As Filed with the Securities and Exchange Commission on March 27, 2012
File No.333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LINCOLN BENEFIT LIFE COMPANY
(Exact name of Registrant as Specified in its Charter)
Nebraska 6300 470221457
(State or other (Primary Standard (I.R.S.Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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2940 South 84th St., Lincoln, Nebraska 68506
1-800-865-5237
(Address of registrant's principal executive offices)
JAN FISCHER-WADE, ESQ.
LINCOLN BENEFIT LIFE COMPANY
2940 South 84th St.
LINCOLN, NE 68506
1-800-865-5237
(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] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
CALCULATION OF REGISTRATION FEE
Proposed maximum Proposed maximum
Title of securities Amount to be offering price aggregate offering Amount of
to be registered registered per unit (1) price registration fee
------------------- -------------- ---------------- ------------------ -------------------
Deferred annuity $ 43,000,000 $ 1.00 $ 43,000,000 $ 4,927.80
interests and
participating
interests therein
(1) The Contract does not provide for a predetermined amount or number of units.
This filing is being made under the Securities Act of 1933 to register
$43,000,000 of deferred annuity interests and participating interests therein.
Under rule 457(o) under the Securities Act of 1933, the filing fee set forth
above was calculated based on the maximum aggregate offering price of
$43,000,000. In accordance with Rule 415(a)(5), the offering of securities on
the earlier registration statement (#333-158192) which was originally filed as
an S-3 registration statement on March 24, 2009, and amended on June 18, 2009,
to change to an S-1 registration statement will be deemed terminated as of the
effective date of this registration statement. No unsold securities under the
earlier registration statement are being carried over to this registration
statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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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.
ALFS, Inc ("ALFS") merged into Allstate Distributors, LLC ("ADLLC"), effective
September 1, 2011. ALFS assigned its rights and delegated its duties as
principal underwriter to ADLLC. This change had no effect on Lincoln Benefit
Life Company's obligations under the Contract.
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, an affiliate of Lincoln Benefit, is a wholly
owned subsidiary of Allstate Life Insurance Company. 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 May 1, 2012
To the following Prospectuses, as supplemented
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED MAY 1, 2012
CONSULTANT I PROSPECTUS DATED MAY 1, 2012
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) | 1 | |||||
| Item 11(a) | 8 | |||||
| Item 11(b) | 9 | |||||
| Item 11(c) | 9 | |||||
| Item 11(e) | 9 | |||||
| Item 11(f) | 41 | |||||
| Item 11(h) | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 41 | ||||
| Item 11(j) | 54 | |||||
| Item 11(k) | Directors, Executive Officers, Promoters and Control Persons | 54 | ||||
| Item 11(l) | 56 | |||||
| Item 11(m) | Security Ownership of Certain Beneficial Owners and Management | 80 | ||||
| Item 11(n) | Transactions with Related Persons, Promoters and Certain Control Persons | 81 | ||||
| 85 | ||||||
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, product development, 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.
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 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 Securities and Exchange Commission (“SEC”) or in materials incorporated therein by reference.
Changes in underwriting and actual experience could materially affect profitability of business ceded to Allstate Life Insurance Company (“ALIC”)
Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business, which is ceded to ALIC. We establish target returns for each product based upon these factors and the average amount of capital that we and ALIC must hold to support in-force contracts taking into account rating agencies and regulatory requirements. We monitor and manage our pricing and overall sales mix to achieve target new business returns on a portfolio basis, which could result in the discontinuation or de-emphasis of products or distribution relationships and a decline in sales. Profitability from new business 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.
ALIC’s 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 to ensure recovery of acquisition expenses, 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 ceded to ALIC.
Changes in reserve estimates may adversely affect our operating results ceded to ALIC
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 ceded to ALIC.
Changes in market interest rates may lead to a significant decrease in the sales and profitability of spread-based products ceded to ALIC
Our ability to manage our fixed annuities is dependent upon maintaining profitable spreads between investment yields and interest crediting rates on business ceded to ALIC. When market interest rates decrease or remain at relatively low levels, proceeds from 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 lower sales and/or 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 the business ceded to ALIC, for example by increasing the attractiveness of other investments to our customers, which can lead to increased surrenders at a time when ALIC’s 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
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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 the business ceded to ALIC.
Changes in tax laws may decrease sales and profitability of products ceded to ALIC
Under current federal and state income tax law, certain products we offer, primarily life insurance and annuities, receive favorable tax treatment. This favorable treatment may give certain of our products a competitive advantage over noninsurance products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products making them less competitive. Such proposals, if adopted, could have a material effect on ALIC’s profitability and financial condition or our ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.
Risks Relating to Investments
We are subject to market risk and declines in credit quality which may adversely affect investment income, cause additional realized losses, and cause increased 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 market’s 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.
A decline in market interest rates or credit spreads could have an adverse effect on our investment income as we invest cash in new investments that may earn less than the portfolio’s 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.
Deteriorating financial performance impacting securities collateralized by residential and commercial mortgage 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 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.
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
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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.
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 vary by investment type and is based upon our periodic 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. There can be no assurance that we have accurately assessed the level of or amounts recorded for other-than-temporary impairments taken in our financial statements. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.
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 generally utilize 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 and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income in shareholder’s 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. Determining fair value is subjective and could materially impact our operating results and financial condition.
Risks Relating to the Insurance Industry
Our future results are dependent in part on our ability to successfully operate in an insurance industry that is highly competitive
The insurance industry is highly competitive. Our competitors include other insurers and, because some of our products include a savings or investment component, securities firms, investment advisers, mutual funds, banks and other financial institutions. Many of our competitors have well-established national reputations and market similar products. Because of the competitive nature of the insurance industry, including competition for producers such as exclusive and independent agents, there can be no assurance that we will continue to effectively compete with our industry rivals, or that competitive pressures will not have a material effect on our business or operating results ceded to ALIC. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets. Our ability to successfully operate may also be impaired if we are not effective in filling critical leadership positions, in developing the talent and skills of our human resources, in assimilating new executive talent into our organization, or in deploying human resource talent consistently with our business goals.
Difficult conditions in the global capital markets and the economy generally could adversely affect our business and operating results and these conditions may not improve in the near future
As with most businesses, we believe difficult conditions in the global capital markets and economy, such as significant negative macroeconomic trends, including relatively high and sustained unemployment, reduced
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consumer spending, lower home prices, substantial increases in delinquencies on consumer debt, including defaults on home mortgages, and the relatively low availability of credit could have an adverse effect on our business and operating results.
Stressed conditions, volatility and disruptions in global capital markets, particular markets or financial asset classes could adversely affect our investment portfolio. Disruptions in one market or asset class can also spread to other markets or asset classes. Although the disruption in the global financial markets has moderated, not all global financial markets are functioning normally, and the rate of recovery from the U.S. recession has been below historic averages. Several governments around the world have announced austerity actions to address their budget deficits that may lead to a decline in economic activity. Specifically, the global recession and disruption of the financial markets has led to concerns over capital markets access and the solvency of European Union member states.
General economic conditions could adversely affect us in the form of consumer behavior and pressure investment results. Consumer behavior changes could include decreased demand for our products. In addition, 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.
There can be no assurance that actions of the U.S. federal government, Federal Reserve and other governmental and regulatory bodies for the purpose of stabilizing the financial markets and stimulating the economy will achieve the intended effect
In response to the financial crises affecting the banking system, the financial markets and the broader economy in recent years, the U.S. federal government, the Federal Reserve and other governmental and regulatory bodies have taken actions such as purchasing mortgage-backed and other securities from financial institutions, investing directly in banks, thrifts and bank and savings and loan holding companies and increasing federal spending to stimulate the economy. There can be no assurance as to the long term impact such actions will have on the financial markets or on economic conditions, including potential inflationary affects. Continued volatility and any further economic deterioration could materially and adversely affect our business, financial condition and results of operations.
Losses from legal and regulatory actions may be material to our operating results or cash flows ceded to ALIC
As is typical for a large company, our ultimate parent The Allstate Corporation and its subsidiaries are involved in various legal actions, including class action litigation challenging a range of company practices and coverage provided by our insurance products, some of which involve claims for substantial or indeterminate amounts. We are also involved in various regulatory actions and inquiries, including market conduct exams by state insurance regulatory agencies. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently accrued and may be material to our operating results or cash flows ceded to ALIC for a particular annual period.
We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs and limit our growth
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, increased legal exposure or limit our ability to grow. 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 regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same
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issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator’s or enforcement authority’s 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 regulator’s or enforcement authority’s 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 ceded to ALIC. 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 grow or to improve the profitability of our business ceded to ALIC.
Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business
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 FIO and the Financial Stability Oversight Council (“FSOC”) 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 connection with the federal government’s 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, which may limit our ability to write new business
Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. 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 maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, either ALIC would have to accept an increase in exposure risk, or we would have to reduce our insurance writings, or develop or seek other alternatives.
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 ceded to ALIC
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 inability to collect a material recovery from a reinsurer could have a material effect on operating results ceded to ALIC.
A large scale pandemic, the continued threat of terrorism or ongoing military actions may have an adverse effect on the level of claim losses we incur and cede to ALIC, the value of our investment portfolio, our competitive position, marketability of product offerings, liquidity and operating results
A large scale pandemic, the continued threat of terrorism, within the United States and abroad, or ongoing military and other actions, and heightened security measures in response to these types of threats, may cause
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significant volatility and losses in our investment portfolio from declines in the equity markets and from interest rate changes in the United States, Europe and elsewhere, 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 the sales, profitability, competitiveness, marketability of product offerings, liquidity, and operating results.
A downgrade in ALIC’s financial strength ratings may have an adverse effect on our competitive position, the marketability of our product offerings, and our liquidity and operating results ceded to ALIC
Financial strength ratings are important factors in establishing the competitive position of insurance companies and generally have an effect on an insurance company’s business. On an ongoing basis, rating agencies review the financial performance and condition of insurers and could downgrade or change the outlook on an insurer’s ratings due to, for example, a change in an insurer’s statutory capital; a change in a rating agency’s determination of the amount of risk-adjusted capital required to maintain a particular rating; an increase in the perceived risk of an insurer’s investment portfolio; a reduced confidence in management or a host of other considerations that may or may not be under the insurer’s control. The insurance financial strength ratings of ALIC from A.M. Best, Standard & Poor’s and Moody’s are subject to continuous review, and the retention of current ratings cannot be assured. A downgrade in any of these ratings could have a material effect on our sales, our competitiveness, the marketability of our product offerings, and our liquidity and operating results ceded to ALIC.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) 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 change in our unrecognized tax benefit during the next 12 months is subject to uncertainty
We have disclosed our estimate of net unrecognized tax benefits and the reasonably possible increase or decrease in its balance during the next 12 months in Note 10 of the financial statements. However, actual results may differ from our estimate for reasons such as changes in our position on specific issues, developments with respect to the governments’ interpretations of income tax laws or changes in judgment resulting from new information obtained in audits or the appeals process.
The occurrence of events unanticipated in our disaster recovery systems and management continuity planning or a support failure from external providers during a disaster could impair our ability to conduct business effectively
The occurrence of a disaster such as a natural catastrophe, an industrial accident, a 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 ceded to ALIC and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems. In the event that a significant number of our managers could be unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.
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Item 11(a). Description of Business
Lincoln Benefit Life Company (“Lincoln Benefit”) was incorporated under the laws of the State of Nebraska in 1938. Lincoln Benefit is a wholly owned subsidiary of Allstate Life Insurance Company (“ALIC”), a stock life insurance company incorporated under the laws of the State of Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance Company (“AIC”), a stock property-liability insurance company organized under the laws of the State of Illinois. All of the outstanding stock of Allstate Insurance Company is owned by Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the “Corporation” or “Allstate”), a publicly owned holding company incorporated under the laws of the State of Delaware. The Allstate Corporation is the largest publicly held personal lines insurer in the United States. Widely known through the “You’re In Good Hands With Allstate®” slogan, Allstate is reinventing protection and retirement to help individuals in approximately 16 million households protect what they have today and better prepare for tomorrow. Customers can access Allstate products and services such as auto insurance and homeowners insurance through nearly 12,000 exclusive Allstate agencies and financial representatives in the United States and Canada. Allstate is the 2nd largest personal property and casualty insurer in the United States on the basis of 2010 statutory direct premiums earned. In addition, according to A.M. Best, it is the nation’s 16th largest issuer of life insurance business on the basis of 2010 ordinary life insurance in force and 21st largest on the basis of 2010 statutory admitted assets.
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 (“GAAP”). We frequently use industry publications containing statutory financial information to assess our competitive position.
We provide life insurance, retirement and investment products. Our principal products are interest-sensitive, traditional and variable life insurance, and fixed annuities including deferred and immediate. We sell products through multiple intermediary distribution channels, including Allstate exclusive agencies and exclusive financial specialists, independent agents (including master brokerage agencies) and directly through call centers and the internet.
We compete on a wide variety of factors, including the scope of our distribution systems, the type of our product offerings, the recognition of our brands, our financial strength and ratings, our differentiated product features and prices, and the level of customer service that we provide.
The market for life insurance, retirement and investment products continues to be highly fragmented and competitive. As of December 31, 2011, there were approximately 450 groups of life insurance companies in the United States, most of which offered one or more similar products. In addition, because many of these products include a savings or investment component, our competition includes domestic and foreign securities firms, investment advisors, mutual funds, banks and other financial institutions. Competitive pressure continues to grow due to several factors, including cross marketing alliances between unaffiliated businesses, as well as consolidation activity in the financial services industry.
We have reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and non-affiliated reinsurers. Assets that support general account product liabilities are owned and managed by ALIC under the terms of the reinsurance agreements.
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. In
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general, such regulation is intended for the protection of those who purchase or use insurance products. 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, price 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. For a discussion of statutory financial information, see Note 11 of the financial statements. For a discussion of regulatory contingencies, see Note 9 of the financial statements. Notes 9 and 11 are incorporated in this Item 11(a) by reference.
For the fiscal year ended December 31, 2011
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. Hundreds of regulations must still be promulgated and implemented pursuant to this new law, and we cannot predict what the final regulations will require but do not expect a material impact on Lincoln Benefit’s operations. The new law also created the FIO within the Treasury Department. The FIO will monitor the insurance industry, provide advice to the new FSOC, represent the U.S. on international insurance matters and study the current regulatory system and submit a report to Congress in 2012. 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 office space in Lincoln, Nebraska and Northbrook, Illinois that is owned by Allstate Insurance Company. Expenses associated with these facilities are allocated to us on a direct basis.
Information required for Item 11(c) is incorporated by reference to the discussion under the heading “Regulation and Compliance” in Note 9 of the financial statements.
Item 11(e). Financial Statements and Notes to Financial Statements
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| Year Ended December 31, | ||||||||||||
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Revenues | ||||||||||||
Net investment income | $ | 11,836 | $ | 12,067 | $ | 11,783 | ||||||
Realized capital gains and losses | 2,075 | 694 | 1,480 | |||||||||
|
|
|
|
|
| |||||||
Income from operations before income tax expense | 13,911 | 12,761 | 13,263 | |||||||||
Income tax expense | 4,861 | 4,451 | 4,634 | |||||||||
|
|
|
|
|
| |||||||
Net income | 9,050 | 8,310 | 8,629 | |||||||||
|
|
|
|
|
| |||||||
Other comprehensive income, after-tax | ||||||||||||
Change in unrealized net capital gains and losses | 3,411 | 4,584 | 5,783 | |||||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 12,461 | $ | 12,894 | $ | 14,412 | ||||||
|
|
|
|
|
| |||||||
See notes to financial statements.
9
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF FINANCIAL POSITION
| December 31, | ||||||||
| ($ in thousands, except par value data) | 2011 | 2010 | ||||||
Assets | ||||||||
Investments | ||||||||
Fixed income securities, at fair value (amortized cost $312,785 and $304,848) | $ | 333,640 | $ | 320,456 | ||||
Short-term, at fair value (amortized cost $12,974 and $11,593) | 12,974 | 11,593 | ||||||
|
|
|
| |||||
Total investments | 346,614 | 332,049 | ||||||
Cash | 6,006 | 3,550 | ||||||
Reinsurance recoverable from Allstate Life Insurance Company | 16,680,950 | 18,365,058 | ||||||
Reinsurance recoverable from non-affiliates | 2,043,480 | 1,906,574 | ||||||
Receivable from affiliates, net | 8,563 | — | ||||||
Other assets | 95,826 | 105,159 | ||||||
Separate Accounts | 1,682,128 | 2,017,185 | ||||||
|
|
|
| |||||
Total assets | $ | 20,863,567 | $ | 22,729,575 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Contractholder funds | $ | 15,489,624 | $ | 17,247,071 | ||||
Reserve for life-contingent contract benefits | 3,199,490 | 3,011,317 | ||||||
Unearned premiums | 16,200 | 19,478 | ||||||
Deferred income taxes | 7,729 | 5,833 | ||||||
Payable to affiliates, net | — | 4,931 | ||||||
Current income taxes payable | 4,802 | 4,386 | ||||||
Other liabilities and accrued expenses | 125,266 | 93,507 | ||||||
Separate Accounts | 1,682,128 | 2,017,185 | ||||||
|
|
|
| |||||
Total liabilities | 20,525,239 | 22,403,708 | ||||||
|
|
|
| |||||
Commitments and Contingent Liabilities (Note 9) | ||||||||
Shareholder’s Equity | ||||||||
Common stock, $100 par value, 30 thousand shares authorized, 25 thousand shares issued and outstanding | 2,500 | 2,500 | ||||||
Additional capital paid-in | 180,000 | 180,000 | ||||||
Retained income | 142,272 | 133,222 | ||||||
Accumulated other comprehensive income: | ||||||||
Unrealized net capital gains and losses | 13,556 | 10,145 | ||||||
|
|
|
| |||||
Total accumulated other comprehensive income | 13,556 | 10,145 | ||||||
|
|
|
| |||||
Total shareholder’s equity | 338,328 | 325,867 | ||||||
|
|
|
| |||||
Total liabilities and shareholder’s equity | $ | 20,863,567 | $ | 22,729,575 | ||||
|
|
|
| |||||
See notes to financial statements.
10
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF SHAREHOLDER’S EQUITY
| Year Ended December 31, | ||||||||||||
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Common stock | $ | 2,500 | $ | 2,500 | $ | 2,500 | ||||||
|
|
|
|
|
| |||||||
Additional capital paid-in | 180,000 | 180,000 | 180,000 | |||||||||
|
|
|
|
|
| |||||||
Retained income | ||||||||||||
Balance, beginning of year | 133,222 | 124,912 | 116,283 | |||||||||
Net income | 9,050 | 8,310 | 8,629 | |||||||||
|
|
|
|
|
| |||||||
Balance, end of year | 142,272 | 133,222 | 124,912 | |||||||||
|
|
|
|
|
| |||||||
Accumulated other comprehensive income | ||||||||||||
Balance, beginning of year | 10,145 | 5,561 | (222 | ) | ||||||||
Change in unrealized net capital gains and losses | 3,411 | 4,584 | 5,783 | |||||||||
|
|
|
|
|
| |||||||
Balance, end of year | 13,556 | 10,145 | 5,561 | |||||||||
|
|
|
|
|
| |||||||
Total shareholder’s equity | $ | 338,328 | $ | 325,867 | $ | 312,973 | ||||||
|
|
|
|
|
| |||||||
See notes to financial statements.
11
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 9,050 | $ | 8,310 | $ | 8,629 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Amortization and other non-cash items | 1,175 | 1,241 | 932 | |||||||||
Realized capital gains and losses | (2,075 | ) | (694 | ) | (1,480 | ) | ||||||
Changes in: | ||||||||||||
Policy benefit and other insurance reserves | (22,072 | ) | 4,240 | 19,349 | ||||||||
Income taxes | 476 | (205 | ) | (2,174 | ) | |||||||
Receivable/payable to affiliates, net | (13,494 | ) | (9,818 | ) | (21,280 | ) | ||||||
Other operating assets and liabilities | 37,802 | (943 | ) | 369 | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 10,862 | 2,131 | 4,345 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities | ||||||||||||
Proceeds from sales of fixed income securities | 44,880 | 27,166 | 46,330 | |||||||||
Collections on fixed income securities | 25,268 | 38,691 | 35,334 | |||||||||
Purchases of fixed income securities | (77,175 | ) | (71,478 | ) | �� | (151,234 | ) | |||||
Change in short-term investments, net | (1,379 | ) | (3,023 | ) | 72,143 | |||||||
|
|
|
|
|
| |||||||
Net cash (used in) provided by investing activities | (8,406 | ) | (8,644 | ) | 2,573 | |||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash | 2,456 | (6,513 | ) | 6,918 | ||||||||
Cash at beginning of year | 3,550 | 10,063 | 3,145 | |||||||||
|
|
|
|
|
| |||||||
Cash at end of year | $ | 6,006 | $ | 3,550 | $ | 10,063 | ||||||
|
|
|
|
|
| |||||||
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
1. General
Basis of presentation
The accompanying financial statements include the accounts of Lincoln Benefit Life Company (the “Company”), a wholly owned subsidiary of Allstate Life Insurance Company (“ALIC”), which is wholly owned by Allstate Insurance Company (“AIC”). All of the outstanding common stock of AIC is owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”). These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
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.
Nature of operations
The Company sells life insurance, retirement and investment products. The principal products are interest-sensitive, traditional and variable life insurance, and fixed annuities including deferred and immediate.
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. For 2011, the top geographic locations for statutory premiums and annuity considerations were California, Texas and Florida. No other jurisdiction accounted for more than 5% of statutory premiums and annuity considerations. All statutory premiums and annuity considerations are ceded under reinsurance agreements. The Company distributes its products through multiple distribution channels, including Allstate exclusive agencies and exclusive financial specialists, independent agents (including master brokerage agencies) and directly through call centers and the internet.
The Company has exposure to market risk as a result of its investment portfolio. Market risk is the risk that the Company will incur realized and unrealized net capital losses due to adverse changes in interest rates and credit spreads. The Company also has certain exposures to changes in equity prices in its equity-indexed annuities and separate accounts liabilities, which are transferred to ALIC in accordance with reinsurance agreements. Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of its interest bearing assets. This risk arises from the Company’s investment in interest-sensitive assets. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. Credit spread risk is the risk that the Company will incur a loss due to adverse changes in credit spreads. This risk arises from the Company’s investment in spread-sensitive fixed income assets.
The Company monitors economic and regulatory developments that have the potential to impact its business. Federal and state laws and regulations affect the taxation of insurance companies and life insurance and annuity products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company’s products making them less competitive. Such proposals, if adopted, could have an adverse effect on the Company’s and ALIC’s financial position or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.
13
NOTES TO FINANCIAL STATEMENTS—(Continued)
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”). Fixed income securities, which may be sold prior to their contractual maturity, are designated as available for sale 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 is reflected as a component of proceeds from sales and cash received from maturities and pay-downs, including prepayments, is reflected as a component of investment collections within the Statements of Cash Flows.
Short-term investments, including money market funds and other short-term investments, are carried at fair value.
Investment income primarily consists of interest and is recognized on an accrual basis using the effective yield method. Interest income for certain RMBS, CMBS and ABS 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 on a retrospective basis when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For other-than-temporarily impaired fixed income securities, the effective yield method utilizes the difference between the amortized cost basis at impairment and the cash flows expected to be collected. Accrual of income is suspended for other-than-temporarily impaired fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable.
Realized capital gains and losses 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 calls and principal payments, are determined on a specific identification basis.
The Company recognizes other-than-temporary impairment losses on fixed income securities in earnings when a security’s fair value is less than its amortized cost and the Company has made the decision to sell or it is more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis. Additionally, if the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income 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 (“OCI”).
Recognition of premium revenues and contract charges, and related benefits and interest credited
The Company has reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see Notes 3 and 8). Amounts reflected in the Statements of Operations and Comprehensive Income 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. Benefits are reflected in contract benefits and recognized in relation to premiums, so that profits are recognized over the life of the policy.
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
14
NOTES TO FINANCIAL STATEMENTS—(Continued)
received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. Profits from these policies come from investment income, which is recognized over the life of the contract.
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 contractholder, interest credited to the contractholder account balance and contract charges assessed against the contractholder account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk), contract administration and surrender of the contract prior to contractually specified dates. These contract charges are recognized as revenue when assessed against the contractholder account balance. Contract benefits include life-contingent benefit payments in excess of the contractholder 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 contractholder fund deposits. Contract charges 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 contractholder account balance.
Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life contracts 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.
Contract charges for variable life and variable annuity products consist of fees assessed against the contractholder account balances for contract maintenance, administration, mortality, expense and surrender of the contract prior to contractually specified dates. Contract benefits incurred for variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits.
Reinsurance
The Company has reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see Notes 3 and 8). Reinsurance recoverables and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the Statements of Financial Position. Reinsurance does not extinguish the Company’s primary liability under the policies written. Therefore, the Company regularly evaluates the financial condition of its reinsurers and establishes allowances for uncollectible reinsurance as appropriate.
Investment income earned on the assets that support contractholder funds and the reserve for life-contingent contract benefits is not included in the Company’s financial statements as those assets are owned and managed by ALIC under the terms of the reinsurance agreements.
Income taxes
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 on investments. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized.
15
NOTES TO FINANCIAL STATEMENTS—(Continued)
Reserve for life-contingent contract benefits
The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance and life-contingent immediate annuities, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration.
Contractholder funds
Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance and fixed annuities. Contractholder funds primarily comprise deposits received and interest credited to the benefit of the contractholder less surrenders and withdrawals, mortality charges and administrative expenses. Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on variable annuity contracts.
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 Statements of Operations and Comprehensive Income. 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. The risk and associated cost of these contract guarantees are ceded to ALIC in accordance with the reinsurance agreements.
Adopted accounting standard
Consolidation Analysis Considering Investments Held through Separate Accounts
In April 2010, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying that an insurer is not required to combine interests in investments held in a qualifying separate account with its interests in the same investments held in the general account when performing a consolidation evaluation. The adoption of this guidance as of January 1, 2011 had no impact on the Company’s results of operations or financial position.
Pending accounting standards
Amendments to Fair Value Measurement and Disclosure Requirements
In May 2011, the FASB issued guidance that clarifies the application of existing fair value measurement and disclosure requirements and amends certain fair value measurement principles, requirements and disclosures. Changes were made to improve consistency in global application. The guidance is to be applied prospectively for reporting periods beginning after December 15, 2011. Early adoption is not permitted. The impact of adoption is not expected to be material to the Company’s results of operations or financial position.
16
NOTES TO FINANCIAL STATEMENTS—(Continued)
Presentation of Comprehensive Income
In June and December 2011, the FASB issued guidance amending the presentation of comprehensive income and its components. Under the new guidance, a reporting entity has the option to present comprehensive income in a single continuous statement or in two separate but consecutive statements. The guidance is effective for reporting periods beginning after December 15, 2011 and is to be applied retrospectively. The new guidance affects presentation only and will have no impact on the Company’s results of operations or financial position.
3. Related Party Transactions
Business operations
The Company uses services performed by its affiliates, 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 shares the services of employees with AIC. The Company reimburses its affiliates for the operating expenses incurred on behalf of the Company. The Company is charged for the cost of these operating expenses based on the level of services provided. Operating expenses, including compensation, retirement and other benefit programs, allocated to the Company were $204.8 million, $204.8 million and $202.9 million in 2011, 2010 and 2009, respectively. Of these costs, the Company retains investment related expenses on the invested assets that are not transferred under the reinsurance agreements. All other costs are ceded to ALIC under the reinsurance agreements.
Broker-Dealer
The Company has a service agreement with Allstate Distributors, LLC (“ADLLC”), a broker-dealer company owned by ALIC, whereby ADLLC promotes and markets products sold by the Company. In return for these services, the Company recorded expense of $7.2 million, $6.9 million and $4.6 million in 2011, 2010 and 2009, respectively, that was ceded to ALIC under the terms of the reinsurance agreements.
The Company receives distribution services from Allstate Financial Services, LLC (“AFS”), an affiliated broker-dealer company, for certain variable life insurance contracts sold by Allstate exclusive agencies. For these services, the Company incurred commission and other distribution expenses of $7.5 million, $8.5 million and $9.1 million in 2011, 2010 and 2009, respectively, that were ceded to ALIC.
Reinsurance
The following table summarizes amounts that were ceded to ALIC under the reinsurance agreements and reported net in the Statements of Operations and Comprehensive Income:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Premiums and contract charges | $ | 833,149 | $ | 782,113 | $ | 734,369 | ||||||
Interest credited to contractholder funds, contract benefits and expenses | 1,408,953 | 1,683,487 | 1,621,011 | |||||||||
Reinsurance recoverables due from ALIC totaled $16.68 billion and $18.37 billion as of December 31, 2011 and 2010, respectively.
Income taxes
The Company is a party to a federal income tax allocation agreement with the Corporation (see Note 10).
17
NOTES TO FINANCIAL STATEMENTS—(Continued)
Intercompany loan agreement
The Company has an intercompany loan agreement with the Corporation. The amount of intercompany loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1 billion. The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings. The Company had no amounts outstanding under the intercompany loan agreement as of December 31, 2011 or 2010.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
| Amortized cost | Gross unrealized | Fair value | ||||||||||||||
| ($ in thousands) | Gains | Losses | ||||||||||||||
December 31, 2011 | ||||||||||||||||
U.S. government and agencies | $ | 84,059 | $ | 5,943 | $ | — | $ | 90,002 | ||||||||
Municipal | 2,499 | 399 | — | 2,898 | ||||||||||||
Corporate | 169,820 | 12,105 | (99 | ) | 181,826 | |||||||||||
Foreign government | 4,998 | 239 | — | 5,237 | ||||||||||||
RMBS | 40,089 | 2,427 | (9 | ) | 42,507 | |||||||||||
CMBS | 8,514 | 360 | (518 | ) | 8,356 | |||||||||||
ABS | 2,806 | 8 | — | 2,814 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed income securities | $ | 312,785 | $ | 21,481 | $ | (626 | ) | $ | 333,640 | |||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2010 | ||||||||||||||||
U.S. government and agencies | $ | 70,426 | $ | 3,513 | $ | (383 | ) | $ | 73,556 | |||||||
Municipal | 2,999 | 177 | — | 3,176 | ||||||||||||
Corporate | 154,261 | 9,345 | (19 | ) | 163,587 | |||||||||||
Foreign government | 4,998 | 92 | — | 5,090 | ||||||||||||
RMBS | 55,376 | 2,429 | (3 | ) | 57,802 | |||||||||||
CMBS | 8,523 | 427 | (87 | ) | 8,863 | |||||||||||
ABS | 8,265 | 117 | — | 8,382 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed income securities | $ | 304,848 | $ | 16,100 | $ | (492 | ) | $ | 320,456 | |||||||
|
|
|
|
|
|
|
| |||||||||
Scheduled maturities
The scheduled maturities for fixed income securities are as follows as of December 31, 2011:
| ($ in thousands) | Amortized cost | Fair value | ||||||
Due in one year or less | $ | 14,017 | $ | 14,268 | ||||
Due after one year through five years | 166,125 | 175,871 | ||||||
Due after five years through ten years | 71,112 | 79,239 | ||||||
Due after ten years | 18,636 | 18,941 | ||||||
|
|
|
| |||||
| 269,890 | 288,319 | |||||||
RMBS and ABS | 42,895 | 45,321 | ||||||
|
|
|
| |||||
Total | $ | 312,785 | $ | 333,640 | ||||
|
|
|
| |||||
18
NOTES TO FINANCIAL STATEMENTS—(Continued)
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity. CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk.
