As Filed with the Securities and Exchange Commission on April 14, 2010
File No.333-158192
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LINCOLN BENEFIT LIFE COMPANY
(Exact name of Registrant as Specified in its Charter)
Nebraska 6300 470221457
(State or other (Primary Standard (I.R.S.Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
----------
2940 South 84th St., Lincoln, Nebraska 68506
1-800-865-5237
(Address of registrant's principal executive offices)
JAN FISCHER-WADE, ESQ.
LINCOLN BENEFIT LIFE COMPANY
2940 South 84th St.
LINCOLN, NE 68506
1-800-865-5237
(Name of agent for service)
Approximate date of commencement of proposed sale to the Public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [x] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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LINCOLN BENEFIT LIFE COMPANY
Supplement Dated May 1, 2010
To the following Prospectuses, as supplemented
CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED MAY 1, 2010
CONSULTANT I PROSPECTUS DATED MAY 1, 2010
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 11(a) Description of Business.................................................... 1
Item 11(b) Description of Property.................................................... 3
Item 11(c) Legal Proceedings.......................................................... 3
Item 11(e) Financial Statements and Notes to Financial Statements..................... 3
Item 11(f) Selected Financial Data.................................................... 36
Item 11(h) Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 37
Item 11(i) Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 52
Item 11(j) Quantitative and Qualitative Disclosures About Market Risk................. 52
Item 11(k) Directors, Executive Officers, Promoters and Control Persons............... 52
Item 11(l) Executive Compensation..................................................... 54
Item 11(m) Security Ownership of Certain Beneficial Owners and Management............. 83
Item 11(n) Transactions with Related Persons, Promoters and Certain Control Persons... 84
Other Information...................................................................... 87
Filing of Reports.......................................................... 87
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.............................................................. 87
Experts.................................................................... 88
ITEM 11(A). DESCRIPTION OF BUSINESS
Lincoln Benefit Life Company ("Lincoln Benefit") was incorporated under the
laws of the State of Nebraska in 1938. Lincoln Benefit is a wholly owned
subsidiary of Allstate Life Insurance Company ("ALIC"), a stock life insurance
company incorporated under the laws of the State of Illinois. ALIC is a wholly
owned subsidiary of Allstate Insurance Company ("AIC"), a stock
property-liability insurance company organized under the laws of the State of
Illinois. All of the outstanding capital stock of Allstate Insurance Company is
owned by Allstate Insurance Holdings, LLC, which is wholly owned by The
Allstate Corporation (the "Corporation" or "Allstate"), a publicly owned
holding company incorporated under the laws of the State of Delaware. The
Allstate Corporation is the largest publicly held personal lines insurer in the
United States. Widely known through the "You're In Good Hands With Allstate(R)"
slogan, Allstate is reinventing protection and retirement to help individuals
in approximately 17 million households protect what they have today and better
prepare for tomorrow. Customers can access Allstate products and services such
as auto insurance and homeowners insurance through more than 14,000 exclusive
Allstate agencies and financial representatives in the United States and
Canada. Allstate is the 2/nd/ largest personal property and casualty insurer in
the United States on the basis of
2008 statutory direct premiums earned. In addition, according to A.M. Best, it
is the nation's 16/th/ largest issuer of life insurance business on the basis
of 2008 ordinary life insurance in force and 17/th/ largest on the basis of
2008 statutory admitted assets.
To achieve its goals in 2010, Allstate is focused on these priorities:
improve customer loyalty, reinvent protection and retirement for the consumer,
and grow its businesses.
In our reports, we occasionally refer to statutory financial information.
All domestic United States insurance companies are required to prepare
statutory-basis financial statements. As a result, industry data is available
that enables comparisons between insurance companies, including competitors
that are not subject to the requirement to prepare financial statements in
conformity with accounting principles generally accepted in the United States
of America ("GAAP"). We frequently use industry publications containing
statutory financial information to assess our competitive position.
We provide life insurance, retirement and investment products. Our principal
products are fixed annuities, including deferred and immediate; and
interest-sensitive, traditional and variable life insurance. We sell products
through multiple intermediary distribution channels, including Allstate
exclusive agencies and exclusive financial specialists, independent agents
(including master brokerage agencies), and, through March 31, 2010,
broker-dealers.
We compete on a wide variety of factors, including the scope of our
distribution systems, the type of our product offerings, the recognition of our
brands, our financial strength and ratings, our differentiated product features
and prices, and the level of customer service that we provide. In addition,
with respect to variable life insurance products in particular, we compete on
the basis of the variety of fund managers and choices of funds for our separate
accounts and the management and performance of those funds within our separate
accounts.
The market for life insurance, retirement and investment products continues
to be highly fragmented and competitive. As of December 31, 2009, there were
approximately 480 groups of life insurance companies in the United States, most
of which offered one or more similar products. In addition, because many of
these products include a savings or investment component, our competition
includes domestic and foreign securities firms, investment advisors, mutual
funds, banks and other financial institutions. Competitive pressure continues
to grow due to several factors, including cross marketing alliances between
unaffiliated businesses, as well as consolidation activity in the financial
services industry.
We cede the mortality risk on certain life policies, depending upon the
issue year and product, to a pool of twelve non-affiliated reinsurers. All
business not reinsured to non-affiliated reinsurers is ceded to ALIC. Premiums,
contract charges, interest credited to contractholder funds, contract benefits
and substantially all expenses are reinsured by ALIC. Assets that support
general account product liabilities are owned and managed by ALIC. We continue
to have primary liability as the direct insurer for risks reinsured as ALIC's
obligations under the reinsurance agreements are to us and not the
contractholder.
Separate accounts liabilities related to variable annuity and life contracts
are ceded to ALIC via a 100% modified coinsurance agreement whereby assets are
maintained in our legally segregated separate accounts. Contract charges
assessed against the separate accounts assets and contract benefits are ceded
to ALIC.
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 regulatory agency. In general, such regulation is intended for the
protection of those who purchase or use insurance products. These rules have a
substantial effect on our business and relate to a wide variety of matters
including insurance company licensing and examination, agent licensing, price
setting, trade practices, policy forms, accounting methods, corporate
governance, the nature and amount of investments, claims practices,
participation
2
in guaranty funds, reserve adequacy, insurer solvency, transactions with
affiliates, the payment of dividends, and underwriting standards. For a
discussion of statutory financial information, see Note 11 of the Financial
Statements. For a discussion of regulatory contingencies, see Note 9 of the
Financial Statements. Notes 9 and 11 are incorporated in this Item 11(a) by
reference.
In recent years, the state insurance regulatory framework has come under
increased federal scrutiny. Legislation that would provide for increased
federal regulation of insurance, including the federal chartering of insurance
companies, has been proposed. Moreover, as part of an effort to strengthen the
regulation of the financial services market, the federal government has
proposed a set of regulatory reforms, including the establishment of an Office
of National Insurance within the Treasury Department. The reforms could
increase the regulation of large insurance conglomerates whose failure could
pose a systemic risk to the financial system. In addition, state legislators
and insurance regulators continue to examine the appropriate nature and scope
of state insurance regulation. We cannot predict whether any specific state or
federal measures will be adopted to change the nature or scope of the
regulation of the insurance or financial services business or what effect any
such measures would have on Lincoln Benefit.
ITEM 11(B). DESCRIPTION OF PROPERTY
Lincoln Benefit occupies office space in Lincoln, Nebraska and Northbrook,
Illinois that is owned by Allstate Insurance Company. Expenses associated with
these facilities are allocated to us on a direct basis.
ITEM 11(C). LEGAL PROCEEDINGS
Information required for Item 11(c) is incorporated by reference to the
discussion under the headings "Regulation and Compliance" and under the heading
"Legal and regulatory proceedings and inquiries" in Note 9 of the Financial
Statements.
ITEM 11(E). FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
------------------------
2009 2008 2007
($ IN THOUSANDS) ------- ------- -------
REVENUES
Net investment income.................................. $11,783 $13,940 $14,257
Realized capital gains and losses...................... 1,480 5,952 (417)
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE....... 13,263 19,892 13,840
Income tax expense..................................... 4,634 6,918 4,835
------- ------- -------
NET INCOME............................................. 8,629 12,974 9,005
------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS), AFTER-TAX
Change in unrealized net capital gains and losses...... 5,783 (4,351) 4,307
------- ------- -------
COMPREHENSIVE INCOME................................... $14,412 $ 8,623 $13,312
======= ======= =======
See notes to financial statements.
3
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
-----------------------
2009 2008
($ IN THOUSANDS, EXCEPT PAR VALUE DATA) ----------- -----------
ASSETS
Investments
Fixed income securities, at fair value (amortized cost $299,787 and
$229,667).................................................................. $ 308,343 $ 229,328
Short-term, at fair value (amortized cost $8,557 and $80,705)................ 8,557 80,703
----------- -----------
Total investments........................................................ 316,900 310,031
Cash............................................................................ 10,063 3,145
Reinsurance recoverable from Allstate Life Insurance Company.................... 18,689,074 18,791,710
Reinsurance recoverable from non-affiliates..................................... 1,766,824 1,613,685
Other assets.................................................................... 110,400 113,637
Separate accounts............................................................... 2,039,647 1,823,163
----------- -----------
TOTAL ASSETS.......................................................... $22,932,908 $22,655,371
=========== ===========
LIABILITIES
Contractholder funds............................................................ $17,633,027 $17,787,376
Reserve for life-contingent contract benefits................................... 2,805,387 2,581,186
Unearned premiums............................................................... 21,656 24,169
Deferred income taxes........................................................... 3,300 --
Payable to affiliates, net...................................................... 14,749 36,029
Current income taxes payable.................................................... 4,656 7,017
Other liabilities and accrued expenses.......................................... 97,513 97,870
Separate accounts............................................................... 2,039,647 1,823,163
----------- -----------
TOTAL LIABILITIES..................................................... 22,619,935 22,356,810
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 30 thousand shares authorized, 25 thousand shares
issued and outstanding........................................................ 2,500 2,500
Additional capital paid-in...................................................... 180,000 180,000
Retained income................................................................. 124,912 116,283
Accumulated other comprehensive income (loss):
Unrealized net capital gains and losses...................................... 5,561 (222)
----------- -----------
Total accumulated other comprehensive income (loss)................... 5,561 (222)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY............................................ 312,973 298,561
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................ $22,932,908 $22,655,371
=========== ===========
See notes to financial statements.
4
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31,
----------------------------
2009 2008 2007
($ IN THOUSANDS) -------- -------- --------
COMMON STOCK........................................... $ 2,500 $ 2,500 $ 2,500
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN............................. 180,000 180,000 180,000
-------- -------- --------
RETAINED INCOME
Balance, beginning of year............................. 116,283 103,309 94,304
Net income............................................. 8,629 12,974 9,005
-------- -------- --------
Balance, end of year................................... 124,912 116,283 103,309
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year............................. (222) 4,129 (178)
Change in unrealized net capital gains and losses...... 5,783 (4,351) 4,307
-------- -------- --------
Balance, end of year................................... 5,561 (222) 4,129
-------- -------- --------
TOTAL SHAREHOLDER'S EQUITY............................. $312,973 $298,561 $289,938
======== ======== ========
See notes to financial statements.
5
LINCOLN BENEFIT LIFE COMPANY
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------
2009 2008 2007
($ IN THOUSANDS) --------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 8,629 $ 12,974 $ 9,005
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization and other non-cash items.............................. 932 143 25
Realized capital gains and losses.................................. (1,480) (5,952) 417
Changes in:
Policy benefit and other insurance reserves.................... 19,349 (5,052) (18,124)
Income taxes................................................... (2,174) 2,065 428
Receivable/payable to affiliates, net.......................... (21,280) 14,117 46,902
Other operating assets and liabilities......................... 369 (24,195) (24,698)
--------- -------- --------
Net cash provided by (used in) operating activities......... 4,345 (5,900) 13,955
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed income securities........................ 46,330 101,584 5,176
Collections on fixed income securities................................ 35,334 7,693 13,732
Purchases of fixed income securities.................................. (151,234) (64,497) (17,982)
Change in short-term investments...................................... 72,143 (54,347) (19,621)
--------- -------- --------
Net cash provided by (used in) investing activities......... 2,573 (9,567) (18,695)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH....................................... 6,918 (15,467) (4,740)
CASH AT BEGINNING OF YEAR............................................. 3,145 18,612 23,352
--------- -------- --------
CASH AT END OF YEAR................................................... $ 10,063 $ 3,145 $ 18,612
========= ======== ========
See notes to financial statements.
6
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Lincoln
Benefit Life Company (the "Company"), a wholly owned subsidiary of Allstate
Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance
Company ("AIC"). All of the outstanding common stock of AIC is owned by
Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate
Corporation (the "Corporation"). These financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America ("GAAP").
To conform to the current year presentation, certain amounts in the prior
years' financial statements and notes have been reclassified.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
NATURE OF OPERATIONS
The Company sells life insurance, retirement and investment products. The
principal products are fixed annuities, and interest-sensitive, traditional and
variable life insurance.
The Company is authorized to sell life insurance and retirement products in
all states except New York, as well as in the District of Columbia, the U.S.
Virgin Islands and Guam. For 2009, the top geographic locations for statutory
premiums and annuity considerations were California, Florida, Texas and
Pennsylvania. No other jurisdiction accounted for more than 5% of statutory
premiums and annuity considerations. All statutory premiums and annuity
considerations are ceded under reinsurance agreements. The Company distributes
its products through multiple distribution channels, including Allstate
exclusive agencies, which include exclusive financial specialists, independent
agents (including master brokerage agencies), and, through March 31, 2010,
broker-dealers.
The Company has exposure to market risk as a result of its investment
portfolio. Market risk is the risk that the Company will incur realized and
unrealized net capital losses due to adverse changes in interest rates and
credit spreads. The Company also has certain exposures to changes in equity
prices in its equity-indexed annuities and separate accounts liabilities, which
are transferred to ALIC in accordance with reinsurance agreements. Interest
rate risk is the risk that the Company will incur a loss due to adverse changes
in interest rates relative to the interest rate characteristics of its interest
bearing assets. This risk arises from the Company's investment in
interest-sensitive assets. Interest rate risk includes risks related to changes
in U.S. Treasury yields and other key risk-free reference yields. Credit spread
risk is the risk that the Company will incur a loss due to adverse changes in
credit spreads. This risk arises from many of the Company's primary activities,
as the Company invests substantial funds in spread-sensitive fixed income
assets.
The Company monitors economic and regulatory developments that have the
potential to impact its business. The ability of banks to affiliate with
insurers may have a material adverse effect on all of the Company's product
lines by substantially increasing the number, size and financial strength of
potential competitors. The Company currently benefits from agreements with
financial services entities that market and distribute its products; change in
control of these non-affiliated entities could negatively impact the Company's
sales. Furthermore, federal and state laws and regulations affect the taxation
of insurance companies and life insurance and annuity products. Congress and
various state legislatures have considered proposals that, if enacted, could
impose a greater tax burden on the Company or could have an adverse impact on
the tax treatment of some insurance products offered by the Company, including
favorable policyholder tax treatment currently
7
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
applicable to life insurance and annuities. Legislation that reduced the
federal income tax rates applicable to certain dividends and capital gains
realized by individuals, or other proposals, if adopted, that reduce the
taxation or permit the establishment of certain products or investments that
may compete with life insurance or annuities, could have an adverse effect on
the Company's and ALIC's financial position or ability to sell such products
and could result in the surrender of some existing contracts and policies. In
addition, changes in the federal estate tax laws could negatively affect the
demand for the types of life insurance used in estate planning.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds, asset-backed securities ("ABS"),
residential mortgage-backed securities ("RMBS") and commercial mortgage-backed
securities ("CMBS"). Fixed income securities, which may be sold prior to their
contractual maturity, are designated as available for sale and are carried at
fair value. The difference between amortized cost and fair value, net of
deferred income taxes, is reflected as a component of accumulated other
comprehensive income. Cash received from calls, principal payments and
make-whole payments is reflected as a component of proceeds from sales and cash
received from maturities and pay-downs is reflected as a component of
investment collections within the Statements of Cash Flows.
Short-term investments, including money market funds and other short-term
investments, are carried at fair value.
Investment income consists primarily of interest and is recognized on an
accrual basis using the effective yield method. Interest income for certain
asset-backed securities, residential mortgage-backed securities and commercial
mortgage-backed securities is determined considering estimated principal
repayments obtained from third party data sources and internal estimates.
Actual prepayment experience is periodically reviewed and effective yields are
recalculated on a retrospective basis when differences arise between the
prepayments originally anticipated and the actual prepayments received and
currently anticipated. For other-than-temporarily impaired fixed income
securities, the effective yield method utilizes the difference between the
amortized cost basis at impairment and the cash flows expected to be collected.
Accrual of income is suspended for other-than-temporarily impaired fixed income
securities when the timing and amount of cash flows expected to be received is
not reasonably estimable.
Realized capital gains and losses include gains and losses on investment
sales and write-downs in value due to other-than-temporary declines in fair
value. Realized capital gains and losses on investment sales include calls and
prepayments and are determined on a specific identification basis.
The Company recognizes other-than-temporary impairment losses on fixed
income securities when the decline in fair value is deemed other than temporary
including when the Company has made the decision to sell or it is more likely
than not the Company will be required to sell the fixed income security before
recovery of its amortized cost basis. Additionally, if the Company does not
expect to receive cash flows sufficient to recover the entire amortized cost
basis of the fixed income security, the credit loss component of the impairment
is recorded in earnings, with the remaining amount of the unrealized loss
deemed to be related to other factors and recognized in other comprehensive
income ("OCI"). Fixed income securities subject to other-than-temporary
impairment write-downs continue to earn investment income when future expected
payments are reasonably estimable, and any discount or premium is recognized
using the effective yield method over the expected life of the security;
otherwise income recognition is discontinued.
8
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES, AND RELATED BENEFITS
AND INTEREST CREDITED
The Company has reinsurance agreements whereby all premiums, contract
charges, interest credited to contractholder funds, contract benefits and
substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see
Notes 3 and 8). Amounts reflected in the Statements of Operations and
Comprehensive Income are presented net of reinsurance.
Traditional life insurance products consist principally of products with
fixed and guaranteed premiums and benefits, primarily term and whole life
insurance products. Premiums from these products are recognized as revenue when
due from policyholders. Benefits are reflected in contract benefits and
recognized in relation to premiums, so that profits are recognized over the
life of the policy.
Immediate annuities with life contingencies provide insurance protection
over a period that extends beyond the period during which premiums are
collected. Premiums from these products are recognized as revenue when received
at the inception of the contract. Benefits and expenses are recognized in
relation to premiums. Profits from these policies come from investment income,
which is recognized over the life of the contract.
Interest-sensitive life contracts, such as universal life and single premium
life, are insurance contracts whose terms are not fixed and guaranteed. The
terms that may be changed include premiums paid by the contractholder, interest
credited to the contractholder account balance and contract charges assessed
against the contractholder account balance. Premiums from these contracts are
reported as contractholder fund deposits. Contract charges consist of fees
assessed against the contractholder account balance for the cost of insurance
(mortality risk), contract administration and early surrender. These contract
charges are recognized as revenue when assessed against the contractholder
account balance. Contract benefits include life-contingent benefit payments in
excess of the contractholder account balance.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed
annuities, including market value adjusted annuities, equity-indexed annuities
and immediate annuities without life contingencies, are considered investment
contracts. Consideration received for such contracts is reported as
contractholder fund deposits. Contract charges for investment contracts consist
of fees assessed against the contractholder account balance for maintenance,
administration and surrender of the contract prior to contractually specified
dates, and are recognized when assessed against the contractholder account
balance.
Interest credited to contractholder funds represents interest accrued or
paid on interest-sensitive life contracts and investment contracts. Crediting
rates for certain fixed annuities and interest-sensitive life contracts are
adjusted periodically by the Company to reflect current market conditions
subject to contractually guaranteed minimum rates. Crediting rates for indexed
annuities are generally based on an equity index, such as the Standard & Poor's
("S&P") 500 Index.
Contract charges for variable life and variable annuity products consist of
fees assessed against the contractholder account values for contract
maintenance, administration, mortality, expense and early surrender. Contract
benefits incurred for variable annuity products include guaranteed minimum
death, income, withdrawal and accumulation benefits.
REINSURANCE
The Company has reinsurance agreements whereby all premiums, contract
charges, interest credited to contractholder funds, contract benefits and
substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see
Notes 3 and 8). Reinsurance recoverables and the related reserve for
life-contingent contract
9
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
benefits and contractholder funds are reported separately in the Statements of
Financial Position. The Company regularly evaluates the financial condition of
its reinsurers including their activities with respect to claim settlement
practices and establishes allowances for uncollectible reinsurance as
appropriate. No amounts have been deemed unrecoverable in the three years ended
December 31, 2009. The Company continues to have primary liability as the
direct insurer for the risks reinsured.
Investment income earned on the assets that support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed by ALIC
under the terms of the reinsurance agreements.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
unrealized capital gains and losses on investments and differences in tax bases
of invested assets. A deferred tax asset valuation allowance is established
when there is uncertainty that such assets will be realized (see Note 10).
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits payable under insurance
policies, including traditional life insurance and life-contingent immediate
annuities, is computed on the basis of long-term actuarial assumptions of
future investment yields, mortality, morbidity, policy terminations and
expenses (see Note 7). These assumptions, which for traditional life insurance
are applied using the net level premium method, include provisions for adverse
deviation and generally vary by characteristics such as type of coverage, year
of issue and policy duration.
CONTRACTHOLDER FUNDS
Contractholder funds represent interest-bearing liabilities arising from the
sale of products, such as interest-sensitive life and fixed annuities.
Contractholder funds are comprised primarily of deposits received and interest
credited to the benefit of the contractholder less surrenders and withdrawals,
mortality charges and administrative expenses (see Note 7). Contractholder
funds also include reserves for secondary guarantees on interest-sensitive life
insurance and certain fixed annuity contracts and reserves for certain
guarantees on variable annuity contracts.
SEPARATE ACCOUNTS
Separate accounts assets are carried at fair value. The assets of the
separate accounts are legally segregated and available only to settle separate
account contract obligations. Separate accounts liabilities represent the
contractholders' claims to the related assets and are carried at an amount
equal to the separate accounts assets. Investment income and realized capital
gains and losses of the separate accounts accrue directly to the
contractholders and therefore, are not included in the Company's Statements of
Operations and Comprehensive Income. Deposits to and surrenders and withdrawals
from the separate accounts are reflected in separate accounts liabilities and
are not included in cash flows.
Absent any contract provision wherein the Company provides a guarantee,
variable annuity and variable life insurance contractholders bear the
investment risk that the separate accounts' funds may not meet their stated
investment objectives. The risk and associated cost of these contract
guarantees are ceded to ALIC in accordance with the reinsurance agreements.
10
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ADOPTED ACCOUNTING STANDARDS
RECOGNITION AND PRESENTATION OF OTHER-THAN-TEMPORARY IMPAIRMENTS
In April 2009, the FASB issued new accounting guidance for the recognition
of other-than-temporary impairments ("OTTI") of debt securities. If the fair
value of a debt security is less than its amortized cost basis at the reporting
date, an entity shall assess whether the impairment is an OTTI. When an entity
intends to sell an impaired security or more likely than not will be required
to sell an impaired security before recovery of its amortized cost basis, an
OTTI is recognized in earnings. If the entity does not expect to recover the
entire amortized cost basis of an impaired debt security, even if it does not
intend to sell the security and it is not more likely than not that it would be
required to sell the security before recovery of its amortized cost basis, the
entity must consider, based upon an estimate of the present value of cash flows
expected to be collected on the debt security as compared to its amortized cost
basis, whether a credit loss exists. The portion of the total OTTI related to a
credit loss shall be recognized in earnings while the portion of the total OTTI
related to factors other than credit shall be recognized in OCI. The statement
of operations is required to present the total OTTI with an offset for the
amount of the total OTTI that is recognized in OCI, if any. The statement
disclosing accumulated other comprehensive income ("AOCI") is required to
separately present amounts recognized for debt securities for which a portion
of an OTTI has been recognized in earnings, if any.
The new guidance expands disclosure requirements for both debt and equity
securities and requires a more detailed, risk-oriented breakdown of security
types and related information. In addition, new disclosures are required about
significant inputs used in determining credit losses as well as a rollforward
of credit losses, if any. The disclosures are not required for earlier periods
presented for comparative purposes. The new guidance applies to existing and
new investments held as of the beginning of the period of adoption.
The Company adopted the provisions of the new guidance as of April 1, 2009.
The adoption had no effect on the Company's results of operations or financial
position.
DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR
LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE
NOT ORDERLY
In April 2009, the FASB issued new accounting guidance relating to fair
value measurements to provide additional guidance for estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased. Guidance on identifying circumstances that indicate a
transaction is not orderly is also provided. If it is concluded that there has
been a significant decrease in the volume and level of market activity for an
asset or liability in relation to normal market activity, transaction or quoted
prices may not be determinative of fair value and further analysis of
transaction or quoted prices may be necessary. Determination of whether a
transaction is orderly is based on the weight of relevant evidence.
The disclosure requirements are expanded to include the inputs and valuation
techniques used to measure fair value and a discussion of changes in valuation
techniques and related inputs during the reporting period. Disclosures of
assets and liabilities measured at fair value are to be presented by major
security type. Disclosures are not required for earlier periods presented for
comparative purposes. Revisions resulting from a change in valuation technique
or its application shall be accounted for as a change in accounting estimate
and disclosed, along with the total effect of the change in valuation technique
and related inputs, if practicable, by major category. The Company adopted the
provisions of the new guidance as of April 1, 2009. The adoption had no effect
on the Company's results of operations or financial position.
DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In March 2008, the FASB issued new accounting guidance, which amends and
expands the disclosure requirements for derivatives. The new disclosures are
designed to enhance the understanding of how and why an
11
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
entity uses derivative instruments and how derivative instruments affect an
entity's financial position, results of operations, and cash flows. The
standard requires quantitative disclosures about the potential cash outflows
associated with the triggering of credit-risk-contingent features, if any;
tabular disclosures about the classification and fair value amounts of
derivative instruments reported in the statement of financial position;
disclosure of the location and amount of gains and losses on derivative
instruments reported in the statement of operations; and qualitative
information about how and why an entity uses derivative instruments and how
derivative instruments and related hedged items affect the entity's financial
statements. Disclosures are not required for earlier periods presented for
comparative purposes. The new guidance affects disclosures only and therefore
the adoption as of March 31, 2009 had no impact on the Company's results of
operations or financial position.
PENDING ACCOUNTING STANDARD
DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS
In January 2010, the FASB issued new accounting guidance which expands
disclosure requirements relating to fair value measurements. The guidance adds
requirements for disclosing amounts of and reasons for significant transfers
into and out of Levels 1 and 2 and requires gross rather than net disclosures
about purchases, sales, issuances and settlements relating to Level 3
measurements. The guidance also provides clarification that fair value
measurement disclosures are required for each class of assets and liabilities.
Disclosures about the valuation techniques and inputs used to measure fair
value for measurements that fall in either Level 2 or Level 3 are also
required. The new disclosures and clarifications of existing disclosures are
effective for periods beginning after December 15, 2009, except for disclosures
about purchases, sales, issuances and settlements in the roll forward of
activity in Level 3 fair value measurements, which are required for fiscal
years beginning after December 15, 2010. Disclosures are not required for
earlier periods presented for comparative purposes. The new guidance affects
disclosures only and therefore its adoption will have no impact on the
Company's results of operations or financial position.
3. RELATED PARTY TRANSACTIONS
BUSINESS OPERATIONS
The Company uses services performed by its affiliates, AIC, ALIC and
Allstate Investments LLC, and business facilities owned or leased and operated
by AIC in conducting its business activities. In addition, the Company shares
the services of employees with AIC. The Company reimburses its affiliates for
the operating expenses incurred on behalf of the Company. The Company is
charged for the cost of these operating expenses based on the level of services
provided. Operating expenses, including compensation, retirement and other
benefit programs, allocated to the Company were $202.9 million, $227.0 million
and $202.2 million in 2009, 2008 and 2007, respectively. Of these costs, the
Company retains investment related expenses on the invested assets of the
Company. All other costs are ceded to ALIC under the reinsurance agreements.
BROKER-DEALER AGREEMENTS
The Company has a service agreement with Allstate Distributors, LLC
("ADLLC"), a broker-dealer company owned by ALIC, whereby ADLLC promotes and
markets the fixed annuities sold by the Company to unaffiliated financial
services firms. In return for these services, the Company recorded commission
expense of $4.6 million, $5.1 million and $3.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively, that was ceded to ALIC under
the terms of the reinsurance agreements.
The Company receives distribution services from Allstate Financial Services,
LLC ("AFS"), an affiliated broker-dealer company, for certain variable life
insurance contracts sold by Allstate exclusive agencies. For these services,
the Company incurred $9.1 million, $18.4 million and $25.5 million of
commission and other distribution expenses for the years ending December 31,
2009, 2008 and 2007, respectively, that were ceded to ALIC.
12
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REINSURANCE
The following table summarizes amounts that were ceded to ALIC and reported
net in the Statements of Operations and Comprehensive Income under the
reinsurance agreements:
2009 2008 2007
($ IN THOUSANDS) ---------- ---------- ----------
Premiums and contract charges.............. $ 734,369 $ 691,267 $ 623,102
Interest credited to contractholder funds,
contract benefits and expenses........... 1,621,011 1,468,505 1,421,831
Reinsurance recoverables due from ALIC totaled $18.69 billion and $18.79
billion as of December 31, 2009 and 2008, respectively.
INCOME TAXES
The Company is a party to a federal income tax allocation agreement with the
Corporation (see Note 10).
INTERCOMPANY LOAN AGREEMENT
The Company has an intercompany loan agreement with the Corporation. The
amount of intercompany loans available to the Company is at the discretion of
the Corporation. The maximum amount of loans the Corporation will have
outstanding to all its eligible subsidiaries at any given point in time is
limited to $1.00 billion. The Corporation may use commercial paper borrowings,
bank lines of credit and repurchase agreements to fund intercompany borrowings.
The Company had no amounts outstanding under the intercompany loan agreement at
December 31, 2009 and 2008.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for
fixed income securities are as follows:
GROSS UNREALIZED
AMORTIZED -------------- FAIR
COST GAINS LOSSES VALUE
($ IN THOUSANDS) --------- ------ ------- --------
AT DECEMBER 31, 2009
U.S. government and agencies.......... $ 79,982 $1,852 $ (283) $ 81,551
Municipal............................. 2,999 96 -- 3,095
Corporate............................. 131,466 6,192 (85) 137,573
RMBS.................................. 66,326 1,733 (84) 67,975
CMBS.................................. 10,520 57 (873) 9,704
ABS................................... 8,494 -- (49) 8,445
-------- ------ ------- --------
Total fixed income securities...... $299,787 $9,930 $(1,374) $308,343
======== ====== ======= ========
AT DECEMBER 31, 2008
U.S. government and agencies.......... $ 75,374 $3,700 $ (258) $ 78,816
Municipal............................. 502 -- (3) 499
Corporate............................. 77,192 603 (2,092) 75,703
RMBS.................................. 46,720 1,680 (49) 48,351
CMBS.................................. 22,896 -- (3,936) 18,960
ABS................................... 6,983 20 (4) 6,999
-------- ------ ------- --------
Total fixed income securities...... $229,667 $6,003 $(6,342) $229,328
======== ====== ======= ========
13
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 2009:
AMORTIZED FAIR
COST VALUE
($ IN THOUSANDS) --------- --------
Due in one year or less...................... $ 16,527 $ 16,729
Due after one year through five years........ 133,714 138,059
Due after five years through ten years....... 63,046 65,915
Due after ten years.......................... 11,680 11,220
-------- --------
224,967 231,923
RMBS and ABS................................. 74,820 76,420
-------- --------
Total..................................... $299,787 $308,343
======== ========
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers. Because of the potential for prepayment on RMBS and ABS, they
are not categorized by contractual maturity. The CMBS are categorized by
contractual maturity because they generally are not subject to prepayment risk.
NET INVESTMENT INCOME
Net investment income for the years ended December 31 is as follows:
2009 2008 2007
($ IN THOUSANDS) ------- ------- -------
Fixed income securities............ $12,098 $13,302 $13,533
Short-term and other investments... 107 992 1,117
------- ------- -------
Investment income, before
expense....................... 12,205 14,294 14,650
Investment expense.............. (422) (354) (393)
------- ------- -------
Net investment income....... $11,783 $13,940 $14,257
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
The Company recognized net realized capital gains of $1.5 million and $6.0
million in 2009 and 2008, respectively, and net realized capital losses of $417
thousand in 2007. Realized capital gains and losses in 2009 did not include any
other-than-temporary impairment losses and therefore, none were included in
other comprehensive income. No other-than-temporary impairment losses are
included in accumulated other comprehensive income as of December 31, 2009.
Gross gains of $1.5 million and $8.2 million were realized on sales of fixed
income securities during 2009 and 2008, respectively. There were no gross gains
realized on sales of fixed income securities in 2007. Gross losses of $3
thousand and $32 thousand were realized on sales of fixed income securities
during 2009 and 2007, respectively. There were no gross losses realized on
sales of fixed income securities in 2008.
14
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses included in accumulated other
comprehensive income are as follows:
GROSS UNREALIZED
FAIR -------------- UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
($ IN THOUSANDS) -------- ------ ------- --------------
AT DECEMBER 31, 2009
Fixed income securities................................. $308,343 $9,930 $(1,374) $ 8,556
Short-term investments.................................. 8,557 -- -- --
-------
Unrealized net capital gains and losses, pre-tax..... 8,556
Deferred income taxes................................ (2,995)
-------
Unrealized net capital gains and losses, after-tax... $ 5,561
=======
GROSS UNREALIZED
FAIR -------------- UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
-------- ------ ------- --------------
AT DECEMBER 31, 2008
Fixed income securities................................. $229,328 $6,003 $(6,342) $ (339)
Short-term investments.................................. 80,703 -- (2) (2)
-------
Unrealized net capital gains and losses, pre-tax..... (341)
Deferred income taxes................................ 119
-------
Unrealized net capital gains and losses, after-tax... $ (222)
=======
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
The change in unrealized net capital gains and losses for the years ended
December 31 is as follows:
2009 2008 2007
($ IN THOUSANDS) ------- ------- -------
Fixed income securities................................. $ 8,895 $(6,691) $ 6,625
Short-term investments.................................. 2 (2) --
------- ------- -------
Total................................................ 8,897 (6,693) 6,625
Deferred income taxes................................... (3,114) 2,342 (2,318)
------- ------- -------
Increase (decrease) in unrealized net capital gains and
losses................................................ $ 5,783 $(4,351) $ 4,307
======= ======= =======
PORTFOLIO MONITORING
The Company has a comprehensive portfolio monitoring process to identify and
evaluate each fixed income security whose carrying value may be
other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, the Company
assesses whether management with the appropriate authority has made a decision
to sell or whether it is more likely than not the Company will be required to
sell the security before recovery of the amortized cost basis for reasons such
as liquidity, contractual or regulatory purposes. If a security meets either of
these criteria, the security's decline in fair value is deemed other than
temporary and is recorded in earnings.
If the Company has not made the decision to sell the fixed income security
and it is not more likely than not the Company will be required to sell the
fixed income security before recovery of its amortized cost basis, the
15
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company evaluates if it expects to receive cash flows sufficient to recover the
entire amortized cost basis of the security by comparing the estimated recovery
value calculated by discounting the best estimate of future cash flows at the
security's original or current effective rate, as appropriate, with the
amortized cost of the security. If the Company does not expect to receive cash
flows sufficient to recover the entire amortized cost basis of the fixed income
security, the credit loss component of the impairment is recorded in earnings,
with the remaining amount of the unrealized loss deemed to be related to other
factors and recognized in OCI.
The Company's portfolio monitoring process includes a quarterly review of
all securities through a screening process which identifies instances where the
fair value compared to amortized cost is below established thresholds, and also
includes the monitoring of other criteria such as ratings, ratings downgrades
or payment defaults. The securities identified, in addition to other securities
for which the Company may have a concern, are evaluated for potential
other-than-temporary impairment using all reasonably available information
relevant to the collectability or recovery of the security. Inherent in the
Company's evaluation of other-than-temporary impairment for these fixed income
securities are assumptions and estimates about the financial condition of the
issue or issuer and its future earnings potential. Some of the factors
considered in evaluating whether a decline in fair value is other than
temporary are: 1) the length of time and extent to which the fair value has
been less than amortized cost; 2) the financial condition, near-term and
long-term prospects of the issue or issuer, including relevant industry
specific market conditions and trends, geographic location and implications of
rating agency actions and offering prices; and 3) the specific reasons that a
security is in a significant unrealized loss position, including overall market
conditions which could affect liquidity.
The following table summarizes the gross unrealized losses and fair value of
fixed income securities by the length of time that individual securities have
been in a continuous unrealized loss position.
LESS THAN 12 MONTHS 12 MONTHS OR MORE
--------------------------- -------------------------- TOTAL
NUMBER FAIR UNREALIZED NUMBER FAIR UNREALIZED UNREALIZED
OF ISSUES VALUE LOSSES OF ISSUES VALUE LOSSES LOSSES
($ IN THOUSANDS) --------- ------- ---------- --------- ------ ---------- ----------
AT DECEMBER 31, 2009
U.S. government and agencies.... 2 $41,469 $ (283) -- $ -- $ -- $ (283)
Corporate....................... 5 11,269 (71) 1 3,485 (14) (85)
RMBS............................ 1 4,543 (84) -- -- -- (84)
CMBS............................ 2 3,475 (27) 1 1,158 (846) (873)
ABS............................. 1 8,445 (49) -- -- -- (49)
-- ------- ------- -- ------ ------- -------
Total........................ 11 $69,201 $ (514) 2 $4,643 $ (860) $(1,374)
== ======= ======= == ====== ======= =======
AT DECEMBER 31, 2008
U.S. government and agencies.... 1 $30,731 $ (258) -- $ -- $ -- $ (258)
Municipal....................... 1 499 (3) -- -- -- (3)
Corporate....................... 24 47,272 (1,691) 4 4,982 (401) (2,092)
RMBS............................ 1 1,119 (49) -- -- -- (49)
CMBS............................ 9 18,337 (2,555) 1 623 (1,381) (3,936)
ABS............................. 1 997 (4) -- -- -- (4)
-- ------- ------- -- ------ ------- -------
Total........................ 37 $98,955 $(4,560) 5 $5,605 $(1,782) $(6,342)
== ======= ======= == ====== ======= =======
At December 31, 2009, $529 thousand of unrealized losses are related to
fixed income securities with an unrealized loss position less than 20% of
amortized cost, the degree of which suggests that these securities do not pose
a high risk of being other-than-temporarily impaired. All of the unrealized
losses are related to investment grade fixed income securities. Investment
grade is defined as a security having a rating of Aaa, Aa, A or Baa from
Moody's, a rating of AAA, AA, A or BBB from Standard & Poors, Fitch, Dominion
or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable
internal rating if an externally provided rating is not
16
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
available, which is consistent with the National Association of Insurance
Commissioners ("NAIC") rating. Unrealized losses on investment grade securities
are principally related to rising interest rates or changes in credit spreads
since the securities were acquired.
As of December 31, 2009, the remaining $845 thousand of unrealized losses
are related to securities in unrealized loss positions greater than or equal to
20% of amortized cost. These unrealized losses were evaluated based on factors
such as discounted cash flows, the financial condition and near-term and
long-term prospects of the issue or issuer and were determined to have adequate
resources to fulfill contractual obligations, such as recent financings or bank
loans, cash flows from operations or collateral.
As of December 31, 2009, the Company has not made a decision to sell and it
is not more likely than not the Company will be required to sell fixed income
securities with unrealized losses before recovery of the amortized cost basis.
OTHER INVESTMENT INFORMATION
At December 31, 2009, fixed income securities and short-term investments
with a carrying value of $9.8 million were on deposit with regulatory
authorities as required by law.
5. FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value, the Company
principally uses the market approach which generally utilizes market
transaction data for the same or similar instruments. To a lesser extent, the
Company uses the income approach which involves determining fair values from
discounted cash flow methodologies.
The hierarchy for inputs used in determining fair value maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring
that observable inputs be used when available. Assets and liabilities recorded
on the Statements of Financial Position at fair value are categorized in the
fair value hierarchy based on the observability of inputs to the valuation
techniques as follows:
LEVEL 1:Assets and liabilities whose values are based on unadjusted quoted
prices for identical assets or liabilities in an active market that the
Company can access.
LEVEL 2:Assets and liabilities whose values are based on the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in
markets that are not active; or
c) Valuation models whose inputs are observable, directly or indirectly,
for substantially the full term of the asset or liability.
LEVEL 3:Assets and liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and
significant to the overall fair value measurement. Unobservable inputs
reflect the Company's estimates of the assumptions that market
participants would use in valuing the assets and liabilities.
The availability of observable inputs varies by instrument. In situations
where fair value is based on internally developed pricing models or inputs that
are unobservable in the market, the determination of fair value requires more
judgment. The degree of judgment exercised by the Company in determining fair
value is typically
17
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. This condition could cause an instrument to be reclassified
from Level 1 to Level 2, or from Level 2 to Level 3. As of December 31, 2009,
10.3% of total assets are measured at fair value and 1.0% of total liabilities
are measured at fair value.
SUMMARY OF SIGNIFICANT VALUATION TECHNIQUES FOR ASSETS AND LIABILITIES
MEASURED AT FAIR VALUE ON A RECURRING BASIS
Level 1 measurements
. Fixed income securities: Comprise U.S. Treasuries. Valuation is based on
unadjusted quoted prices for identical assets in active markets that the
Company can access.
. Short-term: Comprise actively traded money market funds that have daily
quoted net asset values for identical assets that the Company can access.
. Separate account assets: Comprise actively traded mutual funds that have
daily quoted net asset values for identical assets that the Company can
access. Net asset values for the actively traded mutual funds in which
the separate account assets are invested are obtained daily from the
fund managers.
Level 2 measurements
. Fixed income securities:
U.S. GOVERNMENT AND AGENCIES: Valued based on inputs including quoted
prices for identical or similar assets in markets that are not active.
MUNICIPAL: Externally rated municipals are valued based on inputs
including quoted prices for identical or similar assets in markets that
are not active.
CORPORATE, INCLUDING PRIVATELY PLACED: Valued based on inputs including
quoted prices for identical or similar assets in markets that are not
active. Also includes privately placed securities valued using a
discounted cash flow model that is widely accepted in the financial
services industry and uses market observable inputs and inputs derived
principally from, or corroborated by, observable market data. The
primary inputs to the discounted cash flow model include an interest
rate curve, as well as published credit spreads for similar assets in
markets that are not active that incorporate the credit quality and
industry sector of the issuer.
RMBS; ABS: Valued based on inputs including quoted prices for identical
or similar assets in markets that are not active.
CMBS: Valuation is principally based on inputs including quoted prices
for identical or similar assets in markets that are not active.
. Short-term: Valued based on quoted prices for identical or similar
assets in markets that are not active or amortized cost.
. Contractholder funds: Derivatives embedded in certain annuity contracts
are valued based on internal models that rely on inputs such as interest
rate yield curves and equity index volatility assumptions that are
market observable for substantially the full term of the contract. The
valuation techniques are widely accepted in the financial services
industry and do not include significant judgment.
18
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Level 3 measurements
. Fixed income securities:
CORPORATE: Valued based on models that are widely accepted in the
financial services industry with certain inputs to the valuation model
that are significant to the valuation, but are not market observable.
CMBS: Valued based on inputs including quoted prices for identical or
similar assets in markets that exhibit less liquidity relative to those
markets supporting Level 2 fair value measurements. Due to the reduced
availability of actual market prices or relevant observable inputs as a
result of the decrease in liquidity that has been experienced in the
market for these securities, certain CMBS are categorized as Level 3.
Contractholder funds: Derivatives embedded in certain annuity contracts
are valued internally using models widely accepted in the financial
services industry that determine a single best estimate of fair value
for the embedded derivatives within a block of contractholder
liabilities. The models use stochastically determined cash flows based
on the contractual elements of embedded derivatives and other applicable
market data. These are categorized as Level 3 as a result of the
significance of non-market observable inputs.
The following table summarizes the Company's assets and liabilities measured
at fair value on a recurring and non-recurring basis as of December 31, 2009:
QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE BALANCE AS OF
IDENTICAL ASSETS INPUTS INPUTS DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) 2009
($ IN THOUSANDS) ---------------- ----------- ------------ -------------
ASSETS:
Fixed income securities:
U.S. government and agencies.................. $ 29,273 $ 52,278 $ -- $ 81,551
Municipal..................................... -- 3,095 -- 3,095
Corporate..................................... -- 136,484 1,089 137,573
RMBS.......................................... -- 67,975 -- 67,975
CMBS.......................................... -- 8,546 1,158 9,704
ABS........................................... -- 8,445 -- 8,445
---------- --------- -------- ----------
Total fixed income securities.............. 29,273 276,823 2,247 308,343
Short-term investments............................ 8,507 50 -- 8,557
Separate account assets........................... 2,039,647 -- -- 2,039,647
---------- --------- -------- ----------
TOTAL RECURRING BASIS ASSETS.................. 2,077,427 276,873 2,247 2,356,547
---------- --------- -------- ----------
TOTAL ASSETS AT FAIR VALUE........................... $2,077,427 $ 276,873 $ 2,247 $2,356,547
========== ========= ======== ==========
% of total assets at fair value...................... 88.2% 11.7% 0.1% 100.0%
LIABILITIES:
Contractholder funds:
Derivatives embedded in annuity contracts..... $ -- $(199,765) $(15,526) $ (215,291)
---------- --------- -------- ----------
TOTAL LIABILITIES AT FAIR VALUE...................... $ -- $(199,765) $(15,526) $ (215,291)
========== ========= ======== ==========
% of total liabilities at fair value................. -- % 92.8% 7.2% 100.0%
19
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the Company's assets and liabilities measured
at fair value on a recurring and non-recurring basis as of December 31, 2008:
QUOTED PRICES SIGNIFICANT
IN ACTIVE OTHER SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE BALANCE AS OF
IDENTICAL ASSETS INPUTS INPUTS DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) 2008
($ IN THOUSANDS) ---------------- ----------- ------------ -------------
ASSETS:
Fixed income securities:
U.S. government and agencies.................. $ 48,085 $ 30,731 $ -- $ 78,816
Municipal..................................... -- 499 -- 499
Corporate..................................... -- 74,396 1,307 75,703
RMBS.......................................... -- 48,351 -- 48,351
CMBS.......................................... -- 18,960 -- 18,960
ABS........................................... -- 997 6,002 6,999
---------- -------- -------- ----------
Total fixed income securities.............. 48,085 173,934 7,309 229,328
Short-term investments............................ 30,657 50,046 -- 80,703
Separate account assets........................... 1,823,163 -- -- 1,823,163
---------- -------- -------- ----------
TOTAL RECURRING BASIS ASSETS.................. 1,901,905 223,980 7,309 2,133,194
---------- -------- -------- ----------
TOTAL ASSETS AT FAIR VALUE........................... $1,901,905 $223,980 $ 7,309 $2,133,194
========== ======== ======== ==========
% of total assets at fair value...................... 89.2% 10.5% 0.3% 100.0%
LIABILITIES:
Contractholder funds:
Derivatives embedded in annuity contracts..... $ -- $(33,466) $(36,544) $ (70,010)
---------- -------- -------- ----------
TOTAL LIABILITIES AT FAIR VALUE...................... $ -- $(33,466) $(36,544) $ (70,010)
========== ======== ======== ==========
% of total liabilities at fair value................. -- % 47.8% 52.2% 100.0%
When the inputs used to measure fair value fall into different levels of the
fair value hierarchy, the categorization is based on the lowest level input
that is significant to the fair value measurement in its entirety. Thus, a
Level 3 fair value measurement may include inputs that are observable (Level 1
or Level 2) and unobservable (Level 3).
20
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a summary of changes in fair value during the
year ended December 31, 2009 of Level 3 assets and liabilities held at fair
value on a recurring basis. Net transfers in and/or out of Level 3 are reported
as having occurred at the beginning of the quarter the transfer occurred;
therefore, for all transfers into Level 3, all realized and changes in
unrealized gains and losses in the quarter of transfer are reflected in the
table below.
TOTAL
GAINS (LOSSES)
TOTAL REALIZED AND UNREALIZED INCLUDED IN
GAINS (LOSSES) INCLUDED IN: PURCHASES, NET INCOME
---------------------------- SALES, FOR ASSETS AND
BALANCE OCI ON ISSUANCES NET BALANCE LIABILITIES
AS OF STATEMENT OF AND TRANSFERS IN AS OF STILL HELD AT
DECEMBER 31, NET FINANCIAL SETTLEMENTS, AND/OR (OUT) DECEMBER 31, DECEMBER 31,
2008 INCOME/(1)/ POSITION NET OF LEVEL 3 2009 2009/(2)/
($ IN THOUSANDS) ------------ ---------- ------------ ------------ ------------ ------------ --------------
ASSETS
Fixed income securities:
Corporate................. $ 1,307 $ (2) $ 96 $ (216) $(96) $ 1,089 $ (2)
CMBS...................... -- -- 535 -- 623 1,158 --
ABS....................... 6,002 288 (19) (6,271) -- -- --
-------- ------- ---- ------- ---- -------- -------
TOTAL RECURRING LEVEL 3
ASSETS................... $ 7,309 $ 286 $612 $(6,487) $527 $ 2,247 $ (2)
======== ======= ==== ======= ==== ======== =======
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........ $(36,544) $19,984 $ -- $ 1,034 $ -- $(15,526) $19,984
-------- ------- ---- ------- ---- -------- -------
TOTAL RECURRING LEVEL 3
LIABILITIES.............. $(36,544) $19,984 $ -- $ 1,034 $ -- $(15,526) $19,984
======== ======= ==== ======= ==== ======== =======
- --------
(1)The amount above attributable to fixed income securities is reported in the
Statements of Operations and Comprehensive Income as follows: $288 thousand
in realized capital gains and losses, and $(2) thousand in net investment
income. The amount above attributable to derivatives embedded in annuity
contracts is reported as a component of contract benefits and is ceded in
accordance with the Company's reinsurance agreements.
(2)The amount above attributable to fixed income securities is reported as a
component of net investment income in the Statements of Operations and
Comprehensive Income. The amount above attributable to derivatives embedded
in annuity contracts is reported as a component of contract benefits and is
ceded in accordance with the Company's reinsurance agreements.
21
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a summary of changes in fair value during the
year ended December 31, 2008 of Level 3 assets and liabilities held at fair
value on a recurring basis.
TOTAL
GAINS (LOSSES)
INCLUDED IN
TOTAL REALIZED AND UNREALIZED NET INCOME
GAINS (LOSSES) INCLUDED IN: PURCHASES, FOR ASSETS
---------------------------- SALES, AND
BALANCE OCI ON ISSUANCES BALANCE LIABILITIES
AS OF STATEMENT OF AND AS OF STILL HELD AT
JANUARY 1, NET FINANCIAL SETTLEMENTS, DECEMBER 31, DECEMBER 31,
2008 INCOME/(1)/ POSITION NET 2008 2008/(2)/
($ IN THOUSANDS) ---------- ----------- ------------ ------------ ------------ --------------
ASSETS
Fixed income securities:
Corporate................ $ 1,500 $ (1) $ -- $ (192) $ 1,307 $ (2)
ABS...................... 10,484 181 (434) (4,229) 6,002 (1)
------- -------- ----- ------- -------- --------
TOTAL RECURRING LEVEL 3
ASSETS................. $11,984 $ 180 $(434) $(4,421) $ 7,309 $ (3)
======= ======== ===== ======= ======== ========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts...... $ (256) $(36,498) $ -- $ 210 $(36,544) $(36,498)
------- -------- ----- ------- -------- --------
TOTAL RECURRING LEVEL 3
LIABILITIES............ $ (256) $(36,498) $ -- $ 210 $(36,544) $(36,498)
======= ======== ===== ======= ======== ========
- --------
(1)The amount above attributable to fixed income securities is reported in the
Statements of Operations and Comprehensive Income as follows: $185 thousand
in realized capital gains and losses, and $(5) thousand in net investment
income. The amount above attributable to derivatives embedded in annuity
contracts is reported as a component of contract benefits and is ceded in
accordance with the Company's reinsurance agreements.
(2)The amount above attributable to fixed income securities is reported as a
component of net investment income in the Statements of Operations and
Comprehensive Income. The amount above attributable to derivatives embedded
in annuity contracts is reported as a component of contract benefits and is
ceded in accordance with the Company's reinsurance agreements.
As of December 31, 2009 and 2008, financial instruments not carried at fair
value included contractholder funds on investment contracts. The carrying value
and fair value of contractholder funds on investment contracts were $13.64
billion and $12.64 billion, respectively, as of December 31, 2009 and were
$14.08 billion and $12.67 billion, respectively, as of December 31, 2008.
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts utilizing prevailing market rates for
similar contracts adjusted for credit risk. Deferred annuities included in
contractholder funds are valued using discounted cash flow models which
incorporate market value margins, which are based on the cost of holding
economic capital, and the Company's own credit risk. Immediate annuities
without life contingencies are valued at the present value of future benefits
using market implied interest rates which include the Company's own credit risk.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has derivatives embedded in non-derivative "host" contracts,
which are required to be separated from the host contracts and accounted for at
fair value as derivative instruments. The Company does
22
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
not use derivatives for trading purposes. The Company's embedded derivatives
are equity options in annuity product contracts, which provide equity returns
to contractholders; and guaranteed minimum accumulation and withdrawal benefits
related to the Company's variable annuity contracts.
The following table provides a summary of the volume and fair value
positions of derivative instruments as well as their reporting location in the
Statements of Financial Position at December 31, 2009.
VOLUME- FAIR
BALANCE SHEET NOTIONAL VALUE, GROSS GROSS
LOCATION AMOUNT NET ASSET LIABILITY
($ IN THOUSANDS) --------------------- ---------- --------- ----- ---------
DERIVATIVES NOT DESIGNATED AS ACCOUNTING
HEDGING INSTRUMENTS
EMBEDDED DERIVATIVE FINANCIAL
INSTRUMENTS
Equity index options in life and
annuity product contracts........... Contractholder funds $4,018,238 $(199,765) $-- $(199,765)
Guaranteed accumulation
benefits............................ Contractholder funds 237,005 (13,690) -- (13,690)
Guaranteed withdrawal benefits........ Contractholder funds 37,835 (1,836) -- (1,836)
---------- --------- --- ---------
TOTAL DERIVATIVES............................ $4,293,078 $(215,291) $-- $(215,291)
========== ========= === =========
The following table summarizes the notional amount, fair value and carrying
value of the Company's derivative financial instruments at December 31, 2008.
CARRYING VALUE
NOTIONAL FAIR -----------------
AMOUNT VALUE ASSETS (LIABILITIES)
($ IN THOUSANDS) ---------- -------- ------ -------------
EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS
Equity index options in life and annuity product
contracts....................................... $3,827,332 $(33,466) $-- $(33,466)
Guaranteed accumulation benefits.................. 218,234 (31,020) -- (31,020)
Guaranteed withdrawal benefits.................... 36,605 (5,524) -- (5,524)
---------- -------- --- --------
TOTAL DERIVATIVES.................................... $4,082,171 $(70,010) $-- $(70,010)/(1)/
========== ======== === ========
- --------
(1)Presented in the Statements of Financial Position as contractholder funds.
