485BPOS 1 f4037d1.htm 485BPOS
As filed with Securities and Exchange Commission on April 29, 2020.
File Nos. 333-185804
811-07727
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
  
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 [X]
(Check Appropriate Box or Boxes)
Variable Annuity Account Five
(Exact Name of Registrant)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)
2727-A Allen Parkway, Houston, Texas 77019
(Address of Depositor’s Principal Executive Offices) (Zip Code)
Depositor’s Telephone Number, including Area Code: (800) 871-2000
American Home Assurance Company
(Name of Guarantor)
175 Water Street, New York, NY 10038
(Address of Guarantor’s Principal Executive Offices) (Zip Code)
Guarantor’s Telephone Number, including Area Code: (212) 770-7000
Manda Ghaferi, Esq.
American General Life Insurance Company
21650 Oxnard Street Suite 750, Woodland Hills, California 91367
(Name and Address of Agent for Service for Depositor, Registrant and Guarantor)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
□  immediately upon filing pursuant to paragraph (b) of Rule 485
☒  on April 30, 2020 pursuant to paragraph (b) of Rule 485
□  60 days after filing pursuant to paragraph (a)(1) of Rule 485
□  on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
□  This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Title of Securities Being Registered: (i) Units of interest in Variable Annuity Account Five of American General Life Insurance Company under variable annuity contracts and (ii) guarantee related to insurance obligations under the variable annuity contracts.

 

Variable Annuity Account Five
Cross Reference Sheet
Part A — Prospectus
Item Number
in Form N-4 		  Caption
1.
Cover Page
  Cover Page
2.
Definitions
  Glossary
3.
Synopsis
  Highlights; Fee Table; Maximum and Minimum Expense Examples; The Seasons Select II Variable Annuity; Purchasing a Seasons Select II Variable Annuity
4.
Condensed Financial Information
  Appendix - Condensed Financial Information
5.
General Description of Registrant, Depositor and Portfolio Companies
  Other Information; Investment Options
6.
Deductions
  Fee Table; Expenses
7.
General Description of Variable Annuity Contracts
  The Seasons Select II Variable Annuity; Purchasing a Seasons Select II Variable Annuity; Investment Options
8.
Annuity Period
  Annuity Income Options
9.
Death Benefit
  Death Benefits
10.
Purchases and Contract Value
  Purchasing a Seasons Select II Variable Annuity;
Access to Your Money
11.
Redemptions
  Access To Your Money
12.
Taxes
  Taxes
13.
Legal Proceedings
  Other Information
14.
Table of Contents of Statement of Additional Information
  Contents of
Statement of Additional Information

 

Part B — Statement of Additional Information
Certain information required in Part B of the Registration Statement has been included within the Prospectus forming part of this Registration Statement; the following cross-references suffixed with a “P” are made by reference to the captions in the Prospectus.
Item Number
in Form N-4 		  Caption
15.
Cover Page
  Cover Page
16.
Table of Contents
  Table of Contents
17.
General Information and History
  The Seasons Select II Variable Annuity (P);
Separate Account and the Company;
General Account (P);
Investment Options (P);
Other Information (P)
18.
Services
  Other Information (P); Financial Statements
19.
Purchase of Securities Being Offered
  Purchasing a Seasons Select II Variable Annuity (P)
20.
Underwriters
  Distribution of Contracts;
Other Information (P)
21.
Calculation of Performance Data
  Performance Data
22.
Annuity Payments
  Annuity Income Options (P); Annuity
Income Payments; Annuity Unit Values
23.
Financial Statements
  Other Information (P);
Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement.
Prospectus
April 30, 2020
Flexible Premium Deferred Variable Annuity Contract
issued by Depositor
American General Life Insurance Company
in connection with
VARIABLE ANNUITY ACCOUNT FIVE
This variable annuity has several investment choices — Variable Portfolios (which are subaccounts of the separate account) and available Fixed Account options. Each Variable Portfolio invests exclusively in shares of one of the Underlying Funds listed below. The Premier Portfolios identified below are part of one of the following Trusts: SunAmerica Series Trust, Fidelity® Variable Insurance Products, and T. Rowe Price Equity Series, Inc. The Select Portfolios, Focused Portfolios, Managed Allocation Portfolios and Seasons Strategies identified below are part of the Seasons Series Trust.
This contract is no longer available for purchase by new contract Owners.
This variable annuity provides an optional Payment Enhancement feature. If you elect this feature, in exchange for Payment Enhancements credited to your contract, your withdrawal charge schedule will be longer and greater than if you chose not to elect this feature. These withdrawal charges may more than offset the value of any Payment Enhancement.
Please read this prospectus carefully before investing and keep it for future reference. It contains important information about the variable annuity, including a description of all material features of the contract.
If you are considering funding a tax-qualified retirement plan (e.g., IRAs, 401k or 403b plans) with an annuity, you should know that an annuity does not provide any additional tax deferral treatment of earnings beyond the treatment provided by the tax-qualified plan itself. You should fully discuss this decision with your financial representative.
To learn more about the annuity offered in this prospectus, you can obtain a copy of the Statement of Additional Information (“SAI”) dated April 30, 2020. The SAI has been filed with the United States Securities and Exchange Commission (“SEC”) and is incorporated by reference into this prospectus. The Table of Contents of the SAI appears at the end of this prospectus. For a free copy of the SAI, call us at (800) 445-7862 or write to us at our Annuity Service Center, P.O. Box 15570, Amarillo, Texas 79105-5570.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC by the Company.
Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the shareholder reports for portfolios available under your contract will no longer be sent by mail, unless you specifically request paper copies of the reports from the Company. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
You may elect to receive all future reports in paper free of charge. You can inform the Company that you wish to continue receiving paper copies of your shareholder reports by contacting (855) 421-2692 or visiting www.aig.com/annuities/GetMyPrintedReports and providing the 12-digit opt-in ID located above your mailing address. Your election to receive reports in paper will apply to all portfolios available under your contract.
Variable Annuities involve risks, including possible loss of principal, and are not a deposit or obligation of, or guaranteed or endorsed by, any bank. They are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency. These securities have not been approved or disapproved by the SEC, nor any state securities commission, nor has the SEC passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
PREMIER PORTFOLIOS  
  Managed by:
Fidelity VIP Contrafund® Portfolio Fidelity Management and Research Company
Fidelity VIP Equity-Income Portfolio Fidelity Management and Research Company
Fidelity VIP Investment Grade Bond Portfolio Fidelity Management and Research Company
Fidelity VIP Mid Cap Portfolio Fidelity Management and Research Company
Fidelity VIP Overseas Portfolio Fidelity Management and Research Company
SA American Funds Global Growth Portfolio Capital Research and Management Company*
SA American Funds Growth Portfolio Capital Research and Management Company*
SA American Funds Growth-Income Portfolio Capital Research and Management Company*
SA VCP Dynamic Allocation Portfolio SunAmerica Asset Management, LLC (“SAAMCo”) and AllianceBernstein L.P.
SA VCP Dynamic Strategy Portfolio SAAMCo and AllianceBernstein L.P.
T. Rowe Price Blue Chip Growth II Portfolio T. Rowe Price Associates, Inc. (“T. Rowe Price”)
T. Rowe Price Equity Income II Portfolio T. Rowe Price

 

SELECT PORTFOLIOS  
  Multi-managed by:
SA DFA Ultra Short Bond Portfolio Dimensional Fund Advisors LP
SA Multi-Managed Diversified Fixed Income Portfolio Wellington Management Company LLP (“Wellington”) and PineBridge Investments LLC (“PineBridge”)
SA Multi-Managed International Equity Portfolio Schroder Investment Management North America Inc., T. Rowe Price and SAAMCo
SA Multi-Managed Large Cap Growth Portfolio Goldman Sachs Asset Management, L.P., Morgan Stanley Investment Inc. (“Morgan Stanley”) and SAAMCo
SA Multi-Managed Large Cap Value Portfolio American Century Investment Management Inc., Wellington and SAAMCo
SA Multi-Managed Mid Cap Growth Portfolio T. Rowe Price, Wellington and SAAMCo
SA Multi-Managed Mid Cap Value Portfolio T. Rowe Price, Massachusetts Financial Services Company and SAAMCo
SA Multi-Managed Small Cap Portfolio Schroder Investment Management North America Inc.1, J.P. Morgan Investment Management Inc. (“JPMorgan”) and SAAMCo
SA Wellington Real Return Portfolio Wellington
    
FOCUSED PORTFOLIOS  
  Managed by:
SA AB Growth Portfolio AllianceBernstein L.P.
SA Columbia Focused Value Portfolio Columbia Management Investment Advisers, LLC
    
MANAGED ALLOCATION PORTFOLIOS  
  Managed by:
SA Allocation Balanced Portfolio SAAMCo
SA Allocation Growth Portfolio SAAMCo
SA Allocation Moderate Portfolio SAAMCo
SA Allocation Moderate Growth Portfolio SAAMCo
    
SEASONS STRATEGIESβ  
  Multi-managed by:
  JPMorgan, Morgan Stanley, Lord Abbett, Putnam Investment Management, LLC (“Putnam”), T. Rowe Price, PineBridge and Wellington
Balanced Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Income/Equity Portfolio)
Conservative Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Income Portfolio)
Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Growth Portfolio)
Moderate Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Moderate Growth Portfolio)
1 On November 4, 2019, the investment manager changed from PNC Capital Advisors, LLC to Schroder Investment Management North America Inc.
* Capital Research and Management Company manages the corresponding Master Fund (defined in GLOSSARY below) in which the Underlying Fund (Feeder Fund) invests. The investment adviser of the Feeder Fund is SAAMCo.
β Seasons Strategies are Variable Portfolios comprised of certain Underlying Funds of the Seasons Series Trust. Each Seasons Strategy is multi-managed by a group of managers identified above.
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TABLE OF CONTENTS
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A-1
B-1
C-1
D-1
E-1
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Glossary
  
We have capitalized some of the technical terms used in this prospectus. To help you understand these terms, we have defined them in this glossary.
Accumulation Phase - The period during which you invest money in your contract.
Accumulation Units - A measurement we use to calculate the value of the variable portion of your contract during the Accumulation Phase.
Annuitant - The person on whose life we base annuity income payments after you begin the Income Phase.
Annuity Date - The date you select on which annuity income payments begin.
Annuity Units - A measurement we use to calculate the amount of annuity income payments you receive from the variable portion of your contract during the Income Phase.
Beneficiary - The person you designate to receive any benefits under the contract if you or, in the case of a non-natural Owner, the Annuitant dies. If your contract is jointly owned, you and the joint Owner are each other’s primary Beneficiary.
Company - Refers to American General Life Insurance Company (“AGL”). The term “we,” “us” and “our” are also used to identify the issuing Company.
Continuation Contribution - An amount by which the death benefit that would have been paid to the spousal Beneficiary upon the death of the original Owner exceeds the contract value as of the Good Order date. We will contribute this amount, if any, to the contract value upon spousal continuation.
Continuing Spouse - Spouse of original contract Owner at the time of death who elects to continue the contract after the death of the original contract Owner.
Feeder Funds - Each of the following Feeder Funds invests exclusively in shares of a corresponding Master Fund: SA American Funds Global Growth, SA American Funds Growth, and SA American Funds Growth-Income Variable Portfolios.
Fixed Account - An account, if available, in which you may invest money and earn a fixed rate of return. Fixed Accounts are obligations of the General Account.
Fund-of-Funds - An Underlying Fund that pursues its investment goal by investing its assets in a combination of other Underlying Funds. Each Managed Allocation Portfolio is structured as a Fund-of-Funds, investing its assets in a combination of Variable Portfolios.
General Account - The Company’s account, which includes any amounts you have allocated to available Fixed Accounts, including any interest credited thereon, and amounts owed under your contract for death and/or Living Benefits which are in excess of portions of contract value allocated to the Variable Portfolios.
Good Order - Fully and accurately completed forms, which are valid, including any necessary supplementary documentation, applicable to any given transaction or request received by us.
Income Phase - The period upon annuitization during which we make annuity income payments to you.
Insurable Interest - Evidence that the Owner(s), Annuitant(s) or Beneficiary(ies) will suffer a financial loss at the death of the life that triggers the death benefit. Generally, we consider an interest insurable if a familial relationship and/or an economic interest exists. A familial relationship generally includes those persons related by blood or by law. An economic interest exists when the Owner has a lawful and substantial economic interest in having the life, health or bodily safety of the insured life preserved.
Latest Annuity Date - The first NYSE business day of the month following your 95th birthday or tenth contract anniversary, whichever is later.
Market Close - The close of the New York Stock Exchange on business days, excluding holidays, usually at 1:00 p.m. Pacific Time.
Master Funds - Funds of the American Funds Insurance Series in which the Feeder Funds invest.
Non-Qualified (contract) - A contract purchased with after-tax dollars. In general, these contracts are not under any pension plan, specially sponsored program or individual retirement account (“IRA”).
NYSE - New York Stock Exchange.
Owner - The person or entity (if a non-natural Owner) with an interest or title to this contract. The term “you” or “your” are also used to identify the Owner.
Payment Enhancement(s) - The amount(s) allocated to your contract by us under the Seasons Rewards Program. Payment Enhancements are calculated as a percentage of your Purchase Payments and are considered earnings.
Purchase Payments - The money you give us to buy and invest in the contract.
Purchase Payments Limit - $1,500,000.
Qualified (contract) - A contract purchased with pretax dollars. These contracts are generally purchased under a pension plan, specially sponsored program or IRA.
Separate Account - A segregated asset account maintained by the Company separately from the Company’s General Account. The Separate Account consists of Variable Portfolios or subaccounts, each investing in shares of the Underlying Funds.
Trusts - Collectively refers to the Fidelity® Variable Insurance Products Trust, Seasons Series Trust, SunAmerica Series Trust and T. Rowe Price Equity Series, Inc.
Underlying Funds - The underlying investment portfolios of the Trusts in which the Variable Portfolios invest.
Variable Portfolio(s) - Refers to the Premier Portfolios, Select Portfolios, Focused Portfolios, Managed Allocation Portfolios and/or Seasons Strategies. The Variable Portfolios, which are subaccounts of the Separate Account, invest in the Underlying Funds of the Seasons Series Trust, SunAmerica Series Trust, Fidelity® Variable Insurance Products Trust and T. Rowe Price Equity Series, Inc.
 
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Highlights
  
The Seasons SelectII Variable Annuity is a contract between you and the Company. It is designed to help you invest on a tax-deferred basis and meet long-term financial goals. There are minimum Purchase Payment amounts required to purchase a contract. Purchase Payments may be invested in a variety of Variable Portfolios and Fixed Accounts, if available. Like all deferred annuities, the contract has an Accumulation Phase and an Income Phase. During the Accumulation Phase, you invest money in your contract. The Income Phase begins when you start receiving annuity income payments from your annuity to help provide for your retirement.
This variable annuity contract may provide you with Payment Enhancements that are invested in your contract as earnings.
Free Look: You may cancel your contract within 10 days after receiving it (or whatever longer period is required in your state), and not be charged a withdrawal charge. You will receive whatever your contract is worth on the day that we receive your request minus any applicable Payment Enhancement, if you elected Seasons Rewards. The contract value refunded may be more or less than your original Purchase Payments. However, you receive any gain and we bear any loss on any applicable Payment Enhancement. If your contract was issued as an IRA or if required by certain states, we will return the greater of your original Purchase Payment(s) or the contract value minus any applicable Payment Enhancements. We will return your original Purchase Payments if required by law. Please see PURCHASING A SEASONS SELECTII VARIABLE ANNUITY and FREE LOOK in the prospectus.
Expenses: There are fees and charges associated with the contract. Each year, we deduct a $35 contract maintenance fee from your contract, which is currently waived for contracts of $50,000 or more. We also deduct separate account charges, which equal 1.40% annually of the average daily value of your contract allocated to the Variable Portfolios. There are investment charges on amounts invested in the Variable Portfolios, including 12b-1 fees of up to 0.25% (0.15% if you purchased your contract prior to November 17, 2003). If you elect optional features available under the contract, we may charge additional fees for these features. A separate withdrawal charge schedule applies to each Purchase Payment. Your contract provides for a free withdrawal amount each year. The amount of the withdrawal charge declines over time. After a Purchase Payment has been in the contract for seven complete years or nine complete years if you elected the Seasons Rewards Program, withdrawal charges no longer apply to that Purchase Payment. Please see FEE TABLE, PURCHASING A SEASONS SELECTII VARIABLE ANNUITY, PENALTY-FREE WITHDRAWAL AMOUNT and EXPENSES in the prospectus.
Access to Your Money: You may withdraw money from your contract during the Accumulation Phase. If you make a withdrawal, earnings are deemed to be withdrawn first. You will pay income taxes on earnings and untaxed contributions when you withdraw them. Annuity income payments received during the Income Phase are considered partly a return of your original investment. A 10% federal tax penalty may apply if you make withdrawals before age 59½. As noted above under Expenses, a withdrawal charge may apply. Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
Optional Living Benefits: You may have elected one of the optional Living Benefits that were available under your contract for an additional fee. These Living Benefits were designed to protect a portion of your investment in the event your contract value declines due to unfavorable investment performance during the Accumulation Phase and before a death benefit is payable. These benefits can provide a guaranteed income stream during the Accumulation Phase that may last as long as you live.
You should consider the impact of Excess Withdrawals on the Living Benefit you elect. Withdrawals in excess of the allowable amount can have a detrimental impact on the guaranteed benefit. In addition, if an Excess Withdrawal reduces your contract value to zero, your contract will terminate and no further benefits are payable.
Death Benefit: A standard death benefit is available and in addition, an optional death benefit is available for an additional fee. These benefits are payable to your Beneficiaries in the event of your death during the Accumulation Phase. Please see DEATH BENEFITS in the prospectus.
Annuity Income Options: When you switch to the Income Phase, you can choose to receive annuity income payments on a variable basis, fixed basis or a combination of both. You may also choose from five different annuity income options, including an option for annuity income that you cannot outlive. Please see ANNUITY INCOME OPTIONS in the prospectus.
Inquiries: If you have questions about your contract, call your financial representative or contact us at Annuity Service Center, P.O. Box 15570, Amarillo, Texas 79105-5570. Telephone Number: (800) 445-7862 and website (www.aig.com/annuities). Please see ALLOCATION OF PURCHASE PAYMENTS in the prospectus for the address to which you must send Purchase Payments.
All material state variations are described in Appendix C – STATE CONTRACT AVAILABILITY AND/OR VARIABILITY.
 
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The Company offers several different variable annuity contracts to meet the diverse needs of our investors. Our contracts may provide different features, benefits, programs and investment options offered at different fees and expenses. We also offer contracts that do not offer the Seasons Rewards program. Electing the Seasons Rewards program does not result in higher separate account charges. However, a contract without the Seasons Rewards program has a shorter and lower surrender charge schedule. When working with your financial representative to determine the best product to meet your needs, you should consider among other things, whether the features of this contract and the related fees provide the most appropriate package to help you meet your retirement savings goals.
If you would like information regarding how money is shared among our business partners, including broker-dealers through which you may purchase a variable annuity and from certain investment advisors of the Underlying Funds, please see PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT below.
Please read the prospectus carefully for more detailed information regarding these and other features and benefits of the contract, as well as the risks of investing.
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Fee Table
  
The following information describes the fees and expenses that you will pay when buying, owning, and surrendering the contract. The Maximum Owner Transaction Expenses describe the fees and expenses that you will pay at the time that you buy or surrender the contract, or transfer contract value between investment options.
Maximum Owner Transaction Expenses
Maximum Withdrawal Charges  
(as a percentage of each Purchase Payment)1
9%
Transfer Fee
$25 per transfer after the first 15 transfers in any contract year.
Premium Tax2
3.5%
The following describes the fees and expenses that you may pay periodically during the time that you own the contract, not including Underlying Fund expenses which are outlined in the next section.
Contract Maintenance Fee3
$35 per year
Separate Account Charges
(deducted from the average daily ending net asset value allocated to the Variable Portfolios)
Separate Account Fee4
1.40%
Optional Enhanced Death Benefit Fee
0.15%
Optional EstatePlus Fee5
0.25%
Maximum Separate Account Annual Expenses
1.80%
Additional Optional Feature Fees
You may have elected one of the following optional Living Benefits below, each of which are guaranteed minimum withdrawal benefits:
Optional MarketLock Fee
(calculated as a percentage of the MAV Benefit Base)6
  Annualized Fee  
All years in which the feature is in effect
0.65%  
Optional MarketLock For Two Fee
(calculated as a percentage of the MAV Benefit Base)6
All years in which the feature is in effect   Annualized Fee
Prior to Any Withdrawal
  0.40%
After the First Withdrawal
  0.80%
Optional Seasons Income Rewards Fee
(calculated as a percentage of the Withdrawal Benefit Base)7
Contract Year   Annualized Fee
0-7
  0.65%
8-10
  0.45%
11+
  none
Optional Seasons Promise Fee
(calculated as a percentage of contract value minus Purchase Payments received after the 90th day since the contract issue date)8
Contract Year   Annualized Fee
0-7
  0.50%
8-10
  0.25%
11+
  none
    
Optional Income Protector Fee  
(calculated as a percentage of your Income Benefit Base)9
0.10%
Total Annual Portfolio Operating Expenses
(as of December 31, 2019)
The following shows the minimum and maximum total operating expenses (including Master Fund and Fund-of-Funds expenses, if applicable) charged by the Underlying Funds of the Trusts before any waivers or reimbursements, that you may pay periodically during the time that you own the contract. More detail concerning the Underlying Funds’ expenses is contained in the prospectus for each of the Trusts. Please read them carefully before investing.
Total Annual Portfolio Operating Expenses   Minimum10   Maximum10
(expenses that are deducted from Underlying Fund assets, including management fees, other expenses and 12b-1 fees, if applicable)
  0.65%   1.82%
 
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Footnotes to the Fee Table:
1  Withdrawal Charge Schedule (as a percentage of each Purchase Payment withdrawn) declines over 7 or 9 years depending on whether you elected Seasons Rewards, as follows:
Years Since Receipt:
1 2 3 4 5 6 7 8 9 10+
Without Seasons Rewards
7% 6% 6% 5% 4% 3% 2% 0% 0% 0%
With Seasons Rewards
9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
Your contract provides for a penalty-free withdrawal amount each year. Please see PENALTY-FREE WITHDRAWAL AMOUNT below.
2  If applicable, state premium taxes of up to 3.5% may also be deducted when you begin the Income Phase. Please see PREMIUM TAX and APPENDIX C – STATE CONTRACT AVAILABILITY AND/OR VARIABILITY.
3  The contract maintenance fee is assessed annually and may be waived if contract value is $50,000 or more. Please see STATE CONTRACT AVAILABILITY AND/OR VARIABILITY Appendix below.
4  If you do not elect any optional features, your total separate account annual expenses would be 1.40%. If your Beneficiary elects to take the death benefit amount under the Extended Legacy Program, we will deduct an annual Separate Account Charge of 1.15% which is deducted daily from the average daily ending net asset value allocated to the Variable Portfolios. Please see Extended Legacy Program under DEATH BENEFITS below.
5  EstatePlus is an optional earnings enhancement death benefit. EstatePlus can only be elected if the optional Maximum Anniversary Value or Purchase Payment Accumulation death benefit is also elected. This feature is not available on contracts issued in Washington.
6  MarketLock and MarketLock For Two are optional guaranteed minimum withdrawal benefits. The annual fee is calculated as a percentage of the MAV Benefit Base which determines the basis of the guaranteed benefit. The applicable annualized fee is deducted from your contract value at the end of the first quarter following the election and quarterly thereafter. For a complete description of how the MAV Benefit Base is calculated, please see OPTIONAL LIVING BENEFITS below.
7  Seasons Income Rewards is an optional guaranteed minimum withdrawal benefit. The annual fee is calculated as a percentage of the Withdrawal Benefit Base which determines the basis for the guaranteed benefit. The fee is deducted from your contract value at the end of the first quarter following election and quarterly thereafter. For a complete description of how the fee is calculated, please see OPTIONAL LIVING BENEFITS below.
8  Seasons Promise is an optional guaranteed minimum accumulation benefit. The annualized fee is deducted from your contract value at the end of the first quarter following election and quarterly thereafter. For contracts issued between February 10, 2003 and April 30, 2004, the fee is as follows: 0.45% for Years 0-7, 0.15% for Years 8-10, no fee for Years 11+. For contracts issued between September 30, 2002 and February 7, 2003, the fee is as follows: 0.35% for Years 0-7, 0.10% for Years 8-10, no fee for Years 11+. For a complete description of how the fee is calculated, please see OPTIONAL LIVING BENEFITS below.
9  Income Protector is an optional guaranteed minimum income benefit. The fee is deducted annually from your contract value. For a complete description of how the fee is calculated, please see OPTIONAL LIVING BENEFITS below.
10  The maximum expense is for an American Funds SAST Master-Feeder Underlying Fund, as of its fiscal year ended December 31, 2019. SAAMCo has entered into a contractual agreement with SunAmerica Series Trust under which it will waive 0.70% of its advisory fee for such time as the Underlying Fund is operated as a Feeder Fund. The fee waiver will continue as long as the Underlying Fund is part of a Master-Feeder structure unless the Board of SunAmerica Series Trust approves a change in or elimination of the waiver. The minimum expense is for an Underlying Fund of Fidelity Variable Insurance Products Trust as of its fiscal year ended December 31, 2019.
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Maximum and Minimum Expense Examples
  
These examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include Owner transaction expenses, the contract maintenance fee if any, separate account annual expenses, available optional feature fees and Underlying Fund expenses. The purpose of the expense examples is to show you the various fees and expenses you would incur directly and indirectly by investing in this variable annuity contract. The expense examples represent both fees of the separate account as well as the maximum and minimum total annual Underlying Fund operating expenses.
Example Assumptions
The expense examples below assume that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; and you incur the maximum or minimum fees and expenses of the Underlying Fund as indicated in the examples. The expense examples also assume that no transfer fees were imposed. Premium taxes may apply in certain states; however, they are not reflected in the expense examples.
The Maximum Expense Example reflects the highest possible combination of charges. Although your actual costs may be higher or lower, based on these assumptions, your costs at the end of the stated period would be the amounts set forth in the tables below.
Maximum Expense Examples
(assuming separate account annual expenses of 1.80%, (including election of Seasons Rewards, the optional Maximum Anniversary Value death benefit and EstatePlus), the optional MarketLock for Two feature (0.80%) and investment in an Underlying Fund with total expenses of 1.82%)
(1) If you surrender your contract at the end of the applicable time period:
    
1 year   3 years   5 years   10 years
$1,348   $2,052   $2,865   $4,590
(2) If you do not surrender or if you annuitize your contract at the end of the applicable time period:
    
1 year   3 years   5 years   10 years
$448   $1,352   $2,265   $4,590
Minimum Expense Examples
(assuming minimum separate account annual expenses of 1.40%, no election of optional features, and investment in an Underlying Fund with total expenses of 0.65%)
(1) If you surrender your contract at the end of the applicable time period:
    
1 year   3 years   5 years   10 years
$913   $1,258   $1,529   $2,431
(2) If you do not surrender or if you annuitize your contract at the end of the applicable time period:
    
1 year   3 years   5 years   10 years
$213   $658   $1,129   $2,431
 
Additional Expense Example Information
1. We converted the contract maintenance fee to a percentage (0.05%). The actual impact of the contract maintenance fee may differ from this percentage and may be waived for contract values of $50,000 or more. Additional information on the Underlying Fund fees can be found in the Trust prospectuses.
2. If you elected other optional features, your expenses would be lower than those shown in the Maximum Expense Examples. The Maximum Expense Examples assume that the Income Base, which is used to calculate the MarketLock for Two fee, equals contract value and that no withdrawals are taken during the stated period.
  In addition, depending on the state in which your contract was issued, your expenses may be lower.
3. Expense Examples with election of the Seasons Rewards program reflect the Seasons Rewards withdrawal charge schedule, but do not reflect any upfront Payment Enhancement.
4. If you elected optional features, you do not pay fees for optional features once you begin the Income Phase (annuitize your contract); therefore, your expenses will be lower than those shown here. Please see ANNUITY INCOME OPTIONS below.
 
These examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.
CONDENSED FINANCIAL INFORMATION APPEARS IN THE APPENDIX A – CONDENSED FINANCIAL INFORMATION OF THIS PROSPECTUS.
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The Seasons SelectII Variable Annuity
  
You should fully discuss all of the benefits and risks of this variable annuity with your financial representative prior to purchase.
This variable annuity was developed to help you plan for your retirement. It has two phases:
Accumulation Phase: In the Accumulation Phase, the variable annuity can help you build assets on a tax-deferred basis.
Income Phase: In the Income Phase, the variable annuity can provide you with guaranteed income through annuity income payments.
This variable annuity provides insurance features and benefits, which may be valuable to you:
Optional Living Benefit: For a fee, you may elect an optional Living Benefit that is designed to help you create a guaranteed income stream that may last as long as you live.
Death Benefit: If you die during the Accumulation Phase, the Company pays a death benefit to your Beneficiary.
Guaranteed Income: Once you begin the Income Phase, you receive a stream of annuity income payments for your lifetime, or another available period you select. Alternatively, you may elect an optional Living Benefit that is designed to help you create a guaranteed income stream that may last as long as you live.
Tax Deferral*: You do not pay taxes on your earnings from the contract until you withdraw them.
* If you are considering funding a tax-qualified retirement plan (e.g., IRAs, 401(k) or 403(b) plans) with an annuity, you should know that an annuity does not provide any additional tax deferral treatment of earnings beyond the treatment provided by the tax-qualified retirement plan itself. However, annuities do provide other insurance features and benefits, which may be valuable to you. You should fully discuss this decision with your financial representative.
The contract is called a “variable” annuity because it allows you to invest in Variable Portfolios. The amount of money you can accumulate in your contract depends on the investment option you choose:
Variable Portfolios: You may invest in Variable Portfolios which, like mutual funds, have different investment objectives and performance. You can gain or lose money if you invest in Variable Portfolios.
Fixed Accounts: Fixed Accounts, if available, earn interest at a rate set and guaranteed by the Company.
For more information on available Variable Portfolio and Fixed Account investment options under this contract, please see INVESTMENT OPTIONS.
Purchasing a Seasons SelectII
Variable Annuity
  
When you purchase a variable annuity, a contract exists between you and the Company. You are the Owner of the contract.
Maximum Issue Age
We will not issue a contract to anyone age 86 or older on the contract issue date.
Note: In general, we will not issue a Qualified contract to anyone who is age 72 or older, unless it is shown that the minimum distribution required by the IRS is being made. Please see TAXES.
Joint Ownership
A Non-Qualified contract may be jointly owned by a spouse or non-spouse. Joint owners possess an equal and undivided interest in the contract. The age of the older Owner is used to determine the availability of most age driven benefits.
The addition of a joint Owner after the contract has been issued is contingent upon prior review and approval by the Company.
We will not issue a Qualified contract with joint owners, in accordance with tax law.
Spouse
Your spouse (as determined for federal tax law purposes) may jointly own the contract. In certain states, domestic or civil union partners (“Domestic Partners”) qualify for treatment as, or are equal to spouses under state law.
Non-Spouse
In certain states, we may issue the contract to non-spousal joint owners. Non-spousal joint Owners and Domestic Partners should consult with their tax adviser and/or financial representative as, they may not be able to fully benefit from certain benefits and features of the contract such as the optional Living Benefit, if applicable, and spousal continuation of the death benefit.
Please see the Appendix C — STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for a list of states that require that benefits and features be made to domestic or civil union partners.
Non-Natural Ownership
A trust, corporation or other non-natural entity may only own this contract if such entity has sufficiently demonstrated an Insurable Interest in the Annuitant selected.
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At its sole discretion, the Company reserves the right to decline to issue this contract to certain entities. We apply various considerations including but not limited to:
• Estate planning,
• Tax consequences, and
• The propriety of this contract as an investment consistent with a non-natural Owner’s organizational documentation.
For more information on non-natural ownership, please see TAXES. You should consult with your tax and/or legal advisor in connection with non-natural ownership of this contract.
Assignment of the Contract/Change of Ownership
You may assign this contract before beginning the Income Phase. We will not be bound by any assignment until we receive and process your written request at our Annuity Service Center and you have received confirmation.
• Your rights and those of any other person with rights under this contract will be subject to the assignment.
• We are not responsible for the validity, tax or other legal consequences of any assignment.
• An assignment will not affect any payments we may make or actions we may take before we receive notice of the assignment.
We reserve the right not to recognize any assignment, as determined in our sole discretion, if it changes the risk profile of the contract owner, if no Insurable Interest exists, or if not permitted by the Internal Revenue Code.
Please see the Statement of Additional Information for details on the tax consequences of an assignment. You should consult a qualified tax adviser before assigning the contract.
Termination of the Contract for Misstatement and/or Fraud
The Company reserves the right to terminate the contract at any time if it discovers a misstatement or fraudulent representation of any information provided in connection with the issuance or ongoing administration of the contract.
If we learn of a misstatement of age, we reserve the right to fully pursue our remedies including revocation of any age-driven benefits and/or termination of the contract. Please see Appendix C — STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for specific information.
Allocation of Purchase Payments
In order to issue your contract, we must receive your initial Purchase Payment and all required paperwork in Good Order, including Purchase Payment allocation instructions at our Annuity Service Center.
An initial Purchase Payment is the money you give us to purchase a contract. Any additional money you give us to invest in the contract after purchase is a subsequent Purchase Payment.
Minimum Initial and Subsequent Purchase Payments
  Minimum
Initial
Purchase
Payment (1) 		Minimum
Subsequent
Purchase
Payment 		Minimum
Automatic
Subsequent
Purchase
Payment
Qualified(2) $2,000 $500 $100
Non-Qualified(2) $5,000 $500 $100
(1) If you purchased your contract through certain broker-dealers, the minimum initial Purchase Payment may be higher than the amounts shown in this table.
(2) These amounts depend upon whether a contract is Qualified or Non-Qualified for tax purposes. For further explanation, please see TAXES.
Purchase Payment Restrictions
We reserve the right to refuse any Purchase Payment. We will not accept subsequent Purchase Payments from contract Owners age 86 or older.
We will not accept subsequent Purchase Payments on or after the first contract anniversary if you have elected an optional Living Benefit feature. If you send a subsequent Purchase Payment after the first contract anniversary, the Purchase Payment will not be considered to be received by us and we will return the Purchase Payment. As a result, the Income Base of the Living Benefit may not be increased by adding Purchase Payments. We reserve the right to require Company approval prior to accepting Purchase Payments greater than the Purchase Payments Limit as defined in the Glossary.
• For contracts owned by a non-natural Owner, we reserve the right to require prior Company approval to accept any Purchase Payment.
• Purchase Payments that would cause total Purchase Payments in all contracts issued by AGL and/or US Life to the same Owner and/or Annuitant to exceed the Purchase Payments Limit may also be subject to Company pre-approval.
Submission of Purchase Payments
Purchase Payments will be priced when received at the Annuity Service Center. Delivery of Purchase Payments to any other address will result in a delay in crediting your contract until the Purchase Payment is received at the Annuity Service Center.
Regular Mail:
Purchase Payments submitted by check must be sent to the Annuity Service Center at the following address:
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American General Life Insurance Company
Annuity Service Center
P.O. Box 100330
Pasadena, CA 91189-0330
Express Delivery:
Overnight deliveries of Purchase Payments can only be accepted at the following address:
American General Life Insurance Company
Annuity Service Center
Building #6, Suite 120
2710 Media Center Drive
Los Angeles, CA 90065-1750
Electronic Transmission:
We will accept initial and subsequent Purchase Payments by electronic transmission from certain broker-dealer firms.
Agent of Company:
We may have an agreement in place whereby your broker-dealer may be deemed our agent for receipt of your Purchase Payments. If a broker-dealer is deemed to be our agent, Purchase Payments will be priced as of the time they are received by the broker-dealer.
You assume any risk in market fluctuations if you submit your Purchase Payment directly to a broker-dealer that does not have such an agreement, should there be a delay in that broker-dealer delivering your Purchase Payment to us. Please check with your financial representative to determine if his/her broker-dealer has an agreement with the Company that deems the broker-dealer an agent of the Company.
Automatic Payment Plan:
Once you have contributed at least the minimum initial Purchase Payment, you can establish an automatic payment plan that allows you to make subsequent Purchase Payments , if you have not elected a Living Benefit feature.
Seasons Rewards Program
If you were age 80 or younger at the time your contract was issued you may have elected to participate in this program at contract issue. We contribute an upfront Payment Enhancement and, if available, a deferred Payment Enhancement to your contract in conjunction with each Purchase Payment you invest during the life of your contract. If you elected to participate in this program, all Purchase Payments are subject to a nine year withdrawal charge schedule. Please see EXPENSES below. These withdrawal charges may offset the value of any Payment Enhancement, if you make an early withdrawal. Amounts we contribute to your contract under this program are considered earnings and are allocated to your contract as described below. There may be scenarios in which due to
negative market conditions and your inability to remain invested over the long-term, a contract with the Seasons Rewards program may not perform as well as the contract without the program.
Purchase Payments may not be invested in dollar cost averaging Fixed Accounts if you participate in the Seasons Rewards program. However, you may use other Fixed Account options, if available, for dollar cost averaging. Please see DOLLAR COST AVERAGING PROGRAM below.
Seasons Rewards Enhancement Levels
Each enhancement level is a range of dollar amounts, which may correspond to different enhancement rates and dates. The enhancement level applicable to your initial Purchase Payment is determined by the amount of that initial Purchase Payment. With respect to any subsequent Purchase Payments we determine your enhancement level by adding your contract value on the date we receive each subsequent Purchase Payment to the amount of the subsequent Purchase Payment. Enhancement levels may change from time to time, at our sole discretion.
Upfront Payment Enhancement
An upfront Payment Enhancement is an amount we add to your contract on the day we receive a Purchase Payment. We calculate an upfront Payment Enhancement amount as a percentage of each Purchase Payment. We refer to this percentage amount as the upfront Payment Enhancement Rate. We periodically review and establish the upfront Payment Enhancement Rate, which may increase or decrease at any time, but will never be less than 2%. The applicable upfront Payment Enhancement Rate is the rate in effect for the applicable enhancement level at the time we receive each Purchase Payment under your contract. The upfront Payment Enhancement amounts are allocated among Variable Portfolios and available Fixed Accounts according to the current allocation instructions on file when we receive each Purchase Payment.
Deferred Payment Enhancement
A deferred Payment Enhancement is an amount we may add to your contract on a stated future date (the “deferred Payment Enhancement date”). We calculate a deferred Payment Enhancement amount, if applicable, as a percentage of each Purchase Payments received at the time we receive the Purchase Payment. We refer to this percentage amount as the deferred Payment Enhancement Rate. We periodically review and establish the deferred Payment Enhancement Rates and deferred Payment Enhancement dates. The deferred Payment Enhancement Rate being offered may increase, decrease or be eliminated by us at any time. The deferred Payment Enhancement date, if applicable, may change at any time. The applicable deferred Payment Enhancement date and deferred Payment Enhancement Rate are those which may be in effect for the
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applicable enhancement level at the time when we receive each Purchase Payment. Any applicable deferred Payment Enhancement, when credited, is allocated to a money market or similar portfolio.
If you withdraw any portion of a Purchase Payment, to which a deferred Payment Enhancement applies, prior to the deferred Payment Enhancement date, we reduce the amount of the corresponding deferred Payment Enhancement in the same proportion that your withdrawal (and any fees and charges associated with such withdrawals) reduces that Purchase Payment. For purposes of determining the deferred Payment Enhancement, withdrawals are assumed to be taken from earnings first, then from Purchase Payments, on a first-in-first-out basis.
We will not allocate any applicable deferred Payment Enhancement, if any, to your contract if the following circumstances occur prior to the deferred Payment Enhancement date:
• You surrender your contract;
• A death benefit is paid on your contract;
• You switch to the Income Phase of your contract; or
• You fully withdraw the corresponding Purchase Payment.
90 Day Window
As of the 90th day after your contract was issued, we will total your Purchase Payments made over those 90 days, without considering any investment gain or loss in contract value on those Purchase Payments. If your total Purchase Payments bring you to an enhancement level which, as of the date we issued your contract, would have provided for a higher upfront and/or deferred Payment Enhancement rate on each Purchase Payment, you will get the benefit of the enhancement rate(s) that were applicable to that higher enhancement level at the time your contract was issued (“Look Back Adjustment”). We will add any applicable upfront Look Back Adjustment to your contract on the 90th day following the date of contract issue. We will send you a confirmation indicating any applicable upfront and/or deferred Look Back Adjustment, on or about the 90th day following the date of contract issuance. We will allocate any applicable upfront Look Back Adjustment according to your then current allocation instructions on file for subsequent Purchase Payments at the time we make the contribution and if applicable, to a money market or similar portfolio, for a deferred Look Back Adjustment.
Current Enhancement Levels
The Enhancement Levels, Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and Deferred Payment Enhancement date applicable to all Purchase Payments as of the date of this prospectus are:
Enhancement Level Upfront Payment
Enhancement Rate 		Deferred Payment
Enhancement Rate
Under $500,000 4% 0%
$500,000 – more 5% 0%
We are currently not offering a Deferred Payment Enhancement Rate.
We reserve the right to modify, suspend or terminate the Seasons Rewards program at any time for existing contracts and for subsequent Purchase Payments.
Accumulation Units
We credit your contract with Accumulation Units when you allocate a Purchase Payment to the Variable Portfolios. We determine the value of each Accumulation Unit at the close of every NYSE business day. The value of an Accumulation Unit goes up and down based on the performance of the Variable Portfolios and the fees and expenses under your contract.
The number of Accumulation Units you are credited is calculated the day we process your Purchase Payment. Please see ALLOCATION OF PURCHASE PAYMENTS.
The Accumulation Unit value is determined by multiplying the Accumulation Unit value for the preceding NYSE business day by a factor for the current NYSE business day.
The factor is determined by:
1. dividing the net asset value per share of the Underlying Fund at the end of the current NYSE business day, plus any dividend or capital gains per share declared on behalf of the Underlying Fund as of that day, by the net asset value per share of the Underlying Fund for the previous NYSE business day; and
2. multiplying it by one minus all applicable daily asset based charges.
We determine the number of Accumulation Units credited to your contract by adding the Purchase Payment and Payment Enhancement, if applicable, and dividing that amount, by the Accumulation Unit value for the specific Variable Portfolio.
Example (Contracts Without Seasons Rewards):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate the money to Variable Portfolio A. We determine that the value of an Accumulation Unit for Variable Portfolio A is $11.10 at
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Market Close on Wednesday. We then divide $25,000 by $11.10 and credit your contract on Wednesday night with 2,252.2523 Accumulation Units for Variable Portfolio A.
Example (Contracts With Seasons Rewards):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate the money to Variable Portfolio A. If the Payment Enhancement is 2% of your Purchase Payment, we would add a Payment Enhancement of $500 to your contract. We determine that the value of an Accumulation Unit for Variable Portfolio A is $11.10 at Market Close on Wednesday. We then divide $25,500 by $11.10 and credit your contract on Wednesday with 2,297.2973 Accumulation Units for Variable Portfolio A.
Performance of the Variable Portfolios and the insurance charges under your contract affect Accumulation Unit values. These factors cause the value of your contract to go up and down.
Free Look
You may cancel your contract within ten days after receiving it. Your state may require a longer free look period. We call this a “free look.” Please check your contract or with your financial representative. To cancel, you must mail the contract along with your written free look request to our Annuity Service Center at P.O. Box 15570, Amarillo, Texas 79105-5570.
If you decide to cancel your contract during the free look period, generally we will refund to you the value of your contract on the day we receive your request in Good Order at the Annuity Service Center minus the Free Look Payment Enhancement Deduction, if applicable. If you elect the Seasons Rewards feature, the Free Look Payment Enhancement Deduction is equal to the lesser of (1) the value of any Payment Enhancement(s) on the day we receive your free look request; or (2) the Payment Enhancement amount(s), if any, which we allocated to your contract. Thus, you receive any gain and we bear any loss on any Payment Enhancement(s) if you decide to cancel your contract during the free look period. Certain states require us to return your Purchase Payments upon a free look request. Additionally, all contracts issued as an IRA require the full return of Purchase Payments upon a free look.
If your contract was issued either in a state requiring return of Purchase Payments or as an IRA, and you cancel your contract during the free look period, we return the greater of (1) your Purchase Payments; or (2) the value of your contract on the day we receive your request in Good Order at the Annuity Service Center. With respect to these contracts, we reserve the right to put your money and the Payment Enhancement, if you elected the Seasons Rewards feature, in a money market or similar portfolio during the free look period and will allocate your money and the
Payment Enhancement according to your instructions at the end of the applicable free look period.
Exchange Offers
From time to time, we allow you to exchange an older variable annuity issued by the Company or one of its affiliates, for a newer product with different features and benefits issued by the Company or one of its affiliates. Such an exchange offer will be made in accordance with applicable federal securities laws and state insurance rules and regulations. We will provide the specific terms and conditions of any such exchange offer at the time the offer is made.
Important Information for Military Servicemembers
If you are an active duty full-time servicemember, and are considering the purchase of this contract, please read the following important information before investing.
• Subsidized life insurance is available to members of the Armed Forces from the Federal Government under the Servicemembers’ Group Life Insurance program (also referred to as “SGLI”).
  More details may be obtained on-line at the following website: www.insurance.va.gov.
• This contract is not offered or provided by the Federal Government and the Federal Government has in no way sanctioned, recommended, or encouraged the sale of this contract.
• No entity has received any referral fee or incentive compensation in connection with the offer or sale of this contract, unless that entity has a selling agreement with the Company.
Investment Options
  