Net investment income
Net investment income for the years ended December 31 is as follows:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Fixed income securities | $ | 12,133 | $ | 12,480 | $ | 12,098 | ||||||
Short-term and other investments | 11 | 21 | 107 | |||||||||
|
|
|
|
|
| |||||||
Investment income, before expense | 12,144 | 12,501 | 12,205 | |||||||||
Investment expense | (308 | ) | (434 | ) | (422 | ) | ||||||
|
|
|
|
|
| |||||||
Net investment income | $ | 11,836 | $ | 12,067 | $ | 11,783 | ||||||
|
|
|
|
|
| |||||||
Realized capital gains and losses
The Company recognized net realized capital gains of $2.1 million, $694 thousand and $1.5 million in 2011, 2010 and 2009, respectively. Realized capital gains and losses in 2011 included $12 thousand of other-than-temporary impairment losses related to RMBS, none of which were included in other comprehensive income. Realized capital gains and losses in 2010 and 2009 did not include any other-than-temporary impairment losses and therefore, none were included in other comprehensive income. No other-than-temporary impairment losses were included in accumulated other comprehensive income as of December 31, 2011 or 2010.
Gross gains of $1.9 million, $652 thousand and $1.5 million and gross losses of $3 thousand, zero, and $3 thousand were realized on sales of fixed income securities during 2011, 2010 and 2009, respectively.
Unrealized net capital gains and losses
Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:
| ($ in thousands) | Fair value | Gross unrealized | Unrealized net gains (losses) | |||||||||||||
| Gains | Losses | |||||||||||||||
December 31, 2011 | ||||||||||||||||
Fixed income securities | $ | 333,640 | $ | 21,481 | $ | (626 | ) | $ | 20,855 | |||||||
Short-term investments | 12,974 | — | — | — | ||||||||||||
|
| |||||||||||||||
Unrealized net capital gains and losses, pre-tax | 20,855 | |||||||||||||||
Deferred income taxes | (7,299 | ) | ||||||||||||||
|
| |||||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 13,556 | ||||||||||||||
|
| |||||||||||||||
| Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||||
| Gains | Losses | |||||||||||||||
December 31, 2010 | ||||||||||||||||
Fixed income securities | $ | 320,456 | $ | 16,100 | $ | (492 | ) | $ | 15,608 | |||||||
Short-term investments | 11,593 | — | — | — | ||||||||||||
|
| |||||||||||||||
Unrealized net capital gains and losses, pre-tax | 15,608 | |||||||||||||||
Deferred income taxes | (5,463 | ) | ||||||||||||||
|
| |||||||||||||||
Unrealized net capital gains and losses, after-tax | $ | 10,145 | ||||||||||||||
|
| |||||||||||||||
19
NOTES TO FINANCIAL STATEMENTS—(Continued)
Change in unrealized net capital gains and losses
The change in unrealized net capital gains and losses for the years ended December 31 is as follows:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Fixed income securities | $ | 5,247 | $ | 7,052 | $ | 8,895 | ||||||
Short-term investments | — | — | 2 | |||||||||
|
|
|
|
|
| |||||||
Total | 5,247 | 7,052 | 8,897 | |||||||||
Deferred income taxes | (1,836 | ) | (2,468 | ) | (3,114 | ) | ||||||
|
|
|
|
|
| |||||||
Increase in unrealized net capital gains and losses | $ | 3,411 | $ | 4,584 | $ | 5,783 | ||||||
|
|
|
|
|
| |||||||
Portfolio monitoring
The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired.
For each fixed income 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 income security and it is not more likely than not the Company will be required to sell the fixed income 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 income 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 income 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.
20
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table summarizes the gross unrealized losses and fair value of fixed income securities by the length of time that individual securities have been in a continuous unrealized loss position.
| ($ in thousands) | Less than 12 months | 12 months or more | Total unrealized losses | |||||||||||||||||||||||||
| Number of issues | Fair value | Unrealized losses | Number of issues | Fair value | Unrealized losses | |||||||||||||||||||||||
December 31, 2011 | ||||||||||||||||||||||||||||
Corporate | 1 | $ | 5,161 | $ | (99 | ) | — | $ | — | $ | — | $ | (99 | ) | ||||||||||||||
RMBS | 1 | 1,075 | (9 | ) | — | — | — | (9 | ) | |||||||||||||||||||
CMBS | 1 | 1,484 | (518 | ) | — | — | — | (518 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 3 | $ | 7,720 | $ | (626 | ) | — | $ | — | $ | — | $ | (626 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||||||
U.S. government and agencies | 1 | $ | 9,546 | $ | (383 | ) | — | $ | — | $ | — | $ | (383 | ) | ||||||||||||||
Corporate | 1 | 4,968 | (19 | ) | — | — | — | (19 | ) | |||||||||||||||||||
RMBS | 3 | 385 | (3 | ) | — | — | — | (3 | ) | |||||||||||||||||||
CMBS | — | — | — | 1 | 1,916 | (87 | ) | (87 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 5 | $ | 14,899 | $ | (405 | ) | 1 | $ | 1,916 | $ | (87 | ) | $ | (492 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of December 31, 2011, $108 thousand of unrealized losses are related to fixed income securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. All of these unrealized losses are related to investment grade fixed income securities. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase.
As of December 31, 2011, the remaining $518 thousand of unrealized losses are related to one investment grade security in an unrealized loss position greater than 20% of amortized cost. The security was evaluated based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and was determined to have adequate resources to fulfill contractual obligations.
As of December 31, 2011, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.
Municipal bonds
The principal geographic distribution of municipal bond issuers represented in the Company’s municipal bond portfolio was 100% in Washington as of December 31, 2011 and 84% and 16% in Washington and Puerto Rico, respectively, as of December 31, 2010.
Concentration of credit risk
As of December 31, 2011, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholder’s equity.
Other investment information
As of December 31, 2011, fixed income securities and short-term investments with a carrying value of $10.3 million were on deposit with regulatory authorities as required by law.
21
NOTES TO FINANCIAL STATEMENTS—(Continued)
5. Fair Value of Assets and Liabilities
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 Statements of Financial Position 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 Company’s 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 has two types of situations where investments are classified as Level 3 in the fair value hierarchy. The first is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.
The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable. This relates to the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable.
In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.
22
NOTES TO FINANCIAL STATEMENTS—(Continued)
Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis
Level 1 measurements
| • | Fixed income securities: Comprise 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 are obtained daily from the fund managers. |
Level 2 measurements
| • | Fixed income securities: |
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 and ABS: 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
| • | Fixed income securities: |
Corporate: Valued based on models that are widely accepted in the financial services industry with certain inputs to the valuation model that are significant to the valuation, but are not market observable.
RMBS: Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.
23
NOTES TO FINANCIAL STATEMENTS—(Continued)
Contractholder funds: 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 non-market observable inputs.
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2011:
| ($ in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Balance as of December 31, 2011 | ||||||||||||
Assets: | ||||||||||||||||
Fixed income securities: | ||||||||||||||||
U.S. government and agencies | $ | 36,883 | $ | 53,119 | $ | — | $ | 90,002 | ||||||||
Municipal | — | 2,898 | — | 2,898 | ||||||||||||
Corporate | — | 181,228 | 598 | 181,826 | ||||||||||||
Foreign government | — | 5,237 | — | 5,237 | ||||||||||||
RMBS | — | 40,186 | 2,321 | 42,507 | ||||||||||||
CMBS | — | 8,356 | — | 8,356 | ||||||||||||
ABS | — | 2,814 | — | 2,814 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed income securities | 36,883 | 293,838 | 2,919 | 333,640 | ||||||||||||
Short-term investments | 1,925 | 11,049 | — | 12,974 | ||||||||||||
Separate account assets | 1,682,128 | — | — | 1,682,128 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total recurring basis assets | 1,720,936 | 304,887 | 2,919 | 2,028,742 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets at fair value | $ | 1,720,936 | $ | 304,887 | $ | 2,919 | $ | 2,028,742 | ||||||||
|
|
|
|
|
|
|
| |||||||||
% of total assets at fair value | 84.8 | % | 15.0 | % | 0.2 | % | 100.0 | % | ||||||||
Liabilities: | ||||||||||||||||
Contractholder funds: | ||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (506,678 | ) | $ | (506,678 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities at fair value | $ | — | $ | — | $ | (506,678 | ) | $ | (506,678 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
% of total liabilities at fair value | — | % | — | % | 100.0 | % | 100.0 | % | ||||||||
24
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2010:
| ($ in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Balance as of December 31, 2010 | ||||||||||||
Assets: | ||||||||||||||||
Fixed income securities: | ||||||||||||||||
U.S. government and agencies | $ | 31,007 | $ | 42,549 | $ | — | $ | 73,556 | ||||||||
Municipal | — | 3,176 | — | 3,176 | ||||||||||||
Corporate | — | 162,735 | 852 | 163,587 | ||||||||||||
Foreign government | — | 5,090 | — | 5,090 | ||||||||||||
RMBS | — | 50,922 | 6,880 | 57,802 | ||||||||||||
CMBS | — | 6,947 | 1,916 | 8,863 | ||||||||||||
ABS | — | 8,382 | — | 8,382 | �� | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed income securities | 31,007 | 279,801 | 9,648 | 320,456 | ||||||||||||
Short-term investments | 11,543 | 50 | — | 11,593 | ||||||||||||
Separate account assets | 2,017,185 | — | — | 2,017,185 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total recurring basis assets | 2,059,735 | 279,851 | 9,648 | 2,349,234 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets at fair value | $ | 2,059,735 | $ | 279,851 | $ | 9,648 | $ | 2,349,234 | ||||||||
|
|
|
|
|
|
|
| |||||||||
% of total assets at fair value | 87.7 | % | 11.9 | % | 0.4 | % | 100.0 | % | ||||||||
Liabilities: | ||||||||||||||||
Contractholder funds: | ||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (494,149 | ) | $ | (494,149 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities at fair value | $ | — | $ | — | $ | (494,149 | ) | $ | (494,149 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
% of total liabilities at fair value | — | % | — | % | 100.0 | % | 100.0 | % | ||||||||
25
NOTES TO FINANCIAL STATEMENTS—(Continued)
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, 2011.
| ($ in thousands) | Total realized and unrealized gains (losses) included in: | |||||||||||||||||||
| Balance as of December 31, 2010 | Net income(1) | OCI on Statement of Financial Position | Transfers into Level 3 | Transfers out of Level 3 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
Corporate | $ | 852 | $ | — | $ | 199 | $ | — | $ | (10,199 | ) | |||||||||
RMBS | 6,880 | (4 | ) | (108 | ) | — | (3,577 | ) | ||||||||||||
CMBS | 1,916 | — | (49 | ) | — | (1,867 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total recurring Level 3 assets | $ | 9,648 | $ | (4 | ) | $ | 42 | $ | — | $ | (15,643 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: | ||||||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | (494,149 | ) | $ | (110,951 | ) | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total recurring Level 3 liabilities | $ | (494,149 | ) | $ | (110,951 | ) | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Purchases | Sales | Issuances | Settlements | Balance as of December 31, 2011 | ||||||||||||||||
Assets | ||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||
Corporate | $ | 10,000 | $ | — | $ | — | $ | (254 | ) | $ | 598 | |||||||||
RMBS | — | — | — | (870 | ) | 2,321 | ||||||||||||||
CMBS | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total recurring Level 3 assets | $ | 10,000 | $ | — | $ | — | $ | (1,124 | ) | $ | 2,919 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities | ||||||||||||||||||||
Contractholder funds: | ||||||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | — | $ | — | $ | (55,559 | ) | $ | 153,981 | $ | (506,678 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total recurring Level 3 liabilities | $ | — | $ | — | $ | (55,559 | ) | $ | 153,981 | $ | (506,678 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| (1) | The amount above attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as net investment income. The amount above attributable to derivatives embedded in life and annuity contracts is reported as follows: $(106.6) million in interest credited to contractholder funds and $(4.3) million in contract benefits. These amounts are ceded in accordance with the Company’s reinsurance agreements. |
26
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2010.
| ($ in thousands) | Total realized and unrealized gains (losses) included in: | Purchases, sales, issuances and settlements, net | Transfers into Level 3 | Transfers out of Level 3 | Balance as of December 31, 2010 | |||||||||||||||||||||||
| Balance as of December 31, 2009 | Net income(1) | OCI on Statement of Financial Position | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||
Corporate | $ | 1,089 | $ | (1 | ) | $ | — | $ | 7,740 | $ | — | $ | (7,976 | ) | $ | 852 | ||||||||||||
RMBS | — | (17 | ) | 131 | 9,459 | — | (2,693 | ) | 6,880 | |||||||||||||||||||
CMBS | 1,158 | — | 758 | — | — | — | 1,916 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total recurring Level 3 assets | $ | 2,247 | $ | (18 | ) | $ | 889 | $ | 17,199 | $ | — | $ | (10,669 | ) | $ | 9,648 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Contractholder funds: | ||||||||||||||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | (15,526 | ) | $ | (4,877 | ) | $ | — | $ | — | $ | (473,746 | ) | $ | — | $ | (494,149 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total recurring Level 3 liabilities | $ | (15,526 | ) | $ | (4,877 | ) | $ | — | $ | — | $ | (473,746 | ) | $ | — | $ | (494,149 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| (1) | The amount above attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as net investment income. The amount above attributable to derivatives embedded in life and annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company’s 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 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 2011 or 2010.
During 2011, certain RMBS and CMBS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in market activity for these assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation approach. Accordingly, for securities included within this group, there was no change in fair value in conjunction with the transfer resulting in a realized or unrealized gain or loss.
During 2011, a corporate fixed income security was transferred into Level 2 from Level 3 due to a change in the valuation model to use primarily market observable inputs. Transfers out of Level 3 during 2011 and 2010 also included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.
27
NOTES TO FINANCIAL STATEMENTS—(Continued)
Transfers into Level 3 during 2010 also included derivatives embedded in equity-indexed life and annuity contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs.
The following table provides the total gains and (losses) included in net income for Level 3 assets and liabilities still held as of December 31.
| ($ in thousands) | 2011 | 2010 | ||||||
Assets | ||||||||
Fixed income securities: | ||||||||
Corporate | $ | (2 | ) | $ | (2 | ) | ||
RMBS | (5 | ) | (11 | ) | ||||
CMBS | — | (1 | ) | |||||
|
|
|
| |||||
Total recurring Level 3 assets | $ | (7 | ) | $ | (14 | ) | ||
|
|
|
| |||||
Liabilities | ||||||||
Contractholder funds: | ||||||||
Derivatives embedded in life and annuity contracts | $ | (110,951 | ) | $ | (4,877 | ) | ||
|
|
|
| |||||
Total recurring Level 3 liabilities | $ | (110,951 | ) | $ | (4,877 | ) | ||
|
|
|
| |||||
The amounts in the table above represent losses included in net income during 2011 and 2010 for the period of time that the asset or liability was determined to be in Level 3. The amounts attributable to fixed income securities are reported in net investment income. The amount attributable to derivatives embedded in life and annuity contracts is reported as follows: $(106.6) million in interest credited to contractholder funds and $(4.3) million in contract benefits. These amounts are ceded in accordance with the Company’s reinsurance agreements.
28
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2009.
| Balance as of December 31, 2008 | Total realized and unrealized gains (losses) included in: | Purchases, sales, issuances and settlements, net | Net transfers in and/ or (out) of Level 3 | Balance as of December 31, 2009 | Total gains (losses) included in net income for financial instruments still held as of December 31, 2009(2) | |||||||||||||||||||||||
| ($ in thousands) | Net income(1) | OCI on Statement of Financial Position | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||
Corporate | $ | 1,307 | $ | (2 | ) | $ | 96 | $ | (216 | ) | $ | (96 | ) | $ | 1,089 | $ | (2 | ) | ||||||||||
CMBS | — | — | 535 | — | 623 | 1,158 | — | |||||||||||||||||||||
ABS | 6,002 | 288 | (19 | ) | (6,271 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total recurring | $ | 7,309 | $ | 286 | $ | 612 | $ | (6,487 | ) | $ | 527 | $ | 2,247 | $ | (2 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Contractholder funds: | ||||||||||||||||||||||||||||
Derivatives embedded in life and annuity contracts | $ | (36,544 | ) | $ | 19,984 | $ | — | $ | 1,034 | $ | — | $ | (15,526 | ) | $ | 19,984 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total recurring | $ | (36,544 | ) | $ | 19,984 | $ | — | $ | 1,034 | $ | — | $ | (15,526 | ) | $ | 19,984 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| (1) | The amount above attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as follows: $288 thousand in realized capital gains and losses and $(2) thousand in net investment income. The amount above attributable to derivatives embedded in life and annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company’s reinsurance agreements. |
| (2) | The amount above attributable to fixed income securities is reported as a component of net investment income in the Statements of Operations and Comprehensive Income. The amount above attributable to derivatives embedded in life and annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company’s reinsurance agreements. |
As of December 31, 2011 and 2010, financial instruments not carried at fair value included contractholder funds on investment contracts. The carrying value and fair value of contractholder funds on investment contracts were $10.66 billion and $10.33 billion, respectively, as of December 31, 2011 and were $12.69 billion and $11.66 billion, respectively, as of December 31, 2010.
The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk. Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk. Immediate annuities without life contingencies are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk.
6.Derivative Financial Instruments
The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value. The Company’s embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders, and guaranteed minimum accumulation and withdrawal benefits in variable annuity contracts. The Company does not use derivatives for speculative purposes.
29
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table provides a summary of the volume and fair value positions of embedded derivative financial instruments as well as their reporting location in the Statement of Financial Position as of December 31, 2011. None of these derivatives are designated as accounting hedging instruments and all are gross liabilities.
| ($ in thousands) | Balance sheet location | Volume - Notional amount | Fair value | |||||||
Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | $ | 3,620,132 | $ | (481,930 | ) | ||||
Guaranteed accumulation benefits | Contractholder funds | 202,908 | (22,454 | ) | ||||||
Guaranteed withdrawal benefits | Contractholder funds | 27,740 | (2,294 | ) | ||||||
|
|
|
| |||||||
Total derivatives | $ | 3,850,780 | $ | (506,678 | ) | |||||
|
|
|
| |||||||
The following table provides a summary of the volume and fair value positions of embedded derivative financial instruments as well as their reporting location in the Statement of Financial Position as of December 31, 2010. None of these derivatives are designated as accounting hedging instruments and all are gross liabilities.
| ($ in thousands) | Balance sheet location | Volume - Notional amount | Fair value | |||||||
Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | $ | 4,351,559 | $ | (473,746 | ) | ||||
Guaranteed accumulation benefits | Contractholder funds | 228,195 | (18,422 | ) | ||||||
Guaranteed withdrawal benefits | Contractholder funds | 32,473 | (1,981 | ) | ||||||
|
|
|
| |||||||
Total derivatives | $ | 4,612,227 | $ | (494,149 | ) | |||||
|
|
|
| |||||||
In 2011, gains and losses from valuation and settlements on embedded derivative financial instruments recorded in interest credited to contractholder funds and contract benefits were $(8.2) million and $(4.3) million, respectively, which in turn were ceded to ALIC. For the year ended December 31, 2010 gains and losses from valuation and settlements on embedded derivative financial instruments recorded in interest credited to contractholder funds and contract benefits were $31.0 million and $(4.9) million, respectively, which in turn were ceded to ALIC.
Off-balance-sheet financial instruments
There were no off-balance-sheet financial instruments as of December 31, 2011 or 2010.
7. Reserve for Life-Contingent Contract Benefits and Contractholder Funds
As of December 31, the reserve for life-contingent contract benefits consists of the following:
| ($ in thousands) | 2011 | 2010 | ||||||
Traditional life insurance | $ | 1,425,848 | $ | 1,363,098 | ||||
Immediate fixed annuities | 671,275 | 680,467 | ||||||
Accident and health insurance | 1,092,791 | 961,030 | ||||||
Other | 9,576 | 6,722 | ||||||
|
|
|
| |||||
Total reserve for life-contingent contract benefits | $ | 3,199,490 | $ | 3,011,317 | ||||
|
|
|
| |||||
30
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table highlights the key assumptions generally used in calculating the reserve for life-contingent contract benefits:
Product | Mortality | Interest rate | Estimation method | |||
| Traditional life insurance | Actual company experience plus loading | Interest rate assumptions range from 4.0% to 8.0% | Net level premium reserve method using the Company’s withdrawal experience rates; includes reserves for unpaid claims | |||
| Immediate fixed annuities | 1983 individual annuity mortality table with internal modifications; 1983 individual annuity mortality table; Annuity 2000 mortality table with internal modifications; 2001 Valuation Basic Table with internal modifications | Interest rate assumptions range from 1.2% to 8.8% | Present value of expected future benefits based on historical experience | |||
| Accident and health insurance | Actual company experience plus loading | Interest rate assumptions range from 4.0% to 5.3% | Unearned premium; additional contract reserves for mortality risk and unpaid claims | |||
Other:
Variable annuity guaranteed minimum death benefits |
100% of Annuity 2000 mortality table |
Interest rate |
Projected benefit ratio | |||
As of December 31, contractholder funds consist of the following:
| ($ in thousands) | 2011 | 2010 | ||||||
Interest-sensitive life insurance | $ | 4,556,892 | $ | 4,314,502 | ||||
Investment contracts: | ||||||||
Fixed annuities | 10,709,817 | 12,728,648 | ||||||
Other investment contracts | 222,915 | 203,921 | ||||||
|
|
|
| |||||
Total contractholder funds | $ | 15,489,624 | $ | 17,247,071 | ||||
|
|
|
| |||||
31
NOTES TO FINANCIAL STATEMENTS—(Continued)
The following table highlights the key contract provisions relating to contractholder funds:
Product | Interest rate | Withdrawal/surrender charges | ||
| Interest-sensitive life insurance | Interest rates credited range from 0% to 11.0% for equity-indexed life (whose returns are indexed to the S&P 500) and 2.0% to 6.0% for all other products | Either a percentage of account balance or dollar amount grading off generally over 20 years | ||
| Fixed annuities | Interest rates credited range from 0% to 8.8% for immediate annuities; 0% to 11.0% for equity-indexed annuities (whose returns are indexed to the S&P 500); and 1.0% to 6.6% for all other products | Either a declining or a level percentage charge generally over ten years or less. Additionally, approximately 18.9% of fixed annuities are subject to market value adjustment for discretionary withdrawals. | ||
Other investment contracts:
Guaranteed minimum income, accumulation and withdrawal benefits on variable and fixed annuities and secondary guarantees on interest-sensitive life insurance and fixed annuities |
Interest rates used in establishing reserves range from 1.8% to 10.3% |
Withdrawal and surrender | ||
Contractholder funds activity for the years ended December 31 is as follows:
| ($ in thousands) | 2011 | 2010 | ||||||
Balance, beginning of year | $ | 17,247,071 | $ | 17,633,027 | ||||
Deposits | 1,007,316 | 1,521,086 | ||||||
Interest credited | 576,331 | 743,075 | ||||||
Benefits | (459,991 | ) | (504,789 | ) | ||||
Surrenders and partial withdrawals | (2,412,295 | ) | (1,811,355 | ) | ||||
Contract charges | (513,068 | ) | (471,729 | ) | ||||
Net transfers from separate accounts | 18,935 | 18,788 | ||||||
Other adjustments | 25,325 | 118,968 | ||||||
|
|
|
| |||||
Balance, end of year | $ | 15,489,624 | $ | 17,247,071 | ||||
|
|
|
| |||||
32
NOTES TO FINANCIAL STATEMENTS—(Continued)
The table below presents information regarding the Company’s variable annuity contracts with guarantees. The Company’s variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts’ separate accounts with guarantees.
| December 31, | ||||||||
| ($ in millions) | 2011 | 2010 | ||||||
In the event of death | ||||||||
Separate account value | $ | 1,032.7 | $ | 1,318.1 | ||||
Net amount at risk(1) | $ | 149.5 | $ | 126.3 | ||||
Average attained age of contractholders | 58 years | 57 years | ||||||
At annuitization (includes income benefit guarantees) | ||||||||
Separate account value | $ | 184.9 | $ | 252.8 | ||||
Net amount at risk(2) | $ | 45.1 | $ | 40.9 | ||||
Weighted average waiting period until annuitization options available | 2 years | 3 years | ||||||
For cumulative periodic withdrawals | ||||||||
Separate account value | $ | 27.5 | $ | 33.1 | ||||
Net amount at risk(3) | $ | 0.4 | $ | 0.3 | ||||
Accumulation at specified dates | ||||||||
Separate account value | $ | 198.1 | $ | 233.7 | ||||
Net amount at risk(4) | $ | 21.5 | $ | 18.9 | ||||
Weighted average waiting period until guarantee date | 8 years | 9 years | ||||||
| (1) | Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date. |
| (2) | Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance. |
| (3) | Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date. |
| (4) | Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance. |
As of December 31, 2011, liabilities for guarantees included reserves for variable annuity death benefits of $9.6 million, variable annuity income benefits of $16.0 million, variable annuity accumulation benefits of $22.4 million, variable annuity withdrawal benefits of $2.3 million and interest-sensitive life and fixed annuity guarantees of $181.6 million. As of December 31, 2010, liabilities for guarantees included reserves for variable annuity death benefits of $6.7 million, variable annuity income benefits of $19.8 million, variable annuity accumulation benefits of $18.4 million, variable annuity withdrawal benefits of $2.0 million and interest-sensitive life and fixed annuity guarantees of $163.7 million.
8. Reinsurance
The Company has reinsurance agreements under which it reinsures all of its business to ALIC or non-affiliated reinsurers. Under the agreements, premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are reinsured. The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company cedes a portion of the mortality risk on certain life policies under coinsurance agreements to a pool of twelve non-affiliated reinsurers.
33
NOTES TO FINANCIAL STATEMENTS—(Continued)
As of December 31, 2011, 89.1% of the total reinsurance recoverables were related to ALIC and 10.9% were related to non-affiliated reinsurers. As of December 31, 2011 and 2010, 98% and 97%, respectively, of the Company’s non-affiliated reinsurance recoverables are due from companies rated A- or better by S&P.
The effects of reinsurance on premiums and contract charges for the years ended December 31 are as follows:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Direct | $ | 1,266,264 | $ | 1,228,272 | $ | 1,194,526 | ||||||
Assumed | 7,057 | 7,465 | 7,849 | |||||||||
Ceded: | ||||||||||||
Affiliate | (833,149 | ) | (782,113 | ) | (734,369 | ) | ||||||
Non-affiliate | (440,172 | ) | (453,624 | ) | (468,006 | ) | ||||||
|
|
|
|
|
| |||||||
Premiums and contract charges, net of reinsurance | $ | — | $ | — | $ | — | ||||||
|
|
|
|
|
| |||||||
The effects of reinsurance on interest credited to contractholder funds, contract benefits and expenses for the years ended December 31 are as follows:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Direct | $ | 1,893,124 | $ | 2,186,031 | $ | 2,159,262 | ||||||
Assumed | 7,337 | 8,153 | 11,101 | |||||||||
Ceded: | ||||||||||||
Affiliate | (1,408,953 | ) | (1,683,487 | ) | (1,621,011 | ) | ||||||
Non-affiliate | (491,508 | ) | (510,697 | ) | (549,352 | ) | ||||||
|
|
|
|
|
| |||||||
Interest credited to contractholder funds, contract benefits and expenses, net of reinsurance | $ | — | $ | — | $ | — | ||||||
|
|
|
|
|
| |||||||
9. Guarantees and Contingent Liabilities
Guarantees
In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.
The aggregate liability balance related to all guarantees was not material as of December 31, 2011.
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
34
NOTES TO FINANCIAL STATEMENTS—(Continued)
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.
10. Income Taxes
The Company joins the Corporation and its other subsidiaries (the “Allstate Group”) in the filing of a consolidated federal income tax return and is party to a federal income tax allocation agreement (the “Allstate Tax Sharing Agreement”). Under the Allstate Tax Sharing Agreement, the Company pays to or receives from the Corporation the amount, if any, by which the Allstate Group’s federal income tax liability is affected by virtue of inclusion of the Company in the consolidated federal income tax return. The Company also has 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 result 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 Internal Revenue Service (“IRS”) is currently examining the Allstate Group’s 2009 and 2010 federal income tax returns. The IRS has completed its examinations of the Allstate Group’s federal income tax returns for 2005-2006 and 2007-2008 and the cases are under consideration at the IRS Appeals Office. The Allstate Group’s tax years prior to 2005 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 tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.
The Company had no liability for unrecognized tax benefits as of December 31, 2011 or 2010, and believes it is reasonably possible that the liability balance will not significantly increase within the next twelve months. No amounts have been accrued for interest or penalties.
The components of the deferred income tax assets and liabilities as of December 31 are as follows:
| ($ in thousands) | 2011 | 2010 | ||||||
Deferred assets | ||||||||
Tax credit carryforwards | $ | 10 | $ | 7 | ||||
|
|
|
| |||||
Total deferred assets | 10 | 7 | ||||||
|
|
|
| |||||
Deferred liabilities | ||||||||
Unrealized net capital gains | (7,299 | ) | (5,463 | ) | ||||
Other liabilities | (440 | ) | (377 | ) | ||||
|
|
|
| |||||
Total deferred liabilities | (7,739 | ) | (5,840 | ) | ||||
|
|
|
| |||||
Net deferred liability | $ | (7,729 | ) | $ | (5,833 | ) | ||
|
|
|
| |||||
35
NOTES TO FINANCIAL STATEMENTS—(Continued)
Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized.
The components of income tax expense for the years ended December 31 are as follows:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Current | $ | 4,802 | $ | 4,386 | $ | 4,447 | ||||||
Deferred | 59 | 65 | 187 | |||||||||
|
|
|
|
|
| |||||||
Total income tax expense | $ | 4,861 | $ | 4,451 | $ | 4,634 | ||||||
|
|
|
|
|
| |||||||
As of December 31, 2011, the Company has tax credit carryforwards of $10 thousand which will be available to offset future tax liabilities and expire at the end of 2029 through 2031.
The Company paid income taxes of $4.4 million, $4.7 million and $6.8 million in 2011, 2010 and 2009, respectively.
A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:
| 2011 | 2010 | 2009 | ||||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Other | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||
|
|
|
|
|
| |||||||
Effective income tax rate | 34.9 | % | 34.9 | % | 34.9 | % | ||||||
|
|
|
|
|
| |||||||
11. Statutory Financial Information
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 charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis.
Statutory net income was $8.6 million, $8.7 million and $8.5 million in 2011, 2010, and 2009, respectively. Statutory capital and surplus was $319.5 million and $310.8 million as of December 31, 2011 and 2010, respectively.
Dividends
The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements of the Company and other relevant factors. The payment of shareholder dividends by the Company without the prior approval of the state insurance regulator 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
36
NOTES TO FINANCIAL STATEMENTS—(Continued)
amount of dividends paid in the preceding twelve months. The maximum amount of dividends that the Company can pay during 2012 without prior approval of the Nebraska Department of Insurance is $31.9 million. The Company did not pay any dividends in 2011.