Losses from valuation on embedded derivative financial instruments recorded
in contract benefits for the year ended December 31, 2009 were $145.3 million,
which in turn were ceded to ALIC.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
There were no off-balance-sheet financial instruments at December 31, 2009
or 2008.
23
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, the reserve for life-contingent contract benefits consists
of the following:
2009 2008
($ IN THOUSANDS) ---------- ----------
Traditional life............................... $1,280,461 $1,169,049
Immediate fixed annuities...................... 686,057 700,935
Accident and health............................ 831,211 705,785
Other.......................................... 7,658 5,417
---------- ----------
Total reserve for life-contingent contract
benefits.................................. $2,805,387 $2,581,186
========== ==========
The following table highlights the key assumptions generally used in
calculating the reserve for life-contingent contract benefits:
PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD
- ------- -------------------- ------------------- -------------------
Traditional life Actual company Interest rate Net level premium
insurance experience plus assumptions range reserve method
loading from 4.0% to 8.0% using the Company's
withdrawal
experience rates
Immediate fixed 1983 individual Interest rate Present value of
annuities annuity mortality assumptions range expected future
table with internal from 2.3% to 8.8% benefits based on
modifications; 1983 historical
individual annuity experience
mortality table;
Annuity 2000
mortality table
with internal
modifications
Accident and health Actual company Unearned premium;
experience plus additional contract
loading reserves for
mortality risk
Other:
Variable annuity Interest rate Projected benefit
guaranteed minimum 100% of Annuity assumptions range ratio applied to
death benefits 2000 mortality table from 4.5% to 5.5% cumulative
assessments
At December 31, contractholder funds consist of the following:
2009 2008
($ IN THOUSANDS) ----------- -----------
Interest-sensitive life insurance..... $ 3,844,319 $ 3,572,143
Investment contracts:
Fixed annuities.................... 13,675,700 14,103,390
Other investment contracts......... 113,008 111,843
----------- -----------
Total contractholder funds..... $17,633,027 $17,787,376
=========== ===========
24
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table highlights the key contract provisions relating to
contractholder funds:
WITHDRAWAL/SURRENDER
PRODUCT INTEREST RATE CHARGES
- ------- -------------------- --------------------
Interest-sensitive Interest rates Either a percentage
life insurance credited range from of account balance
3.0% to 6.0% or dollar amount
grading off
generally over 20
years
Fixed annuities Interest rates Either a declining
credited range from or a level
1.5% to 8.8% for percentage charge
immediate annuities generally over nine
and 0% to 16.0% for years or less.
other fixed Additionally,
annuities (which approximately 22.1%
include of fixed annuities
equity-indexed are subject to
annuities whose market value
returns are indexed adjustment for
to the S&P 500) discretionary
withdrawals.
Other investment
contracts:
Interest rates used Withdrawal and
Guaranteed in establishing surrender charges
minimum income, reserves range from are based on the
accumulation and 1.8% to 10.3% terms of the related
withdrawal interest-sensitive
benefits on life insurance or
variable fixed annuity
annuities and contract.
secondary
guarantees on
interest-sensitive
life insurance
and fixed
annuities
Contractholder funds activity for the years ended December 31 is as follows:
2009 2008
($ IN THOUSANDS) ----------- -----------
Balance, beginning of year.............. $17,787,376 $17,820,885
Deposits................................ 1,751,516 2,148,361
Interest credited....................... 821,046 528,493
Benefits................................ (523,905) (552,047)
Surrenders and partial withdrawals...... (1,826,122) (1,855,296)
Contract charges........................ (417,398) (367,880)
Net transfers from separate accounts.... 14,400 18,595
Other adjustments....................... 26,114 46,265
----------- -----------
Balance, end of year.................... $17,633,027 $17,787,376
=========== ===========
25
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The table below presents information regarding the Company's variable
annuity contracts with guarantees. The Company's variable annuity contracts may
offer more than one type of guarantee in each contract; therefore, the sum of
amounts listed exceeds the total account balances of variable annuity
contracts' separate accounts with guarantees.
DECEMBER 31,
-------------------
2009 2008
($ IN MILLIONS) --------- ---------
IN THE EVENT OF DEATH
Separate account value............................... $ 1,405.4 $ 1,327.3
Net amount at risk/(1)/.............................. $ 213.1 $ 455.0
Average attained age of contractholders.............. 57 years 56 years
AT ANNUITIZATION
Separate account value............................... $ 263.7 $ 233.4
Net amount at risk/(2)/.............................. $ 75.9 $ 139.8
Weighted average waiting period until annuitization
options available.................................. 3 years 4 years
FOR CUMULATIVE PERIODIC WITHDRAWALS
Separate account value............................... $ 37.8 $ 36.6
Net amount at risk/(3)/.............................. $ 0.6 $ 5.0
ACCUMULATION AT SPECIFIED DATES
Separate account value............................... $ 236.8 $ 218.0
Net amount at risk/(4)/.............................. $ 26.9 $ 52.9
Weighted average waiting period until guarantee
date............................................... 10 years 10 years
- --------
(1)Defined as the estimated current guaranteed minimum death benefit in excess
of the current account balance at the balance sheet date.
(2)Defined as the estimated present value of the guaranteed minimum annuity
payments in excess of the current account balance.
(3)Defined as the estimated current guaranteed minimum withdrawal balance
(initial deposit) in excess of the current account balance at the balance
sheet date.
(4)Defined as the estimated present value of the guaranteed minimum
accumulation balance in excess of the current account balance.
As of December 31, 2009, liabilities for guarantees related to death,
income, accumulation and withdrawal benefits were $65.9 million, $38.6 million,
$13.7 million and $2.4 million, respectively. As of December 31, 2008,
liabilities for guarantees related to death, income, accumulation and
withdrawal benefits were $48.4 million, $32.3 million, $31.0 million and $5.5
million, respectively.
8. REINSURANCE
The Company has reinsurance agreements under which it reinsures all of its
business to ALIC or other non-affiliated reinsurers. Under the agreements,
premiums, contract charges, interest credited to contractholder funds, contract
benefits and substantially all expenses are reinsured. The Company purchases
reinsurance to limit aggregate and single losses on large risks. The Company
cedes a portion of the mortality risk on certain life policies to a pool of
twelve non-affiliated reinsurers. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Amounts recoverable from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. At December 31, 2009, 91.4% of the total
26
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
reinsurance recoverables were related to ALIC and 8.6% were related to
non-affiliated reinsurers. At both December 31, 2009 and 2008, 97% of the
Company's non-affiliated reinsurance recoverables are due from companies rated
A or better by S&P.
The effects of reinsurance on premiums and contract charges for the years
ended December 31 are as follows:
2009 2008 2007
($ IN THOUSANDS) ---------- ---------- ----------
PREMIUMS AND CONTRACT CHARGES
Direct................................ $1,194,526 $1,138,747 $1,038,671
Assumed............................... 7,849 8,576 9,132
Ceded:
Affiliate.......................... (734,369) (691,267) (623,102)
Non-affiliate...................... (468,006) (456,056) (424,701)
---------- ---------- ----------
Premiums and contract charges, net of
reinsurance......................... $ -- $ -- $ --
========== ========== ==========
The effects of reinsurance on interest credited to contractholder funds,
contract benefits and expenses for the years ended December 31 are as follows:
2009 2008 2007
($ IN THOUSANDS) ----------- ----------- -----------
INTEREST CREDITED TO CONTRACTHOLDER FUNDS,
CONTRACT BENEFITS AND EXPENSES
Direct..................................... $ 2,159,262 $ 2,065,299 $ 1,964,326
Assumed.................................... 11,101 8,922 10,473
Ceded:
Affiliate............................... (1,621,011) (1,468,505) (1,421,831)
Non-affiliate........................... (549,352) (605,716) (552,968)
----------- ----------- -----------
Interest credited to contractholder funds,
contract benefits and expenses, net of
reinsurance.............................. $ -- $ -- $ --
=========== =========== ===========
9. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
GUARANTEES
In the normal course of business, the Company provides standard
indemnifications to contractual counterparties in connection with numerous
transactions, including acquisitions and divestitures. The types of
indemnifications typically provided include indemnifications for breaches of
representations and warranties, taxes and certain other liabilities, such as
third party lawsuits. The indemnification clauses are often standard
contractual terms and are entered into in the normal course of business based
on an assessment that the risk of loss would be remote. The terms of the
indemnifications vary in duration and nature. In many cases, the maximum
obligation is not explicitly stated and the contingencies triggering the
obligation to indemnify have not occurred and are not expected to occur.
Consequently, the maximum amount of the obligation under such indemnifications
is not determinable. Historically, the Company has not made any material
payments pursuant to these obligations.
The aggregate liability balance related to all guarantees was not material
as of December 31, 2009.
27
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REGULATION AND COMPLIANCE
The Company is subject to changing social, economic and regulatory
conditions. From time to time, regulatory authorities or legislative bodies
seek to impose additional regulations regarding agent and broker compensation
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.
LEGAL AND REGULATORY PROCEEDINGS AND INQUIRIES
BACKGROUND
The Company and certain affiliates are involved in a number of lawsuits,
regulatory inquiries, and other legal proceedings arising out of various
aspects of its business. As background to the "Proceedings" subsection below,
please note the following:
. These matters raise difficult and complicated factual and legal issues
and are subject to many uncertainties and complexities, including the
underlying facts of each matter; novel legal issues; variations between
jurisdictions in which matters are being litigated, heard or
investigated; differences in applicable laws and judicial
interpretations; the length of time before many of these matters might
be resolved by settlement, through litigation or otherwise; the fact
that some of the lawsuits are putative class actions in which a class
has not been certified and in which the purported class may not be
clearly defined; the fact that some of the lawsuits involve multi-state
class actions in which the applicable law(s) for the claims at issue is
in dispute and therefore unclear; and the current challenging legal
environment faced by large corporations and insurance companies.
. The outcome of these matters may be affected by decisions, verdicts, and
settlements, and the timing of such decisions, verdicts, and
settlements, in other individual and class action lawsuits that involve
the Company, other insurers, or other entities and by other legal,
governmental, and regulatory actions that involve the Company, other
insurers, or other entities. The outcome may also be affected by future
state or federal legislation, the timing or substance of which cannot be
predicted.
. In the lawsuits, plaintiffs seek a variety of remedies including
equitable relief in the form of injunctive and other remedies and
monetary relief in the form of contractual and extra-contractual
damages. In some cases, the monetary damages sought include punitive
damages. Often specific information about the relief sought, such as the
amount of damages, is not available because plaintiffs have not
requested specific relief in their pleadings. In the Company's
experience, when specific monetary demands are made in pleadings, they
bear little relation to the ultimate loss, if any, to the Company.
. In connection with regulatory examinations and proceedings, government
authorities may seek various forms of relief, including penalties,
restitution and changes in business practices. The Company may not be
advised of the nature and extent of relief sought until the final stages
of the examination or proceeding.
. For the reasons specified above, it is often not possible to make
meaningful estimates of the amount or range of loss that could result
from the matters described below in the "Proceedings" subsection. The
Company reviews these matters on an ongoing basis and follows
appropriate accounting guidance when making accrual and disclosure
decisions. When assessing reasonably possible and probable outcomes, the
Company bases its decisions on its assessment of the ultimate outcome
following all appeals.
28
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
. Due to the complexity and scope of the matters disclosed in the
"Proceedings" subsection below and the many uncertainties that exist,
the ultimate outcome of these matters cannot be reasonably predicted. In
the event of an unfavorable outcome in one or more of these matters, the
ultimate liability may be in excess of amounts currently reserved, if
any, and may be material to the Company's operating results or cash
flows for a particular quarterly or annual period. However, based on
information currently known to it, management believes that the ultimate
outcome of all matters described below, as they are resolved over time,
is not likely to have a material adverse effect on the financial
position of the Company.
PROCEEDINGS
Legal proceedings involving Allstate agencies and AIC may impact the
Company, even when the Company is not directly involved, because the Company
sells its products through a variety of distribution channels including
Allstate agencies. Consequently, information about the more significant of
these proceedings is provided in the following paragraph.
AIC is defending certain matters relating to its agency program
reorganization announced in 1999. These matters are in various stages of
development.
. These matters include a lawsuit filed in 2001 by the U.S. Equal
Employment Opportunity Commission ("EEOC") alleging retaliation under
federal civil rights laws (the "EEOC I" suit) and a class action filed
in 2001 by former employee agents alleging retaliation and age
discrimination under the Age Discrimination in Employment Act ("ADEA"),
breach of contract and ERISA violations (the "Romero I" suit). In 2004,
in the consolidated EEOC I and Romero I litigation, the trial court
issued a memorandum and order that, among other things, certified
classes of agents, including a mandatory class of agents who had signed
a release, for purposes of effecting the court's declaratory judgment
that the release is voidable at the option of the release signer. The
court also ordered that an agent who voids the release must return to
AIC "any and all benefits received by the [agent] in exchange for
signing the release." The court also stated that, "on the undisputed
facts of record, there is no basis for claims of age discrimination."
The EEOC and plaintiffs asked the court to clarify and/or reconsider its
memorandum and order and in January 2007, the judge denied their
request. In June 2007, the court granted AIC's motions for summary
judgment. Following plaintiffs' filing of a notice of appeal, the U.S.
Court of Appeals for the Third Circuit ("Third Circuit") issued an order
in December 2007 stating that the notice of appeal was not taken from a
final order within the meaning of the federal law and thus not
appealable at this time. In March 2008, the Third Circuit decided that
the appeal should not summarily be dismissed and that the question of
whether the matter is appealable at this time will be addressed by the
Third Circuit along with the merits of the appeal. In July 2009, the
Third Circuit vacated the decision which granted AIC's summary judgment
motions, remanded the cases to the trial court for additional discovery,
and directed that the cases be reassigned to another trial court judge.
. A putative nationwide class action has also been filed by former
employee agents alleging various violations of ERISA, including a worker
classification issue. These plaintiffs are challenging certain
amendments to the Agents Pension Plan and are seeking to have exclusive
agent independent contractors treated as employees for benefit purposes.
This matter was dismissed with prejudice by the trial court, was the
subject of further proceedings on appeal, and was reversed and remanded
to the trial court in 2005. In June 2007, the court granted AIC's motion
to dismiss the case. Following plaintiffs' filing of a notice of appeal,
the Third Circuit issued an order in December 2007 stating that the
notice of appeal was not taken from a final order within the meaning of
the federal law and thus not appealable at this time. In March 2008, the
Third Circuit decided that the appeal should not summarily be dismissed
and that the question of whether the matter is appealable at this time
will be addressed by the Third Circuit along with the merits of the
appeal. In July 2009, the Third Circuit vacated the decision which
granted AIC's motion to dismiss the case, remanded the case to the trial
court for additional discovery, and directed that the case be reassigned
to another trial court judge.
29
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In all of these various matters, plaintiffs seek compensatory and punitive
damages, and equitable relief. AIC has been vigorously defending these lawsuits
and other matters related to its agency program reorganization.
OTHER MATTERS
Various other legal, governmental, and regulatory actions, including state
market conduct exams, and other governmental and regulatory inquiries are
currently pending that involve the Company and specific aspects of its conduct
of business. Like other members of the insurance industry, the Company is the
target of a number of lawsuits and other types of proceedings, some of which
involve claims for substantial or indeterminate amounts. These actions are
based on a variety of issues and target a range of the Company's practices. The
outcome of these disputes is currently unpredictable. However, based on
information currently known to it and the existence of the reinsurance
agreements with ALIC, management believes that the ultimate outcome of all
matters described in this "Other Matters" subsection, in excess of amounts
currently reserved, if any, as they are resolved over time is not likely to
have a material effect on the operating results, cash flows or financial
position of the Company.
10. INCOME TAXES
The Company joins the Corporation and its other domestic subsidiaries (the
"Allstate Group") in the filing of a consolidated federal income tax return and
is party to a federal income tax allocation agreement (the "Allstate Tax
Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. The Company also has a
supplemental tax sharing agreement with respect to reinsurance ceded to ALIC to
allocate the tax benefits and costs related to such reinsurance. Effectively,
these agreements result in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return, adjusted
for the reinsurance ceded to ALIC.
The Internal Revenue Service ("IRS") is currently examining the Allstate
Group's 2007 and 2008 federal income tax returns. The IRS has completed its
examination of the Allstate Group's federal income tax returns filed for
2005-2006 and the case is under consideration at the IRS Appeals Office. The
Allstate Group's tax years prior to 2005 have been examined by the IRS and the
statute of limitations has expired on those years. Any adjustments that may
result from IRS examinations of tax returns are not expected to have a material
effect on the results of operations, cash flows or financial position of the
Company.
The Company had no liability for unrecognized tax benefits at December 31,
2009 or 2008, and believes it is reasonably possible that the liability balance
will not significantly increase within the next twelve months. No amounts have
been accrued for interest or penalties.
The components of the deferred income tax assets and liabilities at
December 31 are as follows:
2009 2008
($ IN THOUSANDS) ------- -----
DEFERRED ASSETS
Unrealized net capital losses.............. $ -- $ 119
Other assets............................... -- 20
------- -----
Total deferred assets................... -- 139
------- -----
DEFERRED LIABILITIES
Unrealized net capital gains............... (2,995) --
Difference in tax bases of investments..... (118) (139)
Other liabilities.......................... (187) --
------- -----
Total deferred liabilities.............. (3,300) (139)
------- -----
Net deferred liabilities............ $(3,300) $ --
======= =====
30
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of income tax expense for the years ended December 31 are as
follows:
2009 2008 2007
($ IN THOUSANDS) ------ ------ ------
Current......................... $4,447 $7,054 $4,810
Deferred........................ 187 (136) 25
------ ------ ------
Total income tax expense..... $4,634 $6,918 $4,835
====== ====== ======
The Company paid income taxes of $6.8 million, $4.9 million and $4.4 million
in 2009, 2008 and 2007, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the years ended December 31 is as
follows:
2009 2008 2007
---- ---- ----
Statutory federal income tax
rate.......................... 35.0% 35.0% 35.0%
Other........................... (0.1) (0.2) (0.1)
---- ---- ----
Effective income tax rate....... 34.9% 34.8% 34.9%
==== ==== ====
11. STATUTORY FINANCIAL INFORMATION
The Company prepares its statutory-basis financial statements in conformity
with accounting practices prescribed or permitted by the State of Nebraska. The
State of Nebraska requires insurance companies domiciled in its state to
prepare statutory-basis financial statements in conformity with the NAIC
Accounting Practices and Procedures Manual, subject to any deviations
prescribed or permitted by the State of Nebraska Insurance Commissioner.
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.
Statutory accounting practices differ from GAAP primarily since they require
charging policy acquisition and certain sales inducement costs to expense as
incurred, establishing life insurance reserves based on different actuarial
assumptions, and valuing certain investments and establishing deferred taxes on
a different basis.
Statutory net income for 2009, 2008, and 2007 was $8.5 million, $7.8 million
and $9.1 million, respectively. Statutory capital and surplus was $306.0
million and $278.8 million as of December 31, 2009 and 2008, respectively.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant
factors. The payment of shareholder dividends by the Company without the prior
approval of the state insurance regulator is limited to formula amounts based
on net income and capital and surplus, determined in conformity with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. Based on the Company's statutory capital and surplus
as of December 31, 2009, the maximum amount of dividends that the Company can
distribute during 2010 without prior approval of the Nebraska Department of
Insurance is $30.6 million. The Company did not pay any dividends in 2009.
31
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income (loss) on a pre-tax and
after-tax basis for the years ended December 31 are as follows:
2009
--------------------------
PRE-TAX TAX AFTER-TAX
($ IN THOUSANDS) ------- ------- ---------
Unrealized net holding gains arising during the period.......... $10,135 $(3,547) $ 6,588
Less: reclassification adjustment of realized capital gains and
losses........................................................ 1,238 (433) 805
------- ------- -------
Unrealized net capital gains and losses......................... 8,897 (3,114) 5,783
------- ------- -------
Other comprehensive income...................................... $ 8,897 $(3,114) $ 5,783
======= ======= =======
2008
--------------------------
PRE-TAX TAX AFTER-TAX
- - ------- ------- ---------
Unrealized net holding losses arising during the period......... $(3,078) $ 1,077 $(2,001)
Less: reclassification adjustment of realized capital gains and
losses........................................................ 3,615 (1,265) 2,350
------- ------- -------
Unrealized net capital gains and losses......................... (6,693) 2,342 (4,351)
------- ------- -------
Other comprehensive loss........................................ $(6,693) $ 2,342 $(4,351)
======= ======= =======
2007
--------------------------
PRE-TAX TAX AFTER-TAX
- - ------- ------- ---------
Unrealized net holding gains arising during the period.......... $ 6,211 $(2,173) $ 4,038
Less: reclassification adjustment of realized capital gains and
losses........................................................ (414) 145 (269)
------- ------- -------
Unrealized net capital gains and losses......................... 6,625 (2,318) 4,307
------- ------- -------
Other comprehensive income...................................... $ 6,625 $(2,318) $ 4,307
======= ======= =======
32
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2009
AMOUNTS AT
WHICH
SHOWN ON
AMORTIZED FAIR BALANCE
COST VALUE SHEET
($ IN THOUSANDS) --------- -------- ----------
Type of investment
Fixed maturities:
Bonds:
United States government, government agencies and authorities..... $ 79,982 $ 81,551 $ 81,551
States, municipalities and political subdivisions................. 2,999 3,095 3,095
Public utilities.................................................. 12,037 12,602 12,602
All other corporate bonds......................................... 119,429 124,971 124,971
Asset-backed securities............................................... 8,494 8,445 8,445
Residential mortgage-backed securities................................ 66,326 67,975 67,975
Commercial mortgage-backed securities................................. 10,520 9,704 9,704
-------- -------- --------
Total fixed maturities............................................ 299,787 308,343 308,343
Short-term investments................................................... 8,557 8,557 8,557
-------- -------- --------
Total investments................................................. $308,344 $316,900 $316,900
======== ======== ========
33
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE IV--REINSURANCE
PERCENTAGE
ASSUMED OF AMOUNT
CEDED TO OTHER FROM OTHER NET ASSUMED
GROSS AMOUNT COMPANIES/(1)/ COMPANIES AMOUNT TO NET
($ IN THOUSANDS) ------------ -------------- ---------- ------ ----------
YEAR ENDED DECEMBER 31, 2009
Life insurance in force........ $349,952,260 $356,581,252 $6,628,992 $-- --
============ ============ ========== ===
Premiums and contract charges:
Life and annuities.......... $ 1,072,840 $ 1,080,689 $ 7,849 $-- --
Accident and health......... 121,686 121,686 -- -- --
------------ ------------ ---------- ---
$ 1,194,526 $ 1,202,375 $ 7,849 $-- --
============ ============ ========== ===
YEAR ENDED DECEMBER 31, 2008
Life insurance in force........ $337,177,898 $344,250,029 $7,072,131 $-- --
============ ============ ========== ===
Premiums and contract charges:
Life and annuities.......... $ 1,017,339 $ 1,025,915 $ 8,576 $-- --
Accident and health......... 121,408 121,408 -- -- --
------------ ------------ ---------- ---
$ 1,138,747 $ 1,147,323 $ 8,576 $-- --
============ ============ ========== ===
YEAR ENDED DECEMBER 31, 2007
Life insurance in force........ $315,111,039 $322,635,416 $7,524,377 $-- --
============ ============ ========== ===
Premiums and contract charges:
Life and annuities.......... $ 922,355 $ 931,487 $ 9,132 $-- --
Accident and health......... 116,316 116,316 -- -- --
------------ ------------ ---------- ---
$ 1,038,671 $ 1,047,803 $ 9,132 $-- --
============ ============ ========== ===
- --------
(1)No reinsurance or coinsurance income was netted against premiums ceded in
2009, 2008 and 2007.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company
Lincoln, NE
We have audited the accompanying Statements of Financial Position of Lincoln
Benefit Life Company (the "Company"), an affiliate of The Allstate Corporation,
as of December 31, 2009 and 2008, and the related Statements of Operations and
Comprehensive Income, Shareholder's Equity, and Cash Flows for each of the
three years in the period ended December 31, 2009. Our audits also included
Schedule I--Summary of Investments--Other than Investments in Related Parties
and Schedule IV--Reinsurance. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Lincoln Benefit Life Company as of
December 31, 2009 and 2008, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, Schedule I--Summary of Investments--Other
than Investments in Related Parties and Schedule IV--Reinsurance, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the financial statements, the Company changed its
recognition and presentation for other-than-temporary impairments of debt
securities in 2009.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 12, 2010
35
ITEM 11(F). SELECTED FINANCIAL DATA
LINCOLN BENEFIT LIFE COMPANY
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
2009 2008 2007 2006 2005
($ IN THOUSANDS) ----------- ----------- ----------- ----------- -----------
OPERATING RESULTS
Net investment income......... $ 11,783 $ 13,940 $ 14,257 $ 13,948 $ 13,632
Realized capital gains and
losses...................... 1,480 5,952 (417) (1,255) (174)
Total revenues................ 13,263 19,892 13,840 12,693 13,458
Net income.................... 8,629 12,974 9,005 8,260 8,787
FINANCIAL POSITION
Investments................... $ 316,900 $ 310,031 $ 301,201 $ 276,322 $ 271,369
Total assets.................. 22,932,908 22,655,371 23,700,007 23,862,919 22,475,513
Reserve for life-contingent
contract benefits and
contractholder funds........ 20,438,414 20,368,562 20,169,001 20,322,077 19,354,298
Shareholder's equity.......... 312,973 298,561 289,938 276,626 269,251
36
ITEM 11(H).MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion highlights significant factors influencing the
financial position and results of operations of Lincoln Benefit Life Company
(referred to in this document as "we", "Lincoln Benefit", "our", "us" or the
"Company"). It should be read in conjunction with the financial statements and
related notes found under Item 11(e) contained herein. We operate as a single
segment entity, based on the manner in which we use financial information to
evaluate business performance and to determine the allocation of resources.
The most important factors we monitor to evaluate the financial condition
and performance of our company include:
. For operations: premiums and deposits ceded to ALIC, and invested assets;
. For investments: credit quality/experience, realized capital gains and
losses, investment income, unrealized capital gains and losses,
stability of long-term returns, cash flows and asset duration; and
. For financial condition: financial strength ratings and capital
positions.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to adopt accounting policies and make estimates and assumptions that
affect amounts reported in the financial statements. The most critical
estimates include those used in determining:
. Fair value of financial assets
. Impairment of fixed income securities
In making these determinations, management makes subjective and complex
judgments that frequently require estimates about matters that are inherently
uncertain. Many of these policies, estimates and related judgments are common
in the insurance and financial services industries; others are specific to our
businesses and operations. It is reasonably likely that changes in these
estimates could occur from period to period and result in a material impact on
our financial statements.
A brief summary of each of these critical accounting estimates follows. For
a more detailed discussion of the effect of these estimates on our financial
statements, and the judgments and assumptions related to these estimates, see
the referenced sections of this document. For a complete summary of our
significant accounting policies, see Note 2 of the financial statements.
FAIR VALUE OF FINANCIAL ASSETS 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. We categorize
our financial assets measured at fair value into a three-level hierarchy based
on the observability of inputs to the valuation techniques as follows:
LEVEL 1:Financial assets are based on unadjusted quoted prices for identical
assets in an active market that we can access.
LEVEL 2:Financial assets values are based on the following:
a) Quoted prices for similar assets in active markets;
b) Quoted prices for identical or similar assets in markets that are not
active; or
c) Valuation models whose inputs are observable, directly or indirectly,
for substantially the full term of the asset.
37
LEVEL 3:Financial assets values are based on prices or valuation techniques
that require inputs that are both unobservable and significant to the
overall fair value measurement. Unobservable inputs reflect our
estimates of the assumptions that market participants would use in
valuing the financial assets.
Observable inputs are inputs that reflect the assumptions market
participants would use in valuing financial assets that are developed based on
market data obtained from independent sources. In the absence of sufficient
observable inputs, unobservable inputs reflect our estimates of the assumptions
market participants would use in valuing financial assets and are developed
based on the best information available in the circumstances. The degree of
management judgment involved in determining fair values is inversely related to
the availability of market observable information. If valuation inputs used to
measure fair value fall into different levels of the fair value hierarchy, the
categorization is based on the lowest level input that is significant to the
fair value measurement in its entirety.
We are responsible for the determination of fair value of financial assets
and the supporting assumptions and methodologies. We gain assurance on the
overall reasonableness and consistent application of valuation input
assumptions, valuation methodologies and compliance with accounting standards
for fair value determination through the execution of various processes and
controls designed to ensure that our financial assets are appropriately valued.
We monitor fair values received from third parties and those derived internally
on an ongoing basis.
We employ independent third-party valuation service providers, broker quotes
and internal pricing methods to determine fair values, which provide a single
quote or price for each financial instrument. We obtain or calculate only one
quote or price per instrument.
Valuation service providers typically obtain data about market transactions
and other key valuation model inputs from multiple sources and, through the use
of proprietary algorithms, produce valuation information in the form of a
single fair value for individual securities for which a fair value has been
requested under the terms of our agreements. For certain security types, fair
values are derived from the valuation service providers' proprietary valuation
models. The inputs used by the valuation service providers include, but are not
limited to, market prices from recently completed transactions and transactions
of comparable securities, interest rate yield curves, credit spreads, liquidity
spreads, currency rates, and other information, as applicable. Credit and
liquidity spreads are typically implied from completed transactions and
transactions of comparable securities. Valuation service providers also use
proprietary discounted cash flow models that are widely accepted in the
financial services industry and similar to those used by other market
participants to value the same financial instruments. The valuation models take
into account, among other things, market observable information as of the
measurement date, as described above, as well as the specific attributes of the
security being valued including its term, interest rate, credit rating,
industry sector, and where applicable, collateral quality and other issue or
issuer specific information. Executing valuation models effectively requires
seasoned professional judgment and experience. In cases where market
transactions or other market observable data is limited, the extent to which
judgment is applied varies inversely with the availability of market observable
information.
For certain of our financial assets carried at fair value, where our
valuation service providers cannot provide fair value determinations, we obtain
a single non-binding price quote from a broker familiar with the security who,
similar to our valuation service providers, may consider transactions or
activity in similar securities, as applicable, among other information. The
brokers providing price quotes are generally from the brokerage divisions of
leading financial institutions with market making, underwriting and
distribution expertise regarding the security subject to valuation.
The fair value of certain financial assets, including privately placed
corporate securities, where our valuation service providers or brokers do not
provide fair value determinations, is determined using valuation methods and
models widely accepted in the financial services industry. Internally developed
valuation models, which include inputs that may not be market observable and as
such involve some degree of judgment, are considered appropriate for each class
of security to which they are applied.
38
Our internal pricing methods are primarily based on models using discounted
cash flow methodologies that develop a single best estimate of fair value. Our
models generally incorporate inputs that we believe are representative of
inputs other market participants would use to determine fair value of the same
instruments, including yield curves, quoted market prices of comparable
securities, published credit spreads, and other applicable market data.
Additional inputs that are used to model fair value include internally-derived
assumptions such as liquidity premium and credit ratings, as well as
instrument-specific characteristics that include, but are not limited to,
coupon rate, expected cash flows, sector of issuer, and call provisions.
Internally assigned credit ratings are generally consistent with external
ratings published by the National Association of Insurance Commissioners
("NAIC"); however, they are developed at a more finite level. For example, an
NAIC rating of 1 includes securities rated triple, double and single A by at
least one nationally recognized statistical rating organization ("NRSRO"). We
believe our internal ratings provide for a more reliable estimate of fair value
since we can more precisely match these ratings to other market observable
valuation inputs, such as credit and sector spreads, when performing these
valuations. Due to the existence of non-market observable inputs, such as
liquidity premiums, judgment is required in developing these fair values. As a
result, the fair value of these financial assets may differ from the amount
actually received to sell an asset in an orderly transaction between market
participants at the measurement date. Moreover, the use of different valuation
assumptions may have a material effect on the financial assets' fair values.
For the majority of our financial assets measured at fair value, all
significant inputs are based on market observable data and significant
management judgment does not affect the periodic determination of fair value.
The determination of fair value using discounted cash flow models involves
management judgment when significant model inputs are not based on market
observable data. However, where market observable data is available, it takes
precedence, and as a result, no range of reasonably likely inputs exists from
which the basis of a sensitivity analysis could be constructed.
We believe our most significant exposure to changes in fair value is due to
market risk. Our exposure to changes in market conditions is discussed fully in
the Market Risk section of the MD&A.
We employ specific control processes to determine the reasonableness of the
fair values of our financial assets. Our processes are designed to ensure that
the values received or internally estimated are accurately recorded and that
the data inputs and the valuation techniques utilized are appropriate,
consistently applied, and that the assumptions are reasonable and consistent
with the objective of determining fair value. For example, on a continuing
basis, we assess the reasonableness of individual security values received from
valuation service providers and those derived from internal models that exceed
certain thresholds as compared to previous values received from those valuation
service providers or derived from internal models. In addition, we may validate
the reasonableness of fair values by comparing information obtained from our
valuation service providers to other third party valuation sources for selected
securities. For internal pricing models, we have implemented price validation
procedures such as back-testing of actual sales, which corroborates the various
model inputs to market observable data. When fair value determinations are
expected to be more variable, we validate them through reviews by members of
management who have relevant expertise and who are independent of those charged
with executing investment transactions.
We also perform an analysis to determine whether there has been a
significant decrease in the volume and level of activity for the asset when
compared to normal market activity, and if so, whether transactions may not be
orderly. Among the indicators we consider in determining whether a significant
decrease in the volume and level of market activity for a specific asset has
occurred include the level of new issuances in the primary market, trading
volume in the secondary market, level of credit spreads over historical levels,
bid-ask spread, and price consensuses among market participants and sources. If
evidence indicates that prices are based on transactions that are not orderly,
we place little, if any, weight on the transaction price and will estimate fair
value using an internal pricing model. As of December 31, 2009 and 2008, we did
not alter fair values provided by our valuation service providers or brokers or
substitute them with an internal pricing model.
39
The following table identifies fixed income and short-term investments as of
December 31, 2009 by source of value determination:
FAIR PERCENT
VALUE TO TOTAL
($ IN THOUSANDS) -------- --------
Fair value based on internal sources...... $ 1,140 0.4%
Fair value based on external sources/(1)/. 315,760 99.6
-------- -----
Total investments......................... $316,900 100.0%
======== =====
- --------
(1)None were valued using broker quotes.
For more detailed information on our accounting policy for the fair value of
financial assets and the financial assets by level in the fair value hierarchy,
see Notes 2 and 5 of the financial statements.
IMPAIRMENT OF FIXED INCOME SECURITIES For fixed income securities classified
as available for sale, the difference between fair value and amortized cost,
net of deferred income taxes, is reported as a component of accumulated other
comprehensive income on the Statements of Financial Position and is not
reflected in the operating results of any period until reclassified to net
income upon the consummation of a transaction with an unrelated third party or
when the decline in fair value is deemed other than temporary. We have a
comprehensive portfolio monitoring process to identify and evaluate each fixed
income security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, we assess
whether management with the appropriate authority has made a decision to sell
or whether it is more likely than not we will be required to sell the security
before recovery of the amortized cost basis for reasons such as liquidity,
contractual or regulatory purposes. If a security meets either of these
criteria, the security's decline in fair value is deemed other than temporary
and is recorded in earnings.
If we have not made the decision to sell the fixed income security and it is
not more likely than not we will be required to sell the fixed income security
before recovery of its amortized cost basis, we evaluate whether we expect to
receive cash flows sufficient to recover the entire amortized cost basis of the
security. We use our best estimate of future cash flows expected to be
collected from the fixed income security discounted at the security's original
or current effective rate, as appropriate, to calculate a recovery value and
determine whether a credit loss exists. The determination of cash flow
estimates is inherently subjective and methodologies may vary depending on
facts and circumstances specific to the security. All reasonably available
information relevant to the collectability of the security, including past
events, current conditions, and reasonable and supportable assumptions and
forecasts, are considered when developing the estimate of cash flows expected
to be collected. That information generally includes, but is not limited to,
the remaining payment terms of the security, prepayment speeds, foreign
exchange rates, the financial condition of the issue or issuer(s), expected
defaults, expected recoveries, the value of underlying collateral and current
subordination levels, vintage, geographic concentration, available reserves or
escrows, third party guarantees and other credit enhancements. Additionally,
other information, such as industry analyst reports and forecasts, sector
credit ratings, financial condition of the bond insurer for insured fixed
income securities, and other market data relevant to the realizability of
contractual cash flows, may also be considered. The estimated fair value of
collateral may be used to estimate recovery value if we determine that the
security is dependent on the liquidation of collateral for ultimate settlement.
If the estimated recovery value is less than the amortized cost of the
security, a credit loss exists and an other-than-temporary impairment for the
difference between the estimated recovery value and amortized cost is recorded
in earnings. The unrealized loss deemed to be related to factors other than
credit remains classified in other comprehensive income. If we determine that
the fixed income security does not have sufficient cash flow or other
information to determine a recovery value for the security, we may conclude
that the entire decline in fair value is deemed to be credit related and is
recorded in earnings.
40
Once assumptions and estimates are made, any number of changes in facts and
circumstances could cause us to subsequently determine that a fixed income
security is other than temporarily impaired, including: 1) general economic
conditions that are worse than previously forecasted or that have a greater
adverse effect on a particular issuer or industry sector than originally
estimated; 2) changes in the facts and circumstances related to a particular
issue or issuer's ability to meet all of its contractual obligations; and 3)
changes in facts and circumstances that result in changes to management's
intent to sell or result in our assessment that it is more likely than not we
will be required to sell before recovery of the amortized cost. Changes in
assumptions, facts and circumstances could result in additional charges to
earnings in future periods to the extent that losses are realized. The charge
to earnings, while potentially significant to net income, would not have a
significant effect on shareholder's equity, since our portfolio is designated
as available-for-sale and carried at fair value and as a result, any related
unrealized loss, net of deferred income taxes, would already be reflected as a
component of accumulated other comprehensive income in shareholder's equity.
The determination of the amount of impairment is an inherently subjective
process based on periodic evaluation of the factors described above. Such
evaluations and assessments are revised as conditions change and new
information becomes available. We update our evaluations regularly and reflect
changes in other-than-temporary impairments in results of operations as such
evaluations are revised. The use of different methodologies and assumptions in
the determination of the amount of impairments may have a material effect on
the amounts presented within the financial statements.
Fixed income securities subject to other-than-temporary impairment
write-downs continue to earn investment income when future expected payments
are reasonably estimable, and any discount or premium is recognized using the
effective yield method over the expected life of the security; otherwise income
recognition is discontinued.
For additional detail on investment impairments, see Note 4 of the financial
statements.
OPERATIONS
OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation (the
"Corporation"). We provide life insurance, retirement and investment products.
Our strategic vision is to reinvent protection and retirement for the consumer.
We plan to offer a suite of products that are easy for middle market and
emerging affluent consumers to understand, meet their protection needs and help
them better prepare for retirement.
Our products include fixed annuities such as deferred and immediate
annuities; and interest-sensitive, traditional and variable life insurance. Our
products are sold through multiple distribution channels including Allstate
exclusive agencies, which include exclusive financial specialists, independent
agents (including master brokerage agencies), and, through March 31, 2010,
broker-dealers.
NET INCOME
2009 2008 2007
($ IN THOUSANDS) ------- ------- -------
Net investment income............. $11,783 $13,940 $14,257
Realized capital gains and losses. 1,480 5,952 (417)
Income tax expense................ (4,634) (6,918) (4,835)
------- ------- -------
Net income........................ $ 8,629 $12,974 $ 9,005
======= ======= =======
We have reinsurance agreements whereby all premiums, contract charges,
interest credited to contractholder funds, contract benefits and substantially
all expenses are ceded to ALIC and other non-affiliated reinsurers, and
41
are reflected net of such reinsurance in the Statements of Operations and
Comprehensive Income. Our results of operations include net investment income
and realized capital gains and losses recognized in connection with the assets
that are not transferred under the reinsurance agreements.
NET INCOME decreased 33.5% in 2009 compared to 2008 and increased 44.1% in
2008 compared to 2007. The decrease in 2009 was due to lower net realized
capital gains and lower net investment income, partially offset by lower income
tax expense. The increase in 2008 was due to net realized capital gains in 2008
compared to net realized capital losses in 2007, partially offset by higher
income tax expense and lower net investment income.
NET INVESTMENT INCOME decreased 15.5% in 2009 compared to 2008 and 2.2% in
2008 compared to 2007. The decrease in 2009 was primarily due to lower yields
on fixed income securities. The decrease in 2008 was primarily due to lower
average fixed income security balances and lower yields on short-term
investments, partially offset by higher average short-term investment balances.
NET REALIZED CAPITAL GAINS of $1.5 million and $6.0 million were recognized
in 2009 and 2008, respectively, compared to net realized capital losses of $417
thousand in 2007. The realized capital gains and losses in 2009, 2008 and 2007
were related to sales of investments. For further discussion of realized
capital gains and losses see the Net realized capital gains and losses section
of the MD&A.
INCOME TAX EXPENSE decreased 33.0% in 2009 compared to 2008 and increased
43.1% in 2008 compared to 2007. These changes were due to the proportional
change in the income on which the income tax expense was determined.
FINANCIAL POSITION
2009 2008
($ IN THOUSANDS) ----------- -----------
Fixed income securities/(1)/.................. $ 308,343 $ 229,328
Short-term/(2)/............................... 8,557 80,703
----------- -----------
Total investments.......................... $ 316,900 $ 310,031
=========== ===========
Cash.......................................... $ 10,063 $ 3,145
Reinsurance recoverable from ALIC............. 18,689,074 18,791,710
Reinsurance recoverable from non-affiliates... 1,766,824 1,613,685
Contractholder funds.......................... 17,633,027 17,787,376
Reserve for life-contingent contract benefits. 2,805,387 2,581,186
Separate accounts assets and liabilities...... 2,039,647 1,823,163
- --------
(1)Fixed income securities are carried at fair value. Amortized cost basis for
these securities was $299.8 million and $229.7 million at December 31, 2009
and 2008, respectively.
(2)Short-term investments are carried at fair value. Amortized cost basis for
these securities was $8.6 million and $80.7 million at December 31, 2009 and
2008, respectively.
Total investments increased to $316.9 million at December 31, 2009 from
$310.0 million at December 31, 2008 due primarily to a favorable change in net
unrealized capital gains and losses on fixed income securities.
42
FIXED INCOME SECURITIES The following table shows fixed income securities by
type.
FAIR VALUE AT PERCENT TO FAIR VALUE AT PERCENT TO
DECEMBER 31, TOTAL DECEMBER 31, TOTAL
2009 INVESTMENTS 2008 INVESTMENTS
($ IN THOUSANDS) ------------- ----------- ------------- -----------
U.S. government and agencies........... $ 81,551 25.7% $ 78,816 25.4%
Municipal.............................. 3,095 1.0 499 0.2
Corporate.............................. 137,573 43.4 75,703 24.4
Residential mortgage-backed securities
("RMBS")............................. 67,975 21.4 48,351 15.6
Commercial mortgage-backed securities
("CMBS")............................. 9,704 3.1 18,960 6.1
Asset-backed securities ("ABS")........ 8,445 2.7 6,999 2.3
-------- ---- -------- ----
Total fixed income securities.......... $308,343 97.3% $229,328 74.0%
======== ==== ======== ====
At December 31, 2009, all of the fixed income securities portfolio was rated
investment grade, which is defined as a security having of rating of Aaa, Aa, A
or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion,
or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a comparable
internal rating if an externally provided rating is not available, which is
consistent with the NAIC rating. The Valuation of Securities Taskforce of the
NAIC instituted a new process to be used by insurance companies during the
fourth quarter of 2009 for statutory accounting, reporting and estimating
risk-based capital requirements for non-agency RMBS, and as a result the NAIC
ratings used for statutory reporting may differ from those shown below which
are based on credit ratings. The following table summarizes the credit rating
of the fixed income securities portfolio at December 31, 2009.
($ IN THOUSANDS) PERCENT
NAIC RATING CREDIT RATING FAIR VALUE TO TOTAL
----------- ------------- ---------- --------
1 Aaa/Aa/A $300,862 97.6%
2 Baa 7,481 2.4
-------- -----
$308,343 100.0%
======== =====
The following table summarizes the fair value and unrealized net capital
gains and losses for fixed income securities by credit rating as of
December 31, 2009.
AAA AA A
- - ------------------- ------------------- -------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
($ IN THOUSANDS) -------- ----------- ------- ----------- ------- -----------
U.S. government and agencies........... $ 81,551 $1,569 $ -- $ -- $ -- $ --
Municipal
Tax exempt.......................... -- -- 524 23 -- --
Taxable............................. -- -- 2,571 73 -- --
Corporate
Public.............................. 2,989 (5) 25,076 997 78,472 4,071
Privately placed.................... -- -- 2,096 101 11,910 432
Hybrid.............................. -- -- -- -- -- --
RMBS
U.S. government sponsored entities
("U.S. Agency")................... 61,666 1,726 -- -- -- --
Prime residential mortgage-backed
securities ("Prime").............. 6,309 (77) -- -- -- --
CMBS................................... 8,546 29 -- -- -- --
ABS.................................... -- -- -- -- -- --
-------- ------ ------- ------ ------- ------
Total fixed income securities.......... $161,061 $3,242 $30,267 $1,194 $90,382 $4,503
======== ====== ======= ====== ======= ======
43
BAA TOTAL
------------------ -------------------
FAIR UNREALIZED FAIR UNREALIZED
VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
------- ----------- -------- -----------
U.S. government and agencies.. $ -- $ -- $ 81,551 $1,569
Municipal
Tax exempt................. -- -- 524 23
Taxable.................... -- -- 2,571 73
Corporate
Public..................... 16,009 517 122,546 5,580
Privately placed........... -- -- 14,006 533
Hybrid..................... 1,021 (6) 1,021 (6)
RMBS
U.S. Agency................ -- -- 61,666 1,726
Prime...................... -- -- 6,309 (77)
CMBS.......................... 1,158 (845) 9,704 (816)
ABS........................... 8,445 (49) 8,445 (49)
------- ----- -------- ------
Total fixed income securities. $26,633 $(383) $308,343 $8,556
======= ===== ======== ======
CORPORATE BONDS, including publicly traded, privately placed and hybrid
securities totaled $137.6 million as of December 31, 2009 with an unrealized
net capital gain of $6.1 million. Privately placed securities primarily consist
of corporate issued senior debt securities that are in unregistered form or are
directly negotiated with the borrower. Privately placed corporate securities
are rated by the NAIC in instances when information is provided to them.
RMBS, CMBS AND ABS are structured securities that are primarily
collateralized by residential and commercial real estate related loans and
other consumer related borrowings. The cash flows are generally applied in a
pre-determined order and are designed so that each security issued qualifies
for a specific original rating. The security issue is typically referred to as
the "class". For example, the "senior" portion or "top" of the capital
structure, or rating class, which would originally qualify for a rating of Aaa
typically has priority in receiving the principal repayments on the collateral.
In a sequential structure, underlying collateral principal repayments are
directed to the most senior rated Aaa class in the structure until paid in
full, after which principal repayments are directed to the next most senior Aaa
class in the structure until it is paid in full. Senior Aaa classes generally
share any losses from the underlying collateral on a pro-rata basis after
losses are absorbed by classes with lower original ratings and include other
"junior" or "subordinate" securities. The collateral can have fixed interest
rates, variable interest rates (such as adjustable rate mortgages ("ARM")) or
may contain features of both fixed and variable rate mortgages.
RMBS, including U.S. Agency and Prime totaled $68.0 million at December 31,
2009. The RMBS portfolio is subject to interest rate risk, but unlike other
fixed income securities, is additionally subject to significant prepayment risk
from the underlying mortgages. The credit risk associated with our RMBS is
mitigated due to the fact that 90.7% of the portfolio consists of securities
that were issued by, or have underlying collateral that is guaranteed by, U.S.
government agencies.
CMBS totaled $9.7 million at December 31, 2009. The CMBS portfolio is
subject to credit risk, but unlike other structured securities, is generally
not subject to prepayment risk due to protections within the underlying
commercial mortgages whereby borrowers are effectively restricted from
prepaying their mortgages due to changes in interest rates. All of the CMBS
investments are traditional conduit transactions collateralized by pools of
commercial mortgages, broadly diversified across property types and
geographical area. The unrealized net capital loss of $816 thousand at
December 31, 2009 on our CMBS portfolio was a result of wider credit spreads
than at initial purchase, which is largely due to the macroeconomic conditions
and credit market deterioration, including the impact of real estate
valuations, that persisted throughout 2009.
44
ABS totaled $8.4 million at December 31, 2009. Credit risk is managed by
monitoring the performance of the collateral. The ABS portfolio is subject to
interest rate risk since price volatility and the ultimate realized yields are
affected by the rate of prepayment of the underlying assets.
SHORT-TERM INVESTMENTS Our short-term investment portfolio was $8.6 million
and $80.7 million at December 31, 2009 and 2008, respectively. The decrease in
short-term investments was primarily due to funding purchases of fixed income
securities.
UNREALIZED NET CAPITAL GAINS AND LOSSES See Note 4 of the financial
statements for further disclosures regarding unrealized losses on fixed income
securities and factors considered in determining whether securities are
other-than-temporarily impaired. Unrealized net capital gains totaled $8.6
million as of December 31, 2009, compared to unrealized net capital losses of
$341 thousand at December 31, 2008. The improvement since December 31, 2008 for
fixed income securities was primarily a result of tightening credit spreads on
certain fixed income securities during 2009 that more than offset the rise in
risk-free interest rates. The following table presents unrealized net capital
gains and losses, pre-tax and after-tax at December 31.
2009 2008
($ IN THOUSANDS) ------- -------
U.S. government and agencies....................... $ 1,569 $ 3,442
Municipal.......................................... 96 (3)
Corporate.......................................... 6,107 (1,489)
RMBS............................................... 1,649 1,631
CMBS............................................... (816) (3,936)
ABS................................................ (49) 16
------- -------
Fixed income securities............................ 8,556 (339)
Short-term investments............................. -- (2)
------- -------
Unrealized net capital gains and losses, pre-tax... 8,556 (341)
Deferred income taxes.............................. (2,995) 119
------- -------
Unrealized net capital gains and losses, after-tax. $ 5,561 $ (222)
======= =======
The net unrealized gain for the fixed income portfolio totaled $8.6 million,
comprised of $9.93 million of gross unrealized gains and $1.37 million of gross
unrealized losses at December 31, 2009. This is compared to a net unrealized
loss for the fixed income portfolio totaling $339 thousand, comprised of $6.0
million of gross unrealized gains and $6.3 million of gross unrealized losses
at December 31, 2008.
45
Gross unrealized gains and losses as of December 31, 2009 on fixed income
securities by type and sector are provided in the table below.
AMORTIZED FAIR VALUE
GROSS UNREALIZED COST AS A AS A PERCENT
PAR AMORTIZED -------------- FAIR PERCENT OF OF
VALUE COST GAINS LOSSES VALUE PAR VALUE PAR VALUE
($ IN THOUSANDS) -------- --------- ------ ------- -------- ---------- ------------
Corporate:
Energy........................ $ 16,000 $ 16,105 $ 515 $ (30) $ 16,590 100.7% 103.7%
Transportation................ 8,087 8,380 242 (30) 8,592 103.6 106.2
Financial services............ 15,500 15,521 690 (14) 16,197 100.1 104.5
Banking....................... 15,000 15,048 816 (6) 15,858 100.3 105.7
Consumer goods (cyclical and
non-cyclical)............... 43,000 43,239 2,151 (5) 45,385 100.6 105.5
Utilities..................... 12,000 12,037 565 -- 12,602 100.3 105.0
Capital goods................. 11,000 11,149 784 -- 11,933 101.4 108.5
Basic industry................ 4,000 3,993 231 -- 4,224 99.8 105.6
Technology.................... 6,000 5,994 198 -- 6,192 99.9 103.2
-------- -------- ------ ------- --------
Total corporate fixed income
portfolio...................... 130,587 131,466 6,192 (85) 137,573 100.7 105.3
-------- -------- ------ ------- --------
U.S. government and agencies..... 75,320 79,982 1,852 (283) 81,551 106.2 108.3
Municipal........................ 3,000 2,999 96 -- 3,095 100.0 103.2
RMBS............................. 66,369 66,326 1,733 (84) 67,975 99.9 102.4
CMBS............................. 10,500 10,520 57 (873) 9,704 100.2 92.4
ABS.............................. 8,070 8,494 -- (49) 8,445 105.3 104.6
-------- -------- ------ ------- --------
Total fixed income securities.... $293,846 $299,787 $9,930 $(1,374) $308,343 102.0 104.9
======== ======== ====== ======= ========
The energy, transportation and financial services sectors had the highest
concentration of gross unrealized losses in our corporate fixed income
securities portfolio at December 31, 2009. While credit spreads have tightened
in the last three quarters of 2009 from the historically high levels observed
in the fourth quarter of 2008 and the first quarter of 2009, they remain wider
than at initial purchase for certain securities in the portfolio.
The scheduled maturity dates for fixed income securities in a gross
unrealized loss position at December 31, 2009 are shown below. Actual
maturities may differ from those scheduled as a result of prepayments by the
issuers.
UNREALIZED PERCENT FAIR PERCENT
LOSS OF TOTAL VALUE OF TOTAL
($ IN THOUSANDS) ---------- -------- ------- --------
Due in one year or less................ $ (15) 1.1% $ 5,483 7.4%
Due after one year through five years.. (208) 15.1 34,610 46.9
Due after five years through ten years. (145) 10.6 16,129 21.8
Due after ten years.................... (873) 63.5 4,634 6.3
RMBS and ABS/(1)/...................... (133) 9.7 12,988 17.6
------- ----- ------- -----
Total.................................. $(1,374) 100.0% $73,844 100.0%
======= ===== ======= =====
- --------
(1)Because of the potential for prepayment, these securities are not
categorized based on their contractual maturities.
OTHER-THAN-TEMPORARY IMPAIRMENT EVALUATION We have a comprehensive portfolio
monitoring process to identify and evaluate each fixed income security whose
carrying value may be other-than-temporarily impaired. The process includes a
quarterly review of all securities through a screening process which identifies
instances
46
where the fair value compared to amortized cost is below established
thresholds, and also includes the monitoring of other criteria such as ratings,
ratings downgrades or payment defaults. The securities identified, in addition
to other securities for which we may have a concern, are evaluated based on
facts and circumstances for inclusion on our watch-list. All investments in an
unrealized loss position at December 31, 2009 were included in our portfolio
monitoring process for determining whether declines in value were other than
temporary.
At December 31, 2009, $529 thousand of unrealized losses are related to
fixed income securities with an unrealized loss position less than 20% of
amortized cost, the degree of which suggests that these securities do not pose
a high risk of being other-than-temporarily impaired. The remaining $845
thousand of unrealized losses are related to investment grade CMBS securities
in unrealized loss positions greater than or equal to 20% of amortized cost for
a period of twelve or more consecutive months. Consistent with their rating,
our portfolio monitoring indicates that the securities have a relatively low
risk of default.
