rosemont, Illinois 60018
Attention: Simon Packer
Email: simon.packer@resolutionlife.com
with copies (which shall not constitute notice) to:
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Attention: Nicholas F. Potter
David Grosgold
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(b) | if to the Administrator: |
Allstate Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Attention: Jess Merten
Email: Jess.Merten@allstate.com
with copies to:
Allstate Life Insurance Company
3075 Sanders Road
Northbrook, Illinois 60062
Attention: Joy Thomas
Email: Joy.Thomas@allstate.com
and
Allstate Life Insurance Company
2775 Sanders Road
Northbrook, Illinois 60062
Attention: Beth Lapham
Email: blapham@allstate.com
with copies (which shall not constitute notice) to:
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Attention: John M. Schwolsky
Alexander M. Dye
Notice given by personal delivery or overnight courier shall be effective upon actual receipt.
Section 21.3 Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. All references herein to any agreement, instrument, statute, rule or regulation are to the agreement, instrument, statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, includes any rules and regulations promulgated under said statutes) and to any section of any statute, rule or regulation including any successor to said section. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation. Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate. Whenever the word Dollars or the $ sign appear in this Agreement, they shall be construed to mean United States Dollars, and all transactions under this Agreement shall be in United States Dollars. This
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Agreement has been fully negotiated by the Parties hereto and shall not be construed by any Governmental Entity against either Party by virtue of the fact that such Party was the drafting Party.
Section 21.4 Entire Agreement; Third Party Beneficiaries. This Agreement (including all exhibits and schedules hereto) and the other Transaction Agreements constitute the entire agreement, and supersede all prior agreements, understandings, representations and warranties, both written and oral, among the Parties with respect to the subject matter of this Agreement. Except as set forth in Article XIX with respect to the Administrator Indemnified Parties and the Company Indemnified Parties, this Agreement is not intended to confer upon any Person other than the Parties hereto and their successors and permitted assigns any rights or remedies.
Section 21.5 Governing Law. This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
Section 21.6 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise (other than by operation of law in a merger), by either Party without the prior written consent of the other Party, and any such assignment that is not consented to shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.
Section 21.7 Jurisdiction; Enforcement.
(a) Each of the Parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the United States or any state court, which in either case is located in the City and County of New York (each, a New York Court) for purposes of enforcing this Agreement or determining any claim arising from or related to the transactions contemplated by this Agreement. In any such action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided, that nothing set forth in this sentence shall prohibit any of the Parties hereto from removing any matter from one New York Court to another New York Court. Each of the Parties hereto also agrees that any final and unappealable judgment against a Party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such Party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment. Any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 21.2, constitute good, proper and sufficient service thereof.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING
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OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.7.
Section 21.8 Severability; Amendment; Modification; Waiver.
(a) Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
(b) This Agreement may be amended or a provision hereof waived only by a written instrument signed by each of the Administrator and the Company.
(c) No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.
Section 21.9 Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court of competent jurisdiction, in addition to any other remedy to which they are entitled at law or in equity. The Parties hereby waive, in any action for specific performance, the defense of adequacy of a remedy at law and the posting of any bond or other security in connection therewith.
Section 21.10 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party. Each Party may deliver its signed counterpart of this Agreement to the other Party by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.
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Section 21.11 Survival. Articles XVI, XIX, XX and XXI shall survive the termination of this Agreement.
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IN WITNESS WHEREOF, the Company and the Administrator have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.
LINCOLN BENEFIT LIFE COMPANY | ||
By: |
/s/ W. Weldon Wilson | |
Name: W. Weldon Wilson | ||
Title: CEO | ||
ALLSTATE LIFE INSURANCE COMPANY | ||
By: |
/s/ Harry R. Miller | |
Name: Harry R. Miller | ||
Title: SVP |
[Administrative Services Agreement]
EXHIBIT 1
APPROVED CONVERSION FORMS
| Total Accumulator VUL (to be de-commissioned on the applicable Underwriting Termination Date) |
| Whole Life II |
Exhibit 1
SCHEDULE A
CERTAIN ADMINISTRATIVE SERVICES; SEPARATE ACCOUNT
ADMINISTRATIVE FEE
Separate Account
The Administrator will perform the following services in respect of the Shared Separate Account, including the pricing and trading activities described below for the Shared Separate Account assets. The Parties agree and acknowledge that both the LBL Contracts and the Company Business are issued out of the Shared Separate Account, however, the policy administration of the LBL Contracts will be provided by the Administrator in accordance with this Agreement, and the policy administration of the Company Business will be retained by the Company on a separate administration system from that used by the Administrator. Accordingly, the Parties agree to cooperate fully with each other in all reasonable respects in order to ensure the proper administration of the Shared Separate Account.
1. | Nightly Pricing |
Upon receipt of nightly prices from underlying mutual fund (the Funds) companies, Administrator shall calculate AUV prices for both the LBL Contracts and the Company Business. Administrator will then forward AUV prices to the Company or its designated agent by 8:00 p.m. (Central Time) on each day that the New York Stock Exchange is open for business. This process will remain in place to ensure the prices on the administration systems in use by each of the Administrator and the Company remain in alignment at all times. In the event that on any such day Administrator does not receive a price or prices from one or more Fund companies, or Administrator receives its pricing transmissions after 8:00 p.m. (Central Time), Administrator will take commercially reasonable steps to generate AUV prices for the LBL Contracts and the Company Business and forward them to the Company or its designated agent by 9:00 p.m. (Central Time) with the understanding that a re-pricing will likely be necessary the following Business Day. This situation may incur gain/loss for Administrator and/or the Company. In this case, Administrator and the Company will work together to attempt to be made whole by the Fund company in question. If collection efforts are unsuccessful, the Administrator and the Company will each absorb the gain/loss and any associated costs of correcting the problem in the same proportion to the US dollar amount of the transactions related to their respective blocks of business.
In the event Administrator calculates and/or provides an erroneous AUV price to the Company or its designated agent as a result of an incorrect or missing NAV price, dividend, and/or short or long-term capital gain factor from a Fund company, Administrator shall have no financial responsibility for the error. In this case, Administrator and the Company will work together to attempt to be made whole by the Fund company in question. If collection efforts are unsuccessful, Administrator and the Company will each absorb the gain/loss and any associated costs of correcting the problem in the same proportion to the dollar amount of the transactions related to their respective blocks of business.
Sch. A-1
In the event of a Fund re-pricing, Administrator will notify the Company or its designated agent as soon as practicable, and will recalculate the affected AUV price(s) and forward it/them to the Company or its designated agent as soon as practicable. Administrator and the Company will take the steps outlined above in an attempt to make themselves whole for any gain/loss incurred due to the re-pricing.
Administrator shall review AUV prices, through system checks, manual recalculations or comparison to NAV prices. Such review process shall be mutually agreed by the Company and the Administrator.
2. | Trading and Investing |
(a) | Allocating to the Shared Separate Account (i) premiums and loan repayments received under the LBL Contracts and allocated to the Shared Separate Account, and (ii) amounts transferred to the Shared Separate Account from other options under LBL Contracts (including fixed options), and forwarding such funds and other necessary and appropriate information to the appropriate Funds for investment on behalf of the Shared Separate Account or sub-accounts thereof, in each case in accordance with the terms of the LBL Contracts, the current prospectus and/or statement of additional information (as each may be amended from time to time) for the relevant LBL Contracts, Applicable Law, and any applicable agreement, including but not limited to any applicable fund participation agreement, provided by the Company to Administrator. |
(b) | Administrator will be the primary Trader for the Shared Separate Account. To accomplish this, the Administrator will consolidate daily trades from its administration system with respect to the LBL Contracts with trades received from the Companys or its designated agents administration system with respect to the Company Business as set forth below, for consolidation and submission to the Fund companies every day on which the New York Stock Exchange is open for business. The Company must provide to the Administrator aggregate trades for the Company Business by 5:00 a.m. (Central Time) on each trading day. In the event Administrator does not receive the trades for the Company Business by such time, Administrator shall have the right to submit trades with respect to the LBL Contracts to the Fund companies without penalty. If for any reason Administrator is unable to submit trades with respect to the LBL Contracts to the Fund companies due to a delay by the Company or its designated agent with respect to trades for the Company Business, Administrator shall be entitled to collect compensation from the Company (and the Company shall so indemnify and hold the Administrator harmless) to cover any gain/loss and costs to correct the problem due to the delayed trades. |
Sch. A-2
Subject to the foregoing and receipt by Administrator from the Company of timely balances in respect of the Company Business, Administrator shall place trades with the Fund companies to keep the assets in the Shared Separate Account in continual balance with the LBL Contracts and the Company Business. Administrator shall be allowed to place trades with respect to the LBL Contracts and the Company Business in any manner it chooses, subject to acceptance by the Fund companies.
Administrator shall coordinate the daily wires between the Fund companies and each of the Companys and the Administrators bank accounts to cover the trades with respect to the Company Business and the LBL Contracts, respectively.
There may be cases where Administrator places a trade with the Fund company in accordance with the terms of this Agreement but the Fund company does not process the trade or processes it incorrectly. This situation may incur gain/loss for Administrator and/or the Company. In this case, Administrator and the Company will work together to attempt to be made whole by the Fund company in question. If collection efforts are unsuccessful, Administrator and the Company will each absorb the gain/loss and any associated costs of correcting the problem in the same proportion to the dollar amount of the transactions related to their respective blocks of business.
(c) | Processing of purchases and redemptions of Fund shares on behalf of the Shared Separate Account in respect of the LBL Contracts and the Company Business, and withdrawal of the proceeds from the Shared Separate Account. The Administrator shall pay to (i) the Reinsurer policy charges in accordance with the LBL Contracts, and (ii) the Company policy charges in accordance with the Company Business. |
(d) | Coordinating with the Company in performing monthly reconciliation of investment by Shared Separate Account in Funds and liability to holders of LBL Contracts and Company Business to confirm that Shared Separate Account net assets are sufficient to cover liabilities to policy holders; if the assets of the Shared Separate Account are found to be insufficient and shortfall relates to the LBL Contracts, the Administrator will cause funding to be added to the Separate Account to the extent so related in accordance with the Reinsurance Agreement; otherwise, the Company will cause funding to be provided. |
(e) | Administrator shall prepare additional periodic fund reconciliations (frequency and method to be determined by the Parties) for both the LBL Contracts and the Company Business. |
(f) | Administrator will maintain the Companys cash settlement account and coordinate a settlement process to support trading within the Shared Separate Account. |
Sch. A-3
(g) | Administrator will coordinate with the Companys auditor to provide the necessary information to audit the Shared Separate Account and prepare information for financial statements. |
3. | Market Timing |
(a) | Provide information required by Rule 22c-2 upon request as required by any existing agreements with Funds or as otherwise required by Applicable Law (Rule 22c-2 Requirements) with respect to the LBL Contracts and the Company Business. Administrator shall act as the primary facilitator for the Shared Separate Account as it relates to market timing. From time to time Fund companies may make inquiries or may request periodic reports available to them as outlined by SEC Rule 22c-2. Since the trades in respect of the Company Business will be processed on a separate administration system from the trades in respect of the LBL Contracts, the Parties shall cooperate fully with each other in all reasonable respects in order to assist the Administrator in satisfying all Rule 22c-2 Requirements. |
After receipt of notice of a Rule 22c-2 Requirement, Administrator will timely notify the Company of the need for certain information in respect of the Company Business. This will include information relating to the Fund and trading days in question. The Company shall timely provide the requested information to Administrator in a pre-agreed upon format for consolidation with Administrators own trades in respect of the LBL Contracts and submission to the Fund company.
The Company shall strive to provide to Administrator the requested trade information with respect to the Company Business within 3 days of receipt of a request from Administrator, and Administrator shall strive to provide to the Fund companies the consolidated trade information with respect to the LBL Contracts and the Company Business within 10 days of receipt of the initial request from the Fund Companies.
Administrator shall be allowed to respond to the Fund companies in any format it desires as long as said format is accepted by the Fund companies.
4. | Fund Changes |
(a) | Keeping the LBL Contracts in alignment with the Fund companies as it relates to Fund changes, mergers and closures. |
5. | Recordkeeping |
(a) | Maintaining and preserving records with respect to the Administrative Services that it performs for the Shared Separate Account as required by Rules 31a-1 and 31a-2 under the 1940 Act, the Exchange Act and rules promulgated by FINRA. The Administrator acknowledges and agrees that such records as are required to be maintained by Rules 3la-1 and 31a-2 under the 1940 Act are the property of the Company and shall be surrendered promptly upon the request of the Company; provided that Administrator shall be entitled to keep a copy of such records. |
Sch. A-4
6. | 5% Holders |
(a) | Furnishing information regarding holders of the Company Business (to the extent provided by the Company) and/or LBL Contracts (e.g., 5% holders) to the Funds and other service providers to comply with Applicable Law. For the avoidance of doubt, such 5% threshold applies to the LBL Contracts and the Company Business, collectively. |
7. | Fund Company Proxy Voting |
(a) | As reasonably necessary or as otherwise required by Applicable Law, cooperate with Fund companies and their agents in connection with soliciting voting instructions from contractowners of the LBL Contracts and the Company Business and vote Fund shares held in the Shared Separate Account in accordance with the instructions received by contractowners or as otherwise required by Applicable Law. Administrator will coordinate with the Company to receive from the Company voting instructions with respect to the Company Business for consolidation with voting instructions of the LBL Contracts and submission to the Fund companies. The Parties shall cooperate fully with each other in all reasonable respects, and the Company shall timely provide to Administrator such instructions with respect to the Company Business. |
8. | Revenue Sharing |
(a) | Administrator shall be responsible for calculating the revenue sharing and 12b-1 payments owed to the Company from the Fund companies, split the estimates into those related to the LBL Contracts and the Company Business, prepare and communicate accruals to the Company, invoice Fund companies (when necessary) and collect revenue sharing and 12b-1 payments, and forward the appropriate amount to the Company. Administrator shall be allowed to continue to estimate revenue sharing payments in a manner similar to how it is estimated on the date hereof. |
In the event Administrator has used commercially reasonable efforts to collect payments owed by the Fund companies but has been unsuccessful or the revenue sharing / 12b-1 payment estimates overstate the actual amount received, Administrator and the Company will jointly share in such payment shortfall proportionally to the amount expected. For the avoidance of doubt, the Company bears all collection risk on revenue sharing and 12b-1 payments in respect of the Company Business.
Once payments are received by Administrator, Administrator will timely communicate to the Company any difference between the actual payments and the accruals so that the Company can true-up its accounting records.
Sch. A-5
9. | Participation Agreements and Fund Certifications |
(a) | Managing the Companys relationships with the Funds to the extent applicable to the LBL Contracts, including the agreements with the Funds and their affiliates and maintaining, entering into and/or facilitating, on behalf of the Company, any necessary amendments to existing agreements with the Funds and their affiliates, including amendments necessary to effect changes in the Fund options for LBL Contracts and the Shared Separate Account, as permitted by this Agreement. |
(b) | Act as the primary point of contact for the Fund companies as it pertains to certifications and other miscellaneous forms. The Parties shall cooperate fully with each other in all reasonable respects in connection with the preparation of such certifications and other miscellaneous forms. The Company shall timely provide to Administrator such certifications and other miscellaneous forms with respect to the Company Business in order that Administrator can prepare a consolidated response with respect to the LBL Contracts and the Company Business. |
10. | Policy Administration (for the LBL Contracts) |
(a) | Maintaining the administrative systems utilized in connection with the Administrative Services so as to reflect any change to the LBL Contracts. |
(b) | Processing and recording transfer requests from one subaccount to another, or to or from a fixed account option to a subaccount, in all cases in accordance with the relevant LBL Contracts and within such time periods as are specified by Applicable Law. |
(c) | Calculating, when and as needed, the policy charges under the LBL Contracts in accordance with the terms thereof and their respective prospectuses and statements of additional information (SAIs). |
(d) | Obtaining and distributing to holders of LBL Contracts copies of the Funds current summary prospectuses, or prospectuses, SAIs as requested by the contract holder and any post effective amendments or supplements thereto, annual and semi-annual reports to shareholders and other disclosure documents and communications to Fund shareholders that are required to be provided by the Company to owners of LBL Contracts. |
(e) | To the extent not otherwise covered in the Agreement or this Schedule A, performing the Companys obligations and exercising the Companys rights, in the name of and on behalf of the Company, under agreements with underwriters, distributors and the Funds relating to the LBL Contracts, in each case to the extent that the Company has provided complete copies of such agreements (including any amendments thereto) to the Administrator, in each case, to the extent consistent with Applicable Law. |
Sch. A-6
11. | Regulatory Filings |
(a) | With respect to the Shared Separate Account, prepare (and provide financial data required for) for filing with state insurance departments and the SEC any reports or registrations, or amendments thereto required to be filed, including, as appropriate, registration statements, annual updates of registration statement, prospectuses and SAIs, interim supplement/sticker filings, Form N-SAR and Form 24F-2, audited financial statements (working with the Company and its auditor), provided that the Company shall provide for inclusion in such registrations and reports all information as the Administrator shall reasonably request relating to the Company Business or the Company as a whole, including without limitation audited financial statements for the Company or information derived therefrom. |
(b) | Upon reasonable prior notice by the Administrator to the Company, the Administrator may cease preparing updates to, and the Company will cease updating, registration statements, prospectuses and SAIs for the LBL Contracts and the Shared Separate Account in reasonable reliance on the SEC no-action letter dated October 23, 1990 issued to Great-West Life & Annuity Insurance Company and any subsequent related no-action letters, or the Administrator may begin preparing updates to, and the Company will update, registration statements, prospectuses and SAIs for the LBL Contracts or the Shared Separate Account that the Company has previously stopped updating. |
(c) | Providing the Company and its independent auditors with any information and documentation necessary or reasonably appropriate in connection with the preparation and audit of the financial statements of the Shared Separate Account, including a letter representing that the financial statements of the Shared Separate Account present fairly, in all material respects, the financial position, results of operations, changes in net assets, and financial highlights in conformity with GAAP, or the Company for inclusion in SEC filings, including registration statements for the LBL Contracts, or in reports filed with state insurance regulatory authorities, with costs in relation thereto allocated between the Company and the Administrator as mutually determined by the Parties. |
(d) | Providing the Company with any information and documentation necessary or reasonably appropriate in connection with the preparation of the Annual Statement of the Shared Separate Account, including a letter representing that the Annual Statement of the Shared Separate Account presents fairly, in all material respects, the financial position and results of operations in conformity with statutory accounting principles. |
(e) | Providing the Company with each registration statement prior to filing so that the Company can review the filing and arrange for in-house or outside counsel to provide the Legal Opinion Letter required as an exhibit to such registration statement, and Company can cause the appropriate filing to be made with the SEC. |
Sch. A-7
12. | Compliance Procedures |
(a) | During the term of this Agreement, for as long as the Company is required to maintain a compliance program pursuant to Rule 38a-1 under the 1940 Act with respect to the Shared Separate Account and the Administrator continues to act as an administrator (as defined in the Investment Company Act of 1940, as amended) with respect to the Shared Separate Account, the Administrator will implement and, throughout the term of this Agreement, maintain in effect, policies and procedures reasonably designed to prevent, detect, and correct violations of federal securities laws (as defined in Rule 38a-1) in the provision of the Administrative Services by the Administrator and its employees, officers, agents and Affiliates under this Agreement, and will designate a compliance officer who will be responsible for Administrators compliance program under this provision, but who will not be the chief compliance officer, as that term is defined in Rule 38a-1, for the Companys compliance program for the Shared Separate Account under Rule 38a-l. The Administrator will promptly provide true and complete copies of such policies and procedures (or summaries thereof) and related information required by Applicable Law upon reasonable request including but not limited to, control reports, incident reports, exception reports, compliance check-lists and internal audit reports. The Administrator will cooperate with periodic reviews by the Companys personnel of such policies and procedures, their operation and implementation, including visual inspection of the Administrators facilities and processes, and provide such additional information, quarterly reports, and annual certifications to the Company in respect of such policies and procedures, compliance with federal securities laws and related compliance matters as the Company may reasonably request. The Administrator will promptly notify the Company in the event that it becomes aware of any material compliance matter (as defined in Rule 38a-l) arising with respect to the Administrative Services provided hereunder and will provide documentation with respect to pricing errors quarterly. For the avoidance of doubt and notwithstanding anything contained in this Agreement to the contrary, (i) the Administrators compliance program required herein will apply only to the LBL Contracts and the Shared Separate Account (to the extent provided herein) and not to the policy administration of the Company Business, which shall remain the sole responsibility of the Company and (ii) the Company shall retain responsibility for the Shared Separate Accounts compliance program under Rule 38a-1. |
Additional Services
1. | Information and Reports |
a) | Provide a general ledger data feed, within fifteen (15) Business Days of the end of each calendar month, of all accounting transactions for the Administered Business, including cash receipts, from the disbursement systems, reinsurance systems, or any other system or data feed that generates accounting transactions for the Administered Business, to the Companys general ledger. |
Sch. A-8
b) | Assist with the preparation by the Company of the annual management discussion and analysis, footnote disclosures, supplements, annual statement market conduct survey, and other relevant filings with respect to the Companys statutory financial statements, to the extent related to the Administered Business. |
c) | Provide necessary information related to the Administered Business for the Company to complete all required state filings, including the direct business state pages. Information to be provided will include number of policies, amounts for each of these categories, unpaid death benefits, incurred amount, and settlements (payment in full, payment on compromised claims, reduction by compromise, amounts rejected). Administrator will also provide policy exhibit roll forward information, including amounts issued during the year, and other changes to in force and in force end of current year. |
d) | Assistance as reasonably required for annual Risk Based Capital calculation by the Company to the extent related to the Administered Business. |
e) | Provide supplemental accounting and actuarial information related to the Administered Business as reasonably required for the Company to prepare the Companys annual Form S-1, on a basis consistent with the Administrators GAAP assumptions and reserves. Information to be provided in an appropriate format and time frame to enable the Company to meet required US GAAP filing guidelines. |
f) | If the Company makes variable product changes that result in a requirement to file an amendment to the Form S-1 related to the Covered Insurance Policies requiring interim financial statements and information, provide supplemental accounting and actuarial information related to the Administered Business as reasonably required for the Company to (i) prepare the Companys interim US GAAP Financial Statements and Footnotes, and (ii) prepare the Companys amendment to its annual Form S-1, in each case on a basis consistent with the Administrators GAAP assumptions and reserves, and in an appropriate format and time frame to enable the Company to meet required US GAAP filing guidelines. |
g) | Cooperate, as reasonably requested by the Company and its independent auditors in their conduct of annual audits of the Companys Statutory Financial Statements, and the Companys financial statements prepared pursuant to GAAP to the extent related to the Administered Business, including reasonable access to the books and records relating to the performance of the Services by Administrator and other information reasonably deemed relevant to the audit. |
h) | Support reasonable requirements for information relating to the Administered Business in connection with rating agency surveys, including: AM Best, S&P, Moodys and Fitch. |
i) | Support reasonable requests in connection with the Companys preparation of federal and state income, franchise, and excise tax accruals and returns, to the |
Sch. A-9
extent related to the Administered Business. Support reasonable requests by the Company in connection with its preparation of the Companys annual 1099 and related tax reporting, reconciliation of tax withholding accounts, filing of Form 945 and state withholding returns, and withholding tax deposit requirements. |
j) | Providing the Company with information related to (i) the portion of the Ceded Reinsurance Contracts that relate to the LBL Contracts unless and until such Ceded Reinsurance Contracts (or such portions of such Ceded Reinsurance Contract) are novated to the Administrator and (ii) the Vermont Captive Ceded Reinsurance Agreement, to complete internal and external reporting related to reinsurance, including (to the extent available using commercially reasonable efforts) (a) quarterly in-force files from any applicable reinsurance administration system used by Administrator in respect of the Covered Insurance Policies and (b) current data files used as inputs in any applicable reinsurance administration system used by Administrator with respect to the Covered Insurance Policies and output from system cycle runs (Billing and Inforce) related to Covered Insurance Policies. |
k) | In conjunction with the delivery of a general ledger feed as described above, provide a balance control report (Control Report) that validates the general ledger feed as provided to the Company to the Administrators general ledger in sufficient detail that allows for validation by the Company to properly compare amounts to the Administrators general ledger. The Administrator agrees that amounts noted in the Control Report are reconciled to the support maintained by the Administrator. In the event that amounts do not match the Companys general ledger as a result of an error or omission by the Administrator, the Administrator will be asked to provide an written explanation for the variance. |
2. | Regulatory/Legal |
a) | Drafting of endorsements, amendments, contracts and other legal documents, including rate and form filings with respect to the Covered Insurance Policies. |
b) | Providing on a monthly basis a list of all reported and discovered deaths of insureds under Covered Insurance Policies to enable the Company to comply with state death claim sharing requirements. |
c) | Providing information to the Company related to the Covered Insurance Policies upon request in order to allow the Company to timely comply with state unclaimed property laws and submit escheat filings. |
d) | Preparing, signing and filing on the Companys behalf with insurance regulatory authorities all applications and regulatory filings for endorsements, amendments, contracts and other legal documents, including rate and form filings, with respect to the Covered Insurance Policies. |
e) | Providing all reasonable and appropriate cooperation and assistance to the Company in connection with its anti-money laundering (AML) and Office of |
Sch. A-10
Foreign Assets Control (OFAC) Procedures to the extent related to the Administered Business, as the same may be amended from time to time by the Company to comply with applicable laws and regulations. |
3. | Actuarial |
a) | Providing guidance to the Company with respect to any material changes in the reserve basis or reserve methodology for the Covered Insurance Policies. |
Separate Account Administrative Fee
As compensation for Administrators performance hereunder of services in respect of the Shared Separate Account for the first year after the Inception Date, the Company shall pay to Administrator a monthly fee equal to $25,500.00 (the Monthly Separate Account Administrative Fee).