You may allocate purchase payments using one or a combination of the investment options and fixed accounts, as may be available under your contract:
• Variable Portfolios
• Fixed Accounts
• Dollar Cost Averaging Fixed Account
The Variable Portfolios offered through this contract are selected by us and we may consider various factors in the selection process, including but not limited to: asset class coverage, the strength of the investment adviser’s or subadviser’s reputation and tenure, brand recognition, performance and the capability and qualification of each investment firm. Another factor we may consider is whether the Underlying Fund or its service providers (i.e., the investment adviser and/or subadviser(s)) or their affiliates will make payments to us or our affiliates in connection with certain administrative, marketing and support services, or whether the Underlying Fund’s service providers have
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affiliates that can provide marketing and distribution support for sales of the contract. Please see PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT below.
We review the Variable Portfolios periodically and may make changes if we determine that a Variable Portfolio no longer satisfies one or more of the selection criteria and/or if the Variable Portfolio has not attracted significant allocations from contract Owners.
From time to time, certain Variable Portfolio names are changed. When we are notified of a name change, we will make changes so that the new name is properly shown. However, until we complete the changes, we may provide you with various forms, reports and confirmations that reflect a Variable Portfolio’s prior name.
You are responsible for allocating Purchase Payments to the Variable Portfolios as is appropriate for your own individual circumstances, investment goals, financial situation and risk tolerance. You should periodically review your allocations and values to ensure they continue to suit your needs. You bear the risk of any decline in contract value resulting from the performance of the Variable Portfolios you have selected. In making your investment selections, you should investigate all information available to you including the Underlying Fund’s prospectus, statement of additional information and annual and semi-annual reports.
The Trusts serve as the underlying investment vehicles for other variable annuity contracts issued by the Company and other affiliated and unaffiliated insurance companies. Neither the Company nor the Trusts believe that offering shares of the Trusts in this manner disadvantages you. The Trusts are monitored for potential conflicts. The Trusts may have other Underlying Funds, in addition to those listed here, that are not available for investment under this contract.
We do not provide investment advice, nor do we recommend or endorse any particular Variable Portfolio. The Variable Portfolios along with their respective advisers are listed below.
Fidelity® Variable Insurance Products — Service Class 2 Shares
The following Variable Portfolios are part of the Fidelity Variable Insurance Products: Fidelity VIP Equity-Income, Fidelity VIP Contrafund®, Fidelity VIP Mid Cap, Fidelity VIP Overseas and Fidelity VIP Investment Grade Bond. Fidelity Management and Research Company is the investment adviser for these funds.
T. Rowe Price Equity Series, Inc. — Class 2 Shares
The following Variable Portfolios are part of the T. Rowe Price Equity Series, Inc. Trust: T. Rowe Price Blue Chip Growth II and T. Rowe Price Equity Income II. T. Rowe Price Associates, Inc. is the investment adviser for this Trust.
SAAMCO MANAGED TRUSTS
We offer Underlying Funds of the Seasons Series Trust and SunAmerica Series Trust (the “SAAMCo Managed Trusts”) at least in part because they are managed by SunAmerica Asset Management, LLC (“SAAMCo” or the “Adviser”), an affiliate of the Company. The Company and/or its affiliates may be subject to certain conflicts of interest as the Company may derive greater revenues from Variable Portfolios offered by a Trust managed by an affiliate than certain other available Variable Portfolios.
Seasons Series Trust — Class 3 Shares
The Focused Portfolios, Managed Allocation Portfolios and Seasons Strategies listed below are part of Seasons Series Trust. The Select Portfolios listed below, with the exception of the Ultra Short Bond Portfolio, are also part of Seasons Series Trust. SAAMCo manages this Trust and engages subadvisers to provide investment advice for certain of the Underlying Funds.
Special note should be taken of the similarities and differences between the Managed Allocation Portfolios and the Seasons Strategies, described in detail below. Each alternative reflects an allocation model. The Managed Allocation Portfolios differ from the Seasons Strategies in the following respects. The Managed Allocation Portfolios are Fund-of-Funds; a professional manager actively manages the Managed Allocation Portfolios’ investments in certain Underlying Funds of the Seasons Series Trust. The Seasons Strategies are not Fund-of-Funds and are limited to investment in the specified funds of the Seasons Series Trust with a pre-determined target asset allocation mix that does not change over the life of the contract. Thus, the Managed Allocation Portfolios are responsive to changing market conditions, and current judgments of professional management, while the Seasons Strategies assume that the pre-determined asset allocation mix will continue to be consistent with its risk objective. Please read the descriptions of each alternative carefully for more details.
If you purchased your contract prior to November 17, 2003, Class 2 Shares of certain Underlying Funds of Seasons Series Trust were offered in your contract. Please see Appendix A - CONDENSED FINANCIAL INFORMATION for details.
SunAmerica Series Trust — Class 3 Shares
SA DFA Ultra Short Bond Portfolio
SAAMCo is the investment advisor of the SA DFA Ultra Short Bond Portfolio.
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Master-Feeder Funds
The following Variable Portfolios are part of SunAmerica Series Trust: SA American Funds Global Growth, SA American Funds Growth and SA American Funds Growth-Income. These Underlying Funds have a Master-Feeder structure. Capital Research and Management Company is the investment advisor of the Master Funds in which the Feeder Funds invest. SAAMCo manages the Feeder Funds.
All of the Feeder Fund assets are invested in a corresponding Master Fund of American Funds Insurance Series (“AFIS”), which invests directly in individual securities.
If a Feeder Fund withdraws its assets from a Master Fund and the Board of the Feeder Fund approved SAAMCo as investment advisor to the Feeder Fund, SAAMCo would be fully compensated for its portfolio management services. Please see the SunAmerica Series Trust prospectus and Statement of Additional Information for more discussion of the Master-Feeder structure.
SA VCP Dynamic Allocation Portfolio and SA
VCP Dynamic Strategy Portfolio
SAST also offers the SA VCP Dynamic Allocation Portfolio (the “Dynamic Allocation Portfolio”) and the SA VCP Dynamic Strategy Portfolio (“Dynamic Strategy Portfolio”). SAAMCo is the investment advisor of the Dynamic Allocation Portfolio and Dynamic Strategy Portfolio. AllianceBernstein L.P. is the subadvisor (the “Subadvisor”) of a component of each of the Dynamic Allocation Portfolio and Dynamic Strategy Portfolio. The Dynamic Allocation Portfolio and Dynamic Strategy Portfolio each invest part of their assets as a Fund-of-Funds that in turn invest in Underlying Funds of the SAAMCo Managed Trusts.
The Dynamic Allocation Portfolio and Dynamic Strategy Portfolio each have a managed volatility strategy that may serve to reduce the risk of investment losses that could require the Company to use its own assets to make payments in connection with certain guarantees like the living and death benefits. This risk management strategy could limit the upside participation in strong, increasing markets as compared to a portfolio without such a strategy. Please see the SunAmerica Series Trust prospectus and Statement of Additional Information for details.
Premier Portfolios
The Premier Portfolios reflect the investment expertise of one or more investment managers and offer a broad range of investment categories.
Select Portfolios
The Select Portfolios each have a distinct investment objective, utilizing a disciplined investing style to achieve its objective. Each Select Portfolio, with the exception of the SA DFA Ultra Short Bond Portfolio, invests in an Underlying Fund of the Seasons Series Trust. Except for the SA DFA Ultra Short Bond and the SA Wellington Real Return Portfolio, each Select Portfolio is managed by multiple managers. One component of each Select Portfolio, with the exception of the SA Wellington Real Return Portfolio, invests in a passively managed component that tracks a particular target index or subset of an index. The passively managed component of each Select Portfolio is intended to balance some of the risks associated with an actively traded portfolio. Please see the Seasons Series Trust prospectus for additional information regarding the management of the Select Portfolios.
Focused Portfolios
Each Focused Portfolio offers you a manager who advises a separate portion of the Focused Portfolio. The manager actively selects a limited number of stocks that represent its best stock selection. This approach to investing results in a more concentrated portfolio, which will be less diversified than other Variable Portfolios, and may be subject to greater market risks.
Managed Allocation Portfolios
Each Managed Allocation Portfolio has a different investment goal and is structured as a Fund-of-Funds, investing its assets in a combination of the Select Portfolios and the Focused Portfolios. A Fund-of-Funds generally offers investors an efficient means of diversification among a number of mutual funds while obtaining professional management in determining which funds to select, how much of their assets to commit to each fund, and when to make that selection.
Each Managed Allocation Portfolio is managed by SunAmerica Asset Management, LLC (“SAAMCo”). SAAMCo creates a target allocation annually for each Managed Allocation Portfolio. The target allocation will reflect the percentage in which a Managed Allocation Portfolio should invest in its Underlying Funds. Due to market movements, portfolio management decisions or cash flow considerations, SAAMCo may determine that a Managed Allocation Portfolio’s investments in its Underlying Funds require adjustments in order to meet its target allocation. Generally, SAAMCo will manage the investments among the Underlying Funds for each Managed Allocation Portfolio to match its target allocation and to rebalance assets back to the target allocation, as it deems necessary.
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This approach allows the Managed Allocation Portfolios to offer professional asset management on two levels: 1) the fund management of each underlying Select and Focused Portfolio; and 2) the overlay portfolio management provided by SAAMCo.
The four Managed Allocation Portfolios’ objectives and investment strategies are:
Managed
Allocation
Portfolios 		Objective Investment Strategy
SA Allocation Growth Long-term capital appreciation Invests primarily in equity-based portfolios. Designed to provide higher growth potential, while maintaining risk at a reasonable level.
SA Allocation Moderate Growth Long-term capital appreciation Focuses on equity investing to help maximize growth potential, but also invests a portion of its assets in the bond market for income.
SA Allocation Moderate Long-term capital appreciation and
moderate current
income 		Combines equity investing with increased exposure to fixed income investing. Designed for investors who want growth, but who are also seeking a moderate level of income.
SA Allocation Balanced Long-term capital appreciation and
income 		Offers the greatest exposure to fixed income. Designed for investors who need greater balance of growth potential and current income.
If you invest in a Managed Allocation Portfolio, you pay the expenses of the Managed Allocation Portfolio and indirectly pay a proportionate share of the expenses of the Underlying Funds in which the Managed Allocation Portfolio invests. As a result, you will pay higher fees and expenses under the Fund-of-Funds structure than if you invested directly in each of the Underlying Funds held in the Fund-of-Funds structure.
Seasons Strategies
Each Seasons Strategy has a different investment objective and is a Variable Portfolio of the Separate Account that invests in three Underlying Funds of Seasons Series Trust. The allocation of money among these Underlying Funds varies depending on the objective of the Seasons Strategy. The Seasons Strategies are designed utilizing an asset allocation approach to meet your investment needs over time, considering factors such as your age, goals and risk tolerance. However, each Seasons Strategy is designed to achieve different levels of growth over time.
The three Underlying Funds in which a Seasons Strategy can invest are detailed in the pie chart on the following page. The Underlying Funds comprising the Seasons Strategies may only be purchased by the Seasons Strategies.
The Seasons Strategies use an investment approach based on asset allocation. This approach is achieved by each Seasons Strategy investing in distinct percentages in three specific Underlying Funds. In turn, the Underlying Funds invest in a combination of domestic and international stocks, bonds and cash. The goal for each Seasons Strategy is to have a specified asset mix of stocks, bonds and cash in accordance with the specified objective of the Seasons Strategy and relative to the Underlying Funds in which the Seasons Strategy invests. The stated target asset allocation percentages and the mix of Underlying Funds comprising each Seasons Strategy do not change for the life of the contract. Please see the Seasons Series Trust prospectus which describes in detail the Underlying Funds that comprise each Seasons Strategy.
Seasons Strategy Rebalancing
Each quarter a rebalancing occurs among the Underlying Funds of the Season Strategies to realign each Seasons Strategy with its distinct percentage investment detailed below. This rebalancing is designed to help maintain the asset allocation mix for each Seasons Strategy. The pie charts on the following page demonstrate the asset allocation mix for each Seasons Strategy and the percentage allocation of each Underlying Fund in which the Seasons Strategy invests.
Before the end of each quarter (or as close to such date as is administratively practicable), your money will be allocated among the various Underlying Funds according to the percentages set forth on the next page. Additionally, within each Multi-Managed Portfolio, as identified below, your investment will be rebalanced among the various components. Rebalancing a Seasons Strategy may involve shifting a portion of assets out of Underlying Funds with higher returns into Underlying Funds with relatively lower returns.
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Growth Strategy
Goal: Long-term growth of capital, allocating its assets primarily to stocks. This Seasons Strategy may be best suited for those with longer periods to invest.
Target Asset Allocation:
Stocks 80% Bonds 15% Cash 5%
Balanced Growth Strategy
Goal: Focuses on conservation of principal by investing in a more balanced weighting of stocks and bonds, with a secondary objective of seeking a high total return. This Seasons Strategy may be best suited for those approaching retirement and with less tolerance for investment risk.
Target Asset Allocation:
Stocks 55% Bonds 40% Cash 5%
Moderate Growth Strategy
Goal: Growth of capital through investments in equities, with a secondary objective of conservation of principal by allocating more of its assets to bonds than the Growth Strategy. This Seasons Strategy may be best suited for those nearing retirement years but still earning income.
Target Asset Allocation:
Stocks 70% Bonds 25% Cash 5%
Conservative Growth Strategy
Goal: Capital preservation while maintaining some potential for growth over the long term. This Seasons Strategy may be best suited for those with lower investment risk tolerance.
Target Asset Allocation:
Stocks 42% Bonds 53% Cash 5%
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Investment Options
Each Variable Portfolio and its respective managers are:
PREMIER PORTFOLIOS Managed by:
Fidelity VIP Contrafund®* Fidelity Management and Research Company
Fidelity VIP Equity-Income Fidelity Management and Research Company
Fidelity VIP Investment Grade Bond Fidelity Management and Research Company
Fidelity VIP Mid Cap Fidelity Management and Research Company
Fidelity VIP Overseas Fidelity Management and Research Company
SA American Funds Global Growth Capital Research and Management Company
SA American Funds Growth Capital Research and Management Company
SA American Funds Growth-Income Capital Research and Management Company
SA VCP Dynamic Allocation Portfolio SunAmerica Asset Management, LLC (“SAAMCo”) and AllianceBernstein L.P.
SA VCP Dynamic Strategy Portfolio SAAMCo and AllianceBernstein L.P.
T. Rowe Price Blue Chip Growth II T. Rowe Price Associates, Inc. (“T. Rowe Price”)
T. Rowe Price Equity Income II T. Rowe Price
   
SELECT PORTFOLIOS Multi-managed by:
SA DFA Ultra Short Bond Dimensional Fund Advisors LP
SA Multi-Managed Large Cap Growth Goldman Sachs Asset Management, L.P., Morgan Stanley Investment Management, LLC (“Morgan Stanley”) and SAAMCo
SA Multi-Managed Large Cap Value American Century Investment Management Inc., Wellington Management Company LLP and SAAMCo
SA Multi-Managed Mid Cap Growth T. Rowe Price, Wellington and SAAMCo
SA Multi-Managed Mid Cap Value T. Rowe Price, Massachusetts Financial Services Company and SAAMCo
SA Multi-Managed Small Cap Schroder Investment Management North America Inc., J.P. Morgan Investment Management Inc. and SAAMCo
SA Multi-Managed International Equity Schroder Investment Management North America Inc., T. Rowe Price and SAAMCo
SA Multi-Managed Diversified Fixed Income Wellington and PineBridge Investments LLC (“PineBridge”)
SA Wellington Real Return Wellington
   
FOCUSED PORTFOLIOS Managed by:
SA AB Growth Portfolio AllianceBernstein L.P.
SA Columbia Focused Value Columbia Management Investment Advisers, LLC
   
MANAGED ALLOCATION PORTFOLIOS Managed by:
SA Allocation Growth SAAMCo
SA Allocation Moderate Growth SAAMCo
SA Allocation Moderate SAAMCo
SA Allocation Balanced SAAMCo
   
SEASONS STRATEGIES Multi-managed by:
  JPMorgan, Morgan Stanley, Lord Abbett, Putnam Investment Management, LLC (“Putnam”), T. Rowe Price, PineBridge and Wellington
Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Growth Portfolio)
Moderate Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Moderate Growth Portfolio)
Balanced Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Income/Equity Portfolio)
Conservative Growth Strategy (which invests in SA T. Rowe Price Growth Stock Portfolio, SA Putnam Asset Allocation Diversified Growth Portfolio and SA Multi-Managed Income Portfolio)
  
* Fidelity VIP Contrafund is an equity fund seeking long-term capital appreciation.
You should read the prospectuses for the Trusts carefully. These prospectuses contain detailed information about the Underlying Funds, including each Underlying Fund’s investment objective and risk factors. You may obtain a copy of these prospectuses for the Trusts by calling our Annuity Service Center at (800) 445-7862 or by visiting our website at aig.onlineprospectus.net/AIG/ProductDocuments. You may also obtain information about the Underlying Funds (including a copy of the Statement of Additional Information) by accessing the U.S. Securities and Exchange Commission’s website at www.sec.gov.
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Effective February 6, 2017, the Strategic Allocation Program is no longer offered. If you are currently invested in a Strategic Allocation, please see the STRATEGIC ALLOCATION PROGRAM FOR CONTRACTS ISSUED PRIOR TO FEBRUARY 6, 2017 APPENDIX for more information.
Substitution, Addition or Deletion of Variable Portfolios
We may, subject to any applicable law, make certain changes to the Variable Portfolios offered in your contract. We may offer new Variable Portfolios or stop offering existing Variable Portfolios. New Variable Portfolios may be made available to existing contract Owners, and Variable Portfolios may be closed to new or subsequent Purchase Payments, transfers or allocations. In addition, we may also liquidate the shares of any Variable Portfolio, substitute the shares of one Underlying Fund held by a Variable Portfolio for another and/or merge Variable Portfolios or cooperate in a merger of Underlying Funds. To the extent required by the Investment Company Act of 1940, as amended, we may be required to obtain SEC approval or your approval.
Fixed Accounts
Your contract may offer a Fixed Account for a guaranteed period. Your fixed account interest crediting rates are guaranteed for amounts allocated to each fixed account for up to 1 year. Thereafter, for fixed accounts other than Dollar Cost Averaging fixed account options (as described below), we will declare annual fixed account crediting rates each contract year, and this rate will never be lower than the minimum guarantee rate as referenced in your contract. Factors that influence the declared fixed account renewal rate include, but are not limited to, the level of US treasury rates, credit spreads on corporate bonds and other fixed income instruments, company asset-liability matching strategies, the length of the contract withdrawal charge period and the number of years since your annuity contract was issued. You may obtain current interest rates by calling the Annuity Service Center or by speaking with your financial representative.
Please check with your financial representative regarding the availability of a Fixed Account. Allocations to the Fixed Account are obligations of the General Account. In reliance on certain exemptions and exclusions, interests in the General Account are not registered as securities under the Securities Act of 1933 and not registered as an investment company under the Investment Company Act of 1940. However, the disclosures in the prospectus about the Fixed Accounts are subject to certain provisions of the federal securities laws regarding the accuracy and completeness of disclosures. Please see GENERAL ACCOUNT below.
Minimum Guaranteed Interest Rate
We guarantee that the interest rate credited to amounts allocated to any Fixed Account guarantee periods will never be less than the guaranteed minimum interest rate specified in your contract. Once the rate is established, it will not change for the duration of the guarantee period. The minimum guaranteed interest rate can vary but is never lower than 1%. We determine which, if any, guarantee
periods will be offered at any time in our sole discretion, unless state law requires us to do otherwise.
Interest Rate Categories
There are three categories of interest rates for money allocated to the Fixed Accounts. The applicable rate is guaranteed until the corresponding guarantee period expires. With each category of interest rate, your money may be credited a different rate as follows:
• Initial Rate: The rate credited to any portion of the initial Purchase Payment allocated to a Fixed Account.
• Current Rate: The rate credited to any portion of a subsequent Purchase Payment allocated to a Fixed Account.
• Renewal Rate: The rate credited to money transferred from a Fixed Account or a Variable Portfolio into a Fixed Account and to money remaining in a Fixed Account after expiration of a guarantee period.
Transfers/Withdrawals from Fixed Accounts
There are no restrictions with respect to transferring out of or taking a withdrawal from a Fixed Account. If you make a transfer out of or a withdrawal from a Fixed Account prior to the end of a guarantee period, you will be credited the interest earned up to the time of transfer or withdrawal. When a guarantee period ends, you may leave your money in the same Fixed Account or you may reallocate your money to another Fixed Account, if available, or to the Variable Portfolios. If you do not want to leave your money in the same Fixed Account, you must contact us within 30 days after the end of the guarantee period and provide us with new allocation instructions. We do not contact you. If you do not contact us, your money will remain in the same Fixed Account where it will earn interest at the renewal rate then in effect for that Fixed Account.
We reserve the right to defer payments for a withdrawal from a Fixed Account for up to six months.
If available through our Dollar Cost Averaging Program, you may systematically transfer interest earned in available Fixed Accounts into any of the Variable Portfolios on a monthly basis. Systematic transfers may be started, changed or terminated at any time by contacting our Annuity Service Center.
Check with your financial representative about the current availability of this service.
Fixed Account Restrictions
At any time we are crediting the minimum guaranteed interest rate specified in your contract, we reserve the right to restrict your ability to invest into the Fixed Accounts. All Fixed Accounts may not be available in your state. Please check with your financial representative regarding the availability of Fixed Accounts.
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Dollar Cost Averaging Fixed Accounts
Purchase Payments
You may invest initial and/or subsequent Purchase Payments in the dollar cost averaging (“DCA”) Fixed Accounts, if available. The minimum Purchase Payment amounts are as follows:
DCA Fixed Account Minimum Purchase Payment
6-Month $600
12-Month $1,200
2-Year $2,400
• The DCA Fixed Accounts only accept initial and subsequent Purchase Payments because they are offered as “source” accounts exclusively to facilitate the DCA Program for a specified time period.
• You may not make a transfer from a Variable Portfolio or available Fixed Account into a DCA Fixed Account. Please see DOLLAR COST AVERAGING PROGRAM below for more information.
• Unless otherwise directed by you, any Purchase Payment less than the above minimum amounts will automatically be allocated to available investment options according to your current allocation instructions on file.
Purchase Payments may not be invested in DCA Fixed Accounts if you elect the Seasons Rewards program.
DCA Interest Rate Crediting
DCA Fixed Accounts credit a fixed rate of interest and can only be elected to facilitate a DCA Program. Interest is credited to amounts allocated to the DCA Fixed Accounts while your money is transferred to available investment options over certain specified time frames. The interest rates applicable to the DCA Fixed Accounts may differ from those applicable to any other Fixed Account but will never be less than the minimum guaranteed interest rate specified in your contract. The minimum guaranteed interest rate can vary but is never lower than 1%. However, when using a DCA Fixed Account, the annual interest rate is paid on a declining balance as you systematically transfer your money to available investment options. Therefore, the actual effective yield will be less than the stated annual crediting rate. We reserve the right to change the availability of DCA Fixed Accounts offered, unless state law requires us to do otherwise.
Dollar Cost Averaging Program
Under the DCA Program, you systematically transfer a specified dollar amount or percentage of contract value from a Variable Portfolio, available Fixed Account or DCA Fixed Account (“source account”) to any available investment options (“target account”).
The DCA Program allows you to invest gradually in available investment options at no additional cost. The DCA Program is designed to lessen the impact of market fluctuations on your investment. However, the DCA Program can neither guarantee a profit nor protect your
investment against a loss. When you elect the DCA Program, you are continuously investing in securities fluctuating at different price levels. You should consider your tolerance for investing through periods of fluctuating price levels.
Example of DCA Program
Assume that you want to move $750 each month from one Variable Portfolio to another Variable Portfolio over six months. You set up a DCA Program and purchase Accumulation Units at the following values:
Month Accumulation Unit Value Units Purchased
1 $7.50 100
2 $5.00 150
3 $10.00 75
4 $7.50 100
5 $5.00 150
6 $7.50 100
You paid an average price of only $6.67 per Accumulation Unit over six months, while the average market price actually was $7.08. By investing an equal amount of money each month, you automatically buy more Accumulation Units when the market price is low and fewer Accumulation Units when the market price is high. This example is for illustrative purposes only.
DCA Program Guidelines
• Fixed Accounts are not available as target accounts for the DCA Program.
• Transfers occur on a monthly periodic schedule.
• The minimum transfer amount under the DCA Program is $100 per transaction, regardless of the source account.
• Transfers resulting from your participation in the DCA Program are not counted towards the number of free transfers per contract year.
Allocation of Subsequent Purchase Payments to DCA Program
If you have not elected an optional Living Benefit and you choose to allocate subsequent Purchase Payments to an active DCA Program with an available Fixed Account serving as the source account, the rate applicable to that Fixed Account at the time we receive the subsequent Purchase Payment will apply. Further, we will begin transferring subsequent Purchase Payments into your target account allocations on the same day of the month as the initial active DCA Program. Therefore, you may not receive a full 30 days of interest prior to the first transfer to the target account(s). Please see DOLLAR COST AVERAGING FIXED ACCOUNTS above for more information.
Termination of DCA Program
You may terminate the DCA Program at any time. If you terminate the DCA Program and money remains in the DCA Fixed Account(s), we transfer the remaining money according to your current allocation instructions on file.
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Upon notification of your death, we will terminate the DCA Program unless your Beneficiary instructs us otherwise and we will transfer the remaining money according to the current allocation instructions on file.
Automatic Asset Rebalancing Program
Market fluctuations may cause the percentage of your investment in the Variable Portfolios to differ from your original allocations. Automatic Asset Rebalancing typically involves shifting portions of your money into and out of investment options so that the resulting allocations are consistent with your current investment instructions.
Under the Automatic Asset Rebalancing Program:
• You may elect to have your investments in the Variable Portfolios and/or Fixed Accounts, if available, periodically rebalanced to return your allocations to preselected percentages for no additional charge.
• At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
• Transfers resulting from your participation in this program are not counted against the number of free transfers per contract year.
Changes to Rebalancing Instructions
If you make a transfer, you must provide updated rebalancing instructions. If you do not provide new rebalancing instructions at the time you make such transfer, we will change your ongoing rebalancing instructions to reflect the percentage allocations among the new Variable Portfolios and/or Fixed Accounts, if available, resulting from your transfer which will replace any previous rebalancing instructions you may have provided (“Default Rebalancing Instructions”). You may change any applicable Default Rebalancing Instructions at any time by contacting the Annuity Service Center.
Upon notification of your death, we will terminate the Automatic Asset Rebalancing Program unless your Beneficiary instructs us otherwise.
Transfers During the Accumulation Phase
Subject to the Company’s rules, restrictions and policies (including short term trading policies) described below, you may transfer funds between the Variable Portfolios and/or any available Fixed Accounts.
• Funds already in your contract cannot be transferred into the DCA Fixed Accounts, if available.
• You must transfer at least $100 per transfer.
• If less than $100 remains in any Variable Portfolio or Fixed Account after a transfer, that amount must be transferred as well.
Submitting Transfer Instructions
Your transfer instructions must be received via one of the methods and locations referenced below; otherwise they will
not be considered received by us. Please see SHORT-TERM TRADING POLICIES below for more information.
Telephone:
(800) 445-7862
Internet:
www.aig.com/annuities
United States Postal Service (first-class mail):
Annuity Service Center
P.O. Box 15570
Amarillo, Texas 79105-5570
Facsimile:
(818) 615-1543
Telephone/Internet Authorization
We may accept transfers by telephone or the internet unless you tell us not to on your contract application. When receiving instructions over the telephone or the internet, we have procedures to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or the internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions.
If your contract was issued in the state of New York, we may accept transfers by telephone if you complete and send the Telephone Transfer Agreement form to our Annuity Service Center at the above address.
Transfer Fees
There is no charge for your first 15 transfers in any contract year. We charge for transfers in excess of 15 in any contract year. The fee is $25 for each transfer exceeding this limit. Transfers resulting from your participation in the DCA or Automatic Asset Rebalancing Programs are not counted towards the number of free transfers per contract year.
Please see Appendix C - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for state-specific fees.
Accepting Transfer Requests
We cannot guarantee that we will be able to accept telephone, fax and/or internet transfer instructions at all times. Any telephone, fax or computer system, whether it is yours, your broker-dealer’s, or ours, can experience outages or delays for a variety of reasons and may prevent our processing of your transfer request. If telephone, fax and/or internet access is unavailable, you must make your transfer request in writing by U.S. Mail to our Annuity Service Center at the address above.
We reserve the right to modify, suspend or terminate telephone, fax and/or internet transfer privileges at any time and we will notify you prior to exercising the right of suspension.
Pricing Transfer Requests
Any transfer request will be priced as of the day it is received by us in Good Order if the request is received
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before Market Close. If the transfer request is received after Market Close, the request will be priced as of the next NYSE business day.
Short-Term Trading Policies
This variable annuity contract is not designed to support frequent trading or trading strategies that seek to benefit from short-term price fluctuations or price inefficiencies in the Variable Portfolios of this product (“Short-Term Trading”) and we discourage Short-Term Trading as more fully described below.
Risks of Short-Term Trading
Short-Term Trading may create risks that may result in adverse effects on investment return of the Underlying Fund in which a Variable Portfolio invests. Such risks may include, but are not limited to: (1) interference with the management and planned investment strategies of an Underlying Fund; (2) dilution of the interests in the Underlying Fund due to practices such as “arbitrage”; and/or (3) increased brokerage and administrative costs due to forced and unplanned fund turnover. These circumstances may reduce the value of the Variable Portfolio. In addition to negatively impacting the Owner, a reduction in contract value may also be harmful to Annuitants and/or Beneficiaries.
We have adopted the following administrative procedures to discourage Short-Term Trading which are summarized below.
Standard U.S. Mail Policy
Under the Standard U.S. Mail Policy, all transfers must be submitted by U.S. Mail for 12-months. The 15th transfer in a 12-month look-back period (“12-Month Rolling Period”) triggers the Standard U.S. Mail Policy.
Transfer Requests under the U.S. Mail Policy
• While the U.S. Mail Policy is in effect, we will not accept transfer requests sent by any other method except U.S. Mail.
• Transfer requests required to be submitted by U.S. Mail can only be cancelled by a written request sent by U.S. Mail with the appropriate paperwork received prior to the execution of the transfer.
• All transfers made on the same day prior to Market Close are considered one transfer request for purposes of applying the Short-Term Trading policy and calculating the number of free transfers.
• Transfers resulting from your participation in the DCA or Automatic Asset Rebalancing Programs are not included for the purposes of determining the number of transfers before applying the Standard U.S. Mail Policy.
• We apply the Standard U.S. Mail Policy uniformly and consistently to all contract Owners except for omnibus group contracts. See Omnibus Group Contracts below for more information.
Example
For example, if you made a transfer on August 19, 2020 and within the previous twelve months (from August 20, 2019 forward) you made 15 transfers including the August 19th transfer, then all transfers made for twelve months after August 19, 2020 must be submitted by U.S. Mail (from August 20, 2020 through August 20, 2021).
Accelerated U.S. Mail Policy
We may become aware of transfer patterns among the Variable Portfolios and/or Fixed Accounts which appear to be Short-Term Trading or otherwise detrimental to the Variable Portfolios but have not yet triggered the Standard U.S. Mail Policy described above. If such transfer activity comes to our attention, we may require you to adhere to our Standard U.S. Mail Policy prior to reaching the specified number of transfers.
Additional Short-Term Trading Restrictions
To the extent we become aware of Short-Term Trading activities which cannot be reasonably controlled solely by the Standard U.S. Mail Policy or the Accelerated U.S. Mail Policy, we reserve the right to evaluate, in our sole discretion, whether to:
1. impose further limits on the size, manner, number and/or frequency of transfers you can make;
2. impose minimum holding periods;
3. reject any Purchase Payment or transfer request;
4. terminate your transfer privileges; and/or
5. request that you surrender your contract.
We will notify you in writing if your transfer privileges are modified, suspended or terminated. In addition, we reserve the right not to accept or otherwise restrict transfers from a third party acting for you and not to accept pre-authorized transfer forms.
Enforcement Determination Factors
Some of the factors we may consider when determining whether to accelerate the Standard U.S. Mail Policy, reject transfers or impose other conditions on transfer privileges include:
• the number of transfers made in a defined period;
• the dollar amount of the transfer;
• the total assets of the Variable Portfolio involved in the transfer and/or transfer requests that represent a significant portion of the total assets of the Variable Portfolio;
• the investment objectives and/or asset classes of the particular Variable Portfolio involved in your transfers;
• whether the transfer appears to be part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies;
• the history of transfer activity in the contract or in other contracts we may offer; and/or
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• other activity, as determined by us, that creates an appearance, real or perceived, of Short-Term Trading or the possibility of Short-Term Trading.
Applicability to Third Party Trading Services
The Standard and Accelerated U.S. Mail Policies are applied uniformly and consistently to contract Owners utilizing third party trading services/strategies performing asset allocation services for a number of contract Owners at the same time. You should be aware that such third party trading services may engage in transfer activities that can also be detrimental to the Variable Portfolios, including trading relatively large groups of contracts simultaneously. These transfer activities may not be intended to take advantage of short-term price fluctuations or price inefficiencies. However, such activities can create the same or similar risks as Short-Term Trading and negatively impact the Variable Portfolios as described above.
Deterrence Limitations
Notwithstanding the administrative procedures above, there are limitations on the effectiveness of these procedures. Our ability to detect and/or deter Short-Term Trading is limited by operational systems and technological limitations, as well as our ability to predict strategies employed by contract Owners (or those acting on their behalf) to avoid detection. We cannot guarantee that we will detect and/or deter all Short-Term Trading and it is likely that some level of Short-Term Trading will occur before it is detected and steps are taken to deter it. To the extent that we are unable to detect and/or deter Short-Term Trading, the Variable Portfolios may be negatively impacted as described above.
Additionally, the Variable Portfolios may be harmed by transfer activity related to other insurance companies and/or retirement plans or other investors that invest in shares of the Underlying Fund. Moreover, our ability to deter Short-Term Trading may be limited by decisions by state regulatory bodies and court orders which we cannot predict.
You should be aware that the design of our administrative procedures involves inherently subjective decisions which we attempt to make in a fair and reasonable manner consistent with the interests of all Owners of this contract. We do not enter into agreements with contract Owners whereby we permit or intentionally disregard Short-Term Trading.
Omnibus Group Contracts
Omnibus group contracts may invest in the same Underlying Funds available in your contract but on an aggregate, not individual basis. Thus, we have limited ability to detect Short-Term Trading in omnibus group contracts and the Standard U.S. Mail Policy does not apply to these contracts. Our inability to detect Short-Term Trading may negatively impact the Variable Portfolios as described above.
We reserve the right to modify the policies and procedures described in the TRANSFERS DURING THE ACCUMULATION PHASE section at any time. To the extent that we exercise this reservation of rights, we will do so uniformly and consistently unless we disclose otherwise.
Underlying Funds’ Short-Term Trading Policies
Please note that the Underlying Funds have their own policies and procedures (outlined in their respective prospectus) with respect to frequent purchases and redemptions of their respective shares which may be more or less restrictive than ours.
• We reserve the right to enforce these Underlying Fund policies and procedures, including, but not limited to, the right to collect a redemption fee on shares of the Underlying Fund if imposed by such Underlying Fund’s Board of Trustees/Directors. As of the date of this prospectus, none of the Underlying Funds impose a redemption fee.
• We also reserve the right to reject, with or without prior notice, any purchase, transfer or allocation into a Variable Portfolio if the corresponding Underlying Fund will not accept such purchase, transfer or allocation for any reason.
We are obligated to execute instructions from the Underlying Funds to restrict or prohibit further purchases or transfers in an Underlying Fund under certain circumstances.
Processing Omnibus Orders
Many investments in the Underlying Funds outside of these contracts are omnibus orders from intermediaries such as other separate accounts or retirement plans. If an Underlying Fund’s policies and procedures fail to successfully detect and discourage Short-Term Trading, there may be a negative impact to the Owners of the Underlying Fund. If an Underlying Fund believes that an omnibus order we submit may reflect transfer requests from Owners engaged in Short-Term Trading, the Underlying Fund may reject the entire omnibus order and delay or prevent us from implementing your transfer request.
Required Information Sharing
Under rules adopted by the SEC, we also have written agreements with the Underlying Funds that obligate us to, among other things, provide the Underlying Funds promptly upon request certain information about you (e.g., your social security number) and your trading activity.
Transfers During the Income Phase
During the Income Phase, only one transfer per month is permitted between the Variable Portfolios. No other transfers are allowed during the Income Phase. Transfers will be effected for the last NYSE business day of the month in which we receive your request for the transfer.
You may not use the DCA Program or the Automatic Asset Rebalancing Program during the Income Phase.
Return Plus Program
The Return Plus program, available only if we are offering multi-year Fixed Accounts and available for no additional charge, allocates your investment strategically between the Fixed Accounts and Variable Portfolios. You decide how much you want to invest and approximately when you want a return of Purchase Payments. We calculate how much of your Purchase Payment to allocate to the particular Fixed
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Account to ensure that it grows to an amount equal to your total Purchase Payment invested under this program. We invest the rest of your Purchase Payment in the Variable Portfolio(s) according to your allocation instructions.
Example of Return Plus Program:
Assume that you want to allocate a portion of your initial Purchase Payment of $100,000 to a multi-year Fixed Account. You want the amount allocated to the multi-year Fixed Account to grow to $100,000 in 3 years. If the 3-year Fixed Account is offering a 4% interest rate, Return Plus will allocate $88,900 to the 3-year Fixed Account to ensure that this amount will grow to $100,000 at the end of the 3-year period. The remaining $11,100 may be allocated among the Variable Portfolios according to your allocation instructions.
We reserve the right to modify, suspend or terminate the Return Plus program at any time.
Voting Rights
The Company is the legal owner of the Trusts’ shares. However, when an Underlying Fund solicits proxies in conjunction with a shareholder vote, we must obtain your instructions on how to vote those shares. We vote all of the shares we own in proportion to your instructions. This includes any shares we own on our own behalf. As a result of this proportionate voting, the vote of a small number of contract Owners can determine the outcome of a vote. Should we determine that we are no longer required to vote in the manner described above, we will vote the shares in our own right.
Access to your Money
  
You can access money in your contract in one of the following ways:
• Partial Withdrawal,
• Systematic Withdrawal,
• Total Withdrawal (also known as surrender), or
• Annuity Income Payment (during Income Phase).
Withdrawals made prior to age 59½ may result in a 10% IRS penalty tax. Due to the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the 10% IRS penalty tax for withdrawals made prior to age 59½ will be waived for qualifying coronavirus related distributions taken from a Qualified plan or IRA from January 1, 2020 through December 31, 2020. Certain Qualified plans restrict and/or prohibit your ability to withdraw money from your contract. Please see TAXES.
Minimum Withdrawal Amount and Minimum Contract Value
  Minimum
Withdrawal
Amount 		Minimum
Contract Value(1)
Partial Withdrawal $1,000 $500(2)
Systematic Withdrawal $100 $500(2)
(1) The value left in any Variable Portfolio or available Fixed Account must be at least $100 after a withdrawal.
(2) The total contract value must be at least $500 after a withdrawal.
Where permitted by state law, we may terminate your contract if both of the following occur: (1) your contract value is less than $500 as a result of withdrawals; and (2) you have not made any Purchase Payments during the past three years. We will provide you with sixty days written notice that your contract is being terminated. At the end of the notice period, we will distribute the contract’s remaining value to you.
Penalty-Free Withdrawal Amount
Your contract provides for a penalty-free withdrawal amount each contract year during the applicable withdrawal period. The penalty-free withdrawal amount is the portion of your contract that we allow you to take out without being charged a withdrawal charge. The penalty-free withdrawal amount does not reduce the basis used to calculate future annual penalty-free withdrawals and withdrawal charges.
To determine your penalty-free withdrawal amount and your withdrawal charge, we refer to two special terms: “penalty-free earnings” and “total invested amount.”
Penalty-free earnings are equal to your contract value less your total invested amount and may be withdrawn free of a withdrawal charge at any time, including upon a full surrender of your contract. Purchase Payments that are no longer subject to a withdrawal charge and not previously withdrawn may also be withdrawn free of a withdrawal charge at any time. The total invested amount is the sum of all Purchase Payments less portions of prior withdrawals that reduce your total invested amount as follows:
• Penalty-free withdrawals in any year that were in excess of your penalty-free earnings and were based on the portion of the total invested amount that was no longer subject to withdrawal charges at the time of the withdrawal; and
• Any prior withdrawals (including withdrawal charges applicable to those withdrawals) of the total invested amount on which you already paid a withdrawal charge.
If, in any contract year, you choose to take less than the full penalty-free withdrawal amount, then you may not carry over the unused amount as an additional penalty-free withdrawal in subsequent years.
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During the first contract year, your maximum annual penalty-free withdrawal amount is the greater of:
(1) your penalty-free earnings; or
(2) if you are participating in the Systematic Withdrawal program, a total of 10% of your total invested amount
After the first contract year, your maximum annual penalty-free withdrawal amount is the greater of:
(1) your penalty-free earnings; or
(2) 10% of the portion of your total invested amount that has been in your contract for at least one year and still subject to a withdrawal charge
If, in any contract year, you choose to take less than the full penalty-free withdrawal amount, then you may not carry over the unused amount as an additional penalty-free withdrawal in subsequent years.
If you participate in the Seasons Rewards program, you will not receive any deferred Payment Enhancement if you fully withdraw a Purchase Payment or if you surrender your contract prior to the corresponding Deferred Payment Enhancement Date.
Although we do not assess a withdrawal charge when you take a 10% free withdrawal of the total invested amount we will proportionally reduce the amount of any corresponding Deferred Payment Enhancement. Please see SEASONS REWARDS PROGRAM above.
Assessment of Withdrawal Charges
We deduct a withdrawal charge applicable to any amount of a partial or total withdrawal in excess of your penalty-free withdrawal amount made before the end of the withdrawal charge period. Before purchasing this contract, you should consider the effect of withdrawal charges on your investment if you need to withdraw more than the annual penalty-free amount during the withdrawal charge period. You should fully discuss this decision with your financial representative.
The withdrawal charge percentage is determined by the number of years the Purchase Payment has been in the contract at the time of the withdrawal. Please see WITHDRAWAL CHARGES and EXPENSES.
When you make a partial withdrawal, we deduct it from penalty-free earnings first, any remaining penalty-free withdrawal amount, and then from the total invested amount on a first-in, first-out basis. This means that you can also access your Purchase Payments, which are no longer subject to a withdrawal charge before those Purchase Payments, which are still subject to the withdrawal charges or higher withdrawal charges.
If you request a total withdrawal (surrender) of your contract, we may also deduct any premium taxes, if applicable. If you fully surrender your contract, withdrawal charges will be assessed against the amount of Purchase Payments subject to withdrawal charges. This means that, if you surrender your contract while withdrawal charges still apply, any prior penalty-free withdrawal amounts taken in the current contract year
are not subtracted from the total Purchase Payments still subject to withdrawal charges. Please see EXPENSES.
Calculating Withdrawal Charges
For the purpose of calculating the withdrawal charge if you request a total withdrawal of your contract, any prior penalty-free withdrawal amount, including a required minimum distribution, in the current contract year is not subtracted from the total Purchase Payments still subject to withdrawal charges.
Example:
For example, you make an initial Purchase Payment of $100,000. For purposes of this example we will assume a 0% growth rate over the life of the contract, no subsequent Purchase Payments and no election of optional features. In contract year 2, you take out your maximum penalty-free withdrawal of $10,000. After that penalty-free withdrawal your contract value is $90,000. In the 3rd contract year, you request a total withdrawal of your contract. We will apply the following calculation:
A–(B x C)=D, where:
A= Your contract value at the time of your request for withdrawal ($90,000)
B= The amount of your Purchase Payments still subject to withdrawal charge ($100,000)
C= The withdrawal charge percentage applicable to the age of each Purchase Payment (assuming 6% is the applicable percentage) [B x C=$6,000]
D= Your full contract value ($84,000) available for total withdrawal
Required Minimum Distributions
If you are taking required minimum distributions applicable to this contract only, we waive any withdrawal charges applicable to those withdrawals. Please see TAXES for details regarding required minimum distributions.
Annuity Income Payments
Any time after your second contract anniversary, you may receive annuity income payments for a specified period of time and at a frequency as elected by you. We will waive any applicable withdrawal charges upon processing of your request to annuitize the contract. Please see ANNUITY INCOME OPTIONS.
Processing Withdrawal Requests
A request to access money from your contract, as outlined above, must be submitted in writing and in Good Order to the Annuity Service Center at the following address. Withdrawals are processed effective the date they are deemed in Good Order and payments are made within 7 days. If you take a partial withdrawal, you can choose whether any applicable withdrawal charges are deducted from the amount withdrawn or from the contract value remaining after the amount withdrawn. If you fully surrender your contract value, we deduct any applicable withdrawal charges from the amount surrendered.
For withdrawals of $500,000 and more, you are required to include a signature guarantee issued by your broker-dealer which verifies the validity of your signature.
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Annuity Service Center
P.O. Box 15570
Amarillo, TX 79105-5570
Any request for withdrawal will be priced as of the day it is received by us in Good Order at the Annuity Service Center, if the request is received before Market Close. If the request for withdrawal is received after Market Close, the request will be priced as of the next NYSE business day. Withdrawals are processed effective the date they are deemed in Good Order and payments are made within 7 days.
We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for the protection of contract Owners.
Additionally, we reserve the right to defer payments for a withdrawal from a Fixed Account for up to six months.
Partial, Systematic, and Required Minimum Distributions
Partial withdrawals, systematic withdrawals and required minimum distributions will be made proportionately from each Variable Portfolio and the Fixed Account in which you are invested, unless you provide different instructions.
If you surrender your contract, we may deduct any premium taxes, if applicable. Please see EXPENSES.
Systematic Withdrawal Program
During the Accumulation Phase, you may elect to receive periodic withdrawals under the Systematic Withdrawal Program for no additional charge. Under the program, you may choose to take monthly, quarterly, semi-annual or annual payments from your contract. Electronic transfer of these periodic withdrawals to your bank account is available.
Please contact our Annuity Service Center which can provide the necessary enrollment forms. A withdrawal charge may apply if the amount of the periodic withdrawals in any year exceeds the penalty-free withdrawal amount permitted each year.
If you elect a Living Benefit and choose to receive periodic withdrawals under the Systematic Withdrawal Program, you must request withdrawals on the appropriate Living Benefit enrollment form. If we receive your request on another form, your request will not be processed. The Systematic Withdrawal Program for contracts with a Living Benefit is designed to provide withdrawal amounts within the Maximum Annual Withdrawal Amount. Any amounts taken above your Maximum Annual Withdrawal Amount while enrolled in the Systematic Withdrawal Program will eliminate the remaining systematic withdrawals within the same contract year and may permanently reduce future guaranteed withdrawal amounts. If you must take Required Minimum Distributions (RMDs) from this contract and want to ensure that these withdrawals will not permanently reduce future guaranteed withdrawal amounts, your total distribution(s) during the current
contract year must not exceed the greater of the Maximum Annual Withdrawal Amount under the Living Benefit or the RMD amount as calculated by our Annuity Service Center.
Upon notification of your death, we will terminate the Systematic Withdrawal Program unless your Beneficiary instructs us otherwise.
We reserve the right to modify, suspend or terminate the Systematic Withdrawal Program at any time and we will notify you prior to exercising that right.
Nursing Home Waiver
If you are confined to a nursing home for 60 days or longer, we may waive the withdrawal charge on partial or total withdrawals made while you are in a nursing home or within 90 days after you leave the nursing home.
• You cannot use this waiver during the first 90 days after your contract is issued.
• The confinement period for which you seek the waiver must begin after you purchase your contract.
• We will only waive withdrawal charges on withdrawals paid directly to the contract owner, and not to a third party or other financial services company.
In order to use this waiver, you must submit the following documents to the Annuity Service Center:
1) a doctor’s note recommending admittance to a nursing home;
2) an admittance form which shows the type of facility you entered; and
3) the bill from the nursing home which shows that you met the 60 day confinement requirement.
Optional Living Benefits
  