We also monitor the quality of our fixed income securities by categorizing
certain investments as "problem," "restructured," or "potential problem."
Problem fixed income securities are in default with respect to principal or
interest and/or are investments issued by companies that have gone into
bankruptcy subsequent to our acquisition or loan. Fixed income securities are
categorized as restructured when the debtor is in financial difficulty and we
grant a concession. Potential problem fixed income securities are current with
respect to contractual principal and/or interest, but because of other facts
and circumstances, we have concerns regarding the borrower's ability to pay
future principal and interest according to the original terms, which causes us
to believe these investments may be classified as problem or restructured in
the future.
As of December 31, 2009 and 2008, we did not have any fixed income
securities categorized as problem, restructured or potential problem.
NET INVESTMENT INCOME The following table presents net investment income for
the years ended December 31.
2009 2008 2007
($ IN THOUSANDS) ------- ------- -------
Fixed income securities............. $12,098 $13,302 $13,533
Short-term and other investments.... 107 992 1,117
------- ------- -------
Investment income, before expense... 12,205 14,294 14,650
Investment expense.................. (422) (354) (393)
------- ------- -------
Net investment income............... $11,783 $13,940 $14,257
======= ======= =======
NET REALIZED CAPITAL GAINS AND LOSSES The following table presents realized
capital gains and losses and the related tax effect for the years ended
December 31.
2009 2008 2007
($ IN THOUSANDS) ------ ------- -----
Realized capital gains and losses, pre-tax..... $1,480 $ 5,952 $(417)
Income tax (expense) benefit................... (518) (2,083) 146
------ ------- -----
Realized capital gains and losses, after-tax... $ 962 $ 3,869 $(271)
====== ======= =====
Net realized capital gains of $1.5 million in 2009 comprised gross gains of
$1.5 million and gross losses of $8 thousand. Net realized capital gains of
$6.0 million in 2008 comprised gross gains of $8.5 million and gross losses of
$2.5 million.
CASH At December 31, 2009, our cash balance was $10.1 million compared to
$3.1 million at December 31, 2008. Fluctuations in our cash flows generally
result from differences in the timing of reinsurance payments to and from ALIC.
47
REINSURANCE RECOVERABLE, CONTRACTHOLDER FUNDS AND RESERVE FOR
LIFE-CONTINGENT CONTRACT BENEFITS Under GAAP, when reinsurance contracts do not
relieve the ceding company of legal liability to contractholders, the ceding
company is required to report reinsurance recoverables arising from these
contracts separately as assets. The liabilities for the contracts are reported
as contractholder funds, reserve for life-contingent contract benefits, or
separate accounts liabilities depending on the characteristics of the
contracts. We reinsure all reserve liabilities with ALIC or other
non-affiliated reinsurers. Reinsurance recoverables and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the Statements of Financial Position, while the assets which
support the separate accounts liabilities are reflected as separate accounts
assets.
At December 31, 2009, contractholder funds decreased to $17.63 billion from
$17.79 billion at December 31, 2008 as a result of new and additional deposits
on fixed annuities and interest-sensitive life policies and interest credited
to contractholder funds being more than offset by surrenders, withdrawals,
benefit payments and related contract charges. The reserve for life-contingent
contract benefits increased to $2.81 billion at December 31, 2009 from $2.58
billion as of December 31, 2008 due primarily to the aging of the in force
block of certain business and sales of traditional life insurance, partially
offset by benefits paid and policy lapses. Reinsurance recoverables from ALIC
decreased by $102.6 million and reinsurance recoverables from non-affiliates
increased $153.1 million.
We purchase reinsurance after evaluating the financial condition of the
reinsurer, as well as the terms and price of coverage. We reinsure certain of
our risks to non-affiliated reinsurers under yearly renewable term and
coinsurance agreements. Yearly renewable term and coinsurance agreements result
in a passing of the agreed-upon portion of risk to the reinsurer in exchange
for negotiated reinsurance premium payments.
At December 31, 2009, 97% of reinsurance recoverables due from
non-affiliated companies were reinsured under uncollateralized reinsurance
agreements with companies that had a financial strength rating of A or above,
as measured by S&P. In certain cases, these ratings refer to the financial
strength of the affiliated group or parent company of the reinsurer.
We continuously monitor the creditworthiness of reinsurers in order to
determine our risk of recoverability on an individual and aggregate basis and a
provision for uncollectible reinsurance is recorded if needed. No amounts have
been deemed unrecoverable in the three years ended December 31, 2009.
MARKET RISK
Market risk is the risk that we will incur losses due to adverse changes in
interest rates and credit spreads. We also have certain exposures to changes in
equity prices in our equity-indexed annuities and separate accounts
liabilities, which are transferred to ALIC in accordance with our reinsurance
agreements.
OVERVIEW In formulating and implementing guidelines for investing funds, we
seek to earn returns that contribute to attractive and stable profits and
long-term capital growth.
We manage our exposure to market risk through the use of asset allocation,
duration, and as appropriate, through the use of stress tests. We have asset
allocation limits that place restrictions on the total funds that may be
invested within an asset class. We have duration limits on our investment
portfolio and, as appropriate, on individual components of the portfolio. These
duration limits place restrictions on the amount of interest rate risk that may
be taken. Comprehensive day-to-day management of market risk within defined
tolerance ranges occurs as portfolio managers buy and sell within their
respective markets based upon the acceptable boundaries established by
investment policies.
INTEREST RATE RISK is the risk that we will incur a loss due to adverse
changes in interest rates relative to the interest rate characteristics of
interest bearing assets. This risk arises from our investment in
interest-sensitive assets. Interest rate risk includes risks related to changes
in U.S. Treasury yields and other key risk-free reference yields.
48
One of the measures used to quantify interest rate exposure is duration.
Duration measures the price sensitivity of assets to changes in interest rates.
For example, if interest rates increase by 100 basis points, the fair value of
an asset with a duration of 5 is expected to decrease in value by approximately
5%. Our asset duration was 3.7 and 3.0 at December 31, 2009 and 2008,
respectively.
To calculate duration, we project asset cash flows and calculate their net
present value using a risk-free market interest rate adjusted for credit
quality, sector attributes, liquidity and other specific risks. Duration is
calculated by revaluing these cash flows at alternative interest rates and
determining the percentage change in aggregate fair value. The projections
include assumptions (based upon historical market experience and our
experience) that reflect the effect of changing interest rates on the
prepayment, lapse, leverage and/or option features of instruments, where
applicable. The proceeding assumptions relate primarily to mortgage-backed
securities, collateralized mortgage obligations, and municipal and corporate
obligations.
Based upon the information and assumptions used in the duration calculation,
and interest rates in effect at December 31, 2009, we estimate that a 100 basis
point immediate, parallel increase in interest rates ("rate shock") would
decrease the net fair value of the assets by $11.3 million, compared to $8.5
million at December 31, 2008. The selection of a 100 basis point immediate
parallel change in interest rates should not be construed as our prediction of
future market events, but only as an illustration of the potential effect of
such an event.
To the extent that conditions differ from the assumptions we used in these
calculations, duration and rate shock measures could be significantly impacted.
Additionally, our calculations assume that the current relationship between
short-term and long-term interest rates (the term structure of interest rates)
will remain constant over time. As a result, these calculations may not fully
capture the effect of non-parallel changes in the term structure of interest
rates and/or large changes in interest rates.
CREDIT SPREAD RISK is the risk that we will incur a loss due to adverse
changes in credit spreads ("spreads"). This risk arises from many of our
primary activities, as we invest substantial funds in spread-sensitive fixed
income assets.
We manage the spread risk in our assets. One of the measures used to
quantify this exposure is spread duration. Spread duration measures the price
sensitivity of the assets to changes in spreads. For example, if spreads
increase 100 basis points, the fair value of an asset exhibiting a spread
duration of 5 is expected to decrease in value by approximately 5%.
Spread duration is calculated similarly to interest rate duration. At
December 31, 2009, the spread duration of assets was 3.6, compared to 3.4 at
December 31, 2008. Based upon the information and assumptions we use in this
spread duration calculation, and spreads in effect at December 31, 2009, we
estimate that a 100 basis point immediate, parallel increase in spreads across
all asset classes, industry sectors and credit ratings ("spread shock") would
decrease the net fair value of the assets by $8.4 million, compared to $7.2
million at December 31, 2008. The selection of a 100 basis point immediate
parallel change in spreads should not be construed as our prediction of future
market events, but only as an illustration of the potential effect of such an
event.
EQUITY PRICE RISK is the risk that we will incur losses due to adverse
changes in the general levels of the equity markets. At December 31, 2009 and
2008, we had separate accounts assets related to variable annuities and
variable life contracts with account values totaling $2.04 billion and $1.82
billion, respectively. Equity risk exists for contract charges based on
separate account balances and guarantees for death and/or income benefits
provided by our variable products. All variable life and annuity contract
charges and fees, liabilities and benefits, including guarantees for death
and/or income are ceded to ALIC in accordance with the reinsurance agreements,
thereby limiting our equity risk exposure. In 2006, ALIC disposed of
substantially all of its variable annuity business through a reinsurance
agreement with The Prudential Insurance Company of America, a subsidiary of
Prudential Financial, Inc. (collectively "Prudential"), and therefore mitigated
this aspect of ALIC's risk. The Company was not a direct participant of this
agreement and its reinsurance agreements with ALIC remain unchanged.
49
At December 31, 2009 and 2008 we had $4.16 billion and $3.79 billion,
respectively, in equity-indexed annuity liabilities that provide customers with
interest crediting rates based on the performance of the S&P 500. All contract
charges and fees, and liabilities and benefits related to equity-indexed
annuity liabilities are ceded to ALIC in accordance with the reinsurance
agreements, thereby limiting our equity risk exposure.
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES consist of shareholder's equity. The following table
summarizes our capital resources at December 31.
2009 2008 2007
($ IN THOUSANDS) -------- -------- --------
Common stock, additional capital paid-in and retained
income.............................................. $307,412 $298,783 $285,809
Accumulated other comprehensive income (loss)......... 5,561 (222) 4,129
-------- -------- --------
Total shareholder's equity............................ $312,973 $298,561 $289,938
======== ======== ========
SHAREHOLDER'S EQUITY increased $14.4 million in 2009 due to net income of
$8.6 million and a favorable change in unrealized net capital gains and losses
totaling $5.8 million. Shareholder's equity increased $8.6 million in 2008, due
to net income of $13.0 million partially offset by an unfavorable change in
unrealized net capital gains and losses totaling $4.4 million.
FINANCIAL RATINGS AND STRENGTH We share the insurance financial strength
ratings of our parent, ALIC, as our business is reinsured to ALIC. The
following table summarizes ALIC's financial strength ratings at December 31,
2009.
RATING AGENCY RATING
------------- --------------------
A.M. Best Company, Inc.................. A+ ("Superior")
Standard & Poor's Ratings Services...... AA- ("Very Strong")
Moody's Investors Service, Inc.......... A1 ("Good")
ALIC's ratings are influenced by many factors including operating and
financial performance, asset quality, liquidity, asset/liability management,
overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the
current level of operating leverage and AIC's ratings.
On November 20, 2009, A.M. Best affirmed ALIC's A+ financial strength
rating. ALIC's outlook was revised to negative from stable. On November 23,
2009, S&P affirmed ALIC's AA- financial strength rating. The outlook for the
S&P rating remained negative. On January 29, 2009, S&P downgraded ALIC's
financial strength rating to AA- from AA. On November 5, 2009, Moody's affirmed
ALIC's financial strength rating of A1. The outlook for the Moody's rating
remained stable. On January 29, 2009, Moody's downgraded ALIC's financial
strength rating to A1 from Aa3.
State laws specify regulatory actions if an insurer's risk-based capital
("RBC"), a measure of an insurer's solvency, falls below certain levels. The
NAIC has a standard formula for annually assessing RBC. The formula for
calculating RBC for life insurance companies takes into account factors
relating to insurance, business, asset and interest rate risks. At December 31,
2009, our RBC was within the range that we target.
The NAIC has also developed a set of financial relationships or tests known
as the Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or actions by insurance regulatory
authorities. The NAIC analyzes financial data provided by insurance companies
using prescribed ratios, each with defined "usual ranges". Generally,
regulators will begin to monitor an insurance company if its ratios fall
outside the usual ranges for four or more of the ratios. If an insurance
company has insufficient capital, regulators may act to reduce the amount of
insurance it can issue. Our ratios are within these ranges.
50
LIQUIDITY SOURCES AND USES Our potential sources of funds principally
include the activities as follows.
. Receipt of insurance premiums
. Contractholder fund deposits
. Reinsurance recoveries
. Receipts of principal and interest on investments
. Sales of investments
. Intercompany loans
. Capital contributions from parent
Our potential uses of funds principally include the activities as follows.
. Payment of contract benefits, surrenders and withdrawals
. Reinsurance cessions and payments
. Operating costs and expenses
. Purchase of investments
. Repayment of intercompany loans
. Dividends to parent
. Tax payments/settlements
CASH FLOWS As reflected in our Statements of Cash Flows, net cash provided
by (used in) operating activities was $4.3 million, $(5.9) million and $14.0
million in 2009, 2008 and 2007, respectively. Fluctuations in net cash provided
by operating activities primarily occur as a result of changes in net
investment income and differences in the timing of reinsurance payments to and
from ALIC.
Under the terms of reinsurance agreements, all premiums and deposits,
excluding variable annuity and life contract deposits allocated to separate
accounts and those reinsured to non-affiliated reinsurers, are transferred to
ALIC, which maintains the investment portfolios supporting our products.
Payments of contractholder claims, benefits, contract surrenders and
withdrawals and certain operating costs (excluding investment-related
expenses), are reimbursed by ALIC, under the terms of the reinsurance
agreements. We continue to have primary liability as a direct insurer for risks
reinsured. Our ability to meet liquidity demands is dependent on ALIC's and
other reinsurers' ability to meet those obligations under the reinsurance
programs.
Our ability to pay dividends is dependent on business conditions, income,
cash requirements and other relevant factors. The payment of shareholder
dividends without the prior approval of the state insurance regulator is
limited by Nebraska law to formula amounts based on net income and capital and
surplus, determined in conformity with statutory accounting practices, as well
as the timing and amount of dividends paid in the preceding twelve months. The
maximum amount of dividends that we can distribute during 2010 without prior
approval of the Nebraska Department of Insurance is $30.6 million.
CONTRACTUAL OBLIGATIONS Due to the reinsurance agreements that we have in
place, our contractual obligations are ceded to ALIC and other non-affiliated
reinsurers.
REGULATION AND LEGAL PROCEEDINGS
We are subject to extensive regulation and we are involved in various legal
and regulatory actions, all of which have an effect on specific aspects of our
business. For a detailed discussion of the legal and regulatory actions in
which we are involved, see Note 9 of the financial statements.
51
PENDING ACCOUNTING STANDARDS
There are several pending accounting standards that we have not implemented
either because the standard has not been finalized or the implementation date
has not yet occurred. For a discussion of these pending standards, see Note 2
of the financial statements.
The effect of implementing certain accounting standards on our financial
results and financial condition is often based in part on market conditions at
the time of implementation of the standard and other factors we are unable to
determine prior to implementation. For this reason, we are sometimes unable to
estimate the effect of certain pending accounting standards until the relevant
authoritative body finalizes these standards or until we implement them.
ITEM 11(I).CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 11(J).QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required for Item 11(j) is incorporated by reference to the
material under the caption "Market Risk" in Item 11(h) of this report.
ITEM 11(K).DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS:
Directors are elected at each annual meeting of shareholders, for a term of
one year. The biographies of each of the directors below contains information
regarding the person's service as a director, business experience, director
positions held currently or at any time during the last five years, and the
experiences, qualifications, attributes or skills that caused the company
management to determine that a director should serve as such for Lincoln
Benefit. Unless otherwise indicated, each director and executive officer has
served for at least five years in the business position currently or most
recently held.
LAWRENCE W. DAHL, 50, has been a director since 1999 and President and Chief
Operating Officer since November 2005. In his current role, Mr. Dahl manages
the distribution relationships for Lincoln Benefit. Mr. Dahl began his Allstate
career in 1987 in the Tax Department before becoming the Executive Vice
President of Administration for Lincoln Benefit, where he was responsible for
Marketing, Field Technology, Compliance, Planning and Strategy. Mr. Dahl
progressed through various other leadership positions, including Executive Vice
President of Sales and President of Distribution before becoming the President
and Chief Operating Officer. Mr. Dahl has also earned a JURIS DOCTOR degree and
a Certified Public Account designation. Currently, Mr. Dahl also serves as a
director for ALFS, Inc. and Surety Life Insurance Company, each of which is
affiliated with Lincoln Benefit. Over the course of his career with Lincoln
Benefit, Mr. Dahl has gained deep knowledge of the life insurance industry as
well as extensive experience with distribution and sales.
MATTHEW S. EASLEY, 54, has been a director since March 2009 and Senior Vice
President since March 2010. Mr. Easley is also a Vice President for Allstate
Life Insurance Company. Mr. Easley is responsible for Product Management,
Underwriting, and Asset Liability Management within the Allstate Financial
group of companies. Prior to joining Allstate, Mr. Easley spent 23 years at
Nationwide Financial including 11 years as the head of Annuity and Pension
Actuarial, where he started a 401(k) business with a new-to-the-world business
model, created a synthetic asset segmentation method, co-invented a patented
retirement planning software and led a team to create a new strategic plan as
part of the initial public offering of Nationwide Financial Services stock.
Currently, Mr. Easley also serves as a director for ALFS, Inc., ALIC
Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company,
Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
Allstate Settlement Corporation, American Heritage Life Insurance Company,
Charter National Life
52
Insurance Company, Intramerica Life Insurance Company and Surety Life Insurance
Company, each of which is affiliated with Lincoln Benefit. Mr. Easley possesses
extensive insurance business, product and liability management experience.
MARK A GREEN, 42, became Senior Vice President on March 16, 2010. Mr. Green
is also the Vice President of National Sales for Allstate Life Insurance
Company. Prior to his current role, Mr. Green was the Assistant Field Vice
President for Allstate Insurance Company in the Capital Region, where he had
geographic responsibility for West Virginia, Delaware and Washington D.C.
Before joining Allstate in 2009, Mr. Green was a founding equity partner and
chief risk officer for AIX Group in Connecticut, where he was responsible for
corporate development and overall risk and investment management. He has worked
for Wells Fargo, Chubb Group and Swiss Reinsurance. Currently, Mr. Green also
serves as a director for Allstate Life Insurance Company of New York and
Intramerica Life Insurance Company, each of which is an affiliate of Lincoln
Benefit. Mr. Green has experience in optimizing insurance company operations to
drive profitable growth.
SUSAN L. LEES, 52, has been director and Senior Vice President, General
Counsel and Secretary since August 2008. Ms. Lees is also Senior Vice
President, General Counsel and Secretary of Allstate Life Insurance Company. At
Allstate for over 20 years, Ms. Lees progressed through various counsel
positions throughout Allstate before become an assistant vice president in
1999. As the leader of the Corporate Law division of Allstate Law and
Regulation, Ms. Lees gained extensive experience working with a number of the
business areas throughout the enterprise, including Allstate Life Insurance
Company. Currently, Ms. Lees serves as a director for Life Insurance Council of
New York. She also serves as a director for ALIC Reinsurance Company, Allstate
Assignment Company, Allstate Assurance Company, Allstate Financial Corporation,
Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
Allstate Settlement Corporation, American Heritage Life Insurance Company,
Charter National Life Insurance Company, Intramerica Life Insurance Company,
and Surety Life Insurance Company, each of which is affiliated with Lincoln
Benefit. Ms. Lees has a deep understanding of insurance business generally, as
well as applicable laws and regulations, including corporate and securities
laws and corporate governance matters. In addition, Ms. Lees has extensive
knowledge regarding Lincoln Benefit's business, including its employees,
products, agencies and customers.
JOHN C. PINTOZZI, 44, has been director, Senior Vice President and Chief
Financial Officer since March 2005. Mr. Pintozzi also is Senior Vice President
and Chief Financial Officer for Allstate Life Insurance Company. In these
positions, Mr. Pintozzi is responsible for the planning and analysis, capital
allocation, valuation and compliance functions as well as Allstate Federal
Savings Bank. Prior to Allstate, Mr. Pintozzi was an audit partner with
Deloitte & Touche, specializing in the insurance and financial services
industries. He is a Certified Public Accountant and holds memberships with the
American Institute of Certified Public Accountants and the Illinois CPA
Society. In addition, Mr. Pintozzi currently serves as a director for ALIC
Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company,
Allstate Bank, Allstate Life Insurance Company, Allstate Life Insurance Company
of New York, Allstate Settlement Corporation, American Heritage Life Insurance
Company, Charter National Life Insurance Company, Intramerica Life Insurance
Company, and Surety Life Insurance, each of which is affiliated with Lincoln
Benefit. Mr. Pintozzi has extensive experience in corporate and insurance
company finance and accounting.
MATTHEW E. WINTER, 53, has been a director since December 2009, Chief
Executive Officer and Chairman of the Board since March 2010. Mr. Winter is
also the President and Chief Executive Officer of Allstate Life Insurance
Company and Senior Vice President of Allstate Insurance Company, each a parent
organization of Lincoln Benefit. Prior to Allstate, Mr. Winter was the Vice
Chairman of American International Group, President and Chief Executive Officer
of American General Life Companies, and Executive Vice President for MassMutual
Financial Group. For a brief period in 2009, Mr. Winter served as a director of
EP Global Communications, a magazine publication and distribution company.
Currently, Mr. Winter also serves as a director for Allstate Insurance Company,
Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
American Heritage Life Insurance Company, American Heritage Life Investment
Corporation, and Intramerica Life Insurance Company, each of which is
affiliated with Lincoln Benefit. Mr. Winter was also a
53
former Chairman of the Houston Food Bank Board of Directors. Mr. Winter has
extensive experience leading major life insurance and financial services
providers, working with financial and estate planning products and overseeing
the operations of insurance companies.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No directors or executive officers have been involved in any legal
proceedings that are material to an evaluation of the ability or integrity of
any director or executive officer of Lincoln Benefit.
ITEM 11(L).EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS ("CD&A")
OVERVIEW
. Executive officers of Lincoln Benefit also serve as officers of other
subsidiaries of The Allstate Corporation ("Allstate") and receive no
compensation directly from Lincoln Benefit. They are employees of an
Allstate subsidiary. Allocations have been made for each named executive
based on the amount of the named executive's compensation allocated to
Lincoln Benefit under the Amended and Restated Service and Expense
Agreement among Allstate Insurance Company, Allstate and certain
affiliates, as amended effective January 1, 2009, to which Lincoln
Benefit is a party (the "Service and Expense Agreement"). Those
allocations are reflected in the Summary Compensation Table set forth
below and in this disclosure, except where noted. The named executives
may have received additional compensation for services rendered to other
Allstate subsidiaries, and those amounts are not reported. Lincoln
Benefit's directors receive no compensation for serving as directors in
addition to their compensation as employees of an Allstate affiliate.
. Allstate provides its executive officers with the following core
compensation elements: annual salary, annual cash incentive awards, and
equity awards. In 2009, Allstate discontinued future cycles of its
long-term cash incentive plan in favor of placing greater emphasis on
long-term equity awards, consistent with its compensation philosophy,
and to a lesser extent, annual cash incentive awards.
. Allstate embraces a pay-for-performance philosophy for its executives in
which variable compensation represents a large portion of potential
compensation and is tied to appreciation of Allstate stock and
Allstate's performance in achieving short-term and long-term business
goals.
. Allstate uses equity-based compensation to align the interests of its
executives with long-term stockholder value and as a tool for retaining
executive talent. Once granted, the value of these awards rises and
falls with the price of Allstate stock. Equity awards granted in 2010,
including stock options and restricted stock units, will vest in three
installments of 50% on the second anniversary of the grant date and 25%
on each of the third and fourth anniversary dates. Restricted stock
units granted in 2010 will no longer receive dividend equivalents on a
quarterly schedule; instead dividend equivalents will be paid when the
underlying restricted stock unit vests.
. In 2009 the executive compensation program was simplified by reducing
the number of performance measures under the Annual Executive Incentive
Compensation Plan. Consistent with current market trends, the maximum
corporate multiplier for the 2010 performance year for an executive
officer's Annual Executive Incentive Plan award will be 250% of target.
In addition, the minimum payout, upon achieving the performance
threshold, will be 50% of target.
. Allstate offers its executives limited perquisites.
54
NAMED EXECUTIVES
This CD&A, on pages 54 to 63, describes the executive compensation program
for Allstate and specifically describes total 2009 compensation for the
following named executives of Lincoln Benefit:
. Frederick F. Cripe--Chairman and Chief Executive Officer until March 12,
2010
. John C. Pintozzi--Senior Vice President and Chief Financial Officer
. Lawrence W. Dahl--President and Chief Operating Officer
. Matthew S. Easley--Vice President
. John C. Lounds--Vice President until July 31, 2009
. J. Eric Smith--Vice President until January 15, 2010
COMPENSATION PHILOSOPHY
Allstate's compensation philosophy is based on these central beliefs:
. Executive compensation should be aligned with performance and
stockholder value. Accordingly, a significant amount of executive
compensation should be in the form of equity.
. The compensation of executives should vary both with appreciation in the
price of Allstate stock and with Allstate's performance in achieving
strategic short and long-term business goals designed to drive stock
price appreciation.
. Allstate's compensation program should inspire executives to strive for
performance that is better than the industry average.
. A greater percentage of compensation should be at risk for executives
who bear higher levels of responsibility for Allstate's performance.
. Allstate should provide competitive levels of compensation for
competitive levels of performance and superior levels of compensation
for superior levels of performance.
Allstate's executive compensation program has been designed around these
beliefs. They serve Allstate's goal of attracting, motivating, and retaining
highly talented executives to compete in the complex and highly regulated
insurance and financial services industry.
COMPENSATION PRACTICES
Allstate reviews the design of its executive compensation program and
executive pay levels on an annual basis and performance and goal attainment
within this design throughout the year. As part of that review, Allstate
considers available data regarding compensation paid to similarly-situated
executives at companies against which it competes for executive talent. With
respect to the compensation program for 2009 for Allstate executives, including
the named executives of Lincoln Benefit, Allstate management considered
compensation surveys, as well as compensation data for the peer companies
listed on page 61, that provided information on companies of broadly similar
size and business mix as Allstate, as well as companies with a broader market
context. The compensation surveys considered include the Mercer Property &
Casualty Insurance Company Survey, the 2008 Towers Perrin Diversified Insurance
Survey, and the Towers Perrin Compensation Data Bank. The weight given to
information obtained from these sources varied depending on the position being
evaluated. The Diversified Insurance Survey includes 29 insurance organizations
with assets ranging from $20 billion to $1 trillion, with a median asset size
of $131 billion. The Towers Perrin Compensation Data Bank provides compensation
data on 80 of the Fortune 100 companies. The Mercer Property & Casualty
Insurance Company Survey includes compensation data for 45 property and
casualty insurance companies with at least $1 billion in annual premiums. In
addition, in its executive pay and performance discussions, Allstate management
considered information regarding other companies in the financial services
industries.
55
CORE ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM
The following table lists the core elements of Allstate's executive
compensation program for 2009.
CORE ELEMENT PURPOSE
- ------------ -------
Annual salary......... Provides a base level of competitive cash compensation for executive talent
Annual cash incentive Reward performance on key strategic, operational, and financial measures over
awards.............. the year
Equity awards......... Align the interests of executives with long-term Allstate shareholder value and
retain executive talent
These core elements are designed to balance individual, business unit, and
overall corporate performance. The goals for incentive awards are aligned with
Allstate's strategic vision and 2009 operating priorities of keeping Allstate
financially strong, improving customer loyalty, and reinventing protection and
retirement for the consumer.
Allstate's compensation design balances annual and long-term incentive
awards with short and long-term business goals. At the target level of
performance, annual and long-term incentive awards are designed to constitute a
significant percentage of an executive's total core compensation. The target
incentive-based core compensation for Mr. Cripe, who had the greatest level of
responsibility for Allstate's performance, was 77% of his total core
compensation (19% annual cash incentive award, 38% stock options, and 20%
restricted stock units). Messrs. Pintozzi's, Easley's, Lounds', and Smith's
incentive-based core compensation on average was targeted at 64% of their total
core compensation (21% annual cash incentive award, 28% stock options, and 15%
restricted stock units). The target incentive-based core compensation for
Mr. Dahl was 50% of his total core compensation (35% annual cash incentive
award, 10% stock options, and 5% restricted stock units).
SALARY
. Mr. Cripe's salary was set by the Allstate Board of Directors based on
the recommendations of its Compensation and Succession Committee (the
"Committee"). The salaries of other executive officers are set by
Allstate management.
. In recommending executive base salary levels, Allstate uses the
50/th/ percentile of comparable companies as a guideline to align with
Allstate's pay philosophy for competitive positioning in the market for
executive talent.
. The average enterprise-wide merit and promotional increases are based on
a combination of U.S. general and the insurance industry market data and
are set at levels intended to be competitive.
. Annual merit increases for the named executives are based on evaluations
of their performance by Allstate's management, using the average
enterprise-wide merit increase as a guideline.
. Promotional increases are based on the increased responsibilities of the
new position and the skills and experience of the executive being
promoted.
ANNUAL CASH INCENTIVE COMPENSATION
In 2009 Allstate maintained the Annual Executive Incentive Compensation
Plan, an Allstate stockholder-approved plan under which executive officers had
the opportunity to earn an annual cash incentive award based on the achievement
of a combination of Allstate corporate and business unit performance measures
for Allstate's main business units including Allstate Financial. Lincoln
Benefit is part of the Allstate Financial business unit.
The Committee approves performance measures and goals for annual cash
incentive awards under the Annual Executive Incentive Compensation Plan during
the first quarter of the year. The performance measures
56
and goals are aligned with Allstate's objectives and tied to Allstate's
strategic vision and operating priorities. They are designed to reward
executives for actual performance, to reflect objectives that will require
significant effort and skill to achieve, and to drive stockholder value.
After the end of the year, the Committee reviews the extent to which
Allstate has achieved the various performance measures and approves the actual
amount of the annual cash incentive award. The Committee may adjust the amount
of an annual cash incentive award. Allstate pays the annual cash incentive
awards in March, after the end of the year.
For 2009, the Committee adopted corporate and Allstate Financial business
unit annual performance measures and weighted them as applied to each of the
named executives in accordance with their responsibilities for Allstate's
overall corporate performance and the performance of Allstate Financial. Each
measure is assigned a weight expressed as a percentage of the total annual cash
incentive award opportunity, with all weights for any particular named
executive adding to 100%.
The following table lists the performance measures and related target goals
for 2009, as well as the weighting factors and actual results, applicable to
the named executives. The performance measures were designed to focus executive
attention on key strategic, operational, and financial measures including top
line growth and profitability. For each performance measure, the Committee
approved a threshold, target, and maximum goal. The target goals for the
performance measures were based on evaluations of Allstate's historical
performance and plans to drive projected performance. A description of each
performance measure is provided under the "Performance Measures" caption on
page 81.
ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
PERFORMANCE MEASURES, TARGETS, AND WEIGHTING
ACHIEVEMENT
RELATIVE TO
THRESHOLD, TARGET,
PERFORMANCE MEASURE/(1)/ WEIGHTING TARGET ACTUAL/(2)/ MAXIMUM GOALS
- ----------------------- --------- ------------ ------------ ------------------
CORPORATE-LEVEL PERFORMANCE MEASURE....... 20%
Adjusted Operating Income Per Diluted
Share................................ $5.10 $3.55 Below threshold
ALLSTATE FINANCIAL PERFORMANCE MEASURES... 80%
Adjusted Operating Income.............. $300 million $279 million Between threshold
and target
Financial Product Sales (Production
Credits)............................. $285 million $255 million Below threshold
Allstate Financial Total Return........ 4.50% 14.84% Exceeded maximum
- --------
(1)Information regarding Allstate's performance measures is disclosed in the
limited context of the annual cash incentive awards and should not be
understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply
these statements to other contexts.
(2)Stated as a percentage of target goals with a range from 0% to 300% (with
the exception of Mr. Dahl, who had a target goal with a range from 0% to
250%), the actual performance comprises 0% for Adjusted Operating Income Per
Diluted Share performance, and 99% for Allstate Financial performance.
Target award opportunities approved by the Committee are stated as a
percentage of annual base salary. Annual cash incentive awards are calculated
using base salary, as adjusted by any merit and promotional increases granted
during the year on a prorated basis, except for Mr. Dahl, whose incentive award
was calculated using his 2009 year-end salary. One of the central beliefs on
which Allstate's compensation philosophy is based is that a greater percentage
of compensation should be at risk for executives who bear higher levels of
57
responsibility for Allstate's performance. In setting target incentive levels
for named executive officers, the Committee gives the most consideration to
market data primarily focusing on pay levels at peer group companies with which
it directly competes for executive talent and stockholder investment.
In calculating the annual cash incentive awards, Allstate's achievement with
respect to each performance measure is expressed as a percentage of the target
goal, with interpolation applied between the threshold and target goals and
between the target and maximum goals. Unless otherwise adjusted by the
Committee for Mr. Cripe or by management for the other named executives, the
amount of the annual cash incentive award is the sum of the amounts calculated
using the calculation below for all of the performance measures.
Actual performance interpolated relative to X Weighting X Target award opportunity as a X Salary*
threshold and target on a range of 0% to percentage of salary*
100% and relative to target and maximum on
a range of 100% to 300%**
- --------
* Base salary, as adjusted by any merit and promotional increases granted
during the year on a prorated basis (except for Mr. Dahl).
** 100% to 250% for Mr. Dahl, whose incentive award was calculated using his
2009 year-end salary.
Annual cash incentive awards based on the achievement of the performance
measures for 2009 are included in the amounts reported in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table on page 63
and broken out separately from long-term cash incentive awards in a footnote to
that table. In addition, the threshold, target, and maximum annual award
opportunities for 2009 are included in the Estimated Future Payouts Under
Non-Equity Incentive Plan Awards column in the Grants of Plan-Based Awards
table on page 65.
As President and Chief Operating Officer of Lincoln Benefit, Mr. Dahl
participated in a cash-based sales incentive plan (the "Sales Incentive Plan")
based on first year premiums for universal life and term policies, as well as
deposits for annuities, sold by one of Lincoln Benefit's distribution channels.
In 2009, the targeted compensation level for the Sales Incentive Plan was
$100,000. Payments related to the Sales Incentive Plan were made to Mr. Dahl on
a monthly basis and totaled $62,343 for 2009. Payments were below plan for 2009
because targeted sales levels were not achieved. No other named executives of
Lincoln Benefit participated in the Sales Incentive Plan.
LONG-TERM INCENTIVE AWARDS--CASH AND EQUITY
As part of total core compensation, Allstate historically has provided three
forms of long-term incentive awards: stock options, restricted stock units, and
long-term cash incentive awards. In 2009, Allstate discontinued future cycles
of the long-term cash incentive plan. The relative mix of various forms of
these awards is driven by Allstate's objectives in providing the specific form
of award, as described below.
LONG-TERM INCENTIVE AWARDS--EQUITY
As stated in its compensation philosophy, Allstate believes that a
significant amount of executive compensation should be in the form of equity
and that a greater percentage of compensation should be at risk for executives
who bear higher levels of responsibility for Allstate's performance. Consistent
with that philosophy, the size of stock option and restricted stock unit awards
granted by the Committee is usually larger for executives with the broadest
scope of responsibility. However, from time to time, larger equity awards are
granted to attract new executives.
STOCK OPTIONS
Stock options represent the opportunity to buy shares of Allstate stock at a
fixed exercise price at a future date. They are utilized to align the interests
of executives with long-term value of Allstate stockholders.
58
KEY ELEMENTS:
. Under the Allstate stockholder-approved equity incentive plan, the
exercise price cannot be less than the fair market value of a share on
the date of grant.
. Stock option repricing is not permitted. In other words, absent an event
such as a stock split, if the Committee cancels an award and substitutes
a new award in its place, the exercise price of the new award cannot be
less than the exercise price of the cancelled award.
. All stock option awards have been made in the form of nonqualified stock
options.
. Allstate stock options vest over stated vesting periods measured from
the date of grant.
. The options granted to the named executives in 2009 become exercisable
in four installments of 25% on the first four anniversaries of the grant
date and expire in ten years, except in certain change-in-control
situations or under other special circumstances approved by the
Committee.
RESTRICTED STOCK UNITS
Each restricted stock unit represents Allstate's promise to transfer one
fully vested share of Allstate stock in the future if and when the restrictions
expire (when the unit "vests"). Because restricted stock units are based on and
payable in stock, they serve to reinforce the alignment of interests of
executives and Allstate stockholders. In addition, because restricted stock
units have a real, current value that is forfeited, except in some
circumstances, if an executive terminates employment before the restricted
stock units vest, they provide a significant retention incentive. Under the
terms of the restricted stock unit awards, the executives have only the rights
of general unsecured creditors of Allstate and no rights as stockholders until
delivery of the underlying shares.
KEY ELEMENTS:
. The restricted stock units granted to the named executives in 2009 vest
in one installment on the fourth anniversary of the date of grant,
except in certain change-in-control situations or under other special
circumstances approved by the Committee.
. Allstate restricted stock units granted to the named executives in 2009
and prior years include the right to receive dividend equivalents in the
same amount and at the same time as dividends paid to all Allstate
common stockholders.
TIMING OF EQUITY AWARDS AND GRANT PRACTICES
The Committee grants existing employee equity incentive awards on an annual
basis normally during a meeting in the first fiscal quarter, after the issuance
of Allstate's prior fiscal year-end earnings release. Throughout the year, the
Committee grants equity incentive awards in connection with new hires and
promotions and in recognition of achievements. The Committee approved a
one-time recognition award of non-qualified stock options and restricted stock
units to Mr. Cripe in November 2009. This award was granted in recognition of
his leadership of Allstate Financial.
Pursuant to authority delegated by the Allstate Board and the Committee,
equity incentive awards also may be granted by a subcommittee consisting of the
Committee chair or by an equity award committee which currently consists of
Allstate's CEO. The subcommittee may grant restricted stock or restricted stock
units to new hires. The equity award committee may grant restricted stock units
and stock options in connection with new hires and promotions and in
recognition of achievements.
STOCK OWNERSHIP GUIDELINES
Because Allstate believes strongly in linking the interests of management
with those of its stockholders, it instituted stock ownership guidelines in
1996 that require each of the named executives, with the exception of
59
Mr. Dahl, to own, as of March 1 following the fifth year after assuming a
senior management position, common stock, including restricted stock units,
worth a multiple of base salary. Unexercised stock options do not count towards
meeting the stock ownership guidelines. Messrs. Cripe and Pintozzi have met
their respective goals. Mr. Easley has until March 1, 2011, to meet his goal.
Messrs. Lounds and Smith retired or left Allstate prior to March 1, 2010 and
are no longer subject to the guidelines. For Mr. Cripe, the goal is four times
salary. For Messrs. Pintozzi and Easley, the goal is two times salary. After a
named executive meets the guideline for the position, if the value of his
shares does not equal the specified multiple of base salary solely due to the
fact that the value of the shares has declined, the executive is still deemed
to be in compliance with the guideline. However, any executive in that
situation may not sell any shares acquired upon the exercise of an option or
conversion of any equity award except to satisfy tax withholding obligations,
until the value of his shares again equals the specified multiple of base
salary. In accordance with Allstate's policy on insider trading, all officers,
directors, and employees are prohibited from engaging in transactions with
respect to any securities issued by Allstate or any of its subsidiaries that
might be considered speculative or regarded as hedging, such as selling short
or buying or selling options.
LONG-TERM INCENTIVE AWARDS--CASH
After the end of the three-year cycle for long-term cash incentive awards,
the Committee reviews the extent to which Allstate has achieved the various
performance measures and approves the actual amount of the long-term cash
incentive awards. Allstate pays long-term cash incentive awards after the end
of the three-year cycle.
Long-term cash incentive awards were designed to reward executives for
collective results attained over a three-year performance cycle. Each of the
named executives except for Mr. Dahl is eligible for these awards. The
Committee approved performance measures and threshold, target, and maximum
goals for long-term cash incentive awards at the beginning of each three-year
cycle and a new cycle started every year. However, the Committee discontinued
future long-term incentive plan awards in 2009, making the 2008-2010 cycle the
final cycle under the Long-Term Executive Incentive Compensation Plan. The
final award under this plan was made in February 2008 and will be paid out in
March 2011. For the 2007-2009 cycle, there were three performance measures. The
target goals for each performance measure, the actual results, and the relative
weight of each measure are shown in the following table. The selection and
weighting of these measures was intended to focus executive attention on the
collective achievement of Allstate's long-term financial goals across its
various product lines. A description of each performance measure is provided
under the "Performance Measures" caption on page 81.
LONG-TERM CASH INCENTIVE AWARDS, 2007-2009 CYCLE
PERFORMANCE MEASURES, WEIGHTING, AND TARGET GOALS/(1)/
PERCENTAGE
WEIGHT OF THE ACHIEVEMENT
TOTAL RELATIVE TO
POTENTIAL THRESHOLD, TARGET,
PERFORMANCE MEASURES AWARD/(2)/ TARGET ACTUAL MAXIMUM GOALS/(3)/
- -------------------- ------------- ----------- ----------- ------------------
Average adjusted return on equity.......................... 50% 5/th/ 5/th/ Target
position position
relative to relative to
peers peers
Allstate Protection growth in policies in force over the
3-year cycle............................................. 25% 5.0% (3.8)% Below threshold
Allstate Financial return on total capital over the 3-year
cycle.................................................... 25% 9.5% 7.9% Below threshold
- --------
(1)Information regarding performance measures is disclosed in the limited
context of long-term cash incentive awards and should not be understood to
be statements of management's expectations or estimates of results or other
guidance. We specifically caution investors not to apply these statements to
other contexts.
60
(2)Same weight applied for all eligible named executives.
(3)Stated as a percentage of target goals with a range from 0% to 300%, the
actual performance comprises 50% for the average adjusted return on equity
measure, 0% for the Allstate Protection measure, and 0% for the Allstate
Financial measure. The weighted results for all three measures stated as a
percentage of the target goals for all the eligible named executives was 50%.
The target goal for the average adjusted return on equity was set at a level
representing average projected industry performance. The target goals for
Allstate Protection growth in policies in force over the three-year cycle and
Allstate Financial return on total capital over the three-year cycle were based
on evaluations of Allstate's historical performance and plans to drive
projected performance.
The average adjusted return on equity measure compares Allstate's
performance to the following peer insurance companies:
The Chubb Corporation MetLife Inc.
CNA Financial Corporation The Progressive Corporation
The Hartford Financial Services Group, Inc. Prudential Financial, Inc.
Lincoln National Corporation The Travelers Companies, Inc.
Allstate's ranked position relative to this peer group determines the
percentage of the total target award for this performance measure to be paid,
as indicated in the following table. However no payment is made unless the
average adjusted return on equity exceeds the average risk free rate of return
on three-year Treasury notes over the three-year cycle, plus 200 basis points,
regardless of Allstate's standing compared to the peer group. For the 2007-2009
cycle, Allstate achieved the 5/th/ position and met the target level of
performance. The average adjusted return on equity exceeded the average risk
free rate of return by 375 basis points.
AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE
TO PEER GROUP, 2007-2009 CYCLE
PEER POSITION % OF TARGET AWARD
------------- -----------------
Threshold. 9 0%
8 40%
7 60%
6 80%
Target.... 5 100%
4 150%
3 200%
2 250%
Maximum... 1 300%
Target award opportunities approved by the Committee are stated as a
percentage of annual base salary. Award opportunities for the eligible named
executives are capped at 300% of the target awards. Awards for each cycle are
calculated using base salary in effect at the beginning of the cycle, as
adjusted by any promotional increases granted during the course of the cycle on
a prorated basis. Mr. Cripe had a target award opportunity of 70%. Messrs.
Pintozzi, Easley, Smith, and Lounds each had a target award opportunity of 40%.
The size of these target awards is based on each executive's level of
responsibility for contributing to Allstate's long-term performance and overall
market competitiveness.
Unless otherwise adjusted by the Committee, in calculating the long-term
cash incentive awards, Allstate's achievement with respect to each performance
measure for a particular cycle is expressed as a percentage of the target goal
with interpolation applied between threshold and target goals and between
target and maximum goals.
61
The amount of each eligible named executive's award is the sum of the amounts
calculated using the following calculation for all of the long-term cash
incentive performance measures.
Actual performance interpolated relative to X Weighting X Target award opportunity as a X Salary*
threshold and target on a range of 0% to percentage of salary*
100% and relative to target and maximum on
a range of 100% to 300%
- --------
* Base salary in effect at the beginning of the cycle, as adjusted by any
promotional increases granted during the course of the cycle on a prorated
basis.
Long-term cash incentive awards based on the achievement of the performance
measures for the 2007-2009 cycle were paid in March 2010 and are included in
the amounts reported in the Non-Equity Incentive Plan Compensation column of
the Summary Compensation Table and broken out separately from annual cash
incentive awards in a footnote to that table.
OTHER ELEMENTS OF COMPENSATION
To remain competitive with other employers and to attract, retain, and
motivate highly talented executives and other employees, we provide the
benefits listed in the following table.
OTHER NAMED
EXECUTIVES, OTHER ALL FULL-TIME
OFFICERS, AND AND REGULAR
CERTAIN PART-TIME
BENEFIT OR PERQUISITE MR. CRIPE MANAGERS EMPLOYEES
- --------------------- --------------- ----------------- -------------
401(k)/(1)/ and defined benefit pension.................. (check mark) (check mark) (check mark)
Supplemental retirement benefit.......................... (check mark) (check mark)
Health and welfare benefits/(2)/......................... (check mark) (check mark) (check mark)
Supplemental long-term disability and executive physical
program................................................ (check mark) (check mark)/(3)/
Deferred compensation.................................... (check mark) (check mark)
Tax preparation services................................. (check mark) (check mark)
Financial planning services.............................. (check mark)
Cell phones and ground transportation.................... (check mark)/(4)/
- --------
(1)Allstate contributed $1.00 for every dollar of basic pre-tax deposits made
in 2009 on the first 3 percent of eligible pay and $.50 for every dollar of
basic pre-tax deposits made in 2009 on the next 2 percent of eligible pay
for eligible participants, including the named executive officers.
(2)Including medical, dental, vision, life, accidental death and dismemberment,
long-term disability, and group legal insurance.
(3)An executive physical program is available to all officers.
(4)Ground transportation is available to Mr. Cripe. Cell phones are available
to members of Allstate's senior management team, other officers and certain
managers, and certain employees depending on their job responsibilities.
RETIREMENT BENEFITS
Each named executive officer participates in two different defined benefit
pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined
benefit pension plan available to all of Allstate's regular full-time and
regular part-time employees who meet certain age and service requirements. The
ARP provides an assured retirement income related to an employee's level of
compensation and length of service at no cost to the employee. As the ARP is a
tax qualified plan, federal tax law places limits on (1) the amount of an
individual's compensation that can be used to calculate plan benefits and
(2) the total amount of benefits payable to a
62
participant under the plan on an annual basis. These limits may result in a
lower benefit under the ARP than would have been payable if the limits did not
exist for certain of Allstate's employees. Therefore, the Allstate Insurance
Company Supplemental Retirement Income Plan (SRIP) was created for the purpose
of providing ARP-eligible employees whose compensation or benefit amount
exceeds the federal limits with an additional defined benefit in an amount
equal to what would have been payable under the ARP if the federal limits
described above did not exist.
CHANGE-IN-CONTROL AND POST-TERMINATION BENEFITS
Allstate does not view the change-in-control benefits or post-termination
benefits as additional elements of compensation due to the fact that a
change-in-control or other triggering event may never occur. However, the use
and structure of Allstate's change-in-control and post-termination plans are
consistent with Allstate's compensation objectives to attract, motivate, and
retain highly talented executives. A change-in-control of Allstate could have a
disruptive impact on both Allstate and its executives. Allstate's
change-in-control benefits and post-termination benefits are designed to
mitigate that impact and to maintain the connection between the interests of
executives and Allstate's stockholders. As part of these benefits, executives
receive equity awards that might otherwise be eliminated by new directors of
Allstate elected in connection with a change-in-control. With the exception of
Mr. Dahl, Allstate also provides certain protections for cash incentive awards,
previously deferred compensation, and benefits if the named executive's
employment is terminated within a two-year period after a change-in-control.
The arrangements which are described in the "Potential Payments as a Result of
Termination or Change-in-Control" section are not provided exclusively to the
named executives. Certain cash severance benefits are provided to all regular
full-time and regular part-time Allstate employees. For example, Allstate
replaced its vacation policy with a paid time off bank effective January 1,
2001. Eligible employees could elect to receive their vacation days accrued but
not yet taken between their annual anniversary date in 2000 and December 31,
2000, as either paid time off or in the form of a lump sum severance payment at
termination.
SUMMARY COMPENSATION TABLE FOR 2009 AND GRANTS OF PLAN-BASED AWARDS TABLE FOR
2009
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the named executives for all services rendered to Lincoln Benefit in 2009,
allocated to Lincoln Benefit in a manner consistent with the allocation of
compensation expenses under Service and Expense Agreement.
CHANGE IN
PENSION VALUE
NON-EQUITY AND
INCENTIVE NONQUALIFIED
STOCK OPTION PLAN DEFERRED ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
NAME/(1)/ YEAR ($) ($)/(2)/ ($)/(3)/ ($)/(4)/ ($)/(5)/ EARNINGS ($)/(6)/ ($)/(7)/ ($)
- -------- ---- ------- ------- ------- ------- ------------ ---------------- ------------ -------
Frederick F. Cripe/(1)/... 2009 105,031 0 147,479 270,938 100,391 93,351/(8)/ 7,546 724,736
(CHAIRMAN AND CHIEF
EXECUTIVE OFFICER)
John C. Pintozzi.......... 2009 120,224 7,436 55,594 106,439 75,456 10,673/(9)/ 9,053 384,875
(VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER)
Lawrence W. Dahl.......... 2009 253,299 0 25,195 48,246 113,091 235,494/(10)/ 80,690 759,285
(PRESIDENT AND CHIEF
OPERATING OFFICER)
Matthew S. Easley......... 2009 114,709 0 45,652 87,398 72,160 6,064/(11)/ 8,708 334,691
(VICE PRESIDENT)
Eric Smith/(1)/........... 2009 105,359 0 48,919 93,652 49,462 8,702/(12)/ 8,023 314,117
(VICE PRESIDENT)
John Lounds/(1)/.......... 2009 77,287 0 60,708 116,223 42,245 135,461/(13)/ 21,264 453,188
(FORMER VICE PRESIDENT)
63
- --------
(1)Mr. Lounds was a Vice President of Lincoln Benefit until July 31, 2009.
Mr. Smith was a Vice President of Lincoln Benefit until January 15, 2010.
Mr. Cripe was Chairman and CEO of Lincoln Benefit until March 12, 2010.
(2)Mr. Pintozzi received a bonus as a result of his outstanding individual
performance in 2009.
(3)The aggregate grant date fair value of restricted stock unit awards computed
in accordance with Financial Accounting Standards Board ("FASB") Accounting
Standards Codification Topic 718 ("ASC 718"). The number of restricted stock
units granted in 2009 to each named executive is provided in the Grants of
Plan-Based Awards table on page 65. The fair value of restricted stock unit
awards is based on the final closing price of Allstate's stock as of the
date of grant. The final closing price in part reflects the payment of
future dividends expected.
(4)The aggregate grant date fair value of option awards computed in accordance
with FASB ASC 718. The fair value of each option award is estimated on the
date of grant using a binomial lattice model. The fair value of each option
award is estimated on the date of grant using the assumptions as set forth
in the following table:
Weighted average expected term. 8.1 years
Expected volatility............ 26.3 - 79.2%
Weighted average volatility.... 38.3%
Expected dividends............. 2.6%
Risk-free rate................. 0.0 - 3.7%
The number of options granted in 2009 to each named executive is provided in
the Grants of Plan-Based Awards table on page 65.
(5)Amounts earned under the Annual Executive Incentive Compensation Plan are
paid in the year following performance. Amounts earned under the Long-Term
Executive Incentive Compensation Plan are paid in the year following the
performance cycle. The amounts shown in the table above include amounts
earned in 2009 and payable under these plans in 2010. The break-down for
each component is as follows:
ANNUAL CASH LONG-TERM
INCENTIVE CASH INCENTIVE
NAME YEAR AWARD AMOUNT CYCLE AWARD AMOUNT
---- ---- ------------ --------- --------------
Mr. Cripe.... 2009 $68,051 2007-2009 $32,340
Mr. Pintozzi. 2009 $54,970 2007-2009 $20,486
Mr. Dahl..... 2009 $50,748* 2007-2009 $ 0
Mr. Easley... 2009 $52,444 2007-2009 $19,716
Mr. Lounds... 2009 $30,824 2007-2009 $18,639
Mr. Smith.... 2009 $22,327 2007-2009 $19,918
------
* Mr. Dahl received an additional $62,343 for 2009 under the terms of the
Sales Incentive Plan.
(6)Amounts reflect the aggregate increase in actuarial value of the pension
benefits as set forth in the Pension Benefits table, accrued during 2009.
These are benefits under the Allstate Retirement Plan (ARP) and the Allstate
Insurance Company Supplemental Retirement Income Plan (SRIP). Non-qualified
deferred compensation earnings are not reflected since Allstate's Deferred
Compensation Plan does not provide above-market earnings. For 2009, the
pension plan measurement date used for financial statement reporting
purposes, December 31, as well as the methodology employed for purposes of
Allstate's financial statements, were used in the calculation of the change
in present value. (See note 16 to the Allstate audited financial statements
for 2009.) One component of the change in pension value from 2008 to 2009
displayed in this column relates to the change in the discount rate used to
calculate the value of pension benefits. The discount rate decreased from
7.5% in 2008 to 6.25% at year-end 2009, which resulted in an increase in the
present value of accrued benefits at year-end 2009. For participants earning
final average pay benefits (i.e. Messrs. Cripe, Dahl, and Lounds),
approximately 50% of the change in pension value relates to the change in
the discount rate.
(7)The "All Other Compensation for 2009--Supplemental Table" provides details
regarding the amounts for 2009 for this column.
(8)Reflects increases in the actuarial value of the benefits provided to
Mr. Cripe pursuant to the ARP and SRIP of $38,049 and $55,302 respectively.
(9)Reflects increases in the actuarial value of the benefits provided to
Mr. Pintozzi pursuant to the ARP and SRIP of $5,546 and $5,127 respectively.
(10)Reflects increases in the actuarial value of the benefits provided to
Mr. Dahl pursuant to the ARP and SRIP of $122,316 and $113,178 respectively.
(11)Reflects increases in the actuarial value of the benefits provided to
Mr. Easley pursuant to the ARP and SRIP of $2,985 and $3,079 respectively.
(12)Reflects increases in the actuarial value of the benefits provided to
Mr. Smith pursuant to the ARP and SRIP of $4,794 and $3,908 respectively.
(13)Reflects increases in the actuarial value of the benefits provided to
Mr. Lounds pursuant to the ARP and SRIP of $50,462 and $84,999 respectively.
