| Nebraska | 6300 | 470221457 | ||||||||||||
| (State or Other Jurisdiction of Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) | ||||||||||||
| Large accelerated filer | ¨ | Accelerated filed | ¨ | |||||||||||||||||
| Non-accelerated filer | x | Smaller reporting company | ¨ | |||||||||||||||||
| Emerging growth company | ¨ | |||||||||||||||||||
| Title of securities being registered | Amount to registered | Proposed maximum offering price unit | Proposed maximum aggregate offering price (2) | Amount of registration fee (2) | |||||||||||||
| Deferred annuity interests and participating interests therein | $(1) | $(1) | $0 | $0 | |||||||||||||
| (1) | The amount to be registered and the proposed maximum offering price per unit are not applicable because the securities are not issued in predetermined amounts or units. | ||||||||||||||||
| (2) | By filing dated March 30, 2021, Lincoln Benefit Life Company carried over $18,939,668 of unsold securities from Registration Statement no. 333-224097. Because a filing fee has previously been paid with respect to those interests, there is no filing fee due under this Registration Statement. In accordance with Rule 415 (a)(6), the offering of securities on the earlier registration statement will be deemed terminated as of the effective date of this registration statement. | ||||||||||||||||
| This Registration Statement contains a combined prospectus under Rule 429 under the Securities Act of 1933 which relates to the Form S-1 registration statement (File Nos. 333-224097 and 333-203375), filed on April 2, 2018 and April 13, 2015, respectively, by Lincoln Benefit Life Company. Upon effectiveness, this Registration Statement will also act as a post-effective amendment to such earlier registration statement. | |||||||||||||||||
LINCOLN BENEFIT LIFE COMPANY
Supplement Dated April 28, 2021
To the following Prospectuses, as supplemented
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED APRIL 29, 2019
CONSULTANT I PROSPECTUS DATED APRIL 29, 2019
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
INDEX
| Page | ||||||
Item 3(c) | 2 | |||||
Item 11(a) | 16 | |||||
Item 11(b) | 16 | |||||
Item 11(c) | 16 | |||||
Item 11(e) | 17 | |||||
Item 11(f) | 81 | |||||
Item 11(h) | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 81 | ||||
Item 11(i) | 94 | |||||
Item 11(j) | 95 | |||||
Item 11(k) | 95 | |||||
Item 11(l) | 96 | |||||
Item 11(m) | Security Ownership of Certain Beneficial Owners and Management | 97 | ||||
Item 11(n) | Transactions with Related Persons, Promoters and Certain Control Persons | 99 | ||||
| 102 | ||||||
1
| Item 3(c). | Risk Factors |
LINCOLN BENEFIT LIFE RISK FACTORS
This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.
These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.
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. These risks constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and historical trends. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the SEC or in materials incorporated therein by reference.
Changes in actual experience could materially and adversely affect the Company’s financial condition.
Our liability pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of our business. We establish target returns based upon these factors and the average amount of capital that we must hold to support in-force contracts taking into account rating agencies and regulatory requirements. Profitability emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued.
Our financial condition depends in part on the adequacy of investment spreads, the management of market and credit risks associated with investments, the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the persistency of policies, and the management of operating costs and expenses within anticipated pricing allowances. We may face losses if there are significant deviations from our assumptions regarding the future persistency of our insurance policies and annuity contracts. The prices and expected future profitability of our life insurance, deferred annuity and long-term care products are based in part upon assumptions related to persistency. Economic and market dislocations may occur and future consumer persistency behaviors could vary materially from the past. The effect of persistency on profitability varies for different products. For example, continued activity in the viatical, stranger-owned, and/or life settlement industry could cause the Company’s level of lapses to differ from its assumptions, which could negatively impact the Company’s financial condition and cash flow. Assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revisions over time. Accordingly, the Company’s results may be affected, positively or negatively, from time to time, by actual results differing from assumptions by changes in estimates, and by changes resulting from implementing new systems and procedures that facilitate the calculation of more precise estimates. Legislation and regulation of the insurance marketplace and products could also affect the profitability of our business, which in turn could adversely affect our financial condition.
2
Changes in reserve estimates may adversely affect our operating results.
We establish and hold reserves to pay future policy benefits and claims. The reserve for policy benefits is computed on a prescribed basis. Our reserves do not represent an exact calculation of liability, but rather are actuarial or statistical estimates based on data and models that include many assumptions and projections, which are inherently uncertain and involve the exercise of significant judgment. We periodically review the adequacy of these reserves and the underlying assumptions. We cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our policy liabilities, together with future premiums, will grow to the level assumed prior to the payment of benefits or claims. If actual experience differs significantly from assumptions or estimates, reserves may not be adequate. If we conclude that our reserves, together with future premiums, are insufficient to cover future policy benefits and claims, we would be required to increase our reserves and incur income statement charges for the period in which we make the determination, which could materially and adversely affect our cash flow, results of operations and financial condition.
Changes in market interest rates and/or credit spreads may lead to a significant decrease in the profitability of our spread-based products and may adversely impact investment income.
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 creditworthiness 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 changes in market interest rates, adverse economic conditions or otherwise could cause additional realized and unrealized losses on securities in our investment portfolio. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to support that security to maintain our risk-based capital levels. Levels of writedowns and impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell, fixed maturity securities. Realized losses or impairments on these securities may have a material adverse effect on our net income in a particular period, which in turn could materially and adversely affect our cash flow, results of operations and financial condition.
Our ability to manage our fixed annuities and interest-sensitive life products is dependent upon maintaining profitable spreads between investment yields and interest crediting rates. When market interest rates decrease or remain at relatively low levels, cash flows from renewal premium or investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by market conditions, regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Decreases in the interest crediting rates offered on products could make those products less attractive, leading to changes in the level of policy loans, surrenders and withdrawals. This process may lead to a flow of cash out of our business. These outflows may require investment assets to be sold at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in realized investment losses. For certain products, principally fixed annuity and interest-sensitive life products, the earned rate on assets could lag behind rising market yields. We may react to market conditions by increasing crediting rates, which could narrow spreads and reduce profitability on our business. Additionally, an increase in market interest rates or credit
3
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.
Guarantees within certain of our products may decrease our earnings, increase the volatility of our results, result in higher risk management costs and expose us to increased counterparty risk.
Certain of our products include guaranteed benefits. These guarantees are designed to protect contractholders against significant downturns in equity markets and interest rates. Any such periods of significant and sustained downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of our liabilities associated with those products. An increase in these liabilities would result in a decrease in our net income. We use hedging and risk management strategies to mitigate the liability exposure and the volatility of net income associated with these liabilities. These strategies involve the use of reinsurance and derivatives, which may not be completely effective. In addition, hedging instruments may not effectively offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Furthermore, we are subject to the risk that changes in contractholder behavior or mortality, combined with adverse market events, produce economic losses not addressed by the risk management techniques employed. These, individually or collectively, may have a material adverse effect on our results of operations, including net income, cash flow, financial condition or liquidity.
We may not be able to mitigate the capital impact associated with statutory reinsurance reserving requirements, potentially adversely impacting the profitability of our business.
To support statutory reserves for certain term and universal life insurance products with secondary guarantees, we currently utilize reinsurance and capital markets solutions for financing a portion of our statutory reserve requirements deemed to be non-economic. If we are not able to maintain sufficient financing as a result of market conditions or otherwise, this could potentially adversely impact the profitability of our business, which could materially and adversely effect our financial condition, cash flow and results of operations.
Changes in tax laws and the interpretations thereof may decrease the profitability of our products and could adversely affect the Company.
The U.S. Congress has, from time to time, considered legislation that could increase or adversely impact the manner of taxing the products the Company sells and of calculating the amount of taxes paid by life insurance companies or other corporations, including the Company.
The attractiveness to the Company’s customers of many of the Company’s products may be due, in part, to favorable tax treatment. Current U.S. federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums paid by the holders of life insurance and annuity products. Taxes, if any, are payable generally on income attributable to a distribution under the contract for the year in which the distribution is made. Congress has, from time to time, considered legislation that could have the effect of reducing or eliminating the benefit of such income tax deferral of taxation or otherwise affect the taxation of life insurance or annuity products. As a result, demand for certain of the Company’s life insurance and annuity products that offer income tax deferral could be negatively impacted. To the extent that legislation is enacted in the future to reduce the tax deferred status of life insurance or annuity products, limit the exclusion of death benefits from income, or reduce the taxation of competing products, all life insurance companies, including ours, could be adversely affected. Likewise, reductions in individual tax rates could reduce the attractiveness of tax deferral to the Company’s potential customers.
The Company’s taxes could increase as a result of changes in laws or regulations or in the interpretation of applicable tax laws and regulations. Furthermore, the value of deferred tax assets could be affected by the Company’s future earnings levels. There is a risk that the current administration could change rates or laws and negatively impact the Company’s earnings.
4
Regulations defining fiduciary could cause some changes to the manner in which we deliver products and services, as well as changes in the nature and amount of compensation and fees.
The Department of Labor, the Securities and Exchange Commission and the National Association of Insurance Commissioners (“NAIC”) have announced proposals to develop fiduciary standards that would apply to recommendations made by certain financial advisors. Furthermore, several states have either issued their own fiduciary rules or are considering doing so and those rules may extend to certain types of products (e.g. insurance and annuities, financial planning, etc.) or may broadly cover all recommendations made by financial advisors.
Additionally, self-regulatory bodies such as the Certified Financial Planner Board are developing a fiduciary standard that would apply to their members, such as financial advisors who hold a Certified Financial Planner designation.
Depending on the span and substance of any fiduciary rules and regulations and timing of their applicability, the scope of any implementation should not materially impact the way we compensate our advisors, particularly with respect to our closed block annuity business. However, compliance with prohibited transactions exemptions, when fully phased in, would likely require additional supervision with the possibility of overlapping or competing requirements from other regulators and increase litigation risk, all of which could adversely impact our business, results of operations and/or financial condition.
The Company is dependent on the performance of others.
The Company relies on third parties to provide various services that are important to our business operations. Certain of these third parties may act on behalf of the Company or represent the Company in various capacities, including but not limited to the administration of our contractholders’ activities or the management of our invested assets on a day-to-day basis. If a third party fails to perform its obligations or acts inappropriately with respect to the Company or its products, it could materially adversely affect the Company’s financial condition, results of operations and cash flows. Additionally, the Company’s operations are dependent on various technologies, some of which are provided and/or maintained by third parties. Any of the third parties that the Company depends upon may default on their services or obligations to the Company, including due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. Further, the Company may be held responsible for obligations that arise from the acts or omissions of these third parties. Such defaults could have a material adverse effect on the Company’s financial condition and results of operations.
If our internal controls are ineffective, our operating results could be adversely affected.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.
The preparation of financial statements in conformity with statutory accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making
5
judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below our expectations.
We may be unable to retain our highly qualified employees.
Our business depends on our ability to attract, motivate and retain highly skilled and often highly specialized technical, actuarial, managerial and executive personnel, and there is no assurance that we will be able to do so. We compete with other financial services companies for employees primarily on the basis of compensation and financial position. Our reputation, operations and internal controls could be materially adversely affected if we are unsuccessful in recruiting and retaining highly qualified employees.
Risks Relating to Investments
The determination of the fair value of our fixed income securities is subjective and could materially impact our operating results and financial condition.
In determining fair values, we principally use the market approach which utilizes market transaction data for the same or similar instruments. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets’ fair values. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly, which could materially and adversely affect our cash flows.
Concentration of our investment portfolio in any particular segment of the economy may have adverse effects on our operating results and financial condition.
Our investment portfolio is and may in the future be concentrated in a certain industry, collateral type, group of related industries, geographic sector or risk type. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Debt securities by Industry” and “— Commercial Mortgage Loans.” Any such current or future concentrations could have an adverse effect on our investment portfolio and consequently on our results of operations and financial condition. Events or developments that have a negative impact on any particular industry, group of related industries or geographic region may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated, rather than diversified.
The determination of the amount of other-than-temporary-impairments of our investments is subjective and could materially impact our operating results and financial condition.
The determination of the amount of realized capital losses recorded for impairments varies by investment type and is based on our ongoing evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in our results of operations. The assessment of whether other-than-temporary impairments have occurred is based on our case-by-case evaluation of the underlying reasons for the decline in fair value. We define fair value generally as the price that would be received to sell an asset or paid to transfer a liability. Our conclusions on such assessments are judgmental and include assumptions and projections of future cash flows which may ultimately prove to be incorrect as assumptions, facts and circumstances change. Furthermore, historical trends may not be indicative of future impairments and additional impairments may need to be recorded in the future.
6
Defaults or deteriorating credit of securities collateralized by residential and commercial mortgage loans, and collateralized corporate loans may lead to write-downs and impact our results of operations and financial condition.
Changes in residential or commercial mortgage delinquencies, loss severities or recovery rates, declining residential or commercial real estate prices, corporate loan delinquencies or recovery rates, changes in credit or bond insurer strength ratings and the quality of service provided by service providers on securities in our portfolio could lead us to determine that write-downs are necessary in the future, and could materially adversely affect our cash flow, results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Commercial Mortgage Loans.”
Our investment strategies may not adequately protect against adverse developments in the financial markets.
While our investment management strategies are designed to protect asset value even in challenging market conditions, the Company cannot guarantee that such strategies would be successful, especially if there are unexpected developments in the financial markets. Slowing of global growth, tightening monetary policy in the U.S. and increasing political uncertainty remain key challenges for markets. There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid. These include corporate bonds, privately-placed fixed maturity securities, mortgage loans and policy loans. If we were forced to sell certain of our investments during periods of market volatility or disruption, market prices may be lower than our carrying value in such investments. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility.
Uncertainty relating to the potential phasing out of LIBOR after 2021 may adversely affect the value of the Company’s investment portfolio, the value of embedded derivatives and the Company’s ability to issue funding agreements.
Regulators and law enforcement agencies in the UK and elsewhere are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association (“BBA”) in connection with the calculation of the daily London InterBank Offered Rate (“LIBOR”) may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR.
Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. For example, on July 27, 2017, the UK Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR quotes after 2021. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based securities, including those held in the Company’s investment portfolio or used in the valuation of certain embedded derivatives. However, for U.S. dollar LIBOR, it now appears that the relevant date may be deferred to June 30, 2023 for the most common tenors (overnight and one, three, six and 12 months). An extension to 2023 would mean that many legacy U.S. dollar LIBOR contracts would terminate before related LIBOR rates cease to be published. However, regulators have emphasized that despite any continued publication of U.S. dollar LIBOR through June 30, 2023, no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. Although the foregoing may provide some sense of timing, there is no assurance that LIBOR, of any particular currency and tenor, will continue to be published until any particular date.
Following the discontinuation of LIBOR, many of the Company’s investments may reset to an alternative rate. Such reset could adversely affect the Company’s current asset liability strategies. The establishment of alternative reference rates or implementation of any other potential changes relating to LIBOR phase-out may
7
adversely affect the Company’s reserves, net investment income and cost of capital. The Company is continuing to evaluate the potential impact of the potential LIBOR transition and the establishment of an alternative rate, and the Company cannot predict what impact any such changes may have on the Company’s business, results of operations and financial condition.
Risks Relating to the Insurance Industry
Difficult conditions in the global economy and capital markets generally could adversely affect our business and operating results.
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part because we have a large investment portfolio and certain of our insurance liabilities are sensitive to changing market factors. Market factors, including interest rates, credit spreads, equity prices, real estate markets, consumer spending, business investment, government spending, the volatility and strength of the capital markets, deflation and inflation, all affect the business and economic environment and, ultimately, the amount and profitability of our business. Disruptions in one market or asset class can also spread to other markets or asset classes. Upheavals in the financial markets can also affect our business through their effects on general levels of economic activity, employment and customer behavior. Financial markets have also been affected periodically by concerns over U.S. fiscal policy. These issues could, on their own, or combined with the possible slowing of the global economy generally, have severe repercussions to the U.S. and global credit and financial markets, further exacerbate concerns over sovereign debt of other countries and disrupt economic activity in the U.S. and elsewhere.
General economic conditions could also adversely affect us in the form of consumer behavior and pressure investment results. Holders of some of our interest-sensitive life insurance and annuity products may engage in an elevated level of discretionary withdrawals of contractholder funds. Our contractholders may choose to defer paying insurance premium or stop paying insurance premiums altogether. Our investment results could be adversely affected as deteriorating financial and business conditions affect the issuers of the securities in our investment portfolio.
Losses from legal and regulatory actions may be material to our operating results or cash flows and may result in harm to our reputation.
We are involved in various legal actions in the ordinary course of business, the results of which we cannot predict with certainty. We are also subject to various regulatory actions and inquiries, such as information requests, market conduct examinations and books and record examinations from state and federal regulators and other authorities. A substantial legal liability or significant regulatory action against us, as well as regulatory inquiries or investigations, could harm our reputation, result in material fines or penalties, result in significant legal costs and otherwise have a material adverse effect on our business, financial condition and results of operations. Even if we ultimately prevail in the litigation, regulatory actions or investigation, our ability to retain our current contractholders and recruit and retain employees could be materially and adversely impacted. In addition, in some class action and other lawsuits, financial services companies have made material settlement payments. The Company may incur substantial defense costs, settlements or judgments in any such future claims or actions, which could adversely affect the Company’s business and results of operations.
We are subject to extensive regulation and potential further restrictive regulation may increase our operating costs.
As an insurance company, we are subject to extensive laws and regulations.
The extent of regulation varies, but generally the Company is governed by state statutes. These statutes delegate regulatory, supervisory and administrative authority to state insurance departments. This system of
8
supervision and regulation covers, among other things, standards of minimum capital requirements and solvency, including risk-based capital measurements, restrictions on certain transactions, licensing status, reserving, payment of policy benefits, etc. State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, sometimes lead to additional expense for the insurer and, thus, could have a material adverse effect on our financial condition and results of operations.
Regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance regulatory authorities have relatively broad discretion to issue orders of supervision, which permit such authorities to supervise the business and operations of an insurance company.
Failure of the Company to maintain its licenses in each jurisdiction could have a material adverse effect on our results of operations or financial condition.
As an insurance company with separate accounts that are regulated as investment companies, we are also subject to laws and regulations 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. Failure to comply with these laws and regulations could result in material fines or other penalties, as well as unexpected costs in remedying any such failure. In addition, 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 issue. Further, 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, result in material fines or penalties or increased costs, which could in turn negatively impact our financial condition, cash flow and results of operations.
Regulatory reforms, and the more stringent application of existing regulations, may make it more expensive for us to conduct our business and increase our capital requirements.
Over the last decade, the federal government 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.
As the state insurance regulatory framework has come under public scrutiny, members of Congress have discussed proposals to provide for federal chartering of insurance companies, and the FIO and Financial Stability Oversight Council were established. We can make no assurances regarding the potential impact of state or federal measures that may change the nature or scope of insurance and financial regulation. Regulatory reforms and 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.
The Company is subject to insurance guaranty fund laws, rules and regulations that could adversely affect the Company’s financial condition or results of operations.
Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for contractholder or policyholder losses incurred by insolvent companies. From time to time, companies may be asked to contribute amounts beyond prescribed limits. It is possible that the
9
Company could be assessed with respect to product lines not offered by the Company. In addition, legislation may be introduced in various states with respect to guaranty fund assessment laws related to insurance products, including long term care insurance and other specialty products, that alters future premium tax offsets received in connection with guaranty fund assessments. The Company cannot predict the amount, nature or timing of any future assessments or legislation, any of which could have a material and adverse impact on the Company’s financial condition or results of operations.
Reinsurance may be unavailable at current levels and prices.
Market conditions beyond our control impact the availability and cost of the reinsurance we secure to lessen our risk with respect to the contracts and policies we have issued. 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. We review retention limits for continued appropriateness and they may be changed in the future. Prolonged or severe adverse mortality or morbidity experience could result in increased reinsurance costs or, ultimately, reinsurers unwilling to offer coverage. If we were unable to renew or purchase reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we may have to accept an increase in risk exposure, seek other alternatives, or accept reduced profitability.
Reinsurance subjects us to the credit risk of our reinsurers and may not be adequate to protect us against losses arising from ceded insurance, which could have a material effect on our operating results.
The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. While we aim to avoid overexposure by entering into reinsurance agreements with varied counterparties, the liabilities for certain products, including the Contracts, are reinsured exclusively to one or a small group of reinsurers. Our inability to collect a material recovery from one or more reinsurers could have a material adverse effect on our operating results, financial condition and cash flows.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms.
In periods of extreme volatility and disruption in the capital and credit markets, liquidity and credit capacity may be severely restricted. In such circumstances, our ability to obtain capital to fund operating expenses, financing costs, satisfy statutory capital requirements and meet liquidity needs may be limited. Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as lenders’ perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain additional financing on favorable terms. Our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the capital markets.
A downgrade or a potential downgrade in our financial strength or credit rating could result in a loss of business and materially affect our financial condition and results of operations.
Financial strength ratings are published by various Nationally Recognized Statistical Rating Organizations (“NRSRO”) and similar entities not formally recognized as NRSROs. They indicate the NRSROs’ opinion regarding an insurance company’s ability to meet contractholder obligations and can be important to maintaining public confidence in our products and our competitive position.
10
In view of the difficulties experienced by many financial institutions as a result of the financial crisis and ensuing global recession, including certain members in the insurance industry, NRSROs continue to implement changes to their internal models that have the effect of increasing or decreasing the amount of statutory capital we must hold in order to maintain our current ratings. Our ratings could be downgraded at any time and without notice by any NRSRO. In addition, these reforms may also increase our minimum capital requirements.
Downgrades in our financial strength ratings could have a material adverse effect on our financial condition and results of operations in many ways, including materially increasing the number or amount of policy surrenders and withdrawals by contractholders and adversely affecting our ability to obtain reinsurance at reasonable prices or at all.
The occurrence of a catastrophe, including the continued threat of terrorism or military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, liquidity, operating results and attractiveness of product offering.
Any catastrophic event, such as the continued threat of terrorism within the United States and abroad, or military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from changes, and result in loss of life, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by reduced economic activity caused by the continued threat of terrorism. Additionally, a terrorist act could have a material effect on renewal premium, profitability, competitiveness, liquidity, operating results and attractiveness of product offering.
The ongoing COVID-19 pandemic could adversely affect the Company’s business, including revenues, profitability, results of operations and/or cash flows, in a manner and to a degree that cannot be predicted but could be material.
The global COVID-19 pandemic has resulted in and is expected to continue to result in significant disruptions in economic activity and financial markets. COVID-19 has directly and indirectly adversely affected the Company and may continue to do so for an uncertain period of time. The cumulative effects of COVID-19 on the Company cannot be predicted at this time, but could include, without limitation:
| • | Reduced demand for the Company’s products due to reduced economic activity which could negatively impact the Company’s revenues, |
| • | Reduced cash flows from the Company’s policyholders delaying premium payments, |
| • | Increased claims, losses, litigation, and related expenses, |
| • | Increased losses due to legislative, regulatory and judicial actions in response to COVID-19, including, but not limited to, actions prohibiting the Company from cancelling insurance policies in accordance with such policies’ terms, requiring the Company to cover losses when policies did not provide coverage or excluded coverage, ordering the Company to provide premium refunds, granting extended grace periods for payment of premiums, and providing for extended periods of time to pay past due premiums, |
| • | An increase in the demand and frequency of reporting by regulators that could place stress on the Company’s ability to accurately and timely meet those and existing demands, and a delay or denial in regulatory rate approvals could contribute to financial stress, |
| • | A negative impact on the Company’s ability to timely and properly pay claims and establish reserves due to uncertainty around claims patterns, including impediments to adjusting claims in the field, |
| • | Volatility and declines in financial markets which have reduced, and could continue to reduce, the fair market value of, or result in the impairment of, certain invested assets held by the Company, |
11
| • | An increase in loss costs and, as such, the need to strengthen reserves for losses and loss adjustment expenses due to higher than anticipated inflation as a result of recent actions taken by the federal government and the Federal Reserve, |
| • | Decline in interest rates which could reduce future investment results, |
| • | Erosion of capital and an increase in the cost of reinsurance as well as an increase in counterparty credit risk, |
| • | Decreased access to capital, if needed, and the cost of external capital could be elevated, |
| • | Disruptions in the Company’s operations due to difficulties experienced by its partners and outsourced providers that may, among other items, adversely impact its ability to manage claims, |
| • | Increased costs of operations due to the remote working environments of the Company’s employees, and |
| • | Increased vulnerability to cyberthreats or other disruption in its operations while most of its workforce is continuing to work remotely. |
Climate change may adversely affect our results of operations and financial condition.
Global climate change could have an impact on our investment portfolio resulting in realized or unrealized losses which could have a material financial impact on the Company. Additionally, there could be social and/or regulatory impacts in response to climate change which could have a material financial impact on the Company.
Changes in accounting standards issued by standard-setting bodies may adversely affect our results of operations and financial condition.
Our financial statements are subject to the application of statutory accounting principles, which are periodically revised, interpreted and/or expanded. Accordingly, we may be 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.
Any changes in the method of calculating reserves for our life insurance and annuity products under statutory accounting principles may result in increased or decreased reserve requirements. The NAIC has announced focused industry inquiries on certain matters that could have an impact on the Company’s financial condition and results of operations. Such inquiries concern, for example, insurer use of captive reinsurance companies, variable annuity reserves and capital treatment, reinsurance, cybersecurity practices and risk-based capital calculations. In addition, the NAIC continues to consider various initiatives to change and modernize its financial and solvency requirements and regulations. It has adopted principles-based reserving methodologies for life insurance and annuity reserves, but additional formulas and/or guidance relevant to the new standard are being developed. The NAIC is also considering changes to accounting regulations, governance practices of insurers and other items. The Company cannot currently estimate what impact these more focused inquiries or proposed changes, if they occur, will have on reserve and capital requirements, financial condition or results of operations.
For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 2 to the financial statements.
The Company depends on the performance of its third-party service providers, and their failure to perform in a satisfactory manner could adversely affect the Company’s business.
A number of elements of the Company’s operations are managed on an outsourced basis, in particular with two counterparties. These arrangements create performance risks for the Company’s business and, to a lesser
12
extent, create the risk that the Company’s operating expenses will increase. Failure in or poor performance by any of the aforementioned third-party service providers, including, for example, if the third party fails to meet contractual requirements, fails to comply with applicable laws and regulations, suffers a cyber-attack or other security breach, fails to provide the Company or its policyholders with timely and accurate information or fails to maintain adequate internal controls, could have a material adverse effect on the Company’s business, results of operations and financial condition. If the Company elects to replace any of these third-party service providers due to such failures or poor performance, the Company may incur costs in connection with finding, retaining and operationalizing suitable replacement providers.
With respect to third-party service providers who perform policy administration services, failures in, or poor performance by, these third-party administrators could result in an increase in customer complaints and regulatory intervention. Poor performance by third-party administrators may also have a negative impact on the Company’s wholesaler, agent and distribution partner relationships. If any of these third-party administrators or their employees are found to have made material misrepresentations to the Insurance Subsidiaries’ policyholders and customers, violated applicable insurance, privacy or other laws and regulations or otherwise engaged in misconduct, the Insurance Subsidiaries could be held liable for their actions, which could adversely affect the Company’s reputation and business prospects, may lead to regulatory sanctions or litigation and could result in financial harm. The precautions taken to prevent and detect this activity may not be effective in all cases. Although the Insurance Subsidiaries employ controls and procedures designed to monitor vendors and to prevent the Company’s or them from taking excessive or inappropriate risks, employees of the Company’s vendors may take such risks regardless of such controls and procedures. Any such failures or poor performance by the Company’s third-party service providers could adversely affect the Company’s business, operating results and financial condition.
Controls and disaster recovery plans surrounding the Company’s information technology (“IT”) could fail or security could be compromised, which could damage the Company’s business and adversely affect the Company’s financial condition and results of operations.
The Company’s business is highly dependent upon the effective operation of the Company’s IT and that of third-party providers. The Company relies on IT throughout its business for a variety of functions, including processing claims, transactions and applications, providing information to policyholders and distributors, performing actuarial analyses and maintaining financial records. Despite the implementation of security policies, procedures, automation and backup plans designed to prevent or limit the effect of any infiltration, failure or disruption, the Company’s IT may be vulnerable to physical or electronic intrusions, computer viruses or other attacks, programming errors, disruptions or breaches as a result of natural disasters, man-made disasters, human error, criminal activity, or other events beyond the Company’s control. The failure of controls and/or disaster recovery plans surrounding the Company’s IT for any reason could cause significant interruptions to the Company’s operations, which could result in an adverse effect on the Company’s business, financial condition or results of operations. The Company plans to continue to make significant investments in IT to support the growth of its business.
The Company also retains confidential and proprietary information on its computer systems and those of its third-party providers. The Company and its third-party providers rely on sophisticated technologies to maintain the security of such information. Such computer systems may be subject to computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. While, to date, the Company is not aware of having experienced a material data breach, administrative, physical and technical controls and other preventive actions taken to reduce the risk of cyber-incidents and protect the Company’s data and technology may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches. In some cases, such physical and electronic break-ins, cyber-attacks or other security breaches may not be immediately detected. This may impede or interrupt the Company’s business operations, could result in regulatory fines and enforcement, class action lawsuits or reputational harm, and could adversely affect the Company’s business, financial condition and results of operations. In addition, the availability and cost of
13
insurance for operational and other risks relating to the Company’s business and systems may change and any such change may affect the Company’s results of operations.
In the event of a disaster such as a natural catastrophe, epidemic, industrial accident, blackout, computer virus, terrorist attack, cyberattack or war, unanticipated problems with the Company’s disaster recovery systems could have a material adverse impact on the Company’s ability to conduct business and on the Company’s results of operations and financial position, particularly if those problems affect the Company’s computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, in the event that a significant number of the Company’s managers, or employees were unavailable following a disaster, the Company’s ability to effectively conduct business could be severely compromised. These interruptions also may interfere with the Company’s suppliers’ ability to provide goods and services and the Company’s employees’ ability to perform their job responsibilities.
Any failure to protect the confidentiality of client information could adversely affect the Company’s reputation and have a material adverse effect on the Company’s business, financial condition and results of operations.
Pursuant to U.S. federal and state laws, and laws of other jurisdictions in which the Company operates, various government agencies have established rules protecting the privacy and security of personal information, including personally identifiable policyholder information. In addition, most U.S. states and a number of jurisdictions outside the United States, have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information, including personally identifiable policyholder information. Further, the Gramm-Leach-Bliley Act of 1999, or the (“GLB Act”), imposes privacy requirements on financial institutions, including obligations to protect and safeguard consumers’ nonpublic personal information and records, and limits the ability to share and reuse such information. Additionally, The NAIC has adopted the Insurance Data Security Model Law which established the standards for data security and investigation and notification of a breach of data security for insurance companies, and an increasing number of states require that affected persons be notified if a security breach results in the disclosure of their personally identifiable information. Any compromise of the security of our computer systems that results in the inappropriate disclosure of personally identifiable customer information could damage our reputation in the marketplace, subject us to significant civil and criminal liability and require us to incur significant technical, legal and other expenses. Many regulators have indicated an intention to take more aggressive enforcement actions regarding cybersecurity and data privacy matters, and private litigation resulting from such matters is increasing and resulting in progressively larger judgments and settlements.
Many of the Company’s employees have access to, and routinely process, personal information of clients through a variety of media, including IT systems. The Company relies on various internal processes and controls to protect the confidentiality of client information that is accessible to, or in the possession of, the Company and its employees. It is possible that an employee could, intentionally or unintentionally, disclose or misappropriate confidential client information, including personally identifiable policyholder information, or the Company’s data could be the subject of a cybersecurity attack. If the Company fails to maintain adequate internal controls or if the Company’s employees fail to comply with the Company’s policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of client information, including personally identifiable policyholder information, could occur. Such internal control inadequacies or non-compliance could materially damage the Company’s reputation or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on the Company’s business, financial condition and results of operations. Further, the Company’s third-party service providers, including third parties to whom the Company outsources certain of its functions, are also subject to the risks outlined above, any one of which could result in damage to the company’s reputation, or the Company incurring substantial costs or other negative consequences to the Company. If the Company or any of the Company’s third-party service providers fail to protect the confidentiality of client information, it could have a material adverse effect on the Company’s business, financial condition and results of operations.
14
The technology the Company licenses may subject it to claims of infringement or invalidity from third parties.
The Company’s reliance on technology subjects it to the risk that other parties may assert, rightly or wrongly, that its intellectual property rights are invalid or violate the rights of those parties, as well as the risk that the Company’s intellectual property rights will be infringed upon by third parties. In general, defending intellectual property rights in litigation is expensive. The Company’s involvement in litigation of this type would likely have a material and adverse effect on its business and results of operation. In addition, any outcome that invalidates its intellectual property rights or otherwise diminishes the competitive advantages obtained, at least in part, through the use of those rights could have a material and adverse effect on the Company’s overall success. The magnitude of this risk to the Company’s business generally rises if and as it become more successful in employing and relying on the technology. Any such claims would be complex and costly, and adverse outcomes could undermine the competitive advantages that the Company seeks to gain.
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business.
We have devoted significant resources to develop and periodically update our risk management policies and procedures to reflect ongoing review of our risks and expect to continue to do so in the future. Nonetheless, our policies and procedures may not be comprehensive and may not identify every risk to which we are exposed. Many of our methods for managing risk and exposures are based upon the use of observed historical market behavior or statistics based on historical models. As a result, these methods may not fully predict future exposures, which can be significantly greater than our historical measures indicate. Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. In addition, more extensive and perhaps different risk management policies and procedures might have to be implemented under pending regulations. Any such unforeseen risk, as well as the implementation of any additional risk management policies and procedures may result in material costs to the Company, which could materially adversely affect the Company’s financial condition, cash flow and results of operations.
The effectiveness of our actuarial and other financial models may adversely affect our financial results, capitalization and financial condition.
Actuarial and other financial models are used primarily to determine reserve levels for our in-force block and to provide information to key internal stakeholders for planning, asset / liability management, and risk / stress testing analysis purposes. The models are subject to extensive internal controls which promote repeatability and sustainability, and are also subject to continual review regarding effectiveness, logic, assumptions and underlying product mechanics and refinements may be implemented based on these reviews. Refinements are subject to a rigorous change management process and are agreed upon with key internal stakeholders prior to implementation. While models are continually improving as a result of these refinements, there are still inherent limitations. First, no assurances can be given that all necessary refinements will be identified and/or implemented in our actuarial models. Also, due to the nature of the underlying risks and the uncertainty associated with prospective modeling techniques and the application of such techniques, these models may not accurately capture the evolution of the in-force block, as we cannot determine precisely the actual experience, policyholder behavior and investment income. Variations in any of the foregoing from estimates in our models may result in the need to post additional reserves, which could have a material adverse effect on the Company’s financial condition including by adversely affecting the Company’s capital adequacy ratios utilized by NRSROs to assign credit ratings.
15
| Item 11(a). | Description of Business |
Lincoln Benefit Life Company (referred to in this document as “we,” “Lincoln Benefit,” “our,” “us” or the “Company”) was incorporated under the laws of the State of Nebraska in 1938. Lincoln Benefit is a wholly- owned subsidiary of LBL HoldCo II, Inc., a Delaware corporation, which is a wholly-owned subsidiary of LBL HoldCo, Inc. (“HoldCo Parent”). HoldCo Parent is a wholly-owned subsidiary of GILICO. Prior to December 31, 2019, HoldCo Parent was a wholly-owned subsidiary of RL LP and RL (Parallel) Partnership.
Prior to July 18, 2013, we sold interest-sensitive, traditional and variable life insurance, and fixed annuities including deferred and immediate, through independent master brokerage agencies and the Allstate exclusive agency channel. In July 2013, we ceased soliciting and selling new policies through our independent agent channel. In 2017, we ceased soliciting and selling new policies through the Allstate exclusive agency channel.
In 2015, the administration of our retained deferred annuity and life business was outsourced to unaffiliated third-party service providers, SE2, LLC and Alliance–One Services, Inc. Allstate Life Insurance Company (“ALIC”) continues to reinsure and administer business sold through the Allstate exclusive agency channel and certain life, immediate and payout annuity contracts. LifeCare Assurance Company administers the Company’s long-term care business.
Lincoln Benefit’s variable annuity business is reinsured by ALIC under an existing reinsurance agreement between Lincoln Benefit and ALIC. In 2006, ALIC disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. The Company was not a direct party to this agreement and its reinsurance agreement with ALIC remains unchanged.
In our reports, we occasionally refer to statutory financial information. All domestic U.S. insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not subject to the requirement to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. We frequently use industry publications containing statutory financial information to assess our competitive position.
Lincoln Benefit is subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state agency. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency, reserve adequacy, insurance company licensing and examination, agent licensing, policy forms, rate 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.
| Item 11(b). | Description of Property |
Lincoln Benefit occupies leased office space in Lincoln, Nebraska and Rosemont, Illinois.
| Item 11(c). | Legal Proceedings |
Lincoln Benefit is engaged in routine lawsuits, which, in management’s judgment, are not of material importance to its total assets or business prospects.
16
| Item 11(e) | Financial Statements and Notes to Financial Statements |
Lincoln Benefit Life Company
(A Wholly-Owned subsidiary of LBL HoldCo II, Inc.)
Index
December 31, 2020
17
Report of Independent Auditors
The Board of Directors
Lincoln Benefit Life Company
We have audited the accompanying statutory-basis financial statements of Lincoln Benefit Life Company (the Company), which comprise the statutory statements of admitted assets, liabilities, and capital stock and surplus as of December 31, 2020, and the related statutory statements of operations, statutory statements of changes in capital stock and surplus and statutory statements of cash flow for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with accounting practices prescribed or permitted by the Nebraska Department of Insurance. Management also is responsible for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 1 to the statutory-basis financial statements, the Company prepared these financial statements using accounting practices prescribed or permitted by the Nebraska Department of Insurance, which is a basis of accounting other than U.S. generally accepted accounting principles. The effects on the financial statements of the variances between these statutory accounting practices and U.S. generally accepted accounting principles, although not reasonably determinable, are presumed to be material.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the statutory-basis financial statements referred to above do not present fairly, in conformity with U.S. generally accepted accounting principles, the financial position of the Company at December 31, 2020, or the results of its operations or its cash flows for the year then ended.
18
Opinion on Statutory-Basis of Accounting
In our opinion, the statutory-basis financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year then ended, on the basis of accounting described in Note 1.
April 15, 2021
19
INDEPENDENT AUDITORS’ REPORT
To the Shareholders and Board of Directors of
Lincoln Benefit Life Company
Rosemont, Illinois
We have audited the accompanying statutory financial statements of Lincoln Benefit Life Company (the “Company”), a wholly-owned subsidiary of LBL HoldCo II, Inc., which comprise the statutory statement of admitted assets, liabilities and capital stock and surplus as of December 31, 2019, and the related statutory statements of operations, changes in capital stock and surplus, and cash flows for the years ended December 31, 2019 and 2018, and the related notes to the statutory financial statements (collectively referred to as the “statutory financial statements”).
Management’s Responsibility for the Statutory Financial Statements
Management is responsible for the preparation and fair presentation of these statutory financial statements in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of Nebraska. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these statutory financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statutory financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statutory financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statutory financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the statutory financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statutory financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America
As described in Note 1 to the statutory financial statements, the statutory financial statements are prepared by Lincoln Benefit Life Company using the accounting practices prescribed or permitted by the Insurance Department of the State of Nebraska, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Insurance Department of the State of Nebraska.
The effects on the statutory financial statements of the variances between the statutory basis of accounting described in Note 1 to the statutory financial statements and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.
20
Adverse Opinion on Accounting Principles Generally Accepted in the United States of America
In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America paragraph, the statutory financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of Lincoln Benefit Life Company as of December 31, 2019, or the results of its operations or its cash flows for the years ended December 31, 2019 and 2018.
Opinion on Statutory Basis of Accounting
In our opinion, the statutory financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of Lincoln Benefit Life Company as of December 31, 2019, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018 in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of Nebraska as described in Note 1 to the statutory financial statements.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 30, 2020
21
LINCOLN BENEFIT LIFE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND SURPLUS
DECEMBER 31, 2020 AND DECEMBER 31, 2019
($’S IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| December 31, 2020 | December 31, 2019 | |||||||
Admitted Assets | ||||||||
Bonds | $ | 8,074,319 | $ | 6,361,622 | ||||
Preferred stocks | 122,120 | 14,800 | ||||||
Common stocks | 46,472 | 8,479 | ||||||
Mortgage loans | 721,238 | 721,831 | ||||||
Contract loans | 35,744 | 33,622 | ||||||
Other investments | 194,742 | 84,792 | ||||||
Receivables for securities | 19 | 96 | ||||||
Cash, cash equivalents and short-term investments | 562,782 | 250,810 | ||||||
|
|
|
| |||||
Total Cash and Invested Assets | 9,757,436 | 7,476,052 | ||||||
Due and accrued investment income | 72,823 | 75,238 | ||||||
Current income tax recoverable | 13,291 | 26,066 | ||||||
Net deferred tax asset | 33,165 | 27,030 | ||||||
Deferred premium and other assets, net | 83,371 | 103,990 | ||||||
Separate account assets | 1,671,786 | 1,464,556 | ||||||
|
|
|
| |||||
Total Admitted Assets | $ | 11,631,872 | $ | 9,172,932 | ||||
|
|
|
| |||||
Liabilities, Capital Stock and Surplus | ||||||||
Reserves for policy benefits | 5,278,258 | 4,357,355 | ||||||
Reinsurance payable | 5,847 | 48,333 | ||||||
Interest maintenance reserve | 76,439 | 35,675 | ||||||
Funds held under coinsurance | 4,064,012 | 2,776,976 | ||||||
Other liabilities | 119,248 | 137,427 | ||||||
Separate account liabilities | 1,671,786 | 1,464,556 | ||||||
|
|
|
| |||||
Total Liabilities | $ | 11,215,589 | $ | 8,820,322 | ||||
|
|
|
| |||||
Capital Stock and Surplus | ||||||||
Common capital stock, $100 par value, 30,000 shares authorized and 25,000 shares outstanding | 2,500 | 2,500 | ||||||
Gross paid in and contributed surplus | 255,739 | 196,779 | ||||||
Unassigned funds | 158,044 | 153,331 | ||||||
|
|
|
| |||||
Total Capital Stock and Surplus | $ | 416,283 | $ | 352,610 | ||||
|
|
|
| |||||
Total Liabilities, Capital Stock and Surplus | $ | 11,631,872 | $ | 9,172,932 | ||||
|
|
|
| |||||
See Notes to the Statutory Financial Statements
22
LINCOLN BENEFIT LIFE COMPANY
STATUTORY STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
($ IN THOUSANDS)
| 2020 | 2019 | 2018 | ||||||||||
Revenue | ||||||||||||
Premiums, net of reinsurance | $ | 277,662 | $ | (913,357 | ) | $ | 80,113 | |||||
Net investment income | 425,548 | 382,333 | 402,362 | |||||||||
Commissions and expense allowance | 74,255 | 84,423 | 64,286 | |||||||||
Reserve adjustments on reinsurance ceded | (77,318 | ) | (686,158 | ) | (174,884 | ) | ||||||
Other income | 7,493 | 34,628 | 24,927 | |||||||||
|
|
|
|
|
| |||||||
Total Revenue | 707,640 | (1,098,131 | ) | 396,804 | ||||||||
|
|
|
|
|
| |||||||
Benefits and Expenses | ||||||||||||
Benefit payments to policyholders and beneficiaries | $ | 414,931 | $ | 389,734 | $ | 702,649 | ||||||
Net change to policy benefit reserves | (5,119 | ) | (1,707,830 | ) | (484,565 | ) | ||||||
Net transfers from separate accounts | (45,228 | ) | (63,167 | ) | (60,276 | ) | ||||||
Commissions and operating expenses | 320,328 | 270,576 | 218,553 | |||||||||
|
|
|
|
|
| |||||||
Total benefits and expenses | 684,912 | (1,110,687 | ) | 376,361 | ||||||||
|
|
|
|
|
| |||||||
Gain from operations before dividends and taxes | 22,728 | 12,556 | 20,443 | |||||||||
Policyholder dividends | 30 | 31 | 34 | |||||||||
|
|
|
|
|
| |||||||
Gain from operations before taxes | 22,698 | 12,525 | 20,409 | |||||||||
Income tax expense (benefit) | (24,822 | ) | — | (4,090 | ) | |||||||
|
|
|
|
|
| |||||||
Net gain from operations | 47,520 | 12,525 | 24,499 | |||||||||
Net realized capital gains (losses) | (2,301 | ) | 21,624 | 11,224 | ||||||||
|
|
|
|
|
| |||||||
Net Income | $ | 45,219 | $ | 34,149 | $ | 35,723 | ||||||
|
|
|
|
|
| |||||||
See Notes to the Statutory Financial Statements
23
LINCOLN BENEFIT LIFE COMPANY
STATUTORY STATEMENT OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
($’S IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| Additional | Total | |||||||||||||||||||
| Paid-In | Unassigned | Capital Stock | ||||||||||||||||||
| Common Capital Stock | Capital | Funds | and Surplus | |||||||||||||||||
Balance, December 31, 2017 | 25,000 | $ | 2,500 | $ | 171,003 | $ | 252,298 | $ | 425,801 | |||||||||||
Net income | 35,723 | 35,723 | ||||||||||||||||||
Change in net unrealized capital gains (losses) | — | — | — | (50,622 | ) | (50,622 | ) | |||||||||||||
Change in net deferred income tax | — | — | — | 12,913 | 12,913 | |||||||||||||||
Change in nonadmitted assets | — | — | — | (19,333 | ) | (19,333 | ) | |||||||||||||
Dividends to stockholder | — | — | — | (15,000 | ) | (15,000 | ) | |||||||||||||
Change in asset valuation reserve | — | — | — | 6,488 | 6,488 | |||||||||||||||
Deferral of ceding commission | — | — | — | (16,040 | ) | (16,040 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, December 31, 2018 | 25,000 | $ | 2,500 | $ | 171,003 | $ | 206,427 | $ | 379,930 | |||||||||||
Change in paid-in capital | — | — | 25,776 | — | 25,776 | |||||||||||||||
Net income | — | — | — | 34,149 | 34,149 | |||||||||||||||
Change in net unrealized capital gains (losses) | — | — | — | (45,874 | ) | (45,874 | ) | |||||||||||||
Change in net deferred income tax | — | — | — | (5,802 | ) | (5,802 | ) | |||||||||||||
Change in nonadmitted assets | — | — | — | 19,704 | 19,704 | |||||||||||||||
Dividends to stockholder | — | — | — | (40,000 | ) | (40,000 | ) | |||||||||||||
Change in liabilty for reinsurance in unauthorized and certified companies | (4,606 | ) | (4,606 | ) | ||||||||||||||||
Change in asset valuation reserve | — | — | — | 5,397 | 5,397 | |||||||||||||||
Deferral of ceding commission | — | — | — | (16,064 | ) | (16,064 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, December 31, 2019 | 25,000 | $ | 2,500 | $ | 196,779 | $ | 153,331 | $ | 352,610 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Change in paid-in capital | — | — | 58,960 | — | 58,960 | |||||||||||||||
Net income | — | — | — | 45,219 | 45,219 | |||||||||||||||
Change in net unrealized capital gains (losses) | — | — | — | (71,678 | ) | (71,678 | ) | |||||||||||||
Change in net deferred income tax | — | — | — | 27,044 | 27,044 | |||||||||||||||
Change in nonadmitted assets | — | — | — | (35,296 | ) | (35,296 | ) | |||||||||||||
Change in liabilty for reinsurance in unauthorized and certified companies | 1,077 | 1,077 | ||||||||||||||||||
Change in asset valuation reserve | — | — | — | (10,319 | ) | (10,319 | ) | |||||||||||||
Deferral of ceding commission | — | — | — | 48,666 | 48,666 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, December 31, 2020 | 25,000 | $ | 2,500 | $ | 255,739 | $ | 158,044 | $ | 416,283 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
See Notes to the Statutory Financial Statements
24
LINCOLN BENEFIT LIFE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
($’S IN THOUSANDS)
| 2020 | 2019 | 2018 | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Premiums and other income received | $ | 686,775 | $ | 35,727 | $ | 154,825 | ||||||
Investment income received | 316,851 | 430,113 | 452,609 | |||||||||
Benefit payments to policyholders and beneficiaries, including net transfers to separate accounts | (470,295 | ) | (706,381 | ) | (791,653 | ) | ||||||
Commissions, expenses and taxes paid | (249,078 | ) | (200,532 | ) | (228,066 | ) | ||||||
|
|
|
|
|
| |||||||
Net Cash (Used in) Provided by Operating Activities | 284,253 | (441,073 | ) | (412,285 | ) | |||||||
|
|
|
|
|
| |||||||
Cash Flows from Investing Activities: | ||||||||||||
Proceeds from investments sold, matured, repaid or received | ||||||||||||
Bonds | $ | 3,263,486 | $ | 1,176,624 | $ | 1,418,296 | ||||||
Mortgage loans | 124,885 | 277,171 | 338,652 | |||||||||
Other investments | 23,217 | 48,813 | 14,348 | |||||||||
|
|
|
|
|
| |||||||
Subtotal Proceeds from Investments | 3,411,588 | 1,502,608 | 1,771,296 | |||||||||
Cost of Investments Acquired: | ||||||||||||
Bonds | 4,859,995 | 936,205 | 1,139,991 | |||||||||
Stocks | 227,274 | 51,519 | 50,110 | |||||||||
Mortgage loans | 124,568 | 141,078 | 147,702 | |||||||||
Other investments | 152,638 | 20,452 | 14,376 | |||||||||
|
|
|
|
|
| |||||||
Subtotal Investments Acquired | 5,364,475 | 1,149,254 | 1,352,179 | |||||||||
Net Increase (Decrease) in Contract Loans | 2,170 | (7,694 | ) | (4,824 | ) | |||||||
|
|
|
|
|
| |||||||
Net Cash (Used in) Provided by Investing Activities | (1,955,057 | ) | 361,048 | 423,941 | ||||||||
|
|
|
|
|
| |||||||
Cash Flows from financing and Miscellaneous Sources: | ||||||||||||
Net inflows (outflows) on deposit-type contracts | $ | 904,797 | $ | 80,479 | $ | (41,070 | ) | |||||
Dividend to stockholders | — | (40,000 | ) | (15,000 | ) | |||||||
Funds held under coinsurance | 965,642 | 67,847 | 84,048 | |||||||||
Other cash provided (applied) | 112,337 | 11,269 | (22,572 | ) | ||||||||
|
|
|
|
|
| |||||||
Net Cash (Used in) Provided by Financing and Miscellaneous Sources | 1,982,776 | 119,595 | 5,406 | |||||||||
|
|
|
|
|
| |||||||
Net Increase (Decrease) in Cash and Short-term Investments | 311,972 | 39,570 | 17,062 | |||||||||
Cash, Cash Equivalents and Short-term investments, Beginning of Year | $ | 250,810 | $ | 211,240 | $ | 194,178 | ||||||
|
|
|
|
|
| |||||||
Cash, Cash Equivalents and Short-term Investments, End of Year | $ | 562,782 | $ | 250,810 | $ | 211,240 | ||||||
|
|
|
|
|
| |||||||
Supplemental Disclosures of Cash Flow Information for Non-cash Transactions: | ||||||||||||
Change of intercompany note payable and receivable | $ | 252,675 | $ | (55,500 | ) | $ | (118,000 | ) | ||||
Bond exchanges and other non-cash exchanges | $ | — | $ | — | $ | 5,375 | ||||||
Mortgage loan refinance | $ | — | $ | — | $ | 45,712 | ||||||
Bonds, policy loans and other non-cash assets remitted to settle reinsurance premium | $ | 321,394 | $ | 1,444,046 | $ | — | ||||||
Recapture of modified coinsurance | $ | — | $ | 539,191 | $ | — | ||||||
IMR cession | $ | 81,744 | $ | 33,277 | $ | — | ||||||
See Notes to the Statutory Financial Statements
25
LINCOLN BENEFIT LIFE COMPANY
DECEMBER 31, 2020
| 1. | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
GENERAL
Lincoln Benefit Life Company (the “Company” or “Lincoln Benefit”) is a stock insurance company domiciled in the State of Nebraska. It is a wholly-owned subsidiary of LBL HoldCo II, Inc. (“HoldCo”), which in turn is a wholly-owned subsidiary of LBL HoldCo, Inc. (“Holdings”).