12. Other Comprehensive Income
The components of other comprehensive income on a pre-tax and after-tax basis for the years ended December 31 are as follows:
| $10,135,0 | $10,135,0 | $10,135,0 | ||||||||||
| 2011 | ||||||||||||
| ($ in thousands) | Pre-tax | Tax | After-tax | |||||||||
Unrealized net holding gains arising during the period | $ | 7,322 | $ | (2,562 | ) | $ | 4,760 | |||||
Less: reclassification adjustment of realized capital gains and losses | 2,075 | (726 | ) | 1,349 | ||||||||
|
|
|
|
|
| |||||||
Unrealized net capital gains and losses | 5,247 | (1,836 | ) | 3,411 | ||||||||
|
|
|
|
|
| |||||||
Other comprehensive income | $ | 5,247 | $ | (1,836 | ) | $ | 3,411 | |||||
|
|
|
|
|
| |||||||
| 2010 | ||||||||||||
| Pre-tax | Tax | After-tax | ||||||||||
Unrealized net holding gains arising during the period | $ | 7,746 | $ | (2,711 | ) | $ | 5,035 | |||||
Less: reclassification adjustment of realized capital gains and losses | 694 | (243 | ) | 451 | ||||||||
|
|
|
|
|
| |||||||
Unrealized net capital gains and losses | 7,052 | (2,468 | ) | 4,584 | ||||||||
|
|
|
|
|
| |||||||
Other comprehensive income | $ | 7,052 | $ | (2,468 | ) | $ | 4,584 | |||||
|
|
|
|
|
| |||||||
| 2009 | ||||||||||||
| Pre-tax | Tax | After-tax | ||||||||||
Unrealized net holding losses arising during the period | $ | 10,135 | $ | (3,547 | ) | $ | 6,588 | |||||
Less: reclassification adjustment of realized capital gains and losses | 1,238 | (433 | ) | 805 | ||||||||
|
|
|
|
|
| |||||||
Unrealized net capital gains and losses | 8,897 | (3,114 | ) | 5,783 | ||||||||
|
|
|
|
|
| |||||||
Other comprehensive income | $ | 8,897 | $ | (3,114 | ) | $ | 5,783 | |||||
|
|
|
|
|
| |||||||
37
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE I—SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2011
| which shown | which shown | which shown | ||||||||||
| ($ in thousands) | Amortized cost | Fair value | Amount at which shown in the Balance Sheet | |||||||||
Type of investment | ||||||||||||
Fixed maturities: | ||||||||||||
Bonds: | ||||||||||||
United States government, government agencies and authorities | $ | 84,059 | $ | 90,002 | $ | 90,002 | ||||||
States, municipalities and political subdivisions | 2,499 | 2,898 | 2,898 | |||||||||
Foreign governments | 4,998 | 5,237 | 5,237 | |||||||||
Public utilities | 16,982 | 18,889 | 18,889 | |||||||||
All other corporate bonds | 152,838 | 162,937 | 162,937 | |||||||||
Asset-backed securities | 2,806 | 2,814 | 2,814 | |||||||||
Residential mortgage-backed securities | 40,089 | 42,507 | 42,507 | |||||||||
Commercial mortgage-backed securities | 8,514 | 8,356 | 8,356 | |||||||||
|
|
|
|
|
| |||||||
Total fixed maturities | 312,785 | 333,640 | 333,640 | |||||||||
Short-term investments | 12,974 | 12,974 | 12,974 | |||||||||
|
|
|
|
|
| |||||||
Total investments | $ | 325,759 | $ | 346,614 | $ | 346,614 | ||||||
|
|
|
|
|
| |||||||
38
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE IV—REINSURANCE
| $364,469,564 | $364,469,564 | $364,469,564 | $364,469,564 | $364,469,564 | ||||||||||||||||
| ($ in thousands) | Gross amount | Ceded to other companies(1) | Assumed from other companies | Net amount | Percentage of amount assumed to net | |||||||||||||||
Year ended December 31, 2011 | ||||||||||||||||||||
Life insurance in force | $ | 364,469,564 | $ | 370,439,179 | $ | 5,969,615 | $ | — | — | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Premiums and contract charges: | ||||||||||||||||||||
Life and annuities | $ | 1,156,434 | $ | 1,163,491 | $ | 7,057 | $ | — | — | % | ||||||||||
Accident and health insurance | 109,830 | 109,830 | — | — | — | % | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
| $ | 1,266,264 | $ | 1,273,321 | $ | 7,057 | $ | — | — | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Year ended December 31, 2010 | ||||||||||||||||||||
Life insurance in force | $ | 358,242,997 | $ | 364,544,022 | $ | 6,301,025 | $ | — | — | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Premiums and contract charges: | ||||||||||||||||||||
Life and annuities | $ | 1,111,971 | $ | 1,119,436 | $ | 7,465 | $ | — | — | % | ||||||||||
Accident and health insurance | 116,301 | 116,301 | — | — | — | % | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
| $ | 1,228,272 | $ | 1,235,737 | $ | 7,465 | $ | — | — | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Year ended December 31, 2009 | ||||||||||||||||||||
Life insurance in force | $ | 349,952,260 | $ | 356,581,252 | $ | 6,628,992 | $ | — | — | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Premiums and contract charges: | ||||||||||||||||||||
Life and annuities | $ | 1,072,840 | $ | 1,080,689 | $ | 7,849 | $ | — | — | % | ||||||||||
Accident and health insurance | 121,686 | 121,686 | — | — | — | % | ||||||||||||||
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|
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| |||||||||||||
| $ | 1,194,526 | $ | 1,202,375 | $ | 7,849 | $ | — | — | % | |||||||||||
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|
|
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| |||||||||||||
| (1) | No reinsurance or coinsurance income was netted against premiums ceded in 2011, 2010 and 2009. |
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company
Lincoln, NE
We have audited the accompanying Statements of Financial Position of Lincoln Benefit Life Company (the “Company”), an affiliate of The Allstate Corporation, as of December 31, 2011 and 2010, and the related Statements of Operations and Comprehensive Income, Shareholder’s Equity, and Cash Flows for each of the three years in the period ended December 31, 2011. Our audits also included Schedule I—Summary of Investments—Other than Investments in Related Parties and Schedule IV—Reinsurance. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 Company’s 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 financial position of Lincoln Benefit Life Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule I—Summary of Investments—Other than Investments in Related Parties and Schedule IV—Reinsurance, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 8, 2012
40
| Item 11(f). | Selected Financial Data |
LINCOLN BENEFIT LIFE COMPANY
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
| ($ in thousands) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Operating results | ||||||||||||||||||||
Net investment income | $ | 11,836 | $ | 12,067 | $ | 11,783 | $ | 13,940 | $ | 14,257 | ||||||||||
Realized capital gains and losses | 2,075 | 694 | 1,480 | 5,952 | (417 | ) | ||||||||||||||
Total revenues | 13,911 | 12,761 | 13,263 | 19,892 | 13,840 | |||||||||||||||
Net income | 9,050 | 8,310 | 8,629 | 12,974 | 9,005 | |||||||||||||||
Financial position | ||||||||||||||||||||
Investments | $ | 346,614 | $ | 332,049 | $ | 316,900 | $ | 310,031 | $ | 301,201 | ||||||||||
Total assets | 20,863,567 | 22,729,575 | 22,932,908 | 22,655,371 | 23,700,007 | |||||||||||||||
Reserve for life-contingent contract benefits and contractholder funds | 18,689,114 | 20,258,388 | 20,438,414 | 20,368,562 | 20,169,001 | |||||||||||||||
Shareholder’s equity | 338,328 | 325,867 | 312,973 | 298,561 | 289,938 | |||||||||||||||
| Item 11(h). | Management’s 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 Life Company (referred to in this document as “we”, “Lincoln Benefit”, “our”, “us” or the “Company”). 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 and contract charges ceded to Allstate Life Insurance Company (“ALIC”), and invested assets; |
| • | For investments: credit quality/experience, investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns and asset duration; and |
| • | For financial condition: financial strength ratings 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 management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the financial statements. The most critical estimates include those used in determining:
| • | Fair value of financial assets |
| • | Impairment of fixed income securities |
In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our financial statements.
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A brief summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a complete summary of our significant accounting policies, see the notes to the financial statements.
Fair value of financial assetsFair 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. We categorize our financial assets measured at fair value into a three-level hierarchy based on the observability of inputs to the valuation techniques as follows:
| Level 1: | Financial asset values are based on unadjusted quoted prices for identical assets in an active market that we can access. |
| Level 2: | Financial asset values are based on the following: |
| (a) | Quoted prices for similar assets in active markets; |
| (b) | Quoted prices for identical or similar assets 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. |
| Level 3: | Financial asset 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 our estimates of the assumptions that market participants would use in valuing the financial assets. |
Observable inputs are inputs that reflect the assumptions market participants would use in valuing financial assets that are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs reflect our estimates of the assumptions market participants would use in valuing financial assets and are developed based on the best information available in the circumstances. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information.
We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We gain assurance on the overall reasonableness and consistent application of valuation input assumptions, valuation methodologies and compliance with accounting standards for fair value determination through the execution of various processes and controls designed to ensure that our financial assets are appropriately valued. We monitor fair values received from third parties and those derived internally on an ongoing basis.
We employ independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We obtain or calculate only one single quote or price for each financial instrument.
Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual securities for which a fair value has been requested under the terms of our agreements. For certain security types, fair values are derived from the valuation service providers’ proprietary valuation models. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer
42
specific information. Executing valuation models effectively requires seasoned professional judgment and experience. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information.
For certain of our financial assets measured at fair value, where our valuation service providers cannot provide fair value determinations, we obtain a single non-binding price quote from a broker familiar with the security who, similar to our valuation service providers, may consider transactions or activity in similar securities among other information. The brokers providing price quotes are generally from the brokerage divisions of leading financial institutions with market making, underwriting and distribution expertise regarding the security subject to valuation.
The fair value of certain financial assets, including privately placed corporate fixed income securities, for which our valuation service providers or brokers do not provide fair value determinations, is determined using valuation methods and models widely accepted in the financial services industry. Internally developed valuation models, which include inputs that may not be market observable and as such involve some degree of judgment, are considered appropriate for each class of security to which they are applied.
Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities, published credit spreads, and other applicable market data. Additional inputs that are used include internally-derived assumptions such as liquidity premiums and credit ratings, as well as instrument-specific characteristics that include, but are not limited to, coupon rates, expected cash flows, sector of the issuer, and call provisions. Our internally assigned credit ratings are developed at a more detailed level than externally published ratings and allow for a more precise match of these ratings to other market observable valuation inputs, such as credit and sector spreads, when performing these valuations. Due to the existence of non-market observable inputs, such as liquidity premiums, judgment is required in developing these fair values. As a result, the fair value of these financial assets may differ from the amount actually received to sell 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 financial assets’ fair values.
For the majority of our financial assets measured at fair value, all significant inputs are based on market observable data and significant management judgment does not affect the periodic determination of fair value. The determination of fair value using discounted cash flow models involves management judgment when significant model inputs are not based on market observable data. However, where market observable data is available, it takes precedence, and as a result, no range of reasonably likely inputs exists from which the basis of a sensitivity analysis could be constructed.
We believe our most significant exposure to changes in fair value is due to market risk. Our exposure to changes in market conditions is discussed fully in the Market Risk section of the MD&A.
We employ specific control processes to determine the reasonableness of the fair value of our financial assets. Our processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. For example, on a continuing basis, we assess the reasonableness of individual security values that have stale prices or that exceed certain thresholds as compared to previous values received from those valuation service providers or derived from internal models. We perform procedures to understand and assess the methodologies, processes and controls of our valuation service providers. In addition, we may validate the reasonableness of fair value by comparing information obtained from our valuation service providers to other third party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which
43
corroborate the various inputs used in internal pricing models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
We also perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal pricing model. As of December 31, 2011 and 2010, we did not alter fair values provided by our valuation service providers or brokers or substitute them with an internal pricing model for such securities.
The following table identifies fixed income securities and short-term investments as of December 31, 2011 by source of fair value determination:
| ($ in thousands) | Fair value | Percent to total | ||||||
Fair value based on internal sources | $ | 11,031 | 3.2 | % | ||||
Fair value based on external sources(1) | 335,583 | 96.8 | ||||||
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Total | $ | 346,614 | 100.0 | % | ||||
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| (1) | Includes $2.3 million that are valued using broker quotes. |
For more detailed information on our accounting policy for the fair value of financial assets and the financial assets by level in the fair value hierarchy, see Note 5 of the financial statements.
Impairment of fixed income securitiesFor fixed income securities classified as available for sale, the difference between fair value and amortized cost, net of deferred income taxes, is reported as a component of accumulated other comprehensive income on the Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when a write-down is recorded due to an other-than-temporary decline in fair value. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, we assess whether management with the appropriate authority has made the decision to sell or whether it is more likely than not we 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 we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We use our best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security,
44
prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
Once assumptions and estimates are made, any number of changes in facts and circumstances could cause us to subsequently determine that a fixed income security is other-than-temporarily impaired, including: 1) general economic conditions that are worse than previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuer’s ability to meet all of its contractual obligations; and 3) changes in facts and circumstances that result in changes to management’s intent to sell or result in our assessment that it is more likely than not we will be required to sell before recovery of the amortized cost basis. Changes in assumptions, facts and circumstances could result in additional charges to earnings in future periods to the extent that losses are realized. The charge to earnings, while potentially significant to net income, would not have a significant effect on shareholder’s equity, since our securities are designated as available for sale and carried at fair value and as a result, any related unrealized loss, net of deferred income taxes, would already be reflected as a component of accumulated other comprehensive income in shareholder’s equity.
The determination of the amount of other-than-temporary impairment is an inherently subjective process based on periodic evaluation of the factors described above. 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 results of operations as such evaluations are revised. The use of different methodologies and assumptions in the determination of the amount of other-than-temporary impairments may have a material effect on the amounts presented within the financial statements.
For additional detail on investment impairments, see Note 4 of the financial statements.
OPERATIONS
Overview and strategy We provide life insurance, retirement and investment products. Our products include interest-sensitive, traditional and variable life insurance and fixed annuities such as deferred and immediate annuities. Our products are sold through multiple distribution channels including Allstate exclusive agencies and exclusive financial specialists, independent agents (including master brokerage agencies) and directly through call centers and the internet.
Net income Net income for the years ended December 31 is presented in the following table:
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Net investment income | $ | 11,836 | $ | 12,067 | $ | 11,783 | ||||||
Realized capital gains and losses | 2,075 | 694 | 1,480 | |||||||||
Income tax expense | (4,861 | ) | (4,451 | ) | (4,634 | ) | ||||||
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Net income | $ | 9,050 | $ | 8,310 | $ | 8,629 | ||||||
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We have reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and other non-affiliated reinsurers, and are reflected net of such reinsurance in the Statements of Operations and Comprehensive Income. Our results of operations include net investment income and realized capital gains and losses recognized in connection with the assets that are not transferred under the reinsurance agreements.
Net income increased 8.9% in 2011 compared to 2010 due to higher net realized capital gains. Net income decreased 3.7% in 2010 compared to 2009 due to lower net realized capital gains.
Income tax expense increased 9.2% in 2011 compared to 2010 following a decrease of 3.9% in 2010 compared to 2009. These changes were due to the proportionate change in the income on which the income tax expense was determined.
Financial Position The financial position as of December 31 is presented in the following table:
| ($ in thousands) | 2011 | 2010 | ||||||
Fixed income securities(1) | $ | 333,640 | $ | 320,456 | ||||
Short-term(2) | 12,974 | 11,593 | ||||||
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Total investments | $ | 346,614 | $ | 332,049 | ||||
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Cash | $ | 6,006 | $ | 3,550 | ||||
Reinsurance recoverable from ALIC | 16,680,950 | 18,365,058 | ||||||
Reinsurance recoverable from non-affiliates | 2,043,480 | 1,906,574 | ||||||
Contractholder funds | 15,489,624 | 17,247,071 | ||||||
Reserve for life-contingent contract benefits | 3,199,490 | 3,011,317 | ||||||
Separate accounts assets and liabilities | 1,682,128 | 2,017,185 | ||||||
| (1) | Fixed income securities are carried at fair value. Amortized cost basis for these securities was $312.8 million and $304.8 million as of December 31, 2011 and 2010, respectively. |
| (2) | Short-term investments are carried at fair value. Amortized cost basis for these investments was $13.0 million and $11.6 million as of December 31, 2011 and 2010, respectively. |
Total investments increased to $346.6 million as of December 31, 2011 from $332.0 million as of December 31, 2010 primarily due to the investment of operating cash flows and increased net unrealized capital gains on fixed income securities.
Fixed income securitiesby type are listed in the table below.
| ($ in thousands) | Fair value as of December 31, 2011 | Percent to total investments | Fair value as of December 31, 2010 | Percent to total investments | ||||||||||||
U.S. government and agencies | $ | 90,002 | 26.0 | % | $ | 73,556 | 22.1 | % | ||||||||
Municipal | 2,898 | 0.8 | 3,176 | 1.0 | ||||||||||||
Corporate | 181,826 | 52.5 | 163,587 | 49.3 | ||||||||||||
Foreign government | 5,237 | 1.5 | 5,090 | 1.5 | ||||||||||||
Residential mortgage-backed securities (“RMBS”) | 42,507 | 12.3 | 57,802 | 17.4 | ||||||||||||
Commercial mortgage-backed securities (“CMBS”) | 8,356 | 2.4 | 8,863 | 2.7 | ||||||||||||
Asset-backed securities (“ABS”) | 2,814 | 0.8 | 8,382 | 2.5 | ||||||||||||
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Total fixed income securities | $ | 333,640 | 96.3 | % | $ | 320,456 | 96.5 | % | ||||||||
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As of December 31, 2011, all of the fixed income securities portfolio was rated investment grade, which is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”), Fitch, Dominion, or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a
46
comparable internal rating if an externally provided rating is not available. All of our fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners (“NAIC”), and/or internally rated. Our initial investment decisions and ongoing monitoring procedures for fixed income securities are based on a thorough due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure, and liquidity risks of each issue.
The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of December 31, 2011.
| Aaa | Aa | A | ||||||||||||||||||||||
| ($ in thousands) | Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | ||||||||||||||||||
U.S. government and agencies | $ | 90,002 | $ | 5,943 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Municipal | — | — | 2,898 | 399 | — | — | ||||||||||||||||||
Corporate | ||||||||||||||||||||||||
Public | 3,176 | 180 | 29,560 | 2,116 | 104,217 | 7,861 | ||||||||||||||||||
Privately placed | 20,636 | 378 | 4,131 | 138 | — | — | ||||||||||||||||||
Foreign government | — | — | 5,237 | 239 | — | — | ||||||||||||||||||
RMBS | ||||||||||||||||||||||||
U.S. government sponsored entities (“U.S. Agency”) | 35,150 | 2,303 | — | — | — | — | ||||||||||||||||||
Prime residential mortgage-backed securities (“Prime”) | 1,877 | 37 | — | — | 3,159 | 23 | ||||||||||||||||||
Alt-A residential mortgage-backed securities (“Alt-A”) | — | — | — | — | 2,321 | 55 | ||||||||||||||||||
CMBS | 6,872 | 361 | — | — | 1,484 | (519 | ) | |||||||||||||||||
ABS | 2,814 | 8 | — | — | — | — | ||||||||||||||||||
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Total fixed income securities | $ | 160,527 | $ | 9,210 | $ | 41,826 | $ | 2,892 | $ | 111,181 | $ | 7,420 | ||||||||||||
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| Baa | Total | |||||||||||||||
| Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | |||||||||||||
U.S. government and agencies | $ | — | $ | — | $ | 90,002 | $ | 5,943 | ||||||||
Municipal | — | — | 2,898 | 399 | ||||||||||||
Corporate | ||||||||||||||||
Public | 16,824 | 1,090 | 153,777 | 11,247 | ||||||||||||
Privately placed | 3,282 | 243 | 28,049 | 759 | ||||||||||||
Foreign government | — | — | 5,237 | 239 | ||||||||||||
RMBS | ||||||||||||||||
U.S. Agency | — | — | 35,150 | 2,303 | ||||||||||||
Prime | — | — | 5,036 | 60 | ||||||||||||
Alt-A | — | — | 2,321 | 55 | ||||||||||||
CMBS | — | — | 8,356 | (158 | ) | |||||||||||
ABS | — | — | 2,814 | 8 | ||||||||||||
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Total fixed income securities | $ | 20,106 | $ | 1,333 | $ | 333,640 | $ | 20,855 | ||||||||
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RMBS, CMBS and ABS are structured securities that are primarily collateralized by residential and commercial real estate loans and other consumer or corporate borrowings. The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating. For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages) or may contain features of both fixed and variable rate mortgages.
RMBS, including U.S. Agency, Prime and Alt-A, totaled $42.5 million as of December 31, 2011, with an unrealized net capital gain of $2.4 million. The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to significant prepayment risk from the underlying residential mortgage loans. The credit risk associated with U.S. Agency portfolio is mitigated because they were issued by or have underlying collateral guaranteed by U.S. government agencies.
CMBS totaled $8.4 million as of December 31, 2011, with an unrealized net capital loss of $158 thousand. The CMBS portfolio is subject to credit risk, but unlike certain other structured securities, is generally not subject to prepayment risk due to protections within the underlying commercial mortgage loans. All of the CMBS investments are traditional conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and geographical area.
ABS totaled $2.8 million as of December 31, 2011, with an unrealized net capital gain of $8 thousand. Credit risk is managed by monitoring the performance of the underlying collateral. Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees and/or insurance.
Short-term investmentsOur short-term investment portfolio was $13.0 million and $11.6 million as of December 31, 2011 and 2010, respectively.
Unrealized net capital gains totaled $20.9 million as of December 31, 2011 compared to $15.6 million as of December 31, 2010. The improvement since December 31, 2010 was due to declining risk-free interest rates, partially offset by widening credit spreads. The following table presents unrealized net capital gains and losses as of December 31.
| ($ in thousands) | 2011 | 2010 | ||||||
U.S. government and agencies | $ | 5,943 | $ | 3,130 | ||||
Municipal | 399 | 177 | ||||||
Corporate | 12,006 | 9,326 | ||||||
Foreign government | 239 | 92 | ||||||
RMBS | 2,418 | 2,426 | ||||||
CMBS | (158 | ) | 340 | |||||
ABS | 8 | 117 | ||||||
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Unrealized net capital gains and losses, pre-tax | $ | 20,855 | $ | 15,608 | ||||
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The unrealized net capital gains for the fixed income portfolio totaled $20.9 million and comprised $21.5 million of gross unrealized gains and $626 thousand of gross unrealized losses as of December 31, 2011. This is compared to unrealized net capital gains for the fixed income portfolio totaling $15.6 million, comprised of $16.1 million of gross unrealized gains and $492 thousand of gross unrealized losses as of December 31, 2010.
Gross unrealized gains and losses as of December 31, 2011 on fixed income securities by type and sector are provided in the table below.
| Par value | Amortized cost | Gross unrealized | Fair value | Amortized cost as a percent of par value | Fair value as a percent of par value | |||||||||||||||||||||||
| ($ in thousands) | Gains | Losses | ||||||||||||||||||||||||||
Corporate: | ||||||||||||||||||||||||||||
Consumer goods (cyclical and non-cyclical) | $ | 53,000 | $ | 53,112 | $ | 4,124 | $ | — | $ | 57,236 | 100.2 | % | 108.0 | % | ||||||||||||||
Banking | 16,000 | 16,269 | 439 | (99 | ) | 16,609 | 101.7 | 103.8 | ||||||||||||||||||||
Financial services | 12,000 | 11,992 | 901 | — | 12,893 | 99.9 | 107.4 | |||||||||||||||||||||
Energy | 13,500 | 13,590 | 1,024 | — | 14,614 | 100.7 | 108.3 | |||||||||||||||||||||
Utilities | 17,000 | 16,982 | 1,907 | — | 18,889 | 99.9 | 111.1 | |||||||||||||||||||||
Capital goods | 18,000 | 18,108 | 1,747 | — | 19,855 | 100.6 | 110.3 | |||||||||||||||||||||
Transportation | 6,597 | 6,754 | 417 | — | 7,171 | 102.4 | 108.7 | |||||||||||||||||||||
Basic industry | 12,000 | 12,062 | 776 | — | 12,838 | 100.5 | 107.0 | |||||||||||||||||||||
Technology | 11,000 | 10,951 | 337 | — | 11,288 | 99.6 | 102.6 | |||||||||||||||||||||
Other | 10,000 | 10,000 | 433 | — | 10,433 | 100.0 | 104.3 | |||||||||||||||||||||
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Total corporate fixed income portfolio | 169,097 | 169,820 | 12,105 | (99 | ) | 181,826 | 100.4 | 107.5 | ||||||||||||||||||||
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U.S. government and agencies | 81,320 | 84,059 | 5,943 | — | 90,002 | 103.4 | 110.7 | |||||||||||||||||||||
Municipal | 2,500 | 2,499 | 399 | — | 2,898 | 100.0 | 115.9 | |||||||||||||||||||||
Foreign government | 5,000 | 4,998 | 239 | — | 5,237 | 100.0 | 104.7 | |||||||||||||||||||||
RMBS | 40,122 | 40,089 | 2,427 | (9 | ) | 42,507 | 99.9 | 105.9 | ||||||||||||||||||||
CMBS | 8,500 | 8,514 | 360 | (518 | ) | 8,356 | 100.2 | 98.3 | ||||||||||||||||||||
ABS | 2,796 | 2,806 | 8 | — | 2,814 | 100.4 | 100.6 | |||||||||||||||||||||
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Total fixed income securities | $ | 309,335 | $ | 312,785 | $ | 21,481 | $ | (626 | ) | $ | 333,640 | 101.1 | 107.9 | |||||||||||||||
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The banking sector had the only gross unrealized losses in our corporate fixed income securities portfolio as of December 31, 2011. In general, credit spreads remain wider than at initial purchase for most of the securities with gross unrealized losses.
We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may be other-than-temporarily impaired. The 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 we may have a concern, are evaluated based on facts and circumstances for inclusion on our watch-list. All investments in an unrealized loss position as of December 31, 2011 were included in our portfolio monitoring process for determining whether declines in value were other than temporary.
The extent and duration of a decline in fair value for fixed income securities have become less indicative of actual credit deterioration with respect to an issue or issuer. While we continue to use declines in fair value and the length of time a security is in an unrealized loss position as indicators of potential credit deterioration, our
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determination of whether a security’s decline in fair value is other than temporary has placed greater emphasis on our analysis of the underlying credit and collateral and related estimates of future cash flows.
As of December 31, 2011, we do not have the intent to sell and it is not more likely than not we will be required to sell our securities with unrealized losses before recovery of the amortized cost basis.
Net investment income The following table presents net investment income for the years ended December 31.
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Fixed income securities | $ | 12,133 | $ | 12,480 | $ | 12,098 | ||||||
Short-term and other investments | 11 | 21 | 107 | |||||||||
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Investment income, before expense | 12,144 | 12,501 | 12,205 | |||||||||
Investment expense | (308 | ) | (434 | ) | (422 | ) | ||||||
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Net investment income | $ | 11,836 | $ | 12,067 | $ | 11,783 | ||||||
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Net investment income decreased 1.9% or $231 thousand in 2011 compared to 2010 due to lower yields. Net investment income increased 2.4% or $284 thousand in 2010 compared to 2009 due to higher average investment balances.
Realized capital gains and losses The following table presents realized capital gains and losses and the related tax effect for the years ended December 31.
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Realized capital gains and losses, pre-tax | $ | 2,075 | $ | 694 | $ | 1,480 | ||||||
Income tax expense | (726 | ) | (243 | ) | (518 | ) | ||||||
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Realized capital gains and losses, after-tax | $ | 1,349 | $ | 451 | $ | 962 | ||||||
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The net realized capital gains in 2011, 2010 and 2009 were related to sales of investments.
Cash As of December 31, 2011, our cash balance was $6.0 million compared to $3.6 million as of December 31, 2010. Fluctuations in our cash flows generally result from differences in the timing of reinsurance payments to and from ALIC.
Reinsurance recoverable, contractholder funds and reserve for life-contingent contract benefitsUnder GAAP, when reinsurance contracts do not relieve the ceding company of legal liability to contractholders, the ceding company is required to report reinsurance recoverables arising from these contracts separately as assets. The liabilities for the contracts are reported as contractholder funds, reserve for life-contingent contract benefits, or separate accounts liabilities depending on the characteristics of the contracts. We reinsure all reserve liabilities with ALIC or non-affiliated reinsurers. Reinsurance recoverables and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the Statements of Financial Position, while the assets which support the separate accounts liabilities are reflected as separate accounts assets.
As of December 31, 2011, contractholder funds decreased to $15.49 billion from $17.25 billion as of December 31, 2010 as a result of new and additional deposits on fixed annuities and interest-sensitive life policies and interest credited to contractholder funds being more than offset by surrenders, withdrawals, benefit payments and related contract charges. The reserve for life-contingent contract benefits increased to $3.20 billion as of December 31, 2011 from $3.01 billion as of December 31, 2010 due primarily to the aging of the in-force block of certain business and sales of traditional life insurance, partially offset by benefits paid and policy lapses. Reinsurance recoverables from ALIC decreased by $1.68 billion and reinsurance recoverables from non-affiliates increased $136.9 million.
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We purchase reinsurance after evaluating the financial condition of the reinsurer, as well as the terms and price of coverage. As of December 31, 2011, 98% of reinsurance recoverables due from non-affiliated companies were reinsured under uncollateralized reinsurance agreements with companies that had a financial strength rating of A- or above, as measured by S&P. In certain cases, these ratings refer to the financial strength of the affiliated group or parent company of the reinsurer. We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis, and a provision for uncollectible reinsurance is recorded if needed. No amounts have been deemed unrecoverable in the three years ended December 31, 2011.
MARKET RISK
Market risk is the risk that we will incur losses due to adverse changes in interest rates and credit spreads. We also have certain exposures to changes in equity prices in our equity-indexed annuities and separate accounts liabilities, which are transferred to ALIC in accordance with our reinsurance agreements.
Overview In formulating and implementing guidelines for investing funds, we seek to earn returns that contribute to attractive and stable profits and long-term capital growth.
We manage our exposure to market risk through the use of asset allocation, duration, and as appropriate, through the use of stress tests. We have asset allocation limits that 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 policies.
Interest rate riskis the risk that we will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of our interest bearing assets. This risk arises from our investment in interest-sensitive assets. 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. Duration measures the price sensitivity of assets 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%. To calculate duration, 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 fair value. The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, 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 3.5 and 3.4 as of December 31, 2011 and 2010, respectively.
Based upon the information and assumptions used in the duration calculation, and interest rates in effect as of December 31, 2011, we estimate that a 100 basis point immediate, parallel increase in interest rates (“rate shock”) would decrease the net fair value of the assets by $11.6 million, compared to $11.3 million as of December 31, 2010. 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.
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Credit spread riskis 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%.
Spread duration is calculated similarly to interest rate duration. The spread duration of assets was 3.6 as of both December 31, 2011 and 2010. Based upon the information and assumptions we use in this spread duration calculation, and spreads in effect as of December 31, 2011, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors and credit ratings (“spread shock”) would decrease the net fair value of the assets by $8.9 million, compared to $10.1 million as of December 31, 2010. 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.
Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the equity markets. As of December 31, 2011 and 2010, we had separate accounts assets related to variable annuity and variable life contracts with account values totaling $1.68 billion and $2.02 billion, respectively. Equity risk exists for contract charges based on separate account balances and guarantees for death and/or income benefits provided by our variable products. All variable life and 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 ALIC’s risk. The Company was not a direct participant of this agreement and its reinsurance agreements with ALIC remain unchanged.