MarketLock and MarketLock For Two
MarketLock and MarketLock For Two are optional guaranteed minimum withdrawal benefits that guarantee an income stream based on Purchase Payments made during the first two contract years and only guarantee lifetime withdrawals in the manner described below. These features may not be appropriate if you plan to make ongoing Purchase Payments, such as with contributory IRA’s or tax-qualified plans.
Withdrawals under the features are treated like any other withdrawal for the purpose of calculating taxable income, deducting applicable withdrawal charges, and reducing the contract value, free withdrawal amounts and all other benefits, features and conditions of your contract.
Any withdrawals taken may be subject to a 10% IRS tax penalty if you are under age 59½ at the time of the withdrawal. For information about how the feature is treated for income tax purposes, you should consult a qualified tax advisor concerning your particular
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circumstances. In addition, if you have a Qualified contract, tax law and the terms of the plan may restrict withdrawal amounts.
MarketLock
For contracts issued prior to May 1, 2006, MarketLock guarantees annual withdrawals based on the Maximum Anniversary Value (MAV) during the first 10 years of the contract. In addition, for contracts issued on or after May 1, 2006, if the Owner begins withdrawals after age 65, the withdrawal amount is guaranteed to last for life.
MarketLock Summary Table:
Time of First Withdrawal Maximum
Annual
Withdrawal
Percentage*
prior
to any
Extension 		Initial Minimum
Withdrawal
Period prior
to any
Extension 		Maximum
Annual
Withdrawal
Percentage if
Extension is
Elected
Before 5th Benefit Year anniversary 5% 20 years 5%
On or after 5th Benefit Year anniversary 7% 14.28 years 7%
On or after 10th Benefit Year anniversary 10% 10 years 7%
On or after 20th Benefit Year anniversary 10% 10 years 10%
On or after the older contract Owner’s 65th birthday** 5% Life of the older contract Owner 5%
* For the purposes of complying with the Maximum Annual Withdrawal Percentage, the amount of the withdrawal would include any charges applicable to the withdrawal. If you are taking required minimum distributions (“RMD”) from the contract, and the portion of the RMD amount based on this contract only is greater than the Maximum Annual Withdrawal Amount, that portion of the withdrawal will not be treated as an Excess Withdrawal. Any portion of the RMD withdrawal that is based on amounts greater than this contract alone will be considered an Excess Withdrawal. This will result in cancellation of the lifetime withdrawals and may further reduce your Maximum Annual Withdrawal Amount, MAV Benefit Base, and remaining Minimum Withdrawal Period. If you must take RMD from this contract and want to ensure that these withdrawals are not considered Excess Withdrawals under the feature, your total distribution(s) during the current contract year must not exceed the greater of the Maximum Annual Withdrawal Amount or the RMD amount as calculated by our Annuity Service Center. If you are purchasing this contract by transferring from another IRA and plan to immediately utilize this feature to satisfy RMD, you should take the current year required withdrawal prior to moving your money to this contract since we can only provide one RMD withdrawal per contract year (which may cross over two tax years). Further, if the RMD basis for this tax year was calculated by the investment company from which you are transferring your investment and it is greater than the amount transferred to this contract, we cannot systematically calculate and support the RMD basis. Therefore, you should take the RMD before transferring your investment. Please see “How are the components for MarketLock and MarketLock For Two calculated?” below.
** For contracts issued on or after May 1, 2006, lifetime withdrawals are available provided that as your first withdrawal is taken on or after age 65 and withdrawals do not exceed the 5% Maximum Annual Withdrawal Percentage indicated above. If withdrawals exceed the 5% Maximum Annual Withdrawal Percentage in any Benefit Year (other than for RMD amounts for this contract that are greater than the Maximum Annual Withdrawal Amount), lifetime withdrawals are no longer available. Instead, available withdrawals are automatically
  recalculated with respect to the Minimum Withdrawal Period and Maximum Annual Withdrawal Percentage listed in the table above, based on the time of first withdrawal and reduced for withdrawals already taken.
MarketLock For Two Summary Table:
Age of the Younger Spouse
at Time of First Withdrawal 		Maximum Annual
Withdrawal
Percentage*
At least age 55 but prior to 63rd birthday 4%
At least age 63 but prior to 76th birthday 5%
On or after 76th birthday 6%
* If you are taking required minimum distributions (“RMD”) from the contract, and the portion of the RMD amount based on this contract is greater than the Maximum Annual Withdrawal Amount (defined below), that portion of the withdrawal will not be treated as an Excess Withdrawal. Any portion of a RMD withdrawal that is based on amounts other than this contract will not be considered a RMD from this contract. Please see “What are the effects of withdrawals on MarketLock and MarketLock For Two?” below.
How are the components for MarketLock and MarketLock For Two calculated?
First, we determine the Eligible Purchase Payments, which include the amount of Purchase Payments received during the first two years after your contract issue date, adjusted for any withdrawals during that period. Any Purchase Payments we receive more than two years after your contract issue date are considered Ineligible Purchase Payments. We will not accept subsequent Purchase Payments after the 2nd contract year. The calculation of Eligible Purchase Payments does not include any Payment Enhancements and/or spousal continuation contributions, if applicable; however, Payment Enhancements and/or spousal continuation contributions are included in the calculation of Anniversary Values, as defined below. Eligible Purchase Payments are limited to $1.5 million without prior Company approval.
Second, we consider the MAV Evaluation Period, which begins on your contract issue date and ends on your 10th contract anniversary. On the expiration of the MAV Evaluation Period, you may contact us to extend the MAV Evaluation Period for an additional period as discussed further below.
Third, we determine the Anniversary Value which equals the value of your contract on any contract anniversary during the MAV Evaluation Period minus any Ineligible Purchase Payments.
Fourth, we determine the MAV Benefit Base. Initially, the MAV Benefit Base equals the first Eligible Purchase Payment. Thereafter, the MAV Benefit Base is increased each time subsequent Eligible Purchase Payments are made, and adjusted each time any withdrawals (Excess Withdrawals for MarketLock For Two) of contract value are taken. On each contract anniversary throughout the MAV Evaluation Period, the MAV Benefit Base automatically adjusts upwards if the current Anniversary Value is greater than both the current MAV Benefit Base and any previous year’s Anniversary Value. Other than adjustments made for withdrawals (Excess Withdrawals for MarketLock For Two), the MAV Benefit Base will only be adjusted upwards,
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and subsequent lower Anniversary Values through the MAV Evaluation Period will not result in a lower MAV Benefit Base.
Fifth, we determine the Maximum Annual Withdrawal Amount, which represents the maximum amount that may be withdrawn each Benefit Year under the features and is an amount calculated by multiplying the current MAV Benefit Base by the applicable Maximum Annual Withdrawal Percentage. The applicable Maximum Annual Withdrawal Percentage differs by feature as follows:
MarketLock: The applicable Maximum Annual Withdrawal Percentage is determined based on the Benefit Year when you take your first withdrawal. Or, for contracts issued on or after May 1, 2006, the Maximum Annual Withdrawal Percentage is determined based on whether you are taking lifetime withdrawals.
MarketLock For Two: The applicable Maximum Annual Withdrawal Percentage is determined based on the younger spouse’s age when you take your first withdrawal.
If the MAV Benefit Base is increased to the current Anniversary Value, the Maximum Annual Withdrawal Amount is recalculated on that contract anniversary by multiplying the new MAV Benefit Base by the applicable Maximum Annual Withdrawal Percentage. If the MAV Benefit Base is increased for Eligible Purchase Payments, the Maximum Annual Withdrawal Amount will be recalculated upon receipt of each Eligible Purchase Payment by multiplying the new MAV Benefit Base by the applicable Maximum Annual Withdrawal Percentage.
Finally, for MarketLock only, we determine the Minimum Withdrawal Period, which is the minimum period over which you may take withdrawals under the feature. The initial Minimum Withdrawal Period is calculated when withdrawals under the Benefit begin and is recalculated when the MAV Benefit Base is adjusted to a higher Anniversary Value by dividing the MAV Benefit Base by the Maximum Annual Withdrawal Amount. The Minimum Withdrawal Periods will be reduced due to Excess Withdrawals.
Can I extend the MAV Evaluation Period beyond 10 years?
Yes, the MAV Evaluation Period may be extended as long as the Benefit is still in effect and the older Owner (younger spouse for MarketLock For Two) is age 85 or younger at the time extension is elected. We guarantee that you will be given the opportunity to extend the MAV Evaluation Period under these conditions for at least one additional evaluation period of 10 years. In order to extend the MAV Evaluation Period, you must contact us no later than 30 days after the end of the current MAV Evaluation Period. If you elect to extend the MAV Evaluation Period, the MAV Benefit Base can continue to be adjusted upward as described above on each anniversary during the new MAV Evaluation Period. Please see “How are the components of MarketLock and MarketLock For Two calculated?” above. Also, if you extend the MAV Evaluation Period, you should note that the components of the feature, such as the fee (and Maximum Annual Withdrawal Percentage for MarketLock), will change to
those in effect at the time you elect to extend, which may be different from the components when you initially elected the feature. We will notify you in writing of the terms of the extension at least 30 days prior to the end of the MAV Evaluation Period. Additional MAV Evaluation Periods may be offered at our sole discretion.
If you do not contact us to extend the MAV Evaluation Period, the MAV Benefit Base will no longer be adjusted on subsequent contract anniversaries. However, you can continue to take the Maximum Annual Withdrawal Amount in effect at the end of the last MAV Evaluation Period, subject to adjustments for withdrawals, (Excess Withdrawals for MarketLock For Two). You will continue to pay the fee at the rate that was in effect during the last MAV Evaluation Period and you will not be permitted to extend the MAV Evaluation Period in the future.
What are the fees for MarketLock and MarketLock For Two?
The annualized fee for MarketLock is calculated as 0.65% of the MAV Benefit Base for all years in which the feature is in effect. However, if you elect to extend the MAV Evaluation Period the fee may change at the time of the extension. The fee will be calculated and deducted quarterly from your contract value, starting on the first quarter following your contract issue date and ending upon termination of the Benefit. We will not assess the quarterly fee if you surrender or annuitize your contract before the end of a contract quarter.
The annualized fee for MarketLock For Two for all years in which the feature is in effect, is calculated as 0.40% of the MAV Benefit Base prior to the first withdrawal being taken and 0.80% of the MAV Benefit Base after the first withdrawal is taken assessed at the end of the quarter in which the first withdrawal is taken. However, if you elect to extend the MAV Evaluation Period the fee may change at the time of the extension.
An increase in the MAV Benefit Base due to an adjustment to a higher Anniversary Value or due to subsequent Eligible Purchase Payments will result in an increase to the dollar amount of the fee. The fee will be calculated and deducted quarterly from your contract value, starting on the first quarter following your contract issue date and ending upon termination of the Benefit. If your contract value and/or MAV Benefit Base falls to zero before the feature has been terminated, the fee will no longer be deducted. However, if the MAV Benefit Base is adjusted upwards at a later date because the current Anniversary Value is greater than both the current and any previous Anniversary Values, the calculation and deduction of the fee will resume. We will not assess the quarterly fee if you surrender or annuitize your contract before the end of a contract quarter.
What are the effects of withdrawals on MarketLock and MarketLock For Two?
MarketLock
The Maximum Annual Withdrawal Amount, MAV Benefit Base and Minimum Withdrawal Period may change over time as a result of the timing and amounts of withdrawals.
In addition, for contracts issued on or after May 1, 2006, if you elect to begin withdrawals prior to your 65th birthday
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(if jointly owned, prior to the 65th birthday of the older Owner), you will not be eligible to receive lifetime withdrawals. If you begin withdrawals on or after your 65th birthday (older Owner’s 65th birthday if jointly owned) and wish to receive lifetime withdrawals, you must withdraw no more than the Maximum Annual Withdrawal Amount which is calculated as 5% of the MAV Benefit Base. Lifetime withdrawals do not change unless the MAV Benefit Base increases due to additional Eligible Purchase Payments or if the MAV Benefit Base is stepped-up on a contract anniversary. If the amount of withdrawals, at any time, exceeds 5% of the MAV Benefit Base in a Benefit Year, you will not receive lifetime withdrawals. However, you can continue to receive withdrawals over the Minimum Withdrawal Period in amounts up to the Maximum Annual Withdrawal Amount as described in the MarketLock Summary Table and under “How are the components for MarketLock and MarketLock For Two calculated?” above, based on when you took your first withdrawal and adjusted for withdrawals already taken.
Total withdrawals in any Benefit Year equal to or less than the Maximum Annual Withdrawal Amount reduce the MAV Benefit Base by the amount of the withdrawal. Withdrawals in excess of the Maximum Annual Withdrawal Amount are considered Excess Withdrawals. We define Excess Withdrawals as either: 1) any portion of a withdrawal that causes the total withdrawals in a Benefit Year to exceed the Maximum Annual Withdrawal Amount; or 2) any withdrawal in a Benefit Year taken after the Maximum Annual Withdrawal Amount has been withdrawn. Excess Withdrawals will reduce the MAV Benefit Base by the greater of: (a) the amount of the Excess Withdrawal; or (b) the relative size of the Excess Withdrawal in relation to the contract value prior to the Excess Withdrawal, as described below. This means that if contract value is less than the MAV Benefit Base, withdrawals greater than the Maximum Annual Withdrawal Amount will result in a proportionately greater reduction of the MAV Benefit Base (as described below), which will be more than the amount of the withdrawal itself. This will also reduce your Maximum Annual Withdrawal Amount. The impact of withdrawals and the effect on each component of MarketLock are further explained below:
MAV Benefit Base: Withdrawals reduce the MAV Benefit Base as follows:
(1) If the withdrawal does not cause total withdrawals in the Benefit Year to exceed the Maximum Annual Withdrawal Amount, the MAV Benefit Base will be reduced by the amount of the withdrawal;
(2) Excess Withdrawals reduce the MAV Benefit Base as follows:
  If total withdrawals during the Benefit Year, including the current withdrawal, exceed the Maximum Annual Withdrawal Amount, the MAV Benefit Base is reduced to the lesser of:
(a) is the MAV Benefit Base immediately prior to the withdrawal minus the amount of the Excess Withdrawal, or;
(b) is the MAV Benefit Base immediately prior to the withdrawal reduced in the same proportion by which the contract value is reduced by the amount of the Excess Withdrawal.
Maximum Annual Withdrawal Amount: If the sum of withdrawals in a Benefit Year does not exceed the Maximum Annual Withdrawal Amount for that Benefit Year, the Maximum Annual Withdrawal Amount will not change for the next Benefit Year unless your MAV Benefit Base is adjusted upward. If total withdrawals in a Benefit Year exceed the Maximum Annual Withdrawal Amount, the Maximum Annual Withdrawal Amount will be recalculated on the next contract anniversary. The new Maximum Annual Withdrawal Amount will equal the new MAV Benefit Base after any withdrawals on that contract anniversary, divided by the new Minimum Withdrawal Period on that contract anniversary. On that contract anniversary, the new Maximum Annual Withdrawal Amount may be lower than your previous Maximum Annual Withdrawal Amount.
Minimum Withdrawal Period: On each contract anniversary, a new Minimum Withdrawal Period is calculated as shown in the table below.
The Amount Withdrawn
in a Benefit Year 		Effect on Minimum Withdrawal Period
Amounts up to the Maximum Annual Withdrawal Amount New Minimum Withdrawal Period = the MAV Benefit Base (which includes a deduction for any previous withdrawals), divided by the current Maximum Annual Withdrawal Amount
Amounts in excess of the Maximum Annual Withdrawal Amount New Minimum Withdrawal Period = the Minimum Withdrawal Period as of the prior contract anniversary minus one year
MarketLock For Two
Any withdrawals in a Benefit Year that in total are less than or equal to the Maximum Annual Withdrawal Amount, do not reduce the MAV Benefit Base. We define Excess Withdrawals as either: 1) any portion of a withdrawal that causes the total withdrawals in a Benefit Year to exceed the Maximum Annual Withdrawal Amount; or 2) any withdrawal in a Benefit Year taken after the Maximum Annual Withdrawal Amount has been withdrawn. Excess Withdrawals will reduce the MAV Benefit Base in the same proportion by which the contract value is reduced by the Excess Withdrawal. Excess Withdrawals also result in a reduction to your Maximum Annual Withdrawal Amount because it is recalculated after each Excess Withdrawal by multiplying the reduced MAV Benefit Base by the existing Maximum Annual Withdrawal Percentage. In addition, if in any year an Excess Withdrawal reduces the contract value to zero, MarketLock For Two is terminated and you will not continue to receive withdrawals over your and your spouse’s
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lifetime. The impact of withdrawals and the effect on each component of MarketLock For Two are further explained below:
MAV Benefit Base: If the sum of withdrawals in any Benefit Year does not exceed the Maximum Annual Withdrawal Amount, the MAV Benefit Base is not reduced for those withdrawals. Excess Withdrawals as described above reduce the MAV Benefit Base as follows:
For each Excess Withdrawal taken, the MAV Benefit Base is reduced in the same proportion by which the contract value is reduced by each Excess Withdrawal.
Maximum Annual Withdrawal Amount: The Maximum Annual Withdrawal Amount is recalculated each time there is a change in the MAV Benefit Base. Accordingly, if the sum of withdrawals in any Benefit Year does not exceed the Maximum Annual Withdrawal Amount for that year, the Maximum Annual Withdrawal Amount will not change for the next year unless your MAV Benefit Base is adjusted upward (as described above under “How are the components for MarketLock and MarketLock For Two calculated?”). If you take an Excess Withdrawal, the Maximum Annual Withdrawal Amount will be recalculated by multiplying the reduced MAV Benefit Base by the existing Maximum Annual Withdrawal Percentage. This newly recalculated Maximum Annual Withdrawal Amount will be available beginning on the next contract anniversary and may be lower than your previous Maximum Annual Withdrawal Amount.
What happens if my contract value is reduced to zero?
MarketLock
If the contract value is zero but the MAV Benefit Base is greater than zero, a Benefit remains payable under the feature until the MAV Benefit Base is zero. Further, for contracts issued on or after May 1, 2006, if you are eligible to take lifetime withdrawals, a Benefit is still payable even if the contract value and MAV Benefit Base both equal zero. However, the contract’s other benefits will be terminated once the contract value equals zero. You may not make subsequent Purchase Payments or transfers and no death benefit or future annuitization payments are available. Therefore, during times of unfavorable investment performance, withdrawals taken under the Benefit may reduce the contract value to zero eliminating any other benefits of the contract.
When the contract value equals zero, to receive any remaining Benefit, you must select one of the following:
1. The current Maximum Annual Withdrawal Amount, paid equally on a monthly, quarterly, semi-annual or annual frequency as selected by you until either: (a) the time at which the Minimum Withdrawal Period equals zero, or (b) for contracts issued on or after May 1, 2006, if receiving lifetime withdrawals, the date of death of the older contract Owner; or
2. Any option mutually agreeable between you and us.
MarketLock For Two
If the contract value is zero but the MAV Benefit Base is greater than zero, a Benefit remains payable over your lifetime and the lifetime of your spouse. However, if due to an Excess Withdrawal, your contract value is reduced to zero, no Benefit remains.
The contract’s other benefits will be terminated once the contract value equals zero. You may not make subsequent Purchase Payments or transfers and no death benefit or future annuity payments are available. Therefore, during times of unfavorable investment performance, withdrawals taken under the benefit may reduce the contract value to zero eliminating any other benefits of the contract.
Except as described above, when the contract value equals zero, to receive any remaining benefit, you may select one of the following:
1. The current Maximum Annual Withdrawal Amount, paid equally on a monthly, quarterly, semi-annual or annual frequency as selected by you until the date of death of the surviving spouse; or
2. Any option mutually agreeable between you and us.
If you do not select an option, the remaining Benefit will be paid as the current Maximum Annual Withdrawal Amount on a quarterly basis until the date of death of the surviving spouse.
What happens to MarketLock and MarketLock For Two upon a spousal continuation?
MarketLock
A Continuing Spouse may elect to continue or cancel the feature and its accompanying fee. The components of the feature will not change as a result of a spousal continuation. However, for contracts issued on or after May 1, 2006, lifetime withdrawals or the option to receive lifetime withdrawals will cease upon death of the older Owner. Excluding the lifetime option, a younger Continuing Spouse can elect to receive withdrawals in accordance with the provisions of the MarketLock Summary Table above based on when the first withdrawal was taken and adjusted for any withdrawals already taken. In the event of the death of the younger spouse, the older spousal Beneficiary may continue to receive lifetime withdrawals, if eligible, because they are based on the older Owner’s life.
If the contract Owner elected MarketLock and dies during the MAV Evaluation Period and the spousal Beneficiary continues the Benefit, we will continue to re-evaluate the MAV Benefit Base on each contract anniversary during the MAV Evaluation Period, and any spousal continuation contribution is included in the calculation of the Anniversary Value. Additionally, the Continuing Spouse may extend the MAV Evaluation Period an additional period of 10 years provided that (1) the original Owner did not previously extend the MAV Evaluation Period and (2) the Continuing Spouse is age 85 or younger at the time they extend the MAV Evaluation Period. Payment Enhancements and spousal continuation contributions are not considered to be Eligible Purchase Payments. However, Payment Enhancements and spousal continuation contributions are
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included in the Anniversary Values for the purpose of determining the MAV Benefit Base during the MAV Evaluation Period.
MarketLock For Two
The components of the feature will not change as a result of a spousal continuation. A Continuing Spouse can elect to receive withdrawals in accordance with the provisions of the MarketLock For Two Summary Table above based on the age of the younger spouse when the first withdrawal was taken and based on the MAV Benefit Base at the time of spousal continuation. Alternatively, if contract value is greater than zero, a Continuing Spouse may make a death claim under the death provisions of the contract and terminate the contract and the MarketLock For Two feature.
If spousal continuation occurs during the MAV Evaluation Period, the Continuing Spouse will continue to receive any upward adjustments due to market gains to the MAV Benefit Base during the period and any spousal continuation contribution is included in the Anniversary Value. However, spousal continuation contributions are not considered to be Eligible Purchase Payments. In addition, the Continuing Spouse will be eligible to extend the MAV Evaluation Period upon the expiration of the initial period. Please see “Can I extend the MAV Evaluation Period beyond 10 years?”above.
Can my non-spousal Beneficiary elect to receive any remaining withdrawals under MarketLock upon my death?
For contracts issued on or after May 1, 2006, upon the death of the older contract Owner, lifetime withdrawals will no longer be available.
If the contract value is greater than zero when the Owner dies, a non-spousal Beneficiary must make a death claim under the contract provisions, which terminates MarketLock. If the contract value is zero when the Owner dies, meaning that no death benefit is payable, but the Minimum Withdrawal Period remaining is greater than zero, a non-spousal Beneficiary may elect to continue receiving any remaining withdrawals under the feature. The other components of the feature will not change. However, the contract and its other benefits will be terminated.
Can a non-spousal Beneficiary elect to receive any remaining benefits under MarketLock For Two upon the death of the second spouse?
No. Upon the death of both spouses, if the contract value is greater than zero, a non-spousal Beneficiary must make an election under the death provisions of the contract, which terminates MarketLock For Two.
What happens to MarketLock and MarketLock For Two upon the Latest Annuity Date?
Upon election of any of the options described below, the Accumulation Phase of your contract ends and the Income Phase begins. Therefore, if electing Income Payments for the life of the Annuitant, upon death, no benefit remains and the contract and its features will terminate.
MarketLock
If there is remaining contract value and the MAV Benefit Base is greater than zero on the Latest Annuity Date, you must select one of the following:
1. Annuitize the contract value under the contract’s annuity provisions; or
2. For contracts issued on or after May 1, 2006, if eligible for lifetime withdrawals, even if the MAV Benefit Base equals zero, elect to receive the current Maximum Annual Withdrawal Amount on the Latest Annuity Date, paid equally on a monthly, quarterly, semi- annual or annual frequency as selected by you, until your death; or
3. Elect to receive your remaining MAV Benefit Base on the Latest Annuity Date paid over the Minimum Withdrawal Period with payments equal to the current Maximum Annual Withdrawal Amount. If withdrawals have not started, your Maximum Annual Withdrawal Amount and Minimum Withdrawal Period will be calculated based on the applicable Maximum Annual Withdrawal Percentage; or
4. Any option mutually agreeable between you and us.
MarketLock For Two
If there is remaining contract value and the MAV Benefit Base is greater than zero on the Latest Annuity Date, you must select one of the following:
1. Annuitize the contract value under the contract’s annuity provisions; or
2. Elect to receive the current Maximum Annual Withdrawal Amount on the Latest Annuity Date, paid equally on a monthly, quarterly, semi-annual or annual frequency as selected by you until the date of death of the surviving spouse, if eligible for lifetime withdrawals, even if the MAV Benefit Base is zero; or
3. Any option mutually agreeable between you and us.
Can MarketLock and MarketLock For Two be cancelled?
MarketLock and MarketLock For Two may be cancelled on the 5th contract anniversary, the 10th contract anniversary, or any contract anniversary thereafter. Once the feature is cancelled, you will no longer be charged a fee and the guarantees under the Benefit are terminated. You may not re-elect the feature after cancellation.
Are there circumstances under which MarketLock and MarketLock For Two will automatically terminate?
MarketLock
MarketLock automatically terminates upon the occurrence of one of the following:
1. The Minimum Withdrawal Period has been reduced to zero unless, for contracts issued on or after May 1, 2006, conditions for lifetime withdrawals are met; or
2. Annuitization of the contract; or
3. Full surrender of the contract; or
4. Death benefit is paid.
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5. Upon a spousal continuation, the Continuing Spouse elects not to continue the contract with the feature.
For contracts issued on or after May 1, 2006, lifetime withdrawals will not be available in the event of:
1. An ownership change which results in a change of the older Owner;* or
2. Withdrawals prior to the 65th birthday of the older Owner; or
3. Death of the older Owner; or
4. A Spousal Continuation (upon the death of the older Owner); or
5. A withdrawal in excess of 5% of MAV Benefit Base.**
* If a change of ownership occurs from a natural person to a non-natural entity, the original natural older Owner must also be the annuitant after the ownership change to prevent termination of lifetime withdrawals. A change of ownership from a non-natural entity to a natural person can only occur if the new natural Owner was the original natural older annuitant in order to prevent termination of lifetime withdrawals. Any ownership change is contingent upon prior review and approval by the Company.
** If a required minimum distribution withdrawal for this contract exceeds the Maximum Annual Withdrawal Amount, the ability to receive lifetime withdrawals will not be terminated.
MarketLock For Two
MarketLock For Two automatically terminates upon the occurrence of one of the following:
1. Annuitization of the contract; or
2. Full surrender of the contract; or
3. A death benefit is paid and the contract is not continued by the spouse; or
4. Excess Withdrawals that reduce the contract value to zero which then reduces the MAV Benefit Base to zero; or
5. Death of surviving original spouse; or
6. A change in ownership that involves the original Owner(s) except as noted below and under “Are there circumstances under which guaranteed withdrawals over the lifetime of your spouse are terminated?”*
* If a change of ownership occurs from a natural person to a non-natural entity, the original natural Owner(s) must also be the annuitant(s) after the ownership change to prevent termination of MarketLock For Two. A change of ownership from a non-natural entity to a natural person can only occur if the new natural Owner(s) was the original natural annuitant(s) in order to prevent termination of MarketLock For Two. Any ownership change is contingent upon prior review and approval by the Company.
Are there circumstances under which guaranteed withdrawals over the lifetime of your spouse are terminated?
Under any of the following circumstances, MarketLock For Two will provide a guarantee for your lifetime and not the lifetime of your spouse:
1. One of the two original Owners is removed from the contract; or
2. The original spousal Beneficiary is removed or replaced; or
3. The original spousal joint Owner or spousal Beneficiary is removed or replaced upon divorce; or
4. The original spousal joint Owners or spousal Beneficiary are no longer married at the time of death of the first spouse.
Under these circumstances, the original remaining Owner continues to pay the fee for MarketLock For Two and receives the Benefit for his/her lifetime only, or may choose to terminate the feature as described under “Can MarketLock and MarketLock For Two be cancelled?”
Seasons Income Rewards
Seasons Income Rewards is an optional guaranteed withdrawal benefit that guarantees an income stream based on all Purchase Payments made into your contract during the first 90 days after contract issue, with an opportunity for a Step-Up Amount, adjusted for withdrawals during that period (the “Benefit”). Seasons Income Rewards does not guarantee investment gains nor does it guarantee a withdrawal of any subsequent Purchase Payments made after the 90th day following the contract issue date. This feature does not guarantee lifetime income payments.
In order to determine the Benefit, we calculate each of the components as described below. The Benefit’s components and value may vary depending on the option you chose. Options 1 and 2 are available on contracts issued on and after May 3, 2004. In addition, Option 3 is available on contracts issued on or after May 2, 2005. The earliest date you may begin taking withdrawals under the Benefit is the Benefit Availability Date. Each one-year period beginning on the contract issue date and ending on the day before the contract anniversary date is considered a Benefit Year.
Seasons Income Rewards Summary:
Option Maximum
Election Age 		Benefit
Availability
Date 		Step-Up
Amount 		Maximum
Annual
Withdrawal
Percentage*** 		Minimum
Withdrawal
Period* (if
Maximum
Annual
Withdrawal
Amount taken
each year)
1 Age 80 or younger on the contract issue date 3 years following
contract issue date 		10%* of Withdrawal Benefit Base 10% of Withdrawal Benefit Base 11 years
2 Age 80 or younger on the contract issue date 5 years following
contract issue date 		20%* of Withdrawal Benefit Base 10% of
Withdrawal
Benefit Base 		12 years
3 Age 70 or younger on the contract issue date 10 years following contract issue date 50%** of Withdrawal Benefit Base 10% of
Withdrawal
Benefit Base 		15 years
* If you elect Option 1 or 2 and take a withdrawal prior to the Benefit Availability Date, you will not receive a Step-Up Amount. The Minimum Withdrawal Period for Options 1 and 2 will be 10 years if you do not receive a Step-Up Amount.
** If you elect Option 3 and take a withdrawal prior to the Benefit Availability Date, you will receive a reduced Step-Up Amount of 30% of the Withdrawal Benefit Base. The Minimum Withdrawal Period will be 13 years if you receive a reduced Step-Up Amount. For contracts issued prior to June 14, 2005, the Maximum Election Age is 80 or younger on the contract issue date.
*** For contract holders subject to annual required minimum distributions, the Maximum Annual Withdrawal Amount will be the greater of:
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  (1) the amount indicated in the table above; or (2) the annual required minimum distribution amount associated with your contract value only. Required minimum distributions may reduce your Minimum Withdrawal Period.
How are the components for Seasons Income Rewards calculated?
First, we determine the Eligible Purchase Payments, which include the amount of Purchase Payments made to the contract during the first 90 days after your contract issue date, adjusted for any withdrawals before the Benefit Availability Date in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. The calculation of Eligible Purchase Payments does not include any Payment Enhancements and/or spousal continuation contributions, if applicable.
Second, we determine the Withdrawal Benefit Base. On the Benefit Availability Date, the Withdrawal Benefit Base equals the sum of all Eligible Purchase Payments.
Third, we determine the Step-Up Amount, if any, which is calculated as a specified percentage (listed in the Seasons Income Rewards Summary table above) of the Withdrawal Benefit Base on the Benefit Availability Date. The Step-Up Amount is not considered a Purchase Payment and cannot be used in calculating any other benefits, such as death benefits, contract value or annuitization value.
Fourth, we determine the Stepped-Up Benefit Base, which is the total amount available for withdrawal under the feature and is used to calculate the minimum time period over which you may take withdrawals under the Seasons Income Rewards feature. The Stepped-Up Benefit Base equals the Withdrawal Benefit Base plus the Step-Up Amount, if any.
Fifth, we determine the Maximum Annual Withdrawal Amount, which is a stated percentage (listed in the Seasons Income Rewards Summary table above) of the Withdrawal Benefit Base and represents the maximum amount of withdrawals that are available under this feature each Benefit Year after the Benefit Availability Date.
Finally, we determine the Minimum Withdrawal Period, which is the minimum period over which you may take withdrawals under the Seasons Income Rewards feature. The Minimum Withdrawal Period is calculated by dividing the Stepped-Up Benefit Base by the Maximum Annual Withdrawal Amount.
What is the fee for Seasons Income Rewards?
The annualized Seasons Income Rewards fee will be assessed as a percentage of the Withdrawal Benefit Base. The fee will be calculated and deducted quarterly from your contract value starting on the first quarter following the contract issue date and ending upon the termination of the feature. If your contract value falls to zero before the feature has been terminated, the fee will no longer be assessed. We will not assess the quarterly fee if you surrender or annuitize before the end of a quarter.
The fee is as follows:
Contract Year Annualized Fee
0-7 years 0.65%
8-10 years 0.45%
11+ None
What are the effects of withdrawals on Seasons Income Rewards?
Withdrawals after the Benefit Availability Date equal to or less than the Maximum Annual Withdrawal Amount generally reduce the Benefit by the amount of the withdrawal. Withdrawals in excess of the Maximum Annual Withdrawal Amount will reduce the Benefit in the same proportion that the contract value was reduced at the time of the withdrawal. This means if investment performance is down and contract value is reduced, withdrawals greater than the Maximum Annual Withdrawal Amount will result in a greater reduction of the Benefit. The impact of withdrawals and the effect on each component of Seasons Income Rewards are further explained through the calculations below:
Withdrawal Benefit Base: Withdrawals prior to the Benefit Availability Date reduce the Withdrawal Benefit Base in the same proportion that the contract value was reduced at the time of the withdrawal. Withdrawals prior to the Benefit Availability Date also eliminate any Step-Up Amount for Options 1 and 2 and reduce the Step-Up Amount to 30% of the Withdrawal Benefit Base for Option 3. Withdrawals after the Benefit Availability Date will not reduce the Withdrawal Benefit Base until the sum of withdrawals after the Benefit Availability Date exceeds the Step-Up Amount. Thereafter, any withdrawal or portion of a withdrawal will reduce the Withdrawal Benefit Base as follows:
(1) If the withdrawal does not cause total withdrawals in the Benefit Year to exceed the Maximum Annual Withdrawal Amount, the Withdrawal Benefit Base will be reduced by the amount of the withdrawal, or
(2) If the withdrawal causes total withdrawals in the Benefit Year to exceed the Maximum Annual Withdrawal Amount, the Withdrawal Benefit Base is reduced to the lesser of:
(a) is the Withdrawal Benefit Base immediately prior to the withdrawal minus the amount of the withdrawal, or;
(b) is the Withdrawal Benefit Base immediately prior to the withdrawal minus the amount of the withdrawal that is equal to the Maximum Annual Withdrawal Amount, and further reduced in the same proportion by which the contract value is reduced by the amount in excess of the maximum annual withdrawal amount.
Stepped-Up Benefit Base: Since withdrawals prior to the Benefit Availability Date eliminate any Step-Up Amount for Options 1 and 2, the Stepped-Up Benefit Base will be equal to the Withdrawal Benefit Base if you take withdrawals prior to the Benefit Availability
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Date. For Option 3, if you take withdrawals prior to the Benefit Availability Date, the Stepped-Up Benefit Base will be equal to the Withdrawal Benefit Base plus the reduced Step-Up Amount which will be 30% of the Withdrawal Benefit Base, adjusted for such withdrawals. If you do not take withdrawals prior to the Benefit Availability Date, you will receive the entire Step-Up Amount and the Stepped-Up Benefit Base will equal the Withdrawal Benefit Base plus the Step-Up Amount.
After the Benefit Availability Date, any withdrawal that does not cause total withdrawals in a Benefit Year to exceed the Maximum Annual Withdrawal Amount will reduce the Stepped-Up Benefit Base by the amount of the withdrawal. After the Benefit Availability Date, any withdrawal that causes total withdrawals in a Benefit Year to exceed the Maximum Annual Withdrawal Amount (in that Benefit Year) reduces the Stepped-Up Benefit Base to the lesser of:
(a) is the Stepped-Up Benefit Base immediately prior to the withdrawal minus the amount of the withdrawal, or;
(b) is the Stepped-Up Benefit Base immediately prior to the withdrawal minus the amount of the withdrawal that is equal to the Maximum Annual Withdrawal Amount, and further reduced in the same proportion by which the contract value is reduced by the amount in excess of the maximum annual withdrawal amount.
Maximum Annual Withdrawal Amount: If the sum of withdrawals in a Benefit Year does not exceed the Maximum Annual Withdrawal Amount for that Benefit Year, the Maximum Annual Withdrawal Amount does not change for the next Benefit Year. If total withdrawals in a Benefit Year exceed the Maximum Annual Withdrawal Amount, the Maximum Annual Withdrawal Amount will be recalculated at the start of the next Benefit Year. The new Maximum Annual Withdrawal Amount will equal the Stepped-Up Benefit Base on that Benefit Year anniversary divided by the Minimum Withdrawal Period on that Benefit Year anniversary. The new Maximum Annual Withdrawal Amount may be lower than your previous Maximum Annual Withdrawal Amounts.
Minimum Withdrawal Period: After each withdrawal, a new Minimum Withdrawal Period is calculated. If total withdrawals in a Benefit Year are less than or equal to the current Maximum Annual Withdrawal Amount, the new Minimum Withdrawal Period equals the Stepped-Up Benefit Base after the withdrawal, divided by the current Maximum Annual Withdrawal Amount.
During any Benefit Year in which the sum of withdrawals exceeds the Maximum Annual Withdrawal Amount, the new Minimum Withdrawal Period equals the Minimum Withdrawal Period calculated at the end of the prior Benefit Year reduced by one year.
What happens if my contract value is reduced to zero with Seasons Income Rewards?
If the contract value is zero but the Stepped-Up Benefit Base is greater than zero, a Benefit remains payable under the feature until the Stepped-Up Benefit Base is zero. However, the contract and its features and other benefits will be terminated once the contract value equals zero. Once the contract is terminated, you may not make subsequent Purchase Payments and no death benefit or future annuitization payments are available. Therefore, under adverse market conditions, withdrawals taken under the Benefit may reduce the contract value to zero eliminating any other benefits of the contract.
To receive your remaining Benefit, you may select one of the following:
1. The current Maximum Annual Withdrawal Amount, paid equally on a monthly, quarterly, semi-annual or annual frequency as selected by you until the Stepped-Up Benefit Base equals zero; or
2. Any option mutually agreeable between you and us.
If you do not select an option, the remaining Benefit will be paid as the current Maximum Annual Withdrawal Amount on a quarterly basis.
What happens to Seasons Income Rewards upon a spousal continuation?
A Continuing Spouse may elect to continue or cancel the feature and its accompanying fee. The components of the feature will not change as a result of a spousal continuation. However, continuation contributions are not considered to be Eligible Purchase Payments.
Can my non-spousal Beneficiary elect to receive any remaining withdrawals under Seasons Income Rewards upon my death?
If the contract value is greater than zero when the Owner dies, a non-spousal Beneficiary must make a death claim under the contract provisions, which terminates Seasons Income Rewards. If the contract value is zero when the Owner dies, meaning that no death benefit is payable, but the Stepped-Up Benefit Base is greater than zero, a non-spousal Beneficiary may elect to continue receiving any remaining withdrawals under the feature. The components of the feature will not change.
Can Seasons Income Rewards be cancelled?
Once you elect Seasons Income Rewards, you may not cancel the feature. However, there is no charge for Seasons Income Rewards after the 10th contract anniversary.
Additionally, the feature automatically terminates upon the occurrence of one of the following:
1. The Stepped-Up Benefit Base is equal to zero; or
2. Annuitization of the contract; or
3. Full surrender of the contract; or
4. Death benefit is paid; or
5. Upon a spousal continuation, the Continuing Spouse elects not to continue the contract with the feature.
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6. For contracts issued from May 3, 2004 through October 3, 2004, withdrawals in excess of Maximum Annual Withdrawal Amount in any Benefit Year reduce the Stepped-Up Benefit Base by 50% or more.
What happens to Seasons Income Rewards upon the Latest Annuity Date?
If your contract value and Stepped-Up Benefit Base are greater than zero, and you begin the Income Phase upon or before the Latest Annuity Date, you will not receive the benefit of any remaining guaranteed withdrawals under the feature. Your annuity income payments will be calculated using your contract value and the selected income option.
Withdrawals under this feature are treated like any other withdrawal for the purpose of reducing the contract value, free withdrawal amounts and all other benefits, features and conditions of your contract.
If you elect Seasons Income Rewards and need to take withdrawals or are required to take required minimum distributions (“RMD”) under the Internal Revenue Code from your contract prior to the Benefit Availability Date, you should know that such withdrawals may negatively affect the value of the Benefit.
Any withdrawals taken may be subject to a 10% IRS tax penalty if you are under age 59½ at the time of the withdrawal. For information about how the feature is treated for income tax purposes, you should consult a qualified tax advisor concerning your particular circumstances. If you set up RMDs and have elected this feature, your withdrawals must be automated and will not be recalculated on an annual basis.
Seasons Promise
Seasons Promise is an optional guaranteed minimum accumulation benefit. The feature provides a one-time adjustment (“Benefit”) to your contract in the event that your contract value on the 10th contract anniversary (“Benefit Date”) is less than the Purchase Payments made in the contract’s first 90 days.
Generally, this feature and its corresponding charge cannot be cancelled or terminated prior to the Benefit Date. The feature terminates automatically following the Benefit Date. In addition, the feature will no longer be available and no Benefit will be paid if a death benefit is paid or if the contract is fully surrendered or annuitized before the Benefit Date.
The Benefit is equal to your Benefit Base, as defined below, minus your contract value on the Benefit Date. If the resulting amount is positive, you will receive a Benefit under the feature. If the resulting amount is negative, you will not receive a Benefit.
Your Benefit Base is equal to (a) minus (b) where:
(a) is the Purchase Payments received on or after the contract issue date in the contract’s first 90 days, and;
(b) is an adjustment for all withdrawals and applicable fees and charges made subsequent to the contract
  issue date, in an amount proportionate to the amount by which the withdrawal decreased the contract value at the time of the withdrawal.
Payment Enhancements and spousal continuation contributions, if applicable, are not considered Purchase Payments and are not used in the calculation of the Benefit Base.
The annualized fee is calculated as a percentage of contract value minus Purchase Payments received after the 90th day since the contract issue date. The fee will be calculated and deducted from your contract value each quarter throughout the first 10 full contract years, beginning at the end of the first contract quarter following the contract issue date and up to the Benefit Date. Once the feature is terminated, the charge will no longer be deducted. We will also not assess the quarterly fee if you surrender or annuitize before the end of the quarter.
For contracts issued between May 3, 2004 and December 28, 2006, the fee is as follows:
Contract Year Annualized Fee
0-7 0.50%
8-10 0.25%
11+ none
For contracts issued between February 10, 2003 and April 30, 2004, the fee is as follows:
Contract Year Annualized Fee
0-7 0.45%
8-10 0.15%
11+ none
For contracts issued between August 1, 2002 and February 7, 2003, the fee is as follows:
Contract Year Annualized Fee
0-7 0.35%
8-10 0.10%
11+ none
If your spouse chooses to continue this contract upon your death, this feature cannot be terminated and the fee will continue to be charged. The Benefit Date will not change as a result of a spousal continuation.
Seasons Promise only guarantees Purchase Payments made in the first 90 days after issue. If you plan to add subsequent Purchase Payments after the first 90 days, you should know that Seasons Promise will not protect those Purchase Payments.
Since Seasons Promise may not guarantee a return of all Purchase Payments, it is important to realize that subsequent Purchase Payments made into the contract may decrease the value of the Benefit. For example, if you are approaching the Benefit Date and your Benefit Base is greater than your contract value, and you then make a subsequent Purchase Payment that causes your contract value to be larger than your Benefit Base on your Benefit Date, you will not receive any Benefit even though you have paid for Seasons Promise throughout the first 10 full contract years.
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We will allocate the Benefit, if any, on the Benefit Date to the SA DFA Ultra Short Bond Portfolio. Any Benefit paid is not considered a Purchase Payment for purposes of calculating other benefits or features of your contract. Other contract benefits based on earnings, will continue to define earnings as the difference between contract value and Purchase Payments adjusted for withdrawals. For information about how the Benefit is treated for income tax purposes, you should consult a qualified tax advisor for information concerning your particular circumstances.
Income Protector
Income Protector is an optional minimum income benefit, available for an additional charge and provides a future “safety net” which can offer you the ability to receive a guaranteed fixed minimum retirement income when you switch to the Income Phase. If you elect Income Protector, you can know the level of minimum income that will be available to you upon annuitization, regardless of fluctuating market conditions. Income Protector is available on contracts issued prior to May 3, 2004.
The minimum level of Income Protector benefit available is generally based upon the Purchase Payments remaining in your contract at the time you decide to begin taking income. If available and elected, a growth rate can provide increased levels of minimum guaranteed income.
How We Determine the Amount of Your Minimum Guaranteed Income
If you elect Income Protector, we base the amount of minimum income available to you upon a calculation we call the Income Benefit Base. Your Income Benefit Base is equal to your contract value on the date of election. Income Protector is effective on either the date of issue of the contract or at the contract anniversary following your election of Income Protector.
The Income Benefit Base is only a calculation. It does not represent a contract value, nor does it guarantee performance of the Variable Portfolios in which you invest.
Your Income Benefit Base increases if you make subsequent Purchase Payments and decreases if you withdraw money from your contract. The Income Benefit Base is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase Payment, or for each subsequent year of calculation, the Income Benefit Base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the contract since the date of election, and;
(c) is equal to all withdrawals and applicable fees and charges since the date of election, in an amount proportionate to the amount by which such withdrawals decreased your contract value.
In order to obtain the benefit of Income Protector, you may not begin the Income Phase for at least 9 years following election. You may not elect this feature if the required waiting period before beginning the Income Phase would occur later than your Latest Annuity Date.
Re-Set of Your Income Protector Benefit
You may also have the opportunity to “Re-Set” your Income Benefit Base. The Re-Set feature allows you to increase your Income Benefit Base to the amount of your contract value on your next contract anniversary. You can only Re-Set within the 30 days before your next contract anniversary. Upon a Re-Set, the waiting period before you can begin the Income Phase will start over. In addition, the Income Protector fee will be charged as a percentage of your Re-Set Income Benefit Base. You may not elect to Re-Set if the required waiting period before beginning the Income Phase would occur later than your Latest Annuity Date.
Electing to Receive Income Payments
You may elect to begin the Income Phase of your contract using the Income Protector Program only within the 30 days after the 9th or later contract anniversary following the effective date of electing Income Protector or Re-Set, if applicable.
The Income Benefit Date is the contract anniversary date on which the Income Benefit is calculated and applied. This is the date as of which we calculate your Income Benefit Base to use in determining your guaranteed minimum income payments. To arrive at the minimum guaranteed income payments available to you, we apply the annuity rates stated in your Income Protector Endorsement for the income option you select to your final Income Benefit Base. You then choose if you would like to receive that income annually, quarterly or monthly for the time guaranteed under your selected annuity option. Your final Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as of your Income Benefit Date, and;
(b) is any withdrawal charges calculated as if you fully surrender your contract as of the Income Benefit Date, and any applicable premium taxes.
The annuity income options available under this feature when using Income Protector to receive your guaranteed income payments are:
• Life Annuity with 10 Year Period Certain, or
• Joint and 100% Survivor Annuity with 20 Year Period Certain
At the time you elect to begin receiving annuity income payments, we will calculate your annual guaranteed income payments using both your final Income Benefit Base and your contract value. We will use the same income option for each calculation; however, the annuity factors used to calculate your guaranteed income payments under Income Protector will be different. You will receive whichever provides a greater stream of income. If you annuitize using Income Protector, your annuity income payments will be fixed in amount. You are not required to use Income Protector to receive income payments. However, we will not refund fees paid for Income Protector if you annuitize under the annuity provisions of your contract.
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You may never need to rely upon the Income Protector, if your contract performs within a historically anticipated range. However, past performance is no guarantee of future results.
Fees Associated with the Income Protector Program
The fee is 0.10% of the Income Benefit Base. We deduct the annual fee from your contract value. If you elect Income Protector at issue, we begin deducting the annual fee on your first contract anniversary. If you elect the feature at some later date, we begin deducting the annual fee on the contract anniversary following the date of election. Upon a Re-Set, the fee will be charged based upon your Re-Set Income Benefit Base.
It is important to note that once you elect Income Protector, you may not cancel your election. We will deduct the charge from your contract value on every contract anniversary up to and including your Income Benefit Date. Additionally, we deduct the full annual fee from your contract value upon surrender.
Note to Qualified Contract Holders
Qualified contracts generally require that you select an annuity income option that does not exceed your life expectancy. That restriction, if it applies to you, may limit the benefit of Income Protector. To utilize Income Protector, you must take annuity income payments under one of the two annuity income options described above. If those annuity income options exceed your life expectancy, you may be prohibited from receiving your guaranteed income payments under the feature. Annuity income options may be limited to a 10 year guarantee. If you own a Qualified contract to which these restrictions apply and you elect Income Protector, you may pay for this feature and not be able to realize the benefit.
You should consult your tax advisor for information concerning your particular circumstances.
MARKETLOCK AND MARKETLOCK FOR TWO EXTENSION parameters
  
The information below is important to you if you purchased a contract between August 31, 2005 and December 28, 2006 and you elected the MarketLock Living Benefit or if you purchased a contract between July 10, 2006 and December 28, 2006 and you elected MarketLock For Two Living Benefit. As described in the prospectus, the initial MAV Evaluation Period ends after the tenth contract year. On or about your tenth contract anniversary you will have an opportunity to extend the MAV Evaluation Period (the “Extension”) for an additional ten years. In choosing the Extension, your fee will change as detailed below. No other parameters or terms of your current benefit will change as a result of the Extension.
If you do not wish to elect the Extension, no further action is required by you. Your benefit will continue without change. You will continue to pay the same fee and can take the Maximum Annual Withdrawal Amount in effect at the end of the MAV Evaluation Period. However, your MAV Benefit Base will no longer be adjusted for higher anniversary values. Please note that if you do not elect the
Extension when it is offered, you will not be permitted to extend the MAV Evaluation Period in the future.
As with all important financial decisions, we recommend that you discuss this with your financial representative.
For information on the MarketLock or MarketLock For Two Living Benefit you elected at the time of purchase, please see the MarketLock or MarketLock For Two section under OPTIONAL LIVING BENEFITS in the prospectus.
How do I elect the Extension?
To elect the Extension, you must complete the Election Form you will receive. The terms of the Extension for contracts purchased between the dates noted above for the applicable features are detailed below. The MAV Evaluation Period may be extended for an additional 10 year period.
What is the fee if I elect the Extension?
If you elect the MarketLock Extension, the fee for the Living Benefit will be increased by 0.25% as follows:
Current
Annualized Fee 		Annualized Fee
After Extension
0.65% 0.90%
If you elect the MarketLock For Two Extension, the fee for the Living Benefit will be increased by 0.25% as follows:
Current
Annualized Fee 		Annualized Fee
After Extension
0.40% prior to your 1st withdrawal 0.65% prior to your 1st withdrawal
0.80% after your 1st withdrawal 1.05% after your 1st withdrawal
As a reminder, you also have the option to cancel your MarketLock or MarketLock For Two Living Benefit on your tenth contract anniversary, or any contract anniversary thereafter. If you elect to cancel your Living Benefit, you will no longer receive the guarantees of the MarketLock or MarketLock For Two benefit and you will no longer be charged the fee.
Death Benefits
  
You must elect one of the death benefit options at the time you purchase your contract. Some options are available for an additional fee, as described later in this section. Once elected, you cannot change your death benefit option. You should discuss the available options with your financial representative to determine which option is best for you.
Certain death benefit options are either no longer offered or have changed since first being offered.
We do not pay a death benefit if:
• your contract value is reduced to zero; or
• you die after you begin the Income Phase. Your Beneficiary would receive any remaining guaranteed annuity income payments in accordance with the annuity income option you selected. Please see ANNUITY INCOME OPTIONS.
We pay a death benefit to your Beneficiary(ies) if you die during the Accumulation Phase. The death benefit will become payable upon death of the following individual.
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Owner Payable Upon Death of
Natural persons Owner (or first to die,
if jointly owned)
Non-natural person
(e.g. Trust) 		Annuitant
Beneficiary Designation
You must notify us in writing of the Beneficiary(ies) who will receive any death benefit payments under your contract. You may change the Beneficiary at any time, unless otherwise specified below.
• If your contract is jointly owned, the surviving joint Owner must be the sole primary Beneficiary. Any other individual you designate as Beneficiary will be the contingent Beneficiary.
• If the Owner is a non-natural person then joint Annuitants, if any, shall be each other’s sole primary Beneficiary, except when the Owner is a charitable remainder trust.
• If the Owner is a trust, whether as an agent for a natural person or otherwise, you should consult with your tax and/or legal adviser to determine whether this contract is an appropriate trust investment.
Death Benefit Processing
We process death benefit requests when we receive all required documentation, including satisfactory proof of death, in Good Order, at the Annuity Service Center.
Satisfactory proof of death includes, but may not be limited to:
(1) A certified copy of the death certificate; or
(2) A certified copy of a decree of a court of competent jurisdiction as to the finding of death; or
(3) A written statement by a medical doctor who attended the deceased at the time of death.
When Death Benefits are Calculated
• All death benefit calculations are made as of the day required documentation is received in Good Order at the Annuity Service Center before Market Close. If the death benefit request is received after Market Close, the death benefit calculation will be made as of the next NYSE business day.
If we are unable to process a death claim at the time we receive notification of the death and/or required documentation is not in Good Order, the Beneficiary may transfer the entire contract value to a money market or similar portfolio by contacting the Annuity Service Center. If there are multiple Beneficiaries, they must all agree to the transfer.
If we receive notification of your death before any previously requested transaction is completed (including systematic transfer and withdrawal programs), we will cancel the previously requested transaction.
For contracts in which the aggregate of all Purchase Payments in contracts issued by the Company or its affiliate, The United States Life Insurance Company in the City of New York, to the same Owner/Annuitant are in excess of $1,500,000, we reserve the right to limit the death benefit amount that is in excess of contract value at the time we receive all paperwork and satisfactory proof of death. Any limit on the maximum death benefit payable would be mutually agreed upon in writing by you and the Company prior to purchasing the contract.
Effective January 15, 2016, if you have elected a Living Benefit feature, we will not accept subsequent Purchase Payments on or after the 5th contract anniversary from your contract issue date.
Death Benefit Settlement Options
Your Beneficiary must elect one of the following settlement options within 60 days of providing required documentation, including satisfactory proof of death, in Good Order.
• Lump sum payment; or
• Annuity Income Option; or
• Continue the contract as the spousal Beneficiary, or under a Beneficiary continuation option; or
• Payment option that is mutually agreeable between you and us
After 60 days, if no election is made by the Beneficiary, we may pay a lump sum death benefit by check to the Beneficiary’s address of record, unless otherwise required by state law.
In general, the death benefit must be paid within 5 years of the date of death unless the Beneficiary elects to have it payable in the form of an annuity income option. If the Beneficiary elects an annuity income option, it must be paid over the Beneficiary’s life expectancy or a shorter period. Payments associated with such election must begin within one year of death. Federal tax law may limit the Beneficiary’s death benefit and payout options available after your death. Please see ANNUITY INCOME OPTIONS.
Beneficiary Continuation Programs
Please consult a tax adviser regarding tax implications about your particular circumstances if you are considering a Beneficiary Continuation option.
Extended Legacy Program
The Beneficiary to an existing contract issued by the Company may elect the Extended Legacy Program. The program may not be elected in conjunction with any other settlement option.
Upon election of the Extended Legacy Program:
• The contract continues in Owner’s name for the benefit of the Beneficiary who elected the Extended Legacy Program.
• The Beneficiary may withdraw all or a portion of the contract value at any time and withdrawals are not subject to withdrawal charges.
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• The Beneficiary may choose to participate in the Systematic Withdrawal Program and the Automatic Asset Rebalancing Program.
Upon election of the Extended Legacy Program, the beneficiary may choose to receive the death benefit under (1) a 5-year settlement option or (2) in the form of withdrawals for a longer period of time:
Under the 5-year settlement option, the Beneficiary may take withdrawals as desired, but the death benefit proceeds must be distributed no later than five years from the date of death of the Owner of the contract.
Note:  If an IRA Owner died prior to January 1, 2020, the 5-year settlement option is not available if the date of the Owner's death occurred after the required beginning date for distributions.
If the beneficiary elects to take the death benefit in the form of withdrawals over a longer period of time:
• Generally, IRS required minimum distributions must be made at least annually over a period not to exceed the Beneficiary’s life expectancy as determined in the calendar year after the Owner’s death, with the flexibility to withdraw more than the IRS required minimum distribution.
• Payments must begin no later than the first anniversary of death for Non-Qualified contracts or December 31 of the year following the year of death for IRAs.
Note: for IRAs, if the Owner’s death occurred on or after January 1, 2020, choosing to receive the death benefit in the form of withdrawals for a longer period of time is only available for a Spousal Beneficiary. Non-Spousal Beneficiaries may instead elect the 5-year settlement option, if available.
Also note that the CARES Act provides for a waiver of the IRS required minimum distributions in 2020 for Beneficiaries required to take minimum distributions.
If the contract value is less than the death benefit amount as of the date we receive satisfactory proof of death and all required documentation in Good Order, we will increase the contract value by the amount which the death benefit exceed contract value.
We will process an Extended Legacy election as of the date we receive the following in Good Order at the Annuity Service Center:
• Death Claim form electing Extended Legacy Program; and
• Satisfactory proof of death of the original Owner.
Upon the Beneficiary’s request to our Annuity Service Center, we will provide a prospectus and Extended Legacy Guide, with important information including expenses, investment options and administrative features. The prospectus that the Beneficiary will receive may be for a different product than the original Owner purchased.
The Extended Legacy Guide includes important information regarding the program offered to Beneficiaries on or after September 20, 2010.
Restrictions on Extended Legacy Program
• The Extended Legacy Program cannot be elected with rollover contracts from other companies.
• No Purchase Payments are permitted.
• Living benefits and death benefits that may have been elected by the original Owner are not available and any charges associated with these features will no longer be deducted.
• In the event of the Beneficiary’s death, any remaining contract value will be paid to the person(s) named by the Beneficiary.
• The contract may not be assigned and ownership may not be changed or jointly owned.
• Any Fixed Accounts that may have been available to the original Owner will no longer be available for investment.
Expenses
We will charge the Beneficiary an annual Separate Account Charge of 1.15%. This charge is deducted daily from the average daily ending net asset value allocated to the Variable Portfolios.
Beneficiaries that elected the Extended Legacy Program prior to September 20, 2010 will continue to be charged the same Separate Account Charge as described above under SEPARATE ACCOUNT CHARGES.
Investment Options
• The Beneficiary may transfer funds among the available Variable Portfolios;
• Variable Portfolios may differ from those available to the original Owner;
• Variable Portfolios may be of a different share class subject to higher 12b-1 fees; and
• Beneficiaries that elected the Extended Legacy Program prior to September 20, 2010 will continue to be offered the same Variable Portfolios as the original Owner.
Death Benefit Defined Terms
The term “Net Purchase Payment” is used frequently in describing the death benefit payable. Net Purchase Payment is an on-going calculation. It does not represent a contract value.
We determine Net Purchase Payments as Purchase Payments less adjustments for withdrawals. Net Purchase Payments are increased by the amount of subsequent Purchase Payments, if any, and reduced for withdrawals, if any, in the same proportion that the contract value was reduced on the date of such withdrawal.
The term “Withdrawal Adjustment” is used, if you have elected a Living Benefit, to describe the way in which the amount of the death benefit will be adjusted for withdrawals
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depending on when you take a withdrawal and the amount of the withdrawal. If cumulative withdrawals for the current contract year are taken prior to your 81st birthday and are less than or equal to the Maximum Annual Withdrawal Amount, the amount of adjustment will equal the amount of each withdrawal. If a withdrawal is taken prior to your 81st birthday and cumulative withdrawals for the current contract year are in excess of the Maximum Annual Withdrawal Amount, the contract value and the death benefit are first reduced by the Maximum Annual Withdrawal Amount. The resulting death benefit is further adjusted by the withdrawal amount in excess of the Maximum Annual Withdrawal Amount by the percentage by which the Excess Withdrawal reduced the resulting contract value. If a withdrawal is taken on or after your 81st birthday , the amount of adjustment is determined by the percentage by which the withdrawal reduced the contract value.
The term “withdrawals” as used in describing the death benefit options is defined as withdrawals and the fees and charges applicable to those withdrawals.
The Company does not accept Purchase Payments from anyone age 86 or older. Therefore, the death benefit calculations assume that no Purchase Payments are received on or after your 86th birthday. We will not accept subsequent Purchase Payments on or after the fifth contract anniversary if you have elected a Living Benefit feature.
The standard death benefit and the optional Maximum Anniversary Value death benefit are calculated differently depending on whether you have also elected one of the Living Benefits described above.
Standard Death Benefit
The following is a description of the standard death benefit for contracts issued between August 2, 2004 and December 28, 2006.
If the contract is issued prior to your 83rd birthday, the standard death benefit on your contract is the greater of:
1. Contract value; or
2. Net Purchase Payments.
If the contract is issued on or after the 83rd birthday but prior to your 86th birthday, the standard death benefit on your contract is the greater of:
1. Contract value; or
2. The lesser of:
a. Net Purchase Payments; or
b. 125% of Contract value.
The following is a description of the standard death benefit for contracts issued between October 16, 2000 and August 1, 2004.
The standard death benefit on your contract, if you are age 74 or younger at the time of death, is the greater of:
1. Contract value.
2. Net Purchase Payments compounded at a 3% annual growth rate from the date of issue until the date of death, plus any Purchase Payments recorded after the date of death; and reduced for any withdrawals (and fees and charges applicable to those
  withdrawals) recorded after the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal; or
If you are age 75 or older at the time of death, the death benefit is the greater of:
1. Contract value.
2. Net Purchase Payments compounded at a 3% annual growth rate from date of issue until the your 75th birthday, plus any Purchase Payments recorded after the 75th birthday; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 75th birthday, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal.
Optional Maximum Anniversary Value Death Benefit
The following is a description of the Maximum Anniversary Value death benefit option for contracts issued between August 2, 2004 and December 28, 2006.
The death benefit is the greatest of:
1. Contract value; or
2. Net Purchase Payments; or
3. Maximum anniversary value on any contract anniversary prior to your 83rd birthday. The Anniversary value equals the contract value on a contract anniversary, reduced for withdrawals since that contract anniversary in the same proportion that the contract value was reduced on the date of such withdrawal, and adjusted for any Net Purchase Payments since that anniversary
The Maximum Anniversary Value option can only be elected prior to your 83rd birthday.
Under the Maximum Anniversary Value option, if you die on or after your 90th birthday, the death benefit is equal to your contract value. Accordingly, you will not get any benefit from this option if you are age 90 or older at the time of death.
The following is a description of the Maximum Anniversary Value death benefit option for contracts issued prior to August 2, 2004.
The death benefit is the greatest of:
1. Contract value; or
2. Net Purchase Payments; or
3. Maximum anniversary value on any contract anniversary prior to your 81st birthday. The anniversary value equals the contract value on a contract anniversary increased by any Purchase Payments recorded after that anniversary; and reduced for any withdrawals recorded after the anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal.
If you are age 90 or older at the time of death and you had selected the Maximum Anniversary Value death benefit option, the death benefit will be equal to your contract
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value. Therefore, your Beneficiary will not receive any benefit from the Maximum Anniversary Value death benefit option.
Optional Purchase Payment Accumulation Death Benefit
The following is a description of the Purchase Payment Accumulation death benefit option for contracts issued between August 2, 2004 and December 28, 2006.
If the contract is issued prior to your 75th birthday, the death benefit is the greatest of:
1. Contract value; or
2. Net Purchase Payments, compounded at 3% annual growth rate to the earlier of the 75th birthday or the date of death, reduced for withdrawals after the 75th birthday in the same proportion that the contract value was reduced on the date of such withdrawal, and adjusted for Net Purchase Payments received after the 75th birthday; or
3. Contract value on the seventh contract anniversary, reduced for withdrawals since the seventh contract anniversary in the same proportion that the contract value was reduced on the date of such withdrawal, and adjusted for Net Purchase Payments received after the seventh contract anniversary.
The Purchase Payment Accumulation Option can only be elected prior to your 75th birthday.
The following is a description of the 5% Accumulation death benefit option for contracts issued prior to August 2, 2004.
The death benefit is the greater of:
1. Contract value; or
2. Net Purchase Payments compounded to the earlier of the 80th birthday or the date of death, at a 5% annual growth rate, plus any Purchase Payments recorded after the 80th birthday or the date of death; and reduced for any withdrawals (and fees and charges applicable to those withdrawals recorded after the 80th birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum benefit of two times the Net Purchase Payments made over the life of your contract.
If you die after the Latest Annuity Date and you selected the 5% Accumulation option, any death benefit payable under the contract will be the Standard Death Benefit as described above. Therefore, your Beneficiary will not receive any benefit from the 5% Accumulation death benefit option.
Optional EstatePlus Benefit
EstatePlus (“Earnings Advantage” for contracts issued prior to August 2, 2004), an optional earnings enhancement death benefit, may increase the death benefit amount if you have earnings in your contract at the time of death. The fee for the benefit is 0.25% of the average daily ending net asset value allocated to the Variable Portfolios. EstatePlus is not available if you were age 81 or older at the time we issued your contract.
If you purchased your contract prior to August 2, 2004, you were not charged a fee for the Earnings Advantage benefit. It was included in the Seasons Estate Advantage which offered you a choice between the Maximum Anniversary Value or 5% Accumulation death benefit options for a fee of 0.25% of the average daily ending net asset value allocated to the Variable Portfolios.
In order to elect EstatePlus, you must have also elected the optional Maximum Anniversary Value death benefit described above.
You must elect EstatePlus at the time we issued your contract and you may not terminate this election. Furthermore, EstatePlus is not payable after the Latest Annuity Date. You may pay for EstatePlus and your Beneficiary may never receive the benefit if you live past the Latest Annuity Date.
We will add a percentage of your contract earnings (the “EstatePlus Percentage” or “Earnings Advantage Percentage” for contracts issued prior to August 2, 2004), subject to a maximum dollar amount (the “Maximum EstatePlus Benefit” or “Maximum Earnings Advantage Percentage” for contracts issued prior to August 2, 2004), to the death benefit payable. The contract year of your death will determine the EstatePlus Percentage and the Maximum EstatePlus Benefit.
The table below applies to contracts issued prior to your 70th birthday:
Contract Year
of Death 		EstatePlus
Percentage 		Maximum
EstatePlus Benefit
Years 0 – 4 25% of Earnings 40% of Net Purchase
Payments* (25% for
contracts issued prior
to 8/2/04)
Years 5 – 9 40% of Earnings 65% of Net Purchase
Payments* (40% for
contracts issued prior
to 8/2/04)
Years 10+ 50% of Earnings 75% of Net Purchase
Payments* (50% for
contracts issued prior
to 8/2/04)
The table below applies to contracts issued on or after your 70th birthday but prior to your 81st birthday:
Contract Year
of Death 		EstatePlus
Percentage 		Maximum
EstatePlus Benefit
All Contract Years 25% of Earnings 40% of Net Purchase Payments*
* Purchase Payments received after the 5th contract anniversary must remain in the contract for at least 6 full months to be included as part of Net Purchase Payments for the purpose of the Maximum EstatePlus Benefit.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12-month periods during which you have owned your contract ending on the date of death. Your Contract Year of Death is used to determine the EstatePlus Percentage and Maximum EstatePlus Benefit as indicated in the table above.
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What is the EstatePlus Percentage?
We determine the EstatePlus benefit using the EstatePlus Percentage, indicated in the table above, which is a specified percentage of the earnings in your contract on the date of death. For the purpose of this calculation, earnings equals contract value minus Net Purchase Payments as of the date of death. If there are no earnings in your contract at the time of death, the amount of your EstatePlus benefit will be zero.
What is the Maximum EstatePlus Benefit?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum EstatePlus Benefit is equal to a specified percentage of your Net Purchase Payments, as indicated in the table above.
EstatePlus may not be available in your state or through the broker-dealer with which your financial representative is affiliated.
A Continuing Spouse may continue EstatePlus if they are age 80 or younger on the Continuation Date or terminate the benefit. If a Continuing Spouse is age 81 or older on the Continuation Date, they may continue the contract only and may not continue the EstatePlus feature. If the Continuing Spouse terminates EstatePlus or dies after the Latest Annuity Date, no EstatePlus benefit will be payable to the Continuing Spouse’s Beneficiary. Please see SPOUSAL CONTINUATION below.
We reserve the right to modify, suspend or terminate EstatePlus (in its entirety or any component) at any time for prospectively issued contracts.
Spousal Continuation
The Continuing Spouse may elect to continue the contract after your death. A spousal continuation can only take place once, upon the death of the original Owner of the contract.
Upon election of Spousal Continuation:
• Generally, the contract, its benefits and elected features, if any, remain the same.
• Continuing Spouse is subject to the same fees, charges and expenses applicable to the original Owner of the contract. Please see EXPENSES.
• Continuing Spouse may not terminate the Optional Maximum Anniversary Value or Purchase Payment Accumulation death benefit if elected at contract issue.
• Continuing Spouse will be subject to the investment risk of Variable Portfolios, as was the original Owner.
Non-spousal joint Owners (including Domestic Partners) are not eligible for spousal continuation, under current tax law.
Upon a spousal continuation, we will contribute to the contract value an amount by which the death benefit that would have been paid to the Beneficiary upon the death of the original Owner, exceeds the contract value as of the Good Order date (“Continuation Contribution”), if any. The Continuation Contribution is not considered a Purchase Payment for the purposes of any other calculations except the death benefit following the Continuing Spouse’s death.
We will process a spousal continuation as of the date we receive the following at the Annuity Service Center:
• Death Claim form; and
• Satisfactory proof of death of the original Owner.
We will add any Continuation Contribution as of the date we receive both the Continuing Spouse’s written request to continue the contract and satisfactory proof of death of the original Owner (“Continuation Date”) at the Annuity Service Center.
The age of the Continuing Spouse on the Continuation Date will be used to determine any future death benefits under the contract. Please see the SPOUSAL CONTINUATION APPENDIX for a discussion of the death benefit calculations upon a Continuing Spouse’s death.
We reserve the right to modify, suspend or terminate the Spousal Continuation provision (in its entirety or any component) at any time for prospectively issued contracts.
Please see OPTIONAL LIVING BENEFITS above for information on the effect of Spousal Continuation on these benefits.
Expenses
  