On December 31, 2019, Guaranty Income Life Insurance Company (“GILICO”), an Iowa-domiciled insurance company, completed the acquisition (the “Transaction”) of Holdings and its subsidiaries (including the Company). Prior to December 31, 2019, Holdings was a wholly-owned subsidiary of RL LP (formerly Resolution Life LP) and RL Parallel LP (formerly Resolution Life (Parallel) LP).
Lancaster Re Captive Insurance Company (“Lancaster Re”), a Nebraska domiciled captive insurance company, became a wholly-owned subsidiary of Lincoln Benefit on April 1, 2014.
The Company is authorized to sell life insurance and retirement products in all states except New York, as well as, in the District of Columbia, the U.S. Virgin Islands and Guam. Prior to July 18, 2013, the Company sold interest-sensitive, traditional and variable life insurance products through both exclusive agencies (“Allstate Sales channel”) and independent master brokerage agencies. Effective July 17, 2013, sales through the independent master brokerage agencies ceased. Sales through the Allstate Sales channel ceased in 2017.
Allstate Life Insurance Company (“ALIC”) continues to administer and reinsure all life insurance business written by Lincoln Benefit through the Allstate Sales channel, all immediate annuities written by Lincoln Benefit prior to April 1, 2014, certain term life policies written by Lincoln Benefit, and Lincoln Benefit’s variable annuity business.
BASIS OF PRESENTATION
The accompanying statutory financial statements of the Company are presented on the basis of accounting principles prescribed or permitted by the Nebraska Department of Insurance (“NE DOI” or the “Department”). The NE DOI requires insurance companies domiciled in the State of Nebraska to prepare their statutory financial statements in accordance with the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”). Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. There are no deviations from NAIC SAP in the Company’s statutory financial statements as presented for December 31, 2020, 2019 or 2018.
DIFFERENCES BETWEEN NAIC SAP AND U.S. GAAP
Accounting principles and procedures of the NAIC as prescribed or permitted by the Department comprise a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (“U.S. GAAP”). NAIC SAP differs from U.S. GAAP in several respects, which causes differences in reported assets, liabilities, stockholder’s equity (statutory capital and surplus), net income, and cash flows. The principal differences between NAIC SAP and U.S. GAAP include:
| • | Investments in bonds are generally carried at amortized cost; under U.S. GAAP, investments in bonds, other than those classified as held-to-maturity, are carried at fair value. For bonds held as available-for-sale, changes in fair value are recorded in accumulated other comprehensive income. |
26
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| • | The changes in the unrealized gains or losses on certain investments are recorded as increases or decreases in statutory surplus; under U.S. GAAP, such unrealized gains and losses are recorded as a component of comprehensive income. |
| • | Investments in insurance subsidiaries are generally carried on a statutory equity basis with equity in the earnings of subsidiaries reflected in unassigned surplus; under U.S. GAAP, subsidiaries are consolidated and results of operations are included in net income. |
| • | Minority ownership interests in partnerships are generally carried on an equity method basis with changes in equity reflected in unassigned surplus; under U.S. GAAP, minority ownership interests in partnerships are subject to lower thresholds and are generally carried at cost. Larger ownership interests are carried on an equity method basis with changes in equity reflected in net income. Controlling interests may be considered affiliated and require consolidation. |
| • | Derivative instruments used as economic hedges are recorded at fair value and the changes in fair value are recorded as unrealized gains and losses in statutory surplus. Under U.S. GAAP, these derivatives are recorded at fair value and changes in fair value are recorded in net income. |
| • | Embedded derivatives are carried consistently with the host instruments. Under U.S. GAAP, the embedded derivatives that are not clearly and closely related to the host are generally bifurcated and accounted for like any other freestanding derivative. |
| • | Interest Maintenance Reserve (“IMR”) represents the deferral of interest-related realized gains and losses, net of tax, on primarily fixed maturity investments which are amortized into income over the remaining life of the investment sold. No such reserve is required under U.S. GAAP. |
| • | Asset Valuation Reserve (“AVR”) represents a contingency reserve for credit related risk on most invested assets of the Company and is charged to statutory surplus. No such reserve is required under U.S. GAAP, but mortgage loans are recorded net of allowances for estimated uncollectible amounts. |
| • | Certain assets, principally prepaid expenses, agents’ balances, and certain deferred tax assets have been designated as nonadmitted assets and excluded from assets by a charge to statutory surplus. Under U.S. GAAP, such amounts are carried with an appropriate valuation allowance, when necessary. |
| • | Intangible assets such as present value of future profits and other adjustments, resulting from the Company’s acquisitions, are not recorded for statutory purposes. Intangible assets such as goodwill are recorded for statutory purposes with limitations and amortized. Under U.S. GAAP, the present value of future profits is recorded and amortized and goodwill is recorded at cost and tested for impairment using a fair value methodology at least annually. |
| • | A provision is established for unsecured reinsurance recoverable balances from unauthorized reinsurers. The change in this provision is credited or charged to unassigned statutory surplus. Under U.S. GAAP, a provision is established for uncollectible reinsurance balances with any changes to this provision reflected in earnings for the period. |
| • | Aggregate reserves for a majority of life insurance and fixed annuity contracts are based on statutory mortality and interest requirements without consideration for anticipated withdrawals. Variable annuity contracts are reserved for using a prescribed principles-based approach. Under U.S. GAAP reserves for term life and fixed annuities are based on the present value of future benefits less the present value of future net premiums based on mortality, morbidity and other assumptions, which were appropriate at the time the policies were issued or acquired. Reserves for universal life and deferred annuities are recognized by establishing a liability equal to the current account value of the policyholders’ contracts, with an additional reserve for certain guaranteed benefits. |
27
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| • | Reserves are reported net of ceded reinsurance; under U.S. GAAP, reserves relating to business in which the ceding company is not legally relieved of its liability are reported gross with an offsetting reinsurance receivable. |
| • | Certain annuity contracts which do not pass through all investment gains to the contract holders are maintained in the separate accounts, whereas U.S. GAAP reports these contracts in the general account of the Company. |
| • | Policy acquisition costs are expensed as incurred; under U.S. GAAP, these costs are related to the successful acquisition of new and renewal insurance policies and investment contracts which are deferred and recognized over either the expected premium paying period or the expected gross profits. |
| • | The cumulative effect of changes in accounting principles are recorded as increases or decreases in statutory surplus; under U.S. GAAP, cumulative effects of changes in accounting principles generally affect equity and net income. |
| • | Premiums of universal life and deferred annuity contracts including policy charges are recorded as revenue when due. Under U.S. GAAP, policy charges are recorded as revenue when due, and the premiums are recorded as policyholder account balances. |
| • | Federal income taxes are provided for in the Company’s estimated current and deferred taxes. Income taxes incurred include current year estimates of Federal income taxes due or refundable, based on tax returns for the current year and all prior years to the extent not previously provided. Deferred taxes are provided for differences between the statutory financial statement basis and the tax basis of assets and liabilities. Changes in deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) are recognized as a separate component of gains and losses in statutory unassigned surplus, while under U.S. GAAP, these changes are included in income tax expense or benefit. Under U.S. GAAP and NAIC SAP, gross deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the assets will not be realized. The remaining adjusted gross deferred tax asset not meeting certain criteria outlined in Statement of Statutory Accounting Principle (“SSAP”) No. 101, “Income Taxes” (“SSAP No. 101”), are not admitted. |
| • | The Statutory Statements of Cash Flows differ in certain respects from the presentation required by U.S. GAAP, including the presentation of the changes in cash and short-term investments instead of cash and cash equivalents. Short-term investments include securities with maturities of one year or less at the time of acquisition. For statutory purposes, there is no reconciliation between net income and cash from operations. |
| • | NAIC SAP does not require the presentation of a Statement of Comprehensive Income; under U.S. GAAP such a statement is required. |
The effects on the Company’s financial statements attributable to the differences between NAIC SAP and U.S. GAAP are unknown and are presumed to be material.
USE OF ESTIMATES
The preparation of financial statements in conformity with statutory accounting principles prescribed or permitted by the State of Nebraska requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The most significant estimates are those used in determining the fair value of financial instruments, allowance for loan losses, aggregate reserves for life policies and
28
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
contracts, deferred income taxes, provision for income taxes and other-than-temporary impairments (“OTTI”) of investments.
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving various types of financial instruments, including cash equivalents, short-term investments, debt and equity securities and mortgage loans. These instruments involve credit risk and also may be subject to risk of loss due to interest rate fluctuation. The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Company in preparing the accompanying statutory-based financial statements:
INVESTMENTS
Cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments are highly liquid securities. The Company’s cash equivalents primarily may include cash, commercial paper and certain money market investments which have an original term to maturity of less than three months. Short-term investments include debt instruments with a term to maturity exceeding three months, but less than one year on the date of acquisition. Cash equivalents and short-term investments are carried at estimated fair value or amortized cost, which approximates fair value.
Bonds
Investments in debt securities including bonds, mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”) are stated at amortized cost using the interest method. Where the NAIC rating has fallen to 6 and the fair value has fallen below amortized cost, they are stated at fair value. The ratings for certain residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) were determined by comparing the insurer’s carrying value divided by remaining par value to price ranges modeled by a third-party vendor chosen by the NAIC that correspond to each NAIC designation. Comparisons were initially made to the model based on amortized cost. Where the resulting rating was a NAIC 6 per the model, further comparison based on fair value was required which, in some cases, resulted in a higher final NAIC rating.
Amortization of the premium or discount from the purchase of these securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single-class and multi-class MBS and ABS are estimated by management using inputs obtained from third-party specialists and based on management’s knowledge of the current market. For prepayment-sensitive securities such as interest-only and principal-only strips, inverse floaters and credit-sensitive MBS and ABS securities, which represent beneficial interests in securitized financial assets that are not of high credit quality or that have been credit impaired, the effective yield is recalculated on a prospective basis. For all other MBS and ABS, the effective yield is recalculated on a retrospective basis. If the collection of all contractual cash flows is not probable, an OTTI may be indicated. The process of analyzing securities for an OTTI adjustment is further described in Note 3.
29
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Common Stocks
The Company holds unaffiliated common stock. Common stock is held at fair value, while shares of Federal Home Loan Bank of Chicago are reported at cost which approximates fair value.
Preferred Stocks
The Company holds a mix of unaffiliated redeemable and non-redeemable preferred stock. Preferred stocks are reported at amortized cost based on credit rating as prescribed in Statement of Statutory Accounting Principle (“SSAP”) No. 32, “Preferred Stock”.
Investments in Subsidiaries
Investments in insurance subsidiaries are carried based on the underlying statutory equity of the subsidiary. The Company’s investment in Lancaster Re is fully nonadmitted as of December 31, 2020 and 2019. The Company’s book/carrying values and nonadmitted value of its investment in Lancaster Re were $168.0 million and $156.8 million as of December 31, 2020 and 2019, respectively.
Mortgage Loans
Mortgage loans are stated at unpaid principal balances, net of provisions for estimated losses. Mortgage loans acquired at a premium or discount are stated at amortized cost using the effective interest rate method, net of provisions for estimated losses. Purchases and sales of mortgage loans are recognized or derecognized in the Company’s Statutory Statements of Admitted Assets, Liabilities and Capital Stock on the loan’s settlement date, which is the date that the Company cash settles the purchase or sale of the loan. Transaction costs on mortgage loans are capitalized on initial recognition and are recognized in the Company’s Statutory Statements of Operations using the effective interest rate method. Mortgage loans, which primarily include commercial first lien mortgages, are diversified by property type and geographic area throughout the United States. Mortgage loans are collateralized by the related properties and generally are no more than 75% of the property’s value at the time that the original loan is made. The Company regularly assesses the value of the collateral.
A mortgage loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. When a mortgage loan is classified as impaired, allowances for credit losses are established to adjust the carrying value of the loan to its net recoverable amount.
The allowance for credit losses are estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral dependent. A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, is less than the recorded amount of the loan. The full extent of impairment in the mortgage portfolio cannot be assessed solely by reviewing these loans individually. A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions. While management believes that it uses the best information available to establish the loan loss allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.
It is the Company’s policy to cease to carry accrued interest on commercial mortgage loans in default if deemed uncollectible or over 180 days past due. The Company held no investments in non-accrual status as of December 31, 2020 or 2019. Interest income is recognized on impaired mortgage loans upon receipt.
30
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Changes in allowances for losses are recorded as changes in unrealized gains and losses to surplus. Once the conditions causing impairment improve and future payments are reasonably assured, the mortgages are no longer classified as impaired and the Company resumes accrual of income. However, if the original terms of the contract have been changed resulting in the Company providing an economic concession to the borrower at below market rates, then the mortgage is reclassified as restructured.
If the conditions causing impairment do not improve and future payments remain unassured, the Company typically derecognizes the asset through disposition or foreclosure. Uncollectible collateral-dependent loans are written off through realized losses for any difference between the carrying value and amount received for the underlying property at the time of disposition or foreclosure.
Contract Loans
Contract loans are carried at the amount of outstanding principal balance. Contract loans are collateralized by the related insurance policy and do not exceed the net cash surrender value of such policy.
Other Investments
Other investments include investments in surplus notes, interests in limited partnerships derivatives (see below) and collateral loans. Investments in surplus notes that are rated NAIC 1 or NAIC 2 are carried at amortized cost. Investments in limited partnerships that lack a controlling ownership interest are reported under the equity method. Collateral loans are reported at outstanding balance with a corresponding non-admitted asset for any amounts which are in excess of the fair value of the pledged collateral.
Derivatives
Derivative instruments used in hedging transactions that meet the criteria of a highly effective hedge are valued and reported consistently with the hedged items. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are valued at fair value with the changes in fair value recorded as unrealized gains and losses in statutory surplus. Realized investment gains and losses from derivatives that qualify for hedge accounting are reduced by amounts transferred to IMR.
Derivative financial instruments acquired by the Company were used to economically hedge the risks with certain assets and liabilities arising from potential adverse impacts from changes in risk-free interest rates and equity markets related to the Company’s equity indexed annuity and life contracts. The Company does not use derivatives for speculative purposes. Derivatives may include index option contracts and futures and interest rate swaps and are included in Other Investments on the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus. The notional amounts specified in the contracts are used to calculate contractual payments under the agreements and are generally not representative of the potential for gain or loss on these contracts.
The Company did not report any derivatives as accounting hedges as of December 31, 2020 and 2019.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The AVR is established as a liability based upon a formula prescribed by the NAIC to offset potential credit-related investment losses on all invested assets, with changes in the AVR charged or credited directly to surplus. The IMR is established as a liability to capture realized gains and losses, net of income tax, on the sale of fixed income investments, principally bonds and mortgage loans, resulting from changes in the
31
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
general level of interest rates, and is amortized into income over the remaining years to expected maturity of the assets sold. Should the deferral of realized losses, net of income tax, result in a debit balance IMR, that amount is presented as an asset and nonadmitted.
INVESTMENT INCOME DUE AND ACCRUED
Accrued investment income consists primarily of interest and dividends. Interest is recognized on an accrual basis and dividends are recorded as earned on the ex-dividend date. Due and accrued income is not recorded on: (a) bonds in default, (b) bonds delinquent more than 90 days or where collection of interest is improbable and (c) mortgage loans in default if deemed uncollectible or over 180 days past due. As of December 31, 2020, and 2019, the Company’s nonadmitted investment income due and accrued was zero.
POLICY AND CONTRACT RESERVES
Policy reserves on annuity and supplementary contracts are calculated using the Commissioners’ Annuity Reserve Valuation Method, except variable annuities which use the Commissioners’ Annuity Reserve Valuation Method for Variable Annuities. The valuation interest assumptions follow the Standard Valuation Law and vary by the contracts’ characteristics and issue year.
Policy reserves on life contracts are based on statutory mortality and valuation interest rates using the Commissioner’s Reserve Valuation Method without consideration of withdrawals. The valuation interest and mortality assumptions follow the Standard Valuation Law and vary by the contracts’ characteristics and issue year.
Valuation methods provide, in the aggregate, reserves that are greater than or equal to the minimum of guaranteed policy cash values or the amount required by law.
Accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using specified statutory interest rates and mortality. Morbidity and lapse assumptions are based on Company experience.
Liability for deposit-type contracts represents contracts without significant mortality or morbidity risk. Payments received from sales of deposit-type contracts are recognized by providing a liability equal to the current value of the policyholders’ contracts. Interest rates credited to these contracts are based on the applicable terms of the respective contract.
LIABILITY FOR POLICY AND CONTRACT CLAIMS
Liabilities for unpaid claims consist of the estimated amount payable for claims reported but not yet settled and an estimate of claims incurred but not reported. The amounts reported are based upon actual pending claim amounts and historical experience, adjusted for trends and current circumstances. Revisions of these estimates are included in the Company’s Statutory Statements of Operations in the year such adjustments are determined to be required.
INCOME TAXES
The Company accounts for current and deferred income taxes and recognizes reserves for income tax contingencies in accordance with SSAP No. 101. Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in
32
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in the period that includes the enactment date. Valuation allowances on DTAs are estimated based on the Company’s assessment of the realizability of such amounts. Refer to Note 13 of the Company’s financial statements for further discussion of the Company’s income taxes.
REINSURANCE
Policy and contract liabilities ceded have been reported as reductions of the related reserves. Premiums, commissions, expense reimbursement, claims, and claim adjustment expenses related to reinsured business are accounted for on a basis consistent with that used in accounting for the original policies issued and with the terms of the reinsurance contracts and are reported net of amounts ceded to other companies.
A liability has been provided for unsecured policy reserves on reinsurance ceded to companies not authorized to assume business in the state of domicile and is included in funds held under reinsurance treaties with unauthorized companies. Changes in this liability are reported directly in unassigned surplus.
EXPERIENCE REFUNDS
Experience refunds are calculated in accordance with the applicable reinsurance agreements. Experience refunds are primarily determined by claims experience on the ceded blocks, in addition to numerous factors that include profitability of the Company during the period covered by the refund and capitalization levels of the Company. Experience refunds are recorded directly in the Company’s Statutory Statements of Operations.
GUARANTY ASSOCIATION ASSESSMENTS
The Company is required by law to participate in the guaranty associations of the various states in which it is licensed to do business. The state guaranty associations ensure payment of guaranteed benefits, with certain restrictions, to policyholders of impaired or insolvent insurance companies by assessing all other companies involved in similar lines of business. Certain guaranty fund assessments paid by the Company are recoverable through premium tax credits over time.
RECOGNITION OF REVENUE AND RELATED EXPENSES
Scheduled life, accident and health insurance premiums and annuity considerations are recognized as revenue when due. Premiums for universal life and single premium contracts are recognized as revenue when collected. Benefits, surrenders and withdrawals are expensed as incurred. All acquisition costs and maintenance expenses are charged to the Company’s Statutory Statements of Operations as incurred.
OTHER INCOME
Other income primarily consists of various insurance policy charges. In 2020 and 2019, other income also includes IMR ceded as part of the Company’s reinsurance program described in Note 8.
SEPARATE ACCOUNTS
The Company has established unitized Separate Accounts applicable to various classes of contracts providing for variable benefits. Contracts for which funds are invested in the variable Separate Accounts include individual and group life and annuity contracts.
33
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Net investment income, capital gains and losses, and changes in mutual fund asset values on the variable Separate Accounts are allocated to policyholders and therefore do not affect the operating results of the Company. Assets held in the variable Separate Accounts are carried at fair value. The investment risk of such securities is retained by the contractholder. The Company earns separate account fees for providing administrative services and bearing the mortality risks related to contracts for which funds are invested in variable Separate Accounts.
The activity of the variable Separate Accounts is not reflected in the Company’s financial statements except for the following:
| • | The fees that the Company receives, which are assessed periodically and recognized as revenue when assessed. |
| • | The activity related to the guaranteed minimum death benefit, guaranteed minimum accumulation benefit and guaranteed minimum withdrawal benefit with offsetting transfers to/from the variable Separate Accounts are reflected in the Company’s financial statements. |
| • | Premiums and withdrawals with offsetting transfers to/from the variable Separate Accounts are reflected in the Statutory Company’s Statements of Operations. |
| • | Transfers from the variable Separate Accounts due and accrued, which include accrued expense allowances receivable from the variable Separate Accounts. |
| • | The dividends-received-deduction (“DRD”), which is included in the Company’s income tax expense, is calculated based upon the variable Separate Accounts’ assets held in connection with variable contracts. |
The results of variable annuity contracts and certain variable life policies are reinsured to ALIC pursuant to a modified coinsurance agreement.
NONADMITTED ASSETS
Certain assets are designated as “nonadmitted” under NAIC SAP. Such assets, principally related to amounts advanced to or due from financial representatives, prepaid expenses, aged reinsurance recoverables, deferred tax assets in excess of statutory limits and the Company’s investment in Lancaster Re are excluded from assets and surplus in the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus as of December 31, 2020 and 2019.
ACCOUNTING PRONOUNCEMENTS
Effective January 2020 with early adoption permitted, the NAIC revised SSAP No. 22, “Leases” to SSAP No. 22R, “Leases - Revised” in order to update guidance on leases, including leveraged leases and sale-leaseback transactions. The substantive revisions to SSAP No. 22 were the result of U. S. GAAP based changes by the Financial Accounting Standards Board (“FASB”) through issuance of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. The adoption of these revisions is not expected to have an impact on the financial statements of the Company as the “operating lease” approach without recognition of a right-to-use asset or lease liability is still used under NAIC SAP for lessees.
Effective January 2020 with early adoption permitted, the NAIC revised SSAP No. 100R, “Fair Value”, as a result of the issuance of ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU was issued in August 2018 as part of a FASB project to improve the effectiveness of U.S. GAAP disclosures. The adoption of these revisions is not expected to have a significant impact on the financial statements of the Company and disclosures will be updated in Note 12.
34
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Effective April 2019, the NAIC revised SSAP No. 100R, “Fair Value” as a result of the issuance of ASU 2018-36, “Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU was issued to update the timing for the application of ASU 2018-13 for certain of the disclosures, i.e., deletion of the disclosures detailing transfers between Levels 1 and 2, policy for timing of transfers and valuation process for Level 3. The adoption of these revisions did not have a significant impact on the financial statements of the Company and disclosures were updated in Note 12.
Effective December 2019, the NAIC revised SSAP No. 43R “Loan-Backed and Structured Securities” to incorporate guidance for certain government sponsored enterprises credit risk transfer instruments known as mortgage-referenced securities (“MRS”) that meet the statutory classification of a structured note as the holder could lose principal with the performance of the referenced security, however, also encompass both the credit risk of the issuer (e.g., Fannie Mae or Freddie Mac), as well as the credit risk of mortgage loan borrowers. The adoption of these revisions did not have an impact on the financial statements of the Company as they continue to be admitted assets whereas the guidance for other types of structured notes was moved effective December 2019 to SSAP No. 86, “Derivatives” and the assets were nonadmitted.
Effective December 2019 with early adoption permitted, the NAIC revised SSAP No. 69, “Cash Flows”, as a result of the issuance of ASU 2016-18, “Statement of Cash Flows: Restricted Cash”. This ASU required restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the Statutory Statements of Cash Flows. This revision is to be shown retrospectively, allowing for comparative cash flow statements. The adoption of this revision is included as a reclass between line items of the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus and related adjustments to the Statutory Statements of Cash Flows with immaterial overall impact to the financial statements.
Effective March 2019 with early adoption permitted, the NAIC amended SSAP No. 43R, “Loan-backed and Structured Securities” to delete the modified filing exempt (“MFE”) guidance. Under the MFE process, the amortized cost basis is used in conjunction with the credit rating provider (“CRP”) rating to determine the final NAIC designation. When eliminated, securities that have a CRP rating that are not captured as financially modeled securities will use the equivalent NAIC designation without adjustment. The adoption of these revisions did not have an impact on the financial statements of the Company as no numeric ratings were changed as a result of early adoption.
| 2. | RELATED PARTY TRANSACTIONS |
The Company has significant transactions with affiliates. Intercompany revenues and expenses recognized under these agreements may not necessarily be indicative of costs that would be incurred if the Company operated on a stand-alone basis and if these transactions were with unrelated parties. Below is a summary of significant transactions with affiliates.
Capital Contributions and Dividends
During 2020, the Company received capital contributions in the amount of $55 million from GILICO. On December 31, 2019, the Company received a capital contribution from GILICO for $20 million.
After receiving prior approval from the NE DOI, the Company paid extraordinary dividends of $40 million and $15 million in 2019, 2018, respectively. The Company did not pay any extraordinary dividends in 2020.
For the year ended December 31, 2020, the Company contributed $82 million to Lancaster Re. For the year ended December 31, 2019 and 2018, the Company contributed $50 million to Lancaster Re, respectively.
35
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Reinsurance Related Agreements
As more fully described in Note 8, the Company is party to various reinsurance transactions with affiliates.
Effective April 1, 2020, the Company entered into a stop loss agreement with Kuvare Life Re Ltd., a Bermuda affiliate, to cover excess losses associated with life policies reinsured with Lancaster Re. The Company had a net payable of $0.3 million at December 31, 2020.
Effective October 1, 2020, the Company entered into a coinsurance agreement with Kuvare Bermuda Re Ltd., resulting in the transfer of certain fixed annuity contracts. The Company ceded assets of $1.2 billion and statutory reserves of $1.2 billion for which amounts are collateralized with a funds withheld account and IMR. The Company had a receivable of $1.3 million at December 31, 2020.
On December 31, 2019, the Company entered into a coinsurance agreement with GILICO, resulting in the transfer of certain life and annuity contracts. The Company ceded statutory reserves of $1.3 billion in return for a ceding commission of $27.0 million, which was recorded in the Statutory Statements of Operations. The Company had a net receivable of $11.0 million from GILICO and a net payable of $35.0 million due to GILICO under terms of the coinsurance agreement at December 31, 2020 and December 31, 2019, respectively.
Effective April 1, 2014, amended and restated on April 1, 2020, the Company entered into an indemnity reinsurance agreement on a combination coinsurance and coinsurance funds withheld basis with Lancaster Re, resulting in the transfer of XXX and AXXX reserves associated with certain term and universal life policies. In April 2014, the Company ceded statutory reserves of $2.7 billion in return for a ceding commission, which was deferred net of tax into unassigned surplus in accordance with NAIC SAP. Amortization of $16.3 million, $16.1 million and $16.0 million was recorded during the years ended December 31, 2020, 2019 and 2018, respectively, resulting in an unamortized balance in surplus at December 31, 2020, 2019 and 2018 of $214.2 million, $230.5 million and $246.6 million, respectively. The deferred ceding commission is amortized into income over the period under which earnings emerge from the business reinsured. The Company had a net reinsurance receivable from Lancaster Re of $22.0 million and $35.6 million at December 31, 2020 and 2019, respectively.
There is no reported risk-based capital or Primary Security shortfall associated with these agreements.
Administrative Service Agreements and Other
The Company and HoldCo have entered into a Services Agreement to provide certain administrative and other services to each other. Total expenses incurred under this agreement to HoldCo were $8.7 million and $13.5 million and $22.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company and Lancaster Re have entered into a Services Agreement to provide certain administrative and other services to Lancaster Re. The Company and Lancaster Re also entered into an Investment Services Agreement pursuant to which the Company will provide investment management services with respect to assets of Lancaster Re. The Investment Services Agreement does not apply to the Funds Withheld Account held at Lincoln Benefit. Assets may be added to or withdrawn from the accounts at any time by Lancaster Re. Management and administrative fees are payable quarterly and totaled approximately $1.3 million and $(8.7) million for the years ended December 31, 2020 and 2019, respectively.
Effective December 31, 2019, the Company entered into a Cost Sharing and Services Agreement with Kuvare US Holdings, Inc. (“Kuvare”) and Kuvare Insurance Services LP (“KIS”) whereby Kuvare and KIS have agreed to provide certain management and administrative services to Lincoln Benefit, including management, reinsurance, legal, audit, administration, financial planning and other services. Lincoln Benefit
36
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
reimburses Kuvare and KIS at cost for services provided by Kuvare and KIS pursuant to this agreement. Total expenses incurred under this agreement to HoldCo were $5.1 million and $0.3 million for the year ended December 31, 2020 and December 31, 2019, respectively.
On December 31, 2019, Lincoln Benefit entered into an Investment Management Agreement with KIS, whereby KIS has agreed to provide certain investment advisory and management services to Lincoln Benefit. No expenses were incurred under this agreement during the year ended December 31, 2019 while expenses of $23.7 million were incurred during the year ended December 31, 2020.
The Company and Lancaster Re have entered into a Tax Allocation Agreement. Refer to Note 13 for more information related to this agreement.
Effective April 1, 2014, the Company entered into a Fee Letter (the “Fee Letter”) with Lanis LLC (“Lanis”) pursuant to which the Company will pay Lanis the risk spread due on the Credit-Linked Note issued by Lanis to Lancaster Re. A reserve had been established on the balance sheet for these payments through April 1, 2019. The reserve was based on a former letter agreement between the Company and Holdco which was terminated effective April 1, 2020. The fee letter also provided reimbursement in cash for any risk spread fees paid by the Company. During 2020, Holdco contributed capital of $2.0 million to the Company in line with the Fee Letter.
Effective November 4, 2016, the Company entered into an intercompany note receivable and note payable agreement with Lancaster Re in equal amounts (initially $100 million, and up to $500 million). The consideration for each note is offset, and interest is paid quarterly based on rates defined in the agreement. The gross amounts as of December 31, 2020 and 2019 were $463.7 million and $211.0 million, respectively.
The maturities of the outstanding intercompany note receivable and payable as of December 31, 2020 and 2019 were as follows:
| ($’s thousands) | December 31, 2020 | December 31, 2019 | ||||||
2020 | $ | — | $ | 105,500 | ||||
2021 | 105,000 | 76,000 | ||||||
2022 | 103,425 | 29,500 | ||||||
2023 | 62,000 | — | ||||||
2024 | 42,000 | — | ||||||
2025 | 151,250 | — | ||||||
|
|
|
| |||||
Total | $ | 463,675 | $ | 211,000 | ||||
|
|
|
| |||||
Interest expense incurred on the note payable and interest income earned on the note receivable for the year ended December 31, 2020 were $5.9 million and $3.9 million, respectively. Interest expense incurred on the note payable and interest income earned on the note receivable for the year ended December 31, 2019 were $10.6 million and $4.7 million, respectively. Interest expense incurred on the note payable and interest income earned on the note receivable for the year ended December 31, 2018 were $13.7 million and $5.6 million, respectively.
37
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Amounts Due To or From Affiliates
The Company reported the following receivables/(payables) to affiliates as of December 31, 2020 and 2019 excluding amounts related to taxes (see Note 13) and reinsurance agreements:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||
Holdco | $ | (1,651 | ) | $ | (2,828 | ) | ||
Lancaster Re | 474 | (580 | ) | |||||
Lanis | — | (1,956 | ) | |||||
Kuvare | (8,578 | ) | (300 | ) | ||||
Intercompany receivable and payable balances are evaluated on an individual company basis. Intercompany balances are generally settled quarterly.
| 3. | INVESTMENTS |
The statement value and fair value of the Company’s debt securities as of December 31, 2020 and 2019 were as follows:
December 31, 2020
| ($’s in thousands) | Statement Value | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
U.S. governments | $ | 638,836 | $ | 4,850 | $ | (497 | ) | $ | 643,189 | |||||||
All other governments | 12,776 | 452 | — | 13,228 | ||||||||||||
U.S. states, territories and possessions | 19,982 | 4,021 | — | 24,003 | ||||||||||||
U.S. political subdivisions | 72,500 | 8,132 | (42 | ) | 80,590 | |||||||||||
Special revenue | 1,085,852 | 110,757 | (1,134 | ) | 1,195,475 | |||||||||||
Industrial and miscellaneous | 6,098,527 | 657,746 | (26,313 | ) | 6,729,960 | |||||||||||
Hybrids | 145,846 | 8,817 | (2,447 | ) | 152,216 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total bonds | $ | 8,074,319 | $ | 794,775 | $ | (30,433 | ) | $ | 8,838,661 | |||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2019
| ($’s in thousands) | Statement Value | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
U.S. governments | $ | 58,548 | $ | 5,375 | $ | (86 | ) | $ | 63,837 | |||||||
All other governments | 12,807 | 190 | (578 | ) | 12,419 | |||||||||||
U.S. states, territories and possessions | 15,426 | 2,162 | — | 17,588 | ||||||||||||
U.S. political subdivisions | 64,496 | 2,826 | (63 | ) | 67,259 | |||||||||||
Special revenue | 875,549 | 68,577 | (894 | ) | 943,232 | |||||||||||
Industrial and miscellaneous | 5,232,882 | 407,791 | (14,019 | ) | 5,626,654 | |||||||||||
Hybrids | 101,914 | 7,277 | (423 | ) | 108,768 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total bonds | $ | 6,361,622 | $ | 494,198 | $ | (16,063 | ) | $ | 6,839,757 | |||||||
|
|
|
|
|
|
|
| |||||||||
38
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The statement value and estimated fair value as of December 31, 2020 by maturity periods for debt securities, other than ABS and MBS were as shown below:
December 31, 2020
| ($’s in thousands) | Statement Value | Fair Value | ||||||
Due in one year or less | $ | 140,572 | $ | 142,277 | ||||
Due after one through five years | 517,403 | 538,552 | ||||||
Due after five through ten years | 1,059,144 | 1,112,705 | ||||||
Due after ten years | 4,445,256 | 5,069,720 | ||||||
|
|
|
| |||||
Total before asset and mortgage-backed securities | 6,162,375 | 6,863,254 | ||||||
Asset and mortgage-backed securities | 1,911,944 | 1,975,407 | ||||||
|
|
|
| |||||
Total bonds | $ | 8,074,319 | $ | 8,838,661 | ||||
|
|
|
| |||||
Actual maturities may differ from contractual maturities on ABS and MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; accordingly, the contractual maturities for those securities are not shown.
Proceeds from sales of investments in debt securities for the years ended December 31, 2020, 2019 and 2018 were $2.9 billion, $0.9 billion and $1.0 billion, respectively; gross gains for the years ended December 31, 2020, 2019 and 2018 were $232.0 million, $47.4 million and $4.8 million, respectively, and gross losses for the years ended December 31, 2020, 2019 and 2018 were $16.1 million, $19.3 million and $47.0 million, respectively. Investment grade debt securities were 97.4% and 98.7% of the Company’s total debt securities as of December 31, 2020 and 2019, respectively.
For securities sold, redeemed or otherwise disposed as a result of a callable feature (including make whole call provisions), the number of CUSIPs and amount of investment income for the years ended December 31, 2020, 2019 and 2018 were as follows:
($’s in thousands, except # of securities) | ||||||||||||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
Type | General Account | Separate Account | General Account | Separate Account | General Account | Separate Account | ||||||||||||||||||
Number of CUSIPs | 19 | — | 22 | — | 13 | — | ||||||||||||||||||
Aggregate Amount of Investment Income | $ | 8,057 | $ | — | $ | 3,785 | $ | — | $ | 1,005 | $ | — | ||||||||||||
Pricing
Non-U.S. government fixed income holdings are valued on the basis of the quotes provided by pricing services, which are subject to pricing validation reviews and a pricing vendor challenge process. Valuations provided by vendors are generally based on the actual trade information as substantially all of the Company’s non-U.S. government holdings are traded in a transparent and liquid market.
Corporate debt securities mainly include investment grade positions, which are priced on the basis of quotes provided by third-party pricing vendors and first utilize valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury securities, Treasury curves, and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, liquidity and call features. Where market data is not available valuations are developed based on the modeling techniques that utilize observable inputs and option adjusted spreads; and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure.
39
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Values of RMBS, CMBS and ABS are obtained from third-party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Pricing inputs for ABS which are primarily comprised of debt securitized by credit card; student loan and auto receivables; focus on capturing collateral quality and performance, payment patterns, and delinquencies. Values of certain ABS for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices.
For both CMBS and RMBS, cash flows are derived based on the transaction-specific information which incorporates priority in the capital structure and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements, and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgments may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, as compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property.
Other-than-temporary impairments
The Company recognizes and measures OTTI for ABS and MBS in accordance with SSAP No. 43R, “Loan-Backed and Structured Securities”. In accordance with SSAP No. 43R, if the fair value of a structured security is less than its amortized cost basis at the balance sheet date, the Company assesses whether the impairment is an OTTI. When an OTTI has occurred, the amount of OTTI recognized in earnings is the difference between the amortized cost basis of the security and the present value of its expected future cash flows discounted at the effective interest rate implicit in the security.
If the Company intends to sell the structured security, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, an OTTI is considered to have occurred. The amount of the OTTI recognized in earnings is the difference between the amortized cost basis and the fair value of the security.
If the Company does not intend to sell the structured security, or it is not likely that it will be required to sell the security before recovery of its amortized cost basis, the Company performs cash flow testing to determine if the present value of its expected future cash flows discounted at the effective interest rate implicit in the security is less than its amortized cost basis.
Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. Losses incurred on the respective portfolios are based on loss models using assumptions about key systemic risks such as unemployment rates and housing prices and loan specific information such as delinquency rates and loan-to-value ratios.
If the fair value of a debt security, other than those subject to SSAP No. 43R, is less than its amortized cost basis at the balance sheet date, the Company assesses whether the impairment is an OTTI. When an OTTI has occurred, the amount of OTTI recognized in earnings is the difference between the amortized cost basis of the security and its fair value.
If the Company intends to sell the debt security, or it is more likely that it will be required to sell the security before recovery of its amortized cost basis, an OTTI is considered to have occurred. If the Company
40
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
does not intend to sell the debt security, or it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis, the Company employs a portfolio monitoring process to identify securities that are OTTI.
The Company has an Investment Committee comprised of investment and finance professionals which meets at least quarterly to review individual issues or issuers that may be of concern. In determining whether a security is OTTI, the Investment Committee considers the factors described below. The process involves a quarterly screening of all securities where fair value is less than the amortized cost basis. Discrete credit events, such as a ratings downgrade, are also used to identify securities that may be OTTI. The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer’s ability to meet current and future interest and principal payments, an evaluation of the issuer’s financial position and its near-term recovery prospects, difficulties being experienced by an issuer’s parent or affiliate, and management’s assessment of the outlook for the issuer’s sector.
As a supplement to the qualitative assessment, independent screenings are performed to help identify securities that should be carefully scrutinized for inclusion on the watchlist and in the proper category. These include things like market value to book value ratio, highest unrealized losses, length of time at an unrealized loss and stress test results for structured securities. In making these evaluations, the Credit Committee exercises considerable judgment. Based on this evaluation, issues or issuers are considered for inclusion on one of the Company’s following watchlists: Monitor, Concern, High Concern, or Default.
“Monitor List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis. The likelihood of future non-repayment is considered not probable. For loan-backed and structured securities, a principal loss would be projected under a significant stress model scenario. No OTTI charge is recorded in the Statutory Company’s Statements of Operations for unrealized loss on securities related to these issuers.
“Concern List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis. The likelihood of future non-repayment is considered above average but not probable. For loan-backed and structured securities, a principal loss would be projected under a stress model scenario. No OTTI charge is recorded in the Statutory Company’s Statements of Operations for unrealized loss on securities related to these issuers.
“High Concern”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require continued monitoring. A security is moved from the Concern List to the High Concern List when changes in issuer-specific facts and circumstances increase the possibility that a security may become impaired. The likelihood of future non-repayment is considered probable. For loan-backed and structured securities, a principal loss would be projected under a base case model scenario. No OTTI charge is recorded in the Company’s Statutory Statements of Operations for unrealized loss on securities related to these issuers.
“Default List”- A security that is not current with respect to principal and interest or was issued by a company that has entered bankruptcy subsequent to acquisition or experienced a significant credit downgrade. Management has concluded the amortized cost basis of the security may not be recovered due to expected delays or shortfalls in the contractually specified cash flows. For these investments, the amount of OTTI recognized in the Company’s Statutory Statements of Operations is the difference between the amortized cost basis of the security and its fair value or present value of discounted cash flows dependent on the degree of impairment.
41
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Should it be determined that a security is other than temporarily impaired, the Company records a loss through an appropriate adjustment in carrying value. During the year ended December 31, 2020, the Company did not incur any OTTI. During the year ended December 31, 2019, the Company incurred the following write-downs of debt securities, which were subject to SSAP No. 43R:
| ($’s in thousands) | ||||||||||||||||||||||||
CUSIP | Book/Adj Carrying value Amortized Cost Before Current Period OTTI | Present Value of Projected Cash Flows | Recognized OTTI | Amortized Cost After OTTI | Fair Value at Time of OTTI | Date of Financial Statement Where Reported | ||||||||||||||||||
50179MAH4 | $ | 4,982 | $ | 3,767 | $ | 1,215 | $ | 3,767 | $ | 3,767 | 6/30/2019 | |||||||||||||
50179MAH4 | 3,978 | 3,102 | 876 | 3,102 | 3,102 | 9/30/2019 | ||||||||||||||||||
50179MAH4 | 3,041 | 2,633 | 408 | 2,633 | 2,633 | 12/31/2019 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 12,001 | $ | 9,502 | $ | 2,499 | $ | 9,502 | $ | 9,502 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
There are inherent risks and uncertainties in management’s evaluation of securities for OTTI. These risks and uncertainties include factors both external and internal to the Company, such as general economic conditions, an issuer’s financial condition or near-term recovery prospects, market interest rates, unforeseen events which affect one or more issuers or industry sectors, and portfolio management parameters, including asset mix, interest rate risk, portfolio diversification, duration matching, and greater than expected liquidity needs. All of these factors could impact management’s evaluation of securities for OTTI.