As of December 31, 2011 and 2010 we had $3.53 billion and $4.38 billion, respectively, in equity-indexed annuity liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. All contract charges and fees, and liabilities and benefits related to equity-indexed annuity liabilities are ceded to ALIC in accordance with the reinsurance agreements, thereby limiting our equity risk exposure.
CAPITAL RESOURCES AND LIQUIDITY
Capital resources consist of shareholder’s equity. The following table summarizes our capital resources as of December 31.
| ($ in thousands) | 2011 | 2010 | 2009 | |||||||||
Common stock, retained income and additional capital paid-in | $ | 324,772 | $ | 315,722 | $ | 307,412 | ||||||
Accumulated other comprehensive income | 13,556 | 10,145 | 5,561 | |||||||||
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Total shareholder’s equity | $ | 338,328 | $ | 325,867 | $ | 312,973 | ||||||
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Shareholder’s equity increased in 2011 and 2010 due to net income and increased unrealized net capital gains.
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Financial ratings and strengthWe share the insurance financial strength ratings of our parent, ALIC, as the majority of our business is reinsured to ALIC. The following table summarizes ALIC’s financial strength ratings as of December 31, 2011.
Rating Agency | Rating | |
A.M. Best Company, Inc. | A+ (“Superior”) | |
Standard & Poor’s Ratings Services | A+ (“Strong”) | |
Moody’s Investors Service, Inc. | A1 (“Good”) |
ALIC’s ratings are influenced by many factors including operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the current level of operating leverage and Allstate Insurance Company’s ratings.
State laws specify regulatory actions if an insurer’s risk-based capital (“RBC”), a measure of an insurer’s solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC. The formula for calculating RBC for life insurance companies takes into account factors relating to insurance, business, asset and interest rate risks. As of December 31, 2011, our RBC was within the range that we target.
The NAIC has also 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 activities as follows.
| • | Receipt of insurance premiums |
| • | Contractholder fund deposits |
| • | Reinsurance recoveries |
| • | Receipts of principal and interest on investments |
| • | Sales of investments |
| • | Intercompany loans |
| • | Capital contributions from parent |
Our potential uses of funds principally include the activities as follows.
| • | Payment of contract benefits, surrenders and withdrawals |
| • | Reinsurance cessions and payments |
| • | Operating costs and expenses |
| • | Purchase of investments |
| • | Repayment of intercompany loans |
| • | Dividends to parent |
| • | Tax payments/settlements |
Cash flows As reflected in our Statements of Cash Flows, net cash provided by operating activities was $10.9 million, $2.1 million and $4.3 million in 2011, 2010 and 2009, respectively. Fluctuations in net cash
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provided by operating activities primarily occur as a result of changes in net investment income and differences in the timing of reinsurance payments to and from ALIC.
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, are transferred to ALIC, which maintains the investment portfolios supporting our products. Payments of contractholder claims, benefits, contract surrenders and withdrawals and certain operating costs (excluding investment-related expenses), are reimbursed by ALIC, under the terms of the reinsurance agreements. We continue to have primary liability as a direct insurer for risks reinsured. Our ability to meet liquidity demands is dependent on ALIC’s and other 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. The maximum amount of dividends that we can pay during 2012 without prior approval of the Nebraska Department of Insurance is $31.9 million.
Contractual obligations Due to the reinsurance agreements that we have in place, our contractual obligations are ceded to ALIC and 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 9 of the financial statements.
PENDING ACCOUNTING STANDARDS
There are several pending accounting standards that we have not implemented either because the standard has not been finalized or the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 of the 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.
| 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, Executive Officers, Promoters and Control Persons. |
Identification of Directors and Executive Officers:
Directors are elected at each annual meeting of shareholders, for a term of one year. The biographies of each of the directors and executive officers serving at the end of the 2011 fiscal year below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the company management to determine that a director or executive officer should serve as such for Lincoln Benefit.
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Anurag Chandra, 34, has been director and Senior Vice President since March 2011. Mr. Chandra is also an Executive Vice President of Allstate Insurance Company and Allstate Life Insurance Company. Mr. Chandra has broad responsibilities for driving long-term strategy and for improving the operational base for the Allstate Financial group of companies. More specifically, Mr. Chandra will have direct accountability for product development, underwriting, wholesaling and asset liability management. Prior to joining Allstate in January 2011, Mr. Chandra was an executive vice president and chief operating officer for HealthMarkets, Inc. Under his leadership, the company transformed from a niche individual health insurance manufacturer to one of the largest independent distributors in the United States. Prior to that role, Mr. Chandra was a principal at Aquiline Capital Partners, a global private equity firm that took advantage of market conditions to launch successful new insurance and financial services companies. Mr. Chandra has also held senior operating and strategic development roles at Nationwide Financial Services and Conseco/Bankers Life and Casualty. Currently, Mr. Chandra also serves as a director for Allstate Life Insurance Company, which is affiliated with Lincoln Benefit. Mr. Chandra has extensive experience with the day-to-day management of company operations.
Lawrence W. Dahl, 52, has been director since 1999 and President and Chief Operating Officer since November 2005. In his current role, Mr. Dahl manages the distribution relationships for Lincoln Benefit. Mr. Dahl is also a Vice President of Allstate Life Insurance Company. Mr. Dahl began his Allstate career in 1987 in the Tax Department before becoming the Executive Vice President of Administration for Lincoln Benefit, where he was responsible for Marketing, Field Technology, Compliance, Planning and Strategy. Mr. Dahl progressed through various other leadership positions, including Executive Vice President of Sales and President of Distribution before becoming the President and Chief Operating Officer. Mr. Dahl has also earned a JURIS DOCTOR degree and a Certified Public Account designation. Over the course of his career with Lincoln Benefit, Mr. Dahl has gained deep knowledge of the life insurance industry as well as extensive experience with distribution and sales.
Mark A. Green, 44, became director and Senior Vice President in March 2010. Mr. Green is also the Senior Vice President of Allstate Insurance Company. Mr. Green was director and Senior Vice President of National Sales for Allstate Life Insurance Company from February 2010 to December 2011. Previously, Mr. Green was the Assistant Field Vice President for Allstate Insurance Company in the Capital Region, where he had geographic responsibility for West Virginia, Delaware and Washington D.C. Before joining Allstate, Mr. Green was a founding equity partner and chief risk officer for AIX Group in Connecticut, where he was responsible for corporate development and overall risk and investment management. He has worked for Wells Fargo, Chubb Group and Swiss Reinsurance. Mr. Green has experience in optimizing insurance company operations to drive profitable growth.
Susan L. Lees, 54, has been director and Senior Vice President, General Counsel and Secretary since August 2008. Ms. Lees is also Senior Vice President, General Counsel and Secretary of Allstate Life Insurance Company. At Allstate for over 20 years, Ms. Lees progressed through various counsel positions throughout Allstate before become an assistant vice president in 1999. As the leader of the Corporate Law division of Allstate Law and Regulation, Ms. Lees gained extensive experience working with a number of the business areas throughout the enterprise, including Allstate Life Insurance Company. Currently, Ms. Lees serves as a director for Association of Life Insurance Counsel. She is also a director of Allstate Life Insurance Company, which is affiliated with Lincoln Benefit. Ms. Lees was on the Board of Director for Life Insurance Council of New York from November 2008 to December 2011. Ms. Lees has a deep understanding of insurance business generally, as well as applicable laws and regulations, including corporate and securities laws and corporate governance matters. In addition, Ms. Lees has extensive knowledge regarding Lincoln Benefit’s business, including its employees, products, agencies and customers.
John C. Pintozzi, 46, has been director, Senior Vice President and Chief Financial Officer since March 2005. Mr. Pintozzi also is Senior Vice President and Chief Financial Officer for Allstate Life Insurance Company. In these positions, Mr. Pintozzi is responsible for the planning and analysis, capital allocation, valuation and compliance functions as well as Allstate Federal Savings Bank. Prior to Allstate, Mr. Pintozzi was
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an audit partner with Deloitte & Touche, specializing in the insurance and financial services industries. He is a Certified Public Accountant and holds memberships with the American Institute of Certified Public Accountants and the Illinois CPA Society. In addition, Mr. Pintozzi currently serves as a director for Allstate Life Insurance Company, which is affiliated with Lincoln Benefit. Mr. Pintozzi has extensive experience in corporate and insurance company finance and accounting.
Matthew E. Winter, 55, has been director since December 2009, Chief Executive Officer and Chairman of the Board since March 2010. Mr. Winter is also the President and Chief Executive Officer of Allstate Life Insurance Company and Senior Executive Vice President of Allstate Insurance Company, each a parent organization of Lincoln Benefit. Prior to Allstate, Mr. Winter was the Vice Chairman of American International Group, President and Chief Executive Officer of American General Life Companies, and Executive Vice President for MassMutual Financial Group. For a brief period in 2009, Mr. Winter served as a director of EP Global Communications, a magazine publication and distribution company. Currently, Mr. Winter also serves as a director for Allstate Insurance Company and Allstate Life Insurance Company, each of which is affiliated with Lincoln Benefit. Mr. Winter was also a former Chairman of the Houston Food Bank Board of Directors. Mr. Winter has extensive experience leading major life insurance and financial services providers, working with financial and estate planning products and overseeing the operations of insurance companies.
Involvement in Certain Legal Proceedings
No directors or executive officers have been involved in any legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer of Lincoln Benefit.
| Item 11(l). | Executive Compensation |
Compensation Discussion and Analysis (“CD&A”)
Executive officers of Lincoln Benefit also serve as officers of other subsidiaries of The Allstate Corporation (“Allstate”) and receive no compensation directly from Lincoln Benefit. They are employees of an Allstate subsidiary. Allocations have been made for each named executive based on the amount of the named executive’s compensation allocated to Lincoln Benefit under the Amended and Restated Service and Expense Agreement among Allstate Insurance Company, Allstate, and certain affiliates, as amended effective January 1, 2009, to which Lincoln Benefit is a party (the “Service and Expense Agreement”). Those allocations are reflected in the Summary Compensation Table set forth below and in this disclosure, except where noted. The named executives may have received additional compensation for services rendered to other Allstate subsidiaries, and those amounts are not reported.
Named Executives
This CD&A describes the executive compensation program at Allstate and specifically describes total 2011 compensation for the following named executives of Lincoln Benefit:
| • | Matthew E. Winter—Chairman of the Board and Chief Executive Officer (CEO) |
| • | John C. Pintozzi—Senior Vice President and Chief Financial Officer (CFO) |
| • | Anurag Chandra—Executive Vice President |
| • | Lawrence W. Dahl—President and Chief Operating Officer |
| • | Mark A. Green—Senior Vice President |
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Elements of 2011 Executive Compensation Program
Allstate has made changes to its executive compensation program for 2012. The following table lists the elements of target direct compensation for Allstate’s 2011 executive compensation program. The design balances fixed and variable compensation elements and provides alignment with both short and long-term business goals through annual and long-term incentives. Allstate’s incentives are designed to drive overall corporate performance, specific business unit strategies, and individual performance using performance and operational measures that Allstate correlates to stockholder value, and these incentives align with Allstate’s strategic vision and operating priorities.
| Element | Key Characteristics | Why Allstate Pays This Element | How Allstate Determines Amount | |||||
| Fixed | Base salary | Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate. | Provide a base level of competitive cash compensation for executive talent. | Experience, job scope, market practice, individual performance. | ||||
| Variable | Annual incentive awards | Variable compensation component payable in cash based on performance against annually established goals and assessment of individual performance. | Motivate and reward executives for performance on key strategic, operational, and financial measures over the year. | Allstate performance on three measures: • Adjusted underlying operating income
• Book value per share
• Growth in policies in multi-category households
Individual contribution to performance. | ||||
| Restricted Stock Units | RSUs vest over four years; 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates. | Coupled with stock options, align the interests of executives with long-term shareholder value and retain executive talent. | Job scope, market practice, individual performance. | |||||
| Stock Options | Nonqualified stock options that expire in ten years and become exercisable over four years; 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates. | Coupled with RSUs, align the interests of executives with long-term shareholder value and retain executive talent. | Job scope, market practice, individual performance. | |||||
Compensation Practices
Allstate monitors performance toward goals throughout the year and reviews executive compensation program design and executive pay levels annually. As part of that evaluation, Allstate considers available data regarding compensation paid to similarly-situated executives at companies against which it competes for
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executive talent. With respect to the compensation program for 2011, the Compensation and Succession Committee (the “Committee”) of the Allstate Board of Directors considered compensation data for the peer companies listed below for Mr. Winter, as well as compensation information from certain S&P 100 companies with fiscal 2010 revenue of between $15 billion and $60 billion with which Allstate competes for executive talent. Towers Watson, an independent compensation consultant, recommended no modifications to the peer group for 2011.
Peer Insurance Companies
| ACE Ltd. | Manulife Financial Corporation | |
| AFLAC Inc. | MetLife Inc. | |
| The Chubb Corporation | The Progressive Corporation | |
| The Hartford Financial Services Group, Inc. | Prudential Financial, Inc. | |
| Lincoln National Corporation | The Travelers Companies, Inc. |
With respect to the named executives other than Mr. Winter, Allstate management considered compensation surveys that provided information on companies of broadly similar size and business mix as Allstate, as well as companies with a broader market context. The compensation surveys considered include the Mercer 2010 US Property & Casualty Insurance Company Survey, the 2010 Towers Watson Diversified Insurance Survey, and the Towers Watson Compensation Data Bank. The weight given to information obtained from these sources varied depending on the position being evaluated. The Mercer 2010 US Property & Casualty Insurance Company Survey includes compensation data for 14 property and casualty insurance companies with at least $6 billion in direct written premiums. The 2010 Towers Watson Diversified Insurance Survey includes 18 insurance companies with assets greater than $100 billion. The Towers Watson Compensation Data Bank provides compensation data on 101 companies with revenues greater than $20 billion. In addition, in its executive pay and performance discussions, Allstate management considered information regarding other companies in the financial services industries.
Salary
Mr. Winter’s salary is set by the Allstate Board of Directors based on the Committee’s recommendation. The salaries of the other named executives are set by Allstate management. In recommending executive base salary levels, Allstate uses the 50th percentile of its peer insurance companies as a guideline for Mr. Winter and the 50th percentile of insurance and general industry data as a guideline for the other named executives, which allows Allstate to compete effectively for executive talent. Annual merit increases for the named executives are based on evaluations of their performance using the average enterprise-wide merit increase as a guideline.
| • | The average enterprise-wide merit and promotional increases are based on a combination of U.S. general and insurance industry market data and are set at levels intended to be competitive. |
| • | Annual merit increases for the named executives are based on evaluations of their performance using the average enterprise-wide merit increase as a guideline. |
| • | The base salaries for each named executive were reviewed in February of 2011. Allstate established a new base salary for each named executive based on individual performance and in line with the enterprise-wide merit increase. |
| • | The Committee approved an increase in Mr. Winter’s salary based on individual performance and market adjustments, effective February 27, 2011. Effective October 6, 2011, the Committee approved another increase to reflect Mr. Winter’s expanded job scope and responsibilities. |
Annual Cash Incentive Awards
In 2011 executives could earn an annual cash incentive award based on Allstate’s achievement of performance measures during the year and assessments of individual performance.
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For Mr. Winter, the maximum award that could be earned was 20% of the Adjusted Underlying Operating Income pool (but in no event greater than the $8.5 million maximum set forth in the Annual Executive Incentive Plan). The Committee retained complete discretion to pay less than this maximum amount, with the actual award based on Mr. Winter’s target annual incentive award opportunity and the achievement of performance measures and assessments of individual performance as described below. None of the named executives other than Mr. Winter participate in the Operating Income Pool.
Long-term Equity Incentive Awards
Allstate grants equity awards to executives based on scope of responsibility, consistent with Allstate’s philosophy that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be tied to performance for executives who bear higher levels of responsibility for Allstate’s performance. Additionally, from time to time, equity awards are also granted to attract new executives. Allstate annually reviews the mix of equity incentives provided to the named executives. For Mr. Winter, the mix has consisted of 65% stock options and 35% restricted stock units, because Allstate believes stock options are a form of performance-based incentive compensation, requiring growth in the stock price to deliver any value to an executive. The restricted stock units provide alignment with stockholder interests along with an effective retention incentive. Other employees eligible for equity incentive awards, including the named executives other than Mr. Winter, had the choice of receiving the value of their equity incentive awards in the following proportions between stock options and restricted stock units:
| • | 25% stock options and 75% restricted stock units; |
| • | 50% stock options and 50% restricted stock units; |
| • | 65% stock options and 35% restricted stock units; or |
| • | 75% stock options and 25% restricted stock units. |
The elections are reflected in the Grants of Plan-Based Awards at Fiscal Year-End 2011 table.
Timing of Equity Awards and Grant Practices
Typically, the Committee approves grants of equity awards on an annual basis during a meeting in the first quarter, after Allstate announces fourth quarter and full-year results. The timing allows the Committee to align direct compensation elements with Allstate’s performance and business goals. Throughout the year, the Committee grants equity incentive awards to newly hired or promoted executives, and in recognition of outstanding achievements. Equity incentive awards to employees other than Allstate executive officers also may be granted by an equity award committee which currently consists of Allstate’s chief executive officer. The equity award committee may grant restricted stock units and stock options to newly hired and promoted executives and in recognition of outstanding achievements. The grant date for these awards in 2011 was fixed as the first business day of a month following the later of committee action or the date of hire or promotion.
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Performance Measures for 2011
For 2011 annual incentive awards, the Committee used a single enterprise-wide funding program based on three equally weighted performance measures. These measures are consistent with overall shareholder value creation, growth, and profitability, and encouraged success and collaboration across business units. The three measures also align with Allstate’s strategy and operating priorities for 2011 to improve overall returns, grow Allstate’s business profitably, and broaden customer relationships. The three measures are shown in the table below.
| 2011 Annual Cash Incentive Award Performance Measures | ||||||||||||||||||||
| Measure | Threshold | Target | Maximum | Actual Results | ||||||||||||||||
Book Value per Share | $31.50 | $37.40 | $40.75 | $36.41 | 91.6% | |||||||||||||||
Adjusted Underlying Operating Income (in millions) | $2,700 | $2,925 | $3,300 | $3,214 | 215.6% | |||||||||||||||
Growth in Policies in Multi-Category Households | 0 | 50,000 | 200,000 | -36,232 | 0% | |||||||||||||||
Payout* | 50 | % | 100 | % | 250 | % | 102.4% payout | |||||||||||||
| * | Actual performance below threshold results in a 0% payout. |
The ranges of performance for Book Value Per Share and Adjusted Underlying Operating Income were developed through statistical modeling and adjusted to reflect strategic priorities. Allstate’s models measured the variability of actual results so that the measures required superior performance to achieve maximum levels. The performance ranges were then calibrated against Allstate management expectations around business operations, risks and prospects, plans and budgets as well as industry and market trends.
The range of performance for the Growth in Policies in Multi-Category Households reflects Allstate’s strategic priority to grow the number of Allstate’s product lines represented in customer households. The threshold for this measure was aggressively set at zero despite the fact that actual results were a negative 200,000 in 2010. The focus on improving returns in the homeowners line made this goal unattainable despite dramatic improvements in geographies not burdened by this conflicting objective.
In calculating the overall funding of the plan, Allstate’s achievement with respect to each performance measure was expressed as a percentage of the target goal, with interpolation applied between the threshold and target goals and between the target and maximum goals. The overall funding pool was calculated using the aggregate base salaries of all participants in the plan, as adjusted by any merit and promotional increases granted during the year on a prorated basis. The overall funding pool is the sum of the amounts as calculated below and the pool was utilized in a zero sum scheme.
| Aggregate salaries** | X | Target award opportunity as a percentage of salary** | X | Actual performance interpolated relative to threshold and target on a range of 50% to 100% and relative to target and maximum on a range of 100% to 250%* | X | Weighting*** |
| * | Actual performance below threshold results in 0%. |
| ** | Salaries, as adjusted by any merit and promotional increases granted during the year on a prorated basis. |
| *** | All three measures were equally weighted, so that collectively their weights added to 100%. |
The Committee approved the annual incentive award performance measures and the threshold, target, and maximum ranges in the first quarter of 2011. After the end of the year, the Committee reviewed the extent to which Allstate had achieved the various performance measures. Based on a subjective evaluation of each
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executive’s performance, individual adjustments were made to the formula-driven annual incentive amounts. The recommendations were considered and approved by the Committee for Mr. Winter and by Allstate management for the other named executives. Allstate paid the cash incentive awards in March.
Other Elements of Compensation
To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, Allstate provides the benefits listed in the following table.
| Benefit or Perquisite | Named Executives | Other and Certain Managers | All Full-time and Regular Part-time Employees | |||||||||
401(k)(1) and defined benefit pension | Ÿ | Ÿ | Ÿ | |||||||||
Supplemental retirement benefit | Ÿ | Ÿ | ||||||||||
Health and welfare benefits(2) | Ÿ | Ÿ | Ÿ | |||||||||
Supplemental long term disability and executive physical program | Ÿ | Ÿ | (3 | ) | ||||||||
Deferred compensation | Ÿ | Ÿ | ||||||||||
Tax preparation and financial planning services | Ÿ | Ÿ | (4 | ) | ||||||||
Mobile phones, ground transportation, and personal use of aircraft(5) | Ÿ | Ÿ | ||||||||||
| (1) | Allstate contributed $.40 for every dollar of basic pre-tax deposits made in 2011 (up to 5% of eligible pay). |
| (2) | Including medical, dental, vision, life, accidental death and dismemberment, long term disability, and group legal insurance. |
| (3) | An executive physical program is available to all officers. |
| (4) | All officers are eligible for tax preparation services. Financial planning services were provided to Mr. Winter only. |
| (5) | Ground transportation is available to Messrs. Winter and Chandra. In limited circumstances approved by Allstate’s CEO, Mr. Winter is permitted to use Allstate’s corporate aircraft for personal purposes. Mr. Winter did not use the corporate aircraft for personal purposes in 2011. Mobile phones are available to members of Allstate’s senior leadership team, other officers, certain managers, and certain employees depending on their job responsibilities. |
Retirement Benefits
Each named executive participates in two different defined benefit pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined benefit pension plan available to all of Allstate’s regular full-time and regular part-time employees who meet certain age and service requirements. The ARP provides an assured retirement income based on an employee’s level of compensation and length of service at no cost to the employee. As the ARP is a tax qualified plan, federal tax law limits (1) the amount of an individual’s compensation that can be used to calculate plan benefits and (2) the total amount of benefits payable to a plan participant on an annual basis. For certain employees, these limits may result in a lower benefit under the ARP than would have been payable otherwise. Therefore, the Supplemental Retirement Income Plan (SRIP) was formed to provide ARP-eligible employees whose compensation or benefit amount exceeds the federal limits with an additional defined benefit in an amount equal to what would have been payable under the ARP if the federal limits did not exist.
Change-in-Control and Post-Termination Benefits
Since a change-in-control or other triggering event may never occur, Allstate does not view change-in-control benefits or post-termination benefits as compensation. Consistent with Allstate’s compensation objectives, Allstate offers these benefits to attract, motivate, and retain highly talented executives. A change-in-control of Allstate could have a disruptive impact on both Allstate and its executives. Allstate’s change-in-control benefits and post-termination benefits are designed to mitigate that impact and to maintain alignment between the interests of Allstate’s executives and Allstate stockholders.
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Allstate substantially reduced its change-in-control benefits in 2011. Mr. Winter had previously been party to a change-in-control agreement, and he agreed to become a participant in a new change-in-control severance plan (CIC Plan). Compared with the previous arrangements, the CIC Plan eliminates all excise tax gross ups; eliminates the lump sum cash pension enhancement based on additional years of age, service, and compensation; and reduces the amount of cash severance payable to Mr. Winter from three to two times the sum of base salary and target annual incentive. In order to receive the cash severance benefits under the CIC Plan following a change in control, a participant must have been terminated (other than for cause, death, or disability) or the participant must have terminated employment for good reason (such as adverse changes in the terms or conditions of employment, including a material reduction in base compensation, a material change in authority, duties, or responsibilities, or a material change in job location) within two years following a change in control. In addition, if a change in control occurs, long-term equity incentive awards granted after 2011 will vest on an accelerated basis only if either Allstate terminates the executive’s employment (other than for cause, death, or disability) or the executive terminates his or her employment for good reason within two years after the change in control (so-called “double-trigger” vesting).
Mr. Pintozzi is party to a change-in-control agreement. On December 31, 2012, this change-in-control agreement will terminate, and Mr. Pintozzi will become a participant in the CIC Plan. In the event of a change-in-control prior to December 31, 2012, Mr. Pintozzi’s long-term equity incentive awards will vest immediately, and he will be eligible for an excise tax gross-up and a lump sum cash pension enhancement based on additional years of age, service, and compensation.
The other named executives are not participants in the CIC Plan and are not party to change-in-control agreements.
The change-in-control and post-termination arrangements which are described in thePotential Payments as a Result of Termination or Change-in-Control section are not provided exclusively to the named executives. A larger group of management employees is eligible to receive many of the post-termination benefits described in that section.
Stock Ownership Guidelines
Because Allstate believes management’s interests must be linked with those of Allstate’s stockholders, Allstate instituted stock ownership guidelines in 1996 that require each of the named executives, other than Mr. Dahl, to own Allstate common stock worth a multiple of base salary. The Committee approved new guidelines effective February 20, 2012. The new guidelines provide that each named executive, other than Mr. Dahl, must hold 75% of net after-tax shares received as equity compensation until his or her salary multiple guideline is met. The chart below shows the salary multiple guidelines and the equity holdings that count towards the requirement.
| Name | Guideline | Status | ||
Mr. Winter | 3x salary | Must hold 75% of net after-tax shares until guideline is met | ||
Mr. Pintozzi | 2x salary | ü Meets guideline | ||
Mr. Chandra | 2x salary | Must hold 75% of net after-tax shares until guideline is met | ||
Mr. Dahl | — | — | ||
Mr. Green | 2x salary | Must hold 75% of net after-tax shares until guideline is met |
| What Counts Toward the Guideline | What Does not Count Toward the Guideline | |
• Allstate shares owned personally | • Unexercised stock options | |
• Shares held in the Allstate 401(k) Savings Plan | • Performance stock awards | |
• Restricted stock units | ||
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Allstate also has a policy on insider trading that prohibits all officers, directors, and employees from engaging in transactions in securities issued by Allstate or any of its subsidiaries that might be considered speculative or hedging, such as selling short or buying or selling options.
Executive Compensation Tables
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of the named executives for all services rendered to Lincoln Benefit for the last three fiscal years, allocated to Lincoln Benefit in a manner consistent with the allocation of compensation under the Service and Expense Agreement.
| NAME(1) | YEAR | SALARY ($)(2) | BONUS ($) | STOCK AWARDS ($)(3) | OPTION AWARDS ($)(4) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($)(5) | CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(6) | ALL OTHER COMPENSATION ($)(7) | TOTAL ($) | |||||||||||||||||||||||||||
Matthew E. Winter | ||||||||||||||||||||||||||||||||||||
| (Chairman of the Board and Chief Executive Officer) |
| 2011 2010 |
|
| 168,792 172,200 |
|
| 198,661 210,943 |
|
| 368,935 391,756 |
|
| 258,000 347,930 |
|
| 12,410 1,100 | (10)
|
| 11,398 10,082 |
|
| 1,018,196 1,134,011 |
| ||||||||||||
John C. Pintozzi (Senior Vice President and Chief Financial Officer) |
| 2011 2010 2009 |
|
| 143,788 130,757 120,224 |
|
| 7,436 | (8) |
| 97,283 94,860 55,594 |
|
| 97,275 94,859 106,439 |
|
| 107,500 157,535 75,456 |
|
| 15,318 8,735 10,673 | (11)
|
| 7,164 7,528 9,053 |
|
| 468,328 494,274 384,875 |
| |||||||||
Anurag Chandra | ||||||||||||||||||||||||||||||||||||
(Executive Vice President) | 2011 | 178,615 | 53,750 | (9) | 135,435 | 251,552 | 161,250 | 0 | 13,740 | 794,342 | ||||||||||||||||||||||||||
Lawrence W. Dahl (President and Chief Operating Officer) |
| 2011 2010 2009 |
|
| 280,000 274,586 253,299 |
|
| 47,991 53,428 25,195 |
|
| 47,996 17,810 48,246 |
|
| 100,000 137,159 113,091 |
|
| 258,501 136,233 235,494 | (12)
|
| 15,100 36,639 97,306 |
|
| 749,588 655,855 772,631 |
| ||||||||||||
Mark A. Green | ||||||||||||||||||||||||||||||||||||
(Senior Vice President) | 2011 | 99,403 | 60,655 | 20,223 | 61,060 | 4,720 | (13) | 7,398 | 253,459 | |||||||||||||||||||||||||||
| (1) | Mr. Winter was not a named executive for 2009 and Messrs. Chandra and Green were not named executives for 2009 and 2010. |
| (2) | Reflects amounts for 2009 that were paid in 2009 but which included amounts earned in 2008, due to the timing of Allstate’s payroll cycle. |
| (3) | The aggregate grant date fair value of restricted stock unit awards computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 718 (ASC 718). The number of restricted stock units granted in 2011 to each named executive is provided in theGrants of Plan-Based Awards table on page 66. The fair value of restricted stock unit awards is based on the final closing price of Allstate’s stock as of the date of grant, which in part reflects the payment of expected future dividends. (See note 18 to Allstate’s audited financial statements for 2011.) This amount reflects an accounting expense and does not correspond to actual value that will be realized by the named executives. |
| (4) | The aggregate grant date fair value of option awards computed in accordance with FASB ASC 718. The fair value of each option award is estimated on the date of grant using a binomial lattice model and the assumptions as set forth in the following table: |
| 2011 | 2010 | 2009 | ||||
Weighted average expected term | 7.9 years | 7.8 years | 8.1 years | |||
Expected volatility | 22.1 – 53.9% | 23.7 – 52.3% | 26.3 – 79.2% | |||
Weighted average volatility | 35.1% | 35.1% | 38.3% | |||
Expected dividends | 2.5 – 3.7% | 2.4 – 2.8% | 2.6% | |||
Weighted average expected dividends | 2.7% | 2.6% | 2.6% | |||
Risk-free rate | 0.0 – 3.5% | 0.1 – 3.9% | 0.0 – 3.7% |
(See note 18 to Allstate’s audited financial statements for 2011.) The number of options granted in 2011 to each named executive is provided in theGrants of Plan-Based Awards table on page 66. This amount reflects an accounting expense and does not correspond to actual value that will be realized by the named executives.