We may deduct the following fees and expenses if applicable from your contract, as described later in this section.
• Separate Account Charges
• Withdrawal Charges
• Underlying Fund Expenses
• Contract Maintenance Fee
• Transfer Fee
• Optional Living Benefit Fee
• Optional Death Benefit Fee
Fees and expenses associated with your contract reduce your investment return. Before purchasing this contract, you should consider the effect of fees and expenses on your investment. You should fully discuss this decision with your financial representative. We will not increase certain contract fees, such as the Separate Account Charge or withdrawal charges for the life of your contract. Underlying Fund investment management fees may increase or decrease. Some states may require that we charge less than the amounts described below. Please see APPENDIX C — STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for state-specific expenses.
We intend to profit from the sale of the contracts. Our profit may be derived as a result of a variety of pricing factors including but not limited to the fees and charges assessed under the contract and/or amounts we may receive from an Underlying Fund, its investment advisor and/or subadvisors (or affiliates thereof). Please see PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT below. The fees, charges, amounts received from the Underlying Funds (or affiliates thereof) and any resulting profit may be used for any corporate purpose
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including supporting marketing, distribution and/or administration of the contract and, in its role as an intermediary, the Underlying Funds.
Separate Account Charges
1.40%
(annualized charge as a percentage of the average daily ending net asset value allocated to Variable Portfolios)
The Separate Account charge compensates the Company for the mortality and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual obligations to make annuity income payments after the Annuity Date and to provide a death benefit. The expense risk assumed by the Company is that the costs of administering the contracts and the Separate Account will exceed the amount received from the fees and charges assessed under the contract. There may not necessarily be a relationship between the administrative charge imposed under the contract and the amount of expenses that may be attributable to the contract.
If these charges do not cover all of our expenses, we will pay the difference. Likewise, if these charges exceed our expenses, we will keep the difference. The mortality and expense risk charge is expected to result in a profit. Profit may be used for any cost or expense including supporting distribution. Please see PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT below.
If your Beneficiary elects to take the death benefit amount under the Extended Legacy Program, we will deduct an annual Separate Account Charge of 1.15% of the average daily ending net asset value allocated to the Variable Portfolios. Please see Extended Legacy Program under DEATH BENEFITS.
Withdrawal Charges
The contract provides a penalty-free withdrawal amount every contract year. Please see ACCESS TO YOUR MONEY above. You may incur a withdrawal charge if you take a withdrawal in excess of the penalty-free withdrawal amount and/or if you fully surrender your contract. Withdrawal Charges reimburse us for the cost of contract sales, expenses associated with issuing your contract and other acquisition expenses.
We apply a withdrawal charge schedule against each Purchase Payment you contribute to the contract. After a Purchase Payment has been in the contract for 9 complete years if you elected to participate in the Seasons Rewards program, a withdrawal charge no longer applies to that Purchase Payment. The withdrawal charge percentage declines over time for each Purchase Payment in the contract. The withdrawal charge schedules are as follows:
Withdrawal Charge without the election of the Seasons Rewards Program:
Years Since Purchase Payment Receipt 1 2 3 4 5 6 7 8+
Withdrawal Charge 7% 6% 6% 5% 4% 3% 2% 0%
Withdrawal Charge with election of the Seasons Rewards Program:
Years Since Purchase Payment Receipt 1 2 3 4 5 6 7 8 9 10+
Withdrawal Charge 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
These higher potential withdrawal charges for the Seasons Rewards program may compensate us for the expenses associated with the program.
The Seasons Rewards program is designed for long term investing. We expect that if you remain committed to this investment over the long term, we will profit as a result of fees charged over the life of your contract. However, other than the withdrawal charge, no other fees or charges are higher if you elect Seasons Rewards than the contract without an election of this program.
If you participate in the Seasons Rewards program, you will not receive any deferred Payment Enhancement if you fully withdraw a Purchase Payment or if you surrender your contract prior to the corresponding Deferred Payment Enhancement Date.
Although we do not assess a withdrawal charge when you take a 10% free withdrawal of the total invested amount we will proportionally reduce the amount of any corresponding Deferred Payment Enhancement.
When calculating the withdrawal charge, we treat withdrawals as coming first from the Purchase Payments that have been in your contract the longest, which means the Purchase Payments that have the lowest Withdrawal Charge percentages. However, for tax purposes, per IRS requirements, your withdrawals are considered as coming first from taxable earnings, then from Purchase Payments, which are not taxable if your contract is Non-Qualified. Please see ACCESS TO YOUR MONEY above.
If you take a partial withdrawal, you can choose whether any applicable withdrawal charges are deducted from the amount withdrawn or from the contract value remaining after the amount withdrawn. If you fully surrender your contract value, we deduct any applicable withdrawal charges from the amount surrendered.
We will not assess a withdrawal charge when we pay a death benefit, assess contract fees and/or when you switch to the Income Phase.
Withdrawals made prior to age 59½ may result in tax penalties. Please see TAXES below.
Underlying Fund Expenses
Investment Management Fees
Investment management fees are set by the Underlying Funds’ own board of directors, and may vary. These fees are not fixed or specified in your annuity contract.
Each Variable Portfolio purchases shares of a corresponding Underlying Fund. The Accumulation Unit value for each purchased Variable Portfolio share reflects the investment management fees and other expenses of the corresponding Underlying Funds. If you invest in a Master Fund, as identified under INVESTMENT OPTIONS above, the
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Accumulation Unit value will also reflect the investment management fee and other expenses of the corresponding Master Fund.
12b-1 Fees
Underlying Fund shares are subject to a fee of 0.25% imposed under a servicing plan adopted by Seasons Series Trust, SunAmerica Series Trust, Fidelity® Variable Insurance Products and T. Rowe Price Equity Series, Inc. pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Managed Allocation Portfolios do not directly impose a 12b-1 fee, but do invest in certain Underlying Funds, and thus, indirectly bear the expenses of those Underlying Funds including the 12b-1 fees.
The 12b-1 fees compensate us for costs associated with the servicing of these shares, including, but not limited to, reimbursing us for expenditures we make to registered representatives in selling firms for providing services to contract Owners who are indirect beneficial Owners of these shares and for maintaining contract Owner accounts.
There are deductions from and expenses paid out of the assets of each Underlying Fund. Detailed information about these deductions and expenses can be found in the prospectuses for the Underlying Funds.
Contract Maintenance Fee
During the Accumulation Phase, we deduct a contract maintenance fee of $35 from your contract once per year on your contract anniversary. This charge compensates us for the cost of administering your contract. The fee is deducted proportionately from your contract value on your contract anniversary by redeeming the number of Accumulation Units invested in the Variable Portfolios and the dollar amount invested in available Fixed Accounts which in total equal the amount of the fee. If you withdraw your entire contract value, we will deduct the contract maintenance fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we currently waive this fee. This waiver is subject to change without notice.
Please see APPENDIX C — STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for the state-specific Contract Maintenance Fee.
Transfer Fee
After 15 Transfers
$25
We permit 15 free transfers between investment options each contract year. We charge you $25 for each additional transfer that contract year. The transfer fee compensates us for the cost of processing your transfer.
In Pennsylvania and Texas, any transfer over the limit of 15 will incur a $10 transfer fee.
Optional Living Benefits Fees
Please see FEE TABLE above for a description of the optional Living Benefit fees offered over time in this contract.
Optional Enhanced Death Benefit Fee
The annualized fee for the optional death benefit is 0.15% of the average daily ending net asset value allocated to the Variable Portfolio(s). This enhanced death benefit fee applies to the Maximum Anniversary Value death benefit option or Purchase Payment Accumulation death benefit option issued to contracts on or after August 2, 2004.
If you purchased your contract prior to August 2, 2004, the enhanced death benefit option on your contracts was called Seasons Estate Advantage. Seasons Estate Advantage offered the choice between the Maximum Anniversary Value of 5% Accumulation death benefit options along with the Earnings Advantage death benefit for a fee of 0.25% of the average daily ending net asset value allocated to the Variable Portfolios.
Optional EstatePlus Fee
The annualized fee for the optional EstatePlus benefit is 0.25% of the average daily ending net asset value allocated to the Variable Portfolio(s). There is no fee applicable for this benefit (“Earnings Advantage”) for contracts issued prior to August 2, 2004.
Premium Tax
Certain states charge the Company a tax on Purchase Payments up to a maximum of 3.5%. These states permit us to either deduct the premium tax when you make a Purchase Payment or when you fully surrender your contract or begin the Income Phase. Please see Appendix C - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY for a listing of the states that charge premium taxes, the percentage of the tax and distinctions in impact on Qualified and Non-Qualified contracts.
Income Taxes
We do not currently deduct income taxes from your contract. We reserve the right to do so in the future.
Reduction or Elimination of Fees, Expenses and Additional Amounts Credited
Sometimes sales of contracts to groups of similarly situated individuals may lower our fees and expenses. We determine which groups are eligible for this treatment. Some of the criteria we evaluate to make a determination are size of the group; amount of expected Purchase Payments; relationship existing between us and the prospective purchaser; length of time a group of contracts is expected to remain active; purpose of the purchase and whether that purpose increases the likelihood that our expenses will be reduced; and/or any other factors that we believe indicate that fees and expenses may be reduced.
The Company may make such a determination regarding sales to its employees, its affiliates’ employees and employees of currently contracted broker-dealers; its registered representatives; and immediate family members of all of those described. Currently, the Company credits an additional amount to contracts sold to the following groups: (1) employees of the Company and its affiliates, and their immediate family members; (2) appointed agents and
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registered representatives of broker-dealers that sell the Company’s and its affiliates’ variable contracts, and the agents’ and registered representatives’ immediate family members; (3) trustees of mutual funds offered in the Company’s and its affiliates’ variable contracts. The additional amount credited to a contract sold to one of the above individuals will generally equal the commission payable on the initial purchase payment for the contract. This means that the additional amount will generally be 6.00% (4.00% if you elected Seasons Rewards) of the initial Purchase Payment.
Certain broker-dealers may limit crediting this additional amount to employees only.
Payments in connection with distribution of the contract
  
Payments We Make
We make payments in connection with the distribution of the contracts that generally fall into the three categories below.
Commissions. Registered representatives of affiliated and unaffiliated broker-dealers (“selling firms”) licensed under federal securities laws and state insurance laws sell the contract to the public. The selling firms have entered into written selling agreements with the Company and AIG Capital Services, Inc., the distributor of the contracts. We pay commissions to the selling firms for the sale of your contract. The selling firms are paid commissions for the promotion and sale of the contracts according to one or more schedules. The amount and timing of commissions will vary depending on the selling firm and its selling agreement with us. For example, as one option, we may pay upfront commission only, up to a maximum 7.75% of each Purchase Payment you invest (which may include promotional amounts we may pay periodically as commission specials). Another option may be a lower upfront commission on each Purchase Payment, with a trail commission of up to a maximum 1.50% of contract value annually for the life of the contract.
The registered representative who sells you the contract typically receives a portion of the compensation we pay to his/her selling firm, depending on the agreement between the selling firms and its registered representative and their internal compensation program. We are not involved in determining your registered representatives’ compensation.
Additional Cash Compensation. We may enter into agreements to pay selling firms support fees in the form of additional cash compensation (“revenue sharing”). These revenue sharing payments may be intended to reimburse the selling firms for specific expenses incurred or may be based on sales, certain assets under management, longevity of assets invested with us and/or a flat fee. Asset-based payments primarily create incentives to service and maintain previously sold contracts. Sales-based payments primarily create incentives to make new sales of contracts.
These revenue sharing payments may be consideration for, among other things, product placement/preference and visibility, greater access to train and educate the selling
firm’s registered representatives about our contracts, our participation in sales conferences and educational seminars and for selling firms to perform due diligence on our contracts. The amount of these fees may be tied to the anticipated level of our access in that selling firm.
We enter into such revenue sharing arrangements in our discretion and we may negotiate customized arrangements with selling firms, including affiliated and non-affiliated selling firms based on various factors. These special compensation arrangements are not offered to all selling firms and the terms of such arrangements may vary between selling firms depending on, among other things, the level and type of marketing and distribution support provided, assets under management and the volume and size of the sales of our contracts.
If allowed by his or her selling firm, a registered representative or other eligible person may purchase a contract on a basis in which an additional amount is credited to the contract. Please see REDUCTION OR ELIMINATION OF FEES, EXPENSES AND ADDITIONAL AMOUNTS CREDITED above.
We provide a list of firms to whom we paid annual amounts greater than $5,000 under these revenue sharing arrangements in 2019 in the Statement of Additional Information which is available upon request.
Non-Cash Compensation. Some registered representatives and their supervisors may receive various types of non-cash compensation such as gifts, promotional items and entertainment in connection with our marketing efforts. We may also pay for registered representatives to attend educational and/or business seminars. Any such compensation is paid in accordance with SEC and FINRA rules.
We do not assess a specific charge directly to you or your separate account assets in order to cover commissions and other sales expenses and incentives we pay. However, we anticipate recovering these amounts from our profits which are derived from the fees and charges collected under the contract. We hope to benefit from these revenue sharing arrangements through increased sales of our contracts and greater customer service support.
Revenue sharing arrangements may provide selling firms and/or their registered representatives with an incentive to favor sales of our contracts over other variable annuity contracts (or other investments) with respect to which a selling firm does not receive the same level of additional compensation. You should discuss with your selling firm and/or registered representative how they are compensated for sales of a contract and/or any resulting real or perceived conflicts of interest. You may wish to take such revenue sharing arrangements into account when considering or evaluating any recommendation relating to this contract.
Payments We Receive
We and our affiliates may directly or indirectly receive revenue sharing payments from the Trusts, their investment advisors, subadvisors and/or distributors (or affiliates thereof), in connection with certain administrative, marketing and other services we provide and related
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expenses we incur. The availability of these revenue sharing arrangements creates an incentive for us to seek and offer Underlying Funds (and classes of shares of such Underlying Funds) that pay us higher amounts. Other Underlying Funds (or available classes of shares) may have lower fees and better overall investment performance. Not all Trusts pay the same amount of revenue sharing. Therefore, the amount of fees we collect may be greater or smaller based on the Underlying Funds you select.
We and our affiliates generally receive three kinds of payments described below.
Rule 12b-1 or Service Fees. We receive 12b-1 fees of up to 0.25% of the average daily net assets in certain Underlying Funds, including the Feeder Funds that are attributable to the contract and to certain other variable insurance products that we and our affiliates issue. Rule 12b-1 fees and service fees paid out of Underlying Fund assets will reduce the amount of assets that otherwise would be available for investment, and reduce the Underlying Fund’s investment return. The dollar-amount of asset-based payments we receive from the Underlying Funds is not set and will fluctuate over time depending on the Underlying Funds’ net asset value and the amount of assets invested.
Administrative, Marketing and Support Service Fees. We receive compensation of up to 0.70% annually based on assets under management from certain Trusts’ investment advisors, subadvisors and/or distributors (or affiliates thereof). These payments may be derived, in whole or in part, from the profits the investment advisor realizes on the investment management fees deducted from assets of the Underlying Funds or wholly from the assets of the Underlying Funds. Contract Owners, through their indirect investment in the Trusts, bear the costs of these investment management fees, which in turn will reduce the return on your investment. The payments we receive are generally based on assets under management from certain Trusts’ investment advisors or their affiliates and vary by Trust. Some investment advisors, subadvisors and/or distributors (or affiliates thereof) pay us more than others. The amount may be significant. Such amounts received from SAAMCo, a wholly-owned subsidiary of AGL, are not expected to exceed 0.70% annually based on assets under management.
Other Payments. Certain investment advisors, subadvisors and/or distributors (or affiliates thereof) may help offset the costs we incur for marketing activities and training to support sales of the Underlying Funds in the contract. These amounts are paid voluntarily and may provide such advisors, subadvisors and/or distributors access to national and regional sales conferences attended by our employees and registered representatives. The amounts paid depend on the nature of the meetings, the number of meetings attended, the costs expected to be incurred and the level of the advisor’s, subadvisor’s or distributor’s participation.
In addition, we (and our affiliates) may receive occasional gifts, entertainment or other compensation as an incentive to market the Underlying Funds and to cooperate with their marketing efforts. As a result of these payments, the investment advisors, subadvisors and/or distributors (or
affiliates thereof) may benefit from increased access to our wholesalers and to our affiliates involved in the distribution of the contract.
Annuity Income Options
  
The Income Phase
What is the Income Phase?
During the Income Phase, we use the money accumulated in your contract to make regular payments to you. This is known as “annuitizing” your contract. At this point, the Accumulation Phase ends. You will no longer be able to take withdrawals of contract value and all other features and benefits of your contract will terminate, including your ability to surrender your contract.
Beginning the Income Phase is an important event. You have different options available to you. You should discuss your options with your financial representative and/or tax adviser so that together you may make the best decision for your particular circumstances.
When does the Income Phase begin?
Generally, you can annuitize your contract any time after your second contract anniversary (“Annuity Date”) and on or before the Latest Annuity Date, defined below, by completing and mailing the Annuity Option Selection Form to our Annuity Service Center.
If you do not request to annuitize your contract on the Annuity Date of your choice, your contract will be annuitized on the Latest Annuity Date. Your Latest Annuity Date is defined as the later of the first NYSE business day of the month following your 95th birthday or 10 years after your contract issue date, whichever is later. If your contract is jointly owned, the Latest Annuity Date is based on the older Owner’s date of birth.
How do I elect to begin the Income Phase?
You must select one of the annuity income payment options, listed below, that best meets your needs by mailing a completed Annuity Option Selection Form to our Annuity Service Center. If you do not select an annuity income payment option, your contract will be annuitized in accordance with the default annuity income payment option specified under Annuity Income Options below.
What is the impact on the living and death benefits if I annuitize?
If you annuitize, you may choose to take annuity income payments or withdrawals under your Living Benefit. Prior to annuitizing, you should seek advice on whether taking annuity income payments under the contract or guaranteed withdrawals under a Living Benefit are more advantageous to you. Upon annuitizing the contract, the death benefit will terminate. If your contract value is reduced to zero prior to annuitization as a result of receiving guaranteed withdrawals under the Living Benefit, you will receive your Protected Income Payment under the Living Benefit. Please see OPTIONAL LIVING BENEFITS and DEATH BENEFITS above.
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Annuity Income Options
You must send a written request to our Annuity Service Center to select an annuity income option. Once you begin receiving annuity income payments, you cannot change your annuity income option. If you elect to receive annuity income payments but do not select an annuity income option, your annuity income payments shall be in accordance with Option 4 for a period of 10 years; for annuity income payments based on joint lives, the default is Option 3 for a period of 10 years. Generally, the amount of each annuity income payment will be less with greater frequency of payments or if you chose a longer period certain guarantee.
We base our calculation of annuity income payments on the life expectancy of the Annuitant and the annuity rates set forth in your contract. In most contracts, the Owner and Annuitant are the same person. The Owner may change the Annuitant if different from the Owner at any time prior to the Annuity Date. The Owner must notify us if the Annuitant dies before the Annuity Date and designate a new Annuitant. If we do not receive a new Annuitant election, the Owner may not select an annuity income option based on the life of the Annuitant.
If the contract is owned by a non-natural Owner, the Annuitant cannot be changed after the contract has been issued and the death of the Annuitant will trigger the payment of the death benefit.
If you elect a lifetime based annuity income option without a guaranteed period, your annuity income payments depend on longevity only. That means that you may potentially not live long enough to receive an annuity income payment. If you die before the first annuity income payment, no annuity income payments will be made. For Qualified contracts, annuity income options may be limited to a 10 year guarantee.
Annuity Income Option 1 – Life Income Annuity
This option provides annuity income payments for the life of the Annuitant. Annuity income payments end when the Annuitant dies.
Annuity Income Option 2 – Joint and Survivor Life Income Annuity
This option provides annuity income payments for the life of the Annuitant and for the life of another designated person. Upon the death of either person, we will continue to make annuity income payments during the lifetime of the survivor. Annuity income payments end when the survivor dies. For Qualified contracts, under certain circumstances, the survivor’s annuity income payments may be limited based on the Internal Revenue Code.
Annuity Income Option 3 – Joint and Survivor Life Income Annuity with 10 or 20 Years Guaranteed
This option is similar to Option 2 above, with an additional guarantee of payments for at least 10 or 20 years, depending on the period chosen. If the Annuitant and the survivor die before all of the guaranteed annuity income payments have been made, the remaining annuity income payments are made to the Beneficiary under your contract. For Qualified contracts, annuity income options may be limited to a 10 year guarantee. Additionally, a guarantee of
payments greater than 10 years may not be available to all Beneficiaries. Under certain circumstances, the survivor's annuity income payments may be limited based on the Internal Revenue Code.
Annuity Income Option 4 – Life Income Annuity with 10 or 20 Years Guaranteed
This option is similar to income Option 1 above with an additional guarantee of payments for at least 10 or 20 years, depending on the period chosen. If the Annuitant dies before all guaranteed annuity income payments are made, the remaining annuity income payments are made to the Beneficiary under your contract. For Qualified contracts, annuity income options may be limited to a 10 year guarantee. Additionally, a guarantee of payments greater than 10 years may not be available to all Beneficiaries.
Annuity Income Option 5 – Income for a Specified Period
This option provides annuity income payments for a guaranteed period ranging from 5 to 30 years, depending on the period chosen. If your contract is a Qualified contract, a guaranteed period of greater than 10 years may not be available. If the Annuitant dies before all the guaranteed annuity income payments are made, the remaining annuity income payments are made to the Beneficiary under your contract. A guarantee of payments for more than 10 years may not be available to all Beneficiaries. Additionally, if variable annuity income payments are elected under this option, you (or the Beneficiary under the contract if the Annuitant dies prior to all guaranteed annuity income payments being made) may redeem any remaining guaranteed variable annuity income payments after the Annuity Date. Upon your request, the contract may be commuted if a period certain annuitization income option has been elected. The amount available upon such redemption would be the discounted present value of any remaining guaranteed annuity income payments that would reflect the fluctuating trading costs for liquidating the securities in place to pay for these contractual obligations. The detrimental impact depends on the nature of the securities (and which may include short-term, medium term, and/or long-term investments) resulting in varying losses to the Company.
The value of an Annuity Unit, regardless of the option chosen, takes into account Separate Account Charges which includes a mortality and expense risk charge. Since Option 5 does not contain an element of mortality risk, no benefit is derived from this charge.
Please see the Statement of Additional Information for a more detailed discussion of the annuity income options.
Fixed or Variable Annuity Income Payments
You can choose annuity income payments that are fixed, variable or both. Unless otherwise elected, if at the date when annuity income payments begin you are invested in the Variable Portfolios only, your annuity income payments will be variable and if your money is only in Fixed Accounts at that time, your annuity income payments will be fixed in amount. Further, if you are invested in both Fixed Accounts and Variable Portfolios when annuity income payments begin, your payments will be fixed and variable, unless
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otherwise elected. If annuity income payments are fixed, the Company guarantees the amount of each payment. If the annuity income payments are variable, the amount is not guaranteed and may fluctuate as described under ANNUITY INCOME PAYMENTS below.
Annuity Income Payments
We make annuity income payments on a monthly, quarterly, semi-annual or annual basis as elected by you. You instruct us to send you a check or to have the payments directly deposited into your bank account. If state law allows, we distribute annuities with a contract value of $5,000 or less in a lump sum. Also, if state law allows and the selected annuity income option results in annuity income payments of less than $50 per payment, we may decrease the frequency of payments.
If you are invested in the Variable Portfolios after the Annuity Date, your annuity income payments vary depending on the following:
• for life income options, your age when annuity income payments begin; and
• the contract value attributable to the Variable Portfolios on the Annuity Date; and
• the 3.5% assumed investment rate used in the annuity table for the contract; and
• the performance of the Variable Portfolios in which you are invested during the time you receive annuity income payments.
If you are invested in both the Fixed Accounts and the Variable Portfolios after the Annuity Date, the allocation of funds between the Fixed Accounts and Variable Portfolios also impacts the amount of your annuity income payments.
The value of fixed annuity income payments, if elected, will not be less than 1%. The value of variable annuity income payments, if elected, is based on an assumed interest rate (“AIR”) of 3.5% compounded annually. Variable annuity income payments generally increase or decrease from one annuity income payment date to the next based upon the performance of the applicable Variable Portfolios. If the performance of the Variable Portfolios selected is equal to the AIR, the annuity income payments will remain constant. If performance of Variable Portfolios is greater than the AIR, the annuity income payments will increase and if it is less than the AIR, the annuity income payments will decline.
Deferment of Payments
We may defer making fixed payments for up to six months, or less if required by law. Interest is credited to you during the deferral period. Please see ACCESS TO YOUR MONEY above for a discussion of when payments from a Variable Portfolio may be suspended or postponed.
Taxes
  
The Federal income tax treatment of annuity contracts or retirement plans/programs is complex and sometimes uncertain. The discussion below is intended for general informational purposes only and does not include all the Federal income tax rules that may affect you and your contract. This discussion also does not address other Federal tax consequences (including consequences of sales to foreign individuals or entities), state or local tax consequences, estate or gift tax consequences, or the impact of foreign tax laws, associated with your contract.
Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have a retroactive effect as well. As a result, you should always consult a tax adviser about the application of tax rules found in the Internal Revenue Code (“IRC”), Treasury Regulations and applicable Internal Revenue Service (“IRS”) guidance to your individual situation.
Refer to the Statement of Additional Information for further details.
Annuity Contracts in General
The IRC provides for special rules regarding the tax treatment of annuity contracts.
• Generally, taxes on the earnings in your annuity contract are deferred until you take the money out.
• Qualified contracts that satisfy specific IRC requirements automatically provide tax deferral regardless of whether the underlying contract is an annuity, a trust, or a custodial account.
• Different rules and tax treatment apply depending on how you take the money out and whether your contract is Qualified or Non-Qualified.
Non-Qualified Contract
If you do not purchase your contract under an employer-sponsored retirement plan/arrangement, or an Individual Retirement Account or Individual Retirement Annuity (“IRA”), including a Roth IRA, your contract is referred to as a Non-Qualified contract.
Qualified Contract
If you purchase your contract under an employer-sponsored retirement plan/arrangement or an Individual Retirement Account or Individual Retirement Annuity (“IRA”), including Roth IRA, your contract is referred to as a Qualified contract.
Employer-sponsored plans/arrangements include:
• Tax-Sheltered Annuities (also referred to as 403(b) annuities)
• Plans of self-employed individuals (often referred to as H.R. 10 Plans or Keogh Plans)
• Pension and profit sharing plans including 401(k) plans, and governmental 457(b) plans
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If you are purchasing the contract as an investment vehicle for a trust under a Qualified contract, you should consider that the contract does not provide any additional tax-deferral benefits beyond the treatment provided by the trust itself.
In addition, if the contract itself is a qualifying arrangement (as with a 403(b) annuity or IRA), the contract generally does not provide tax deferral benefits beyond the treatment provided to alternative qualifying arrangements such as trusts or custodial accounts. However, in both cases the contract offers features and benefits that other investments may not offer. You and your financial representative should carefully consider whether the features and benefits, including the investment options, lifetime annuity income options, and protection through Living Benefits, death benefits and other benefits provided under an annuity contract issued in connection with a Qualified contract are suitable for your needs and objectives and are appropriate in light of the expense.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law as part of larger appropriations legislation. The SECURE Act includes many provisions affecting Qualified Contracts, some of which became effective upon enactment or on January 1, 2020, and certain provisions were retroactively effective. Some of the provisions effective January 1, 2020 include:
• an increase in the age at which required minimum distributions (RMDs) generally must commence, to age 72, for those born on or after July 1, 1949, from the previous age of 70 ½;
• new limitations on the period for beneficiary distributions following the death of the plan participant or IRA owner (when the death occurs on or after January 1, 2020);
• elimination of the age 70 ½ restriction on traditional IRA contributions for tax years beginning 2020 (combined with an offset to the amount of eligible qualified charitable distributions (QCDs) by the amount of post-70 ½ IRA contributions);
• a new exception to the 10% additional tax on early distributions, for the qualified birth or adoption of a child, which also became an allowable plan distribution event; and,
• reduction of the earliest permissible age for in-service distributions from pension plans and certain Section 457 plans to 59 ½.
The foregoing is not an exhaustive list. The SECURE Act included many additional provisions affecting Qualified Contracts.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law and
provides greater access to assets held in tax-qualified retirement plans and IRAs.  The relief provided in the Act includes, but is not limited to:
• Expanding distribution and loan (including loan repayment) rules for certain retirement accounts in employer plans and IRAs, for qualifying distributions;
• Waiver of the 10% additional tax for qualifying coronavirus related distributions taken from January 1, 2020 through December 31, 2020, if they are considered early distributions (generally, distributions taken prior to age 59 ½); and,
• Providing a temporary waiver of required minimum distributions from qualifying retirement plans and IRAs due to be taken in 2020.
Some provisions in the Act are subject to the terms of an employer’s retirement plan and may not be available with your annuity.
Tax Treatment of Purchase Payments
Non-Qualified Contract
In general, your cost basis in a Non-Qualified contract is equal to the Purchase Payments you put into the contract. You have already been taxed on the Purchase Payments you contributed in your Non-Qualified contract.
Qualified Contract
Typically, for employer sponsored plans/arrangements and tax-deductible IRA contributions, you have not paid any tax on the Purchase Payments contributed to your contract and therefore, you have no cost basis in your contract. However, you normally will have cost basis in a Roth IRA, a designated Roth account in a 403(b), 401(k), or governmental 457(b) plan, and you may have cost basis in a traditional IRA or in another Qualified contract.
Qualified Contract—Tax-Sheltered Annuity (403(b))
On July 26, 2007, the Treasury Department published final 403(b) regulations that were largely effective on January 1, 2009. These comprehensive regulations include several new rules and requirements, such as a requirement that employers maintain their 403(b) plans pursuant to a written plan. Subsequent IRS guidance and/or the terms of the written plan may impose new restrictions on both new and existing contracts, including restrictions on the availability of loans, distributions, transfers and exchanges, regardless of when a contract was purchased. Effective January 1, 2009, the Company no longer accepts new Purchase Payments (including contributions, transfers and exchanges) into new or existing 403(b) annuities. You may wish to discuss the regulations and/or the general information above with your tax adviser.
Tax Treatment of Distributions
Distributions from Non-Qualified Contracts
Federal tax rules generally require that all Non-Qualified contracts issued by the same company to the same policyholder during the same calendar year will be treated
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as one annuity contract for purposes of determining the taxable amount upon distribution.
The taxable portion of any withdrawals, whether annuity income payment or other withdrawal, generally is subject to applicable state and/or local income taxes, and may be subject to an additional 10% penalty tax unless withdrawn in conjunction with the following circumstances:
• after attaining age 59½;
• when paid to your Beneficiary after you die;
• after you become disabled (as defined in the IRC);
• when paid as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated Beneficiary for a period of 5 years or attainment of age 59½, whichever is later;
• under an immediate annuity contract;
• when attributable to Purchase Payments made prior to August 14, 1982.
Partial or Total Withdrawals
If you make partial or total withdrawals from a Non-Qualified contract, the IRC generally treats such withdrawals as coming first from taxable earnings and then coming from your Purchase Payments. Purchase Payments made prior to August 14, 1982, however, are an important exception to this general rule, and for tax purposes generally are treated as being distributed first, before either the earnings on those contributions, or other Purchase Payments and earnings in the contract.
Annuitization
If you annuitize your contract, a portion of each annuity income payment will be considered, for tax purposes, to be a return of a portion of your Purchase Payment, generally until you have received all of your Purchase Payment. The portion of each annuity income payment that is considered a return of your Purchase Payment will not be taxed.
Annuity to Annuity Transfer
A transfer of contract value to another annuity contract generally will be tax reported as a distribution unless we have sufficient information, on a form satisfying us, to confirm that the transfer qualifies as an exchange under IRC Section 1035 (a “1035 exchange”).
Additional Tax on Net Investment Income
Information in this section generally does not apply to Qualified contracts, however taxable distributions from such contracts may be taken into account in determining the applicability of the Modified Adjusted Gross Income (“MAGI”) threshold.
Under Federal Tax law, there is a tax on net investment income, at the rate of 3.8% of applicable thresholds for MAGI ($250,000 for joint filers; $125,000 for married individuals filing separately; and, $200,000 for individual filers). An individual with MAGI in excess of the threshold will be required to pay this 3.8% tax on net investment income in excess of the applicable MAGI threshold. For this
purpose, net investment income generally will include taxable withdrawals from a Non-Qualified contract, as well as other taxable amounts including amounts taxed annually to an Owner that is not a natural person (see Contracts Owned by a Trust or Corporation below).
Distributions from Qualified Contracts
Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract. As a result, most amounts withdrawn from the contract or received as annuity income payments will be taxable income. Exceptions to this general rule include withdrawals attributable to after-tax amounts permitted under the employer’s plan or contributed to a Roth IRA or non-deductible traditional IRA.
Withdrawals from other Qualified contracts are often limited by the IRC and by the employer-sponsored plan/arrangement.
The taxable portion of any withdrawal or annuity income payment from a Qualified contract (except for Tax-Sheltered Annuities) will be subject to an additional 10% penalty tax, under the IRC, except in the following circumstances:
• after attainment of age 59½;
• when paid to your Beneficiary after you die;
• after you become disabled (as defined in the IRC);
• as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint expectancies) of you and your designated Beneficiary for a period of 5 years or attainment of age 59½, whichever is later;
• dividends paid with respect to stock of a corporation described in IRC Section 404(k);
• for payment of medical expenses to the extent such withdrawals do not exceed limitations set by the IRC for deductible amounts paid during the taxable year for medical care;
• for payment of health insurance if you are unemployed and meet certain requirements;
• distributions from IRAs for qualifying higher education expenses or first home purchases, with certain limitations;
• payments to certain individuals called up for active duty after September 11, 2001;
• payments up to $3,000 per year for health, life and accident insurance by certain retired public safety officers, which are federal income tax-free;
• amounts distributed from a Code Section 457(b) plan other than to the extent such amounts in a governmental Code Section 457(b) plan represent rollovers from an IRA or employer-sponsored plan to which the 10% penalty would otherwise apply and which are treated as distributed from a Qualified plan for purposes of the premature distribution penalty;
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• distributions for parents after the “qualified birth or adoption” of a new child (subject to limitations);
• distributions related to Coronavirus relief, as defined under the CARES Act;
Non-IRA contracts:
• payments to employees after separation from service after attainment of age 55 (does not apply to IRAs); and
• transfers to alternate payees pursuant to a qualified domestic relations order (does not apply to IRAs).
Annuitization
Unlike a Non-Qualified contract, if you annuitize your Qualified annuity contract the entire annuity income payment will be considered income, for tax purposes.
Direct and Indirect Rollovers
Under certain circumstances, you may be able to transfer amounts distributed from your employer sponsored plan/arrangement to another eligible plan or IRA. Generally, a distribution may be eligible for rollover but certain types of distributions cannot be rolled over, such as distributions received on account of:
(a) a required minimum distribution,
(b) a hardship withdrawal, or
(c) a series of substantially equal payments (at least annually) made over your life expectancy or the joint life expectancies of you and your designated Beneficiary or a distribution made for a specified period of 10 years or more.
The IRS issued Announcement 2014-32 confirming its intent to apply the one-rollover-per-year limitation of 408(d)(3)(B) on an aggregate basis to all IRAs that an individual owns. This means that an individual cannot make a tax-free IRA-to-IRA rollover if he or she has made such a rollover involving any of the individual’s IRAs in the current tax year. If an intended rollover does not qualify for tax-free rollover treatment, contributions to your IRA may constitute excess contributions that may exceed contribution limits. This one-rollover-per-year limitation does not apply to direct trustee-to-trustee transfers. You should always consult your tax adviser before you move or attempt to move any funds.
The IRC limits the withdrawal of an employee’s elective deferral Purchase Payments from a Tax-Sheltered Annuity (TSA) contract under IRC 403(b). Generally, withdrawals can only be made when an Owner:
• reaches age 59½;
• severs employment with the employer;
• dies;
• birth or adoption of child (subject to limitations);
• distributions related to Coronavirus relief, as defined under the CARES Act;
• becomes disabled (as defined in the IRC); or
• experiences a financial hardship (as defined in the IRC).*
* In the case of hardship, the Owner can only withdraw Purchase Payments.
Additional plan limitations may also apply. Amounts held in a TSA contract as of December 31, 1988 are not subject to these restrictions except as otherwise imposed by the plan.
Annuity to Annuity Transfer (Tax-Sheltered Annuities)
Qualifying transfers (including intra-plan exchanges) of amounts from one TSA contract or account to another TSA contract or account, and qualifying transfers to a state defined benefit plan to purchase service credits, where permitted under the employer’s plan, generally are not considered distributions, and thus are not subject to the above IRC withdrawal limitations. If amounts are transferred to a contract with less restrictive IRC withdrawal limitations than the account from which it is transferred, the more restrictive withdrawal limitations will continue to apply.
Transfers among 403(b) annuities and/or 403(b)(7) custodial accounts generally are subject to rules set out in the plan, the IRC, treasury regulations, IRS pronouncements, and other applicable legal authorities.
Required Minimum Distributions
Information in this section generally does not apply to Non-Qualified contracts.
Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax adviser for more information.
The CARES Act provides a temporary waiver of required minimum distributions from qualifying retirement plans and IRAs due to be paid in 2020. Please consult your tax adviser regarding any questions.
Commencement Date
Generally, the IRC requires that you begin taking annual distributions from Qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70½ (or age 72, for individuals born on or after July 1, 1949), or (2) the calendar year in which you sever employment from the employer sponsoring the plan. If you own a traditional IRA, you must begin receiving minimum distributions by April 1 of the calendar year following the calendar year in which you reach age 70½ (or age 72, for individuals born on or after July 1, 1949). If you choose to delay your first distribution until the year after the year in which you reach 70½ (72, if applicable) or sever employment, as applicable, then you will be required to withdraw your second required minimum distribution on or before December 31 in that same year. For each year thereafter, you must withdraw your required minimum distribution by December 31.
Combining Distributions from Multiple Contracts
If you own more than one IRA, you may be permitted to take your annual distributions in any combination from your IRAs. A similar rule applies if you own more than one TSA. However, you cannot satisfy this distribution requirement for
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your IRA contract by taking a distribution from a TSA, and you cannot satisfy the requirement for your TSA by taking a distribution from an IRA.
Automatic Withdrawal Option
You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select monthly, quarterly, semiannual, or annual withdrawals for this purpose. This service is provided as a courtesy and we do not guarantee the accuracy of our calculations. Accordingly, we recommend you consult your tax adviser concerning your required minimum distribution.
Impact of Optional Benefits
IRS regulations require that the annuity contract value used to determine required minimum distributions include the actuarial present value of other benefits under the contract, such as enhanced death benefits and/or Living Benefits. As a result, if you request a minimum distribution calculation, or if one is otherwise required to be provided, in those specific circumstances where this requirement applies, the calculation may be based upon a value that is greater than your contract value, resulting in a larger required minimum distribution. This regulation does not apply to required minimum distributions made under an irrevocable annuity income option. You should discuss the effect of these regulations with your tax adviser.
Tax Treatment of Death Benefits
The taxable amount of any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefit is paid as lump sum or annuity income payments. Estate taxes may also apply.
Enhanced death benefits are used as investment protection and are not expected to give rise to any adverse tax effects. However, the IRS could take the position that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In that case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the Owner is under 59½, unless another exception applies. You should consult your tax adviser for more information.
If you own a Qualified contract and purchase an enhanced death benefit, the IRS may consider these benefits “incidental death benefits” or “life insurance.” The IRC imposes limits on the amount of the incidental benefits and/or life insurance allowable for Qualified contracts and the employer-sponsored plans under which they are purchased. If the death benefit(s) selected by you are considered to exceed these limits, the benefit(s) could result in taxable income to the Owner of the Qualified contract, and in some cases could adversely impact the qualified status of the Qualified contract or the plan. You should consult your tax adviser regarding these features and benefits prior to purchasing a contract.
Tax Treatment of Optional Living Benefits
Generally, we will treat amounts credited to the contract value under the optional Living Benefit guarantees, for income tax purposes, as earnings in the contract. Thus, payments of Living Benefits are treated as taxable withdrawals to the extent there are taxable gains in the contract value. Payments in accordance with such guarantees after the contract value has been reduced to zero may be treated for tax purposes as amounts received as an annuity, if the other requirements for such treatment are satisfied. All payments or withdrawals after cost basis has been reduced to zero, whether or not under such a guarantee, will be treated as taxable amounts. If available and you elect an optional Living Benefit, the application of certain tax rules, including those rules relating to distributions from your contract, are not entirely clear. Such benefits are not intended to adversely affect the tax treatment of distributions or of the contract. However, you should be aware that little guidance is available. You should consult a tax adviser before electing an optional Living Benefit.
Contracts Owned by a Trust or Corporation
A Trust or Corporation or other Owner that is not a natural person (“Non-Natural Owner”) that is considering purchasing this contract should consult a tax adviser.
Generally, the IRC does not confer tax-deferred status upon a Non-Qualified contract owned by a Non-Natural Owner for federal income tax purposes. Instead in such cases, the Non-Natural Owner pays tax each year on the contract’s value in excess of the Owner’s cost basis, and the contract’s cost basis is then increased by a like amount. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by Qualified Plans. Please see the Statement of Additional Information for a more detailed discussion of the potential adverse tax consequences associated with non-natural ownership of a Non-Qualified annuity contract.
Withholding
Taxable amounts distributed from annuity contracts are subject to federal and state income tax reporting and withholding. In general, we will withhold federal income tax from the taxable portion of such distribution based on the type of distribution and, in certain cases, the amount of your distribution. An election out of withholding must be made on forms that we provide. If you are a U.S. person (which includes a resident alien), and your address of record is a non-U.S. address, we are required to withhold income tax unless you provide us with a U.S. residential address.
State income tax withholding rules vary and we will withhold based on the rules of your state of residence.
Special tax rules apply to withholding for nonresident aliens, and we generally withhold income tax for nonresident aliens at a 30% rate. A different withholding rate may be applicable to a nonresident alien based on the terms of an existing income tax treaty between the United States and the nonresident alien’s country. You should consult your tax
53

 

adviser as to the availability of an exemption from, or reduction of, such tax under an applicable income tax treaty, if any.
Any income tax withheld is a credit against your income tax liability. Regardless of the amount withheld by us, you are liable for payment of federal and state income tax on the taxable portion of annuity distributions. You should consult with your tax adviser regarding the payment of the correct amount of these income taxes and potential liability if you fail to pay such taxes.
20% Withholding on Eligible Rollover Distributions
For certain qualified employer sponsored plans, we are required to withhold 20% of the taxable portion of your withdrawal that constitutes an “eligible rollover distribution” for Federal income taxes. The amount we withhold is determined by the Code.
You may avoid withholding if You directly transfer a withdrawal from this Contract to another qualified plan or IRA. Similarly, You may be able to avoid withholding on a transfer into the Contract from an existing qualified plan You may have with another provider by arranging to have the transfer made directly to us.
Foreign Account Tax Compliance Act (“FATCA”)
A Contract Owner who is not a “United States person” which is defined to mean:
• a citizen or resident of the United States
• a partnership or corporation created or organized in the United States or under the law of the United States or of any state, or the District of Columbia
• any estate or trust other than a foreign estate or foreign trust (see Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust)
should be aware that FATCA, enacted in 2010, provides that a 30% withholding tax will be imposed on certain gross payments (which could include distributions from cash value life insurance or annuity products) made to a foreign entity if such entity fails to provide applicable certifications under a Form W-9, Form W-8 BEN-E, Form W-8 IMY, or other applicable form. Certain withholding certifications will remain effective until a change in circumstances makes any information on the form incorrect. Notwithstanding the preceding sentence, the Form W-8 BEN-E, is only effective for three years from date of signature unless a change in circumstances makes any information on the form incorrect. An entity, for this purpose, will be considered a foreign entity unless it provides an applicable withholding certification to the contrary. The Contract Owner must inform the Company within 30 days of any change in circumstances that makes any information on the form incorrect by furnishing a new IRS Form W-9, Form W-8 BEN-E, Form W-8IMY, or acceptable substitute form.
Gifts, Pledges and/or Assignments of a Contract
Non-Qualified Contracts
If you transfer ownership of your Non-Qualified contract to a person other than your spouse (or former spouse incident to divorce) as a gift you will pay federal income tax on the contract’s cash value to the extent it exceeds your cost basis. The recipient’s cost basis will be increased by the amount on which you will pay federal taxes. In addition, the IRC treats any assignment or pledge (or agreement to assign or pledge) of any portion of a Non-Qualified contract as a withdrawal. Please see the Statement of Additional Information for a more detailed discussion regarding potential tax consequences of gifting, assigning, or pledging a Non-Qualified contract.
Qualified Contracts
The IRC prohibits Qualified annuity contracts including IRAs from being transferred, assigned or pledged as security for a loan.
This prohibition, however, generally does not apply to loans under an employer-sponsored plan (including loans from the annuity contract) that satisfy certain requirements, provided that:
• the plan is not an unfunded deferred compensation plan; and
• the plan funding vehicle is not an IRA.
You should consult a tax advisor as to the availability of this exception.
Diversification and Investor Control
Diversification
For a contract to be treated as a variable annuity for Federal income tax purposes, the underlying investments under the variable annuity must be “adequately diversified”. Treasury Regulations provide standards that must be met to comply with the rules. If the variable annuity fails to comply with these diversification standards, you could be required to pay tax currently on the excess of the Contract Value over the contract Purchase Payments. We expect that the manager of the Underlying Funds monitors the Funds so as to comply with these Treasury Regulations.
Investor Control
These investor control limitations generally do not apply to Qualified contracts, which are referred to as “Pension Plan Contracts” for purposes of this rule, although the limitations could be applied to Qualified contracts in the future.
Under certain circumstances, you, and not the Company, could be treated as the owner of the Underlying Funds under your Non-Qualified contract, based on the degree of control you exercise over the underlying investments. If this occurs, you may be currently taxed on income and gains attributable to the assets under the contract.
There is little guidance in this area, and the determination of whether you possess sufficient incidents of ownership
54

 

over Variable Portfolio assets to be deemed the owner of the Underlying Funds depends on all of the relevant facts and circumstances. However, IRS Revenue Ruling 2003-91 provides that an annuity owner’s ability to choose among general investment strategies either at the time of the initial purchase or thereafter, does not constitute control sufficient to cause the contract holder to be treated as the owner of the Variable Portfolios. The Revenue Ruling provides that if, based on all the facts and circumstances, you do not have direct or indirect control over the Separate Account or any Variable Portfolio asset, then you do not possess sufficient incidents of ownership over the assets supporting the annuity to be deemed the owner of the assets for federal income tax purposes. We do not know what limits may be set by the IRS in any future guidance that it may issue and whether such limits will apply to existing contracts.
While we believe the contract does not give you investment control over the Underlying Funds, we reserve the right to modify the contract as necessary in an attempt to prevent you from being considered as the owner of the assets of the contract for purposes of the Code.
Our Taxes
The Company is taxed as a life insurance company under the Code. We are entitled to certain tax benefits related to the investment of company assets, including assets of the separate account, which may include the foreign tax credit and the corporate dividends received deduction. These potential benefits are not passed back to you, since we are the owner of the assets from which tax benefits may be derived.
Other Information
  