Temporary impairments
The gross unrealized losses and fair value of investments, which have been deemed temporarily impaired, aggregated by investment category, number of securities and length of time that securities have been in an unrealized loss position at December 31, 2020 and 2019 were as follows:
| December 31, 2020 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
| ($’s in thousands, except # of securities) | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||
U.S. governments | 12 | $ | 499,226 | $ | (497 | ) | — | $ | — | $ | — | 12 | $ | 499,226 | $ | (497 | ) | |||||||||||||||||||
All other governments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
U.S. political subdivisions | 3 | 9,395 | (42 | ) | — | — | — | 3 | 9,395 | (42 | ) | |||||||||||||||||||||||||
Special revenue | 37 | 89,577 | (1,132 | ) | 12 | 103 | (2 | ) | 49 | 89,680 | (1,134 | ) | ||||||||||||||||||||||||
Industrial and miscellaneous | 246 | 599,410 | (21,058 | ) | 21 | 57,188 | (5,255 | ) | 267 | 656,598 | (26,313 | ) | ||||||||||||||||||||||||
Hybrids | 12 | 42,526 | (1,209 | ) | 1 | 8,663 | (1,238 | ) | 13 | 51,189 | (2,447 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total bonds | 310 | $ | 1,240,134 | $ | (23,938 | ) | 34 | $ | 65,954 | $ | (6,495 | ) | 344 | $ | 1,306,088 | $ | (30,433 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| December 31, 2019 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
| ($’s in thousands, except # of securities) | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | # | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||
U.S. governments | 4 | $ | 2,566 | $ | (76 | ) | 11 | $ | 217 | $ | (10 | ) | 15 | $ | 2,783 | $ | (86 | ) | ||||||||||||||||||
All other governments | — | — | — | 1 | 4,298 | (578 | ) | 1 | 4,298 | (578 | ) | |||||||||||||||||||||||||
U.S. political subdivisions | 1 | 7,072 | (63 | ) | — | — | — | 1 | 7,072 | (63 | ) | |||||||||||||||||||||||||
Special revenue | 34 | 204,463 | (883 | ) | 37 | 361 | (11 | ) | 71 | 204,824 | (894 | ) | ||||||||||||||||||||||||
Industrial and miscellaneous | 92 | 255,033 | (2,757 | ) | 71 | 233,548 | (11,262 | ) | 163 | 488,581 | (14,019 | ) | ||||||||||||||||||||||||
Hybrids | — | — | — | 2 | 9,578 | (423 | ) | 2 | 9,578 | (423 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total bonds | 131 | $ | 469,134 | $ | (3,779 | ) | 122 | $ | 248,002 | $ | (12,284 | ) | 253 | $ | 717,136 | $ | (16,063 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
42
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Exposure to Subprime and Alt-A mortgages
Subprime mortgages are residential loans to borrowers with weak credit profiles. Alt-A mortgages are residential loans to borrowers who generally have credit profiles above subprime but do not conform to traditional (“prime”) mortgage underwriting guidelines. The Company has invested in certain mortgage-backed and structured securities that include exposure to subprime and other below-prime mortgage loans. These investments are included in bonds in the Statutory Statements of Admitted Assets and are generally reported at amortized cost.
The Company has a comprehensive portfolio monitoring process. No impairments were recorded in the subprime or Alt-A portfolio in 2020, 2019 or 2018. The Company’s practice for acquiring and monitoring subprime and Alt-A securities takes into consideration the quality of the originator, quality of the servicer, security credit rating, underlying characteristics of the mortgages, borrower characteristics, level of credit enhancement in the transaction, and bond insurer strength, where applicable. The originators and servicers of the underlying mortgage loans are primarily subsidiaries of large banks and brokers.
The Company had no indirect exposure to subprime and Alt-A loans as of December 31, 2020 or December 31, 2019.
| 4. | MORTGAGE LOANS |
The Company invests in commercial first lien mortgage loans throughout the United States. Investments are diversified by property type and geographic area. The Company monitors the condition of the mortgage loans in its portfolio. In those cases where mortgages have been restructured, appropriate allowances for losses have been made. In those cases where, in management’s judgment, the mortgage loans’ values are impaired, appropriate losses are recorded.
The geographical distribution of the statement value of the mortgage loans portfolio as of December 31, 2020 and 2019 was as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||
Alabama | $ | — | $ | 569 | ||||
Arizona | 35,159 | 36,032 | ||||||
California | 128,227 | 140,936 | ||||||
Colorado | 91,680 | 91,680 | ||||||
Florida | 63,703 | 24,305 | ||||||
Georgia | 27,300 | 29,631 | ||||||
Hawaii | 1,505 | 2,754 | ||||||
Illinois | 55,093 | 56,163 | ||||||
Iowa | — | 276 | ||||||
Massachusetts | 15,102 | 29,549 | ||||||
Minnesota | 22,060 | 22,624 | ||||||
Nevada | 13,119 | 9,308 | ||||||
New Jersey | 32,487 | 35,663 | ||||||
New York | 46,703 | 47,556 | ||||||
North Carolina | 29,887 | 3,817 | ||||||
Ohio | 11,846 | 12,110 | ||||||
Pennsylvania | 70,340 | 69,800 | ||||||
South Carolina | 23,717 | 24,384 | ||||||
Texas | 53,310 | 84,674 | ||||||
General Allowance | — | — | ||||||
|
|
|
| |||||
Total mortgage loans | $ | 721,238 | $ | 721,831 | ||||
|
|
|
| |||||
43
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Outstanding commitments on certain mortgage loans held in the investment portfolio to finance property improvements on underlying real estate totaled $65.9 million and $5.1 million at December 31, 2020 and 2019, respectively.
During 2020, the maximum and minimum lending rates were 4.96 % and 3.01%, respectively. The maximum and minimum lending rates for commercial mortgage loans during 2019 were 5.17% and 3.57%, respectively. During the years ended December 31, 2020 and 2019, the Company did not reduce interest rates on any outstanding mortgage loans. Mortgage loans are collateralized by the related properties and did not exceed 74% of the properties’ value at the time the original loan was made in 2020 and 2019, respectively.
A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. The allowance for credit losses is estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral of the loan is collateral dependent. A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the loan collateral, less cost to sell, is less than the recorded amount of the loan. During the years ended December 31, 2020 and 2019, no loans were impaired or past due.
A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions. While management believes that it uses the best information available to establish the allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them. There was no general allowance for loan loss at December 31, 2020 or 2019.
As of December 31, 2020, and 2019, the Company held no restructured loans. Should the Company hold any troubled debt, the Company may modify the terms of a loan by adjusting the interest rate, extending the maturity date, or both.
The Company accrues interest income on impaired loans to the extent it is deemed collectible, assuming it is delinquent less than 180 days and the loan continues to perform under its original or restructured contractual terms. Interest income is recognized on impaired mortgage loans upon receipt.
The credit quality indicator for the Company’s mortgage loans is a risk-rated measure based on the borrowers’ ability to pay and the value of the underlying collateral. The Commercial Mortgage Loan risk rating is related to an increasing likelihood of loss, with lower quality ratings representing the category in which losses may be expected. It is used in measuring relative risk for the AVR calculation. The statement value of the Company’s mortgage loans, net of allowances for credit losses, by credit quality indicator as of December 31, 2020 and 2019 was as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||
CM1 - Highest Quality | $ | 459,851 | $ | 443,931 | ||||
CM2 - High Quality | 197,068 | 239,928 | ||||||
CM3 - Medium Quality | 34,431 | 37,972 | ||||||
|
|
|
| |||||
Total commercial mortgage loans | $ | 691,350 | $ | 721,831 | ||||
Residential mortgage loans | 29,888 | — | ||||||
|
|
|
| |||||
Total mortgage loans | $ | 721,238 | $ | 721,831 | ||||
|
|
|
| |||||
44
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| 5. | INVESTMENT GAINS AND LOSSES |
Realized capital gains and losses on debt securities, mortgages and derivatives which relate to changes in levels of interest rates are charged or credited to the IMR, net of tax, and amortized into income over the remaining contractual life of the security sold. Realized gains and losses from the remaining investments are reported, net of tax, on the Statutory Statements of Operations, but are not included in the computation of net gain from operations. Realized capital gains and losses are recognized on a specific identification basis.
Net realized gains and losses recognized through the Statutory Statements of Operations for the years ended December 31, 2020, 2019 and 2018 were comprised of the following:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Debt securities | $ | 218,768 | $ | 115,958 | $ | (50,282 | ) | |||||
Mortgage loans | 1,032 | 474 | (104 | ) | ||||||||
Cash, cash equivalents and short-term investments | 27 | (1 | ) | 2 | ||||||||
Derivative instruments | 9,573 | 8,268 | 4,913 | |||||||||
Other invested assets | 825 | 267 | (9 | ) | ||||||||
|
|
|
|
|
| |||||||
Subtotal | 230,225 | 124,966 | (45,480 | ) | ||||||||
Capital gains tax expense | 58,265 | 344 | (20,649 | ) | ||||||||
|
|
|
|
|
| |||||||
Net realized gains (losses) | 171,960 | 124,622 | (24,831 | ) | ||||||||
Gains transferred to IMR (net of taxes) | (174,261 | ) | (102,998 | ) | 36,055 | |||||||
|
|
|
|
|
| |||||||
Total | $ | (2,301 | ) | $ | 21,624 | $ | 11,224 | |||||
|
|
|
|
|
| |||||||
Realized capital gains and losses did not include any OTTI for 2020. Realized capital gains and losses included $3.1 million of other-than-temporary impairment losses related to debt securities for the year ended December 31, 2019. Realized capital gains and losses included $4.8 million of other-than-temporary impairment losses related to debt securities for the year ended December 31, 2018.
Changes in unrealized gains and losses from investments are reported as a component of Capital and Surplus, net of deferred income taxes, and were as follows for the years ended December 31, 2020, 2019 and 2018:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Common stock | $ | 40 | $ | — | $ | — | ||||||
Common stocks of affiliates | (70,778 | ) | (61,355 | ) | (38,572 | ) | ||||||
Derivative instruments | (2,745 | ) | 15,281 | (12,050 | ) | |||||||
Other invested assets | 1,805 | 200 | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | (71,678 | ) | $ | (45,874 | ) | $ | (50,622 | ) | |||
|
|
|
|
|
| |||||||
There was no deferred tax netted in the above for the years ended December 31, 2020, 2019, or 2018.
45
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| 6. | NET INVESTMENT INCOME |
Net investment income for the years ended December 31, 2020, 2019 and 2018 consisted of:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Debt securities | $ | 284,535 | $ | 322,129 | $ | 329,729 | ||||||
Mortgage loans | 28,384 | 37,239 | 41,310 | |||||||||
Contract loans | 1,738 | 6,245 | 6,710 | |||||||||
Cash, cash equivalents and short-term investments | 2,500 | 4,041 | 3,867 | |||||||||
Other invested assets | 11,675 | 7,933 | 8,684 | |||||||||
|
|
|
|
|
| |||||||
Gross investment income | 328,832 | 377,587 | 390,300 | |||||||||
Interest expenses | 5,880 | 10,637 | 13,718 | |||||||||
Third party administration costs | 30,400 | 13,150 | 14,046 | |||||||||
Other investment expenses | 502 | 434 | 429 | |||||||||
|
|
|
|
|
| |||||||
Net investment income before IMR amortization | 292,050 | 353,366 | 362,107 | |||||||||
IMR amortization | 133,498 | 28,967 | 40,255 | |||||||||
|
|
|
|
|
| |||||||
Total net investment income | $ | 425,548 | $ | 382,333 | $ | 402,362 | ||||||
|
|
|
|
|
| |||||||
The Company’s policy is to exclude investment income due and accrued with amounts that are over 90 days past due for investments other than mortgage loans and over 180 days past due for mortgage loans or where the collection of interest is uncertain. No investment income due and accrued was excluded from surplus at December 31, 2020 or 2019.
| 7. | DERIVATIVES |
Derivative financial instruments utilized by the Company included index options, futures contracts and interest rate swaps. The notional amounts specified in the contracts are used to calculate contractual payments under the agreements and are generally not representative of the potential for gain or loss on these contracts.
Market risk is the risk that the Company will incur losses due to adverse changes in market prices or rates. Market risk exists for all of the derivatives that the Company holds. To limit this risk, the Company’s senior management has established risk control limits.
Counterparty credit risk relates to the Company’s potential loss if counterparties concurrently fail to perform under the contractual terms of the contracts. The Company manages its exposure to counterparty credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally enforceable master agreements and obtaining collateral where appropriate. The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance. The above derivatives are traded on organized exchanges, which require margin deposits and guarantee the execution of trades, thereby mitigating potential credit risk. At December 31, 2020, the Company had no cash collateral from counterparties related to organized exchanges. At December 31, 2019, the Company had $0.3 million in cash collateral from counterparties related to organized exchanges.
The Company uses derivatives to economically hedge the risks with certain assets and liabilities arising from potential adverse impacts from changes in risk-free interest rates and equity markets. The Company does not use derivatives for speculative purposes.
The paragraphs below describe the derivatives the Company uses, including the objectives, cash requirements and accounting policies.
46
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Futures
The Company utilizes equity index futures contracts. Futures contracts are defined as commitments to buy or sell designated financial instruments based on specified prices, yields or indexes. Futures contracts provide returns based upon a specified index or interest rate applied to a notional amount. The Company uses futures to hedge exposures in annuity and life contracts. Daily cash settlement of variation margins is required for futures contracts and is based on the changes in daily prices. The final settlement of futures contracts is in cash.
Options
The Company also uses equity index options. Index option contracts provide returns at specified or optional dates based on a specified index applied to the option’s notional amount. The Company purchases and writes (sells) option contracts primarily to reduce market risk associated with certain annuity and life contracts. When the Company purchases/sells option contracts at specific prices, it is required to pay/receive a premium to/from the counterparties. The amount of premium paid/received is based on the number of contracts purchased/sold, the specified price and the maturity date of the contract. The Company pays/receives cash equal to the premium of purchased/written options when the contract is established. Premiums paid are reported as a derivative asset and premiums received are reported as a derivative liability. The change in the fair value of option contracts is reported as change in surplus, with an adjustment to derivatives. If the option is exercised, the Company receives/pays cash equal to the product of the number of contracts and the specified price in the contract with the gain or loss on settlement reported in realized gain or loss. If the options are not exercised and the contracts expire, then no additional cash is exchanged and the remaining book value is offset to realized gain or loss.
Swaps
The Company employs interest rate swaps to hedge interest rate risk related to investments purchased to support annuity contracts. An interest rate swap is an agreement between two counterparties in which one stream of future interest payments is exchanged for another. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate. Swaps provide returns at the reset dates based on respective interest rates applied to the notional amount with the net difference in resulting interest payments settled between the counterparties. The Company purchases/sells swap contracts at specific prices and pays/receives a premium to/from the counterparties. The amount of premium paid/received is based on the number of contracts purchased/sold and the specified price based on the interest rates used and other terms of the contract. The Company pays/receives cash equal to the premium of the purchased/written swap when the contract is established. Premiums paid are reported as a derivative asset and premiums received are reported as a derivative liability. The change in the fair value of the swap is reported as change in surplus, with an adjustment to derivatives. Cash flows received/paid at the reset dates are reported in net investment income and consist of any differences in the amounts of contractual interest calculated due to the respective counterparties based on changes in interest rates. Swaps usually terminate upon expiration and the remaining book value is offset to realized gain or loss. If terminated through sale, the difference between consideration received or paid and the remaining book value is recorded to realized gain or loss.
The Company did not report any derivatives as accounting hedges as of December 31, 2020 or 2019.
All derivative transactions are covered under standardized contractual agreements with counterparties, all of which include credit-related contingent features. Certain counterparty relationships also may include
47
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
supplementary agreements with tailored terms, such as additional triggers for early terminations, acceptable practices related to cross-transaction netting, and minimum thresholds for determining collateral. Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy or the downgrade of credit ratings to below a stipulated level. These triggers apply to both the Company and its counterparty.
Derivatives are carried in accordance with SSAP No. 86, “Derivatives.” The Company’s underlying notional or principal amounts and gross fair values as of December 31, 2020 and 2019 were as follows:
| December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||
| Notional | Gross Fair Value | Notional | Gross Fair Value | |||||||||||||||||||||||||||||
| ($’s in thousands) | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||||
Options | $ | 99,725 | $ | 96,200 | $ | 17,949 | $ | (9,032 | ) | $ | 311,160 | $ | 288,913 | $ | 49,158 | $ | (30,770 | ) | ||||||||||||||
| 8. | REINSURANCE |
Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement. To minimize its exposure to significant losses from reinsurer insolvencies, the Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. Management believes that any liability arising from this contingency is unlikely. ALIC represents over 41% and 44%, of the Company’s ceded reserves as of December 31, 2020 and December 31, 2019, respectively.
The Company wrote off uncollectible reinsurance balances of $2.0 million for the year ended December 31, 2020. The Company did not write off any uncollectible reinsurance balances due for the year ended December 31, 2019. The Company wrote off uncollectible reinsurance balances due of $4.9 million for the year ended December 31, 2018.
On March 6, 2019, Scottish Re was put into receivership by the Delaware Department of Insurance (the “Receiver”). The Receiver filed a petition for approval of a rehabilitation plan on June 30, 2020 which remains under review by all interested parties including the courts. Our reserve credit with respect to Scottish Re treaties is approximately $2.5 million as of December 31, 2020. The Company has not established an allowance or written off any amounts with respect to these treaties during 2020 or 2019. Reinsurance premium due to Scottish Re has been offset against the outstanding claim recoverables. A nonadmitted asset of approximately $6.5 million has been recorded with regards to reinsurance recoverables as of December 31, 2020 and $3.3 million as of December 31, 2019.
For the years ended December 31, 2020, 2019 and 2018, the Company had the following experience on reinsurance ceded as a result of commutation/recapture of ceded reinsurance:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
(1) Claims incurred | $ | 2,317 | $ | — | $ | — | ||||||
(2) Claims adjustment expenses incurred | — | — | — | |||||||||
(3) Premiums earned | (6,400 | ) | 535,191 | 1,419 | ||||||||
(4) Other | ||||||||||||
Reserve Adjustment on Reinsurance Ceded | 13,661 | (539,191 | ) | (1,496 | ) | |||||||
Commission and expense allowance | 56 | — | — | |||||||||
48
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
On December 1, 2020, the Company recorded the receipt of an initial ceding commission of $82.3 million (before taxes of $17.3 million) as a result of an indemnity reinsurance agreement between the Company and COUNTRY Life Insurance Company, a life insurance company domiciled in Illinois. This amount was deferred in surplus in accordance with statutory accounting principles as defined in Account Practices and Procedures Manual Appendix A-791, paragraph 3 which limits the first year of recognition to the effective tax rate or 21%, resulting in an unamortized balance of $65.0 million in surplus at December 31, 2020. The deferred ceding commission is amortized over the period under which earnings emerge from the business reinsured.
The Company has agreements with several unrelated companies, which provide for reinsurance of portions of the net-amount-at-risk under certain policies. These amounts are reinsured on either a yearly renewable term, coinsurance or modified coinsurance basis. The Company’s modified coinsurance reserves (general account only) were $319.9 million and $431.1 million as of December 31, 2020 and 2019, respectively.
The effects of reinsurance were as follows for the years ended December 31, 2020, 2019 and 2018:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Insurance and other individual policy benefits and claims*: | ||||||||||||
Direct | $ | 1,358,482 | $ | 1,395,622 | $ | 1,257,584 | ||||||
Assumed | 9,981 | 5,957 | 5,190 | |||||||||
Ceded | (1,189,042 | ) | (1,285,691 | ) | (1,039,743 | ) | ||||||
|
|
|
|
|
| |||||||
Net policy benefits and claims | $ | 179,421 | $ | 115,888 | $ | 223,030 | ||||||
|
|
|
|
|
| |||||||
| * | Excludes surrender benefits |
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Premiums and annuity considerations: | ||||||||||||
Direct | $ | 1,107,254 | $ | 1,256,891 | $ | 1,304,600 | ||||||
Assumed | 1,462,753 | 4,949 | 5,118 | |||||||||
Ceded - affiliated | (1,193,599 | ) | (1,423,211 | ) | 7,422 | |||||||
Ceded - other non-affiliated | (1,098,747 | ) | (751,986 | ) | (1,237,027 | ) | ||||||
|
|
|
|
|
| |||||||
Net premiums and annuity considerations | $ | 277,661 | $ | (913,357 | ) | $ | 80,113 | |||||
|
|
|
|
|
| |||||||
The Company has a modified coinsurance – monthly renewable term agreement with Hannover covering certain life and annuity business providing protection over excess losses effectuated through an experience refund mechanism. In establishing reserve credits, the Company considers all underlying business assumptions including contract terms that limit the reinsurers assumed liability. Additionally, while there is sufficient risk transfer under Statutory Accounting Principles, the likelihood of GAAP net risk transfer is small enough to merit differential accounting treatment.
| 9. | RESERVES FOR LIFE CONTRACTS AND DEPOSIT TYPE CONTRACTS |
The reserves for life insurance and annuity contracts are computed in accordance with presently accepted actuarial standards, and are based on actuarial assumptions and methods (including use of published mortality tables and prescribed interest rates and methodologies) which produce reserves at least as great as those required by law and contract provisions.
49
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Deduction of deferred fractional premiums upon death of the insured and return of any portion of the final premium for the period beyond the date of death are not applicable to the business of the Company. Surrender values are not promised in excess of reserves legally computed.
For traditional life contracts, the cost of additional mortality for each policy is assumed to equal the additional premium charged for that policy period and is reserved accordingly. Additional premiums are collected for policies issued on substandard lives. Reserves are held in a manner consistent with traditional policies. For interest-sensitive policies, substandard mortality is reflected in the cost of insurance charges.
As of December 31, 2020, 2019 and 2018, the Company had $4.4 billion, $4.7 billion and $5.4 billion of direct insurance in force for which gross premiums were less than the net premiums according to the standard of valuation required by the State of Nebraska, respectively. Deficiency reserves above base contract reserves as of December 31, 2020 and 2019 totaled $72.0 million and $76.0 million, respectively.
The Tabular Interest has been determined by formula as described in the NAIC instructions, except for some business for which the Tabular Interest is determined from basic policy data for reserving. The Tabular less Actual Reserve Released has been determined by formula as described in the NAIC instructions. The Tabular Cost has been determined by formula as described in the NAIC instructions, except for universal life products which use cost of insurance and some business which uses basic policy data for reserving. The Tabular Interest on funds not involving life contingencies was determined from the interest credited to the deposits, except for certain guaranteed interest contracts for which Tabular Interest on funds is determined by formula as described in the instructions.
The Company recorded an additional reserve of $1.1 million related to additional capital requirements for deferred annuities for the year ended December 31, 2019. There were no additional reserves recorded for the year ended December 31, 2020.
The Company recorded no premium deficiency reserves related to accident and health contracts for the years ended December 31, 2020 and 2019.
50
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The withdrawal characteristics of general account and separate account life reserves and deposits as of December 31, 2020 and 2019 were as follows:
December 31, 2020
| ($’s in thousands) | Account Value | Cash Value | Reserve | |||||||||
A. General Account | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | 14,772 | $ | 52,105 | ||||||
b. Universal life | 878,962 | 878,841 | 886,288 | |||||||||
c. Universal life with secondary guarantees | 3,742,939 | 3,026,759 | 6,466,111 | |||||||||
d. Indexed universal life | 63,616 | 53,455 | 58,240 | |||||||||
e. Indexed universal life with secondary guarantees | 622,424 | 393,754 | 499,851 | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | 6,206 | 9,038 | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | 103,299 | 89,204 | 112,688 | |||||||||
j. Miscellaneous reserves | — | 34,052 | 121,412 | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | 3,418,123 | |||||||||
b. Accidental death benefits | XXX | XXX | 145 | |||||||||
c. Disability - active lives | XXX | XXX | 969 | |||||||||
d. Disability - disabled lives | XXX | XXX | 27,204 | |||||||||
e. Miscellaneous reserves | XXX | XXX | 53,197 | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | 5,411,240 | 4,497,043 | 11,705,371 | |||||||||
(4) Reinsurance ceded | 5,128,702 | 4,219,635 | 11,412,363 | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | 282,538 | $ | 277,408 | $ | 293,008 | ||||||
|
|
|
|
|
| |||||||
| Account Value | Cash Value | Reserve | ||||||||||
B. Separate Account with Guarantees | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | — | $ | — | ||||||
b. Universal life | — | — | — | |||||||||
c. Universal life with secondary guarantees | — | — | — | |||||||||
d. Indexed universal life | — | — | — | |||||||||
e. Indexed universal life with secondary guarantees | — | — | — | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | — | — | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | — | — | — | |||||||||
j. Miscellaneous reserves | — | — | — | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | — | |||||||||
b. Accidental death benefits | XXX | XXX | — | |||||||||
c. Disability - active lives | XXX | XXX | — | |||||||||
d. Disability - disabled lives | XXX | XXX | — | |||||||||
e. Miscellaneous reserves | XXX | XXX | — | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | — | — | — | |||||||||
(4) Reinsurance ceded | — | — | — | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | — | $ | — | $ | — | ||||||
|
|
|
|
|
| |||||||
51
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Account Value | Cash Value | Reserve | ||||||||||
C. Separate Account Nonguaranteed | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | — | $ | — | ||||||
b. Universal life | — | — | — | |||||||||
c. Universal life with secondary guarantees | — | — | — | |||||||||
d. Indexed universal life | — | — | — | |||||||||
e. Indexed universal life with secondary guarantees | — | — | — | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | — | — | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | 1,159,152 | 1,153,234 | 1,153,784 | |||||||||
j. Miscellaneous reserves | — | — | — | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | — | |||||||||
b. Accidental death benefits | XXX | XXX | — | |||||||||
c. Disability - active lives | XXX | XXX | — | |||||||||
d. Disability - disabled lives | XXX | XXX | — | |||||||||
e. Miscellaneous reserves | XXX | XXX | — | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | 1,159,152 | 1,153,234 | 1,153,784 | |||||||||
(4) Reinsurance ceded | — | — | — | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | 1,159,152 | $ | 1,153,234 | $ | 1,153,784 | ||||||
|
|
|
|
|
| |||||||
| Amount | ||||||||||||
D. | ||||||||||||
Life and Accident and Health Annual Statement: | ||||||||||||
1. Exhibit 5, Life Insurance Section, Total (net) | $ | 290,701 | ||||||||||
2. Exhibit 5, Accidental Death Benefits Section, Total (net) | 3 | |||||||||||
3. Exhibit 5, Disability - Active Lives Section, Total (net) | 1 | |||||||||||
4. Exhibit 5, Disability - Disabled Lives Section, Total (net) | 568 | |||||||||||
5. Exhibit 5, Miscellaneous Reserves Section, Total (net) | 1,735 | |||||||||||
|
| |||||||||||
6. Subtotal | 293,008 | |||||||||||
|
| |||||||||||
Separate Accounts Annual Statement: | ||||||||||||
7. Exhibit 3, 1ine 0199999, Column 2 | 1,153,784 | |||||||||||
8. Exhibit 3, 1ine 0499999, Column 2 | — | |||||||||||
9. Exhibit 3, 1ine 0599999, Column 2 | — | |||||||||||
|
| |||||||||||
10. Subtotal (Lines 7 through 9) | 1,153,784 | |||||||||||
|
| |||||||||||
11. Combined Total (Lines 6 plus 10) | $ | 1,446,791 | ||||||||||
|
| |||||||||||
52
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
December 31, 2019 | ||||||||||||
| ($‘s in thousands) | Account Value | Cash Value | Reserve | |||||||||
A. General Account | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | 12,033 | $ | 48,814 | ||||||
b. Universal life | 906,440 | 906,280 | 916,544 | |||||||||
c. Universal life with secondary guarantees | 3,742,945 | 2,920,439 | 6,188,250 | |||||||||
d. Indexed universal life | 59,125 | 48,909 | 56,571 | |||||||||
e. Indexed universal life with secondary guarantees | 573,928 | 327,805 | 451,051 | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | 5,945 | 8,331 | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | 100,615 | 83,450 | 111,697 | |||||||||
j. Miscellaneous reserves | — | 28,904 | 107,335 | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | 3,529,402 | |||||||||
b. Accidental death benefits | XXX | XXX | 119 | |||||||||
c. Disability - active lives | XXX | XXX | 816 | |||||||||
d. Disability - disabled lives | XXX | XXX | 25,560 | |||||||||
e. Miscellaneous reserves | XXX | XXX | 59,181 | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | 5,383,053 | 4,333,765 | 11,503,671 | |||||||||
(4) Reinsurance ceded | 5,099,025 | 4,055,171 | 11,202,886 | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | 284,028 | $ | 278,594 | $ | 300,785 | ||||||
|
|
|
|
|
| |||||||
| Account Value | Cash Value | Reserve | ||||||||||
B. Separate Account with Guarantees | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | — | $ | — | ||||||
b. Universal life | — | — | — | |||||||||
c. Universal life with secondary guarantees | — | — | — | |||||||||
d. Indexed universal life | — | — | — | |||||||||
e. Indexed universal life with secondary guarantees | — | — | — | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | — | — | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | — | — | — | |||||||||
j. Miscellaneous reserves | — | — | — | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | — | |||||||||
b. Accidental death benefits | XXX | XXX | — | |||||||||
c. Disability - active lives | XXX | XXX | — | |||||||||
d. Disability - disabled lives | XXX | XXX | — | |||||||||
e. Miscellaneous reserves | XXX | XXX | — | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | — | — | — | |||||||||
(4) Reinsurance ceded | — | — | — | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | — | $ | — | $ | — | ||||||
|
|
|
|
|
| |||||||
53
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Account Value | Cash Value | Reserve | ||||||||||
C. Separate Account Nonguaranteed | ||||||||||||
(1) Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||
a. Term policies with cash value | $ | — | $ | — | $ | — | ||||||
b. Universal life | — | — | — | |||||||||
c. Universal life with secondary guarantees | — | — | — | |||||||||
d. Indexed universal life | — | — | — | |||||||||
e. Indexed universal life with secondary guarantees | — | — | — | |||||||||
f. Indexed life | — | — | — | |||||||||
g. Other permanent cash value life insurance | — | — | — | |||||||||
h. Variable life | — | — | — | |||||||||
i. Variable universal life | 986,047 | 977,591 | 978,930 | |||||||||
j. Miscellaneous reserves | — | — | — | |||||||||
(2) Not subject to discretionary withdrawal or no cash values | ||||||||||||
a. Term policies without cash value | XXX | XXX | — | |||||||||
b. Accidental death benefits | XXX | XXX | — | |||||||||
c. Disability - active lives | XXX | XXX | — | |||||||||
d. Disability - disabled lives | XXX | XXX | — | |||||||||
e. Miscellaneous reserves | XXX | XXX | — | |||||||||
|
|
|
|
|
| |||||||
(3) Total (gross: direct + assumed) | 986,047 | 977,591 | 978,930 | |||||||||
(4) Reinsurance ceded | — | — | — | |||||||||
|
|
|
|
|
| |||||||
(5) Total (net) (3 minus 4) | $ | 986,047 | $ | 977,591 | $ | 978,930 | ||||||
|
|
|
|
|
| |||||||
| Amount | ||||||||||||
D. | ||||||||||||
Life and Accident and Health Annual Statement: | ||||||||||||
1. Exhibit 5, life Insurance Section, Total (net) | $ | 298,273 | ||||||||||
2. Exhibit 5, Accidental Death Benefits Section, Total (net) | 3 | |||||||||||
3. Exhibit 5, Disability - Active Lives Section, Total (net) | 3 | |||||||||||
4. Exhibit 5, Disability - Disabled lives Section, Total (net) | 698 | |||||||||||
5. Exhibit 5, Miscellaneous Reserves Section, Total (net) | 1,808 | |||||||||||
|
| |||||||||||
6. Subtotal | 300,785 | |||||||||||
|
| |||||||||||
Separate Accounts Annual Statement: | ||||||||||||
7. Exhibit 3, line 0199999, Column 2 | 978,930 | |||||||||||
8. Exhibit 3, line 0499999, Column 2 | — | |||||||||||
9. Exhibit 3, line 0599999, Column 2 | — | |||||||||||
|
| |||||||||||
10. Subtotal (Lines 7 through 9) | 978,930 | |||||||||||
|
| |||||||||||
11. Combined Total (lines 6 plus 10) | $ | 1,279,715 | ||||||||||
|
| |||||||||||
54
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| 10. | WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES |
The withdrawal characteristics of general account and separate account annuity reserves and deposits as of December 31, 2020 and 2019 were as follows:
December 31, 2020 ($’s in thousands) | ||||||||||||||||||||
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
A. INDIVIDUAL ANNUITIES: | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | 237,852 | $ | 34,361 | $ | — | $ | 272,213 | 5.0 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | 158,246 | — | — | 158,246 | 2.9 | % | ||||||||||||||
c. At fair value | 21,401 | — | 478,650 | 500,051 | 9.1 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | $ | 417,499 | $ | 34,361 | $ | 478,650 | $ | 930,510 | 17.0 | % | ||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 4,122,496 | — | — | 4,122,496 | 75.2 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 424,044 | — | 4,519 | 428,563 | 7.8 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 4,964,039 | 34,361 | 483,169 | 5,481,569 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 2,036,843 | 34,361 | — | 2,071,204 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 2,927,196 | $ | — | $ | 483,169 | $ | 3,410,365 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in A.1.b. above that will move to A.1.e. for the first time within the year after the statement date | $ | 10,713 | $ | — | $ | — | $ | 10,713 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
B. GROUP ANNUITIES: | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | 214,683 | $ | 121 | $ | — | $ | 214,804 | 64.4 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | 570 | — | — | 570 | 0.2 | % | ||||||||||||||
c. At fair value | — | — | 28,647 | 28,647 | 8.6 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
55
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | 215,253 | 121 | 28,647 | 244,021 | 73.1 | % | ||||||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 52,732 | — | — | 52,732 | 15.8 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 36,793 | — | 107 | 36,900 | 11.1 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 304,778 | 121 | 28,754 | 333,653 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 58,300 | 121 | — | 58,421 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 246,478 | $ | — | $ | 28,754 | $ | 275,232 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in B.1.b. above that will move to B.1.e. for the first time within the year after the statement date | $ | 116 | $ | — | $ | — | $ | 116 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
C. DEPOSIT TYPE CONTRACTS | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | — | $ | — | $ | — | $ | — | 0.0 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | — | — | — | — | 0.0 | % | ||||||||||||||
c. At fair value | 1,941 | — | — | 1,941 | 0.1 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | 1,941 | — | — | 1,941 | 0.1 | % | ||||||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 62,489 | — | — | 62,489 | 4.3 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 1,405,279 | — | — | 1,405,279 | 95.6 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 1,469,709 | — | — | 1,469,709 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 94,440 | — | — | 94,440 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 1,375,269 | $ | — | $ | — | $ | 1,375,269 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in C.1.b. above that will move to C.1.e. for the first time within the year after the statement date | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
56
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Amount | ||||||||||||
D. | ||||||||||||
Life and Accident and Health Annual Statement: | ||||||||||||
1. Exhibit 5, Annuities Section, Total (net) | $ | 3,173,673 | ||||||||||
2. Exhibit 5, Supplementary Contracts With Life Contingencies (net) | — | |||||||||||
3. Exhibit 7, Deposit-Type contracts, Line 14, Column 1 | 1,375,269 | |||||||||||
|
| |||||||||||
4. Subtotal | 4,548,942 | |||||||||||
|
| |||||||||||
Separate Accounts Annual Statement: | ||||||||||||
5. Exhibit 3, line 0299999, Column 2 | 511,923 | |||||||||||
6. Exhibit 3, line 0399999, Column 2 | — | |||||||||||
7. Policyholder dividend and coupon accumulations | — | |||||||||||
8. Policyholder premiums | — | |||||||||||
9. Guaranteed interest contracts | — | |||||||||||
10. Other contract deposit funds | — | |||||||||||
|
| |||||||||||
11. Subtotal | 511,923 | |||||||||||
|
| |||||||||||
12. Combined Total | $ | 5,060,865 | ||||||||||
|
| |||||||||||
December 31, 2019 ($’s in thousands) | ||||||||||||||||||||
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
A. INDIVIDUAL ANNUITIES: | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | 261,759 | $ | 34,221 | $ | — | $ | 295,980 | 6.8 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | 47,407 | — | — | 47,407 | 1.1 | % | ||||||||||||||
c. At fair value | 24,155 | — | 445,888 | 470,043 | 10.8 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | 333,321 | 34,221 | 445,888 | 813,430 | 18.7 | % | ||||||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 3,035,371 | — | — | 3,035,371 | 69.7 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 501,894 | — | 4,307 | 506,201 | 11.6 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 3,870,586 | 34,221 | 450,195 | 4,355,002 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 952,311 | 34,221 | — | 986,532 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 2,918,275 | $ | — | $ | 450,195 | $ | 3,368,470 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in A.1.b. above that will move to A.1.e. for the first time within the year after the statement date | $ | 12,756 | $ | — | $ | — | $ | 12,756 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
57
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
B. GROUP ANNUITIES: | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | 232,235 | $ | 217 | $ | — | $ | 232,452 | 64.7 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | 353 | — | — | 353 | 0.1 | % | ||||||||||||||
c. At fair value | — | — | 27,375 | 27,375 | 7.6 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | 232,588 | 217 | 27,375 | 260,180 | 72.4 | % | ||||||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 49,818 | — | — | 49,818 | 13.9 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 49,098 | — | 104 | 49,202 | 13.7 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 331,504 | 217 | 27,479 | 359,200 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 61,206 | 217 | — | 61,423 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 270,298 | $ | — | $ | 27,479 | $ | 297,777 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in B.1.b. above that will move to B.1.e. for the first time within the year after the statement date | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
| General Account | Separate Accounts with Guarantees | Separate Accounts Nonguaranteed | Total | % of Total | ||||||||||||||||
C. DEPOSIT TYPE CONTRACTS | ||||||||||||||||||||
1. Subject to discretionary withdrawal: | ||||||||||||||||||||
a. With market value adjustment | $ | — | $ | — | $ | — | $ | — | 0.0 | % | ||||||||||
b. At book value less current surrender charge of 5% or more | — | — | — | — | 0.0 | % | ||||||||||||||
c. At fair value | 2,440 | — | — | 2,440 | 0.4 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
d. Total with market value adjustment or at fair value (Total of a through c) | 2,440 | — | — | 2,440 | 0.4 | % | ||||||||||||||
e. At book value without adjustment (minimal or no charge or adjustment) | 61,122 | — | — | 61,122 | 10.6 | % | ||||||||||||||
2. Not subject to discretionary withdrawal | 512,790 | — | — | 512,790 | 89.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. Total (gross: direct + assumed) | 576,352 | — | — | 576,352 | 100.0 | % | ||||||||||||||
|
| |||||||||||||||||||
4. Reinsurance ceded | 105,879 | — | — | 105,879 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
5. Total (net) (line 3 minus 4) | $ | 470,473 | $ | — | $ | — | $ | 470,473 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
6. Amount included in C.1.b. above that will move to C.1.e. for the first time within the year after the statement date | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
58
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Amount | ||||||||||||
D. | ||||||||||||
Life and Accident and Health Annual Statement: | ||||||||||||
1. Exhibit 5, Annuities Section, Total (net) | $ | 3,188,573 | ||||||||||
2. Exhibit 5, Supplementary Contracts With Life Contingencies (net) | — | |||||||||||
3. Exhibit 7, Deposit-Type contracts, Line 14, Column 1 | 470,473 | |||||||||||
|
| |||||||||||
4. Subtotal | 3,659,046 | |||||||||||
|
| |||||||||||
Separate Accounts Annual Statement: | ||||||||||||
5. Exhibit 3, line 0299999, Column 2 | 477,674 | |||||||||||
6. Exhibit 3, line 0399999, Column 2 | — | |||||||||||
7. Policyholder dividend and coupon accumulations | — | |||||||||||
8. Policyholder premiums | — | |||||||||||
9. Guaranteed interest contracts | — | |||||||||||
10. Other contract deposit funds | — | |||||||||||
|
| |||||||||||
11. Subtotal | 477,674 | |||||||||||
|
| |||||||||||
12. Combined Total | $ | 4,136,720 | ||||||||||
|
| |||||||||||
| 11. | SEPARATE ACCOUNTS |
The Company continues to have variable life policies and variable annuity contracts in-force, however, it stopped issuing new business on these products in 2017 and 2006, respectively. The assets and liabilities of variable life policies and variable annuity contracts are recorded as assets and liabilities of the Separate Accounts and are legally insulated from the General Account, excluding any purchase payments or transfers directed by the contract holder to earn a fixed rate of return which are included in the Company’s General Account assets. The legal insulation of the Separate Accounts assets prevents such assets from being generally available to satisfy claims resulting from the General Account. Separate Accounts which contain variable annuity and variable life business are unit investment trusts registered with the Securities and Exchange Commission (“SEC”). The results of the Separate Accounts related to variable annuity and certain variable life business are reinsured to ALIC pursuant to a modified coinsurance agreement. Other variable life business has been separately reinsured to GILICO pursuant to a modified coinsurance agreement and certain variable life mortality risks have been reinsured to another counterparty pursuant to a Monthly Renewable Term (“MRT”) agreement.
The Separate Accounts allow the contract holder to accumulate funds within a variety of portfolios, at rates which depend upon the return achieved from the types of investments chosen. The net investment experience of the Separate Accounts is credited directly to the contract holder and can be favorable or unfavorable. The assets of each portfolio are held separately from the other portfolios and each has distinct investment objectives and policies. Absent any contract provision wherein the Company provides a guarantee, the contract holders of the variable annuity and variable life products bear the investment risk that Separate Accounts’ funds may not meet their stated investment objectives.
59
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The assets legally insulated and not legally insulated from the general account as of December 31, 2020 and 2019 were attributed to the following products/transactions:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Product/transaction | Legally insulated assets | Separate Account Assets (Not legally insulated) | Legally insulated assets | Separate Account Assets (Not legally insulated) | ||||||||||||
Variable annuity contracts | $ | 512,634 | $ | — | $ | 478,509 | $ | — | ||||||||
Variable life policies | 1,159,152 | — | 986,047 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,671,786 | $ | — | $ | 1,464,556 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Some of the Separate Account liabilities are guaranteed by the General Account. To compensate the General Account for the risk taken on variable annuity products, the Separate Accounts paid risk charges of $1.0 million, $1.1 million and $1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. All such guarantees and the related risk charges are reinsured to ALIC. The risk charges related to variable life products are not explicit, but rather embedded within the cost of insurance.
The amounts paid by the General Account for Separate Account guarantees for the years ended December 31, 2020, 2019 and 2018 were $1.6 million, $1.2 million and $2.1 million, respectively. Certain of these guarantees and the related risk charges are reinsured to ALIC.
The Company did not have securities lending transactions within the Separate Accounts at December 31, 2020 or 2019.
An analysis of the Separate Account reserves as of December 31, 2020 was as follows:
| ($’s in thousands) | Index | Nonindexed Guarantee Less Than/Equal to 4% | Nonindexed Guarantee More than 4% | Non-Guaranteed Separate Accounts | Total | |||||||||||||||
1. Premiums, considerations or deposits for the year ended 12/31/20 | $ | — | $ | — | $ | — | $ | 64,370 | $ | 64,370 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reserves at 12/31/20 | ||||||||||||||||||||
2. For accounts with assets at: | ||||||||||||||||||||
a. Fair value | — | — | — | 1,665,706 | 1,665,706 | |||||||||||||||
b. Amortized cost | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
c. Total Reserves | $ | — | $ | — | $ | — | $ | 1,665,706 | $ | 1,665,706 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. By withdrawal characteristics: | ||||||||||||||||||||
a. Subject to discretionary withdrawal | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
b. With market value adjustment | — | — | — | — | — | |||||||||||||||
c. At book value without market value adjustment and with current surrender charge of 5% or more | — | — | — | — | — | |||||||||||||||
d. At fair value | — | — | — | 1,661,081 | 1,661,081 | |||||||||||||||
e. At book Value without market value adjustment and with current surrender charge less than 5% | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
f. Subtotal | — | — | — | 1,661,081 | 1,661,081 | |||||||||||||||
g. Not subject to discretionary withdrawal | — | — | — | 4,625 | 4,625 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
h. Total Reserves | $ | — | $ | — | $ | — | $ | 1,665,706 | $ | 1,665,706 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
4. Reserves for Asset Default Risk in Lieu of AVR | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
60
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
An analysis of the Separate Account reserves as of December 31, 2019 was as follows:
| ($’s in thousands) | Index | Nonindexed Guarantee Less Than/Equal to 4% | Nonindexed Guarantee More than 4% | Non-Guaranteed Separate Accounts | Total | |||||||||||||||
1. Premiums, considerations or deposits for the year ended 12/31/19 | $ | — | $ | — | $ | — | $ | 68,061 | $ | 68,061 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reserves at 12/31/19 | ||||||||||||||||||||
2. For accounts with assets at: | ||||||||||||||||||||
a. Fair value | — | — | — | 1,456,604 | 1,456,604 | |||||||||||||||
b. Amortized cost | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
c. Total Reserves | $ | — | $ | — | $ | — | $ | 1,456,604 | $ | 1,456,604 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
3. By withdrawal characteristics: | ||||||||||||||||||||
a. Subject to discretionary withdrawal | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
b. With market value adjustment | — | — | — | — | — | |||||||||||||||
c. At book value without market value adjustment and with current surrender charge of 5% or more | — | — | — | — | — | |||||||||||||||
d. At fair value | — | — | — | 1,452,193 | 1,452,193 | |||||||||||||||
e. At book Value without market value adjustment and with current surrender charge less than 5% | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
f. Subtotal | — | — | — | 1,452,193 | 1,452,193 | |||||||||||||||
g. Not subject to discretionary withdrawal | — | — | — | 4,411 | 4,411 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
h. Total Reserves | $ | — | $ | — | $ | — | $ | 1,456,604 | $ | 1,456,604 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
4. Reserves for Asset Default Risk in Lieu of AVR | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The reconciliation of Net Transfers from Separate Accounts (from) to the Statements of Operations of the Separate Account Statement to the Statutory Statements of Operations of the Company for the years ended December 31, 2020, 2019 and 2018 was as follows:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Transfers as reported in the Summary of Operations of the Separate Accounts Statements | ||||||||||||
Transfers to Separate Accounts | $ | 64,370 | $ | 68,061 | $ | 72,926 | ||||||
Transfers from Separate Accounts | (109,598 | ) | (131,228 | ) | (133,202 | ) | ||||||
|
|
|
|
|
| |||||||
Net transfers to or (from) Separate Accounts | $ | (45,228 | ) | $ | (63,167 | ) | $ | (60,276 | ) | |||
|
|
|
|
|
| |||||||
| 12. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
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
61
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
by requiring that observable inputs be used when available. Assets and liabilities recorded on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus 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 is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models.
The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. The Company performs ongoing price validation procedures such as backtesting of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. There were no significant changes made in valuation techniques during 2020 or 2019.
62
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The Company may reclassify assets reported at fair value between levels of the SSAP No. 100 fair value hierarchy if appropriate based on changes in the quality of valuation inputs available during a reporting period. The policy governing when these transfers are recognized did not change during 2020 or 2019. There are no transfers between Level 2 and Level 3 during 2020 or 2019 for assets measured at fair value.