64
ALL OTHER COMPENSATION FOR 2009--SUPPLEMENTAL TABLE
(IN DOLLARS)
The following table describes the incremental cost of other benefits
provided in 2009 that are included in the "All Other Compensation" column.
TOTAL
401(K) ALL OTHER
NAME MATCH/(1)/ OTHER/(2)/ COMPENSATION
---- --------- --------- ------------
Mr. Cripe.... 2,587 4,959 7,546
Mr. Pintozzi. 3,695 5,358 9,053
Mr. Dahl..... 9,800 87,506 97,306
Mr. Easley... 3,695 5,013 8,708
Mr. Lounds... 3,695 11,189 14,884
Mr. Smith.... 3,402 4,621 8,023
- --------
(1)Each of the named executives participated in Allstate's 401(k) plan during
2009. The amount shown is the amount allocated to their accounts as employer
matching contributions, allocated to Lincoln Benefit in a manner consistent
with the allocation of compensation expenses under the Service and Expense
Agreement.
(2)"Other" consists of premiums for group life insurance and personal benefits
and perquisites consisting of cell phones, tax preparation services,
financial planning, executive physicals, ground transportation, and
supplemental long-term disability coverage. None of the personal benefits
and perquisites individually exceeded the greater of $25,000 or 10% of the
total amount of these benefits for the named executives, except Mr. Lounds'
vacation accrual severance benefit of $3,861, which represents the value at
December 31, 2009, of his vacation days accrued but not yet taken between
his annual anniversary date in 2000 and December 31, 2000, allocated to
Lincoln Benefit in a manner consistent with the Service and Expense
Agreement; and Mr. Dahl's payment, in accordance with Nebraska law, of
$76,914 for paid time off accrued but not taken between 2001 and 2009.
Allstate provides supplemental long-term disability coverage to regular
full-time and regular part-time employees whose annual earnings exceed the
level which produces the maximum monthly benefit provided by the Group Long
Term Disability Insurance Plan. This coverage is self-insured (funded and
paid for by Allstate when obligations are incurred). No obligations for the
named executives were incurred in 2009 and so no incremental cost is
reflected in the table.
GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2009/(1)/
The following table provides information about non-equity incentive plan
awards and equity awards granted to our named executives during the fiscal year
2009 to the extent the expense for such awards was allocated to Lincoln Benefit
under the Service and Expense Agreement.
ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE GRANT DATE
PLAN AWARDS/(2)/ FAIR VALUE ($)/(4)/
------------------------ -------------------
ALL
OTHER
STOCK ALL OTHER
AWARDS: OPTION
NUMBER AWARDS: EXERCISE
OF NUMBER OF OR BASE
SHARES SECURITIES PRICE OF
OF STOCK UNDERLYING OPTION
THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS STOCK OPTION
NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/ AWARDS AWARDS
- ---- ------------- ---------------------- --------- ------ ------- -------- ---------- ----------- ------- -------
Mr. Cripe. Annual Cash Incentive 0 86,031 258,094
Feb. 27, 2009 Restricted Stock Units 6,018 101,281
Feb. 27, 2009 Stock Options 34,198 16.83 193,903
Nov. 02, 2009 Restricted Stock Units 1,559 46,199
Nov. 02, 2009 Stock Options 8,855 29.64 77,035
65
ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE GRANT DATE
PLAN AWARDS/(2)/ FAIR VALUE ($)/(4)/
------------------------- -------------------
ALL
OTHER
STOCK ALL OTHER
AWARDS: OPTION
NUMBER AWARDS: EXERCISE
OF NUMBER OF OR BASE
SHARES SECURITIES PRICE OF
OF STOCK UNDERLYING OPTION
THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS STOCK OPTION
NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/ AWARDS AWARDS
- ---- ------------- ---------------------- --------- ------- ------- -------- ---------- ----------- ------ -------
Mr. Pintozzi. Annual Cash Incentive 0 69,494 208,483
Feb. 27, 2009 Restricted Stock Units 3,303 55,594
Feb. 27, 2009 Stock Options 18,772 16.83 106,439
Mr. Dahl..... Annual Cash Incentive 0 73,442 186,605
Sales Incentive Plan 0 100,000
Feb. 27, 2009 Restricted Stock Units 1,497 25,195
Feb. 27, 2009 Stock Options 8,509 16.83 48,246
Mr. Easley... Annual Cash Incentive 0 66,301 198,902
Feb. 27, 2009 Restricted Stock Units 2,713 45,652
Feb. 27, 2009 Stock Options 15,414 16.83 87,398
Mr. Lounds... Annual Cash Incentive 0 44,586 133,758
Feb. 27, 2009 Restricted Stock Units 3,607 60,708
Feb. 27, 2009 Stock Options 20,498 16.83 116,223
Mr. Smith.... Annual Cash Incentive 0 60,896 182,689
Feb. 27, 2009 Restricted Stock Units 2,907 48,919
Feb. 27, 2009 Stock Options 16,517 16.83 93,652
- --------
(1)Awards under the Annual Executive Incentive Compensation Plan and the 2001
Equity Incentive Plan.
(2)The amounts in these columns consist of the threshold, target, and maximum
annual cash incentive awards for the named executives. The threshold amount
for each named executive is zero, as the minimum amount payable if no
performance measures are achieved. The target amount is based upon
achievement of certain performance measures set forth in the "Annual Cash
Incentive Compensation" section of the CD&A.
(3)The exercise price of each option is equal to the fair market value of
Allstate's common stock on the date of grant. Fair market value is equal to
the closing sale price on the date of grant or, if there was no such sale on
the date of grant, then on the last previous day on which there was a sale.
(4)As computed in accordance with FASB ASC 718, the aggregate grant date fair
value of restricted stock units and stock option awards was $16.83 and
$5.67, respectively, for awards granted on February 27, 2009, and $29.64 and
$8.70, respectively, for awards granted on November 2, 2009. The assumptions
used in the valuation are discussed in footnotes 3 and 4 to the Summary
Compensation Table on page 63.
The following discussion of incentive compensation for 2009 elaborates on
the more general information provided above in the CD&A.
NON-EQUITY INCENTIVE COMPENSATION
The Non-Equity Incentive Plan Compensation column of the Summary
Compensation Table includes each named executive's annual cash incentive award
for 2009 and long-term cash incentive award for the 2007-2009 cycle, allocated
to Lincoln Benefit under the Service and Expense Agreement. The amount
attributable to annual and long-term, respectively, is provided in a footnote
to the Summary Compensation Table. The Estimated Future Payouts Under
Non-Equity Incentive Plan Awards column of the Grants of Plan-Based Awards at
Fiscal Year-End 2009 table includes the threshold, target, and maximum award
opportunities for 2009 annual cash incentive compensation, allocated in a
manner consistent with the allocation of compensation expenses to Lincoln
Benefit under the Service and Expense Agreement.
66
EQUITY COMPENSATION
The Committee granted both restricted stock units and options in 2009. The
restricted stock units granted in 2009 vest in one installment four years after
the date of grant, except in certain change-in-control situations or under
other special circumstances approved by the Committee. Normally, the named
executive must be employed in order for the restricted stock units to vest.
However, restricted stock units continue to vest following retirement on or
after the normal retirement date specified in the award. If the named executive
dies, then as of the date of death, all unvested restricted stock units granted
in 2009 will vest and become nonforfeitable. The restricted stock units granted
in 2009 and prior years include the right to receive dividend equivalents in
the same amount and at the same time as dividends paid to all Allstate common
stockholders.
The stock options granted in 2009 become exercisable in four annual
installments of 25% on the first four anniversaries of the grant date and
expire in ten years, except in certain change-in-control situations or under
other special circumstances approved by the Committee. Normally, the named
executive must be employed at the time of vesting in order for the options to
vest. If the named executive terminates on or after the normal retirement date
under the stock option award agreements, stock options not vested will continue
to vest as scheduled. When the options become vested, they may be exercised by
the named executive at any time on or before the earlier to occur of (i) the
expiration date of the option and (ii) the fifth anniversary of the date of the
named executive's termination of employment. If the named executive dies or
becomes disabled, unvested stock options will vest and may be exercised by the
named executive officer (or personal representative, estate or transferee, as
the case may be) at any time on or before the earlier to occur of (i) the
expiration date of the option and (ii) the second anniversary of the date of
the named executive's termination of employment. If the named executive
terminates for any other reason, any portion of the option not vested will be
forfeited. Vested options may be exercised at any time on or before the earlier
to occur of (i) the expiration date of the option and (ii) three months after
the date of the named executive's termination of employment. The options were
granted with an exercise price equal to the closing sale price on the date of
grant or, if there was no sale on the date of grant, then on the last previous
day on which there was a sale. Each option is a nonqualified stock option. Each
option includes tax withholding rights that permit the holder to elect to have
shares withheld to satisfy minimum federal, state, and local tax withholding
requirements. Option holders may exchange shares previously owned to satisfy
all or part of the exercise price. The vested portions of all the options may
be transferred during the holder's lifetime to, or for the benefit of, family
members. Any taxes payable upon a transferee's subsequent exercise of the
option remain the obligation of the original option holder.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009
The following table summarizes the outstanding equity awards of the named
executives as of December 31, 2009, allocated in a manner consistent with the
allocation of compensation expenses to Lincoln Benefit under the Service and
Expense Agreement for 2009. The percentage of each equity award actually
allocated to Lincoln Benefit has varied over the years during which these
awards were granted depending on the extent of services rendered by such
executive to Lincoln Benefit and the arrangements in place at the time of such
equity awards between Lincoln Benefit and the executive's Allstate-affiliated
employer. Because the aggregate amount of such equity awards attributable to
services rendered to Lincoln Benefit by each named executive cannot be
calculated without unreasonable effort, the allocated amount of each equity
award provided for each named executive in the following table is the amount
determined by multiplying each named executive's equity award for services
rendered to Allstate and all of its affiliates by the percentage used for
allocating such named executive's compensation to Lincoln Benefit in 2009 under
the Service and Expense Agreement.
67
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009
OPTION AWARDS/(1)/ STOCK AWARDS
------------------------------------------------------------------------ ------------------------------
NUMBER OF NUMBER OF NUMBER OF
SECURITIES SECURITIES SHARES OR
UNDERLYING UNDERLYING UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT
OPTION GRANT OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION STOCK AWARD HAVE NOT
NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED (#)/(4)/
- ---- -------------- --------------- ----------------- -------- -------------- -------------- --------------
Mr. Cripe
Feb. 7, 2003 1,518 0 31.78 Feb. 7, 2013
Feb. 6, 2004 5,461 0 45.96 Feb. 6, 2014
Feb. 22, 2005 3,811 0 52.57 Feb. 22, 2015
Feb. 21, 2006 3,028 1,009 53.84 Feb. 21, 2016 Feb. 21, 2006 610
Feb. 21, 2006 1,782 594 53.84 Feb. 21, 2016 Feb. 21, 2006 158*
Feb. 20, 2007 3,815 3,815 62.24 Feb. 20, 2017 Feb. 20, 2007 1,056
Feb. 26, 2008 3,168 9,504 48.82 Feb. 26, 2018 Feb. 26, 2008 1,373
Feb. 27, 2009 0 34,198 16.83 Feb. 27, 2019 Feb. 27, 2009 6,018
Nov. 2, 2009 0 8,855 29.64 Nov. 2, 2019 Nov. 2, 2009 1,559
Mr. Pintozzi
Sep. 30, 2002 471 0 35.17
Feb. 7, 2003 1320 0 31.78 Feb. 7, 2013
Feb. 6, 2004 1877 0 45.96 Feb. 6, 2014
Feb. 22, 2005 5,164 0 52.57 Feb. 22, 2015
Feb. 21, 2006 2,545 848 53.84 Feb. 21, 2016 Feb. 21, 2006 773
Feb. 21, 2006 3,835 1,279 53.84 Feb. 21, 2016 Feb. 21, 2006 226*
Feb. 20, 2007 2,510 2,510 62.24 Feb. 20, 2017 Feb. 20, 2007 692
Feb. 26, 2008 2,240 6,720 48.82 Feb. 26, 2018 Feb. 26, 2008 972
Feb. 27, 2009 0 18,772 16.83 Feb. 27, 2019 Feb. 27, 2009 3,303
Mr. Dahl
May 18, 2000 3,851 0 26.69 May 18, 2010
May 15, 2001 4,224 0 42.00 May 15, 2011
May 7, 2002 5,868 0 33.38 May 7, 2012
Feb. 7, 2003 3,200 0 31.78 Feb. 7, 2013
Feb. 6, 2004 3,333 0 45.96 Feb. 6, 2014
Feb. 22, 2005 2,492 0 52.57 Feb. 22, 2015
Feb. 21, 2006 2,563 855 53.84 Feb. 21,2016 Feb. 21, 2006 516
Feb. 20, 2007 1,436 1,437 62.24 Feb. 20, 2017 Feb. 20, 2007 397
Feb. 26, 2009 1,373 4,121 48.82 Feb. 26, 2018 Feb. 26, 2008 596
Feb. 27, 2009 0 8,509 16.83 Feb. 27, 2019 Feb. 27, 2009 1,497
Mr. Easley
May 9, 2005 5,655 0 57.04 May 9, 2015 May 9, 2005 943
Feb. 21, 2006 3,637 1,212 53.84 Feb. 21, 2016 Feb. 21, 2006 733
Feb. 21, 2006 2,545 848 53.84 Feb. 21, 2016 Feb. 21, 2006 226*
Feb. 20, 2007 2,415 2,415 62.24 Feb. 20, 2017 Feb. 20, 2007 666
Feb. 26, 2008 2,166 6,499 48.82 Feb. 26, 2018 Feb. 26, 2008 940
Feb. 27, 2009 0 15,414 16.83 Feb. 27, 2019 Feb. 27, 2009 2,713
--------------
MARKET VALUE
OF SHARES OR
UNITS OF STOCK
THAT HAVE
NOT
NAME VESTED/(5)/
- ---- --------------
Mr. Cripe
18,320
4,758
31,722
41,239
180,777
46,822
AGGREGATE
MARKET VALUE
--------------
323,638
Mr. Pintozzi
23,217
6,795
20,793
29,207
99,230
AGGREGATE
MARKET VALUE
--------------
179,242
Mr. Dahl
15,500
11,926
17,904
44,970
AGGREGATE
MARKET VALUE
--------------
90,300
Mr. Easley
28,313
22,004
6,795
20,011
28,245
81,484
AGGREGATE
MARKET VALUE
--------------
186,852
68
OPTION AWARDS/(1)/ STOCK AWARDS
------------------------------------------------------------------------ ------------------------------
NUMBER OF NUMBER OF NUMBER OF
SECURITIES SECURITIES SHARES OR
UNDERLYING UNDERLYING UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT
OPTION GRANT OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION STOCK AWARD HAVE NOT
NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED (#)/(4)/
- ---- -------------- --------------- ----------------- -------- -------------- -------------- --------------
Mr. Smith
Feb. 6, 2004 1,222 0 45.96 Feb. 6, 2014
Feb. 22, 2005 3,116 0 52.57 Feb. 22, 2015
Feb. 21, 2006 1,917 959 53.84 Feb. 21, 2016 Feb. 21, 2006 579
Feb. 21, 2006 1,697 848 53.84 Feb. 21, 2016 Feb. 21, 2006 226*
Feb. 20, 2007 1,860 1,860 62.24 Feb. 20, 2017 Feb. 20, 2007 513
Feb. 26, 2008 1,647 4,941 48.82 Feb. 26, 2018 Feb. 26, 2008 715
Feb. 27, 2009 0 16,517 16.83 Feb. 27, 2019 Feb. 27, 2009 2,907
Mr. Lounds
May 18, 2000 8,027 0 26.69 May 18, 2010
May 15, 2001 6,824 0 42.00 May 15, 2011
Feb. 7, 2002 11,587 0 33.38 Feb. 7, 2012
Feb. 7, 2003 5,844 0 31.78 Feb. 7, 2013
Feb. 6, 2004 7,200 0 45.96 Feb. 6, 2014
Feb. 22, 2005 5,686 0 52.57 July 31, 2014
Feb. 21, 2006 4,231 1,410 53.84 July 31, 2014 Feb. 21, 2006 226*
Feb. 21, 2006 2,545 848 53.84 July 31, 2014 Feb. 21, 2006 852
Feb. 20, 2007 2,623 2,623 62.24 July 31, 2014 Feb. 20, 2007 724
Feb. 26, 2008 2,270 6,811 48.82 July 31, 2014 Feb. 26, 2008 985
Feb. 27, 2009 0 20,498 16.83 July 31, 2014 Feb. 27, 2009 3,607
--------------
MARKET VALUE
OF SHARES OR
UNITS OF STOCK
THAT HAVE
NOT
NAME VESTED/(5)/
- ---- --------------
Mr. Smith
17,395
6,795
15,425
21,472
87,317
AGGREGATE
MARKET VALUE
--------------
148,404
Mr. Lounds
6,795
25,606
21,744
29,593
108,358
AGGREGATE
MARKET VALUE
--------------
192,096
- --------
(1)Options vest in four installments on the first four anniversaries of the
grant date. The exercise price of each option is equal to the fair market
value of Allstate's common stock on the date of grant. For options granted
prior to 2007, fair market value is equal to the average of high and low
sale prices on the date of grant, and for options granted in 2007 and
thereafter, fair market value is equal to the closing sale price on the date
of grant or in each case, if there was no sale on the date of grant, then on
the last previous day on which there was a sale.
(2)The allocated aggregate value and aggregate number of exercisable
in-the-money options as of December 31, 2009, for Mr. Dahl is $12,901 (3,851
aggregate number exercisable). The allocated aggregate value and aggregate
number of exercisable in-the-money options as of December 31, 2009, for
Mr. Lounds is $26,890 (8,027 aggregate number exercisable). None of the
other named executives had any exercisable in-the-money options as of
December 31, 2009.
(3)The allocated aggregate value and aggregate number of unexercisable
in-the-money options as of December 31, 2009, for each of the named
executives is as follows: Mr. Cripe $455,298 (43,053 aggregate number
unexercisable), Mr. Pintozzi $247,983 (18,772 aggregate number
unexcercisable), Mr. Dahl $112,404 (8,509 aggregate number unexercisable),
Mr. Easley $203,619 (15,414 aggregate number unexercisable), Mr. Lounds
$270,777 (20,498 aggregate number unexercisable), and Mr. Smith $218,191
(16,517 aggregate number unexercisable).
(4)Except as otherwise noted, each restricted stock unit award vests in one
installment on the fourth anniversary of the grant date. An asterisk
(*) denotes restricted stock units that vest in four equal installments on
the first four anniversaries of the grant date.
(5)Amount is based on the closing price of Allstate common stock of $30.04 on
December 31, 2009.
69
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009
The following table summarizes the options exercised by the named executives
during 2009 and the restricted stock and restricted stock unit awards that
vested during 2009, allocated in a manner consistent with the allocation of
compensation expenses to Lincoln Benefit under the Service and Expense
Agreement for 2009.
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009
OPTION AWARDS
(AS OF 12/31/09) STOCK AWARDS
------------------------------- -------------------------------
NUMBER OF SHARES VALUE REALIZED NUMBER OF SHARES
ACQUIRED ON ON EXERCISE ACQUIRED ON VALUE REALIZED
NAME EXERCISE (#) ($) VESTING (#) ON VESTING ($)
---- ---------------- -------------- ---------------- --------------
Mr. Cripe.... 0 0 1,004 $18,514
Mr. Pintozzi. 0 0 1,014 $18,701
Mr. Dahl..... 0 0 381 $ 7,026
Mr. Easley... 0 0 226 $ 4,171
Mr. Lounds... 0 0 1,094 $20,174
Mr. Smith.... 0 0 860 $15,864
RETIREMENT BENEFITS
Each named executive participates in two different defined benefit pension
plans. Pension expense for each named executive under these plans has been
accrued annually over the course of the executive's career with Allstate. The
aggregate amount of the annual accrual specifically allocated to Lincoln
Benefit over that period of time has varied depending on the extent of services
rendered by such executive to Lincoln Benefit and the arrangements in place at
the time of accrual between Lincoln Benefit and the executive's
Allstate-affiliated employer. Because the aggregate amount of such annual
accruals earned prior to 2009 attributable to services rendered to Lincoln
Benefit by each named executive cannot be calculated without unreasonable
effort, the present value of accumulated benefit provided for each named
executive in the following table is the amount determined by multiplying the
present value of such named executive's accumulated pension benefit for
services rendered to Allstate and all of its affiliates over the course of such
named executive's career with Allstate by the percentage used for allocating
such named executive's compensation to Lincoln Benefit under the Service and
Expense Agreement in 2009.
PENSION BENEFITS
NUMBER OF PRESENT
YEARS VALUE OF PAYMENTS
CREDITED ACCUMULATED DURING LAST
NAME PLAN NAME SERVICE (#) BENEFIT/(1)/ ($) FISCAL YEAR ($)
- ---- ------------------------------------ ----------- -------------- ---------------
Mr. Cripe....... Allstate Retirement Plan 28.0 156,992 0
Supplemental Retirement Income Plan 28.0 300,422 0
Mr. Pintozzi.... Allstate Retirement Plan 7.3 14,292 0
Supplemental Retirement Income Plan 7.3 14,909 0
Mr. Dahl........ Allstate Retirement Plan 22.9 439,753 0
Supplemental Retirement Income Plan 22.9 383,527 0
Mr. Easley...... Allstate Retirement Plan 4.7 6,662 0
Supplemental Retirement Income Plan 4.7 11,081 0
Mr. Lounds/(2)/. Allstate Retirement Plan 28.0 386,444 0
Supplemental Retirement Income Plan 28.0 684,428 0
Mr. Smith....... Allstate Retirement Plan 7.0 14,250 0
Supplemental Retirement Income Plan 7.0 15,003 0
- --------
(1)These amounts are estimates and do not necessarily reflect the actual
amounts that will be paid to the named executives, which will only be known
at the time they become eligible for payment. Except for Mr. Lounds,
70
accrued benefits were calculated as of December 31, 2009, and used to
calculate the Present Value of Accumulated Benefits at December 31, 2009,
and the applicable percentages were applied based on the Service and Expense
Agreement. December 31 is the pension plan measurement date used for
financial statement reporting purposes.
(2)Accrued benefit calculated as of July 31, 2009, termination date.
The benefits and value of benefits shown in the Pension Benefits table are
based on the following material factors:
ALLSTATE RETIREMENT PLAN ("ARP")
The ARP has two different types of benefit formulas (final average pay and
cash balance) which apply to participants based on their date of hire or
individual choice made prior to the January 1, 2003, introduction of a cash
balance design. Of the named executives, Messrs. Pintozzi, Easley, and Smith
are eligible to earn cash balance benefits. Benefits under the final average
pay formula are earned and stated in the form of a straight life annuity
payable at the normal retirement date (age 65). Participants who earn final
average pay benefits may do so under one or more benefit formulas based on when
they become members of the ARP and their years of service.
Messrs. Cripe, Dahl, and Lounds have earned ARP benefits under the post-1988
final average pay formula which is the sum of the Base Benefit and the
Additional Benefit, as defined as follows:
. Base Benefit =1.55% of the participant's average annual compensation,
multiplied by credited service after 1988 (limited to 28 years of
credited service)
. Additional Benefit =0.65% of the amount, if any, of the participant's
average annual compensation that exceeds the participant's covered
compensation (the average of the maximum annual salary taxable for
Social Security over the 35-year period ending the year the participant
would reach Social Security retirement age) multiplied by credited
service after 1988 (limited to 28 years of credited service)
Since Messrs. Cripe, Dahl, and Lounds earned benefits between January 1,
1978, and December 31, 1988, one component of their ARP benefit will be based
on the following benefit formula:
1. Multiply years of credited service from 1978 through 1988 by 2 1/8%.
2. Then, multiply the percentage from step (1) by
a. Average annual compensation (five-year average) at December 31, 1988,
and by
b. Estimated Social Security at December 31, 1988.
3. Then, subtract 2(b) from 2(a). The result is the normal retirement
allowance for service from January 1, 1978, through December 31, 1988.
4. The normal retirement allowance is indexed for final average pay. In
addition, there is an adjustment of 18% of the normal retirement
allowance as of December 31, 1988, to reflect a conversion to a single
life annuity.
71
For participants eligible to earn cash balance benefits, pay credits are
added to the cash balance account on a quarterly basis as a percent of
compensation and based on the participant's years of vesting service as follows:
CASH BALANCE PLAN PAY CREDITS
VESTING SERVICE PAY CREDIT %
--------------- ------------
Less than 1 year................. 0%
1 year, but less than 5 years.... 2.5%
5 years, but less than 10 years.. 3%
10 years, but less than 15 years. 4%
15 years, but less than 20 years. 5%
20 years, but less than 25 years. 6%
25 years or more................. 7%
The earliest retirement age that a named executive may retire with unreduced
retirement benefits under the ARP and Supplemental Retirement Income Plan is
age 65. However, a participant earning final average pay benefits is entitled
to an early retirement benefit on or after age 55 if he or she terminates
employment after the completion of 20 or more years of service. A participant
earning cash balance benefits who terminates employment with at least three
years of vesting service is entitled to a lump sum benefit equal to his or her
cash balance account balance. Currently, only Mr. Lounds is eligible for an
early retirement benefit. The benefit reduction for early payment of final
average pay benefits earned after 1988 is as follows: The Base Benefit as
described above is reduced by 0.4% for each full month the benefit is paid
prior to the participant's normal retirement date (or benefit retirement age if
member prior to 1989). Mr. Lounds was a member prior to 1989 and his benefit
retirement age under the ARP is age 63. The Additional Benefit is reduced by
2/3 of 1% for each of the first 36 full months and by 1/3 of 1% for each of
the next 84 full months by which the benefit commencement date precedes the
participant's normal retirement date (age 65). The benefit reduction for early
payment of final average pay benefits earned prior to 1989 is 0.4% for each
full month prior to age 60.
SUPPLEMENTAL RETIREMENT INCOME PLAN ("SRIP")
SRIP benefits are generally determined using a two-step process:
(1) determine the amount that would be payable under the ARP formula specified
above if the federal limits described above did not apply, then (2) reduce the
amount described in (1) by the amount actually payable under the ARP formula.
The normal retirement date under the SRIP is age 65. If eligible for early
retirement under the ARP, an eligible employee is also eligible for early
retirement under the SRIP.
OTHER ASPECTS OF THE PENSION PLANS
Eligible employees are vested in the normal retirement benefit under the ARP
and the SRIP on the earlier of the completion of five years of service or upon
reaching age 65 for participants with final average pay benefits or the
completion of three years of service or upon reaching age 65 for participants
whose benefits are calculated under the cash balance formula.
For the ARP and SRIP, eligible compensation consists of salary, annual cash
incentive awards, pre-tax employee deposits made to Allstate's 401(k) plan and
Allstate's cafeteria plan, holiday pay, and vacation pay. Eligible compensation
also includes overtime pay, payment for temporary military service, and
payments for short term disability, but does not include long-term cash
incentive awards or income related to the exercise of stock options and the
vesting of restricted stock and restricted stock units. Compensation used to
determine benefits under the ARP is limited in accordance with the Internal
Revenue Code. Average annual compensation is the average compensation of the
five highest consecutive calendar years within the last ten consecutive
calendar years preceding the actual retirement or termination date.
72
Payment options under the ARP include a lump sum, straight life annuity, and
various survivor annuity options. The lump sum under the final average pay
benefit is calculated in accordance with the applicable interest rate and
mortality as required under the Internal Revenue Code. The lump sum payment
under the cash balance benefit is generally equal to a participant's cash
balance account balance.
The amounts listed in the Present Value of Accumulated Benefit column of the
Pension Benefits table and the amounts listed in the footnotes to the Change in
Pension Value column of the Summary Compensation Table are based on the
following assumptions:
. Discount rate of 6.25%, payment form assuming 80% paid as a lump sum and
20% paid as an annuity, lump-sum/annuity conversion segmented interest
rates of 5.0% for the first five years, 6.5% for the next 15 years, and
7% for all years after 20 and the 2010 combined static Pension
Protection Act funding mortality table with a blend of 50% males and 50%
females (as required under the Internal Revenue Code), and
post-retirement mortality for annuitants using the 2010 IRS-mandated
annuitant table; these are the same as those used for financial
reporting year-end disclosure as described in the notes to Allstate's
consolidated financial statements. (See note 16 to Allstate's audited
financial statements for 2009).
. Retirement age: normal retirement age under the ARP and SRIP (65). Based
on guidance provided by the Securities and Exchange Commission, we have
assumed normal retirement age regardless of any announced or anticipated
retirements.
. Expected terminations, disability, and pre-retirement mortality: none
assumed.
. The percentages used under the Service and Expense Agreement for
allocating compensation expense to Lincoln Benefit in 2009.
EXTRA SERVICE AND PENSION BENEFIT ENHANCEMENT
No additional service is granted under the ARP or the SRIP. Generally,
Allstate has not granted additional service credit outside of the actual
service used to calculate ARP and SRIP benefits.
NON-QUALIFIED DEFERRED COMPENSATION
The aggregate amount of the annual accrual specifically allocated to Lincoln
Benefit over each named executive's career with Allstate has varied depending
on the extent of services rendered by such executive to Lincoln Benefit Life
and the arrangements in place at the time of accrual between Lincoln Benefit
and the executive's Allstate-affiliated employer. Because the aggregate
earnings and balance attributable to services rendered to Lincoln Benefit by
each named executive cannot be calculated without unreasonable effort, the
aggregate earnings and aggregate balance provided for each named executive in
the following table is the amount determined by multiplying the value of such
named executive's non-qualified deferred compensation benefit for services
rendered to Allstate and all of its affiliates over the course of such named
executive's career with Allstate by the percentage used for allocating such
named executive's compensation to Lincoln Benefit under the Service and Expense
Agreement in 2009.
73
The following table summarizes the non-qualified deferred compensation
contributions, earnings, and account balances of Lincoln Benefit's named
executives in 2009. All amounts relate to the Deferred Compensation Plan.
NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2009
EXECUTIVE REGISTRANT AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS AGGREGATE EARNINGS WITHDRAWALS/ AGGREGATE BALANCE
IN LAST FY IN LAST FY IN LAST FY DISTRIBUTIONS AT LAST FYE
NAME ($) ($) ($)/(1)/ ($) ($)/(2)/
- ---- ------------- ------------- ------------------ ------------- -----------------
Mr. Cripe.... 0 0 0 0 0
Mr. Pintozzi. 0 0 0 0 0
Mr. Dahl..... 0 0 0 0 0
Mr. Easley... 0 0 0 0 0
Mr. Lounds... 0 0 0 0 0
Mr. Smith.... 0 0 4,073 0 55,652
- --------
(1)Aggregate earnings were not included in the named executive's compensation
as reported in the 2009 Summary Compensation Table.
(2)There are no amounts reported in the Aggregate Balance at Last FYE column
that were reported in the 2009 Summary Compensation Table.
In order to remain competitive with other employers, Allstate allows
employees, including the named executives, whose annual compensation exceeds
the amount specified in the Internal Revenue Code (e.g., $245,000 in 2009), to
defer up to 80% of their salary and/or up to 100% of their annual cash
incentive award that exceeds that amount under the Deferred Compensation Plan.
Allstate does not match participant deferrals and does not guarantee a stated
rate of return.
Deferrals under the Deferred Compensation Plan are credited with earnings,
or are subject to losses, based on the results of the investment option or
options selected by the participants. The investment options available under
the Deferred Compensation Plan are Stable Value, S&P 500, International Equity,
Russell 2000, and Bond Funds--options currently available under Allstate's
401(k) plan. Under the Deferred Compensation Plan, deferrals are not actually
invested in these funds, but instead are credited with earnings or losses based
on the funds' investment experience, which are net of administration and
investment expenses. Because the rate of return is based on actual investment
measures in Allstate's 401(k) plan, no above-market earnings are paid. Similar
to Allstate's 401(k) plan, participants can change their investment elections
daily. Investment changes are effective the next business day. The Deferred
Compensation Plan is unfunded; participants have only the rights of general
unsecured creditors.
Deferrals under the Deferred Compensation Plan are segregated into pre-2005
balances and post-2004 balances. A named executive may elect to begin receiving
a distribution of a pre-2005 balance upon separation from service or in one of
the first through fifth years after separation from service. In either event,
the named executive may elect to receive payment of a pre-2005 balance in a
lump sum or in annual cash installment payments over a period of two to ten
years. An irrevocable distribution election is required before making any
post-2004 deferrals into the plan. The distribution options available to the
post-2004 balances are similar to those available to the pre-2005 balances,
except the earliest distribution date is six months following separation from
service. Upon a showing of unforeseeable emergency, a plan participant may be
allowed to access certain funds in a deferred compensation account earlier than
the dates specified above.
POTENTIAL PAYMENTS AS A RESULT OF TERMINATION OR CHANGE-IN-CONTROL
TERMINATION OF EMPLOYMENT
The named executives may become eligible for severance benefits that all
regular full-time and regular part-time employees are eligible to receive if
their employment is terminated due to lack of work, rearrangement of
74
work, reduction in workforce, or inability to satisfactorily perform the
responsibilities of their position. The length of severance benefits depends on
the named executive's years of service, up to the maximum provided in the plans.
Allstate has entered into certain agreements or provides certain plans that
will require Allstate Insurance Company or Allstate to provide compensation or
benefits to certain of the named executives in the event of a termination of
employment--other than compensation and benefits generally available to all
salaried employees. Except where noted, the amount of compensation payable to
each named executive or the value of benefits provided to the named executives
that exceed the compensation or benefits generally available to all salaried
employees in each situation is listed in the tables below. The amounts provided
in the tables below, including amounts earned by each named executive over the
course of his career with Allstate and its affiliates, have been calculated in
a manner consistent with the allocation of compensation expenses to Lincoln
Benefit under the Service and Expense Agreement for 2009. The payment of the
2009 annual cash incentive award, the 2007-2009 long-term cash incentive award,
and any 2009 salary earned but not paid in 2009 due to Allstate's payroll cycle
are not included in these tables because these amounts are payable to the named
executives regardless of termination, death, or disability. Benefits and
payments are calculated assuming a December 31, 2009, employment termination
date.
POTENTIAL PAYMENTS UPON TERMINATION/(1)/
(NO CHANGE-IN-CONTROL)
RESTRICTED
LONG-TERM STOCK OPTIONS-- STOCK UNITS-- NON-QUALIFIED
CASH INCENTIVE UNVESTED AND UNVESTED AND PENSION WELFARE
AWARDS/(2)/ ACCELERATED/(3)/ ACCELERATED BENEFITS/(4)/ BENEFITS SEVERANCE TOTAL
NAME ($) ($) ($) ($) ($)/(5)/ ($)/(6)/ ($)
- ---- -------------- --------------- ------------- ------------- -------- --------- ---------
MR. CRIPE
Involuntary Termination/(7)/. 0 0 0 460,439 105,662 566,101
Voluntary Termination/
Retirement/(8)/............. 0 0 0 460,439 0 460,439
Death........................ 43,120 455,298/(9)/ 323,638/(11)/ 460,439 0 1,282,495
Disability................... 43,120 455,298/(9)/ 0 460,439 336,677 0 1,295,534
MR. PINTOZZI
Involuntary Termination/(7)/. 0 0 0 17,227 31,311 48,538
Voluntary Termination/
Retirement/(8)/............. 0 0 0 17,227 0 17,227
Death........................ 28,543 247,983/(9)/ 179,242/(11)/ 17,227 0 472,995
Disability................... 28,543 247,983/(9)/ 0 17,227 511,419 0 805,172
MR. DAHL
Involuntary Termination/(7)/. 0 0 0 556,481 220,684 777,165
Voluntary Termination/
Retirement/(8)/............. 0 0 0 556,481 0 556,481
Death........................ 0 112,404/(9)/ 90,300/(11)/ 556,481 0 759,185
Disability................... 0 112,404/(9)/ 0 556,481 985,550 0 1,654,435
MR. EASLEY
Involuntary Termination/(7)/. 0 0 0 12,001 17,056 29,057
Voluntary Termination/
Retirement/(8)/............. 0 0 0 12,001 0 12,001
Death........................ 27,604 203,619/(9)/ 186,852/(11)/ 12,001 0 430,076
Disability................... 27,604 203,619/(9)/ 0 12,001 331,774 0 574,998
MR. LOUNDS
Voluntary Termination/
Retirement/(8)/............. 25,392 270,777/(10)/ 192,096/(12)/ 977,300 0 0 1,465,565
MR. SMITH
Involuntary Termination/(7)/. 0 0 0 16,377 23,498 39,875
Voluntary Termination/
Retirement/(8)/............. 0 0 0 16,377 0 16,377
Death........................ 25,597 218,191/(9)/ 148,404/(11)/ 16,377 0 408,569
Disability................... 25,597 218,191/(9)/ 0 16,377 311,051 0 571,216
- --------
(1)A "0" indicates that either there is no amount payable to the named
executive or no amount payable to the named executive that is not made
available to all salaried employees. Since Mr. Lounds retired on July 31,
2009, the only termination scenario reflected is for Voluntary
Termination/Retirement.
75
(2)If a participant dies, retires or is disabled during a performance cycle,
the participant's award will be prorated based on the number of half months
in which the participant was eligible to participate during the long-term
cash incentive performance cycle. The amount reflected is calculated at
target for purposes of this disclosure. The actual payment would be made at
the time all awards are paid for that particular performance cycle and
calculated based on actual results.
(3)If the named executive's termination of employment is for any reason other
than death, disability, or retirement, unvested stock options will be
forfeited, and stock options, to the extent they are vested on the date of
termination, may be exercised at any time on or before the earlier to occur
of (a) the expiration date of the stock option and (b) three months after
the date of termination.
(4)The present value of the non-qualified pension benefits for each named
executive earned through December 31, 2009, based on a 6.25% discount rate
is disclosed in the Pension Benefits table. The value in this column
represents the present value of each named executive's non-qualified pension
benefits (SRIP) earned through December 31, 2009, after applying the
applicable allocation percentage in a manner consistent with the Service and
Expense Agreement and is based on the lump sum methodology (i.e., interest
rate and mortality table) used by the Allstate pension plans in 2010, as
required under the Pension Protection Act. Specifically, the interest rate
for 2010 is based on 40% of the average August 30-year Treasury Bond rate
from the prior year, and 60% of the average corporate bond segmented yield
curve from August of the prior year. The mortality table for 2010 is the
2010 combined static Pension Protection Act funding mortality table with a
blend of 50% males and 50% females, as published by the IRS.
SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits), are
generally payable at age 65, the normal retirement date under the ARP. Pre
409A SRIP Benefits may be payable earlier upon certain terminations in
accordance with the terms of the SRIP. For example, Pre 409A SRIP Benefits
may become payable upon reaching age 50 if disabled, following early
retirement at age 55 or older with 20 years of service, or upon death. SRIP
benefits earned after December 31, 2004 (Post 409A SRIP Benefits), are paid
on the January 1 following termination of employment after reaching age 55
(a minimum six month deferral period applies), or immediately upon death.
. Mr. Cripe's Pre 409A SRIP Benefit would become payable as early as
January 1, 2013, but is immediately payable upon death or disability.
Mr. Cripe's Post 409A Benefit would be paid on January 1, 2013, or
immediately upon death. Mr. Cripe will turn 65 on September 15, 2022.
. Mr. Pintozzi's Pre 409A SRIP Benefit would become payable as early as
January 1, 2011, but is immediately payable upon death. Mr. Pintozzi's
Post 409A Benefit would be paid on January 1, 2021, or immediately upon
death. Mr. Pintozzi will turn 65 on May 18, 2030.
. Mr. Dahl's Pre 409A SRIP Benefit would become payable as early as
January 1, 2015, but is immediately payable upon death or disability.
Mr. Dahl's Post 409A Benefit would be paid on January 1, 2015, or
immediately upon death. Mr. Dahl will turn 65 on August 2, 2024.
. Mr. Easley's Pre 409A SRIP Benefit would become payable as early as
January 1, 2011, but is immediately payable upon death. Mr. Easley's
Post 409A Benefit would be paid on January 1, 2012, or immediately upon
death. Mr. Easley will turn 65 on March 28, 2021.
. Based on Mr. Lounds' age and service, his Pre 409A SRIP Benefit is
payable under the terms of the plan. Mr. Lounds' Post 409A Benefit is
payable on February 1, 2010. Mr. Lounds will turn 65 on July 2, 2014.
. Mr. Smith's Pre 409A SRIP Benefit would become payable as early as
January 1, 2011, but is immediately payable upon death. Mr. Smith's Post
409A Benefit would be paid on January 1, 2013, or immediately upon
death. Mr. Smith will turn 65 on May 15, 2022.
(5)The named executives are eligible to participate in Allstate's supplemental
long-term disability plan for employees whose annual earnings exceed the
level which produces the maximum monthly benefit provided by the Allstate
Long Term Disability Plan (Basic Plan). The benefit is equal to 50% of the
named executive's qualified annual earnings divided by twelve and rounded to
the nearest one hundred dollars,
76
reduced by $7,500, which is the maximum monthly benefit payment that can be
received under the Basic Plan. The amount reflected assumes the named
executive remains totally disabled until age 65 and represents the present
value of the monthly benefit payable until age 65.
(6)The "Severance" amount is the lump sum payment that named executives would
be eligible to receive in the event of employment termination resulting from
a lack of work, rearrangement of work, or reduction in workforce plus an
amount of vacation accrual severance benefit, if applicable. The lump sum
severance benefit is equal to two weeks of pay for each complete year of
service, up to a maximum of 52 weeks of pay, and is the same benefit
available to all regular full-time and regular part-time employees. The
vacation accrual severance benefit is equal to the value at December 31,
2009, of the vacation days accrued but not yet taken between the executive's
anniversary date in 2000 and December 31, 2000. This same benefit was made
available to all eligible regular full-time and regular part-time employees
following a change to the company vacation policy. Messrs. Cripe, Dahl, and
Lounds have a vacation accrual severance benefit amount included in the
Severance column of $3,796, $11,469, and $3,861 respectively.
(7)Examples of "Involuntary Termination" independent of a change-in-control
include performance-related terminations, reorganization, and terminations
for employee dishonesty and violation of Allstate rules, regulations, or
policies.
(8)As of December 31, 2009, only Mr. Lounds was eligible to retire in
accordance with Allstate's policy or the terms of any of the Allstate
compensation and benefit plans including the long-term cash incentive and
equity incentive plans. If any of the other named executives had voluntarily
terminated employment on December 31, 2009, the non-qualified pension
benefit would become payable as described in footnote (4) above.
(9)If the named executive's termination of employment is on account of death or
disability, then stock options, to the extent not vested, will vest and may
be exercised at any time on or before the earlier to occur of (1) the
expiration date of the option and (2) the second anniversary of the date of
termination of employment. Stock option values are based on a December 31,
2009, market close price of $30.04 per share of Allstate stock.
(10)If the named executive retires at the normal retirement date or a health
retirement date, unvested stock options continue to vest in accordance with
their terms, and all outstanding stock options, when vested, may be
exercised, in whole or in part, by the named executive at any time on or
before the earlier to occur of (a) the expiration date of the stock option
and (b) the fifth anniversary of the date of such termination of
employment. The "normal retirement date" under the stock option awards is
the date on or after the date the named executive attains age 60 with at
least one year of service. The "health retirement date" is the date on
which the named executive terminates for health reasons after attaining age
50, but before attaining age 60, with at least ten years of continuous
service. If the named executive retires at the early retirement date,
unvested stock options are forfeited, and stock options, to the extent they
are vested on the date of termination, may be exercised, in whole or in
part, by the named executive at any time on or before the earlier to occur
of (a) the expiration date of the stock option and (b) the fifth
anniversary of the date of termination of employment. The "early retirement
date" is the date the named executive attains age 55 with 20 years of
service. The aggregate value of unexercisable in-the-money options as of
December 31, 2009 based on a market close price of $30.04 per share of
Allstate stock for each of the named executives is reflected in the table.
The actual amount received by the named executives would be based on the
market close price on the date the stock options were exercised.
(11)If the named executive's termination of employment is a result of death,
restricted stock units immediately become nonforfeitable and the
restrictions expire. The December 31, 2009, market close price of $30.04
per share of Allstate stock was used to value the unvested and
nonforfeitable awards.
(12)If the named executive retires on or after attaining age 60 with at least
one year of service, then no unvested restricted shares or restricted stock
units are forfeited and the unvested shares or restricted stock units will
remain subject to the restriction period established in the award
agreement. If the named executive dies following retirement and before the
end of the restriction period, then all unvested restricted stock units
immediately become nonforfeitable and vest as of the date of death. The
aggregate value of unvested restricted shares or restricted stock units as
of December 31, 2009 based on a market close price of $30.04 per share of
Allstate stock for each of the named executives is reflected in the table.
The actual amount received by the named executives would be based on the
market close price on the date the stock restriction lapses.
77
CHANGE-IN-CONTROL
Allstate and Allstate Insurance Company have entered into agreements with
the named executives, except Mr. Dahl, to provide certain benefits and
compensation in the event of a change-in-control. Although Mr. Dahl does not
have a change-in-control agreement, his unvested equity awards would become
immediately payable upon a change-in-control. In general, a change-in-control
is one or more of the following events: (1) any person acquires 30% or more of
the combined voting power of Allstate common stock within a 12-month period;
(2) any person acquires more than 50% of the combined voting power of Allstate
common stock; (3) certain changes are made to the composition of the Allstate
Board; or (4) the consummation of a merger, reorganization, or similar
transaction. These triggers were selected because, in a widely held company the
size of Allstate, they could each result in a substantial change in management.
There are no agreements in place with the named executives to provide benefits
or compensation in the event of a change-in-control of Lincoln Benefit that
does not also involve a change-in-control of Allstate.
During the two-year period following a change-in-control, the
change-in-control agreements provide for a minimum salary, annual cash
incentive awards, long-term cash incentive awards, and other benefits. In
addition, they provide that the named executives' positions, authority, duties,
and responsibilities will be at least commensurate in all material respects
with those held prior to the change-in-control.
Under the change-in-control agreements, severance benefits would be payable
if a named executive's employment is terminated either by Allstate without
"cause" or by the executive for "good reason" as defined in the agreements
during the two-year period following the change-in-control. Cause means the
named executive has been convicted of a felony or other crime involving fraud
or dishonesty, has willfully or intentionally breached the change-in-control
agreement, has habitually neglected his or her duties, or has engaged in
willful or reckless material misconduct in the performance of his or her
duties. Good reason includes a material diminution in a named executive's base
compensation, authority, duties, or responsibilities, a material change in the
geographic location where the named executive performs services, or a material
breach of the change-in-control agreement by Allstate. The principal severance
benefits payable on post-change-in-control terminations include: pro-rated
annual cash incentive awards and long-term cash incentive awards (all at
target); a payment equal to three times the sum of the executive's base salary
and target annual cash incentive award; the continuation of certain welfare
benefits for the continuation coverage period at a cost not to exceed the
amount paid by the named executive prior to termination; outplacement services;
an enhanced retirement benefit consisting of an additional three years of
service, age, and compensation; and reimbursement (on an after-tax basis) of
any resulting excise taxes.
If a named executive's employment is terminated by reason of death or
disability during the two-year period commencing on the date of a
change-in-control, Allstate will pay the named executive or the named
executive's estate a lump-sum cash amount equal to all amounts earned but
unpaid, including any annual and long-term cash incentive awards, as of the
termination date. In addition, in the event of death, the named executive's
estate or beneficiary will be entitled to survivor and other benefits,
including retiree medical coverage, if eligible, that are not less favorable
than the most favorable benefits available to the estates or surviving families
of peer executives of Allstate. In the event of disability, Allstate will pay
disability and other benefits, including supplemental long-term disability
benefits and retiree medical coverage, if eligible, that are not less favorable
than the most favorable benefits available to disabled peer executives. If
Allstate terminates a named executive's employment for cause, Allstate's sole
obligation is to pay the named executive a lump-sum cash amount equal to all
amounts earned and due to be paid, but unpaid, as of the termination date.
If a named executive incurs legal fees or other expenses in an effort to
enforce the change-in-control agreement, Allstate will reimburse the named
executive for these expenses unless it is established by a court that the named
executive had no reasonable basis for the claim or acted in bad faith.
Effective upon a change-in-control, the named executives become subject to
covenants prohibiting competition and solicitation of employees, customers, and
suppliers at any time until one year after termination of employment.
78
The following table describes the estimated compensation or benefits that
would be provided by Allstate Insurance Company or Allstate to the named
executives in the event of a change-in-control that exceed the compensation or
benefits generally available to all salaried employees in each situation. The
payment of the 2009 annual cash incentive award, the 2007-2009 long-term cash
incentive award and any 2009 salary earned but not paid in 2009 due to
Allstate's payroll cycle are not included in these tables because these amounts
are payable to the named executives regardless of termination, death, or
disability. Benefits and payments are calculated assuming a December 31, 2009,
employment termination date or change-in-control.
POTENTIAL PAYMENTS UPON CHANGE-IN-CONTROL/(1)/
STOCK RESTRICTED NON-QUALIFIED WELFARE EXCISE TAX
CHANGE-IN- OPTIONS-- STOCK UNITS-- PENSION AND BENEFITS AND REIMBURSEMENT
CONTROL UNVESTED AND UNVESTED AND DEFERRED OUTPLACEMENT AND TAX
SEVERANCE ACCELERATED/(3)/ ACCELERATED/(5)/ COMPENSATION SERVICES GROSS-UP/(9)/
NAME ($) ($) ($) ($) ($) ($)
- ---- ---------- --------------- --------------- -------------- ------------ -------------
MR. CRIPE
Immediately Payable Upon
Change-in-Control....... 0 455,298 323,638 460,439/(6)/ 0 0
Involuntary or Good
Reason Termination...... 608,478/(2)/ See footnote 4 See footnote 4 See footnote 7 8,935/(8)/ 0
Death/Disability/For
Cause Termination....... 0 0 0 0 0 0
MR. PINTOZZI
Immediately Payable Upon
Change-in-Control....... 0 247,983 179,242 17,227/(6)/ 0 0
Involuntary or Good
Reason Termination...... 400,692/(2)/ See footnote 4 See footnote 4 See footnote 7 7,773/(8)/ 0
Death/Disability/For
Cause Termination....... 0 0 0 0 0 0
MR. DAHL/(10)/
Immediately Payable Upon
Change-in-Control....... 0 112,404 90,300 0 0 0
Involuntary or Good
Reason Termination...... 0 0 0 0 0 0
Death/Disability/For
Cause Termination....... 0 0 0 0 0 0
MR. EASLEY
Immediately Payable Upon
Change-in-Control....... 0 203,619 186,852 12,001/(6)/ 0 0
Involuntary or Good
Reason Termination...... 382,366/(2)/ See footnote 4 See footnote 4 See footnote 7 11,422/(8)/ 0
Death/Disability/For
Cause Termination....... 0 0 0 0 0 0
MR. SMITH
Immediately Payable Upon
Change-in-Control....... 0 218,191 148,404 72,029/(6)/ 0 0
Involuntary or Good
Reason Termination...... 351,442/(2)/ See footnote 4 See footnote 4 See footnote 7 11,719/(8)/ 0
Death/Disability/For
Cause Termination....... 0 0 0 0 0 0
TOTAL
NAME ($)
- ---- ---------
MR. CRIPE
Immediately Payable Upon
Change-in-Control....... 1,239,375
Involuntary or Good
Reason Termination...... 617,413
Death/Disability/For
Cause Termination....... 0
MR. PINTOZZI
Immediately Payable Upon
Change-in-Control....... 444,452
Involuntary or Good
Reason Termination...... 408,465
Death/Disability/For
Cause Termination....... 0
MR. DAHL/(10)/
Immediately Payable Upon
Change-in-Control....... 202,704
Involuntary or Good
Reason Termination...... 0
Death/Disability/For
Cause Termination....... 0
MR. EASLEY
Immediately Payable Upon
Change-in-Control....... 402,472
Involuntary or Good
Reason Termination...... 393,788
Death/Disability/For
Cause Termination....... 0
MR. SMITH
Immediately Payable Upon
Change-in-Control....... 438,624
Involuntary or Good
Reason Termination...... 363,161
Death/Disability/For
Cause Termination....... 0
- --------
(1)A "0" indicates that either there is no amount payable to the named
executive or no amount payable to the named executive that is not made
available to all salaried employees. Since Mr. Lounds retired on July 31,
2009, no change-in-control benefit and payment calculations are included for
him.
79
(2)Change-in-control severance benefits upon an involuntary termination or
termination for good reason contain the following elements:
. two times the named executive's base salary (three times for Mr. Cripe);
. two times the named executive's annual cash incentive award calculated
at target (three times for Mr. Cripe);
. the named executive's pro-rata long-term cash incentive award for the
2008-2010 performance cycle calculated at target; and
. a lump sum payment equal to the positive difference, if any, between:
(a) the sum of the lump-sum values of each maximum annuity that would be
payable to the named executive under any defined benefit plan (whether
or not qualified under Section 401(a) of the Internal Revenue Code) if
the named executive had: (i) become fully vested in all such benefits,
(ii) attained as of the named executive's termination date an age that
is three years greater than named executive's actual age, (iii) accrued
a number of years of service that is three years greater than the number
of years of service actually accrued by the named executive as of the
named executive's termination date, and (iv) received a lump-sum
severance benefit consisting of three times base salary, three times
annual incentive cash compensation calculated at target, plus the 2009
annual incentive cash award as covered compensation in equal monthly
installments during the three-year period following the named
executive's termination date; and (b) the lump-sum values of the maximum
annuity benefits vested and payable to the named executive under each
defined benefit plan that is qualified under Section 401(a) of the
Internal Revenue Code plus the aggregate amounts simultaneously or
previously paid to the named executive under the defined benefit plans
(whether or not qualified under Section 401(a)). The calculation of the
lump sum amounts payable under this formula does not impact the benefits
payable under the ARP or the SRIP.
The change-in-control agreements provide that if the after-tax benefits of
all change of control payments are less than 110% of the after-tax benefit
of the safe harbor benefit amount, then the change-in-control benefits are
to be reduced to the safe harbor benefit amount. The safe harbor benefit
amount is the highest level of benefits that can be paid before which an
excise tax under section 4999 of the Internal Revenue Code would apply.
(3)Stock option values are based on a December 31, 2009, market close price of
$30.04 per share of Allstate stock.
(4)For purposes of this table, unvested stock options and restricted stock
units, which would have been immediately payable upon a change-in-control
regardless of termination of employment, were assumed to have been paid
immediately prior to termination and are reflected in the "Immediately
Payable Upon Change-in-Control" row.
(5)The December 31, 2009, market close price of $30.04 per share of Allstate
stock was used to value the unvested and nonforfeitable restricted stock
unit and restricted stock awards.
(6)Within five business days after the effective date of a change-in-control,
the named executives will receive a lump sum payment equal to the present
value of the named executive's SRIP benefit and deferred compensation
account balance. The present value of SRIP benefits earned through
December 31, 2009, is calculated in a manner consistent with the allocation
of compensation expenses to Lincoln Benefit under the Service and Expense
Agreement and is based on the lump sum methodology (i.e., interest rate and
mortality table) used by the Allstate pension plans in 2010, as required
under the Pension Protection Act. Specifically, the interest rate for 2010
is based on 40% of the average August 30-year Treasury Bond rate from the
prior year, and 60% of the average corporate bond segmented yield curve from
August of the prior year. The mortality table for 2010 is the 2010 combined
static Pension Protection Act funding mortality table with a blend of 50%
males and 50% females, as published by the IRS. Refer to the Retirement
Benefits section beginning on page 62 for a discussion of the SRIP benefit.