The Distributor
AIG Capital Services, Inc., 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367-4997, distributes the contracts. AIG Capital Services, Inc., an indirect, wholly-owned subsidiary of AGL, is a registered broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority (“FINRA”). No underwriting fees are retained by AIG Capital Services, Inc. in connection with the distribution of the contracts.
The Company
American General Life Insurance Company (“AGL”) is a stock life insurance company organized under the laws of the state of Texas on April 11, 1960. AGL’s home office is 2727-A Allen Parkway, Houston, Texas 77019-2191. AGL is successor in interest to a company originally organized under the laws of Delaware on January 10, 1917. AGL is an indirect, wholly owned subsidiary of American International Group, Inc. (“AIG”), a Delaware corporation.
Effective December 31, 2012, SunAmerica Annuity and Life Assurance Company (“SunAmerica Annuity”), a former affiliate of AGL, merged with and into AGL (“Merger”). Before the Merger, contracts in all states except New York were issued by SunAmerica Annuity. Upon the Merger, all contractual obligations of SunAmerica Annuity became obligations of AGL.
The Merger did not affect the terms of, or the rights and obligations under your contract, other than to reflect the change to the Company that provides your contract benefits from SunAmerica Annuity to AGL. The Merger also did not result in any adverse tax consequences for any contract Owners.
Ownership Structure of the Company
AGL is an indirect, wholly owned subsidiary of American International Group, Inc. (“AIG”), a Delaware corporation.
AGL is regulated for the benefit of policy Owners by the insurance regulator in its state of domicile and also by all state insurance departments where it is licensed to conduct business. AGL is required by its regulators to hold a specified amount of reserves in order to meet its contractual obligations to contract Owners. Insurance regulations also require AGL to maintain additional surplus to protect against a financial impairment; the amount of which surplus is based on the risks inherent in AGL’s operations.
American International Group, Inc. (AIG) is a leading global insurance organization. AIG provides a wide range of property casualty insurance, life insurance, retirement products, and other financial services to commercial and individual customers in more than 80 countries and jurisdictions. AIG common stock is listed on the New York Stock Exchange.
More information about AIG may be found in the regulatory filings AIG files from time to time with the U.S. Securities and Exchange Commission (“SEC”) at www.sec.gov.
Operation of the Company
The operations of the Company are influenced by many factors, including general economic conditions, monetary and fiscal policies of the federal government, and policies of state and other regulatory authorities. The level of sales of the Company’s financial and insurance products is influenced by many factors, including general market rates of interest, the strength, weakness and volatility of equity markets, terms and conditions of competing financial and insurance products and the relative value of such brands.
The Company is exposed to market risk, interest rate risk, contract Owner behavior risk and mortality/longevity risk. Market volatility may result in increased risks related to guaranteed death and Living Benefits on the Company’s financial and insurance products, as well as reduced fee income in the case of assets held in separate accounts, where applicable. These guaranteed benefits are sensitive to equity market and other conditions. The Company primarily
55

 

uses capital market hedging strategies to help cover the risk of paying guaranteed Living Benefits in excess of account values as a result of significant downturns in equity markets or as a result of other factors. The Company has treaties to reinsure a portion of the guaranteed minimum income benefits and guaranteed death benefits for equity and mortality risk on some of its older contracts. Such risk mitigation may or may not reduce the volatility of net income and capital and surplus resulting from equity market volatility.
The Company is regulated for the benefit of contract Owners by the insurance regulator in its state of domicile; and also by all state insurance departments where it is licensed to conduct business. The Company is required by its regulators to hold a specified amount of reserves in order to meet its contractual obligations to contract Owners. Insurance regulations also require the Company to maintain additional surplus to protect against a financial impairment the amount of which is based on the risks inherent in the Company’s operations.
The Separate Account
Before December 31, 2012, Variable Annuity Account Five was a separate account of SunAmerica Annuity, originally established under Arizona law on July 8, 1996 when it assumed the Separate Account, originally established under California law on June 25, 1981. On December 31, 2012, and in conjunction with the merger of AGL and SunAmerica Annuity, Variable Annuity Account Five was transferred to and became a separate account of AGL under Texas law. It may be used to support the contract and other variable annuity contracts, and used for other permitted purposes.
The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940, as amended.
Purchase Payments you make that are allocated to the Variable Portfolios are invested in the Separate Account. The Company owns the assets in the Separate Account and invests them on your behalf, according to your instructions. Purchase Payments invested in the Separate Account are not guaranteed and will fluctuate with the value of the Variable Portfolios you select. Therefore, you assume all of the investment risk for contract value allocated to the Variable Portfolios. These assets are kept separate from our General Account and may not be charged with liabilities arising from any other business we may conduct. Additionally, income gains and losses (realized and unrealized) resulting from assets in the Separate Account are credited to or charged against the Separate Account without regard to other income gains or losses of the Company.
You benefit from dividends received by the Separate Account through an increase in your unit value. The Company expects to benefit from these dividends through tax credits and corporate dividends received deductions;
however, these corporate deductions are not passed back to the Separate Account or to contract Owners.
The General Account
Obligations that are paid out of the Company’s general account (“General Account”) include any amounts you have allocated to available Fixed Accounts, including any interest credited thereon, and amounts owed under your contract for death and/or Living Benefits which are in excess of portions of contract value allocated to the Variable Portfolios. The obligations and guarantees under the contract are the sole responsibility of the Company. Therefore, payments of these obligations are subject to our financial strength and claims paying ability, and our long term ability to make such payments.
The General Account assets are invested in accordance with applicable state regulation. These assets are exposed to the typical risks normally associated with a portfolio of fixed income securities, namely interest rate, option, liquidity and credit risk. The Company manages its exposure to these risks by, among other things, closely monitoring and matching the duration and cash flows of its assets and liabilities, monitoring or limiting prepayment and extension risk in its portfolio, maintaining a large percentage of its portfolio in highly liquid securities and engaging in a disciplined process of underwriting, reviewing and monitoring credit risk. With respect to the Living Benefits available in your contract, we also manage interest rate and certain market risk through a hedging strategy in the portfolio and we may require that those who elect a Living Benefit allocate their Purchase Payments in accordance with specified investment parameters.
Contracts issued on or prior to December 29, 2006 were issued with a guarantee (the “Guarantee”) by American Home Assurance Company (the “Guarantor”). Please see Appendix D for more information.
Financial Statements
The financial statements described below are important for you to consider. Information about how to obtain these financial statements is also provided below.
The Company and Separate Account
The financial statements of the Company and the Separate Account are required to be made available because you must look to those entities directly to satisfy our obligations to you under the Contract. If your contract is covered by the Guarantee, financial statements of the Guarantor are also provided in relation to its ability to meet its obligations under the Guarantee; please see Appendix D for more information.
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Instructions to Obtain Financial Statements
The financial statements of the Company, Separate Account and Guarantor are available on the SEC’s website at http://www.sec.gov. You may request a free copy of the Statement of Additional Information which includes the financial statements by using the request form on the last page of this prospectus or by contacting our Annuity Service Center at:
Mailing Address:
Annuity Service Center
P.O. Box 15570, Amarillo, Texas 79105-5570
Telephone Number: (800) 445-7862
We encourage both existing and prospective contract Owners to read and understand the financial statements.
Administration
We are responsible for the administrative servicing of your contract. Please contact our Annuity Service Center at (800) 445-7862, if you have any comments, questions or service requests.
We send out transaction confirmations and quarterly statements. During the Accumulation Phase, you will receive confirmation of transactions for your contract. Transactions made pursuant to contractual or systematic agreements, such as dollar cost averaging, if available, may be confirmed quarterly. Purchase Payments received through the automatic payment plan or a salary reduction arrangement, may also be confirmed quarterly. For all other transactions, we send confirmations. It is your responsibility to review these documents carefully and notify our Annuity Service Center of any inaccuracies immediately. We investigate all inquiries. Depending on the facts and circumstances, we may retroactively adjust your contract, provided you notify us of your concern within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments we deem warranted are made as of the time we receive notice of the error. If you fail to notify our Annuity Service Center of any mistakes or inaccuracy within 30 days of receiving the transaction confirmation or quarterly statement, we will deem you to have ratified the transaction.
Business Disruption and Cyber Security Risks
We rely heavily on interconnected computer systems and digital data to conduct our variable product business activities. Because our variable product business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from physical disruptions and utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions) and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service attacks on websites and other operational disruptions
and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third-party administrator, the underlying funds, intermediaries and other affiliated or third-party service providers, as well as our distribution partners, may adversely affect us and your contract value. For instance, systems failures and cyber-attacks may interfere with our processing of contract transactions, including the processing of orders from our website, our distribution partners, or with the Underlying Funds, impact our ability to calculate Accumulation Unit Values (“AUVs”), cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers, distribution partners and other intermediaries to regulatory fines, litigation risks and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the Underlying Funds invest, which may cause the funds underlying your contract to lose value. Despite our implementation of policies and procedures that address physical, administrative and technical safeguards and controls and other preventative actions to protect customer information and reduce the risk of cyber-incident, there can be no assurance that we or our distribution partners or the Underlying Funds or our service providers will avoid losses affecting your contract and personal information due to cyber-attacks or information security breaches in the future.
Our business is also vulnerable to disruptions from natural and man-made disasters and catastrophes, such as but not limited to hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, war or other military action, acts of terrorism, explosions and fires, pandemic (such as COVID-19) and other highly contagious diseases, mass torts and other catastrophes. A natural or man-made disaster or catastrophe may negatively affect the computer and other systems on which we rely, and may also interfere with our ability to receive, pickup and process mail, to calculate AUVs or process other contract-related transactions, or have other possible negative impacts. While we have developed and put in place business continuity and disaster recovery plans to mitigate operational risks and potential losses related to business disruptions resulting from natural and man-made disasters and catastrophes, there can be no assurance that we, our agents, the Underlying Funds or our service providers will be able to successfully avoid negative impacts resulting from such disasters and catastrophes.
Legal Proceedings
There are no pending legal proceedings affecting the Separate Account. Various federal, state or other regulatory agencies may from time to time review, examine or inquire into the operations, practices and procedures of the Company, such as through financial examinations, subpoenas, investigations, market conduct exams or other regulatory inquiries. Based on the current status of pending regulatory examinations, investigations and inquiries involving the Company, the Company believes that none of
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these matters will have a material adverse effect on the ability of the principal underwriter to perform its contract with the Registrant or of the depositor to meet its obligations under the variable annuity contracts.
Various lawsuits against the Company have arisen in the ordinary course of business. As of April 24, 2020, the Company believes that none of these matters will have a material adverse effect on the ability of the principal underwriter to perform its contract with the Registrant or of the depositor to meet its obligations under the variable annuity contracts.
Registration Statements
Registration statements under the Securities Act of 1933, as amended, related to the contracts offered by this prospectus are on file with the SEC. This prospectus does not contain all of the information contained in the registration statements and exhibits. For further information regarding the Separate Account, the Company and its General Account, American Home, if your contract is covered by the Guarantee, the Variable Portfolios and the contract, please refer to the registration statements and exhibits.
Contents of Statement of Additional Information
  
Additional information concerning the operations of the Separate Account is contained in the Statement of Additional Information, which is available without charge upon written request. Please use the request form at the back of this prospectus and send it to our Annuity Service Center at P.O. Box 15570, Amarillo, Texas 79105-5570 or by calling (800) 445-7862. The table of contents of the SAI is listed below.
Separate Account and the Company
General Account
Master-Feeder Structure
Performance Data
Annuity Income Payments
Annuity Unit Values
Taxes
Broker-Dealer Firms Receiving Revenue Sharing Payments
Distribution of Contracts
Financial Statements
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Appendix A – Condensed Financial Information
  
PREMIER PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SUNAMERICA SERIES TRUST — CLASS 3 SHARES
SA American Funds Global Growth Portfolio (Inception Date: 5/01/08)
Beginning AUV
(a)$7.626    (a)$10.433   (a)$12.329   (a)$11.541   (a)$13.310   (a)$15.210   (a)$15.699   (a)$16.512   (a)$16.338   (a)$21.122   (a)$18.895
  (b)$7.687    (b)$10.183   (b)$11.955   (b)$11.119   (b)$12.741   (b)$13.061   (b)$14.865   (b)$15.534   (b)$15.271   (b)$19.616   (b)$17.433
Ending AUV
(a)$10.433 (a)$12.329 (a)$11.541 (a)$13.310 (a)$15.210 (a)$15.699 (a)$16.512 (a)$16.338 (a)$21.122 (a)$18.895 (a)$25.141
  (b)$10.183 (b)$11.955 (b)$11.119 (b)$12.741 (b)$13.061 (b)$14.865 (b)$15.534 (b)$15.271 (b)$19.616 (b)$17.433 (b)$23.045
Ending Number of AUs
(a)357,505 (a)348,252 (a)332,381 (a)297,700 (a)226,391 (a)187,572 (a)156,485 (a)129,720 (a)96,564 (a)86,673 (a)68,554
  (b)156 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA American Funds Growth Portfolio (Inception Date: 5/01/08)
Beginning AUV
(a)$6.837 (a)$9.405 (a)$11.199 (a)$11.070 (a)$12.255 (a)$14.200 (a)$15.333 (a)$16.109 (a)$17.344 (a)$21.882 (a)$21.463
  (b)$6.776 (b)$9.177 (b)$10.854 (b)$10.660 (b)$11.726 (b)$13.498 (b)$14.512 (b)$15.148 (b)$16.204 (b)$20.311 (b)$19.793
Ending AUV
(a)$9.405 (a)$11.199 (a)$11.070 (a)$12.255 (a)$14.200 (a)$15.333 (a)$16.109 (a)$17.344 (a)$21.882 (a)$21.463 (a)$27.597
  (b)$9.177 (b)$10.854 (b)$10.660 (b)$11.726 (b)$13.498 (b)$14.512 (b)$15.148 (b)$16.204 (b)$20.311 (b)$19.793 (b)$25.285
Ending Number of AUs
(a)188,378 (a)193,395 (a)178,096 (a)161,950 (a)123,350 (a)102,666 (a)79,720 (a)71,537 (a)52,325 (a)44,747 (a)32,958
  (b)2,175 (b)1,093 (b)1,175 (b)1,130 (b)1,066 (b)1,000 (b)884 (b)835 (b)743 (b)672 (b)587
 
SA American Funds Growth-Income Portfolio (Inception Date: 5/01/08)
Beginning AUV
(a)$6.862 (a)$9.120 (a)$10.194 (a)$10.192 (a)$11.820 (a)$14.114 (a)$15.201 (a)$15.164 (a)$16.630 (a)$20.012 (a)$19.328
  (b)$6.804 (b)$8.898 (b)$9.885 (b)$9.819 (b)$11.315 (b)$13.423 (b)$14.394 (b)$14.266 (b)$15.544 (b)$18.584 (b)$17.832
Ending AUV
(a)$9.120 (a)$10.194 (a)$10.192 (a)$11.820 (a)$14.114 (a)$15.201 (a)$15.164 (a)$16.630 (a)$20.012 (a)$19.328 (a)$23.967
  (b)$8.898 (b)$9.885 (b)$9.819 (b)$11.315 (b)$13.423 (b)$14.394 (b)$14.266 (b)$15.544 (b)$18.584 (b)$17.832 (b)$21.968
Ending Number of AUs
(a)262,321 (a)263,666 (a)250,888 (a)224,427 (a)171,488 (a)165,298 (a)148,602 (a)123,485 (a)97,805 (a)96,937 (a)90,763
  (b)658 (b)1,207 (b)1,275 (b)1,168 (b)1,085 (b)1,009 (b)938 (b)870 (b)812 (b)745 (b)676
 
SA VCP Dynamic Allocation Portfolio (Inception Date: 5/01/13)
Beginning AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)$12.055 (a)$12.458 (a)$11.634 (a)$11.972 (a)$14.266 (a)$13.107
  (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)$12.096 (b)$12.513 (b)$11.703 (b)$12.061 (b)$13.639 (b)$12.449
Ending AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)$12.055 (a)$12.458 (a)$11.634 (a)$11.972 (a)$14.266 (a)$13.107 (a)$15.561
  (b)N/A (b)N/A (b)N/A (b)N/A (b)$12.096 (b)$12.513 (b)$11.703 (b)$12.061 (b)$13.639 (b)$12.449 (b)$14.684
Ending Number of AUs
(a)N/A (a)N/A (a)N/A (a)N/A (a)1,078,867 (a)1,246,786 (a)1,217,827 (a)1,112,883 (a)1,249,895 (a)1,169,600 (a)988,463
  (b)N/A (b)N/A (b)N/A (b)N/A (b)1,388,797 (b)1,638,238 (b)1,513,853 (b)1,329,634 (b)0 (b)0 (b)0
 
SA VCP Dynamic Strategy Portfolio (Inception Date: 5/01/13)
Beginning AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)$— (a)$11.999 (a)$12.381 (a)$11.530 (a)$11.938 (a)$14.026 (a)$12.837
  (b)N/A (b)N/A (b)N/A (b)N/A (b)$— (b)$12.031 (b)$12.426 (b)$11.589 (b)$12.017 (b)$13.486 (b)$12.261
Ending AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)$11.999 (a)$12.381 (a)$11.530 (a)$11.938 (a)$14.026 (a)$12.837 (a)$15.115
  (b)N/A (b)N/A (b)N/A (b)N/A (b)$12.031 (b)$12.426 (b)$11.589 (b)$12.017 (b)$13.486 (b)$12.261 (b)$14.344
Ending Number of AUs
(a)N/A (a)N/A (a)N/A (a)N/A (a)1,079,347 (a)1,201,328 (a)1,159,999 (a)1,073,345 (a)1,200,616 (a)1,121,813 (a)950,819
  (b)N/A (b)N/A (b)N/A (b)N/A (b)1,270,642 (b)1,498,654 (b)1,379,941 (b)1,268,868 (b)0 (b)0 (b)0
 
FIDELITY® VARIABLE INSURANCE PRODUCTS — SERVICE CLASS 2 SHARES
Fidelity VIP Contrafund (Inception Date: 5/01/08)
Beginning AUV
(a)$6.096 (a)$8.552 (a)$10.036 (a)$9.920 (a)$11.055 (a)$13.175 (a)$14.386 (a)$14.245 (a)$15.133 (a)$18.145 (a)$16.703
  (b)$6.096 (b)$8.449 (b)$9.852 (b)$9.671 (b)$10.704 (b)$12.675 (b)$13.779 (b)$13.555 (b)$14.308 (b)$17.698 (b)$16.251
Ending AUV
(a)$8.552 (a)$10.036 (a)$9.920 (a)$11.055 (a)$13.175 (a)$14.386 (a)$14.245 (a)$15.133 (a)$18.145 (a)$16.703 (a)$21.622
  (b)$8.449 (b)$9.852 (b)$9.671 (b)$10.704 (b)$12.675 (b)$13.779 (b)$13.555 (b)$14.308 (b)$17.698 (b)$16.251 (b)$20.984
Ending Number of AUs
(a)287,137 (a)293,129 (a)293,121 (a)247,376 (a)209,933 (a)169,021 (a)147,696 (a)109,404 (a)81,806 (a)69,760 (a)56,491
  (b)2,411 (b)1,212 (b)1,281 (b)1,220 (b)1,141 (b)1,054 (b)988 (b)945 (b)29,990 (b)11,384 (b)11,716
 
Fidelity VIP Equity-Income (Inception Date: 5/01/08)
Beginning AUV
(a)$5.678 (a)$8.078 (a)$9.214 (a)$9.149 (a)$10.909 (a)$12.549 (a)$13.042 (a)$12.315 (a)$14.295 (a)$15.880 (a)$14.321
  (b)$5.771 (b)$7.983 (b)$9.100 (b)$9.060 (b)$10.506 (b)$10.663 (b)$12.425 (b)$11.657 (b)$13.443 (b)$15.503 (b)$13.946
Ending AUV
(a)$8.078 (a)$9.214 (a)$9.149 (a)$10.909 (a)$12.549 (a)$13.042 (a)$12.315 (a)$14.295 (a)$15.880 (a)$14.321 (a)$17.950
  (b)$7.983 (b)$9.100 (b)$9.060 (b)$10.506 (b)$10.663 (b)$12.425 (b)$11.657 (b)$13.443 (b)$15.503 (b)$13.946 (b)$17.436
Ending Number of AUs
(a)424,112 (a)385,348 (a)352,515 (a)313,894 (a)221,905 (a)206,432 (a)179,715 (a)144,206 (a)127,378 (a)108,255 (a)90,466
  (b)273 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)7,131 (b)6,686 (b)6,139
 
Fidelity VIP Investment Grade Bond (Inception Date: 5/01/08)
Beginning AUV
(a)$9.775 (a)$11.128 (a)$11.651 (a)$12.275 (a)$12.660 (a)$12.448 (a)$12.664 (a)$12.382 (a)$12.757 (a)$13.082 (a)$12.798
  (b)$9.788 (b)$10.885 (b)$11.303 (b)$11.794 (b)$12.029 (b)$11.987 (b)$11.903 (b)$11.562 (b)$11.836 (b)$12.769 (b)$12.460
Ending AUV
(a)$11.128 (a)$11.651 (a)$12.275 (a)$12.660 (a)$12.448 (a)$12.664 (a)$12.382 (a)$12.757 (a)$13.082 (a)$12.798 (a)$13.807
  (b)$10.885 (b)$11.303 (b)$11.794 (b)$12.029 (b)$11.987 (b)$11.903 (b)$11.562 (b)$11.836 (b)$12.769 (b)$12.460 (b)$13.409
Ending Number of AUs
(a)1,046,257 (a)1,099,364 (a)1,060,727 (a)1,062,606 (a)792,012 (a)703,372 (a)589,890 (a)562,308 (a)492,684 (a)407,451 (a)372,545
  (b)651 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)27,557 (b)26,383 (b)38,205
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-1

 

Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
Fidelity VIP Mid Cap (Inception Date: 5/01/08)
Beginning AUV
(a)$6.656 (a)$9.552 (a)$11.665 (a)$10.744 (a)$11.949 (a)$14.378 (a)$15.211 (a)$14.755 (a)$16.286 (a)$19.358 (a)$16.268
  (b)$6.592 (b)$9.423 (b)$11.269 (b)$9.986 (b)$10.431 (b)$10.716 (b)$13.136 (b)$12.660 (b)$13.882 (b)$18.904 (b)$15.846
Ending AUV
(a)$9.552 (a)$11.665 (a)$10.744 (a)$11.949 (a)$14.378 (a)$15.211 (a)$14.755 (a)$16.286 (a)$19.358 (a)$16.268 (a)$19.759
  (b)$9.423 (b)$11.269 (b)$9.986 (b)$10.431 (b)$10.716 (b)$13.136 (b)$12.660 (b)$13.882 (b)$18.904 (b)$15.846 (b)$19.198
Ending Number of AUs
(a)645,426 (a)597,318 (a)557,843 (a)499,257 (a)353,536 (a)305,044 (a)249,630 (a)205,305 (a)153,890 (a)133,412 (a)114,868
  (b)445 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)21,473 (b)9,905 (b)10,974
 
Fidelity VIP Overseas (Inception Date: 5/01/08)
Beginning AUV
(a)$5.424 (a)$7.183 (a)$8.862 (a)$7.481 (a)$8.480 (a)$9.622 (a)$9.086 (a)$9.255 (a)$8.645 (a)$11.082 (a)$9.282
  (b)$5.599 (b)$7.102 (b)$8.759 (b)$7.404 (b)$8.408 (b)$8.613 (b)$8.911 (b)$9.018 (b)$8.370 (b)$10.809 (b)$9.031
Ending AUV
(a)$7.183 (a)$8.862 (a)$7.481 (a)$8.480 (a)$9.622 (a)$9.086 (a)$9.255 (a)$8.645 (a)$11.082 (a)$9.282 (a)$11.670
  (b)$7.102 (b)$8.759 (b)$7.404 (b)$8.408 (b)$8.613 (b)$8.911 (b)$9.018 (b)$8.370 (b)$10.809 (b)$9.031 (b)$11.326
Ending Number of AUs
(a)469,350 (a)442,305 (a)433,913 (a)398,108 (a)270,391 (a)253,068 (a)202,905 (a)190,172 (a)141,336 (a)133,487 (a)113,079
  (b)248 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)13,552 (b)14,516 (b)14,067
 
T. ROWE PRICE EQUITY SERIES, INC. — CLASS 2 SHARES
T. Rowe Price Blue Chip Growth II (Inception Date: 5/01/08)
Beginning AUV
(a)$6.560 (a)$8.923 (a)$10.398 (a)$11.426 (a)$12.253 (a)$15.041 (a)$16.760 (a)$18.311 (a)$18.154 (a)$24.316 (a)$24.372
  (b)$6.404 (b)$8.739 (b)$10.099 (b)$11.059 (b)$11.888 (b)$12.237 (b)$16.085 (b)$17.460 (b)$17.198 (b)$23.742 (b)$23.737
Ending AUV
(a)$8.923 (a)$10.398 (a)$11.426 (a)$12.253 (a)$15.041 (a)$16.760 (a)$18.311 (a)$18.154 (a)$24.316 (a)$24.372 (a)$31.142
  (b)$8.739 (b)$10.099 (b)$11.059 (b)$11.888 (b)$12.237 (b)$16.085 (b)$17.460 (b)$17.198 (b)$23.742 (b)$23.737 (b)$30.254
Ending Number of AUs
(a)117,888 (a)126,566 (a)186,388 (a)161,095 (a)133,639 (a)106,353 (a)94,815 (a)79,301 (a)62,348 (a)66,862 (a)50,657
  (b)110 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)21,772 (b)9,208 (b)9,892
 
T. Rowe Price Equity Income II (Inception Date: 5/01/08)
Beginning AUV
(a)$6.209 (a)$8.799 (a)$9.789 (a)$9.732 (a)$11.497 (a)$13.288 (a)$13.791 (a)$12.633 (a)$14.807 (a)$16.898 (a)$15.047
  (b)$6.232 (b)$8.655 (b)$9.565 (b)$9.450 (b)$11.092 (b)$12.736 (b)$13.161 (b)$11.978 (b)$13.948 (b)$16.469 (b)$14.628
Ending AUV
(a)$8.799 (a)$9.789 (a)$9.732 (a)$11.497 (a)$13.288 (a)$13.791 (a)$12.633 (a)$14.807 (a)$16.898 (a)$15.047 (a)$18.702
  (b)$8.655 (b)$9.565 (b)$9.450 (b)$11.092 (b)$12.736 (b)$13.161 (b)$11.978 (b)$13.948 (b)$16.469 (b)$14.628 (b)$18.136
Ending Number of AUs
(a)388,582 (a)399,336 (a)376,337 (a)367,320 (a)285,587 (a)252,976 (a)219,384 (a)156,057 (a)126,214 (a)109,077 (a)90,750
  (b)869 (b)1,240 (b)1,312 (b)1,183 (b)1,150 (b)1,103 (b)1,118 (b)970 (b)30,702 (b)13,541 (b)10,561
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-2

 

SELECT PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SUNAMERICA SERIES TRUST — CLASS 3 SHARES
SA DFA Ultra Short Bond Portfolio (Inception Date: 11/17/03)
Beginning AUV
(a)$11.122   (a)$10.928   (a)$10.719   (a)$10.506   (a)$10.300 (a)$10.102 (a)$9.973  (a)$9.849  (a)$9.679  (a)$9.590  (a)$9.573 
  (b)$10.626   (b)$10.279   (b)$9.898    (b)$9.548    (b)$9.325  (b)$9.321  (b)$8.932  (b)$9.797  (b)$9.565  (b)$9.415  (b)$9.337 
Ending AUV
(a)$10.928 (a)$10.719 (a)$10.506 (a)$10.300 (a)$10.102 (a)$9.973 (a)$9.849 (a)$9.679 (a)$9.590 (a)$9.573 (a)$9.626
  (b)$10.279 (b)$9.898 (b)$9.548 (b)$9.325 (b)$9.321 (b)$8.932 (b)$9.797 (b)$9.565 (b)$9.415 (b)$9.337 (b)$9.329
Ending Number of AUs
(a)1,655,703 (a)1,526,174 (a)1,229,948 (a)992,989 (a)665,673 (a)602,074 (a)467,775 (a)489,288 (a)336,851 (a)290,026 (a)306,922
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SEASONS SERIES TRUST — CLASS 3 SHARES
SA Multi-Managed Diversified Fixed Income (Inception Date: 11/17/03)
Beginning AUV
(a)$12.743 (a)$13.791 (a)$14.429 (a)$15.216 (a)$15.642 (a)$15.185 (a)$15.367 (a)$15.073 (a)$15.339 (a)$15.690 (a)$15.272
  (b)$12.245 (b)$12.924 (b)$13.356 (b)$13.936 (b)$14.160 (b)$14.114 (b)$13.761 (b)$13.410 (b)$13.558 (b)$13.780 (b)$13.325
Ending AUV
(a)$13.791 (a)$14.429 (a)$15.216 (a)$15.642 (a)$15.185 (a)$15.367 (a)$15.073 (a)$15.339 (a)$15.690 (a)$15.272 (a)$16.464
  (b)$12.924 (b)$13.356 (b)$13.936 (b)$14.160 (b)$14.114 (b)$13.761 (b)$13.410 (b)$13.558 (b)$13.780 (b)$13.325 (b)$14.272
Ending Number of AUs
(a)1,499,237 (a)1,334,391 (a)1,041,446 (a)855,198 (a)677,758 (a)562,896 (a)448,160 (a)352,955 (a)301,474 (a)238,188 (a)208,460
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed International Equity (Inception Date: 11/17/03)
Beginning AUV
(a)$6.992 (a)$9.252 (a)$10.823 (a)$9.313 (a)$10.505 (a)$11.455 (a)$10.608 (a)$10.136 (a)$9.962 (a)$12.418 (a)$10.473
  (b)$6.985 (b)$8.838 (b)$10.274 (b)$8.783 (b)$9.844 (b)$10.042 (b)$9.833 (b)$9.334 (b)$9.115 (b)$11.289 (b)$9.459
Ending AUV
(a)$9.252 (a)$10.823 (a)$9.313 (a)$10.505 (a)$11.455 (a)$10.608 (a)$10.136 (a)$9.962 (a)$12.418 (a)$10.473 (a)$12.645
  (b)$8.838 (b)$10.274 (b)$8.783 (b)$9.844 (b)$10.042 (b)$9.833 (b)$9.334 (b)$9.115 (b)$11.289 (b)$9.459 (b)$11.347
Ending Number of AUs
(a)2,045,471 (a)1,694,620 (a)1,318,843 (a)1,082,925 (a)898,855 (a)811,146 (a)668,405 (a)542,554 (a)447,247 (a)384,248 (a)331,239
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed Large Cap Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$7.054 (a)$9.363 (a)$10.559 (a)$11.015 (a)$12.202 (a)$14.378 (a)$16.081 (a)$16.540 (a)$16.777 (a)$21.074 (a)$20.372
  (b)$6.750 (b)$8.857 (b)$9.828 (b)$10.197 (b)$11.315 (b)$11.627 (b)$14.751 (b)$15.074 (b)$15.191 (b)$18.959 (b)$18.208
Ending AUV
(a)$9.363 (a)$10.559 (a)$11.015 (a)$12.202 (a)$14.378 (a)$16.081 (a)$16.540 (a)$16.777 (a)$21.074 (a)$20.372 (a)$26.149
  (b)$8.857 (b)$9.828 (b)$10.197 (b)$11.315 (b)$11.627 (b)$14.751 (b)$15.074 (b)$15.191 (b)$18.959 (b)$18.208 (b)$23.220
Ending Number of AUs
(a)1,539,531 (a)1,619,009 (a)1,264,183 (a)1,009,333 (a)778,972 (a)656,946 (a)487,255 (a)361,787 (a)295,900 (a)248,640 (a)189,282
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed Large Cap Value (Inception Date: 11/17/03)
Beginning AUV
(a)$9.821 (a)$13.819 (a)$15.589 (a)$15.338 (a)$17.931 (a)$20.811 (a)$22.020 (a)$20.612 (a)$23.332 (a)$26.236 (a)$23.294
  (b)$9.626 (b)$13.183 (b)$14.797 (b)$14.511 (b)$16.945 (b)$17.297 (b)$20.584 (b)$19.143 (b)$21.529 (b)$24.052 (b)$21.216
Ending AUV
(a)$13.819 (a)$15.589 (a)$15.338 (a)$17.931 (a)$20.811 (a)$22.020 (a)$20.612 (a)$23.332 (a)$26.236 (a)$23.294 (a)$29.497
  (b)$13.183 (b)$14.797 (b)$14.511 (b)$16.945 (b)$17.297 (b)$20.584 (b)$19.143 (b)$21.529 (b)$24.052 (b)$21.216 (b)$26.692
Ending Number of AUs
(a)1,144,420 (a)913,974 (a)751,425 (a)588,733 (a)485,236 (a)402,777 (a)321,609 (a)236,244 (a)198,058 (a)164,505 (a)137,259
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed Mid Cap Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$12.407 (a)$17.871 (a)$22.474 (a)$21.533 (a)$23.909 (a)$28.006 (a)$30.689 (a)$30.296 (a)$31.224 (a)$38.795 (a)$36.827
  (b)$11.665 (b)$17.033 (b)$21.295 (b)$20.343 (b)$22.583 (b)$23.147 (b)$28.673 (b)$28.123 (b)$28.797 (b)$35.549 (b)$33.526
Ending AUV
(a)$17.871 (a)$22.474 (a)$21.533 (a)$23.909 (a)$28.006 (a)$30.689 (a)$30.296 (a)$31.224 (a)$38.795 (a)$36.827 (a)$49.299
  (b)$17.033 (b)$21.295 (b)$20.343 (b)$22.583 (b)$23.147 (b)$28.673 (b)$28.123 (b)$28.797 (b)$35.549 (b)$33.526 (b)$44.589
Ending Number of AUs
(a)810,304 (a)657,149 (a)539,351 (a)416,862 (a)314,066 (a)259,409 (a)206,089 (a)163,115 (a)133,635 (a)115,772 (a)95,477
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed Mid Cap Value (Inception Date: 11/17/03)
Beginning AUV
(a)$15.124 (a)$22.158 (a)$26.337 (a)$25.025 (a)$29.498 (a)$34.820 (a)$37.338 (a)$34.597 (a)$39.494 (a)$43.856 (a)$38.026
  (b)$14.200 (b)$21.012 (b)$24.798 (b)$23.448 (b)$27.546 (b)$28.143 (b)$34.490 (b)$31.752 (b)$36.012 (b)$39.731 (b)$34.225
Ending AUV
(a)$22.158 (a)$26.337 (a)$25.025 (a)$29.498 (a)$34.820 (a)$37.338 (a)$34.597 (a)$39.494 (a)$43.856 (a)$38.026 (a)$46.898
  (b)$21.012 (b)$24.798 (b)$23.448 (b)$27.546 (b)$28.143 (b)$34.490 (b)$31.752 (b)$36.012 (b)$39.731 (b)$34.225 (b)$41.937
Ending Number of AUs
(a)783,240 (a)628,717 (a)524,685 (a)418,720 (a)337,337 (a)287,342 (a)239,491 (a)181,987 (a)145,188 (a)126,993 (a)110,112
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Multi-Managed Small Cap (Inception Date: 11/17/03)
Beginning AUV
(a)$7.949 (a)$11.672 (a)$14.005 (a)$13.176 (a)$14.391 (a)$17.214 (a)$18.129 (a)$16.824 (a)$19.680 (a)$21.393 (a)$18.611
  (b)$7.521 (b)$11.174 (b)$13.324 (b)$12.456 (b)$13.516 (b)$16.063 (b)$16.843 (b)$15.530 (b)$18.048 (b)$19.493 (b)$16.847
Ending AUV
(a)$11.672 (a)$14.005 (a)$13.176 (a)$14.391 (a)$17.214 (a)$18.129 (a)$16.824 (a)$19.680 (a)$21.393 (a)$18.611 (a)$22.801
  (b)$11.174 (b)$13.324 (b)$12.456 (b)$13.516 (b)$16.063 (b)$16.843 (b)$15.530 (b)$18.048 (b)$19.493 (b)$16.847 (b)$20.507
Ending Number of AUs
(a)1,276,790 (a)993,022 (a)761,481 (a)618,311 (a)491,169 (a)408,001 (a)294,532 (a)237,860 (a)205,716 (a)179,798 (a)148,895
  (b)442 (b)895 (b)995 (b)954 (b)874 (b)862 (b)862 (b)749 (b)774 (b)789 (b)724
 
SA Wellington Real Return Portfolio (Inception Date: 2/14/05)
Beginning AUV
(a)$9.733 (a)$11.413 (a)$11.777 (a)$12.171 (a)$12.303 (a)$11.631 (a)$11.527 (a)$11.213 (a)$11.466 (a)$11.525 (a)$11.341
  (b)$9.559 (b)$10.943 (b)$11.221 (b)$11.519 (b)$11.571 (b)$10.868 (b)$10.724 (b)$10.364 (b)$10.530 (b)$10.516 (b)$10.280
Ending AUV
(a)$11.413 (a)$11.777 (a)$12.171 (a)$12.303 (a)$11.631 (a)$11.527 (a)$11.213 (a)$11.466 (a)$11.525 (a)$11.341 (a)$11.802
  (b)$10.943 (b)$11.221 (b)$11.519 (b)$11.571 (b)$10.868 (b)$10.724 (b)$10.364 (b)$10.530 (b)$10.516 (b)$10.280 (b)$10.629
Ending Number of AUs
(a)691,039 (a)622,236 (a)578,737 (a)463,717 (a)358,499 (a)268,862 (a)205,951 (a)168,295 (a)134,947 (a)104,784 (a)104,864
  (b)1,511 (b)698 (b)727 (b)744 (b)898 (b)902 (b)861 (b)856 (b)957 (b)862 (b)931
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses (1.40%)
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-3

 

FOCUSED PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SUNAMERICA SERIES TRUST — CLASS 3 SHARES
SA AB Growth (Inception Date: 10/19/18)
Beginning AUV
(a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)$8.935 
  (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)$8.921 
Ending AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)$8.935 (a)$11.855
  (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)$8.921 (b)$11.760
Ending Number of AUs
(a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)814,696 (a)705,891
  (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)1,490 (b)1,262
 
SEASONS SERIES TRUST — CLASS 3 SHARES
SA Columbia Focused Value (Inception Date: 11/17/03)
Beginning AUV
(a)$12.223 (a)$16.212 (a)$18.333 (a)$16.461 (a)$18.597 (a)$21.908 (a)$23.878 (a)$22.567 (a)$26.487 (a)$31.707 (a)$27.467
  (b)$11.859 (b)$15.396 (b)$17.305 (b)$15.466 (b)$17.422 (b)$17.868 (b)$22.128 (b)$20.778 (b)$24.229 (b)$28.816 (b)$24.800
Ending AUV
(a)$16.212 (a)$18.333 (a)$16.461 (a)$18.597 (a)$21.908 (a)$23.878 (a)$22.567 (a)$26.487 (a)$31.707 (a)$27.467 (a)$34.246
  (b)$15.396 (b)$17.305 (b)$15.466 (b)$17.422 (b)$17.868 (b)$22.128 (b)$20.778 (b)$24.229 (b)$28.816 (b)$24.800 (b)$30.721
Ending Number of AUs
(a)719,926 (a)608,545 (a)521,119 (a)390,685 (a)300,493 (a)258,095 (a)215,234 (a)184,471 (a)150,329 (a)131,074 (a)117,100
  (b)922 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses (1.40%)
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-4

 

MANAGED ALLOCATION PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SEASONS SERIES TRUST — CLASS 3 SHARES
SA Allocation Balanced Portfolio (Inception Date: 2/14/05)
Beginning AUV
(a)$8.893     (a)$11.045    (a)$12.133    (a)$12.177    (a)$13.151   (a)$13.889   (a)$14.257   (a)$13.872   (a)$14.395   (a)$15.690   (a)$14.861  
  (b)$8.696     (b)$10.594    (b)$11.562    (b)$11.529    (b)$12.370   (b)$12.492   (b)$13.266   (b)$12.824   (b)$13.222   (b)$14.318   (b)$13.473  
Ending AUV
(a)$11.045 (a)$12.133 (a)$12.177 (a)$13.151 (a)$13.889 (a)$14.257 (a)$13.872 (a)$14.395 (a)$15.690 (a)$14.861 (a)$17.002
  (b)$10.594 (b)$11.562 (b)$11.529 (b)$12.370 (b)$12.492 (b)$13.266 (b)$12.824 (b)$13.222 (b)$14.318 (b)$13.473 (b)$15.315
Ending Number of AUs
(a)5,055,572 (a)4,921,184 (a)4,886,391 (a)4,547,353 (a)3,684,997 (a)3,335,115 (a)2,564,280 (a)2,134,550 (a)1,598,050 (a)1,351,775 (a)1,159,814
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Allocation Growth Portfolio (Inception Date: 2/14/05)
Beginning AUV
(a)$7.696 (a)$10.554 (a)$12.168 (a)$11.404 (a)$12.757 (a)$14.352 (a)$14.824 (a)$14.345 (a)$14.958 (a)$17.380 (a)$15.904
  (b)$7.586 (b)$10.226 (b)$11.712 (b)$10.906 (b)$12.121 (b)$12.361 (b)$13.933 (b)$13.395 (b)$13.878 (b)$16.021 (b)$14.564
Ending AUV
(a)$10.554 (a)$12.168 (a)$11.404 (a)$12.757 (a)$14.352 (a)$14.824 (a)$14.345 (a)$14.958 (a)$17.380 (a)$15.904 (a)$19.369
  (b)$10.226 (b)$11.712 (b)$10.906 (b)$12.121 (b)$12.361 (b)$13.933 (b)$13.395 (b)$13.878 (b)$16.021 (b)$14.564 (b)$17.622
Ending Number of AUs
(a)4,339,324 (a)3,525,214 (a)3,049,374 (a)2,539,157 (a)2,108,604 (a)1,859,018 (a)1,492,337 (a)1,246,426 (a)1,076,296 (a)851,246 (a)750,352
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
SA Allocation Moderate Growth Portfolio (Inception Date: 2/14/05)
Beginning AUV
(a)$8.094 (a)$10.633 (a)$11.995 (a)$11.572 (a)$12.720 (a)$13.854 (a)$14.247 (a)$13.805 (a)$14.383 (a)$16.332 (a)$15.148
  (b)$7.962 (b)$10.275 (b)$11.516 (b)$11.038 (b)$12.055 (b)$13.045 (b)$13.356 (b)$12.858 (b)$13.310 (b)$15.015 (b)$13.837
Ending AUV
(a)$10.633 (a)$11.995 (a)$11.572 (a)$12.720 (a)$13.854 (a)$14.247 (a)$13.805 (a)$14.383 (a)$16.332 (a)$15.148 (a)$18.016
  (b)$10.275 (b)$11.516 (b)$11.038 (b)$12.055 (b)$13.045 (b)$13.356 (b)$12.858 (b)$13.310 (b)$15.015 (b)$13.837 (b)$16.350
Ending Number of AUs
(a)13,903,229 (a)12,930,465 (a)11,486,647 (a)10,554,582 (a)8,154,995 (a)7,242,360 (a)6,368,175 (a)5,587,012 (a)4,585,791 (a)3,693,526 (a)3,220,533
  (b)24,292 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715 (b)27,715
 
SA Allocation Moderate Portfolio (Inception Date: 2/14/05)
Beginning AUV
(a)$8.498 (a)$10.943 (a)$12.209 (a)$11.955 (a)$13.017 (a)$13.968 (a)$14.355 (a)$13.924 (a)$14.496 (a)$16.194 (a)$15.176
  (b)$8.333 (b)$10.537 (b)$11.680 (b)$11.363 (b)$12.292 (b)$13.106 (b)$13.410 (b)$12.923 (b)$13.367 (b)$14.836 (b)$13.813
Ending AUV
(a)$10.943 (a)$12.209 (a)$11.955 (a)$13.017 (a)$13.968 (a)$14.355 (a)$13.924 (a)$14.496 (a)$16.194 (a)$15.176 (a)$17.770
  (b)$10.537 (b)$11.680 (b)$11.363 (b)$12.292 (b)$13.106 (b)$13.410 (b)$12.923 (b)$13.367 (b)$14.836 (b)$13.813 (b)$16.069
Ending Number of AUs
(a)6,134,679 (a)5,513,530 (a)4,914,155 (a)4,446,729 (a)3,600,305 (a)3,101,999 (a)2,591,951 (a)2,299,786 (a)1,985,902 (a)1,676,963 (a)1,324,039
  (b)4,969 (b)943 (b)1,461 (b)1,980 (b)1,509 (b)1,594 (b)1,949 (b)352 (b)0 (b)0 (b)0
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses (1.40%)
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-5

 

SEASONS STRATEGIES
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SEASONS SERIES TRUST — CLASS 3 SHARES
Balanced Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$14.087   (a)$18.050   (a)$19.923   (a)$20.517   (a)$22.174   (a)$24.277   (a)$25.707   (a)$25.981 (a)$26.622 (a)$30.772 (a)$29.335
  (b)$13.619   (b)$17.168   (b)$18.875   (b)$19.306   (b)$20.625   (b)$20.912   (b)$23.653   (b)$23.751 (b)$24.179 (b)$27.768 (b)$26.299
Ending AUV
(a)$18.050 (a)$19.923 (a)$20.517 (a)$22.174 (a)$24.277 (a)$25.707 (a)$25.981 (a)$26.622 (a)$30.772 (a)$29.335 (a)$34.322
  (b)$17.168 (b)$18.875 (b)$19.306 (b)$20.625 (b)$20.912 (b)$23.653 (b)$23.751 (b)$24.179 (b)$27.768 (b)$26.299 (b)$30.571
Ending Number of AUs
(a)1,819,225 (a)1,575,141 (a)1,311,138 (a)1,063,965 (a)885,957 (a)800,025 (a)669,008 (a)528,122 (a)389,944 (a)338,446 (a)304,295
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
Conservative Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$14.189 (a)$17.840 (a)$19.412 (a)$20.062 (a)$21.525 (a)$22.998 (a)$24.049 (a)$24.072 (a)$24.782 (a)$27.859 (a)$26.566
  (b)$13.727 (b)$16.803 (b)$18.082 (b)$18.190 (b)$18.758 (b)$18.944 (b)$20.732 (b)$20.617 (b)$21.088 (b)$23.554 (b)$22.314
Ending AUV
(a)$17.840 (a)$19.412 (a)$20.062 (a)$21.525 (a)$22.998 (a)$24.049 (a)$24.072 (a)$24.782 (a)$27.859 (a)$26.566 (a)$30.493
  (b)$16.803 (b)$18.082 (b)$18.190 (b)$18.758 (b)$18.944 (b)$20.732 (b)$20.617 (b)$21.088 (b)$23.554 (b)$22.314 (b)$25.446
Ending Number of AUs
(a)1,590,132 (a)1,356,982 (a)1,315,573 (a)1,041,998 (a)771,503 (a)663,828 (a)627,546 (a)419,986 (a)361,060 (a)310,732 (a)267,350
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$14.063 (a)$18.745 (a)$21.313 (a)$21.631 (a)$23.406 (a)$26.821 (a)$29.031 (a)$29.566 (a)$30.550 (a)$36.481 (a)$34.262
  (b)$13.522 (b)$17.786 (b)$20.153 (b)$20.253 (b)$21.551 (b)$22.013 (b)$26.443 (b)$26.755 (b)$27.467 (b)$32.588 (b)$30.406
Ending AUV
(a)$18.745 (a)$21.313 (a)$21.631 (a)$23.406 (a)$26.821 (a)$29.031 (a)$29.566 (a)$30.550 (a)$36.481 (a)$34.262 (a)$41.403
  (b)$17.786 (b)$20.153 (b)$20.253 (b)$21.551 (b)$22.013 (b)$26.443 (b)$26.755 (b)$27.467 (b)$32.588 (b)$30.406 (b)$36.506
Ending Number of AUs
(a)1,752,984 (a)1,600,941 (a)1,242,524 (a)1,062,900 (a)980,013 (a)834,956 (a)702,115 (a)581,100 (a)472,966 (a)399,016 (a)361,677
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
Moderate Growth (Inception Date: 11/17/03)
Beginning AUV
(a)$14.056 (a)$18.471 (a)$20.726 (a)$21.077 (a)$22.740 (a)$25.592 (a)$27.445 (a)$27.751 (a)$28.788 (a)$33.705 (a)$31.711
  (b)$13.561 (b)$17.571 (b)$19.644 (b)$19.798 (b)$21.028 (b)$21.417 (b)$25.105 (b)$25.220 (b)$25.994 (b)$30.237 (b)$28.263
Ending AUV
(a)$18.471 (a)$20.726 (a)$21.077 (a)$22.740 (a)$25.592 (a)$27.445 (a)$27.751 (a)$28.788 (a)$33.705 (a)$31.711 (a)$37.780
  (b)$17.571 (b)$19.644 (b)$19.798 (b)$21.028 (b)$21.417 (b)$25.105 (b)$25.220 (b)$25.994 (b)$30.237 (b)$28.263 (b)$33.453
Ending Number of AUs
(a)2,797,221 (a)2,487,770 (a)2,013,365 (a)1,704,450 (a)1,322,445 (a)1,187,188 (a)1,006,019 (a)853,504 (a)700,351 (a)582,869 (a)499,611
  (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0 (b)0
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses (1.40%)
(b) Reflecting maximum Separate Account Expense of the optional enhanced death benefit and EstatePlus for contracts issued on or after August 2, 2004 (1.80%)
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-6

 

SELECT PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SUNAMERICA SERIES TRUST — CLASS 2 SHARES†
SA DFA Ultra Short Bond Portfolio (Inception Date: 3/26/99)
Beginning AUV
(a)$11.185   (a)$11.001   (a)$10.801   (a)$10.597   (a)$10.400   (a)$10.210   (a)$10.086   (a)$9.857    (a)$9.697  (a)$9.616  (a)$9.611 
  (b)$10.949   (b)$10.741   (b)$10.520   (b)$10.296   (b)$10.079   (b)$9.870    (b)$9.734    (b)$9.837    (b)$9.653  (b)$9.548  (b)$9.519 
Ending AUV
(a)$11.001 (a)$10.801 (a)$10.597 (a)$10.400 (a)$10.210 (a)$10.086 (a)$9.857 (a)$9.697 (a)$9.616 (a)$9.611 (a)$9.681
  (b)$10.741 (b)$10.520 (b)$10.296 (b)$10.079 (b)$9.870 (b)$9.734 (b)$9.837 (b)$9.653 (b)$9.548 (b)$9.519 (b)$9.565
Ending Number of AUs
(a)965,233 (a)626,620 (a)397,793 (a)247,232 (a)199,928 (a)175,270 (a)149,297 (a)143,801 (a)132,814 (a)0 (a)137,247
  (b)1,451,060 (b)816,197 (b)721,584 (b)538,928 (b)419,759 (b)330,585 (b)271,240 (b)270,299 (b)230,635 (b)186,078 (b)175,078
 
SEASONS SERIES TRUST — CLASS 2 SHARES*
SA Multi-Managed Diversified Fixed Income (Inception Date: 3/10/99)
Beginning AUV
(a)$12.802 (a)$13.869 (a)$14.525 (a)$15.334 (a)$15.778 (a)$15.333 (a)$15.527 (a)$15.245 (a)$15.529 (a)$15.901 (a)$15.487
  (b)$12.531 (b)$13.542 (b)$14.147 (b)$14.897 (b)$15.290 (b)$14.822 (b)$14.984 (b)$14.676 (b)$14.912 (b)$15.231 (b)$14.797
Ending AUV
(a)$13.869 (a)$14.525 (a)$15.334 (a)$15.778 (a)$15.333 (a)$15.527 (a)$15.245 (a)$15.529 (a)$15.901 (a)$15.487 (a)$16.723
  (b)$13.542 (b)$14.147 (b)$14.897 (b)$15.290 (b)$14.822 (b)$14.984 (b)$14.676 (b)$14.912 (b)$15.231 (b)$14.797 (b)$15.939
Ending Number of AUs
(a)1,452,667 (a)1,017,191 (a)777,308 (a)599,088 (a)484,346 (a)418,651 (a)366,839 (a)280,089 (a)251,454 (a)209,194 (a)190,956
  (b)2,866,380 (b)2,272,862 (b)1,966,989 (b)1,699,400 (b)1,438,012 (b)1,360,084 (b)1,135,599 (b)978,569 (b)871,149 (b)639,638 (b)599,014
 