The Company’s assets and liabilities by classification measured at fair value as of December 31, 2020 were as follows:
| ($’s in thousands) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets at fair value: | ||||||||||||||||||||
Options | $ | 17,949 | $ | — | $ | — | $ | — | $ | 17,949 | ||||||||||
Separate account assets | 1,671,786 | — | — | — | 1,671,786 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets at fair value | $ | 1,689,735 | $ | — | $ | — | $ | — | $ | 1,689,735 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities at fair value: | ||||||||||||||||||||
Derivatives | ||||||||||||||||||||
Options | $ | 9,032 | $ | — | $ | — | $ | — | $ | 9,032 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 9,032 | $ | — | $ | — | $ | — | $ | 9,032 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Separate account liabilities | $ | 1,671,786 | $ | — | $ | — | $ | — | $ | 1,671,786 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities at fair value | $ | 1,680,818 | $ | — | $ | — | $ | — | $ | 1,680,818 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
The Company’s assets and liabilities by classification measured at fair value as of December 31, 2019 were as follows:
| ($’s in thousands) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets at fair value: | ||||||||||||||||||||
Options | $ | 18,388 | $ | — | $ | — | $ | — | $ | 18,388 | ||||||||||
Separate account assets | 1,464,556 | — | — | — | 1,464,556 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets at fair value | $ | 1,482,944 | $ | — | $ | — | $ | — | $ | 1,482,944 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities at fair value: | ||||||||||||||||||||
Separate account liabilities | 1,464,556 | — | — | — | 1,464,556 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities at fair value | $ | 1,464,556 | $ | — | $ | — | $ | — | $ | 1,464,556 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
63
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2020 were as follows:
| ($’s in thousands) | Aggregate Fair Value | Admitted Assets | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Not Practicable (Carrying Value) | |||||||||||||||||||||
Assets at fair value: | ||||||||||||||||||||||||||||
Bonds | $ | 8,838,661 | $ | 8,074,319 | $ | 582,707 | $ | 8,204,724 | $ | 3,960 | $ | 47,269 | $ | — | ||||||||||||||
Preferred stocks | 128,492 | 122,120 | — | 117,492 | 11,000 | — | — | |||||||||||||||||||||
Common stocks | 46,472 | 46,472 | — | — | — | 10,484 | 35,988 | |||||||||||||||||||||
Mortgage loans | 727,860 | 721,238 | — | — | 727,860 | — | — | |||||||||||||||||||||
Contract loans | 35,744 | 35,744 | — | — | 35,744 | — | — | |||||||||||||||||||||
Derivative assets | 8,917 | 8,917 | 8,917 | — | — | — | — | |||||||||||||||||||||
Other invested assets | 195,618 | 185,825 | — | 79,450 | 61,684 | 54,485 | — | |||||||||||||||||||||
Cash and short-term investments | 562,782 | 562,782 | 562,782 | — | — | — | — | |||||||||||||||||||||
Derivatives collateral | — | — | — | — | — | — | — | |||||||||||||||||||||
Separate account assets | 1,671,786 | 1,671,786 | 1,671,786 | — | — | — | — | |||||||||||||||||||||
Liabilities at fair value: | ||||||||||||||||||||||||||||
Deposit liabilities | $ | 1,399,118 | $ | 1,375,269 | $ | — | $ | — | $ | 1,399,118 | $ | — | $ | — | ||||||||||||||
Separate account liabilities | 1,671,786 | 1,671,786 | 1,671,786 | — | — | — | — | |||||||||||||||||||||
The carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2019 was as follows:
| ($’s in thousands) | Aggregate Fair Value | Admitted Assets | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Not Practicable (Carrying Value) | |||||||||||||||||||||
Assets at fair value: | ||||||||||||||||||||||||||||
Bonds | $ | 6,839,757 | $ | 6,361,622 | $ | 38,582 | $ | 6,788,028 | $ | 13,147 | $ | — | $ | — | ||||||||||||||
Preferred stocks | 14,800 | 14,800 | — | 14,800 | — | — | — | |||||||||||||||||||||
Common stocks | 8,479 | 8,479 | — | — | — | — | 8,479 | |||||||||||||||||||||
Mortgage loans | 735,948 | 721,831 | — | — | 735,948 | — | — | |||||||||||||||||||||
Contract loans | 33,622 | 33,622 | — | — | 33,622 | — | — | |||||||||||||||||||||
Derivative assets | 18,388 | 18,388 | 18,388 | — | — | — | — | |||||||||||||||||||||
Other invested assets | 50,753 | 45,752 | — | 50,753 | — | — | — | |||||||||||||||||||||
Cash and short-term investments | 250,510 | 250,510 | 250,510 | — | — | — | — | |||||||||||||||||||||
Derivatives collateral | 300 | 300 | 300 | — | — | — | — | |||||||||||||||||||||
Separate account assets | 1,464,556 | 1,464,556 | 1,464,556 | — | — | — | — | |||||||||||||||||||||
Liabilities at fair value: | ||||||||||||||||||||||||||||
Deposit liabilities | $ | 473,016 | $ | 470,472 | $ | — | $ | — | $ | 473,016 | $ | — | $ | — | ||||||||||||||
Separate account liabilities | 1,464,556 | 1,464,556 | 1,464,556 | — | — | — | — | |||||||||||||||||||||
64
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The methods and assumptions that the Company uses in determining the estimated fair value of its financial instruments are summarized below:
Cash and short-term investments – The Company believes that due to the short-term nature of certain assets, the carrying value approximates fair value. Cash and short-term investments include money market instruments, highly liquid debt instruments and certain other investments. Certain money market instruments are valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1.
Bonds and redeemable preferred stock – The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent pricing services. Prices for each security are generally sourced from multiple pricing vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. The pricing hierarchy is updated for new financial products and recent pricing experience with various vendors. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. Typical inputs used by these pricing services include but are not limited to reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flow, market activity or other inputs observable in the market. The Company may challenge the price through a formal process with the pricing service or classify the securities as Level 3. If the pricing service updates the price to be more consistent with the presented market observations, the security remains within Level 2.
Indicative broker quotes are also used to determine fair value in circumstances where vendor pricing is not available, or where the Company ultimately concludes that pricing information received from independent pricing services is not reflective of market activity. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, pricing overrides may be used. Internally developed valuations are generally included in Level 3 in the fair value hierarchy.
The fair value of private fixed maturities and redeemable preferred stock, which are comprised of investments in private placement securities are primarily determined using discounted cash flow models. These models primarily use observable inputs that include Treasury or similar base rates plus estimated credit spreads to value each security. The credit spreads are obtained through a survey of private market intermediaries who are active in both primary and secondary transactions, and consider, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Since most private placements are valued using standard market observable inputs and inputs derived from, or corroborated by, market observable data including observed prices and spreads for similar publicly traded or privately traded issues, they have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model may incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the price of a security, a Level 3 classification is made.
Common stocks – The Company’s investment in FHLB stock is not practicable to measure fair value due to the redemption provisions. Therefore, carrying value approximates fair value.
Mortgage loans – The fair value of most commercial mortgage loans is based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate plus an appropriate credit spread for similar quality loans.
Derivatives – The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives.
65
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Other invested assets – The Company’s other invested assets consist of investments in surplus notes as well as limited partnerships and collateral loans. Investments in surplus notes are 144A institutionally traded private placements. Pricing is readily available from multiple pricing sources and therefore these are reflected in Level 2. Collateral loans are shown as Level 3 based on discounted cash flows and value of underlying collateral which may utilize unobservable inputs. Limited partnerships are reported at NAV, where available, or Level 3 based on their reliance on unobservable inputs.
Contract loans – The fair value of contract loans is determined by estimating future policy loan cash flows and discounting the cash flows at the current loan coupon rate. As a result, the carrying value of the contract loans approximates the fair value.
Separate Accounts – Separate account assets and liabilities consist principally of investments in mutual fund shares. The fair values are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy.
Deposit Liabilities – Only the portion of deposit liabilities with defined or contractual maturities are reflected in the table above. The fair value is based upon the present value of the expected future cash flows.
| 13. | FEDERAL INCOME TAXES |
The Company and Lancaster Re file a consolidated life insurance federal income tax return. The method of allocation among the companies is subject to a written agreement approved by the NE DOI and the Board of Directors (the “Tax Allocation Agreement”). The Company and Lancaster Re determine their respective income tax expense or benefit and related liability or recoverable as if they each filed separate company tax returns. Neither the Company nor Lancaster Re is required to make any payments with respect to the utilization of any losses or other tax attributes that reduce the overall consolidated tax liability until such time the member with such losses or tax attributes could have otherwise used its losses or tax attributes on a separate company basis. In this regard, any benefit of filing a consolidated tax return as compared to the sum of the tax liabilities computed on a separate entity basis shall reside at the Company until such time as payment is required under the Tax Allocation Agreement. The Company is also responsible for preparing the group’s tax returns and controlling tax audits. Intercompany tax balances are settled on a quarterly basis and a final true up is made after the filing of the federal income tax return, as prescribed by the terms of the Tax Allocation Agreement.
The Company does not believe it has any uncertain tax positions for its federal income tax return that would be material to its financial condition, results of income, or cash flows. Therefore, the Company did not record a liability for unrecognized tax contingencies/benefits at December 31, 2020 or 2019. As of December 31, 2020, there were no uncertain tax positions for which management believes it is reasonably possible that the total amounts of tax contingencies will significantly increase within 12 months of the reporting date. No amounts have been accrued for interest or penalties.
The application of SSAP No. 101 requires a company to evaluate the recoverability of DTAs and to establish a valuation allowance if necessary to reduce the DTAs to an amount which is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors including: (1) the nature of the DTAs and DTLs; (2) whether they are ordinary or capital; (3) the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time carryovers can be utilized; (6) unique tax rules that would impact the utilization of the DTAs and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused.
66
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The components of the Company’s net DTAs and DTLs as of December 31, 2020 and 2019 were as follows:
| ($’s in thousands) | 12/31/2020 | 12/31/2019 | Change | |||||||||||||||||||||||||||||||||||
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | ||||||||||||||||||||||||||||||
| Ordinary | Capital | (Col. 1 + 2) Total | Ordinary | Capital | (Col. 4 + 5) Total | (Col. 1 - 4) Ordinary | (Col. 2 - 5) Capital | (Col. 7 + 8) Total | ||||||||||||||||||||||||||||||
a. | Gross Deferred Tax Assets | $ | 93,225 | $ | 455 | $ | 93,680 | $ | 75,931 | $ | 641 | $ | 76,572 | $ | 17,294 | $ | (186 | ) | $ | 17,108 | ||||||||||||||||||
b. | Statutory Valuation Allowance Adjustment | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
c. | Adjusted Gross Deferred Tax Assets (a - b) | 93,225 | 455 | 93,680 | 75,931 | 641 | 76,572 | 17,294 | (186 | ) | 17,108 | |||||||||||||||||||||||||||
d. | Deferred Tax Assets Nonadmitted | 54,997 | — | 54,997 | 34,088 | — | 34,088 | 20,909 | — | 20,909 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
e. | Subtotal Net Admitted Deferred Tax Asset (c - d) | 38,228 | 455 | 38,683 | 41,843 | 641 | 42,484 | (3,615 | ) | (186 | ) | (3,801 | ) | |||||||||||||||||||||||||
f. | Deferred Tax Liabilities | (5,063 | ) | (455 | ) | (5,518 | ) | (14,813 | ) | (641 | ) | (15,454 | ) | 9,750 | 186 | 9,936 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
g. | Net Admitted Deferred Tax Asset/(Net Deferred Tax Liability) (e - f) | $ | 33,165 | $ | — | $ | 33,165 | $ | 27,030 | $ | — | $ | 27,030 | $ | 6,135 | $ | — | $ | 6,135 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
The component amounts of the Company’s net admitted DTAs by tax character as of December 31, 2020 and 2019 were as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | Change | |||||||||||||||||||||||||||||||||||
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | ||||||||||||||||||||||||||||||
| Ordinary | Capital | (Col. 1 + 2) Total | Ordinary | Capital | (Col. 4 + 5) Total | (Col. 1 -4) Ordinary | (Col. 2 - 5) Capital | (Col. 7 + 8) Total | ||||||||||||||||||||||||||||||
| Admission Calculation Components SSAP No. 101 | ||||||||||||||||||||||||||||||||||||||
a. | Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
b. | Adjusted Gross Tax Assets Expected to Be Realized (Excluding the Amount of Deferred Tax Assets from a) above) After Application of the Threshold Limitation. (The Lesser of (b)1 and (b)2 Below) | 33,165 | — | 33,165 | 27,030 | — | 27,030 | 6,135 | — | 6,135 | ||||||||||||||||||||||||||||
| 1. Adjusted Gross Deferred Tax Assets Expected To Be Realized Following the Balance Sheet Date | 33,165 | — | 33,165 | 27,030 | — | 27,030 | 6,135 | — | 6,135 | |||||||||||||||||||||||||||||
| 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold | xxx | xxx | 57,468 | xxx | xxx | 48,837 | xxx | xxx | 8,631 | |||||||||||||||||||||||||||||
c. | Adjusted Gross Deferred Tax Assets (Excluding the Amount of Deferred Tax Assets from a) and b) above) Offset by Gross Deferred Tax Liabilities | 5,063 | 455 | 5,518 | 14,813 | 641 | 15,454 | (9,750 | ) | (186 | ) | (9,936 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
d | Total Admitted under 11a) through 11c) | $ | 38,228 | $ | 455 | $ | 38,683 | $ | 41,843 | $ | 641 | $ | 42,484 | $ | (3,615 | ) | $ | (186 | ) | $ | (3,801 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
67
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The recovery period and threshold limitation information as of December 31, 2020 and December 31, 2019 were as follows:
| ($’s in thousands) | 2020 | 2019 | ||||||
Ratio Percentage Used to Determine Recovery Period and Threshold Amount Limitation | 715.9 | % | 689.5 | % | ||||
Amount of Adjusted Capital and Surplus Used to Determine Recovery Period and Threshold Limitation in (b)2 above. | $ | 446,575 | $ | 378,449 | ||||
The impact of tax planning strategies, as used in the Company’s SSAP No. 101 calculation, on adjusted gross and net admitted DTAs as of December 31, 2020 and 2019 were as follows:
| December 31, 2020 | December 31, 2019 | Change | ||||||||||||||||||||||
| (1) | (2) | (3) | (4) | (5) | (6) | |||||||||||||||||||
| ($’s in thousands) | Ordinary | Capital | Ordinary | Capital | (Col. 1 -3) Ordinary | (Col. 2 - 4) Capital | ||||||||||||||||||
Impact of Tax Planning Strategies | ||||||||||||||||||||||||
Determination of adjusted gross deferred tax assets and net admitted deferred tax assets, by tax character as a percentage | ||||||||||||||||||||||||
1. Adjusted Gross DTAs Amount | $ | 93,225 | $ | 455 | $ | 75,931 | $ | 641 | $ | 17,294 | $ | (186 | ) | |||||||||||
2. Percentage of Adjusted Gross DTAs by Tax Character Attributable to the Impact of Tax Planning Strategies | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||
3. Net admitted Adjusted Gross DTAs amount | $ | 38,228 | $ | 455 | $ | 41,843 | $ | 641 | $ | (3,615 | ) | $ | (186 | ) | ||||||||||
4. Percentage of Net Admitted Adjusted Gross DTAs by Tax Character Admitted Because of the Impact of Tax Planning Strategies | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||
The Company did not utilize tax planning strategies related to reinsurance.
The Company has an investment in Lancaster Re for which it has not recorded deferred taxes at this time. The amount of any deferred tax balance attributable to this investment has not yet been quantified. Aside from the Company’s investment in Lancaster Re, the Company has no temporary differences for which deferred taxes have not been established as of December 31, 2020 or 2019.
68
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The Company’s significant components of income taxes incurred for the years ended December 31, 2020, 2019 and 2018 were as follows:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||
Current Income Tax: | ||||||||||||
Federal income tax expense (benefit) from operations | $ | (24,822 | ) | $ | (31,140 | ) | $ | (4,090 | ) | |||
Federal income tax on net capital gains (losses) | 58,264 | 31,484 | (20,649 | ) | ||||||||
|
|
|
|
|
| |||||||
Federal and foreign income taxes incurred (benefit) | $ | 33,442 | $ | 344 | $ | (24,739 | ) | |||||
|
|
|
|
|
| |||||||
The Company’s significant components of the Company’s DTAs and DTLs as of December 31, 2020 and 2019 were as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | Change | |||||||||
Deferred Tax Assets: | ||||||||||||
Ordinary: | ||||||||||||
Policyholder reserves | $ | 8,867 | $ | 6,880 | $ | 1,987 | ||||||
Investments | — | — | — | |||||||||
Deferred acquisition costs | 80,989 | 66,841 | 14,148 | |||||||||
Receivables — nonadmitted | 2,201 | 809 | 1,392 | |||||||||
Other (including items <5% of total ordinary tax assets) | 1,168 | 1,401 | (233 | ) | ||||||||
|
|
|
|
|
| |||||||
Subtotal | 93,225 | 75,931 | 17,294 | |||||||||
Statutory valuation allowance adjustment | — | — | — | |||||||||
Nonadmitted | 54,997 | 34,088 | 20,909 | |||||||||
|
|
|
|
|
| |||||||
Admitted ordinary deferred tax assets | 38,228 | 41,843 | (3,615 | ) | ||||||||
Capital: | ||||||||||||
Investments | 455 | 641 | (186 | ) | ||||||||
Other (unrealized gains) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Subtotal | 455 | 641 | (186 | ) | ||||||||
Statutory valuation allowance adjustment | — | — | — | |||||||||
Nonadmitted | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Admitted capital deferred tax assets | 455 | 641 | (186 | ) | ||||||||
|
|
|
|
|
| |||||||
Admitted deferred tax assets | 38,683 | 42,484 | (3,801 | ) | ||||||||
|
|
|
|
|
| |||||||
Deferred Tax Liabilities | ||||||||||||
Ordinary | ||||||||||||
Investments | (2,260 | ) | (2,693 | ) | 433 | |||||||
Deferred and uncollected premium | (2,193 | ) | (11,297 | ) | 9,104 | |||||||
|
|
|
|
|
| |||||||
Subtotal | (4,453 | ) | (13,990 | ) | 9,537 | |||||||
69
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | Change | |||||||||
Capital | ||||||||||||
Investments | (1,065 | ) | (1,464 | ) | 399 | |||||||
Other (unrealized gains) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Subtotal | (1,065 | ) | (1,464 | ) | 399 | |||||||
Deferred tax liabilities | (5,518 | ) | (15,454 | ) | 9,936 | |||||||
|
|
|
|
|
| |||||||
Net deferred tax assets (liabilities) | $ | 33,165 | $ | 27,030 | $ | 6,135 | ||||||
|
|
|
|
|
| |||||||
The change in net deferred income taxes was comprised of the following:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | Change | |||||||||
Total deferred tax assets | $ | 93,680 | $ | 76,572 | $ | 17,108 | ||||||
Total deferred tax liabilities | (5,518 | ) | (15,454 | ) | 9,936 | |||||||
|
|
|
|
|
| |||||||
Net deferred tax asset (liability) | $ | 88,162 | $ | 61,118 | 27,044 | |||||||
|
|
|
| |||||||||
Tax effect of unrealized gains (losses) | — | |||||||||||
|
| |||||||||||
Change in net deferred income tax | $ | 27,044 | ||||||||||
Tax effect of non-admitted assets | (1,392 | ) | ||||||||||
|
| |||||||||||
Change in net deferred income tax per rate reconciliation | $ | 25,652 | ||||||||||
|
| |||||||||||
The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate of 21% to income before income taxes for 2020, 2019 and 2018, respectively. The significant items causing this difference for the years ended December 31, 2020, 2019 and 2018 were as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | December 31, 2018 | |||||||||||||||||||||
| Amount | Effective Tax Rate | Amount | Effective Tax Rate | Amount | Effective Tax Rate | |||||||||||||||||||
Provision computed at statutory rate | $ | 16,519 | 21.00 | % | $ | 7,244 | 21.00 | % | $ | 2,307 | 21.00 | % | ||||||||||||
IMR amortization | (28,035 | ) | -35.64 | % | (6,083 | ) | -17.64 | % | (8,454 | ) | -76.97 | % | ||||||||||||
Transfer of IMR | 46,323 | 58.89 | % | 21,630 | 62.71 | % | (7,572 | ) | -68.94 | % | ||||||||||||||
IMR ceded | — | 0.00 | % | (6,988 | ) | -20.26 | % | — | 0.00 | % | ||||||||||||||
Amortization of initial ceding commission | 10,220 | 12.99 | % | (3,374 | ) | -9.78 | % | (3,368 | ) | -30.67 | % | |||||||||||||
Adjustment for tax allocation agreement | (14,687 | ) | -18.67 | % | (7,919 | ) | -22.96 | % | (9,359 | ) | -85.21 | % | ||||||||||||
Tax rate change | — | 0.00 | % | 343 | 1.00 | % | (8,917 | ) | -81.18 | % | ||||||||||||||
CARES Act (2018 & 2019 NOL Carryback) | (21,537 | ) | -27.38 | % | — | 0.00 | % | — | 0.00 | % | ||||||||||||||
Change in DTA on nonadmitted assets | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||
Other | (1,013 | ) | -1.29 | % | 1,919 | 5.56 | % | (3,904 | ) | -35.55 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 7,790 | 9.90 | % | $ | 6,772 | 19.63 | % | $ | (39,267 | ) | -357.52 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
70
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | December 31, 2018 | |||||||||||||||||||||
| Amount | Effective Tax Rate | Amount | Effective Tax Rate | Amount | Effective Tax Rate | |||||||||||||||||||
Current income taxes incurred | $ | 33,442 | $ | 344 | $ | (24,739 | ) | |||||||||||||||||
Change in net deferred income taxes | (25,652 | ) | 6,428 | (14,528 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total statutory income taxes | $ | 7,790 | $ | 6,772 | $ | (39,267 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
For both years ended December 31, 2020 and 2019, the Company had no tax credit carryforwards and no net operating loss or capital loss carryforwards. The Company had approximately $54.7 million of income taxes paid in prior years available for recoupment in the event of future net capital losses at December 31, 2020. The Company did not have deposits admitted under Section 6603 of the Internal Revenue Code as of December 31, 2020. There was no alternative minimum tax credit as of December 31, 2020 or 2019.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act was enacted in the U.S. to provide relief to companies in the midst of the COVID-19 pandemic and to stimulate the economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The Company reviewed key provisions regarding the carryback of certain net operating losses arising in 2018 and 2019 to the five prior years and determined as of December 31, 2020, tax benefits of $21.5 million have been accrued to reflect the 2018 and 2019 carryback filings.
| 14. | CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS |
The Company had 30,000 common shares authorized and 25,000 shares issued and outstanding at December 31, 2020 and 2019. All shares had a par value of $100 per share.
The Company’s ability to pay dividends is subject to certain statutory restrictions. The State of Nebraska has enacted laws governing the payment of dividends to stockholders by domestic insurers. Pursuant to state statues, the maximum amount of dividends and other distributions that a domestic insurer may pay in any twelve-month period without the prior approval of the Nebraska Director of Insurance (the “NE DOI Director”) is limited to the greater of: (i) 10% of its statutory surplus as of the preceding December 31; or (ii) the Company’s statutory net gain from operations for the preceding calendar year. See Note 2 for more information related to the payment of dividends.
| 15. | RISK-BASED CAPITAL |
Life and health insurance companies are subject to certain Risk-based Capital (“RBC”) requirements as specified by the NAIC. The RBC requirements provide a method for measuring the minimum acceptable amount of adjusted capital that a life insurer should have as determined under NAIC SAP taking into account the risk characteristics of its investments and products. The Company has exceeded the minimum RBC requirements at December 31, 2020.
| 16. | COMMITMENTS AND CONTINGENT LIABILITIES |
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
71
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
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, premium tax filings and market conduct. It is possible that these examinations may result in additional payments to states and to changes in the Company’s practices and procedures, which could impact benefit payments, operating expenses and reserves, among other consequences; however, it is not likely to have a material effect on the financial statements of the Company.
The Company is assessed amounts by the state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. As of December 31, 2020 and December 31, 2019, the Company accrued $3.8 million, respectively, for guaranty fund assessments. As of December 31, 2020 and December 31, 2019, the Company had accrued $3.5 million and $3.4 million, respectively, for the related premium tax offset expected to be received. The period over which these assessments are expected to be paid varies. Premium tax offsets are realized on a straight-line basis over the period allowed by each individual state once the guaranty fund assessment has been paid. The Company did not recognize an impairment loss on the premium tax offsets in 2020, 2019 or 2018. The liabilities or assets related to guaranty fund assessments arising from insolvencies of entities that wrote long-term care contracts were not material as of December 31, 2020 and 2019.
Liabilities and assets, discounted and undiscounted, related to guaranty fund assessments arising from insolvencies of entities that wrote long-term care contracts were as follows as of December 31, 2020 ($’s in thousands):
| Guaranty fund assessment | Related assets | |||||||||||||||
Name of Insolvency | Undiscounted | Discounted | Undiscounted | Discounted | ||||||||||||
American Network Insurance Company | $ | 19 | $ | 12 | $ | 18 | $ | 11 | ||||||||
Penn Treaty Network America Insurance Company | $ | 201 | $ | 111 | $ | 56 | $ | 17 | ||||||||
The discount rate applied as of December 31, 2020 was 4.25%.
The number of jurisdictions, ranges of years used to discount and weighted average number of years of the discounting time period for payables and recoverables by insolvency in 2020 were as follows:
| Payables | Recoverables | |||||||||||||||||||||||
Name of Insolvency | Number of jurisdictions | Range of years | Weighted average number of years | Number of jurisdictions | Range of years | Weighted average number of years | ||||||||||||||||||
American Network Insurance Company | 25 | 13-58 | 49 | 22 | 13-58 | 49 | ||||||||||||||||||
Penn Treaty Network America Insurance Company | 7 | 41-54 | 52 | 5 | 41-54 | 49 | ||||||||||||||||||
72
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Liabilities and assets, discounted and undiscounted, related to guaranty fund assessments arising from insolvencies of entities that wrote long-term care contracts were as follows as of December 31, 2019 ($’s in thousands):
| Guaranty fund assessment | Related assets | |||||||||||||||
Name of Insolvency | Undiscounted | Discounted | Undiscounted | Discounted | ||||||||||||
American Network Insurance Company | $ | 19 | $ | 12 | $ | 18 | $ | 11 | ||||||||
Penn Treaty Network America Insurance Company | $ | 218 | $ | 122 | $ | 73 | $ | 29 | ||||||||
The discount rate applied as of December 31, 2019 was 4.25%.
The number of jurisdictions, ranges of years used to discount and weighted average number of years of the discounting time period for payables and recoverables by insolvency in 2019 were as follows:
| Payables | Recoverables | |||||||||||||||||||||||
Name of Insolvency | Number of jurisdictions | Range of years | Weighted average number of years | Number of jurisdictions | Range of years | Weighted average number of years | ||||||||||||||||||
American Network Insurance Company | 25 | 14-59 | 50 | 22 | 14-59 | 50 | ||||||||||||||||||
Penn Treaty Network America Insurance Company | 9 | 42-55 | 53 | 7 | 42-55 | 50 | ||||||||||||||||||
Retained Assets
Effective April 1, 2014, the Company ceased offering Allstate Advantage Accounts (“Allstate Advantage”). Those retained asset accounts previously offered through the Allstate Advantage Account remain reinsured to ALIC. The Allstate Advantage accounts were offered to beneficiaries of certain life policies when the death benefit proceeds payable were $50,000 or greater, and for certain annuity contracts for proceeds of $10,000 or greater. The retained asset accounts are reported on a direct basis and fully reinsured. The Allstate Advantage accounts enabled beneficiaries to deposit benefit proceeds into an interest-bearing checking account in the beneficiaries’ name at the Northern Trust Company. The beneficiaries may draw upon these funds at their discretion, including an immediate withdrawal of the funds in full. During 2020, the Allstate Advantage accounts earned interest at an average interest rate of 0.25%, while earning an average interest rate of 0.5% in 2019 and 2018. These accounts are not FDIC insured.
The Company also offers to beneficiaries of certain life policies the option to deposit proceeds into a deposit fund, which continues to credit interest in accordance with the terms of the original contract. The interest rate credited to these deposit funds ranged from 2.0% to 4.0% in 2020 and 2019, respectively.
73
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The Company had the following amount and number of assets retained in deposit funds as of December 31, 2020 and 2019:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Number | Balance | Number | Balance | |||||||||||||
a. Up to and including 12 months | 4 | $ | 28 | 10 | $ | 6,518 | ||||||||||
b. 13 to 24 months | 9 | 5,887 | 8 | 649 | ||||||||||||
c. 25 to 36 months | 8 | 672 | 11 | 317 | ||||||||||||
d. 37 to 48 months | 9 | 281 | — | — | ||||||||||||
e. 49 to 60 months | — | — | — | — | ||||||||||||
f. Over 60 months | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
g. Total | 30 | $ | 6,868 | 29 | $ | 7,484 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
The activity in the Company’s assets retained in deposit funds for the years ended December 31, 2020, 2019 and 2018 was as follows:
| 2020 | 2019 | 2018 | ||||||||||||||||||||||
| ($’s in thousands) | Individual | Individual | Individual | |||||||||||||||||||||
| Number | Balance | Number | Balance | Number | Balance | |||||||||||||||||||
Number/balance of retained asset accounts, beginning of year | 29 | $ | 7,484 | 23 | $ | 1,374 | 19 | $ | 740 | |||||||||||||||
Number/amount of retained asset accounts issued/added during the year | 4 | 176 | 10 | 7,289 | 13 | 1,152 | ||||||||||||||||||
Investment earnings credited to retained asset accounts during the year | N/A | 242 | N/A | 131 | N/A | 45 | ||||||||||||||||||
Fees and other charges assessed to retained asset accounts during the year | N/A | — | N/A | — | N/A | — | ||||||||||||||||||
Number/amount of retained asset accounts transferred to state unclaimed property funds during the year | — | — | — | — | — | — | ||||||||||||||||||
Number/amount of retained asset accounts closed/withdrawn during the year | (3 | ) | (1,034 | ) | (4 | ) | (1,310 | ) | (9 | ) | (563 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Number/balance of retained asset accounts, end of year | 30 | $ | 6,868 | 29 | $ | 7,484 | 23 | $ | 1,374 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Leases
The Company leases office space under a non-cancellable operating lease agreement. The Company paid $0.2 million pursuant to this operating lease during each of the years ended December 31, 2020, 2019 and 2018. The minimum aggregate rental commitments as of December 31, 2020 and 2019 were immaterial.
Unfunded commitments
The company has commitments to provide additional capital contributions of $71.1 million to joint ventures, partnerships and limited liability companies at December 31, 2020.
74
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
Litigation and Other Matters
The Company is involved from time to time in judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company’s financial condition. Given the inherent difficulty of predicting the outcome of the Company’s litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, the Company cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. However, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position or results of operations.
In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, information technology agreements, and service agreements. The Company has also agreed to indemnify its directors, officers and employees in accordance with the Company’s by-laws. The Company believes any potential liability under these agreements is neither probable nor estimable. Therefore, the Company has not recorded any associated liability.
Pledged or Restricted Assets
The following were restricted assets (including pledged assets) as of December 31, 2020 ($’s in thousands):
| Gross (Admitted & Nonadmitted) Restricted | Current Year | |||||||||||||||||||||||||||||||||||||||||||||
| Current Year | Percentage | |||||||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | ||||||||||||||||||||||||||||||||||||
Restricted Asset | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase / (Decrease) (5 minus 6) | Total Nonadmitted Restricted | Total Admitted Restricted (5 minus 8) | Gross (Admitted & Nonadmitted) Restricted to Total Assets (c) | Admitted Restricted to Total Admitted Assets (d) | |||||||||||||||||||||||||||||||||||
a. | Subject to contractual obligation for which liability is not shown | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
b. | Collateral held under security lending agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
c. | Subject to repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
d. | Subject to reverse repurchase agreement | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
e. | Subject to dollar repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
f. | Subject to dollar reverse repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
75
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Gross (Admitted & Nonadmitted) Restricted | Current Year | |||||||||||||||||||||||||||||||||||||||||||||
| Current Year | Percentage | |||||||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | ||||||||||||||||||||||||||||||||||||
Restricted Asset | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase / (Decrease) (5 minus 6) | Total Nonadmitted Restricted | Total Admitted Restricted (5 minus 8) | Gross (Admitted & Nonadmitted) Restricted to Total Assets (c) | Admitted Restricted to Total Admitted Assets (d) | |||||||||||||||||||||||||||||||||||
g. | Placed under option contracts | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
h. | Letter stock or securities restricted as to sale — excluding FHLB capital stock | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
i. | FHLB capital stock | 35,988 | — | — | — | 35,988 | 8,479 | 27,509 | — | 35,988 | 0.3 | % | 0.3 | % | ||||||||||||||||||||||||||||||||
j. | On deposit with states | 7,740 | — | — | — | 7,740 | 7,742 | (2 | ) | — | 7,740 | 0.1 | % | 0.1 | % | |||||||||||||||||||||||||||||||
k. | On deposit with other regulatory bodies | 591 | — | — | — | 591 | 591 | — | — | 591 | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
l. | Pledged as collateral to FHLB (including assets backing funding agreements) | 1,429,652 | — | — | — | 1,429,652 | 525,065 | 904,587 | — | 1,429,652 | 12.1 | % | 12.3 | % | ||||||||||||||||||||||||||||||||
m. | Pledged as collateral not captured in other categories | — | — | — | — | — | 300 | (300 | ) | — | — | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||||||
n. | Other restricted assets | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
o. | Total Restricted Assets | $ | 1,473,971 | $ | — | $ | — | $ | — | $ | 1,473,971 | $ | 542,177 | $ | 931,794 | $ | — | $ | 1,473,971 | 12.5 | % | 12.7 | % | |||||||||||||||||||||||
| (a) subset of column 1 |
| (c) Column 5 divided by Asset Page, Column 1, Line 28 | ||||||||||||||||||||||||||||||||||||||||||||
| (b) subset of column 3 |
| (d) Column 9 divided by Asset Page, Column 3, Line 28 | ||||||||||||||||||||||||||||||||||||||||||||
76
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
The following were assets pledged as collateral in other categories (contracts that share similar characteristics, such as reinsurance and derivatives, were reported in the aggregate) as of December 31, 2020 ($’s in thousands):
| Gross (Admitted and Nonadmitted) Restricted | Percentage | |||||||||||||||||||||||||||||||||||||||
| Current Year | ||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||||||||||||||||||||||
Description | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase/ (Decrease) (5 minus 6) | Total Current Year Admitted Restricted | Gross (Admitted and Nonadmitted) Restricted to Total Assets | Admitted Restricted to Total Admitted Assets | ||||||||||||||||||||||||||||||
Derivatives collateral | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300 | $ | (300 | ) | $ | — | 0.0 | % | 0.0 | % | |||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300 | $ | (300 | ) | $ | — | 0.0 | % | 0.0 | % | |||||||||||||||||||
(a) subset of column 1 |
| |||||||||||||||||||||||||||||||||||||||
(b) subset of column 3 |
| |||||||||||||||||||||||||||||||||||||||
The following were restricted assets (including pledged assets) as of December 31, 2019 ($’s in thousands):
| Gross (Admitted & Nonadmitted) Restricted | Current Year | |||||||||||||||||||||||||||||||||||||||||||||
| Current Year | Percentage | |||||||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | ||||||||||||||||||||||||||||||||||||
Restricted Asset Category | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase / (Decrease) (5 minus 6) | Total Nonadmitted Restricted | Total Admitted Restricted (5 minus 8) | Gross (Admitted & Nonadmitted) Restricted to Total Assets (c) | Admitted Restricted to Total Admitted Assets (d) | |||||||||||||||||||||||||||||||||||
a. | Subject to contractual obligation for which liability is not shown | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
b. | Collateral held under security lending agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
c. | Subject to repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
d. | Subject to reverse repurchase agreement | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
e. | Subject to dollar repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
f. | Subject to dollar reverse repurchase agreements | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
g. | Placed under option contracts | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
h. | Letter stock or securities restricted as to sale - excluding FHLB capital stock | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
i. | FHLB capital stock | 8,479 | — | — | — | 8,479 | 6,988 | 1,491 | — | 8,479 | 0.1 | % | 0.1 | % | ||||||||||||||||||||||||||||||||
77
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| Gross (Admitted & Nonadmitted) Restricted | Current Year | |||||||||||||||||||||||||||||||||||||||||||||
| Current Year | Percentage | |||||||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | ||||||||||||||||||||||||||||||||||||
Restricted Asset Category | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase / (Decrease) (5 minus 6) | Total Nonadmitted Restricted | Total Admitted Restricted (5 minus 8) | Gross (Admitted & Nonadmitted) Restricted to Total Assets (c) | Admitted Restricted to Total Admitted Assets (d) | |||||||||||||||||||||||||||||||||||
j. | On deposit with states | $ | 7,742 | $ | — | $ | — | $ | — | $ | 7,742 | $ | 7,744 | $ | (2 | ) | $ | — | $ | 7,742 | 0.1 | % | 0.1 | % | ||||||||||||||||||||||
k. | On deposit with other regulatory bodies | 590 | — | — | — | 590 | 590 | — | — | 590 | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
l. | Pledged as collateral to FHLB (including assets backing funding agreements) | 525,065 | — | — | — | 525,065 | 516,263 | 8,802 | — | 525,065 | 5.6 | % | 5.7 | % | ||||||||||||||||||||||||||||||||
m. | Pledged as collateral not captured in other categories | 300 | — | — | — | 300 | 950 | (650 | ) | — | 300 | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||||||
n. | Other restricted assets | — | — | — | — | — | — | — | — | — | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||||||
o. | Total Restricted Assets | $ | 542,176 | $ | — | $ | — | $ | — | $ | 542,176 | $ | 532,535 | $ | 9,641 | $ | — | $ | 542,176 | 5.8 | % | 5.9 | % | |||||||||||||||||||||||
| (a) subset of column 1 |
| (c) Column 5 divided by Asset Page, Column 1, Line 28 | ||||||||||||||||||||||||||||||||||||||||||||
| (b) subset of column 3 |
| (d) Column 9 divided by Asset Page, Column 3, Line 28 | ||||||||||||||||||||||||||||||||||||||||||||
The following were assets pledged as collateral in other categories (contracts that share similar characteristics, such as reinsurance and derivatives, were reported in the aggregate) as of December 31, 2019 ($’s in thousands):
| Gross (Admitted and Nonadmitted) Restricted | Percentage | |||||||||||||||||||||||||||||||||||||||
| Current Year | ||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||||||||||||||||||||||
Description | Total General Account (G/A) | G/A Supporting S/A Activity (a) | Total Separate Account (S/A) Restricted Assets | S/A Assets Supporting G/A Activity (b) | Total (1 plus 3) | Total From Prior Year | Increase/ (Decrease) (5 minus 6) | Total Current Year Admitted Restricted | Gross (Admitted and Nonadmitted) Restricted to Total Assets | Admitted Restricted to Total Admitted Assets | ||||||||||||||||||||||||||||||
Derivatives collateral | $ | 300 | $ | — | $ | — | $ | — | $ | 300 | $ | 950 | $ | (650 | ) | $ | 300 | 0.0 | % | 0.0 | % | |||||||||||||||||||
Total | $ | 300 | $ | — | $ | — | $ | — | $ | 300 | $ | 950 | $ | (650 | ) | $ | 300 | 0.0 | % | 0.0 | % | |||||||||||||||||||
(a) subset of column 1 |
| |||||||||||||||||||||||||||||||||||||||
(b) subset of column 3 |
| |||||||||||||||||||||||||||||||||||||||
78
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
| 17. | DIRECT PREMIUM WRITTEN/PRODUCED BY MANAGING GENERAL AGENTS/THIRD PARTY ADMINISTRATORS |
The aggregate amount of direct premiums written/produced by managing general agents (“MGA”)/third party administrators (“TPA”) was $828.5 million, $865.3 million and $929.8 million for the years ended December 31, 2020, 2019 and 2018, respectively, which exceeded 5% of the Company’s surplus for each year. All direct premiums written/produced by MGA/TPA were ceded to ALIC or other external reinsurers. Information for each MGA/TPA was as follows:
| ($’s in thousands) | 2020 | 2019 | 2018 | |||||||||||||||||||||||
Name of MGA/TPA | FEIN Number | Exclusive Contract | Types of | Types of Authority Granted | Total Direct Premiums Written/ Produced | Total Direct Premiums Written/ Produced | Total Direct Premiums Written/ Produced | |||||||||||||||||||
Allstate Life Insurance Company 3075 Sanders Road Northbrook, IL 60062 | 36-2554642 | No | Individual life, group life, variable life, variable annuities, group annuities | | U, C, CA, P, R |
| $ | 771,907 | $ | 808,462 | $ | 872,588 | ||||||||||||||
LifeCare Assurance Company 6400 Canoga Avenue, Suite 100 Woodland Hills, CA 91365 | 86-0388413 | No | Long-term care, home health care | | U, C, CA, P, R |
| 56,598 | 56,811 | 57,217 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
| $ | 828,505 | $ | 865,273 | $ | 929,805 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
| 18. | PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED |
Deferred and uncollected life insurance premiums and annuity considerations, net of reinsurance, at December 31, 2020 and 2019 were as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Gross | Net of Loading | Gross | Net of Loading | |||||||||||||
Ordinary new business | $ | 513 | $ | 478 | $ | 446 | $ | 359 | ||||||||
Ordinary renewal | 20,822 | 22,386 | 29,430 | 18,328 | ||||||||||||
Group life | (29,919 | ) | (29,769 | ) | (23,298 | ) | (23,033 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (8,584 | ) | $ | (6,905 | ) | $ | 6,578 | $ | (4,346 | ) | |||||
|
|
|
|
|
|
|
| |||||||||
| 19. | FEDERAL HOME LOAN BANK AGREEMENTS |
Through its FHLB membership, the Company has used proceeds received from the issuance of funding agreements to improve the risk profile on its retained deferred annuities and on its universal life secondary guarantee products which are ultimately reinsured with Lancaster Re.
The amount of FHLB capital stock held as of December 31, 2020 and 2019 was as follows:
| ($’s in thousands) | December 31, 2020 | December 31, 2019 | ||||||
Membership Stock – Class B | $ | 320 | $ | 10 | ||||
Activity Stock | 26,040 | 8,199 | ||||||
Excess Stock | 9,628 | 270 | ||||||
|
|
|
| |||||
Total | $ | 35,988 | $ | 8,479 | ||||
|
|
|
| |||||
79
LINCOLN BENEFIT LIFE COMPANY
NOTES TO STATUTORY STATEMENTS
DECEMBER 31, 2020
None of the Company’s membership stock held as of December 31, 2020 was eligible for redemption.
The Company reported aggregate funding agreements and deposit liabilities of $1,302.0 million and $409.9 million as of December 31, 2020 and 2019, respectively. These funding agreements are not subject to any prepayment obligations. The Company’s maximum aggregate borrowings from the FHLB at any time during the years ended December 31, 2020 and 2019 was $1,302.0 million and $422.7 million, respectively. The Company has determined that the actual or estimated maximum borrowing capacity as of December 31, 2020 and 2019 based on FHLB of Chicago regulatory and or FHLB specific borrowing limits was $3.5 billion and $3.6 billion, respectively.
The carrying value and fair value of collateral pledged as of December 31, 2020 and 2019 were as follows ($’s in thousands):
| December 31, 2020 | December 31, 2019 | |||||||
Carrying Value | $ | 1,429,652 | $ | 525,064 | ||||
Fair Value | 1,546,739 | 538,633 | ||||||
The carrying value and fair value of the maximum amounts of collateral pledged during the years ended December 31, 2020 and 2019 were as follows ($’s in thousands):
| December 31, 2020 | December 31, 2019 | |||||||
Carrying Value | $ | 1,484,187 | $ | 575,082 | ||||
Fair Value | 1,568,638 | 578,203 | ||||||
| 20. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through April 15, 2021, the date that these financial statements were available to be issued.
*****
80
Item 11(f). Selected Financial Data
| 5-YEAR SUMMARY OF SELECTED FINANCIAL DATA | ||||||||||||||||||||
| ($ in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Operating results | ||||||||||||||||||||
Net investment income | $ | 425,548 | $ | 382,333 | $ | 402,362 | $ | 431,120 | $ | 434,823 | ||||||||||
Realized capital gains and (losses) | (2,301 | ) | 21,624 | 11,224 | 9,212 | (12,647 | ) | |||||||||||||
Total revenues | 707,640 | (1,098,131 | ) | 396,804 | 439,639 | 440,585 | ||||||||||||||
Net income | 45,219 | 34,149 | 35,723 | 64,495 | 51,530 | |||||||||||||||
Financial position | ||||||||||||||||||||
Cash and invested assets | $ | 9,757,436 | $ | 7,476,052 | $ | 8,987,423 | $ | 9,601,190 | $ | 9,989,286 | ||||||||||
Total admitted assets | 11,631,872 | 9,172,932 | 10,462,538 | 11,231,298 | 11,517,599 | |||||||||||||||
Reserves for policy benefits | 5,278,258 | 4,357,355 | 6,001,555 | 6,515,742 | 6,833,263 | |||||||||||||||
Separate Accounts | 1,671,786 | 1,464,556 | 1,266,912 | 1,460,380 | 1,342,220 | |||||||||||||||
Total capital stock and surplus | 416,283 | 352,610 | 379,930 | 425,801 | 559,535 | |||||||||||||||
| 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. It should be read in conjunction with the financial statements and related notes found under Item 11(e) contained herein.
The most important factors we monitor to evaluate the financial condition and performance of our Company include:
| • | For operations: premiums, benefits paid, amounts ceded to reinsurers and return on investments including exposure to market risk, credit quality/experience, net investment income, cash flows, realized capital gains and losses, unrealized capital gains and losses, stability of long-term returns, and asset/liability duration (“asset duration”). |
| • | For financial condition: risk-based capital ratios and stress testing of overall capital position. |
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles prescribed or permitted by the NE DOI requires the application of accounting policies that often involve a significant degree of judgment. Certain differences exist between NAIC SAP and U.S. GAAP, which are presumed to be material. For a summary of such differences, see Note 1 in the Notes to Statutory Statements. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, the Company’s results of operations and financial position as reported in the Statutory Financial Statements could change significantly.
Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates, assumptions and judgments:
| • | Future policy benefits and other policyholder liabilities |
| • | Investments — Impairments and Fair Value Measurements |
| • | Income Taxes |
| • | Reserves for Contingencies |
81
Liability for Policy and Contract Reserves and Claims
Policy liabilities are established for future policy benefits on certain annuity, life, and long-term care policies. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in-force. Changes in policy and contract reserves are recorded in Net change to policy benefit reserves and changes in policy and contract claims are recorded in Benefit payments to policyholders and beneficiaries in the Statutory Statements of Operations.
Policy reserves on annuity and supplementary contracts are calculated using the Commissioners’ Annuity Reserve Valuation Method, except variable annuities which use the Commissioners’ Annuity Reserve Valuation Method for Variable Annuities. The valuation interest assumptions follow the Standard Valuation Law and vary by the contracts’ characteristics and issue year. Policy reserves on life contracts are based on statutory mortality and valuation interest rates using the Commissioner’s Reserve Valuation Method without consideration of withdrawals. The valuation interest and mortality assumptions follow the Standard Valuation Law and vary by the contracts’ characteristics and issue year. Valuation methods provide, in the aggregate, reserves that are greater than or equal to the minimum of guaranteed policy cash values or the amount required by law. Accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using specified statutory interest rates and mortality. Morbidity assumptions are based on Company experience.
Liability for deposit-type contracts represents contracts without significant mortality or morbidity risk. Payments received from sales of deposit-type contracts are recognized by providing a liability equal to the current value of the policyholders’ contracts. Interest rates credited to these contracts are based on the applicable terms of the respective contract.
Liabilities for outstanding claims and claims adjustment expenses are estimates of payments to be made on life and health insurance contracts for reported claims and claims adjustment expenses. A liability is also held for claims adjustment expenses incurred but not reported as of the balance sheet date. These liabilities are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all claims incurred but not paid. These estimates are continually reviewed and adjusted as necessary with any adjustments reflected in current operations.