See the Non-Qualified Deferred Compensation at Fiscal Year-End 2009 table on
page 74 for additional information on the Deferred Compensation Plan and
information regarding the named executives' account balances as of
December 31, 2009.
80
(7)For purposes of this table, the present value of non-qualified pension
benefits earned through December 31, 2009, and the named executive's
Deferred Compensation Plan account balance, if any, which would have been
immediately payable upon a change-in-control regardless of termination of
employment were assumed to have been paid immediately prior to termination
upon the effective date of a change of control and are reflected in the
"Immediately Payable Upon Change-in-Control" row.
(8)The Welfare Benefits and Outplacement Services amount includes the cost to
provide certain welfare benefits to the named executive and family during
the period which the named executive is eligible for continuation coverage
under applicable law. The amount shown reflects Allstate's costs for these
benefits or programs assuming an 18-month continuation period. The value of
outplacement services is $20,000 for Mr. Cripe and $15,000 for each of the
other named executive officers.
(9)Certain payments made as a result of a change in control are subject to a
20% excise tax imposed on the named executive by Section 4999 of the Code.
The Excise Tax Reimbursement and Tax Gross-up is the amount Allstate would
pay to the named executive as reimbursement for the 20% excise tax plus a
tax gross-up for any taxes incurred by the named executive resulting from
the reimbursement of such excise tax, allocated in a manner consistent with
the allocation of compensation expenses to Lincoln Benefit under the Service
and Expense Agreement. The estimated amounts of reimbursement of any
resulting excise taxes were determined without regard to the effect that
restrictive covenants and any other facts and circumstances may have on the
amount of excise taxes, if any, that ultimately might be payable in the
event these payments were made to a named executive which is not subject to
reliable advance prediction or a reasonable estimate.
(10)Mr. Dahl did not have a change-in-control agreement in place. However,
pursuant to the terms of his equity awards, unvested stock options and
restricted stock units would have become immediately payable upon a
change-in-control.
COMPENSATION POLICIES AND PRACTICES RISK ANALYSIS
Allstate management has reviewed its compensation policies and practices and
believes that they are appropriately structured, that they are consistent with
its key operating priority of keeping the Allstate financially strong, and that
they avoid providing incentives for employees to engage in unnecessary and
excessive risk taking. The Allstate Board and its Audit Committee both play an
important role in risk management oversight, including reviewing how management
measures, evaluates, and manages the corporation's exposure to risks posed by a
wide variety of events and conditions. In addition, the Compensation and
Succession Committee employs an independent executive consultant each year to
assess Allstate's executive pay levels, practices, and overall program design.
Allstate's compensation programs provide a balanced mix of cash and equity
through annual and long-term incentives to align with short-term and long-term
business goals. Allstate utilizes a full range of performance measures that it
believes correlate to long-term shareholder value creation. Cash incentive
awards are paid only after a review of executive and corporate performance.
Allstate's calculation of corporate income includes a quarterly re-estimation
of property-liability reserves. As a result, to a significant extent, if
Allstate under-estimates or over-estimates losses in a given year, income and
annual cash incentives will be impacted in the following year. Furthermore, to
ensure its compensation programs do not motivate imprudent risk taking, awards
made after May 19, 2009, under the 2009 Equity Incentive Plan and awards made
beginning in 2010 under the Annual Executive Incentive Plan are subject to
clawback in the event of certain financial restatements.
PERFORMANCE MEASURES
Information regarding performance measures is disclosed in the limited
context of annual and long-term cash incentive awards and should not be
understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply these
statements to other contexts.
The following are descriptions of the performance measures used for
Allstate's annual cash incentive awards for 2009 (excluding the Sales Incentive
Plan in which Mr. Dahl participated) and its long-term cash
81
incentive awards for the 2007-2009 cycle which may be applied to compensation
of Lincoln Benefit's named executives. These measures are not GAAP measures.
They were developed uniquely for incentive compensation purposes and are not
reported items in Allstate's financial statements. Some of these measures use
non-GAAP measures and operating measures. The Committee has approved the use of
non-GAAP and operating measures when appropriate to drive executive focus on
particular strategic, operational, or financial factors or to exclude factors
over which Allstate's executives have little influence or control, such as
capital market conditions.
ANNUAL CASH INCENTIVE AWARDS FOR 2009
CORPORATE MEASURES
ADJUSTED OPERATING INCOME PER DILUTED SHARE: This measure is used to assess
financial performance. The measure is equal to net income adjusted to exclude
the after-tax effects of the items listed below, divided by the weighted
average shares outstanding on a diluted basis:
. Realized capital gains and losses (which includes the related effect on
the amortization of deferred acquisition and deferred sales inducement
costs) except for periodic settlements and accruals on certain non-hedge
derivative instruments, which are reported with realized capital gains
and losses but included in Operating Income, and equity method of
accounting income from limited partnership interests to be consistent
with the incentive goals.
. Gains and losses on disposed operations.
. Adjustments for other significant non-recurring, infrequent, or unusual
items, when (a) the nature of the charge or gain is such that it is
reasonably unlikely to recur within two years or (b) there has been no
similar charge or gain within the prior two years.
. Restructuring and related charges.
. Effects of acquiring businesses.
. Negative operating results of sold businesses.
. Underwriting results of the Discontinued Lines and Coverages segment.
. Any settlement, awards, or claims paid as a result of lawsuits and other
proceedings brought against Allstate subsidiaries regarding the scope
and nature of coverage provided under insurance policies issued by such
companies.
. Identifiable effects of the adopted accounting standard for
other-than-temporary impairments to be consistent with incentive goals.
ALLSTATE FINANCIAL MEASURES
ADJUSTED OPERATING INCOME: This is a measure Allstate management uses to
assess the profitability of the business. The Allstate Financial segment
measure, operating income, is adjusted to include equity method of accounting
income from limited partnership interests to be consistent with the incentive
goals, and to exclude the after tax effects of restructuring and related
charges, the potential amount by which 2009 guaranty fund assessments related
to insured solvencies exceed $6 million, and the identifiable effects of the
adopted accounting standard for other-than-temporary impairments to be
consistent with incentive goals. For disclosure of the Allstate Financial
segment measure see footnote 18 to Allstate's audited financial statements.
FINANCIAL PRODUCT SALES ("PRODUCTION CREDITS"): This measure of sales and
related profitability of proprietary and non-proprietary financial products
sold through the Allstate Exclusive Agency channel is used by management to
assess the execution of Allstate's financial services strategy. This measure is
calculated as the total amount of production credits for current year
transactions. Production credits are an internal sales statistic calculated as
a percent of premium or deposits to life insurance, annuities, or mutual funds
which vary based on the expected profitability of the specific financial
product.
82
TOTAL RETURN: Total return is principally determined using industry
standards and the same sources used in preparing the financial statements to
determine fair value. (See footnotes to Allstate's audited financial statements
for methodologies for estimating the fair value of investments.) In general,
total return represents the increase or decrease, expressed as a percentage, in
the value of the portfolio over a one-year period. Time weighted returns are
used.
. ALLSTATE FINANCIAL TOTAL RETURN: Total return for Allstate Financial
investments, including those held in certain subsidiaries, such as
Allstate Life Insurance Company of New York. Allstate Financial Total
Return includes derivatives and excludes the identifiable effects of the
adopted accounting standard for other-than-temporary impairments to be
consistent with incentive goals.
LONG-TERM CASH INCENTIVE AWARDS
AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE TO PEERS: This measure is used to
assess Allstate's financial performance against its peers. It is calculated as
Allstate's ranked position relative to the insurance company peer group based
upon three-year average adjusted return on equity, calculated on the same basis
for Allstate and each of the peer insurance companies used for long-term cash
incentive awards. Three-year average adjusted return on equity is the sum of
the annual adjusted return on equity for each of the three years in the cycle
divided by three. The annual adjusted return on equity is calculated as the
ratio of net income divided by the average of Allstate shareholders' equity at
the beginning and at the end of the year after excluding the component of
accumulated other comprehensive income for unrealized net capital gains and
losses.
ALLSTATE FINANCIAL RETURN ON TOTAL CAPITAL: This is a measure management
uses to measure the efficiency of capital utilized in the business. Three-year
Allstate Financial return on total capital is the sum of the annual adjusted
return on Allstate subsidiaries' shareholder's equity for each of the three
years divided by three. The annual adjusted return on subsidiaries'
shareholder's equity is the Allstate Financial measure, operating income,
divided by the average subsidiaries' shareholder's equity at the beginning and
at the end of the year. The subsidiaries' shareholder's equity is the sum of
the subsidiaries' shareholder's equity for Allstate Life Insurance Company,
Allstate Bank, American Heritage Life Investment Corporation, and certain other
minor entities, adjusted to exclude the loan protection business and excluding
the component of accumulated other comprehensive income for unrealized net
capital gains. (See note 18 to Allstate's audited financial statements for
Allstate Financial net income.)
ALLSTATE PROTECTION GROWTH IN POLICIES IN FORCE OVER THREE-YEAR CYCLE: This
is a measure used by management to assess growth in the number of policies in
force, which is a driver of premiums written. The measure is calculated as the
sum of the percent increase in each of the three years in the total number of
policies in force at the end of the year over the beginning of the year. The
measure excludes property insurance, Allstate Motor Club, and the loan
protection business and includes Allstate Canada.
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.
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
(A) (B) (C) (D)
- -------------- ---------------------------------------- -------------------------------- ----------
Capital Stock Allstate Life Insurance Company 100,000 100%
3100 Sanders Road, Northbrook, IL 60062
N/A Allstate Insurance Company Indirect voting and investment N/A
2775 Sanders Road, Northbrook, IL 60062 power of shares owned by
Allstate Life Insurance Company
N/A The Allstate Corporation Indirect voting and investment N/A
2775 Sanders Road, Northbrook, IL 60062 power of shares owned by
Allstate Life Insurance Company
83
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table shows the number of shares of Allstate common stock
beneficially owned by each director and named executive officer of Lincoln
Benefit individually, and by all executive officers and directors of Lincoln
Benefit as a group. Shares reported as beneficially owned include shares held
indirectly through the Allstate 401(k) Savings Plan and other shares held
indirectly, as well as shares subject to stock options exercisable on or prior
to April 16, 2010 and restricted stock units for which restrictions expire on
or prior to April 16, 2010. The percentage of Allstate shares of common stock
beneficially owned by any Lincoln Benefit director, named executive officer or
by all directors and executive officers of Lincoln Benefit as a group does not
exceed 1%. The following share amounts are as of February 15, 2010. As of
February 15, 2010, none of these shares were pledged as security.
COMMON STOCK SUBJECT TO
OPTIONS EXERCISABLE AND
RESTRICTED STOCK UNITS FOR
AMOUNT AND NATURE OF WHICH RESTRICTIONS EXPIRE ON OR
BENEFICIAL OWNERSHIP OF PRIOR TO APRIL 16, 2010--
ALLSTATE COMMON STOCK INCLUDED IN COLUMN (A)
NAME OF BENEFICIAL OWNER (A) (B)
- ------------------------ ----------------------- -------------------------------
Frederick F. Cripe................. 169,161 146,131
Lawrence W. Dahl................... 33,508 32,079
Matthew S. Easley.................. 72,624 70,729
Susie Lees......................... 31,379 20,205
John C. Lounds..................... 167,639 153,623
John C. Pintozzi................... 90,036 82,956
J. Eric Smith...................... 2,182 0
Matthew E. Winter.................. 0 0
All directors and executive
officers as a group.............. 556,771 505,723
ITEM 11(N).TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS.
TRANSACTIONS WITH RELATED PERSONS.
This table describes certain intercompany agreements involving Lincoln
Benefit and the following companies:
. Allstate Life Insurance Company ("ALIC"), the direct parent of Lincoln
Benefit;
. Allstate Insurance Company ("AIC"), an indirect parent of Lincoln
Benefit; and
. The Allstate Corporation ("AllCorp"), the ultimate indirect parent of
Lincoln Benefit.
84
APPROXIMATE DOLLAR VALUE OF
THE AMOUNT INVOLVED RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/
IN THE TRANSACTION, PER FISCAL AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT
TRANSACTION DESCRIPTION YEAR OF THE RELATED PERSON'S INTEREST IN THE TRANSACTION
- ----------------------- --------------------------- --------------------------------------------------
ALIC AIC ALLCORP
Investment Management Agreement 2007 146,726,694 83,898,860/2/ 52,363,225 536,022
among Allstate Investments, LLC, 2008 131,668,584 68,941,225/2/ 51,404,171 677,981
Allstate Insurance Company, The Allstate 2009 142,073,012 76,392,634/2/ 54,248,353 1,151,990
Corporation and certain affiliates
effective January 1, 2007.
Tax Sharing Agreement among The 2007 1,889,110,117/3/ 35,968,879 1,912,198,568 (126,810,136)
Allstate Corporation and certain affiliates 2008 465,439,826/3/ (109,322,083) 633,316,282 (121,960,368)
dated as of November 12, 1996, as 2009 1,173,212,154/3/ (534,572,879) (467,570,173) (121,813,486)
supplemented by Supplemental
Intercompany Tax Sharing Agreement
between Allstate Life Insurance Company
and Lincoln Benefit Life Company
effective December 21, 2000.
Cash Management Services Master 2007 1,242,569/4/ 315,281/5/ 617,385/5/ N/A
Agreement between Allstate Insurance 2008 1,338,376/4/ 198,098/5/ 816,143/5/
Company, Allstate Bank (aka Allstate 2009 1,527,072/4/ 158,312/5/ 1,052,781/5/
Federal Savings Bank), and certain
affiliates dated March 16, 1999, as
amended by Amendment No.1 effective
January 5, 2001, and Amendment No. 2
entered into November 8, 2002, between
Allstate Insurance Company, Allstate
Bank and Allstate Motor Club, Inc., and
as supplemented by the Premium
Depository Service Supplement dated as
of September 30, 2005, the Variable
Annuity Service Supplement dated
November 10, 2005, and the Sweep
Agreement Service Supplement dated as
of October 11, 2006.
- --------
/1/ Each identified Related Person is a Party to the transaction.
/2/ Gross amount of expense received under the transaction.
/3/ Total amounts paid to Internal Revenue Service.
/4/ Total fees collected for all bank accounts covered under the transaction.
/5/ Fees paid under the transaction.
85
APPROXIMATE DOLLAR VALUE OF
THE AMOUNT INVOLVED RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/
IN THE TRANSACTION, PER FISCAL AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT
TRANSACTION DESCRIPTION YEAR OF THE RELATED PERSON'S INTEREST IN THE TRANSACTION
- ----------------------- --------------------------- -----------------------------------------------
ALIC AIC ALLCORP
Amended and Restated Service and 2007 3,270,782,494 224,729,858/2/ 2,392,512,051/2/ 24,957,633/2/
Expense Agreement between Allstate 2008 3,295,180,640 215,640,945/2/ 2,186,281,461/2/ 5,351,262/2/
Insurance Company, The Allstate 2009 3,451,765,246 180,154,068/2/ 1,937,571,496/2/ 2,510,800/2/
Corporation and certain affiliates
effective January 1, 2004, as amended
by Amendment No. 1 effective
January 1, 2009, and as supplemented
by New York Insurer Supplement to
Amended and Restated Service and
Expense Agreement between Allstate
Insurance Company, The Allstate
Corporation, Allstate Life Insurance
Company of New York and Intramerica
Life Insurance Company, effective
March 5, 2005.
Reinsurance Agreements between 2007 786,600,513/6/ 786,600,513/6/ N/A N/A
Lincoln Benefit Life Company and 2008 766,582,944/6/ 766,582,944/6/
Allstate Life Insurance Company: 2009 873,759,209/6/ 873,759,209/6/
Coinsurance Agreement effective
December 31, 2001; Modified
Coinsurance Agreement effective
December 31, 2001; Modified
Coinsurance Agreement effective
December 31, 2001.
Intercompany Loan Agreement among 2007 7,370,022,084 7,012,969,748/7/ 357,052,336 7,370,022,084
The Allstate Corporation, Allstate Life 2008 400,040,660 50,014,792/7/ 1,732,736 400,040,660
Insurance Company, Lincoln Benefit 2009 86,111,674 0/8/ 86,111,674 86,111,674
Life Company and other certain
subsidiaries of The Allstate Corporation
dated February 1, 1996.
Agreement for the Settlement of State 2007 14,196,008 374,100/9/ 3,463,000 N/A
and Local Tax Credits among Allstate 2008 2,089,067 356,331/9/ 1,732,736
Insurance Company and certain 2009 941,379 193,504/9/ 441,024
affiliates effective January 1, 2007.
REVIEW AND APPROVAL OF INTERCOMPANY AGREEMENTS:
All intercompany agreements to which Lincoln Benefit is a party are approved
by Lincoln Benefit's Board of Directors as well as by the board of any other
affiliate of The Allstate Corporation which is a party to the agreement.
Intercompany agreements are also submitted for approval to the Nebraska
Department of Insurance,
- --------
/6/ Net reinsurance income.
/7/ Amounts loaned and repaid.
/8/ No loans outstanding at year end.
/9/ Value of transfer transactions.
86
Lincoln Benefit's domestic regulator, and any additional states in which
Lincoln Benefit might be commercially domiciled pursuant to the applicable
state's insurance holding company systems act. This process is documented in an
internal procedure that captures the review and approval process of all
intercompany agreements. All approvals are maintained in Lincoln Benefit's
corporate records.
While there is no formal process for the review and approval of related
person transactions between unaffiliated entities specific to Lincoln Benefit,
all directors and executive officers of Lincoln Benefit are subject to the
Allstate Code of Ethics ("Code"). The Code includes a written conflict of
interest policy that was adopted by the Board of Directors of the Allstate
Corporation, the ultimate parent company of Lincoln Benefit. Any potential
relationship or activity that could impair independent thinking and judgment,
including holding a financial interest in a business venture that is similar to
Allstate, or in a business that has a relationship with Allstate, must be
disclosed to Human Resources. Human Resources will work with representatives
from the Law Department, including Enterprise Business Conduct, to determine
whether an actual conflict of interest exists. Each director and executive
officer must sign a Code of Ethics certification annually.
INDEPENDENCE STANDARDS FOR DIRECTORS
Although not subject to the independence standards of the New York Stock
Exchange, for purposes of this S-1 registration statement, Lincoln Benefit has
applied the independence standards required for listed companies of the New
York Stock Exchange to the Board of Directors. Applying these standards,
Lincoln Benefit has been determined that none of the directors are considered
to be independent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Lincoln Benefit does not have a compensation
committee. All compensation decisions are made by The Allstate Corporation, as
the ultimate parent company of Lincoln Benefit. No executive officer of Lincoln
Benefit served as a member of the compensation committee of another entity for
which any executive officer served as a director for Lincoln Benefit.
OTHER INFORMATION
The section in your prospectus entitled "Incorporation of Certain Documents
By Reference" is deleted and replaced with the following:
FILING OF REPORTS
Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") exempts an insurance company from filing reports under the
Exchange Act when the insurance company issues certain types of insurance
products that are registered under the Securities Act of 1933 and such products
are regulated under state law. Your variable annuity issued by Lincoln Benefit
falls within the exemption provided under rule 12h-7. We rely on the exemption
provided under rule 12h-7 and do not file reports under the Exchange Act.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted in directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling
87
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The sections in your prospectus entitled "Experts" and "Financial
Statements" are deleted and replaced with the following:
EXPERTS
The financial statements and the related financial statement schedules
included herein have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
88
CONSULTANT I VARIABLE ANNUITY PROSPECTUS
FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 5801 SW 6TH AVE., TOPEKA, KS 66606-0001
MAILING ADDRESS: P.O. BOX 758561, TOPEKA, KS 66675-8566
TELEPHONE NUMBER: 1-800-457-7617
FAX NUMBER: 1-785-228-4584
The Contract is a deferred annuity contract designed to aid you in long-term
financial planning. You may purchase it on either a tax qualified or non-tax
qualified basis. LINCOLN BENEFIT LIFE NO LONGER OFFERS THIS CONTRACT. IF YOU
HAVE ALREADY PURCHASED THE CONTRACT YOU MAY CONTINUE TO MAKE PURCHASE PAYMENTS
ACCORDING TO THE CONTRACT.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract
currently offers 49 investment options, each of which is a Sub-Account of the
Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each
Sub-Account invests exclusively in shares of Portfolios in one of the following
underlying Funds:
AIM VARIABLE INSURANCE FUNDS (INVESCO OPPENHEIMER VARIABLE ACCOUNT FUNDS
VARIABLE INSURANCE FUNDS) (SERIES I) (SERVICE SHARES)
THE ALGER PORTFOLIOS (CLASS O) PIMCO VARIABLE INSURANCE TRUST
(ADMINISTRATIVE SHARES)
DWS VARIABLE SERIES I (CLASS A)
PUTNAM VARIABLE TRUST (CLASS IB)
DWS VARIABLE SERIES II (CLASS A)
T. ROWE PRICE EQUITY SERIES, INC. (I)
FEDERATED INSURANCE SERIES
T. ROWE PRICE INTERNATIONAL SERIES,
FIDELITY(R) VARIABLE INSURANCE INC. (I)
PRODUCTS (INITIAL CLASS)
THE UNIVERSAL INSTITUTIONAL FUNDS,
JANUS ASPEN SERIES (INSTITUTIONAL INC. (CLASS I)
SHARES AND SERVICE SHARES)
VAN KAMPEN LIFE INVESTMENT TRUST
LEGG MASON PARTNERS VARIABLE EQUITY (CLASS II)
TRUST (CLASS I)
WELLS FARGO VARIABLE TRUST FUNDS
MFS(R) VARIABLE INSURANCE TRUST/(SM)
/(INITIAL CLASS)
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2010.
- --------------------------------------------------------------------------------
Some of the portfolios described in this prospectus may not be available in
your Contract. We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are older than
90 years before we receive your application.
Your Contract Value will vary daily as a function of the investment performance
of the Sub-Accounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum
Contract Value for amounts allocated to the Sub-Accounts. Benefits provided by
this Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upwards or downwards adjustment in
withdrawal benefits, death benefits, settlement values, transfers to the
Sub-Accounts.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts
in this prospectus applies equally to Certificates under group contracts,
unless the content specifies otherwise.
1 PROSPECTUS
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, 2010. 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 47 of this
prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does
not contain our financial statements. Our financial statements are set forth in
the Statement of Additional Information. Lincoln Benefit will file annual and
quarterly reports and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
room in Washington, D.C. You can obtain copies of these documents by writing to
the SEC and paying a duplicating fee. Please call the SEC at 1-202-551-8090 for
further information as to the operation of the public reference room. Our SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov).
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
2 PROSPECTUS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
DEFINITIONS 4
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FEE TABLES 5
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QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT 7
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CONDENSED FINANCIAL INFORMATION 11
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DESCRIPTION OF THE CONTRACTS 11
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Summary 11
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Contract Owner 11
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Annuitant 11
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Modification of the Contract 11
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Assignment 11
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Free Look Period 11
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PURCHASES AND CONTRACT VALUE 12
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Minimum Purchase Payment 12
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Automatic Payment Plan 12
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Allocation of Purchase Payments 12
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Contract Value 12
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Separate Account Accumulation Unit Value 13
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Transfer During Accumulation Period 13
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Market Timing & Excessive Trading 13
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Trading Limitations 14
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Automatic Dollar Cost Averaging Program 15
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Portfolio Rebalancing 15
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THE INVESTMENT AND FIXED ACCOUNT OPTIONS 16
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Separate Account Investments 16
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The Portfolios 16
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Voting Rights 19
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Additions, Deletions, and Substitutions of Securities 19
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The Fixed Account 20
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General 20
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Guaranteed Maturity Fixed Account Option 20
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Market Value Adjustment 21
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Dollar Cost Averaging Fixed Account Option 22
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ANNUITY BENEFITS 22
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Annuity Date 22
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Annuity Options 22
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Other Options 23
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Annuity Payments: General 23
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Variable Annuity Payments 23
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Fixed Annuity Payments 24
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Transfers During the Annuity Period 24
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Death Benefit During Annuity Period 24
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Certain Employee Benefit Plans 24
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OTHER CONTRACT BENEFITS 24
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Death Benefit 24
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Beneficiary 28
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Contract Loans for 403(b) Contracts 29
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Withdrawals (Redemptions) 30
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Systematic Withdrawal Program 31
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ERISA Plans 31
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Minimum Contract Value 31
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CONTRACT CHARGES 31
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Mortality and Expense Risk Charge 31
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Administrative Charges 32
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Contract Maintenance Charge 32
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Administrative Expense Charge 32
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Transfer Fee 32
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Sales Charges 32
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Premium Taxes 34
-------------------------------------------------------------
Deduction for Separate Account Income Taxes 34
-------------------------------------------------------------
Other Expenses 34
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TAXES 35
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Taxation of Lincoln Benefit Life Company 35
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Taxation of Variable Annuities in General 35
-------------------------------------------------------------
Income Tax Withholding 38
-------------------------------------------------------------
Tax Qualified Contracts 38
-------------------------------------------------------------
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE
SEPARATE ACCOUNT 43
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Lincoln Benefit Life Company 43
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Separate Account 43
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State Regulation of Lincoln Benefit 43
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Financial Statements 44
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ADMINISTRATION 44
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DISTRIBUTION OF CONTRACTS 44
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LEGAL PROCEEDINGS 44
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LEGAL MATTERS 45
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ABOUT LINCOLN BENEFIT LIFE COMPANY 45
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REGISTRATION STATEMENT 45
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION 46
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APPENDIX A ACCUMULATION UNIT VALUES 47
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APPENDIX B ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
-------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
- --------------------------------------------------------------------------------
3 PROSPECTUS
DEFINITIONS
- --------------------------------------------------------------------------------
Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which
Contract Value builds up under Your Contract.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The living person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION - The process to begin annuity payments under the Contract.
ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value
Adjustment and less any applicable taxes.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
ANNUITY UNIT - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
BENEFICIARY(IES) - The person(s) designated to receive any death benefits under
the Contract.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company.
CONTRACT ANNIVERSARY - Each anniversary of the Issue Date.
CONTRACT OWNER ("YOU," "YOUR") - The person(s) having the privileges of
ownership defined in the Contract. If Your Contract is issued as part of a
retirement plan, Your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of Your investment in the Sub-Accounts
of the Separate Account and the Fixed Account.
CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Sub-Account, or each anniversary of that date.
FIXED ACCOUNT - The portion of the Contract Value allocated to Our general
account.
FIXED ANNUITY - A series of annuity payments that are fixed in amount.
GUARANTEE PERIODS - A period of years for which we have guaranteed a specific
effective annual interest rate on an amount allocated to the Fixed Account.
ISSUE DATE - The date when the Contract becomes effective.
LATEST ANNUITY DATE - The latest date by which you must begin annuity payments
under the Contract.
LOAN ACCOUNT - An account established for amounts transferred from the
Sub-Accounts or the Fixed Account as security for outstanding Contract loans.
MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain
transactions involving Your interest in the Fixed Account, to reflect the
impact of changing interest rates.
NET INVESTMENT FACTOR - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the
Net Investment Factor separately for each Sub-Account.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
PORTFOLIO(S) - The underlying funds in which the Sub- Accounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PURCHASE PAYMENTS - Amounts paid to Us as premium for the Contract by you or on
Your behalf.
QUALIFIED PLAN - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is
a segregated investment account of the Company.
SUB-ACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The amount paid upon complete surrender of the Contract,
equal to the Contract Value, less any applicable premium taxes, Withdrawal
Charge, and the contract maintenance charge and increased or decreased by any
Market Value Adjustment.
TAX CODE - The Internal Revenue Code of 1986, as amended.
TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the
preceding week as reported in Federal Reserve Bulletin Release H.15.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Sub-Accounts in order to price Accumulation Units and Annuity
Units. Each Valuation Period begins at the close of normal trading on the New
York Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation
Date and ends at the close of the NYSE on the next Valuation Date.
VARIABLE ANNUITY - A series of annuity payments that vary in amount based on
changes in the value of the Sub- Accounts to which Your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
4 PROSPECTUS
FEE TABLES
- --------------------------------------------------------------------------------
THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY WHEN
BUYING, OWNING, AND SURRENDERING THE CONTRACT. THE FIRST TABLE DESCRIBES THE
FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT,
SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS.
STATE PREMIUM TAXES MAY ALSO BE DEDUCTED.
Maximum Contingent Deferred Sales Charge - Withdrawal Charge (as a percentage
of Purchase Payments) - 7%
CONTRIBUTION YEAR APPLICABLE CHARGE
1-2 7%
3-4 6%
5 5%
6 4%
7 3%
8 + 0%
TRANSFER FEE (Applies solely to the second and subsequent transfers
within a calendar month. We are currently waiving the transfer fee) $ 10.00
THE NEXT TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING PORTFOLIO FEES AND
EXPENSES.
Annual Contract Maintenance Charge $35.00
Separate Account Annual Expenses (as a percentage of daily net asset
value deducted from each of the Sub-Accounts of the Separate Account)
Base Contract (without optional riders)
Mortality and Expense Risk Charge 1.15%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.25%
Base Contract (with Enhanced Death Benefit Rider)
Mortality and Expense Risk Charge 1.35%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.45%
Base Contract (with Enhanced Income Benefit Rider)
Mortality and Expense Risk Charge 1.50%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.60%
Base Contract (with Enhanced Death and Income Benefit Riders)
Mortality and Expense Risk Charge 1.55%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.65%
Base Contract (with Enhanced Death and Income Benefit Riders II)
Mortality and Expense Risk Charge 1.70%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.80%
THE NEXT TABLE SHOWS THE MINIMUM AND MAXIMUM TOTAL ANNUAL OPERATING EXPENSES
CHARGED BY THE PORTFOLIOS THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT
YOU OWN THE CONTRACT. ADVISERS AND/OR OTHER SERVICE PROVIDERS OF CERTAIN
PORTFOLIOS MAY HAVE AGREED TO WAIVE THEIR FEES AND/OR REIMBURSE PORTFOLIO
EXPENSES IN ORDER TO KEEP THE PORTFOLIOS' EXPENSES BELOW SPECIFIED LIMITS. THE
RANGE OF EXPENSES SHOWN IN THIS TABLE DOES NOT SHOW THE EFFECT OF ANY SUCH FEE
WAIVER OR EXPENSE REIMBURSEMENT. MORE DETAIL CONCERNING EACH PORTFOLIO'S FEES
AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH PORTFOLIO.
Minimum Maximum
------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses(1) (expenses that
are deducted from Portfolio assets, which may include
management fees, distribution and/or service (12b-1) fees,
and other expenses) (without waivers or reimbursements) 0.10% 2.27%
------------------------------------------------------------------------------
(1)Expenses are shown as a percentage of Portfolio average daily net assets
before any waiver or reimbursement as of December 31, 2009.
5 PROSPECTUS
EXAMPLE 1
This Example is intended to help you compare the cost of investing in the
Contracts with the cost of investing in other variable annuity contracts. These
costs include Contract owner transaction expenses, Contract fees, Separate
Account annual expenses, and Portfolio fees and expenses and assumes no
transfers or exchanges were made. The Example shows the dollar amount of
expenses that you would bear directly or indirectly if you:
.. Invested $10,000 in the Contract for the time periods indicated,
.. earned a 5% annual return on your investment,
.. surrendered your Contract, or you began receiving income payments for a
specified period of less than 120 months, at the end of each time period,
and,
.. elected the Enhanced Death and Income Benefit Riders II (with total
Separate Account expenses of 1.80%).
The first line of the example assumes that the maximum fees and expenses of any
of the Portfolios are charged. The second line of the example assumes that the
minimum fees and expenses of any of the Portfolios are charged. Your actual
expenses may be higher or lower than those shown below.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
Costs Based on Maximum Annual Portfolio Expenses $1,005 $1,752 $2,513 $4,271
- ---------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $ 794 $1,125 $1,482 $2,285
- ---------------------------------------------------------------------------------
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 $410 $1,242 $2,088 $4,271
- ---------------------------------------------------------------------------------
Costs Based on Minimum Annual Portfolio Expenses $199 $ 615 $1,057 $2,285
- ---------------------------------------------------------------------------------
EXPLANATION OF EXPENSE EXAMPLES
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF
PAST OR FUTURE EXPENSES. YOUR RATE OF RETURN MAY BE HIGHER OR LOWER THAN 5%,
WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY PORTFOLIO EXPENSE
WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED.
EXAMPLES 1 AND 2 ASSUME THE ELECTION OF THE ENHANCED DEATH AND INCOME BENEFIT
RIDERS II (TOTAL SEPARATE ACCOUNT EXPENSES OF 1.80%). IF THESE RIDERS WERE NOT
ELECTED, THE EXPENSE FIGURES SHOWN WOULD BE SLIGHTLY LOWER. THE EXAMPLES
REFLECT THE FREE WITHDRAWAL AMOUNTS, IF ANY, AND AN ANNUAL CONTRACT MAINTENANCE
CHARGE OF $35.
6 PROSPECTUS
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the prospectus. Please read the prospectus carefully.
1. WHAT IS THE CONTRACT?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non- qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax- deferred
basis and are taxed as income when you make a withdrawal. The Annuity Period
begins when you begin receiving payments under one of the annuity payment
options described in the answer to Question 2. The amount of money accumulated
under your Contract during the Accumulation Period will be used to determine
the amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Sub- Accounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. You may allocate
your Contract Value to up to twenty-one options under the Contract, counting
each Sub-Account and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of
this limit, even if you have chosen more than one Guarantee Period. The value
of your Contract will depend on the investment performance of the Sub- Accounts
and the amount of interest we credit to the Fixed Account.
Each Sub-Account will invest in a single investment portfolio (a "Portfolio")
of an underlying fund. The Portfolios offer a range of investment objectives,
from conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Sub-Accounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a
combination of the two. We offer a variety of annuity options including:
.. a life annuity with payments guaranteed for zero to thirty years;
.. a joint and full survivorship annuity, with payments guaranteed for zero to
thirty years; and
.. fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the youngest
Annuitant's 90th birthday. If your Contract was issued in connection with a
qualified plan, different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Sub-Accounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will
have a limited ability to change the relative weighting of the Sub-Accounts on
which your variable annuity payments are based or to increase the portion of
your annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $1,200 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $100, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $25 per month. We may lower these minimums at our sole discretion. The
maximum age of the oldest Contract Owner and Annuitant cannot exceed age 90 as
of the date we receive the completed application.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Sub-Accounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the Portfolios described in "The Investment and
Fixed Account Options: Separate Account Investments."
Some of the Portfolios described in this prospectus may not be available in
your Contract.
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies
which are described in the prospectuses for the Portfolios.
5. WHAT IS THE FIXED ACCOUNT OPTION?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity
Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
You may allocate Purchase Payments to the Sub- Account(s) and the Fixed
Account(s). Loan payments may not be allocated to the Fixed Account(s). You may
7 PROSPECTUS
not transfer amounts into the DCA Fixed Account. The minimum amount that may be
transferred into any one of the Guarantee Maturity Fixed Account Options is
$500.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed
Account Option at a specified rate for a specified Guarantee Period. You select
the Guarantee Period for each amount that you allocate to the Guaranteed
Maturity Fixed Account Option. We will tell you what interest rates and
Guarantee Periods we are offering at a particular time. At the end of each
Guarantee Period, you may select a new Guarantee Period from among the choices
we are then making available or transfer or withdraw the relevant amount from
the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are
currently offering Guarantee Periods of one, three, five, seven, and ten years
in length. In the future we may offer Guarantee Periods of different lengths or
stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until
the end of the relevant Guarantee Period. From time to time, however, we may
change the interest rate that we offer to credit to new allocations to the
Guaranteed Maturity Fixed Account Option and to amounts rolled over in the
Fixed Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may
designate amounts to be held in the Dollar Cost Averaging Fixed Account Option
until they are transferred monthly to the Sub-Accounts or Guarantee Periods of
your choosing. When you make an allocation to the Fixed Account for this
purpose, we will set an interest rate applicable to that amount. We will then
credit interest at that rate to that amount until it has been entirely
transferred to your chosen Sub-Accounts or Guarantee Periods. We will complete
the transfers within one year of the allocation. In our discretion we may
change the rate that we set for new allocations to the Fixed Account for the
dollar cost averaging program. We will never, however, set a rate less than an
effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Fixed Account, to reflect changes in interest rates.
As a general rule, we will apply a Market Value Adjustment to the following
transactions:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount (which is described in the
answer to Question 6);
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Sub-Accounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction to the extent that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to
the funds involved in the transaction;
2) it is necessary to meet IRS minimum withdrawal requirements; or
3) it is a transfer that is part of a Dollar Cost Averaging program.
We determine the amount of a Market Value Adjustment using a formula that takes
into consideration:
1) whether current interest rates differ from interest rates at the beginning
of the applicable Guarantee Period; and
2) how many years are left until the end of the Guarantee Period.
As a general rule, if interest rates have dropped, the Market Value Adjustment
will be an addition; if interest rates have risen, the Market Value Adjustment
will be a deduction. It is therefore possible that if you withdraw an amount
from the Fixed Account during a Guarantee Period, a Market Value Adjustment may
cause you to receive less than you initially allocated to the Fixed Account.
6. WHAT ARE MY EXPENSES UNDER THE CONTRACT?
CONTRACT MAINTENANCE CHARGE. During the Accumulation Period, each year we
subtract an annual contract maintenance charge of $35 from your Contract Value
allocated to the Sub-Accounts. We will waive this charge if you pay $50,000 or
more in Purchase Payments or if you allocate all of your Contract Value to the
Fixed Account.
During the Annuity Period, we will subtract the annual contract maintenance
charge in equal parts from your annuity payments. We waive this charge if on
the Annuity Date your Contract Value is $50,000 or more or if all payments are
Fixed Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK CHARGE. We impose
a mortality and expense risk charge at an annual rate of 1.15% of average daily
net assets and an administrative expense charge at an annual rate of .10% of
average daily net assets. If you select one of our optional enhanced benefit
riders, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
8 PROSPECTUS
TRANSFER FEE. Although we currently are not charging a transfer fee, the
Contract permits us to charge you up to $10 per transfer for each transfer
after the first transfer in each month.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). During the Accumulation
Period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. Certain withdrawals may be made without payment of any
Withdrawal Charge, which is a contingent deferred sales charge. Other
withdrawals are subject to the Withdrawal Charge.
The Withdrawal Charge will vary depending on how many complete years have
passed since you paid the Purchase Payment being withdrawn. The Withdrawal
Charge applies to each Purchase Payment for seven complete years from the date
of the Payment (each a "Contribution Year") as follows:
CONTRIBUTION YEAR APPLICABLE CHARGE
----------------- -----------------
1-2 7%
3-4 6%
5 5%
6 4%
7 3%
8+ 0%
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in, first- out basis.
Each year, free of Withdrawal Charges or any otherwise applicable Market Value
Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of:
. earnings not previously withdrawn; or
. 15% of your total Purchase Payments made in the most recent seven years;
plus
(b) an amount equal to your total Purchase Payments made more than seven
years ago, to the extent not previously withdrawn.
In most states, we also may waive the Withdrawal Charge if you:
1) require long-term medical or custodial care outside the home;
2) become unemployed; or
3) are diagnosed with a terminal illness.
These provisions will apply to the Annuitant, if the Contract is owned by a
company or other legal entity. Additional restrictions and costs may apply to
Contracts issued in connection with qualified plans. Withdrawals of earnings
are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject
to an additional 10% federal tax penalty. You should consult with your tax
counselor to determine what effect a withdrawal might have on your tax
liability. As described in the answer to Question 5, we may increase or
decrease certain withdrawals by a Market Value Adjustment.
PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any premium taxes relating to the Contract may
be deducted from Purchase Payments or the Contract Value when the tax is
incurred or at a later time. State premium taxes generally range from 0% to
3.5%.
OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED?
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. Withdrawals of
earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may
be subject to an additional 10% federal tax penalty.
Special rules apply if the Contract is owned by a company or other legal
entity. Generally, such an owner must include in income any increase in the
excess of the Contract Value over the "investment in the contract" during the
taxable year.
8. DO I HAVE ACCESS TO MY MONEY?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some qualified plans, you may
also take a loan against the value of your Contract. Generally, a partial
withdrawal must equal at least $50, and after the withdrawal your remaining
Contract Value must at least equal $500.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance charge, the Withdrawal Charge, and
premium tax charges, may be deducted on a surrender or withdrawal. You may also
incur federal income tax liability or tax penalties. In addition, if you have
allocated some of the value of your Contract to the Fixed Account, the amount
of your surrender proceeds or withdrawal may be increased or decreased by a
Market Value Adjustment.
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
9. WHAT IS THE DEATH BENEFIT?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a living person. To obtain payment of the Death Benefit,
9 PROSPECTUS
the Beneficiary must submit to us a complete request for payment of the death
benefit, which includes due proof of death as specified in the Contract.
The standard death benefit is the greatest of the following:
1) your total Purchase Payments reduced by a withdrawal adjustment;
2) your Contract Value;
3) the amount you would have received by surrendering your Contract; or
4) your Contract Value on each Contract Anniversary evenly divisible by seven
increased by the total Purchase Payments since that anniversary and reduced
by a withdrawal adjustment.
We also offer an optional enhanced death benefit rider, which is described
later in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Sub-Accounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
TRANSFERS. During the Accumulation Period, you may transfer Contract Value
among the Sub-Accounts and from the Sub-Accounts to the Fixed Account. You may
not make a transfer, however, that would result in your allocating your
Contract Value to more than twenty-one options under the Contract. While you
may also transfer amounts from the Fixed Account, a Market Value Adjustment may
apply. You may instruct us to transfer Contract Value by writing or calling us.
You may also use our Automatic Dollar Cost Averaging or Portfolio Rebalancing
programs. You may not use both programs at the same time.
Under the Dollar Cost Averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Sub-Account of your choosing,
including other Sub-Accounts or the Fixed Account. Transfers from the Dollar
Cost Averaging Fixed Account may be made monthly only. Transfers from
Sub-Accounts may be made monthly, quarterly, or annually.
Under the Portfolio Rebalancing Program, you can maintain the percentage of
your Contract Value allocated to each Sub-Account at a pre-set level.
Investment results will shift the balance of your Contract Value allocations.
If you elect rebalancing, we will automatically transfer your Contract Value
back to the specified percentages at the frequency (monthly, quarterly,
semiannually, annually) that you specify. We will automatically terminate this
program if you request a transfer outside of the program. You may not include
the Fixed Account in a Portfolio Rebalancing Program. You also may not elect
rebalancing after annuitization.
During the Annuity Period, you may not make any transfers for the first six
months after the Annuity Date. Thereafter, you may make transfers among the
Sub- Accounts or from the Sub-Accounts to increase your Fixed Annuity payments.
Your transfers, however, must be at least six months apart. You may not,
however, convert any portion of your right to receive Fixed Annuity payments
into Variable Annuity payments.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you
return the Contract, the Contract terminates and, in most states, we will pay
you an amount equal to the Contract Value on the date we receive the Contract
from you. The Contract Value may be more or less than your Purchase Payments.
In some states, we are required to send you the amount of your Purchase
Payments. Since state laws differ as to the consequences of returning a
Contract, you should refer to your Contract for specific information about your
circumstances. If your Contract is qualified under Section 408 of the Internal
Revenue Code, we will refund the greater of any purchase payments or the
Contract Value.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 758565, Topeka,
KS 66675-8565, or call us at (800) 457-7617.
10 PROSPECTUS
CONDENSED FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Sub-Account for 2000 through 2009.
Accumulation Unit Value is the unit of measure that we use to calculate the
value of your interest in a Sub-Account. Accumulation Unit Value does not
reflect the deduction of certain charges that are subtracted from your Contract
Value, such as the Contract Administration Charge. The Separate Account's
financial statements, which are comprised of the financial statements of the
underlying sub-accounts, as of December 31, 2009, are included in the Statement
of Additional Information. Lincoln Benefit's financial statements as of
December 31, 2009, are included in the Statement of Additional Information.
DESCRIPTION OF THE CONTRACTS
SUMMARY. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Sub-Accounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect interest credited to
amounts allocated to the Fixed Account. You may withdraw your Contract Value by
making a partial withdrawal or by surrendering your Contract. Upon
Annuitization, we will pay you benefits under the Contract in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone
else to receive benefits. The Contract can also be purchased as an IRA or TSA
(also known as a 403(b)). The endorsements required to qualify these annuities
under the Code may limit or modify your rights and privileges under the
Contract. The maximum age of the oldest Contract Owner and Annuitant cannot
exceed age 90 as of the date we receive the completed application. The Contract
cannot be jointly owned by both a non-living person and a living person.
Changing ownership of this contract may cause adverse tax consequences and may
not be allowed under qualified plans. Please consult with a competent tax
advisor prior to making a request for a change of Contract Owner. If the
Contract Owner is a grantor trust, the Contract Owner will be considered a
non-living person for purposes of this section and the Death Benefit section.
ANNUITANT. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If a non-Qualified contract is held by a non-living person, any change
in the Annuitant will be treated as the death of the Annuitant and will
activate the distribution requirements outlined in the Death Benefit section.
If your Contract was issued under a plan qualified under Section 403(b), 408 or
408A of the Tax Code, you must be the Annuitant. If the Contract is a
non-qualified Contract, you may also designate a Joint Annuitant, who is a
second person on whose life annuity payments depend. Additional restrictions
may apply in the case of Qualified Plans. If you are not the Annuitant and the
Annuitant dies before annuity payments begin, then either you become the new
Annuitant or you must name another person as the new Annuitant. You must attest
that the Annuitant is alive in order to annuitize your Contract.
MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may
assign an interest in the Contract if it is a non-qualified Contract. If a
Contract is issued pursuant to a Qualified Plan, the law prohibits some types
of assignments, pledges and transfers and imposes special conditions on others.
An assignment may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for
the validity of any assignment.
BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN
ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to
us. If you return the Contract, the Contract terminates and, in most states, we
will pay you an amount equal to the Contract Value on the date we receive the
Contract from you. The Contract Value at that time may be more or less than
your Purchase Payments.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states, on the Issue Date we will allocate your Purchase Payment to the
Sub-Accounts and the Fixed Account Options as you specified in your
application. However, we reserve the right in the future to delay allocating
your Purchase
11 PROSPECTUS
Payments to the Sub-Accounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the Fidelity Money Market
Sub-Account. Your Contract will contain specific information about your
free-look rights in your state.
PURCHASES AND CONTRACT VALUE
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract
is $1,200. You may pay it in a lump sum or in installments of your choice over
the first Contract Year. You may not pay more than $1 million in Purchase
Payments without our prior approval. As a general rule, subsequent Purchase
Payments may be made in amounts of $100 or more. Subsequent Purchase Payments
made as part of an Automatic Payment Plan, however, may be as small as $25 per
month. However, each purchase payment made to the Dollar Cost Averaging Fixed
Account must be at least $1,200. If we receive purchase payments designated for
the Dollar Cost Averaging Fixed Account that are lower than the required
minimum of $1,200, or purchase payments designated for the Guaranteed Maturity
Fixed Account Option that are lower than $500, such amounts will be allocated
to the Fidelity Money Market Portfolio. We may lower these minimums if we
choose. We may refuse any Purchase Payment at any time. We may apply certain
limitations, restrictions, and/or underwriting standards as a condition of
acceptance of purchase payments.
AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $25 or
more per month by automatic payment through your bank account. Call or write us
for an enrollment form.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Sub-Account(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
You initially may allocate your Purchase Payments to up to twenty-one options,
counting each Sub-Account and the Fixed Account as one option. For this
purpose, we will treat all of your allocations to the Fixed Account as one
option, even if you choose more than one Guarantee Period. You may add or
delete Sub-Accounts and/or the Fixed Account from your allocation instructions,
but we will not execute instructions that would cause you to have Contract
Value in more than twenty-one options. In the future, we may waive this limit.
If your application is complete, we will issue your Contract within two
business days of its receipt at our P.O. Box shown on the first page of this
prospectus. If your application for a Contract is incomplete, we will notify
you and seek to complete the application within five business days. For
example, if you do not fill in allocation percentages, we will contact you to
obtain the missing percentages. If we cannot complete your application within
five business days after we receive it, we will return your application and
your Purchase Payment, unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Sub-Accounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
There may be circumstances where the New York Stock Exchange is open, however,
due to inclement weather, natural disaster or other circumstances beyond our
control, our offices may be closed or our business processing capabilities may
be restricted. Under those circumstances, your Contract Value may fluctuate
based on changes in the Accumulation Unit Values, but you may not be able to
transfer Contract Value, or make a purchase or redemption request.
With respect to any purchase payment that is pending investment in our Variable
Account, we may hold the amount temporarily in a suspense account and may earn
interest on amounts held in that suspense account. You will not be credited
with any interest on amounts held in that suspense account.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase
Payments received during the "free-look period" to the Fidelity Money Market
Sub-Account. If we exercise that right and your state's free look period is ten
days, we will transfer your Purchase Payments to your specified Sub-Accounts or
the Fixed Account 20 days after the Issue Date; if your state's free look
period is longer, we will transfer your Purchase Payment after ten days plus
the period required by state law have passed.
We determine the number of Accumulation Units in each Sub-Account to allocate
to your Contract by dividing that portion of your Purchase Payment allocated to
a Sub-Account by that Sub-Account's Accumulation Unit Value on the Valuation
Date when the allocation occurs.
CONTRACT VALUE. We will establish an account for you and will maintain your
account during the Accumulation Period. The total value of your Contract at any
time is equal to the sum of the value of your Accumulation Units
12 PROSPECTUS
in the Sub-Accounts you have selected, plus the value of your investment in the
Fixed Account.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE. As a general matter, the
Accumulation Unit Value for each Sub-Account will rise or fall to reflect
changes in the share price of the Portfolio in which the Sub-Account invests.
In addition, we subtract from Accumulation Unit Value amounts reflecting the
mortality and expense risk charge, administrative expense charge, and any
provision for taxes that have accrued since we last calculated the Accumulation
Unit Value. We determine Withdrawal Charges, transfer fees and contract
maintenance charges separately for each Contract. They do not affect
Accumulation Unit Value. Instead, we obtain payment of those charges and fees
by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Sub-Account. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced benefit riders described beginning on page 26. If we elect or are
required to assess a charge for taxes, we may calculate a separate Accumulation
Unit Value for Contracts issued in connection with Non-Qualified and Qualified
Plans, respectively, within each Sub-Account. We determine the Accumulation
Unit Value for each Sub-Account Monday through Friday on each day that the New
York Stock Exchange is open for business.
You should refer to the prospectuses for the Portfolios for a description of
how the assets of each Portfolio are valued, since that determination has a
direct bearing on the Accumulation Unit Value of the corresponding Sub- Account
and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and the Sub-Accounts in writing
or by telephone. Currently, there is no minimum transfer amount. The Contract
permits us to set a minimum transfer amount in the future. You may not make a
transfer that would result in your allocating your Contract Value to more than
twenty-one options under the Contract at one time.
As a general rule, we only make transfers on days when the NYSE is open for
business. If we receive your request on one of those days, we will make the
transfer that day. Requests received before 4:00 p.m. will be effected on that
day at that day's price. Requests received after 4:00 p.m. will be effected on
the next day on which the NYSE is open for business, at that day's price. If
you transfer an amount from the Fixed Account to a Sub-Account before the end
of the applicable Guarantee Period or you allocate an amount in the Fixed
Account to a new Guarantee Period before the end of the existing Guarantee
Period, we usually will increase or decrease the amount by a Market Value
Adjustment. The calculation of the Market Value Adjustment is described in
"Market Value Adjustment" on page 21.
Transfers within 30 days after the end of the applicable Guarantee Period are
not subject to a Market Value Adjustment.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed
Account Option. You may not transfer Contract Value out of the Dollar Cost
Averaging Fixed Account Option except as part of a Dollar Cost Averaging
program.
We may charge you the transfer fee described on page 5, although we currently
are waiving it. At any time, without notice, we may suspend, modify or
terminate your privilege to make transfers via the phone, or via other
electronic or automated means previously approved by the Company, including,
but not limited to, automated telephone services, facsimile machine, e-mail and
electronic services via online access. Among other things, we reserve the right
to limit the number of such transfers among the Variable Sub-Accounts in any
Contract year, or to refuse any Variable Sub-Account transfer request. We also
reserve the right to restrict such transfers in any manner reasonably designed
to prevent transfers that we consider disadvantageous to the Contract Owners.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
MARKET TIMING & EXCESSIVE TRADING
The Contracts/Policies are intended for long-term investment. Market timing and
excessive trading can potentially dilute the value of Variable Sub-Accounts and
can disrupt management of a Portfolio and raise its expenses, which can impair
Portfolio performance and adversely affect your Contract/Policy Value. Our
policy is not to accept knowingly any money intended for the purpose of market
timing or excessive trading. Accordingly, you should not invest in the
Contract/Policy if your purpose is to engage in market timing or excessive
trading, and you should refrain from such practices if you currently own a
Contract/Policy.
We seek to detect market timing or excessive trading activity by reviewing
trading activities. Portfolios also may report suspected market-timing or
excessive trading activity to us. If, in our judgment, we determine that the
transfers are part of a market timing strategy or are otherwise harmful to the
underlying Portfolio, we will impose the trading limitations as described below
under "Trading Limitations." Because there is no universally accepted
definition of what constitutes market timing or
13 PROSPECTUS
excessive trading, we will use our reasonable judgment based on all of the
circumstances.
While we seek to deter market timing and excessive trading in Variable
Sub-Accounts, because our procedures involve the exercise of reasonable
judgment, we may not identify or prevent some market timing or excessive
trading. Moreover, imposition of trading limitations is triggered by the
detection of market timing or excessive trading activity, and the trading
limitations are not applied prior to detection of such trading activity.
Therefore, our policies and procedures do not prevent such trading activity
before it is detected. As a result, some investors may be able to engage in
market timing and excessive trading, while others are prohibited, and the
Portfolio may experience the adverse effects of market timing and excessive
trading described above.
TRADING LIMITATIONS
We reserve the right to limit transfers among the investment alternatives in
any Contract/Policy year, require that all future transfer requests be
submitted through U.S. Postal Service First Class Mail thereby refusing to
accept transfer requests via telephone, facsimile, Internet, or overnight
delivery, or to refuse any transfer request, if:
.. we believe, in our sole discretion, that certain trading practices, such as
excessive trading, by, or on behalf of, one or more Contract/Policy Owners,
or a specific transfer request or group of transfer requests, may have a
detrimental effect on the Accumulation Unit Values of any Variable
Sub-Account or on the share prices of the corresponding Portfolio or
otherwise would be to the disadvantage of other Contract/Policy Owners; or
.. we are informed by one or more of the Portfolios that they intend to
restrict the purchase, exchange, or redemption of Portfolio shares because
of excessive trading or because they believe that a specific transfer or
group of transfers would have a detrimental effect on the prices of
Portfolio shares.