As of January 1 of each subsequent year, the Administrator shall calculate the aggregate annual expense of the Administrator and its Affiliates in connection with administration of Variable Universal Life separate accounts in existence at the Inception Date (the Aggregate VUL Separate Accounts). The Administrator shall also calculate a percentage equal to the ratio of the assets held in the Shared Separate Account in respect of the Company Business to all assets held in the Aggregate VUL Separate Accounts, as of January 1 of the applicable year. Subject to the succeeding paragraph, the Monthly Separate Account Administrative Fee for such year shall be one twelfth (1/12) of such percentage of such aggregate annual expense.
In the event that the services provided by the Administrator hereunder with respect to the Shared Separate Account are modified, increased or reduced due to changes in applicable Law or otherwise in accordance with the terms hereof, including changes or additions to Fund options, the Monthly Separate Account Administrative Fee shall be equitably increased or decreased, as applicable, to reflect any additional or reduced costs borne by the Administrator in providing such modified, reduced or additional services. Any costs associated with the implementation of such modified, reduced or additional services, will be borne by the requesting party. To the extent that such requested changes reduce the overall administrative costs, the parties will negotiate in good faith on how to share the reduction in such costs. Notwithstanding anything contained in this Agreement to the contrary, the Administrator has the right to refuse changes to its services provided hereunder that increase the Administrators operational risk, other than risk that is immaterial to the administration of the Shared Separate Account.
Within fifteen (15) days following the end of each month during the term of this Agreement, Administrator shall provide the Company with an invoice, which shall set forth a calculation of the Monthly Separate Account Administrative Fee for the prior month. Payment in full of the amounts so invoiced shall be made by the Company by electronic transfer of immediately available funds or other method satisfactory to Administrator within thirty (30) days after the date of receipt of the monthly invoice.
Sch. A-11
SCHEDULE B
COMPANY RETAINED SERVICES
1. | Nightly Pricing |
(a) | Reviewing and maintaining information received from Administrator and accounting and reporting servicers on a timely basis with respect to the Shared Separate Account and the Policies issued through the Shared Separate Account (including LBL Contracts), including review and maintenance of daily pricing reconciliations to ensure that AUVs are accurate and that significant fluctuations are investigated and documented. |
2. | Trading and Investing |
(a) | Allocating to the Shared Separate Account (i) premiums and loan repayments received under the Company Business and allocated to the Shared Separate Account, and (ii) amounts transferred to the Shared Separate Account from other options under Company Business (including fixed options), and (b) forwarding such funds and other necessary and appropriate information to the Administrator for investment on behalf of the Shared Separate Account or sub-accounts thereof, in each case in accordance with the terms of this Agreement, the Company Business, the current prospectus and/or statement of additional information (as each may be amended from time to time) for the relevant Company Business, Applicable Law, and any applicable agreement, including but not limited to any applicable fund participation agreement. |
(b) | The Company shall provide Administrator all daily trades from its administration system with respect to the Company Business in accordance with Schedule A and provide to the Administrator aggregate trades for the Company Business by 5:00 a.m. (Central Time) on each trading day. The only exception to this would be if Administrator was unable to provide the Company with the nightly AUV prices in accordance with the standards set forth in Schedule A. |
(c) | Coordinating with the Administrator in performing monthly reconciliation of investment by Shared Separate Account in Funds and liability to holders of LBL Contracts and Company Business to confirm that Shared Separate Account net assets are sufficient to cover liabilities to policy holders; if the assets of a Shared Separate Account are found to be insufficient and shortfall relates to the LBL Contracts, Administrator will cause funding to be added to the Shared Separate Account to the extent so related in accordance with the Reinsurance Agreement; otherwise, the Company will cause funding to be provided. |
Sch. B-1
3. | Market Timing |
(a) | The Company will establish, or have its agent establish, procedures and processes to identify and limit potential market timing activity within the Company Business. These procedures will be subject to review by Administrator and must meet a minimum standard of effectiveness as reasonably determined by Administrator to limit potential market timing activity. |
(b) | Upon receiving a market timing request from Administrator, the Company will provide trade data relating the Fund(s) and trading days in question in accordance with Schedule A. The Company will provide the information to Administrator in a pre-agreed upon format for consolidation with Administrators own trades in respect of the LBL Contracts and submission to the Fund company. |
(c) | The Company shall strive to provide to Administrator the requested trade information with respect to the Company Business within 3 days of receipt of a request from Administrator, and Administrator shall strive to provide to the Fund companies the consolidated trade information with respect to the LBL Contracts and the Company Business within 10 days of receipt of the initial request from the Fund Companies. |
4. | Fund Changes |
(a) | Keeping the Company Business in alignment with the Fund companies as it relates to Fund changes, mergers and closures. |
(b) | Responding to the Administrators recommendations as to changes to Fund options, as permitted pursuant to the terms of this Agreement. |
5. | Record Keeping |
(a) | Maintaining copies of any board resolution, plan of operations or other document establishing the Shared Separate Account or sub-accounts thereof and any by-laws or amendments thereto; preparing amendments thereto or other necessary documentation, for consideration and approval by the Administrator, with respect to changes to such documents relating to the Administered Business, including without limitation changes relating to changes in the Fund investment options in accordance with this Agreement (other than changes to Fund options recommended by Administrator pursuant to the terms of this Agreement). |
6. | 5% Holders |
(a) | Furnishing information regarding holders of Company Business (e.g., 5% holders) to Administrator that is necessary for Administrator to report to the Funds and other service providers to comply with Applicable Law. The Parties shall cooperate fully with each other in all reasonable respects in order to assist the Administrator in satisfying these requirements. For the avoidance of doubt, such 5% threshold applies to the LBL Contracts and the Company Business, collectively. |
Sch. B-2
7. | Fund Company Proxy Voting |
(a) | Once Administrator notifies the Company of a Fund proxy, cooperate with Administrator and Fund companies and their agents in connection with soliciting voting instructions from contractowners of the Company Business in accordance with the instructions received by contractowners or as otherwise required by Applicable Law. The Company shall organize a data extraction from its or its agents administration system to pull the contractholder information in respect of the Company Business necessary for Administrator to organize with its own contractholder information in respect of the LBL Contracts to submit a consolidated file to the Fund company. The Company shall provide the information above to Administrator in a predetermined format no later than 2 days after the record date. |
8. | Policy Administration |
Except for the services explicitly provided in this Agreement to be performed by Administrator with respect to the Shared Separate Account, the Company or its agent will perform all policy administration with respect to the Company Business, including,
(a) | Maintaining the administrative systems utilized in connection with the Company Business so as to reflect any change to the Company Business. |
(b) | Processing and recording transfer requests from one subaccount to another, or to or from a fixed account option to a subaccount, in all cases in accordance with the relevant Company Business and within such time periods as are specified by Applicable Law. |
(c) | Calculating, when and as needed, the policy charges under the Company Business in accordance with the terms thereof and their respective prospectuses and SAIs. |
(d) | Obtaining and distributing to holders of Company Business copies of the Funds current summary prospectuses, or prospectuses, SAIs as requested by the contract holder and any post effective amendments or supplements thereto, annual and semi-annual reports to shareholders and other disclosure documents and communications to Fund shareholders that are required to be provided by the Company to owners of Company Business. |
9. | Regulatory Filings |
(a) | With respect to the Shared Separate Account, providing for inclusion in registrations and reports prepared by Administrator pursuant to Schedule A all information as the Administrator shall reasonably request relating to the Company Business or the Company as a whole, including without limitation audited financial statements for the Company or information derived therefrom; signing and filing, or authorizing the Administrator to file, such registrations and reports. |
Sch. B-3
(b) | Arranging for in-house or outside counsel to provide the Legal Opinion Letter required as an exhibit to each registration statement or amendment thereto with respect to an LBL Contract, Company Business or Shared Separate Account. |
(c) | Provide access to, and maintain, all EDGAR access codes, including CIK, CCC and passwords. |
(d) | Maintain all licenses, permits and registrations of the Company, its Affiliates and the Shared Separate Account necessary for the operation of the Administered Business. |
10. | Compliance Procedures |
(a) | During the term of this Agreement, for as long as the Company is required to maintain a compliance program pursuant to Rule 38a-1 under the 1940 Act with respect to the Shared Separate Account, the Company will implement and, throughout the term of this Agreement, maintain in effect, policies and procedures reasonably designed to prevent, detect, and correct violations of federal securities laws (as defined in Rule 38a-1) by the Shared Separate Account and by the Company and its employees, officers, agents and Affiliates in connection with the Shared Separate Account, and to provide for oversight of compliance by the Shared Separate Accounts service providers, including the Administrator, and the Company will designate a chief compliance officer who will be responsible for Companys compliance program under this provision. |
(b) | Appoint and maintain a chief compliance officer (as defined in Rule 38a-1) and adopt compliance guidelines from time to time as required by Rule 38a-1, and provide such compliance guidelines to the Administrator. |
(c) | Providing the Administrator with copies of all of its Rule 38a-1 policies and procedures with which it expects Administrator to comply in connection with the provision of Administrative Services under this Agreement. |
(d) | Advising the Administrator of any material compliance matter, as defined in Rule 38a-1 under the 1940 Act, relating to the Company, the Shared Separate Account or the Company Business issued through the Share Separate Account. |
Sch. B-4
SCHEDULE C
TRADEMARKS
Country
|
Mark
|
Owner
|
Classes
|
Class Description
|
Filing Date
|
App. No.
|
Reg. Date
|
Reg. No.
| ||||||||
United States | ACHIEVER | LINCOLN BENEFIT LIFE COMPANY
|
36 | Life Insurance Underwriting Services
|
4/5/1984 | 73/473,921 | 1/8/1985 | 1,313,879 | ||||||||
United States | BUILD, ENJOY & SHARE | LINCOLN BENEFIT LIFE COMPANY | 36 | Issuance and administration of variable annuities
|
9/4/2007 | 77/271,212 | 5/13/2008 | 3,426,490 | ||||||||
United States | CONSULTANT ACCUMULATOR | LINCOLN BENEFIT LIFE COMPANY | 36 | Investment management, issuance and administration of annuities
|
8/9/2002 | 78/152,826 | 4/19/2005 | 2,942,884 | ||||||||
United States | CONSULTANT PROTECTOR | LINCOLN BENEFIT LIFE COMPANY | 36 | Investment management, issuance and administration of annuities
|
8/9/2002 | 78/152,860 | 4/19/2005 | 2,942,885 | ||||||||
United States | DESIGNED FOR GROWTH. DESTINED TO PROVIDE. | LINCOLN BENEFIT LIFE COMPANY | 36 | Insurance services, namely, underwriting, issuing and administration of life insurance
|
9/12/2007 | 77/277,408 | 5/20/2008 | 3,430,654 |
Sch. C-1
Country
|
Mark | Owner | Classes | Class Description | Filing Date | App. No. | Reg. Date | Reg. No. | ||||||||
United States |
DESIGNED TO PROTECT. DESTINED TO PROVIDE. |
LINCOLN BENEFIT LIFE COMPANY | 36 | Insurance services, namely, underwriting, issuing and administration of life insurance
|
9/12/2007 | 77/277,415 | 5/20/2008 | 3,430,656 | ||||||||
United States |
DIVERSIMAX | LINCOLN BENEFIT LIFE COMPANY | 36 | Financial services related to retirement, namely, investing and administering the funds of others, investment advisory services, and issuance and administration of annuities
|
1/12/2009 | 77/647,493 | 11/24/2009 | 3,716,763 | ||||||||
United States |
ECHELON | LINCOLN BENEFIT LIFE COMPANY | 36 | Insurance services, namely, underwriting, issuing and administration of life insurance
|
6/6/2007 | 77/199,311 | 7/22/2008 | 3,470,506 | ||||||||
United States |
ESTATE EXECUTOR | LINCOLN BENEFIT LIFE COMPANY | 36 | Life insurance underwriting and administration services
|
2/18/1997 | 75/243,019 | 3/10/1998 | 2,142,503 |
Sch. C-2
Country | Mark | Owner | Classes | Class Description
|
Filing Date | App. No | Reg. Date | Reg. No. | ||||||||
United States | GUARD AGAINST THE EFFECTS OF INFLATION. ADAPT TO YOUR LIFE SITUATIONS.
|
LINCOLN BENEFIT LIFE COMPANY | 36 | Issuance and administration of annuities
|
9/24/2007 | 77/287,305 | 8/18/2009 | 3,670,018 | ||||||||
United States | LEGACY SECURE SL | LINCOLN BENEFIT LIFE COMPANY | 36 | Life insurance underwriting and administration services
|
4/14/2005 | 78/608,980 | 8/1/2006 | 3,124,925 | ||||||||
United States | LEGACY SECURE UL | LINCOLN BENEFIT LIFE COMPANY |
36 | Life insurance underwriting and administration services
|
4/19/2005 | 78/611,497 | 4/11/2006 | 3,079,531 | ||||||||
United States | LINCOLN BENEFIT LIFE |
LINCOLN BENEFIT LIFE COMPANY |
36 | Life insurance underwriting and administration services; Annuity underwriting, namely, group and individual annuity underwriting; and long-term care insurance
|
10/9/2001 | 76/322,876 | 7/15/2008 | 3,464,853 | ||||||||
United States | REACH FURTHER. PROTECT MORE. CHART YOUR WAY.
|
LINCOLN BENEFIT LIFE COMPANY |
36 | Issuance and administration of annuities
|
9/4/2007 | 77/271,210 | 5/13/2008 | 3,426,489 |
Sch. C-3
Country
|
Mark
|
Owner
|
Classes
|
Class Description
|
Filing Date
|
App. No.
|
Reg. Date
|
Reg. No.
| ||||||||
United States |
SAVERS INDEX | LINCOLN BENEFIT LIFE COMPANY | 36 | Annuity underwriting, namely group and individual annuity contractor
|
6/15/1995 | 74/690,007 | 1/14/1997 | 2,029,668 | ||||||||
United States |
SELECTBALANCE | LINCOLN BENEFIT LIFE COMPANY | 36 | Investment advisory services, namely, asset allocation in the field of life insurance
|
1/2/2008 | 77/362,369 | 5/26/2009 | 3,629,021 | ||||||||
United States |
SELECTSTRATEGY | LINCOLN BENEFIT LIFE COMPANY | 42 | Providing a life assessment planning tool, namely, providing on-line non-downloadable software for use in assessing life insurance plans and for use in planning for life insurance investment
|
1/24/2008 | 77/379,570 | 7/21/2009 | 3,658,911 | ||||||||
United States |
SUREHORIZON | LINCOLN BENEFIT LIFE COMPANY
|
36 | Issuance and administration of fixed annuities | 12/12/2003 | 78/340,065 | 9/4/2007 | 3,287,786 | ||||||||
United States |
TACTICIAN | LINCOLN BENEFIT LIFE COMPANY | 36 | Underwriting, issuing and administering annuities
|
2/26/1990 | 74/032,694 | 1/8/1991 | 1,631,087 |
Sch. C-4
Country
|
Mark | Owner | Classes | Class Description | Filing Date | App. No. | Reg. Date | Reg. No. | ||||||||
United States | TAKE THE INCOME. ENJOY THE OUTCOME.
|
LINCOLN BENEFIT LIFE COMPANY
|
36 | Issuance and administration of annuities
|
9/4/2007 | 77/271,204 | 5/13/2008 | 3,426,488 | ||||||||
United States | THE INITIATOR | LINCOLN BENEFIT LIFE COMPANY | 36 | Group and individual annuity contract underwriting services
|
2/27/1997 | 75/248,900 | 3/10/1998 | 2,142,548 | ||||||||
United States | TOTAL ACCUMULATOR |
LINCOLN BENEFIT LIFE COMPANY | 36 | Insurance services, namely, underwriting, issuing and administration of life insurance
|
12/14/2007 | 77/352,218 | 4/14/2009 | 3,607,018 | ||||||||
United States | ULTRA INDEX | LINCOLN BENEFIT LIFE COMPANY | 36 | Life insurance underwriting services and providing ancillary services thereto, namely, administration and claims adjustment
|
2/7/2007 | 77/101,801 | 1/15/2008 | 3,370,085 |
Sch. C-5
Filing 333-203371 |
Exhibit 23.1 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-1 No. 333-203371 of our report dated April 13, 2015, relating to the Statement of Operations and Comprehensive Income, Shareholders Equity, and Cash Flows for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis) and Schedule IV Reinsurance for the year ended December 31, 2013 (Predecessors Basis) and for the period from January 1, 2014 through March 31, 2014 (Predecessors Basis) of Lincoln Benefit Life Company, appearing in the Registration Statement, and to the reference to us under the heading Experts in such Registration Statement.