Policy liabilities and accruals are based on the various estimates discussed above. Although the adequacy of these amounts cannot be assured, the Company believes that policy liabilities and accruals will be sufficient to meet future obligations of policies in-force. The amount of liabilities and accruals, however, could be revised if the estimates discussed above are revised.
Valuation of Investments, Including Derivatives, and the Recognition of Other-than-Temporary Impairments
Our investment portfolio consists of public and private debt securities, commercial mortgage and other loans, other invested assets and derivative financial instruments. Derivatives are financial instruments where values are derived from interest rates, financial indices or the values of securities. The derivative financial instruments we generally use are futures and options. Management believes the following accounting policies related to investments, including derivatives, are most dependent on the application of estimates and assumptions. Each of these policies is discussed further within other relevant disclosures related to the investments and derivatives, as referenced below:
| • | Valuation of investments, including derivatives; |
| • | Recognition of other-than-temporary impairments; and |
| • | Determination of the valuation allowance for losses on commercial mortgage and other loans. |
We provide fair value for our investments, including debt securities, derivatives and embedded derivatives. Embedded derivatives are carried consistently with the host instruments. For additional information regarding the
82
key estimates and assumptions surrounding the determination of fair value of debt and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Note 12 in the Notes to Statutory Statements.
For our investments held at fair value, the impact of changes in fair value is recorded as an unrealized gain or loss within surplus. For a discussion of our policies regarding other-than-temporary declines in investment value and the related methodology for recording other-than-temporary impairments of debt and equity securities, see Note 3 in the Notes to Statutory Statements.
Mortgage loans are carried at amortized cost using the effective interest rate method. Mortgage loans held by the Company are diversified by property type and geographic area throughout the U.S. Mortgage loans are considered impaired when it is probable that the Company will not collect amounts due according to the terms of the original loan agreement. The Company assesses the impairment of loans individually for all loans in the portfolio. The Company estimates the fair value of the underlying collateral using internal valuations generally based on discounted cash flow analyses. The Company estimates an allowance for losses representing potential credit losses embedded in the mortgage loans portfolio. The estimate is based on a consistently applied analysis of the loan portfolio and takes into consideration all available information, including industry, geographical, economic and political factors.
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities.
Deferred tax assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. Deferred tax assets are limited to: (1) the amount of federal income taxes paid in prior years that can be recovered through capital loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year; (2) the lesser of the amount of adjusted gross deferred tax assets expected to be realized within three years of the balance sheet date or 15% of capital and surplus, excluding any net deferred tax assets, electronic data equipment processing or operating software and any net positive goodwill, provided certain risk-based capital thresholds are met and (3) the amount of remaining gross deferred tax assets that can be offset against existing gross deferred tax liabilities after considering the character (i.e., ordinary vs. capital) of the deferred tax assets and liabilities. The remaining deferred tax assets are nonadmitted.
Valuation allowances are established when management determines, based on available information, that it is more likely than not that deferred tax assets will not be realized. Management considers all available evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. The Company’s accounting for income taxes represents management’s best estimate of the tax consequences of various events and transactions.
Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities, and in evaluating the Company’s tax positions including evaluating uncertainties under the relevant statutory guidance. The Company accounts for current and deferred income taxes and recognizes reserves for income tax contingencies in accordance with SSAP No. 101, “Income Taxes”. Under the guidance, the Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the Internal Revenue Service or other taxing authorities. We do not anticipate any significant changes within the next 12 months to our total unrecognized tax benefits related to tax years for which the statute of limitations has not expired.
83
Reserves for Contingencies
A contingency is an existing condition that involves a degree of uncertainty that will ultimately be resolved upon the occurrence of future events. Under NAIC SAP, reserves for contingencies are required to be established when the future event is probable and its impact can be reasonably estimated, such as in connection with an unresolved legal matter. The initial reserve reflects management’s best estimate of the probable cost of ultimate resolution of the matter and is revised accordingly as facts and circumstances change and, ultimately, when the matter is resolved.
OPERATIONS
Overview and strategy. Prior to July 18, 2013, we sold interest-sensitive, traditional and variable life insurance, and fixed annuities including deferred and immediate through independent master brokerage agencies. In July 2013, we ceased soliciting and selling new policies through our independent agent channel. In 2017, we ceased new policy issuances through the Allstate exclusive agency channel.
LBL HoldCo II, Inc. and ALIC entered into an Administration Services Agreement (“ASA”), pursuant to which ALIC continues to provide certain administrative services to the Company. In 2015, the administration of our deferred annuity and life business was outsourced to unaffiliated third-party service providers, SE2, LLC and Alliance–One Services, Inc. ALIC continues to administer business sold through the Allstate exclusive agency channel and business sold through this channel is fully reinsured with ALIC.
In April 2014, Lincoln Benefit entered into two transactions with Hannover Re. The first transaction provided financing for a portion of our statutory reserves associated with our universal life business with no-lapse guarantees and our level premium term life business that are reinsured to Lancaster Re. The financing arrangement with Hannover Re was terminated effective April 2020 and a new financing arrangement for the same business was placed with RGA. The second Hannover Re transaction involved a reinsurance agreement with Hannover Re, structured on a combined modified coinsurance and monthly renewable term reinsurance basis. In October of 2019, the modified coinsurance agreement was recaptured from Hannover Re (the “Hannover Re Recapture”).
On December 31, 2019, Lincoln Benefit entered into a coinsurance and modified coinsurance agreement with GILICO (the “GILICO Coinsurance Agreement”), resulting in the transfer of certain life and annuity contracts. The Company ceded assets of $1.1 billion and statutory reserves of $1.3 billion. Other variable life business has been separately reinsured to GILICO pursuant to a modified coinsurance agreement and certain variable life mortality risks have been reinsured to another counterparty pursuant to an MRT agreement.
Effective April 1, 2020, the Company entered into a stop loss agreement with Kuvare Life Ltd., a Bermuda affiliate, to cover excess losses associated with life policies reinsured with Lancaster Re.
Effective October 1, 2020, the Company entered into a coinsurance with funds withheld agreement with Kuvare Bermuda Re Ltd. (the “Kuvare Bermuda Coinsurance Agreement”), resulting in the transfer of certain fixed annuity contracts. The Company ceded assets of $1.2 billion and statutory reserves of $1.2 billion for which amounts are collateralized with a funds withheld account.
Effective December 1, 2020, Lincoln Benefit entered into a coinsurance agreement with COUNTRY Life Insurance Company (the “COUNTRY Coinsurance Agreement”) resulting in the assumption of certain annuity contracts. The Company assumed assets of $1.5 billion and established statutory reserves of $1.5 billion.
Financial Position
The Company’s total adjusted capital (“TAC”), as defined by the NAIC, increased to $478.8 million as of December 31, 2020 from $404.9 million as of December 31, 2019.
84
The following table sets forth the calculation of the Company’s TAC:
| ($ in millions) | December 31, 2020 | December 31, 2019 | ||||||
Capital and surplus | $ | 416.2 | $ | 352.6 | ||||
Asset valuation reserve | 62.6 | 52.3 | ||||||
|
|
|
| |||||
Total adjusted capital | $ | 478.8 | $ | 404.9 | ||||
|
|
|
| |||||
The following table outlines amounts reported in the Company’s Balance Sheet as of December 31, 2020 and 2019:
| ($ in millions) | December 31, 2020 | December 31, 2019 | ||||||
Admitted Assets | ||||||||
Cash and invested assets | $ | 9,757.4 | $ | 7,476.1 | ||||
Due and accrued investment income | 72.8 | 75.2 | ||||||
Current income tax recoverable | 13.3 | 26.1 | ||||||
Net deferred tax asset | 33.2 | 27.0 | ||||||
Deferred premium and other assets, net | 83.3 | 103.9 | ||||||
Separate account assets | 1,671.8 | 1,464.6 | ||||||
|
|
|
| |||||
Total Admitted Assets | $ | 11,631.8 | $ | 9,172.9 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Reserves for policy benefits | 5,278.3 | 4,357.4 | ||||||
Reinsurance payable | 5.8 | 48.3 | ||||||
Interest maintenance reserve | 76.4 | 35.7 | ||||||
Funds held under coinsurance | 4,064.0 | 2,777.0 | ||||||
Other liabilities | 119.3 | 137.3 | ||||||
Separate account liabilities | 1,671.8 | 1,464.6 | ||||||
|
|
|
| |||||
Total Liabilities | $ | 11,215.6 | $ | 8,820.3 | ||||
|
|
|
| |||||
Shareholder’s Equity | ||||||||
Common stock | 2.5 | 2.5 | ||||||
Gross paid in and contributed surplus | 255.7 | 196.8 | ||||||
Unassizned funds | 158.0 | 153.3 | ||||||
|
|
|
| |||||
Total Capital Stock and Surplus | $ | 416.2 | $ | 352.6 | ||||
|
|
|
| |||||
Total Liabilities, Capital Stock and Surplus | $ | 11,631.8 | $ | 9,172.9 | ||||
|
|
|
| |||||
December 31, 2020 vs. December 31, 2019
Assets
Total admitted assets increased by $2.4 billion, from $9.2 billion at December 31, 2019 to $11.6 billion at December 31, 2020. The increase in total admitted assets primarily relates to the increased FHLB borrowing as well as the COUNTRY Coinsurance agreement.
Significant variances are as follows:
Cash and invested assets increased by $2.3 billion from $7.5 billion at December 31, 2019 to $9.8 billion at December 31, 2020. The significant components of this balance and related increase are described below.
The Company’s bond portfolio increased by $1.7 billion from $6.4 billion at December 31, 2019 to $8.1 billion at December 31, 2020. The increase reflects increased borrowing of FHLB funds as well as the COUNTRY Coinsurance agreement described above. The bond portfolio is comprised of approximately 67% of publicly traded securities and approximately 33% in privately placed issuances.
85
Preferred stock increased by $107.3 million from $14.8 million at December 31, 2019 to $122.1 million at December 31, 2020. The increase is primarily related to increased FHLB funds available for investment as well as the COUNTRY Coinsurance agreement described above.
Common stock increased by $38.0 million from $8.5 million at December 31, 2019 to $46.5 million at December 31, 2020. The increase is related to the increase in FHLB related borrowing.
Cash and short-term investments increased by $312.0 million from $250.8 million at December 31, 2019 to $562.8 million at December 31, 2020. The amount invested in cash and short-term investments fluctuates based on liquidity needs and the timing of investment decisions. Overall, the Company has been working to align the portfolio consistent with Kuvare’s investment strategy and the increase in cash and short-term investments is related to the timing of being able to reinvest these assets.
Other invested assets increased by $119.4 million from $66.4 million at December 31, 2019 to $185.8 million at December 31, 2020. Other invested assets increased as a result of the Company’s efforts to increase investment yield to align with Kuvare’s investment strategy.
Deferred premiums and other assets decreased by $20.5 million from $103.9 million at December 31, 2019 to $83.4 million at December 31, 2020. This is mainly due to decreases in reinsurance recoverables related to the timing and severity of losses received close to year end as well as decreases in deferred premiums driven by the Company’s Post Level Term business.
Separate Account assets and liabilities increased by $0.2 billion from $1.5 billion at December 31, 2019 to $1.7 billion at December 31, 2020. This increase is primarily driven by equity market appreciation in 2020.
The assets of Separate Accounts are carried at fair value for NAIC SAP. Separate Accounts liabilities represent the contractholders’ claims to the related assets and are carried at the fair value of the assets. In the event the asset values of certain contractholder accounts are projected to be below the value guaranteed by the Company, a liability is established through a charge to earnings.
Lincoln Benefit’s variable annuity business and a material portion of the variable life business are reinsured by ALIC and GILICO. As of December 31, 2020 and 2019, all assets of the Separate Accounts that support the variable annuity and variable life business are legally insulated.
Liabilities
Total liabilities increased by $2.4 billion, from $8.8 billion at December 31, 2019 to $11.2 billion at December 31, 2020. The increase consists of the following components:
Reserves for policy benefits increased by $0.9 billion from $4.4 billion at December 31, 2019 to $5.3 billion at December 31, 2020. Such liabilities are established to meet the estimated future obligations of policies in-force. The increase in Reserves for policy benefits is mainly related to the increase in FHLB borrowings which are accounted for as deposit type contract liabilities, the increase in deferred annuities from the COUNTRY Coinsurance Agreement, but offset by the deferred annuities ceded related to the Kuvare Bermuda Coinsurance Agreement.
Reinsurance payable decreased by $42.5 million from $48.3 million at December 31, 2019 to $5.8 million at December 31, 2020. The decrease reflects the payment of $35 million which was owed to GILICO at December 31, 2019.
86
Interest maintenance reserve increased by $40.7 million from $35.7 million at December 31, 2019 to $76.4 million at December 31, 2020 primarily related to capital gains generated from aligning the Company’s investment strategy with Kuvare, partially offset by the transfer of IMR related to the Kuvare Bermuda Coinsurance Agreement.
Funds held under coinsurance increased by $1.3 billion from $2.8 billion at December 31, 2019 to $4.1 billion at December 31, 2020. This item represents funds withheld in conjunction with the Company’s AXXX coinsurance funds withheld treaty with Lancaster Re as well as the COUNTRY Coinsurance agreement described above. The AXXX treaty with Lancaster Re covers universal life secondary guarantee and term business. Approximately $0.1 billion of the $1.3 billion increase was related to Lancaster Re. The growth is related to an increase of the statutory reserve related to these products. These balances are expected to continue to increase. Approximately $1.2 billion of the $1.3 billion increase is related to the COUNTRY Coinsurance agreement described above.
Results of Operations
The following table outlines amounts reported in Net Income (Loss):
| ($ in millions) | 2020 | 2019 | 2018 | |||||||||
Gain from operations before taxes | $ | 22.7 | $ | 12.5 | $ | 20.4 | ||||||
Income tax expense (benefit) | (24.8 | ) | — | (4.1 | ) | |||||||
|
|
|
|
|
| |||||||
Net gain from operations | $ | 47.5 | $ | 12.5 | $ | 24.5 | ||||||
|
|
|
|
|
| |||||||
Net realized capital gains (losses) | (2.3 | ) | 21.6 | 11.2 | ||||||||
|
|
|
|
|
| |||||||
Net income | $ | 45.2 | $ | 34.1 | $ | 35.7 | ||||||
|
|
|
|
|
| |||||||
Results of Operations
For the Year Ended December 31, 2020
Net income of $45.2 million is comprised of Gain from Operations before taxes of $22.7 million partially offset by $2.3 million of net realized capital losses. The Company had $24.8 million of income tax benefit of which $21.5 million was related to the CARES Act which allowed for NOL carryback for 2018 and 2019.
For the Year Ended December 31, 2019
Net income of $34.1 million is comprised of Gain from Operations before taxes of $12.5 million and net realized capital gains of $21.6 million. Operating results reflect the loss on reinsurance to GILICO offset by lower operating expenses.
For the Year Ended December 31, 2018
Net income of $35.7 million is the result of the Gain from Operations before taxes of $20.4 million and net realized gains of $11.2 million. In 2018, the Gain from Operations decreased due to lower investment income consistent with business runoff and slightly higher reinsurance premium. This is offset by $11.2 million in realized capital gains resulting from asset-liability management initiatives.
87
The significant components of income are summarized below:
| ($ in millions) | 2020 | 2019 | 2018 | |||||||||
Revenue | ||||||||||||
Premiums | $ | 277.7 | $ | (913.4 | ) | $ | 80.1 | |||||
Net investment income | 425.5 | 382.3 | 402.4 | |||||||||
Reserve adjustments on reinsurance ceded | (77.3 | ) | (686.2 | ) | (174.9 | ) | ||||||
Other income | 81.7 | 119.2 | 89.2 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | $ | 707.6 | $ | (1,098.1 | ) | $ | 396.8 | |||||
|
|
|
|
|
| |||||||
Benefits and expenses | ||||||||||||
Benefit payments to policyholders and beneficiaries | $ | 428.0 | $ | 389.7 | $ | 702.6 | ||||||
Net change to policy benefit reserves | (5.1 | ) | (1,707.8 | ) | (484.6 | ) | ||||||
Net transfers from separate accounts | (45.2 | ) | (63.2 | ) | (60.3 | ) | ||||||
Commissions and operating expenses | 307.2 | 270.7 | 218.7 | |||||||||
|
|
|
|
|
| |||||||
Total benefits and expenses | $ | 684.9 | $ | (1,110.6 | ) | $ | 376.4 | |||||
|
|
|
|
|
| |||||||
Gain from operations before taxes | $ | 22.7 | $ | 12.5 | $ | 20.4 | ||||||
|
|
|
|
|
| |||||||
Premiums are $277.7 million, $(913.4) million and $80.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Premiums are net of reinsurance premiums paid on the ceded business. The increase in premiums in 2020 is related to the COUNTRY Coinsurance Agreement partially offset by reinsurance premiums and the Kuvare Bermuda Coinsurance Agreement. The decrease in premiums in 2019 was mainly related to lower direct annuity premium and higher premiums ceded under the GILICO Coinsurance Agreement offset by premiums from the Hannover Recapture. The decrease in premiums in 2018 is primarily related to lower life and annuity premiums and slightly higher reinsurance premiums.
Net investment income is $425.5 million, $382.3 million and $402.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Net investment income is attributable to the following asset types:
| ($ in millions) | 2020 | 2019 | 2018 | |||||||||
Debt securities | $ | 284.5 | $ | 322.1 | $ | 329.7 | ||||||
Mortgage loans | 28.4 | 37.2 | 41.3 | |||||||||
Other invested assets | 15.9 | 18.2 | 19.3 | |||||||||
|
|
|
|
|
| |||||||
Gross investment income | 328.8 | 377.5 | 390.3 | |||||||||
Investment expenses | 36.8 | 24.2 | 28.2 | |||||||||
|
|
|
|
|
| |||||||
Net investment income before IMR amortization | 292.0 | 353.3 | 362.1 | |||||||||
IMR amortization | 133.5 | 29.0 | 40.3 | |||||||||
|
|
|
|
|
| |||||||
Total net investment income | $ | 425.5 | $ | 382.3 | $ | 402.4 | ||||||
|
|
|
|
|
| |||||||
Overall, net investment income in 2020 is higher compared to 2019 and 2018. The main driver of this is the higher average asset balances as a result of increased FHLB related borrowing as well as increased IMR amortization related to the COUNTRY Coinsurance agreement described above.
Reserve adjustments on reinsurance ceded are $(77.3) million, $(686.2) million and $(174.9) million for the years ended December 31, 2020, 2019 and 2018. Reserve adjustments on reinsurance ceded include reserve changes related to the Company’s modified coinsurance agreements on its life and annuity business. The significant change in the reserve adjustments on reinsurance ceded in 2020 compared to 2019 is due to the 2019 adjustments related to the Hannover Recapture. The significant decrease in reserve adjustments on reinsurance ceded in 2019 is as a result of the Hannover Recapture. Reserve adjustments on reinsurance ceded decreased in 2018 primarily related to slowdown in the runoff of the variable annuity business and deferred annuity products.
88
Benefit payments to policyholders and beneficiaries are $428.0 million, $389.7 million and $702.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. This line item represents benefit payments on life insurance and annuity products. The increase in 2020 is primarily related to favorable mortality compared to 2019 offset by a reduction in benefits ceded to Hannover due to recapture in 2020. The decrease in 2019 is primarily related to the GILICO Coinsurance Agreement and lower surrenders on life and annuity business partially offset by higher claims from unfavorable mortality. Benefit payments to policyholders and beneficiaries decreased in 2018 due to a decrease in surrender and annuity benefits. Surrenders decreased primarily on market-value and equity-indexed annuities resulting from lower equity market performance.
Net changes to policy benefit reserves are $(5.1) million, $(1,707.8) million and $(484.6) million for the years ended December 31, 2020, 2019 and 2018, respectively. The increase in 2020 compared to 2019 is primarily the result of higher ceded reserves in 2019 as result of the GILICO Coinsurance Agreement.
Commissions and operating expenses are $307.2 million, $270.7 million and $218.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. These expenses are comprised of general operating expenses, premium taxes, investment income ceded on reinsurance and IMR ceded. The increase in 2020 compared to 2019 is related to $101.7 million of IMR ceded as part of the Kuvare Bermuda Coinsurance Agreement. The increase in 2019 is related to higher investment income ceded under the GILICO Coinsurance Agreement offset by lower commissions and operating expenses. The decline in 2018 is primarily as a result of lower direct life and annuity premiums and the continued runoff of the business while operating expenses decreased primarily as a function of lower third-party administrative expenses as well as lower compensation costs.
Realized investment gains (losses) are $(2.3) million, $21.6 million and $11.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The net realized losses in 2020 are the result of realized gains on bonds as the Company has been working to align the portfolio with Kuvare’s investment strategy, offset by an increase in capital gains tax as well as an increase in transfer of these gains to IMR. The net realized gains in 2019 are primarily related to capital gains generated from the GILICO Coinsurance Agreement and derivative gains offset by lower capital gains tax and credit related capital losses. The net realized gains in 2018 are related to asset-liability management initiatives to improve yields and better match assets and liabilities.
General Account Investment Portfolio
The General Account Investment Assets (“GAIA”) portfolio consists of a well-diversified portfolio of public and private debt securities, commercial mortgages and other loans and other invested assets. The General Account portfolios and investment results primarily support the insurance liabilities of Lincoln Benefit’s business operations. The following table reconciles the balance sheet asset amounts to GAIA:
| December 31, 2020 | December 31, 2019 | |||||||
| ($ in millions) | ||||||||
Bonds | $ | 8,074.3 | $ | 6.361.6 | ||||
Preferred stocks | 122.1 | 14.8 | ||||||
Common stocks | 46.5 | 8.5 | ||||||
Mortgage loans | 721.2 | 721.8 | ||||||
Contract loans | 35.7 | 33.6 | ||||||
Other investments | 194.8 | 84.9 | ||||||
Receivables for securities | — | 0.1 | ||||||
Cash and short-term investments | 562.8 | 250.8 | ||||||
|
|
|
| |||||
Total Cash and Invested Assets | $ | 9,757.4 | $ | 7,476.1 | ||||
|
|
|
| |||||
89
Assets listed in Other investments principally consist of surplus notes, limited partnerships and derivatives.
Investment Results of General Account Investment Assets
The following table summarizes investment results by asset category for the years ended December 31, 2020, 2019 and 2018:
| 2020 | 2019 | 2018 | ||||||||||||||||||||||
| ($ in millions) | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||
Debt securities | $ | 284.5 | 3.92 | % | $ | 322.1 | 4.58 | % | $ | 329.7 | 4.17 | % | ||||||||||||
Mortgage loans | 28.4 | 3.93 | % | 372 | 4.71 | % | 41.3 | 4.32 | % | |||||||||||||||
Cash: cash equivalents and short-terms | 2.5 | 0.61 | % | 4.0 | 1.75 | % | 3.9 | 1.91 | % | |||||||||||||||
Other invested assets | 13.4 | (a) | 14.2 | (a) | 15.4 | (a) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Gross investment income | $ | 328.8 | $ | 377.5 | $ | 390.3 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Investment expenses | 36.8 | 24.2 | 28.2 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net investment income before IMR amortization | $ | 292.0 | $ | 353.3 | $ | 362.1 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
| (a) | Primarily FHLB note interest and contract loans |
Debt Securities
The bond portfolio consists largely of investment grade corporate debt securities and includes significant amounts of U.S. government and agency obligations. More detail around the composition of debt securities as of December 31, 2020 and 2019 for GAIA is as shown below.
Debt Securities by Industry
The General Account debt securities portfolios include publicly-traded and privately-placed corporate debt securities across an array of industry categories. The following tables set forth these debt securities by industry category as of December 31, 2020 and 2019 along with their associated gross unrealized gains and losses:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | ||||||||||||||
December 31, 2020 ($ in millions) | ||||||||||||||||
| Fair Value | ||||||||||||||||
U.S. governments | $ | 582.3 | $ | 1.0 | $ | (0.5 | ) | $ | 582.8 | |||||||
All other governments | 7.6 | 0.3 | — | 7.9 | ||||||||||||
U.S. states, territories and possessions | 20.0 | 4.0 | — | 24.0 | ||||||||||||
U.S. political subdivisions | 72.5 | 8.1 | — | 80.6 | ||||||||||||
Special revenue | 783.2 | 99.0 | (1.1 | ) | 881.1 | |||||||||||
Industrial and miscellaneous | ||||||||||||||||
Basic materials | 202.3 | 27.8 | — | 230.1 | ||||||||||||
Communications | 433.9 | 61.4 | (0.4 | ) | 494.9 | |||||||||||
Consumer Discretionary | 3.0 | — | (0.3 | ) | 2.7 | |||||||||||
Consumer, cyclical | 171.4 | 22.2 | (1.5 | ) | 192.1 | |||||||||||
Consumer, non-cyclical | 575.3 | 58.4 | (0.7 | ) | 633.0 | |||||||||||
Diversified | 20.5 | 1.5 | — | 22.0 | ||||||||||||
Energy | 497.6 | 54.7 | (8.7 | ) | 543.6 | |||||||||||
Financial | 1,313.2 | 156.4 | (5.8 | ) | 1,463.8 | |||||||||||
Government | 3.5 | 0.1 | — | 3.6 | ||||||||||||
Health Care | 3.0 | — | — | 3.0 | ||||||||||||
Industrial | 388.9 | 57.0 | (0.1 | ) | 445.8 | |||||||||||
90
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | ||||||||||||||
December 31, 2020 ($ in millions) | ||||||||||||||||
| Fair Value | ||||||||||||||||
Project Finance Infrastructure | 15.9 | — | — | 15.9 | ||||||||||||
Technology | 196.8 | 50.6 | — | 247.4 | ||||||||||||
Utilities | 725.7 | 111.5 | (0.4 | ) | 836.8 | |||||||||||
Hybrids | 145.8 | 8.8 | (2.4 | ) | 152.2 | |||||||||||
ABS | 1,032.6 | 23.7 | (3.0 | ) | 1,053.3 | |||||||||||
CMBS | 4012 | 27.9 | (5-4 | ) | 423.7 | |||||||||||
RMBS | 478.1 | 20.4 | (0.1 | ) | 498.4 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securities | $ | 8,074.3 | $ | 794.8 | $ | (30.4 | ) | $ | 8,838.7 | |||||||
|
|
|
|
|
|
|
| |||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | ||||||||||||||
December 31, 2019 ($ in millions) | ||||||||||||||||
| Fair Value | ||||||||||||||||
U.S. governments | $ | 38.2 | $ | 0.4 | $ | — | $ | 38.6 | ||||||||
All other governments | 5.7 | 0.1 | (0.6 | ) | 5.2 | |||||||||||
U.S. states, territories and possessions | 15.4 | 2.2 | — | 17.6 | ||||||||||||
U.S. political subdivisions | 64.5 | 2.8 | (0.1 | ) | 67.2 | |||||||||||
Special revenue | 556.8 | 56.5 | (0.3 | ) | 613.0 | |||||||||||
Industrial and miscellaneous | ||||||||||||||||
Basic materials | 217.5 | 18.8 | (0.8 | ) | 235.5 | |||||||||||
Communications | 470.6 | 52.0 | — | 522.6 | ||||||||||||
Consumer, cyclical | 338.9 | 20.3 | (1.6 | ) | 357.6 | |||||||||||
Consumer, non-cyclical | 479.4 | 37.0 | (1.1 | ) | 515.3 | |||||||||||
Diversified | 1.0 | — | — | 1.0 | ||||||||||||
Energy | 550.4 | 44.1 | (3.6 | ) | 590.9 | |||||||||||
Financial | 1,093.6 | 105.1 | (2.9 | ) | 1,195.8 | |||||||||||
Industrial | 389.4 | 24.3 | (1.8 | ) | 411.9 | |||||||||||
Technology | 238.7 | 33.4 | (0.2 | ) | 271.9 | |||||||||||
Utilities | 681.4 | 54.6 | (0.1 | ) | 735.9 | |||||||||||
Hybrids | 101.9 | 7.3 | (0.4 | ) | 108.8 | |||||||||||
ABS | 506.9 | 8.1 | (0.7 | ) | 514.3 | |||||||||||
CMBS | 261.3 | 10.2 | (1.0 | ) | 270.5 | |||||||||||
RMBS | 350.0 | 17.1 | (0.9 | ) | 366.2 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securities | $ | 6,361.6 | $ | 494.3 | $ | (16.1 | ) | $ | 6,839.8 | |||||||
|
|
|
|
|
|
|
| |||||||||
Gross unrealized gains increased by $300.5 million from $494.3 million at December 31, 2019 to $794.8 million at December 31, 2020. The increase in unrealized gains is primarily due to a decrease in interest rates. The 10-year treasury yield curve rates at December 31, 2020 and 2019 are 0.93% and 1.92%, respectively. There is also an increase in gross unrealized losses of $14.3 million, for a net change in net unrealized gains of $286.2 million.
Debt Securities by Credit Quality
The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”) has established credit ratings related to investments of insurers for regulatory reporting purposes and assigns debt securities to one of six categories (“NAIC Designations”) based on the equivalent ratings of an approved rating agency. NAIC designations of “1” or “2” relate to debt securities considered investment grade, which include securities rated Baa3 or higher by Moody’s or BBB- or higher by Standard & Poor’s. NAIC Designations of “3”
91
through “6” are referred to as below investment grade, which include securities rated Ba1 or lower by Moody’s and BB+ or lower by Standard & Poor’s. As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the bond portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.
The following table sets forth the General Accounts’ debt securities by NAIC rating at the dates indicated:
December 31, 2020 ($ in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||
NAIC Rating | ||||||||||||||||||
1 | Aaa, Aa, A | $ | 3,426.5 | $ | 426.5 | $ | (2.2) | $ | 3,850.8 | |||||||||
2 | Baa | 2,573.7 | 285.4 | (9.5) | 2,849.6 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Investment grade | $ | 6,000.2 | $ | 711.9 | $ | (11.7) | $ | 6,700.4 | ||||||||||
3 | Ba | 161.8 | 10.9 | (10.2) | 162.5 | |||||||||||||
4 | B | 0.4 | — | — | 0.4 | |||||||||||||
5 | C and lower | — | — | — | — | |||||||||||||
6 | In or near default | — | — | — | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Below investment grade | $ | 162.2 | $ | 10.9 | $ | (10.2) | $ | 162.9 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total before asset and mortgage-backed securities | $ | 6,162.4 | $ | 722.8 | $ | (21.9) | $ | 6,863.3 | ||||||||||
Asset and mortgage-backed securities | 1,911.9 | 72.0 | (8.5) | 1,975.4 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total fixed maturities | $ | 8,074.3 | $ | 794.8 | $ | (30.4) | $ | 8,838.7 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
December 31, 2019 ($ in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||
NAIC Rating | ||||||||||||||||||
1 | Aaa, Aa, A | $ | 2,520.8 | $ | 259.4 | $ | (0.5) | $ | 2,779.7 | |||||||||
2 | Baa | 2,637.5 | 197.9 | (8.5) | 2,826.9 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Investment grade | $5,158.3 | $457.3 | $(9.0) | $5,606.6 | ||||||||||||||
3 | Ba | 85.1 | 1.6 | (4.5) | 82.2 | |||||||||||||
4 | B | — | — | — | — | |||||||||||||
5 | C and lower | — | — | — | — | |||||||||||||
6 | In or near default | — | — | — | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Below investment grade | $ | 85.1 | $ | 1.6 | $ | (4.5) | $ | 82.2 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total before asset and mortgage-backed securities | $ | 5,243.4 | $ | 458.9 | $ | (13.5) | $ | 5,688.8 | ||||||||||
Asset and mortgage-backed securities | 1,118.2 | 35.4 | (2.6) | 1,151.0 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total fixed maturities | $ | 6,361.6 | $ | 494.3 | $ | (16.1) | $ | 6,839.8 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Below investment grade debt securities represented 2.0% and 1.3% of the gross unrealized losses at December 31, 2020 and 2019, respectively.
Equity Securities
Common stock of $46.5 million and $8.5 million as of December 31, 2020 and 2019, respectively. In 2019, the $8.5 million was entirely related to the ownership of FHLB stock while in 2020, the $46.5 million is made up
92
primarily of FHLB stock ($36.0 million). GAIA holds redeemable preferred stock of $28.3 million and $14.8 million as of December 31, 2020 and 2019. GAIA holds non-redeemable preferred stock of $93.8 million at December 31, 2020 while it did not hold any non-redeemable preferred stock at December 31, 2019. GAIA also includes investments in limited partnerships on an equity method basis as of December 31, 2020 for $97.1 million and $20.7 million as of December 31, 2019.
Mortgage Loans
At December 31, 2020 and 2019, approximately 7% of GAIA are in mortgage loans. At December 31, 2020 and 2019, the carrying value of mortgage loans is $721.2 million and $721.8 million, respectively. At December 31, 2020, approximately 96% of the portfolio was invested in commercial mortgages as compared to 100% at December 31, 2019. The investment strategy for the mortgage loan portfolio emphasizes diversification by property type and geographic location with a primary focus on asset quality. The table below shows the breakdown of the amortized cost of the General Account’s investments in mortgage loans by geographic region as of December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | |||||||
| ($ in millions) | ||||||||
Alabama | $ | — | $ | 0.6 | ||||
Arizona | 35.2 | 36.0 | ||||||
California | 128.2 | 140.9 | ||||||
Colorado | 91.7 | 91.7 | ||||||
Florida | 63.7 | 24.3 | ||||||
Georgia | 27.3 | 29.6 | ||||||
Hawaii | 1.5 | 2.8 | ||||||
Illinois | 55.1 | 56.2 | ||||||
Iowa | — | 0.3 | ||||||
Massachusetts | 15.1 | 29.5 | ||||||
Minnesota | 22.1 | 22.6 | ||||||
Nevada | 13.1 | 9.3 | ||||||
New Jersey | 32.5 | 35.7 | ||||||
New York | 46.7 | 47.5 | ||||||
North Carolina | 29.9 | 3.8 | ||||||
Ohio | 11.8 | 12.1 | ||||||
Pennsylvania | 70.3 | 69.8 | ||||||
South Carolina | 23.7 | 24.4 | ||||||
Texas | 53.3 | 84.7 | ||||||
General allowance for loan loss | — | — | ||||||
|
|
|
| |||||
Total commercial mortgage loans | $ | 721.2 | $ | 721.8 | ||||
|
|
|
| |||||
93
Commercial Mortgage Loan by Credit Quality
The values used in these ratio calculations are part of the periodic review of the commercial mortgage loan portfolio, which includes an evaluation of the underlying collateral value as of December 31, 2020 and 2019.
| Recorded Investment | ||||||||||||||||||||||||||||
| Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||
| ($ in millions) | >1.20x | 1.00x-1.20x | < 1.00x | Total | % of Total | Estimated Fair Value | % of Total | |||||||||||||||||||||
Loan-to-value ratios: | ||||||||||||||||||||||||||||
Less than 65% | $ | 494.1 | $ | 10.8 | $ | 17.2 | $ | 522.1 | 75.3 | % | $ | 525.2 | 75.1 | % | ||||||||||||||
65% to 75% | 102.7 | 61.9 | 6.5 | 171.1 | 24.7 | % | 174.6 | 24.9 | % | |||||||||||||||||||
76% to 80% | — | — | — | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||
Greater than 80% | — | — | — | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 596.8 | $ | 72.7 | $ | 23.7 | $ | 693.2 | 100.0 | % | $ | 699.8 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Recorded Investment | ||||||||||||||||||||||||||||
| Debt Service Coverage Ratios | ||||||||||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||||
| ($ in millions) | > 1.20x | 1.00x-1.20x | <1.00x | Total | % of Total | Estimated Fair Value | % of Total | |||||||||||||||||||||
Loan-to-value ratios: | ||||||||||||||||||||||||||||
Less than 65% | $ | 532.0 | $ | 29.3 | $ | 38.0 | $ | 599.3 | 82.8 | % | $ | 607.3 | 82.3 | % | ||||||||||||||
65% to 75% | 102.9 | 21.9 | — | 124.8 | 17.2 | % | 130.9 | 17.7 | % | |||||||||||||||||||
76% to 80% | — | — | — | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||
Greater than 80% | — | — | — | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 634.9 | $ | 51.2 | $ | 38.0 | $ | 724.1 | 100.0 | % | $ | 738.2 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
All of our mortgage loans are performing under the original contractual loan terms at December 31, 2020. There is one mortgage loan that has a debt service coverage ratio of less than 1.0% at December 31, 2020 and December 31, 2019.
| Item 11(i). | Changes in or Disagreements with Accountants |
On October 9, 2020, we selected, and the audit committee of our board of directors approved, Ernst & Young LLP as our new independent registered public accounting firm to audit the Statutory financial statements of Lincoln Benefit Life Company (LBL) as of and for the year ended December 31, 2020. We selected Ernst & Young LLP based on their knowledge of the other operating companies under the Kuvare US Holdings, Inc. (Kuvare) umbrella as well as to create consistency of auditors between the companies. As a result, we replaced Deloitte & Touche LLP, our then independent registered public accounting firm. The replacement was effective immediately and was approved by the audit committee of our board of directors.
LBL’s audit reports on our Statutory financial statements for the year ended December 31, 2019 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits of our financial statements for the fiscal year ended December 31, 2019, (a) there were no “disagreements” (within the meaning of Item 304(a)(1)(iv) of Regulation S-K) between Deloitte & Touche LLP and us on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Deloitte & Touche LLP’s satisfaction, would have caused Deloitte & Touche LLP to make reference to the subject matter in their report on our Statutory financial statements and (b) there were no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
94
We provided Deloitte & Touche LLP with a copy of the disclosures that we are making in this Registration Statement on Form S-1 prior to the time this Registration Statement was publicly filed with the SEC. We have requested that Deloitte & Touche LLP furnish a letter addressed to the SEC stating whether or not it agrees with the statements made herein, a copy of which will be filed by amendment as Exhibit 16 hereto.
During the fiscal year ended December 31, 2019, and the subsequent interim period through October 9, 2020, neither we nor anyone acting on our behalf has consulted with Ernst & Young LLP with respect to (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us that Ernst & Young LLP concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (b) any matter that was either the subject of a “disagreement” or “reportable event” within the meaning of Item 304(a)(1) of Regulation S-K.
| Item 11(j). | Quantitative and Qualitative Disclosures About Market Risk |
Information required for Item 11(j) is incorporated by reference to the material under the caption “Market Risk” in Item 11(h) of this report.
| Item 11(k). | Directors and Executive Officers |
The biographies of each of the directors and executive officers as of March 31, 2021 are included below.
Dhiren Jhaveri, 46, has been Executive Chairman of the board of directors of the Company since December 31, 2019. Dhiren is the founder and has been Chief Executive Officer of Kuvare US Holdings, Inc. (“Kuvare”), the direct parent of GILICO, since 2014, and is the Executive Chairman of the boards of directors of GILICO and United Life Insurance Company (“United Life”), an Iowa-domiciled insurance company and wholly owned subsidiary of Kuvare. In addition, he serves as the President and Chief Executive Officer of Kuvare Insurance Services LP, a Delaware limited partnership (“KIS”). Before founding Kuvare, Dhiren was a member of the executive committee of Sammons Financial Group, where he led corporate development and investment risk. Previously, he worked at McKinsey & Co. and Barclays. Dhiren is actively involved on various committees for the American Council of Life Insurers and is a designee of the LIMRA Life Insurance Fellows.
Bradley Rosenblatt, 46, has been a director of the Company since December 31, 2019, and Chief Revenue Officer of Kuvare since 2017, where he leads revenue and growth strategy. In addition, Brad is President and a director of United Life, and a director of GILICO. Brad has over 20 years of experience in sales, marketing and strategy. Prior to joining Kuvare, Brad served as Chief Distribution Officer for Sammons Financial Group leading the company’s growth strategy in new life insurance markets. While at Sammons Financial Group, Brad also led the company’s strategy and corporate development function and held various sales and marketing leadership roles. Previously, he worked at McKinsey & Co. in the insurance practice, serving life, property/ casualty and health insurance carriers. Brad holds an MBA from Michigan Ross School of Business and a Bachelor of Arts in Economics from Northwestern University.
Joseph Wieser, 55, has been a director of the Company since December 31, 2019, and President and a director of GILICO since 2018. Joe has more than 28 years of leadership, strategy, operational and sales/marketing experience in the annuity, life and health insurance industry. He most recently served as Business Development Director for Anthem Blue Cross Blue Shield in Denver, Colorado and, prior to that, served five years as President of Dearborn National Life Insurance Company. During his career, he has held leadership roles overseeing all insurance company functions. Previously, his executive experience includes working at MassMutual, Colorado Bankers, Starmount Life and Anthem Blue Cross Blue Shield. Joe is a graduate of Metropolitan State University in Denver and holds his CLU, ChFC and FLMI financial/insurance professional designations.
95
Burke Harr, 49, has been a director of the Company since December 31, 2019. Burke served as a Nebraska state senator from 2011 to 2019, and has been an of counsel attorney at Houghton Bradford Whitted PC, LLO since 2011. Burke is a graduate of the University of St. Thomas and the Notre Dame Law School.
Carlos Sierra, 53, has been President and a director of the Company since December 31, 2019, and the Chief Operating Officer of Kuvare since 2016, where he leads overall operational strategy. He is a director of GILICO and of United Life. With over 30 years of operations experience, Carlos previously worked as a consultant for insurance companies and served as COO for the Americas at Aon Risk and Global COO for Combined Insurance where he led global operations, including Front Office (sales model; multichannel sales), Back Office (contact centers; order entry; claims; field operations) and Technology (Application Development and Infrastructure). Previously, Carlos worked at McKinsey & Co, where he served clients in the Financial Institutions Group and at FMC where he led Manufacturing Planning and Latin American Operations. Carlos earned engineering and masters degrees with honors from ITESM, Ohio State and Stanford.
David Goldberg, 52, has been Secretary of the Company since December 31, 2019, and General Counsel and Secretary of Kuvare since 2017, where he directs the legal, regulatory and corporate governance functions for the Kuvare businesses. He provides more than 20 years of broad commercial law and senior executive experience, having started his legal career in 1993 at the Sidley & Austin firm in Chicago. David has served in numerous corporate General Counsel roles, including insurance sector roles at Coregis Insurance, a specialty property and casualty company, as well as life and health companies Combined Insurance (and its worldwide affiliates) and Sterling Life Insurance Company. Most recently he served as an Illinois Assistant Attorney General and General Counsel to the Illinois State Toll Highway Authority. David is a graduate of the University of Michigan and Washington University School of Law.
Erik Braun, 37, was appointed Chief Financial Officer and Treasurer of the Company in March 2020. He has served as Treasurer and Controller of Kuvare US Holdings, Inc. since 2017. From 2013 to 2017, Erik was with Fidelity Life Association as the manager of accounting and finance and the assistant corporate controller. Previously, he worked in public accounting within the assurance practice, where he served insurance industry clients across most commercial and personal lines. Erik is a Certified Public Accountant (inactive).
| Item 11(l). | Executive Compensation |
We do not have any employees, but rather are provided personnel, including our named executive officers, by our parent company, LBL HoldCo II, Inc. (“HoldCo”), pursuant to the Services Agreement between HoldCo and Lincoln Benefit effective April 1, 2014. Executive officers of Lincoln Benefit also serve as officers of our indirect parent, HoldCo Parent and other subsidiaries of HoldCo Parent. These executive officers received no compensation directly from Lincoln Benefit. As a result, we do not determine or pay any compensation to our named executive officers or additional personnel provided by HoldCo for our operations. HoldCo determines and pays the salaries, bonuses and other wages earned by our named executive officers and by additional personnel provided to us by HoldCo. HoldCo also determines whether and to what extent our named executive officers and additional personnel from HoldCo may participate in any employee benefit plans. We do not have any employment agreements with our named executive officers and do not provide pension or retirement benefits, perquisites or other personnel benefits to our named executive officers. We do not have arrangements to make payments to our named executive officers upon their termination or in the event of a change in control of the Company. See “Transactions with Related Parties” for more information about the Services Agreement between HoldCo and us.
Director compensation
Burke Harr, an outside independent director, receives an annual cash retainer fee for his services on the board of directors of Lincoln Benefit.
96
No director who is also an employee of Kuvare and/or GILICO receives any additional compensation for serving as a director of the Company.
Compensation Related to Services prior to December 31, 2019
Our independent directors received an annual cash retainer fee for their services on the boards of directors of HoldCo Parent and its subsidiaries, including Lincoln Benefit, a portion of which is allocated to Lincoln Benefit pursuant to the Services Agreement. A non-employee director also had the option to elect to defer receipt of all or a portion of his or her annual retainer fee into a notional percentage equity interest in RL LP and RL (Parallel) Partnership (together, the “Partnerships”). The elected percentage of the board retainer for a calendar year of service was converted into a notional percentage interest in the Partnerships when the year-end valuation of the Partnerships for the immediately prior year was available. The notional interest was unvested until December 31st of the relevant year of service, and, as a general rule, if the director’s board service ended before December 31st, the unvested portion of the notional interest would be forfeit except that, in the case of a qualifying termination, a pro rata portion of the director’s unvested portion of the notional interest would vest. If a director was terminated, this would be considered a qualifying termination and such director’s notional interest would vest. Vested portions of notional interests were settled in cash on termination of the director’s board service.
Compensation Committee Interlocks and Insider Participation
In February 2015, the Board of Directors of HoldCo Parent established a compensation committee, whose primary function is to assist the Board with its oversight role with respect to the compensation of HoldCo Parent’s and its subsidiaries’ executive officers and other employees. In February 2017, the HoldCo Parent compensation committee was re-established at HoldCo, the entity with which the majority of the employees are employed. No executive officer of Lincoln Benefit serves as a member of the compensation committee of another entity for which any executive officer served as a director for Lincoln Benefit. In January 2020, all functions of this compensation committee were assumed by the compensation committee of the Kuvare Board of Directors.
| 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 | Amount and Nature of | Percent of | |||
Capital Stock | LBL HoldCo II, Inc. 5600 N. River Road, Suite 300 Rosemont, IL 60018 | 25,000 | 100% | |||
N/A | LBL HoldCo, Inc. 5600 N. River Road, Suite 300 Rosemont, IL 60018 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Guaranty Income Life Insurance Company 118 Second Avenue SE Cedar Rapids, IA 52401 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Kuvare US Holdings, Inc. 55 West Monroe Street, Suite 1930 Chicago, IL 60603 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A |
97
Title of Class (a) | Name and Address of | Amount and Nature of | Percent of | |||
N/A | Kuvare UK Holdings Limited 5th Floor 6 St Andrew Street London, EC4A 3AE, United Kingdom | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Kuvare Holdings LP P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Kuvare GP Holdings LP P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Kuvare GP Holdings Ltd. P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Access Holdings GP LP c/o Access Holdings 2 East Read Street, Suite 300 Baltimore, MD 21202 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | Access Holdings GP Company c/o Access Holdings 2 East Read Street, Suite 300 Baltimore, MD 21202 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | ACP LI Holdings, LP c/o Altamont Capital Partners 400 Hamilton Ave, Suite 230 Palo Alto, CA 94301 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | |||
N/A | ACP LI Holdings GP Ltd. c/o Altamont Capital Partners 400 Hamilton Ave, Suite 230 Palo Alto, CA 94301 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A |
The following table shows the number of shares of stock in Lincoln Benefit or its parents beneficially owned by each director and named executive officer of Lincoln Benefit individually, and by all executive officers and directors of Lincoln Benefit as a group. Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. The following
98
share amounts are as of December 31, 2020. The address of each such director or officer is c/o Kuvare US Holdings, Inc., 55 W Monroe Street, Suite 1930, Chicago, Illinois, 60603.