In making the determination that trading activity constitutes market timing or
excessive trading, we will consider, among other things:
.. the total dollar amount being transferred, both in the aggregate and in the
transfer request;
.. the number of transfers you make over a period of time and/or the period of
time between transfers (note: one set of transfers to and from a Variable
Sub-Account in a short period of time can constitute market timing);
.. whether your transfers follow a pattern that appears designed to take
advantage of short term market fluctuations, particularly within certain
Variable Sub-Account underlying Portfolios that we have identified as being
susceptible to market timing activities (e.g., International, High Yield,
and Small Cap Variable Sub-Accounts);
.. whether the manager of the underlying Portfolio has indicated that the
transfers interfere with Portfolio management or otherwise adversely impact
the Portfolio; and
.. the investment objectives and/or size of the Variable Sub-Account
underlying Portfolio.
We seek to apply these trading limitations uniformly. However, because these
determinations involve the exercise of discretion, it is possible that we may
not detect some market timing or excessive trading activity. As a result, it is
possible that some investors may be able to engage in market timing or
excessive trading activity, while others are prohibited, and the Portfolio may
experience the adverse effects of market timing and excessive trading described
above.
If we determine that a Contract/Policy Owner has engaged in market timing or
excessive trading activity, we will require that all future transfer requests
be submitted through U.S. Postal Service First Class Mail thereby refusing to
accept transfer requests via telephone, facsimile, Internet, or overnight
delivery. If we determine that a Contract/Policy Owner continues to engage in a
pattern of market timing or excessive trading activity we will restrict that
Contract/Policy Owner from making future additions or transfers into the
impacted Variable Sub-Account(s) or will restrict that Contract/Policy Owner
from making future additions or transfers into the class of Variable
Sub-Account(s) if the Variable Sub-Accounts(s) involved are vulnerable to
arbitrage market timing trading activity (e.g., International, High Yield, and
Small Cap Variable Sub-Accounts).
In our sole discretion, we may revise our Trading Limitations at any time as
necessary to better deter or minimize market timing and excessive trading or to
comply with regulatory requirements.
SHORT TERM TRADING FEES
The underlying Portfolios are authorized by SEC regulation to adopt and impose
redemption fees if a Portfolio's Board of Directors determines that such fees
are necessary to minimize or eliminate short-term transfer activity that can
reduce or dilute the value of outstanding shares issued by the Portfolio. The
Portfolio will set the parameters relating to the redemption fee and such
parameters may vary by Portfolio. If a Portfolio elects to adopt and charge
redemption fees, these fees will be passed on to the Contract/Policy Owner(s)
responsible for the short-term transfer activity generating the fee.
We will administer and collect redemption fees in connection with transfers
between the Variable Sub- Accounts and forward these fees to the Portfolio.
Please consult the Portfolio's prospectus for more complete information
regarding the fees and charges associated with each Portfolio.
14 PROSPECTUS
AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Dollar Cost Averaging Fixed Account Option or a
Sub-Account of your choosing. The interval between transfers from the Dollar
Cost Averaging Fixed Account may be monthly only. The interval between
transfers from Sub-Accounts may be monthly, quarterly, or annually, at your
option. The transfers will be made at the Accumulation Unit Value on the date
of the transfer. The transfers will continue until you instruct us otherwise,
or until your chosen source of transfer payments is exhausted. Currently, the
minimum transfer amount is $100 per transfer. However, if you wish to Dollar
Cost Average to a Guaranteed Maturity Fixed Account Option, the minimum amount
that must be transferred into any one Option is $500. We may change this
minimum or grant exceptions. For each purchase payment allocated to this
Option, your first monthly transfer will occur 25 days after such purchase
payment. If we do not receive an allocation from you within 25 days of the
purchase payment, we will transfer the payment plus associated interest to the
Fidelity Money Market Variable Sub-Account in equal monthly payments. You may
not use the Dollar Cost Averaging program to transfer amounts from the
Guaranteed Maturity Fixed Account Option.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a
Dollar Cost Averaging program. We will not charge a transfer fee for Dollar
Cost Averaging.
The theory of Dollar Cost Averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount purchases more
units when the unit prices are relatively low rather than when the prices are
higher, in a fluctuating market, the average cost per unit may be less than the
average of the unit prices on the purchase dates. However, participation in
this program does not assure you of a greater profit from your purchases under
the program, nor will it prevent or necessarily reduce losses in a declining
market. Moreover, while we refer to this program of periodic transfers
generally as dollar cost averaging, periodic transfers from a Sub-Account with
more volatile performance experience is unlikely to produce the desired effects
of dollar cost averaging as would transfers from a less volatile Sub-Account.
You may not use Dollar Cost Averaging and Portfolio Rebalancing at the same
time.
PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the
percentage of your Contract Value allocated to each Sub-Account at a pre-set
level. Over time, the variations in each Sub-Account's investment results will
shift the balance of your Contract Value allocations. Under the Portfolio
Rebalancing feature, each period, if the allocations change from your desired
percentages, we will automatically transfer your Contract Value, including new
Purchase Payments (unless you specify otherwise), back to the percentages you
specify. Portfolio Rebalancing is consistent with maintaining your allocation
of investments among market segments, although it is accomplished by reducing
your Contract Value allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually. We will not charge a transfer fee for Portfolio Rebalancing. A
one-time request to rebalance the amounts allocated to the Sub- Accounts is not
part of a Portfolio Rebalancing program and is subject to all of the
requirements that are applicable to transfers. We will automatically terminate
this program if you request any transfers outside the Portfolio Rebalancing
program. If you wish to resume Portfolio Rebalancing after it has been
canceled, then you must complete a new Portfolio Rebalancing form and send it
to our home office. You may not include the Fixed Account in a Portfolio
Rebalancing program.
You may request Portfolio Rebalancing at any time by submitting a completed
written request to us at the P.O. Box given on the first page of this
prospectus. Please call or write us for a copy of the request form. If you stop
Portfolio Rebalancing, you must wait 30 days to begin again. In your request,
you may specify a date for your first rebalancing. If you specify a date fewer
than 30 days after your Issue Date, your first rebalance will be delayed one
month. If you request Portfolio Rebalancing in your Contract application and do
not specify a date for your first rebalancing, your first rebalance will occur
one period after the Issue Date. For example, if you specify quarterly
rebalancing, your first rebalance will occur three months after your Issue
Date. Otherwise, your first rebalancing will occur twenty-five days after we
receive your completed request form. All subsequent rebalancing will occur at
the intervals you have specified on the day of the month that coincides with
the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Sub-Accounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
15 PROSPECTUS
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Sub-Accounts of the Separate Account invests in
the shares of one of the Portfolios. Each Portfolio is either an open-end
management investment company registered under the Investment Company Act of
1940 or a separate investment series of an open-end management investment
company. We have briefly described the Portfolios below. You should consult the
current prospectuses for the Portfolios for more detailed and complete
information concerning the Portfolios. If you do not have a prospectus for a
Portfolio, contact us and we will send you a copy.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Sub-Accounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Sub- Accounts invest. You bear the investment risk
that those Portfolios possibly will not meet their investment objectives. You
should carefully review their prospectuses before allocating amounts to the
Sub-Accounts of the Separate Account.
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
- ----------------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS)
- ----------------------------------------------------------------------------------------------------------------------------
Invesco V.I. Basic Value Fund - Series Long-term growth of capital INVESCO ADVISERS, INC.
I/(1)/
- ----------------------------------------------------------------------------------------------------------------------------
THE ALGER PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------------
Alger LargeCap Growth Portfolio - Class Long-term capital appreciation
I-2/(2)/
- ------------------------------------------------------------------------------------------------
Alger Income & Growth Portfolio - To provide a high level of dividend income. Its
Class I-2/(2)/ secondary goal is to provide capital appreciation. FRED ALGER MANAGEMENT, INC.
- ------------------------------------------------------------------------------------------------
Alger Capital Appreciation Portfolio - Long-term capital appreciation
Class I-2/(2)/
- ------------------------------------------------------------------------------------------------
Alger MidCap Growth Portfolio - Long-term capital appreciation
Class I-2/(2)/
- ------------------------------------------------------------------------------------------------
Alger SmallCap Growth Portfolio - Long-term capital appreciation
Class I-2/(2)/
- ------------------------------------------------------------------------------------------------
DWS VARIABLE SERIES I
- ----------------------------------------------------------------------------------------------------------------------------
DWS Bond VIP - Class A To maximize total return consistent with preservation
of capital and prudent investment management, by
investing for both current income and capital
appreciation DEUTSCHE INVESTMENT
- ------------------------------------------------------------------------------------------------MANAGEMENT AMERICAS INC.
DWS Global Opportunities VIP - Class A Above-average capital appreciation over the long
term
- ------------------------------------------------------------------------------------------------
DWS Growth & Income VIP - Class A Long-term growth of capital, current income and
growth of income
- ------------------------------------------------------------------------------------------------
DWS International VIP - Class A Long-term growth of capital
- ------------------------------------------------------------------------------------------------
DWS VARIABLE SERIES II
- ----------------------------------------------------------------------------------------------------------------------------
DWS Balanced VIP - Class A High total return, a combination of income and DEUTSCHE INVESTMENT
capital appreciation MANAGEMENT AMERICAS INC.
- ----------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES
- ----------------------------------------------------------------------------------------------------------------------------
Federated Capital Income Fund II High current income and moderate capital FEDERATED EQUITY
appreciation MANAGEMENT COMPANY OF
PENNSYLVANIA
- ----------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Current income
Securities II FEDERATED INVESTMENT
- ------------------------------------------------------------------------------------------------MANAGEMENT COMPANY
Federated High Income Bond Fund II High current income
- ------------------------------------------------------------------------------------------------
16 PROSPECTUS
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
- ---------------------------------------------------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Asset Manager(SM) High total return with reduced risk over the long
Portfolio - Initial Class term by allocating its assets among stocks, bonds,
and short-term instruments.
- --------------------------------------------------------------------------------------------------
Fidelity VIP Contrafund(R) Portfolio - Long-term capital appreciation.
Initial Class
- --------------------------------------------------------------------------------------------------FIDELITY MANAGEMENT &
Fidelity VIP Equity-Income Portfolio - Reasonable Income. The fund will also consider the RESEARCH COMPANY
Initial Class potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard &
Poor's 500(SM) Index (S&P 500(R) ).
- --------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio - Initial To achieve capital appreciation.
Class
- --------------------------------------------------------------------------------------------------
Fidelity VIP Index 500 Portfolio - Investment results that correspond to the total return
Initial Class of common stocks publicly traded in the United
States, as represented by the Standard & Poor's
500(SM) Index (S&P 500(R) ).
- --------------------------------------------------------------------------------------------------
Fidelity VIP Money Market Portfolio - As high a level of current income as is consistent with
Initial Class preservation of capital and liquidity.
- --------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio - Long-term growth of capital.
Initial Class
- --------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced Portfolio - Long-term capital growth, consistent with
Institutional Shares preservation of capital and balanced by current
income.
- --------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible Bond To obtain maximum total return, consistent with
Portfolio - Institutional Shares preservation of capital. JANUS CAPITAL MANAGEMENT
- --------------------------------------------------------------------------------------------------LLC
Janus Aspen Series Overseas Portfolio - Long-term growth of capital.
Service Shares
- --------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Portfolio - Long-term growth of capital
Institutional Shares
- --------------------------------------------------------------------------------------------------
Janus Aspen Series Enterprise Portfolio Long-term growth of capital
- Institutional Shares
- --------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Portfolio Long-term growth of capital in a manner consistent
- Institutional Shares with the preservation of capital.
- --------------------------------------------------------------------------------------------------
LEGG MASON PARTNERS VARIABLE EQUITY
TRUST
- ---------------------------------------------------------------------------------------------------------------------------
Legg Mason ClearBridge Variable Large Long-term growth of capital with current income as a LEGG MASON PARTNERS FUND
Cap Value Portfolio - Class I/(3)/ secondary objective ADVISOR, LLC
- ---------------------------------------------------------------------------------------------------------------------------
MFS(R) VARIABLE INSURANCE TRUST/(SM)/
- ---------------------------------------------------------------------------------------------------------------------------
MFS Growth Series - Initial Class Capital appreciation
- --------------------------------------------------------------------------------------------------
MFS Investors Trust Series - Initial Capital appreciation
Class
- --------------------------------------------------------------------------------------------------MFS(TM) INVESTMENT
MFS New Discovery Series - Initial Class Capital appreciation MANAGEMENT
- --------------------------------------------------------------------------------------------------
MFS Research Series - Initial Class Capital appreciation
- --------------------------------------------------------------------------------------------------
MFS Total Return Series - Initial Class Total return
- --------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small Cap Capital appreciation. OPPENHEIMERFUNDS, INC.
Fund(R) /VA - Service Shares
- ---------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------------------
PIMCO VIT Foreign Bond Portfolio (U.S. Maximum total return, consistent with preservation
Dollar- Hedged) - Administrative Shares of capital and prudent investment management. PACIFIC INVESTMENT
- --------------------------------------------------------------------------------------------------MANAGEMENT COMPANY LLC
PIMCO VIT Total Return Portfolio - Maximum total return, consistent with preservation
Administrative Shares of capital and prudent investment management.
- --------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ---------------------------------------------------------------------------------------------------------------------------
Putnam VT International Value Fund - Capital growth. Current income is a secondary PUTNAM INVESTMENT
Class IB/(4)/ objective. MANAGEMENT, LLC
- ---------------------------------------------------------------------------------------------------------------------------
17 PROSPECTUS
PORTFOLIO EACH PORTFOLIO SEEKS INVESTMENT ADVISER
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Portfolio - Substantial dividend income as well as long-term
I growth of capital through investments in the
common stocks of established companies. T. ROWE PRICE ASSOCIATES,
- ------------------------------------------------------------------------------------------------INC.
T. Rowe Price Mid-Cap Growth Portfolio Long-term capital appreciation by investing in
- I/(5)/ mid-cap stocks with potential for above-average
earnings growth.
- ------------------------------------------------------------------------------------------------
T. Rowe Price New America Growth Long-term growth of capital by investing primarily in
Portfolio - I the common stocks of growth companies.
- ------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Long-term growth of capital through investments T. ROWE PRICE INTERNATIONAL,
Portfolio - I primarily in the common stocks of established INC.
non-U.S. companies.
- -----------------------------------------------------------------------------------------------------------------------------
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------
UIF U.S. Mid Cap Value Portfolio, Above-average total return over a market cycle of MORGAN STANLEY INVESTMENT
Class I/(7)/ three to five years by investing in common stocks MANAGEMENT, INC./(6)/
and other equity securities.
- -----------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Mid Cap Growth Capital growth
Portfolio, Class II/(8)/ VAN KAMPEN ASSET
- ------------------------------------------------------------------------------------------------MANAGEMENT
Van Kampen LIT Growth and Income Long-term growth of capital and income.
Portfolio, Class II/(8)/
- ------------------------------------------------------------------------------------------------
WELLS FARGO VARIABLE TRUST FUNDS
- -----------------------------------------------------------------------------------------------------------------------------
Wells Fargo Advantage VT Discovery Fund Long-term capital appreciation. WELLS FARGO FUNDS
MANAGEMENT, LLC
- ------------------------------------------------------------------------------------------------SUB-ADVISOR: WELLS CAPITAL
Wells Fargo Advantage VT Opportunity Long-term capital appreciation. MANAGEMENT INCORPORATED
Fund(SM)
- ------------------------------------------------------------------------------------------------
(1) Effective April 30, 2010, AIM V.I. Basic Value Fund changed its name to
Invesco V.I. Basic Value Fund.
(2) Effective November 20, 2009, the following Portfolios changed their names:
PREVIOUS NAME NEW NAME
-----------------------------------------------------------------------------
Alger American LargeCap Growth
Portfolio Alger LargeCap Growth Portfolio
-----------------------------------------------------------------------------
Alger American Income & Growth
Portfolio Alger Income & Growth Portfolio
-----------------------------------------------------------------------------
Alger American Capital Appreciation
Portfolio Alger Capital Appreciation Portfolio
-----------------------------------------------------------------------------
Alger American MidCap Growth
Portfolio Alger MidCap Growth Portfolio
-----------------------------------------------------------------------------
Alger American SmallCap Growth
Portfolio Alger SmallCap Growth Portfolio
-----------------------------------------------------------------------------
Class I-2 shares were designated as Class O shares prior to September 23, 2009.
(3) Effective April 30, 2010, Legg Mason ClearBridge Variable Investors
Portfolio changed its name to Legg Mason ClearBridge Variable Large Cap Value
Portfolio.
(4) Effective February 1, 2010, Putnam VT International Growth and Income Fund
changed its name to Putnam VT International Value Fund.
(5) Effective May 1, 2004, the T. Rowe Price Mid-Cap Growth Portfolio - I is no
longer available for new investments. If you are currently invested in the
Variable Sub-account that invests in this Portfolio you may continue your
investment. If, prior to May 1, 2004, you enrolled in one of our automatic
transaction programs, such as automatic additions, portfolio rebalancing, or
dollar cost averaging, we will continue to effect automatic transactions into
the Variable Sub-Account in accordance with that program. Outside of these
automatic transaction programs, additional allocations will not be allowed.
(6) Morgan Stanley Investment Management Inc., the adviser to the UIF
Portfolios, does business in certain instances using the name Van Kampen.
(7) Subject to shareholder approval, the following portfolio of The Universal
Institutional Funds, Inc. will be reorganized into a corresponding fund of the
AIM Variable Insurance Funds (Invesco Variable Insurance Funds). It is
anticipated that the reorganization will occur in the second quarter of 2010.
The portfolio and its corresponding acquiring fund is shown below:
REORGANIZING PORTFOLIO ACQUIRING FUND
-----------------------------------------------------------------------------
THE UNIVERSAL INSTITUTIONAL FUNDS, AIM VARIABLE INSURANCE FUNDS
INC: (INVESCO VARIABLE INSURANCE FUNDS):
-----------------------------------------------------------------------------
UIF U.S. Mid Cap Value Portfolio - Invesco Van Kampen V.I. Mid Cap Value
Class I Fund - Series I
-----------------------------------------------------------------------------
(8) Subject to shareholder approval, certain portfolios of the Van Kampen Life
Investment Trust will be reorganized into corresponding funds of the AIM
Variable Insurance Funds (Invesco Variable Insurance Funds). It is anticipated
that the reorganization will occur in the second quarter of 2010. Each such
portfolio and its corresponding acquiring fund is shown below:
REORGANIZING PORTFOLIOS ACQUIRING FUNDS
-----------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS
(INVESCO VARIABLE INSURANCE FUNDS):
-----------------------------------------------------------------------------
Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap
Portfolio - Class II Growth Fund - Series II
-----------------------------------------------------------------------------
Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and
Portfolio - Class II Income Fund - Series II
-----------------------------------------------------------------------------
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed
18 PROSPECTUS
without the approval of a majority of the shareholders of the Portfolio. See
the accompanying Prospectuses of the Portfolios for further information.
We automatically reinvest all dividends and capital gains distributions from
the Portfolios in shares of the distributing Portfolio at their net asset
value. The income and realized and unrealized gains or losses on the assets of
each Sub-Account are separate and are credited to or charged against the
particular Sub-Account without regard to income, gains or losses from any other
Sub-Account or from any other part of our business. We will use the net
Purchase Payments you allocate to a Sub-Account to purchase shares in the
corresponding Portfolio and will redeem shares in the Portfolios to meet
Contract obligations or make adjustments in reserves. The Portfolios are
required to redeem their shares at net asset value and to make payment within
seven days.
Some of the Portfolios have been established by investment advisers which
manage publicly traded mutual funds having similar names and investment
objectives. While some of the Portfolios may be similar to, and may in fact be
modeled after publicly traded mutual funds, you should understand that the
Portfolios are not otherwise directly related to any publicly traded mutual
fund. Consequently, the investment performance of publicly traded mutual funds
and any similarly named Portfolio may differ substantially.
Certain of the Portfolios sell their shares to separate accounts underlying
both variable life insurance and variable annuity contracts. It is conceivable
that in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same
Portfolio. Although neither we nor any of the Portfolios currently foresees any
such disadvantages either to variable life insurance or variable annuity
contract owners, each Portfolio's Board of Directors intends to monitor events
in order to identify any material conflicts between variable life and variable
annuity contract owners and to determine what action, if any, should be taken
in response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Sub-Accounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or
other information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting
instructions as of the record date set by the relevant Portfolio for the
shareholder meeting at which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send
us written instructions, we will vote the shares attributable to your Contract
in the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of
the Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude
that the proposed change would not be consistent with the investment objectives
of the Portfolio or would result in the purchase of securities for the
Portfolio which vary from the general quality and nature of investments and
investment techniques utilized by the Portfolio. If we disregard voting
instructions, we will include a summary of that action and our reasons for that
action in the next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account
or if, in the judgment of our Board of Directors, further investment in the
shares of a Portfolio is no longer appropriate in view of the purposes of the
Contract, we may add or substitute shares of another Portfolio or underlying
fund for Portfolio shares already purchased or to be purchased in the future by
Purchase Payments under the Contract. Any substitution of securities will
comply with the requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Sub-Accounts:
(a) to operate the Separate Account in any form permitted by law;
19 PROSPECTUS
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any
Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total
charges do not exceed the maximum amount that may be charged the Separate
Account and the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT
GENERAL. You may allocate part or all of your Purchase Payments to the Fixed
Account in states where it is available. Amounts allocated to the Fixed Account
become part of the general assets of Lincoln Benefit. Loan payments may not be
allocated to the Fixed Account(s). Allstate Life invests the assets of the
general account in accordance with applicable laws governing the investments of
insurance company general accounts. The Fixed Account may not be available in
all states. Please contact us at 1-800-457-7617 for current information.
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each
amount allocated to the Guaranteed Maturity Fixed Account Option at a specified
rate for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate to this option. We will declare the interest rate that
we will guarantee to credit to that amount for that Guarantee Period. Each
amount allocated to a Guarantee Period under this option must be at least $500.
We reserve the right to limit the number of additional Purchase Payments that
may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may offer Guarantee Periods ranging from one to ten years
in length. We will decide in our discretion which Guarantee Periods to offer.
Currently, we offer Guarantee Periods of one, three, five, seven and ten years.
In the future we may offer Guarantee Periods of different lengths or stop
offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period
under this option at a rate which compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period. We
will not change the interest rate credited to a particular allocation until the
end of the relevant Guarantee Period. We may declare different interest rates
for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this
option would grow, given an assumed Guarantee Period and effective annual
interest rate:
EXAMPLE
Purchase Payment $ 10,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
End of Contract Year
------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5
- ----------------------------------------------------------------------------------------------
Beginning Contract Value $10,000.00
X (1 + Effective Annual Rate) X 1.045
----------
$10,450.00
Contract Value at end of Contract Year $10,450.00
X (1 + Effective Annual Rate) X 1.045
----------
$10,920.25
Contract Value at end of Contract Year $10,920.25
X (1 + Effective Annual Rate) X 1.045
----------
$11,411.66
Contract Value at end of Contract Year $11,411.66
X (1 + Effective Annual Rate) X 1.045
----------
$11,925.19
Contract Value at end of Contract Year $11,925.19
X (1 + Effective Annual Rate) X 1.045
----------
$12,461.82
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82 -
$10,000)
NOTE:This example assumes no withdrawals during the entire five-year Guarantee
Period. If you were to make a partial withdrawal, you might be required to
pay a Withdrawal Charge and the amount withdrawn might be increased or
decreased by a Market Value Adjustment. The hypothetical interest rate is
for illustrative purposes only and is not intended to predict future
interest rates to be declared under the Contract.
20 PROSPECTUS
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
relevant factors such as then current interest rates, regulatory and tax
requirements, our sales commission and administrative expenses, general
economic trends, and competitive factors. For current interest rate
information, please contact us at 1-800-457-7617.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount, including the accrued interest. During the
30-day period after the end of the Guarantee Period, you may:
1) take no action. If so, we will automatically keep the relevant amount in the
Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be
the same length as the expiring Guarantee Period and will begin on the day
the previous Guarantee Period ends. The new interest rate will be our then
current declared rate for Guarantee Periods of that length; or
2) allocate the relevant Contract Value to one or more new Guarantee Periods of
your choice in the Guaranteed Maturity Fixed Account Option. The new
Guarantee Period(s) will begin on the day the previous Guarantee Period
ends. The new interest rate will be our then current declared rate for those
Guarantee Periods; or
3) instruct us to transfer all or a portion of the relevant amount to one or
more Sub-Accounts. We will effect the transfer on the day we receive your
instructions. We will not adjust the amount transferred to include a Market
Value Adjustment; or
4) withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a Withdrawal Charge, but we will not
adjust the amount withdrawn to include a Market Value Adjustment. The amount
withdrawn will be deemed to have been withdrawn on the day the Guarantee
Period ends.
Under our Automatic Laddering Program, you may choose, in advance, to use
Guarantee Periods of the same length for all renewals in the Guaranteed
Maturity Fixed Account Option. You can select this program at any time during
the Accumulation Period, including on the Issue Date. We will apply renewals to
Guarantee Periods of the selected length until you direct us in writing to
stop. We may stop offering this program at any time.
MARKET VALUE ADJUSTMENT. We may increase or decrease the amount of some
transactions involving your investment in the Guaranteed Maturity Fixed Account
Option to include a Market Value Adjustment. The formula for determining Market
Value Adjustments reflects changes in interest rates since the beginning of the
relevant Guarantee Period. As a result, you will bear some of the investment
risk on amounts allocated to the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount, as described on page 20;
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Sub-Accounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent
that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to
the funds involved in the transaction;
2) you make a withdrawal to satisfy the IRS' required minimum distribution
rules for this Contract; or
3) it is a transfer that is part of a Dollar Cost Averaging program.
The formula for calculating Market Value Adjustments is set forth in Appendix B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares:
1) the Treasury Rate at the time of the relevant transaction for a maturity
equal in length to the relevant Guarantee Period; and
2) the Treasury Rate at the beginning of the Guarantee Period for a maturity
equal in length to the Guarantee Period.
Generally, if the Treasury Rate at the beginning of the Guarantee Period is
higher than the corresponding current Treasury Rate, then the Market Value
Adjustment will increase the amount payable to you or transferred. Similarly,
if the Treasury Rate at the beginning of the Guarantee Period is lower than the
corresponding current Treasury Rate, then the Market Value Adjustment will
reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the
21 PROSPECTUS
five-year Treasury Rate for that duration is 4.50%. Assume that at the end of
three years, you make a partial withdrawal. If, at that later time, the current
five-year Treasury Rate is 4.20%, then the Market Value Adjustment will be
positive, which will result in an increase in the amount payable to you.
Similarly, if the current five-year Treasury Rate is 4.80%, then the Market
Value Adjustment will be negative, which will result in a decrease in the
amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase
Payments to the Dollar Cost Averaging Fixed Account Option. We will credit
interest to Purchase Payments allocated to this option for up to one year at
the current rate that we declare when you make the allocation. The effective
annual rate will never be less than 3%. You may not transfer funds to this
option from the Sub-Accounts or the Guaranteed Maturity Fixed Account Option.
We will follow your instructions in transferring amounts from this option to
the Sub-Accounts or the Guaranteed Maturity Fixed Account Option on a monthly
basis only, as described in "Automatic Dollar Cost Averaging Program" on page
15 of this prospectus.
ANNUITY BENEFITS
ANNUITY DATE. You may select the Annuity Date, which is the date on which
annuity payments are to begin, in your application. The Annuity Date must
always be the business day on or immediately following the tenth day of a
calendar month.
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is on or immediately following the later of the
10th Contract Anniversary or the youngest Annuitant's 90th birthday. If your
Contract was issued pursuant to a Qualified Plan, however, the Tax Code
generally requires you to begin to take at least a minimum distribution by the
later of:
.. the year of your separation from service; or
.. April 1 of the calendar year following the calendar year in which you
attain age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If your Contract was purchased by a Qualified Plan, we may require you to
annuitize by the date required by the Tax Code.
If you do not select an Annuity Date, the Latest Annuity Date will
automatically become the Annuity Date. You may change the Annuity Date by
writing to us at the address given on the first page of the prospectus.
ANNUITY OPTIONS. You may elect an Annuity Option at any time before the
Annuity Date. As part of your election, you may choose the length of the
applicable guaranteed payment period within the limits available for your
chosen Option. If you do not select an Annuity Option, we will pay monthly
annuity payments in accordance with the applicable default Option. The default
Options are:
.. Option A with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
.. Option B with 10 years (120 months) guaranteed, if you have designated
joint Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least thirty days before the Annuity Date.
Three Annuity Options are generally available under the Contract. Each is
available in the form of:
.. a Fixed Annuity;
.. a Variable Annuity; or
.. a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
OPTION A: LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make
periodic income payments for at least as long as the Annuitant lives. If the
Annuitant dies before we have made all of the guaranteed income payments, we
will continue to pay income payments to the Beneficiary until the guaranteed
number of payments has been paid. The number of months guaranteed may be 0
months, or range from 60 to 360 months.
OPTION B: JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this
plan, we make periodic income payments for at least as long as either the
Annuitant or the joint Annuitant is alive. If both the Annuitant and the joint
Annuitant die before we have made all of the guaranteed income payments, we
will continue to pay income payments to the Beneficiary until the guaranteed
number of payments has been paid. The number of months guaranteed may be 0
months, or range from 60 to 360 months.
OPTION C: PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We
make periodic payments for the period you have chosen. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary. If you elect this option, and request
Variable Annuity payments, you may at any time before the period expires
request a lump sum payment. If you elected Variable Annuity payments, the lump
sum payment will depend on:
.. the investment results of the Sub-Accounts you have selected,
.. the Contract Value at the time you elected annuitization, and
22 PROSPECTUS
.. the length of the remaining period for which the payee would be entitled to
payments.
No lump sum payment is available if you request Fixed Annuity payments. If you
purchased your Contract under a retirement plan, you may have a more limited
selection of Annuity Options to choose from. You should consult your Plan
documents to see what is available.
If you choose Income Plan A or B, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before
starting income payments, and proof that the Annuitant or joint Annuitant are
alive before we make each payment. Please note that under such Income Plans, if
you elect to take no minimum guaranteed payments, it is possible that the payee
could receive only 1 income payment if the Annuitant and any joint Annuitant
both die before the second income payment, or only 2 income payments if they
die before the third income payment, and so on.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described
on page 30 below, however, we will subtract any applicable Withdrawal Charge
and increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist of Variable Annuity payments or Fixed Annuity payments or
a combination of the two. We will determine the amount of your annuity payments
as described in "Variable Annuity Payments" and "Fixed Annuity Payments"
beginning on page 23.
You must notify us in writing at least 30 days before the Annuity Date how you
wish to allocate your Annuitized Value between Variable Annuity and Fixed
Annuity payments. You must apply at least the Contract Value in the Fixed
Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any
portion of your Fixed Account balance to your Variable Annuity payments, you
should plan ahead and transfer that amount to the Sub-Accounts prior to the
Annuity Date. If you do not tell us how to allocate your Contract Value among
Fixed and Variable Annuity payments, we will apply your Contract Value in the
Separate Account to Variable Annuity payments and your Contract Value in the
Fixed Account to Fixed Annuity payments.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day
on which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual
installments as you select. If the amount available to apply under an Annuity
Option is less than $5,000, however, and state law permits, we may pay you a
lump sum instead of the periodic payments you have chosen. In addition, if the
first annuity payment would be less than $50, and state law permits us, we may
reduce the frequency of payments so that the initial payment will be at least
$50.
We may defer for up to 15 days the payment of any amount attributable to a
Purchase Payment made by check to allow the check reasonable time to clear.
YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING
PAYMENTS TO YOU UNDER ANY ANNUITY OPTION, SUCH AS OPTION A OR B ABOVE,
INVOLVING PAYMENT TO THE PAYEE FOR LIFE OR ANY COMBINATION OF PAYMENTS FOR LIFE
AND MINIMUM GUARANTEE PERIOD FOR A PREDETERMINED NUMBER OF YEARS.
VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide
Variable Annuity Payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity Payments will depend
upon the investment results of the Sub-Accounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by (1) actual mortality
experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The
Variable Annuity payments may be more or less than your total Purchase Payments
because (a) Variable Annuity payments vary with the investment results of the
underlying Portfolios; and (b) Annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Annuity payment. As a general
rule, longer guarantee periods result in lower periodic payments, all other
things being equal. For example, if a life Annuity Option with no minimum
guaranteed payment period is chosen, the Variable Annuity payments will be
greater than Variable Annuity payments under an Annuity Option for a minimum
specified period and guaranteed thereafter for life.
The investment results of the Sub-Accounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in
23 PROSPECTUS
the Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Annuity payments will decrease. The dollar amount of the
Variable Annuity payments will stay level if the net investment return equals
the assumed investment rate and the dollar amount of the Variable Annuity
payments will increase if the net investment return exceeds the assumed
investment rate. You should consult the Statement of Additional Information for
more detailed information as to how we determine Variable Annuity Payments.
FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Annuity
Period" below, after the Annuity Date, you will have a limited ability to
increase the amount of your Fixed Annuity payments by making transfers from the
Sub-Accounts.
We may defer making Fixed Annuity payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit any applicable interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have
a limited ability to make transfers among the Sub-Accounts so as to change the
relative weighting of the Sub-Accounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Sub-Accounts to increase the proportion of your annuity payments
consisting of Fixed Annuity payments. You may not, however, convert any portion
of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date.
Thereafter, you may make transfers among the Sub-Accounts or make transfers
from the Sub-Accounts to increase your Fixed Annuity payments. Your transfers
must be at least six months apart.
DEATH BENEFIT DURING ANNUITY PERIOD. If any Contract Owner dies after the
Annuity Date, the successor Contract Owner will receive any guaranteed annuity
payments scheduled to continue. If the successor Owner dies before all of the
guaranteed payments have been made, we will continue the guaranteed payments to
the Beneficiary(ies). After annuity payments begin, upon
the death of the Annuitant and any Joint Annuitant, we will make any remaining
guaranteed payments to the Beneficiary. The amount and number of these
guaranteed payments will depend on the Annuity Option in effect at the time of
the Annuitant's death. After the Annuitant's death, any remaining guaranteed
payments will be distributed at least as rapidly as under the method of
distribution in effect at the Annuitant's death.
CERTAIN EMPLOYEE BENEFIT PLANS. The Contracts offered by this prospectus
contain income payment tables that provide for different payments to men and
women of the same age, except in states that require unisex tables. We reserve
the right to use income payment tables that do not distinguish on the basis of
sex to the extent permitted by applicable law. In certain employment related
situations, employers are required by law to use the same income payment tables
for men and women. Accordingly, if the Contract is to be used in connection
with an employment-related retirement or benefit plan and we do not offer
unisex annuity tables in your state, you should consult with legal counsel as
to whether the purchase of a Contract is appropriate.
OTHER CONTRACT BENEFITS
DEATH BENEFIT: GENERAL. We will pay a distribution on death, if:
1) the Contract is in force;
2) annuity payments have not begun; and
3) either:
(a) any Owner dies; or
(b) any Annuitant dies and the Owner is a non-living person.
DUE PROOF OF DEATH. A complete request for settlement of the Death Proceeds
must be submitted before the Annuity Date. Where there are multiple
Beneficiaries, we will value the Death Benefit at the time the first
Beneficiary submits a complete request for settlement of the Death Proceeds. A
complete request must include "Due Proof of Death". We will accept the
following documentation as Due Proof of Death:
.. a certified original copy of the Death Certificate;
.. a certified copy of a court decree as to the finding of death; or
.. a written statement of a medical doctor who attended the deceased at the
time of death.
In addition, in our discretion we may accept other types of proof.
DEATH PROCEEDS. If we receive a complete request for settlement of the Death
Proceeds within 180 days of the date of your death, the Death Proceeds are
equal to the Death Benefit described below. Otherwise, the Death Proceeds are
equal to the greater of the Contract Value or the Surrender Value. We reserve
the right to waive or extend, on a nondiscriminatory basis, the 180-day period
in which the Death Proceeds will equal the Death Benefit as described below.
This right applies only to the amount payable as Death Proceeds and in no way
restricts when the claim may be filed.
24 PROSPECTUS
DEATH BENEFIT AMOUNT. The standard Death Benefit under the Contract is the
greatest of the following:
1) the total Purchase Payments, less a withdrawal adjustment for any prior
partial withdrawals;
2) the Contract Value on the date as of which we calculate the Death Benefit.
3) the Surrender Value;
4) the Contract Value on the seventh Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by seven, increased by the total
Purchase Payments since that anniversary and reduced by a withdrawal
adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the
withdrawal.
As described on page 26, you may add optional riders that in some circumstances
may increase the Death Benefit under your contract.
DEATH BENEFIT PAYMENTS
1. If your spouse is the sole beneficiary:
(a) Your spouse may elect to receive the Death Proceeds in a lump sum; or
(b) Your spouse may elect to receive the Death Proceeds paid out under one
of the annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity
payments must be payable:
(i) over the life of your spouse; or
(ii) for a guaranteed number of payments from 5 to 30 years but not to
exceed the life expectancy of your spouse; or
(iii) over the life of your spouse with a guaranteed number of payments from
5 to 30 years but not to exceed the life expectancy of your spouse.
(b) If your spouse chooses to continue the Contract, or does not elect one
of these options, then the Contract will continue in the Accumulation Period as
if the death had not occurred. If the Contract is continued in the Accumulation
Period, the following conditions apply.
Unless otherwise instructed by the continuing spouse, the excess, if any, of
the Death Proceeds over the Contract Value will be allocated to the
Sub-Accounts. This excess will be allocated in proportion to your Contract
Value in those Sub-Accounts as of the end of the Valuation Period during which
we receive the
complete request for settlement of the Death Proceeds, except that any portion
of this excess attributable to the fixed account options will be allocated to
the Money Market Sub-Account. Within 30 days of the date the Contract is
continued, your surviving spouse may choose one of the following transfer
alternatives without incurring a transfer fee:
(i) transfer all or a portion of the excess among the Sub-Accounts;
(ii) transfer all or a portion of the excess into the Guaranteed Maturity
Fixed Account and begin a new Guarantee Period; or
(iii) transfer all or a portion of the excess into a combination of
Sub-Accounts and the Guaranteed Maturity Fixed Account.
Any such transfer does not count as the free transfer allowed each calendar
month and is subject to any minimum allocation amount specified in your
Contract.
The surviving spouse may make a single withdrawal of any amount within one year
of the date of your death without incurring a Withdrawal Charge or Market Value
Adjustment.
Prior to the Annuity Date, the death benefit of the continued Contract will be
as defined in the Death Benefit provision.
Only one spousal continuation is allowed under this Contract.
If there is no Annuitant at that time, the new Annuitant will be the surviving
spouse.
2. If the Beneficiary is not your spouse but is a living person:
(a) The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
(b) The Beneficiary may elect to receive the Death Proceeds paid out under
one of the annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity
payments must be payable:
(i) over the life of the Beneficiary; or
(ii) for a guaranteed number of payments from 5 to 30 years but not to
exceed the life expectancy of the Beneficiary; or
(iii) over the life of the Beneficiary with a guaranteed number of payments
from 5 to 30 years but not to exceed the life expectancy of the Beneficiary.
(c) If the Beneficiary does not elect one of the options above, then the
Beneficiary must receive the Contract Value payable within 5 years of your date
of death. We will determine the Death Proceeds as of the
25 PROSPECTUS
date we receive the complete request for settlement of the Death Proceeds.
Unless otherwise instructed by the Beneficiary, the excess, if any, of the
Death Proceeds over the Contract Value will be allocated to the Money Market
Sub-Account and the Contract Value will be adjusted accordingly. The
Beneficiary may exercise all rights as set forth in Transfer During the
Accumulation Period on page 13 and Transfer Fees on page 32 during this 5-year
period.
The Beneficiary may not pay additional purchase payments into the Contract
under this election. Withdrawal Charges will be waived for any withdrawals made
during this 5-year period.
We reserve the right to offer additional options upon the death of the Contract
Owner.
If the Beneficiary dies before the complete liquidation of the Contract Value,
then the Beneficiary's named Beneficiary(ies) will receive the greater of the
Surrender Value or the remaining Contract Value. This amount must be liquidated
as a lump sum within 5 years of the date of the original Contract Owner's death.
3. If the Beneficiary is a corporation or other type of non-living person:
(a) The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
(b) If the Beneficiary does not elect to receive the option above, then the
Beneficiary must receive the Contract Value payable within 5 years of your date
of death. We will determine the Death Proceeds as of the date we receive the
complete request for settlement of the Death Proceeds. Unless otherwise
instructed by the Beneficiary, the excess, if any, of the Death Proceeds over
the Contract Value will be allocated to the Money Market Sub-Account. The
Beneficiary may exercise all rights as set forth in Transfer During the
Accumulation Period on page 13 and Transfer Fees on page 32 during this 5-year
period.
The Beneficiary may not pay additional purchase payments into the contract
under this election. Withdrawal charges will be waived during this 5 year
period.
We reserve the right to offer additional options upon Death of Owner.
If any Beneficiary is a non-living person, all Beneficiaries will be considered
to be non-living persons for the above purposes.
Under any of these options, all contract rights, subject to any restrictions
previously placed upon the Beneficiary, are available to the Beneficiary from
the date of your death to the date on which the Death Proceeds are paid.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
We offer different optional riders under this Contract. If you elect an
optional rider, we will charge you a higher mortality and expense charge. We
may discontinue offering one or more Riders at any time. The benefits under the
Riders are described below. The benefits in the riders discussed below may not
be available in all states. For example, the Enhanced Death Benefit, Enhanced
Income Benefit and all versions of the Enhanced Death and Income Benefit riders
issued in Washington state do not contain the Enhanced Death Benefit B or
Enhanced Income Benefit B provisions that are described below. Further they may
be offered in certain states as a benefit of the base contract rather than as a
separate rider. In those states, the expense charge will remain the same for
the benefit.
ENHANCED DEATH BENEFIT RIDER: When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. This Rider is available if the oldest Owner
or Annuitant is age 80 or less at issue. If you are not an individual, the
Enhanced Death Benefit applies only to the Annuitant's death. As described
below, we will charge a higher mortality and expense risk charge if you select
this Rider. If you select this Rider, the Death Benefit will be the greater of
the value provided in your Contract or the Enhanced Death Benefit. The Enhanced
Death Benefit will be the greater of the Enhanced Death Benefit A or Enhanced
Death Benefit B, defined below.
ENHANCED INCOME BENEFIT RIDER: When you purchase your Contract you may select
the Enhanced Income Benefit Rider if available in your state. Lincoln Benefit
Life no longer offers this Rider in most states. This Rider is available if the
oldest Owner or Annuitant is age 75 or less at issue. If you select this Rider,
you may be able to receive higher annuity payments in certain circumstances. As
described below, we will charge a higher mortality and expense risk charge if
you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the greater of
Enhanced Income Benefit A or Enhanced Income Benefit B, defined below, on the
Annuity Date. We will not increase or decrease the Enhanced Income Benefit
amount by any Market Value Adjustment. To be eligible for the Enhanced Income
Benefit, you must select an Annuity Date that is:
(a) on or after the tenth Contract Anniversary;
(b) before the Annuitant's age 90; and
(c) within a 30-day period on or following a Contract Anniversary.
On the Annuity Date, you may apply the Enhanced Income Benefit to an Annuity
Option that provides for fixed payments on the basis guaranteed in the Contract
for either a single life with a period certain, or joint lives with a period
certain of at least:
(a) 10 years, if the youngest Annuitant's age is 80 or less on the Annuity
Date; or
(b) 5 years, if the youngest Annuitant's age is greater than 80 on the
Annuity Date.
26 PROSPECTUS
If you wish to select a different Annuity Option, you must apply the Annuitized
Value and not the Enhanced Income Benefit.
The Enhanced Income Benefit under this Rider only applies to the determination
of income payments under the income options described above. It is not a
guarantee of Contract Value or performance. The benefit does not enhance the
amounts paid in partial withdrawals, surrenders or death benefits. In addition,
under some circumstances, you will receive higher initial income payments by
applying your Contract Annuitized Value to one of the standard Annuity Options
instead of utilizing this optional benefit. If you surrender your Contract, you
will not receive any benefit under this Rider.
ENHANCED INCOME BENEFIT A. At issue, the Enhanced Income Benefit A is equal to
the initial purchase payment. After issue, Enhanced Income Benefit A is
recalculated as follows:
.. When you make a Purchase Payment, we will increase the Enhanced Income
Benefit A by the amount of your Purchase Payment;
.. When you make a withdrawal, we will decrease Enhanced Income Benefit A by a
withdrawal adjustment as defined below;
.. On each Contract Anniversary, the Enhanced Income Benefit A is equal to the
greater of the Contract Value or the most recently calculated Enhanced
Income Benefit A.
If you do not make any additional Purchase Payments or withdrawals, the
Enhanced Income Benefit A will be the greatest of all Contract Anniversary
Contract Values prior to the date we calculate the Enhanced Income Benefit.
We will continuously adjust Enhanced Income Benefit A; as described above,
until the oldest Contract Owner's 85th birthday, or if the Contract Owner is
not a living individual, the oldest Annuitant's 85th birthday. Thereafter, we
will adjust Enhanced Income Benefit A only for Purchase Payments and
withdrawals.
ENHANCED INCOME BENEFIT B. Enhanced Income Benefit B is equal to your total
Purchase Payments reduced by any withdrawal adjustments, accumulated daily at
an effective annual interest rate of 5% per year, until the earlier of:
(a) the date we determine the income benefit;
(b) the first day of the month following the oldest Contract Owner's 85th
birthday, or the first day of the month following the oldest Annuitant's 85th
birthday, if the Contract Owner is not a living individual.
The withdrawal adjustment is equal to (a) divided by (b), with the result
multiplied by (c) where,
(a) is the withdrawal amount;
(b) is the Contract Value immediately prior to the withdrawal;
(c) is the most recently calculated Enhanced Income Benefit A or B, as
applicable.
ENHANCED DEATH AND INCOME BENEFIT RIDER II: When you purchase your Contract
and if available in your state, you may select the Enhanced Death and Income
Benefit Rider II. Lincoln Benefit Life no longer offers this Rider in most
states. This Rider is available if the oldest Owner or Annuitant is age 75 or
less at issue. This Rider provides the same Enhanced Death Benefit as the
Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive
higher annuity payments in certain circumstances. As described below, we will
charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the greater of
Enhanced Death Benefit A or Enhanced Death Benefit B, defined below, on the
Annuity Date. We will not increase or decrease the Enhanced Income Benefit
amount by any Market Value Adjustment. To be eligible for the Enhanced Income
Benefit, you must select an Annuity Date that is:
(a) on or after the tenth Contract Anniversary;
(b) before the Annuitant's age 90; and
(c) within a 30-day period on or following a Contract Anniversary.
On the Annuity Date, you may apply the Enhanced Income Benefit to an Annuity
Option that provides for fixed payments on the basis guaranteed in the contract
for either a single life with a period certain, or joint lives with a period
certain of at least:
(a) 10 years, if the youngest Annuitant's age is 80 or less on the Annuity
Date; or
(b) 5 years, if the youngest Annuitant's age is greater than 80 on the
Annuity Date.
If you wish to select a different Annuity Option, you must apply the Annuitized
Value and not the Enhanced Income Benefit.
ENHANCED DEATH AND INCOME BENEFIT RIDER. This Rider was previously available
if the oldest Owner or Annuitant is age 75 or less at issue. This rider is no
longer available. This Rider provides the same Enhanced Death Benefit as the
Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive
higher annuity payments in certain circumstances. As described below, we will
charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit under this Rider is equal to the value of the
Enhanced Death Benefit on the Annuity Date. We will not increase or decrease
the Enhanced Income Benefit amount by any Market Value Adjustment. To be
eligible for the Enhanced Income
27 PROSPECTUS
Benefit, you must select an Annuity Date that is on or after the tenth Contract
Anniversary, but before the Annuitant's age 90. On the Annuity Date, you may
apply the Enhanced Income Benefit to an Annuity Option that provides for
payments guaranteed for either a single life with a period certain or joint
lives with a period certain of at least:
(a) 10 years, if the youngest Annuitant's age is 80 or less on the Annuity
Date; or
(b) at least 5 years, if the youngest Annuitant's age is greater than 80 on
the Annuity Date.
If you wish to select a different Annuity Option, you must apply the Annuitized
Value and not the Enhanced Income Benefit.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
.. When you pay a Purchase Payment, we will increase Enhanced Death Benefit A
by the amount of the Purchase Payment;
.. When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
.. On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Enhanced Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the greatest of the Contract Value on the
Issue Date and all Contract Anniversaries prior to the date we calculate any
death benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85th birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85th birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for Purchase Payments and withdrawals.
ENHANCED DEATH BENEFIT B. Enhanced Death Benefit B is equal to your total
Purchase Payments, reduced by any withdrawal adjustments, accumulated daily at
an effective annual rate of 5% per year, until the earlier of:
(a) the date we determine the death benefit,
(b) the first day of the month following the oldest Contract Owner's 85th
birthday; or
(c) the first day of the month following the oldest Annuitant's 85th
birthday, if the Contract Owner is not a living individual.
Thereafter, we will only adjust Enhanced Death Benefit B to reflect additional
Purchase Payments and withdrawals. Enhanced Death Benefit B will never be
greater than the maximum death benefit allowed by any nonforfeiture laws that
govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Benefit A or B, as appropriate.
BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the
application. You may also name one or more contingent Beneficiaries who are
entitled to receive benefits under the contract if all primary Beneficiaries
are deceased at the time a Contract Owner, or Annuitant if the Contract Owner
is not a living person, dies. You may change the Beneficiary or add additional
Beneficiaries at any time before the Annuity Date. We will provide a form to be
signed and filed with us.
Your changes in Beneficiary take effect when we accept them, effective as of
the date you signed the form. Until we accept your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a Beneficiary shown in our files or treating
that person in any other respect as the Beneficiary prior to accepting a
change. Accordingly, if you wish to change your beneficiary, you should deliver
your instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
.. your spouse if he or she is still alive; or, if he or she is no longer
alive,
.. your surviving children equally; or if you have no surviving children,
.. your estate.
Unless you have provided directions to the contrary, the Beneficiaries will
take equal shares. If there is more than one Beneficiary in a class and one of
the Beneficiaries predeceases the Contract Owner or Annuitant, the remaining
Beneficiaries in that class will divide the deceased Beneficiary's share in
proportion to the original shares of the remaining beneficiaries.
If more than one Beneficiary shares in the Death Proceeds, each Beneficiary
will be treated as a separate and independent owner of his or her respective
share. Each Beneficiary will exercise all rights related to his or her share,
including the sole right to select a payout option, subject to any restrictions
previously placed upon the Beneficiary. Each Beneficiary may designate a
Beneficiary(ies) for his or her respective share, but that designated
Beneficiary(ies) will be restricted to the payout option chosen by the original
Beneficiary.
28 PROSPECTUS
If there is more than one Beneficiary and one of the Beneficiaries is a
corporation or other type of non-living person, all beneficiaries will be
considered to be non-living persons.
You may specify that the Death Benefit be paid under a specific income Plan by
submitting a written request to our Service Center. If you so request, your
Beneficiary may not change to a different Income Plan or lump sum. Once we
accept the written request, the change or restriction will take effect as of
the date you signed the request. Any change is subject to any payment we make
or other action we take before we accept the changes.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
CONTRACT LOANS FOR 403(B) CONTRACTS. Subject to the restrictions described
below, we will make loans to the Owner of a Contract used in connection with a
Tax Sheltered Annuity Plan ("TSA Plan") under Section 403(b) of the Tax Code.
Loans are not available under Non-Qualified Contracts. We will only make loans
after the free look period and before annuitization. All loans are subject to
the terms of the Contract, the relevant Plan, and the Tax Code, which impose
restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you
if the total of the requested loan and all of the plan participant's Contract
loans under TSA plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or half of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan, write to us at the address given on the first page
of the prospectus. You alone are responsible for ensuring that your loan and
repayments comply with tax requirements. Some of these requirements are stated
in Section 72 of the Tax Code. Please seek advice from your plan administrator
or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. We will transfer to the Loan Account amounts from the Separate
Account in proportion to the assets in each Sub-Account. If your loan amount is
greater than your Contract Value in the Sub-Accounts, we will transfer the
remaining required collateral from the Guaranteed Maturity Fixed Account
Options. If your loan amount is greater than your contract value in the
Sub-Accounts and the Guaranteed Maturity Fixed Account Options, we will
transfer the remaining required collateral from the Dollar Cost Averaging Fixed
Account Option.
We will not charge a Withdrawal Charge on the loan or on the transfer from the
Sub-Accounts or the Fixed Account. We may, however, apply a Market Value
Adjustment to a transfer from the Fixed Account to the Loan Account. If we do,
we will increase or decrease the amount remaining in the Fixed Account by the
amount of the Market Value Adjustment, so that the net amount transferred to
the Loan Account will equal the desired loan amount. We will charge a
Withdrawal Charge and apply a Market Value Adjustment, if applicable, on a
distribution to repay the loan in full, in the event of loan default.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account
are not affected by the changes in the value of the Sub-Accounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the
loan interest rate applicable to new loans. We also reserve the right to change
the terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
1) the Death Proceeds;
2) surrender proceeds;
3) the amount available for partial withdrawal;
4) the amount applied on the Annuity Date to provide annuity payments; and
5) the amount applied on the Annuity Date to provide annuity payments under the
Enhanced Income Benefit Rider, Enhanced Death and Income Benefit Rider, or
the Enhanced Death and Income Benefit Rider II.
Usually you must repay a Contract loan within five years of the date the loan
is made. Scheduled payments must be level, amortized over the repayment period,
and made at least quarterly. We may permit a repayment period of 15 or 30 years
if the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
Generally, loan payments are allocated to the Sub-Account(s) in the proportion
that you have selected for Purchase Payments. Allocations of loan payments are
not permitted to the Fixed Accounts (Guaranteed Maturity
29 PROSPECTUS
Fixed Account and Dollar Cost Averaging Fixed Account Option). If your Purchase
Payment allocation includes any of the Fixed Accounts, the percentages
allocated to the Fixed Accounts will be allocated instead to the Fidelity Money
Market Sub-Account.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the defaulted loan balance plus accrued interest from any future distribution
under the Contract and keep it in payment of your loan. Any defaulted amount
plus interest will be treated as a distribution for tax purposes (as permitted
by law). As a result, you may be required to pay taxes on the defaulted amount
and incur the early withdrawal tax penalty. We will capitalize interest on a
loan in default.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a
Contract for all or a portion of its Contract Value before the Annuity Date. We
may impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page 32. Withdrawals from
the Fixed Account may be increased or decreased by a Market Value Adjustment,
as described in "Market Value Adjustment" on page 21.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Sub-Account. If
your request for a partial withdrawal would reduce the Contract Value to less
than $500, we may treat it as a request for a withdrawal of your entire
Contract Value, as described in "Minimum Contract Value" on page 31. Your
Contract will terminate if you withdraw all of your Contract Value.
Withdrawals taken prior to annuitization are generally considered to come from
the earnings in the Contract first. If the Contract is tax-qualified, generally
all withdrawals are treated as distribution of earnings. Withdrawals of
earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be
subject to an additional 10% federal tax penalty.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
page 39.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required
forms from us at the address and phone number given on the first page of this
prospectus.