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| (5) | Amounts in this column for 2009 and 2010 include amounts earned under the annual executive incentive plan and the long-term executive incentive compensation plan. There was no 2011 payout from the long-term executive incentive compensation plan as it was discontinued; the last pay cycle was 2008-2010. Annual cash incentive awards are paid in the year following performance. The breakdown for each component is as follows: |
Annual Cash Incentive | Long-term Cash Incentive | |||||||||||||||
| Name | Year | Award Amount | Cycle | Award Amount | ||||||||||||
Mr. Winter | 2011 | $ | 258,000 | — | — | |||||||||||
| 2010 | $ | 347,930 | 2008-2010 | $0 | ||||||||||||
Mr. Pintozzi | 2011 | $ | 107,500 | — | — | |||||||||||
| 2010 | $ | 157,535 | 2008-2010 | $0 | ||||||||||||
| 2009 | $ | 54,970 | 2007-2009 | $ | 20,486 | |||||||||||
Mr. Chandra | 2011 | $ | 161,250 | — | — | |||||||||||
Mr. Dahl | 2011 | $ | 100,000 | — | — | |||||||||||
| 2010 | $ | 137,159 | 2008-2010 | $0 | ||||||||||||
| 2009 | $ | 50,748 | * | 2007-2009 | $0 | |||||||||||
Mr. Green | 2011 | $ | 61,060 | — | — | |||||||||||
| * | In 2009, as President and Chief Operating Officer of Lincoln Benefit, Mr. Dahl participated in a cash-based sales incentive plan (the “Sales Incentive Plan”) based on first year premiums for universal life and term policies as well as annuity deposits sold by one of Lincoln Benefit’s distribution channels. Payments related to the Sales Incentive Plan totaled $62,343 for 2009. Mr. Dahl did not participate in the Sales Incentive Plan in 2010 and 2011. No other named executive of Lincoln Benefit participated in the Sales Incentive Plan. |
| (6) | Amounts reflect the aggregate increase in actuarial value of the pension benefits as set forth in the Pension Benefits table, accrued during 2011, 2010, and 2009. These are benefits under the Allstate Retirement Plan (ARP) and the Supplemental Retirement Income Plan (SRIP). Non-qualified deferred compensation earnings are not reflected since Allstate’s Deferred Compensation Plan does not provide above-market earnings. The pension plan measurement date is December 31. (See note 17 to Allstate’s audited financial statements for 2011.) |
| (7) | TheAll Other Compensation for 2011—Supplemental Table provides details regarding the amounts for 2011 for this column. |
| (8) | Mr. Pintozzi received a bonus as a result of his outstanding individual performance in 2009. |
| (9) | As part of his sign-on bonus, Mr. Chandra received $107,500 in cash, $53,750 payable within 90 days of his start date and the remainder payable one year later, 15 months from his start date. Mr. Chandra’s start date was January 31, 2011. If Mr. Chandra voluntarily terminates his employment within 18 months of his hiring date, he must reimburse Allstate the pro-rated remaining portion of this bonus. |
| (10) | Reflects increases in the actuarial value of the benefits provided to Mr. Winter under the ARP and SRIP of $1,626 and $10,784, respectively. |
| (11) | Reflects increases in the actuarial value of the benefits provided to Mr. Pintozzi under the ARP and SRIP of $6,131 and $9,187, respectively. |
| (12) | Reflects increases in the actuarial value of the benefits provided to Mr. Dahl under the ARP and SRIP of $146,312 and $112,189, respectively. |
| (13) | Reflects increases in the actuarial value of the benefits provided to Mr. Green under the ARP and SRIP of $3,066 and $1,654, respectively. |
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ALL OTHER COMPENSATION FOR 2011—SUPPLEMENTAL TABLE
(In dollars)
The following table describes the incremental cost of other benefits provided in 2011 that are included in the “All Other Compensation” column.
| Name | 401(k) Match(1) | Other(2) | Total All Other Compensation | |||||||||
Mr. Winter | 1,169 | 10,229 | 11,398 | |||||||||
Mr. Pintozzi | 2,107 | 5,057 | 7,164 | |||||||||
Mr. Chandra | 2,107 | 11,633 | 13,740 | |||||||||
Mr. Dahl | 4,900 | 10,200 | 15,100 | |||||||||
Mr. Green | 2,107 | 5,291 | 7,398 | |||||||||
| (1) | Each of the named executives participated in Allstate’s 401(k) plan during 2011. The amount shown is the amount allocated to their accounts as employer matching contributions. Messrs. Winter, Chandra, and Green will not be vested in the employer matching contribution until they have completed three years of vesting service. |
| (2) | “Other” consists of premiums for group life insurance and personal benefits and perquisites consisting of mobile phones, tax preparation services, financial planning, executive physicals, ground transportation, and supplemental long-term disability coverage, and for Messrs. Winter and Chandra, $2,482 and $1,964, respectively, for reimbursement of taxes related to relocation expenses. (Tax assistance for certain relocation benefits is a standard component of Allstate’s relocation program available to all employees.) Messrs. Winter and Chandra also received amounts for relocation that are not reflected in other compensation because they are part of the standard relocation package available to all employees. There was no incremental cost for the use of mobile phones. Allstate provides supplemental long-term disability coverage to all regular full-time and regular part-time employees who participate in the long term disability plan and whose annual earnings exceed the level which produces the maximum monthly benefit provided by the long term disability plan. This coverage is self-insured (funded and paid for by Allstate when obligations are incurred). No obligations for the named executives were incurred in 2011, and therefore, no incremental cost is reflected in the table. In limited circumstances approved by Allstate’s CEO, Mr. Winter is permitted to use Allstate’s corporate aircraft for personal purposes. Mr. Winter did not use the corporate aircraft for personal purposes in 2011. |
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GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2011(1)
The following table provides information about non-equity incentive plan awards and equity awards granted to our named executives during fiscal year 2011 to the extent the expense was allocated to Lincoln Benefit under the Service and Expense Agreement.
Name | Grant | Plan Name | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Shr)(3) | Grant Date Fair Value ($)(4) | |||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Stock Awards | Option Awards | ||||||||||||||||||||||||||||||||||
Mr. Winter | — | Annual cash incentive | 105,495 | 210,989 | 1,658,424 | |||||||||||||||||||||||||||||||||
| February 22, 2011 | Restricted stock units | 6,259 | 198,661 | |||||||||||||||||||||||||||||||||||
| February 22, 2011 | Stock options | 38,511 | 31.74 | 368,935 | ||||||||||||||||||||||||||||||||||
Mr. Pintozzi | — | Annual cash incentive | 43,136 | 86,273 | 215,682 | |||||||||||||||||||||||||||||||||
| February 22, 2011 | Restricted stock units | 3,065 | 97,283 | |||||||||||||||||||||||||||||||||||
| February 22, 2011 | Stock options | 10,154 | 31.74 | 97,275 | ||||||||||||||||||||||||||||||||||
Mr. Chandra | — | Annual cash incentive | 75,912 | 151,823 | 379,558 | |||||||||||||||||||||||||||||||||
| February 22, 2011 | Restricted stock units | 4,267 | 135,435 | |||||||||||||||||||||||||||||||||||
| February 22, 2011 | Stock options | 26,258 | 31.74 | 251,552 | ||||||||||||||||||||||||||||||||||
Mr. Dahl | — | Annual cash incentive | 49,000 | 98,000 | 245,000 | |||||||||||||||||||||||||||||||||
| February 22, 2011 | Restricted stock units | 1,512 | 47,991 | |||||||||||||||||||||||||||||||||||
| February 22, 2011 | Stock options | 5,010 | 31.74 | 47,996 | ||||||||||||||||||||||||||||||||||
Mr. Green | — | Annual cash incentive | 24,851 | 49,701 | 124,253 | |||||||||||||||||||||||||||||||||
| February 22, 2011 | Restricted stock units | 1,911 | 60,655 | |||||||||||||||||||||||||||||||||||
| February 22, 2011 | Stock options | 2,111 | 31.74 | 20,223 | ||||||||||||||||||||||||||||||||||
| (1) | Awards under the Annual Executive Incentive Plan and the 2009 Equity Incentive Plan. |
| (2) | The amounts in these columns consist of the threshold, target, and maximum annual cash incentive awards for the named executives. The threshold amount for each named executive is 50% of target, as the minimum amount payable if threshold performance is achieved. If threshold is not achieved, the payment to named executives would be zero. The target amount is based upon achievement of the performance measures listed in the2011 Annual Cash Incentive Award Performance Measurestable on page 60. The maximum amount payable to Mr. Winter is the lesser of a stockholder approved maximum of $8.5 million under the Annual Executive Incentive Plan or 20% of the award pool. The award pool is equal to 1.0% of Adjusted Underlying Operating Income. None of the other named executives participate in the adjusted underlying operating income pool. Adjusted Underlying Operating Income is defined on page 79. |
| (3) | The exercise price of each option is equal to the fair market value of Allstate’s common stock on the date of grant. Fair market value is equal to the closing sale price on the date of grant or, if there was no such sale on the date of grant, then on the last previous day on which there was a sale. |
| (4) | The aggregate grant date fair value of the February 22, 2011, restricted stock units was $31.74 and stock option awards was $9.58, computed in accordance with FASB ASC 718. The assumptions used in the valuation are discussed in footnotes 3 and 4 to theSummary Compensation Table on page 63. |
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Stock options
Stock options represent an opportunity to buy shares of Allstate’s stock at a fixed exercise price at a future date. Allstate uses them to align the interests of Allstate’s executives with long-term stockholder value, as the stock price must appreciate from the date of grant for the executives to profit. Under Allstate’s stockholder-approved equity incentive plan, the exercise price cannot be less than the fair market value of a share on the date of grant. Stock option repricing is not permitted. In other words, without an event such as a stock split, if the Committee cancels an award and substitutes a new award, the exercise price of the new award cannot be less than the exercise price of the cancelled award. All stock option awards have been made in the form of nonqualified stock options. The options granted to the named executives in 2011 become exercisable over four years, 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates, and expire in ten years, except in certain change-in-control situations or under other special circumstances approved by the Committee.
Restricted stock units
Each restricted stock unit represents Allstate’s promise to transfer one fully vested share of stock in the future if and when the restrictions expire (when the unit “vests”). Because restricted stock units are based on and payable in stock, they reinforce the alignment of interests of Allstate’s executives and Allstate’s stockholders. In addition, restricted stock units provide a retention incentive because they have a real, current value that is forfeited in most circumstances if an executive terminates employment before the restricted stock units vest. Under the terms of the restricted stock unit awards, the executives have only the rights of general unsecured creditors of Allstate and no rights as stockholders until delivery of the underlying shares. The restricted stock units granted to the named executives in 2011 vest over four years: 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates, except in certain change-in-control situations or under other special circumstances approved by the Committee. The restricted stock units granted to the named executives in 2011 include the right to receive previously accrued dividend equivalents when the underlying restricted stock unit vests.
Outstanding Equity Awards at Fiscal Year-End 2011
The following table summarizes the outstanding equity awards of the named executives as of December 31, 2011, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2011. The percentage of each equity award actually allocated to Lincoln Benefit has varied over the years during which these awards were granted depending on the extent of services rendered by such executive to Lincoln Benefit and the arrangements in place at the time of such equity awards between Lincoln Benefit and the executive’s Allstate-affiliated employer. Because the aggregate amount of such equity awards attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the allocated amount of each equity award provided for each named executive in the following table is the amount determined by multiplying each named executive’s equity award for services rendered to Allstate and all of its affiliates by the percentage used for allocating such named executive’s compensation to Lincoln Benefit in 2011 under the Service and Expense Agreement.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2011
| Option Awards(1) | Stock Awards | |||||||||||||||||||||||
| Name | Option Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable(2) | Number of Securities Underlying Unexercised Options (#) Unexercisable(3) | Option Exercise Price | Option Expiration Date | Stock Award Grant Date | Number of Shares or Units of Stock That Have Not Vested (#)(4) | Market Value of Shares or Units of Stock That Have Not Vested(5) | ||||||||||||||||
Mr. Winter | Nov. 02, 2009 | 4,327 | 4,327 | $ | 29.64 | Nov. 02, 2019 | Nov. 02, 2009 | 1,523 | $41,752 | |||||||||||||||
| Feb. 22, 2010 | 0 | 35,573 | $ | 31.41 | Feb. 22, 2020 | Feb. 22, 2010 | 6,037 | $165,480 | ||||||||||||||||
| Feb. 22, 2011 | 0 | 38,511 | $ | 31.74 | Feb. 22, 2021 | Feb. 22, 2011 | 6,259 | $171,561 | ||||||||||||||||
| Aggregate Market Value | ||||||||||||||||||||||||
| $378,793 | ||||||||||||||||||||||||
Mr. Pintozzi | Sep. 30, 2002 | 538 | 0 | $ | 35.17 | Sep. 30, 2012 | ||||||||||||||||||
| Feb. 7, 2003 | 1,505 | 0 | $ | 31.78 | Feb. 7, 2013 | |||||||||||||||||||
| Feb. 6, 2004 | 2,141 | 0 | $ | 45.96 | Feb. 6, 2014 | |||||||||||||||||||
| Feb. 22, 2005 | 5,890 | 0 | $ | 52.57 | Feb. 22, 2015 | |||||||||||||||||||
| Feb. 21, 2006 | 5,833 | 0 | $ | 53.84 | Feb. 21, 2016 | |||||||||||||||||||
| Feb. 21, 2006 | 3,870 | 0 | $ | 53.84 | Feb. 21, 2016 | |||||||||||||||||||
| Feb. 20, 2007 | 5,725 | 0 | $ | 62.24 | Feb. 20, 2017 | |||||||||||||||||||
| Feb. 26, 2008 | 7,665 | 2,555 | $ | 48.82 | Feb. 26, 2018 | Feb. 26, 2008 | 1,109 | $30,397 | ||||||||||||||||
| Feb. 27, 2009 | 6,020 | 10,706 | $ | 16.83 | Feb. 27, 2019 | Feb. 27, 2009 | 3,768 | $103,271 | ||||||||||||||||
| Feb. 22, 2010 | 0 | 10,049 | $ | 31.41 | Feb. 22, 2020 | Feb. 22, 2010 | 3,167 | $86,818 | ||||||||||||||||
| Feb. 22, 2011 | 0 | 10,154 | $ | 31.74 | Feb. 22, 2021 | Feb. 22, 2011 | 3,065 | $84,013 | ||||||||||||||||
| Aggregate Market Value | ||||||||||||||||||||||||
| $304,499 | ||||||||||||||||||||||||
Mr. Chandra | Feb. 22, 2011 | 0 | 26,258 | (6) | $ | 31.74 | Feb. 22, 2021 | Feb. 22, 2011 | 4,267(6) | $116,967 | ||||||||||||||
| Aggregate Market Value | ||||||||||||||||||||||||
| $116,967 | ||||||||||||||||||||||||
Mr. Dahl | Feb. 7, 2002 | 5,868 | 0 | $ | 33.38 | Feb. 7, 2012 | ||||||||||||||||||
| Feb. 7, 2003 | 3,200 | 0 | $ | 31.78 | Feb. 7, 2013 | |||||||||||||||||||
| Feb. 6, 2004 | 3,333 | 0 | $ | 45.96 | Feb. 6, 2014 | |||||||||||||||||||
| Feb. 22, 2005 | 2,492 | 0 | $ | 52.57 | Feb. 22, 2015 | |||||||||||||||||||
| Feb. 21, 2006 | 3,418 | 0 | $ | 53.84 | Feb. 21, 2016 | |||||||||||||||||||
| Feb. 20, 2007 | 2,873 | 0 | $ | 62.24 | Feb. 20, 2017 | |||||||||||||||||||
| Feb. 26, 2008 | 4,120 | 1,374 | $ | 48.82 | Feb. 26, 2018 | Feb. 26, 2008 | 596 | $16,336 | ||||||||||||||||
| Feb. 27, 2009 | 3,254 | 4,255 | $ | 16.83 | Feb. 27, 2019 | Feb. 27, 2009 | 1,497 | $41,033 | ||||||||||||||||
| Feb. 22, 2010 | 0 | 1,799 | $ | 31.41 | Feb. 22, 2020 | Feb. 22, 2010 | 1,701 | $46,624 | ||||||||||||||||
| Feb. 22, 2011 | 0 | 5,010 | $ | 31.74 | Feb. 22, 2021 | Feb. 22, 2011 | 1,512 | $41,444 | ||||||||||||||||
| Aggregate Market Value | ||||||||||||||||||||||||
| $145,437 | ||||||||||||||||||||||||
Mr. Green | Mar. 16, 2009 | 1,031 | $28,263 | |||||||||||||||||||||
| Feb. 22, 2010 | 0 | 3,583 | $ | 31.41 | Feb. 22, 2020 | Feb. 22, 2010 | 1,130 | $30,963 | ||||||||||||||||
| Feb. 22, 2011 | 0 | 2,111 | $ | 31.74 | Feb. 22, 2021 | Feb. 22, 2011 | 1,911 | $52,390 | ||||||||||||||||
| Aggregate Market Value | ||||||||||||||||||||||||
| $111,616 | ||||||||||||||||||||||||
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| (1) | The options granted in 2011 and 2010 vest over four years: 50% on the second anniversary date and 25% on each of the third and fourth anniversary dates. The other options vest in four installments of 25% on each of the first four anniversaries of the grant date. The exercise price of each option is equal to the fair market value of Allstate’s common stock on the date of grant. For options granted prior to 2007, fair market value is equal to the average of high and low sale prices on the date of grant. For options granted in 2007 and thereafter, fair market value is equal to the closing sale price on the date of grant. In each case, if there was no sale on the date of grant, fair market value is calculated as of the last previous day on which there was a sale. |
| (2) | The aggregate value and aggregate number of exercisable in-the-money options as of December 31, 2011, for each of the named executives is as follows: Mr. Winter $0 (0 aggregate number exercisable), Mr. Pintozzi $63,692 (6,020 aggregate number exercisable), Mr. Chandra $0 (0 aggregate number exercisable), Mr. Dahl $34,427 (3,254 aggregate number exercisable) and Mr. Green $0 (0 aggregate number exercisable). |
| (3) | The aggregate value and aggregate number of unexercisable in-the-money options as of December 31, 2011, for each of the named executives is as follows: Mr. Winter $0 (0 aggregate number unexercisable), Mr. Pintozzi $113,266 (10,706 aggregate number unexercisable), Mr. Chandra $0 (0 aggregate number unexercisable), Mr. Dahl $45,018 (4,255 aggregate number unexercisable) and Mr. Green $0 (0 aggregate number unexercisable). |
| (4) | The restricted stock unit awards granted in 2011 vest over four years: 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates. The other restricted stock unit awards vest in one installment on the fourth anniversary of the grant date, unless otherwise noted. |
| (5) | Amount is based on the closing price of Allstate common stock of $27.41 on December 30, 2011. |
| (6) | Options and restricted stock units granted as a new hire award. These options and restricted stock units will vest over four years: 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates. |
Option Exercises and Stock Vested at Fiscal Year-End 2011
The following table summarizes the options exercised by the named executives during 2011 and the restricted stock unit awards that vested during 2011, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2011.
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2011
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Mr. Winter | 0 | 0 | 0 | 0 | ||||||||||||
Mr. Pintozzi | 1,999 | 30,740 | 789 | 25,350 | ||||||||||||
Mr. Chandra | 0 | 0 | 0 | 0 | ||||||||||||
Mr. Dahl | 0 | 0 | 397 | 12,748 | ||||||||||||
Mr. Green | 0 | 0 | 0 | 0 | ||||||||||||
Retirement Benefits
Each named executive participates in two different defined benefit pension plans. Pension expense for each named executive under these plans has been accrued annually over the course of the executive’s career with Allstate. The aggregate amount of the annual accrual specifically allocated to Lincoln Benefit over that period of time has varied depending on the extent of services rendered by such executive to Lincoln Benefit and the arrangements in place at the time of accrual between Lincoln Benefit and the executive’s Allstate affiliated employer. Because the aggregate amount of such annual accruals earned prior to 2011 attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the present value of accumulated benefit provided for each named executive in the following table is the amount determined by multiplying the present value of such named executive’s accumulated pension benefit for services rendered to Allstate and all of its affiliates over the course of such named executive’s career with Allstate by the percentage used for allocating such named executive’s compensation to Lincoln Benefit under the Service and Expense Agreement in 2011.
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PENSION BENEFITS
| NAME | PLAN NAME | NUMBER OF YEARS CREDITED SERVICE (#) | PRESENT VALUE OF ACCUMULATED BENEFIT(1)(2) ($) | PAYMENTS DURING LAST FISCAL YEAR ($) | ||||||||||
Mr. Winter(3) | Allstate Retirement Plan | 2.2 | 1,625 | 0 | ||||||||||
| Supplemental Retirement Income Plan | 2.2 | 11,773 | 0 | |||||||||||
Mr. Pintozzi | Allstate Retirement Plan | 9.3 | 27,042 | 0 | ||||||||||
| Supplemental Retirement Income Plan | 9.3 | 30,743 | 0 | |||||||||||
Mr. Chandra(3) | Allstate Retirement Plan | 1.0 | 0 | 0 | ||||||||||
| Supplemental Retirement Income Plan | 1.0 | 0 | 0 | |||||||||||
Mr. Dahl | Allstate Retirement Plan | 24.9 | 668,467 | 0 | ||||||||||
| Supplemental Retirement Income Plan | 24.9 | 549,547 | 0 | |||||||||||
Mr. Green(3) | Allstate Retirement Plan | 2.8 | 5,473 | 0 | ||||||||||
| Supplemental Retirement Income Plan | 2.8 | 1,654 | 0 | |||||||||||
| (1) | These amounts are estimates and do not necessarily reflect the actual amounts that will be paid to the named executives, which will be known only at the time they become eligible for payment. Accrued benefits were calculated as of December 31, 2011, and used to calculate the present value of accumulated benefits at December 31, 2011. December 31 is the pension plan measurement date used for financial statement reporting purposes. |
The amounts listed in this column are based on the following assumptions:
| • | Discount rate of 5.25%, payment form assuming 80% paid as a lump sum and 20% paid as an annuity, lump-sum/annuity conversion segmented interest rates of 4.75% for the first five years, 6.25% for the next 15 years, and 6.75% for all years after 20 and the 2012 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females (as required under the Internal Revenue Code), and post-retirement mortality for annuitants using the 2012 Internal Revenue Service mandated annuitant table; these are the same as those used for financial reporting year-end disclosure as described in the notes to Allstate’s consolidated financial statements. (See note 17 to Allstate’s audited financial statements for 2011.) |
| • | Based on guidance provided by the Securities and Exchange Commission, we have assumed a normal retirement age of 65 under both the ARP and SRIP, regardless of any announced or anticipated retirements. |
| • | No assumption for early termination, disability, or pre-retirement mortality. |
| (2) | The figures shown in the table above reflect the present value of the current accrued pension benefits calculated using the assumptions described in the preceding footnote. If the named executives’ employment terminated on December 31, 2011, the lump sum present value of the non-qualified pension benefits for each named executive earned through December 31, 2011, is shown in the following table: |
| NAME | PLAN NAME | LUMP SUM AMOUNT ($) | ||||
Mr. Winter | Supplemental Retirement Income Plan | $11,773 | ||||
Mr. Pintozzi | Supplemental Retirement Income Plan | $30,743 | ||||
Mr. Chandra | Supplemental Retirement Income Plan | $0 | ||||
Mr. Dahl | Supplemental Retirement Income Plan | $701,950 | ||||
Mr. Green | Supplemental Retirement Income Plan | $1,654 | ||||
The amount shown is based on the lump sum methodology (i.e., interest rate and mortality table) used by the Allstate pension plans in 2012, as required under the Pension Protection Act. Specifically, the interest rate for 2012 is based on 100% of the average corporate bond segmented yield curve from August of the prior year. The mortality table for 2012 is the 2012 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females, as required under the Internal Revenue Code.
| (3) | Messrs. Winter, Chandra, and Green are not currently vested in the Allstate Retirement Plan or the Supplemental Retirement Income Plan. |
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The benefits and value of benefits shown in thePension Benefits table are based on the following material factors:
Allstate Retirement Plan (ARP)
The ARP has two different types of benefit formulas (final average pay and cash balance) which apply to participants based on their date of hire or the individual choices they made before a cash balance plan was introduced on January 1, 2003. Of the named executives, Messrs. Winter, Pintozzi, Chandra, and Green are eligible to earn cash balance benefits. Benefits under the final average pay formula are earned and stated in the form of a straight life annuity payable at the normal retirement age 65. Participants who earn final average pay benefits may do so under one or more benefit formulas based on when they became ARP members and their years of service.
Mr. Dahl has earned ARP benefits under the post-1988 final average pay formula which is the sum of the Base Benefit and the Additional Benefit, as defined as follows:
| • | Base Benefit =1.55% of the participant’s average annual compensation, multiplied by credited service after 1988 (limited to 28 years of credited service) |
| • | Additional Benefit =0.65% of the amount, if any, of the participant’s average annual compensation that exceeds the participant’s covered compensation (the average of the maximum annual salary taxable for Social Security over the 35-year period ending the year the participant would reach Social Security retirement age) multiplied by credited service after 1988 (limited to 28 years of credited service) |
Since Mr. Dahl earned benefits between January 1, 1978, and December 31, 1988, one component of his ARP benefit will be based on the following benefit formula:
| 1. | Multiply years of credited service from 1978 through 1988 by 2 1/8%. |
| 2. | Then, multiply the percentage from step (1) by |
| a. | Average annual compensation (five-year average) at December 31, 1988, and by |
| b. | Estimated Social Security at December 31, 1988. |
| 3. | Then, subtract 2(b) from 2(a). The result is the normal retirement allowance for service from January 1, 1978, through December 31, 1988. |
| 4. | The normal retirement allowance is indexed for final average pay. In addition, there is an adjustment of 18% of the normal retirement allowance as of December 31, 1988, to reflect a conversion to a single life annuity. |
For participants eligible to earn cash balance benefits, pay credits are added to the cash balance account on a quarterly basis as a percent of compensation and based on the participant’s years of vesting service as follows:
Cash Balance Plan Pay Credits
| Vesting Service | Pay Credit % | |||
Less than 1 year | 0% | |||
1 year, but less than 5 years | 2.5% | |||
5 years, but less than 10 years | 3% | |||
10 years, but less than 15 years | 4% | |||
15 years, but less than 20 years | 5% | |||
20 years, but less than 25 years | 6% | |||
25 years or more | 7% | |||
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Supplemental Retirement Income Plan (“SRIP”)
SRIP benefits are generally determined using a two-step process: (1) determine the amount that would be payable under the ARP formula specified above if the federal limits described above did not apply, then (2) reduce the amount described in (1) by the amount actually payable under the ARP formula. The normal retirement date under the SRIP is age 65. If eligible for early retirement under the ARP, the employee also is eligible for early retirement under the SRIP.
Credited Service; Other Aspects of the Pension Plans
As has generally been Allstate’s practice, no additional service credit beyond service with Allstate or its predecessors is granted under the ARP or the SRIP.
For the ARP and SRIP, eligible compensation consists of salary, annual cash incentive awards, pre-tax employee deposits made to Allstate’s 401(k) plan and Allstate’s cafeteria plan, holiday pay, and vacation pay. Eligible compensation also includes overtime pay, payment for temporary military service, and payments for short term disability, but does not include long-term cash incentive awards or income related to equity awards. Compensation used to determine benefits under the ARP is limited in accordance with the Internal Revenue Code. For final average pay benefits, average annual compensation is the average compensation of the five highest consecutive calendar years within the last ten consecutive calendar years preceding the actual retirement or termination date.
Payment options under the ARP include a lump sum, straight life annuity, and various survivor annuity options. The lump sum under the final average pay benefit is calculated in accordance with the applicable interest rate and mortality as required under the Internal Revenue Code. The lump sum payment under the cash balance benefit is generally equal to a participant’s cash balance account balance. Payments from the SRIP are paid in the form of a lump sum using the same interest rate and mortality assumptions used under the ARP.
Timing of Payments
Age 65 is the earliest retirement age that a named executive may retire with full retirement benefits under the ARP and SRIP. However, a participant earning final average pay benefits is entitled to an early retirement benefit on or after age 55 if he or she terminates employment after completing 20 or more years of service. A participant earning cash balance benefits who terminates employment with at least three years of vesting service is entitled to a lump sum benefit equal to his or her cash balance account balance. Currently, none of the named executives are eligible for an early retirement benefit.
As defined in the SRIP, SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits) are generally payable at the normal retirement age of 65. Pre 409A SRIP Benefits may be payable at age 50 or later if disabled, following early retirement at age 55 or older with 20 years of service, or following death in accordance with the terms of the SRIP. SRIP benefits earned after December 31, 2004 (Post 409A SRIP Benefits) are paid on the January 1 following termination of employment after reaching age 55 (a minimum six month deferral period applies), or following death in accordance with the terms of the SRIP.
Eligible employees are vested in the normal ARP and SRIP retirement benefit on the earlier of the completion of five years of service or upon reaching age 65 (for participants with final average pay benefits) or the completion of three years of service or upon reaching age 65 (for participants whose benefits are calculated under the cash balance formula).
| • | Mr. Winter’s SRIP benefit is not currently vested but would become payable following death. Mr. Winter will turn 65 on January 22, 2022. |
| • | Mr. Pintozzi’s Pre 409A SRIP Benefit would become payable as early as January 1, 2012, or following death. Mr. Pintozzi’s Post 409A SRIP Benefit would be paid on January 1, 2021, or following death. Mr. Pintozzi will turn 65 on May 18, 2030. |
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| • | Mr. Chandra’s SRIP benefit is not currently vested but would become payable following death. Mr. Chandra will turn 65 on October 2, 2042. |
| • | Mr. Dahl’s Pre 409A SRIP Benefit would become payable as early as January 1, 2015, or following death or disability. Mr. Dahl’s Post 409A SRIP Benefit would be paid on January 1, 2015, or following death. Mr. Dahl will turn 65 on August 2, 2024. |
| • | Mr. Green’s SRIP benefit is not currently vested but would become payable following death. Mr. Green will turn 65 on July 29, 2032. |
Non-Qualified Deferred Compensation
The following table summarizes the non-qualified deferred compensation contributions, earnings, and account balances of our named executives in 2011. All amounts relate to The Allstate Corporation Deferred Compensation Plan.
The aggregate amount of the annual accrual specifically allocated to Lincoln Benefit over each named executive’s career with Allstate has varied depending on the extent of services rendered by such executive to Lincoln Benefit and the arrangements in place at the time of accrual between Lincoln Benefit and the executive’s Allstate affiliated employer. Because the aggregate earnings and balance attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the aggregate earnings and aggregate balance provided for each named executive in the following table is the amount determined by multiplying the value of such named executive’s non-qualified deferred compensation benefit for services rendered to Allstate and all of its affiliates over the course of such named executive’s career with Allstate by the percentage used for allocating such named executive’s compensation to Lincoln Benefit under the Service and Expense Agreement in 2011.
NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2011
| Name | Executive Contributions in Last FY ($) | Registrant Contributions ($) | Aggregate in Last FY ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(2) | |||||||||||||||
Mr. Winter | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Mr. Pintozzi | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Mr. Chandra | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Mr. Dahl | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Mr. Green | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
| (1) | Aggregate earnings were not included in the named executive’s compensation in the last completed fiscal year in theSummary Compensation Table. |
| (2) | There are no amounts reported in theAggregate Balance at Last FYE column that previously were reported as compensation in theSummary Compensation Table. |
In order to remain competitive with other employers, Allstate allows employees, including the named executives, whose annual compensation exceeds the amount specified in the Internal Revenue Code ($245,000 in 2011), to defer up to 80% of their salary and/or up to 100% of their annual cash incentive award that exceeds that amount under the Deferred Compensation Plan. Allstate does not match participant deferrals and does not guarantee a stated rate of return.
Deferrals under the Deferred Compensation Plan are credited with earnings or debited for losses based on the results of the investment option or options selected by the participants. The investment options available in 2011 under the Deferred Compensation Plan are: Stable Value, S&P 500, International Equity, Russell 2000,
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Mid-Cap, and Bond Funds. Under the Deferred Compensation Plan, deferrals are not actually invested in these funds, but instead are credited with earnings or debited for losses based on the funds’ investment returns net of administration and investment expenses. Because the rate of return is based on actual investment measures in Allstate’s 401(k) plan, no above market earnings are paid. Allstate’s Deferred Compensation Plan and 401(k) plan allow participants to change their investment elections daily. Investment changes are effective the next business day. The Deferred Compensation Plan is unfunded; participants have only the rights of general unsecured creditors.