Entity | Title of Class of Equity Securities | Number of Shares | Statement Concerning Beneficial | |||
| Lincoln Benefit, HoldCo, HoldCo Parent, GILICO, Kuvare, Kuvare UK Holdings Limited, Kuvare Holdings LP, Kuvare GP Holdings LP, Kuvare GP Holdings Ltd. | n/a | n/a | Lincoln Benefit is an indirect wholly owned subsidiary of Kuvare Holdings LP, which is controlled by its general partner, Kuvare GP Holdings LP. Kuvare GP Holdings LP is controlled by its general partner, Kuvare GP Holdings Ltd. Dhiren Jhaveri is the Chief Executive Officer and a director of Kuvare GP Holdings Ltd., and no officers or directors of the Company beneficially own any equity interests in Kuvare GP Holdings Ltd. | |||
| Kuvare Holdings LP(1) | n/a | n/a | GBIS Holdings, LLC owns less than 1% of the equity interests of Kuvare Holdings LP.(2) Dhiren Jhaveri is the member of GBIS Holdings, LLC. | |||
| Kuvare GP Holdings LP | n/a | n/a | GBIS Holdings, LLC owns 1% of the equity interests of Kuvare GP Holdings LP.(2) Dhiren Jhaveri is the member of GBIS Holdings, LLC. | |||
| (1) | Certain directors and officers of the Company may from time to time directly or indirectly own limited partner interests in Kuvare Holdings LP. Such directors and officers do not have the power to vote or dispose of any shares of the Company that may be held from time to time directly or indirectly by Kuvare Holdings LP and therefore are not deemed to beneficially own such shares. |
| (2) | Calculated on an aggregate basis including all outstanding classes of limited partner interests. |
Changes in Control
On December 31, 2019, GILICO, completed the indirect acquisition of Lincoln Benefit. The Company is a wholly owned subsidiary of HoldCo, which is a wholly owned subsidiary of HoldCo Parent, and HoldCo Parent is a wholly owned subsidiary of GILICO.
| Item 11(n). | Transactions with Related Persons, Promoters and Certain Control Persons |
Transactions with Related Persons
Lincoln Benefit is a party to certain intercompany agreements involving amounts greater than $120,000 between Lincoln Benefit and the following companies:
| • | HoldCo, the direct parent of Lincoln Benefit. |
| • | HoldCo Parent, an indirect parent of Lincoln Benefit. |
| • | Lancaster Re Captive Insurance Company (“Lancaster Re”), a direct subsidiary of Lincoln Benefit |
| • | Lanis LLC, an affiliate of Lincoln Benefit |
99
| • | GILICO, the direct parent of HoldCo Parent |
| • | Kuvare, the direct parent of GILICO |
| • | KIS, an affiliate of Lincoln Benefit |
| • | Kuvare Bermuda Re LTD (“KBR”), an affiliate of Lincoln Benefit |
| • | Kuvare Life Re LTD (“KLR”), an affiliate of Lincoln Benefit |
In April 2014, Lincoln Benefit entered into a Services Agreement with HoldCo whereby HoldCo has agreed to provide certain management and administrative services. These include legal counsel, data processing, office management and supply services, marketing, public relations, actuarial services, auditing and managerial services. Lincoln Benefit reimburses HoldCo at cost for services and facilities provided by HoldCo pursuant to this agreement.
On December 31, 2019, Lincoln Benefit entered into a Cost Sharing and Services Agreement with Kuvare and KIS whereby Kuvare and KIS have agreed to provide certain management and administrative services to Lincoln Benefit, including management, reinsurance, legal, audit, administration, financial planning and other services. Lincoln Benefit reimburses Kuvare and KIS at cost for services provided by Kuvare and KIS pursuant to this agreement.
On December 31, 2019, Lincoln Benefit entered into an Investment Management Agreement with KIS, whereby KIS has agreed to provide certain investment advisory and management services to Lincoln Benefit. Pursuant to this agreement, KIS will receive a gross fee of approximately 0.30% per annum on all investment assets of Lincoln Benefit managed under this agreement. Mr. Jhaveri, the chair of our board of directors, is the President and Chief Executive Officer and an indirect owner of KIS. In addition, affiliates of each of Access Holdings GP Company and ACP LI Holdings GP Ltd., each an indirect beneficial owner of greater than 5% of Lincoln Benefit’s voting securities, are indirect owners of KIS.
Effective April 1, 2020, the Company entered into a stop loss agreement with KLR, to cover excess losses associated with life policies reinsured with Lancaster Re.
Effective October 1, 2020, the Company entered into a coinsurance agreement with KBR, resulting in the transfer of certain fixed annuity contracts.
| Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Approximate dollar value of the amount involved in the transaction, per fiscal year | ||||||||||||||||||
| ($) | HoldCo Parent | HoldCo | Lanis LLC | |||||||||||||||||
Services Agreement between LBL HoldCo II, Inc. and Lincoln Benefit effective April 1, 2014 | 2018 | (22,366,496 | )1 | N/A | 22,366,496 | 1 | N/A | |||||||||||||
| 2019 | (13,467,066 | )1 | N/A | 13,467,066 | 1 | N/A | ||||||||||||||
| 2020 | (8,963,378 | )1 | N/A | 8,963,378 | 1 | N/A | ||||||||||||||
Cost Sharing and Services Agreement among Kuvare, KIS and Lincoln Benefit effective December 31, | 2019 | (300,000 | ) | N/A | N/A | N/A | ||||||||||||||
2020 | 2020 | (28,764,690 | ) | N/A | N/A | N/A | ||||||||||||||
Cost associated with reinsurance among KBR, KLR and Lincoln Benefit effective December 31, | 2020 | (465,568 | ) | N/A | N/A | N/A | ||||||||||||||
| 1 | Total expense amount reimbursed / (paid) under the transaction |
100
The agreements listed in the table immediately below relate to a transaction that LBL HoldCo II, Inc., LBL HoldCo, Inc., Lancaster Re Captive Insurance Company, Lanis LLC and Lincoln Benefit have entered into with Hannover Life Reassurance Company of America, an unrelated party, in order to finance a portion of the insurance reserves held by Lincoln Benefit with respect to universal life insurance policies with secondary guarantees written by Lincoln Benefit. Effective April 1, 2020, the agreement with Hannover Life Reassurance Company of America was replaced and a new financing agreement was entered into with RGA Worldwide Reinsurance Company, Ltd (“RGA”) whereby RGA will provide required financing in an event such as excess mortality requiring the redemption of the Vehicle Note. Additionally, the Surplus Note was amended and restated and approved by the NE DOI on July 24, 2020. A new Credit-Linked Note was issued to replace the original Vehicle Note.
Transaction Description | Approximate dollar value of the amount involved in the transaction, per fiscal year | Approximate dollar value of the amount involved in the transaction, per fiscal year | ||||||||||||||||||
| ($) | HoldCo Parent | HoldCo | Lanis LLC | |||||||||||||||||
Surplus Note Purchase Agreement between Lancaster Re and Lanis LLC effective April 1, 2014, amended and restated July 24, 2020 | 2018 | (28,407,000 | )2 | N/A | N/A | 28,407,000 | 2 | |||||||||||||
| 2019 | (30,047,000 | )2 | N/A | N/A | 30,047,000 | 2 | ||||||||||||||
| 2020 | (31,735,000 | )2 | N/A | N/A | 31,735,000 | 2 | ||||||||||||||
Vehicle Note Purchase Agreement between Lancaster Re and Lanis LLC effective April 1, 2014, amended and restated July 24, 2020 as Credit-Linked Note | 2018 | 24,407,000 | 2 | N/A | N/A | (28,407,000 | )2 | |||||||||||||
| 2019 | 30,047,000 | 2 | N/A | N/A | (30,047,000 | )2 | ||||||||||||||
| 2020 | 31,735,000 | 2 | N/A | N/A | (31,735,000 | )2 | ||||||||||||||
Fee Letter between Lincoln Benefit Life Company and Lanis LLC effective April 1, 2014 | 2018 | (8,281,546 | )3 | N/A | N/A | 8,281,546 | 3 | |||||||||||||
| 2019 | (7,893,219 | )3 | N/A | N/A | 7,893,219 | 3 | ||||||||||||||
| 2020 | (3,856,076 | )3 | N/A | N/A | 3,856,076 | 3 | ||||||||||||||
| 2 | Surplus/Vehicle Note/Credit-Linked Note Interest received (paid) |
| 3 | Payment of risk spread fee |
Review and Approval of Related Person Transactions
As a regulated insurance company, material transactions with related persons are subject to review and approval by Lincoln Benefit’s applicable insurance regulatory authority to confirm, among other things, that the terms of such transactions are fair and reasonable, that charges or fees for services performed are reasonable, and that expenses incurred and payment received is allocated to Lincoln Benefit in conformity with customary insurance accounting practices consistently applied. All agreements with related persons are also reviewed by Kuvare’s Office of the General Counsel to determine whether an actual conflict of interest exists with respect to such agreements. This process is documented in an internal procedure that captures the review and approval process of all intercompany agreements.
While there is no formal process for the review and approval of related person transactions between unaffiliated entities specific to Lincoln Benefit, all directors, officers and employees of Lincoln Benefit are subject to LBL HoldCo, Inc.’s Code of Conduct and its Conflict of Interest Guideline. LBL HoldCo’s Code of Conduct includes a written conflict of interest policy that was adopted by the Board of Directors of LBL HoldCo, Inc., the indirect parent company of Lincoln Benefit, and applies to all subsidiaries, including Lincoln Benefit. Any potential relationship or activity that could impair independent thinking and judgment, including holding a financial interest in a business venture that is similar to Lincoln Benefit and/or LBL HoldCo, Inc., or in a business that has a relationship with either entity, is required to be disclosed to the Office of Kuvare’s General Counsel. The Law Department works, as may be necessary, with Compliance and the Audit Committee to determine whether an actual conflict of interest existed, and whether any remedial action is warranted. All directors, officers and employees are required to sign a Code of Conduct certification and complete a Conflict of Interest Questionnaire annually.
101
A section entitled “Experts” is added to your prospectus as follows:
EXPERTS
The consolidated financial statements of Lincoln Benefit Life Company at December 31, 2020, and for the year then ended, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, and at December 31, 2019, and for the year in the period ended December 31, 2019, by Deloitte & Touche, independent registered public accounting firm, as set forth in their respective reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.
The financial statements included in this Prospectus as of and for the year then ended December 31, 2019 of Lincoln Benefit Life Company, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the Registration Statement. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
Matters of Nebraska law pertaining to the Contract, including the validity of the Contract and our right to issue the Contract under Nebraska law, have been passed upon by Lamson Dugan & Murray LLP, Omaha, Nebraska.
PRINCIPAL UNDERWRITER
Allstate Distributors, L.L.C. (“ADLLC”) serves as distributor of the securities registered herein. The securities offered herein are sold on a continuous basis, and there is no specific end date for the offering. ADLLC is a registered broker dealer under the Securities and Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. ADLLC is not required to sell any specific number or dollar amount of securities, but will use its best efforts to sell the securities offered.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the Variable Account. We entered into an administrative services agreement with Allstate Life. Allstate Life entered into an administrative services agreement with The Prudential Insurance Company of America (“PICA”) pursuant to which PICA or an affiliate provides administrative services to the Variable Account and the Contracts on our behalf. In addition, PICA entered into a master services agreement with SE2, LLC, of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby SE2, LLC provides certain business process outsourcing services with respect to the Contracts. SE2, LLC may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2020, consisted of the following: Donnelley Financial Solutions, formerly an RR Donnelley company (compliance printing and mailing) located at 35 West Wacker Drive, Chicago, IL 60601; Iron Mountain Information Management, LLC (file storage and document destruction) located at 1 Federal Street, Boston, MA 02110; TierPoint, LLC (disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114; SOVOS Compliance (withholding calculations and tax statement mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447; Records Center of Topeka, a division of Underground Vaults & Storage, Inc. (back-up tapes storage) located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; Venio LLC, d/b/a Keane (lost shareholder search) located at PO Box 1508, Southeastern, PA 19399-1508; Broadridge Output Solutions, Inc. (printing and mailing anniversary statements, financial confirmations, automated letters and quarterly statements) located at 2600 Southwest Blvd., Kansas City, MO 64108.
102
In administering the Contracts, the following services are provided, among others:
| • | maintenance of Contract Owner records; |
| • | Contract Owner services; |
| • | calculation of unit values; |
| • | maintenance of the Variable Account; and |
| • | preparation of Contract Owner reports. |
We will send you Contract statements at least annually. We will also send you transaction confirmations. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement or a confirmation. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. Correspondence you send by regular mail to our service center should be sent to P.O. Box 758543, Topeka, KS 66675-8566. Your correspondence will be picked up at this address and then delivered to our service center. Your correspondence is not considered received by us until it is received at our service center. Where this prospectus refers to the day when we receive a purchase payment, request, election, notice, transfer or any other transaction request from you, we mean the day on which that item (or the last requirement needed for us to process that item) arrives in complete and proper form at our service center or via the appropriate telephone or fax number if the item is a type we accept by those means. There are two main exceptions: if the item arrives at our service center (1) on a day that is not a business day, or (2) after the close of a business day, then, in each case, we are deemed to have received that item on the next business day.
We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws.
103
| Portfolio | Investment Objective | Investment Adviser | ||||||
| Invesco V.I. American Value Fund – Series II | Long-term capital appreciation. | Invesco Advisers, Inc. | ||||||
| Target Portfolio | Acquiring Portfolio | ||||
| Invesco V.I. Value Opportunities Fund – Series I | Invesco V.I. American Value Fund – Series I | ||||
| Invesco V.I. Value Opportunities Fund – Series II | Invesco V.I. American Value Fund – Series II | ||||
| Old P.O. Box | New P.O. Box | ||||
| P.O. Box 758565 Topeka, KS 66675 | P.O. Box 758598 Topeka, Kansas 66675 | ||||
| P.O. Box 758566 Topeka, Kansas 66675 | P.O. Box 758543 Topeka, Kansas 66675 | ||||
| Target Portfolio | Acquiring Portfolio | ||||
| Invesco V.I. Mid Cap Growth Fund – Series I | Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series I | ||||
| Invesco V.I. Mid Cap Growth Fund – Series II | Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series II | ||||
| Title of Class (a) | Name and Address of Beneficial Owner (b) | Amount and Nature of Beneficial Ownership (c) | Percent of Class (d) | ||||||||
Capital Stock | LBL HoldCo II, Inc. 5600 N. River Road, Suite 300 Rosemont, IL 60018 | 25,000 | 100% | ||||||||
| N/A | LBL HoldCo, Inc. 5600 N. River Road, Suite 300 Rosemont, IL 60018 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Guaranty Income Life Insurance Company 118 Second Avenue SE Cedar Rapids, IA 52401 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Kuvare US Holdings, Inc. 55 West Monroe Street, Suite 1930 Chicago, IL 60603 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Kuvare UK Holdings Limited 5th Floor 6 St Andrew Street London, EC4A 3AE, United Kingdom | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Kuvare Holdings LP P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Kuvare GP Holdings LP P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Kuvare GP Holdings Ltd. P.O. Box 309 Ugland House George Town Grand Cayman KY1-1104, Cayman Islands | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Access Holdings GP LP c/o Access Holdings 2 East Read Street, Suite 300 Baltimore, MD 21202 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | Access Holdings GP Company c/o Access Holdings 2 East Read Street, Suite 300 Baltimore, MD 21202 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | ACP LI Holdings, LP c/o Altamont Capital Partners 400 Hamilton Ave, Suite 230 Palo Alto, CA 94301 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| N/A | ACP LI Holdings GP Ltd. c/o Altamont Capital Partners 400 Hamilton Ave, Suite 230 Palo Alto, CA 94301 | Indirect voting and investment power of shares owned by LBL HoldCo II, Inc. | N/A | ||||||||
| Entity | Title of Class of Equity Securities | Number of Shares | Statement Concerning Beneficial Ownership | ||||||||
| Lincoln Benefit, HoldCo, HoldCo Parent, GILICO, Kuvare, Kuvare UK Holdings Limited, Kuvare Holdings LP, Kuvare GP Holdings LP, Kuvare GP Holdings Ltd. | n/a | n/a | Lincoln Benefit is an indirect wholly owned subsidiary of Kuvare Holdings LP, which is controlled by its general partner, Kuvare GP Holdings LP. Kuvare GP Holdings LP is controlled by its general partner, Kuvare GP Holdings Ltd. Dhiren Jhaveri is the Chief Executive Officer and a director of Kuvare GP Holdings Ltd., and no officers or directors of the Company beneficially own any equity interests in Kuvare GP Holdings Ltd. | ||||||||
| Kuvare Holdings LP | n/a | n/a | GBIS Holdings, LLC owns less than 1% of the equity interests of Kuvare Holdings LP.(1) Dhiren Jhaveri is the member of GBIS Holdings, LLC. | ||||||||
| Kuvare GP Holdings LP | n/a | n/a | GBIS Holdings, LLC owns 1% of the equity interests of Kuvare GP Holdings LP.(1) Dhiren Jhaveri is the member of GBIS Holdings, LLC. | ||||||||
| Oppenheimer VA Funds | Acquiring Funds | ||||
| Oppenheimer Discovery Mid Cap Growth Fund/VA – Service | Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series II | ||||
| Oppenheimer Global Fund/VA – Service | Invesco Oppenheimer V.I. Global Fund – Series II | ||||
| Oppenheimer International Growth Fund/VA – Service | Invesco Oppenheimer V.I. International Growth Fund – Series II | ||||
| Oppenheimer Main Street Small Cap Fund – Service | Invesco Oppenheimer V.I. Main Street Small Cap Fund® – Series II | ||||
| Portfolio | Investment Objective | Investment Advisor | ||||||
| Invesco Oppenheimer V.I. Discovery Mid Cap Growth Fund – Series II | The Fund seeks capital appreciation. | Invesco Advisers, Inc. | ||||||
| Invesco Oppenheimer V.I. Global Fund – Series II | The Fund seeks capital appreciation. | |||||||
| Invesco Oppenheimer V.I. International Growth Fund – Series II | The Fund seeks capital appreciation. | |||||||
| Invesco Oppenheimer V.I. Main Street Small Cap Fund® – Series II | The Fund seeks capital appreciation. | |||||||
Supplement dated June 29, 2018, to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
Effective on or about July 30, 2018, the PIMCO Foreign Bond Portfolio (U.S. Dollar-Hedged) – Administrative Shares sub-account will change its name to the PIMCO International Bond Portfolio (U.S. Dollar-Hedged) – Administrative Shares.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
Supplement dated January 22, 2018, to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
We previously notified you that the variable sub-accounts listed below in your Variable Annuity were closed to all contract owners except those contract owners who had Account Value invested in the variable sub-accounts, and that we had intended to remove them as investment options and substitute new investment options under your Variable Annuity contract:
PIMCO Total Return Portfolio – Administrative Shares
CUSIP Number 693394405
PIMCO Total Return Portfolio – Advisor Shares
CUSIP Number 693394538
However, we are no longer planning to remove these sub-accounts or substitute new investment options. As a result, effective February 5, 2018, the above variable sub-accounts will be available to all contract owners.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
LBLSUP2
Supplement dated October 30, 2017
to the Prospectuses and Statements of Additional Information for
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) (DATED MAY 1, 2017)
CONSULTANT I (DATED MAY 1, 2017)
LBL ADVANTAGE (DATED MAY 1, 2004)
CONSULTANT II (DATED MAY 1, 2004)
PREMIER PLANNER (DATED MAY 1, 2004)
INVESTOR’S SELECT (DATED MAY 1, 2007)
Issued by
LINCOLN BENEFIT LIFE COMPANY
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
This supplement updates certain information contained in the prospectus and statement of additional information for each of the variable annuity contracts listed above (each a “Contract”). All terms not defined in this supplement shall have the same meanings as the terms used in the prospectuses and statements of additional information. Please read this supplement carefully and keep it for future reference. No other action is required of you.
On September 28, 2017, Lincoln Benefit Life Company’s direct parent, Resolution Life, Inc. changed its name to LBL HoldCo II, Inc., and Lincoln Benefit Life Company’s indirect parent, Resolution Life Holdings, Inc. changed its name to LBL HoldCo, Inc.
On October 1, 2017, t he indirect parent companies of Lincoln Benefit Life Company— Resolution Life L.P. and Resolution Life (Parallel) Partnership—entered into an agreement with SNH Acquisition, LLC and Southland National Holdings, Inc. to sell LBL HoldCo, Inc. and its subsidiaries, including Lincoln Benefit Life Company, to SNH Acquisition, LLC (the “Transaction”). The Transaction is subject to required regulatory approvals. Subject to the receipt of such regulatory approvals, the Transaction is targeted to close in the 1st quarter of 2018.
The terms and provisions of your Contract will not be changed by the Transaction, and Lincoln Benefit Life Company will continue to honor all of its obligations under your Contract. The Transaction will not change the fact that Lincoln Benefit Life Company is the named insurer under your Contract. Following the Transaction, the Prudential Insurance Company of America or an affiliate will continue to reinsure the Contracts and administer the Variable Account and the Contracts.
If you have any questions about this supplement, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
LBLSUP1
Supplement dated January 9, 2017 to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
Effective close of business February 24, 2017 (the Closure Date), the following variable sub-accounts available in your Variable Annuity will be closed to all contract owners except those contract owners who have contract value invested in the variable sub-accounts as of the Closure Date:
Janus Aspen Series Global Research Portfolio – Institutional Shares
Janus Aspen Series Global Research Portfolio – Service Shares
Contract owners who have contract value invested in these variable sub-accounts as of the Closure Date may continue to submit additional investments into the variable sub-accounts thereafter, although they will not be permitted to invest in the variable sub-accounts if they withdraw or otherwise transfer their entire contract value from the variable sub-accounts following the Closure Date. Contract owners who do not have contract value invested in the variable sub-accounts as of the Closure Date will not be permitted to invest in these variable sub-accounts thereafter.
Dollar cost averaging, category models and/or auto-rebalancing programs, if elected by a Contract owner prior to the Closure Date, will not be affected by the closure unless a contract owner withdraws or otherwise transfers his entire Account Value from the sub-accounts.
If you have any questions, please contact your financial professional or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated July 22, 2016, to the
Prospectus for your Variable Annuity
Issued by
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Lincoln Benefit Life Company.
The following Portfolio will be liquidated effective as of the close of business on September 23, 2016 (“Liquidation Date”):
PIMCO Money Market Portfolio – Administrative Shares
On the Liquidation Date, the above Portfolio will no longer be available under your Annuity contract, and any Contract Value allocated to this liquidated Portfolio will be transferred, as of the close of business on the Liquidation Date, to the Default Transfer Portfolio, as follows:
Liquidated Portfolio | Default Transfer Portfolio | |
PIMCO Money Market Portfolio – Administrative Shares | Fidelity ® VIP Government Money Market Portfolio – Initial Class |
Please note that you have the ability to transfer out of the above Liquidated Portfolio any time prior to the Liquidation Date. Such transfers will be free of charge and will not count as one of your annual free transfers under your Annuity contract. Also, for a period of 60 days after the Liquidation Date, any Contract Value that was transferred to the Fidelity ® VIP Government Money Market Portfolio – Initial Class as the result of the liquidation can be transferred free of charge and will not count as one of your annual free transfers. It is important to note that any Portfolio into which you make your transfer will be subject to the transfer limitations described in your prospectus. Please refer to your prospectus for detailed information about investment options.
After the Liquidation Date, the above-listed Liquidated Portfolio will no longer exist and, unless you instruct us otherwise, any outstanding instruction you have on file with us that designates the above Liquidated Portfolio will be deemed instruction for the Fidelity ® VIP Government Money Market Portfolio – Initial Class, as applicable. This includes but is not limited to, systematic withdrawals, Dollar Cost Averaging, and Auto Rebalancing.
You may wish to consult with your financial representative to determine if your existing allocation instructions should be changed before or after the Liquidation Date.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement together with your prospectus for future reference. No other action is required of you.
Supplement dated October 30, 2015, to the
Prospectus for your Variable Annuity
Issued by
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
This supplement amends certain disclosure contained in the prospectus for your Variable Annuity contract issued by Allstate Life Insurance Company, Allstate Life Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Allstate Life Insurance Company, Allstate Life Insurance Company of New York, and Lincoln Benefit Life Company (the “Companies”) have filed an application with the Securities and Exchange Commission (“SEC”) requesting an order to allow the Companies to remove the PIMCO Total Return Portfolio – Administrative Shares and the PIMCO Total Return Portfolio – Advisor Shares (collectively, the “Replaced Portfolios”) as investment options under your variable annuity contract and substitute a new investment option, the BlackRock Total Return V.I. Portfolio – Class I Shares (the “Replacement Portfolio”), as described below.
The Companies believe that the proposed substitution is in the best interests of contract owners. The investment objectives of the Replaced Portfolios and the Replacement Portfolio are substantially similar. The Companies will bear all expenses related to the substitution, and there will be no tax consequences for you. The Companies anticipate that, if such order is granted, the proposed substitution will occur during the second quarter of 2016.
The proposed substitution and adviser for the Replaced Portfolio and the Replacement Portfolio are:
| Proposed Substitution | ||||
| Replaced Portfolios | Replacement Portfolio | |||
| Portfolio Names | PIMCO Total Return Portfolio – Administrative Shares
PIMCO Total Return Portfolio – Advisor Shares | BlackRock Total Return V.I. Portfolio | ||
| Adviser | Pacific Investment Management Company LLC | BlackRock, Inc. | ||
Please note that:
●☐☐ | No action is required on your part at this time, nor will you need to take any action if the SEC approves the substitution. | |
●☐☐ | On the date of the substitution, Account Values and/or Purchase Payments currently allocated to the Replaced Portfolios will be redirected to the Replacement Portfolio unless you have changed your selection and transferred your Account Values before the substitution takes place. If you are enrolled in a Dollar Cost Averaging, Automatic Rebalancing or comparable program, your Account Value invested in the Replaced Portfolios will be transferred automatically to the Replacement Portfolio on the date of the substitution. Your enrollment instructions will be automatically updated to reflect the Replacement Portfolio for any continued and future investments. | |
●☐☐ | You may transfer amounts in your variable annuity contract among the investment options as usual. The substitution itself will not be treated as a transfer for purposes of the transfer provisions of your Annuity, subject to the issuing Company’s restrictions on transfers to prevent or limit “market timing” activities by Owners or agents of Owners. | |
●☐☐ | If you make one transfer from a Replaced Portfolio into one or more Sub-accounts before the substitution, or from the Replacement Portfolio after the substitution, any transfer fee that might otherwise be imposed will be waived from the date of this Supplement through the date that is 30 days after the substitution. In addition, if you make one transfer from a Replaced Portfolio into a Sub-account before the substitution or from the Replacement Portfolio within 30 days after the substitution, the transfer will not be treated as one of a limited number of transfers (or exchanges) permitted under your Annuity. | |
●☐☐ | On the effective date of the substitution, your Account Value will be the same as before the substitution. However, the number of units you receive in the Replacement Portfolio may be different from the number of units in the Replaced Portfolio. | |
●☐☐ | There will be no tax consequences to you. | |
In connection with the substitution, we will send you a prospectus for the Replacement Portfolio that contains complete information concerning the Replacement Portfolio, including information on all Replacement Portfolio fees and charges, as well as notice of the actual date of the substitution and confirmation of transfers.
If you have any questions, please contact your financial representative or our Variable Annuities Service Center at (800) 457-7617. Our representatives are available to assist you Monday through Friday between 7:30 a.m. and 5:00 p.m. Central time.
Please keep this supplement for future reference together with your prospectus. No other action is required of you.
LINCOLN BENEFIT LIFE COMPANY
Supplement Dated September 30, 2013
To the following Prospectuses, as supplemented
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED MAY 1, 2013
CONSULTANT I PROSPECTUS DATED MAY 1, 2013
LBL ADVANTAGE PROSPECTUS DATED MAY 1, 2004
CONSULTANT II PROSPECTUS DATED MAY 1, 2004
PREMIER PLANNER PROSPECTUS DATED MAY 1, 2004
INVESTOR'S SELECT PROSPECTUS DATED MAY 1, 2007
The following information supplements the prospectus for your variable annuity
contract issued by Lincoln Benefit Life Company.
THE FOLLOWING PARAGRAPHS ARE ADDED TO THE "LINCOLN BENEFIT LIFE COMPANY"
PROVISION UNDER THE "MORE INFORMATION" SECTION OR THE "DESCRIPTION OF LINCOLN
BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT" SECTION OF YOUR PROSPECTUS:
On July 17, 2013, Allstate Life entered into an agreement with Resolution Life
Holdings, Inc. ("Resolution"), a Delaware corporation established by Resolution
Life L.P., pursuant to which Allstate Life agreed to sell Lincoln Benefit to
Resolution or a wholly-owned subsidiary of Resolution (the "Transaction"). The
Prudential Insurance Company of America or an affiliate will continue to
reinsure and administer the Variable Account and the Contracts. The benefits
and provisions of the Contracts will not be changed by the Transaction. Also,
the Transaction will not change the fact that Lincoln Benefit is the named
insurer under your Contract. Following the Transaction, Lincoln Benefit will no
longer be an affiliate of Allstate Life.
The Transaction and certain related agreements are subject to required
regulatory approvals. Subject to the receipt of such regulatory approvals, the
Transaction is targeted to close in the 4 th quarter of 2013.
Upon receipt of regulatory approvals, Lincoln Benefit will amend and restate
its existing reinsurance arrangements with Allstate Life. Lincoln Benefit will
recapture, and Allstate Life no longer will reinsure: (i) all fixed deferred
annuity, value adjusted deferred annuity and indexed deferred annuity business
written by Lincoln Benefit, (ii) all of the life insurance business written by
Lincoln Benefit through independent life insurance producers other than certain
specified life insurance policies and (iii) all of the net liability of Lincoln
Benefit with respect to the accident and health and long-term care insurance
business written by Lincoln Benefit (the "Recapture"). The benefits and
provisions of the Contracts will not be changed by the Recapture, and the
Recapture will not change the fact that Lincoln Benefit is the named insurer
under your Contract.
Pursuant to the Recapture, Allstate Life will transfer to Lincoln Benefit, for
inclusion in its general account reserves, cash and specified assets with an
aggregate statutory book value equal to net statutory general account reserves
attributable to the recaptured business, adjusted for the final settlement
amount under the applicable existing reinsurance agreements between Lincoln
Benefit and Allstate Life that are being amended and restated in connection
with the Transaction.
If you have any questions, please contact your financial representative or our
Variable Annuity Service Center at (800) 457-7617. Our representatives are
available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your
important papers. No other action is required of you.
SUPPLEMENT, DATED JULY 6, 2011,
TO THE PROSPECTUS FOR YOUR VARIABLE ANNUITY
ISSUED BY
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
This supplement amends the prospectus for your Variable Annuity contract issued
by Allstate Life Insurance Company or Allstate Life Insurance Company of
New York or Lincoln Benefit Life Company, as applicable.
Effective as of August 19, 2011 (the Closure Date), the following variable
sub-accounts available in your Variable Annuity will be closed to all contract
owners except those contract owners who have contract value invested in the
variable sub-accounts as of the Closure Date:
Invesco V.I. Basic Value Fund--Series I
Invesco V.I. Basic Value Fund--Series II
Contract owners who have contract value invested in these variable sub-accounts
as of the Closure Date may continue to submit additional investments into the
variable sub-accounts thereafter, although they will not be permitted to
invest in the variable sub-accounts if they withdraw or otherwise transfer their
entire contract value from the variable sub-accounts following the Closure Date.
Contract owners who do not have contract value invested in the variable
sub-accounts as of the Closure Date will not be permitted to invest in
these variable sub-accounts thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner,
will not be affected by the closure.
If you have any questions, please contact your financial representative or our
Variable Annuity Service Center at (800) 457-7617. Our representatives are
available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your
important papers. No other action is
required of you.
ALLSTATE LIFE INSURANCE COMPANY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
LINCOLN BENEFIT LIFE COMPANY
Supplement, dated October 18, 2010, to the
following Prospectuses, as supplemented:
Allstate Provider, dated May 1, 2002
Premier Planner, dated May 1, 2004
This supplement amends the above-referenced prospectuses for certain Variable
Annuity contracts issued by Allstate Life Insurance Company or Allstate Life
Insurance Company of New York or Lincoln Benefit Life Company, as applicable.
Effective as of November 19, 2010 (the Closure Date), the following variable
sub-account available in the Allstate Provider and Premier Planner Variable
Annuities will be closed to all contract owners except those contract owners who
have contract value invested in the variable sub-account as of the Closure Date:
Goldman Sachs VIT Strategic International Equity Fund
Contract owners who have 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 do not have contract value invested in the variable
sub-account as of the Closure Date will not be permitted to invest in this
variable sub-account thereafter.
Dollar cost averaging and/or auto-rebalancing, if elected by a contract owner,
will not be affected by the closure.
If you have any questions, please contact your financial representative or our
Variable Annuity Service Center at (800) 457-7617. Our representatives are
available to assist you from 7:30 a.m. to 5 p.m. Central time.
Please read the prospectus supplement carefully and then file it with your
important papers. No other action is required of you.
Supplement Dated December 31, 2009
To the Prospectus for Your Variable Annuity
Issued By
Allstate Life Insurance Company
Allstate Life Insurance Company of New York
Lincoln Benefit Life Company
This supplement amends the prospectus for your variable annuity contract issued
by Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
or Lincoln Benefit Life Company.
The following provision is added to your 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.
If you have any questions, please contact your financial representative or call
our Customer Service Center at 1-800-457-7617. If you own a Putnam contract,
please call 1-800-390-1277.
For future reference, please keep this supplement together with your prospectus.
Lincoln Benefit Life Company
Supplement dated August 14, 2009
To the following Prospectuses, as supplemented:
Consultant Solutions, Prospectus Dated May 1, 2009
Consultant I, Prospectus Dated May 1, 2009
LBL Advantage, Prospectus Dated May 1, 2004
Consultant II, Prospectus Dated May 1, 2004
Premier Planner, Prospectus Dated May 1, 2004
This prospectus supplement amends certain disclosure contained in the
prospectuses referenced above for your variable annuity contract issued by
Lincoln Benefit Life Company ("Lincoln Benefit").
The "Annual Reports and Other Documents" section is deleted and replaced with
the following:
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission ("SEC") recently adopted rule 12h-7 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 12h-7
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. Each of the variable annuities described in the prospectuses referenced
above fall within the exemption provided under rule 12h-7. Lincoln Benefit is
hereby providing notice that it is electing to rely on the exemption provided
under rule 12h-7 effective as of the date of this prospectus supplement or as
soon as possible thereafter, and will be suspending filing reports under the
Exchange Act.
The SEC allows us to "incorporate by reference" information that we file with
the SEC into this prospectus supplement which means that incorporated documents
are considered part of this prospectus supplement. We can disclose important
information to you by referring you to those documents. This prospectus
supplement incorporates by reference our Annual Report on Form 10-K for the year
ended December 31, 2008, filed with the SEC on March 18, 2009, and our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on
May 12, 2009.
Lincoln Benefit will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of any or all of the information that has
been incorporated by reference into the prospectus but not delivered with the
prospectus. Such information will be provided upon written or oral request at no
cost to the requester by writing to Lincoln Benefit, P.O. Box 758565, Topeka, KS
66675-8565 or by calling 1-800- 457- 7617. The public may read and copy any
materials that Lincoln Benefit files with the SEC at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy,
and information statements, and other information regarding issuers that file
electronically with the SEC (see http://www.sec.gov).
Lincoln Benefit Life Company
LBL Advantage
Consultant II
Premier Planner
Supplement, dated May 1, 2009
This supplement amends certain disclosure contained in the prospectus for
certain annuity contracts issued by Lincoln Benefit Life Company.
Under the "More Information" section, the subsection entitled "Legal Matters" is
deleted and replaced with the following:
LEGAL MATTERS
Certain matters of state law pertaining to the Contracts, including the validity
of the Contracts and Lincoln Benefit Life Company's right to issue such
Contracts under applicable state insurance law, have been passed upon by Susan
L. Lees, General Counsel of Lincoln Benefit Life Company.
The "Annual Reports and Other Documents" section is deleted and replaced with
the following:
ANNUAL REPORTS AND OTHER DOCUMENTS
Lincoln Benefit Life Company ("Lincoln Benefit") incorporates by reference into
the prospectus its latest annual report on Form 10-K filed pursuant to Section
13(a) or Section 15(d) of the Exchange Act since the end of the fiscal year
covered by its latest annual report, including filings made on Form 10-Q and
Form 8-K. In addition, all documents subsequently filed by Lincoln Benefit
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act also are
incorporated into the prospectus by reference. Lincoln Benefit will provide to
each person, including any beneficial owner, to whom a prospectus is delivered,
a copy of any or all of the information that has been incorporated by reference
into the prospectus but not delivered with the prospectus. Such information will
be provided upon written or oral request at no cost to the requester by writing
to Lincoln Benefit, P.O. Box 758565, Topeka, KS 66675-8565 or by calling 1-800-
457-7617. Lincoln Benefit files periodic reports as required under the
Securities Exchange Act of 1934. The public may read and copy any materials that
Lincoln Benefit files with the SEC at the SEC's Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy, and information
statements, and other information regarding issuers that file electronically
with the SEC (see http://www.sec.gov).
Lincoln Benefit Life Company
Lincoln Benefit Life Variable Annuity Account
Supplement, dated March 31, 2008, to
the LBL Advantage Variable Annuity Prospectus
and the LBL Premier Planner Variable Annuity Prospectus
This supplement amends certain disclosure contained in the above-referenced
prospectus for certain variable annuity contracts issued by Lincoln Benefit Life
Company.
We have received notice that the Board of Trustees of the Rydex Variable Trust
has approved the following fund name change:
Effective April 1, 2008, the name of the Rydex VT OTC Fund will be changed
to the Rydex VT NASDAQ-100 (R) Fund.
Due to this name change, the corresponding Rydex VT OTC Sub-Account available
for your product will change its name to the Rydex VT NASDAQ-100 (R) Sub-Account
effective April 1, 2008.
The name change does not in any way affect the investment objective of the Fund,
which remains unchanged, or the manner in which the investment advisor manages
the fund.
Please keep this supplement for future reference together with your prospectus.
Lincoln Benefit Life Company
Lincoln Benefit Life Variable Annuity Account
Supplement, dated February 26, 2007 to
The LBL Advantage Variable Annuity Prospectus dated May 1, 2004
The Premier Planner Variable Annuity Prospectus dated May 1, 2004
This supplement amends certain disclosures contained in the above-referenced
prospectuses for certain variable annuity contracts issued by Lincoln Benefit
Life Company.
We have received notice that the Board of Trustees ("Board") of the Legg Mason
Variable Portfolios has approved the reorganization, on or about April 27, 2007
("Conversion Date"), of the Legg Mason Partners Variable All Cap Portfolio -
Class II into the Legg Mason Partners Variable Fundamental Value Portfolio -
Class I, which will be added as an investment choice to your contract as of
April 27, 2007.
To reflect the change in the underlying Portfolio, we will transfer any Contract
Value you have in the Legg Mason Partners Variable All Cap Portfolio - Class II
Sub-Account ("All Cap Sub-Account) into the Legg Mason Partners Variable
Fundamental Value Portfolio - Class I Sub-Account ("Fundamental Value
Sub-Account"). Contract owners will receive a confirmation of the transaction
reflecting this change.
Salomon Brothers Asset Management Inc. is the investment advisor for the Legg
Mason Partners Variable Fundamental Value Portfolio - Class I. The investment
objective for this Portfolio is: Long-term capital growth with current income as
a secondary consideration.
If you currently have allocations made to the All Cap Sub-Account through
automatic additions, automatic portfolio rebalancing, dollar cost averaging or
systematic withdrawal programs, any future allocations will be made to the
Fundamental Value Sub-Account as of the Conversion Date.
For additional information on how to transfer to another investment alternative,
or how to make a change to your current allocation(s), please contact your
financial representative or call our Customer Service Center at 1-800-865-5237.
Please keep this supplement for future reference together with your
prospectuses.
Lincoln Benefit Life Company
Lincoln Benefit Life Variable Annuity Account
Supplement, dated January 14, 2005,
to
The Premier Planner Variable Annuity Prospectus
dated May 1, 2004
This supplement amends certain disclosure contained in the above-referenced
prospectus for certain variable annuity contracts issued by Lincoln Benefit Life
Company.
We have received notice that the Board of Trustees ("Board") of PIMCO Advisors
VIT has approved the liquidation, on or about April 29, 2005 (the "Closing
Date"), of the PEA Science and Technology Portfolio (the "PEA Portfolio").
The Board based its decision, in part, upon the fact that the PEA Portfolio is
relatively small in asset size and has failed to garner significant exposure in
the variable contract market. In addition, the Board believes the outlook for
future growth of the PEA Portfolio is not encouraging.
Due to the liquidation of the PEA Portfolio, we will no longer accept new
premiums for investment in, nor will we permit transfers to, the PEA Science and
Technology Portfolio Sub-Account ("PEA Sub-Account") on or after April 29, 2005.
Because the PEA Sub-Account will no longer be offered as an investment
alternative as of the Closing Date, you may wish to transfer, prior to April 29,
2005, some or all of your interest in the PEA Sub-Account to the other
investment alternatives currently offered by your Contract. Any value remaining
in the PEA Sub-Account will be transferred automatically, as of the Closing
Date, to the PIMCO VIT Money Market Sub-Account, an investment alternative
already available under your Contract. These transfers are not subject to a
transfer fee.
If you currently have allocations made to the PEA Sub-Account through automatic
additions, automatic portfolio rebalancing, dollar cost averaging or systematic
withdrawal programs, your allocation in the PEA Sub-Account will also need to be
changed in these programs. If you do not change this allocation to other
investment alternatives currently available under your Policy, any allocation to
the PEA Sub-Account will be automatically allocated, as of the Closing Date, to
the PIMCO VIT Money Market Sub-Account.
If your interest in the PEA Sub-Account is transferred automatically on the
Closing Date to the PIMCO VIT Money Market Sub-Account, for 60 days following
the Closing Date, you may transfer your interest in the PIMCO VIT Money Market
Sub-Account to any other investment alternative(s) available under your
Contract. This transfer is not subject to a transfer fee.
We will send you a confirmation that shows the amount that we credited to the
PIMCO VIT Money Market Sub-Account or to the investment alternative that you
chose and the date of the transaction. For additional information on how to
transfer to another investment alternative, or how to make a change to your
current allocation(s), please contact your financial representative or call our
Customer Service Center at the number listed below.
Attached, as Appendix A, is a list of the Portfolios and Fixed Account
Investment Alternatives currently available under your Contract.
Please keep this supplement for future reference together with your
prospectuses.
Number for Customer Service Center: 1-800-865-5237
Appendix A
The Premier Planner Variable Annuity contract offers a variety of Investment
Alternatives that encompass investment choices ranging from aggressive to
conservative. Below is a listing of the Portfolios and Fixed Account Investment
Alternatives currently available. Also included is the investment objective for
each Portfolio.
For more complete information about each Portfolio, including expenses and risks
associated with the Portfolio, please refer to the relevant prospectus for the
Portfolio.
PORTFOLIOS
AIM V.I. Basic Value Fund - Series I Seeks long-term growth of capital.
Alger American Growth Portfolio - Class S Seeks long-term capital appreciation.
Fidelity VIP Growth Portfolio - Service Class 2 Seeks capital appreciation.
Fidelity VIP Investment Grade Bond Portfolio - Service Class 2 Seeks as high a level of current income as is consistent with the preservation of capital. Fidelity VIP Overseas Portfolio - Service Class 2 Seeks long-term growth of capital. Goldman Sachs VIT CORESM Small Cap Equity Fund Seeks long-term growth of capital. Goldman Sachs VIT International Equity Fund Seeks long-term capital appreciation. Janus Aspen Series Capital Appreciation Portfolio: Institutional Shares Seeks long-term growth of capital. Janus Aspen Series Foreign Stock Portfolio: Service Shares Seeks long-term growth of capital. Janus Aspen Series Worldwide Growth Portfolio: Service Shares Seeks long-term growth of capital in a manner consistent with the preservation of capital. Lazard Emerging Markets Portfolio Seeks long-term capital appreciation Lazard International Equity Portfolio Seeks long-term capital appreciation MFS New Discovery Series - Service Class Seeks capital appreciation. MFS Utilities Series - Service Class Seeks capital growth and current income. Oppenheimer Main Street Small Cap Fund/VA - Service Shares Seeks capital appreciation. PAVIT OpCap Balanced Portfolio Seeks growth of capital and investment income. PAVIT OpCap Equity Portfolio Seeks long-term capital appreciation. PAVIT OpCap Small Cap Portfolio Seeks capital appreciation. PIMCO VIT Foreign Bond Portfolio (U.S. Dollar-Hedged) - Administrative Shares Seeks to maximize total return, consistent with preservation of capital and prudent investment management. PIMCO VIT Money Market Portfolio - Administrative Shares Seeks to obtain maximum current income consistent with preservation of capital and daily liquidity. PIMCO VIT Total Return Portfolio - Administrative Shares Seeks to maximize total return, consistent with preservation of capital and prudent investment management. Putnam VT High Yield Fund - Class IB Seeks high current income. Capital growth is a secondary goal when consistent with achieving high current income. The fund seeks its goal by investing at least 80% in U.S. corporate rated below investment grade (junk bonds) and that have intermediate to long-term maturities (three years or longer.) Rydex VT OTC Fund Seeks investment results that correspond to a benchmark for over-the-counter securities. The Portfolio's current benchmark is the NASDAQ 100 Index. Salomon Brothers Variable All Cap Fund - Class I Seeks capital appreciation. Salomon Brothers Variable Investors Fund - Class I Seeks long-term growth of capital with current income as a secondary objective. Van Kampen UIF Equity Growth Portfolio, Class I Seeks long-term capital appreciation by investing primarily in growth-oriented equity securities of large capitalization companies. Van Kampen UIF High Yield Portfolio, Class I Seeks above-average total return over a market cycle of three to five years by investing primarily in high yield securities (commonly referred to as "junk bonds"). Van Kampen UIF Mid Cap Growth Portfolio, Class I Seeks above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
Van Kampen UIF U.S. Mid Cap Value Portfolio, Class I Seeks above-average total
return over a market cycle of three to five years by investing in common stocks
and other equity securities.
Van Kampen LIT Aggressive Growth Portfolio, Class II Seeks capital growth.
Van Kampen LIT Growth and Income Portfolio, Class II Seeks long-term growth of
capital and income.