/s/ Deloitte & Touche LLP
Chicago, Illinois
April 1, 2016
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of Lincoln Benefit Life Company of our report dated April 1, 2016 relating to the financial statements and financial statement schedules of Lincoln Benefit Life Company, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP |
Chicago, Illinois |
April 1, 2016 |
Exhibit 24
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016 |
/s/ Stephen Campbell |
Stephen Campbell Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Richard Carbone |
Richard Carbone Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Clive Cowdery |
Clive Cowdery |
Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as her true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Ann Frohman |
Ann Frohman |
Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Jon Hack |
Jon Hack |
Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Robert Stein |
Robert Stein |
Director |
DURABLE POWER OF ATTORNEY
WITH RESPECT TO
LINCOLN BENEFIT LIFE
COMPANY (REGISTRANT)
The undersigned constitutes and appoints W. Weldon Wilson and Robyn Wyatt and each of them (with full power of each of them to act alone), as her true and lawful attorney-in-fact and agent, in any and all capacities, to sign the Form S-1 registration statements of Lincoln Benefit Life Company pertaining to, but not limited to (1) The Consultant Solutions Variable Annuities (Classic, Plus, Elite, Select), (2) The Consultant I Variable Annuity, (3) The Consultant II Variable Annuity, (4) The LBL Advantage Variable Annuity and (5) The Premier Planner Variable Annuity, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorneys-in-fact or agents may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this power of attorney.
March 31, 2016
/s/ Grace Vandecruze |
Grace Vandecruze |
Director |
Exhibit 99
The financial statements for the year ended December 31, 2013 and for the period from January 1, 2014 through March 31, 2014 of Lincoln Benefit Life Company included in this Prospectus and the related financial statement schedule included elsewhere in the Registration Statement, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements and financial statement schedule are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The financial statements as of December 31, 2015 and December 31, 2014 and for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 of Lincoln Benefit Life Company included in this Prospectus have been so included 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.
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Document and Entity Information |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Document Information [Line Items] | |
Document Type | S-1 |
Amendment Flag | false |
Document Period End Date | Dec. 31, 2015 |
Entity Registrant Name | LINCOLN BENEFIT LIFE CO |
Entity Central Index Key | 0000910739 |
Entity Filer Category | Non-accelerated Filer |
Consolidated Balance Sheet (Successor) and Balance Sheet (Predecessor) (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Fixed maturities, available-for-sale, amortized cost | $ 8,274,194 | $ 9,231,856 |
Common stock, par value | $ 100 | $ 100 |
Common stock, shares authorized | 30,000 | 30,000 |
Common stock, shares issued | 25,000 | 25,000 |
Common stock, shares outstanding | 25,000 | 25,000 |
General |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General |
Lincoln Benefit Life Company (the “Company” or “Lincoln Benefit”) is a stock insurance company domiciled in the State of Nebraska. It is a wholly owned subsidiary of Resolution Life, Inc. (“Resolution”), which in turn is a wholly owned subsidiary of Resolution Life Holdings, Inc. (“Holdings”). Resolution was formed on July 2, 2013 under the General Corporation Law of the State of Delaware. On April 1, 2014, Lancaster Re Captive Insurance Company (“Lancaster Re”), a Nebraska domiciled captive insurance company, became a wholly owned subsidiary of Lincoln Benefit when it was contributed to Lincoln Benefit by Resolution. The Company became a wholly owned subsidiary of Resolution on April 1, 2014 after receiving all required regulatory approvals. Prior to this date, it was a wholly owned subsidiary of Allstate Life Insurance Company (“ALIC”). On July 17, 2013, Holdings executed a Stock Purchase Agreement (the “Purchase Agreement”) to acquire 100% of the Company from ALIC (the “Acquisition”). In November 2013, Holdings assigned the right to acquire all of Lincoln Benefit’s outstanding capital stock to Resolution pursuant to an Assignment Agreement. The purchase price was $595.8 million. The Company is authorized to sell life insurance and retirement products in all states except New York, as well as in the District of Columbia, the U.S. Virgin Islands and Guam. Prior to July 18, 2013, the Company sold interest-sensitive, traditional and variable life insurance products through both exclusive agencies (“Allstate Financial Sales channel”) and independent master brokerage agencies. Effective July 17, 2013, sales through the independent master brokerage agencies ceased, and sales through the Allstate Financial sales channel will continue for a period up to 30 months after the closing date of Acquisition. We operate as a single segment entity, based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources. On April 1, 2014, immediately prior to the Acquisition, the Company, pursuant to a Partial Commutation Agreement, recaptured all deferred annuity, long-term care, accident and health and life business sold through Lincoln Benefit’s independent master brokerage agencies, other than specified life business, previously reinsured by ALIC. The primary impacts of the Partial Commutation Agreement with ALIC were the receipt of investments, the reduction of the related reinsurance recoverable and the reestablishment of deferred acquisition costs. The Company’s assets and liabilities increased by $1.33 billion and $0.19 billion, respectively. Since the Partial Commutation Agreement occurred between entities under common control, the excess of assets received and liabilities assumed was recorded as a capital contribution through additional paid-in capital. Additionally, Lincoln Benefit and ALIC entered into an Amended and Restated Reinsurance Agreement where ALIC continues to reinsure all life insurance business written by Lincoln Benefit through the Allstate Financial Sales channel, all immediate annuities written by Lincoln Benefit prior to closing of the Acquisition, and certain term life policies written by Lincoln Benefit. Lincoln Benefit’s variable annuity business will remain reinsured by ALIC under an existing reinsurance agreement between Lincoln Benefit and ALIC. This business will continue to be administered by ALIC under an existing administrative services agreement between Lincoln Benefit and ALIC. As part of the Acquisition, ALIC has agreed to indemnify the Company for certain matters. ALIC has also agreed to indemnify the Company for certain litigation, regulatory matters and other liabilities related to the pre-closing activities of the transferred business.
Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at fair value at the date of acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed as of April 1, 2014:
Included in the assets acquired is the value of business acquired (“VOBA”), which reflects the estimated fair value of in-force contracts acquired and represents the portion of the purchase price that is allocated to the future profits embedded in the acquired contracts at the acquisition date. See Note 11 for further explanation of VOBA. The assessment of fair value in accordance with ASC 805-20-25 included the establishment of intangible assets for VOBA and various state licenses. Basis of Presentation The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The financial statements are presented for Successor and Predecessor periods, which relate to the accounting periods after and before April 1, 2014, respectively, the date of the closing of the Acquisition. For periods after April 1, 2014, the accompanying financial statements comprise the consolidated financial statements of the Company, which include the accounts of the Company and its subsidiary. Due to the Acquisition and the application of push-down accounting, different bases of accounting have been used to prepare the Predecessor and Successor financial statements. A black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods. The principal accounting policies applied in the preparation of these financial statements are set out below and in Note 2.
Consolidation The accompanying consolidated financial statements of the Successor include the accounts of Lincoln Benefit and its subsidiary, Lancaster Re. All significant intercompany balances and transactions have been eliminated on consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
|
Significant Accounting Policies |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 | |||
Significant Accounting Policies |
Cash Cash includes cash on hand, amounts due from banks, money market securities, highly liquid overnight deposits, discount notes and commercial paper held in the ordinary course of business and other debt instruments with maturities of three months or less when purchased. Investments Fixed maturities include bonds, asset-backed securities (“ABS”) residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). Fixed maturities, which may be sold prior to their contractual maturity, are designated as available-for-sale (“AFS”) and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income. Cash received from calls, principal payments and make-whole payments and cash received from maturities and pay-downs are reflected as a component of proceeds from sales and maturities within the Consolidated Statement of Cash Flows — Successor and Statement of Cash Flows — Predecessor. The Company recognizes other-than-temporary impairments (“OTTI”) for securities classified as AFS in accordance with ASC 320, Investments-Debt and Equity Securities. At least quarterly, management reviews impaired securities for OTTI. The Company considers several factors when determining if a security is OTTI, including but not limited to: its intent and ability to hold the impaired security until an anticipated recovery in value, the issuer’s ability to meet current and future principal and interest obligations for fixed maturity securities, the length and severity of the impairment, the financial condition and near term and long term prospects for the issuer. In making these evaluations, the Company exercises considerable judgment. If the Company intends to sell or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, then the Company recognizes a charge to earnings for the full amount of the impairment (the difference between the amortized cost and fair value of the security). For fixed maturity securities that are considered OTTI and that the Company does not intend to sell and will not be required to sell, the Company separates the impairment into two components: credit loss and noncredit loss. Credit losses are charged to net realized investment losses and noncredit losses are charged to other comprehensive income. The credit loss component is the difference between the security’s amortized cost and the present value of its expected future cash flows discounted at the current effective rate. The remaining difference between the security’s fair value and the present value of its expected future cash flows is the noncredit loss. For corporate bonds, historical default (by rating) data is used as a proxy for the probability of default, and loss given default (by issuer) projections are applied to the par amount of the bond. Potential losses incurred on structured securities are based on expected loss models rather than incurred loss models. Expected cash flows include assumptions about key systematic risks (e.g., unemployment rates, housing prices) and loan-specific information (e.g., delinquency rates, loan-to-value ratios). Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. Commercial mortgage loans (“CMLs”) acquired at fair value are carried at amortized cost using the effective interest rate method. CMLs held by the Company are diversified by property type and geographic area throughout the U.S. CMLs are considered impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement. The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value of the underlying collateral using internal valuations generally based on discounted cash flow analyses. The Company estimates an allowance for loan and lease losses (“ALLL”) representing potential credit losses embedded in the CML portfolio. The estimate is based on a consistently applied analysis of the loan portfolio and takes into consideration all available information, including industry, geographical, economic and political factors. Policy loans represent loans the Company issues to policyholders. Policy loans are carried at unpaid principal balances. Interest income on such loans is recognized as earned using the contractually agreed upon interest rate and reflected in Net investment income in the Consolidated Statement of Operations and Comprehensive Income (Loss). Generally, interest is capitalized on the associated policy’s anniversary date. Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates fair value. Derivatives As part of the Company’s overall risk management policy, the Company uses listed options and exchange traded futures to economically hedge its obligation under certain fixed indexed annuity and universal life contracts. Derivative financial instruments utilized by the Company during the year ended December 31, 2015 and in the period from April 1, 2014 through December 31, 2014 (the “Successor Period”) included index option contracts and futures contracts. Derivatives are carried in the Company’s Consolidated Balance Sheet either as assets within Other invested assets or as liabilities within Accrued expenses and other liabilities at estimated fair value. The Company offsets the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities. If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in realized investment gains, net in the Consolidated Statement of Operations and Comprehensive Income (Loss). The notional amounts specified in the contracts are used to calculate contractual payments under the agreements and are generally not representative of the potential for gain or loss on these contracts. Futures contracts are defined as commitments to buy or sell designated financial instruments based on specified prices, yields or indexes. Futures contracts provide returns at specified or optional dates based upon a specified index or interest rate applied to a notional amount. The Company uses futures to hedge exposures in indexed annuity and life contracts. Daily cash settlement of variation margins is required for futures contracts and is based on the changes in daily prices. The final settlement of futures contracts is in cash. Index option contracts provide returns at specified or optional dates based on a specified equity index applied to the option’s notional amount. The Company purchases and writes (sells) option contracts primarily to reduce market risk associated with certain annuity and life contracts. When the Company purchases/sells option contracts at specific prices, it is required to pay/receive a premium to/from the counterparties. The amount of premium paid/received is based on the number of contracts purchased/sold, the specified price and the maturity date of the contract. The Company receives/pays cash equal to the premium of written/purchased options when the contract is established. If the option is exercised, the Company receives/pays cash equal to the product of the number of contracts and the specified price in the contract in exchange for the equity upon which the option is written/purchased. If the options are not exercised, then no additional cash is exchanged when the contract expires. Premiums paid are reported as a derivative asset and premiums received are reported as a derivative liability. Purchased put and call index option contracts are cash settled upon exercise and the gain or loss on the settlement is reported in net investment income. If the purchased option contract expires without being exercised, the premiums paid are reported as net investment income and the corresponding asset previously recorded is reversed. The change in the fair value of written option contracts is reported in Realized investment gains, net, with an adjustment to a corresponding liability. Written call index option contracts are cash settled upon exercise and the gain or loss on settlement is reported in Realized investment gains, net. The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. The Company’s embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders, guaranteed minimum accumulation and withdrawal benefits in variable annuity contracts. The Company has reinsurance agreements to transfer all the risk related to guarantee minimum income, accumulation and withdrawal benefits in variable annuity contracts to third party reinsurers. None of these derivatives are designated as accounting hedging instruments and all are gross liabilities reported in policyholder account balances or future policy benefits and other policyholder liabilities. Investment Income and Realized Gains and Losses Investment income primarily consists of interest and is recognized on an accrual basis using the effective yield method. Interest income for RMBS and CMBS is determined considering estimated pay-downs, including prepayments, obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received. For RMBS and CMBS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is recalculated on a prospective basis. Accrual of income is suspended for other-than-temporarily impaired fixed maturities when the timing and amount of cash flows expected to be received is not reasonably estimable. It is the Company’s policy to cease to carry accrued interest on commercial mortgage loans that are over 90 days delinquent. The Company held no non-income producing investments as of December 31, 2015 or December 31, 2014. Realized investment gains and losses net include gains and losses on investment sales and write-downs in value due to other-than-temporary declines in fair value. Realized capital gains and losses on investment sales, including principal payments, are determined on a specific identification basis. Recognition of Premium Revenues and Fees, and Related Policyholders’ Benefits and Interest Credited Prior to April 1, 2014 or the periods prior to April 1, 2014 (the “Predecessor Periods”), the Company had reinsurance agreements whereby all premiums, fee income from policyholders and returns credited to policyholders, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Amounts reflected in the Statements of Operations and Comprehensive Income (Loss) are presented net of reinsurance.
Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Surrender values on traditional life and death benefits are reflected in policyholder benefits. Immediate annuities with life contingencies provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. As of April 1, 2014, the Company has reinsurance agreements to transfer all the risk related to immediate annuities existing as of or prior to the Acquisition Date. Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the policyholder, interest credited to the policyholder account balance and contract charges assessed against the policyholder account balance. Premiums from these contracts are reported as policyholder account balances. Fee income from policyholders consist of fees assessed against the policyholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the policy prior to contractually specified dates. These charges are recognized as revenue when assessed against the policyholder account balance. Policyholder benefits include life-contingent benefit payments in excess of the policyholder account balance. Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as policyholder account balance deposits. Policy fees for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the policyholder account balance. Return credited to policyholder funds represents interest accrued or paid on interest-sensitive life and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed life and annuities are generally based on an equity index, such as the Standard & Poor’s (“S&P”) 500 Index. Policy charges for variable life and variable annuity products consist of fees assessed against the policyholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Policy benefits incurred for variable life and variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. The Company incurs costs in connection with renewal insurance business. All acquisition-related costs, including commissions, as well as all indirect costs, are expensed as incurred and reported in Other expenses on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014. Reinsurance Reinsurance accounting is applied for ceded and assumed transactions when the risk transfer provisions of ASC 944-40, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, have been met. To meet risk transfer requirements, a long-duration reinsurance contract must transfer mortality or morbidity risks, and subject the reinsurer to a reasonable possibility of a significant loss. Those contracts that do not meet risk transfer requirements are accounted for using deposit accounting. For short duration contracts, to meet risk transfer requirements the reinsurer must assume significant insurance risk and have a reasonable possibility of experiencing significant loss. With respect to ceded reinsurance, the Company values reinsurance recoverables on reported claims at the time the underlying claim is recognized in accordance with contract terms. For future policy benefits, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information. The reinsurance recoverables are based on what the Company believes are reasonable estimates and the balance is reported as an asset in the Consolidated Balance Sheets (Successor). However, the ultimate amount of the reinsurance recoverable is not known until all claims are settled. Reinsurance contracts do not relieve the Company from its obligations to policyholders, and failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. In the Predecessor periods, or the periods prior to April 1, 2014, the Company had reinsurance agreements whereby all insurance risks represented by premiums, fee income from policyholders, returns credited to policyholder account balances, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Additionally, investment income earned on the assets that supported policyholder account balances and future policy benefits and other policyholder funds were not included in the Company’s financial statements, as those assets were owned and managed by ALIC and other reinsurers under the terms of the reinsurance agreements. Value of Business Acquired (“VOBA”) For interest-sensitive life products, VOBA is amortized over the life of the policies in relation to the emergence of estimated gross profits (“EGP’s”) from margins on mortality, interest, expenses, and surrenders, all of which are net of reinsurance and include actual realized gains and losses on investments. For non-interest sensitive life products, such as term life insurance, VOBA is amortized in relation to premium. VOBA is reviewed periodically for loss recognition to ensure that the unamortized balance is recoverable from future earnings from the business. The carrying amount of VOBA is adjusted for the effects of realized and unrealized gains and losses on debt securities classified as AFS. Separate Accounts Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders’ claims to the related assets and are carried at an amount equal to the separate accounts 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 Consolidated Statement of Operations and Comprehensive Income (Successor) or Statements of Operations and Comprehensive Income (Predecessor). Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows. Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives.