SA Multi-Managed International Equity (Inception Date: 3/01/99)
Beginning AUV
(a)$7.028 (a)$9.309 (a)$10.901 (a)$9.389 (a)$10.602 (a)$11.571 (a)$10.723 (a)$10.256 (a)$10.084 (a)$12.591 (a)$10.626
  (b)$6.892 (b)$9.106 (b)$10.637 (b)$9.139 (b)$10.293 (b)$11.207 (b)$10.368 (b)$9.891 (b)$9.701 (b)$12.083 (b)$10.172
Ending AUV
(a)$9.309 (a)$10.901 (a)$9.389 (a)$10.602 (a)$11.571 (a)$10.723 (a)$10.256 (a)$10.084 (a)$12.591 (a)$10.626 (a)$12.838
  (b)$9.106 (b)$10.637 (b)$9.139 (b)$10.293 (b)$11.207 (b)$10.368 (b)$9.891 (b)$9.701 (b)$12.083 (b)$10.172 (b)$12.258
Ending Number of AUs
(a)1,196,850 (a)798,153 (a)635,033 (a)465,374 (a)402,742 (a)350,882 (a)297,430 (a)243,718 (a)252,012 (a)205,769 (a)186,806
  (b)2,558,905 (b)2,041,775 (b)1,635,690 (b)1,325,335 (b)1,235,523 (b)1,171,140 (b)1,099,856 (b)919,493 (b)860,247 (b)748,851 (b)715,425
 
SA Multi-Managed Large Cap Growth (Inception Date: 3/01/99)
Beginning AUV
(a)$7.086 (a)$9.415 (a)$10.628 (a)$11.098 (a)$12.306 (a)$14.516 (a)$16.245 (a)$16.726 (a)$16.983 (a)$21.353 (a)$20.663
  (b)$6.936 (b)$9.193 (b)$10.351 (b)$10.782 (b)$11.926 (b)$14.032 (b)$15.677 (b)$16.101 (b)$16.307 (b)$20.453 (b)$19.742
Ending AUV
(a)$9.415 (a)$10.628 (a)$11.098 (a)$12.306 (a)$14.516 (a)$16.245 (a)$16.726 (a)$16.983 (a)$21.353 (a)$20.663 (a)$26.550
  (b)$9.193 (b)$10.351 (b)$10.782 (b)$11.926 (b)$14.032 (b)$15.677 (b)$16.101 (b)$16.307 (b)$20.453 (b)$19.742 (b)$25.304
Ending Number of AUs
(a)1,046,003 (a)1,071,878 (a)759,843 (a)572,655 (a)459,689 (a)406,820 (a)359,074 (a)295,629 (a)257,566 (a)226,677 (a)182,986
  (b)2,495,735 (b)2,624,981 (b)1,972,060 (b)1,657,601 (b)1,421,118 (b)1,322,528 (b)1,179,861 (b)1,006,160 (b)945,006 (b)771,909 (b)708,304
 
SA Multi-Managed Large Cap Value (Inception Date: 3/01/99)
Beginning AUV
(a)$9.874 (a)$13.908 (a)$15.704 (a)$15.466 (a)$18.099 (a)$21.027 (a)$22.263 (a)$20.861 (a)$23.637 (a)$26.606 (a)$23.648
  (b)$9.666 (b)$13.580 (b)$15.296 (b)$15.027 (b)$17.541 (b)$20.328 (b)$21.487 (b)$20.083 (b)$22.699 (b)$25.486 (b)$22.596
Ending AUV
(a)$13.908 (a)$15.704 (a)$15.466 (a)$18.099 (a)$21.027 (a)$22.263 (a)$20.861 (a)$23.637 (a)$26.606 (a)$23.648 (a)$29.979
  (b)$13.580 (b)$15.296 (b)$15.027 (b)$17.541 (b)$20.328 (b)$21.487 (b)$20.083 (b)$22.699 (b)$25.486 (b)$22.596 (b)$28.574
Ending Number of AUs
(a)914,433 (a)683,291 (a)500,481 (a)380,668 (a)319,995 (a)293,286 (a)212,790 (a)174,235 (a)150,490 (a)133,058 (a)100,577
  (b)1,975,699 (b)1,661,515 (b)1,354,227 (b)1,138,377 (b)1,030,033 (b)943,619 (b)803,461 (b)710,700 (b)641,039 (b)545,862 (b)496,520
 
SA Multi-Managed Mid Cap Growth (Inception Date: 3/01/99)
Beginning AUV
(a)$12.468 (a)$17.977 (a)$22.629 (a)$21.703 (a)$24.123 (a)$28.285 (a)$31.015 (a)$30.648 (a)$31.618 (a)$39.325 (a)$37.345
  (b)$12.206 (b)$17.554 (b)$22.042 (b)$21.087 (b)$23.380 (b)$27.345 (b)$29.934 (b)$29.506 (b)$30.365 (b)$37.672 (b)$35.685
Ending AUV
(a)$17.977 (a)$22.629 (a)$21.703 (a)$24.123 (a)$28.285 (a)$31.015 (a)$30.648 (a)$31.618 (a)$39.325 (a)$37.345 (a)$50.084
  (b)$17.554 (b)$22.042 (b)$21.087 (b)$23.380 (b)$27.345 (b)$29.934 (b)$29.506 (b)$30.365 (b)$37.672 (b)$35.685 (b)$47.738
Ending Number of AUs
(a)565,741 (a)435,739 (a)308,040 (a)204,652 (a)162,925 (a)143,301 (a)123,267 (a)104,068 (a)93,257 (a)77,991 (a)68,207
  (b)1,240,865 (b)1,029,352 (b)834,462 (b)690,049 (b)606,824 (b)544,674 (b)471,850 (b)421,753 (b)389,838 (b)342,557 (b)313,568
 
SA Multi-Managed Mid Cap Value (Inception Date: 3/01/99)
Beginning AUV
(a)$15.209 (a)$22.303 (a)$26.535 (a)$25.239 (a)$29.779 (a)$35.187 (a)$37.757 (a)$35.020 (a)$40.010 (a)$44.482 (a)$38.624
  (b)$14.887 (b)$21.777 (b)$25.844 (b)$24.520 (b)$28.860 (b)$34.015 (b)$36.438 (b)$33.713 (b)$38.420 (b)$42.608 (b)$36.904
Ending AUV
(a)$22.303 (a)$26.535 (a)$25.239 (a)$29.779 (a)$35.187 (a)$37.757 (a)$35.020 (a)$40.010 (a)$44.482 (a)$38.624 (a)$47.669
  (b)$21.777 (b)$25.844 (b)$24.520 (b)$28.860 (b)$34.015 (b)$36.438 (b)$33.713 (b)$38.420 (b)$42.608 (b)$36.904 (b)$45.433
Ending Number of AUs
(a)484,246 (a)392,002 (a)296,779 (a)229,990 (a)185,375 (a)169,966 (a)143,058 (a)122,049 (a)104,390 (a)92,779 (a)75,924
  (b)1,173,234 (b)1,016,522 (b)805,441 (b)680,124 (b)604,617 (b)545,455 (b)471,709 (b)411,799 (b)365,598 (b)325,163 (b)300,562
 
SA Multi-Managed Small Cap (Inception Date: 3/01/99)
Beginning AUV
(a)$7.990 (a)$11.744 (a)$14.106 (a)$13.284 (a)$14.523 (a)$17.389 (a)$18.326 (a)$17.024 (a)$19.937 (a)$21.691 (a)$18.886
  (b)$7.822 (b)$11.467 (b)$13.739 (b)$12.906 (b)$14.075 (b)$16.810 (b)$17.686 (b)$16.389 (b)$19.145 (b)$20.777 (b)$18.046
Ending AUV
(a)$11.744 (a)$14.106 (a)$13.284 (a)$14.523 (a)$17.389 (a)$18.326 (a)$17.024 (a)$19.937 (a)$21.691 (a)$18.886 (a)$23.161
  (b)$11.467 (b)$13.739 (b)$12.906 (b)$14.075 (b)$16.810 (b)$17.686 (b)$16.389 (b)$19.145 (b)$20.777 (b)$18.046 (b)$22.075
Ending Number of AUs
(a)732,913 (a)578,676 (a)467,143 (a)364,265 (a)288,793 (a)258,101 (a)203,488 (a)174,040 (a)136,244 (a)111,025 (a)105,878
  (b)1,483,200 (b)1,158,520 (b)945,377 (b)775,828 (b)672,050 (b)593,439 (b)514,266 (b)482,586 (b)449,133 (b)386,360 (b)357,044
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses
(b) Reflecting maximum Separate Account expenses with election of the optional enhanced death benefit and EstatePlus for contracts issued before August 2, 2004 (1.65%)
† If you purchased your contract on or before November 17, 2003, Class 2 Shares (0.15% 12b-1 fees) of SunAmerica Series Trust are offered in your contract, instead of Class 3 Shares for the Ultra Short Bond Portfolio.
* If you purchased your contract on or before November 17, 2003, Class 2 Shares (0.15% 12b-1 fees) of Seasons Series Trust are offered in your contract, instead of Class 3 Shares for all Variable Portfolios except the Managed Allocation Portfolios and the Real Return Portfolio, which are only offered as Class 3 Shares of Seasons Series Trust (0.25% 12b-1 fees).
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-7

 

FOCUSED PORTFOLIOS
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SUNAMERICA SERIES TRUST — CLASS 2 SHARES**
SA AB Growth (Inception Date: 10/19/18)
Beginning AUV
(a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A    (a)N/A      (a)$8.937   
  (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A    (b)N/A      (b)$8.932   
Ending AUV
(a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)$8.937 (a)$11.869
  (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)$8.932 (b)$11.832
Ending Number of AUs
(a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)N/A (a)724,185 (a)667,466
  (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)N/A (b)1,688,332 (b)1,522,097
 
SEASONS SERIES TRUST — CLASS 2 SHARES**
SA Columbia Focused Value (Inception Date: 10/04/01)
Beginning AUV
(a)$12.288 (a)$16.316 (a)$18.468 (a)$16.600 (a)$18.773 (a)$22.137 (a)$24.144 (a)$22.841 (a)$26.835 (a)$32.155 (a)$27.884
  (b)$12.059 (b)$15.972 (b)$18.034 (b)$16.169 (b)$18.240 (b)$21.455 (b)$23.361 (b)$22.045 (b)$25.835 (b)$30.881 (b)$26.711
Ending AUV
(a)$16.316 (a)$18.468 (a)$16.600 (a)$18.773 (a)$22.137 (a)$24.144 (a)$22.841 (a)$26.835 (a)$32.155 (a)$27.884 (a)$34.803
  (b)$15.972 (b)$18.034 (b)$16.169 (b)$18.240 (b)$21.455 (b)$23.361 (b)$22.045 (b)$25.835 (b)$30.881 (b)$26.711 (b)$33.256
Ending Number of AUs
(a)611,248 (a)473,087 (a)348,429 (a)249,670 (a)210,393 (a)189,426 (a)157,706 (a)151,547 (a)126,418 (a)114,314 (a)101,103
  (b)999,193 (b)782,521 (b)642,295 (b)537,137 (b)452,079 (b)395,600 (b)360,829 (b)298,564 (b)277,655 (b)253,416 (b)248,963
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses
(b) Reflecting maximum Separate Account expenses with election of the optional enhanced death benefit and EstatePlus for contracts issued before August 2, 2004 (1.65%)
** If you purchased your contract on or before November 17, 2003, Class 2 Shares (0.15% 12b-1 fees) of SunAmerica and Seasons Series Trust are offered in your contract, instead of Class 3 Shares for all Variable Portfolios except the Managed Allocation Portfolios and the Real Return Portfolio, which are only offered as Class 3 Shares of Seasons Series Trust (0.25% 12b-1 fees).
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-8

 

SEASONS STRATEGIES
Variable Portfolio Fiscal
Year
Ended
4/30/10 		Fiscal
Year
Ended
4/30/11 		Fiscal
Year
Ended
4/30/12 		Fiscal
Year
Ended
4/30/13 		Fiscal
Year
Ended
4/30/14 		8 Months
Ended
12/31/14 		Fiscal
Year
Ended
12/31/15 		Fiscal
Year
Ended
12/31/16 		Fiscal
Year
Ended
12/31/17 		Fiscal
Year
Ended
12/31/18 		Fiscal
Year
Ended
12/31/19
SEASONS SERIES TRUST — CLASS 2 SHARES*
Balanced Growth (Inception Date: 4/15/97)
Beginning AUV
(a)$14.162   (a)$18.164   (a)$20.069   (a)$20.688   (a)$22.381   (a)$24.528   (a)$25.989   (a)$26.293   (a)$26.969   (a)$31.203   (a)$29.770  
  (b)$13.865   (b)$17.739   (b)$19.550   (b)$20.103   (b)$21.694   (b)$23.716   (b)$25.087   (b)$25.317   (b)$25.903   (b)$29.895   (b)$28.451  
Ending AUV
(a)$18.164 (a)$20.069 (a)$20.688 (a)$22.381 (a)$24.528 (a)$25.989 (a)$26.293 (a)$26.969 (a)$31.203 (a)$29.770 (a)$34.871
  (b)$17.739 (b)$19.550 (b)$20.103 (b)$21.694 (b)$23.716 (b)$25.087 (b)$25.317 (b)$25.903 (b)$29.895 (b)$28.451 (b)$33.242
Ending Number of AUs
(a)2,157,185 (a)1,695,485 (a)1,311,196 (a)1,074,328 (a)801,415 (a)735,112 (a)621,275 (a)527,292 (a)471,540 (a)383,254 (a)351,908
  (b)4,036,502 (b)3,286,767 (b)2,769,737 (b)2,400,245 (b)2,018,496 (b)1,909,908 (b)1,690,938 (b)1,469,299 (b)1,226,283 (b)1,057,894 (b)967,978
 
Conservative Growth (Inception Date: 4/15/97)
Beginning AUV
(a)$14.272 (a)$17.962 (a)$19.564 (a)$20.241 (a)$21.738 (a)$23.247 (a)$24.327 (a)$24.375 (a)$25.118 (a)$28.265 (a)$26.987
  (b)$13.964 (b)$17.530 (b)$19.047 (b)$19.657 (b)$21.058 (b)$22.464 (b)$23.468 (b)$23.455 (b)$24.110 (b)$27.063 (b)$25.774
Ending AUV
(a)$17.962 (a)$19.564 (a)$20.241 (a)$21.738 (a)$23.247 (a)$24.327 (a)$24.375 (a)$25.118 (a)$28.265 (a)$26.987 (a)$30.987
  (b)$17.530 (b)$19.047 (b)$19.657 (b)$21.058 (b)$22.464 (b)$23.468 (b)$23.455 (b)$24.110 (b)$27.063 (b)$25.774 (b)$29.520
Ending Number of AUs
(a)1,679,672 (a)1,259,648 (a)1,084,493 (a)829,142 (a)589,045 (a)557,574 (a)470,468 (a)407,971 (a)350,593 (a)301,464 (a)252,551
  (b)3,056,024 (b)2,529,210 (b)2,192,095 (b)1,848,360 (b)1,633,338 (b)1,530,763 (b)1,373,409 (b)1,236,824 (b)1,086,574 (b)977,188 (b)865,305
 
Growth (Inception Date: 4/15/97)
Beginning AUV
(a)$14.134 (a)$18.859 (a)$21.464 (a)$21.807 (a)$23.619 (a)$27.093 (a)$29.345 (a)$29.915 (a)$30.941 (a)$36.983 (a)$34.771
  (b)$13.837 (b)$18.417 (b)$20.908 (b)$21.189 (b)$22.892 (b)$26.194 (b)$28.324 (b)$28.802 (b)$29.716 (b)$35.430 (b)$33.226
Ending AUV
(a)$18.859 (a)$21.464 (a)$21.807 (a)$23.619 (a)$27.093 (a)$29.345 (a)$29.915 (a)$30.941 (a)$36.983 (a)$34.771 (a)$42.066
  (b)$18.417 (b)$20.908 (b)$21.189 (b)$22.892 (b)$26.194 (b)$28.324 (b)$28.802 (b)$29.716 (b)$35.430 (b)$33.226 (b)$40.097
Ending Number of AUs
(a)1,177,447 (a)867,104 (a)707,107 (a)528,767 (a)457,129 (a)404,049 (a)349,412 (a)315,015 (a)253,410 (a)215,412 (a)194,837
  (b)2,204,234 (b)1,760,902 (b)1,418,343 (b)1,208,182 (b)1,046,939 (b)976,102 (b)902,148 (b)772,858 (b)696,348 (b)617,041 (b)537,426
 
Moderate Growth (Inception Date: 4/15/97)
Beginning AUV
(a)$14.124 (a)$18.579 (a)$20.868 (a)$21.244 (a)$22.943 (a)$25.845 (a)$27.735 (a)$28.073 (a)$29.151 (a)$34.163 (a)$32.174
  (b)$13.827 (b)$18.143 (b)$20.327 (b)$20.641 (b)$22.236 (b)$24.987 (b)$26.769 (b)$27.027 (b)$27.996 (b)$32.728 (b)$30.745
Ending AUV
(a)$18.579 (a)$20.868 (a)$21.244 (a)$22.943 (a)$25.845 (a)$27.735 (a)$28.073 (a)$29.151 (a)$34.163 (a)$32.174 (a)$38.371
  (b)$18.143 (b)$20.327 (b)$20.641 (b)$22.236 (b)$24.987 (b)$26.769 (b)$27.027 (b)$27.996 (b)$32.728 (b)$30.745 (b)$36.575
Ending Number of AUs
(a)2,354,172 (a)1,718,124 (a)1,331,052 (a)995,662 (a)852,133 (a)749,732 (a)668,824 (a)547,197 (a)492,417 (a)418,594 (a)359,864
  (b)5,176,424 (b)3,850,959 (b)3,124,656 (b)2,554,616 (b)2,337,912 (b)2,166,847 (b)1,966,175 (b)1,673,272 (b)1,507,162 (b)1,384,479 (b)1,253,963
 
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Reflecting minimum Separate Account expenses
(b) Reflecting maximum Separate Account expenses with election of the optional enhanced death benefit and EstatePlus for contracts issued before August 2, 2004 (1.65%)
* If you purchased your contract on or before November 17, 2003, Class 2 Shares (0.15% 12b-1 fees) of Seasons Series Trust are offered in your contract, instead of Class 3 Shares for all Variable Portfolios except the Managed Allocation Portfolios and the Real Return Portfolio, which are only offered as Class 3 Shares of Seasons Series Trust (0.25% 12b-1 fees).
Effective December 31, 2014, the Separate Account has changed its fiscal year end from April 30 to December 31.
A-9

 

Appendix B – Death Benefits following Spousal Continuation
  
The following details the standard and Maximum Anniversary Value death benefits, and the EstatePlus death benefit payable upon the Continuing Spouse’s death. The death benefit we will pay to the new Beneficiary chosen by the Continuing Spouse varies depending on the death benefit option elected by the original Owner of the contract, whether Living Benefits were elected, the age of the Continuing Spouse as of the Continuation Date and the Continuing Spouse’s date of death.
Capitalized terms used in this Appendix have the same meaning as they have in the prospectus.
We define “Continuation Net Purchase Payments” as Net Purchase Payments made on or after the Continuation Date. For the purpose of calculating Continuation Net Purchase Payments, the amount that equals the contract value on the Continuation Date, including the Continuation Contribution, is considered a Purchase Payment. We define “Continuation Purchase Payments” as Purchase Payments made on or after the Continuation Date.
The term “withdrawals” as used in describing the death benefits is defined as withdrawals and the fees and charges applicable to those withdrawals.
The term “Withdrawal Adjustment” is used, if a Living Benefit had been elected, in describing the way in which the amount of the death benefit will be adjusted for withdrawals depending on when the Continuing Spouse takes a withdrawal and the amount of the withdrawal. If cumulative withdrawals for the current contract year are taken prior to the Continuing Spouse’s 81st birthday and are less than or equal to the Maximum Annual Withdrawal Amount, the amount of adjustment will equal the amount of each withdrawal. If a withdrawal is taken prior to the Continuing Spouse’s 81st birthday and cumulative withdrawals for the current contract year are in excess of the Maximum Annual Withdrawal Amount, the contract value and the death benefit are first reduced by the Maximum Annual Withdrawal Amount. The resulting death benefit is further adjusted by the withdrawal amount in excess of the Maximum Annual Withdrawal Amount by the percentage by which the excess withdrawal reduced the resulting contract value. If a withdrawal is taken on or after the Continuing Spouse’s 81st birthday, the amount of adjustment is determined by the percentage by which the withdrawal reduced the contract value.
The Company will not accept Purchase Payments from anyone age 86 or older. Therefore, the death benefit calculations described below assume that no Purchase Payments are received on or after the Continuing Spouse’s 86th birthday.
The standard death benefit and the optional Maximum Anniversary Value death benefit are calculated differently depending on whether the original Owner had elected one of the Living Benefits, described above.
We will not accept subsequent Purchase Payments on or after the 5th contract anniversary from your contract issue date if you have elected a Living Benefit feature.
The following is a description of the standard death benefit option following Spousal Continuation for contracts issued between August 2, 2004 and December 28, 2006.
If the original Owner of the contract elected the standard death benefit and the Continuing Spouse is age 82 or younger on the Continuation Date, then upon the death of the Continuing Spouse, the death benefit will be the greater of:
a. Contract value; or
b. Contract value on the Continuation Date plus any Continuation Net Purchase Payments received prior to the Continuing Spouse’s 86th birthday.
If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be greater of:
a. Contract value; or
b. The lesser of:
(1) Contract value on the Continuation Date plus Continuation Net Purchase Payments received prior to the Continuing Spouse’s 86th birthday; or
(2) 125% of the contract value.
If the Continuing Spouse is age 86 and older on the Continuation Date, the death benefit is equal to the contract value.
The following is a description of the standard death benefit option following Spousal Continuation for contracts issued between October 16, 2000 and August 2, 2004.
If the Standard Death Benefit is applicable upon the Continuing Spouse’s death and the Continuing Spouse is age 74 or younger at the time of death, we will pay the Beneficiary the greater of:
1. Contract value; or
2. Continuation Net Purchase Payments compounded at a 3% annual growth rate until the date of death, plus any Continuation Net Purchase Payments recorded after the date of death.
If the Continuing Spouse is age 75 or older at the time of death, the Standard Death Benefit is the greater of:
1. Contract value; or
2. Continuation Net Purchase Payments compounded at a 3% annual growth until the Continuing Spouse’s 75th birthday, plus any Continuation Net Purchase Payments recorded after age 75 until the date of death.
 
B-1

 

The following is a description of the Maximum Anniversary Value death benefit option following Spousal Continuation for contracts issued between August 2, 2004 and December 28, 2006.
If the Continuing Spouse is age 82 or younger on the Continuation Date, the death benefit will be the greatest of:
a. Contract value; or
b. Continuation Net Purchase Payments; or
c. Maximum anniversary value on any contract anniversary that occurred after the Continuation Date, but prior to the Continuing Spouse’s 83rd birthday. The anniversary value for any year is equal to the contract value on the applicable contract anniversary date after the Continuation Date, reduced for withdrawals since that contract anniversary in the same proportion that the contract value was reduced on the date of such withdrawal, and adjusted for any Continuation Purchase Payments received since that anniversary date.
If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be the Standard Death Benefit described above and the fee for the Maximum Anniversary Value option will no longer be deducted as of the Continuation Date.
If the Continuing Spouse is age 86 and older on the Continuation Date, the death benefit is equal to contract value and the fee for the Maximum Anniversary Value option will no longer be deducted as of the Continuation Date.
If your contract was issued between August 2, 2004 and December 28, 2006, and if the Continuing Spouse is age 90 or older at the time of death, the death benefit is equal to contract value.
The following is a description of the Maximum Anniversary Value death benefit option following Spousal Continuation for contracts issued between October 16, 2000 and August 2, 2004.
If the Maximum Anniversary Value option is selected and if the Continuing Spouse is younger than age 90 at the time of death and a Continuation Contribution was made, the death benefit is the greater of:
1. Contract value; or
2. Continuation Net Purchase Payments; or
3. Maximum anniversary value on any contract anniversary occurring after the Continuation Date but prior to the Continuing Spouse’s 81st birthday. The anniversary value equals the value on the contract anniversary plus any Continuation Purchase Payments recorded after that anniversary; and reduced for any withdrawals (and fees and charges
  applicable to those withdrawals) recorded after that anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal.
If the Maximum Anniversary Value option is selected and no Continuation Contribution was made the death benefit is the greater of:
1. Contract value; or
2. Net Purchase Payments; or
3. Maximum anniversary value on any contract anniversary occurring after the issue date but before the Continuing Spouse’s 81st birthday. The anniversary value equals the value on the contract anniversary plus any Purchase Payments recorded after that anniversary; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after that anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal.
If the Continuing Spouse is age 90 or older at the time of death and the Maximum Anniversary Value option applied, the death benefit will be equal to the contract value at the time we receive all required paperwork and satisfactory proof of death. The Continuing Spouse’s Beneficiary will not receive any benefit from the optional enhanced death benefit. However, the Continuing Spouse’s Beneficiary may still receive a benefit from Earnings Advantage if the date of death is prior to the Latest Annuity Date.
The following is a description of the Purchase Payment Accumulation death benefit option for contracts issued between August 2, 2004 and December 28, 2006.
If the Continuing Spouse is age 74 or younger on the Continuation Date, the death benefit will be the greatest of:
1. Contract value; or
2. Contract value on the Continuation Date plus Continuation Net Purchase Payments, compounded at 3% annual growth rate, to the earlier of the Continuing Spouse’s 75th birthday or date of death; plus any Continuation Net Purchase Payment received after the Continuing Spouse’s 75th birthday to the earlier of the Continuing Spouse’s 86th birthday or date of death; or
3. Contract value on the seventh contract anniversary, reduced for withdrawals since the seventh contract anniversary in the same proportion that the contract value was reduced on the date of each such withdrawal that occurs after the seventh contract anniversary, plus Continuation Net Purchase Payments received between the seventh contract anniversary date but prior to the Continuing Spouse’s 86th birthday.
B-2

 

If the Continuing Spouse is age 75-82 on the Continuation Date and the Continuing Spouse dies prior to his/her 86th birthday, then the death benefit will be the greatest of:
1. Contract value; or
2. Contract value on the Continuation Date plus any Continuation Net Purchase Payments received prior to the Continuing Spouse’s 86th birthday; or
3. Maximum anniversary value on any contract anniversary that occurred after the Continuation Date, but prior to the Continuing Spouse’s 83rd birthday. The anniversary value for any year is equal to the contract value on the applicable contract anniversary date, plus any Continuation Net Purchase Payments received since that anniversary date but prior to the Continuing Spouse’s 86th birthday, and reduced for any Gross Withdrawals since that contract anniversary in the same proportion that the withdrawal reduced the contract value on the date of such withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be the Standard Death Benefit described above and the fee for the Purchase Payment Accumulation option will no longer be deducted as of the Continuation Date. If the Continuing Spouse is age 86 or older on the Continuation Date, the death benefit is equal to the contract value.
The following is a description of the 5% Accumulation death benefit option for contracts issued prior to August 2, 2004.
If the 5% Accumulation option is selected and a Continuation Contribution was made the death benefit is the greater of:
1. Contract value; or
2. Continuation Net Purchase Payments made from the Continuation Date including the Continuation Contribution, compounded to the earlier of the Continuing Spouse’s 80th birthday or the date of death at a 5% annual growth rate, plus any Continuation Purchase Payments recorded after the 80th birthday or the date of death; and reduced for any withdrawals recorded after the 80th birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum benefit of two times the Continuation Net Purchase Payments.
If 5% Accumulation option is selected and no Continuation Contribution was made:
1. Contract value; or
2. Net Purchase Payments made from the date of issue compounded to the earlier of the Continuing Spouse’s 80th birthday or the date of death at a 5% annual growth rate, plus any Continuation Purchase Payments recorded after the 80th birthday or the date of death; and reduced for any withdrawals
recorded after the 80th birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum of two times the Continuation Net Purchase Payments.
If the Continuing Spouse dies after the Latest Annuity Date and the 5% Accumulation option applied, any death benefit payable under the contract will be the Standard Death Benefit as described above. The Continuing Spouse’s Beneficiary will not receive any benefit from the 5% Accumulation option.
C.    The EstatePlus Benefit Payable Upon Continuing
        Spouse’s Death:
The EstatePlus (“Earnings Advantage” for contracts issued prior to August 2, 2004) benefit is only available if the original Owner elected EstatePlus and the Continuing Spouse is age 80 or younger on the Continuation Date. EstatePlus benefit is not payable after the Latest Annuity Date.
If the Continuing Spouse had earnings in the contract at the time of his/her death, we will add a percentage of those earnings (the “EstatePlus Percentage” or “Earnings Advantage Percentage” for contracts issued prior to August 2, 2004), subject to a maximum dollar amount (the “Maximum EstatePlus Percentage” or “Maximum Earnings Advantage Percentage” for contracts issued prior to August 2, 2004), to the death benefit payable. The contract year of death will determine the EstatePlus Percentage and the Maximum EstatePlus Benefit. The EstatePlus benefit, if any, is added to the death benefit payable under the Maximum Anniversary Value or Purchase Payment Accumulation death benefit options.
On the Continuation Date, if the Continuing Spouse is 69 or younger, the table below shows the available EstatePlus benefit:
Contract Year
of Death 		EstatePlus
Percentage 		Maximum
EstatePlus Benefit
Years 0-4 25% of Earnings 40% of Continuation Net Purchase Payments* (25% for contracts issued prior to 8/2/04)
Years 5-9 40% of Earnings 65% of Continuation Net Purchase Payments* (40% for contracts issued prior to 8/2/04)
Years 10+ 50% of Earnings 75% of Continuation Net Purchase Payments* (50% for contracts issued prior to 8/2/04)
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On the Continuation Date, if the Continuing Spouse is between his/her 70th and 81st birthdays, table below shows the available EstatePlus benefit:
Contract Year
of Death 		EstatePlus
Percentage 		Maximum
EstatePlus Benefit
All Contract Years 25% of Earnings 40% of Continuation Net Purchase Payments*
* Purchase Payments received after the 5th anniversary of the Continuation Date must remain in the contract for at least 6 full months to be included as part of the Continuation Net Purchase Payments for the purpose of the Maximum EstatePlus Benefit calculation.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12-month periods starting on the Continuation Date and ending on the Continuing Spouse’s date of death. The Contract Year of Death is used to determine the EstatePlus Percentage and Maximum EstatePlus benefit as indicated in the tables above.
What is the EstatePlus benefit?
We determine the EstatePlus benefit using the EstatePlus Percentage, as indicated in the tables above, which is a specified percentage of the earnings in the contract at the time of the Continuing Spouse’s death. For the purpose of this calculation, earnings equals (1) minus (2) where
(1) equals the contract value on the Continuing Spouse’s date of death;
(2) equals the Continuation Net Purchase Payment(s).
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum EstatePlus benefit is equal to a specified percentage of the Continuation Net Purchase Payments, as indicated in the tables above.
We reserve the right to modify, suspend or terminate the Spousal Continuation provision (in its entirety or any component) at any time with respect to prospectively issued contracts.
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Appendix C – State Contract Availability and/or Variability
  
PROSPECTUS PROVISION AVAILABILITY OR VARIATION STATES
Administration Charge Contract Maintenance Fee is $30. North Dakota
Administration Charge Charge will be deducted pro-rata from Variable Portfolios only. Washington
Annuity Date You may switch to the Income Phase any time after your first contract anniversary. Florida
Death Benefits The standard death benefit is only available to contract owners or continuing spouses who are age 82 and younger. Washington
Death Benefits The and EstatePlus death benefit is not available. Washington
Death Benefits Upon Spousal Continuation If you continue your contract on or after your 83rd birthday, the death benefit is equal to contract value. Washington
MarketLock
MarketLock For Two 		Charge will be deducted pro-rata from Variable Portfolios only. Oregon
Texas
Washington
Premium Tax We deduct premium tax charges of 0.50% for Qualified contracts and 2.35% for Non-Qualified contracts based on contract value when you begin the Income Phase. California
Premium Tax We deduct premium tax charges of 0% for Qualified contracts and 2.0% for Non-Qualified contracts based on total Purchase Payments when you begin the Income Phase. Maine
Premium Tax We deduct premium tax charges of 0% for Qualified contracts and 3.5% for Non-Qualified contracts based on contract value when you begin the Income Phase. Nevada
Premium Tax For the first $500,000 in the contract, we deduct premium tax charges of 0% for Qualified contracts and 1.25% for Non-Qualified contracts based on total Purchase Payments when you begin the Income Phase. For any amount in excess of $500,000 in the contract, we deduct front-end premium tax charges of 0% for Qualified contracts and 0.08% for Non-Qualified contracts based on total Purchase Payments when you begin the Income Phase. South Dakota
Premium Tax We deduct premium tax charges of 1.0% for Qualified contracts and 1.0% for Non-Qualified contracts based on contract value when you begin the Income Phase. West Virginia
Premium Tax We deduct premium tax charges of 0% for Qualified contracts and 1.0% for Non-Qualified contracts based on total Purchase Payments when you begin the Income Phase. Wyoming
Seasons Income Rewards
Season Promise 		Charge will be deducted pro-rata from Variable Portfolios only. Washington
Systematic Withdrawal Minimum withdrawal amount is $250 per withdrawal or the penalty free withdrawal amount. Minnesota
Oregon
Transfer Privilege Any transfer over the limit of 15 will incur a $10 transfer fee. Pennsylvania
Texas
Withdrawal Charge Schedule For contracts issued prior to November 17, 2003, the withdrawal charge schedule is as follows: 6%, 5%, 4%, 3%, 2%, 1%, 0%. This schedule only applies if you elected a DCA Fixed Account. Oregon
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Appendix D – The Guarantee for Contracts Issued Prior to December 29, 2006
  
GUARANTEE OF INSURANCE OBLIGATIONS
The Company’s insurance policy obligations for individual and group contracts issued by SunAmerica Annuity prior to December 29, 2006 at 4:00 p.m. Eastern Time, are guaranteed (the “Guarantee”) by American Home Assurance Company (“American Home” or “Guarantor”).
As of December 29, 2006 at 4:00 p.m. Eastern Time (the “Point of Termination”), the Guarantee by American Home was terminated for prospectively issued contracts. The Guarantee will not cover any contracts or certificates with a date of issue later than the Point of Termination. The Guarantee will continue to cover individual contracts, individual certificates and group unallocated contracts with a date of issue earlier than the Point of Termination until all insurance obligations under such contracts or certificates are satisfied in full. Insurance obligations include, without limitation, contract value invested in any available Fixed Accounts, death benefits, Living Benefits and annuity income options. The Guarantee does not guarantee contract value or the investment performance of the Variable Portfolios available under the contracts. The Guarantee provides that individual contract owners, individual certificate holders and group unallocated contract owners with a date of issue earlier than the Point of Termination can enforce the Guarantee directly.
Guarantees for contracts and certificates issued prior to the Merger will continue after the Merger. As a result, the Merger of SunAmerica Annuity into AGL will not impact the insurance obligations under the Guarantee. Please see THE COMPANY above for more details regarding the Merger.
American Home is a stock property-casualty insurance company incorporated under the laws of the State of New York on February 7, 1899. American Home’s principal executive office is located at 175 Water Street, New York, New York 10038. American Home is licensed in all 50 states of the United States and the District of Columbia, as well as certain foreign jurisdictions, and engages in a broad range of insurance and reinsurance activities. American Home, an affiliate of the Company, is an indirect wholly owned subsidiary of American International Group, Inc.
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Appendix E – Strategic Allocation Program for Contracts Issued Prior to February 6, 2017
  
Effective on February 6, 2017, we will no longer offer the Strategic Allocation Program and we will no longer update the Strategic Allocation Program.
If you are currently invested in a Strategic Allocation, you will remain invested in the same Variable Portfolios and in the same amounts and weights as before the Strategic Allocation Program was terminated; however, the investment will no longer be considered to be a Strategic Allocation and you may no longer trade into a Strategic Allocation. Any active asset rebalancing or dollar cost averaging programs will continue according to your current allocations on file.
Allocations (effective February 6, 2017)
Variable Portfolios Allocation 1 Allocation 2 Allocation 3
Fidelity VIP Contrafund 0.99% 1.32% 1.98%
Fidelity VIP Equity-Income 2.64% 2.97% 3.30%
Fidelity VIP Investment Grade Bond 15.51% 10.56% 6.93%
Fidelity VIP Mid Cap 3.96% 5.61% 6.27%
Fidelity VIP Overseas 1.98% 2.64% 3.30%
SA Allocation Balanced 67.00% 0.00% 0.00%
SA Allocation Moderate 0.00% 67.00% 0.00%
SA Allocation Moderate Growth 0.00% 0.00% 67.00%
SA American Funds Global Growth 1.98% 2.31% 2.64%
SA American Funds Growth 0.66% 0.99% 1.32%
SA American Funds Growth-Income 1.32% 1.65% 1.98%
T. Rowe Price Blue Chip Growth II 0.99% 1.32% 1.32%
T. Rowe Price Equity Income II 2.97% 3.63% 3.96%
Total 100% 100% 100%
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Please forward a copy (without charge) of the Seasons SelectII Variable Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
 
Name
 
Address
 
City/State/Zip
 
Contract Issue Date:
 
Date: 
Signed: 
Return to: American General Life Insurance Company, Annuity Service Center, P.O. Box 15570, Amarillo, Texas 79105-5570
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT FIVE
SEASONS SELECT II VARIABLE ANNUITY
This Statement of Additional Information is not a prospectus; it should be read with the prospectus, dated April 30, 2020, relating to the annuity contracts described above. A copy of the prospectus may be obtained without charge by calling (800) 445-7862 or writing us at:
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 15570
AMARILLO, TEXAS 79105-5570
April 30, 2020

 

 