Fixed Account Options
Standard Fixed Account
Guaranteed Maturity Fixed Account Option
PREMIER PLANNER 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: 2940 SOUTH 84TH ST., LINCOLN, NE 68506
MAILING ADDRESS: P. O. BOX 80469, LINCOLN, NE 68501-0469
TELEPHONE NUMBER: 1-800-865-5237
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 in most
states. 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 thirty-four investment options, each of which is a Subaccount of the
Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each
Subaccount invests exclusively in shares of one of the following Portfolios:
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Basic Value Fund - Series I
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio - Class S
FIDELITY(R) VARIABLE INSURANCE PRODUCTS:
Fidelity VIP Growth Portfolio - Service Class 2 Fidelity VIP Investment Grade
Bond Portfolio - Service Class 2 Fidelity VIP Overseas Portfolio - Service
Class 2
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
Goldman Sachs VIT CORE(SM) Small Cap Equity Fund Goldman Sachs VIT International
Equity Fund
JANUS ASPEN SERIES:
Janus Aspen Series Capital Appreciation Portfolio -Institutional Shares Janus
Aspen Series Foreign Stock Portfolio - Service Shares (formerly International
Value Portfolio)
Janus Aspen Series Worldwide Growth Portfolio - Service Shares
J.P. MORGAN SERIES TRUST II:
JPMorgan Small Company Portfolio
LAZARD RETIREMENT SERIES, INC.:
Lazard Emerging Markets Portfolio
Lazard International Equity Portfolio
MFS(R) VARIABLE INSURANCE TRUST(SM):
MFS New Discovery Series - Service Class MFS Utilities Series - Service Class
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Main Street Small Cap Fund/VA - Service Shares
PIMCO ADVISORS VIT:
PAVIT OpCap Balanced Portfolio
PAVIT OpCap Equity Portfolio
PAVIT OpCap Small Cap Portfolio
PAVIT PEA Science and Technology Portfolio
PIMCO VARIABLE INSURANCE TRUST:
PIMCO VIT Foreign Bond Portfolio (U.S. Dollar-Hedged) - Administrative Shares
PIMCO VIT Money Market Portfolio - Administrative Shares PIMCO VIT StocksPLUS
Growth and Income Portfolio - Administrative Shares PIMCO VIT Total Return
Portfolio - Administrative Shares
PUTNAM VARIABLE TRUST:
Putnam VT High Yield Fund - Class 1B
THE RYDEX VARIABLE TRUST:
Rydex VT OTC Fund
SALOMON BROTHERS VARIABLE SERIES FUNDS INC:
Salomon Brothers Variable All Cap Fund - Class I Salomon Brothers Variable
Investors Fund - Class I
VAN KAMPEN LIFE INVESTMENT TRUST:
Van Kampen LIT Aggressive Growth Portfolio, Class II Van Kampen LIT Growth and
Income Portfolio, Class II
1 PROSPECTUS
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.:
Van Kampen UIF Equity Growth Portfolio, Class I* Van Kampen UIF High Yield
Portfolio, Class I* Van Kampen UIF Mid Cap Growth Portfolio, Class I* Van Kampen
UIF U.S. Mid Cap Value Portfolio, Class I**
* Morgan Stanley Investment Management, Inc., the advisor for the UIF
Portfolios, does business in certain instances using the name Van Kampen.
** Effective 9/20/2003, the Van Kampen UIF Mid Cap Core Portfolio, Class I
changed its name to Van Kampen UIF Mid Cap Value Portfolio, Class I.
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.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts 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 Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upward or downward adjustment in withdrawal
benefits, death benefits, settlement values, and transfers to the Subaccounts.
The maximum age of the oldest Contract Owner and Annuitant is age 85 as of the
date we receive the completed application. The maximum age of the oldest
Contract Owner and Annuitant for purchasing the Contract with the Enhanced Death
Benefit Rider is age 80.
Each time you pay a Premium, we will credit your Contract Value with a Credit
Enhancement. In addition to this Contract, we also offer other annuity contracts
that do not provide for Credit Enhancements. The expenses for this Contract may
be higher than the expenses for an annuity contract that does not provide for
Credit Enhancements. Over time, the amount of the Credit Enhancements may be
more than offset by the higher expenses. You and your agent should decide if
this Contract is right for you.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 2004. 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 44 of this
prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does not
contain our financial statements. Our financial statements are set forth in the
Statement of Additional Information. Lincoln Benefit Life Company ("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 1-800-SEC-0330 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).
The Date of this Prospectus is May 1, 2004.
EFFECTIVE MAY 1, 2004, THIS PRODUCT IS NO LONGER BEING OFFERED FOR SALE.
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.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES
FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR
OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
2 PROSPECTUS
TABLE OF CONTENTS
PAGE
----
DEFINITIONS 5
FEE TABLES 6
Examples 7
Explanation of the Expense Examples 7
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT 8
FINANCIAL INFORMATION 12
DESCRIPTION OF THE CONTRACTS 13
Summary 13
Contract Owner 13
Annuitant 13
Modification of the Contract 13
Assignment 13
Free Look Period 13
PURCHASES AND CONTRACT VALUE 14
Minimum Purchase Payment 14
Automatic Payment Plan 14
Credit Enhancement 14
Allocation of Purchase Payments 14
Contract Value 15
Separate Account Accumulation Unit Value 15
Transfer During Accumulation Period 15
Transfers Authorized by Telephone 15
Market Timing & Excessive Trading 16
Trading Limitations 16
Automatic Dollar Cost Averaging Program 16
Portfolio Rebalancing 16
THE INVESTMENT AND FIXED ACCOUNT OPTIONS 17
Separate Account Investments 17
The Portfolios 17
Voting Rights 20
Additions, Deletions, and Substitutions of Securities 20
The Fixed Account 21
General 21
Guaranteed Maturity Fixed Account Option 21
Market Value Adjustment 23
Dollar Cost Averaging Fixed Account Option 23
ANNUITY BENEFITS 23
Annuity Date 23
Annuity Options 24
Other Options 24
Annuity Payments: General 24
Variable Annuity Payments 25
Fixed Annuity Payments 25
PAGE
----
Transfers During Annuity Period 25
Death Benefit During Annuity Period 25
Certain Employee Benefit Plans 26
OTHER CONTRACT BENEFITS 26
Death Benefit 26
General 26
Due Proof of Death 26
Death Proceeds 26
Death Benefit Amount 26
Death Benefit Payments 26
Enhanced Death Benefit Rider 28
Beneficiary 29
Contract Loans for 403(b) Contracts 29
Withdrawals (Redemptions) 30
Systematic Withdrawal Program 31
ERISA Plans 31
Minimum Contract Value 31
CONTRACT CHARGES 31
Mortality and Expense Risk Charge 32
Administrative Charges 32
Contract Maintenance Charge 32
Administrative Expense Charge 32
Transfer Fee 32
Sales Charges 32
Withdrawal Charge 32
Free Withdrawal 33
Waiver Benefits 33
General 33
Confinement Waiver Benefit 33
Terminal Illness Waiver Benefit 34
Waiver of Withdrawal Charge for Certain Qualified Plan Withdrawals 34
Premium Taxes 33
Deduction for Separate Account Income Taxes 34
Other Expenses 34
TAXES 35
Taxation of Lincoln Benefit Life Company 35
Taxation of Variable Annuities in General 35
Income Tax Withholding 37
Tax Qualified Contracts 38
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT 41
Lincoln Benefit Life Company 41
Separate Account 41
State Regulation of Lincoln Benefit 41
3 PROSPECTUS
PAGE
----
ADMINISTRATION 41
DISTRIBUTION OF CONTRACTS 42
LEGAL PROCEEDINGS 42
LEGAL MATTERS 42
ANNUAL REPORTS AND OTHER DOCUMENTS 42
REGISTRATION STATEMENT 43
PAGE
----
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION 44
APPENDIX A ACCUMULATION UNIT VALUES 45
APPENDIX B ILLUSTRATION OF A MARKET VALUE ADJUSTMENT 53
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.
4 PROSPECTUS
DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period of time beginning on the day money is put into
an annuity contract and ending when the contract is annuitized or surrendered.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The living person named on an annuity contact whose life expectancy
is used to calculate the annuity payments when the contract is annuitized.
ANNUITIZATION - The process by which the accumulation phase of the contract is
terminated and the conteract is converted to the payoout phase. This is
accomplished by paying the entire contract value over a period of time.
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 designated to receive the death benefit in the
event of all of the owners' deaths.
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) or entity 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 Subaccounts 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 Subaccount, or each anniversary of that date.
CREDIT ENHANCEMENT - An amount we add to your Contract Value when a Purchase
Payment is received. Each Credit Enhancement will be counted as earnings under
your Contract.
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
Subaccounts 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 Subaccount.
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 Subaccounts 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.
SUBACCOUNT - 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.
5 PROSPECTUS
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 Subaccounts 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 Subaccounts to which your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
FEE TABLES
The following tables describe the fees and expenses that you will pay when
buying, owning and surrendering the Contract. The first table decribes 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.
Contingent Deferred Sales Charge Withdrawal Charge (as a percentage of Purchase
Payments)
CONTRIBUTION YEAR APPLICABLE CHARGE
----------------- -----------------
1 8%
2-3 7%
4-5 6%
6 5%
7 4%
8 3%
9 + 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 you own the Contract, not including Portfolio fees and expenses.
Annual Contract Maintenance Charge (waived if total Purchase Payments are
$50,000 or more) $35.00
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE
DEDUCTED FROM EACH OF THE SUBACCOUNTS OF THE SEPARATE ACCOUNT)
BASE CONTRACT (WITHOUT OPTIONAL RIDERS)
Mortality and Expense Risk Charge 1.30%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.40%
BASE CONTRACT (WITH ENHANCED DEATH BENEFIT RIDER)
Mortality and Expense Risk Charge 1.50%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.60%
The next table shows the minimum and maximum total 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
6 PROSPECTUS
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 appears in the prospectus for each Portfolio.
Minimum Maximum
------------------------------------------------------------------
Total Portfolio Annual 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) 0.50% 4.31%
------------------------------------------------------------------
(1) Expenses are shown as a percentage of Portfolio average daily net assets
before any waiver or reimbursement as of December 31, 2003.
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 expense
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 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 Benefit Rider (with total Separate Account
expenses of 1.60%)
The first line of the example assumes that the maximum fees and expenses of any
of the Portfolios are charged. The second line of the example assumes that the
minimum fees and expenses of any of the Portfolios are charged. Your actual
expenses may be higher or lower than those shown below.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------
Costs Based on Maximum Annual Portfolio Expenses $1,236 $2,406 $3,544 $6,033
----------------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $ 845 $1,277 $1,731 $2,763
----------------------------------------------------------------------------------------
EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it
assumes you decided not to surrender your Contract, or you began receiving
income payments for a specified period of at least 120 months, at the end of
each time period.
1 Year 3 Years 5 Years 10 Years
----------------------------------------------------------------------------------------
Costs Based on Maximum Annual Portfolio Expenses $641 $1,896 $3,119 $6,033
----------------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $250 $ 767 $1,306 $2,763
----------------------------------------------------------------------------------------
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 BENEFIT RIDER (TOTAL
SEPARATE ACCOUNT EXPENSES OF 1.60%). IF THIS RIDER WAS NOT ELECTED, THE EXPENSE
FIGURES SHOWN WOULD BE SLIGHTLY LOWER.
THE EXAMPLES REFLECT THE FREE WITHDRAWAL AMOUNTS, IF APPLICABLE AND AN ANNUAL
CONTRACT ADMINISTRATIVE CHARGE OF $35.
7 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 Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. If we offer
additional Subaccounts in the future, we may limit your right to allocate your
Contract Value to up to twenty-three options under the Contract, counting each
Subaccount 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 Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount 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 Subaccounts. 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 five to twenty years;
.. a joint and full survivorship annuity, with payments guaranteed for five to
twenty 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 Annuitant's
90/TH/ 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 Subaccounts 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 Subaccounts 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 $10,000 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $500, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $100 per month. We may lower these minimums at our sole discretion. The
maximum age of the oldest Contract Owner and Annuitant is age 85 as of the date
we receive the completed application. The maximum age of the oldest Contract
Owner and Annuitant for purchasing the Contract with the Enhanced Death Benefit
Rider is age 80.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
PORTFOLIO(S)
--------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds AIM V.I. Basic Value Fund - Series I
--------------------------------------------------------------------------------------------------------------------
The Alger American Fund Alger American Growth Portfolio - Class S
--------------------------------------------------------------------------------------------------------------------
Fidelity(R) Variable Insurance Products Fund Fidelity VIP Growth Portfolio - Service Class 2
--------------------------------------------------------------------------------------------------------------------
Fidelity VIP Investment Grade Bond Portfolio - Service Class 2
--------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio - Service Class 2
--------------------------------------------------------------------------------------------------------------------
Goldman Sachs Variable Insurance Trust Goldman Sachs VIT CORE(SM) Small Cap Equity
--------------------------------------------------------------------------------------------------------------------
Goldman Sachs VIT International Equity Fund
--------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Aspen Series Capital Appreciation Portfolio: Institutional
Shares
--------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Foreign Stock Portfolio: Service Shares
--------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Growth Portfolio: Service Shares
--------------------------------------------------------------------------------------------------------------------
J.P. Morgan Series Trust II JPMorgan Small Company Portfolio
--------------------------------------------------------------------------------------------------------------------
Lazard Retirement Series, Inc. Lazard Emerging Markets Portfolio
--------------------------------------------------------------------------------------------------------------------
Lazard International Equity Portfolio
--------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM) MFS New Discovery Series - Service Class
--------------------------------------------------------------------------------------------------------------------
MFS Utilities Series - Service Class
--------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Oppenheimer Main Street Small Cap Fund/VA - Service Shares
--------------------------------------------------------------------------------------------------------------------
PIMCO Advisors VIT PAVIT OpCap Balanced Portfolio
--------------------------------------------------------------------------------------------------------------------
PAVIT OpCap Equity Portfolio
--------------------------------------------------------------------------------------------------------------------
PAVIT OpCap Small Cap Portfolio
--------------------------------------------------------------------------------------------------------------------
PAVIT PEA Science and Technology Portfolio
--------------------------------------------------------------------------------------------------------------------
PIMCO Variable Insurance Trust PIMCO VIT Foreign Bond Portfolio (U.S. Dollar-Hedged) -
Administrative Shares
--------------------------------------------------------------------------------------------------------------------
PIMCO VIT Money Market Portfolio - Administrative Shares
--------------------------------------------------------------------------------------------------------------------
PIMCO VIT StocksPLUS Growth and Income Portfolio - Administrative
Shares
--------------------------------------------------------------------------------------------------------------------
PIMCO VIT Total Return Portfolio - Administrative Shares
--------------------------------------------------------------------------------------------------------------------
Putnam Variable Trust Putnam VT High Yield Fund - Class 1B
--------------------------------------------------------------------------------------------------------------------
The Rydex Variable Trust Rydex VT OTC Fund
--------------------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Series Funds Inc Salomon Brothers Variable All Cap Fund - Class I
--------------------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Investors Fund - Class I
--------------------------------------------------------------------------------------------------------------------
The Universal Institutional Funds, Inc.* Van Kampen UIF Equity Growth Portfolio - Class I
--------------------------------------------------------------------------------------------------------------------
Van Kampen UIF High Yield Portfolio - Class I
--------------------------------------------------------------------------------------------------------------------
Van Kampen UIF Mid Cap Growth Portfolio - Class I
--------------------------------------------------------------------------------------------------------------------
Van Kampen UIF U.S. Mid Cap Value Portfolio - Class I
--------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Van Kampen LIT Aggressive Growth Portfolio - Class II
--------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and Income Portfolio - Class II
--------------------------------------------------------------------------------------------------------------------
* Morgan Stanley Investment Management, Inc., the advisor for the UIF
Portfolios, does business in certain instances using the name Van Kampen.
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 accompanying 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 Subaccount(s) and the Fixed
Account(s). Loan payments may not be allocated to the Fixed Account(s). You may
not transfer amounts into the DCA Fixed Account. The minimum amount that may be
transferred into any one of the Guaranteed 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.
9 PROSPECTUS
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 Subaccounts 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 Subaccounts 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 Guaranteed Maturity 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 Subaccounts;
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; or
2) it is necessary to meet IRS minimum withdrawal requirements.
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 Subaccounts. 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, if allowed in your state, 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 1.30% of average daily
net assets and an administrative expense charge at an annual rate of .10% of
average daily net assets. If you select our optional enhanced death benefit
rider, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
Transfer Fee. Although we currently are not charging a transfer fee, depending
on your state, the Contract permits us to charge you up to $10 per transfer for
each transfer after the first transfer in each month, or for each transfer in
excess of twelve within a calendar year. The Contract also permits us to impose
a minimum size on transfer amounts although the minimum size may be limited to
$25 in some states.
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
10 PROSPECTUS
Charge applies to each Purchase Payment for eight complete years from the date
of the Payment (each a "Contribution Year") as follows:
Contribution Applicable
Year Charge
------------ ----------
1 8%
2-3 7%
4-5 6%
6 5%
7 4%
8 3%
9+ 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 Charge 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 eight years;
plus
(b) an amount equal to your total Purchase Payments made more than eight 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; or (2) 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 advisor 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 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 distributions of earnings. Withdrawal 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,
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 proportionately for any prior partial
withdrawals;
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 eight,
increased by the total
11 PROSPECTUS
Purchase Payments since that anniversary and reduced proportionately by any
partial withdrawals since that anniversary.
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 Subaccounts 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.
Credit Enhancements. We will credit your Contract Value with a Credit
Enhancement of 4% of each Purchase Payment before we allocate that Purchase
Payment among the Subaccounts or to the Fixed Account. The Credit Enhancements
will be allocated in the same proportions as the corresponding Purchase Payment.
As described in "Free Look Period" on page 13, if you cancel your Contract
during the free look period we may deduct any Credit Enhancement from the amount
paid you.
Transfers. During the Accumulation Period, you may transfer Contract Value among
the Subaccounts and from the Subaccounts to the Fixed Account. If we offer
additional Subaccounts in the future, we may limit your right to allocate your
Contract Value to no 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 Subaccount of your choosing,
including other Subaccounts or the Fixed Account. Transfers from the Dollar Cost
Averaging Fixed Account may be made monthly only. Transfers from Subaccounts may
be made monthly, quarterly, or annually.
Under the Portfolio Rebalancing program, you can maintain the percentage of your
Contract Value allocated to each Subaccount 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
Subaccounts or from the Subaccounts 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. In most states, we will pay you an amount
equal to the Contract Value minus the Credit Enhancement. The Owner will also
bear any expenses charged with respect to the Credit Enhancement amount incurred
prior to the return of the Contract such as any mortality and expense charge.
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 80469, Lincoln,
Nebraska 68501-0469, or call us at (800) 865-5237.
FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Subaccount for each year since we started
offering the Contracts. Accumulation Unit Value is the unit of measure that we
use to calculate the value of your interest in a Subaccount. Accumulation Unit
Value does not reflect the deduction of certain charges that are subtracted from
your Contract Value, such as the Annual Contract Maintenance Charge. The
information in the table is included in the Separate Account's financial
statements. To obtain a fuller picture of each Subaccount's finances and
performance, you should review the Separate Account's financial statements,
which are in the Separate Account's Annual Statement dated as
12 PROSPECTUS
of December 31, 2003, contained in the Statement of Additional Information. The
Statement of Additional Information also includes a brief explanation of how
performance of the Subaccounts is calculated.
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 Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect Credit Enhancements and
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 is age 85 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 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 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 a living person and 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.
If you are a non-living person and the Annuitant dies before annuity payments
begin, the Beneficiary may elect to receive a death benefit as discussed in
"Death of Annuitant" on page 28. 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. In most states, we will pay
you an amount equal to the Contract Value minus the Credit Enhancement. The
Contract Value at that time may be more or less than your Purchase Payments. The
Owner will also bear any expense charged with respect to the Credit Enhancement
amount incurred prior to the return of the Contract, such as any Mortality and
Expense Charge.
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
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if
13 PROSPECTUS
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 PIMCO Money Market Subaccount. 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
$10,000. 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 $500 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $100 per month. However,
each Purchase Payment made to the Dollar Cost Averaging Fixed Account must be at
least $1200. If we receive Purchase Payments designated for the Dollar Cost
Averaging Fixed Account that are lower than the required minimum of $1200, or
purchase payments designated for the Guaranteed Maturity Fixed Account Option
that are lower than $500, such amounts will be allocated to the PIMCO Money
Market Portfolio. We may lower these minimums if we choose. We may refuse any
Purchase Payment at any time.
AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $100 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
CREDIT ENHANCEMENT. We will add a Credit Enhancement to your Contract Value when
each Purchase Payment is received. The Credit Enhancement is payable from our
general account. The amount of a Credit Enhancement is 4% of each Purchase
Payment. The Credit Enhancement will be allocated among the Subaccounts and
Fixed Account in the same proportion that the applicable Purchase Payment is
allocated. The amount returned if the Contract Owner exercises his or her right
to return the Contract during your Free Look period will be reduced by any
Credit Enhancements applied.
The expense charges for this Contract may be higher than the expense charges for
annuity contracts that do not offer Credit Enhancements. We expect to recoup the
cost of paying Credit Enhancements through collections of the Withdrawal Charges
on the Contract (which are contingent), as well as our legitimate profits on
this and other contracts we offer. In some circumstances - for example, if you
surrender your Contract while the Withdrawal Charge still applies to a
substantial proportion of your Premiums - your net proceeds may be lower than if
you had purchased one of our other annuity contracts that does not offer Credit
Enhancements. Likewise, over time the amount of the Credit Enhancements may be
offset by higher expenses.
Credit Enhancements are treated as "earnings" for purposes of determining
Withdrawal Charges and free withdrawal amounts on surrenders and partial
withdrawals. Similarly, Credit Enhancements are not treated as an "investment in
the contract" for tax purposes.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(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.
If we offer additional Subaccounts in the future, we may limit your right to
allocate your Purchase Payments to up to twenty-three options, counting each
Subaccount 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.
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 Subaccounts 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.
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 PIMCO
14 PROSPECTUS
Money Market Subaccount. If we exercise that right and your state's free look
period is ten days, we will transfer your Purchase Payments to your specified
Subaccounts 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 Subaccount to allocate to
your Contract by dividing that portion of your Purchase Payment allocated to a
Subaccount by that Subaccount'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 in the
Subaccounts 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 Subaccount will rise or fall to reflect changes in the share
price of the Portfolio in which the Subaccount 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 Subaccount. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced death benefit rider. 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
Subaccount. We determine the Accumulation Unit Value for each Subaccount 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 which accompany this
prospectus 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 Subaccount and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and the Subaccounts 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-three 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. If you transfer an amount from the Fixed Account to a
Subaccount 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 23.
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.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone. The cut
off time for telephone transfer requests is 4:00 p.m. Eastern time. Calls
completed before 4:00 p.m. will be effected on that day at that day's price.
Calls completed 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.
We may charge you the transfer fee or impose a minimum transfer amount as
described on page 32, although we currently are waiving it. At any time, without
notice, we may suspend, modify or terminate your privilege to make transfers via
the telephone, 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
Separate Subaccounts in any Contract year, or to refuse any Separate Subaccount
transfer request. We also reserve the right to restrict such transfers in any
manner reasonably designed to prevent transfers that we consider disadvantageous
to other 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.
15 PROSPECTUS
MARKET TIMING & EXCESSIVE TRADING. The Contracts are intended for long-term
investment. Frequent trading in response to short-term fluctuations in the
market can disrupt management of a Portfolio and raise its expenses, which can
impair Portfolio performance. Lincoln Benefit's policy is not to knowingly
accept any money intended for the purpose of market timing. Lincoln Benefit does
not market the Contracts to persons for the purpose of their engaging in market
timing activity.
Lincoln Benefit defines market timing activity to be the movement in and out of
a Subaccount in a short period of time designed to take advantage of short-term
market fluctuations based upon expected increases in Subaccount unit values.
Lincoln Benefit defines excessive trading activity as purchase and sale
transactions of a Contract Owner that occur with such frequency and/or such size
as to affect the Portfolio's ability to meet its investment objective, in the
judgment of Lincoln Benefit or the Portfolio.
Service center personnel seek to detect and report market timing or excessive
trading transfer activity through monitoring and review of trading activities.
Portfolios may also report suspected market timing or excessive trading transfer
activity. However, not all market timing or excessive trading transfer activity
can be prevented, as it may not be possible to identify it unless and until a
trading pattern is established. If we identify suspected market timing or
excessive trading activity, we will make further inquiry and take corrective
action as appropriate. Corrective action may include, but is not limited to,
refusing transfer requests, or suspending, modifying or terminating any
telephone, automated or electronic transfer privileges.
TRADING LIMITATIONS. We reserve the right to limit transfers among the
investment alternatives in any Contract Year, or to refuse any transfer request,
if:
.. we believe, in our sole discretion, that certain trading practices, such as
excessive trading or market timing ("Prohibited Trading Practices"), by, or
on behalf of, one or more Contract Owners, or a specific transfer request
or group of transfer requests, may have a detrimental effect on the
Accumulation Unit Values of any Variable Subaccount or on the share prices
of the corresponding Portfolio or otherwise would be to the disadvantage of
other Contract 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 Prohibited Trading Practices or because they believe that a specific
transfer or group of transfers would have a detrimental effect on the
prices of Portfolio shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract Owners.
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
Variable Subaccount of your choosing. You may not use the Dollar Cost Averaging
program to transfer amounts from the Guaranteed Maturity Fixed Account Option.
The interval between transfers from the Dollar Cost Averaging Fixed Account may
be monthly only. The interval between transfers from Subaccounts 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. 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 Money Market Subaccount in
equal monthly installments.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 subaccount with more volatile
performance experience is unlikely to produce the desired effects of Dollar Cost
Averaging as would transfers from a less volatile subaccount.
PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the
percentage of your Contract Value allocated to each Subaccount at a pre-set
level. Over time, the variations in each Subaccount'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.
16 PROSPECTUS
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. A
one-time request to rebalance the amounts allocated to the Subaccounts is not
part of a Portfolio Rebalancing program and is subject to all of the
requirements that are applicable to transfers made during the Accumulation
Period. We will automatically terminate this option if you request any transfers
outside the Portfolio Rebalancing program. If you wish to resume the 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 before your Annuity Date 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 one period
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
Subaccounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Subaccounts 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 Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts 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 Subaccounts
of the Separate Account.
PORTFOLIO PORTFOLIO OBJECTIVE INVESTMENT ADVISER
-------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS
-------------------------------------------------------------------------------
AIM V.I. Basic Value Long-term growth of capital A I M ADVISORS, INC.
Fund - Series I (4)
-------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
-------------------------------------------------------------------------------
Alger American Growth Long-term capital FRED ALGER MANAGEMENT,
Portfolio - Class S appreciation INC.
-------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
-------------------------------------------------------------------------------
Fidelity VIP Growth Capital appreciation FIDELITY MANAGEMENT &
Portfolio - Service RESEARCH COMPANY
Class 2
-------------------------------------------------------
Fidelity VIP Investment As high a level of current
Grade Bond Portfolio - income as is consistent
Service Class 2 with the preservation of
capital.
-------------------------------------------------------
Fidelity VIP Overseas Long-term growth of capital
Portfolio - Service
Class 2
-------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------------
Goldman Sachs VIT Long-term growth of capital GOLDMAN SACHS ASSET
CORE(SM) Small Cap MANAGEMENT, L.P.
Equity Fund
-------------------------------------------------------------------------------
Goldman Sachs VIT Long-term capital GOLDMAN SACHS ASSET
International Equity appreciation MANAGEMENT INTERNATIONAL
Fund
-------------------------------------------------------------------------------
JANUS ASPEN SERIES
-------------------------------------------------------------------------------
Janus Aspen Series Long-term growth of capital JANUS CAPITAL MANAGEMENT
Capital Appreciation LLC
Portfolio:
Institutional Shares
(5)
-------------------------------------------------------
Janus Aspen Series Long-term growth of capital
Foreign Stock
Portfolio: Service
Shares (6)
-------------------------------------------------------
Janus Aspen Series Long-term growth of capital
Worldwide Growth in a manner consistent with
Portfolio: Service the preservation of capital.
Shares
-------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
-------------------------------------------------------------------------------
JP Morgan Small Company High total return from a J.P. MORGAN INVESTMENT
Portfolio portfolio of small company MANAGEMENT, INC.
stocks.
-------------------------------------------------------------------------------
LAZARD RETIREMENT SERIES INC.
-------------------------------------------------------------------------------
Lazard Emerging Markets Long-term capital LAZARD ASSET MANAGEMENT
Portfolio appreciation LLC
-------------------------------------------------------------------------------
Lazard International Long-term capital
Equity Portfolio appreciation
-------------------------------------------------------------------------------
MFS(R) VARIABLE INSURANCE TRUST(SM)
-------------------------------------------------------------------------------
MFS New Discovery Capital appreciation MFS(TM) INVESTMENT
Series - Service Class MANAGEMENT
-------------------------------------------------------
MFS Utilities Series - Capital growth and current
Service Class income
-------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
-------------------------------------------------------------------------------
Oppenheimer Main Street Capital appreciation OPPENHEIMERFUNDS, INC.
Small Cap Fund/VA -
Service Shares
-------------------------------------------------------------------------------
PIMCO ADVISORS VIT
-------------------------------------------------------------------------------
PAVIT OpCap Balanced Growth of capital and OPCAP ADVISORS LLC
Portfolio (4) investment income
-------------------------------------------------------
PAVIT OpCap Equity Long-term capital
Portfolio appreciation
-------------------------------------------------------
PAVIT PEA Science and Capital appreciation
Technology Portfolio
(3)
-------------------------------------------------------
PAVIT OpCap Small Cap Capital appreciation
Portfolio
-------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------------
PIMCO VIT Foreign Bond To maximize total return, PACIFIC INVESTMENT
Portfolio (U.S. consistent with MANAGEMENT COMPANY LLC
Dollar-Hedged) - preservation of capital and
Administrative Shares prudent investment
management.
-------------------------------------------------------
PIMCO VIT Money Market To obtain maximum current
Portfolio - income consistent with
Administrative Shares preservation of capital and
daily liquidity.
-------------------------------------------------------
StocksPLUS Growth and A total return which exceeds
Income Portfolio - the total return
Administrative Shares performance of the S&P 500.
-------------------------------------------------------
PIMCO VIT Total Return To maximize total return,
Portfolio - consistent with
Administrative Shares preservation of
capital and prudent
investment management.
-------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
-------------------------------------------------------------------------------
Putnam VT High Yield High current income. Capital PUTNAM INVESTMENT
Fund - Class IB growth is a secondary goal MANAGEMENT LLC
when consistent with
achieving high current
income. The fund seeks its
goal by investing at least
80% in U.S. corporate
bonds rated below investment
grade (junkbonds) and that
have intermediate to
long-term maturities (three
years or longer.)
-------------------------------------------------------------------------------
THE RYDEX VARIABLE TRUST
-------------------------------------------------------------------------------
Rydex VT OTC Fund Investment results that RYDEX INVESTMENTS
correspond to a benchmark for
over-the-counter
securities. The Portfolio's
current benchmark is the
NASDAQ 100 Index.
-------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
-------------------------------------------------------------------------------
Salomon Brothers Capital appreciation through SALOMON BROTHERS ASSET
Variable All Cap Fund investment in securities MANAGEMENT INC
(formerly Capital that the investment manager
Fund) - Class I believes have above-average
capital appreciation
potential.
-------------------------------------------------------
Salomon Brothers Long-term growth of capital
Variable Investors with current income as a
Fund - Class I (4) secondary objective
-------------------------------------------------------------------------------
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
-------------------------------------------------------------------------------
Van Kampen UIF Equity Seeks long-term capital VAN KAMPEN(1)
Growth Portfolio, appreciation by investing
Class I (7) primarily in
growth-oriented equity
securities of large
capitalization companies.
-------------------------------------------------------
Van Kampen UIF High Above-average total return
Yield Portfolio, over a market cycle of
Class I three to five years by
investing primarily in high
yield securities.
-------------------------------------------------------
Van Kampen UIF Mid Cap Seeks above-average total
Growth Portfolio, return over a market cycle
Class I of three to five years by
investing in common stocks
and other equity
securities.
-------------------------------------------------------
Van Kampen UIF U.S. Mid Seeks to provide
Cap Value Portfolio, above-average current
Class I (formerly Mid income and long-term
Cap Core Portfolio) capital appreciation by
(2) (8) investing primarily in
equity securities of
com[panies in the U.S. real
estate industry, including
real estate investment
trusts.
-------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
-------------------------------------------------------------------------------
Van Kampen LIT Capital Growth VAN KAMPEN ASSET
Aggressive Growth MANAGEMENT
Portfolio, Class II
(9)
-------------------------------------------------------
Van Kampen LIT Growth Long-term growth of capital
and Income Portfolio, and income
Class II
-------------------------------------------------------------------------------
(1) Morgan Stanley Investment Management Inc., the investment adviser to the
Van Kampen UIF Portfolios, does business in certain instances as Van
Kampen.
(2) Effective September 30, 2003, The Universal Institutional Funds, Inc. U.S.
Mid Cap Core Portfolio, Class I changed its name to The Universal
Institutional Funds, Inc. U.S. Mid Cap Value Portfolio, Class I. The
investment objective for this Portfolio has not changed.
(3) Sub-advised by PIMCO Equity Advisers LLC.
(4) Effective 4/30/04, the LSA Balance Fund, LSA Basic Value Fund and LSA Value
Equity Fund were merged into the PAVIT OpCap Balanced Portfolio, AIM V.I.
Basic Value Fund - Series I and Salomon Brothers Variable Investors Fund -
Class I, respectively.
(5) Effective 4/30/04, the LSA Capital Appreciation Fund was merged into the
Janus Aspen Series Capital Appreciation Portfolio - Institutional Shares.
(6) Effective 5/1/04 the Janus Aspen Series International Portfolio - Service
Shares changed its name to the Janus Aspen Foreign Stock Portfolio -
Service Shares.
(7) Effective 4/30/04, the LSA Blue Chip Fund, LSA Equity Grown Fund and LSA
Capital Growth Fund were merged into the Van Kampen UIF Equity Growth
Portfolio, Class I.
(8) Effective 4/30/04, the LSA Diversified Mid-Cap Growth Fund and LSA MidCap
Value Fund were merged into the Van Kampen UIF U.S. Mid Cap Value
Portfolio, Class I.
19 PROSPECTUS
(9) Effective 4/30/04, the LSA Aggressive Growth Fund and LSA Emerging Growth
Fund were merged into the Van Kampen LIT Aggressive Growth Portfolio, Class
II.
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
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Purchase Payments
you allocate to a Subaccount 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 advisors 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.
Some of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each 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 Subaccounts 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 advisor 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
20 PROSPECTUS
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 Subaccounts:
(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 Subaccount to another, or from any subaccount
to our general account;
(d) to add, combine, or remove Subaccounts 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 1-800-865-5237 for current information.
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount
allocated to the Guaranteed Maturity Fixed Account Option at a specified rate
for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate 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:
21 PROSPECTUS
EXAMPLE
Purchase Payment $10,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
Credit Enhancement $ 400
END OF CONTACT YEAR
-----------------------------------------------------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ----------- ---------- ---------- ----------
Beginning Contract
Value $10,400.00
x (1 + Effective
Annual Rate) x 1.045
----------
$10,868.00
Contract Value at end
of Contract Year $$10,868.00
x (1 + Effective
Annual Rate) x 1.045
-----------
$ 11,357.06
Contract Value at end
of Contract Year $11,357.06
x (1 + Effective
Annual Rate) x 1.045
----------
$11,868.13
Contract Value at end
of Contract Year $11,868.13
x (1 + Effective
Annual Rate) x 1.045
----------
$12,402.19
Contract Value at end
of Contract Year $12,402.19
x (1 + Effective
Annual Rate) x 1.045
----------
$12,960.29
TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,560.29 ($12,960.29 -
$10,400)
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 1-800-865-5237.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount, including the accrued interest. During the
30-day period after the end of the Guarantee Period, you may:
1) take no action. If so, we will automatically keep the relevant amount in
the Guaranteed Maturity Fixed Account Option. The new Guarantee Period will
be the same length as the expiring Guarantee Period and will begin on the
day the previous Guarantee Period ends. The new interest rate will be our
then current declared rate for Guarantee Periods of that length; or
2) allocate the relevant Contract Value to one or more new Guarantee Periods
of your choice in the Guaranteed Maturity Fixed Account Option. The new
Guarantee Period(s) will begin on the day the previous Guarantee Period
ends. The new interest rate will be our then current declared rate for
those Guarantee Periods; or
3) instruct us to transfer all or a portion of the relevant amount to one or
more Subaccounts. 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
22 PROSPECTUS
selected length until you direct us in writing to stop. We may stop offering
this program at any time.
MARKET VALUE ADJUSTMENT. If permitted by your state, 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 Subaccounts;
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; or
2) you make a withdrawal to satisfy the IRS' required minimum distribution
rules for this Contract.
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. If permitted by your state, 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 Subaccounts or the Guaranteed Maturity
Fixed Account Option. We will follow your instructions in transferring amounts
from this option to the Subaccounts or the Guaranteed Maturity Fixed Account
Option on a monthly basis only, as described in "Automatic Dollar Cost Averaging
Program" on page 16 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 the later of the 10th Contract Anniversary or
the youngest Annuitant's 90/TH/ 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).
23 PROSPECTUS
If your Contract was purchased by a Qualified Plan, we may require you to
annuitize by the date required by the Tax Code, unless you show us that you are
meeting the minimum distribution requirements in some other way.
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.
A portion of each payment will be considered taxable and the remaining portion
will be a non-taxable return of your investment in the Contract, which is also
called the "basis." Once the investment in the Contract is depleted, all
remaining payments will be fully taxable. If the Contract is tax-qualified,
generally, all payments will be fully taxable. Taxable payments taken prior to
age 59 1/2 may be subject to an additional 10% federal tax penalty.
The three Annuity Options are:
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make
periodic payments at least as long as the Annuitant lives. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20
YEARS. We make periodic payments at least as long as either the Annuitant or the
Joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
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, subject to a Withdrawal Charge. We will charge a Withdrawal
Charge on any portion of your lump sum payment attributable to Purchase Payments
made within the prior eight years. The amount of the Withdrawal Charge will be
determined as described in "Withdrawal Charge" on page 32 below. If you elected
Variable Annuity payments, the lump sum payment after Withdrawal Charge will
depend on:
.. the investment results of the Subaccounts 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.
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 32 below, however, we will subtract any applicable Withdrawal Charge and
increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist of Variable Annuity payments or Fixed Annuity payments or a
combination of the two. We will determine the amount of your annuity payments as
described in "Variable Annuity Payments" and "Fixed Annuity Payments" on page
25.
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 Subaccounts prior to the
Annuity Date. If you do not tell us how to allocate your Contract Value among
Fixed and
24 PROSPECTUS
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 Subaccounts 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 Subaccounts 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
Subaccounts.
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 interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a
limited ability to make transfers among the Subaccounts so as to change the
relative weighting of the Subaccounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Subaccounts 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 Subaccounts or make transfers from
the Subaccounts 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
25 PROSPECTUS
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 as 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 eighth Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by eight, 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 in Enhanced Death Benefit Rider on page 28, you may add an optional
rider that in some circumstances may increase the Death Benefit under your
Contract.
DEATH BENEFIT PAYMENTS.
Death of Owner:
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
26 PROSPECTUS
iii. over the life of your spouse with a guaranteed number of payments from 5 to
30 years but not to exceed the life expectancy of your spouse.
c. If your spouse chooses to continue the Contract or does not elect one of
these options, then the Contract will continue in the Accumulation Period
as if the death had not occurred. If the Contract is continued in the
Accumulation Period, the following conditions apply:
Unless otherwise instructed by the continuing spouse, the excess, if any, of the
Death Proceeds over the Contract Value will be allocated to the Subaccounts.
This excess will be allocated in proportion to your Contract Value in those
Subaccounts 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 Subaccount. 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 Subaccounts;
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 subaccounts
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
Subaccount 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 15 and "Transfer Fee" 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 Death of 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 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
Subaccount and the Contract Value will be adjusted accordingly. The
Beneficiary may exercise all rights as set forth in "Transfers During the
Accumulation Period" on page 15 and "Transfer Fee" 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.
27 PROSPECTUS
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.
Death of Annuitant:
If the Annuitant who is not also the Owner dies prior to the Annuity Date, the
following apply:
1. If the Owner is a living person, then the contract will continue with a new
Annuitant as described in "Annuitant" on page 13.
2. If the Owner is a 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 the option above, then the Beneficiary
must receive the Contract Value payable within 5 years of the Annuitant's
date of death. On the date we receive the complete request for settlement
of the Death Proceeds, the Contract Value under this option will be 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 Subaccount. Henceforth, the Beneficiary may exercise all
rights as set forth in the "Transfers During Accumulation Period" on page
15 and "Transfer Fee" on page 32 during this 5 year period.
No additional Purchase Payments may be added to the contract under this
election. Withdrawal charges will be waived during this 5 year period.
We reserve the right to offer additional options under Death of Annuitant.
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 the Annuitant's death to the date on which the Death Proceeds are
paid.
ENHANCED DEATH BENEFIT RIDER: When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. In certain states, this benefit may be offered
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. If you are not
an individual, the Enhanced Death Benefit applies only to the Annuitant's death.
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. As described below, we will charge a higher mortality and expense
risk charge if you select this Rider. We may discontinue offering the Rider at
any time.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
.. When you pay a Purchase Payment, we will increase Enhanced Death Benefit A
by the amount of the Purchase Payment;
.. When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
.. On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Enhanced Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the highest Contract Value on all Contract
Anniversaries prior to the date we calculate the Death Benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85/TH/ birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85/TH/ 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:
(a) your total Purchase Payments,
(b) reduced by any withdrawal adjustments and
(c) accumulated daily at an effective annual rate of 5% per year, until the
earlier of:
1) the date we determine the death benefit;
2) the first day of the month following the oldest Contract owner's 85/TH
/birthday; or
3) if the Contract Owner is a company or other legal entity, the first day of
the month following the Annuitant's 85/TH/ birthday. 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 which
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
28 PROSPECTUS
(c) = the most recently calculated Enhanced Death 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 Beneficiary(ies)
are deceased at the time a Contract Owner or any 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, as defined above, the
remaining Beneficiaries in that class will divide the deceased Beneficiary's
share in proportion to the original share 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 for the above purposes.
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.
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 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 1/2 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. Loans made before the Annuity Date are
generally treated as distributions under the Contract, and may be subject to
withholding and tax penalties for early distributions. 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 Subaccount. If your loan amount is
greater than your Contract Value in the Subaccounts, 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
Subaccounts 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
Subaccounts 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
29 PROSPECTUS
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 Subaccounts.
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; and
4) the amount applied on the Annuity Date to provide annuity payments.
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 Subaccount(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 PIMCO Money Market Subaccount.
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,
incur the early withdrawal tax penalty. We will capitalize interest on a loan in
default.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The 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 23.
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 Subaccount. 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 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.
For partial withdrawals, you may allocate the amount among the Subaccounts and
the Fixed Accounts. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Subaccounts and the Guaranteed Maturity Fixed Account Options based upon the
balance of the Subaccounts 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
30 PROSPECTUS
also will deduct a contract maintenance charge of $35, unless we have waived the
contract maintenance charge on your Contract as described on page 32. 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; or
5) 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 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 Subaccount 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 Subaccounts 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
advisor.
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 for
premium taxes, if applicable;
2) as charges against the assets of the Separate Account for administrative
expenses and for the assumption of mortality and expense risks; and
31 PROSPECTUS
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 6 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 Subaccount during each Valuation Period. The mortality and expense
risk charge is equal, on an annual basis, to 1.30% of the average net asset
value of each Subaccount. 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 26.
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 1.50% of average net asset value of each Subaccount. We charge a
higher mortality and expense risk charge for the Rider to compensate us for the
additional risk that we accept by providing the Rider. We will calculate a
separate Accumulation Unit Value for the base Contract, and for Contracts with
the 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.
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 Subaccounts to which you have allocated your
Contract Value, and redeem Accumulation Units accordingly. 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. 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, 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 Subaccount during each Valuation Period. This charge is equal, on an annual
basis, to 0.10% of the average net asset value of the Subaccounts. 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,
depending on your state, either permits us to charge you up to $10 per transfer
for each transfer effected between Subaccount(s) and/or the Fixed Account after
the first transfer in each month, or for each transfer in excess of twelve
within a calendar year. The Contract also permits us to impose a minimum size on
transfer amounts although the minimum size may be limited to $25 in some states.
We will notify you if we begin to charge this fee or impose a minimum size on
transfer amounts. 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 eight 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 8%
Second and Third 7%
Fourth and Fifth 6%
Sixth 5%
Seventh 4%
Eighth 3%
Ninth and later 0%
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into
32 PROSPECTUS
consideration. 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; Credit Enhancements are treated as
"earnings" for this purpose;
Second. "Old Purchase Payments" - Purchase Payments received by us more than
eight years before the date of withdrawal that have not been previously
withdrawn;
Third. Any additional amounts available as a "Free Withdrawal," as described
below;
Fourth. "New Purchase Payments - Purchase Payments received by us less than
eight 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 plans
under our prototype as described on page 33;
.. withdrawals taken to satisfy IRS minimum distribution rules;
.. withdrawals that qualify for one of the waiver benefits described on page
33 below; and
.. withdrawals under Contracts issued to employees of Lincoln Benefit Life
Company, Surety Life Insurance Company, and Allstate Financial Services,
L.L.C. or to their spouses or minor children, if these 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 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 advisors 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.
Credit Enhancements are treated as earnings for purposes of determining the free
withdrawal amount. 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 two 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 advisor 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
33 PROSPECTUS
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 are
diagnosed with a terminal illness. Due proof of the diagnosis, as provided in
the Contract, must be given to us prior to, or at the time of, any withdrawal
request.
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 more information about
our prototype plan, call us at 1-800-865-5237.
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 Subaccounts to which you allocate your Contract
Value. For a summary of current estimates of those charges and expenses, see
page 6. For more detailed information about those charges and expenses, please
refer to the prospectuses for the appropriate Portfolios. We may receive
compensation from the investment advisors or administrators of the Portfolios in
connection with administrative service and cost savings experienced by the
investment advisors or administrators.
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.
GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered
owned by a non-natural owner. Grantor trust owned contracts receive tax deferral
as described in the Exceptions to the Non-Natural Owner Rule section. In
accordance with the Code, upon the death of the annuitant, the death benefit
must be paid. According to your Contract, the Death Benefit is paid to the
beneficiary. A trust named beneficiary, including a grantor trust, has two
options for receiving any death benefits: 1) a lump sum payment, or 2) payment
deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Separate Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Separate Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Lincoln Benefit does not have control over the Portfolios or
their investments, we expect the Portfolios to meet the diversification
requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered
the owner of separate account assets if he possesses incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. At the time the diversification regulations were issued, the Treasury
Department announced that the regulations do not provide guidance concerning
circumstances in which investor control of the separate account investments may
cause a Contract
35 PROSPECTUS
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.
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 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.
36 PROSPECTUS
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
full withdrawal, or
.. if distributed under an Income Plan, the amounts are taxed in the same
manner as annuity payments.
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 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.
PARTIAL EXCHANGES. The IRS has issued a ruling that permits partial exchanges of
annuity contracts. Under this ruling, if you take a withdrawal from a receiving
or relinquishing annuity contract within 24 months of the partial exchange, then
special aggregation rules apply for purposes of determining the taxable amount
of a distribution. The IRS has issued limited guidance on how to aggregate and
report these distributions. The IRS is expected to provide further guidance, as
a result, it is possible that the amount we calculate and report to the IRS as
taxable could be different.
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, 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, Section 1441 of the Code 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. 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
37 PROSPECTUS
the payee provides a U.S. taxpayer identification number on a 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 on variable 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 a variable annuity as a TSA or IRA.
Tax Qualified Contracts are contracts purchased as investments as:
.. Individual Retirement Annuities (IRAs) under Section 408(b) of the Code;
.. Roth IRAs under Section 408A of the Code;
.. Simplified Employee Pension (SEP IRA) under Section 408(k) of the Code;
.. Savings Incentive Match Plans for Employees (SIMPLE IRA) under Section
408(p) of the Code; and
.. Tax Sheltered Annuities under Section 403(b) of the Code.