Deferrals under the Deferred Compensation Plan are segregated into Pre 409A balances and Post 409A balances. A named executive may elect to begin receiving a distribution of a Pre 409A balance immediately upon separation from service or in one of the first through fifth years after separation from service. The named executive may elect to receive payment of a Pre 409A balance in a lump sum or in annual cash installment payments over a period of two to ten years. An irrevocable distribution election is required before making any Post 409A deferrals into the plan. The distribution options available to the Post 409A balances are similar to those available to the Pre 409A balances, except the earliest distribution date is six months following separation from service. Upon proof of unforeseen emergency, a plan participant may be allowed to access certain funds in a deferred compensation account earlier than the dates specified above.
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Potential Payments as a Result of Termination or Change-in-Control (CIC)
The following table lists the compensation and benefits that Allstate would provide to the named executives in various scenarios involving a termination of employment, other than compensation and benefits generally available to all salaried employees.
| Compensation Elements | ||||||||||||||||
| Termination Scenarios | Base Salary | Severance Pay | Annual Incentive | Stock Options | Restricted Stock Units | Non- Pension Benefits(1) | Deferred Compensation(2) | Health, Welfare and Other | ||||||||
Termination(3) | Ceases immediately | None | Forfeited unless terminated on last day of fiscal year | Unvested are forfeited, vested expire at the earlier of three months or normal expiration | Forfeited | Distributions commence per plan | Distributions commence per participant election | None | ||||||||
Retirement(4) | Ceases Immediately | None | Pro rated for the year based on actual performance for the year with any discretionary adjustments | Awards granted more than 12 months before, and pro rata portion of award granted within 12 months of, normal retirement continue to vest; pro rata portion continue to vest upon early retirement. All expire at earlier of five years or normal expiration.(5) | Awards granted more than 12 months before, and pro rata portion of award granted within 12 months of, normal retirement continue to vest; pro rata portion continue to vest upon early retirement.(6) | Distributions commence per plan | Distributions commence per participant election | None | ||||||||
Termination due to | Ceases Immediately | Lump sum equal to two times salary and annual incentive at target(8) | Pro rated at target (reduced by any actually paid) | Awards granted prior to 2012 vest immediately upon a CIC. After 2011 vest upon qualifying termination after a CIC.(9) | Awards granted prior to 2012 vest immediately upon a CIC. After 2011 vest upon qualifying termination after a CIC.(9) | Immediately payable upon a CIC, except for participants not previously covered by a CIC agreement | Immediately payable upon a CIC, except for participants not previously covered by a CIC agreement | Outplacement services provided; lump sum payment equal to additional cost of continuation coverage(10) | ||||||||
Death | One month salary paid upon death | None | Pro rated for year based on actual performance for the year with any discretionary adjustments | Vest immediately and expire at earlier of two years or normal expiration | Vest immediately | Distributions commence per plan | Payable within 90 days | None | ||||||||
Disability | Ceases Immediately | None | Pro rated for year based on actual performance for the year with any discretionary adjustments | Vest immediately and expire at earlier of two years or normal expiration | Vest immediately(11) | Participant may request payment if age 50 or older | Distributions commence per participant election | Supplemental long term disability benefits if enrolled in long term disability plan | ||||||||
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| (1) | See theRetirement Benefits section for further detail on non-qualified pension benefits and timing of payments. |
| (2) | See theNon-Qualified Deferred Compensation section for additional information on the Deferred Compensation Plan and distribution options available. |
| (3) | Includes both voluntary and involuntary termination. Examples of involuntary termination independent of a change-in-control include performance-related terminations; terminations for employee dishonesty and violation of Allstate rules, regulations, or policies; and terminations resulting from lack of work, rearrangement of work, or reduction in force. |
| (4) | Retirement for purposes of the annual cash incentive plan is defined as voluntary termination on or after the date the named executive attains age 55 with at least 20 years of service. The normal retirement date under the equity awards is the date on or after the date the named executive attains age 60 with at least one year of service. For awards granted before February 22, 2011, the early retirement date is the date the named executive attains age 55 with 20 years of service. For awards granted on or after February 22, 2011, the “early retirement date” is the date the named executive attains age 55 with ten years of service. |
| (5) | Stock options granted prior to February 22, 2011, continue to vest upon a normal or health retirement and expire at the earlier of five years from the date of retirement or the expiration date of the option. Unvested stock options are forfeited upon early retirement. |
| (6) | Restricted stock units granted prior to February 22, 2011, continue to vest upon a normal retirement and are forfeited upon an early retirement. |
| (7) | Mr. Winter had previously been party to a change-in-control agreement, and in 2011 he agreed to become a participant in a new change-in-control severance plan (CIC Plan). Mr. Pintozzi is party to a change-in-control agreement. On December 31, 2012, Mr. Pintozzi’s change-in-control agreement will terminate, and Mr. Pintozzi will become a participant in the CIC Plan. No other named executive is a party to a change-in-control agreement or a participant in the CIC Plan. In general, a change-in-control is one or more of the following events: (1) any person acquires 30% or more of the combined voting power of Allstate common stock within a 12-month period; (2) any person acquires more than 50% of the combined voting power of Allstate common stock; (3) certain changes are made to the composition of the Board; or (4) the consummation of a merger, reorganization, or similar transaction. These triggers were selected because any of these could cause a substantial change in management in a widely held company the size of Allstate. Effective upon a change-in-control, Mr. Winter and Mr. Pintozzi become subject to covenants prohibiting solicitation of employees, customers, and suppliers at any time until one year after termination of employment. If Mr. Winter or Mr. Pintozzi incurs legal fees or other expenses in an effort to enforce the change-in-control arrangements, Allstate will reimburse him for these expenses unless it is established by a court that he had no reasonable basis for the claim or acted in bad faith. |
| (8) | For those named executives subject to either the change-in-control plan or a change-in-control agreement, severance benefits would be payable if a named executive’s employment is terminated either by Allstate without cause or by the executive for good reason as defined in the plan or agreement during the two years following the change-in-control. Cause means the named executive has been convicted of a felony or other crime involving fraud or dishonesty, has willfully or intentionally breached the restrictive covenants in the plan or agreement, has habitually neglected his or her duties, or has engaged in willful or reckless material misconduct in the performance of his or her duties. Good reason includes a material diminution in a named executive’s base compensation, authority, duties, or responsibilities, a material change in the geographic location where the named executive performs services, or, under Mr. Pintozzi’s agreement, a material breach of the agreement by Allstate. |
| Under Mr. Pintozzi’s change-in-control agreement which will terminate on December 31, 2012, a pension enhancement would be payable. The pension enhancement is a lump sum payment equal to the positive difference, if any, between (a) the sum of the lump-sum values of each maximum annuity that would be payable to the named executive under any defined benefit plan (whether or not qualified under Section 401(a) of the Internal Revenue Code) if the named executive had (i) become fully vested in all such benefits, (ii) attained as of the named executive’s termination date an age that is two years greater than the named executive’s actual age, (iii) accrued a number of years of service that is two years greater than the number of years of service actually accrued by the named executive as of the named executive’s termination date, and (iv) received a lump-sum severance benefit consisting of two times base salary, two times annual incentive cash compensation calculated at target, plus the 2011 annual incentive cash award as covered compensation in equal monthly installments during the two-year period following the named executive’s termination date, and (b) the lump-sum values of the maximum annuity benefits vested and payable to the named executive under each defined benefit plan that is qualified under Section 401(a) of the Internal Revenue Code plus the aggregate amounts simultaneously or previously paid to the named executive under the defined benefit plans (whether or not qualified under Section 401(a)). The calculation of the lump sum amounts payable under this formula does not impact the benefits payable under the ARP or the SRIP. |
| (9) | However, under Mr. Pintozzi’s change-in-control agreement which will terminate on December 31, 2012, equity awards vest immediately upon a change-in-control. |
| (10) | If a named executive’s employment is terminated by reason of death during the two years after the date of a change in control, the named executive’s estate or beneficiary will be entitled to survivor and other benefits, including retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to the estates or surviving families of peer executives of Allstate. In the event of termination by reason of disability, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to disabled peer executives. Until December 31, 2012, Mr. Pintozzi is eligible for subsidized continuation coverage, not a lump sum payment. |
| (11) | If a named executive’s employment is terminated due to disability, restricted stock units granted prior to February 22, 2011, are forfeited. |
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ESTIMATE OF POTENTIAL PAYMENTS UPON TERMINATION(1)
The table below describes the value of compensation and benefits to each named executive upon termination, calculated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2011, that would exceed the compensation or benefits generally available to all salaried employees in each termination scenario. The total column in the following table does not reflect compensation or benefits previously accrued or earned by the named executives such as deferred compensation and non-qualified pension benefits. The payment of the 2011 annual cash incentive award and any 2011 salary earned but not paid in 2011 due to Allstate’s payroll cycle are not included in these tables because these are payable regardless of termination, death, or disability. Benefits and payments are calculated assuming a December 31, 2011, employment termination date.
| Name | Severance ($) | Stock Unvested and Accelerated ($) | Restricted Unvested and Accelerated ($) | Welfare Benefits and Outplacement Services ($) | Total ($) | |||||||||||||||
Mr. Winter | ||||||||||||||||||||
Termination/Retirement(2) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Termination due to Change-in-Control(3) | 732,567 | (4) | 0 | 378,793 | 9,767 | (5) | 1,121,127 | |||||||||||||
Death | 0 | 0 | 378,793 | 0 | 378,793 | |||||||||||||||
Disability | 0 | 0 | 171,561 | 1,622,367 | (6) | 1,793,928 | ||||||||||||||
Mr. Pintozzi | ||||||||||||||||||||
Termination/Retirement(2) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Termination due to Change-in-Control(3) | 488,547 | 113,266 | 304,499 | 6,008 | (5) | 912,320 | ||||||||||||||
Death | 0 | 113,266 | 304,499 | 0 | 417,765 | |||||||||||||||
Disability | 0 | 113,266 | 84,013 | 0 | (6) | 197,279 | ||||||||||||||
Mr. Chandra | ||||||||||||||||||||
Termination/Retirement(2) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Termination due to Change-in-Control(3) | 0 | 0 | (7) | 116,967 | (7) | 0 | 116,967 | |||||||||||||
Death | 0 | 0 | 116,967 | 0 | 116,967 | |||||||||||||||
Disability | 0 | 0 | 116,967 | 0 | (6) | 116,967 | ||||||||||||||
Mr. Dahl | ||||||||||||||||||||
Termination/Retirement(2) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Termination due to Change-in-Control(3) | 0 | 45,018 | (7) | 145,437 | (7) | 0 | 190,455 | |||||||||||||
Death | 0 | 45,018 | 145,437 | 0 | 190,455 | |||||||||||||||
Disability | 0 | 45,018 | 41,444 | 1,034,980 | (6) | 1,121,442 | ||||||||||||||
Mr. Green | ||||||||||||||||||||
Termination/Retirement(2) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Termination due to Change-in-Control(3) | 0 | 0 | (7) | 111,616 | (7) | 0 | 111,616 | |||||||||||||
Death | 0 | 0 | 111,616 | 0 | 111,616 | |||||||||||||||
Disability | 0 | 0 | 52,390 | 549,321 | (6) | 601,711 | ||||||||||||||
| (1) | A “0” indicates either that there is no amount payable to the named executive, or the amount payable is the same for both the named executives and all salaried employees. |
| (2) | As of December 31, 2011, none of the named executives are eligible to retire in accordance with Allstate’s policy and the terms of its equity incentive compensation and benefit plans. |
| (3) | The values in this change-in-control row represent amounts paid if both the change-in-control and qualifying termination occur on December 31, 2011. Equity awards granted prior to 2012 immediately vest upon a change-in-control; the amounts payable to each named executive would be as follows: |
| Name | Stock Options— Unvested and Accelerated ($) | Restricted stock units— Unvested and Accelerated ($) | Total— Unvested and Accelerated ($) | |||||||||
Mr. Winter | 0 | 378,793 | 378,793 | |||||||||
Mr. Pintozzi | 113,266 | 304,499 | 417,765 | |||||||||
Mr. Chandra | 0 | 116,967 | 116,967 | |||||||||
Mr. Dahl | 45,018 | 145,437 | 190,455 | |||||||||
Mr. Green | 0 | 111,616 | 111,616 | |||||||||
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| Beginning with awards granted in 2012, equity awards will not accelerate in the event of a change-in-control unless also accompanied by a qualifying termination of employment. A change-in-control also would accelerate the distribution of each named executive’s non-qualified deferred compensation and SRIP benefits. Please see theNon-Qualified Deferred Compensation at Fiscal Year End 2011table and footnote 2 to thePension Benefits table in theRetirement Benefits section for details regarding the applicable amounts for each named executive. |
| (4) | Under the change-in-control plan, Mr. Winter’s allocated severance benefit was reduced by $80,133 to avoid the imposition of excise taxes and maximize the severance benefit available under the plan. |
| (5) | The Welfare Benefits and Outplacement Services amount for Mr. Pintozzi includes the cost to provide certain welfare benefits to him and his family during the period he is eligible for continuation coverage under applicable law. The amount shown reflects Allstate’s costs for these benefits or programs assuming an 18-month continuation period. The allocated value of outplacement services is $5,160 for Mr. Winter and $3,300 for Mr. Pintozzi. |
| (6) | The named executives who participate in the long term disability plan are eligible to participate in Allstate’s supplemental long-term disability plan for employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the long term disability plan. The benefit is equal to 50% of the named executive’s qualified annual earnings divided by twelve and rounded to the nearest one hundred dollars, reduced by $7,500, which is the maximum monthly benefit payment that can be received under the Basic Plan. The amount reflected assumes the named executive remains totally disabled until age 65 and represents the present value of the monthly benefit payable until age 65. Messrs. Pintozzi and Chandra do not participate in the long term disability plan. |
| (7) | Messrs. Chandra, Dahl, and Green did not have a change-in-control agreement in place. However, pursuant to the terms of their equity awards, unvested stock options and restricted stock units would vest immediately upon a change-in-control. |
Risk Management and Compensation
Allstate management has reviewed its compensation policies and practices and believes that they are appropriately structured, that they are consistent with its key operating priority of keeping Allstate financially strong, and that they avoid providing incentives for employees to engage in unnecessary and excessive risk taking. Allstate believes that executive compensation has to be examined in the larger context of an effective risk management framework and strong internal controls. The Allstate Board and its Audit Committee both play an important role in risk management oversight, including reviewing how management measures, evaluates, and manages the corporation’s exposure to risks posed by a wide variety of events and conditions. In addition, the Compensation and Succession Committee of Allstate employs an independent executive compensation consultant each year to assess Allstate’s executive pay levels, practices, and overall program design.
A review and assessment of potential compensation-related risks was conducted by Allstate management and reviewed by the chief risk officer. Performance-related incentive plans were analyzed using a process developed in conjunction with the independent executive compensation consultant.
The 2011 risk assessment specifically noted that Allstate’s compensation programs:
| • | Provide a balanced mix of cash and equity through annual and long-term incentives to align with short-term and long-term business goals. |
| • | Utilize a full range of performance measures that Allstate believes correlate to long-term Allstate shareholder value creation. |
| • | Incorporate strong governance practices, including paying cash incentive awards only after a review of executive and corporate performance. |
| • | Enable the use of negative discretion to adjust annual incentive compensation payments when formulaic payouts are not warranted due to other circumstances. |
| • | Limit annual incentive payouts by containing a maximum payout level. |
Furthermore, to ensure Allstate’s compensation programs do not motivate imprudent risk taking, awards to Allstate executive officers, including Mr. Winter, made after May 19, 2009, under the 2009 Equity Incentive Plan and awards made under the Annual Executive Incentive Plan are subject to clawback in the event of certain financial restatements.
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Performance Measures for 2011 Annual Cash Incentive Awards
Information regarding Allstate’s performance measures is disclosed in the limited context of Allstate’s annual cash incentive awards and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
The following are descriptions of the performance measures used for Allstate’s annual cash incentive awards for 2011, which may be applied to compensation of Lincoln Benefit’s named executives. These measures are not GAAP measures. They were developed uniquely for incentive compensation purposes and are not reported items in Allstate’s financial statements. Some of these measures use non-GAAP measures and operating measures. The Committee has approved the use of non-GAAP and operating measures when appropriate to drive executive focus on particular strategic, operational, or financial factors or to exclude factors over which Allstate executives have little influence or control, such as capital market conditions.
Adjusted Underlying Operating Income: This measure is used to assess financial performance. This measure is equal to net income adjusted to exclude the after tax effects of the items listed below:
| • | Realized capital gains and losses (which includes the related effect on the amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments. |
| • | Valuation changes on embedded derivatives that are not hedged. |
| • | Business combination expenses and the amortization of purchased intangible assets. |
| • | Gains and losses on disposed operations. |
| • | Adjustments for other significant non-recurring, infrequent, or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or (b) there has been no similar charge or gain within the prior two years. |
| • | Restructuring or related charges. |
| • | Underwriting results of the Discontinued Lines and Coverages segment. |
| • | Any settlement, awards, or claims paid as a result of lawsuits and other proceedings brought against Allstate subsidiaries regarding the scope and nature of coverage provided under insurance policies issued by such companies. |
| • | The after tax effects of catastrophe losses. Catastrophes are defined and reported in The Allstate Corporation 10-K. |
Book Value Per Share:This measure is used to assess financial performance. The measure is equal to book value per diluted share adjusted to exclude the effects of 2011 share repurchases. The numerator, shareholders’ equity at December 31, 2011, is increased to exclude the cost of shares acquired in 2011 under approved share repurchase programs. The denominator, total shares outstanding plus dilutive potential shares outstanding at December 31, 2011, is increased to exclude the number of shares acquired in 2011 under approved share repurchase programs. Other effects resulting from approved share repurchase programs, such as the impacts on net investment income of using funds to purchase shares, are not adjusted.
Growth in Policies in Multi-Category Households:This measure is used by management to assess the execution of its strategy to broaden customer relationships. This measure represents the increase from December 31, 2010, to December 31, 2011, in the number of policies within households that have policies in multiple product categories. Product categories are defined as Auto, Property, or Allstate Financial. The measure
79
includes Encompass brand package policies, but not their existence in any cross-branded relationships. It excludes Allstate Workplace Division, Allstate Roadside Services, Allstate Dealer Services, Allstate Business Insurance, and Expanded Markets products.
| 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 Benefit’s voting securities.
Title of Class (a) | Name and Address of Beneficial Owner (b) | Amount and Nature of Beneficial Ownership (c) | Percent of Class (d) | |||
Capital Stock | Allstate Life Insurance Company 3100 Sanders Road, Northbrook, IL 60062 | 25,000 | 100% | |||
N/A | Allstate Insurance Company 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company | N/A | |||
N/A | Allstate Insurance Holdings, LLC 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company | N/A | |||
N/A | The Allstate Corporation 2775 Sanders Road, Northbrook, IL 60062 | Indirect voting and investment power of shares owned by Allstate Life Insurance Company | N/A | |||
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Security Ownership of Directors and Executive Officers
The following table shows the number of shares of Allstate common stock 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 shares held indirectly through the Allstate 401(k) Savings Plan and other shares held indirectly, as well as shares subject to stock options exercisable on or prior to May 9, 2012 and restricted stock units for which restrictions expire on or prior to May 9, 2012. The percentage of Allstate shares of common stock beneficially owned by any Lincoln Benefit director, named executive officer or by all directors and executive officers of Lincoln Benefit as a group does not exceed 1%. The following share amounts are as of March 12, 2012. As of March 12, 2012, none of these shares were pledged as security.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership of Allstate Common Stock (a) | Common Stock Subject to Options Exercisable and Restricted Stock units for which to May 9, 2012 – Included in Column (a) (b) | ||
Robert K. Becker | 18,748 | 18,494 | ||
Anurag Chandra | 0 | 0 | ||
Lawrence W. Dahl | 35,585 | 35,404 | ||
Mark A. Green | 7,339 | 5,479 | ||
Susan L. Lees | 53,309 | 44,246 | ||
John C. Pintozzi | 131,850 | 127,466 | ||
Matthew E. Winter | 98,258 | 97,409 | ||
All directors and executive officers as a group | 345,089 | 328,498 |
| Item 11(n) | Transactions with Related Persons, Promoters and Certain Control Persons. |
Transactions with Related Persons.
This table describes certain intercompany agreements involving Lincoln Benefit and the following companies:
| • | Allstate Life Insurance Company (“ALIC”), the direct parent of Lincoln Benefit; |
| • | Allstate Insurance Company (“AIC”), an indirect parent of Lincoln Benefit; and |
| • | The Allstate Corporation (“AllCorp”), the ultimate indirect parent of Lincoln Benefit. |
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Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Related Person(s) involved in the transaction1 and the approximate dollar value of the amount of the Related Person’s interest in the transaction ($) | ||||||||||||||||||
| ($) | ALIC | AIC | AllCorp | |||||||||||||||||
| Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2007. |
| 2009
2010
2011 |
|
| 142,073,012
130,793,008
133,073,456 |
2 |
| 76,392,634
73,282,918
71,775,550 | 2
2
2 |
| 54,248,353
47,445,127
52,773,567 |
2 |
| 1,151,990
687,957
1,475,458 |
2 | |||||
| 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. |
| 2009
2010
2011 |
|
| (1,173,212,154
(113,770,599
2,845,812 | )3
)3
3, 4 |
| (534,572,879
(621,234,096
71,718,284 | )
)
|
| (467,570,173
647,559,256
42,900,789 | )
|
| (121,813,486
(146,676,325
(142,533,135 | )
)
) | |||||
| Cash Management Services Master Agreement between Allstate Insurance Company, Allstate Bank (aka Allstate Federal Savings Bank), and certain affiliates dated March 16, 1999, as amended by Amendment No.1 effective January 5, 2001, and Amendment No. 2 entered into November 8, 2002, between Allstate Insurance Company, Allstate Bank and Allstate Motor Club, Inc., and as supplemented by the Premium Depository Service Supplement dated as of September 30, 2005, the Variable Annuity Service Supplement dated November 10, 2005, and the Sweep Agreement Service Supplement dated as of October 11, 2006. |
| 2009
2010
2011 |
|
| 1,527,072
967,620
240,284 | 4
4
4 |
| 158,312
76,166
17,229 | 5
5
5 |
| 1,052,781
694,117
174,548 | 5
5
5 | N/A | |||||||
| 1 | Each identified Related Person is a Party to the transaction. |
| 2 | Gross amount of expense received under the transaction. |
| 3 | Total amounts paid to Internal Revenue Service. |
| 4 | Total fees collected for all bank accounts covered under the transaction. |
| 5 | Fees paid under the transaction. |
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Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Related Person(s) involved in the transaction1 and the approximate dollar value of the amount of the Related Person’s interest in the transaction ($) | ||||||||||||||||||
| ($) | ALIC | AIC | 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. |
| 2009
2010
2011 |
|
| 3,451,765,246
3,619,106,706
3,618,090,094 |
2 |
| 180,154,068
175,950,701
171,247,884 | 2
2
2 |
| 1,937,571,496
1,823,391,816
1,706,778,729 | 2
2
2 |
| 2,510,800
4,191,150
7,255,192 | 2
2
2 | |||||
| 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. |
| 2009
2010
2011 |
|
| 873,759,209
888,764,276
562,439,149 | 6
6
|
| 873,759,209
888,764,276
562,439,149 | 6
6
| N/A | N/A | |||||||||
| Intercompany Loan Agreement among The Allstate Corporation, Allstate Life Insurance Company, Lincoln Benefit Life Company and other certain subsidiaries of The Allstate Corporation dated February 1, 1996. |
| 2009
2010
2011 |
|
| 86,111,674
149,971,764
399,830,632 |
7 |
| 0
149,971,764
0 | 8
8 |
| 86,111,674
149,971,764
399,830,632 |
7 |
| 86,111,674
149,971,764
399,830,632 |
7 | |||||
| Agreement for the Settlement of State and Local Tax Credits among Allstate Insurance Company and certain affiliates effective January 1, 2007. |
| 2009
2010
2011 |
|
| 941,379
835,435
1,391,107 |
|
| 193,504
236,540
205,904 | 9
8
9 |
| 441,024
474,132
1,095,601 |
9 | N/A | |||||||
| 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. |
| 2009
2010
2011 |
|
| 9,722,930
10,459,692
14,875,149 | 2
2
2 |
| 239,393
1,658,404
7,085,880 | 2
2
2 |
| 0
0
0 | 2
2
2 |
| 0
0
0 | 2
2
2 | |||||
83
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Related Person(s) involved in the transaction1 and the approximate dollar value of the amount of the Related Person’s interest in the transaction ($) | ||||||||||||||||||
| ($) | ALIC | AIC | AllCorp | |||||||||||||||||
| Investment Advisory Agreement and Amendment to Service Agreement as of January 1, 2002 between Allstate Insurance Company, Allstate Investments, LLC and Allstate Life Insurance Company of New York. |
| 2009
2010
2011 |
|
| 8,902,079
9,670,558
9,850,648 | 2
2
2 |
| 0
0
0 | 2
2
2 |
| 0
0
0 | 2
2
2 |
| 0
0
0 | 2
2
2 | |||||
| 6 | Net reinsurance income. |
| 7 | Amounts loaned and repaid. |
| 8 | No loans outstanding at year end. |
| 9 | Value of transfer transactions. |
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Review and Approval of Intercompany Agreements
All intercompany agreements to which Lincoln Benefit is a party are approved by Lincoln Benefit’s Board of Directors as well as by the board of any other affiliate of The Allstate Corporation which is a party to the agreement. Intercompany agreements are also submitted for approval to the Nebraska Department of Insurance, Lincoln Benefit’s domestic regulator, and any additional states in which Lincoln Benefit might be commercially domiciled pursuant to the applicable state’s 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 Benefit’s corporate records.
While there is 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 are subject to the Allstate Code of Ethics (“Code”). The Code includes a written conflict of interest policy that was adopted by the Board of Directors of the Allstate Corporation, the 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, must be disclosed to Human Resources. Human Resources will work with representatives from the Law Department, including Enterprise Business Conduct, to determine whether an actual conflict of interest exists. Each director and executive officer must sign a Code of Ethics certification annually.
Independence Standards For Directors
Although not subject to the independence standards of the New York Stock Exchange, for purposes of this S-1 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 been determined that none of the directors are considered to be independent.
Compensation Committee Interlocks and Insider Participation
The Board of Directors of Lincoln Benefit does not have a compensation committee. All compensation decisions are made by The Allstate Corporation, as the ultimate parent company of Lincoln Benefit. No executive officer of Lincoln Benefit served as a member of the compensation committee of another entity for which any executive officer served as a director for Lincoln Benefit.
A section entitled “Experts” is added to your prospectus as follows:
Experts
The financial statements and the related financial statement schedules included herein have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements and financial statement schedules are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Principal Underwriter
ALFS, Inc (“ALFS”) merged into Allstate Distributors, LLC (“ADLLC”), effective September 1, 2011. ALFS assigned its rights and delegated its duties as principal underwriter to ADLLC. This change had no effect on Lincoln Benefit Life Company’s obligations under the Contract.
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, an affiliate of Lincoln Benefit, is a
85
wholly owned subsidiary of Allstate Life Insurance Company. 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 The Prudential Insurance Company of America (“PICA”) whereby, 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, inc., of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se2, inc. provides certain business process outsourcing services with respect to the Contracts. se2, inc. may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2011, consisted of the following: Keane BPO, LLC (administrative services) located at 100 City Square, Boston, MA 02129; RR Donnelly Global Investment Markets (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; EquiSearch Services, Inc. (lost shareholder search) located at 11 Martime Avenue, Suite 665, White Plains, NY 10606; ZixCorp Systems, Inc. (email encryption) located at 2711 N. Haskell Ave., Suite 2300, Dallas, TX 75204; 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. |
86
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 66606-0001
MAILING ADDRESS: P.O. BOX 758561, TOPEKA, KS 66675-8566
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 LIFE 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 49 investment 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:
AIM VARIABLE INSURANCE FUNDS (INVESCO MFS(R) VARIABLE INSURANCE TRUST/(SM)
VARIABLE INSURANCE FUNDS) (SERIES I) /(INITIAL CLASS)
THE ALGER PORTFOLIOS (CLASS O) OPPENHEIMER VARIABLE ACCOUNT FUNDS
(SERVICE SHARES)
DWS VARIABLE SERIES I (CLASS A)
PIMCO VARIABLE INSURANCE TRUST
DWS VARIABLE SERIES II (CLASS A) (ADMINISTRATIVE SHARES)
FEDERATED INSURANCE SERIES PUTNAM VARIABLE TRUST (CLASS IB)
FIDELITY(R) VARIABLE INSURANCE T. ROWE PRICE EQUITY SERIES, INC. (I)
PRODUCTS (INITIAL CLASS)
T. ROWE PRICE INTERNATIONAL SERIES,
JANUS ASPEN SERIES (INSTITUTIONAL INC. (I)
SHARES AND SERVICE SHARES)
WELLS FARGO VARIABLE TRUST FUNDS
LEGG MASON PARTNERS VARIABLE EQUITY
TRUST (CLASS I)
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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.
<R>
THE DATE OF THIS PROSPECTUS IS MAY 1, 2012.
</R>
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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.
1 PROSPECTUS
<R>
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 2012. 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 46 of this
prospectus.
</R>
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 annual and
quarterly reports and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's 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.
2 PROSPECTUS
TABLE OF CONTENTS
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<R>
DEFINITIONS 4
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FEE TABLES 5
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QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT 7
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CONDENSED FINANCIAL INFORMATION 11
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DESCRIPTION OF THE CONTRACTS 11
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Summary 11
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Contract Owner 11
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Annuitant 11
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Modification of the Contract 11
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Assignment 11
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Free Look Period 11
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PURCHASES AND CONTRACT VALUE 12
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Minimum Purchase Payment 12
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Automatic Payment Plan 12
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Allocation of Purchase Payments 12
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Contract Value 12
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Separate Account Accumulation Unit Value 13
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Transfer During Accumulation Period 13
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Market Timing & Excessive Trading 13
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Trading Limitations 14
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Short Term Trading Fees 14
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Automatic Dollar Cost Averaging Program 15
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Portfolio Rebalancing 15
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THE INVESTMENT AND FIXED ACCOUNT OPTIONS 16
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Separate Account Investments 16
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The Portfolios 16
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Voting Rights 19
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Additions, Deletions, and Substitutions of Securities 19
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The Fixed Account 19
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General 19
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Guaranteed Maturity Fixed Account Option 19
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Market Value Adjustment 21
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Dollar Cost Averaging Fixed Account Option 21
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ANNUITY BENEFITS 21
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Annuity Date 21
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Annuity Options 22
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Other Options 22
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Annuity Payments: General 23
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Variable Annuity Payments 23
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Fixed Annuity Payments 23
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Transfers During the Annuity Period 23
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Death Benefit During Annuity Period 24
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</R>
<R>
Certain Employee Benefit Plans 24
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OTHER CONTRACT BENEFITS 24
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Death Benefit: General 24
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Due Proof of Death 24
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Death Benefit Payments 25
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Beneficiary 28
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Contract Loans for 403(b) Contracts 28
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Withdrawals (Redemptions) 29
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Written Request and Forms in Good Order 30
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Systematic Withdrawal Program 31
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ERISA Plans 31
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Minimum Contract Value 31
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CONTRACT CHARGES 31
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Mortality and Expense Risk Charge 31
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Administrative Charges 31
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Contract Maintenance Charge 31
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Administrative Expense Charge 32
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Transfer Fee 32
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Sales Charges 32
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Premium Taxes 34
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Deduction for Separate Account Income Taxes 34
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Other Expenses 34
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TAXES 35
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Taxation of Lincoln Benefit Life Company 35
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Taxation of Variable Annuities in General 35
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Income Tax Withholding 38
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Tax Qualified Contracts 38
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DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE
SEPARATE ACCOUNT 44
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Lincoln Benefit Life Company 44
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Separate Account 44
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State Regulation of Lincoln Benefit 44
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Financial Statements 45
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ADMINISTRATION 45
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DISTRIBUTION OF CONTRACTS 45
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LEGAL PROCEEDINGS 46
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LEGAL MATTERS 46
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REGISTRATION STATEMENT 46
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ABOUT LINCOLN BENEFIT LIFE COMPANY 46
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION 47
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APPENDIX A ACCUMULATION UNIT VALUES 48
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APPENDIX B ILLUSTRATION OF A MARKET VALUE ADJUSTMENT 75
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</R>
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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.