Future Policy Benefits and Other Policyholder Liabilities Policy liabilities are established for future policy benefits on certain annuity, life, and long term care policies. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in-force. Changes in policy and contract claims are recorded in policyholder benefits in the Consolidated Statements of Operations and Comprehensive Income (Loss). For ASC 944-20 products, benefit reserves are computed using the net level premium method for individual life, annuity and long-term care policies, and are based upon estimates as to future investment yield, mortality and lapse that include provisions for adverse deviation that were prevalent at the time the reserve was initially established. Mortality, morbidity and lapse assumptions for all policies are based on the Company’s own experience and industry standards. Liabilities for outstanding claims and claims adjustment expenses are estimates of payments to be made on life and health insurance contracts for reported claims and claims adjustment expenses. A liability is also held for claims adjustment expenses incurred but not reported as of the balance sheet date. These liabilities are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all claims incurred but not paid. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations. Future policy benefit reserves for fixed indexed annuity policies with returns linked to the performance of a specified market index are equal to the excess of the sum of the fair value of the embedded derivative and the host (or guaranteed) component over the policyholder account balance. The change in the fair value of the embedded derivative is linked to the performance of the equity option. The host value is established as of the date of acquisition and is equal to the account value, plus the value of the unexpired options at the date of acquisition, less the embedded derivative, and accreted over the policy’s life at a constant rate of interest. The Company holds additional liabilities for its no lapse guarantees (associated with universal life) and guaranteed minimum withdrawal benefits (associated with fixed indexed annuities). These are accounted for in accordance with ASC 944-20, Financial Services — Insurance Activities. Policy liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in-force. The amount of liabilities and accruals, however, could be revised if the estimates discussed above are revised. Policyholders’ Account Balances Policyholder account balances represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Policyholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. Future policy benefits reserves for the portion of fixed indexed annuities earning a fixed rate of interest, and other deferred annuity products are computed under a retrospective deposit method and represent policyholders’ account balances before applicable surrender charges. The prior year amount of $1.9 billion has been reclassified from Future Policy Benefits and Other Policyholder Liabilities to Policyholders’ Account Balances to conform with the current year presentation. The Company holds additional liabilities for guaranteed minimum income benefits (“GMIB”) associated with variable annuities, which are accounted for in accordance with ASC 944-20, Financial Services — Insurance Activities. The reserves for certain living benefit features, including guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”) are accounted for as embedded derivatives, with fair values calculated as the present value of expected future benefit payments to contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. The Company’s GMIB, GMAB and GMWB reserves are ceded to external reinsurers. For additional information regarding the valuation of these optional living benefit features, see Note 10. Income Taxes — Successor Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial statement and income tax bases of assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed at each reporting date and a deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized. Tax positions are assessed under a two-step approach, which requires the assessment of recognition and measurement. The Company reports interest expense related to income tax matters and tax penalties in other operating expenses in the Consolidated Statement of Operations and Comprehensive Income (Loss). Income Taxes — Predecessor The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses, accrued expenses and reinsurance recoverables. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized. Other Long-Term Debt Effective April 1, 2014, and with Nebraska Department of Insurance (the “NE DOI” or the “Department of Insurance”) approval, Lancaster Re issued a variable funding Surplus Note (the “Surplus Note”) to its affiliate, Lanis, LLC. for $513 million and acquired from Lanis a Vehicle Note (the “Vehicle Note”) for $513 million. The Vehicle Note is held to support a portion of Lancaster Re’s reinsurance obligations and has been authorized as an acceptable form of reinsurance collateral pursuant to Nebraska Rev. Stat. §44-8216(8)(c)(i) which allows a special purpose financial captive insurer to establish any method of security that the Department deems acceptable. The scheduled maturity date of the Vehicle Note is April 1, 2034, and the scheduled maturity date of the Surplus Note is April 1, 2039, although each may be cancelled earlier or extended under certain conditions. The Surplus Note does not repay principal prior to maturity and principal payment at maturity is subject to the prior approval of the Department of Insurance. With pre-approval, the Surplus Note is increased each quarter with a corresponding increase in the Vehicle Note. With Department pre-approval, interest on the Surplus Note for the prior quarter is paid on the first day of each subsequent quarter at a rate consistent with the rate received on the Vehicle Note of 4%. The Surplus Note and Vehicle Note increased by $57.1 million and $38.6 million in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. Interest expense of $22.9 million and $15.7 million was recognized in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. The Surplus Note is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Lancaster Re. Other Assets and Accrued Expenses and Other Liabilities Other assets consist primarily of premiums due, intangible assets, the Vehicle Note and receivables resulting from sales of securities that had not yet settled at the balance sheet date. Other liabilities consist primarily of accrued expenses, technical overdrafts, derivatives, and payables resulting from purchases of securities that had not yet been settled at the balance sheet date.
Reclassifications Certain prior year amounts have been reclassified to conform with the current year financial statement presentation. Adoption of New Accounting Pronouncements In February 2013, the Financial Accounting Standards Board issued guidance requiring expanded disclosures about the amounts reclassified out of accumulated other comprehensive income by component. The guidance requires the presentation of significant amounts reclassified out of accumulated other comprehensive income by income statement line item, but only if the amount reclassified is required under accounting principles generally accepted in the United States of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, cross-reference to other disclosures that provide additional detail about those amounts is required. The Company adopted the new guidance in 2013. The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position. Effective November 18, 2014, the Company adopted new guidance on when, if ever, the cost of acquiring an entity should be used to establish a new accounting basis (“pushdown”) in the acquired entity’s separate financial statements. The guidance provides an acquired entity and its subsidiaries with an irrevocable option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. If a reporting entity elects to apply pushdown accounting, its stand-alone financial statements would reflect the acquirer’s new basis in the acquired entity’s assets and liabilities. The election to apply pushdown accounting should be determined by an acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity; however, an entity that does not elect to apply pushdown accounting in the period of a change-in-control can later elect to retrospectively apply pushdown accounting to the most recent change-in-control transaction as a change in accounting principle. The Company has applied pushdown accounting as a result of the Acquisition in the Successor Period, as disclosed in Note 1. In January 2014, the FASB issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014. This guidance can be elected for prospective adoption or by using a modified retrospective transition method. The adoption of this new guidance in 2015 did not have a material impact on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2014, the FASB issued a comprehensive new revenue recognition standard effective for fiscal years beginning after December 15, 2016 and interim periods within those years and should be applied retrospectively. In August 2015, the FASB amended the guidance to defer the effective date by one year, effective for the fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance will supersede nearly all existing revenue recognition guidance under GAAP; however, it will not impact the accounting for insurance contracts, leases, financial instruments and guarantees. For those contracts that are impacted by the new guidance, the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.
In August 2014, the FASB issued guidance requiring that mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or financial statement disclosures. In February 2015, the FASB issued updated guidance regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2015, the FASB issued new guidance on short-duration insurance contracts. The amendments in this new guidance are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments to these estimates, including information on: (i) reconciling from the claim development table to the balance sheet liability; (ii) methodologies and judgments in estimating claims; and (iii) the timing, and frequency of claims. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2015, the FASB issued new guidance on fair value measurement effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and which should be applied retrospectively to all periods presented. Earlier application is permitted. The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV per share (or its equivalent) practical expedient. In addition, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In April 2015, the FASB issued new guidance on accounting for fees paid in a cloud computing arrangement, effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the new guidance is permitted and an entity can elect to adopt the guidance either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The new guidance provides that all software licenses included in cloud computing arrangements be accounted for consistent with other licenses of intangible assets. However, if a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract, the accounting for which did not change. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In January 2016, the FASB issued new guidance on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to: (i) the classification and measurement of certain equity investments; (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk; and (iii) certain disclosures associated with the fair value of financial instruments. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures. |
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The amortized cost, gross unrealized gains and losses and fair value for fixed maturities as of December 31, 2015 and 2014 were as follows:
Scheduled Maturities — Successor The scheduled maturities for fixed maturities are as follows as of December 31, 2015:
Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers. Asset and mortgage-backed securities are shown separately because of the potential for prepayment of principal prior to contractual maturity dates. Commercial Mortgage Loans — Successor The Company diversifies its commercial mortgage loan portfolio by geographical region to reduce concentration risk. The following table presents the Company’s commercial mortgage loan portfolio by geographical region as of December 31, 2015 and December 31, 2014:
Credit Quality of Commercial Mortgage Loans The credit quality of commercial mortgage loans held-for-investment were as follows at December 31, 2015 and December 31, 2014:
As of December 31, 2015 and December 31, 2014, the Company had no allowance for credit losses for commercial mortgage loans. As of December 31, 2015 and December 31, 2014, $1,509 million and $1,139 million, respectively, of commercial mortgage loans were in current status with no commercial mortgage or other loans classified as past due. The Company defines current in its aging of past due commercial mortgage and other loans as less than 30 days past due. Impaired loans include those loans for which it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. As of December 31, 2015 and December 31, 2014, the Company held no impaired commercial mortgage loans. The Company’s commercial mortgage may occasionally be involved in a troubled debt restructuring. As of December 31, 2015, the Company had no commitments to fund to borrowers that have been involved in a troubled debt restructuring. As of December 31, 2015 and December 31, 2014, the Company had no new troubled debt restructurings related to commercial mortgage and no payment defaults on commercial mortgages.
Other Invested Assets — Successor The following table sets forth the composition of “Other invested assets” as of December 31, 2015 and December 31, 2014: Amortized Cost
Net Investment Income Net investment income for Successor Periods for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
Realized Investment Gains and Losses Realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
There were no other-than-temporary impairment losses recorded in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014. There were no other-than-temporary impairment losses recorded in the Predecessor Period from January 1, 2014 through March 31, 2014. Realized capital gains and losses in the Predecessor year ended December 31, 2013 included $2 thousand of other-than-temporary impairment losses related to RMBS, none of which were included in other comprehensive income. No other-than-temporary impairment losses were included in accumulated other comprehensive income as of December 31, 2015 or as of December 31, 2014. Proceeds from sales of fixed maturities and gross realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
Proceeds from sales excludes taxable exchanges of $72.4 million and $3.0 million for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively.
Unrealized Investment Gains and Losses — Successor The following table summarizes the gross unrealized losses and fair value of fixed maturities by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and December 31, 2014:
Portfolio Monitoring The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed maturity security whose carrying value may be other-than-temporarily impaired. For each fixed maturity security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other-than-temporary and is recorded in earnings.
If the Company has not made the decision to sell the fixed maturity security and it is not more likely than not the Company will be required to sell the fixed maturity security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed maturity security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income. The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed maturity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost.
Net Unrealized Investment Gains and Losses in AOCI
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Derivative Financial Instruments |
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Derivative Financial Instruments |
See Note 2 for a description of the Company’s accounting policies for derivatives and Note 5 for information about the fair value hierarchy for derivatives. The following table provides a summary of the notional and fair value positions of derivative financial instruments as of December 31, 2015 and 2014:
The standardized ISDA Master Agreement under which the Company’s derivative transactions are executed include provisions for payment netting. In the normal course of business activities, if there is more than one derivative transaction with a single counterparty, the Company will set-off the cash flows of those derivatives into a single amount to be exchanged in settlement of the resulting net payable or receivable with that counterparty. The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related Credit Support Annex (“CSA”) have been executed. At December 31, 2015 and December 31, 2014, the Company held $0.8 million and $6.4 million in cash and securities collateral delivered by trade counterparties. This cash collateral is reported in Cash on the Consolidated Balance Sheet. The following table presents the amount and location of gains (losses) recognized in income, net of reinsurance, for derivatives that were not designated or qualifying as hedging instruments for the Successor Period for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying as hedging instruments for the Predecessor Period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013:
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Fair Value |
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Fair Value |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Consolidated Balance Sheets (Successor) at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. Successor There are no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2015 or December 31, 2014. The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and December 31, 2014.
There were no transfers between Level 1 and Level 2 during the period from April 1, 2014 through December 31, 2014. In 2015, U.S. Treasury securities were transferred to Level 1 as those securities are traded in an active market. The prior year presentation has been updated to conform to the current year presentation. Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis Fixed Maturities The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent pricing services. Prices for each security are generally sourced from multiple pricing vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. The pricing hierarchy is updated for new financial products and recent pricing experience with various vendors. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. U.S. Treasury securities are included within Level 1 due to the market activity. Typical inputs used by these pricing services include but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flow, prepayment speeds, and default rates. If the pricing information received from third party pricing services is deemed not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service or classify the securities as Level 3. If the pricing service updates the price to be more consistent with the presented market observations, the security remains within Level 2. Indicative broker quotes are also used to determine fair value in circumstances where vendor pricing is not available, or where the Company ultimately concludes that pricing information received from independent pricing services is not reflective of market activity. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information with an internally-developed valuation. Pricing service overrides, internally-developed valuations and indicative broker quotes are generally included in Level 3 in the fair value hierarchy. The fair value of private fixed maturities, which are comprised of investments in private placement securities are primarily determined using discounted cash flow models. These models primarily use observable inputs that include Treasury or similar base rates plus estimated credit spreads to value each security. The credit spreads are obtained through a survey of private market intermediaries who are active in both primary and secondary transactions, and consider, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Since most private placements are valued using standard market observable inputs and inputs derived from, or corroborated by, market observable data including observed prices and spreads for similar publicly traded or privately traded issues, they have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model may incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the price of a security, a Level 3 classification is made. No private placement securities were classified as Level 3 as of December 31, 2015 or December 31, 2014. Short-term Investments Short-term investments include money market instruments, highly liquid debt instruments and certain other investments. Certain money market instruments are valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in this category are generally fair valued based on market observable inputs and these investments have primarily been classified within Level 2. Short-term investments classified within Level 3 primarily consist of commercial mortgage loans. The fair value of the commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans. Other Invested Assets The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives. Separate Account Assets and Liabilities Separate account assets and liabilities consist principally of investments in mutual fund shares. The fair values are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy.
Policyholders’ Account Balances The liabilities for guarantees primarily associated with the optional living benefit features of certain variable annuity contracts and equity indexed annuity contracts are calculated as the present value of future expected benefit payments to contractholders less the present value of assessed rider fees attributable to the optional living benefit feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management judgment. The significant inputs to the valuation models for these embedded derivatives include capital market assumptions, such as interest rate levels and volatility assumptions, as well as actuarially determined assumptions, including contractholder behavior, such as lapse rates, benefit utilization rates, withdrawal rates, and mortality rates. Since many of these assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy. Actuarial assumptions, including contractholder behavior and mortality, are reviewed at least annually, and updated based upon emerging experience, future expectations and other data, including any observable market data. These assumptions are generally updated annually unless a material change that the Company feels is indicative of a long term trend is observed in an interim period. Level 3 Fair Value Measurements The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements:
Excluded from the table above at December 31, 2015 and December 31, 2014 are approximately $26 million and $15 million, respectively, Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not reasonably available. These investments primarily consist of certain public debt securities with limited trading activity, including asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Company’s reporting significantly higher or lower fair value measurements for these Level 3 investments. The table above also excludes underlying quantitative inputs related to liabilities held for the Company’s guaranteed minimum accumulation benefits and guaranteed withdrawal benefits. These liabilities are not developed by the Company as they are 100% ceded to external reinsurers. The development of these liabilities generally involve actuarially determined models and could result in the Company reporting significantly higher or lower fair value measurements for these Level 3 investments.
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
Transfers into Level 3 are generally the result of unobservable inputs utilized within the valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company is able to validate.
The following table presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Consolidated Balance Sheet; however, in some cases, as described below, the carrying amount equals or approximates fair value as of December 31, 2015 and December 31, 2014:
The fair values presented above have been determined by using available market information and by applying market valuation methodologies, as described in more detail below. Commercial Mortgage Loans The fair value of most commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans. Policy Loans The fair value of policy loans was determined by discounting expected cash flows at the current loan coupon rate. As a result, the carrying value of the policy loans approximates the fair value. Cash The Company believes that due to the short-term nature of certain assets, the carrying value approximates fair value.
Vehicle Note and Other Long-Term Debt The fair value of the Vehicle note and Other long-term debt is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate. Policyholders’ Account Balances — Investment Contracts Only the portion of policyholders’ account balances related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table above. For fixed deferred annuities fair values are derived using discounted projected cash flows based on interest rates that are representative of the Company’s financial strength ratings, and hence reflect the Company’s own nonperformance risk. For those balances that can be withdrawn by the customer at any time without prior notice or penalty, the fair value is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value. Predecessor Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis Level 1 Measurements
Level 2 Measurements
U.S. government and agencies: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Municipal: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate, including privately placed: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. Foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
RMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads. CMBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.
Level 3 Measurements
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the period from January 1, 2014 through March 31, 2014.
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2013.
Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table. There were no transfers between Level 1 and Level 2 during the period from January 1, 2014 through March 31, 2014 or 2013.
The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities.
The amounts in the table above represent the change in unrealized gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3. The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $17.6 million in interest credited to contractholder funds and $946 thousand in contract benefits in the period from January 1, 2014 through March 31, 2014, $33.0 million in interest credited to contractholder funds and $10.2 million in contract benefits in 2013. These amounts are ceded in accordance with the Company’s reinsurance agreements.
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Reinsurance |
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Reinsurance |
Successor The Company has agreements that provide for reinsurance of certain policy-related risks. Under the agreements, premiums, contract charges, interest credited to policyholder funds, policy benefits and substantially all expenses are reinsured. The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company cedes a portion of the mortality risk on certain life and long-term care policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers. As of December 31, 2015 and December 31, 2014, approximately 99% of the Company’s non-affiliated reinsurance recoverables are due from companies rated A- or better by S&P. ALIC represents over 65% of the Company’s reinsurance recoverables as of December 31, 2015 and 2014. On April 1, 2014, the Company entered into an experience rated modified coinsurance and monthly renewal term reinsurance arrangement with an external reinsurer under which risk on certain universal life and fixed annuity products is transferred. No portion of the assets constituting the consideration has been transferred to the reinsurer. This agreement was structured to finance reserves on certain universal life and fixed annuity products, in exchange for a fee based on those reserves. The profit to the reinsurer expected on the modified coinsurance and monthly renewable term portions is returned through an experience refund. The Company has determined that this agreement does not fulfill the requirements of risk transfer under generally accepted accounting principles and is accounted for on a deposit method of accounting. As of December 31, 2015 and 2014, the Company had a deposit receivable and a modified coinsurance payable of $1,250 million and $1,383 million, respectively, related to this agreement.
The effects of reinsurance on premiums earned and fee income from policyholders for the Successor Period for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
The effects of reinsurance on return credited to policyholders’ account balances, and policyholder benefits for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
Predecessor Prior to April 1, 2014, the Company had reinsurance agreements under which it reinsured all of its business to ALIC, Lincoln Benefit Re (“LB Re”) or non-affiliated reinsurers. Under the agreements, premiums, contract charges, interest credited to policyholders account balances, contract benefits and substantially all expenses were reinsured. The Company purchased reinsurance to limit aggregate and single losses on large risks. The Company ceded a portion of the mortality risk on certain life policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers. The effects of reinsurance on premiums and contract charges are as follows:
The effects of reinsurance on return credited to policyholders’ account balances, policyholder benefits and other expenses are as follows:
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Income Taxes |
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Income Taxes |
Successor In connection with the Acquisition as defined in Note 1, ALIC made an election under Treasury Regulation Section 1.1502-36(d) for ALIC to eliminate tax basis in certain assets and tax attributes under the “unified loss rules”. As a result, the tax basis of certain of the Company’s assets was reduced immediately prior to the Acquisition. The reduced tax bases were used to determine the deferred tax impact under the acquisition method of accounting as discussed in Note 1. The Company is party to a federal income tax allocation agreement (the “Tax Allocation Agreement”) with Lancaster Re. The Company and Lancaster Re will file a separate consolidated federal income tax return for the period April 1, 2014 to December 31, 2014 and will continue to do so in future tax years under Internal Revenue Code Section 1504 (c)(1). Following the Acquisition, the Company exited The Allstate Corporation’s consolidated federal income tax return and is no longer a party to the tax allocation agreement with its former affiliates. Final tax settlements were agreed to with The Allstate Corporation and no future tax allocations are expected to occur with The Allstate Corporation. As part of the Acquisition, although the Company remains jointly and severally liable for consolidated tax liabilities, the Company is held harmless by ALIC in accordance with the Acquisition agreement and believes that the possibility of a tax liability for the pre-sale tax years is remote. Additionally, the Company does not believe it has any uncertain tax positions for its federal income tax return that would be material to its financial condition, results of income, or cash flows. Therefore, the Company did not record a liability for unrecognized tax contingencies/benefits at December 31, 2015 and December 31, 2014. As of December 31, 2015, there were no uncertain tax positions for which management believes it is reasonably possible that the total amounts of tax contingencies will significantly increase within 12 months of the reporting date. No amounts have been accrued for interest or penalties.
The components of the deferred income tax assets and liabilities as of December 31, 2015 and December 31, 2014 are as follows:
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 expected to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that any tax attribute carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) prudent and feasible tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The Company had no valuation allowance as of December 31, 2015 or December 31, 2014. With respect to deferred tax assets associated with investments, the Company has the ability and intent to hold these securities until recovery. Adjustments to the valuation allowance will be made if there is a change in management’s assessment of the amount of deferred tax asset that is realizable. At December 31, 2015, the Company had no net operating loss carryforwards, no capital loss carryforwards, or tax credit carryforwards.
A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 were as follows:
Other represents the establishment of additional deferred tax liabilities that existed at the time of Acquisition and identified during the completion of the consolidated federal income tax return for the 2014 tax year. The dividends received deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and is the primary component of the non-taxable investment income, and, as such, is a significant component of the difference between the Company’s effective tax rate and the federal statutory tax rate of 35%. The actual current year DRD can vary from the estimate based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from mutual fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD. However, there remains the possibility that the IRS and the U.S. Treasury will address, through subsequent guidance, certain issues related to the calculation of the DRD. For the last several years, the revenue proposals included in the Obama Administration’s budgets included a proposal that would change the method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through guidance or legislation, could increase actual tax expense and reduce the Company’s consolidated net income. Predecessor Prior to April 1, 2014, the Company joined The Allstate Corporation and its other subsidiaries (the “Allstate Group”) in the filing of a consolidated federal income tax return and was party to a federal income tax allocation agreement (the “Allstate Tax Sharing Agreement”). Under the Allstate Tax Sharing Agreement, the Company paid to or received from The Allstate Corporation the amount, if any, by which the Allstate Group’s federal income tax liability was affected by virtue of inclusion of the Company in the consolidated federal income tax return. The Company also had a supplemental tax sharing agreement with respect to reinsurance ceded to ALIC to allocate the tax benefits and costs related to such reinsurance. Effectively, these agreements resulted in the Company’s annual income tax provision being computed, with adjustments, as if the Company filed a separate return, adjusted for the reinsurance ceded to ALIC. The IRS is currently examining the Allstate Group’s 2013 and 2014 federal income tax returns. The IRS completed the audit of the Allstate Group’s 2011 and 2012 federal income tax returns and issued a final Revenue Agent’s Report on June 10, 2015. The Allstate Group’s tax years prior to 2011 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of the Allstate Group’s tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.