WRITTEN REQUESTS AND FORMS IN GOOD ORDER.
Written requests must include sufficient information and/or documentation, and
be sufficiently clear, to enable us to complete your request without the need
to exercise discretion on our part to carry it out. You may contact our
Customer Service Center to learn what information we require for your
particular request to be in "good order." Additionally, we may require that you
submit your request on our form. We reserve the right to determine whether any
particular request is in good order, and to change or waive any good order
requirements at any time.
For partial withdrawals, you may allocate the amount among the Sub-Accounts and
the Fixed Accounts. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Sub-Accounts and the Guaranteed Maturity Fixed Account Options based upon the
balance of the Sub-Accounts and the Guaranteed Maturity Fixed Account Options,
with any remainder being distributed from the Dollar Cost Averaging Fixed
Account Option. You may not make a partial withdrawal from the Fixed Account in
an amount greater than the total amount of the partial withdrawal multiplied by
the ratio of the value of the Fixed Account to the Contract Value immediately
before the partial withdrawal.
If you request a total withdrawal, you must send us your Contract. The
Surrender Value will equal the Contract Value minus any applicable Withdrawal
Charge and adjusted by any applicable Market Value Adjustment. We also will
deduct a contract maintenance charge of $35, unless we have waived the contract
maintenance charge on your Contract as described on page 31. We determine the
Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request form. However,
we may suspend the right of withdrawal from the Separate Account or delay
payment for withdrawals for more than seven days in the following circumstances:
1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
2) when trading on the NYSE is restricted or an emergency exists, as determined
by the SEC, so that disposal of the Separate Account's investments or
determination of Accumulation Unit Values is not reasonably practicable; or
3) at any other time permitted by the SEC for your protection.
30 PROSPECTUS
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to 6 months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a
salary reduction agreement (in accordance with Section 403(b)(11) of the Tax
Code) only in the following circumstances:
1) when you attain age 59 1/2;
2) when you terminate your employment with the plan sponsor;
3) upon your death;
4) upon your disability as defined in Section 72(m)(7) of the Tax Code;
5) or in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable
to your Purchase Payments; you may not withdraw any earnings. These limitations
on withdrawals apply to:
1) salary reduction contributions made after December 31, 1988;
2) income attributable to such contributions; and
3) income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect transfers between certain
Qualified Plans. Additional restrictions and limitations may apply to
distributions from any Qualified Plan. Tax penalties may also apply. You should
seek tax advice regarding any withdrawals or distributions from Qualified Plans.
SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract is a non-Qualified Contract or
IRA, you may participate in our Systematic Withdrawal Program. You must
complete an enrollment form and send it to us. You must complete the
withholding election section of the enrollment form before the systematic
withdrawals will begin. You may choose withdrawal payments of a flat dollar
amount, earnings, or a percentage of Purchase Payments. You may choose to
receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or
annual basis. Systematic withdrawals will be deducted from your Sub-Account and
Fixed Account balances, excluding the Dollar Cost Averaging Fixed Account, on a
pro rata basis.
Depending on fluctuations in the net asset value of the Sub-Accounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA PLANS. A married participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
adviser.
MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value
would be less than $500 and you have not made any Purchase Payments during the
previous three full calendar years, we may terminate your Contract and
distribute its Surrender Value to you. Before we do this, we will give you 60
days notice. We will not terminate your Contract on this ground if the Contract
Value has fallen below $500 due to either a decline in Accumulation Unit Value
or the imposition of fees and charges. In addition, in some states we are not
permitted to terminate Contracts on this ground. Different rules may apply to
Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
1) as deductions from Contract Value for contract maintenance charges and, if
applicable, for premium taxes;
2) as charges against the assets of the Separate Account for administrative
expenses and for the assumption of mortality and expense risks; and
3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on pages 5, and described more fully in the Prospectuses and
Statements of Additional Information for the Portfolios.
MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk
charge from each Sub-Account during each Valuation Period. The mortality and
expense risk charge is equal, on an annual basis, to 1.15% of the average net
asset value of each Sub-Account. The mortality risks arise from our contractual
obligations:
1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
2) to waive the Withdrawal Charge upon your death; and
3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found beginning on page 24.
31 PROSPECTUS
The expense risk is that it may cost us more to administer the Contracts and
the Separate Account than we receive from the contract maintenance charge and
the administrative expense charge. We guarantee the mortality and expense risk
charge and we cannot increase it. We assess the mortality and expense risk
charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk
charge will be 1.35% of average net asset value of each Sub-Account. If you
select the Enhanced Income Rider, your mortality and expense risk charge will
be 1.50% of average daily net asset value of each Sub-Account. If you select
the Enhanced Death and Income Benefit Rider, your mortality and expense risk
charge will be 1.55% of average daily net asset value of each Sub-Account. If
you select the Enhanced Death and Income Benefit Rider II, your mortality and
expense risk charge will be 1.70% of average daily net asset value of each
Sub-Account. We charge a higher mortality and expense risk charge for the
Riders to compensate us for the additional risk that we accept by providing the
Riders. We will calculate a separate Accumulation Unit Value for the base
Contract, and for Contracts with each type of Rider, in order to reflect the
difference in the mortality and expense risk charges.
ADMINISTRATIVE CHARGES.
CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge
of $35 on your Contract. The amount of this charge is guaranteed not to
increase. This charge reimburses us for our expenses incurred in maintaining
your Contract.
Before the Annuity Date, we assess the contract maintenance charge on each
Contract Anniversary. To obtain payment of this charge, on a pro rata basis we
will allocate this charge among the Sub-Accounts to which you have allocated
your Contract Value, and redeem Accumulation Units accordingly. We will waive
this charge if you pay more than $50,000 in Purchase Payments or if you
allocate all of your Contract Value to the Fixed Account. If you surrender your
Contract, we will deduct the full $35 charge as of the date of surrender,
unless your Contract qualifies for a waiver.
After the Annuity Date and if allowed in your state, we will subtract this
charge in equal parts from each of your annuity payments. We will waive this
charge if on the Annuity Date your Contract Value is $50,000 or more or if all
of your annuity payments are Fixed Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from
each Sub-Account during each Valuation Period. This charge is equal, on an
annual basis, to 0.10% of the average net asset value of the Sub-Accounts. This
charge is designed to compensate us for the cost of administering the Contracts
and the Separate Account. The administrative expense charge is assessed during
both the Accumulation Period and the Annuity Period.
TRANSFER FEE. We currently are waiving the transfer fee. The Contract,
however, permits us to charge a transfer fee of $10 on the second and each
subsequent transaction in each calendar month in which transfer(s) are effected
between Subaccount(s) and/or the Fixed Account. We will notify you if we begin
to charge this fee. We will not charge a transfer fee on transfers that are
part of a Dollar Cost Averaging or Portfolio Rebalancing program.
The transfer fee will be deducted from Contract Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
SALES CHARGES.
WITHDRAWAL CHARGE. We may charge a Withdrawal Charge, which is a contingent
deferred sales charge, upon certain withdrawals.
As a general rule, the Withdrawal Charge equals a percentage of Purchase
Payments withdrawn that are: (a) less than seven years old; and (b) not
eligible for a free withdrawal. The applicable percentage depends on how many
years ago you made the Purchase Payment being withdrawn, as shown in this chart:
WITHDRAWAL CHARGE
CONTRIBUTION YEAR PERCENTAGE
First and Second 7%
Third and Fourth 6%
Fifth 5%
Sixth 4%
Seventh 3%
Eighth and later 0%
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into consideration. Beginning on January 1, 2004, if you make
a withdrawal before the Annuity Date, we will apply the withdrawal charge
percentage in effect on the date of the withdrawal, or the withdrawal charge
percentage in effect on the following day, whichever is lower.
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
FIRST. Earnings - the current Contract Value minus all Purchase Payments that
have not previously been withdrawn;
SECOND. "Old Purchase Payments" - Purchase Payments received by us more than
seven years before the date of withdrawal that have not been previously
withdrawn;
32 PROSPECTUS
THIRD. Any additional amounts available as a "Free Withdrawal," as described
on page 33;
FOURTH. "New Purchase Payments" - Purchase Payments received by us less than
seven years before the date of withdrawal. These Payments are deemed to be
withdrawn on a first-in, first-out basis.
No Withdrawal Charge is applied in the following situations:
.. on annuitization;
.. the payment of a Death Benefit;
.. a free withdrawal amount, as described on page 33;
.. certain withdrawals for Contracts issued under 403(b) plans or 401 plan
under our prototype as described on page 42;
.. withdrawals taken to satisfy IRS minimum distribution rules;
.. withdrawals that qualify for one of the waiver benefits described on pages
33-34; and
.. withdrawal under Contracts issued to employees of Lincoln Benefit Life
Company or its affiliates, Surety Life Insurance Company and Allstate
Financial Services, L.L.C., or to their spouses or minor children if those
individuals reside in the State of Nebraska.
We will never waive or eliminate a Withdrawal Charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
We may waive withdrawal charges if this Contract is surrendered, and the entire
proceeds of the surrender are directly used to purchase a new Contract also
issued by us or any affiliated company. Such waivers will be granted on a
non-discriminatory basis.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the Withdrawal Charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals of earnings are taxed as ordinary income and, if taken prior to age
59 1/2, may be subject to an additional 10% federal tax penalty. The amount of
your withdrawal may be affected by a Market Value Adjustment. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals on page 35. You should consult your own
tax counsel or other tax advisers regarding any withdrawals.
FREE WITHDRAWAL. Withdrawals of the following amounts are never subject to the
Withdrawal Charge:
.. In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
.. Any Old Purchase Payments that have not been previously withdrawn.
However, even if you do not owe a Withdrawal Charge on a particular withdrawal,
you may still owe taxes or penalty taxes, or be subject to a market Value
Adjustment. The tax treatment of withdrawals is summarized on page 35.
WAIVER BENEFITS
GENERAL. If approved in your state, we will offer the three waiver benefits
described below. In general, if you qualify for one of these benefits, we will
permit you to make one or more partial or full withdrawals without paying any
otherwise applicable Withdrawal Charge or Market Value Adjustment. While we
have summarized those benefits here, you should consult your Contract for the
precise terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even
if you do not need to pay our Withdrawal Charge because of these benefits, you
still may be required to pay taxes or tax penalties on the amount withdrawn.
You should consult your tax adviser to determine the effect of a withdrawal on
your taxes.
CONFINEMENT WAIVER BENEFIT. Under this benefit, we will waive the Withdrawal
Charge and Market Value Adjustment on all withdrawals under your Contract if
the following conditions are satisfied:
1) Any Contract Owner or the Annuitant, if the Contract is owned by a company
or other legal entity, is confined to a long term care facility or a
hospital for at least 90 consecutive days. The Owner or Annuitant must enter
the long term care facility or hospital at least 30 days after the Issue
Date;
2) You request the withdrawal no later than 90 days following the end of the
Owner or Annuitant's stay at the long term care facility or hospital. You
must provide written proof of the stay with your withdrawal request; and
3) A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the Owner or
Annuitant's stay in a long term care facility is the Owner or Annuitant or a
member of the Owner or Annuitant's immediate family.
TERMINAL ILLNESS WAIVER BENEFIT. Under this benefit, we will waive any
Withdrawal Charge and Market Value Adjustment on all withdrawals under your
Contract if, at least 30 days after the Issue Date, you, or the Annuitant if
the Owner is not a living person, are diagnosed with a
33 PROSPECTUS
terminal illness. We may require confirmation of the diagnosis as provided in
the Contract.
UNEMPLOYMENT WAIVER BENEFIT. Under this benefit, we will waive any Withdrawal
Charge and Market Value Adjustment on one partial or full withdrawal from your
Contract, if you meet the following requirements:
1) you become unemployed at least 1 year after the Issue Date;
2) you receive unemployment compensation for at least 30 consecutive days as a
result of that unemployment; and
3) you claim this benefit within 180 days of your initial receipt of
unemployment compensation.
You may exercise this benefit once before the Annuity Date.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS. For
Contracts issued under a Section 403(b) plan or a Section 401 plan under our
prototype, we will waive the Withdrawal Charge when:
1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax
Code;
2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan,
or a paired plan (Money Purchase and Profit Sharing). For more information
about our prototype plan, call us at 1-800-457-7617.
PREMIUM TAXES. We will charge premium taxes or other state or local taxes
against the Contract Value, including Contract Value that results from amounts
transferred from existing policies (Section 1035 exchange) issued by us or
other insurance companies. Some states assess premium taxes when Purchase
Payments are made; others assess premium taxes when annuity payments begin. We
will deduct any applicable premium taxes upon full surrender, death, or
annuitization. Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining
a provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes
we incur as a result of the operation of the Separate Account, whether or not
we previously made a provision for taxes and whether or not it was sufficient.
Our status under the Tax Code is briefly described in the Statement of
Additional Information.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Sub-Accounts to which you allocate your Contract
value. For a summary of current estimates of those charges and expenses, see
page 5. For more detailed information about those charges and expenses, please
refer to the prospectuses for the appropriate Portfolios. We receive
compensation from the investment advisers or administrators or the Portfolios
in connection with administrative service and cost savings experienced by the
investment advisers or administrators. We collect this compensation under
agreements between us and the Portfolio's investment adviser, administrators or
distributors, and is calculated based on a percentage of the average assets
allocated to the Portfolio.
34 PROSPECTUS
TAXES
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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
35 PROSPECTUS
the separate account investments may cause a Contract owner to be treated as
the owner of the separate account. The Treasury Department also stated that
future guidance would be issued regarding the extent that owners could direct
sub-account investments without being treated as owners of the underlying
assets of the separate account.
Your rights under the Contract are different than those described by the IRS in
private and published rulings in which it found that Contract owners were not
owners of separate account assets. For example, if your contract offers more
than twenty (20) investment alternatives you have the choice to allocate
premiums and contract values among a broader selection of investment
alternatives than described in such rulings. You may be able to transfer among
investment alternatives more frequently than in such rulings. These differences
could result in you being treated as the owner of the Separate Account. If this
occurs, income and gain from the Separate Account assets would be includible in
your gross income. Lincoln Benefit does not know what standards will be set
forth in any regulations or rulings which the Treasury Department may issue. It
is possible that future standards announced by the Treasury Department could
adversely affect the tax treatment of your Contract. We reserve the right to
modify the Contract as necessary to attempt to prevent you from being
considered the federal tax owner of the assets of the Separate Account.
However, we make no guarantee that such modification to the Contract will be
successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal
under a Non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
contract minus any amounts previously received from the Contract if such
amounts were properly excluded from your gross income. If you make a full
withdrawal under a Non-Qualified Contract, the amount received will be taxable
only to the extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of
annuity payments received from a Non-Qualified Contract provides for the return
of your investment in the Contract in equal tax-free amounts over the payment
period. The balance of each payment received is taxable. For fixed annuity
payments, the amount excluded from income is determined by multiplying the
payment by the ratio of the investment in the Contract (adjusted for any refund
feature or period certain) to the total expected value of annuity payments for
the term of the Contract. If you elect variable annuity payments, the amount
excluded from taxable income is determined by dividing the investment in the
Contract by the total number of expected payments. The annuity payments will be
fully taxable after the total amount of the investment in the Contract is
excluded using these ratios. If any variable payment is less than the
excludable amount you should contact a competent tax advisor to determine how
to report any unrecovered investment. The federal tax treatment of annuity
payments is unclear in some respects. As a result, if the IRS should provide
further guidance, it is possible that the amount we calculate and report to the
IRS as taxable could be different. If you die, and annuity payments cease
before the total amount of the investment in the Contract is recovered, the
unrecovered amount will be allowed as a deduction for your last taxable year.
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
36 PROSPECTUS
Contract owned by a non-natural person will be treated as the death of the
Contract Owner.
We administer certain spousal rights under the Contract and related tax
reporting in accordance with our understanding of the Defense of Marriage Act
(which defines a "marriage" as a legal union between a man and a woman and a
"spouse" as a person of the opposite sex). Depending on the state in which your
Contract is issued, we may offer certain spousal benefits to civil union
couples or same-sex marriage spouses. You should be aware, however, that
federal tax law does not recognize civil unions or same-sex marriages.
Therefore, we cannot permit a civil union partner or same-sex spouse to
continue the Contract within the meaning of the tax law upon the death of the
first partner under the Contract's "spousal continuance" provision. Civil union
couples and same-sex marriage spouses should consider that limitation before
selecting a spousal benefit under the Contract.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in
income as follows:
.. if distributed in a lump sum, the amounts are taxed in the same manner as a
total withdrawal, or
.. if distributed under an Income Plan, the amounts are taxed in the same
manner as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the
taxable amount of any premature distribution from a non-Qualified Contract. The
penalty tax generally applies to any distribution made prior to the date you
attain age 59 1/2. However, no penalty tax is incurred on distributions:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made as a result of the Contract Owner's death or becoming totally disabled,
.. made in substantially equal periodic payments (as defined by the Code) over
the Contract Owner's life or life expectancy, or over the joint lives or
joint life expectancies of the Contract Owner and the Beneficiary,
.. made under an immediate annuity, or
.. attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions
may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts
using substantially equal periodic payments or immediate annuity payments as an
exception to the penalty tax on premature distributions, any additional
withdrawal or other material modification of the payment stream would violate
the requirement that payments must be substantially equal. Failure to meet this
requirement would mean that the income portion of each payment received prior
to the later of 5 years or the Contract Owner's attaining age 59 1/2 would be
subject to a 10% penalty tax unless another exception to the penalty tax
applied. The tax for the year of the modification is increased by the penalty
tax that would have been imposed without the exception, plus interest for the
years in which the exception was used. A material modification does not include
permitted changes described in published IRS rulings. You should consult a
competent tax advisor prior to creating or modifying a substantially equal
periodic payment stream.
TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange
is a tax-free exchange of a non-Qualified life insurance contract, endowment
contract or annuity contract into a non-Qualified annuity contract. The
contract owner(s) must be the same on the old and new contract. Basis from the
old contract carries over to the new contract so long as we receive that
information from the relinquishing company. If basis information is never
received, we will assume that all exchanged funds represent earnings and will
allocate no cost basis to them.
PARTIAL EXCHANGES. The IRS has issued rulings that permit partial exchanges of
annuity contracts. Effective June 30, 2008, a partial exchange, of a deferred
annuity contract for another deferred annuity contract, will qualify for
tax-deferral only if no amount is withdrawn or surrendered from either contract
for a period of 12 months. The 12 month period begins on the date when exchange
proceeds are treated as premiums paid for the recipient contract. Withdrawals
from, annuitizations, taxable Owner or Annuitant changes, or surrenders of
either contract within the 12 month period will retroactively negate the
partial exchange, unless one of the following applies:
.. the contract owner reaches 59 1/2, becomes totally disabled, dies, obtains
a divorce or suffers a loss of employment after the partial exchange was
completed and prior to the withdrawal, annuitization, Owner or Annuitant
change, or surrender;
.. if the annuity is owned by an entity, the annuitant dies after the partial
exchange was completed and prior to the withdrawal, annuitization, Owner or
Annuitant change or surrender;
.. the withdrawal is allocable to investment in the Contract before August 14,
1982; or,
.. the annuity is a qualified funding asset within the meaning of Code section
130(d).
If a partial exchange is retroactively negated, the amount originally
transferred to the recipient contract is treated as a withdrawal from the
source contract, taxable to the extent of any gain in that contract on the date
of the exchange. An additional 10% tax penalty may also apply if the Contract
Owner is under age 59 1/2. Your Contract may not permit partial exchanges.
37 PROSPECTUS
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract
without full and adequate consideration to a person other than your spouse (or
to a former spouse incident to a divorce), you will be taxed on the difference
between the Contract Value and the investment in the Contract at the time of
transfer. Any assignment or pledge (or agreement to assign or pledge) of the
Contract Value is taxed as a withdrawal of such amount or portion and may also
incur the 10% penalty tax.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified
deferred annuity contracts issued by Lincoln Benefit (or its affiliates) to the
same Contract Owner during any calendar year be aggregated and treated as one
annuity contract for purposes of determining the taxable amount of a
distribution.
INCOME TAX WITHHOLDING
Generally, Lincoln Benefit is required to withhold federal income tax at a rate
of 10% from all non-annuitized distributions. The customer may elect out of
withholding by completing and signing a withholding election form. If no
election is made or no U.S. taxpayer identification number is provided we will
automatically withhold the required 10% of the taxable amount. In certain
states, if there is federal withholding, then state withholding is also
mandatory.
Lincoln Benefit is required to withhold federal income tax using the wage
withholding rates for all annuitized distributions. The customer may elect out
of withholding by completing and signing a withholding election form. If no
election is made, we will automatically withhold using married with three
exemptions as the default. If no U.S. taxpayer identification number is
provided, we will automatically withhold using single with zero exemptions as
the default. In certain states, if there is federal withholding, then state
withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Lincoln Benefit as a withholding
agent must withhold 30% of the taxable amounts paid to a non-resident alien. A
non-resident alien is someone other than a U.S. citizen or resident alien. We
require an original IRS Form W-8BEN at issue to certify the owners' foreign
status. Withholding may be reduced or eliminated if covered by an income tax
treaty between the U.S. and the non-resident alien's country of residence if
the payee provides a U.S. taxpayer identification number on a fully completed
Form W-8BEN. A U.S. taxpayer identification number is a social security number
or an individual taxpayer identification number ("ITIN"). ITINs are issued by
the IRS to non-resident alien individuals who are not eligible to obtain a
social security number. The U.S. does not have a tax treaty with all countries
nor do all tax treaties provide an exclusion or lower withholding rate for
annuities.
TAX QUALIFIED CONTRACTS
The income on tax sheltered annuity (TSA) and IRA investments is tax deferred,
and the income from annuities held by such plans does not receive any
additional tax deferral. You should review the annuity features, including all
benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax
Qualified Contracts are contracts purchased as or in connection with:
.. Individual Retirement Annuities (IRAs) under Code Section 408(b);
.. Roth IRAs under Code Section 408A;
.. Simplified Employee Pension (SEP IRA) under Code Section 408(k);
.. Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code
Section 408(p);
.. Tax Sheltered Annuities under Code Section 403(b);
.. Corporate and Self Employed Pension and Profit Sharing Plans under Code
Section 401; and
.. State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans under Code Section 457.
Lincoln Benefit reserves the right to limit the availability of the Contract
for use with any of the retirement plans listed above or to modify the Contract
to conform with tax requirements. If you use the Contract within an employer
sponsored qualified retirement plan, the plan may impose different or
additional conditions or limitations on withdrawals, waiver of charges, death
benefits, Payout Start Dates, income payments, and other Contract features. In
addition, adverse tax consequences may result if Qualified Plan limits on
distributions and other conditions are not met. Please consult your Qualified
Plan administrator for more information. Lincoln Benefit no longer issues
deferred annuities to employer sponsored qualified retirement plans.
The tax rules applicable to participants with tax qualified annuities vary
according to the type of contract and the terms and conditions of the
endorsement. Adverse tax consequences may result from certain transactions such
as excess contributions, premature distributions, and, distributions that do
not conform to specified commencement and minimum distribution rules. Lincoln
Benefit can issue an individual retirement annuity on a rollover or transfer of
proceeds from a decedent's IRA, TSA, or employer sponsored retirement plan
under which the decedent's surviving spouse is the beneficiary. Lincoln Benefit
does not offer an individual retirement annuity that can accept a transfer of
funds for any other, non-spousal, beneficiary of a decedent's IRA, TSA, or
employer sponsored qualified retirement plan.
Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for
additional information on your death settlement options. In the case of certain
Qualified
38 PROSPECTUS
Plans, the terms of the Qualified Plan Endorsement and the plans may govern the
right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If
you make a partial withdrawal under a Tax Qualified Contract other than a Roth
IRA, the portion of the payment that bears the same ratio to the total payment
that the investment in the Contract (i.e., nondeductible IRA contributions)
bears to the Contract Value, is excluded from your income. We do not keep track
of nondeductible contributions, and generally all tax reporting of
distributions from Tax Qualified Contracts other than Roth IRAs will indicate
that the distribution is fully taxable.
"Qualified distributions" from Roth IRAs are not included in gross income.
"Qualified distributions" are any distributions made more than five taxable
years after the taxable year of the first contribution to any Roth IRA and
which are:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made to a beneficiary after the Contract Owner's death,
.. attributable to the Contract Owner being disabled, or
.. made for a first time home purchase (first time home purchases are subject
to a lifetime limit of $10,000).
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding
Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to
withdraw the required minimum distribution will result in a 50% tax penalty on
the shortfall not withdrawn from the Contract. Effective December 31, 2005, the
IRS requires annuity contracts to include the actuarial present value of other
benefits for purposes of calculating the required minimum distribution amount.
These other benefits may include accumulation, income, or death benefits. Not
all income plans offered under the Contract satisfy the requirements for
minimum distributions. Because these distributions are required under the Code
and the method of calculation is complex, please see a competent tax advisor.
THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS
regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA)
may not invest in life insurance contracts. However, an IRA may provide a death
benefit that equals the greater of the purchase payments or the Contract Value.
The Contract offers a death benefit that in certain circumstances may exceed
the greater of the purchase payments or the Contract Value. We believe that the
Death Benefits offered by your Contract do not constitute life insurance under
these regulations.
It is also possible that certain death benefits that offer enhanced earnings
could be characterized as an incidental death benefit. If the death benefit
were so characterized, this could result in current taxable income to a
Contract Owner. In addition, there are limitations on the amount of incidental
death benefits that may be provided under Qualified Plans, such as in
connection with a TSA or employer sponsored qualified retirement plan.
Lincoln Benefit reserves the right to limit the availability of the Contract
for use with any of the Qualified Plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10%
penalty tax applies to the taxable amount of any premature distribution from a
Tax Qualified Contract. The penalty tax generally applies to any distribution
made prior to the date you attain age 59 1/2. However, no penalty tax is
incurred on distributions:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made as a result of the Contract Owner's death or total disability,
.. made in substantially equal periodic payments (as defined by the Code) over
the Contract Owner's life or life expectancy, or over the joint lives or
joint life expectancies of the Contract Owner and the Beneficiary,
.. made after separation from service after age 55 (does not apply to IRAs),
.. made pursuant to an IRS levy,
.. made for certain medical expenses,
.. made to pay for health insurance premiums while unemployed (applies only
for IRAs),
.. made for qualified higher education expenses (applies only for IRAs),
.. made for a first time home purchase (up to a $10,000 lifetime limit and
applies only for IRAs), and
.. from an IRA or attributable to elective deferrals under a 401(k) plan,
403(b) annuity, or certain similar arrangements made to individuals who
(because of their being members of a reserve component) are ordered or
called to active duty after Sept. 11, 2001, for a period of more than 179
days or for an indefinite period; and made during the period beginning on
the date of the order or call to duty and ending at the close of the active
duty period.
39 PROSPECTUS
During the first 2 years of the individual's participation in a SIMPLE IRA,
distributions that are otherwise subject to the premature distribution penalty,
will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions
may apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect
to Tax Qualified Contracts using substantially equal periodic payments as an
exception to the penalty tax on premature distributions, any additional
withdrawal or other material modification of the payment stream would violate
the requirement that payments must be substantially equal. Failure to meet this
requirement would mean that the income portion of each payment received prior
to the later of 5 years or the taxpayer's attaining age 59 1/2 would be subject
to a 10% penalty tax unless another exception to the penalty tax applied. The
tax for the year of the modification is increased by the penalty tax that would
have been imposed without the exception, plus interest for the years in which
the exception was used. A material modification does not include permitted
changes described in published IRS rulings. You should consult a competent tax
advisor prior to creating or modifying a substantially equal periodic payment
stream.
INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Lincoln Benefit
is required to withhold federal income tax at a rate of 10% from all
non-annuitized distributions that are not considered "eligible rollover
distributions." The customer may elect out of withholding by completing and
signing a withholding election form. If no election is made, or if no U.S.
taxpayer identification number is provided, we will automatically withhold the
required 10% from the taxable amount. In certain states, if there is federal
withholding, then state withholding is also mandatory. Lincoln Benefit is
required to withhold federal income tax at a rate of 20% on all "eligible
rollover distributions" unless you elect to make a "direct rollover" of such
amounts to an IRA or eligible retirement plan. Eligible rollover distributions
generally include all distributions from Tax Qualified Contracts, including
TSAs but excluding IRAs, with the exception of:
.. required minimum distributions, or,
.. a series of substantially equal periodic payments made over a period of at
least 10 years, or,
.. a series of substantially equal periodic payments made over the life (joint
lives) of the participant (and beneficiary), or,
.. hardship distributions.
With respect to any Contract held under a Section 457 plan or by the trustee of
a Section 401 Pension or Profit Sharing Plan, we will not issue payments
directly to a plan participant or beneficiary. Consequently, the obligation to
comply with the withholding requirements described above will be the
responsibility of the plan.
For all annuitized distributions that are not subject to the 20% withholding
requirement, Lincoln Benefit is required to withhold federal income tax using
the wage withholding rates. The customer may elect out of withholding by
completing and signing a withholding election form. If no election is made, we
will automatically withhold using married with three exemptions as the default.
If no U.S. taxpayer identification number is provided, we will automatically
withhold using single with zero exemptions as the default. In certain states,
if there is federal withholding, then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.
Generally, Code Section 1441 provides that Lincoln Benefit as a withholding
agent must withhold 30% of the taxable amounts paid to a non-resident alien. A
non-resident alien is someone other than a U.S. citizen or resident alien. We
require an original IRS Form W-8BEN at issue to certify the owners' foreign
status. Withholding may be reduced or eliminated if covered by an income tax
treaty between the U.S. and the non-resident alien's country of residence if
the payee provides a U.S. taxpayer identification number on a fully completed
Form W-8BEN. A U.S. taxpayer identification number is a social security number
or an individual taxpayer identification number ("ITIN"). ITINs are issued by
the IRS to non-resident alien individuals who are not eligible to obtain a
social security number. The U.S. does not have a tax treaty with all countries
nor do all tax treaties provide an exclusion or lower withholding rate for
annuities.
CHARITABLE IRA DISTRIBUTIONS. The Pension Protection Act of 2006 included a
charitable giving incentive permitting tax-free IRA distributions for
charitable purposes. The Emergency Economic Stabilization Act of 2008 extended
this provision for two years.
For distributions in tax years beginning after 2005 and before 2010, the Act
provides an exclusion from gross income, up to $100,000, for otherwise taxable
IRA distributions from a traditional or Roth IRA that are qualified charitable
distributions. To constitute a qualified charitable distribution, the
distribution must be made (1) directly by the IRA trustee to certain qualified
charitable organizations and (2) on or after the date the IRA owner attains age
70 1/2. Distributions that are excluded from income under this provision are
not taken into account in determining the individual's deduction, if any, for
charitable contributions.
The IRS has indicated that an IRA trustee is not responsible for determining
whether a distribution to a charity is one that satisfies the requirements for
the new income tax exclusion added by the Pension Protection
40 PROSPECTUS
Act. As a result the general rules for reporting IRA distributions apply.
INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity (IRA). Individual Retirement Annuities are
subject to limitations on the amount that can be contributed and on the time
when distributions may commence. Certain distributions from other types of
qualified retirement plans may be "rolled over" on a tax-deferred basis into an
Individual Retirement Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible
individuals to make nondeductible contributions to an individual retirement
program known as a Roth Individual Retirement Annuity. Roth Individual
Retirement Annuities are subject to limitations on the amount that can be
contributed and on the time when distributions may commence.
A traditional Individual Retirement Account or Annuity may be converted or
"rolled over" to a Roth Individual Retirement Annuity. For distributions after
2007, the Pension Protection Act of 2006 allows distributions from qualified
retirement plans including tax sheltered annuities and governmental Section 457
plans to be rolled over directly into a Roth IRA, subject to the usual rules
that apply to conversions from a traditional IRA into a Roth IRA. The income
portion of a conversion or rollover distribution is taxable currently, but is
exempted from the 10% penalty tax on premature distributions. Prior to January
1, 2010, income and filing status limitations applied to rollovers from
non-Roth accounts to a Roth IRA. Effective January 1, 2005, the IRS requires
conversions of annuity contracts to include the actuarial present value of
other benefits for purposes of valuing the taxable amount of the conversion.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS). Code Section 408 permits a custodian or trustee of an Individual
Retirement Account to purchase an annuity as an investment of the Individual
Retirement Account. If an annuity is purchased inside of an Individual
Retirement Account, then the Annuitant must be the same person as the
beneficial owner of the Individual Retirement Account.
If you have a contract issued as an IRA under Code Section 408(b) and request
to change the ownership to an IRA custodian permitted under Section 408, we
will treat a request to change ownership from an individual to a custodian as
an indirect rollover. We will send a Form 1099R to report the distribution and
the custodian should issue a Form 5498 for the contract value contribution.
Generally, the death benefit of an annuity held in an Individual Retirement
Account must be paid upon the death of the Annuitant. However, in most states,
the Contract permits the custodian or trustee of the Individual Retirement
Account to continue the Contract in the accumulation phase, with the
Annuitant's surviving spouse as the new Annuitant, if the following conditions
are met:
1) The custodian or trustee of the Individual Retirement Account is the owner
of the annuity and has the right to the death proceeds otherwise payable
under the Contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement
Account;
3) We receive a complete request for settlement for the death of the Annuitant;
and
4) The custodian or trustee of the Individual Retirement Account provides us
with a signed certification of the following:
(a) The Annuitant's surviving spouse is the sole beneficiary of the
Individual Retirement Account;
(b) The Annuitant's surviving spouse has elected to continue the Individual
Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has
continued the Individual Retirement Account pursuant to the surviving
spouse's election.
SIMPLIFIED EMPLOYEE PENSION IRA. (SEP IRA) Code Section 408(k) allows eligible
employers to establish simplified employee pension plans for their employees
using individual retirement annuities. These employers may, within specified
limits, make deductible contributions on behalf of the employees to the
individual retirement annuities. Employers intending to use the Contract in
connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p)
allows eligible employers with 100 or fewer employees to establish SIMPLE
retirement plans for their employees using individual retirement annuities. In
general, a SIMPLE IRA consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers.
Employers intending to purchase the Contract as a SIMPLE IRA should seek
competent tax and legal advice. SIMPLE IRA plans must include the provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2007 (EGTRRA) to avoid
adverse tax consequences. If your current SIMPLE IRA plan uses IRS Model Form
5304-SIMPLE with a revision date of March 2002 or later, then your plan is up
to date. If your plan has a revision date prior to March 2002, please consult
with your tax or legal advisor to determine the action you need to take in
order to comply with this requirement.
41 PROSPECTUS
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS
(TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND
YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement
savings plans for employees of certain non-profit and educational
organizations. Under Section 403(b), any contract used for a 403(b) plan must
provide that distributions attributable to salary reduction contributions made
after 12/31/88, and all earnings on salary reduction contributions, may be made
only on or after the date the employee:
.. attains age 59 1/2,
.. severs employment,
.. dies,
.. becomes disabled, or
.. incurs a hardship (earnings on salary reduction contributions may not be
distributed on account of hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another 403(b) plan.
Generally, we do not accept funds in 403(b) contracts that are subject to the
Employee Retirement Income Security Act of 1974 (ERISA).
CAUTION: Under recent IRS regulations we can accept contributions, transfers
and rollovers only if we have entered into an information-sharing agreement, or
its functional equivalent, with the applicable employer or its plan
administrator. Unless your contract is grandfathered from certain provisions in
these regulations, we will only process certain transactions (e.g, transfers,
withdrawals, hardship distributions and, if applicable, loans) with employer
approval. This means that if you request one of these transactions we will not
consider your request to be in good order, and will not therefore process the
transaction, until we receive the employer's approval in written or electronic
form.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS.
Section 401(a) of the Code permits corporate employers to establish various
types of tax favored retirement plans for employees. Self-employed individuals
may establish tax favored retirement plans for themselves and their employees
(commonly referred to as "H.R.10" or "Keogh"). Such retirement plans may permit
the purchase of annuity contracts. Lincoln Benefit no longer issues annuity
contracts to employer sponsored qualified retirement plans.
There are two owner types for contracts intended to qualify under
Section 401(a): a qualified plan fiduciary or an annuitant owner.
.. A qualified plan fiduciary exists when a qualified plan trust that is
intended to qualify under Section 401(a) of the Code is the owner. The
qualified plan trust must have its own tax identification number and a
named trustee acting as a fiduciary on behalf of the plan. The annuitant
should be the person for whose benefit the contract was purchased.
.. An annuitant owner exists when the tax identification number of the owner
and annuitant are the same, or the annuity contract is not owned by a
qualified plan trust. The annuitant should be the person for whose benefit
the contract was purchased.
If a qualified plan fiduciary is the owner of the contract, the qualified plan
must be the beneficiary so that death benefits from the annuity are distributed
in accordance with the terms of the qualified plan. Annuitant owned contracts
require that the beneficiary be the annuitant's spouse (if applicable), which
is consistent with the required IRS language for qualified plans under
Section 401(a). A completed Annuitant Owned Qualified Plan Designation of
Beneficiary form is required in order to change the beneficiary of an annuitant
owned Qualified Plan contract.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments
and tax-exempt organizations to defer a portion of their compensation without
paying current taxes. The employees must be participants in an eligible
deferred compensation plan. In eligible governmental plans, all assets and
income must be held in a trust/custodial account/annuity contract for the
exclusive benefit of the participants and their beneficiaries. To the extent
the Contracts are used in connection with a non-governmental eligible plan,
employees are considered general creditors of the employer and the employer as
owner of the Contract has the sole right to the proceeds of the Contract. Under
eligible 457 plans, contributions made for the benefit of the employees will
not be includible in the employees' gross income until distributed from the
plan. Lincoln Benefit no longer issues annuity contracts to 457 plans.
42 PROSPECTUS
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
LINCOLN BENEFIT LIFE COMPANY
Lincoln Benefit is a stock life insurance company organized under the laws of
the state of Nebraska in 1938. Our legal domicile and principal business
address is 2940 S. 84th Street , Lincoln, NE 68506-4142. Lincoln Benefit is a
wholly-owned subsidiary of Allstate Life Insurance Company ("Allstate Life"), a
stock life insurance company incorporated under the laws of the State of
Illinois. Allstate Life is a wholly-owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company incorporated
under the laws of the State of Illinois. All of the capital stock issued and
outstanding of Allstate Insurance Company is owned by Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation.
We are authorized to conduct life insurance and annuity business in the
District of Columbia, Guam, U.S. Virgin Islands and all states except New York.
We will market the Contract everywhere we conduct variable annuity business.
The Contracts offered by this prospectus are issued by us and will be funded in
the Separate Account and/or the Fixed Account.
Under our reinsurance agreement with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life, and substantially all of
the assets backing our reinsured liabilities are owned by Allstate Life.
Accordingly, the results of operations with respect to applications received
and contracts issued by Lincoln Benefit are not reflected in our financial
statements. The amounts reflected in our financial statements relate only to
the investment of those assets of Lincoln Benefit that are not transferred to
Allstate Life under the reinsurance agreement. These assets represent our
general account and are invested and managed by Allstate Life. While the
reinsurance agreement provides us with financial backing from Allstate Life, it
does not create a direct contractual relationship between Allstate Life and you.
Under the Company's reinsurance agreements with Allstate Life, the Company
reinsures all reserve liabilities with Allstate Life except for variable
contracts. The Company's variable Contract assets and liabilities are held in
legally-segregated, unitized Separate Accounts and are retained by the Company.
However, Lincoln Benefit's economic risks and returns related to such variable
contracts are transferred to Allstate Life.
Effective June 1, 2006, Allstate Life entered into an agreement ("the
Agreement") with Prudential Financial, Inc. and its subsidiary, The Prudential
Insurance Company of America ("PICA") pursuant to which Allstate Life sold,
through a combination of coinsurance and modified coinsurance reinsurance,
substantially all of its variable annuity business, including that of its
subsidiary Lincoln Benefit. Pursuant to the Agreement Allstate Life and PICA
also entered into an administrative services agreement which provides that PICA
or an affiliate administer the Variable Account and the Contracts. The benefits
and provisions of the Contracts have not been changed by these transactions and
agreements. None of the transactions or agreements have changed the fact that
we are primarily liable to you under your Contract.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management
of the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to our other income, gains, or losses. Our obligations arising
under the Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Sub-Accounts. The assets of each
Sub-Account are invested in the shares of one of the Portfolios. We do not
guarantee the investment performance of the Separate Account, its Sub-Accounts
or the Portfolios. Values allocated to the Separate Account and the amount of
Variable Annuity payments will rise and fall with the values of shares of the
Portfolios and are also reduced by Contract charges. We may also use the
Separate Account to fund our other annuity contracts. We will account
separately for each type of annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-457-7617. We
have reproduced the Table of Contents of the Statement of Additional
Information on page 47.
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
43 PROSPECTUS
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. Our books and records are subject to review by the
Department of Insurance at all times. We are also subject to regulation under
the insurance laws of every jurisdiction in which we operate.
FINANCIAL STATEMENTS. The financial statements of Lincoln Benefit and the
financial statements of the Separate Account, which are comprised of the
financial statements of the underlying Sub-Accounts, are set forth in the
Statement of Additional Information.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Variable Account. We entered into an administrative services agreement with The
Prudential Insurance Company of America ("PICA") whereby, PICA or an affiliate
provides administrative services to the Variable Account and the Contracts on
our behalf. In addition, PICA entered into a master services agreement with
se/2/, inc., of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se/2/, inc.
provides certain business process outsourcing services with respect to the
Contracts. se/2/, inc. may engage other service providers to provide certain
administrative functions. These service providers may change over time, and as
of December 31, 2009, consisted of the following: Keane Worldzen, Inc.
(administrative services) located at 625 North Michigan Avenue, Suite 1100,
Chicago, IL 60611; RR Donnelly Global Investment Markets (compliance printing
and mailing) located at 111 South Wacker Drive, Chicago, IL 60606; Jayhawk File
Express, LLC (file storage and document destruction) located at 601 E. 5th
Street, Topeka, KS 66601-2596; Co-Sentry.net, LLC (back-up printing and
disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114;
Convey Compliance Systems, Inc. (withholding calculations and tax statement
mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447;
Spangler Graphics, LLC (compliance mailings) located at 29305 44th Street,
Kansas City, KS 66106; Veritas Document Solutions, LLC (compliance mailings)
located at 913 Commerce Ct, Buffalo Grove, IL 60089; Records Center of Topeka,
a division of Underground Vaults & Storage, Inc. (back-up tapes storage)
located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; EquiSearch Services, Inc.
(lost shareholder search) located at 11 Martime Avenue, Suite 665, White
Plains, NY 10606; ZixCorp Systems, Inc. (email encryption) located at 2711 N.
Haskell Ave., Suite 2300, Dallas, TX 75204; DST Systems, Inc. (FAN mail,
positions, prices) located at 333 West 11 Street, 5th Floor, Kansas City, MO
64105.
In administering the Contracts, the following services are provided, among
others:
.. maintenance of Contract Owner records;
.. Contract Owner services;
.. calculation of unit values;
.. maintenance of the Variable Account; and
.. preparation of Contract Owner reports.
We will send you Contract statements at least annually. We will also send you
transaction confirmations. You should notify us promptly in writing of any
address change. You should read your statements and confirmations carefully and
verify their accuracy. You should contact us promptly if you have a question
about a periodic statement or a confirmation. We will investigate all
complaints and make any necessary adjustments retroactively, but you must
notify us of a potential error within a reasonable time after the date of the
questioned statement. If you wait too long, we will make the adjustment as of
the date that we receive notice of the potential error.
We will also provide you with additional periodic and other reports,
information and prospectuses as may be required by federal securities laws.
DISTRIBUTION OF CONTRACTS
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 6% of all Purchase Payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of Purchase Payments to broker-dealers who maintain certain sales volume levels.
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 Financial Industry Regulatory Authority.
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.
Lincoln Benefit and ALFS have also entered into wholesaling agreements with
certain independent contractors and their broker-dealers. Under these
agreements, compensation based on a percentage of premium payments and/or
Contract values is paid to the wholesaling broker-dealer for the wholesaling
activities of their registered representative.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Lincoln
Benefit is engaged in routine
44 PROSPECTUS
lawsuits which, in our management's judgment, are not of material importance to
their respective total assets or material with respect to the Separate Account.
LEGAL MATTERS
All matters of Nebraska law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Nebraska law, have
been passed upon by Susan L. Lees, General Counsel of Lincoln Benefit.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act
of 1933 as amended, with respect to the Contracts offered by this prospectus.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits filed as part of the registration
statement. You should refer to the registration statement and the exhibits for
further information concerning the Separate Account, Lincoln Benefit, and the
Contracts. The descriptions in this prospectus of the Contracts and other legal
instruments are summaries. You should refer to those instruments as filed for
the precise terms of those instruments. You may inspect and obtain copies of
the registration statement as described on the cover page of this prospectus.
ABOUT LINCOLN BENEFIT LIFE COMPANY
Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") exempts an insurance company from filing reports under the Exchange Act
when the insurance company issues certain types of insurance products that are
registered under the Securities Act of 1933 and such products are regulated
under state law. The variable annuities described in this prospectus fall
within the exemption provided under rule 12h-7. We rely on the exemption
provided under rule 12h-7 and do not file reports under the Exchange Act.
45 PROSPECTUS
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
------------------------------------------------------------
THE CONTRACT
------------------------------------------------------------
Annuity Payments
------------------------------------------------------------
Initial Monthly Annuity Payment
------------------------------------------------------------
Subsequent Monthly Payments
------------------------------------------------------------
Transfers After Annuity Date
------------------------------------------------------------
Annuity Unit Value
------------------------------------------------------------
Illustrative Example of Annuity Unit Value Calculation
------------------------------------------------------------
Illustrative Example of Variable Annuity Payments
------------------------------------------------------------
EXPERTS
------------------------------------------------------------
FINANCIAL STATEMENTS
------------------------------------------------------------
46 PROSPECTUS
APPENDIX A
- --------------------------------------------------------------------------------
ACCUMULATION UNIT VALUES
Appendix A presents the Accumulation Unit Values and number of Accumulation
Units outstanding for each Sub-Account since the Sub-Accounts were first
offered under the Contracts. This Appendix includes Accumulation Unit Values
representing the highest and lowest available combinations of Contract charges
that affect Accumulation Unit Values for each Contract. The Statement of
Additional Information, which is available upon request without charge,
contains the Accumulation Unit Values for all other available combinations of
Contract charges that affect Accumulation Unit Values for each Contract. Please
contact us at 1-800-457-7617 to obtain a copy of the Statement of Additional
Information.
The LBL Consultant Variable Annuity I Contracts and all of the Variable
Sub-Accounts shown below were first offered under the Contracts on September 9,
1998, except for the Oppenheimer Main Street Small Cap/VA - Service Shares
Sub-Account, PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative
Shares Sub-Account, PIMCO VIT Total Return - Administrative Shares Sub-Account,
Premier VIT OpCap Balanced Sub-Account, Premier VIT NACM Small Cap Portfolio
Class 1 Sub-Account, Putnam VT International Growth and Income - Class IB
Sub-Account, Van Kampen LIT Mid Cap Growth, Class II Sub-Account, Van Kampen
LIT Growth and Income, Class II Sub-Account which were first offered under the
Contracts on May 1, 2002; the AIM V.I. Basic Value - Series I Sub- Account,
Legg Mason ClearBridge Variable Investors Portfolio - Class I - Class I
Sub-Account, UIF U.S. Mid Cap Value, Class I Sub-Account which were first
offered under the Contracts on April 30, 2004; the Wells Fargo Advantage VT
Discovery Sub-Account, Wells Fargo Advantage VT Opportunity Sub-Account which
were first offered under the Contracts on April 8, 2005; and the DWS Balanced -
Class A Sub-Account which was first offered under the Contracts on April 29,
2005 and Janus Aspen Overseas Portfolio - Service Share Sub-Account which was
first offered under the Contracts on April 30, 2008. An "Accumulation Unit
Value" is a unit of measure used to calculate the value or a Contract Owner's
interest in a Sub-Account for any Valuation Period. An Accumulation Unit Value
does not reflect deduction of certain charges under the Contract that are
deducted from your Contract Value, such as the Contract Maintenance Charge.
On April 24, 2009, the Premier VIT OpCap Balanced Portfolio liquidated and the
Sub-Account is no longer available for investment. However, accumulation unit
values for the Sub-Account are included in the tables below because the
Sub-Account was available during part of the period ending December 31, 2009.
On April 30, 2009, the Ridgeworth Classic Large Cap Growth Stock Fund and the
Ridgeworth Classic Large Cap Value Equity Fund liquidated and the Sub-Accounts
are no longer available for investment. However, accumulation unit values for
the Sub-Accounts are included in the tables below because the Sub-Accounts were
available during part of the period ending December 31, 2009.