--------------------------------------------------------------------------------
3 PROSPECTUS
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.
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.
4 PROSPECTUS
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 transfer fee) $ 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 (as a percentage of daily net asset
value deducted from each of the Sub-Accounts of the Separate Account)
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 PORTFOLIO'S FEES
AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH PORTFOLIO.
<R>
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% 1.59%
------------------------------------------------------------------------------
</R>
<R>
(1)Expenses are shown as a percentage of Portfolio average daily net assets
before any waiver or reimbursement as of December 31, 2011.
</R>
5 PROSPECTUS
EXAMPLE 1
This Example is intended to help you compare the cost of investing in the
Contracts 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,
.. 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.
<R>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------
Costs Based on Maximum Annual Portfolio Expenses $940 $1,560 $2,203 $3,699
---------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $794 $1,125 $1,482 $2,285
---------------------------------------------------------------------------------
</R>
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.
<R>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------------
Costs Based on Maximum Annual Portfolio Expenses $345 $1,050 $1,778 $3,699
---------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $199 $ 615 $1,057 $2,285
---------------------------------------------------------------------------------
</R>
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.
6 PROSPECTUS
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
Annuitant's 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?
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. 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
7 PROSPECTUS
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.
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.
8 PROSPECTUS
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 Annuitant's 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.
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,
9 PROSPECTUS
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 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?
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.
10 PROSPECTUS
CONDENSED FINANCIAL INFORMATION
<R>
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Sub-Account for 2002 through 2011.
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 Account's
financial statements, which are comprised of the financial statements of the
underlying sub-accounts, as of December 31, 2011, are included in the Statement
of Additional Information. Lincoln Benefit's financial statements as of
December 31, 2011, are included in the Statement of Additional Information.
</R>
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
11 PROSPECTUS
Payments to the Sub-Accounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's 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 Money Market
Sub-Account. Your Contract will contain specific information about your
free-look rights in your state.
PURCHASES AND CONTRACT VALUE
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 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 Money Market
Sub-Account. If we exercise that right and your state's 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 state's 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-Account's 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
12 PROSPECTUS
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 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 26. 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 day's 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 day's 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 21.
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 5, 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
13 PROSPECTUS
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.
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 Portfolio's 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 Portfolio's prospectus for more complete information
regarding the fees and charges associated with each Portfolio.
14 PROSPECTUS
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 Money Market Variable Sub-Account in equal 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.
The theory of Dollar Cost Averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount purchases more
units when the unit prices are relatively low rather than when the prices are
higher, in a fluctuating market, the average cost per unit may be less than the
average of the unit prices on the purchase dates. However, participation in
this program does not assure you of a greater profit from your purchases under
the program, nor will it prevent or necessarily reduce losses in a declining
market. Moreover, while we refer to this program of periodic transfers
generally as dollar cost averaging, periodic transfers from a Sub-Account with
more volatile performance experience is unlikely to produce the desired effects
of dollar cost averaging as would transfers from a less volatile Sub-Account.
You may not use Dollar Cost Averaging and Portfolio Rebalancing at the same
time.
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-Account's 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.
15 PROSPECTUS
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.
<R>
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
----------------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS)
----------------------------------------------------------------------------------------------------------------------------
Invesco Van Kampen V.I. American Value Above-average total return over a market cycle of
Fund, Series I/(5)/ three to five years by investing in common stocks
and other equity securities.
------------------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Mid Cap Growth Capital growth INVESCO ADVISERS, INC.
Portfolio, Series II
------------------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Growth and Long-term growth of capital and income.
Income Portfolio, Series II
------------------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Value Long-term growth of capital
Opportunities Fund - Series I/(2)/
------------------------------------------------------------------------------------------------
THE ALGER PORTFOLIOS
----------------------------------------------------------------------------------------------------------------------------
Alger LargeCap Growth Portfolio - Class Long-term capital appreciation
I-2
------------------------------------------------------------------------------------------------
Alger Growth and Income Portfolio - Capital appreciation and current income
Class I-2 FRED ALGER MANAGEMENT, INC.
------------------------------------------------------------------------------------------------
Alger Capital Appreciation Portfolio - Long-term capital appreciation
Class I-2
------------------------------------------------------------------------------------------------
Alger MidCap Growth Portfolio - Long-term capital appreciation
Class I-2
------------------------------------------------------------------------------------------------
Alger SmallCap Growth Portfolio - Long-term capital appreciation
Class I-2
------------------------------------------------------------------------------------------------
DWS VARIABLE SERIES I
----------------------------------------------------------------------------------------------------------------------------
DWS Bond VIP - Class A/(3)/ To maximize total return consistent with preservation
of capital and prudent investment management, by
investing for both current income and capital
appreciation DEUTSCHE INVESTMENT
------------------------------------------------------------------------------------------------MANAGEMENT AMERICAS INC.
DWS VSI Global Small Cap Growth - Class Above-average capital appreciation over the long
A term
------------------------------------------------------------------------------------------------
DWS Core Equity VIP - Class A/(4)/ Long-term growth of capital, current income and
growth of income
------------------------------------------------------------------------------------------------
DWS International VIP - Class A Long-term growth of capital
------------------------------------------------------------------------------------------------
DWS VARIABLE SERIES II
----------------------------------------------------------------------------------------------------------------------------
DWS Global Income Builder VIP - Class Maximize income while maintaining prospects for DEUTSCHE INVESTMENT
A/(4)/ capital appreciation MANAGEMENT AMERICAS INC.
----------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES
----------------------------------------------------------------------------------------------------------------------------
Federated Managed Volatility Fund II High current income and moderate capital FEDERATED EQUITY
(formerly, Federated Capital Income appreciation MANAGEMENT COMPANY OF
Fund II) PENNSYLVANIA
----------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Current income
Securities II FEDERATED INVESTMENT
------------------------------------------------------------------------------------------------MANAGEMENT COMPANY
Federated High Income Bond Fund II High current income
------------------------------------------------------------------------------------------------
</R>
16 PROSPECTUS
<R>
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
---------------------------------------------------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Asset Manager(SM) High total return with reduced risk over the long
Portfolio - Initial Class term by allocating its assets among stocks, bonds,
and short-term instruments.
--------------------------------------------------------------------------------------------------
Fidelity VIP Contrafund(R) Portfolio - Long-term capital appreciation.
Initial Class
--------------------------------------------------------------------------------------------------FIDELITY MANAGEMENT &
Fidelity VIP Equity-Income Portfolio - Reasonable Income. The fund will also consider the RESEARCH COMPANY
Initial Class potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard &
Poor's 500(SM) Index (S&P 500(R) ).
--------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio - Initial To achieve capital appreciation.
Class
--------------------------------------------------------------------------------------------------
Fidelity VIP Index 500 Portfolio - Investment results that correspond to the total return
Initial Class of common stocks publicly traded in the United
States, as represented by the Standard & Poor's
500(SM) Index (S&P 500(R) ).
--------------------------------------------------------------------------------------------------
Fidelity VIP Money Market Portfolio - As high a level of current income as is consistent with
Initial Class preservation of capital and liquidity.
--------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio - Long-term growth of capital.
Initial Class
--------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced Portfolio Long-term capital growth, consistent with
- Institutional Shares preservation of capital and balanced by current
income.
--------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible Bond To obtain maximum total return, consistent with
Portfolio - Institutional Shares preservation of capital. JANUS CAPITAL MANAGEMENT
--------------------------------------------------------------------------------------------------LLC
Janus Aspen Series Overseas Portfolio Long-term growth of capital.
- Service Shares
--------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Portfolio Long-term growth of capital
- Institutional Shares
--------------------------------------------------------------------------------------------------
Janus Aspen Series Enterprise Portfolio Long-term growth of capital
- Institutional Shares
--------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Portfolio Long-term growth of capital
- Institutional Shares
--------------------------------------------------------------------------------------------------
LEGG MASON PARTNERS VARIABLE EQUITY
TRUST
---------------------------------------------------------------------------------------------------------------------------
Legg Mason ClearBridge Variable Large Long-term capital growth with current income as a LEGG MASON PARTNERS FUND
Cap Value Portfolio - Class I secondary objective ADVISOR, LLC
---------------------------------------------------------------------------------------------------------------------------
MFS(R) VARIABLE INSURANCE TRUST/(SM)/
---------------------------------------------------------------------------------------------------------------------------
MFS Growth Series - Initial Class Capital appreciation
--------------------------------------------------------------------------------------------------
MFS Investors Trust Series - Initial Capital appreciation
Class
--------------------------------------------------------------------------------------------------MFS(TM) INVESTMENT
MFS New Discovery Series - Initial Class Capital appreciation MANAGEMENT
--------------------------------------------------------------------------------------------------
MFS Research Series - Initial Class Capital appreciation
--------------------------------------------------------------------------------------------------
MFS Total Return Series - Initial Class Total return
--------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small- & Capital appreciation. OPPENHEIMERFUNDS, INC.
Mid-Cap Fund(R) /VA - Service Shares
---------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
---------------------------------------------------------------------------------------------------------------------------
PIMCO VIT Foreign Bond Portfolio (U.S. Maximum total return, consistent with preservation
Dollar- Hedged) - Administrative Shares of capital and prudent investment management. PACIFIC INVESTMENT
--------------------------------------------------------------------------------------------------MANAGEMENT COMPANY LLC
PIMCO VIT Total Return Portfolio Maximum total return, consistent with preservation
- Administrative Shares of capital and prudent investment management.
--------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
---------------------------------------------------------------------------------------------------------------------------
Putnam VT International Value Fund - Capital growth. Current income is a secondary PUTNAM INVESTMENT
Class IB objective. MANAGEMENT, LLC
---------------------------------------------------------------------------------------------------------------------------
</R>
17 PROSPECTUS
<R>
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
---------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY SERIES, INC.
---------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Portfolio - Substantial dividend income as well as long-term
I growth of capital through investments in the
common stocks of established companies.
------------------------------------------------------------------------------------------------T. ROWE PRICE ASSOCIATES,
T. Rowe Price Mid-Cap Growth Portfolio Long-term capital appreciation by investing in INC.
- I/(1)/ mid-cap stocks with potential for above-average
earnings growth.
------------------------------------------------------------------------------------------------
T. Rowe Price New America Growth Long-term growth of capital by investing primarily in
Portfolio - I the common stocks of growth companies.
------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
---------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Long-term growth of capital through investments
Portfolio - I primarily in the common stocks of established T. ROWE PRICE ASSOCIATES,
non-U.S. companies. INC.
---------------------------------------------------------------------------------------------------------------------------
WELLS FARGO VARIABLE TRUST FUNDS
---------------------------------------------------------------------------------------------------------------------------
Wells Fargo Advantage VT Discovery Fund Long-term capital appreciation.
WELLS FARGO FUNDS
MANAGEMENT, LLC
------------------------------------------------------------------------------------------------
Wells Fargo Advantage VT Opportunity Long-term capital appreciation. SUB-ADVISOR: WELLS CAPITAL
Fund(SM) MANAGEMENT INCORPORATED
------------------------------------------------------------------------------------------------
</R>
(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.
<R>
(2) Effective August 19, 2011, the Invesco Van Kampen V.I. Value Opportunities
Series I Sub-Account (formerly, Invesco V.I. Basic Value - 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 DWS 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 May 1, 2012, the following Portfolio changed their names:
</R>
<R>
PREVIOUS NAME NEW NAME
------------------------------------------------------
DWS Growth & Income VIP - DWS Core Equity VIP -
Class A Class A
------------------------------------------------------
DWS Balanced VIP - Class A DWS Global Income Builder
VIP - Class A
------------------------------------------------------
</R>
<R>
(5) Effective on or about July 1, 2012, the following Portfolio will change its
name:
</R>
<R>
PREVIOUS NAME NEW NAME
-----------------------------------------------------------
Invesco Van Kampen V.I. Mid Cap Invesco Van Kampen V.I.
Value - Series I American Value - Series I
-----------------------------------------------------------
</R>
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 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
18 PROSPECTUS
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 Portfolio's 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). Allstate Life invests the assets of the
general account in accordance with applicable laws governing the investments of
insurance company general accounts. The Fixed Account may not be available in
all states. 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
19 PROSPECTUS
specified rate for a specified Guarantee Period. You select the Guarantee
Period for each amount that you allocate 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
X (1 + Effective Annual Rate) X 1.045
----------
$10,450.00
Contract Value at end of Contract Year $10,450.00
X (1 + Effective Annual Rate) X 1.045
----------
$10,920.25
Contract Value at end of Contract Year $10,920.25
X (1 + Effective Annual Rate) X 1.045
----------
$11,411.66
Contract Value at end of Contract Year $11,411.66
X (1 + Effective Annual Rate) X 1.045
----------
$11,925.19
Contract Value at end of Contract Year $11,925.19
X (1 + Effective Annual Rate) X 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
20 PROSPECTUS
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
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 33;
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
15 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 Annuitant's 90th
21 PROSPECTUS
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.
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 30 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.
22 PROSPECTUS
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 23.
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
23 PROSPECTUS
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
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 Annuitant's death. After the Annuitant's death, any remaining guaranteed
payments will be distributed at least as rapidly as under the method of
distribution in effect at the Annuitant's 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 26, you may add optional riders that in some circumstances
may increase the Death Benefit under your contract.
24 PROSPECTUS
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
(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.
(b) 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.
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 13 and
Transfer Fees on page 32 during this 5-year period.
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 Beneficiary's 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 Owner's death.
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
25 PROSPECTUS
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 13
and Transfer Fees on page 32 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 Annuitant's 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 Annuitant's 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 Annuitant's age is 80 or less on the Annuity
Date; or
(b) 5 years, if the youngest Annuitant's 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
26 PROSPECTUS
Contract Value or the most recently calculated Enhanced Income Benefit A.
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 Owner's 85th birthday, or if the Contract Owner is
not a living individual, the oldest Annuitant's 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 Owner's 85th
birthday, or the first day of the month following the oldest Annuitant's 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 Annuitant's 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 Annuitant's age is 80 or less on the Annuity
Date; or
(b) 5 years, if the youngest Annuitant's 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 Annuitant's 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 Annuitant's age is 80 or less on the Annuity
Date; or
(b) at least 5 years, if the youngest Annuitant's 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
27 PROSPECTUS
the Contract Value on that Contract Anniversary or the most recently
calculated Enhanced Death Benefit A.
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 Owner's 85th birthday or, if the Contract Owner is not a
living individual, the Annuitant's 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 Owner's 85th
birthday; or
(c) the first day of the month following the oldest Annuitant's 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 Beneficiary's 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.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be
28 PROSPECTUS
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 participant's 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 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
29 PROSPECTUS
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page 32. Withdrawals from
the Fixed Account may be increased or decreased by a Market Value Adjustment,
as described in "Market Value Adjustment" on page 21.
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 31. 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 39.
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 31. 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 Account's 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.
The limitations on withdrawals do not affect transfers between certain
Qualified Plans. Additional restrictions
30 PROSPECTUS
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 5, 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 24.
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.
31 PROSPECTUS
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:
WITHDRAWAL CHARGE
CONTRIBUTION YEAR 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 33;
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 33;
.. certain withdrawals for Contracts issued under 403(b) plans or 401 plan
under our prototype as described on page 42;
.. withdrawals taken to satisfy IRS minimum distribution rules;
.. withdrawals that qualify for one of the waiver benefits described on pages
33-34; and
.. 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
32 PROSPECTUS
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 36. 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 36.
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 Annuitant's 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
Annuitant's stay in a long term care facility is the Owner or Annuitant or a
member of the Owner or Annuitant's 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;
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
33 PROSPECTUS
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 5. 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 Portfolio's investment adviser, administrators or
distributors, and is calculated based on a percentage of the average assets
allocated to the Portfolio.
34 PROSPECTUS
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.
<R>
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.
</R>
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
35 PROSPECTUS
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.
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 Owner's
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 Owner's death. These requirements are
36 PROSPECTUS
satisfied if any portion of the Contract Owner's 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 Owner's death. If the Contract Owner's 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.
<R>
We administer certain spousal rights under the Contract, and related tax
reporting in accordance with our understanding of the Defense of Marriage Act
(which defines a "marriage" as a legal union between a man and a woman and a
"spouse" as a person of the opposite sex). Depending on the state in which your
Contract is issued, we may offer certain spousal benefits to civil union
couples, domestic partners or same-sex marriages. You should be aware, however,
that federal tax law does not recognize civil union couples, domestic partners
or marriage spouses of the same sex. Therefore, we cannot permit a same-sex
civil union partner, domestic partner or spouse to continue the Contract within
the meaning of the tax law upon the death of the first partner under the
Contract's "spousal continuance" provision. Please note there may be federal
tax consequences at the death of the first same-sex civil union partner,
domestic partner or spouse. Civil union couples, domestic partners and spouses
of the same sex should consider that limitation before selecting a spousal
benefit under the Contract.
</R>
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.
<R>
MEDICARE TAX ON NET INVESTMENT INCOME. The Patient Protection and Affordable
Care Act, also known as the 2010 Health Care Act, included a new Medicare tax
on investment income. This new tax, which is effective in 2013, 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
$12,000 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.
</R>
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 Owner's death or becoming totally disabled,
.. made in substantially equal periodic payments (as defined by the Code) over
the Contract Owner's 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, 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 Owner's 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.
<R>
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
</R>
37 PROSPECTUS
<R>
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. For
exchanges occurring between June 30, 2008 and October 23, 2011, a partial
exchange, of a deferred annuity contract for another deferred annuity contract,
will qualify for tax-deferral only if no amount is withdrawn or surrendered
from either contract for a period of 12 months. The 12 month period begins on
the date when exchange proceeds are treated as premiums paid for the recipient
contract. Withdrawals from, annuitizations, taxable Owner or Annuitant changes,
or surrenders of either contract within the 12 month period will retroactively
negate the partial exchange, unless one of the following applies:
</R>
.. the contract owner is at least 591/2 or dies; or becomes totally disabled
or obtains a divorce or suffers a loss of employment after the partial
exchange was completed and prior to the withdrawal, annuitization, Owner or
Annuitant change, or surrender;
.. if the annuity is owned by an entity, the annuitant dies after the partial
exchange was completed and prior to the withdrawal, annuitization, Owner or
Annuitant change or surrender;
.. the withdrawal is allocable to investment in the Contract before August 14,
1982; or,
.. the annuity is a qualified funding asset within the meaning of Code section
130(d).
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.
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 alien's 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.
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);
38 PROSPECTUS
.. 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 decedent's IRA, TSA, or employer sponsored retirement plan
under which the decedent's 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 decedent's IRA, TSA, or
employer sponsored qualified retirement plan.
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 Owner's 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
39 PROSPECTUS
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 Owner's death or total disability,
.. made in substantially equal periodic payments (as defined by the Code) over
the Contract Owner's 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.
During the first 2 years of the individual's 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 taxpayer's 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.
40 PROSPECTUS
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 alien's 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.
<R>
CHARITABLE IRA DISTRIBUTIONS. The Pension Protection Act of 2006 included a
charitable giving incentive permitting tax-free IRA distributions for
charitable purposes. The Tax Relief, Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 extended this provision until the end of 2011. As
of 2012, this provision expired and has not been extended. It is possible
Congress will extend this provision retroactively to include some or all of
2012.
</R>
For distributions in tax years beginning after 2005 and before 2012, the Act
provides an exclusion from gross income, up to $100,000, for otherwise taxable
IRA distributions from a traditional or Roth IRA that are qualified charitable
distributions. To constitute a qualified charitable distribution, the
distribution must be 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 individual's deduction, 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 for
the new income tax exclusion added by the Pension Protection Act. As a result
the general rules for reporting IRA distributions apply.
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 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.
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
Annuitant's 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
41 PROSPECTUS
4) The custodian or trustee of the Individual Retirement Account provides us
with a signed certification of the following:
(a) The Annuitant's surviving spouse is the sole beneficiary of the
Individual Retirement Account;
(b) The Annuitant's 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
spouse's 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 2002 or later, then your plan is up
to date. If your plan has a revision date prior to March 2002, 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,
.. 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 employer's 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
42 PROSPECTUS
benefits from the annuity are distributed in accordance with the terms of the
qualified plan. Annuitant owned contracts require that the beneficiary be the
annuitant's 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.
43 PROSPECTUS
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 2940 S. 84th Street , Lincoln, NE 68506-4142. Lincoln Benefit is a
wholly-owned subsidiary of Allstate Life Insurance Company ("Allstate Life"), a
stock life insurance company incorporated under the laws of the State of
Illinois. Allstate Life is a wholly-owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company incorporated
under the laws of the State of Illinois. All of the capital stock issued and
outstanding of Allstate Insurance Company is owned by Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation.
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.
Under our reinsurance agreement with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life, and substantially all of
the assets backing our reinsured liabilities are owned by Allstate Life.
Accordingly, the results of operations with respect to applications received
and contracts issued by Lincoln Benefit are not reflected in our financial
statements. The amounts reflected in our financial statements relate only to
the investment of those assets of Lincoln Benefit that are not transferred to
Allstate Life under the reinsurance agreement. These assets represent our
general account and are invested and managed by Allstate Life. While the
reinsurance agreement provides us with financial backing from Allstate Life, it
does not create a direct contractual relationship between Allstate Life and you.
Under the Company's reinsurance agreements with Allstate Life, the Company
reinsures all reserve liabilities with Allstate Life except for variable
contracts. The Company's variable Contract assets and liabilities are held in
legally-segregated, unitized Separate Accounts and are retained by the Company.
However, Lincoln Benefit's economic risks and returns related to such variable
contracts are transferred to Allstate Life.
Effective June 1, 2006, Allstate Life entered into an agreement ("the
Agreement") with Prudential Financial, Inc. and its subsidiary, The Prudential
Insurance Company of America ("PICA") pursuant to which Allstate Life sold,
through a combination of coinsurance and modified coinsurance reinsurance,
substantially all of its variable annuity business, including that of its
subsidiary Lincoln Benefit. Pursuant to the Agreement Allstate Life and PICA
also entered into an administrative services agreement which provides that PICA
or an affiliate administer the Variable Account and the Contracts. The benefits
and provisions of the Contracts have not been changed by these transactions and
agreements. None of the transactions or agreements have changed the fact that
we are primarily liable to you under 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 46.
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
44 PROSPECTUS
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
<R>
We have primary responsibility for all administration of the Contracts and the
Variable Account. We entered into an administrative services agreement with The
Prudential Insurance Company of America ("PICA") whereby, 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
se/2/, inc., of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se/2/, inc.
provides certain business process outsourcing services with respect to the
Contracts. se/2/, inc. may engage other service providers to provide certain
administrative functions. These service providers may change over time, and as
of December 31, 2011, consisted of the following: Keane BPO, LLC
(administrative services) located at 100 City Square, Boston, MA 02129; RR
Donnelly Global Investment Markets (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; EquiSearch Services, Inc. (lost shareholder
search) located at 11 Martime Avenue, Suite 665, White Plains, NY 10606;
ZixCorp Systems, Inc. (email encryption) located at 2711 N. Haskell Ave., Suite
2300, Dallas, TX 75204; DST Systems, Inc. (FAN mail, positions, prices) located
at 333 West 11 Street, 5th Floor, Kansas City, MO 64105.
</R>
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.
We will also provide you with additional periodic and other reports,
information and prospectuses as may be required by federal securities laws.
DISTRIBUTION OF CONTRACTS
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.
<R>
ALFS, Inc ("ALFS") merged into Allstate Distributors, LLC ("ADLLC"), effective
September 1, 2011. ALFS assigned its rights and delegated its duties as
principal underwriter to ADLLC. This change had no effect on Lincoln Benefit
Life Company's obligations to you under your Contract.
ADLLC, located at 3100 Sanders Road, Northbrook, IL 60062-7154 serves as
distributor of the Contracts. ADLLC, an affiliate of Lincoln Benefit, is a
wholly owned subsidiary of Allstate Life Insurance Company. 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.
</R>
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
45 PROSPECTUS
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 management's judgment, are
not of material importance to their respective total assets or material with
respect to the Separate Account.
LEGAL MATTERS
All 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 Susan L. Lees, General Counsel of Lincoln Benefit.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act
of 1933 as amended, with respect to the Contracts offered 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.
46 PROSPECTUS
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
---------------------------------------------------------
47 PROSPECTUS
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 Cap/VA - Service
Shares Sub-Account, PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) -
Administrative Shares Sub-Account, PIMCO VIT 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 V.I. Basic Value Fund - Series I Sub-Account, Legg Mason ClearBridge
Variable Large Cap Value Portfolio - Class I Sub-Account, Invesco Van Kampen
V.I. Mid Cap 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 Balanced - 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 Owner's 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.
<R>
The name of the following Sub-Accounts changed since December 31, 2011. The
name shown in the tables of Accumulation Units correspond to the name of the
Sub-Accounts as of December 31, 2011:
</R>
<R>
SUB-ACCOUNT NAME AS OF
DECEMBER 31, 2011 (AS
APPEARS IN THE FOLLOWING
TABLES OF ACCUMULATION SUB-ACCOUNT NAME
UNIT VALUES) ON/ABOUT MAY 1, 2012
---------------------------------------------------
DWS Growth & Income VIP DWS Core Equity VIP -
- Class A Class A
---------------------------------------------------
DWS Balanced VIP - Class DWS Global Income
A Builder VIP - Class A
---------------------------------------------------
Invesco V.I. Basic Value Invesco Van Kampen V.I.
- Series I Value Opportunities -
Series I
---------------------------------------------------
Invesco Van Kampen V.I. Invesco Van Kampen V.I.