The components of income tax expense are as follows:
The Company paid no income taxes in the period from January 1, 2014 through March 31, 2014. The Company paid income taxes of $4.2 million in 2013. A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations is as follows:
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Future Policy Benefits and Other Policyholder Liabilities - Successor |
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Future Policy Benefits and Other Policyholder Liabilities - Successor |
Life insurance liabilities include reserves for death benefits and other policy benefits. As of December 31, 2015 and 2014, future policy benefits and other policyholder liabilities consisted of the following:
Future policy benefits are generally equal to the present value of future benefit payments and related expenses, less the present value of future net premiums. Assumptions as to mortality, morbidity and persistency are based on the Company’s experience, industry data, and/or other factors, when the basis of the reserve is established. Interest rates used in the determination of present values range from 2.5% to 6.0% for setting reserves. |
Policyholder Account Balances - Successor |
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Policyholder Account Balances - Successor |
As of December 31, 2015 and 2014, policyholders’ account balances consisted of the following:
Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges, if applicable. These policyholders’ account balances also include provisions for benefits under non-life contingent payout annuities. Interest crediting rates range from 0.4% to 6.0% for interest sensitive contracts. Interest crediting rates for individual annuities range from 0.0% to 6.0%. |
Certain Nontraditional Long-Duration Contracts - Successor |
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Certain Nontraditional Long-Duration Contracts - Successor |
The Company offered traditional variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also offered variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than total deposits made to the contract less any partial withdrawals (“return of net deposits”). In certain of these variable annuity contracts, the Company also contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals plus a minimum return (“minimum return”), and/or (2) the highest contract value on a specified date adjusted for any withdrawals (“contract value”). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. The Company also issued annuity contracts with and without market value adjusted investment options (“MVAs”), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a “market adjusted value” if surrendered prior to maturity or if funds are allocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable. All of the risks associated with the Company’s variable annuity contracts are reinsured with external reinsurers. In addition, the Company issues certain variable life, variable universal life and universal life contracts where the Company contractually guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges, whereas otherwise the contract would typically lapse (“no lapse guarantee”). Variable life and variable universal life contracts are offered with general and separate account options similar to variable annuities. The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account liabilities.” Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in fee income from policyholders and changes in liabilities for minimum guarantees are generally included in policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) (Successor) and Statements of Operations and Comprehensive Income (Predecessor).
For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, contract lapses and contractholder mortality. For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including fixed income and equity market returns, benefit utilization, timing of annuitization, contract lapses and contractholder mortality. For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility or contractholder behavior used in the original pricing of these products. The Company’s contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. The liabilities related to the net amount at risk are reflected within Future policy benefits and other policyholder liabilities or Policyholders’ account balances. As of December 31, 2015 and December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
As of December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
Liabilities for Guarantee Benefits The liabilities for guaranteed minimum death benefits (“GMDB”) and secondary guarantees on interest-sensitive life and fixed annuities are included in Future policy benefits and other policyholder liabilities on the Consolidated Balance Sheet (Successor) and the related changes in the liabilities are included in Policyholder benefits in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the Successor Period for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014. Guaranteed minimum income benefits (“GMIB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) features are accounted for as bifurcated embedded derivatives and are recorded at fair value within Policyholders’ account balances on the Consolidated Balance Sheet (Successor). The table below summarizes the changes in general account liabilities for guarantees on variable contracts.
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Value of Business Acquired - Successor |
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Value of Business Acquired - Successor |
The following reflects the changes to the VOBA asset:
The following table provides estimated percentage of the VOBA balance to be amortized for the years indicated:
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Commitments and Contingencies |
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Commitments and Contingencies |
Regulation and Compliance The Company is subject to changing social, economic and regulatory conditions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain. The Company is currently being examined by certain states for compliance with unclaimed property laws. It is possible that this examination may result in additional payments of abandoned funds to states and to changes in the Company’s practices and procedures for the identification of escheatable funds, which could impact benefit payments and reserves, among other consequences; however, it is not likely to have a material effect on the financial statements of the Company. The Company is assessed amounts by the state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At December 31, 2015, the Company accrued $6.7 million for guaranty fund assessments which is expected to be offset by estimated future premium tax deductions of $11.1 million. Litigation The Company is involved from time to time in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company’s financial condition. Given the inherent difficulty of predicting the outcome of the Company’s litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, the Company cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. However, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the consolidated financial position or results of operations. In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, information technology agreements and service agreements. The Company has also agreed to indemnify its directors, officers and employees in accordance with the Company’s by-laws. The Company believes any potential liability under these agreements is neither probable nor estimable. Therefore, the Company has not recorded any associated liability. Pledged or Restricted Assets The Company had the following restricted assets:
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Regulatory Capital and Dividends |
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Regulatory Capital and Dividends |
The Company prepares its statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Nebraska. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (“NAIC”), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The State of Nebraska requires insurance companies domiciled in its state to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the State of Nebraska Insurance Commissioner. Statutory accounting practices differ from GAAP primarily since they require establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments at amortized cost. Statutory accounting practices do not give recognition to purchase accounting adjustments.
Statutory net income was $74 million and $226 million for the years ended December 31, 2015 and December 31, 2014, respectively. Statutory capital and surplus was $555 million and $719 million as of December 31, 2015 and December 31, 2014, respectively.
The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors. The payment of shareholder dividends by the Company without the prior approval of the Department of Insurance is limited to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as, the timing and amount of dividends paid in the preceding twelve months. In connection with the Acquisition, prior approval of the Nebraska Director of Insurance is required for the Company for any dividend or distribution for five years subsequent to the Acquisition. The Company paid dividends of $187.0 million and $33.2 million during the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014, respectively. Other Without the prior approval of the Nebraska Director of Insurance, the Company may not:
Under state insurance laws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write. Insurance companies are also subject to risk-based capital (“RBC”) requirements adopted by state insurance regulators. A company’s “authorized control level RBC” is calculated using various factors applied to certain financial balances and activity. Companies that do not maintain statutory capital and surplus at a level in excess of the company action level RBC, which is two times authorized control level RBC, are required to take specified actions. Company action level RBC is significantly in excess of the minimum capital requirements.
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Leases |
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Leases |
In December 2014, the Company entered into a lease agreement, effective February 2015, to lease office space under a non-cancellable operating lease agreement that expires in January 31, 2026. For the year ended December 31, 2015, the Company made payments of $0.1 million pursuant to this operating lease. For the period from April 1, 2014 through December 31, 2014, the Company made no payments pursuant to this operating lease.
The minimum aggregate rental commitments as of December 31, 2015 were as follows:
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Related Parties |
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Related Parties |
Successor On April 1, 2014, the Company entered into a management services agreement with Resolution. Under this agreement, Resolution and Lincoln Benefit provide services to each other including but not limited to compliance, legal, risk management, accounting and reporting, treasury, tax and other management related services. Services are provided at cost. Resolution provided $13.9 million and $21.1 million in services to Lincoln Benefit for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. Effective April 1, 2014, the Company entered into a Fee Letter (the “Fee Letter”) with Lanis LLC (“Lanis”) pursuant to which the Company will pay Lanis the risk spread due on the Vehicle Note issued by Lanis to Lancaster Re. The total expense related to this risk spread for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 was approximately $6.7 million and $4.3 million, respectively. The Company reported the following receivables/ (payables) to affiliates as of December 31, 2015 and December 31, 2014 ($ in thousands):
Intercompany receivable and payable balances are evaluated on an individual company basis. Intercompany balances are generally settled quarterly. The Company’s stock is pledged as collateral on Resolution’s term loan agreement with a syndicate of lenders (“Term Loan”). The maturity date of the loan is June 15, 2018. The Term Loan was funded on April 1, 2014. On April 1, 2014, the Company and RLI entered into a Letter Agreement whereby from and after the fifth anniversary of the date of the agreement, if the Company makes any payment pursuant to the Fee Letter, within ten Business Days of such payment by the Company, RLI shall reimburse the Company in cash in an amount equal to such payment by the Company. Predecessor All intercompany balances were settled prior to the Acquisition.
Business operations Prior to April 1, 2014, the Company used services performed by its affiliates, Allstate Insurance Company (“AIC”), ALIC and Allstate Investments LLC, and business facilities owned or leased and operated by AIC in conducting its business activities. In addition, the Company shared the services of employees with AIC. The Company reimbursed its affiliates for the operating expenses incurred on behalf of the Company. The Company was charged for the cost of these operating expenses based on the level of services provided. Operating expenses allocated to the Company were $50.1 million and $249.7 million in the period from January 1, 2014 through March 31, 2014, for the years ended December 31, 2013, respectively. Of these costs, the Company retained investment related expenses on the invested assets that were not transferred under the reinsurance agreements. All other costs were ceded to ALIC under the reinsurance agreements. Broker-Dealer agreements Prior to April 1, 2014, the Company had a service agreement with Allstate Distributors, L.L.C. (“ADLLC”), a broker-dealer company owned by ALIC, whereby ADLLC promoted and marketed products sold by the Company. In return for these services, the Company recorded expense of $12 thousand and $71 thousand in the period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013, respectively, that was ceded to ALIC under the terms of the reinsurance agreements. Prior to April 1, 2014, the Company received distribution services from Allstate Financial Services, LLC, an affiliated broker-dealer company, for certain annuity and variable life insurance contracts sold by Allstate exclusive agencies. For these services, the Company incurred commission and other distribution expenses of $2.2 million and $7.7 million in the period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013, respectively, that were ceded to ALIC under the terms of the reinsurance agreements. Reinsurance The following table summarizes amounts that were ceded to ALIC under reinsurance agreements and reported net in the Statements of Operations and Comprehensive Income:
In September 2012, the Company entered into a coinsurance reinsurance agreement with LB Re to cede certain interest-sensitive life insurance policies to LB Re. Income taxes Prior to April 1, 2014, the Company was a party to a federal income tax allocation agreement with The Allstate Corporation (see Note 7). Intercompany loan agreement Prior to April 1, 2014, the Company had an intercompany loan agreement with The Allstate Corporation. |
Consolidated Summary of Investments Other Than Investments in Related Parties |
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Consolidated Summary of Investments Other Than Investments in Related Parties |
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Consolidated Reinsurance |
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Consolidated Reinsurance |
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General (Policies) |
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Dec. 31, 2015 | |
Basis of Presentation | Basis of Presentation The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The financial statements are presented for Successor and Predecessor periods, which relate to the accounting periods after and before April 1, 2014, respectively, the date of the closing of the Acquisition. For periods after April 1, 2014, the accompanying financial statements comprise the consolidated financial statements of the Company, which include the accounts of the Company and its subsidiary. Due to the Acquisition and the application of push-down accounting, different bases of accounting have been used to prepare the Predecessor and Successor financial statements. A black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods. The principal accounting policies applied in the preparation of these financial statements are set out below and in Note 2. |
Consolidation | Consolidation The accompanying consolidated financial statements of the Successor include the accounts of Lincoln Benefit and its subsidiary, Lancaster Re. All significant intercompany balances and transactions have been eliminated on consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
Cash | Cash Cash includes cash on hand, amounts due from banks, money market securities, highly liquid overnight deposits, discount notes and commercial paper held in the ordinary course of business and other debt instruments with maturities of three months or less when purchased. |
Investments | Investments Fixed maturities include bonds, asset-backed securities (“ABS”) residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). Fixed maturities, which may be sold prior to their contractual maturity, are designated as available-for-sale (“AFS”) and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income. Cash received from calls, principal payments and make-whole payments and cash received from maturities and pay-downs are reflected as a component of proceeds from sales and maturities within the Consolidated Statement of Cash Flows — Successor and Statement of Cash Flows — Predecessor. The Company recognizes other-than-temporary impairments (“OTTI”) for securities classified as AFS in accordance with ASC 320,Investments-Debt and Equity Securities. At least quarterly, management reviews impaired securities for OTTI. The Company considers several factors when determining if a security is OTTI, including but not limited to: its intent and ability to hold the impaired security until an anticipated recovery in value, the issuer’s ability to meet current and future principal and interest obligations for fixed maturity securities, the length and severity of the impairment, the financial condition and near term and long term prospects for the issuer. In making these evaluations, the Company exercises considerable judgment. If the Company intends to sell or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, then the Company recognizes a charge to earnings for the full amount of the impairment (the difference between the amortized cost and fair value of the security). For fixed maturity securities that are considered OTTI and that the Company does not intend to sell and will not be required to sell, the Company separates the impairment into two components: credit loss and noncredit loss. Credit losses are charged to net realized investment losses and noncredit losses are charged to other comprehensive income. The credit loss component is the difference between the security’s amortized cost and the present value of its expected future cash flows discounted at the current effective rate. The remaining difference between the security’s fair value and the present value of its expected future cash flows is the noncredit loss. For corporate bonds, historical default (by rating) data is used as a proxy for the probability of default, and loss given default (by issuer) projections are applied to the par amount of the bond. Potential losses incurred on structured securities are based on expected loss models rather than incurred loss models. Expected cash flows include assumptions about key systematic risks (e.g. unemployment rates, housing prices) and loan-specific information (e.g. delinquency rates, loan-to- value ratios). Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. Commercial mortgage loans (“CMLs”) acquired at fair value are carried at amortized cost using the effective interest rate method. CMLs held by the Company are diversified by property type and geographic area throughout the U.S. CMLs are considered impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement. The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value of the underlying collateral using internal valuations generally based on discounted cash flow analyses. The Company estimates an allowance for loan and lease losses (“ALLL”) representing potential credit losses embedded in the CML portfolio. The estimate is based on a consistently applied analysis of the loan portfolio and takes into consideration all available information, including industry, geographical, economic and political factors. Policy loans represent loans the Company issues to policyholders. Policy loans are carried at unpaid principal balances. Interest income on such loans is recognized as earned using the contractually agreed upon interest rate and reflected in Net investment income in the Consolidated Statement of Operations and Comprehensive Income (Loss). Generally, interest is capitalized on the associated policy’s anniversary date. Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase and are stated at estimated fair value or amortized cost, which approximates fair value. |
Derivatives | Derivatives As part of the Company’s overall risk management policy, the Company uses listed options and exchange traded futures to economically hedge its obligation under certain fixed indexed annuity and universal life contracts. Derivative financial instruments utilized by the Company during the year ended December 31, 2015 and in the period from April 1, 2014 through December 31, 2014 (the “Successor Period”) included index option contracts and futures contracts. Derivatives are carried in the Company’s Consolidated Balance Sheet either as assets within Other invested assets or as liabilities within Accrued expenses and other liabilities at estimated fair value. The Company offsets the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement. Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities. If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in realized investment gains, net in the Consolidated Statement of Operations and Comprehensive Income (Loss). The notional amounts specified in the contracts are used to calculate contractual payments under the agreements and are generally not representative of the potential for gain or loss on these contracts. Futures contracts are defined as commitments to buy or sell designated financial instruments based on specified prices, yields or indexes. Futures contracts provide returns at specified or optional dates based upon a specified index or interest rate applied to a notional amount. The Company uses futures to hedge exposures in indexed annuity and life contracts. Daily cash settlement of variation margins is required for futures contracts and is based on the changes in daily prices. The final settlement of futures contracts is in cash. Index option contracts provide returns at specified or optional dates based on a specified equity index applied to the option’s notional amount. The Company purchases and writes (sells) option contracts primarily to reduce market risk associated with certain annuity and life contracts. When the Company purchases/sells option contracts at specific prices, it is required to pay/receive a premium to/from the counterparties. The amount of premium paid/received is based on the number of contracts purchased/sold, the specified price and the maturity date of the contract. The Company receives/pays cash equal to the premium of written/purchased options when the contract is established. If the option is exercised, the Company receives/pays cash equal to the product of the number of contracts and the specified price in the contract in exchange for the equity upon which the option is written/purchased. If the options are not exercised, then no additional cash is exchanged when the contract expires. Premiums paid are reported as a derivative asset and premiums received are reported as a derivative liability. Purchased put and call index option contracts are cash settled upon exercise and the gain or loss on the settlement is reported in net investment income. If the purchased option contract expires without being exercised, the premiums paid are reported as net investment income and the corresponding asset previously recorded is reversed. The change in the fair value of written option contracts is reported in Realized investment gains, net, with an adjustment to a corresponding liability. Written call index option contracts are cash settled upon exercise and the gain or loss on settlement is reported in Realized investment gains, net. The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. The Company’s embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders, guaranteed minimum accumulation and withdrawal benefits in variable annuity contracts. The Company has reinsurance agreements to transfer all the risk related to guarantee minimum income, accumulation and withdrawal benefits in variable annuity contracts to third party reinsurers. None of these derivatives are designated as accounting hedging instruments and all are gross liabilities reported in policyholder account balances or future policy benefits and other policyholder liabilities. |
Investment Income and Realized Gains and Losses | Investment Income and Realized Gains and Losses Investment income primarily consists of interest and is recognized on an accrual basis using the effective yield method. Interest income for RMBS and CMBS is determined considering estimated pay-downs, including prepayments, obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received. For RMBS and CMBS of high credit quality with fixed interest rates, the effective yield is recalculated on a retrospective basis. For all others, the effective yield is recalculated on a prospective basis. Accrual of income is suspended for other-than-temporarily impaired fixed maturities when the timing and amount of cash flows expected to be received is not reasonably estimable. It is the Company’s policy to cease to carry accrued interest on commercial mortgage loans that are over 90 days delinquent. The Company held no non-income producing investments as of December 31, 2015 or December 31, 2014. Realized investment gains and losses net include gains and losses on investment sales and write-downs in value due to other-than-temporary declines in fair value. Realized capital gains and losses on investment sales, including principal payments, are determined on a specific identification basis. |
Recognition of Premium Revenues and Fees, and Related Policyholders' Benefits and Interest Credited | Recognition of Premium Revenues and Fees, and Related Policyholders’ Benefits and Interest Credited Prior to April 1, 2014 or the periods prior to April 1, 2014 (the “Predecessor Periods”), the Company had reinsurance agreements whereby all premiums, fee income from policyholders and returns credited to policyholders, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Amounts reflected in the Statements of Operations and Comprehensive Income (Loss) are presented net of reinsurance.
Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Surrender values on traditional life and death benefits are reflected in policyholder benefits. Immediate annuities with life contingencies provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. As of April 1, 2014, the Company has reinsurance agreements to transfer all the risk related to immediate annuities existing as of or prior to the Acquisition Date. Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the policyholder, interest credited to the policyholder account balance and contract charges assessed against the policyholder account balance. Premiums from these contracts are reported as policyholder account balances. Fee income from policyholders consist of fees assessed against the policyholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the policy prior to contractually specified dates. These charges are recognized as revenue when assessed against the policyholder account balance. Policyholder benefits include life-contingent benefit payments in excess of the policyholder account balance. Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as policyholder account balance deposits. Policy fees for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the policyholder account balance. Return credited to policyholder funds represents interest accrued or paid on interest-sensitive life and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed life and annuities are generally based on an equity index, such as the Standard & Poor’s (“S&P”) 500 Index. Policy charges for variable life and variable annuity products consist of fees assessed against the policyholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Policy benefits incurred for variable life and variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. The Company incurs costs in connection with renewal insurance business. All acquisition-related costs, including commissions, as well as all indirect costs, are expensed as incurred and reported in Other expenses on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014. |
Reinsurance | Reinsurance Reinsurance accounting is applied for ceded and assumed transactions when the risk transfer provisions of ASC 944-40, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, have been met. To meet risk transfer requirements, a long-duration reinsurance contract must transfer mortality or morbidity risks, and subject the reinsurer to a reasonable possibility of a significant loss. Those contracts that do not meet risk transfer requirements are accounted for using deposit accounting. For short duration contracts, to meet risk transfer requirements the reinsurer must assume significant insurance risk and have a reasonable possibility of experiencing significant loss. With respect to ceded reinsurance, the Company values reinsurance recoverables on reported claims at the time the underlying claim is recognized in accordance with contract terms. For future policy benefits, the Company estimates the amount of reinsurance recoverables based on the terms of the reinsurance contracts and historical reinsurance recovery information. The reinsurance recoverables are based on what the Company believes are reasonable estimates and the balance is reported as an asset in the Consolidated Balance Sheets (Successor). However, the ultimate amount of the reinsurance recoverable is not known until all claims are settled. Reinsurance contracts do not relieve the Company from its obligations to policyholders, and failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. In the Predecessor periods, or the periods prior to April 1, 2014, the Company had reinsurance agreements whereby all insurance risks represented by premiums, fee income from policyholders, returns credited to policyholder account balances, policyholder benefits and substantially all expenses were ceded to ALIC and other reinsurers. Additionally, investment income earned on the assets that supported policyholder account balances and future policy benefits and other policyholder funds were not included in the Company’s financial statements as those assets were owned and managed by ALIC and other reinsurers under the terms of the reinsurance agreements. |
Value of Business Acquired ("VOBA") | Value of Business Acquired (“VOBA”) For interest-sensitive life products, VOBA is amortized over the life of the policies in relation to the emergence of estimated gross profits (“EGP’s”) from margins on mortality, interest, expenses, and surrenders, all of which are net of reinsurance and include actual realized gains and losses on investments. For non-interest sensitive life products, such as term life insurance, VOBA is amortized in relation to premium. VOBA is reviewed periodically for loss recognition to ensure that the unamortized balance is recoverable from future earnings from the business. The carrying amount of VOBA is adjusted for the effects of realized and unrealized gains and losses on debt securities classified as AFS. |
Separate Accounts | Separate Accounts Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders’ claims to the related assets and are carried at an amount equal to the separate accounts 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 Consolidated Statement of Operations and Comprehensive Income (Successor) or Statements of Operations and Comprehensive Income (Predecessor). Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows. Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated investment objectives. |
Future Policy Benefits and Other Policyholder Liabilities | Future Policy Benefits and Other Policyholder Liabilities Policy liabilities are established for future policy benefits on certain annuity, life, and long term care policies. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in-force. Changes in policy and contract claims are recorded in policyholder benefits in the Consolidated Statements of Operations and Comprehensive Income (Loss). For ASC 944-20 products, benefit reserves are computed using the net level premium method for individual life, annuity and long-term care policies, and are based upon estimates as to future investment yield, mortality and lapse that include provisions for adverse deviation that were prevalent at the time the reserve was initially established. Mortality, morbidity and lapse assumptions for all policies are based on the Company’s own experience and industry standards. Liabilities for outstanding claims and claims adjustment expenses are estimates of payments to be made on life and health insurance contracts for reported claims and claims adjustment expenses. A liability is also held for claims adjustment expenses incurred but not reported as of the balance sheet date. These liabilities are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all claims incurred but not paid. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations. Future policy benefit reserves for fixed indexed annuity policies with returns linked to the performance of a specified market index are equal to the excess of the sum of the fair value of the embedded derivative and the host (or guaranteed) component over the policyholder account balance. The change in the fair value of the embedded derivative is linked to the performance of the equity option. The host value is established as of the date of acquisition and is equal to the account value, plus the value of the unexpired options at the date of acquisition, less the embedded derivative, and accreted over the policy’s life at a constant rate of interest. The Company holds additional liabilities for its no lapse guarantees (associated with universal life) and guaranteed minimum withdrawal benefits (associated with fixed indexed annuities). These are accounted for in accordance with ASC 944-20, Financial Services — Insurance Activities. Policy liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in-force. The amount of liabilities and accruals, however, could be revised if the estimates discussed above are revised. |
Policyholders' Account Balances | Policyholders’ Account Balances Policyholder account balances represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Policyholder funds primarily comprise cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals and contract charges for mortality or administrative expenses. Future policy benefits reserves for the portion of fixed indexed annuities earning a fixed rate of interest, and other deferred annuity products are computed under a retrospective deposit method and represent policyholders’ account balances before applicable surrender charges. The prior year amount of $1.9 billion has been reclassified from Future Policy Benefits and Other Policyholder Liabilities to Policyholders’ Account Balances to conform with the current year presentation. The Company holds additional liabilities for guaranteed minimum income benefits (“GMIB”) associated with variable annuities, which are accounted for in accordance with ASC 944-20, Financial Services — Insurance Activities. The reserves for certain living benefit features, including guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”) are accounted for as embedded derivatives, with fair values calculated as the present value of expected future benefit payments to contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various actuarial assumptions. The Company’s GMIB, GMAB and GMWB reserves are ceded to external reinsurers. For additional information regarding the valuation of these optional living benefit features, see Note 10. |
Income Taxes | Income Taxes — Successor Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial statement and income tax bases of assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of deferred tax assets is assessed at each reporting date and a deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized. Tax positions are assessed under a two-step approach, which requires the assessment of recognition and measurement. The Company reports interest expense related to income tax matters and tax penalties in other operating expenses in the Consolidated Statement of Operations and Comprehensive Income (Loss). |
Other Long-Term Debt | Other Long-Term Debt Effective April 1, 2014, and with Nebraska Department of Insurance (the “NE DOI” or the “Department of Insurance”) approval, Lancaster Re issued a variable funding Surplus Note (the “Surplus Note”) to its affiliate, Lanis, LLC. for $513 million and acquired from Lanis a Vehicle Note (the “Vehicle Note”) for $513 million. The Vehicle Note is held to support a portion of Lancaster Re’s reinsurance obligations and has been authorized as an acceptable form of reinsurance collateral pursuant to Nebraska Rev. Stat. §44-8216(8)(c)(i) which allows a special purpose financial captive insurer to establish any method of security that the Department deems acceptable. The scheduled maturity date of the Vehicle Note is April 1, 2034, and the scheduled maturity date of the Surplus Note is April 1, 2039, although each may be cancelled earlier or extended under certain conditions. The Surplus Note does not repay principal prior to maturity and principal payment at maturity is subject to the prior approval of the Department of Insurance. With pre-approval, the Surplus Note is increased each quarter with a corresponding increase in the Vehicle Note. With Department pre-approval, interest on the Surplus Note for the prior quarter is paid on the first day of each subsequent quarter at a rate consistent with the rate received on the Vehicle Note of 4%. The Surplus Note and Vehicle Note increased by $57.1 million and $38.6 million in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. Interest expense of $22.9 million and $15.7 million was recognized in the Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014, respectively. The Surplus Note is unsecured and subordinated to all present and future indebtedness, policy claims and other creditor claims of Lancaster Re. |
Other Assets and Accrued Expenses and Other Liabilities | Other Assets and Accrued Expenses and Other Liabilities Other assets consist primarily of premiums due, intangible assets, the Vehicle Note and receivables resulting from sales of securities that had not yet settled at the balance sheet date. Other liabilities consist primarily of accrued expenses, technical overdrafts, derivatives, and payables resulting from purchases of securities that had not yet been settled at the balance sheet date. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform with the current year financial statement presentation |
Adoption of New Accounting Pronouncements | Adoption of New Accounting Pronouncements In February 2013, the Financial Accounting Standards Board issued guidance requiring expanded disclosures about the amounts reclassified out of accumulated other comprehensive income by component. The guidance requires the presentation of significant amounts reclassified out of accumulated other comprehensive income by income statement line item, but only if the amount reclassified is required under accounting principles generally accepted in the United States of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, cross-reference to other disclosures that provide additional detail about those amounts is required. The Company adopted the new guidance in 2013. The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position. Effective November 18, 2014, the Company adopted new guidance on when, if ever, the cost of acquiring an entity should be used to establish a new accounting basis (“pushdown”) in the acquired entity’s separate financial statements. The guidance provides an acquired entity and its subsidiaries with an irrevocable option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. If a reporting entity elects to apply pushdown accounting, its stand-alone financial statements would reflect the acquirer’s new basis in the acquired entity’s assets and liabilities. The election to apply pushdown accounting should be determined by an acquired entity for each individual change-in-control event in which an acquirer obtains control of the acquired entity; however, an entity that does not elect to apply pushdown accounting in the period of a change-in-control can later elect to retrospectively apply pushdown accounting to the most recent change-in-control transaction as a change in accounting principle. The Company has applied pushdown accounting as a result of the Acquisition in the Successor Period, as disclosed in Note 1. In January 2014, the FASB issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014. This guidance can be elected for prospective adoption or by using a modified retrospective transition method. The adoption of this new guidance in 2015 did not have a material impact on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2014, the FASB issued a comprehensive new revenue recognition standard effective for fiscal years beginning after December 15, 2016 and interim periods within those years and should be applied retrospectively. In August 2015, the FASB amended the guidance to defer the effective date by one year, effective for the fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance will supersede nearly all existing revenue recognition guidance under GAAP; however, it will not impact the accounting for insurance contracts, leases, financial instruments and guarantees. For those contracts that are impacted by the new guidance, the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.
In August 2014, the FASB issued guidance requiring that mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or financial statement disclosures. In February 2015, the FASB issued updated guidance regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2015, the FASB issued new guidance on short-duration insurance contracts. The amendments in this new guidance are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments to these estimates, including information on: (i) reconciling from the claim development table to the balance sheet liability; (ii) methodologies and judgments in estimating claims; and (iii) the timing, and frequency of claims. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In May 2015, the FASB issued new guidance on fair value measurement effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and which should be applied retrospectively to all periods presented. Earlier application is permitted. The amendments remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using NAV per share (or its equivalent) practical expedient. In addition, the amendments remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In April 2015, the FASB issued new guidance on accounting for fees paid in a cloud computing arrangement, effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the new guidance is permitted and an entity can elect to adopt the guidance either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The new guidance provides that all software licenses included in cloud computing arrangements be accounted for consistent with other licenses of intangible assets. However, if a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract, the accounting for which did not change. This guidance is not expected to have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures. In January 2016, the FASB issued new guidance on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to: (i) the classification and measurement of certain equity investments; (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk; and (iii) certain disclosures associated with the fair value of financial instruments. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures. |
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Income Taxes | Income Taxes — Predecessor The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses, accrued expenses and reinsurance recoverables. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized. |
General (Tables) |
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Fair Value of Assets Acquired and Liabilities Assumed | The following table summarizes the fair values of assets
acquired and liabilities assumed as of April 1, 2014:
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Investments (Tables) |
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Schedule for Fixed Income Securities at Amortized Cost, Gross Unrealized Gains and Losses and Fair Value | The amortized cost, gross unrealized gains and losses and fair value for fixed maturities as of December 31, 2015 and 2014 were as follows:
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Schedule for Fixed Income Securities Based on Contractual Maturities | The scheduled maturities for fixed maturities are as follows as of December 31, 2015:
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Schedule of Commercial Mortgage Loan Portfolio by Geographical Region | The Company diversifies its commercial mortgage loan portfolio by geographical region to reduce concentration risk. The following table presents the Company’s commercial mortgage loan portfolio by geographical region as of December 31, 2015 and December 31, 2014:
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Schedule of Credit Quality of Commercial Mortgage Loans Held-For-Investment | The credit quality of commercial mortgage loans held-for-investment were as follows at December 31, 2015 and December 31, 2014:
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Composition of Other Invested Assets | The following table sets forth the composition of “Other invested assets” as of December 31, 2015 and December 31, 2014: Amortized Cost
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Schedule of Net Investment Income | Net investment income for Successor Periods for the year ended December 31, 2015 and the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
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Schedule of Realized Investment Gains and Losses | Realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
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Proceeds from Sale of Fixed Maturities and Gross Realized Investment Gains and Losses | Proceeds from sales of fixed maturities and gross realized investment gains and losses for Successor Periods for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 and Predecessor Periods for the period from January 1, 2014 through March 31, 2014 and year ended December 31, 2013 were as follows:
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Summary of Gross Unrealized Losses and Fair Value of Fixed Income by Length of Time | The following table summarizes the gross unrealized losses and fair value of fixed maturities by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 and December 31, 2014:
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Net Unrealized Investment Gains and Losses in AOCI | Net Unrealized Investment Gains and Losses in AOCI
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Derivative Financial Instruments (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Notional and Fair Value Positions of Derivative Instruments | The following table provides a summary of the notional and fair value positions of derivative financial instruments as of December 31, 2015 and 2014:
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Amount and Location of Gains (Losses) Recognized in Income Net of Reinsurance for Derivatives Not Designated or Qualifying as Hedging Instruments | The following table presents the amount and location of gains (losses) recognized in income, net of reinsurance, for derivatives that were not designated or qualifying as hedging instruments for the Successor Period for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying as hedging instruments for the Predecessor Period from January 1, 2014 through March 31, 2014 and for the year ended December 31, 2013:
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Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis | The following table summarizes the Company’s assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2015 and December 31, 2014.
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Summary of Quantitative Information About the Significant Unobservable Inputs Used in Level 3 Fair Value Measurements | The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements:
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Schedule of Rollforward of Level 3 Assets and Liabilities Held at Fair Value on a Recurring Basis | The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014:
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Schedule of Carrying Value of Financial Instruments Presented in Consolidated Balance Sheet | The following table presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Consolidated Balance Sheet; however, in some cases, as described below, the carrying amount equals or approximates fair value as of December 31, 2015 and December 31, 2014:
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Predecessor | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Rollforward of Level 3 Assets and Liabilities Held at Fair Value on a Recurring Basis | The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the period from January 1, 2014 through March 31, 2014.
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2013.
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Schedule of Change in Unrealized Gains and Losses Included in Net Income for Level 3 Assets and Liabilities Held | The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities.
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Reinsurance (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effects of Reinsurance on Premiums and Contract Charges | The effects of reinsurance on premiums earned and fee income from policyholders for the Successor Period for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
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Schedule of Effects of Reinsurance on Interest Credited to Contractholder Funds, Contract Benefits and Expenses | The effects of reinsurance on return credited to policyholders’ account balances, and policyholder benefits for the year ended December 31, 2015 and for the period April 1, 2014 through December 31, 2014 were as follows:
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Predecessor | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effects of Reinsurance on Premiums and Contract Charges | The effects of reinsurance on premiums and contract charges are as follows:
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Schedule of Effects of Reinsurance on Interest Credited to Contractholder Funds, Contract Benefits and Expenses | The effects of reinsurance on return credited to policyholders’ account balances, policyholder benefits and other expenses are as follows:
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Deferred Income Tax Assets and Liabilities | The components of the deferred income tax assets and liabilities as of December 31, 2015 and December 31, 2014 are as follows:
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Reconciliation of Statutory Federal Income Tax Rate to Effective Income Tax Rate | A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the year ended December 31, 2015 and for the period from April 1, 2014 through December 31, 2014 were as follows:
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Predecessor | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Statutory Federal Income Tax Rate to Effective Income Tax Rate | A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations is as follows:
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Components of Income Tax Expense | The components of income tax expense are as follows:
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Future Policy Benefits and Other Policyholder Liabilities - Successor (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Policy Benefits and Other Policyholder Liabilities | Life insurance liabilities include reserves for death benefits and other policy benefits. As of December 31, 2015 and 2014, future policy benefits and other policyholder liabilities consisted of the following:
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Policyholder Account Balances - Successor (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policyholder Account Balances | As of December 31, 2015 and 2014, policyholders’ account balances consisted of the following:
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Certain Nontraditional Long-Duration Contracts - Successor (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Variable Annuity Contracts | As of December 31, 2015 and December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
As of December 31, 2014, the Company had the following guarantees associated with these contracts, by product and guarantee type:
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Liabilities for Guarantee Benefits | The table below summarizes the changes in general account liabilities for guarantees on variable contracts.
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Value of Business Acquired - Successor (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes to Value of Business Acquired | The following reflects the changes to the VOBA asset:
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Estimated Percentage of VOBA Balance to Be Amortized | The following table provides estimated percentage of the VOBA balance to be amortized for the years indicated:
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Leases (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum Aggregate Rental Commitments | The minimum aggregate rental commitments as of December 31, 2015 were as follows:
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Related Parties (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Receivables/ (Payables) to Affiliates | The Company reported the following receivables/ (payables) to affiliates as of December 31, 2015 and December 31, 2014 ($ in thousands):
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Predecessor | |||||||||||||||||||||||||||||||||||||
Schedule of Ceded Reinsurance Agreements Reported in Statements of Operations and Comprehensive Income | The following table summarizes amounts that were ceded to ALIC under reinsurance agreements and reported net in the Statements of Operations and Comprehensive Income.