Separate Account and the Company
American General Life Insurance Company (“AGL” or the “Company”) is a stock life insurance company organized under the laws of the State of Texas on April 11, 1960. AGL is a successor in interest to a company originally organized under the laws of Delaware on January 10, 1917. The Company is an indirect, wholly-owned subsidiary of American International Group, Inc. (“American International Group”), a Delaware corporation. American International Group is a holding company which, through its subsidiaries, is engaged primarily in a broad range of insurance and insurance-related activities in the United States and abroad. The commitments under the contacts are the Company’s, and American International Group has no legal obligation to back those commitments.
On December 31, 2012, SunAmerica Annuity and Life Assurance Company (“SunAmerica Annuity”), American General Assurance Company (“AGAC”), American General Life and Accident Insurance Company (“AGLA”), American General Life Insurance Company of Delaware (“AGLD”), SunAmerica Life Insurance Company (“SALIC”) and Western National Life Insurance Company, (“WNL”), affiliates of American General Life Insurance Company, merged with and into American General Life Insurance Company (“Merger”). Prior to this date, the Seasons Select II contracts were issued by SunAmerica Annuity in all states except New York.
Variable Annuity Account Five (“Separate Account”) was originally established by Anchor National Life Insurance Company (“Anchor National”) on July 8, 1996 pursuant to the provisions of Arizona law, as a segregated asset account of Anchor National. Effective March 1, 2003, Anchor National changed its name to AIG SunAmerica Life Assurance Company (“SunAmerica Life”). Effective July 20, 2009, SunAmerica Life changed its name to SunAmerica Annuity and Life Assurance Company. These were name changes only and did not affect the substance of any contract. Prior to December 31, 2012, the Separate Account was a separate account of SunAmerica Annuity. On December 31, 2012, and in conjunction with the merger of AGL and SunAmerica Annuity, the Separate Account was transferred to and became a Separate Account of AGL under Texas law.
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. This registration does not involve supervision of the management of the Separate Account or the Company by the SEC.
The assets of the Separate Account are the property of the Company. However, the assets of the Separate Account, equal to its reserves and other contract liabilities, are not chargeable with liabilities arising out of any other business the Company 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 other income, gains, or losses of the Company.
The Separate Account is divided into Variable Portfolios, with the assets of each Variable Portfolio invested in the shares of one of the Underlying Funds. The Company does not guarantee the investment performance of the Separate Account, its Variable Portfolios or the Underlying Funds. Values allocated to the Separate Account and the amount of variable annuity income payments will vary with the values of shares of the Underlying Funds, and are also reduced by contract charges and fees.
The basic objective of a variable annuity contract is to provide variable annuity income payments which will be to some degree responsive to changes in the economic environment, including inflationary forces and changes in rates of return available from various types of investments. The contract is designed to seek to accomplish this objective by providing that variable annuity income payments will reflect the investment performance of the Separate Account with respect to amounts allocated to it both before and after the Annuity Date. Since the Separate Account is always fully invested in shares of the Underlying Funds, its investment performance reflects the investment performance of those entities. The values of such shares held by the Separate Account fluctuate and are subject to the risks of changing economic conditions as well as the risk inherent in the ability of the Underlying Funds’ management to make necessary changes in their funds to anticipate changes in economic conditions. Therefore, the owner bears the entire investment risk that the basic objectives of the contract may not be realized, and that the adverse effects of inflation may not be lessened. There can be no assurance that the aggregate amount of variable annuity income payments will equal or exceed the Purchase Payments made with respect to a particular account for the reasons described above, or because of the premature death of an Annuitant.
Another important feature of the contract related to its basic objective is the Company’s promise that the dollar amount of variable annuity income payments made during the lifetime of the Annuitant will not be adversely affected by the actual mortality experience of the Company or by the actual expenses incurred by the Company in excess of
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expense deductions provided for in the contract (although the Company does not guarantee the amounts of the variable annuity income payments).
American Home Assurance Company
All references in this SAI to American Home Assurance Company (“American Home”) apply only to contracts issued prior to December 29, 2006 at 4:00 p.m. Eastern Time. American Home is a stock property-casualty insurance company incorporated under the laws of the State of New York on February 7, 1899. American Home’s principal executive office is located at 175 Water Street, New York, New York 10038. American Home is licensed in all 50 states of the United States and the District of Columbia, as well as certain foreign jurisdictions, and engages in a broad range of insurance and reinsurance activities. American Home is an indirect wholly owned subsidiary of American International Group, Inc. (“American International Group”).
General Account
The general account is made up of all of the general assets of the Company other than those allocated to the Separate Account or any other segregated asset account of the Company. A Purchase Payment may be allocated to the fixed and/or DCA fixed account options of various available periods offered in connection with the general account, as elected by the owner purchasing a contract. The DCA fixed accounts are not available if the Seasons Reward Program is elected. Other fixed account options may be available to you. Please refer to your contract for additional information. Assets supporting amounts allocated to a fixed investment option become part of the Company’s general account assets and are available to fund the claims of all classes of customers of the Company, as well as of its creditors. Accordingly, all of the Company’s assets held in the general account will be available to fund the Company’s obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner chosen by the Company and allowed by applicable state laws regarding the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages, real estate and certain other investments.
Master-Feeder Structure
The following underlying funds currently do not buy individual securities directly: SA American Funds Global Growth Portfolio, SA American Funds Growth Portfolio, SA American Funds Growth-Income Portfolio, SA American Funds Asset Allocation Portfolio, and SA American Funds VCP Managed Allocation Portfolio (the “Feeder Funds”). Instead, each Feeder Fund invests all of its investment assets in a corresponding “Master Fund” of American Funds Insurance Series®, managed by Capital Research and Management Company (“Capital Research”).
Because each Feeder Fund invests all of its assets in a Master Fund, the investment adviser to the Feeder Funds, SunAmerica Asset Management, LLC (“SAAMCo”) does not provide any portfolio management services for the Feeder Funds. SAAMCo provides those services for the Feeder Funds that are normally provided by a fund’s investment adviser with the exception of portfolio management. Such services include, but are not limited to: monitoring the ongoing investment performance of the Master Funds, monitoring the Feeder Funds’ other service providers, facilitating the distribution of Master Fund shareholder materials to Feeder Fund shareholders and providing such other services as are necessary or appropriate to the efficient operation of the Feeder Funds with respect to their investment in the corresponding Master Funds. Pursuant to its investment advisory agreement with SunAmerica Series Trust, SAAMCo will provide these services so long as a Feeder Fund is a “feeder fund” investing in a Master Fund.
SAAMCo has contractually agreed to waive 0.70% of its advisory fee for so long as the Feeder Fund is operated as a feeder fund. Under the master-feeder structure, however, each Feeder Fund may withdraw its entire investment from its corresponding Master Fund if the Feeder Fund Board determines that it is in the best interests of the Feeder Fund and its shareholders to do so. If the underlying fund ceases to operate as a “feeder fund,” SAAMCo will serve as investment manager for the Feeder Fund.
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The terms “Feeder Fund” and “Master Fund” as used in the Prospectus are used for ease of relevant disclosure. There are a number of differences between arrangements commonly referred to as master-feeder funds, and the investments by the Feeder Funds in the Master Funds described in the Prospectus. These differences include the following:
• Advisory fees commonly are assessed by the master fund, but not by the feeder fund. The Master Funds and the Feeder Funds both have investment advisory fees. (However, as described above, SAAMCo’s advisory fee is solely attributable to administrative services, not portfolio management. Moreover, SAAMCo has contractually agreed to waive certain Feeder Fund advisory fees for as long as the Feeder Funds invest in a Master Fund); and
• Master funds commonly sell their shares only to feeder funds. The Master Funds in which the Feeder Funds invest also sell their shares to separate accounts of life insurance companies to fund variable annuity contracts and variable life insurance contracts issued by the companies.
Performance Data
From time to time, we periodically advertise performance data relating to Variable Portfolios and Underlying Funds. We will calculate performance by determining the percentage change in the value of an Accumulation Unit by dividing the increase (or decrease) for that unit by the value of the Accumulation Unit at the beginning of the period. This performance number reflects the deduction of the Separate Account charges (including certain death benefit rider charges) and the Underlying Fund expenses. It does not reflect the deduction of any applicable contract maintenance fee, withdrawal (or sales) charges, if applicable, or optional feature charges. The deduction of these charges would reduce the percentage increase or make greater any percentage decrease. Any advertisement will include total return figures which reflect the deduction of the Separate Account charges (including certain death benefit charges), contract maintenance fee, withdrawal (or sales) charges and the Underlying Fund expenses.
The Separate Account may advertise “total return” data for the Variable Portfolios. Total return figures are based on historical data and are not intended to indicate future performance. “Total return” is a computed rate of return that, when compounded annually over a stated period of time and applied to a hypothetical initial investment in a Variable Portfolio made at the beginning of the period, will produce the same contract value at the end of the period that the hypothetical investment would have produced over the same period (assuming a complete redemption of the contract at the end of the period).
For periods starting prior to the date the Variable Portfolios first became available through the Separate Account, the total return data for the Variable Portfolios of the Separate Account will be derived from the performance of the corresponding Underlying Funds, modified to reflect the charges and expenses as if the contract had been in existence since the inception date of each respective Underlying Fund. Further, returns shown are for the original class of shares of certain Underlying Funds, adjusted to reflect the fees and charges for the newer class of shares until performance for the newer class becomes available. Returns of the newer class of shares will be lower than those of the original class since the newer class of shares is subject to (higher) service fees. We commonly refer to these performance calculations as hypothetical adjusted historical returns. Performance figures similarly adjusted but based on the Underlying Funds’ performance (outside of this Separate Account) should not be construed to be actual historical performance of the relevant Separate Account’s Variable Portfolio. Rather, they are intended to indicate the historical performance of the corresponding Underlying Funds, adjusted to provide direct comparability to the performance of the Variable Portfolios after the date the contracts were first offered to the public (reflecting certain contractual fees and charges).
Performance data for the various Variable Portfolios are computed in the manner described below.
Variable Portfolios
The Variable Portfolios of the Separate Account compute their performance data as “total return.” Total return figures are derived from historical data and are not intended to be a projection of future performance.
Total return for a Variable Portfolio represents a single computed annual rate of return that, when compounded annually over a specified time period (one, five, and ten years, or since inception) and applied to a hypothetical initial investment in a contract funded by that Variable Portfolio made at the beginning of the period, will produce the same contract value at the end of the period that the hypothetical investment would have produced over the same period. The total rate of return (T) is computed so that it satisfies the formula:
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For contracts without the Seasons Rewards program:
    n    
P (1 + T)   = ERV
For contracts with the Seasons Rewards program:
      n    
[P (1 + E)] (1 + T)   = ERV
where:
     P = a hypothetical initial payment of $1,000
     T = average annual total return
     n = number of years
     E = Payment Enhancement Rate
     ERV = redeemable value of a hypothetical $1,000 payment made at the beginning of the 1,5 or 10 year period as of the end of the 1, 5, or 10 year periods (or fractional portion thereof)
Standardized performance for the Variable Portfolios available in this contract reflect total returns using the method of computation discussed below:
• Using the seven year surrender charge schedule available on contracts issued without the Seasons Rewards program. No enhancement is reflected under the calculation, as the Payment Enhancement is not available unless the Seasons Rewards program is elected; AND
• Using the nine year surrender charge schedule available on contracts issued with the Seasons Rewards program, including the minimum Upfront Payment Enhancement of 2% of Purchase Payments and calculating the value after redemption only based on the initial $1,000 Purchase Payment.
We may, from time to time, advertise other variations of performance along with the standardized performance as described above. We may, in sales literature, show performance only applicable to one surrender charge schedule to a contract holder who has already purchased the contract with or without the Seasons Rewards program. However, we will not report performance for the contract featuring Seasons Rewards program, unless net of withdrawal charges.
The total return figures reflect the effect of certain non-recurring and recurring charges. The applicable withdrawal charge (if any) is deducted as of the end of the period, to reflect the effect of the assumed complete redemption.
These rates of return do not reflect election of any optional features. As a fee is charged for these features, the rates of return would be lower if these features were included in the calculations.
Market Value Adjustment (“MVA”) for Contracts Issued Prior to May 2, 2005
Depending on the issue date of your contract, your contract may offer multi-year Fixed Accounts. If you take money out of any available multi-year Fixed Accounts before the guarantee period ends, we may make an adjustment to your contract. We refer to this as a Market Value Adjustment (“MVA”). The MVA does not apply to any available one-year Fixed Accounts. The MVA reflects any difference in the interest rate environment between the time you placed your money in the multi-year Fixed Accounts and the time when you withdraw or transfer that money. Generally, this adjustment can increase or decrease your contract value or the amount of your withdrawal. If interest rates drop between the time you put your money into a multi-year Fixed Account and the time you take it out, we credit a positive adjustment to your contract. Conversely, if interest rates increase during the same period, we could post a negative adjustment to your contract. You have 30 days after the end of each guarantee period to reallocate your funds without application of any MVA.
Regardless of the outcome of the MVA calculation, application of the MVA to any partial or full withdrawal or transfer from the multi-year Fixed Accounts after May 2, 2005, will not result in a negative adjustment to your contract value or the withdrawal amount. Thus, the MVA will not result in a loss of principal or previously credited interest for transactions after May 2, 2005. You will continue to receive any positive adjustment resulting from application of the MVA.
The information below applies only if you take money out of multi-year Fixed Accounts before the end of the Guarantee Period.
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We calculate the MVA by doing a comparison between current rates and the rate being credited to you in the Fixed Accounts. For the current rate we use a rate being offered by us for a guarantee period that is equal to the time remaining in the Fixed Accounts from which you seek withdrawal (rounded up to a full number of years). If we are not currently offering a guarantee period for that period of time, we determine an applicable rate by using a formula to arrive at a number based on the interest rates currently offered for the two closest periods available. Where the MVA is positive, we add the adjustment to your withdrawal amount.
If a withdrawal charge applies, it is deducted before the MVA calculation. The MVA is assessed on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken under an income option by the following factor:
[(1+I/(1+J+L)]N/12 – 1
where:
I is the interest rate you are earning on the money invested in the Fixed Account;
J is the interest rate then currently available for the period of time equal to the number of years remaining in the term you initially agreed to leave your money in the Fixed Account;
N is the number of full months remaining in the term you initially agreed to leave your money in the Fixed Account; and
L is 0.005 (Some states require a different value. Please see your contract.)
We do not assess an MVA against withdrawals from an Fixed Account under the following circumstances:
• If a withdrawal or transfer made after May 2, 2005 results in a negative MVA calculation;
• If a withdrawal or transfer is made within 30 days after the end of a guarantee period;
• If a withdrawal or transfer is made to pay contract fees and charges;
• To pay a death benefit; and
• Upon beginning an income option, if occurring on the Latest Annuity Date.
Examples of the MVA
The purpose of the examples below is to show how the MVA adjustments are calculated and may not reflect the Guarantee Periods available or withdrawal charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a Fixed Account at a rate of 5%;
(2) You make a partial withdrawal of $4,000 at a time when 18 months remain in the term you initially agreed to leave your money in the Fixed Account (N = 18);
(3) You have not made any other transfers, additional Purchase Payments, or withdrawals; and
(4) Your contract was issued in a state where L = 0.005.
Positive Adjustment, No Withdrawal Charge Applies
Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year Fixed Account is 3.5% and the 3-year Fixed Account is 4.5%. By linear interpolation, the interest rate for the remaining 2years (18 months rounded up to the next full year) in the contract is calculated to be 4%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls within the free withdrawal amount.
The MVA factor is = [(1+I/(1+J+0.005)]N/12 – 1
= [(1.05)/(1.04+0.005)]18/12 – 1
= (1.004785)1.5 – 1
= 1.007186 – 1
= + 0.007186
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The requested withdrawal amount is multiplied by the MVA factor to determine the MVA:
$4,000 x (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
Positive Adjustment, Withdrawal Charge Applies
Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year Fixed Account is 3.5% and the 3-year Fixed Account is 4.5%. By linear interpolation, the interest rate for the remaining 2years (18 months rounded up to the next full year) in the contract is calculated to be 4%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)]N/12 – 1
= [(1.05)/(1.04+0.005)]18/12 – 1
= (1.004785)1.5 – 1
= 1.007186 – 1
= + 0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 x (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
Annuity Income Payments
Initial Monthly Annuity Income Payments
The initial monthly annuity income payment is determined by applying separately that portion of the contract value allocated to the fixed account options and the Variable Portfolio(s), less any premium tax if applicable, and then applying it to the annuity table specified in the contract for fixed and variable annuity income payments. Those tables are based on a set amount per $1,000 of proceeds applied. The appropriate rate must be determined by the sex (except where, as in the case of certain Qualified contracts and other employer-sponsored retirement plans, such classification is not permitted) and age of the Annuitant and designated second person, if any, and the annuity income option selected.
The dollars applied are then divided by 1,000 and the result multiplied by the appropriate annuity factor appearing in the table to compute the amount of the first monthly annuity income payment. In the case of a variable annuity, that amount is divided by the value of an Annuity Unit as of the Annuity Date to establish the number of Annuity Units representing each variable annuity income payment. The number of Annuity Units determined for the first monthly variable annuity income payment remains constant for the second and subsequent monthly variable annuity income payments, assuming that no reallocation of contract values is made.
Subsequent Monthly Annuity Income Payments
For fixed annuity income payments, the amount of the second and each subsequent monthly fixed annuity income payment is the same as that determined above for the first fixed monthly annuity income payment.
For variable annuity income payments, the amount of the second and each subsequent monthly variable annuity income payment is determined by multiplying the number of Annuity Units, as determined in connection with the determination of the initial monthly variable annuity income payment, above, by the Annuity Unit value as of the day preceding the date on which each monthly variable annuity income payment is due.
Annuity Income Payments Under the Income Protector Program
If the Income Protector program is available and contract holders elect to begin annuity income payments using the Income Protector program, the income benefit base is determined as described in the prospectus. The initial annuity income payment is determined by applying the income benefit base to the annuity table specifically designated for use in conjunction with the Income Protector program, either in the contract or in the endorsement to the contract. Those tables are based on a set amount per $1,000 of income benefit base applied. The appropriate rate must be determined by the sex (except where, as in the case of certain Qualified contracts and other employer-sponsored retirement plans,
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such classification is not permitted), premium tax, if applicable, age of the Annuitant and designated second person, if any, and the annuity income option selected.
The income benefit base is applied then divided by 1,000 and the result multiplied by the appropriate annuity factor appearing in the table to compute the amount of the first monthly annuity income payment. The amount of the second and each subsequent annuity income payment is the same as that determined above for the first monthly annuity income payment.
Annuity Unit Values
The value of an Annuity Unit is determined independently for each Variable Portfolio.
The annuity tables contained in the contract are based on a 3.5% per annum assumed investment rate. If the actual net investment rate experienced by a Variable Portfolio exceeds 3.5%, variable annuity income payments derived from allocations to that Variable Portfolio will increase over time. Conversely, if the actual rate is less than 3.5%, variable annuity income payments will decrease over time. If the net investment rate equals 3.5%, the variable annuity income payments will remain constant. If a higher assumed investment rate had been used, the initial monthly variable annuity income payment would be higher, but the actual net investment rate would also have to be higher in order for variable annuity income payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each month. The value of a fixed number of Annuity Units will reflect the investment performance of the Variable Portfolios elected, and the amount of each monthly variable annuity income payment will vary accordingly.
For each Variable Portfolio, the value of an Annuity Unit is determined by multiplying the Annuity Unit value for the preceding month by the Net Investment Factor for the month for which the Annuity Unit value is being calculated. The result is then multiplied by a second factor which offsets the effect of the assumed net investment rate of 3.5% per annum which is assumed in the annuity tables contained in the contract.
Net Investment Factor
The Net Investment Factor (“NIF”) is an index applied to measure the net investment performance of a Variable Portfolio from one day to the next. The NIF may be greater or less than or equal to one; therefore, the value of an Annuity Unit may increase, decrease or remain the same.
The NIF for any Variable Portfolio for a certain month is determined by dividing (a) by (b) where:
(a) is the Accumulation Unit value of the Variable Portfolio determined as of the end of that month, and
(b) is the Accumulation Unit value of the Variable Portfolio determined as of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the net investment performance of the Variable Portfolio from the end of the prior month to the end of the given month. A NIF of 1.000 results in no change; a NIF greater than 1.000 results in an increase; and a NIF less than 1.000 results in a decrease. The NIF is increased (or decreased) in accordance with the increases (or decreases, respectively) in the value of a share of the underlying fund in which the Variable Portfolio invests; it is also reduced by Separate Account asset charges.
Illustrative Example
Assume that one share of a given Variable Portfolio had an Accumulation Unit value of $11.46 as of the close of the New York Stock Exchange (“NYSE”) on the last business day in September; that its Accumulation Unit value had been $11.44 at the close of the NYSE on the last business day at the end of the previous month. The NIF for the month of September is:
     NIF = ($11.46/$11.44)
      = 1.00174825
The change in Annuity Unit value for a Variable Portfolio from one month to the next is determined in part by multiplying the Annuity Unit value at the prior month end by the NIF for that Variable Portfolio for the new month. In addition, however, the result of that computation must also be multiplied by an additional factor that takes into account, and neutralizes, the assumed investment rate of 3.5 percent per annum upon which the variable annuity income payment tables are based. For example, if the net investment rate for a Variable Portfolio (reflected in the NIF) were equal to the assumed investment rate, the variable annuity income payments should remain constant (i.e.,
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the Annuity Unit value should not change). The monthly factor that neutralizes the assumed investment rate of 3.5 percent per annum is:
    (1/12)      
1/ [(1.035)   ] = 0.99713732
In the example given above, if the Annuity Unit value for the Variable Portfolio was $10.103523 on the last business day in August, the Annuity Unit value on the last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial variable annuity income payment, the annuity income payment for variable annuitization is calculated based on our mortality expectations and an assumed investment rate (AIR) of 3.5%. Thus the initial variable annuity income payment is the same as the initial payment for a fixed interest payout annuity calculated at an effective rate of 3.5%.
The NIF measures the performance of the funds that are basis for the amount of future variable annuity income payments. This performance is compared to the monthly AIR, and if the rate of growth in the NIF is the same as the monthly AIR the payment remains the same as the prior month. If the rate of growth of the NIF is different than the AIR, then the payment is changed proportionately to the ratio NIF / (1+AIR), calculated on a monthly basis. If the NIF is less than the AIR, then this proportion is less than one and payments are decreased.
Variable Annuity Income Payments
Illustrative Example
Assume that a contract has all of its account value allocated to a single Variable Portfolio. As of the last valuation preceding the Annuity Date, the account was credited with 7543.2456 Accumulation Units, each having a value of $15.432655 (i.e., the account value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also that the Annuity Unit value for the Variable Portfolio on that same date is $13.256932, and that the Annuity Unit value on the day immediately prior to the second variable annuity income payment date is $13.327695.
The first variable annuity income payment is determined using the annuity factor tables specified in the contract. These tables supply monthly annuity income payment factors, determined by the sex, age of the Annuitant and annuity income option selected, for each $1,000 of applied contract value. If the applicable factor is 5.21 for the annuitant in this hypothetical example, the first variable annuity income payment is determined by multiplying the factor of $5.21 by the result of dividing the account value by $1,000:
First variable annuity income payment = $5.21 x ($116,412.31/$1000) = $606.51
The number of Annuity Units (which will be constant unless the account values is transferred to another account) is also determined at this time and is equal to the amount of the first variable annuity income payment divided by the value of an Annuity Unit on the day immediately prior to annuitization:
Annuity Units = $606.51/$13.256932 = 45.750404
The second variable annuity income payment is determined by multiplying the number of Annuity Units by the Annuity Unit value as of the day immediately prior to the second variable annuity payment due date:
Second variable annuity income payment = 45.750404 x $13.327695 = $609.75
The third and subsequent variable annuity income payments are computed in a manner similar to the second variable annuity income payment.
Note that the amount of the first variable annuity income payment depends on the contract value in the relevant Variable Portfolio on the Annuity Date and thus reflects the investment performance of the Variable Portfolio net of fees and charges during the Accumulation Phase. The amount of that payment determines the number of Annuity Units, which will remain constant during the Annuity Phase (assuming no transfers from the Variable Portfolio). The net investment performance of the Variable Portfolio during the Annuity Phase is reflected in continuing changes during this phase in the Annuity Unit value, which determines the amounts of the second and subsequent variable annuity income payments.
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Taxes
General
Note:    Discussions regarding the tax treatment of any annuity contract or retirement plan and program are intended for general purposes only and are not intended as tax advice, either general or individualized, nor should they be interpreted to provide any predictions or guarantees of a particular tax treatment. Such discussions generally are based upon the company’s understanding of current tax rules and interpretations, and may include areas of those rules that are more or less clear or certain. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. You should seek competent tax or legal advice, as you deem necessary or appropriate, regarding your own circumstances. We do not guarantee the tax status or treatment of your annuity.
Section 72 of the Internal Revenue Code of 1986, as amended (the “Code” or “IRC”) governs taxation of annuities in general. A natural owner is not taxed on increases in the value of a contract until distribution occurs, either in the form of a non-annuity distribution or as annuity income payments under the annuity option elected. For a lump-sum payment received as a total surrender (total redemption), the recipient is taxed on the portion of the payment that exceeds the cost basis of the contract. For a payment received as a withdrawal (partial redemption), federal tax liability is determined on a last-in, first-out basis, meaning taxable income is withdrawn before the cost basis of the contract is withdrawn. A different rule applies to Purchase Payments made (including, if applicable, in the case of a contract issued in exchange for a prior contract) prior to August 14, 1982. Those Purchase Payments are considered withdrawn first for federal income tax purposes, followed by earnings on those Purchase Payments. For Non-Qualified contracts, the cost basis is generally the Purchase Payments. The taxable portion of the lump-sum payment is taxed at ordinary income tax rates. Tax penalties may also apply.
If you purchase your contract under one of a number of types of employer-sponsored retirement plans, as an individual retirement annuity, or under an individual retirement account, your contract is referred to as a Qualified Contract. Examples of qualified plans or arrangements are: Individual Retirement Annuities and Individual Retirement Accounts (IRAs), Roth IRAs, Tax-Sheltered Annuities (also referred to as 403(b) annuities or 403(b) contracts), plans of self-employed individuals (often referred to as H.R. 10 Plans or Keogh Plans), pension and profit sharing plans including 401(k) plans, and governmental 457(b) plans. Typically, for employer-sponsored retirement plans and tax-deductible IRA contributions, you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. However, you normally will have a cost basis in a Roth IRA, a designated Roth account in a 403(b), 401(k), or governmental 457(b) plan, and you may have cost basis in a traditional IRA or in another Qualified contract.
For annuity income payments, the portion of each payment that is in excess of the exclusion amount is includible in taxable income. The exclusion amount for payments based on a fixed annuity option is determined by multiplying the payment by the ratio that the cost basis of the Contract (if any, and adjusted for any period or refund feature) bears to the expected return under the Contract. The exclusion amount for payments based on a variable annuity option is determined by dividing the cost basis of the Contract (adjusted for any period certain or refund guarantee) by the number of years over which the annuity is expected to be paid. Payments received after the investment in the Contract has been recovered (i.e. when the total of the excludable amount equals the investment in the Contract) are fully taxable. The taxable portion is taxed at ordinary income tax rates. For certain types of qualified plans there may be no cost basis in the Contract within the meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under the Contracts should seek competent financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal income tax purposes, the Separate Account is not a separate entity from the Company and its operations form a part of the Company.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law as part of larger appropriations legislation.  The SECURE Act includes many provisions affecting Qualified Contracts, some of which became effective upon enactment or on January 1, 2020, and certain provisions were retroactively effective. Some of the provisions effective January 1, 2020 include:
• an increase in the age at which required minimum distributions (RMDs) generally must commence, to age 72, for those born on or after July 1, 1949, from the previous age of 70 ½;
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• new limitations on the period for beneficiary distributions following the death of the plan participant or IRA owner (when the death occurs on or after January 1, 2020);
• elimination of the age 70 ½ restriction on traditional IRA contributions for tax years beginning 2020 (combined with an offset to the amount of eligible qualified charitable distributions (QCDs) by the amount of post-70 ½ IRA contributions);
• a new exception to the 10% additional tax on early distributions, for the qualified birth or adoption of a child, which also became an allowable plan distribution event; and,
• reduction of the earliest permissible age for in-service distributions from pension plans and certain Section 457 plans to 59 ½. 
The foregoing is not an exhaustive list.  The SECURE Act included many additional provisions affecting Qualified Contracts.
Tax Treatment of Distributions – Non-Qualified Contracts
If you make partial or total withdrawals from a non-qualified contract, the Code generally treats such withdrawals as coming first from taxable earnings and then coming from your Purchase Payments. Purchase Payments made prior to August 14, 1982, however, are an important exception to this general rule, and for tax purposes generally are treated as being distributed first, before either the earnings on those contributions, or other Purchase Payments and earnings in the contract. If you annuitize your contract, a portion of each annuity income payment will be considered, for tax purposes, to be a return of a portion of your Purchase Payment, generally until you have received all of your Purchase Payment. Any portion of each annuity income payment that is considered a return of your Purchase Payment will not be taxed. Additionally, the taxable portion of any withdrawals, whether annuitized or other withdrawals, generally is subject to applicable state and/or local income taxes, and may be subject to an additional 10% penalty tax unless withdrawn in conjunction with the following circumstances:
• after attaining age 59½;
• when paid to your beneficiary after you die;
• after you become disabled (as defined in the Code);
• when paid as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint expectancies) of you and your designated beneficiary for a period of 5 years or attainment of age 59½, whichever is later;
• under an immediate annuity contract;
• which are attributable to Purchase Payments made prior to August 14, 1982.
On March 30, 2010 the Health Care and Education Reconciliation Act (“Reconciliation Act”) was signed into law. Among other provisions, the Reconciliation Act imposes a new tax on net investment income. This tax, which went into effect in 2013, is at the rate of 3.8% of applicable thresholds for Modified Adjusted Gross Income (“MAGI”) ($250,000 for joint filers; $125,000 for married individuals filing separately; and, $200,000 for individual filers). An individual with MAGI in excess of the threshold will be required to pay this new tax on net investment income in excess of the applicable MAGI threshold. For this purpose, net investment income generally will include taxable withdrawals from a Non-Qualified contract, as well as other taxable amounts including amounts taxed annually to an owner that is not a natural person. This new tax generally does not apply to Qualified contracts, however taxable distributions from such contracts may be taken into account in determining the applicability of the MAGI thresholds.
Tax Treatment of Distributions – Qualified Contracts
Generally, you have not paid any federal taxes on the Purchase Payments used to buy a Qualified contract. As a result, most amounts withdrawn from the contract or received as annuity income payments will be taxable income. Exceptions to this general rule include withdrawals attributable to after-tax Roth IRA contributions and designated Roth contributions to a 403(b), 401(k), or governmental 457(b) plan. Withdrawals from Roth IRAs are generally treated for federal tax purposes as coming first from the Roth contributions that have already been taxed, and as entirely income tax free. Withdrawals from designated Roth accounts in a 403(b), 401(k) or governmental 457(b) plan, and withdrawals generally from Qualified contracts, are treated generally as coming pro-rata from amounts that already have been taxed and amounts that are taxed upon withdrawal. Qualified Distributions from Roth
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IRAs and designated Roth accounts in 403(b), 401(k), and governmental 457(b) plans which satisfy certain qualification requirements, including at least five years in a Roth account under the plan or IRA and either attainment of age 59½, death or disability (or, if an IRA for the purchase of a first home), will not be subject to federal income taxation.
The taxable portion of any withdrawal or annuity income payment from a Qualified contract will be subject to an additional 10% federal penalty tax, under the IRC, except in the following circumstances:
• after attainment of age 59½;
• when paid to your beneficiary after you die;
• after you become disabled (as defined in the IRC);
• as a part of a series of substantially equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint expectancies) of you and your designated beneficiary for a period of 5 years or attainment of age 59½, whichever is later;
• payments to employees after separation from service after attainment of age 55 (does not apply to IRAs);
• dividends paid with respect to stock of a corporation described in IRC Section 404(k);
• for payment of medical expenses to the extent such withdrawals do not exceed limitations set by the IRC for deductible amounts paid during the taxable year for medical care;
• payments to alternate payees pursuant to a qualified domestic relations order (does not apply to IRAs);
• for payment of health insurance if you are unemployed and meet certain requirements;
• distributions from IRAs for certain higher education expenses;
• distributions from IRAs for first home purchases;
• amounts distributed from a Code Section 457(b) plan other than amounts representing rollovers from an IRA or employer sponsored plan to which the 10% penalty would otherwise apply;
• payments to certain reservists called up for active duty after September 11, 2001; or
• payments up to $3,000 per year for health, life and accident insurance by certain retired public safety officers;
• distributions for parents after the “qualified birth or adoption” of a new child (subject to limitations).
The Code generally requires the Company (or, in some cases, a plan administrator) to withhold federal tax on the taxable portion of any distribution or withdrawal from a contract, subject in certain instances to the payee’s right to elect out of withholding or to elect a different rate of withholding. For “eligible rollover distributions” from contracts issued under certain types of qualified plans, not including IRAs, 20% of the distribution must be withheld, unless the payee elects to have the distribution “rolled over” or “transferred to another eligible plan in a direct trustee-to-trustee” transfer. This requirement is mandatory and cannot be waived by the owner. Withholding on other types of distributions, including distributions from IRAs can be waived. An “eligible rollover distribution” is the taxable portion of any amount received by a covered employee from a retirement plan qualified under Sections 401 or 403 or, if from a plan of a governmental employer, under Section 457(b) of the Code, or from a tax-sheltered annuity qualified under Section 403(b) of the Code other than (1) substantially equal periodic payments calculated using the life (or life expectancy) of the employee, or joint lives (or joint life expectancies) of the employee and his or her designated Beneficiary, or for a specified period of ten years or more; (2) financial hardship withdrawals; (3) minimum distributions required to be made under the Code; and (4) distribution of contributions to a Qualified contract which were made in excess of the applicable contribution limit. Failure to “roll over” the entire amount of an eligible rollover distribution (including an amount equal to the 20% portion of the distribution that was withheld) could have adverse tax consequences, including the imposition of a federal penalty tax on premature withdrawals, described later in this section. Only (1) the participant, or, (2) in the case of the participant’s death, the participant’s surviving spouse, or (3) in the case of a domestic relations order, the participant’s spouse or ex-spouse may roll over a distribution into a plan of the participant’s own. An exception to this rule is that a non-spousal beneficiary may, subject to plan provisions, roll inherited funds from an eligible retirement plan into an Inherited IRA. An Inherited IRA is an IRA created for the sole purpose of receiving funds inherited by non-spousal beneficiaries of eligible retirement plans. The
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distribution must be transferred to the Inherited IRA in a direct “trustee-to-trustee” transfer. Inherited IRAs must meet the distribution requirements relating to IRAs inherited by non-spousal beneficiaries under Code sections 408(a)(6) and (b)(3) and 401(a)(9).
Funds in a Qualified contract may be rolled directly over to a Roth IRA. Withdrawals or distributions from a contract other than eligible rollover distributions are also subject to withholding on the taxable portion of the distribution, but the owner may elect in such cases to waive the withholding requirement. If not waived, withholding is imposed (1) for periodic payments, at the rate that would be imposed if the payments were wages, or (2) for other distributions, at the rate of 10%. If no withholding exemption certificate is in effect for the payee, the rate under (1) above is computed by treating the payee as a married individual claiming 3 withholding exemptions.
The Small Business Jobs Act of 2010 subsequently added the ability for “in-Plan” rollovers of eligible rollover distribution from pre-tax accounts to a designated Roth account in certain employer-sponsored plans which otherwise include or permit designated Roth accounts. The American Taxpayer Relief Act of 2013 (“ATRA”) expanded the ability for such in-Plan Roth conversions by permitting eligible plans that include an in-plan Roth contribution feature to offer participants the option of converting any amounts held in the plan to after-tax Roth, regardless of whether those amounts are currently distributable.
Diversification – Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on the underlying assets of Non-Qualified variable annuity contracts. These requirements generally do not apply to Qualified contracts, which are considered “Pension Plan Contracts” for purposes of these Code requirements. The Code provides that a variable annuity contract will not be treated as an annuity contract for any period (and any subsequent period) for which the investments are not adequately diversified, in accordance with regulations prescribed by the United States Treasury Department (“Treasury Department”). Disqualification of the contract as an annuity contract would result in imposition of federal income tax to the owner with respect to earnings allocable to the contract prior to the receipt of any payments under the contract. The Code contains a safe harbor provision which provides that annuity contracts, such as your contract, meet the diversification requirements if, as of the close of each calendar quarter, the underlying assets meet the diversification standards for a regulated investment company, and no more than 55% of the total assets consist of cash, cash items, U.S. government securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish diversification requirements for the investment portfolios underlying variable contracts such as the contracts. The regulations amplify the diversification requirements for variable contracts set forth in the Code and provide an alternative to the safe harbor provision described above. Under the regulations an investment portfolio will be deemed adequately diversified if (1) no more than 55% of the value of the total assets of the portfolio is represented by any one investment; (2) no more than 70% of the value of the total assets of the portfolio is represented by any two investments; (3) no more than 80% of the value of the total assets of the portfolio is represented by any three investments; and (4) no more than 90% of the value of the total assets of the portfolio is represented by any four investments. For purposes of determining whether or not the diversification standards imposed on the underlying assets of variable contracts by Section 817(h) of the Code have been met, “each United States government agency or instrumentality shall be treated as a separate issuer.”
Non-Natural Owners
Under Section 72(u) of the Code, the investment earnings on premiums for the Contracts will be taxed currently to the Owner if the Owner is a non-natural person such as a corporation or certain other entities. Such Contracts generally will not be accorded tax-deferred status. However, this treatment is not applied to a Contract held by a trust or other entity as an agent for a natural person or to Contracts held by qualified plans. Purchasers should consult their own tax counsel or other tax adviser before purchasing a Contract to be owned by a non-natural person.
Multiple Contracts
The Code provides that multiple Non-Qualified annuity contracts which are issued within a calendar year to the same contract owner by one company are treated as one annuity contract for purposes of determining the federal tax consequences of any distribution. Such treatment may result in adverse tax consequences including more rapid taxation of the distributed amounts from such combination of contracts. For purposes of this rule, contracts received in a Section 1035 exchange will be considered issued in the year of the exchange. (However, they may be treated as issued on the issue date of the contract being exchanged, for certain purposes, including for determining whether the
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contract is an immediate annuity contract.) Owners should consult a tax adviser prior to purchasing more than one Non-Qualified annuity contract from the same issuer in any calendar year.
Tax Treatment of Assignments of Qualified Contracts
Generally, a Qualified contract, including an IRA, may not be assigned or pledged. One exception to this rule is if the assignment is part of a permitted loan program under an employer-sponsored plan (other than a plan funded with IRAs) or pursuant to a domestic relations order meeting the requirements of the plan or arrangement under which the contract is issued (for many plans, a Qualified Domestic Relations Order, or QDRO), or, in the case of an IRA, pursuant to a decree of divorce or separation maintenance or a written instrument incident to such decree.
Tax Treatment of Gifting, Assigning or Transferring Ownership of a Non-Qualified Contract
Under IRC Section 72(e), if you transfer ownership of your Non-Qualified Contract to a person other than your spouse (or former spouse if incident to divorce) for less than adequate consideration you will be taxed on the earnings above the Purchase Payments at the time of transfer. If you transfer ownership of your Non-Qualified Contract and receive payment less than the Contract’s value, you will also be liable for the tax on the Contract’s value above your Purchase Payments not previously withdrawn.
The new Contract owner’s Purchase Payments (basis) in the Contract will be increased to reflect the amount included in your taxable income.
Foreign Account Tax Compliance (“FATCA”)
A Contract Owner who is not a “United States person” which is defined under the Internal Revenue Code section to mean:
• a citizen or resident of the United States
• a partnership or corporation created or organized in the United States or under the law of the United States or of any state, or the District of Columbia
• any estate or trust other than a foreign estate or foreign trust (see Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust)
should be aware that FATCA, enacted in 2010, provides that a 30% withholding tax will be imposed on certain gross payments (which could include distributions from cash value life insurance or annuity products) made to a foreign entity if such entity fails to provide applicable certifications under a Form W-9, Form W-8-BEN-E, Form W-8-IMY, or other applicable form. Certain withholding certifications will remain effective until a change in circumstances makes any information on the form incorrect. Notwithstanding the preceding sentence, the Form W-8 BEN-E is only effective for three years from date of signature unless a change in circumstances makes any information on the form incorrect. The Contract Owner must inform the Company within 30 days of any change in circumstances that makes any information on the form incorrect by furnishing a new IRS Form W-9, Form W-8 BEN-E, Form W-8IMY, or acceptable substitute form. An entity, for this purpose, will be considered a foreign entity unless it provides an applicable certification to the contrary.
Other Withholding Tax
A Contract Owner that is not exempt from United States federal withholding tax should consult its tax advisor as to the availability of an exemption from, or reduction of, such tax under an applicable income tax treaty, if any.
Federal Withdrawal Restrictions from Qualified Contracts
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered Annuities (TSAs) and certain other Qualified contracts. Withdrawals generally can only be made when an owner: (1) reaches age 59½; (2) separates from employment from the employer sponsoring the plan; (3) dies; (4) becomes disabled (as defined in the IRC) (does not apply to section 457(b) plans); (5) experiences a financial hardship (as defined in the IRC); or (6) has a qualified birth or adoption of a child (subject to limitations). In the case of hardship, the owner generally can only withdraw Purchase Payments. There are certain exceptions to these restrictions which are generally based upon the type of investment arrangement, the type of contributions, and the date the contributions were made. Transfers of amounts from one Qualified contract to another investment option under the same plan, or to another contract or account of the same plan type or from a qualified plan to a state defined benefit plan to purchase service credits are
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not considered distributions, and thus are not subject to these withdrawal limitations. Such transfers may, however, be subject to limitations under the annuity contract or Plan.
Partial 1035 Exchanges of Non-Qualified Annuities
Section 1035 of the Code provides that a Non-Qualified annuity contract may be exchanged in a tax-free transaction for another Non-Qualified annuity contract. Historically, it was generally understood that only the exchange of an entire annuity contract, as opposed to a partial exchange, would be respected by the IRS as a tax-free exchange. However, Revenue Procedure 2011-38 provides that a direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract, regardless of whether the two annuity contracts are issued by the same or different companies, will be treated as a tax-free exchange under Code section 1035 if no amounts, other than amounts received an annuity for a period of 10 years or more or during one or more lives, are received under the original contract or the new contract during the 180 days beginning on the date of the transfer (in the case of a new contract, on the date the contract is placed in-force). Owners should seek their own tax advice regarding such transactions and the tax risks associated with subsequent surrenders or withdrawals.
Qualified Plans
The contracts offered by this prospectus are designed to be available for use under various types of qualified plans. Taxation of owners in each qualified plan varies with the type of plan and terms and conditions of each specific plan. Owners and Beneficiaries are cautioned that benefits under a qualified plan may be subject to limitations under the IRC and the employer-sponsored plan, in addition to the terms and conditions of the contracts issued pursuant to the plan. The following are general descriptions of the types of qualified plans with which the contracts may be used. Such descriptions are not exhaustive and are for general information purposes only. The tax rules regarding qualified plans are very complex and will have differing applications depending on individual facts and circumstances. Each purchaser should obtain competent tax advice prior to purchasing a contract issued under a qualified plan. Contracts issued pursuant to qualified plans include special provisions restricting contract provisions that may otherwise be available and described in this prospectus. Generally, contracts issued pursuant to qualified plans are not transferable except upon surrender or annuitization. Various penalty and excise taxes may apply to contributions or distributions made in violation of applicable limitations. Furthermore, certain contractual withdrawal penalties and restrictions may apply to surrender from Qualified contracts.
(a) Plans of Self-Employed Individuals: “H.R. 10 Plans”
Section 401 of the Code permits self-employed individuals to establish qualified plans for themselves and their employees, commonly referred to as “H.R. 10” or “Keogh” Plans. Contributions made to the plan for the benefit of the employees will not be included in the gross income of the employees, for federal tax purposes, until distributed from the plan if certain conditions are met. The tax consequences to owners may vary depending upon the particular plan design. However, the Code places limitations and restrictions on these plans, such as: amounts of allowable contributions; form, manner and timing of distributions; vesting and non-forfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. Purchasers of contracts for use with an H.R. 10 Plan should obtain competent tax advice as to the tax treatment and suitability of such an investment.
(b) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of “tax-sheltered annuities” by public schools and not-for-profit organizations described in Section 501(c)(3) of the Code. These qualifying employers may make contributions to the contracts for the benefit of their employees. Such contributions are not includible in the gross income of the employee until the employee receives distributions from the contract if certain conditions are met. The amount of contributions to the tax-sheltered annuity is limited to certain maximums imposed by the Code. One of these limits, on the amount that the employee may contribute on a voluntary basis, is imposed by the annuity contract as well as by the Code. That limit for 2020 is the lesser of 100% of includible compensation or $19,500. The limit may be increased by up to $3,000 for certain employees with at least fifteen years of full-time equivalent service with an eligible employer, and by an additional $6,500 in 2020 for employees age 50 or older, provided that other applicable requirements are satisfied. Total combined employer and employee contributions for 2020 may not exceed the lesser of $57,000 or 100% of compensation. Furthermore, the Code sets forth additional restrictions governing such items as transferability, distributions, nondiscrimination and withdrawals. Any employee should obtain competent tax advice as to the tax treatment and suitability of such an Investment.
-16-

 

On July 26, 2007, the Department of the Treasury published final 403(b) regulations that largely became effective on January 1, 2009. These comprehensive regulations include several rules and requirements, such as a requirement that employers maintain their 403(b) plans pursuant to a written plan. The final regulations, subsequent IRS guidance, and the terms of the written plan may impose new restrictions on both new and existing contracts, including restrictions on the availability of loans, distributions, transfers and exchanges, regardless of when a contract was purchased.
In general, certain contracts originally established by a 90-24 transfer prior to September 25, 2007 are exempt (or grandfathered) from some of the requirements of the final regulations; provided that no salary reduction or other contributions have ever been made to the contract, and that no additional transfers are made to made to the contract on or after September 25, 2007. Further, contracts that are not grandfathered were generally required to be part of, and subject to the requirements of an employer’s 403(b) plan upon its establishment, but no later than by January 1, 2009.
The final regulations generally do not affect a participant’s ability to transfer some or all of a 403(b) account to a state-defined benefit plan to purchase service credits, where such a transfer is otherwise consistent with applicable rules and requirements and with the terms of the employer’s plan.
The foregoing discussion is intended as a general discussion only, and you may wish to discuss the 403(b) regulations and/or the general information above with your tax advisor.
(c) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an individual retirement program known as a traditional “Individual Retirement Annuity” (“IRA”). Under applicable limitations, certain amounts may be contributed to an IRA which will be deductible from the individual’s gross income. The ability to deduct an IRA contribution to a traditional IRA is subject to limits based upon income levels, retirement plan participation status, and other factors. The maximum IRA (traditional and/or Roth) contribution for 2020 is the lesser of $6,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2020. IRAs are subject to limitations on eligibility, contributions, transferability and distributions. Sales of contracts for use with IRAs are subject to special requirements imposed by the Code, including the requirement that certain informational disclosure be given to persons desiring to establish an IRA. Purchasers of contracts to be qualified as IRAs should obtain competent tax advice as to the tax treatment and suitability of such an investment. If neither the Owner nor the Owner’s spouse is covered by an employer retirement plan, the IRA contribution may be fully deductible. If the Owner, or if filing jointly, the Owner or spouse, is covered by an employer retirement plan, the Owner may be entitled to only a partial (reduced) deduction or no deduction at all, depending on adjusted gross income. The rules concerning what constitutes “coverage” are complex and purchasers should consult their tax advisor or Internal Revenue Service Publication 590-A & B for more details. The effect of income on the deduction is sometimes called the adjusted gross income limitation (AGI limit). A modified AGI at or below a certain threshold level allows a full deduction of contributions regardless of coverage under an employer’s plan. If you and your spouse are filing jointly and have a modified AGI in 2020 of less than $104,000, your contribution may be fully deductible; if your income is between $104,000 and $124,000, your contribution may be partially deductible and if your income is $124,000 or more, your contribution may not be deductible. If you are single and your income in 2020 is less than $65,000, your contribution may be fully deductible; if your income is between $65,000 and $75,000, your contribution may be partially deductible and if your income is $75,000 or more, your contribution may not be deductible. If you are married filing separately and you lived with your spouse at anytime during the year, and your income exceeds $10,000, none of your contribution may be deductible. If you and your spouse file jointly, and you are not covered by a plan but your spouse is: if your modified AGI in 2020 is between $196,000 and $206,000, your contribution may be partially deductible.
(d) Roth IRAs
Section 408A of the Code permits an individual to contribute to an individual retirement program called a Roth IRA. Contributions to a Roth IRA are not deductible but distributions are tax-free if certain requirements are satisfied. The maximum IRA (traditional and/or Roth) contribution for 2020 is the lesser of $6,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2020. Unlike traditional IRAs, to which everyone can contribute even if they cannot deduct the full contribution, Roth IRAs have income limitations on who can establish such a contract. Generally, you can make a full or partial contribution to a Roth IRA if you have taxable compensation and your modified adjusted gross income in 2020 is less than: $196,000 for married filing jointly or qualifying widow(er), $10,000 for married filing separately and you lived with your spouse at any time during the
-17-

 

year, and $124,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year. All persons may be eligible to convert a distribution from an employer-sponsored plan or from a traditional IRA into a Roth IRA. Conversions or rollovers from qualified plans into Roth IRAs normally require taxes to be paid on any previously untaxed amounts included in the amount converted. If the Contracts are made available for use with Roth IRAs, they may be subject to special requirements imposed by the Internal Revenue Service (“IRS”). Purchasers of the Contracts for this purpose will be provided with such supplementary information as may be required by the IRS or other appropriate agency.
(e) Pension and Profit-Sharing Plans
Section 401(a) of the Code permits certain employers to establish various types of retirement plans, including 401(k) plans, for employees. However, governmental employers may not establish new 401(k) plans. These retirement plans may permit the purchase of the contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees will not be includible in the gross income of the employee until distributed from the plan if certain conditions are met. The tax consequences to owners may vary depending upon the particular plan design. However, the Code places limitations on all plans on such items as amount of allowable contributions; form, manner and timing of distributions; investing and non-forfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. Purchasers of contracts for use with pension or profit sharing plans should obtain competent tax advice as to the tax treatment and suitability of such an investment.
(f) Deferred Compensation Plans — Section 457(b)
Under Section 457(b) of the Code, governmental and certain other tax-exempt employers may establish, for the benefit of their employees, deferred compensation plans, which may invest in annuity contracts. The Code, as in the case of employer sponsored retirement plans generally establishes limitations and restrictions on eligibility, contributions and distributions. Under these plans, contributions made for the benefit of the employees will not be includible in the employees’ gross income until distributed from, or in some cases made available under the plan. Funds in a non-governmental 457(b) plan remain assets of the employer and are subject to claims by the creditors of the employer. All 457(b) plans of state and local governments must hold assets and income in a qualifying trust, custodial account, or annuity contract for the exclusive benefit of participants and their Beneficiaries.
-18-

 

Broker-Dealer Firms Receiving Revenue Sharing Payments
The following list includes the names of member firms of FINRA (or their affiliated broker-dealers) that received a revenue sharing payment of more than $5,000 as of the calendar year ending December 31, 2019, from American General Life Insurance Company and The United States Life Insurance Company in the City of New York, both affiliated companies. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Contract.
Ameriprise Financial Services, Inc. LPL Financial Corporation
BancWest Investment Services M&T Securities, Inc.
BBVA Compass Investment Solutions, Inc. MML Investors Services, LLC
Cadaret, Grant & Co, Inc Morgan Stanley & Co., Incorporated
Cetera Advisor Network LLC NEXT Financial Group, Inc.
Cetera Advisors LLC PNC Investments
Cetera Financial Specialists LLC Primerica Financial Services
Cetera Investment Services LLC Raymond James & Associates
Citigroup Global Markets Inc. Raymond James Financial
Citizens Securities, Inc. RBC Capital Markets Corporation
CUSO Financial Services, L.P. Royal Alliance Associates, Inc.
Edward D. Jones & Co., L.P. SagePoint Financial, Inc.
First Allied Securities Securities America, Inc.
FSC Securities Corp. Stifel Nicolaus & Co, Inc
H. Beck, Inc Summit Brokerage Services
H.D. Vest Investment Securities Triad Advisors, Inc
Infinex Investments, Inc. U.S. Bancorp Investments, Inc.
Investacorp, Inc UBS Financial Services Inc.
Janney Montgomery Scott LLC. UnionBanc Investment Services
Kestra Investment Services Voya Financial Advisors, Inc.
Lincoln Financial Advisor Wells Fargo Advisor, LLC
Lincoln Financial Securities Woodbury Financial Services, Inc.
We will update this list annually; interim arrangements may not be reflected. You are encouraged to review the prospectus for each Underlying Fund for any other compensation arrangements pertaining to the distribution of Underlying Fund shares.
Certain broker dealers with which we have selling agreements are our affiliates. In an effort to promote the sale of our products, affiliated firms may pay their registered representatives additional cash incentives which may include but are not limited to bonus payments, expense payments, health and retirement benefits or the waiver of overhead costs or expenses in connection with the sale of the Contracts, that they would not receive in connection with the sale of contracts issued by unaffiliated companies.
Distribution of Contracts
The contracts are offered on a continuous basis through AIG Capital Services, Inc., located at 21650 Oxnard Street, Suite 750 Woodland Hills, CA 91367-4997. AIG Capital Services, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority. The Company and AIG Capital Services, Inc. are each an indirect, wholly owned subsidiary of American International Group. No underwriting fees are paid in connection with the distribution of the contracts.
-19-

 

Financial Statements
PricewaterhouseCoopers LLP, located at 1000 Louisiana Street, Suite 5800, Houston, TX 77002, serves as the independent registered public accounting firm for Variable Annuity Account Five, American General Life Insurance Company (“AGL”), and American Home Assurance Company.
You may obtain a free copy of these financial statements if you write us at our Annuity Service Center or call us at 1-800-445-7862. The financial statements have also been filed with the SEC and can be obtained through its website at http://www.sec.gov.
The following financial statements are included in the Statement of Additional Information in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting:
• The Audited Financial Statements of Variable Annuity Account Five of American General Life Insurance Company as of December 31, 2019 and for each of the two years in the period ended December 31, 2019.
• The Audited Statutory Financial Statements of American General Life Insurance Company as of December 31, 2019 and December 31, 2018 and for each of the three years in the period ended December 31, 2019.
• The Audited Statutory Financial Statements of American Home Assurance Company as of December 31, 2019 and December 31, 2018 and for each of the three years in the period ended December 31, 2019.
The financial statements of AGL should be considered only as bearing on the ability of AGL to meet its obligation under the contracts. You should only consider the statutory financial statements of American Home Assurance Company (“American Home”) that we include in the Statement of Additional Information as a bearing on the ability of American Home, as guarantor, to meet its obligations under the guarantee of insurance obligations under contracts issued prior to December 29, 2006, at 4:00 p.m. Eastern Time (“Point of Termination”). Contracts with an issue date after the Point of Termination are not covered by the American Home guarantee.
-20-

American General

Life Companies

Variable Annuity Account Five

American General Life Insurance Company

2019

Annual Report

December 31, 2019

 

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors of American General Life Insurance Company and the Contract Owners of Variable Annuity Account Five.

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of each of the sub-accounts of Variable Annuity Account Five indicated in the table below as of December 31, 2019, and the related statements of operations and changes in net assets for each of the two years in the period then ended or each of the periods indicated in the table below, including the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the sub-accounts of Variable Annuity Account Five as of December 31, 2019, and the results of each of their operations and the changes in each of their net assets for the two years in the period then ended or each of the periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.

Fidelity VIP Contrafund Portfolio Service Class 2

Fidelity VIP Mid Cap Portfolio Service Class 2

 

 

Fidelity VIP Equity-Income Portfolio Service Class 2

Fidelity VIP Overseas Portfolio Service Class 2

 

 

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

 

 

SST Balanced Growth Strategy Class 1

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

SST Balanced Growth Strategy Class 2

SST SA Multi-Managed International Equity Portfolio Class 1

SST Balanced Growth Strategy Class 3

SST SA Multi-Managed International Equity Portfolio Class 2

SST Conservative Growth Strategy Class 1

SST SA Multi-Managed International Equity Portfolio Class 3

 

 

SST Conservative Growth Strategy Class 2

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

 

 

SST Conservative Growth Strategy Class 3

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

 

 

SST Growth Strategy Class 1

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

 

 

SST Growth Strategy Class 2

SST SA Multi-Managed Large Cap Value Portfolio Class 1

 

 

SST Growth Strategy Class 3

SST SA Multi-Managed Large Cap Value Portfolio Class 2

 

 

SST Moderate Growth Strategy Class 1

SST SA Multi-Managed Large Cap Value Portfolio Class 3

 

 

SST Moderate Growth Strategy Class 2

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

 

 

SST Moderate Growth Strategy Class 3

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

 

 

SST SA Allocation Balanced Portfolio Class 3

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

 

 

SST SA Allocation Growth Portfolio Class 3

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

 

 

SST SA Allocation Moderate Growth Portfolio Class 3

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

 

 

SST SA Allocation Moderate Portfolio Class 3

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

SST SA Columbia Focused Growth Portfolio Class 1 (1) (2)

SST SA Multi-Managed Small Cap Portfolio Class 1

SST SA Columbia Focused Growth Portfolio Class 2 (1) (2)

SST SA Multi-Managed Small Cap Portfolio Class 2

SST SA Columbia Focused Growth Portfolio Class 3 (1) (2)

SST SA Multi-Managed Small Cap Portfolio Class 3

 

 

SST SA Columbia Focused Value Portfolio Class 2

SST SA Wellington Real Return Portfolio Class 3

 

 

SST SA Columbia Focused Value Portfolio Class 3

SAST SA DFA Ultra Short Bond Portfolio Class 1

 

 

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

SAST SA DFA Ultra Short Bond Portfolio Class 2

 

 

SAST SA AB Growth Portfolio Class 1

SAST SA DFA Ultra Short Bond Portfolio Class 3

 

 

SAST SA AB Growth Portfolio Class 2

SAST SA VCP Dynamic Allocation Portfolio Class 3

 

 

SAST SA AB Growth Portfolio Class 3

SAST SA VCP Dynamic Strategy Portfolio Class 3

 

 

SAST SA American Funds Global Growth Portfolio Class 3

T Rowe Price Equity Income Portfolio II Class

 

 

SAST SA American Funds Growth Portfolio Class 3

 

 

 

PricewaterhouseCoopers LLP, 1000 Louisiana Street, Suite 5800, Houston, TX 77002

T: (713) 356 4000, F: (713) 356 4717, www.pwc.com/us

 

 

SAST SA American Funds Growth-Income Portfolio Class 3

T Rowe Price Blue Chip Growth Portfolio II Class

(1)The SST SA Columbia Focused Growth Portfolio, in operation for the period January 1, 2018 to October 22, 2018 (cessation of operations) merged into the SAST SA AB Growth Portfolio.

(2)Where there was a cessation of operations, only a statement of operations and changes in net assets is included for the respective period presented.

Basis for Opinions

These financial statements are the responsibility of American General Life Insurance Company management. Our responsibility is to express an opinion on the financial statements of each of the sub- accounts of Variable Annuity Account Five based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to each of the sub-accounts of Variable Annuity Account Five in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of investments owned as of December 31, 2019 by correspondence with the transfer agents of the investee mutual funds and the custodians. We believe that our audits provide a reasonable basis for our opinions.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

April 22, 2020

We have served as the auditor of one or more of the sub-accounts of the AIG Life and Retirement Separate Account Group since at least 1994. We have not been able to determine the specific year we began serving as auditor.

 

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2019

 

 

 

 

Due from

 

 

 

 

 

 

 

 

 

 

 

(to)

 

 

 

 

 

 

Net Assets

 

 

 

 

Company's

 

 

Contract

 

Contract

 

Attributable to

 

 

 

 

General

 

 

Owners -

 

Owners -

 

Contract

 

 

Investments

 

Account,

 

 

Annuity

 

Accumulation

 

Owner

Sub-accounts

 

at Fair Value

 

Net

Net Assets

 

Reserves

 

Reserves

 

Reserves

Fidelity VIP Contrafund Portfolio Service Class 2

$

4,329,353

$

- $

4,329,353

$

22,025

$

4,307,328

$

4,329,353

Fidelity VIP Equity-Income Portfolio Service Class 2

 

5,342,026

 

-

5,342,026

 

86,881

 

5,255,145

 

5,342,026

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

 

14,802,985

 

-

14,802,985

 

31,549

 

14,771,436

 

14,802,985

Fidelity VIP Mid Cap Portfolio Service Class 2

 

7,746,296

 

-

7,746,296

 

28,505

 

7,717,791

 

7,746,296

Fidelity VIP Overseas Portfolio Service Class 2

 

4,845,911

 

-

4,845,911

 

28,447

 

4,817,464

 

4,845,911

SST Balanced Growth Strategy Class 1

 

14,263,596

 

-

14,263,596

 

363,851

 

13,899,745

 

14,263,596

SST Balanced Growth Strategy Class 2

 

53,379,206

 

-

53,379,206

 

240,093

 

53,139,113

 

53,379,206

SST Balanced Growth Strategy Class 3

 

31,542,725

 

-

31,542,725

 

109,281

 

31,433,444

 

31,542,725

SST Conservative Growth Strategy Class 1

 

8,379,544

 

-

8,379,544

 

66,511

 

8,313,033

 

8,379,544

SST Conservative Growth Strategy Class 2

 

39,595,617

 

-

39,595,617

 

377,912

 

39,217,705

 

39,595,617

SST Conservative Growth Strategy Class 3

 

23,546,604

 

-

23,546,604

 

264,038

 

23,282,566

 

23,546,604

SST Growth Strategy Class 1

 

18,649,898

 

-

18,649,898

 

287,220

 

18,362,678

 

18,649,898

SST Growth Strategy Class 2

 

34,369,371

 

-

34,369,371

 

-

 

34,369,371

 

34,369,371

SST Growth Strategy Class 3

 

41,102,008

 

-

41,102,008

 

667,428

 

40,434,580

 

41,102,008

SST Moderate Growth Strategy Class 1

 

16,537,515

 

-

16,537,515

 

72,445

 

16,465,070

 

16,537,515

SST Moderate Growth Strategy Class 2

 

71,851,287

 

-

71,851,287

 

126,009

 

71,725,278

 

71,851,287

SST Moderate Growth Strategy Class 3

 

56,672,019

 

-

56,672,019

 

430,104

 

56,241,915

 

56,672,019

SST SA Allocation Balanced Portfolio Class 3

 

64,468,447

 

-

64,468,447

 

206,988

 

64,261,459

 

64,468,447

SST SA Allocation Growth Portfolio Class 3

 

40,245,141

 

-

40,245,141

 

31,142

 

40,213,999

 

40,245,141

SST SA Allocation Moderate Growth Portfolio Class 3

 

225,319,262

 

-

225,319,262

 

1,571,407

 

223,747,855

 

225,319,262

SST SA Allocation Moderate Portfolio Class 3

 

88,580,612

 

-

88,580,612

 

216,807

 

88,363,805

 

88,580,612

SST SA Columbia Focused Value Portfolio Class 2

 

14,293,889

 

-

14,293,889

 

83,666

 

14,210,223

 

14,293,889

SST SA Columbia Focused Value Portfolio Class 3

 

8,919,778

 

-

8,919,778

 

1,930

 

8,917,848

 

8,919,778

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

 

1,831,181

 

-

1,831,181

 

29,875

 

1,801,306

 

1,831,181

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

 

19,633,362

 

-

19,633,362

 

71,912

 

19,561,450

 

19,633,362

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

 

11,230,809

 

-

11,230,809

 

31,630

 

11,199,179

 

11,230,809

SST SA Multi-Managed International Equity Portfolio Class 1

 

1,182,164

 

-

1,182,164

 

8,186

 

1,173,978

 

1,182,164

SST SA Multi-Managed International Equity Portfolio Class 2

 

18,552,075

 

-

18,552,075

 

61,217

 

18,490,858

 

18,552,075

SST SA Multi-Managed International Equity Portfolio Class 3

 

12,371,089

 

-

12,371,089

 

13,207

 

12,357,882

 

12,371,089

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

 

4,314,816

 

-

4,314,816

 

62,244

 

4,252,572

 

4,314,816

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

 

32,017,854

 

-

32,017,854

 

74,626

 

31,943,228

 

32,017,854

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

 

15,971,193

 

-

15,971,193

 

521,165

 

15,450,028

 

15,971,193

SST SA Multi-Managed Large Cap Value Portfolio Class 1

 

3,733,593

 

-

3,733,593

 

-

 

3,733,593

 

3,733,593

SST SA Multi-Managed Large Cap Value Portfolio Class 2

 

24,836,337

 

-

24,836,337

 

43,599

 

24,792,738

 

24,836,337

SST SA Multi-Managed Large Cap Value Portfolio Class 3

 

12,444,747

 

-

12,444,747

 

413,348

 

12,031,399

 

12,444,747

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

 

2,963,297

 

-

2,963,297

 

73,720

 

2,889,577

 

2,963,297

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

 

22,821,877

 

-

22,821,877

 

109,055

 

22,712,822

 

22,821,877

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

 

13,448,281

 

-

13,448,281

 

328,699

 

13,119,582

 

13,448,281

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

 

2,673,085

 

-

2,673,085

 

-

 

2,673,085

 

2,673,085

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

 

22,488,113

 

-

22,488,113

 

85,407

 

22,402,706

 

22,488,113

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

 

13,211,390

 

-

13,211,390

 

224,531

 

12,986,859

 

13,211,390

SST SA Multi-Managed Small Cap Portfolio Class 1

 

1,460,894

 

-

1,460,894

 

28,556

 

1,432,338

 

1,460,894

SST SA Multi-Managed Small Cap Portfolio Class 2

 

15,610,106

 

-

15,610,106

 

91,620

 

15,518,486

 

15,610,106

SST SA Multi-Managed Small Cap Portfolio Class 3

 

9,534,508

 

-

9,534,508

 

56,669

 

9,477,839

 

9,534,508

SST SA Wellington Real Return Portfolio Class 3

 

5,688,626

 

-

5,688,626

 

26,503

 

5,662,123

 

5,688,626

SAST SA AB Growth Portfolio Class 1

 

1,238,992

 

-

1,238,992

 

14,961

 

1,224,031

 

1,238,992

SAST SA AB Growth Portfolio Class 2

 

30,568,128

 

-

30,568,128

 

110,560

 

30,457,568

 

30,568,128

SAST SA AB Growth Portfolio Class 3

 

19,154,124

 

-

19,154,124

 

27,110

 

19,127,014

 

19,154,124

SAST SA American Funds Global Growth Portfolio Class 3

 

6,877,647

 

-

6,877,647

 

16,235

 

6,861,412

 

6,877,647

SAST SA American Funds Growth Portfolio Class 3

 

4,248,130

 

-

4,248,130

 

7,301

 

4,240,829

 

4,248,130

SAST SA American Funds Growth-Income Portfolio Class 3

 

6,476,133

 

-

6,476,133

 

10,421

 

6,465,712

 

6,476,133

SAST SA DFA Ultra Short Bond Portfolio Class 1

 

468,809

 

-

468,809

 

-

 

468,809

 

468,809

SAST SA DFA Ultra Short Bond Portfolio Class 2

 

4,427,870

 

-

4,427,870

 

38,521

 

4,389,349

 

4,427,870

SAST SA DFA Ultra Short Bond Portfolio Class 3

 

10,834,734

 

-

10,834,734

 

8,412

 

10,826,322

 

10,834,734

SAST SA VCP Dynamic Allocation Portfolio Class 3

 

53,203,285

 

-

53,203,285

 

-

 

53,203,285

 

53,203,285

SAST SA VCP Dynamic Strategy Portfolio Class 3

 

48,397,282

 

-

48,397,282

 

-

 

48,397,282

 

48,397,282

T Rowe Price Blue Chip Growth Portfolio II Class

 

5,088,005

 

-

5,088,005

 

21,282

 

5,066,723

 

5,088,005

T Rowe Price Equity Income Portfolio II Class

 

5,527,488

 

-

5,527,488

 

18,043

 

5,509,445

 

5,527,488

The accompanying Notes to Financial Statements are an integral part of this statement.