The name of the following Sub-Accounts changed since December 31, 2009. The
name shown in the tables of Accumulation Units correspond to the name of the
Sub-Accounts as of December 31, 2009:
SUB-ACCOUNT NAME AS OF
DECEMBER 31, 2009 (AS
APPEARS IN THE FOLLOWING
TABLES OF ACCUMULATION SUB-ACCOUNT NAME AS OF
UNIT VALUES) MAY 1, 2010
---------------------------------------------------
AIM V.I. Basic Value Fund Invesco V.I. Basic Value
Fund
Alger American LargeCap Alger LargeCap Growth
Growth Portfolio Portfolio
Alger American Income & Alger Income & Growth
Growth Portfolio Portfolio
Alger American Capital Alger Capital
Appreciation Portfolio Appreciation Portfolio
Alger American MidCap Alger MidCap Growth
Growth Portfolio Portfolio
Alger American SmallCap Alger SmallCap Growth
Growth Portfolio Portfolio
Legg Mason ClearBridge Legg Mason ClearBridge
Variable Investors Variable Large Cap Value
Portfolio Portfolio
Putnam VT International Putnam VT International
Growth and Income Fund Value Fund
47 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
AIM V.I. BASIC VALUE FUND--SERIES I
2004 $10.000 $10.821 269,780
2005 $10.821 $11.301 253,928
2006 $11.301 $12.634 235,944
2007 $12.634 $12.669 199,610
2008 $12.669 $6.034 176,998
2009 $6.034 $8.820 148,589
- ------------------------------------------------------------------------------------------------------------------------
ALGER LARGE CAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
LARGECAP GROWTH PORTFOLIO--CLASS O
2000 $15.750 $13.260 1,121,843
2001 $13.260 $11.540 996,256
2002 $11.540 $7.640 734,340
2003 $7.640 $10.198 807,544
2004 $10.198 $10.625 719,914
2005 $10.625 $11.756 607,853
2006 $11.756 $12.208 452,187
2007 $12.208 $14.460 340,976
2008 $14.460 $7.689 252,531
2009 $7.689 $11.206 202,899
- ------------------------------------------------------------------------------------------------------------------------
ALGER INCOME & GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
INCOME & GROWTH PORTFOLIO--CLASS O
2000 $16.170 $15.770 853,586
2001 $15.770 $13.340 888,850
2002 $13.340 $9.078 781,602
2003 $9.078 $11.641 775,012
2004 $11.641 $12.398 686,795
2005 $12.398 $12.665 553,769
2006 $12.665 $13.673 412,877
2007 $13.673 $14.870 289,123
2008 $14.870 $8.889 189,627
2009 $8.889 $11.603 144,735
- ------------------------------------------------------------------------------------------------------------------------
ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS I-2 FORMERLY, ALGER
AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS O
2000 $22.520 $16.720 682,579
2001 $16.720 $13.880 560,418
2002 $13.880 $9.061 474,441
2003 $9.061 $12.055 518,914
2004 $12.055 $12.881 454,884
2005 $12.881 $14.559 380,525
2006 $14.559 $17.148 318,953
2007 $17.148 $22.613 307,354
2008 $22.613 $12.252 182,353
2009 $12.252 $18.283 147,379
48 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -----------------------------------------------------------------------------------------------------------------------
ALGER MID CAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
MIDCAP GROWTH PORTFOLIO--CLASS O
2000 $15.100 $16.280 613,187
2001 $16.280 $15.030 515,103
2002 $15.030 $10.457 410,450
2003 $10.457 $15.264 559,837
2004 $15.264 $17.040 571,188
2005 $17.040 $18.482 583,687
2006 $18.482 $20.104 495,198
2007 $20.104 $26.119 395,122
2008 $26.119 $10.741 307,529
2009 $10.741 $16.093 251,589
- -----------------------------------------------------------------------------------------------------------------------
ALGER SMALLCAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
SMALLCAP GROWTH--CLASS O
2000 $16.020 $11.520 249,260
2001 $11.520 $8.020 328,999
2002 $8.020 $5.842 283,731
2003 $5.842 $8.212 468,871
2004 $8.212 $9.454 355,278
2005 $9.454 $10.913 404,918
2006 $10.913 $12.935 399,147
2007 $12.935 $14.976 268,659
2008 $14.976 $7.898 187,715
2009 $7.898 $11.349 171,410
- -----------------------------------------------------------------------------------------------------------------------
DWS BALANCED VIP--CLASS A
2005 $10.000 $10.602 449,167
2006 $10.602 $11.543 346,262
2007 $11.543 $11.950 249,164
2008 $11.950 $8.576 165,654
2009 $8.576 $10.454 114,278
- -----------------------------------------------------------------------------------------------------------------------
DWS BOND VIP--CLASS A
2000 $9.970 $10.880 155,500
2001 $10.880 $11.360 507,663
2002 $11.360 $12.081 558,679
2003 $12.081 $12.535 493,622
2004 $12.535 $13.046 507,579
2005 $13.046 $13.219 458,975
2006 $13.219 $13.671 362,090
2007 $13.671 $14.064 339,879
2008 $14.064 $11.560 255,646
2009 $11.560 $12.566 186,602
49 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -----------------------------------------------------------------------------------------
DWS GLOBAL OPPORTUNITIES VIP--CLASS A
2000 $17.650 $16.510 114,023
2001 $16.510 $12.290 103,294
2002 $12.290 $9.724 130,916
2003 $9.724 $14.317 193,561
2004 $14.317 $17.440 176,147
2005 $17.440 $20.357 193,166
2006 $20.357 $24.544 166,415
2007 $24.544 $26.499 131,794
2008 $26.499 $13.094 97,138
2009 $13.094 $19.164 83,558
- -----------------------------------------------------------------------------------------
DWS GROWTH & INCOME VIP--CLASS A
2000 $11.020 $10.660 192,522
2001 $10.660 $9.340 218,214
2002 $9.340 $7.087 201,541
2003 $7.087 $8.871 178,003
2004 $8.871 $9.651 150,151
2005 $9.651 $10.109 139,183
2006 $10.109 $11.345 102,347
2007 $11.345 $11.355 73,259
2008 $11.355 $6.918 49,772
2009 $6.918 $9.164 38,191
- -----------------------------------------------------------------------------------------
DWS INTERNATIONAL VIP--CLASS A
2000 $15.840 $12.250 113,301
2001 $12.250 $8.360 100,581
2002 $8.360 $6.743 105,081
2003 $6.743 $8.507 114,835
2004 $8.507 $9.790 121,969
2005 $9.790 $11.232 127,476
2006 $11.232 $13.967 127,598
2007 $13.967 $15.805 113,896
2008 $15.805 $8.083 101,279
2009 $8.083 $10.658 69,353
- -----------------------------------------------------------------------------------------
FEDERATED CAPITAL INCOME FUND II
2000 $11.180 $10.060 401,376
2001 $10.060 $8.570 420,723
2002 $8.570 $8.959 460,608
2003 $8.959 $7.668 309,555
2004 $7.668 $8.325 297,389
2005 $8.325 $8.738 271,194
2006 $8.738 $9.980 220,546
2007 $9.980 $10.253 154,739
2008 $10.253 $8.062 102,548
2009 $8.062 $10.213 101,513
50 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -------------------------------------------------------------------------------------------------------
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
2000 $10.080 $11.050 406,015
2001 $11.050 $11.670 1,994,814
2002 $11.670 $12.572 2,695,911
2003 $12.572 $12.710 1,589,894
2004 $12.710 $13.005 1,136,236
2005 $13.005 $13.104 879,855
2006 $13.104 $13.478 722,780
2007 $13.478 $14.146 603,659
2008 $14.146 $14.568 494,396
2009 $14.568 $15.136 374,113
- -------------------------------------------------------------------------------------------------------
FEDERATED HIGH INCOME BOND FUND II
2000 $9.950 $8.940 340,164
2001 $8.940 $8.950 785,823
2002 $8.950 $6.435 296,496
2003 $6.435 $10.814 707,583
2004 $10.814 $11.797 729,703
2005 $11.797 $11.960 606,875
2006 $11.960 $13.088 539,007
2007 $13.088 $13.368 432,506
2008 $13.368 $9.770 344,383
2009 $9.770 $14.748 260,044
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP ASSET MANAGER PORTFOLIO--INITIAL CLASS
2000 $11.850 $11.250 278,326
2001 $11.250 $10.650 334,328
2002 $10.650 $9.601 371,447
2003 $9.601 $11.186 420,226
2004 $11.186 $11.652 437,716
2005 $11.652 $11.973 433,897
2006 $11.973 $12.690 338,607
2007 $12.690 $14.474 252,896
2008 $14.474 $10.189 202,629
2009 $10.189 $12.992 144,646
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP CONTRAFUND PORTFOLIO--INITIAL CLASS
2000 $14.060 $12.970 1,001,494
2001 $12.970 $11.240 1,006,844
2002 $11.240 $10.060 1,084,534
2003 $10.060 $12.763 1,311,861
2004 $12.763 $14.555 1,438,118
2005 $14.555 $16.809 1,469,954
2006 $16.809 $18.546 1,308,454
2007 $18.546 $21.536 1,005,803
2008 $21.536 $12.226 742,971
2009 $12.226 $16.386 631,023
51 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME PORTFOLIO--INITIAL CLASS
2000 $11.370 $12.180 1,208,699
2001 $12.180 $11.430 1,289,762
2002 $11.430 $9.375 1,218,166
2003 $9.375 $12.067 1,403,132
2004 $12.067 $13.291 1,384,897
2005 $13.291 $13.896 1,176,532
2006 $13.896 $16.496 941,565
2007 $16.496 $16.539 684,837
2008 $16.539 $9.366 412,487
2009 $9.366 $12.044 308,304
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO--INITIAL CLASS
2000 $15.780 $13.870 1,300,830
2001 $13.870 $11.280 1,366,004
2002 $11.280 $7.786 1,121,334
2003 $7.786 $10.215 1,141,572
2004 $10.215 $10.429 1,091,575
2005 $10.429 $10.897 953,608
2006 $10.897 $11.500 769,995
2007 $11.500 $14.418 618,823
2008 $14.418 $7.523 492,708
2009 $7.523 $9.531 405,357
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP INDEX 500 PORTFOLIO--INITIAL CLASS
2000 $13.520 $12.110 1,795,382
2001 $12.110 $10.510 2,032,615
2002 $10.510 $8.073 1,782,207
2003 $8.073 $10.237 1,907,842
2004 $10.237 $11.183 1,817,054
2005 $11.183 $11.578 1,583,665
2006 $11.578 $13.233 1,319,112
2007 $13.233 $13.778 1,041,479
2008 $13.778 $8.572 756,199
2009 $8.572 $10.718 592,792
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO--INITIAL CLASS
2000 $10.540 $11.070 2,194,471
2001 $11.070 $11.390 2,969,960
2002 $11.390 $11.436 3,542,199
2003 $11.436 $11.406 2,015,425
2004 $11.406 $11.401 1,544,840
2005 $11.401 $11.601 1,335,848
2006 $11.601 $12.017 1,166,577
2007 $12.017 $12.487 1,221,039
2008 $12.487 $12.705 1,305,720
2009 $12.705 $12.637 985,343
52 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO--INITIAL CLASS
2000 $14.790 $11.810 132,253
2001 $11.810 $9.200 137,725
2002 $9.200 $7.240 200,173
2003 $7.240 $10.251 294,264
2004 $10.251 $11.504 402,967
2005 $11.504 $13.526 394,476
2006 $13.526 $15.773 366,639
2007 $15.773 $18.273 327,028
2008 $18.273 $10.141 276,821
2009 $10.141 $12.672 211,336
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES BALANCED PORTFOLIO--INSTITUTIONAL SHARES
2000 $14.630 $14.120 1,595,397
2001 $14.120 $13.290 1,044,409
2002 $13.290 $7.762 94,361
2003 $7.762 $13.832 1,496,830
2004 $13.832 $14.825 1,365,759
2005 $14.825 $15.805 1,195,782
2006 $15.805 $17.282 970,410
2007 $17.282 $18.865 747,492
2008 $18.865 $15.679 535,796
2009 $15.679 $19.493 427,444
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FLEXIBLE BOND PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.290 $10.800 218,753
2001 $10.800 $11.490 418,584
2002 $11.490 $12.280 1,721,351
2003 $12.280 $13.166 584,216
2004 $13.166 $13.519 527,949
2005 $13.519 $13.619 492,874
2006 $13.619 $14.017 393,774
2007 $14.017 $14.816 327,277
2008 $14.816 $15.514 272,856
2009 $15.514 $17.346 231,270
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES
2002 $10.000 $7.675 1,378,111
2003 $7.675 $10.226 58,782
2004 $10.226 $11.939 152,105
2005 $11.939 $12.526 114,760
2006 $12.526 $14.605 84,464
2007 $14.605 $17.055 73,894
2008 $17.055 $16.058 0
53 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN JANUS PORTFOLIO--INTERNATIONAL SHARES FORMERLY, JANUS ASPEN
SERIES LARGE CAP GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $16.860 $14.230 1,955,539
2001 $14.230 $10.570 1,856,493
2002 $10.570 $12.531 623,206
2003 $12.531 $9.984 1,211,583
2004 $9.984 $10.306 1,041,507
2005 $10.306 $10.614 860,239
2006 $10.614 $11.676 645,480
2007 $11.676 $13.270 469,901
2008 $13.270 $7.900 371,128
2009 $7.900 $10.637 290,538
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN ENTERPRISE PORTFOLIO--INSTITUTIONAL SHARES FORMERLY, JANUS
ASPEN SERIES MID CAP GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $27.320 $18.390 1,027,581
2001 $18.390 $11.000 926,849
2002 $11.000 $7.827 694,192
2003 $7.827 $10.443 656,913
2004 $10.443 $12.453 642,333
2005 $12.453 $13.812 539,509
2006 $13.812 $15.497 434,028
2007 $15.497 $18.677 344,083
2008 $18.677 $10.380 288,564
2009 $10.380 $14.846 221,943
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN WORLDWIDE PORTFOLIO--INSTITUTIONAL SHARES FORMERLY, JANUS
ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $17.350 $14.450 2,485,879
2001 $14.450 $11.070 2,316,369
2002 $11.070 $8.143 1,719,720
2003 $8.143 $9.971 1,479,355
2004 $9.971 $10.318 1,193,225
2005 $10.318 $10.788 997,853
2006 $10.788 $12.594 775,658
2007 $12.594 $13.634 562,020
2008 $13.634 $7.451 410,898
2009 $7.451 $10.132 336,082
- ---------------------------------------------------------------------------------------------------------------------------
LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY,
LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I
2004 $10.000 $10.954 60,840
2005 $10.954 $11.525 49,518
2006 $11.525 $13.461 49,417
2007 $13.461 $13.811 35,322
2008 $13.811 $8.781 26,875
2009 $8.781 $10.796 20,239
- ---------------------------------------------------------------------------------------------------------------------------
LSA BALANCED
2002 $10.000 $8.678 2,230
2003 $8.678 $11.074 83,852
54 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ---------------------------------------------------------------------------------------------
MFS GROWTH--INITIAL CLASS
2000 $20.500 $16.280 274,444
2001 $16.280 $10.690 331,023
2002 $10.690 $6.994 247,624
2003 $6.994 $8.995 248,807
2004 $8.995 $10.035 231,814
2005 $10.035 $10.821 202,017
2006 $10.821 $11.531 165,550
2007 $11.531 $13.798 126,996
2008 $13.798 $8.528 102,015
2009 $8.528 $11.594 78,308
- ---------------------------------------------------------------------------------------------
MFS INVESTORS TRUST SERIES--INITIAL CLASS
2000 $11.800 $11.630 217,691
2001 $11.630 $9.660 295,343
2002 $9.660 $7.536 269,101
2003 $7.536 $9.091 270,484
2004 $9.091 $9.998 244,156
2005 $9.998 $10.596 207,370
2006 $10.596 $11.824 171,767
2007 $11.824 $12.880 126,138
2008 $12.880 $8.512 100,457
2009 $8.512 $10.668 84,052
- ---------------------------------------------------------------------------------------------
MFS NEW DISCOVERY SERIES--INITIAL CLASS
2000 $19.440 $18.820 219,172
2001 $18.820 $17.650 188,675
2002 $17.650 $11.918 183,131
2003 $11.918 $15.738 224,760
2004 $15.738 $16.556 232,616
2005 $16.556 $17.209 188,078
2006 $17.209 $19.241 161,666
2007 $19.241 $19.479 139,957
2008 $19.479 $11.671 119,273
2009 $11.671 $18.809 94,439
- ---------------------------------------------------------------------------------------------
MFS RESEARCH SERIES--INITIAL CLASS
2000 $13.570 $12.750 240,203
2001 $12.750 $9.920 207,793
2002 $9.920 $7.389 186,178
2003 $7.389 $9.100 190,978
2004 $9.100 $10.412 189,969
2005 $10.412 $11.085 142,585
2006 $11.085 $12.095 119,287
2007 $12.095 $13.521 86,910
2008 $13.521 $8.534 55,904
2009 $8.534 $11.002 49,781
55 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- --------------------------------------------------------------------------------------------------------------
MFS TOTAL RETURN SERIES--INITIAL CLASS
2000 $10.800 $12.380 207,489
2001 $12.380 $12.250 436,363
2002 $12.250 $11.473 642,776
2003 $11.473 $13.180 943,486
2004 $13.180 $14.490 1,033,566
2005 $14.490 $14.714 970,559
2006 $14.714 $16.260 802,883
2007 $16.260 $16.734 661,560
2008 $16.734 $12.868 464,793
2009 $12.868 $15.000 347,219
- --------------------------------------------------------------------------------------------------------------
OPPENHEIMER MAIN STREET SMALL CAP FUND/VA - SERVICE SHARES
2002 $10.000 $7.847 97,205
2003 $7.847 $11.178 214,471
2004 $11.178 $13.157 347,171
2005 $13.157 $14.256 305,883
2006 $14.256 $16.144 279,529
2007 $16.144 $15.720 219,803
2008 $15.720 $9.625 151,992
2009 $9.625 $13.011 120,823
- --------------------------------------------------------------------------------------------------------------
PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)--
ADMINISTRATIVE SHARES
2002 $10.000 $10.565 75,670
2003 $10.565 $10.669 337,271
2004 $10.669 $11.122 347,113
2005 $11.122 $11.550 338,440
2006 $11.550 $11.657 247,334
2007 $11.657 $11.929 175,543
2008 $11.929 $11.501 185,837
2009 $11.501 $13.133 139,898
- --------------------------------------------------------------------------------------------------------------
PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES
2002 $10.000 $10.557 539,429
2003 $10.557 $10.951 1,001,817
2004 $10.951 $11.343 1,060,049
2005 $11.343 $11.476 1,156,641
2006 $11.476 $11.771 944,261
2007 $11.771 $12.643 737,286
2008 $12.643 $13.088 699,373
2009 $13.088 $14.744 709,743
- --------------------------------------------------------------------------------------------------------------
PREMIER VIT OPCAP BALANCED PORTFOLIO
2004 $10.000 $10.812 129,223
2005 $10.812 $10.971 113,375
2006 $10.971 $12.005 99,054
2007 $12.005 $11.330 58,167
2008 $11.330 $7.700 43,630
2009 $7.700 $7.432 0
56 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ----------------------------------------------------------------------------------------------------------------------
PREMIER VIT NACM SMALL CAP PORTFOLIO CLASS 1 FORMERLY, PREMIER VIT
OPCAP SMALL CAP PORTFOLIO
2002 $10.000 $7.200 88,999
2003 $7.200 $10.143 236,796
2004 $10.143 $11.809 274,798
2005 $11.809 $11.669 207,018
2006 $11.669 $14.300 198,198
2007 $14.300 $14.203 142,608
2008 $14.203 $8.186 108,005
2009 $8.186 $9.344 85,491
- ----------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND--CLASS IB
2002 $10.000 $8.198 38,105
2003 $8.198 $11.161 43,231
2004 $11.161 $13.335 89,040
2005 $13.335 $15.027 123,886
2006 $15.027 $18.881 158,576
2007 $18.881 $19.952 125,260
2008 $19.952 $10.636 74,027
2009 $10.636 $13.254 56,664
- ----------------------------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP GROWTH STOCK FUND
2000 $10.080 $10.260 23,194
2001 $10.260 $9.590 42,077
2002 $9.590 $7.397 56,403
2003 $7.397 $8.653 63,977
2004 $8.653 $9.123 60,421
2005 $9.123 $8.929 57,402
2006 $8.929 $9.773 67,263
2007 $9.773 $11.125 88,003
2008 $11.125 $6.517 81,011
2009 $6.517 $6.634 0
- ----------------------------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP VALUE EQUITY FUND
2000 $8.640 $9.420 10,105
2001 $9.420 $9.200 196,823
2002 $9.200 $7.540 104,266
2003 $7.540 $9.168 53,974
2004 $9.168 $10.439 192,125
2005 $10.439 $10.696 91,183
2006 $10.696 $12.937 142,829
2007 $12.937 $13.229 83,673
2008 $13.229 $8.781 59,269
2009 $8.781 $8.309 0
57 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO--I
2000 $11.050 $12.330 261,772
2001 $12.330 $12.360 581,145
2002 $12.360 $10.602 608,043
2003 $10.602 $13.140 744,659
2004 $13.140 $14.913 895,153
2005 $14.913 $15.306 874,317
2006 $15.306 $17.984 762,467
2007 $17.984 $18.339 575,733
2008 $18.339 $11.571 402,473
2009 $11.571 $14.353 288,947
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO--I
2000 $14.570 $11.520 65,454
2001 $11.520 $8.850 92,572
2002 $8.850 $7.137 99,915
2003 $7.137 $9.201 173,635
2004 $9.201 $10.338 264,060
2005 $10.338 $11.847 255,863
2006 $11.847 $13.934 244,192
2007 $13.934 $15.553 191,891
2008 $15.553 $7.879 149,103
2009 $7.879 $11.858 116,835
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO--I
2000 $14.060 $14.910 344,756
2001 $14.910 $14.590 368,137
2002 $14.590 $11.345 436,260
2003 $11.345 $15.505 619,155
2004 $15.505 $18.121 586,887
2005 $18.121 $20.534 504,417
2006 $20.534 $21.626 404,390
2007 $21.626 $25.097 295,779
2008 $25.097 $14.931 222,831
2009 $14.931 $21.476 160,985
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO--I
2000 $12.520 $11.050 100,767
2001 $11.050 $9.620 108,815
2002 $9.620 $6.813 165,424
2003 $6.813 $9.090 155,957
2004 $9.090 $9.995 173,326
2005 $9.955 $10.271 157,832
2006 $10.271 $10.888 129,696
2007 $10.888 $12.233 117,852
2008 $12.233 $7.461 92,406
2009 $7.461 $11.035 64,870
58 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY
MORTALITY & EXPENSE = 1.15
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II
2004 $10.000 $11.156 44,940
2005 $11.156 $12.242 49,948
2006 $12.242 $12.686 45,228
2007 $12.686 $14.732 39,490
2008 $14.732 $7.735 29,220
2009 $7.735 $11.945 38,907
- ------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II
2002 $10.000 $8.163 36,430
2003 $8.163 $10.293 152,145
2004 $10.293 $11.600 354,336
2005 $11.600 $12.570 434,444
2006 $12.570 $14.397 396,566
2007 $14.397 $14.576 306,627
2008 $14.576 $9.758 199,062
2009 $9.758 $11.960 183,308
- ------------------------------------------------------------------------------------------------------------------------
UIF U.S. MID CAP VALUE PORTFOLIO, CLASS I
2004 $10.000 $11.333 309,322
2005 $11.333 $12.570 353,741
2006 $12.570 $14.984 276,970
2007 $14.984 $15.958 210,481
2008 $15.958 $9.252 158,166
2009 $9.252 $12.720 131,570
- ------------------------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT DISCOVERY FUND
2005 $10.000 $11.481 293,780
2006 $11.481 $12.999 225,795
2007 $12.999 $15.702 161,353
2008 $15.702 $8.628 115,632
2009 $8.628 $11.956 82,156
- ------------------------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND
2005 $10.000 $11.040 510,068
2006 $11.040 $12.235 431,405
2007 $12.235 $12.884 339,846
2008 $12.884 $7.622 257,232
2009 $7.622 $11.120 196,311
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN
INTERNATIONAL GROWTH--SERVICE SHARES
2008 $10.000 $7.495 62,852
2009 $7.495 $13.254 86,323
* The Accumulation Unit Values in this table reflect a mortality and expense
risk charge of 1.15% and an administrative expense charge of 0.10%.
59 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
AIM V.I. BASIC VALUE FUND--SERIES I
2004 $10.000 $10.781 244,914
2005 $10.781 $11.197 251,607
2006 $11.197 $12.450 294,765
2007 $12.450 $12.415 241,174
2008 $12.415 $5.881 236,766
2009 $5.881 $8.549 231,753
- ------------------------------------------------------------------------------------------------------------------------
ALGER LARGE CAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
LARGECAP GROWTH PORTFOLIO--CLASS O
2000 $10.000 $8.160 11,130
2001 $8.160 $7.070 97,242
2002 $7.070 $4.651 108,296
2003 $4.651 $6.175 308,042
2004 $6.175 $6.398 439,952
2005 $6.398 $7.041 492,261
2006 $7.041 $7.271 413,156
2007 $7.271 $8.565 371,317
2008 $8.565 $4.529 324,912
2009 $4.529 $6.565 298,212
- ------------------------------------------------------------------------------------------------------------------------
ALGER INCOME & GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
INCOME & GROWTH PORTFOLIO--CLASS O
2000 $10.000 $9.280 32,338
2001 $9.280 $7.810 92,660
2002 $7.810 $5.284 202,665
2003 $5.284 $6.738 354,359
2004 $6.738 $7.137 396,418
2005 $7.137 $7.252 381,157
2006 $7.252 $7.786 339,270
2007 $7.786 $8.421 308,605
2008 $8.421 $5.006 254,925
2009 $5.006 $6.499 249,853
- ------------------------------------------------------------------------------------------------------------------------
ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS I-2 FORMERLY, ALGER
AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS O
2000 $10.000 $7.680 62,468
2001 $7.680 $6.340 136,468
2002 $6.340 $4.116 264,242
2003 $4.116 $5.447 542,296
2004 $5.447 $5.788 727,607
2005 $5.788 $6.506 721,253
2006 $6.506 $7.621 732,706
2007 $7.621 $9.995 759,050
2008 $9.995 $5.385 521,910
2009 $5.385 $7.992 457,894
60 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -----------------------------------------------------------------------------------------------------------------------
ALGER MID CAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
MIDCAP GROWTH PORTFOLIO--CLASS O
2000 $10.000 $9.440 123,576
2001 $9.440 $8.670 107,872
2002 $8.670 $5.996 295,309
2003 $5.996 $8.703 836,891
2004 $8.703 $9.663 999,864
2005 $9.663 $10.424 1,007,060
2006 $10.424 $11.277 894,467
2007 $11.277 $14.569 822,716
2008 $14.569 $5.959 721,972
2009 $5.959 $8.878 656,392
- -----------------------------------------------------------------------------------------------------------------------
ALGER SMALLCAP GROWTH PORTFOLIO--CLASS I-2 FORMERLY, ALGER AMERICAN
SMALLCAP GROWTH--CLASS O
2000 $10.000 $7.220 5,134
2001 $7.220 $4.990 116,699
2002 $4.990 $3.619 128,015
2003 $3.619 $5.060 283,201
2004 $5.060 $5.793 359,793
2005 $5.793 $6.651 408,709
2006 $6.651 $7.840 400,994
2007 $7.840 $9.027 386,201
2008 $9.027 $4.734 324,933
2009 $4.734 $6.765 302,059
- -----------------------------------------------------------------------------------------------------------------------
DWS BALANCED VIP--CLASS A
2005 $10.000 $10.562 140,966
2006 $10.562 $11.437 117,438
2007 $11.437 $11.776 108,626
2008 $11.776 $8.404 99,008
2009 $8.404 $10.189 96,552
- -----------------------------------------------------------------------------------------------------------------------
DWS BOND VIP--CLASS A
2000 $10.000 $10.190 24,670
2001 $10.610 $11.020 60,002
2002 $11.020 $11.655 89,305
2003 $11.655 $12.026 179,258
2004 $12.026 $12.447 242,774
2005 $12.447 $12.544 235,908
2006 $12.544 $12.902 203,670
2007 $12.902 $13.200 192,164
2008 $13.200 $10.790 162,984
2009 $10.790 $11.665 139,150
61 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -----------------------------------------------------------------------------------------
DWS GLOBAL OPPORTUNITIES VIP--CLASS A
2000 $10.000 $9.120 11,777
2001 $9.120 $6.750 24,877
2002 $6.750 $5.313 51,809
2003 $5.313 $7.780 159,642
2004 $7.780 $9.425 254,808
2005 $9.425 $10.942 309,298
2006 $10.942 $13.120 368,488
2007 $13.120 $14.087 319,396
2008 $14.087 $6.922 292,135
2009 $6.922 $10.076 295,598
- -----------------------------------------------------------------------------------------
DWS GROWTH & INCOME VIP--CLASS A
2000 $10.000 $9.590 3,100
2001 $9.590 $8.350 23,428
2002 $8.350 $6.305 37,769
2003 $6.305 $7.849 76,611
2004 $7.849 $8.492 99,749
2005 $8.492 $8.847 85,054
2006 $8.847 $9.874 79,081
2007 $9.874 $9.829 76,673
2008 $9.829 $5.955 67,583
2009 $5.955 $7.846 85,215
- -----------------------------------------------------------------------------------------
DWS INTERNATIONAL VIP--CLASS A
2000 $10.000 $8.710 4,151
2001 $8.710 $5.910 18,248
2002 $5.910 $4.740 36,822
2003 $4.740 $5.948 144,072
2004 $5.948 $6.808 174,503
2005 $6.808 $7.768 190,759
2006 $7.768 $9.606 229,934
2007 $9.606 $10.810 202,975
2008 $10.810 $5.498 253,788
2009 $5.498 $7.210 164,420
- -----------------------------------------------------------------------------------------
FEDERATED CAPITAL INCOME FUND II
2000 $10.000 $9.140 689
2001 $9.140 $7.740 1,970
2002 $7.740 $9.115 92,428
2003 $9.115 $6.855 51,656
2004 $6.855 $7.401 76,744
2005 $7.401 $7.726 76,010
2006 $7.726 $8.776 100,300
2007 $8.776 $8.966 65,968
2008 $8.966 $7.012 98,652
2009 $7.012 $8.834 87,864
62 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -------------------------------------------------------------------------------------------------------
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
2000 $10.000 $10.610 230
2001 $10.610 $11.150 69,662
2002 $11.150 $11.942 408,779
2003 $11.942 $12.006 580,553
2004 $12.006 $12.218 605,532
2005 $12.218 $12.243 530,059
2006 $12.243 $12.523 381,051
2007 $12.523 $13.072 721,964
2008 $13.072 $13.388 610,475
2009 $13.388 $13.834 473,221
- -------------------------------------------------------------------------------------------------------
FEDERATED HIGH INCOME BOND FUND II
2000 $10.000 $9.190 597
2001 $9.190 $9.150 52,109
2002 $9.150 $5.784 24,658
2003 $5.784 $10.941 246,278
2004 $10.941 $11.870 444,657
2005 $11.870 $11.968 439,857
2006 $11.968 $13.026 430,206
2007 $13.026 $13.231 379,607
2008 $13.231 $9.617 307,223
2009 $9.617 $14.437 275,990
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP ASSET MANAGER PORTFOLIO--INITIAL CLASS
2000 $10.000 $9.590 299
2001 $9.590 $9.030 33,474
2002 $9.030 $8.095 73,114
2003 $8.095 $9.379 116,121
2004 $9.379 $9.716 181,632
2005 $9.716 $9.929 176,415
2006 $9.929 $10.466 129,882
2007 $10.466 $11.872 125,667
2008 $11.872 $8.311 130,724
2009 $8.311 $10.540 122,598
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP CONTRAFUND PORTFOLIO--INITIAL CLASS
2000 $10.000 $9.380 19,089
2001 $9.380 $8.080 104,405
2002 $8.080 $7.195 348,537
2003 $7.195 $9.078 888,353
2004 $9.078 $10.296 1,158,838
2005 $10.296 $11.826 1,260,810
2006 $11.826 $12.977 1,273,768
2007 $12.977 $14.986 1,188,207
2008 $14.986 $8.461 1,080,956
2009 $8.461 $11.277 1,046,007
63 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME PORTFOLIO--INITIAL CLASS
2000 $10.000 $11.040 4,932
2001 $11.040 $10.300 75,559
2002 $10.300 $8.405 174,403
2003 $8.405 $10.759 306,020
2004 $10.759 $11.786 434,981
2005 $11.786 $12.255 395,964
2006 $12.255 $14.468 396,481
2007 $14.468 $14.426 349,218
2008 $14.426 $8.125 273,985
2009 $8.125 $10.390 270,828
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO--INITIAL CLASS
2000 $10.000 $8.390 52,890
2001 $8.390 $6.790 98,555
2002 $6.790 $4.659 305,305
2003 $4.659 $6.080 625,498
2004 $6.080 $6.173 939,071
2005 $6.173 $6.415 831,880
2006 $6.415 $6.732 682,021
2007 $6.732 $8.394 682,803
2008 $8.394 $4.356 663,776
2009 $4.356 $5.488 676,234
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP INDEX 500 PORTFOLIO--INITIAL CLASS
2000 $10.000 $9.040 102,744
2001 $9.040 $7.800 312,663
2002 $7.800 $5.960 365,351
2003 $5.960 $7.516 978,400
2004 $7.516 $8.166 1,444,339
2005 $8.166 $8.407 1,362,101
2006 $8.407 $9.557 1,346,569
2007 $9.557 $9.896 1,295,792
2008 $9.896 $6.123 1,150,557
2009 $6.123 $7.614 1,043,678
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO--INITIAL CLASS
2000 $10.000 $10.230 30,553
2001 $10.230 $10.470 140,649
2002 $10.470 $10.456 310,441
2003 $10.456 $10.373 819,516
2004 $10.373 $10.311 618,241
2005 $10.311 $10.435 694,730
2006 $10.435 $10.750 725,670
2007 $10.750 $11.108 714,035
2008 $11.108 $11.240 1,173,850
2009 $11.240 $11.119 894,758
64 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO--INITIAL CLASS
2000 $10.000 $8.440 6,868
2001 $8.440 $6.540 58,855
2002 $6.540 $5.119 109,892
2003 $5.119 $7.208 235,043
2004 $7.208 $8.045 382,839
2005 $8.045 $9.406 426,944
2006 $9.406 $10.909 513,031
2007 $10.909 $12.569 470,601
2008 $12.569 $6.937 476,598
2009 $6.937 $8.620 469,624
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES BALANCED PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.000 $9.620 43,584
2001 $9.620 $9.000 199,196
2002 $9.000 $8.273 356,912
2003 $8.273 $9.267 699,022
2004 $9.267 $9.878 705,500
2005 $9.878 $10.473 691,502
2006 $10.473 $11.389 664,165
2007 $11.389 $12.364 559,884
2008 $12.364 $10.220 522,134
2009 $10.220 $12.636 495,193
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FLEXIBLE BOND PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.000 $10.400 25
2001 $10.400 $11.010 104,700
2002 $11.010 $11.943 114,051
2003 $11.943 $12.480 254,643
2004 $12.480 $12.743 312,969
2005 $12.743 $12.767 291,063
2006 $12.767 $13.069 350,195
2007 $13.069 $13.738 380,041
2008 $13.738 $14.306 355,482
2009 $14.306 $15.908 323,948
- --------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES
2002 $10.000 $7.734 36,688
2003 $7.734 $10.132 37,023
2004 $10.132 $11.765 71,988
2005 $11.765 $12.276 79,929
2006 $12.276 $14.235 72,800
2007 $14.235 $16.532 78,321
2008 $16.532 $15.537 0
65 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN JANUS PORTFOLIO--INTERNATIONAL SHARES FORMERLY, JANUS ASPEN
SERIES LARGE CAP GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.000 $8.320 98,273
2001 $8.320 $6.150 116,481
2002 $6.150 $4.441 162,987
2003 $4.441 $5.746 251,235
2004 $5.746 $5.898 275,805
2005 $5.898 $6.042 257,364
2006 $6.042 $6.610 266,266
2007 $6.610 $7.471 225,942
2008 $7.471 $4.423 195,932
2009 $4.423 $5.923 193,524
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN ENTERPRISE PORTFOLIO--INSTITUTIONAL SHARES FORMERLY, JANUS
ASPEN SERIES MID CAP GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.000 $6.650 272,048
2001 $6.650 $3.960 266,218
2002 $3.960 $2.799 307,400
2003 $2.799 $3.715 412,644
2004 $3.715 $4.405 466,868
2005 $4.405 $4.860 505,828
2006 $4.860 $5.423 510,006
2007 $5.423 $6.499 505,513
2008 $6.499 $3.592 433,329
2009 $3.592 $5.110 419,789
- ---------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN WORLDWIDE PORTFOLIO--INSTITUTIONAL SHARES FORMERLY, JANUS
ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO--INSTITUTIONAL SHARES
2000 $10.000 $8.190 66,346
2001 $8.190 $6.240 167,331
2002 $6.240 $4.564 245,789
2003 $4.564 $5.558 365,025
2004 $5.558 $5.719 414,342
2005 $5.719 $5.947 364,847
2006 $5.947 $6.905 335,256
2007 $6.905 $7.434 327,739
2008 $7.434 $4.040 279,358
2009 $4.040 $5.464 445,607
- ---------------------------------------------------------------------------------------------------------------------------
LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY,
LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I
2004 $10.000 $10.913 47,102
2005 $10.913 $11.419 45,145
2006 $11.419 $13.264 47,405
2007 $13.264 $13.534 46,980
2008 $13.534 $8.557 42,904
2009 $8.557 $10.464 43,855
- ---------------------------------------------------------------------------------------------------------------------------
LSA BALANCED
2002 $10.000 $8.646 2,157
2003 $8.646 $10.973 46,166
66 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ---------------------------------------------------------------------------------------------
MFS GROWTH--INITIAL CLASS
2000 $10.000 $8.150 66,991
2001 $8.150 $5.330 107,324
2002 $5.330 $3.465 123,692
2003 $3.465 $4.432 227,669
2004 $4.432 $4.917 274,686
2005 $4.917 $5.273 269,766
2006 $5.273 $5.588 247,942
2007 $5.588 $6.650 220,878
2008 $6.650 $4.087 314,346
2009 $4.087 $5.527 175,017
- ---------------------------------------------------------------------------------------------
MFS INVESTORS TRUST SERIES--INITIAL CLASS
2000 $10.000 $9.850 3,223
2001 $9.850 $8.130 22,985
2002 $8.130 $6.308 52,812
2003 $6.308 $7.567 121,843
2004 $7.567 $8.276 136,211
2005 $8.276 $8.724 135,382
2006 $8.724 $9.682 134,594
2007 $9.682 $10.488 127,128
2008 $10.488 $6.893 180,349
2009 $6.893 $8.591 197,186
- ---------------------------------------------------------------------------------------------
MFS NEW DISCOVERY SERIES--INITIAL CLASS
2000 $10.000 $8.970 113,237
2001 $8.970 $8.360 118,208
2002 $8.360 $5.615 205,837
2003 $5.615 $7.374 477,819
2004 $7.374 $7.715 623,501
2005 $7.715 $7.975 560,525
2006 $7.975 $8.868 514,110
2007 $8.868 $8.928 480,804
2008 $8.928 $5.320 407,025
2009 $5.320 $8.527 412,667
- ---------------------------------------------------------------------------------------------
MFS RESEARCH SERIES--INITIAL CLASS
2000 $10.000 $8.870 6,208
2001 $8.870 $6.860 23,332
2002 $6.860 $5.084 32,958
2003 $5.084 $6.227 50,336
2004 $6.227 $7.085 53,593
2005 $7.085 $7.502 52,102
2006 $7.502 $8.141 49,634
2007 $8.141 $9.050 50,049
2008 $9.050 $5.681 46,891
2009 $5.681 $7.284 43,067
67 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- -------------------------------------------------------------------------------------------------------------
MFS TOTAL RETURN SERIES--INITIAL CLASS
2000 $10.000 $11.200 8,401
2001 $11.200 $11.030 60,889
2002 $11.030 $10.273 250,026
2003 $10.273 $11.736 454,021
2004 $11.736 $12.832 590,723
2005 $12.832 $12.959 622,265
2006 $12.959 $14.243 569,919
2007 $14.243 $14.577 589,170
2008 $14.577 $11.148 454,138
2009 $11.148 $12.923 417,681
- -------------------------------------------------------------------------------------------------------------
OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES
2002 $10.000 $7.818 41,593
2003 $7.818 $11.076 193,863
2004 $11.076 $12.965 323,468
2005 $12.965 $13.972 312,606
2006 $13.972 $15.735 325,308
2007 $15.735 $15.238 316,074
2008 $15.238 $9.278 291,787
2009 $9.278 $12.473 266,203
- -------------------------------------------------------------------------------------------------------------
PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)--
ADMINISTRATIVE SHARES
2002 $10.000 $10.526 4,596
2003 $10.526 $10.571 79,683
2004 $10.571 $10.960 100,873
2005 $10.960 $11.319 106,489
2006 $11.319 $11.362 99,214
2007 $11.362 $11.563 106,231
2008 $11.563 $11.086 122,885
2009 $11.086 $12.591 135,635
- -------------------------------------------------------------------------------------------------------------
PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES
2002 $10.000 $10.518 85,455
2003 $10.518 $10.851 428,033
2004 $10.851 $11.178 604,097
2005 $11.178 $11.247 614,406
2006 $11.247 $11.473 512,461
2007 $11.473 $12.255 483,376
2008 $12.255 $12.616 572,089
2009 $12.616 $14.135 536,002
- -------------------------------------------------------------------------------------------------------------
PREMIER VIT OPCAP BALANCED PORTFOLIO
2004 $10.000 $10.772 91,944
2005 $10.772 $10.870 106,673
2006 $10.870 $11.829 97,834
2007 $11.829 $11.102 94,157
2008 $11.102 $7.504 80,619
2009 $7.504 $7.230 0
68 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ----------------------------------------------------------------------------------------------------------------------
PREMIER VIT NACM SMALL CAP PORTFOLIO CLASS 1 FORMERLY, PREMIER VIT
OPCAP SMALL CAP PORTFOLIO
2002 $10.000 $7.173 8,929
2003 $7.173 $10.051 172,641
2004 $10.051 $11.637 244,720
2005 $11.637 $11.436 236,295
2006 $11.436 $13.938 205,170
2007 $13.938 $13.767 172,785
2008 $13.767 $7.892 167,008
2009 $7.892 $8.958 160,896
- ----------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND--CLASS IB
2002 $10.000 $8.168 6,727
2003 $8.168 $11.059 39,731
2004 $11.059 $13.141 58,105
2005 $13.141 $14.727 61,333
2006 $14.727 $18.403 109,461
2007 $18.403 $19.339 175,336
2008 $19.339 $10.253 80,251
2009 $10.253 $12.707 72,272
- ----------------------------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP GROWTH STOCK FUND
2000 $10.000 $9.630 903
2001 $9.630 $8.950 7,596
2002 $8.950 $6.870 31,178
2003 $6.870 $7.992 54,246
2004 $7.992 $8.380 63,858
2005 $8.380 $8.157 58,249
2006 $8.157 $8.879 51,761
2007 $8.879 $10.052 47,830
2008 $10.052 $5.856 43,139
2009 $5.856 $5.951 0
- ----------------------------------------------------------------------------------------------------------------------
RIDGEWORTH LARGE CAP VALUE EQUITY FUND
2000 $10.000 $11.700 1,615
2001 $11.700 $11.360 18,026
2002 $11.360 $9.262 19,587
2003 $9.262 $11.201 30,898
2004 $11.201 $12.683 100,258
2005 $12.683 $12.925 68,271
2006 $12.925 $15.546 93,618
2007 $15.546 $15.810 49,278
2008 $15.810 $10.437 30,278
2009 $10.437 $9.859 0
69 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO--I
2000 $10.000 $11.520 113
2001 $11.520 $11.480 47,501
2002 $11.480 $9.895 228,732
2003 $9.895 $12.073 526,597
2004 $12.073 $13.627 761,565
2005 $13.627 $13.909 796,314
2006 $13.909 $16.254 661,730
2007 $16.254 $16.483 601,481
2008 $16.483 $10.343 537,201
2009 $10.343 $12.759 523,378
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO--I
2000 $10.000 $8.550 5,575
2001 $8.550 $6.530 16,460
2002 $6.530 $5.239 39,170
2003 $5.239 $6.716 110,909
2004 $6.716 $7.505 176,753
2005 $7.505 $8.554 203,771
2006 $8.554 $10.006 257,698
2007 $10.006 $11.107 256,965
2008 $11.107 $5.596 188,929
2009 $5.596 $8.375 202,112
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO--I
2000 $10.000 $10.060 6,092
2001 $10.060 $9.790 82,744
2002 $9.790 $7.569 231,318
2003 $7.569 $10.288 574,018
2004 $10.288 $11.957 675,635
2005 $11.957 $13.476 621,478
2006 $13.476 $14.114 575,076
2007 $14.114 $16.289 538,625
2008 $16.289 $9.638 472,274
2009 $9.638 $13.787 438,741
- --------------------------------------------------------------------------------------------------
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO--I
2000 $10.000 $9.010 0
2001 $9.010 $7.800 14,973
2002 $7.800 $5.489 80,509
2003 $5.489 $7.284 84,065
2004 $7.284 $7.933 120,707
2005 $7.933 $8.140 126,892
2006 $8.140 $8.581 132,467
2007 $8.581 $9.589 126,622
2008 $9.589 $5.816 125,436
2009 $5.816 $8.555 120,111
70 PROSPECTUS
LBL CONSULTANT I VARIABLE ANNUITY--PROSPECTUS
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH
VARIABLE SUB-ACCOUNT*
BASIC POLICY PLUS DEATH BENEFIT AND INCOME BENEFIT RIDER II
MORTALITY & EXPENSE = 1.7
Number of
Accumulation Accumulation Units
For the Year Unit Value Unit Value Outstanding
Ending at Beginning at End at End
Sub-Accounts December 31 of Period of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II
2004 $10.000 $11.114 77,019
2005 $11.114 $12.130 52,894
2006 $12.130 $12.500 60,010
2007 $12.500 $14.437 59,849
2008 $14.437 $7.538 46,687
2009 $7.538 $11.577 51,595
- ------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II
2002 $10.000 $8.133 12,359
2003 $8.133 $10.199 106,750
2004 $10.199 $11.431 238,529
2005 $11.431 $12.319 277,577
2006 $12.319 $14.033 291,195
2007 $14.033 $14.129 213,247
2008 $14.129 $9.407 187,559
2009 $9.407 $11.466 182,380
- ------------------------------------------------------------------------------------------------------------------------
UIF U.S. MID CAP VALUE PORTFOLIO, CLASS I
2004 $10.000 $11.290 220,091
2005 $11.290 $12.455 280,918
2006 $12.455 $14.765 311,438
2007 $14.765 $15.638 269,763
2008 $15.638 $9.017 244,967
2009 $9.017 $12.329 201,588
- ------------------------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT DISCOVERY FUND
2005 $10.000 $11.435 177,119
2006 $11.435 $12.876 174,427
2007 $12.876 $15.468 167,923
2008 $15.468 $8.453 150,363
2009 $8.453 $11.648 130,113
- ------------------------------------------------------------------------------------------------------------------------
WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND
2005 $10.000 $10.996 449,486
2006 $10.996 $12.120 420,788
2007 $12.120 $12.692 391,679
2008 $12.692 $7.467 344,261
2009 $7.467 $10.835 303,876
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN
INTERNATIONAL GROWTH--SERVICE SHARES
2008 $10.000 $7.225 81,678
2009 $7.225 $12.707 127,139
* The Accumulation Unit Values in this table reflect a mortality and expense
risk charge of 1.70% and an administrative expense charge of 0.10%.
71 PROSPECTUS
LBL3055-7
[LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of issuance and Distribution.
Registrant anticipates that it will incur the following approximate expenses in
connection with the issuance and distribution of the securities to be
registered:
Registration fees.................. $ 0
Cost of printing and engraving..... $4,000.00
Legal fees......................... $ 0
Accounting fees.................... $ 3,000
Mailing fees....................... $6,500.00
Item 14. Indemnification of Directors and Officers
The Articles of Incorporation of Lincoln Benefit Life Company (Registrant)
provide for the indemnification of its directors and officers against expenses,
judgments, fines and amounts paid in settlement as incurred by such person, so
long as such person shall not have been adjudged to be liable for negligence or
misconduct in the performance of a duty to the Company. This right of indemnity
is not exclusive of other rights to which a director or officer may otherwise be
entitled.
The By-Laws of ALFS, Inc. (Distributor) provide that the corporation will
indemnify a director, officer, employee or agent of the corporation to the full
extent of Delaware law. In general, Delaware law provides that a corporation may
indemnify a director, officer, employee or agent against expenses, judgments,
fines and amounts paid in settlement if that individual acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
No indemnification shall be made for expenses, including attorney's fees, if the
person shall have been judged to be liable to the corporation unless a court
determines such person is entitled to such indemnity. Expenses incurred by such
individual in defending any action or proceeding may be advanced by the
corporation so long as the individual agrees to repay the corporation if it is
later determined that he or she is not entitled to such indemnification.
Under the terms of the form of Underwriting Agreement, the Registrant agrees to
indemnify the Distributor for any liability that the latter may incur to a
Contract owner or party-in-interest under a Contract, (a) arising out of any act
or omission in the course of or in connection with rendering services under such
Agreement, or (b) arising out of the purchase, retention or surrender of a
Contract; provided that the Registrant will not indemnify the Distributor for
any such liability that results from the latter's willful misfeasance, bad faith
or grow negligence, or from the reckless disregard by the latter of its duties
and obligations under the Underwriting Agreement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES
During the period beginning on December 1, 2008 and ending on March 26, 2009,
the Registrant inadvertently sold participating interests in existing deferred
annuity contracts pursuant to registration statements on Form S-3 that were not
in compliance with Rule 415(a)(5) under the Securities Act of 1933. The
aggregate amount of securities sold was $13,933,172. Purchasers, however, did
receive all material information relating to the security prior to sale,
including the prospectus from the existing registration statement. When the
technical violation was discovered, the Registrant filed new registration
statements on Form S-3 with the Commission to comply with the requirements of
Rule 415(a)(5) for continuous offering. These registration statements were
declared effective on March 27, 2009 (SEC File Nos. 333-158172, 333-158176,
333-158180, 333-158181, 333-158192). Although the legal effect of a violation of
Rule 415(a)(5) is not entirely clear, the Registrant may have been deemed to
have inadvertently sold unregistered securities during the time period noted
above. New procedures have been implemented to ensure timely submission of
future registration statement filings.
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
16(a)
Exh. No. Description
1 Principal Underwriting Agreement. Incorporated herein by reference to
Post-Effective Amendment to Form N-4 for Lincoln Benefit Life Variable
Annuity Account (File No. 333- 50545, 811- 07924) filed January 28,
1999
3(i) Amended and Restated Articles of Incorporation of Lincoln Benefit Life
Company dated September 26, 2000. Incorporated herein by reference to
Exhibit 3(i) to Lincoln Benefit Life Company's Quarterly Report on
Form 10-Q for quarter ended March 31, 2002. (SEC File No. 333-111553)
3(ii) Amended and Restated By-Laws of Lincoln Benefit Life Company effective
March 10, 2006. Incorporated herein by reference to Exhibit 3.2 to
Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006. (SEC File No. 333-111553)
4(a) Form of Variable Annuity Contract. Incorporated herein by reference to
Registration Statement on Form N-4 for Lincoln Benefit Life Variable
Annuity Account (File No. 333-50545, 811-07924) filed April 21, 1998
4(b) Form of Application. Incorporated herein by reference to
Registration Statement on Form N-4 for Lincoln Benefit Life Variable
Annuity Account (File No. 333-50545, 811-07924) filed April 21, 1998
5(a) Opinion and Consent of Counsel regarding legality. Incorporated herein
by reference to Post-Effective Amendment to Form S-1 on Form S-3 for
Lincoln Benefit Life Company (File No. 333-59765) filed April 28, 2000.
5(b) Opinion and Consent of Counsel regarding legality. Opinion of General
Counsel Re: Legality (Incorporated herein by reference to Registrant's
Form S-3 Registration Statement (File No. 333-158192) dated March 24,
2009)
8 None
9 None
10 Material Contracts
10.1 Form of Investment Management Agreement among Allstate Investments,
LLC, Allstate Insurance Company, The Allstate Corporation and certain
affiliates effective January 1, 2007. Incorporated herein by reference
to Exhibit 10.12 to Allstate Life Insurance Company's Annual Report on
Form 10-K for 2007. (SEC File No. 000-31248)
10.2 Form of Tax Sharing Agreement among The Allstate Corporation and
certain affiliates dated as of November 12, 1996. Incorporated herein
by reference to Exhibit 10.24 to Allstate Life Insurance Company's
Annual Report on Form 10-K for 2007. (SEC File No. 000-31248)
10.3 Supplemental Intercompany Tax Sharing Agreement between Allstate Life
Insurance Company and Lincoln Benefit Life Company effective December
21, 2000. Incorporated herein by reference to Exhibit 10.3 to Lincoln
Benefit Life Company's Annual Report on Form 10-K for the year ended
December 31, 2009. (SEC File No. 333-111553)
10.4 Cash Management Services Master Agreement between Allstate Insurance
Company and Allstate Bank (aka Allstate Federal Savings Bank) dated
March 16, 1999. Incorporated herein by reference to Exhibit 10.4 to
Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for
quarter ended March 31, 2002. (SEC File No. 333-111553)
10.5 Amendment No.1 to Cash Management Services Master Agreement effective
January 5, 2001. Incorporated herein by reference to Exhibit 10.5 to
Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for
quarter ended March 31, 2002. (SEC File No. 333-111553)
10.6 Amendment No. 2 entered into November 8, 2002 to the Cash Management
Services Master Agreement between Allstate Insurance Company, Allstate
Bank and Allstate Motor Club, Inc. dated March 16, 1999. Incorporated
herein by reference to Exhibit 10.19 to Allstate Life Insurance
Company's Annual Report on Form 10-K filed for 2007. (SEC File No.
000-31248)
10.7 Premium Depository Service Supplement dated as of September 30, 2005
to Cash Management Services Master Agreement between Allstate
Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
certain other parties. Incorporated herein by reference to Exhibit
10.20 to Allstate Life Insurance Company's Annual Report on Form 10-K
filed for 2007. (SEC File No. 000-31248)
10.8 Variable Annuity Service Supplement dated November 10, 2005 to Cash
Management Services Agreement between Allstate Bank, Allstate Life
Insurance Company of New York and certain other parties. Incorporated
herein by reference to Exhibit 10.21 to Allstate Life Insurance
Company's Annual Report on Form 10-K filed for 2007. (SEC File No.
000-31248)
10.9 Sweep Agreement Service Supplement dated as of October 11, 2006 to
Cash Management Services Master Agreement between Allstate Life
Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and
certain other companies. Incorporated herein by reference to Exhibit
10.22 to Allstate Life Insurance Company's Annual Report on Form 10-K
filed for 2007. (SEC File No. 000-31248)
10.10 Form of Amended and Restated Service and Expense Agreement between
Allstate Insurance Company, The Allstate Corporation and certain
affiliates effective January 1, 2004. Incorporated herein by reference
to Exhibit 10.1 to Allstate Life Insurance Company's Annual Report on
Form 10-K for 2007. (SEC File No. 000-31248)
10.11 Form of Amendment No. 1 to Amended and Restated Service and Expense
Agreement between Allstate Insurance Company, The Allstate Corporation
and certain affiliates effective January 1, 2009. Incorporated herein
by reference to Exhibit 10.1 to Allstate Life Insurance Company's
Current Report on Form 8-K filed February 17, 2010. (SEC File No.
000-31248)
10.12 Administrative Services Agreement between Lincoln Benefit Life Company
and Allstate Life Insurance Company effective June 1, 2006.
Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit
Life Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006. (SEC File No. 333-111553)
10.13 Principal Underwriting Agreement between Lincoln Benefit Life Company
and ALFS, Inc., effective November 25, 1998. (Variable Universal Life
Account). Incorporated herein by reference to Exhibit 10.6 to Lincoln
Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended
June 30, 2002. (SEC File No. 333-111553)
10.14 Amended and Restated Principal Underwriting Agreement between Lincoln
Benefit Life Company and ALFS, Inc. effective June 1, 2006.
Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit
Life Company's Current Report on Form 8-K filed December 20, 2007.
(SEC File No. 333-111553)
10.15 Selling Agreement between Lincoln Benefit Life Company, ALFS, Inc.
(f/k/a Allstate Financial Services, Inc.) and Allstate Financial
Services, LLC (f/k/a LSA Securities, Inc.) effective August 2, 1999.
Incorporated herein by reference to Exhibit 10.8 to Allstate Life
Insurance Company's Annual Report on Form 10-K for 2003. (SEC File No.
000-31248)
10.16 Coinsurance Agreement between Allstate Life Insurance Company and
Lincoln Benefit Life Company, effective December 31, 2001.
Incorporated herein by reference to Exhibit 10.11 to Lincoln Benefit
Life Company's Quarterly Report on Form 10-Q for quarter ended June
30, 2002. (SEC File No. 333-111553)
10.17 Modified Coinsurance Agreement between Allstate Life Insurance Company
and Lincoln Benefit Life Company, effective December 31, 2001.
Incorporated herein by reference to Exhibit 10.12 to Lincoln Benefit
Life Company's Quarterly Report on Form 10-Q for quarter ended June
30, 2002. (SEC File No. 333-111553)
10.18 Modified Coinsurance Agreement between Allstate Life Insurance Company
and Lincoln Benefit Life Company, effective December 31, 2001.
Incorporated herein by reference to Exhibit 10.13 to Lincoln Benefit
Life Company's Quarterly Report on Form 10-Q for quarter ended June
30, 2002. (SEC File No. 333-111553)
10.19 Intercompany Loan Agreement among The Allstate Corporation, Allstate
Life Insurance Company, Lincoln Benefit Life Company and other certain
subsidiaries of The Allstate Corporation dated February 1, 1996.
Incorporated herein by reference to Exhibit 10.24 of Allstate Life
Insurance Company's Annual Report on Form 10-K for 2006. (SEC File No.
000-31248)
10.20 Form of Service Agreement between Lincoln Benefit Life Company and
Allstate Assignment Company effective June 25, 2001. Incorporated
herein by reference to Exhibit 10.22 of Lincoln Benefit Life Company's
Annual Report on Form 10-K for 2007. (SEC File No. 333-111553)
10.21 First Amendment to Service Agreement between Lincoln Benefit Life
Company and Allstate Assignment Company effective December 1, 2007.
Incorporated herein by reference to Exhibit 10.23 of Lincoln Benefit
Life Company's Annual Report on Form 10-K for 2007. (SEC File No.
333-111553)
10.22 Agreement for the Settlement of State and Local Tax Credits among
Allstate Insurance Company and certain affiliates effective January 1,
2007. Incorporated herein by reference to Exhibit 10.1 to Lincoln
Benefit Life Company's Current Report on Form 8-K filed February 21,
2008. (SEC File No. 333-111553)
10.23 Administrative Services Agreement between ALFS, Inc., Allstate Life
Insurance Company, Lincoln Benefit Life Company and Charter National
Life Insurance Company effective January 1, 2000. Incorporated herein
by reference to Exhibit 10.22 to Lincoln Benefit Life Company's Annual
Report on Form 10-K for the year ended December 31, 2008. (SEC File
No. 333-111553)
11 None
12 None
15 Not applicable
16 Letter re change in certifying accountant. Not Applicable.
21 Subsidiaries of the registrant. Not applicable.
23 Consent of Independent Registered Public Accounting Firm.
Filed herewith.
24(a) Powers of Attorney for Lawrence W. Dahl, Matthew S. Easley, Susan L.
Lees, Samuel H. Pilch, and John Pintozzi. Incorporated herein by
reference to the Registration Statement on Form S-3 File No. 333-158192
dated March 24, 2009.
24(b) Power of Attorney for Matthew E. Winter. 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.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the determining of any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of
a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
(5) That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424 ((S)230.424
of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted in directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lincoln and State of Nebraska on April 14, 2010.
LINCOLN BENEFIT LIFE COMPANY (Registrant)
* By: /s/ Susan L. Lees
-------------------------------------
Susan L. Lees
Director, Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons and in the capacities
indicated on April 14, 2010.
(Signature) (Title)
*/ Lawrence W. Dahl Director, President, and Chief Operating Officer
- -----------------------------
Lawrence W. Dahl
*/ Matthew S. Easley Director and Senior Vice President
- -----------------------------
Matthew S. Easley
/s/ Susan L. Lees Director, Senior Vice President,
- ----------------------------- General Counsel and Secretary
Susan L. Lees
*/ Samuel H. Pilch Group Vice President and Controller
- -----------------------------
Samuel H. Pilch
*/ John C. Pintozzi Director, Senior Vice President and
- ----------------------------- Chief Financial Officer
John C. Pintozzi
*/ Matthew E. Winter Director, Chief Executive Officer and
- ----------------------------- Chairman of the Board
Matthew E. Winter
* By Susan L. Lees, pursuant to Power of Attorney.
EXHIBITS
Exhibit No. Description
23 Consent of Independent Registered Public Accounting Firm
24(b) Power of Attorney for Matthew E. Winter