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General - Additional Information (Detail) - USD ($) $ in Millions |
Apr. 01, 2014 |
Jul. 17, 2013 |
---|---|---|
Organization and Summary of Significant Accounting Policies Disclosure [Line Items] | ||
Initial purchase price, subject to closing adjustments | $ 595.8 | |
Increase in assets | 1,330.0 | |
Increase in liabilities | $ 190.0 | |
Predecessor | ||
Organization and Summary of Significant Accounting Policies Disclosure [Line Items] | ||
Ownership interest acquired | 100.00% |
Fair Value of Assets Acquired and Liabilities Assumed (Detail) $ in Thousands |
Apr. 01, 2014
USD ($)
|
---|---|
Assets | |
Fixed maturities | $ 9,194,903 |
Commercial mortgage loans | 1,263,902 |
Policy loans | 196,451 |
Short-term investments | 979,728 |
Other invested assets | 1,104 |
Cash | 40,529 |
Accrued investment income | 103,246 |
Reinsurance recoverable | 5,606,879 |
Value of business acquired | 290,795 |
Deposit receivable | 1,550,351 |
Intangibles | 5,200 |
Other assets | 554,176 |
Separate account assets | 1,661,007 |
Total assets acquired | 21,448,271 |
Liabilities | |
Future policy benefits and other policyholder liabilities | 6,682,833 |
Policyholders' account balances | 10,367,246 |
Accrued expenses and other liabilities | 78,026 |
Modified coinsurance payable | 1,550,351 |
Other long-term debt - affiliate | 513,000 |
Separate account liabilities | 1,661,007 |
Total liabilities assumed | 20,852,463 |
Net assets acquired | $ 595,808 |
Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Dec. 31, 2014 |
Dec. 31, 2015 |
Apr. 01, 2014 |
|
Summary Of Significant Accounting Policies [Line Items] | |||
Future Policy Benefit Reserves | $ 1,900.0 | ||
Increase in surplus note and vehicle note | $ 38.6 | 57.1 | |
Interest rate on surplus note | 4.00% | ||
Interest expense on surplus note | $ 15.7 | $ 22.9 | |
Lancaster | |||
Summary Of Significant Accounting Policies [Line Items] | |||
Surplus note re issued | $ 513.0 | ||
Other Assets | Lancaster | |||
Summary Of Significant Accounting Policies [Line Items] | |||
Vehicle Note acquired | $ 513.0 |
Schedule for Fixed Income Securities Based on Contractual Maturities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Amortized cost | ||
Due in one year or less | $ 190,261 | |
Due after one year through five years | 1,461,237 | |
Due after five years through ten years | 2,148,851 | |
Due after ten years | 3,208,298 | |
Total before asset and mortgage-backed securities | 7,008,647 | |
Asset and mortgage-backed securities | 1,265,547 | |
Amortized Cost | 8,274,194 | $ 9,231,856 |
Fair value | ||
Due in one year or less | 189,547 | |
Due after one year through five years | 1,459,059 | |
Due after five years through ten years | 2,092,046 | |
Due after ten years | 2,949,002 | |
Total before asset and mortgage-backed securities | 6,689,654 | |
Asset and mortgage-backed securities | 1,256,288 | |
Total fixed maturities | $ 7,945,942 | $ 9,390,647 |
Investments - Additional Information (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Schedule of Investments [Line Items] | ||||
Commercial Mortgage Loan | $ 1,139,000,000 | $ 1,509,000,000 | ||
Other-than-temporary impairment losses included in accumulated other comprehensive income | 0 | |||
Taxable exchanges | 3,000,000 | 72,400,000 | ||
Commercial Mortgage Loans | ||||
Schedule of Investments [Line Items] | ||||
Allowance for credit losses | 0 | 0 | ||
Impaired loans | 0 | 0 | ||
Commitments to fund borrowers troubled debt restructuring | 0 | 0 | ||
Residential mortgage-backed securities ("RMBS") | ||||
Schedule of Investments [Line Items] | ||||
Other-than-temporary impairment losses | $ 0 | $ 0 | ||
Predecessor | Residential mortgage-backed securities ("RMBS") | ||||
Schedule of Investments [Line Items] | ||||
Other-than-temporary impairment losses | $ 0 | $ 2,000 |
Other Invested Assets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Schedule of Investments [Line Items] | ||
Other invested assets | $ 18,412 | $ 26,897 |
Low Income Housing Tax Credit Properties | ||
Schedule of Investments [Line Items] | ||
Other invested assets | 677 | 896 |
Derivative | ||
Schedule of Investments [Line Items] | ||
Other invested assets | $ 17,735 | $ 26,001 |
Schedule of Realized Investment Gains and Losses (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended |
---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
|
Investment Realized gains (losses) | |||
Net realized gains | $ 46,092 | $ 113,538 | |
Fixed income securities | |||
Investment Realized gains (losses) | |||
Net realized gains | 25,795 | 120,421 | |
Commercial Mortgage Loans | |||
Investment Realized gains (losses) | |||
Net realized gains | 2,880 | 2,325 | |
Derivative | |||
Investment Realized gains (losses) | |||
Net realized gains | $ 17,417 | $ (9,208) | |
Predecessor | |||
Investment Realized gains (losses) | |||
Net realized gains | $ 285 | ||
Predecessor | Fixed income securities | |||
Investment Realized gains (losses) | |||
Net realized gains | $ 285 |
Proceeds from Sale of Fixed Maturities and Gross Realized Investment Gains and Losses (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Schedule of Investments [Line Items] | ||||
Fixed maturities, available-for-sale Proceeds from sales | $ 1,429,177 | $ 3,864,356 | ||
Fixed maturities, available-for-sale, Gross investment gains from sales | 30,403 | 147,287 | ||
Fixed maturities, available-for-sale, Gross investment losses from sales | $ (4,608) | $ (26,829) | ||
Predecessor | ||||
Schedule of Investments [Line Items] | ||||
Fixed maturities, available-for-sale Proceeds from sales | $ 5,277 | $ 9,170 | ||
Fixed maturities, available-for-sale, Gross investment gains from sales | 317 | 3 | ||
Fixed maturities, available-for-sale, Gross investment losses from sales | $ (32) | $ (1) |
Derivative Financial Instruments - Additional Information (Detail) - USD ($) $ in Millions |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Derivative cash and securities collateral held | $ 0.8 | $ 6.4 |
Amount and Location of Gains (Losses) Recognized in Income for Derivatives Not Designated or Qualifying as Hedging Instruments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Policyholders' Benefits | $ 216,543 | $ 351,744 | |||||
Equity-indexed life contracts | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Policyholders' Benefits | 90 | 956 | |||||
Derivatives not designated as accounting hedging instruments | Equity Options | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Realized Investment Gains (Losses) | 15,230 | (7,557) | |||||
Derivatives not designated as accounting hedging instruments | Future | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Realized Investment Gains (Losses) | 2,187 | (1,651) | |||||
Derivatives not designated as accounting hedging instruments | Equity-indexed annuity contracts | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Policyholders' Benefits | $ (5,622) | $ (478) | |||||
Derivatives not designated as accounting hedging instruments | Predecessor | Life and Annuity Insurance Product Line | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Interest Credited | [1] | $ 16,427 | $ 36,890 | ||||
Policyholders' Benefits | [1] | $ 946 | $ 10,177 | ||||
|
Summary of Assets and Liabilities Measured at Fair Value on Recurring and Non-Recurring Basis (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Assets at fair value | ||
Fixed income securities | $ 7,945,942 | $ 9,390,647 |
Short-term investments | 184,820 | 361,369 |
Other invested assets | 18,412 | 26,897 |
Separate accounts assets | 1,395,141 | 1,573,865 |
Total assets at fair value | 9,543,638 | 11,351,882 |
Liabilities at fair value | ||
Separate accounts liabilities | (1,395,141) | (1,573,865) |
Total liabilities at fair value | (1,478,794) | (1,662,978) |
Guaranteed accumulation benefits | ||
Liabilities at fair value | ||
Policyholders' account balances | (7,499) | (6,367) |
Guaranteed withdrawal benefits | ||
Liabilities at fair value | ||
Policyholders' account balances | (315) | (366) |
Asset-backed securities ("ABS") | ||
Assets at fair value | ||
Fixed income securities | 536,791 | 382,643 |
Commercial mortgage-backed securities ("CMBS") | ||
Assets at fair value | ||
Fixed income securities | 506,699 | 333,483 |
Residential mortgage-backed securities ("RMBS") | ||
Assets at fair value | ||
Fixed income securities | 212,799 | 189,881 |
Equity indexed annuity contracts | ||
Liabilities at fair value | ||
Policyholders' account balances | (64,138) | (63,660) |
Equity indexed life contracts | ||
Liabilities at fair value | ||
Policyholders' account balances | (11,701) | (18,720) |
Foreign government | ||
Assets at fair value | ||
Fixed income securities | 61,643 | 255,208 |
Recurring basis | ||
Assets at fair value | ||
Short-term investments | 184,820 | 361,369 |
Separate accounts assets | 1,395,141 | 1,573,865 |
Recurring basis | United States Government, Government Agencies and Authorities | ||
Assets at fair value | ||
Fixed income securities | 168,578 | 307,952 |
Recurring basis | States, municipalities and political subdivisions | ||
Assets at fair value | ||
Fixed income securities | 720,757 | 543,735 |
Recurring basis | All other corporate bonds | ||
Assets at fair value | ||
Fixed income securities | 5,738,675 | 7,377,745 |
Recurring basis | Asset-backed securities ("ABS") | ||
Assets at fair value | ||
Fixed income securities | 536,791 | 382,643 |
Recurring basis | Commercial mortgage-backed securities ("CMBS") | ||
Assets at fair value | ||
Fixed income securities | 506,699 | 333,483 |
Recurring basis | Residential mortgage-backed securities ("RMBS") | ||
Assets at fair value | ||
Fixed income securities | 212,799 | 189,881 |
Recurring basis | Equity Options | ||
Assets at fair value | ||
Other invested assets | 17,627 | 25,672 |
Recurring basis | Future | ||
Assets at fair value | ||
Other invested assets | 108 | 329 |
Recurring basis | Foreign government | ||
Assets at fair value | ||
Fixed income securities | 61,643 | 255,208 |
Quoted prices in active markets for identical assets (Level 1) | ||
Assets at fair value | ||
Total assets at fair value | 1,589,855 | 1,804,253 |
Liabilities at fair value | ||
Separate accounts liabilities | (1,395,141) | (1,573,865) |
Total liabilities at fair value | (1,395,141) | (1,573,865) |
Quoted prices in active markets for identical assets (Level 1) | Recurring basis | ||
Assets at fair value | ||
Short-term investments | 166,358 | 191,979 |
Separate accounts assets | 1,395,141 | 1,573,865 |
Quoted prices in active markets for identical assets (Level 1) | Recurring basis | United States Government, Government Agencies and Authorities | ||
Assets at fair value | ||
Fixed income securities | 10,621 | 12,408 |
Quoted prices in active markets for identical assets (Level 1) | Recurring basis | Equity Options | ||
Assets at fair value | ||
Other invested assets | 17,627 | 25,672 |
Quoted prices in active markets for identical assets (Level 1) | Recurring basis | Future | ||
Assets at fair value | ||
Other invested assets | 108 | 329 |
Significant other observable inputs (Level 2) | ||
Assets at fair value | ||
Total assets at fair value | 7,928,003 | 9,508,637 |
Liabilities at fair value | ||
Total liabilities at fair value | (11,701) | (18,720) |
Significant other observable inputs (Level 2) | Equity indexed life contracts | ||
Liabilities at fair value | ||
Policyholders' account balances | (11,701) | (18,720) |
Significant other observable inputs (Level 2) | Recurring basis | ||
Assets at fair value | ||
Short-term investments | 18,462 | 145,677 |
Significant other observable inputs (Level 2) | Recurring basis | United States Government, Government Agencies and Authorities | ||
Assets at fair value | ||
Fixed income securities | 157,957 | 295,544 |
Significant other observable inputs (Level 2) | Recurring basis | States, municipalities and political subdivisions | ||
Assets at fair value | ||
Fixed income securities | 720,757 | 543,735 |
Significant other observable inputs (Level 2) | Recurring basis | All other corporate bonds | ||
Assets at fair value | ||
Fixed income securities | 5,727,155 | 7,370,409 |
Significant other observable inputs (Level 2) | Recurring basis | Asset-backed securities ("ABS") | ||
Assets at fair value | ||
Fixed income securities | 522,531 | 377,393 |
Significant other observable inputs (Level 2) | Recurring basis | Commercial mortgage-backed securities ("CMBS") | ||
Assets at fair value | ||
Fixed income securities | 506,699 | 330,790 |
Significant other observable inputs (Level 2) | Recurring basis | Residential mortgage-backed securities ("RMBS") | ||
Assets at fair value | ||
Fixed income securities | 212,799 | 189,881 |
Significant other observable inputs (Level 2) | Recurring basis | Foreign government | ||
Assets at fair value | ||
Fixed income securities | 61,643 | 255,208 |
Significant unobservable inputs (Level 3) | ||
Assets at fair value | ||
Total assets at fair value | 25,780 | 38,992 |
Liabilities at fair value | ||
Total liabilities at fair value | (71,952) | (70,393) |
Significant unobservable inputs (Level 3) | Guaranteed accumulation benefits | ||
Liabilities at fair value | ||
Policyholders' account balances | (7,499) | (6,367) |
Significant unobservable inputs (Level 3) | Guaranteed withdrawal benefits | ||
Liabilities at fair value | ||
Policyholders' account balances | (315) | (366) |
Significant unobservable inputs (Level 3) | Equity indexed annuity contracts | ||
Liabilities at fair value | ||
Policyholders' account balances | (64,138) | (63,660) |
Significant unobservable inputs (Level 3) | Recurring basis | ||
Assets at fair value | ||
Short-term investments | 23,713 | |
Significant unobservable inputs (Level 3) | Recurring basis | All other corporate bonds | ||
Assets at fair value | ||
Fixed income securities | 11,520 | 7,336 |
Significant unobservable inputs (Level 3) | Recurring basis | Asset-backed securities ("ABS") | ||
Assets at fair value | ||
Fixed income securities | $ 14,260 | 5,250 |
Significant unobservable inputs (Level 3) | Recurring basis | Commercial mortgage-backed securities ("CMBS") | ||
Assets at fair value | ||
Fixed income securities | $ 2,693 |
Summary of Quantitative Information About Significant Unobservable Inputs Used in Level Three Fair Value Measurements (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Fair value, liability | $ (1,478,794) | $ (1,662,978) |
Equity indexed annuity contracts | Option Pricing Model Approach Valuation Technique [Member] | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Fair value, liability | $ (64,138) | |
Minimum | Equity indexed annuity contracts | Option Pricing Model Approach Valuation Technique [Member] | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Projected option cost (as a percent) | 1.40% | |
Maximum | Equity indexed annuity contracts | Option Pricing Model Approach Valuation Technique [Member] | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Projected option cost (as a percent) | 2.11% | |
Weighted average | Equity indexed annuity contracts | Option Pricing Model Approach Valuation Technique [Member] | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Projected option cost (as a percent) | 1.70% |
Fair Value - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Fair Value Disclosures [Line Items] | ||||
Fair value reinsurement rate | 100.00% | |||
Quoted prices in active markets for identical assets (Level 1) | ||||
Fair Value Disclosures [Line Items] | ||||
Fair value measurement of investment | $ 26,000 | $ 15,000 | ||
Predecessor | ||||
Fair Value Disclosures [Line Items] | ||||
Gains (losses) for Level 3 assets still held at the balance sheet date, included in interest credited to contract holder funds | $ 17,600 | $ 33,000 | ||
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in life and annuity contract benefits | $ 946 | $ 10,200 |
Schedule of Rollforward of Level Three Assets and Liabilities Held at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
||||||||||
Equity indexed annuity contracts | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 liabilities, Balance at beginning of period | $ (58,038) | $ (63,660) | |||||||||||
Level 3 liabilities, Total gains (losses) included in net income | (5,622) | (478) | |||||||||||
Level 3 liabilities, Total gains (losses) included in OCI | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers into Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers out of Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Purchases | 0 | 0 | |||||||||||
Level 3 liabilities, Sales | 0 | 0 | |||||||||||
Level 3 liabilities, Balance at end of period | $ (58,038) | (63,660) | (64,138) | ||||||||||
Asset-backed securities ("ABS") | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | 436 | 5,250 | |||||||||||
Level 3 assets, Total gains (losses) included in net income | 134 | ||||||||||||
Level 3 assets, Total gains (losses) included in OCI | (55) | (2,338) | |||||||||||
Level 3 assets, Transfers into Level 3 | 17,191 | ||||||||||||
Level 3 assets, Purchases | 4,930 | ||||||||||||
Level 3 assets, Sales | (5,000) | ||||||||||||
Level 3 assets, Issues | 0 | 0 | |||||||||||
Level 3 assets, Settlements | (61) | (977) | |||||||||||
Level 3 assets, Balance at end of period | 436 | 5,250 | 14,260 | ||||||||||
GMWB/GMAB | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 liabilities, Balance at beginning of period | [1] | (8,499) | (6,733) | ||||||||||
Level 3 liabilities, Total gains (losses) included in net income | [1] | 1,766 | (1,081) | ||||||||||
Level 3 liabilities, Total gains (losses) included in OCI | [1] | 0 | 0 | ||||||||||
Level 3 liabilities, Transfers into Level 3 | [1] | 0 | 0 | ||||||||||
Level 3 liabilities, Transfers out of Level 3 | [1] | 0 | 0 | ||||||||||
Level 3 liabilities, Purchases | [1] | 0 | 0 | ||||||||||
Level 3 liabilities, Sales | [1] | 0 | 0 | ||||||||||
Level 3 liabilities, Balance at end of period | [1] | (8,499) | (6,733) | (7,814) | |||||||||
All other corporate securities | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | 396,694 | 7,336 | |||||||||||
Level 3 assets, Total gains (losses) included in net income | 4,514 | (282) | |||||||||||
Level 3 assets, Total gains (losses) included in OCI | (7,472) | 30 | |||||||||||
Level 3 assets, Transfers into Level 3 | 13,255 | ||||||||||||
Level 3 assets, Transfers out of Level 3 | (289,172) | (2,386) | |||||||||||
Level 3 assets, Sales | (97,228) | ||||||||||||
Level 3 assets, Issues | 0 | 0 | |||||||||||
Level 3 assets, Settlements | (6,433) | ||||||||||||
Level 3 assets, Balance at end of period | 396,694 | 7,336 | 11,520 | ||||||||||
Short-term investments | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | 24,095 | 23,713 | |||||||||||
Level 3 assets, Total gains (losses) included in net income | 29 | 14 | |||||||||||
Level 3 assets, Sales | (411) | ||||||||||||
Level 3 assets, Issues | 0 | 0 | |||||||||||
Level 3 assets, Settlements | (23,727) | ||||||||||||
Level 3 assets, Balance at end of period | 24,095 | 23,713 | |||||||||||
Commercial mortgage-backed securities ("CMBS") | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | 3,397 | 2,693 | |||||||||||
Level 3 assets, Total gains (losses) included in net income | 2,179 | 23,506 | |||||||||||
Level 3 assets, Total gains (losses) included in OCI | (314) | 314 | |||||||||||
Level 3 assets, Sales | (20,192) | ||||||||||||
Level 3 assets, Issues | 0 | 0 | |||||||||||
Level 3 assets, Settlements | (2,569) | $ (6,321) | |||||||||||
Level 3 assets, Balance at end of period | 3,397 | 2,693 | |||||||||||
Predecessor | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | $ 312 | ||||||||||||
Level 3 assets, Issues | 0 | ||||||||||||
Level 3 assets, Settlements | (312) | ||||||||||||
Level 3 liabilities, Balance at beginning of period | (267,859) | (250,486) | (314,926) | ||||||||||
Level 3 liabilities, Total gains (losses) included in net income | 18,525 | [2] | 43,244 | [3] | |||||||||
Level 3 liabilities, Total gains (losses) included in OCI | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers into Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers out of Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Purchases | 0 | 0 | |||||||||||
Level 3 liabilities, Sales | 0 | 0 | |||||||||||
Level 3 liabilities, Issues | (3,764) | (6,621) | |||||||||||
Level 3 liabilities, Settlements | 2,612 | 10,444 | |||||||||||
Level 3 liabilities, Balance at end of period | (250,486) | (267,859) | |||||||||||
Predecessor | Derivatives embedded in life and annuity contracts | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 liabilities, Balance at beginning of period | (267,859) | $ (250,486) | (314,926) | ||||||||||
Level 3 liabilities, Total gains (losses) included in net income | 18,525 | [2] | 43,244 | [3] | |||||||||
Level 3 liabilities, Total gains (losses) included in OCI | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers into Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Transfers out of Level 3 | 0 | 0 | |||||||||||
Level 3 liabilities, Purchases | 0 | 0 | |||||||||||
Level 3 liabilities, Sales | 0 | 0 | |||||||||||
Level 3 liabilities, Issues | (3,764) | (6,621) | |||||||||||
Level 3 liabilities, Settlements | 2,612 | 10,444 | |||||||||||
Level 3 liabilities, Balance at end of period | $ (250,486) | (267,859) | |||||||||||
Predecessor | All other corporate securities | |||||||||||||
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |||||||||||||
Level 3 assets, Balance at beginning of period | 312 | ||||||||||||
Level 3 assets, Issues | 0 | ||||||||||||
Level 3 assets, Settlements | $ (312) | ||||||||||||
|
Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | $ 2,410,856 | $ 1,946,225 |
Liabilities | 6,606,243 | 7,160,853 |
Investment Contracts | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Liabilities | 5,967,973 | 6,609,253 |
Other Long Term Debt | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Liabilities | 638,270 | 551,600 |
Commercial Mortgage Loans | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 1,536,638 | 1,150,510 |
Policy Loans | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 186,827 | 194,385 |
Cash | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 49,121 | 49,730 |
Vehicle Note | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 638,270 | 551,600 |
Quoted prices in active markets for identical assets (Level 1) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 49,121 | 49,730 |
Quoted prices in active markets for identical assets (Level 1) | Cash | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 49,121 | 49,730 |
Significant unobservable inputs (Level 3) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 2,361,735 | 1,896,495 |
Liabilities | 6,606,243 | 7,160,853 |
Significant unobservable inputs (Level 3) | Investment Contracts | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Liabilities | 5,967,973 | 6,609,253 |
Significant unobservable inputs (Level 3) | Other Long Term Debt | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Liabilities | 638,270 | 551,600 |
Significant unobservable inputs (Level 3) | Commercial Mortgage Loans | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 1,536,638 | 1,150,510 |
Significant unobservable inputs (Level 3) | Policy Loans | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | 186,827 | 194,385 |