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.
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 retirement plan.
In the case of certain qualified plans, the terms of 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 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. All tax reporting of distributions from Roth
IRAs will indicate that the taxable amount is not determined.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, IRAs (excluding Roth IRAs) and TSAs
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. 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 403(b) plan.
Lincoln Benefit reserves the right to limit the availability of the Contract for
use with any of the qualified plans listed above.
38 PROSPECTUS
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10%
penalty tax applies to the taxable amount of any premature distribution from a
Tax Qualified Contract. The penalty tax generally applies to any distribution
made prior to the date you attain age 59 1/2. However, no penalty tax is
incurred on distributions:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made as a result of the Contract Owner's death or total disability,
.. made in substantially equal periodic payments 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 (applies only for 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), and
.. made for a first time home purchase (up to a $10,000 lifetime limit and
applies only for IRAs).
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, 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 employer sponsored retirement plans,
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.
For all annuitized distributions that are not subject to the 20% withholding
requirement, Lincoln Benefit is required to withhold federal income tax using
the wage withholding rates. The customer may elect out of withholding by
completing and signing a withholding election form. If no election is made, we
will automatically withhold using married with three exemptions as the default.
If no U.S. taxpayer identification number is provided, we will automatically
withhold using single with zero exemptions as the default. In certain states, if
there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.
Generally, Section 1441 of the Code 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. 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 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.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code 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
39 PROSPECTUS
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Section 408A of the Code 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.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The income portion of a conversion or rollover distribution is taxable
currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS)
Internal Revenue 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.
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 annuity contract;
2) The deceased Annuitant was the beneficial owner of the Individual
Retirement Account;
3) We receive a complete request for settlement for the death of the
Annuitant; and
4) The custodian or trustee of the Individual Retirement Account provides us
with a signed certification of the following:
(a) The 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. Section 408(k) of the Code 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). Section 408(p) of the
Code allow 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.
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. Section 403(b) of the Code 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 Employee Retirement Income Security Act of 1974 (ERISA) funds
in 403(b) contracts.
40 PROSPECTUS
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company 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 South 84th Street,
Lincoln, Nebraska, 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 ("AIC"), a stock
property-liability insurance company incorporated under the laws of Illinois.
All outstanding capital stock of AIC is owned by The Allstate Corporation
("Allstate").
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 intend
to 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 agreements 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. These
assets represent our general account and are invested and managed 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 agreements. While the
reinsurance agreements provide 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.
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 Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts 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 1-800-865-5237. We have
reproduced the Table of Contents of the Statement of Additional Information on
44.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. Our books and records are subject to review by the
Department of Insurance at all times. We are also subject to regulation under
the insurance laws of every jurisdiction in which we operate.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 80469, Lincoln, Nebraska
68501-0469.
41 PROSPECTUS
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. 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. 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 5.5% 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 and other cash bonuses to broker-dealers who maintain
certain sales volume levels. ALFS, Inc. ("ALFS") located at 3100 Sanders Road,
Northbrook, IL 60062-7154 serves as distributor of the Contracts. ALFS, an
affiliate of Lincoln Benefit, is a wholly owned subsidiary of Allstate Life
Insurance Company. ALFS is a registered broker dealer under the Securities and
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. Lincoln Benefit does not pay ALFS a commission for
distribution of the Contracts. The underwriting agreement with ALFS provides
that we will reimburse ALFS for expenses incurred in distributing the Contracts,
including liability arising out of services we provide on the Contracts.
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 William F. Emmons, Vice President, Assistant General
Counsel, and Assistant Secretary of Lincoln Benefit.
ANNUAL REPORTS AND OTHER DOCUMENTS
Lincoln Benefit's annual report on Form 10-K for the year ended December 31,
2003, is incorporated herein by reference, which means that it is legally a part
of this prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act of 1934 are also incorporated herein by reference, which
means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statement in other documents that are legally part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's "EDGAR"
system using the identifying number CIK No. 0000910739. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http:// www.sec.gov. You also can view these materials at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by
42 PROSPECTUS
reference (other than exhibits not specifically incorporated by reference into
the text of such documents), please write or call us at Lincoln Benefit Life
Company, P.O. Box 80469, Lincoln, Nebraska 68501-0469 or 1-800-865-5237.
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.
43 PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
THE CONTRACT
Annuity Payments
Initial Monthly Annuity Payment
Subsequent Monthly Payments
Transfers After Annuity Date
Annuity Unit Value
PAGE
Illustrative Example of Annuity Unit Value Calculation
Illustrative Example of Variable Annuity Payments
EXPERTS
FINANCIAL STATEMENTS
44 PROSPECTUS
APPENDIX A
ACCUMULATION UNIT VALUES /(1)/
BASIC POLICY
Year ending December 31,
---------------------------------------------------
FUND 1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
AIM V.I. Basic Value
Fund (6)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
Alger American Growth
Portfolio (5)
Accumulation Unit Value
Beginning -- -- -- -- $ 10.00
Accumulation Unit Value
Ending -- -- -- -- $ 12.358
Number of Units
Outstanding at End of -- -- -- -- 54,381
Year
Fidelity VIP Growth
Portfolio (5)
Accumulation Unit Value
Beginning -- -- -- -- $ 10.00
Accumulation Unit Value
Ending -- -- -- -- $ 12.458
Number of Units
Outstanding at End of -- -- -- -- 111,685
Year
Fidelity VIP Investment
Grade Bond (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 10.721
Accumulation Unit Value
Ending -- -- -- $ 10.721 $ 11.094
Number of Units
Outstanding at End of -- -- -- 178,620 645,218
Year
Fidelity VIP Overseas
(4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.724
Accumulation Unit Value
Ending -- -- -- $ 7.724 $ 10.895
Number of Units
Outstanding at End of -- -- -- 3,650 40,658
Year
Goldman Sachs VIT
International Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 12.29 $ 10.52 $ 8.07 $ 6.495
Accumulation Unit Value
Ending $ 12.29 $ 10.52 $ 8.07 $ 6.495 $ 8.678
Number of Units
Outstanding at End of 22,152 159,917 114,948 254,616 287,318
Year
Goldman Sachs VIT CORE
Small Cap Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 12.19 $ 12.23 $ 12.61 $ 10.573
Accumulation Unit Value
Ending $ 12.19 $ 12.23 $ 12.61 $ 10.573 $ 15.223
Number of Units
Outstanding at End of 32,499 94,926 230,893 127,061 199,375
Year
Janus Aspen Series
Capital Appreciation (7)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
Janus Aspen Series
Foreign Stock (4) (8)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.755
Accumulation Unit Value
Ending -- -- -- $ 7.755 $ 10.200
Number of Units
Outstanding at End of -- -- -- 10,251 32,987
Year
Janus Aspen Series
Worldwide Growth (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.806
Accumulation Unit Value
Ending -- -- -- $ 7.806 $ 9.520
Number of Units
Outstanding at End of -- -- -- 13,094 51,204
Year
JPMorgan Small Company
(2)
Accumulation Unit Value
Beginning $ 10.00 $ 14.01 $ 12.25 $ 11.11 $ 8.582
Accumulation Unit Value
Ending $ 14.01 $ 12.25 $ 11.11 $ 8.582 $ 11.508
Number of Units
Outstanding at End of 42,567 135,018 148,118 229,162 235,165
Year
Lazard Emerging Markets
(2)
Accumulation Unit Value
Beginning $ 10.00 $ 13.27 $ 9.41 $ 8.81 $ 8.555
Accumulation Unit Value
Ending $ 13.27 $ 9.41 $ 8.81 $ 8.555 $ 12.903
Number of Units
Outstanding at End of 11,803 34,832 51,868 78,720 112,391
Year
Lazard International
Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 11.25 $ 10.02 $ 7.50 $ 6.607
Accumulation Unit Value
Ending $ 11.25 $ 10.02 $ 7.50 $ 6.607 $ 8.374
Number of Units
Outstanding at End of 27,207 79,805 118,331 162,113 148,319
Year
LSA Aggressive Growth
(4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.299
Accumulation Unit Value
Ending -- -- -- $ 7.299 $ 9.982
Number of Units
Outstanding at End of -- -- -- 10,154 73,878
Year
LSA Balanced (2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.40 $ 11.17 $ 11.26 $ 9.073
Accumulation Unit Value
Ending $ 10.40 $ 11.17 $ 11.26 $ 9.073 $ 11.561
Number of Units
Outstanding at End of 386 124,389 266,745 514,929 685,220
Year
LSA Basic Value (6)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.638
Accumulation Unit Value
Ending -- -- -- $ 7.638 $ 10.049
Number of Units
Outstanding at End of -- -- -- 63,427 353,241
Year
LSA Blue Chip (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.975
Accumulation Unit Value
Ending -- -- -- $ 7.975 $ 9.848
Number of Units
Outstanding at End of -- -- -- 24,337 260,606
Year
LSA Capital Appreciation
(4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 8.163
Accumulation Unit Value
Ending -- -- -- $ 8.163 $ 10.491
Number of Units
Outstanding at End of -- -- -- 14,015 73,575
Year
LSA Capital Growth (2)
Accumulation Unit Value
Beginning $ 10.00 $ 12.22 $ 11.03 $ 9.33 $ 6.910
Accumulation Unit Value
Ending $ 12.22 $ 11.03 $ 9.33 $ 6.910 $ 8.472
Number of Units
Outstanding at End of 3,394 142,502 226,920 226,041 330,980
Year
LSA Diversified Mid Cap
(4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.783
Accumulation Unit Value
Ending -- -- -- $ 7.783 $ 10.192
Number of Units
Outstanding at End of -- -- -- 26,268 172,288
Year
LSA Emerging Growth
Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 17.48 $ 12.04 $ 9.75 $ 5.589
Accumulation Unit Value
Ending $ 17.48 $ 12.04 $ 9.75 $ 5.589 $ 8.098
Number of Units
Outstanding at End of 16,191 131,445 150,128 161,610 207,970
Year
LSA Equity Growth (2)
Accumulation Unit Value
Beginning $ 10.00 $ 12.49 $ 10.86 $ 9.05 $ 6.224
Accumulation Unit Value
Ending $ 12.49 $ 10.86 $ 9.05 $ 6.224 $ 7.627
Number of Units
Outstanding at End of 34,228 160,257 240,525 85,390 619,195
Year
LSA Mid Cap Value (10)
Accumulation Unit Value
Beginning $ 8.437
Accumulation Unit Value
Ending $ 11.629
Number of Units
Outstanding at End of 165,206
Year
LSA Value Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 11.03 $ 12.55 $ 11.77 $ 9.035
Accumulation Unit Value
Ending $ 11.03 $ 12.55 $ 11.77 $ 9.035 $ 11.622
Number of Units
Outstanding at End of 32 122,654 235,535 428,181 484,234
Year
MFS New Discovery (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.473
Accumulation Unit Value
Ending -- -- -- $ 7.473 $ 9.833
Number of Units
Outstanding at End of -- -- -- 20,998 103,156
Year
MFS Utilities (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 8.370
Accumulation Unit Value
Ending -- -- -- $ 8.370 $ 11.189
Number of Units
Outstanding at End of -- -- -- 13,969 71,175
Year
Oppenheimer Main Street
Small Cap (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 7.839
Accumulation Unit Value
Ending -- -- -- $ 7.839 $ 11.151
Number of Units
Outstanding at End of -- -- -- 28,379 251,859
Year
PAVIT OpCap Balanced (6)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
PAVIT OpCap Equity (2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.62 $ 11.51 $ 10.56 $ 8.180
Accumulation Unit Value
Ending $ 10.62 $ 11.51 $ 10.56 $ 8.180 $ 10.371
Number of Units
Outstanding at End of 0 58,987 110,288 195,029 295,226
Year
PAVIT OpCap Small Cap
(2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.65 $ 15.15 $ 16.18 $ 12.502
Accumulation Unit Value
Ending $ 10.65 $ 15.15 $ 16.18 $ 12.502 $ 17.586
Number of Units
Outstanding at End of 0 49,685 75,521 140,778 232,549
Year
PAVIT PEA Science and
Technology (3)
Accumulation Unit Value
Beginning -- -- $ 10.00 $ 3.36 $ 1.803
Accumulation Unit Value
Ending -- -- $ 3.36 $ 1.803 $ 2.903
Number of Units
Outstanding at End of -- -- 59,395 160,966 1,167,164
Year
PIMCO VIT Foreign Bond
(U.S. Dollar-Hedged) (2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.29 $ 10.99 $ 11.66 $ 12.443
Accumulation Unit Value
Ending $ 10.29 $ 10.99 $ 11.66 $ 12.443 $ 12.547
Number of Units
Outstanding at End of 17,747 30,068 49,293 93,732 218,507
Year
PIMCO VIT Money Market
(2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.07 $ 10.54 $ 10.79 $ 10.786
Accumulation Unit Value
Ending $ 10.07 $ 10.54 $ 10.79 $ 10.786 $ 10.713
Number of Units
Outstanding at End of 45,777 307,495 918,122 1,311,411 1,069,740
Year
PIMCO VIT StocksPLUS
Growth and Income (4)
Accumulation Unit Value
Beginning $ 10.00 $ 11.64 $ 10.39 $ 9.07 $ 7.139
Accumulation Unit Value
Ending $ 11.64 $ 10.39 $ 9.07 $ 7.139 $ 9.179
Number of Units
Outstanding at End of 21 97,992 171,296 335,810 444,281
Year
PIMCO VIT Total Return
Bond (2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.13 $ 11.01 $ 11.77 $ 12.656
Accumulation Unit Value
Ending $ 10.13 $ 11.01 $ 11.77 $ 12.656 $ 13.109
Number of Units
Outstanding at End of 54,509 181,857 356,786 916,788 1,387,841
Year
Putnam VT High Yield (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 9.568
Accumulation Unit Value
Ending -- -- -- $ 9.568 $ 11.939
Number of Units
Outstanding at End of -- -- -- 14,843 151,285
Year
Rydex VT OTC (3)
Accumulation Unit Value
Beginning -- -- $ 10.00 $ 5.75 $ 3.470
Accumulation Unit Value
Ending -- -- $ 5.75 $ 3.470 $ 4.976
Number of Units
Outstanding at End of -- -- 7,617 73,139 169,077
Year
Salomon Brothers
Variable All Cap (2)
Accumulation Unit Value
Beginning $ 10.00 $ 11.54 $ 13.45 $ 13.51 $ 9.987
Accumulation Unit Value
Ending $ 11.54 $ 13.45 $ 13.51 $ 9.987 $ 13.693
Number of Units
Outstanding at End of 49,256 141,167 260,699 321,536 374,930
Year
Salomon Brothers
Variable Investors (6)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
Van Kampen UIF Equity
Growth (2) (9)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
Van Kampen UIF High
Yield (2)
Accumulation Unit Value
Beginning $ 10.00 $ 10.37 $ 9.14 $ 8.61 $ 7.872
Accumulation Unit Value
Ending $ 10.37 $ 9.14 $ 8.61 $ 7.872 $ 9.759
Number of Units
Outstanding at End of 17,868 68,958 94,964 148,434 259,819
Year
Van Kampen UIF. Mid Cap
Growth (2)
Accumulation Unit Value
Beginning $ 10.00 $ 13.80 $ 12.61 $ 8.79 $ 5.967
Accumulation Unit Value
Ending $ 13.80 $ 12.61 $ 8.79 $ 5.967 $ 8.341
Number of Units
Outstanding at End of 409 170,775 213,956 302,409 426,417
Year
Van Kampen UIF U.S. Mid
Cap Value (10)
Accumulation Unit Value
Beginning $ 10.00 $ 12.06 $ 13.17 $ 12.57 $ 8.924
Accumulation Unit Value
Ending $ 12.06 $ 13.17 $ 12.57 $ 8.924 $ 12.453
Number of Units
Outstanding at End of 0 85,226 189,874 301,924 324,553
Year
Van Kampen LIT
Aggressive Growth (11)
Accumulation Unit Value
Beginning -- -- -- -- --
Accumulation Unit Value
Ending -- -- -- -- --
Number of Units
Outstanding at End of -- -- -- -- --
Year
Van Kampen LIT Growth
and Income (4)
Accumulation Unit Value
Beginning -- -- -- $ 10.00 $ 8.155
Accumulation Unit Value
Ending -- -- -- $ 8.155 $ 10.267
Number of Units
Outstanding at End of -- -- -- 58,636 266,307
Year
(1) Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount 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
Administrative Expense Charge. The beginning value reflects the
Accumulation Unit Value as of October 18, 1999, the date Lincoln Benefit
started to offer the Contract.
(2) First offered 10/18/1999.
(3) First offered 1/17/2001.
(4) First offered 5/1/2002.
(5) First offered 5/1/03.(6) Effective 4/30/04, the LSA Balance Fund, LSA Basic
Value Fund and LSA Value Equity Fund were merged into the PAVIT OpCap
Balanced Portfolio, AIM V.I. Basic Value Fund - Series I and Salomon
Brothers Variable Investors Fund - Class I, respectively. Accordingly, on
4/30/04, we transferred the value of the LSA Balanced Variable Sub-Account
and the LSA Value Equity Variable Sub-Account to the PAVIT OpCap Balanced
Variable Sub-Account, AIM V.I. Basic Value Variable Sub-Account and the
Salomon Brothers Variable Investors Variable Sub-Account, respectively.
(6) Effective 4/30/04, the LSA Balance Fund, LSA Basic Value Fund and LSA Value
Equity Fund were merged into the PAVIT OpCap Balanced Portfolio, AIM V.I.
Basic Value Fund - Series I and Salomon Brothers Variable Investors Fund -
Class I, respectively. Accordingly, on 4/30/04, we transferred the value of
the LSA Balanced Variable Sub-Account and the LSA Value Equity Variable
Sub-Account to the PAVIT OpCap Balanced Variable Sub-Account, AIM V.I.
Basic Value Variable Sub-Account and the Salomon Brothers Variable
Investors Variable Sub-Account, respectively.
(7) Effective 4/30/04, the LSA Capital Appreciation Fund was merged into the
Janus Aspen Series Capital Appreciation Portfolio - Institutional Shares.
Accordingly, on 4/30/04, we transferred the value of the LSA Capital
Appreciation Variable Sub-Account to the Janus Aspen Serioed Capital
Appreciation Variable Sub-Account.
(8) Effective 5/1/04 the Janus Aspen Series International Portfolio - Service
Shares changed its name to the Janus Aspen Foreign Stock Portfolio -
Service Shares. We have made a corresponding change in the name of the
Variable Sub-Account that invests in this Portfolio.
(9) Effective 4/30/04, the LSA Blue Chip Fund, LSA Equity Growth Fund and LSA
Capital Growth Fund were merged into the Van Kampen UIF Equity Growth
Portfolio, Class I. Accordingly, on 4/30/04, we transferred the value of
the LSA Blue Chip Variable Sub-Account, LSA Equity Growth Variable
Sub-Account and LSA Capital Growth Variable Sub-Account to the Van Kampen
UIF Equity Growth Variable Sub-Account.
(10) Effective 4/30/04, the LSA Diversified Mid-Cap Growth Fund and LSA MidCap
Value Fund were merged into the Van Kampen UIF U.S. Mid Cap Value
Portfolio, Class I. Accordingly, on 4/30/04, we transferred the value of
the LSA Diversified Mid-Cap Growth Variable Sub-Account and the LSA MidCap
Value Variable Sub-Account to the Van Kampen UIF U.S. Mid Cap Value
Variable Sub-Account.
(11) Effective 4/30/04, the LSA Aggressive Growth Fund and LSA Emerging Growth
Fund were merged into the Van Kampen LIT Aggressive Growth Portfolio, Class
II. Accordingly, on 4/30/04, we transferred the value of the LSA Aggressive
Growth Variable Sub-Account and the LSA Emerging Growth Variable
Sub-Account to the Van Kampen LIT Aggressive Growth Variable Sub-Account.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
48 PROSPECTUS
ACCUMULATION UNIT VALUES
BASIC POLICY PLUS ENHANCED DEATH BENEFIT RIDER
Year ending December 31,
---------------------------------------------------
FUND 1999 2000 2001 2002 2003
------------------------------------------------------ ------------------------------------------
AIM Basic Value (6)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
Alger American Growth (5)
Accumulation Unit Value Beginning -- -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- -- $ 12.341
Number of Units Outstanding at End of Year -- -- -- -- 30,627
Fidelity VIP Growth Portfolio (5)
Accumulation Unit Value Beginning -- -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- -- $ 12.441
Number of Units Outstanding at End of Year -- -- -- -- 71,284
Fidelity VIP Investment Grade Bond (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 10.706
Accumulation Unit Value Ending -- -- -- $ 10.706 $ 11.057
Number of Units Outstanding at End of Year -- -- -- 84,421 275,877
Fidelity VIP Overseas (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.714
Accumulation Unit Value Ending -- -- -- $ 7.714 $ 10.858
Number of Units Outstanding at End of Year -- -- -- 8,812 22,038
Goldman Sachs VIT International Equity (2)
Accumulation Unit Value Beginning $ 10.00 $ 12.29 $ 10.50 $ 8.03 $ 6.453
Accumulation Unit Value Ending $ 12.29 $ 10.50 $ 8.03 $ 6.453 $ 8.605
Number of Units Outstanding at End of Year 5,621 78,931 112,245 114,893 135,685
Goldman Sachs VIT CORE Small Cap Equity (2)
Accumulation Unit Value Beginning $ 10.00 $ 12.19 $ 12.20 $ 12.55 $ 10.505
Accumulation Unit Value Ending $ 12.19 $ 12.20 $ 12.55 $ 10.505 $ 15.095
Number of Units Outstanding at End of Year 3,604 24,178 35,125 59,592 108,325
Janus Aspen Series Capital Appreciation (7)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
Janus Aspen Series Foreign Stock (4) (8)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.744
Accumulation Unit Value Ending -- -- -- $ 7.744 $ 10.166
Number of Units Outstanding at End of Year -- -- -- 6,035 20,593
Janus Aspen Series Worldwide Growth (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.795
Accumulation Unit Value Ending -- -- -- $ 7.795 $ 9.488
Number of Units Outstanding at End of Year -- -- -- 13,160 39,364
JPMorgan Small Company (2)
Accumulation Unit Value Beginning $ 10.00 $ 14.00 $ 12.22 $ 11.06 $ 8.527
Accumulation Unit Value Ending $ 14.00 $ 12.22 $ 11.06 $ 8.527 $ 11.412
Number of Units Outstanding at End of Year 0 53,597 58,437 83,459 115,268
Lazard Emerging Markets (2)
Accumulation Unit Value Beginning $ 10.00 $ 13.26 $ 9.39 $ 8.77 $ 8.501
Accumulation Unit Value Ending $ 13.26 $ 9.39 $ 8.77 $ 8.501 $ 12.795
Number of Units Outstanding at End of Year 2,809 25,988 32,552 51,013 81,410
Lazard International Equity (2)
Accumulation Unit Value Beginning $ 10.00 $ 11.24 $ 10.00 $ 7.47 $ 6.565
Accumulation Unit Value Ending $ 11.24 $ 10.00 $ 7.47 $ 6.565 $ 8.304
Number of Units Outstanding at End of Year 4,064 50,850 71,754 73,992 82,929
LSA Aggressive Growth (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.289
Accumulation Unit Value Ending -- -- -- $ 7.289 $ 9.949
Number of Units Outstanding at End of Year -- -- -- 5,753 41,947
LSA Balanced (2)
Accumulation Unit Value Beginning $ 10.00 $ 10.40 $ 11.14 $ 11.21 $ 9.015
Accumulation Unit Value Ending $ 10.40 $ 11.14 $ 11.21 $ 9.015 $ 11.464
Number of Units Outstanding at End of Year 7,126 69,393 144,623 221,913 419,279
LSA Basic Value (6)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.627
Accumulation Unit Value Ending -- -- -- $ 7.627 $ 10.015
Number of Units Outstanding at End of Year -- -- -- 30,010 144,113
LSA Blue Chip (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.964
Accumulation Unit Value Ending -- -- -- $ 7.964 $ 9.816
Number of Units Outstanding at End of Year -- -- -- 9,727 122,223
LSA Capital Appreciation (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 8.152
Accumulation Unit Value Ending -- -- -- $ 8.152 $ 10.456
Number of Units Outstanding at End of Year -- -- -- 4,462 52,459
LSA Diversified Mid Cap (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.772
Accumulation Unit Value Ending -- -- -- $ 7.772 $ 10.158
Number of Units Outstanding at End of Year -- -- -- 7,362 76,253
LSA Emerging Growth Equity (2)
Accumulation Unit Value Beginning $ 10.00 $ 17.47 $ 12.01 $ 9.71 $ 5.553
Accumulation Unit Value Ending $ 17.47 $ 12.01 $ 9.71 $ 5.553 $ 8.030
Number of Units Outstanding at End of Year 5,259 86,819 94,558 98,810 110,592
LSA Equity Growth (2)
Accumulation Unit Value Beginning $ 10.00 $ 12.48 $ 10.83 $ 9.01 $ 6.224
Accumulation Unit Value Ending $ 12.48 $ 10.83 $ 9.01 $ 6.224 $ 7.563
Number of Units Outstanding at End of Year 8,359 54,291 90,631 85,390 $243,908
LSA Capital Growth(2)
Accumulation Unit Value Beginning $ 10.00 $ 12.21 $ 11.00 $ 9.28 $ 6.910
Accumulation Unit Value Ending $ 12.21 $ 11.00 $ 9.28 $ 6.910 $ 8.401
Number of Units Outstanding at End of Year 24,902 123,406 172,729 226,041 268,165
LSA Mid Cap Value (10)
Accumulation Unit Value Beginning $ 8.246
Accumulation Unit Value Ending $ 11.591
Number of Units Outstanding at End of Year 107,129
LSA Value Equity (2)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 8.978
Accumulation Unit Value Ending -- -- -- $ 8.426 $ 11.525
Number of Units Outstanding at End of Year -- -- -- 25,180 234,745
MFS New Discovery (4)
Accumulation Unit Value Beginning $ 10.00 $ 11.03 $ 12.52 $ 11.72 $ 8.978
Accumulation Unit Value Ending $ 11.03 $ 12.52 $ 11.72 $ 8.978 $ 9.800
Number of Units Outstanding at End of Year 17,183 62,043 130,669 179,820 46,541
MFS Utilities (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.463
Accumulation Unit Value Ending -- -- -- $ 7.463 $ 11.152
Number of Units Outstanding at End of Year -- -- -- 10,193 37,809
PAVIT OpCap Balanced (2) (6)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
PAVIT OpCap Equity (2)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 8.359
Accumulation Unit Value Ending -- -- -- $ 8.359 $ 10.284
Number of Units Outstanding at End of Year -- -- -- 6,880 158,681
PAVIT PEA Science and Technology (3)
Accumulation Unit Value Beginning $ 10.00 $ 10.62 $ 11.49 $ 10.51 $ 8.128
Accumulation Unit Value Ending $ 10.62 $ 11.49 $ 10.51 $ 8.128 $ 10.284
Number of Units Outstanding at End of Year 5,784 61,655 97,863 115,950 158,681
PAVIT OpCap Small Cap (2)
Accumulation Unit Value Beginning -- -- $ 10.00 $ 3.62 $ 1.796
Accumulation Unit Value Ending -- -- $ 3.62 $ 1.796 $ 17.439
Number of Units Outstanding at End of Year -- -- 14,533 63,153 137,092
Oppenheimer Main Street Small Cap (4)
Accumulation Unit Value Beginning $ 10.00 $ 10.65 $ 15.11 $ 16.11 $ 12.422
Accumulation Unit Value Ending $ 10.65 $ 15.11 $ 16.11 $ 12.422 $ 11.113
Number of Units Outstanding at End of Year 0 16,703 43,783 74,972 108,430
PIMCO VIT Foreign Bond (U.S. Dollar-Hedged)
(2)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 7.829
Accumulation Unit Value Ending -- -- -- $ 7.829
Number of Units Outstanding at End of Year -- -- -- 27,890
PIMCO VIT Money Market (2)
Accumulation Unit Value Beginning $ 10.00 $ 10.28 $ 10.97 $ 11.61 $ 12.364
Accumulation Unit Value Ending $ 10.28 $ 10.97 $ 11.61 $ 12.364
Number of Units Outstanding at End of Year 0 1,231 3,605 27,152
PIMCO VIT StocksPLUS Growth and Income (2)
Accumulation Unit Value Beginning $ 10.00 $ 10.07 $ 10.51 $ 10.74 $ 10.717
Accumulation Unit Value Ending $ 10.07 $ 10.51 $ 10.74 $ 10.717
Number of Units Outstanding at End of Year 10,350 104,093 239,107 467,548
PIMCO VIT Total Return Bond (2)
Accumulation Unit Value Beginning $ 10.00 $ 11.64 $ 10.37 $ 9.03 $ 7.094
Accumulation Unit Value Ending $ 11.64 $ 10.37 $ 9.03 $ 7.094
Number of Units Outstanding at End of Year 12,776 82,128 112,333 161,698
Putnam VT High Yield (4)
Accumulation Unit Value Beginning $ 10.00 $ 10.13 $ 10.98 $ 11.71 $ 12.575
Accumulation Unit Value Ending $ 10.13 $ 10.98 $ 11.71 $ 12.575
Number of Units Outstanding at End of Year 224 57,774 148,500 491,013
Rydex VT OTC (3)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 9.555
Accumulation Unit Value Ending -- -- -- $ 9.555
Number of Units Outstanding at End of Year -- -- -- 6,438
Salomon Brothers Variable All Cap (2)
Accumulation Unit Value Beginning -- -- $ 10.00 $ 5.74 3.457
Accumulation Unit Value Ending -- -- $ 5.74 3.457
Number of Units Outstanding at End of Year -- -- 14,044 83,805
Salomon Brothers Variable Investors (6)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
Van Kampen UIF Equity Growth (2) (9)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
Van Kampen UIF High Yield (2)
Accumulation Unit Value Beginning $ 10.00 $ 11.53 $ 13.42 $ 13.46 $ 7.822
Accumulation Unit Value Ending $ 11.53 $ 13.42 $ 13.46 $ 7.822
Number of Units Outstanding at End of Year 0 64,958 121,931 60,785
Van Kampen UIF Mid Cap Growth (2)
Accumulation Unit Value Beginning $ 10.00 $ 13.80 $ 12.58 $ 8.75 $ 5.929
Accumulation Unit Value Ending $ 13.80 $ 12.58 $ 8.75 $ 5.929
Number of Units Outstanding at End of Year 6,216 87,781 123,258 135,098
Van Kampen UIF U.S. Mid Cap Value (2) (10)
Accumulation Unit Value Beginning $ 10.00 $ 12.05 $ 13.14 $ 12.52 $ 8.867
Accumulation Unit Value Ending $ 12.05 $ 13.14 $ 12.52 $ 8.867
Number of Units Outstanding at End of Year 6,021 44,148 95,312 151,383
Van Kampen LIT Aggressive Growth (11)
Accumulation Unit Value Beginning -- -- -- -- --
Accumulation Unit Value Ending -- -- -- -- --
Number of Units Outstanding at End of Year -- -- -- -- --
Van Kampen LIT Growth and Income (4)
Accumulation Unit Value Beginning -- -- -- $ 10.00 $ 8.144
Accumulation Unit Value Ending -- -- -- $ 8.144
Number of Units Outstanding at End of Year -- -- -- 26,840
(1) Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount 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
Administrative Expense Charge.
(2) First offered 10/18/1999.
(3) First offered 1/17/2001.
(4) First offered 5/1/2002.
(5) First offered 5/1/03.(6) Effective 4/30/04, the LSA Balance Fund, LSA Basic
Value Fund and LSA Value Equity Fund were merged into the PAVIT OpCap
Balanced Portfolio, AIM V.I. Basic Value Fund - Series I and Salomon
Brothers Variable Investors Fund - Class I, respectively. Accordingly, on
4/30/04, we transferred the value of the LSA Balanced Variable Sub-Account
and the LSA Value Equity Variable Sub-Account to the PAVIT OpCap Balanced
Variable Sub-Account, AIM V.I. Basic Value Variable Sub-Account and the
Salomon Brothers Variable Investors Variable Sub-Account, respectively.
(6) Effective 4/30/04, the LSA Balance Fund, LSA Basic Value Fund and LSA Value
Equity Fund were merged into the PAVIT OpCap Balanced Portfolio, AIM V.I.
Basic Value Fund - Series I and Salomon Brothers Variable Investors Fund -
Class I, respectively. Accordingly, on 4/30/04, we transferred the value of
the LSA Balanced Variable Sub-Account and the LSA Value Equity Variable
Sub-Account to the PAVIT OpCap Balanced Variable Sub-Account, AIM V.I.
Basic Value Variable Sub-Account and the Salomon Brothers Variable
Investors Variable Sub-Account, respectively.
(7) Effective 4/30/04, the LSA Capital Appreciation Fund was merged into the
Janus Aspen Series Capital Appreciation Portfolio - Institutional Shares.
Accordingly, on 4/30/04, we transferred the value of the LSA Capital
Appreciation Variable Sub-Account to the Janus Aspen Serioed Capital
Appreciation Variable Sub-Account.
(8) Effective 5/1/04 the Janus Aspen Series International Portfolio - Service
Shares changed its name to the Janus Aspen Foreign Stock Portfolio -
Service Shares. We have made a corresponding change in the name of the
Variable Sub-Account that invests in this Portfolio.
(9) Effective 4/30/04, the LSA Blue Chip Fund, LSA Equity Growth Fund and LSA
Capital Growth Fund were merged into the Van Kampen UIF Equity Growth
Portfolio, Class I. Accordingly, on 4/30/04, we transferred the value of
the LSA Blue Chip Variable Sub-Account, LSA Equity Growth Variable
Sub-Account and LSA Capital Growth Variable Sub-Account to the Van Kampen
UIF Equity Growth Variable Sub-Account.
(10) Effective 4/30/04, the LSA Diversified Mid-Cap Growth Fund and LSA MidCap
Value Fund were merged into the Van Kampen UIF U.S. Mid Cap Value
Portfolio, Class I. Accordingly, on 4/30/04, we transferred the value of
the LSA Diversified Mid-Cap Growth Variable Sub-Account and the LSA MidCap
Value Variable Sub-Account to the Van Kampen UIF U.S. Mid Cap Value
Variable Sub-Account.
(11) Effective 4/30/04, the LSA Aggressive Growth Fund and LSA Emerging Growth
Fund were merged into the Van Kampen LIT Aggressive Growth Portfolio, Class
II. Accordingly, on 4/30/04, we transferred the value of the LSA Aggressive
Growth Variable Sub-Account and the LSA Emerging Growth Variable
Sub-Account to the Van Kampen LIT Aggressive Growth Variable Sub-Account.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
52 PROSPECTUS
APPENDIX B
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $ 40,000.00
Credit Enhancement: 1,600.00
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 (in the
second Contract Year) 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 and $1,600.00 Credit
Enhancement are 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 $53,093.31. After one year, when the withdrawals
occur in these examples, the Contract Value would be $43,680.00. 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 eight years; plus
(b) an amount equal to your total Purchase Payments made more than eight 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 eight years ($6,000.00 = 15% x $40,000.00) is greater than the
earnings not previously withdrawn ($3,680.00). (B) equals $0, because all of the
Purchase Payments were made less than eight 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 $678.24 from the amount withdrawn:
$-678.24 = -.0180 x ($43,680 - $6,000.00)
A Withdrawal Charge of 7% (assuming the Withdrawal occurs at the start of the
second Contract year) would be assessed against the Purchase Payments withdrawn
that are less than eight 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 $2,320.00 ($6,000.00 - $3,680.00).
Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% x (40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$40,364.16 = $43,680.00 - $678.24 - $2,637.60
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
53 PROSPECTUS
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:
$678.24 = .0180 x ($43,680 - $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
$2,320.00 ($6,000.00 - $3,680.00). Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% x ($40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$41,720.64 = $43,680.00 + $678.24 - $2,637.60
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 $10,565.06 in earnings;
including the Credit Enhancement had been credited and that the Contract Value
in the Fixed Account equaled $50,565.06. In this example, if no prior
withdrawals have been made, you could withdraw up to $10,565.06 without
incurring a Market Value Adjustment or a Withdrawal Charge. The Free Withdrawal
Amount would be $10,565.06, because the interest credited ($10,565.06) is
greater than 15% of the Total Purchase Payments in the most recent eight years
($40,000.00 x .15 = $6,000.00).
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
54 PROSPECTUS
| ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION | ||||
| Registration fees | $ | 0 | ||||||||||||
| Cost of printing and engraving | $ | 236 | ||||||||||||
| Legal fees | $ | 9,500 | ||||||||||||
| Accounting fees | $ | 43,750 | ||||||||||||
| Mailing fees | $ | 989 | ||||||||||||
| ITEM 14. | INDEMNIFICATION OF DIRECTORS AND OFFICERS. | ||||
| ITEM 15. | RECENT SALES OF UNREGISTERED SECURITIES | ||||
| ITEM 16. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | ||||
| Exh. No. | Description | |||||||
| 1 | Form of Principal Underwriting Agreement. Incorporated herein by reference to Post-Effective Amendment to Form N-4 for Lincoln Benefit Life Variable Annuity Account (SEC File No. 333-50545, 811-07924) filed January 28, 1999. | |||||||
| 1(a) | Amended and Restated Principal Underwriting Agreement by and between Lincoln Benefit Life Company and Allstate Distributors, LLC, effective April 1, 2014. Incorporated herein by reference to Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014 (SEC File No. 333-180371). | |||||||
| 3(i) | Amended and Restated Articles of Incorporation of Lincoln Benefit Life Company dated September 26, 2000, as amended by the Articles of Amendment to the Articles of Incorporation of Lincoln Benefit Life Company dated January 21, 2015. Incorporated herein by reference to Exhibit 3(i) to Lincoln Benefit Life Company’s Registration Statement on Form S-1 filed on April 13, 2015 (SEC File No. 333-203375). | |||||||
| 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, as filed May 8, 2006. (SEC File No. 333-59765). | |||||||
| 4(a) | Form of Variable Annuity Contract. Incorporated herein by reference to Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-82427, 811-07924) filed July 8, 1999. | |||||||
| 4(b) | Form of Application. Incorporated herein by reference to Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-82427, 811-07924) filed July 8, 1999. | |||||||
| 5(a) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Post-Effective Amendment to Form S-3 on Form S-1 for Lincoln Benefit Life Variable Annuity Account (File No. 333-88045) filed April 6, 2000. | |||||||
| 5(b) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Registrant’s Form S-3 Registration Statement (SEC File No. 333-158181) dated March 24, 2009. | |||||||
| 5(c) | Opinion and Consent of Counsel regarding legality. (Incorporated by reference to Registrant’s Form S-1 Registration Statement (SEC File No. 333-180371) dated March 27, 2012). | |||||||
| 5(d) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(d) to Lincoln Benefit Life Company’s Registration Statement on Form S-1 filed on April 13, 2015 (SEC File No. 333-203375). | |||||||
| 5(e) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(e) of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 1 to Registration Statement filed on April 1, 2016 (SEC File No. 333-203375). | |||||||
| 5(f) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(f) of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 3, 2017 (SEC File No. 333-203375). | |||||||
| 5(g) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(g) of Lincoln Benefit Life Company’s Registration Statement on Form S-1 filed on April 2, 2018 (SEC File No. 333-224097). | |||||||
| 5(h) | Opinion and Consent of Counsel regarding legality. Incorporated herein by reference to Exhibit 5(h) of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 1 to Registration Statement filed on April 1, 2019 (SEC File No. 333-224097). | |||||||
| 5(i) | Opinion and Consent of Counsel regarding legality. Filed herewith. | |||||||
| 8 | None | |||||||
| 9 | None | |||||||
| 10 | Material Contracts | |||||||
| 10.1 | Administrative Services Agreement between Lincoln Benefit Life Company and Allstate Life Insurance Company effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. (SEC File No. 333-59765) | |||||||
| Exh. No. | Description | |||||||
| 10.2 | Principal Underwriting Agreement by and among Lincoln Benefit Life Company and Allstate Distributors, LLC (ALFS, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) effective November 25, 1998. (Variable Universal Life Account). Incorporated herein by reference to Exhibit 10.6 to Lincoln Benefit Life Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-59765) | |||||||
| 10.3 | Amended and Restated Principal Underwriting Agreement between Lincoln Benefit Life Company and Allstate Distributors, LLC (ALFS, Inc. merged with and into Allstate Distributors, LLC effective September 1, 2011) effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company’s Current Report on Form 8-K filed December 20, 2007. (SEC File No. 333-59765) | |||||||
| 10.4 | Selling Agreement between Lincoln Benefit Life Company, Allstate Distributors, LLC (ALFS, Inc., f/k/a Allstate Financial Services, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.) effective August 2, 1999. Incorporated herein by reference to Exhibit 10.8 to Allstate Life Insurance Company’s Annual Report on Form 10-K for 2003. (SEC File No. 000-31248) | |||||||
| 10.5 | Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.11 to Lincoln Benefit Life Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-59765) | |||||||
| 10.6 | Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.12 to Lincoln Benefit Life Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-59765) | |||||||
| 10.7 | Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.13 to Lincoln Benefit Life Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-59765) | |||||||
| 10.8 | Administrative Services Agreement between Allstate Distributors, LLC, (ALFS, Inc., merged with and into Allstate Distributors, LLC effective September 1, 2011) Allstate Life Insurance Company, Lincoln Benefit Life Company and Charter National Life Insurance Company effective January 1, 2000. Incorporated herein by reference to Exhibit 10.22 to Lincoln Benefit Life Company’s Annual Report on Form 10-K for the year ended December 31, 2008. (SEC File No. 333-59765) | |||||||
| 10.9 | Assignment & Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, LLC, Charter National Life Insurance Company, Intramerica Life Insurance Company, Allstate Financial Services, LLC, and Lincoln Benefit Life Company. Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company’s Current Report on Form 8-K filed September 1, 2011. (SEC File No. 000-31248) | |||||||
| 10.10 | Reinsurance Agreement between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company effective September 30, 2012, Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company’s Current Report on Form 8-K filed October 3, 2012. (SEC File No. 000-31248) | |||||||
| 10.11 | Recapture Agreement between Allstate Life Insurance Company (“ALIC”) and Lincoln Benefit Life Company (“LBL”), effective September 30, 2012. Incorporated herein by reference to Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 1 to Registration Statement filed on April 3, 2013. (SEC File No. 333-180371) | |||||||
| 10.12 | Voluntary Separation Agreement and Release by and between Allstate Insurance Company and Anurag Chandra, dated October 17, 2013. Incorporated herein by reference to Exhibit 10.22 of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180371) | |||||||
| 10.13 | Voluntary Separation Agreement and Release by and between Allstate Insurance Company and Lawrence W. Dahl, dated August 1, 2013. Incorporated herein by reference to Exhibit 10.23 of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180371) | |||||||
| 10.14 | Amended and Restated Administrative Services Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014. Incorporated herein by reference to Exhibit 10.14 of Lincoln Benefit Life Company’s Form S-1 Post- Effective Amendment No. 1 to Registration Statement filed on April 1, 2016 (SEC File No. 333-203375) | |||||||
| 10.15 | Amended and Restated Reinsurance Agreement by and between Lincoln Benefit Life Company and Allstate Life Insurance Company, effective April 1, 2014. Incorporated herein by reference to Exhibit 10.25 of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180371) | |||||||
| Exh. No. | Description | |||||||
| 10.16 | Partial Commutation Agreement by and between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective April 1, 2014. Incorporated herein by reference to Exhibit 10.26 of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 2 to Registration Statement filed on April 4, 2014. (SEC File No. 333-180371) | |||||||
| 10.17 | Recapture and Termination Agreement between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company effective December 8, 2017. Incorporated herein by reference to Exhibit 10.17 of Lincoln Benefit Life Company’s Form S-1 Post-Effective Amendment No. 1 to Registration Statement filed on April 1, 2019 (SEC File No. 333-224097). | |||||||
| 15 | Not applicable. | |||||||
| 16 | Letter re: change in certifying accountant. N/A | |||||||
| 21 | Subsidiaries of the registrant. Incorporated herein by reference to Exhibit 21 to Lincoln Benefit Life Company’s Registration Statement on Form S-1 filed on April 13, 2015 (SEC File No. 333-203375). | |||||||
| 23(a) | Consents of Independent Registered Public Accounting Firms. Filed herewith. | |||||||
| 23(b) | Consents of Independent Registered Public Accounting Firms. Filed herewith. | |||||||
| 24 | Powers of Attorney for Dhiren Jhaveri, Bradley Rosenblatt, Joseph Wieser and Burke Harr. Incorporated herein by reference to Exhibit 24 of Lincoln Benefit Life Company’s Form S-1 to Registration Statement filed on March 31, 2021 (SEC File No. 333-254897). | |||||||
| 25 | None | |||||||
| 99(a) | Experts. Filed herewith. | |||||||
| 99(b) | Experts. Filed herewith. | |||||||
| 16(b) | Financial statement schedules required by Regulation S-X (17 CFR Part 210) and Item 11(e) of Form S-1 are included in Part I. | |||||||
| ITEM 17. | UNDERTAKINGS. | ||||
| Exh. No. | Description | |||||||
| 1 | ||||||||
| 1(a) | ||||||||
| 3(i) | ||||||||
| 3(ii) | ||||||||
| 4(a) | ||||||||
| 4(b) | ||||||||
| 5(a) | ||||||||
| 5(b) | ||||||||
| 5(c) | ||||||||
| 5(d) | ||||||||
| 5(e) | ||||||||
| 5(f) | ||||||||
| 5(g) | ||||||||
| 5(h) | ||||||||
| 5(i) | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| Exh. No. | Description | |||||||
| 10.4 | ||||||||
| 10.5 | ||||||||
| 10.6 | ||||||||
| 10.7 | ||||||||
| 10.8 | ||||||||
| 10.9 | ||||||||
| 10.10 | ||||||||
| 10.11 | ||||||||
| 10.12 | ||||||||
| 10.13 | ||||||||
| 10.14 | ||||||||
| 10.15 | ||||||||
| 10.16 | ||||||||
| 10.17 | ||||||||
| Exh. No. | Description | |||||||
| 16 | Letter re: change in certifying accountant. N/A. | |||||||
| 21 | ||||||||
| 23(a) | ||||||||
| 23(b) | ||||||||
| 24 | ||||||||
| 99(a) | ||||||||
| 99(b) | ||||||||
LINCOLN BENEFIT LIFE COMPANY (REGISTRANT) | ||||||||
| By: | *Carlos Sierra | |||||||
| Carlos Sierra | ||||||||
| Director and President | ||||||||
| SIGNATURE | TITLE | ||||
| *Dhiren Jhaveri | Director | ||||
| Dhiren Jhaveri | |||||
| *Bradley Rosenblatt | Director | ||||
| Bradley Rosenblatt | |||||
| *Joseph Wieser | Director | ||||
| Joseph Wieser | |||||
| *Burke Harr | Director | ||||
| Burke Harr | |||||
| *Carlos Sierra | Director and President (Principal Executive Officer) | ||||
| Carlos Sierra | |||||
| /s/ Erik Braun | Chief Financial Officer, Treasurer and Executive Vice President (Principal | ||||
| Erik Braun | Financial Officer and Principal Accounting Officer) | ||||
| *By: /s/ Erik Braun, pursuant to Power of Attorney. | |||||