Mid Cap Value - Series I American Value - Series I
---------------------------------------------------
</R>
48 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS I-2
2002 $13.880 $9.061 474,441
2003 $9.061 $12.055 518,914
2004 $12.055 $12.881 454,884
2005 $12.881 $14.559 380,525
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
------------------------------------------------------------------------------------------------
ALGER INCOME & GROWTH PORTFOLIO--CLASS I-2
2002 $13.340 $9.078 781,602
2003 $9.078 $11.641 775,012
2004 $11.641 $12.398 686,795
2005 $12.398 $12.665 553,769
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
------------------------------------------------------------------------------------------------
ALGER LARGE CAP GROWTH PORTFOLIO--CLASS I-2
2002 $11.540 $7.640 734,340
2003 $7.640 $10.198 807,544
2004 $10.198 $10.625 719,914
2005 $10.625 $11.756 607,853
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
------------------------------------------------------------------------------------------------
ALGER MID CAP GROWTH PORTFOLIO--CLASS I-2
2002 $15.030 $10.457 410,450
2003 $10.457 $15.264 559,837
2004 $15.264 $17.040 571,188
2005 $17.040 $18.482 583,687
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
</R>
49 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
ALGER SMALLCAP GROWTH PORTFOLIO--CLASS I-2
2002 $8.020 $5.842 283,731
2003 $5.842 $8.212 468,871
2004 $8.212 $9.454 355,278
2005 $9.454 $10.913 404,918
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
------------------------------------------------------------------------------------------------
DWS VSI: BOND VIP--CLASS A
2002 $11.360 $12.081 558,679
2003 $12.081 $12.535 493,622
2004 $12.535 $13.046 507,579
2005 $13.046 $13.219 458,975
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
------------------------------------------------------------------------------------------------
DWS VSI: GLOBAL SMALL CAP GROWTH--CLASS A FORMERLY, DWS VSI: GLOBAL OPPORTUNITIES VIP--CLASS A
2002 $12.290 $9.724 130,916
2003 $9.724 $14.317 193,561
2004 $14.317 $17.440 176,147
2005 $17.440 $20.357 193,166
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
------------------------------------------------------------------------------------------------
DWS VSI: GROWTH & INCOME VIP--CLASS A
2002 $9.340 $7.087 201,541
2003 $7.087 $8.871 178,003
2004 $8.871 $9.651 150,151
2005 $9.651 $10.109 139,183
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
</R>
50 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
DWS VSI: INTERNATIONAL VIP--CLASS A
2002 $8.360 $6.743 105,081
2003 $6.743 $8.507 114,835
2004 $8.507 $9.790 121,969
2005 $9.790 $11.232 127,476
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
------------------------------------------------------------------------------------------------
DWS VSII: BALANCED VIP--CLASS A
2005 $10.000 $10.602 449,167
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
------------------------------------------------------------------------------------------------
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
2002 $11.670 $12.572 2,695,911
2003 $12.572 $12.710 1,589,894
2004 $12.710 $13.005 1,136,236
2005 $13.005 $13.104 879,855
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
------------------------------------------------------------------------------------------------
FEDERATED HIGH INCOME BOND FUND II
2002 $8.950 $6.435 296,496
2003 $6.435 $10.814 707,583
2004 $10.814 $11.797 729,703
2005 $11.797 $11.960 606,875
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
</R>
51 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
FEDERATED MANAGED VOLATILITY FUND II FORMERLY, FEDERATED CAPITAL INCOME FUND II
2002 $8.570 $8.959 460,608
2003 $8.959 $7.668 309,555
2004 $7.668 $8.325 297,389
2005 $8.325 $8.738 271,194
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
------------------------------------------------------------------------------------------------
FIDELITY VIP ASSET MANAGER? PORTFOLIO--INITIAL CLASS
2002 $10.650 $9.601 371,447
2003 $9.601 $11.186 420,226
2004 $11.186 $11.652 437,716
2005 $11.652 $11.973 433,897
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
------------------------------------------------------------------------------------------------
FIDELITY VIP CONTRAFUND(R) PORTFOLIO--INITIAL CLASS
2002 $11.240 $10.060 1,084,534
2003 $10.060 $12.763 1,311,861
2004 $12.763 $14.555 1,438,118
2005 $14.555 $16.809 1,469,954
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
------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME PORTFOLIO--INITIAL CLASS
2002 $11.430 $9.375 1,218,166
2003 $9.375 $12.067 1,403,132
2004 $12.067 $13.291 1,384,897
2005 $13.291 $13.896 1,176,532
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
</R>
52 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO--INITIAL CLASS
2002 $11.280 $7.786 1,121,334
2003 $7.786 $10.215 1,141,572
2004 $10.215 $10.429 1,091,575
2005 $10.429 $10.897 953,608
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
------------------------------------------------------------------------------------------------
FIDELITY VIP INDEX 500 PORTFOLIO--INITIAL CLASS
2002 $10.510 $8.073 1,782,207
2003 $8.073 $10.237 1,907,842
2004 $10.237 $11.183 1,817,054
2005 $11.183 $11.578 1,583,665
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
------------------------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO--INITIAL CLASS
2002 $11.390 $11.436 3,542,199
2003 $11.436 $11.406 2,015,425
2004 $11.406 $11.401 1,544,840
2005 $11.401 $11.601 1,335,848
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
------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO--INITIAL CLASS
2002 $9.200 $7.240 200,173
2003 $7.240 $10.251 294,264
2004 $10.251 $11.504 402,967
2005 $11.504 $13.526 394,476
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
</R>
53 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
INVESCO V.I. BASIC VALUE FUND--SERIES I
2004 $10.000 $10.821 269,780
2005 $10.821 $11.301 253,928
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
------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. GROWTH AND INCOME FUND--SERIES II
2002 $10.000 $8.163 36,430
2003 $8.163 $10.293 152,145
2004 $10.293 $11.600 354,336
2005 $11.600 $12.570 434,444
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
------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. MID CAP GROWTH FUND--SERIES II
2004 $10.000 $11.156 44,940
2005 $11.156 $12.242 49,948
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
------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. MID CAP VALUE FUND--SERIES I
2004 $10.000 $11.333 309,322
2005 $11.333 $12.570 353,741
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
</R>
54 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
JANUS ASPEN ENTERPRISE PORTFOLIO--INSTITUTIONAL SHARES
2002 $11.000 $7.827 694,192
2003 $7.827 $10.443 656,913
2004 $10.443 $12.453 642,333
2005 $12.453 $13.812 539,509
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
------------------------------------------------------------------------------------------------
JANUS ASPEN JANUS PORTFOLIO--INTERNATIONAL SHARES
2002 $10.570 $12.531 623,206
2003 $12.531 $9.984 1,211,583
2004 $9.984 $10.306 1,041,507
2005 $10.306 $10.614 860,239
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
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES BALANCED PORTFOLIO--INSTITUTIONAL SHARES
2002 $13.290 $7.762 94,361
2003 $7.762 $13.832 1,496,830
2004 $13.832 $14.825 1,365,759
2005 $14.825 $15.805 1,195,782
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
</R>
55 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FLEXIBLE BOND PORTFOLIO--INSTITUTIONAL SHARES
2002 $11.490 $12.280 1,721,351
2003 $12.280 $13.166 584,216
2004 $13.166 $13.519 527,949
2005 $13.519 $13.619 492,874
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
------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES
2002 $10.000 $7.675 1,378,111
2003 $7.675 $10.226 58,782
2004 $10.226 $11.939 152,105
2005 $11.939 $12.526 114,760
2006 $12.526 $14.605 84,464
2007 $14.605 $17.055 73,894
2008 $17.055 $16.058 0
------------------------------------------------------------------------------------------------
JANUS ASPEN WORLDWIDE PORTFOLIO--INSTITUTIONAL SHARES
2002 $11.070 $8.143 1,719,720
2003 $8.143 $9.971 1,479,355
2004 $9.971 $10.318 1,193,225
2005 $10.318 $10.788 997,853
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
------------------------------------------------------------------------------------------------
LEGG MASON CLEARBRIDGE VARIABLE LARGE CAP VALUE PORTFOLIO-- CLASS I SHARES
2004 $10.000 $10.954 60,840
2005 $10.954 $11.525 49,518
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
------------------------------------------------------------------------------------------------
LSA BALANCED
2002 $10.000 $8.678 2,230
2003 $8.678 $11.074 83,852
</R>
56 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
MFS(R) GROWTH SERIES--INITIAL CLASS
2002 $10.690 $6.994 247,624
2003 $6.994 $8.995 248,807
2004 $8.995 $10.035 231,814
2005 $10.035 $10.821 202,017
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
------------------------------------------------------------------------------------------------
MFS(R) INVESTORS TRUST SERIES--INITIAL CLASS
2002 $9.660 $7.536 269,101
2003 $7.536 $9.091 270,484
2004 $9.091 $9.998 244,156
2005 $9.998 $10.596 207,370
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
------------------------------------------------------------------------------------------------
MFS(R) NEW DISCOVERY SERIES--INITIAL CLASS
2002 $17.650 $11.918 183,131
2003 $11.918 $15.738 224,760
2004 $15.738 $16.556 232,616
2005 $16.556 $17.209 188,078
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
------------------------------------------------------------------------------------------------
MFS(R) RESEARCH SERIES--INITIAL CLASS
2002 $9.920 $7.389 186,178
2003 $7.389 $9.100 190,978
2004 $9.100 $10.412 189,969
2005 $10.412 $11.085 142,585
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
</R>
57 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
MFS(R) TOTAL RETURN SERIES--INITIAL CLASS
2002 $12.250 $11.473 642,776
2003 $11.473 $13.180 943,486
2004 $13.180 $14.490 1,033,566
2005 $14.490 $14.714 970,559
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
------------------------------------------------------------------------------------------------
OPPENHEIMER MAIN STREET SMALL-- & MID-CAP FUND(R)/VA--SERVICE SHARES FORMERLY, OPPENHEIMER MAIN
STREET SMALL CAP FUND(R)/VA--SERVICE SHARES
2002 $10.000 $7.847 97,205
2003 $7.847 $11.178 214,471
2004 $11.178 $13.157 347,171
2005 $13.157 $14.256 305,883
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
------------------------------------------------------------------------------------------------
PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES
2002 $10.000 $10.565 75,670
2003 $10.565 $10.669 337,271
2004 $10.669 $11.122 347,113
2005 $11.122 $11.550 338,440
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
------------------------------------------------------------------------------------------------
PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES
2002 $10.000 $10.557 539,429
2003 $10.557 $10.951 1,001,817
2004 $10.951 $11.343 1,060,049
2005 $11.343 $11.476 1,156,641
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
</R>
58 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
PREMIER VIT NACM SMALL CAP PORTFOLIO--CLASS 1
2002 $10.000 $7.200 88,999
2003 $7.200 $10.143 236,796
2004 $10.143 $11.809 274,798
2005 $11.809 $11.669 207,018
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
2004 $10.000 $10.812 129,223
2005 $10.812 $10.971 113,375
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
2002 $10.000 $8.198 38,105
2003 $8.198 $11.161 43,231
2004 $11.161 $13.335 89,040
2005 $13.335 $15.027 123,886
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
------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP GROWTH STOCK FUND
2002 $9.590 $7.397 56,403
2003 $7.397 $8.653 63,977
2004 $8.653 $9.123 60,421
2005 $9.123 $8.929 57,402
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
2002 $9.200 $7.540 104,266
2003 $7.540 $9.168 53,974
2004 $9.168 $10.439 192,125
2005 $10.439 $10.696 91,183
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
</R>
59 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO--I
2002 $12.360 $10.602 608,043
2003 $10.602 $13.140 744,659
2004 $13.140 $14.913 895,153
2005 $14.913 $15.306 874,317
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
------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO--I
2002 $8.850 $7.137 99,915
2003 $7.137 $9.201 173,635
2004 $9.201 $10.338 264,060
2005 $10.338 $11.847 255,863
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
------------------------------------------------------------------------------------------------
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO--I
2002 $14.590 $11.345 436,260
2003 $11.345 $15.505 619,155
2004 $15.505 $18.121 586,887
2005 $18.121 $20.534 504,417
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
------------------------------------------------------------------------------------------------
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO--I
2002 $9.620 $6.813 165,424
2003 $6.813 $9.090 155,957
2004 $9.090 $9.995 173,326
2005 $9.955 $10.271 157,832
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
</R>
60 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT DISCOVERY FUND
2005 $10.000 $11.481 293,780
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
------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND--CLASS 2
2005 $10.000 $11.040 510,068
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
</R>
<R>
* 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%.
</R>
61 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
---------------------------------------------------------------------------------------------------
ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS I-2
2002 $6.340 $4.116 264,242
2003 $4.116 $5.447 542,296
2004 $5.447 $5.788 727,607
2005 $5.788 $6.506 721,253
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
---------------------------------------------------------------------------------------------------
ALGER INCOME & GROWTH PORTFOLIO--CLASS I-2
2002 $7.810 $5.284 202,665
2003 $5.284 $6.738 354,359
2004 $6.738 $7.137 396,418
2005 $7.137 $7.252 381,157
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
---------------------------------------------------------------------------------------------------
ALGER LARGE CAP GROWTH PORTFOLIO--CLASS I-2
2002 $7.070 $4.651 108,296
2003 $4.651 $6.175 308,042
2004 $6.175 $6.398 439,952
2005 $6.398 $7.041 492,261
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
---------------------------------------------------------------------------------------------------
ALGER MID CAP GROWTH PORTFOLIO--CLASS I-2
2002 $8.670 $5.996 295,309
2003 $5.996 $8.703 836,891
2004 $8.703 $9.663 999,864
2005 $9.663 $10.424 1,007,060
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
</R>
62 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
---------------------------------------------------------------------------------------------------------
ALGER SMALLCAP GROWTH PORTFOLIO--CLASS I-2
2002 $4.990 $3.619 128,015
2003 $3.619 $5.060 283,201
2004 $5.060 $5.793 359,793
2005 $5.793 $6.651 408,709
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
---------------------------------------------------------------------------------------------------------
DWS VSI: BOND VIP--CLASS A
2002 $11.020 $11.655 89,305
2003 $11.655 $12.026 179,258
2004 $12.026 $12.447 242,774
2005 $12.447 $12.544 235,908
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
---------------------------------------------------------------------------------------------------------
DWS VSI: GLOBAL SMALL CAP GROWTH--CLASS A
FORMERLY, DWS VSI: GLOBAL OPPORTUNITIES VIP--CLASS A
2002 $6.750 $5.313 51,809
2003 $5.313 $7.780 159,642
2004 $7.780 $9.425 254,808
2005 $9.425 $10.942 309,298
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
---------------------------------------------------------------------------------------------------------
DWS VSI: GROWTH & INCOME VIP--CLASS A
2002 $8.350 $6.305 37,769
2003 $6.305 $7.849 76,611
2004 $7.849 $8.492 99,749
2005 $8.492 $8.847 85,054
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
</R>
63 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
----------------------------------------------------------------------------------------------------
DWS VSI: INTERNATIONAL VIP--CLASS A
2002 $5.910 $4.740 36,822
2003 $4.740 $5.948 144,072
2004 $5.948 $6.808 174,503
2005 $6.808 $7.768 190,759
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
----------------------------------------------------------------------------------------------------
DWS VSII: BALANCED VIP--CLASS A
2005 $10.000 $10.562 140,966
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
----------------------------------------------------------------------------------------------------
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
2002 $11.150 $11.942 408,779
2003 $11.942 $12.006 580,553
2004 $12.006 $12.218 605,532
2005 $12.218 $12.243 530,059
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
----------------------------------------------------------------------------------------------------
FEDERATED HIGH INCOME BOND FUND II
2002 $9.150 $5.784 24,658
2003 $5.784 $10.941 246,278
2004 $10.941 $11.870 444,657
2005 $11.870 $11.968 439,857
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
</R>
64 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
--------------------------------------------------------------------------------------------------------
FEDERATED MANAGED VOLATILITY FUND II
FORMERLY, FEDERATED CAPITAL INCOME FUND II
2002 $7.740 $9.115 92,428
2003 $9.115 $6.855 51,656
2004 $6.855 $7.401 76,744
2005 $7.401 $7.726 76,010
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
--------------------------------------------------------------------------------------------------------
FIDELITY VIP ASSET MANAGER? PORTFOLIO--INITIAL CLASS
2002 $9.030 $8.095 73,114
2003 $8.095 $9.379 116,121
2004 $9.379 $9.716 181,632
2005 $9.716 $9.929 176,415
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
--------------------------------------------------------------------------------------------------------
FIDELITY VIP CONTRAFUND(R) PORTFOLIO--INITIAL CLASS
2002 $8.080 $7.195 348,537
2003 $7.195 $9.078 888,353
2004 $9.078 $10.296 1,158,838
2005 $10.296 $11.826 1,260,810
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
--------------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME PORTFOLIO--INITIAL CLASS
2002 $10.300 $8.405 174,403
2003 $8.405 $10.759 306,020
2004 $10.759 $11.786 434,981
2005 $11.786 $12.255 395,964
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
</R>
65 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO--INITIAL CLASS
2002 $6.790 $4.659 305,305
2003 $4.659 $6.080 625,498
2004 $6.080 $6.173 939,071
2005 $6.173 $6.415 831,880
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
------------------------------------------------------------------------------------------------------
FIDELITY VIP INDEX 500 PORTFOLIO--INITIAL CLASS
2002 $7.800 $5.960 365,351
2003 $5.960 $7.516 978,400
2004 $7.516 $8.166 1,444,339
2005 $8.166 $8.407 1,362,101
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
------------------------------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO--INITIAL CLASS
2002 $10.470 $10.456 310,441
2003 $10.456 $10.373 819,516
2004 $10.373 $10.311 618,241
2005 $10.311 $10.435 694,730
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
------------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO--INITIAL CLASS
2002 $6.540 $5.119 109,892
2003 $5.119 $7.208 235,043
2004 $7.208 $8.045 382,839
2005 $8.045 $9.406 426,944
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
</R>
66 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
-------------------------------------------------------------------------------------------------------------
INVESCO V.I. BASIC VALUE FUND--SERIES I
2004 $10.000 $10.781 244,914
2005 $10.781 $11.197 251,607
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
-------------------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. GROWTH AND INCOME FUND--SERIES II
2002 $10.000 $8.133 12,359
2003 $8.133 $10.199 106,750
2004 $10.199 $11.431 238,529
2005 $11.431 $12.319 277,577
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
-------------------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. MID CAP GROWTH FUND--SERIES II
2004 $10.000 $11.114 77,019
2005 $11.114 $12.130 52,894
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
-------------------------------------------------------------------------------------------------------------
INVESCO VAN KAMPEN V.I. MID CAP VALUE FUND--SERIES I
2004 $10.000 $11.290 220,091
2005 $11.290 $12.455 280,918
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
</R>
67 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
---------------------------------------------------------------------------------------------------------------
JANUS ASPEN ENTERPRISE PORTFOLIO--INSTITUTIONAL SHARES
2002 $3.960 $2.799 307,400
2003 $2.799 $3.715 412,644
2004 $3.715 $4.405 466,868
2005 $4.405 $4.860 505,828
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
---------------------------------------------------------------------------------------------------------------
JANUS ASPEN JANUS PORTFOLIO--INTERNATIONAL SHARES
2002 $6.150 $4.441 162,987
2003 $4.441 $5.746 251,235
2004 $5.746 $5.898 275,805
2005 $5.898 $6.042 257,364
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
---------------------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES BALANCED PORTFOLIO--INSTITUTIONAL SHARES
2002 $9.000 $8.273 356,912
2003 $8.273 $9.267 699,022
2004 $9.267 $9.878 705,500
2005 $9.878 $10.473 691,502
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
</R>
68 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
--------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FLEXIBLE BOND PORTFOLIO--INSTITUTIONAL SHARES
2002 $11.010 $11.943 114,051
2003 $11.943 $12.480 254,643
2004 $12.480 $12.743 312,969
2005 $12.743 $12.767 291,063
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
--------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES
2002 $10.000 $7.734 36,688
2003 $7.734 $10.132 37,023
2004 $10.132 $11.765 71,988
2005 $11.765 $12.276 79,929
2006 $12.276 $14.235 72,800
2007 $14.235 $16.532 78,321
2008 $16.532 $15.537 0
--------------------------------------------------------------------------------------------------------------------
JANUS ASPEN WORLDWIDE PORTFOLIO--INSTITUTIONAL SHARES
2002 $6.240 $4.564 245,789
2003 $4.564 $5.558 365,025
2004 $5.558 $5.719 414,342
2005 $5.719 $5.947 364,847
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
--------------------------------------------------------------------------------------------------------------------
LEGG MASON CLEARBRIDGE VARIABLE LARGE CAP VALUE PORTFOLIO--
CLASS I SHARES
2004 $10.000 $10.913 47,102
2005 $10.913 $11.419 45,145
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
--------------------------------------------------------------------------------------------------------------------
LSA BALANCED
2002 $10.000 $8.646 2,157
2003 $8.646 $10.973 46,166
</R>
69 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------
MFS(R) GROWTH SERIES--INITIAL CLASS
2002 $5.330 $3.465 123,692
2003 $3.465 $4.432 227,669
2004 $4.432 $4.917 274,686
2005 $4.917 $5.273 269,766
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
------------------------------------------------------------------------------------------------
MFS(R) INVESTORS TRUST SERIES--INITIAL CLASS
2002 $8.130 $6.308 52,812
2003 $6.308 $7.567 121,843
2004 $7.567 $8.276 136,211
2005 $8.276 $8.724 135,382
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
------------------------------------------------------------------------------------------------
MFS(R) NEW DISCOVERY SERIES--INITIAL CLASS
2002 $8.360 $5.615 205,837
2003 $5.615 $7.374 477,819
2004 $7.374 $7.715 623,501
2005 $7.715 $7.975 560,525
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
------------------------------------------------------------------------------------------------
MFS(R) RESEARCH SERIES--INITIAL CLASS
2002 $6.860 $5.084 32,958
2003 $5.084 $6.227 50,336
2004 $6.227 $7.085 53,593
2005 $7.085 $7.502 52,102
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
</R>
70 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
---------------------------------------------------------------------------------------------------------------------------
MFS(R) TOTAL RETURN SERIES--INITIAL CLASS
2002 $11.030 $10.273 250,026
2003 $10.273 $11.736 454,021
2004 $11.736 $12.832 590,723
2005 $12.832 $12.959 622,265
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
---------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER MAIN STREET SMALL-- & MID-CAP FUND(R)/VA--SERVICE SHARES
FORMERLY, OPPENHEIMER MAIN STREET SMALL CAP FUND(R)/VA--SERVICE SHARES
2002 $10.000 $7.818 41,593
2003 $7.818 $11.076 193,863
2004 $11.076 $12.965 323,468
2005 $12.965 $13.972 312,606
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
---------------------------------------------------------------------------------------------------------------------------
PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)--
ADMINISTRATIVE SHARES
2002 $10.000 $10.526 4,596
2003 $10.526 $10.571 79,683
2004 $10.571 $10.960 100,873
2005 $10.960 $11.319 106,489
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
---------------------------------------------------------------------------------------------------------------------------
PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES
2002 $10.000 $10.518 85,455
2003 $10.518 $10.851 428,033
2004 $10.851 $11.178 604,097
2005 $11.178 $11.247 614,406
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
</R>
71 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
-------------------------------------------------------------------------------------------------
PREMIER VIT NACM SMALL CAP PORTFOLIO--CLASS 1
2002 $10.000 $7.173 8,929
2003 $7.173 $10.051 172,641
2004 $10.051 $11.637 244,720
2005 $11.637 $11.436 236,295
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
2004 $10.000 $10.772 91,944
2005 $10.772 $10.870 106,673
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
2002 $10.000 $8.168 6,727
2003 $8.168 $11.059 39,731
2004 $11.059 $13.141 58,105
2005 $13.141 $14.727 61,333
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
-------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP GROWTH STOCK FUND
2002 $8.950 $6.870 31,178
2003 $6.870 $7.992 54,246
2004 $7.992 $8.380 63,858
2005 $8.380 $8.157 58,249
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
2002 $11.360 $9.262 19,587
2003 $9.262 $11.201 30,898
2004 $11.201 $12.683 100,258
2005 $12.683 $12.925 68,271
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
</R>
72 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
--------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO--I
2002 $11.480 $9.895 228,732
2003 $9.895 $12.073 526,597
2004 $12.073 $13.627 761,565
2005 $13.627 $13.909 796,314
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
--------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO--I
2002 $6.530 $5.239 39,170
2003 $5.239 $6.716 110,909
2004 $6.716 $7.505 176,753
2005 $7.505 $8.554 203,771
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
--------------------------------------------------------------------------------------------------
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO--I
2002 $9.790 $7.569 231,318
2003 $7.569 $10.288 574,018
2004 $10.288 $11.957 675,635
2005 $11.957 $13.476 621,478
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
--------------------------------------------------------------------------------------------------
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO--I
2002 $7.800 $5.489 80,509
2003 $5.489 $7.284 84,065
2004 $7.284 $7.933 120,707
2005 $7.933 $8.140 126,892
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
</R>
73 PROSPECTUS
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
<R>
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT DISCOVERY FUND
2005 $10.000 $11.435 177,119
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
------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND--CLASS 2
2005 $10.000 $10.996 449,486
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
</R>
<R>
* 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%.
</R>
74 PROSPECTUS
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% X $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 X (I - J) X 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 X (.06 - .065) X 4 = -.0180
The Market Value Adjustment is a reduction of $648.00 from the amount withdrawn:
$ - 648.00 = -.0180 X ($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% X (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
75 PROSPECTUS
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 X (.06 - .055) X 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as
follows:
$648.00 = .0180 X ($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% X ($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 X AW'
WC.. = .07 X AW'
WC.. - MVA = .088AW'
AW'. - $14,000.00 = .088AW'
AW'. = $14,000.00 / (1 - .088) = $15,350.88
MVA. = - .018 X $15,350.88 = - $276.32
WC.. = .07 X $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 X $14,000.00 = - $252.00
WC = .07 X $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.
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 X .15 = $6,000.00).
76 PROSPECTUS
LBL3055-7 [LOGO]
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.................. $ 4,927.80
Cost of printing and engraving..... $ 1,580.00
Legal fees......................... $ 0
Accounting fees.................... $ 6,600.00
Mailing fees....................... $ 2,160.00
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.
The By-Laws of Allstate Distributors, LLC (Distributor) provide that the
corporation will indemnify a director, officer, employee or agent of the
corporation to the full extent of Delaware law. In general, Delaware law
provides that a corporation may indemnify a director, officer, employee or agent
against expenses, judgments, fines and amounts paid in settlement if that
individual acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. No indemnification shall be made for expenses,
including attorney's fees, if the person shall have been judged to be liable to
the corporation unless a court determines such person is entitled to such
indemnity. Expenses incurred by such individual in defending any action or
proceeding may be advanced by the corporation so long as the individual agrees
to repay the corporation if it is later determined that he or she is not
entitled to such indemnification.
Under the terms of the form of Underwriting Agreement, the Registrant agrees to
indemnify the Distributor for any liability that the latter may incur to a
Contract owner or party-in-interest under a Contract, (a) arising out of any act
or omission in the course of or in connection with rendering services under such
Agreement, or (b) arising out of the purchase, retention or surrender of a
Contract; provided that the Registrant will not indemnify the Distributor for
any such liability that results from the latter's willful misfeasance, bad faith
or gross negligence, or from the reckless disregard by the latter of its duties
and obligations under the Underwriting Agreement.
Insofar as indemnification for liability 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 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 the 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 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
3(i) Amended and Restated Articles of Incorporation of Lincoln Benefit Life
Company dated September 26, 2000. Incorporated herein by reference to
Exhibit 3(i) to Lincoln Benefit Life Company's Quarterly Report on
Form 10-Q for quarter ended March 31, 2002. (SEC File No. 333-111553)
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. 333-50545, 811-07924) filed April 21, 1998
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. 333-50545, 811-07924) filed April 21, 1998
5(a) Opinion and Consent of Counsel regarding legality. Incorporated herein
by reference to Post-Effective Amendment to Form S-1 on Form S-3 for
Lincoln Benefit Life Company (File No. 333-59765) filed April 28, 2000.
5(b) Opinion and Consent of Counsel regarding legality. Incorporated herein
by reference to Registrant's Form S-3 Registration Statement
(File No. 333-158192) dated March 24, 2009.
5(c) Opinion and Consent of Counsel regarding legality. Filed herewith.
8 None
9 None
10 Material Contracts
10.1 Form of Investment Management Agreement among Allstate Investments,
LLC, Allstate Insurance Company, The Allstate Corporation and certain
affiliates effective January 1, 2007. Incorporated herein by reference
to Exhibit 10.12 to Allstate Life Insurance Company's Annual Report on
Form 10-K for 2007. (SEC File No. 000-31248)
10.2 Form of Tax Sharing Agreement among The Allstate Corporation and
certain affiliates dated as of November 12, 1996. Incorporated herein
by reference to Exhibit 10.24 to Allstate Life Insurance Company's
Annual Report on Form 10-K for 2007. (SEC File No. 000-31248)
10.3 Supplemental Intercompany Tax Sharing Agreement between Allstate Life
Insurance Company and Lincoln Benefit Life Company effective December
21, 2000. Incorporated herein by reference to Exhibit 10.3 to Lincoln
Benefit Life Company's Annual Report on Form 10-K for the year ended
December 31, 2009. (SEC File No. 333-111553)
10.4 Cash Management Services Master Agreement between Allstate Insurance
Company and Allstate Bank (aka Allstate Federal Savings Bank) dated
March 16, 1999. Incorporated herein by reference to Exhibit 10.4 to
Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for
quarter ended March 31, 2002. (SEC File No. 333-111553)
10.5 Amendment No.1 to Cash Management Services Master Agreement effective
January 5, 2001. Incorporated herein by reference to Exhibit 10.5 to
Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for
quarter ended March 31, 2002. (SEC File No. 333-111553)
10.6 Amendment No. 2 entered into November 8, 2002 to the Cash Management
Services Master Agreement between Allstate Insurance Company, Allstate
Bank and Allstate Motor Club, Inc. dated March 16, 1999. Incorporated
herein by reference to Exhibit 10.19 to Allstate Life Insurance
Company's Annual Report on Form 10-K filed for 2007. (SEC File No.
000-31248)
10.7 Premium Depository Service Supplement dated as of September 30, 2005
to Cash Management Services Master Agreement between Allstate
Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
certain other parties. Incorporated herein by reference to Exhibit
10.20 to Allstate Life Insurance Company's Annual Report on Form 10-K
filed for 2007. (SEC File No. 000-31248)
10.8 Variable Annuity Service Supplement dated November 10, 2005 to Cash
Management Services Agreement between Allstate Bank, Allstate Life
Insurance Company of New York and certain other parties. Incorporated
herein by reference to Exhibit 10.21 to Allstate Life Insurance
Company's Annual Report on Form 10-K filed for 2007. (SEC File No.
000-31248)
10.9 Sweep Agreement Service Supplement dated as of October 11, 2006 to
Cash Management Services Master Agreement between Allstate Life
Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
certain other companies. Incorporated herein by reference to Exhibit
10.22 to Allstate Life Insurance Company's Annual Report on Form 10-K
filed for 2007. (SEC File No. 000-31248)
10.10 Form of Amended and Restated Service and Expense Agreement between
Allstate Insurance Company, The Allstate Corporation and certain
affiliates effective January 1, 2004. Incorporated herein by reference
to Exhibit 10.1 to Allstate Life Insurance Company's Annual Report on
Form 10-K for 2007. (SEC File No. 000-31248)
10.11 Form of Amendment No. 1 to Amended and Restated Service and Expense
Agreement between Allstate Insurance Company, The Allstate Corporation
and certain affiliates effective January 1, 2009. Incorporated herein
by reference to Exhibit 10.1 to Allstate Life Insurance Company's
Current Report on Form 8-K filed February 17, 2010. (SEC File No.
000-31248)
10.12 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)
10.13 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. 333-111553)
10.14 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)
10.15 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)
10.16 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. 333-111553)
10.17 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)
10.18 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. 333-111553)
10.19 Intercompany Loan Agreement among The Allstate Corporation, Allstate
Life Insurance Company, Lincoln Benefit Life Company and other certain
subsidiaries of The Allstate Corporation dated February 1, 1996.
Incorporated herein by reference to Exhibit 10.24 of Allstate Life
Insurance Company's Annual Report on Form 10-K for 2006. (SEC File No.
000-31248)
10.20 Form of Service Agreement between Lincoln Benefit Life Company and
Allstate Assignment Company effective June 25, 2001. Incorporated
herein by reference to Exhibit 10.22 of Lincoln Benefit Life Company's
Annual Report on Form 10-K for 2007. (SEC File No. 333-111553)
10.21 First Amendment to Service Agreement between Lincoln Benefit Life
Company and Allstate Assignment Company effective December 1, 2007.
Incorporated herein by reference to Exhibit 10.23 of Lincoln Benefit
Life Company's Annual Report on Form 10-K for 2007. (SEC File No.
333-111553)
10.22 Agreement for the Settlement of State and Local Tax Credits among
Allstate Insurance Company and certain affiliates effective January 1,
2007. Incorporated herein by reference to Exhibit 10.1 to Lincoln
Benefit Life Company's Current Report on Form 8-K filed February 21,
2008. (SEC File No. 333-111553)
10.23 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)
10.24 Form of Assignment & Delegation of Administrative Services Agreements,
Underwriting Agreements, and Selling Agreements between ALFS, Inc. and
Allstate Life Insurance Company, Allstate Life Insurance Company of New
York, Charter National Life Insurance Company, Intramerica Life
Insurance Company, Allstate Distributors, LLC & Lincoln Benefit Life
Company. Incorporated herein by reference to Exhibit 10.24 to the
Registration Statement on Form S-1 for Lincoln Benefit Life Company
(File No. 333-158192) filed on April 12, 2011.
10.25 Assignment & Delegation of Administrative Services Agreements,
Underwriting Agreements, and Selling Agreements between ALFS, Inc. and
Allstate Life Insurance Company, Allstate Life Insurance Company of
New York, Charter National Life Insurance Company, Intramerica Life
Insurance Company, Allstate Distributors, LLC, Allstate Financial
Services, LLC & Lincoln Benefit Life Company entered into on
September 1, 2011. 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)
11 None
12 None
15 Not applicable
16 Letter re change in certifying accountant. Not Applicable.
21 Subsidiaries of the registrant. Not applicable.
23 Consent of Independent Registered Public Accounting Firm.
Filed herewith.
24 Powers of Attorney for Robert K. Becker, Anurag Chandra,
Lawrence W. Dahl, Susan L. Lees, Samuel H. Pilch, John C. Pintozzi,
and Matthew E. Winter. 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 Linkbase16(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. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this 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% 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 determining of 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 in 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 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 Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursant 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 Lincoln and State of
Nebraska on March 27, 2012.
LINCOLN BENEFIT LIFE COMPANY (Registrant)
* By: /s/ Susan L. Lees
-------------------------------------
Susan L. Lees
Director, Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons and in the capacities
indicated on March 27, 2012.
(Signature) (Title)
*/ Lawrence W. Dahl Director, President and Chief Operating Officer
-----------------------------
Lawrence W. Dahl
*/ Robert K. Becker Director and Senior Vice President
-----------------------------
Robert K. Becker
/s/ Susan L. Lees Director, Senior Vice President,
----------------------------- General Counsel and Secretary
Susan L. Lees
*/ Samuel H. Pilch Senior Group Vice President and Controller
-----------------------------
Samuel H. Pilch
*/ John C. Pintozzi Director, Senior Vice President and
----------------------------- Chief Financial Officer
John C. Pintozzi
*/ Matthew E. Winter Director, Chairman of the Board and
----------------------------- Chief Executive Officer
Matthew E. Winter
*/ Anurag Chandra Director and Executive Vice President
-----------------------------
Anurag Chandra
* By Susan L. Lees, pursuant to Power of Attorney.
EXHIBITS
Exhibit No. Description
5(c) Opinion and Consent of Counsel regarding legality.
23 Consent of Independent Registered Public Accounting Firm
24 Powers of Attorney for Robert K. Becker, Anurag Chandra,
Lawrence W. Dahl, Susan L. Lees, Samuel H. Pilch,
John C. Pintozzi, and Matthew E. Winter.
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