Significant unobservable inputs (Level 3) | Vehicle Note | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets | $ 638,270 | $ 551,600 |
Schedule of Rollforward of Level Three Assets and Liabilities Held at Fair Value on Recurring Basis (Parenthetical) (Detail) - Predecessor - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2014 |
Dec. 31, 2013 |
|
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Effect to net income included in interest credited to contract holder funds | $ 17,600 | $ 33,000 |
Effect to net income included in contract benefits | $ 946 | $ 10,200 |
Schedule of Change in Unrealized Gains and Losses Included in Net Income for Level Three Assets and Liabilities Held (Detail) - Predecessor - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2013 |
|||||||
Fair Value Assets And Liabilities Measured On Recurring Basis Unobservable Inputs Gain Loss [Line Items] | ||||||||
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in earnings | $ 18,525 | [1] | $ 43,244 | [2] | ||||
Derivatives embedded in life and annuity contracts | ||||||||
Fair Value Assets And Liabilities Measured On Recurring Basis Unobservable Inputs Gain Loss [Line Items] | ||||||||
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in earnings | $ 18,525 | $ 43,244 | ||||||
|
Reinsurance - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Effects of Reinsurance [Line Items] | ||
Deposit receivable | $ 1,250,328 | $ 1,383,388 |
Modified coinsurance payable | $ 1,250,328 | $ 1,383,388 |
Sales Revenue | Credit Concentration Risk | Non-affiliates | Rated A- or better | ||
Effects of Reinsurance [Line Items] | ||
Reinsurance recoverable | 99.00% | 99.00% |
Sales Revenue | Credit Concentration Risk | Non-affiliates | Rated A- or better | Allstate Life Insurance Company | ||
Effects of Reinsurance [Line Items] | ||
Reinsurance recoverable | 65.00% | 65.00% |
Schedule of Effects of Reinsurance on Premiums and Contract Charges (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Effects of Reinsurance [Line Items] | ||||
Direct premiums and contract charges | $ 921,444 | $ 1,463,472 | ||
Assumed premiums and contract charges | 5,258 | 5,939 | ||
Ceded premiums and contract charges | (702,833) | (1,106,638) | ||
Net amount | $ 223,869 | $ 362,773 | ||
Predecessor | ||||
Effects of Reinsurance [Line Items] | ||||
Direct premiums and contract charges | $ 331,899 | $ 1,331,597 | ||
Assumed premiums and contract charges | 1,581 | 6,830 | ||
Predecessor | Affiliates | ||||
Effects of Reinsurance [Line Items] | ||||
Ceded premiums and contract charges | (244,797) | (962,576) | ||
Predecessor | Non-affiliates | ||||
Effects of Reinsurance [Line Items] | ||||
Ceded premiums and contract charges | $ (88,683) | $ (375,851) |
Schedule of Effects of Reinsurance on Interest Credited to contract holder Funds, Contract Benefits and Expenses (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Effects of Reinsurance [Line Items] | ||||
Direct interest credited to contractholder funds, contract benefits and expenses | $ 1,104,420 | $ 1,603,724 | ||
Assumed interest credited to contractholder funds, contract benefits and expenses | 4,713 | 6,743 | ||
Ceded interest credited to contractholder funds, contract benefits and expenses | (635,887) | (957,643) | ||
Return credited to policyholders' account balances and policyholder benefits, net of reinsurance | $ 473,246 | $ 652,824 | ||
Predecessor | ||||
Effects of Reinsurance [Line Items] | ||||
Direct interest credited to contractholder funds, contract benefits and expenses | $ 450,041 | $ 1,938,015 | ||
Assumed interest credited to contractholder funds, contract benefits and expenses | 2,606 | 8,180 | ||
Predecessor | Affiliates | ||||
Effects of Reinsurance [Line Items] | ||||
Ceded interest credited to contractholder funds, contract benefits and expenses | (336,122) | (1,505,010) | ||
Predecessor | Non-affiliates | ||||
Effects of Reinsurance [Line Items] | ||||
Ceded interest credited to contractholder funds, contract benefits and expenses | $ (116,525) | $ (441,185) |
Components of Deferred Income Tax Assets and Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred tax assets | ||
Policyholder reserves | $ 2,058,446 | $ 2,057,627 |
Deferred acquisition costs | 41,664 | 24,850 |
Deferred financing costs | 8,707 | 10,755 |
Net operating loss carryforward | 7,500 | |
Investments | 120,893 | |
Other assets | 688 | 38 |
Total deferred tax assets | 2,230,398 | 2,100,770 |
Deferred tax liabilities | ||
Value of business acquired | (86,696) | (81,032) |
Amounts recoverable from reinsurers | (2,076,251) | (2,010,157) |
Investments | (45,935) | |
Intangibles | (1,820) | (1,820) |
Other liabilities | (591) | (2,558) |
Total deferred tax liabilities | (2,165,358) | (2,141,502) |
Net deferred tax liability | $ (40,732) | |
Net deferred tax asset | $ 65,040 |
Income Taxes - Additional Information (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Schedule Of Income Taxes [Line Items] | ||||
Net operating loss carryforward | $ 0 | |||
Capital loss carryforwards | 0 | |||
Federal statutory tax rate | 35.00% | |||
Income taxes paid | $ 24,000,000 | |||
Predecessor | ||||
Schedule Of Income Taxes [Line Items] | ||||
Federal statutory tax rate | 35.00% | 35.00% | ||
Income taxes paid | $ 0 | $ 4,200,000 |
Reconciliation of Statutory Federal Income Tax Rate to Effective Income Tax Rate (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Income Tax Rate Reconciliation [Line Items] | ||||
Expected federal income tax expense | $ 15,722 | $ 45,062 | ||
Dividends received deduction | (1,470) | (2,443) | ||
Other | (18) | 3,475 | ||
Total income tax expense | $ 14,234 | $ 46,094 | ||
Statutory federal income tax rate | 35.00% | |||
Predecessor | ||||
Income Tax Rate Reconciliation [Line Items] | ||||
Total income tax expense | $ 922 | $ 3,825 | ||
Statutory federal income tax rate | 35.00% | 35.00% | ||
Other | 0.00% | 0.00% | ||
Effective income tax rate | 35.00% | 35.00% |
Components of Income Tax Expense (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Components Of Income Tax Expense Benefit [Line Items] | ||||
Current | $ 22,528 | |||
Deferred | $ 14,234 | 23,566 | ||
Total income tax expense | $ 14,234 | $ 46,094 | ||
Predecessor | ||||
Components Of Income Tax Expense Benefit [Line Items] | ||||
Current | $ 914 | $ 3,902 | ||
Deferred | 8 | (77) | ||
Total income tax expense | $ 922 | $ 3,825 |
Schedule of Future Policy Benefits and Other Policyholder Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | $ 4,757,641 | $ 4,528,949 |
Traditional life insurance | ||
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | 1,567,388 | 1,492,438 |
Immediate fixed annuities | ||
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | 584,948 | 635,858 |
Accident And Health Insurance | ||
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | 1,580,809 | 1,462,110 |
Equity indexed annuity contracts | ||
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | 38,739 | 39,174 |
Other Life Contingent Products | ||
Liability for Future Policy Benefit, by Product Segment [Line Items] | ||
Reserve for life-contingent contract benefits | $ 985,757 | $ 899,369 |
Future Policy Benefits and Other Policyholder Liabilities - Additional Information (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Minimum | |
Interest rate determination of present values, percentage | 2.50% |
Maximum | |
Interest rate determination of present values, percentage | 6.00% |
Policyholder Account Balances (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Policyholder Contract Deposits By Product [Line Items] | ||
Total policyholders' account balances | $ 11,120,565 | $ 11,764,312 |
Interest-sensitive life insurance | ||
Policyholder Contract Deposits By Product [Line Items] | ||
Total policyholders' account balances | 5,210,152 | 5,085,470 |
Equity indexed annuity contracts | ||
Policyholder Contract Deposits By Product [Line Items] | ||
Total policyholders' account balances | 5,896,019 | 6,662,985 |
Other investment contracts | ||
Policyholder Contract Deposits By Product [Line Items] | ||
Total policyholders' account balances | $ 14,394 | $ 15,857 |
Policyholder Account Balances - Additional Information (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Minimum | |
Interest crediting rates range for sensitive contracts | 0.40% |
Interest crediting rates for individual annuities | 0.00% |
Maximum | |
Interest crediting rates range for sensitive contracts | 6.00% |
Interest crediting rates for individual annuities | 6.00% |
Summary of Variable Annuity Contracts (Detail) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Guaranteed accumulation benefits | Variable Annuity | ||
Net Amount at Risk by Product and Guarantee [Line Items] | ||
Separate account value | $ 91.6 | $ 118.4 |
Net amount at risk | $ 7.4 | $ 6.2 |
Weighted average waiting period until guarantee date | 5 years | 6 years |
Guaranteed withdrawal benefits | Variable Annuity | ||
Net Amount at Risk by Product and Guarantee [Line Items] | ||
Separate account value | $ 12.8 | $ 16.6 |
Net amount at risk | 0.1 | 0.1 |
GMIB | Variable Annuity | ||
Net Amount at Risk by Product and Guarantee [Line Items] | ||
Separate account value | 127.4 | 151.9 |
Net amount at risk | $ 16.9 | $ 15.2 |
Weighted average waiting period until guarantee date | 0 years | 0 years |
GMDB | Variable Annuity | ||
Net Amount at Risk by Product and Guarantee [Line Items] | ||
Separate account value | $ 608.8 | $ 742.7 |
Net amount at risk | $ 66.3 | $ 57.2 |
Average attained age of contractholders | 61 years | 60 years |
GMDB | Variable Life, Variable Universal Life and Universal Life Contracts | ||
Net Amount at Risk by Product and Guarantee [Line Items] | ||
Separate account value | $ 307.3 | $ 325.1 |
General account value | 3,639.6 | 3,518.3 |
Net amount at risk | $ 84,370.9 | $ 89,942.8 |
Average attained age of contractholders | 48 years | 51 years |
Liabilities for Guarantee Benefits (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended |
---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
|
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | $ 575,841 | $ 642,791 | |
Less: reinsurance recoverable | 90,966 | 107,064 | |
Net beginning balance | 484,875 | 535,727 | |
Incurred guarantee benefits | 159,104 | 217,626 | |
Paid guarantee benefits | (108,252) | (118,063) | |
Net change | 50,852 | 99,563 | |
Net ending balance | $ 484,875 | 535,727 | 635,290 |
Plus reinsurance recoverable | 90,966 | 107,064 | 122,638 |
Gross ending balance | 575,841 | 642,791 | 757,928 |
Predecessor | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 308,402 | 317,382 | |
Less: reinsurance recoverable | 308,402 | 317,382 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | ||
Paid guarantee benefits | 0 | ||
Net change | 0 | ||
Net ending balance | 0 | ||
Plus reinsurance recoverable | 317,382 | ||
Gross ending balance | 317,382 | ||
Variable Annuity | GMDB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 8,057 | 8,358 | |
Less: reinsurance recoverable | 8,057 | 8,358 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | 0 | |
Paid guarantee benefits | 0 | 0 | |
Net change | 0 | 0 | |
Net ending balance | 0 | 0 | 0 |
Plus reinsurance recoverable | 8,057 | 8,358 | 8,844 |
Gross ending balance | 8,057 | 8,358 | 8,844 |
Variable Annuity | GMIB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 7,122 | 8,240 | |
Less: reinsurance recoverable | 7,122 | 8,240 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | 0 | |
Paid guarantee benefits | 0 | 0 | |
Net change | 0 | 0 | |
Net ending balance | 0 | 0 | 0 |
Plus reinsurance recoverable | 7,122 | 8,240 | 5,663 |
Gross ending balance | 7,122 | 8,240 | 5,663 |
Variable Annuity | GMWB/GMAB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 8,499 | 6,733 | |
Less: reinsurance recoverable | 8,499 | 6,733 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | 0 | |
Paid guarantee benefits | 0 | 0 | |
Net change | 0 | 0 | |
Net ending balance | 0 | 0 | 0 |
Plus reinsurance recoverable | 8,499 | 6,733 | 7,814 |
Gross ending balance | 8,499 | 6,733 | 7,814 |
Variable Annuity | Predecessor | GMDB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 8,444 | 8,057 | |
Less: reinsurance recoverable | 8,444 | 8,057 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | ||
Paid guarantee benefits | 0 | ||
Net change | 0 | ||
Net ending balance | 0 | ||
Plus reinsurance recoverable | 8,057 | ||
Gross ending balance | 8,057 | ||
Variable Annuity | Predecessor | GMIB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 8,743 | 7,122 | |
Less: reinsurance recoverable | 8,743 | 7,122 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | ||
Paid guarantee benefits | 0 | ||
Net change | 0 | ||
Net ending balance | 0 | ||
Plus reinsurance recoverable | 7,122 | ||
Gross ending balance | 7,122 | ||
Variable Annuity | Predecessor | GMWB/GMAB | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 9,444 | 8,499 | |
Less: reinsurance recoverable | 9,444 | 8,499 | |
Net beginning balance | 0 | 0 | |
Incurred guarantee benefits | 0 | ||
Paid guarantee benefits | 0 | ||
Net change | 0 | ||
Net ending balance | 0 | ||
Plus reinsurance recoverable | 8,499 | ||
Gross ending balance | 8,499 | ||
Secondary Guarantees Interest-Sensitive Life and Fixed Annuities | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 552,163 | 619,460 | |
Less: reinsurance recoverable | 67,288 | 83,733 | |
Net beginning balance | 484,875 | 535,727 | |
Incurred guarantee benefits | 159,104 | 217,626 | |
Paid guarantee benefits | (108,252) | (118,063) | |
Net change | 50,852 | 99,563 | |
Net ending balance | 484,875 | 535,727 | 635,290 |
Plus reinsurance recoverable | 67,288 | 83,733 | 100,317 |
Gross ending balance | 552,163 | 619,460 | $ 735,607 |
Secondary Guarantees Interest-Sensitive Life and Fixed Annuities | Predecessor | |||
Liabilities for Guarantees on Long-Duration Contracts [Line Items] | |||
Gross beginning balance | 281,771 | 293,704 | |
Less: reinsurance recoverable | 281,771 | 293,704 | |
Net beginning balance | 0 | $ 0 | |
Incurred guarantee benefits | 0 | ||
Paid guarantee benefits | 0 | ||
Net change | 0 | ||
Net ending balance | 0 | ||
Plus reinsurance recoverable | 293,704 | ||
Gross ending balance | $ 293,704 |
Changes to Value of Business Acquired (Detail) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2014 |
Dec. 31, 2015 |
|||
Movement in Present Value of Future Insurance Profits [Roll Forward] | ||||
Balance at beginning of period | $ 290,795 | $ 231,521 | ||
Business acquired | 0 | 0 | ||
Amortized to expense during the year | [1] | (38,987) | (40,880) | |
Adjustment for unrealized investment losses during the year | (20,287) | |||
Adjustment for unrealized investment gains during the year | 57,061 | |||
Balance at end of year | $ 231,521 | $ 247,702 | ||
|
Estimated Percentage of VOBA Balance to be Amortized (Detail) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
VOBA Amortization | |
2016 | 14.00% |
2017 | 12.00% |
2018 | 10.00% |
2019 | 8.00% |
2020 and thereafter | 56.00% |
Commitments and Contingencies - Additional Information (Detail) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Commitments and Contingencies Disclosure [Line Items] | ||
Accrued guaranty fund | $ 6,700,000 | |
Estimated future of premium tax deductions | 11,100,000 | |
Amount of deposit with governmental authorities required by law | 8,400,000 | $ 8,900,000 |
Derivative cash collateral received | 800,000 | $ 6,400,000 |
Mortgage Backed Securities | ||
Commitments and Contingencies Disclosure [Line Items] | ||
Funds pledged on mortgage loans held investment portfolio | $ 18,400,000 |
Regulatory Capital and Dividends - Additional Information (Detail) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statutory Accounting Practices [Line Items] | |||
Statutory net income | $ 74,000 | $ 226,000 | |
Statutory capital and surplus | $ 719,000 | 555,000 | $ 719,000 |
Dividends to shareholder | $ 33,200 | $ 187,000 |
Leases - Additional Information (Detail) - USD ($) |
1 Months Ended | 9 Months Ended | 12 Months Ended |
---|---|---|---|
Dec. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
|
Property Subject to or Available for Operating Lease [Line Items] | |||
Non-cancellable operating lease agreement, expiration date | Jan. 31, 2026 | ||
Lease operating expense | $ 0.0 | $ 100,000 |
Minimum Aggregate Rental Commitments (Detail) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Property Subject to or Available for Operating Lease [Line Items] | |
2015 | $ 194 |
2016 | 207 |
2017 | 212 |
2018 | 217 |
2019 | 222 |
All future years | 1,489 |
Aggregate total | $ 2,541 |
Related Parties - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Resolution | ||||
Related Party Transaction [Line Items] | ||||
Related party transactions expense recognized on transaction | $ 21,100 | $ 13,900 | ||
Lanis | ||||
Related Party Transaction [Line Items] | ||||
Related party transactions expense recognized on transaction | $ 4,300 | $ 6,700 | ||
Predecessor | Allstate Life Insurance Company | ||||
Related Party Transaction [Line Items] | ||||
Allocated operating expenses | $ 50,100 | $ 249,700 | ||
Predecessor | Allstate Distributors, LLC | ||||
Related Party Transaction [Line Items] | ||||
Broker-Dealer agreement, Promotion and marketing expense | 12 | 71 | ||
Predecessor | Allstate Financial Services, LLC | ||||
Related Party Transaction [Line Items] | ||||
Broker-Dealer agreement, Commission and other distribution expenses | $ 2,200 | $ 7,700 |
Receivables/ (Payables) to Affiliates (Detail) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Resolution | ||
Related Party Transaction [Line Items] | ||
Receivables/ (Payables) to Affiliates | $ (2,623) | $ (4,509) |
Lanis | ||
Related Party Transaction [Line Items] | ||
Receivables/ (Payables) to Affiliates | $ (1,742) | $ (1,564) |
Related Parties - Predecessor - Summary of Ceded Under Reinsurance Agreements (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Related Party Transaction [Line Items] | ||||
Premiums and contract charges | $ 702,833 | $ 1,106,638 | ||
Interest credited to contractholder funds, contract benefits and expenses | $ 635,887 | $ 957,643 | ||
Allstate Life Insurance Company | Predecessor | ||||
Related Party Transaction [Line Items] | ||||
Premiums and contract charges | $ 244,797 | $ 962,576 | ||
Interest credited to contractholder funds, contract benefits and expenses | $ 336,122 | $ 1,505,010 |
Schedule I - Consolidated Summary of Investments Other Than Investments in Related Parties (Detail) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | $ 10,181,778 |
Fair value | 963,677 |
Amount at which shown in the Balance Sheet | 9,845,133 |
United States Government, Government Agencies and Authorities | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 163,096 |
Fair value | 168,578 |
Amount at which shown in the Balance Sheet | 168,578 |
States, municipalities and political subdivisions | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 712,948 |
Fair value | 720,757 |
Amount at which shown in the Balance Sheet | 720,757 |
Foreign government | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 72,042 |
Fair value | 61,643 |
Amount at which shown in the Balance Sheet | 61,643 |
All other corporate bonds | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 6,060,561 |
Fair value | 5,738,675 |
Amount at which shown in the Balance Sheet | 5,738,675 |
Residential mortgage-backed securities ("RMBS") | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 209,728 |
Fair value | 212,799 |
Amount at which shown in the Balance Sheet | 212,799 |
Commercial mortgage-backed securities ("CMBS") | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 513,316 |
Fair value | 506,699 |
Amount at which shown in the Balance Sheet | 506,699 |
Asset-backed securities ("ABS") | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 542,503 |
Fair value | 536,791 |
Amount at which shown in the Balance Sheet | 536,791 |
Fixed income securities | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 8,274,194 |
Fair value | 7,945,942 |
Amount at which shown in the Balance Sheet | 7,945,942 |
Mortgage Loans | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 1,509,132 |
Amount at which shown in the Balance Sheet | 1,509,132 |
Policy Loans | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 186,827 |
Amount at which shown in the Balance Sheet | 186,827 |
Derivatives | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 26,128 |
Fair value | 17,735 |
Amount at which shown in the Balance Sheet | 17,735 |
Other long-term assets | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 677 |
Amount at which shown in the Balance Sheet | 677 |
Short-term investments | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 184,820 |
Amount at which shown in the Balance Sheet | 184,820 |
Other securities | |
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items] | |
Amortized cost | 1,907,584 |
Fair value | 17,735 |
Amount at which shown in the Balance Sheet | $ 1,899,191 |
Schedule IV - Consolidated Reinsurance (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2014 |
Dec. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2013 |
|
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 921,444 | $ 1,463,472 | ||
Ceded to other companies | (702,833) | (1,106,638) | ||
Assumed from other companies | 5,258 | 5,939 | ||
Net amount | $ 223,869 | $ 362,773 | ||
Percentage of amount assumed to net | 2.40% | 1.60% | ||
Gross amount | $ 395,385,878 | $ 390,226,197 | ||
Ceded to other companies | 388,790,881 | 384,704,438 | ||
Assumed from other companies | 5,106,566 | 4,601,282 | ||
Net amount | $ 11,701,563 | $ 10,123,041 | ||
Percentage of amount assumed to net | 43.60% | 45.50% | ||
Life and Annuity Insurance Product Line | ||||
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 869,472 | $ 1,405,005 | ||
Ceded to other companies | (669,382) | (1,056,276) | ||
Assumed from other companies | 5,258 | 5,939 | ||
Net amount | $ 205,348 | $ 354,668 | ||
Percentage of amount assumed to net | 2.60% | 1.70% | ||
Accident And Health Insurance | ||||
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 51,972 | $ 58,467 | ||
Ceded to other companies | (33,451) | (50,362) | ||
Net amount | $ 18,521 | $ 8,105 | ||
Percentage of amount assumed to net | 0.00% | 0.00% | ||
Predecessor | ||||
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 331,899 | $ 1,331,597 | ||
Ceded to other companies | (333,480) | (1,338,427) | ||
Assumed from other companies | $ 1,581 | $ 6,830 | ||
Percentage of amount assumed to net | 0.00% | 0.00% | ||
Gross amount | $ 389,941,404 | |||
Ceded to other companies | 395,421,202 | |||
Assumed from other companies | $ 5,479,798 | |||
Percentage of amount assumed to net | 0.00% | |||
Predecessor | Life and Annuity Insurance Product Line | ||||
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 313,410 | $ 1,250,623 | ||
Ceded to other companies | (314,991) | (1,257,453) | ||
Assumed from other companies | $ 1,581 | $ 6,830 | ||
Percentage of amount assumed to net | 0.00% | 0.00% | ||
Predecessor | Accident And Health Insurance | ||||
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items] | ||||
Gross amount | $ 18,489 | $ 80,974 | ||
Ceded to other companies | $ (18,489) | $ (80,974) | ||
Percentage of amount assumed to net | 0.00% | 0.00% |
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