1

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

SCHEDULE OF PORTFOLIO INVESTMENTS

December 31, 2019

 

 

 

Net Asset

 

 

 

 

 

 

 

 

Value per

 

Shares at Fair

 

Cost of Shares

 

Sub-accounts

Shares

 

Share

 

Value

 

Held

Level*

Fidelity VIP Contrafund Portfolio Service Class 2

119,927

$

36.10

$

4,329,353

$

3,827,234

1

Fidelity VIP Equity-Income Portfolio Service Class 2

231,257

 

23.10

 

5,342,026

 

4,826,350

1

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,153,779

 

12.83

 

14,802,985

 

14,340,975

1

Fidelity VIP Mid Cap Portfolio Service Class 2

243,978

 

31.75

 

7,746,296

 

7,691,265

1

Fidelity VIP Overseas Portfolio Service Class 2

211,612

 

22.90

 

4,845,911

 

4,073,332

1

SST Balanced Growth Strategy Class 1

289,029

 

49.35

 

14,263,596

 

5,682,651

1

SST Balanced Growth Strategy Class 2

1,113,691

 

47.93

 

53,379,206

 

28,289,341

1

SST Balanced Growth Strategy Class 3

669,129

 

47.14

 

31,542,725

 

17,328,894

1

SST Conservative Growth Strategy Class 1

191,052

 

43.86

 

8,379,544

 

3,957,346

1

SST Conservative Growth Strategy Class 2

930,130

 

42.57

 

39,595,617

 

22,623,025

1

SST Conservative Growth Strategy Class 3

562,240

 

41.88

 

23,546,604

 

16,668,520

1

SST Growth Strategy Class 1

313,286

 

59.53

 

18,649,898

 

6,098,566

1

SST Growth Strategy Class 2

594,523

 

57.81

 

34,369,371

 

13,843,532

1

SST Growth Strategy Class 3

723,627

 

56.80

 

41,102,008

 

22,811,866

1

SST Moderate Growth Strategy Class 1

304,671

 

54.28

 

16,537,515

 

5,447,912

1

SST Moderate Growth Strategy Class 2

1,362,626

 

52.73

 

71,851,287

 

29,134,765

1

SST Moderate Growth Strategy Class 3

1,093,421

 

51.83

 

56,672,019

 

28,044,950

1

SST SA Allocation Balanced Portfolio Class 3

6,395,679

 

10.08

 

64,468,447

 

69,338,697

1

SST SA Allocation Growth Portfolio Class 3

2,820,262

 

14.27

 

40,245,141

 

30,860,062

1

SST SA Allocation Moderate Growth Portfolio Class 3

21,397,841

 

10.53

 

225,319,262

 

228,292,970

1

SST SA Allocation Moderate Portfolio Class 3

8,333,077

 

10.63

 

88,580,612

 

90,210,589

1

SST SA Columbia Focused Value Portfolio Class 2

724,842

 

19.72

 

14,293,889

 

11,147,891

1

SST SA Columbia Focused Value Portfolio Class 3

452,092

 

19.73

 

8,919,778

 

7,348,759

1

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

153,365

 

11.94

 

1,831,181

 

1,810,016

1

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

1,644,335

 

11.94

 

19,633,362

 

19,175,076

1

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

945,354

 

11.88

 

11,230,809

 

10,970,888

1

SST SA Multi-Managed International Equity Portfolio Class 1

133,578

 

8.85

 

1,182,164

 

1,013,746

1

SST SA Multi-Managed International Equity Portfolio Class 2

2,091,553

 

8.87

 

18,552,075

 

17,278,411

1

SST SA Multi-Managed International Equity Portfolio Class 3

1,397,863

 

8.85

 

12,371,089

 

11,565,616

1

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

305,366

 

14.13

 

4,314,816

 

3,976,188

1

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

2,326,879

 

13.76

 

32,017,854

 

30,502,037

1

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

1,176,082

 

13.58

 

15,971,193

 

15,247,509

1

SST SA Multi-Managed Large Cap Value Portfolio Class 1

235,558

 

15.85

 

3,733,593

 

3,396,794

1

SST SA Multi-Managed Large Cap Value Portfolio Class 2

1,567,951

 

15.84

 

24,836,337

 

22,733,841

1

SST SA Multi-Managed Large Cap Value Portfolio Class 3

785,653

 

15.84

 

12,444,747

 

11,846,691

1

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

153,858

 

19.26

 

2,963,297

 

2,426,090

1

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

1,256,711

 

18.16

 

22,821,877

 

18,975,098

1

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

766,721

 

17.54

 

13,448,281

 

12,096,950

1

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

164,599

 

16.24

 

2,673,085

 

2,573,227

1

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

1,388,155

 

16.20

 

22,488,113

 

22,643,336

1

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

817,031

 

16.17

 

13,211,390

 

13,570,371

1

SST SA Multi-Managed Small Cap Portfolio Class 1

110,173

 

13.26

 

1,460,894

 

1,325,404

1

SST SA Multi-Managed Small Cap Portfolio Class 2

1,212,906

 

12.87

 

15,610,106

 

14,344,375

1

SST SA Multi-Managed Small Cap Portfolio Class 3

755,508

 

12.62

 

9,534,508

 

9,334,018

1

SST SA Wellington Real Return Portfolio Class 3

584,648

 

9.73

 

5,688,626

 

5,664,817

1

SAST SA AB Growth Portfolio Class 1

24,564

 

50.44

 

1,238,992

 

1,047,904

1

SAST SA AB Growth Portfolio Class 2

612,220

 

49.93

 

30,568,128

 

25,875,229

1

SAST SA AB Growth Portfolio Class 3

389,470

 

49.18

 

19,154,124

 

16,276,315

1

SAST SA American Funds Global Growth Portfolio Class 3

628,096

 

10.95

 

6,877,647

 

7,175,816

1

SAST SA American Funds Growth Portfolio Class 3

354,306

 

11.99

 

4,248,130

 

4,111,754

1

SAST SA American Funds Growth-Income Portfolio Class 3

542,390

 

11.94

 

6,476,133

 

6,488,850

1

SAST SA DFA Ultra Short Bond Portfolio Class 1

44,061

 

10.64

 

468,809

 

466,410

1

SAST SA DFA Ultra Short Bond Portfolio Class 2

421,301

 

10.51

 

4,427,870

 

4,419,302

1

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,040,801

 

10.41

 

10,834,734

 

11,303,523

1

SAST SA VCP Dynamic Allocation Portfolio Class 3

4,076,880

 

13.05

 

53,203,285

 

51,294,971

1

SAST SA VCP Dynamic Strategy Portfolio Class 3

3,658,147

 

13.23

 

48,397,282

 

45,891,501

1

T Rowe Price Blue Chip Growth Portfolio II Class

135,970

 

37.42

 

5,088,005

 

3,847,267

1

T Rowe Price Equity Income Portfolio II Class

204,646

 

27.01

 

5,527,488

 

5,622,732

1

*Represents the level within the fair value hierarchy under which the portfolio is classified as defined in ASC 820 and described in Note 3 to the financial statements.

The accompanying Notes to Financial Statements are an integral part of this statement.

2

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

 

 

Fidelity VIP

 

Fidelity VIP

 

 

 

 

 

 

Fidelity VIP

 

Equity-

 

Investment

 

Fidelity VIP

 

Fidelity VIP

 

 

Contrafund

 

Income

 

Grade Bond

 

Mid Cap

 

Overseas

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Service Class

 

Service Class

 

Service Class

 

Service Class

 

Service Class

 

 

2

 

2

 

2

 

2

 

2

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

9,094

$

95,431

$

368,174

$

51,776

$

71,104

Mortality and expense risk and administrative charges

 

(65,054)

 

(83,277)

 

(226,511)

 

(120,101)

 

(75,293)

Net investment income (loss)

 

(55,960)

 

12,154

 

141,663

 

(68,325)

 

(4,189)

Net realized gain (loss)

 

(50,978)

 

(69,505)

 

91,635

 

(227,493)

 

173,395

Capital gain distribution from mutual funds

 

520,503

 

370,864

 

-

 

915,896

 

188,033

Change in unrealized appreciation (depreciation) of investments

 

683,486

 

890,637

 

882,854

 

897,519

 

761,893

Increase (decrease) in net assets from operations

 

1,097,051

 

1,204,150

 

1,116,152

 

1,517,597

 

1,119,132

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

60,761

 

107,222

 

53,749

 

61,960

 

58,749

Payments for contract benefits or terminations

 

(645,607)

 

(940,174)

 

(2,148,509)

 

(1,101,582)

 

(769,586)

Transfers between sub-accounts (including fixed account), net

 

(211,524)

 

(150,890)

 

1,246,700

 

(131,411)

 

(241,100)

Contract maintenance charges

 

(29,685)

 

(52,687)

 

(132,224)

 

(87,629)

 

(52,721)

Adjustments to net assets allocated to contracts in payout period

 

(2,321)

 

(629)

 

57

 

(675)

 

(875)

Increase (decrease) in net assets from contract transactions

 

(828,376)

 

(1,037,158)

 

(980,227)

 

(1,259,337)

 

(1,005,533)

Increase (decrease) in net assets

 

268,675

 

166,992

 

135,925

 

258,260

 

113,599

Net assets at beginning of period

 

4,060,678

 

5,175,034

 

14,667,060

 

7,488,036

 

4,732,312

Net assets at end of period

$

4,329,353

$

5,342,026

$

14,802,985

$

7,746,296

$

4,845,911

Beginning units

 

246,482

 

367,481

 

1,160,837

 

467,464

 

518,402

Units issued

 

11,151

 

18,169

 

140,274

 

30,595

 

31,274

Units redeemed

 

(54,438)

 

(82,619)

 

(213,233)

 

(99,446)

 

(127,048)

Ending units

 

203,195

 

303,031

 

1,087,878

 

398,613

 

422,628

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

20,588

$

120,650

$

369,854

$

34,813

$

70,290

Mortality and expense risk and administrative charges

 

(77,127)

 

(97,549)

 

(254,498)

 

(140,029)

 

(87,018)

Net investment income (loss)

 

(56,539)

 

23,101

 

115,356

 

(105,216)

 

(16,728)

Net realized gain (loss)

 

197,436

 

25,853

 

(229,107)

 

143,641

 

264,147

Capital gain distribution from mutual funds

 

458,947

 

309,429

 

111,959

 

821,971

 

-

Change in unrealized appreciation (depreciation) of investments

 

(899,505)

 

(940,222)

 

(422,298)

 

(2,153,540)

 

(1,163,771)

Increase (decrease) in net assets from operations

 

(299,661)

 

(581,839)

 

(424,090)

 

(1,293,144)

 

(916,352)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

127,996

 

379

 

138,453

 

35,186

 

413

Payments for contract benefits or terminations

 

(1,114,703)

 

(1,032,159)

 

(3,031,187)

 

(1,711,682)

 

(815,542)

Transfers between sub-accounts (including fixed account), net

 

(237,200)

 

6,412

 

(239,797)

 

739,645

 

423,486

Contract maintenance charges

 

(32,452)

 

(55,760)

 

(142,224)

 

(91,232)

 

(54,428)

Adjustments to net assets allocated to contracts in payout period

 

1,753

 

9

 

21

 

18

 

6

Increase (decrease) in net assets from contract transactions

 

(1,254,606)

 

(1,081,119)

 

(3,274,734)

 

(1,028,065)

 

(446,065)

Increase (decrease) in net assets

 

(1,554,267)

 

(1,662,958)

 

(3,698,824)

 

(2,321,209)

 

(1,362,417)

Net assets at beginning of period

 

5,614,945

 

6,837,992

 

18,365,884

 

9,809,245

 

6,094,729

Net assets at end of period

$

4,060,678

$

5,175,034

$

14,667,060

$

7,488,036

$

4,732,312

Beginning units

 

313,702

 

436,588

 

1,420,330

 

513,321

 

557,995

Units issued

 

19,130

 

19,042

 

118,728

 

67,515

 

54,364

Units redeemed

 

(86,350)

 

(88,149)

 

(378,221)

 

(113,372)

 

(93,957)

Ending units

 

246,482

 

367,481

 

1,160,837

 

467,464

 

518,402

The accompanying Notes to Financial Statements are an integral part of this statement.

3

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST

 

SST

 

SST

 

SST

 

SST

 

 

Balanced

 

Balanced

 

Balanced

 

Conservative

 

Conservative

 

 

Growth

 

Growth

 

Growth

 

Growth

 

Growth

 

 

Strategy

 

Strategy

 

Strategy

 

Strategy

 

Strategy

 

 

Class 1

 

Class 2

 

Class 3

 

Class 1

 

Class 2

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

-

$

-

$

-

Mortality and expense risk and administrative charges

 

(200,996)

 

(867,785)

 

(472,116)

 

(119,425)

 

(652,007)

Net investment income (loss)

 

(200,996)

 

(867,785)

 

(472,116)

 

(119,425)

 

(652,007)

Net realized gain (loss)

 

1,301,425

 

5,558,497

 

2,255,093

 

894,514

 

3,872,971

Change in unrealized appreciation (depreciation) of investments

 

1,161,801

 

3,721,890

 

2,915,934

 

417,686

 

2,332,708

Increase (decrease) in net assets from operations

 

2,262,230

 

8,412,602

 

4,698,911

 

1,192,775

 

5,553,672

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

81,928

 

8,373

 

472,472

 

22,684

 

78,938

Payments for contract benefits or terminations

 

(1,543,030)

 

(6,166,035)

 

(3,418,681)

 

(1,358,045)

 

(5,674,551)

Transfers between sub-accounts (including fixed account), net

 

86,815

 

207,019

 

1,374,171

 

292,708

 

(120,827)

Contract maintenance charges

 

(4,595)

 

(23,667)

 

(80,778)

 

(3,081)

 

(13,964)

Adjustments to net assets allocated to contracts in payout period

 

(161)

 

44

 

(1,683)

 

(76)

 

141

Increase (decrease) in net assets from contract transactions

 

(1,379,043)

 

(5,974,266)

 

(1,654,499)

 

(1,045,810)

 

(5,730,263)

Increase (decrease) in net assets

 

883,187

 

2,438,336

 

3,044,412

 

146,965

 

(176,591)

Net assets at beginning of period

 

13,380,409

 

50,940,870

 

28,498,313

 

8,232,579

 

39,772,208

Net assets at end of period

$

14,263,596

$

53,379,206

$

31,542,725

$

8,379,544

$

39,595,617

Beginning units

 

437,198

 

1,771,282

 

995,103

 

296,749

 

1,527,536

Units issued

 

13,206

 

75,986

 

66,480

 

11,619

 

34,227

Units redeemed

 

(53,150)

 

(260,104)

 

(119,293)

 

(45,782)

 

(235,223)

Ending units

 

397,254

 

1,587,164

 

942,290

 

262,586

 

1,326,540

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

-

$

-

$

-

Mortality and expense risk and administrative charges

 

(218,969)

 

(947,946)

 

(507,152)

 

(127,888)

 

(717,379)

Net investment income (loss)

 

(218,969)

 

(947,946)

 

(507,152)

 

(127,888)

 

(717,379)

Net realized gain (loss)

 

1,421,153

 

7,726,606

 

2,947,954

 

629,816

 

3,632,568

Change in unrealized appreciation (depreciation) of investments

 

(1,844,089)

 

(9,344,112)

 

(3,830,420)

 

(875,833)

 

(4,896,211)

Increase (decrease) in net assets from operations

 

(641,905)

 

(2,565,452)

 

(1,389,618)

 

(373,905)

 

(1,981,022)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

205

 

199,151

 

73,739

 

180

 

21,683

Payments for contract benefits or terminations

 

(1,547,877)

 

(8,003,884)

 

(4,439,661)

 

(631,388)

 

(5,861,191)

Transfers between sub-accounts (including fixed account), net

 

(408,971)

 

(729,019)

 

(671,885)

 

(305,134)

 

326,427

Contract maintenance charges

 

(5,297)

 

(26,769)

 

(91,317)

 

(3,641)

 

(17,200)

Adjustments to net assets allocated to contracts in payout period

 

839

 

(2,157)

 

3,304

 

(6,603)

 

(2,096)

Increase (decrease) in net assets from contract transactions

 

(1,961,101)

 

(8,562,678)

 

(5,125,820)

 

(946,586)

 

(5,532,377)

Increase (decrease) in net assets

 

(2,603,006)

 

(11,128,130)

 

(6,515,438)

 

(1,320,491)

 

(7,513,399)

Net assets at beginning of period

 

15,983,415

 

62,069,000

 

35,013,751

 

9,553,070

 

47,285,607

Net assets at end of period

$

13,380,409

$

50,940,870

$

28,498,313

$

8,232,579

$

39,772,208

Beginning units

 

499,020

 

2,054,099

 

1,164,352

 

329,267

 

1,729,279

Units issued

 

4,164

 

124,398

 

14,248

 

3,846

 

46,028

Units redeemed

 

(65,986)

 

(407,215)

 

(183,497)

 

(36,364)

 

(247,771)

Ending units

 

437,198

 

1,771,282

 

995,103

 

296,749

 

1,527,536

The accompanying Notes to Financial Statements are an integral part of this statement.

4

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST

 

 

 

 

 

 

 

SST

 

 

Conservative

 

 

 

 

 

 

 

Moderate

 

 

Growth

 

SST Growth

 

SST Growth

 

SST Growth

 

Growth

 

 

Strategy

 

Strategy

 

Strategy

 

Strategy

 

Strategy

 

 

Class 3

 

Class 1

 

Class 2

 

Class 3

 

Class 1

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

-

$

-

$

-

Mortality and expense risk and administrative charges

 

(352,321)

 

(258,828)

 

(557,591)

 

(626,975)

 

(229,602)

Net investment income (loss)

 

(352,321)

 

(258,828)

 

(557,591)

 

(626,975)

 

(229,602)

Net realized gain (loss)

 

2,312,553

 

1,689,808

 

3,700,061

 

3,441,140

 

1,385,967

Change in unrealized appreciation (depreciation) of investments

 

1,348,618

 

2,062,706

 

3,352,969

 

4,803,786

 

1,714,257

Increase (decrease) in net assets from operations

 

3,308,850

 

3,493,686

 

6,495,439

 

7,617,951

 

2,870,622

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

1,244,456

 

290,515

 

89,219

 

38,288

 

2,105

Payments for contract benefits or terminations

 

(3,925,607)

 

(2,323,526)

 

(4,503,175)

 

(4,076,935)

 

(1,676,332)

Transfers between sub-accounts (including fixed account), net

 

(883,295)

 

16,287

 

(294,855)

 

(657,485)

 

61,396

Contract maintenance charges

 

(76,437)

 

(8,015)

 

(16,584)

 

(197,843)

 

(6,188)

Adjustments to net assets allocated to contracts in payout period

 

(638)

 

152

 

-

 

1,037

 

351

Increase (decrease) in net assets from contract transactions

 

(3,641,521)

 

(2,024,587)

 

(4,725,395)

 

(4,892,938)

 

(1,618,668)

Increase (decrease) in net assets

 

(332,671)

 

1,469,099

 

1,770,044

 

2,725,013

 

1,251,954

Net assets at beginning of period

 

23,879,275

 

17,180,799

 

32,599,327

 

38,376,995

 

15,285,561

Net assets at end of period

$

23,546,604

$

18,649,898

$

34,369,371

$

41,102,008

$

16,537,515

Beginning units

 

911,489

 

480,623

 

971,320

 

1,142,178

 

462,026

Units issued

 

62,032

 

11,692

 

12,172

 

26,291

 

7,005

Units redeemed

 

(190,168)

 

(61,714)

 

(135,712)

 

(154,662)

 

(50,274)

Ending units

 

783,353

 

430,601

 

847,780

 

1,013,807

 

418,757

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

-

$

-

$

-

Mortality and expense risk and administrative charges

 

(404,511)

 

(277,821)

 

(615,654)

 

(696,326)

 

(243,355)

Net investment income (loss)

 

(404,511)

 

(277,821)

 

(615,654)

 

(696,326)

 

(243,355)

Net realized gain (loss)

 

1,873,369

 

1,407,774

 

3,900,107

 

4,922,515

 

1,459,614

Change in unrealized appreciation (depreciation) of investments

 

(2,658,700)

 

(2,153,403)

 

(5,318,388)

 

(6,510,155)

 

(2,107,920)

Increase (decrease) in net assets from operations

 

(1,189,842)

 

(1,023,450)

 

(2,033,935)

 

(2,283,966)

 

(891,661)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

741,777

 

22,425

 

37,257

 

373,385

 

3,232

Payments for contract benefits or terminations

 

(4,206,405)

 

(1,657,128)

 

(4,399,080)

 

(7,623,868)

 

(1,707,659)

Transfers between sub-accounts (including fixed account), net

 

159,968

 

(156,748)

 

(410,697)

 

(229,498)

 

(111,254)

Contract maintenance charges

 

(81,513)

 

(8,643)

 

(18,030)

 

(213,128)

 

(6,991)

Adjustments to net assets allocated to contracts in payout period

 

2,110

 

2

 

-

 

45

 

974

Increase (decrease) in net assets from contract transactions

 

(3,384,063)

 

(1,800,092)

 

(4,790,550)

 

(7,693,064)

 

(1,821,698)

Increase (decrease) in net assets

 

(4,573,905)

 

(2,823,542)

 

(6,824,485)

 

(9,977,030)

 

(2,713,359)

Net assets at beginning of period

 

28,453,180

 

20,004,341

 

39,423,812

 

48,354,025

 

17,998,920

Net assets at end of period

$

23,879,275

$

17,180,799

$

32,599,327

$

38,376,995

$

15,285,561

Beginning units

 

1,035,359

 

526,877

 

1,101,426

 

1,349,301

 

513,353

Units issued

 

46,323

 

1,443

 

20,597

 

30,337

 

5,452

Units redeemed

 

(170,193)

 

(47,697)

 

(150,703)

 

(237,460)

 

(56,779)

Ending units

 

911,489

 

480,623

 

971,320

 

1,142,178

 

462,026

The accompanying Notes to Financial Statements are an integral part of this statement.

5

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

 

 

 

 

 

 

 

 

SST SA

 

 

SST

 

SST

 

SST SA

 

SST SA

 

Allocation

 

 

Moderate

 

Moderate

 

Allocation

 

Allocation

 

Moderate

 

 

Growth

 

Growth

 

Balanced

 

Growth

 

Growth

 

 

Strategy

 

Strategy

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 2

 

Class 3

 

Class 3

 

Class 3

 

Class 3

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

983,982

$

3,619

$

3,040,552

Mortality and expense risk and administrative charges

 

(1,140,781)

 

(855,470)

 

(1,002,751)

 

(619,268)

 

(3,471,542)

Net investment income (loss)

 

(1,140,781)

 

(855,470)

 

(18,769)

 

(615,649)

 

(430,990)

Net realized gain (loss)

 

5,842,568

 

5,513,966

 

(1,511,698)

 

1,673,307

 

69,008

Capital gain distribution from mutual funds

 

-

 

-

 

1,245,189

 

1,138,451

 

7,971,874

Change in unrealized appreciation (depreciation) of investments

 

7,603,460

 

5,066,693

 

9,062,000

 

5,520,293

 

31,029,296

Increase (decrease) in net assets from operations

 

12,305,247

 

9,725,189

 

8,776,722

 

7,716,402

 

38,639,188

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

81,433

 

2,366,911

 

733,615

 

48,260

 

3,578,329

Payments for contract benefits or terminations

 

(7,074,471)

 

(7,658,392)

 

(9,317,955)

 

(3,762,966)

 

(30,279,178)

Transfers between sub-accounts (including fixed account), net

 

(705,220)

 

(713,477)

 

(77,892)

 

(1,222,235)

 

(1,348,871)

Contract maintenance charges

 

(31,487)

 

(157,649)

 

(594,189)

 

(165,449)

 

(2,361,044)

Adjustments to net assets allocated to contracts in payout period

 

488

 

(7,766)

 

(5,306)

 

533

 

(28,532)

Increase (decrease) in net assets from contract transactions

 

(7,729,257)

 

(6,170,373)

 

(9,261,727)

 

(5,101,857)

 

(30,439,296)

Increase (decrease) in net assets

 

4,575,990

 

3,554,816

 

(485,005)

 

2,614,545

 

8,199,892

Net assets at beginning of period

 

67,275,297

 

53,117,203

 

64,953,452

 

37,630,596

 

217,119,370

Net assets at end of period

$

71,851,287

$

56,672,019

$

64,468,447

$

40,245,141

$

225,319,262

Beginning units

 

2,168,567

 

1,711,611

 

4,449,453

 

2,414,824

 

14,621,643

Units issued

 

15,000

 

104,355

 

106,159

 

6,013

 

708,706

Units redeemed

 

(236,781)

 

(283,018)

 

(689,938)

 

(295,956)

 

(2,558,872)

Ending units

 

1,946,786

 

1,532,948

 

3,865,674

 

2,124,881

 

12,771,477

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

-

$

3,117,367

$

1,380,258

$

9,951,854

Mortality and expense risk and administrative charges

 

(1,233,461)

 

(957,249)

 

(1,125,087)

 

(719,045)

 

(3,982,389)

Net investment income (loss)

 

(1,233,461)

 

(957,249)

 

1,992,280

 

661,213

 

5,969,465

Net realized gain (loss)

 

5,761,968

 

7,102,758

 

580,675

 

3,979,765

 

6,737,476

Capital gain distribution from mutual funds

 

-

 

-

 

6,033,792

 

2,936,581

 

27,620,015

Change in unrealized appreciation (depreciation) of investments

 

(8,682,956)

 

(9,342,559)

 

(12,421,459)

 

(11,072,637)

 

(57,717,414)

Increase (decrease) in net assets from operations

 

(4,154,449)

 

(3,197,050)

 

(3,814,712)

 

(3,495,078)

 

(17,390,458)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

73,719

 

1,246,873

 

762,813

 

53,426

 

92,269

Payments for contract benefits or terminations

 

(7,571,264)

 

(10,301,852)

 

(9,993,458)

 

(9,890,034)

 

(38,888,635)

Transfers between sub-accounts (including fixed account), net

 

(493,670)

 

(1,893,788)

 

(2,184,407)

 

(611,380)

 

(4,767,079)

Contract maintenance charges

 

(35,323)

 

(180,978)

 

(636,010)

 

(198,739)

 

(2,544,345)

Adjustments to net assets allocated to contracts in payout period

 

773

 

351

 

7,005

 

384

 

-

Increase (decrease) in net assets from contract transactions

 

(8,025,765)

 

(11,129,394)

 

(12,044,057)

 

(10,646,343)

 

(46,107,790)

Increase (decrease) in net assets

 

(12,180,214)

 

(14,326,444)

 

(15,858,769)

 

(14,141,421)

 

(63,498,248)

Net assets at beginning of period

 

79,455,511

 

67,443,647

 

80,812,221

 

51,772,017

 

280,617,618

Net assets at end of period

$

67,275,297

$

53,117,203

$

64,953,452

$

37,630,596

$

217,119,370

Beginning units

 

2,405,711

 

2,040,974

 

5,240,274

 

3,033,583

 

17,492,978

Units issued

 

6,239

 

62,599

 

81,363

 

14,489

 

143,601

Units redeemed

 

(243,383)

 

(391,962)

 

(872,184)

 

(633,248)

 

(3,014,936)

Ending units

 

2,168,567

 

1,711,611

 

4,449,453

 

2,414,824

 

14,621,643

The accompanying Notes to Financial Statements are an integral part of this statement.

6

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

 

 

SST SA

 

SST SA

 

SST SA

 

SST SA

 

 

SST SA

 

Columbia

 

Columbia

 

Columbia

 

Columbia

 

 

Allocation

 

Focused

 

Focused

 

Focused

 

Focused

 

 

Moderate

 

Growth

 

Growth

 

Growth

 

Value

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 3

 

Class 1

 

Class 2

 

Class 3

 

Class 2

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

1,267,868

$

-

$

-

$

-

$

63,100

Mortality and expense risk and administrative charges

 

(1,416,055)

 

-

 

-

 

-

 

(212,585)

Net investment income (loss)

 

(148,187)

 

-

 

-

 

-

 

(149,485)

Net realized gain (loss)

 

760,791

 

-

 

-

 

-

 

568,937

Capital gain distribution from mutual funds

 

2,723,755

 

-

 

-

 

-

 

213,839

Change in unrealized appreciation (depreciation) of investments

 

10,961,950

 

-

 

-

 

-

 

2,293,422

Increase (decrease) in net assets from operations

 

14,298,309

 

-

 

-

 

-

 

2,926,713

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

19,615

 

-

 

-

 

-

 

9,632

Payments for contract benefits or terminations

 

(13,017,933)

 

-

 

-

 

-

 

(1,042,097)

Transfers between sub-accounts (including fixed account), net

 

(1,435,859)

 

-

 

-

 

-

 

95,353

Contract maintenance charges

 

(903,207)

 

-

 

-

 

-

 

(8,657)

Adjustments to net assets allocated to contracts in payout period

 

11,328

 

-

 

-

 

-

 

150

Increase (decrease) in net assets from contract transactions

 

(15,326,056)

 

-

 

-

 

-

 

(945,619)

Increase (decrease) in net assets

 

(1,027,747)

 

-

 

-

 

-

 

1,981,094

Net assets at beginning of period

 

89,608,359

 

-

 

-

 

-

 

12,312,795

Net assets at end of period

$

88,580,612

$

-

$

-

$

-

$

14,293,889

Beginning units

 

6,031,494

 

-

 

-

 

-

 

455,312

Units issued

 

50,197

 

-

 

-

 

-

 

16,906

Units redeemed

 

(979,473)

 

-

 

-

 

-

 

(47,670)

Ending units

 

5,102,218

 

-

 

-

 

-

 

424,548

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

4,100,954

$

-

$

-

$

-

$

504,525

Mortality and expense risk and administrative charges

 

(1,636,856)

 

(13,402)

 

(373,291)

 

(257,756)

 

(232,501)

Net investment income (loss)

 

2,464,098

 

(13,402)

 

(373,291)

 

(257,756)

 

272,024

Net realized gain (loss)

 

3,546,011

 

(182,846)

 

(5,759,414)

 

(4,026,670)

 

962,462

Capital gain distribution from mutual funds

 

9,756,281

 

386,536

 

10,701,750

 

7,536,902

 

1,289,311

Change in unrealized appreciation (depreciation) of investments

 

(22,022,371)

 

(73,129)

 

(1,955,257)

 

(1,238,803)

 

(4,451,580)

Increase (decrease) in net assets from operations

 

(6,255,981)

 

117,159

 

2,613,788

 

2,013,673

 

(1,927,783)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

13,153

 

1,103

 

58,417

 

78,440

 

26,809

Payments for contract benefits or terminations

 

(16,351,010)

 

(220,281)

 

(1,992,965)

 

(3,016,628)

 

(1,307,195)

Transfers between sub-accounts (including fixed account), net

 

(3,096,730)

 

(1,069,886)

 

(27,960,417)

 

(20,187,994)

 

(211,792)

Contract maintenance charges

 

(976,555)

 

(185)

 

(12,002)

 

(41,978)

 

(10,722)

Adjustments to net assets allocated to contracts in payout period

 

14,811

 

-

 

60

 

346

 

133

Increase (decrease) in net assets from contract transactions

 

(20,396,331)

 

(1,289,249)

 

(29,906,907)

 

(23,167,814)

 

(1,502,767)

Increase (decrease) in net assets

 

(26,652,312)

 

(1,172,090)

 

(27,293,119)

 

(21,154,141)

 

(3,430,550)

Net assets at beginning of period

 

116,260,671

 

1,172,090

 

27,293,119

 

21,154,141

 

15,743,345

Net assets at end of period

$

89,608,359

$

-

$

-

$

-

$

12,312,795

Beginning units

 

7,322,651

 

74,146

 

1,825,820

 

1,416,121

 

503,892

Units issued

 

87,561

 

910

 

106,467

 

15,845

 

13,314

Units redeemed

 

(1,378,718)

 

(75,056)

 

(1,932,287)

 

(1,431,966)

 

(61,894)

Ending units

 

6,031,494

 

-

 

-

 

-

 

455,312

The accompanying Notes to Financial Statements are an integral part of this statement.

7

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST SA

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

 

Columbia

 

Managed

 

Managed

 

Managed

 

Managed

 

 

Focused

 

Diversified

 

Diversified

 

Diversified

 

International

 

 

Value

 

Fixed Income

 

Fixed Income

 

Fixed Income

 

Equity

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 3

 

Class 1

 

Class 2

 

Class 3

 

Class 1

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

37,162

$

56,508

$

566,207

$

314,596

$

35,997

Mortality and expense risk and administrative charges

 

(132,368)

 

(25,419)

 

(316,836)

 

(174,976)

 

(16,177)

Net investment income (loss)

 

(95,206)

 

31,089

 

249,371

 

139,620

 

19,820

Net realized gain (loss)

 

407,048

 

6,253

 

19,007

 

35,137

 

50,328

Capital gain distribution from mutual funds

 

134,808

 

-

 

-

 

-

 

93,504

Change in unrealized appreciation (depreciation) of investments

 

1,452,336

 

104,093

 

1,201,900

 

695,509

 

55,487

Increase (decrease) in net assets from operations

 

1,898,986

 

141,435

 

1,470,278

 

870,266

 

219,139

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

6,404

 

-

 

85,828

 

55,209

 

9,369

Payments for contract benefits or terminations

 

(981,474)

 

(248,024)

 

(2,496,299)

 

(2,071,992)

 

(116,753)

Transfers between sub-accounts (including fixed account), net

 

(186,094)

 

61,195

 

1,136,477

 

568,155

 

(45,557)

Contract maintenance charges

 

(22,502)

 

(676)

 

(17,978)

 

(36,518)

 

(326)

Adjustments to net assets allocated to contracts in payout period

 

(49)

 

-

 

539

 

(1,095)

 

74

Increase (decrease) in net assets from contract transactions

 

(1,183,715)

 

(187,505)

 

(1,291,433)

 

(1,486,241)

 

(153,193)

Increase (decrease) in net assets

 

715,271

 

(46,070)

 

178,845

 

(615,975)

 

65,946

Net assets at beginning of period

 

8,204,507

 

1,877,251

 

19,454,517

 

11,846,784

 

1,116,218

Net assets at end of period

$

8,919,778

$

1,831,181

$

19,633,362

$

11,230,809

$

1,182,164

Beginning units

 

305,705

 

118,037

 

1,311,904

 

800,309

 

102,240

Units issued

 

4,687

 

4,936

 

127,029

 

53,495

 

1,489

Units redeemed

 

(43,593)

 

(16,518)

 

(210,090)

 

(148,844)

 

(14,169)

Ending units

 

266,799

 

106,455

 

1,228,843

 

704,960

 

89,560

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

296,696

$

51,439

$

498,709

$

301,820

$

34,801

Mortality and expense risk and administrative charges

 

(151,076)

 

(28,059)

 

(365,389)

 

(201,353)

 

(18,631)

Net investment income (loss)

 

145,620

 

23,380

 

133,320

 

100,467

 

16,170

Net realized gain (loss)

 

925,276

 

838

 

(36,695)

 

(144,368)

 

39,153

Capital gain distribution from mutual funds

 

858,503

 

5,618

 

58,784

 

37,042

 

-

Change in unrealized appreciation (depreciation) of investments

 

(3,213,297)

 

(84,035)

 

(888,142)

 

(409,084)

 

(259,500)

Increase (decrease) in net assets from operations

 

(1,283,898)

 

(54,199)

 

(732,733)

 

(415,943)

 

(204,177)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

31,576

 

-

 

42,154

 

86,499

 

-

Payments for contract benefits or terminations

 

(1,996,872)

 

(206,084)

 

(3,591,767)

 

(2,352,126)

 

(85,235)

Transfers between sub-accounts (including fixed account), net

 

161,680

 

(476)

 

(1,982,986)

 

(561,793)

 

(2,607)

Contract maintenance charges

 

(25,796)

 

(840)

 

(19,602)

 

(39,690)

 

(396)

Adjustments to net assets allocated to contracts in payout period

 

244

 

81

 

(651)

 

338

 

-

Increase (decrease) in net assets from contract transactions

 

(1,829,168)

 

(207,319)

 

(5,552,852)

 

(2,866,772)

 

(88,238)

Increase (decrease) in net assets

 

(3,113,066)

 

(261,518)

 

(6,285,585)

 

(3,282,715)

 

(292,415)

Net assets at beginning of period

 

11,317,573

 

2,138,769

 

25,740,102

 

15,129,499

 

1,408,633

Net assets at end of period

$

8,204,507

$

1,877,251

$

19,454,517

$

11,846,784

$

1,116,218

Beginning units

 

365,006

 

131,132

 

1,686,642

 

994,725

 

109,172

Units issued

 

14,754

 

1,046

 

29,623

 

38,589

 

1,003

Units redeemed

 

(74,055)

 

(14,141)

 

(404,361)

 

(233,005)

 

(7,935)

Ending units

 

305,705

 

118,037

 

1,311,904

 

800,309

 

102,240

The accompanying Notes to Financial Statements are an integral part of this statement.

8

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

 

Managed

 

Managed

 

Managed

 

Managed

 

Managed

 

 

International

 

International

 

Large Cap

 

Large Cap

 

Large Cap

 

 

Equity

 

Equity

 

Growth

 

Growth

 

Growth

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 2

 

Class 3

 

Class 1

 

Class 2

 

Class 3

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

531,545

$

343,009

$

19,287

$

96,995

$

31,316

Mortality and expense risk and administrative charges

 

(286,194)

 

(187,130)

 

(61,304)

 

(508,426)

 

(250,844)

Net investment income (loss)

 

245,351

 

155,879

 

(42,017)

 

(411,431)

 

(219,528)

Net realized gain (loss)

 

530,058

 

364,770

 

362,738

 

1,305,127

 

611,713

Capital gain distribution from mutual funds

 

1,456,302

 

979,996

 

508,716

 

3,875,865

 

1,950,741

Change in unrealized appreciation (depreciation) of investments

 

1,066,776

 

783,651

 

275,885

 

2,917,261

 

1,676,238

Increase (decrease) in net assets from operations

 

3,298,487

 

2,284,296

 

1,105,322

 

7,686,822

 

4,019,164

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

19,219

 

39,182

 

59,319

 

12,483

 

56,794

Payments for contract benefits or terminations

 

(1,481,709)

 

(1,522,982)

 

(805,690)

 

(3,246,518)

 

(2,675,588)

Transfers between sub-accounts (including fixed account), net

 

33,720

 

(193,801)

 

(7,521)

 

(1,027,895)

 

(510,947)

Contract maintenance charges

 

(25,826)

 

(48,299)

 

(1,039)

 

(28,181)

 

(32,394)

Adjustments to net assets allocated to contracts in payout period

 

787

 

(1,638)

 

(877)

 

1,669

 

3,557

Increase (decrease) in net assets from contract transactions

 

(1,453,809)

 

(1,727,538)

 

(755,808)

 

(4,288,442)

 

(3,158,578)

Increase (decrease) in net assets

 

1,844,678

 

556,758

 

349,514

 

3,398,380

 

860,586

Net assets at beginning of period

 

16,707,397

 

11,814,331

 

3,965,302

 

28,619,474

 

15,110,607

Net assets at end of period

$

18,552,075

$

12,371,089

$

4,314,816

$

32,017,854

$

15,971,193

Beginning units

 

1,631,397

 

1,155,602

 

186,733

 

1,436,119

 

759,652

Units issued

 

53,861

 

25,762

 

3,567

 

24,245

 

7,561

Units redeemed

 

(182,553)

 

(177,452)

 

(32,443)

 

(206,789)

 

(140,155)

Ending units

 

1,502,705

 

1,003,912

 

157,857

 

1,253,575

 

627,058

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

485,644

$

330,796

$

27,109

$

147,405

$

62,744

Mortality and expense risk and administrative charges

 

(335,910)

 

(229,316)

 

(64,764)

 

(559,735)

 

(274,074)

Net investment income (loss)

 

149,734

 

101,480

 

(37,655)

 

(412,330)

 

(211,330)

Net realized gain (loss)

 

1,289,874

 

783,552

 

257,780

 

3,484,988

 

1,128,642

Capital gain distribution from mutual funds

 

-

 

-

 

666,321

 

4,910,035

 

2,633,628

Change in unrealized appreciation (depreciation) of investments

 

(4,660,575)

 

(3,170,220)

 

(988,887)

 

(8,648,751)

 

(3,938,911)

Increase (decrease) in net assets from operations

 

(3,220,967)

 

(2,285,188)

 

(102,441)

 

(666,058)

 

(387,971)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

15,184

 

77,271

 

1,000

 

35,121

 

1,032,009

Payments for contract benefits or terminations

 

(2,170,491)

 

(2,383,657)

 

(423,294)

 

(4,799,762)

 

(3,109,841)

Transfers between sub-accounts (including fixed account), net

 

(643,172)

 

(109,327)

 

(61,911)

 

(1,480,073)

 

(559,203)

Contract maintenance charges

 

(29,953)

 

(56,602)

 

(1,119)

 

(32,239)

 

(36,783)

Adjustments to net assets allocated to contracts in payout period

 

374

 

2,056

 

115

 

(960)

 

7,692

Increase (decrease) in net assets from contract transactions

 

(2,828,058)

 

(2,470,259)

 

(485,209)

 

(6,277,913)

 

(2,666,126)

Increase (decrease) in net assets

 

(6,049,025)

 

(4,755,447)

 

(587,650)

 

(6,943,971)

 

(3,054,097)

Net assets at beginning of period

 

22,756,422

 

16,569,778

 

4,552,952

 

35,563,445

 

18,164,704

Net assets at end of period

$

16,707,397

$

11,814,331

$

3,965,302

$

28,619,474

$

15,110,607

Beginning units

 

1,870,016

 

1,364,519

 

207,694

 

1,723,506

 

881,840

Units issued

 

107,055

 

77,588

 

893

 

55,659

 

58,156

Units redeemed

 

(345,674)

 

(286,505)

 

(21,854)

 

(343,046)

 

(180,344)

Ending units

 

1,631,397

 

1,155,602

 

186,733

 

1,436,119

 

759,652

The accompanying Notes to Financial Statements are an integral part of this statement.

9

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

 

 

 

 

 

Managed

 

Managed

 

Managed

 

SST SA Multi-

 

SST SA Multi-

 

 

Large Cap

 

Large Cap

 

Large Cap

 

Managed Mid

 

Managed Mid

 

 

Value

 

Value

 

Value

 

Cap Growth

 

Cap Growth

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 1

 

Class 2

 

Class 3

 

Class 1

 

Class 2

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

86,518

$

538,370

$

259,293

$

-

$

-

Mortality and expense risk and administrative charges

 

(48,707)

 

(384,303)

 

(184,554)

 

(46,199)

 

(357,879)

Net investment income (loss)

 

37,811

 

154,067

 

74,739

 

(46,199)

 

(357,879)

Net realized gain (loss)

 

85,051

 

1,226,653

 

479,603

 

627,221

 

1,440,907

Capital gain distribution from mutual funds

 

197,158

 

1,314,540

 

666,106

 

296,550

 

2,366,970

Change in unrealized appreciation (depreciation) of investments

 

502,110

 

2,902,755

 

1,657,345

 

116,242

 

2,791,610

Increase (decrease) in net assets from operations

 

822,130

 

5,598,015

 

2,877,793

 

993,814

 

6,241,608

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

-

 

16,676

 

44,198

 

41,690

 

19,161

Payments for contract benefits or terminations

 

(182,284)

 

(2,491,557)

 

(1,842,584)

 

(1,041,009)

 

(1,961,137)

Transfers between sub-accounts (including fixed account), net

 

(52,506)

 

(776,412)

 

(299,054)

 

(42,819)

 

(708,937)

Contract maintenance charges

 

(737)

 

(23,913)

 

(21,871)

 

(777)

 

(13,217)

Adjustments to net assets allocated to contracts in payout period

 

-

 

714

 

2,890

 

(222)

 

667

Increase (decrease) in net assets from contract transactions

 

(235,527)

 

(3,274,492)

 

(2,116,421)

 

(1,043,137)

 

(2,663,463)

Increase (decrease) in net assets

 

586,603

 

2,323,523

 

761,372

 

(49,323)

 

3,578,145

Net assets at beginning of period

 

3,146,990

 

22,512,814

 

11,683,375

 

3,012,620

 

19,243,732

Net assets at end of period

$

3,733,593

$

24,836,337

$

12,444,747

$

2,963,297

$

22,821,877

Beginning units

 

129,773

 

994,768

 

515,892

 

78,512

 

535,005

Units issued

 

21

 

14,512

 

8,801

 

983

 

8,795

Units redeemed

 

(8,497)

 

(141,104)

 

(90,305)

 

(21,971)

 

(69,659)

Ending units

 

121,297

 

868,176

 

434,388

 

57,524

 

474,141

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

69,331

$

454,179

$

224,358

$

-

$

-

Mortality and expense risk and administrative charges

 

(51,081)

 

(434,513)

 

(211,314)

 

(49,511)

 

(377,567)

Net investment income (loss)

 

18,250

 

19,666

 

13,044

 

(49,511)

 

(377,567)

Net realized gain (loss)

 

151,787

 

1,821,077

 

897,484

 

250,217

 

2,357,527

Capital gain distribution from mutual funds

 

408,975

 

2,935,865

 

1,544,889

 

374,902

 

2,500,958

Change in unrealized appreciation (depreciation) of investments

 

(965,813)

 

(7,687,309)

 

(3,960,789)

 

(713,219)

 

(5,395,409)

Increase (decrease) in net assets from operations

 

(386,801)

 

(2,910,701)

 

(1,505,372)

 

(137,611)

 

(914,491)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

-

 

16,396

 

855,354

 

-

 

43,032

Payments for contract benefits or terminations

 

(304,176)

 

(3,096,070)

 

(2,631,306)

 

(321,108)

 

(2,742,262)

Transfers between sub-accounts (including fixed account), net

 

(2,857)

 

(640,182)

 

(311,593)

 

(61,817)

 

(575,317)

Contract maintenance charges

 

(793)

 

(27,646)

 

(26,133)

 

(778)

 

(14,830)

Adjustments to net assets allocated to contracts in payout period

 

-

 

(371)

 

1,499

 

223

 

1,096

Increase (decrease) in net assets from contract transactions

 

(307,826)

 

(3,747,873)

 

(2,112,179)

 

(383,480)

 

(3,288,281)

Increase (decrease) in net assets

 

(694,627)

 

(6,658,574)

 

(3,617,551)

 

(521,091)

 

(4,202,772)

Net assets at beginning of period

 

3,841,617

 

29,171,388

 

15,300,926

 

3,533,711

 

23,446,504

Net assets at end of period

$

3,146,990

$

22,512,814

$

11,683,375

$

3,012,620

$

19,243,732

Beginning units

 

141,009

 

1,142,992

 

599,600

 

87,608

 

617,434

Units issued

 

2,125

 

28,675

 

50,945

 

513

 

23,918

Units redeemed

 

(13,361)

 

(176,899)

 

(134,653)

 

(9,609)

 

(106,347)

Ending units

 

129,773

 

994,768

 

515,892

 

78,512

 

535,005

The accompanying Notes to Financial Statements are an integral part of this statement.

10

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

SST SA Multi-

 

 

Managed Mid

 

Managed Mid

 

Managed Mid

 

Managed Mid

 

Managed

 

 

Cap Growth

 

Cap Value

 

Cap Value

 

Cap Value

 

Small Cap

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 3

 

Class 1

 

Class 2

 

Class 3

 

Class 1

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

34,995

$

253,525

$

134,349

$

3,559

Mortality and expense risk and administrative charges

 

(204,493)

 

(36,889)

 

(350,812)

 

(198,558)

 

(20,748)

Net investment income (loss)

 

(204,493)

 

(1,894)

 

(97,287)

 

(64,209)

 

(17,189)

Net realized gain (loss)

 

987,844

 

123,915

 

711,070

 

60,616

 

109,808

Capital gain distribution from mutual funds

 

1,443,372

 

139,748

 

1,154,238

 

678,442

 

113,558

Change in unrealized appreciation (depreciation) of investments

 

1,605,622

 

290,814

 

2,761,240

 

2,033,967

 

96,099

Increase (decrease) in net assets from operations

 

3,832,345

 

552,583

 

4,529,261

 

2,708,816

 

302,276

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

31,855

 

-

 

4,876

 

14,163

 

31,054

Payments for contract benefits or terminations

 

(1,992,903)

 

(303,327)

 

(2,085,673)

 

(1,692,261)

 

(254,746)

Transfers between sub-accounts (including fixed account), net

 

(322,578)

 

(22,559)

 

(431,309)

 

(196,698)

 

(33,495)

Contract maintenance charges

 

(21,393)

 

(612)

 

(18,383)

 

(28,374)

 

(321)

Adjustments to net assets allocated to contracts in payout period

 

(4,283)

 

-

 

620

 

578

 

149

Increase (decrease) in net assets from contract transactions

 

(2,309,302)

 

(326,498)

 

(2,529,869)

 

(1,902,592)

 

(257,359)

Increase (decrease) in net assets

 

1,523,043

 

226,085

 

1,999,392

 

806,224

 

44,917

Net assets at beginning of period

 

11,925,238

 

2,447,000

 

20,488,721

 

12,405,166

 

1,415,977

Net assets at end of period

$

13,448,281

$

2,673,085

$

22,488,113

$

13,211,390

$

1,460,894

Beginning units

 

330,061

 

61,699

 

557,776

 

339,772

 

73,049

Units issued

 

7,090

 

26

 

9,480

 

6,933

 

1,569

Units redeemed

 

(58,564)

 

(7,210)

 

(70,040)

 

(52,645)

 

(13,214)

Ending units

 

278,587

 

54,515

 

497,216

 

294,060

 

61,404

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

26,245

$

181,918

$

93,002

$

3,195

Mortality and expense risk and administrative charges

 

(213,669)

 

(40,429)

 

(397,816)

 

(229,633)

 

(25,000)

Net investment income (loss)

 

(213,669)

 

(14,184)

 

(215,898)

 

(136,631)

 

(21,805)

Net realized gain (loss)

 

1,224,948

 

145,503

 

1,162,212

 

552,209

 

127,748

Capital gain distribution from mutual funds

 

1,604,765

 

185,679

 

1,568,325

 

952,667

 

119,605

Change in unrealized appreciation (depreciation) of investments

 

(3,158,743)

 

(680,169)

 

(5,670,529)

 

(3,275,965)

 

(426,618)

Increase (decrease) in net assets from operations

 

(542,699)

 

(363,171)

 

(3,155,890)

 

(1,907,720)

 

(201,070)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

688,202

 

-

 

7,150

 

546,295

 

-

Payments for contract benefits or terminations

 

(2,587,948)

 

(250,920)

 

(2,497,663)

 

(2,623,190)

 

(190,333)

Transfers between sub-accounts (including fixed account), net

 

(216,646)

 

(25,149)

 

(392,714)

 

(196,541)

 

(44,930)

Contract maintenance charges

 

(24,046)

 

(754)

 

(21,781)

 

(34,352)

 

(408)

Adjustments to net assets allocated to contracts in payout period

 

9,616

 

-

 

701

 

2,469

 

20

Increase (decrease) in net assets from contract transactions

 

(2,130,822)

 

(276,823)

 

(2,904,307)

 

(2,305,319)

 

(235,651)

Increase (decrease) in net assets

 

(2,673,521)

 

(639,994)

 

(6,060,197)

 

(4,213,039)

 

(436,721)

Net assets at beginning of period

 

14,598,759

 

3,086,994

 

26,548,918

 

16,618,205

 

1,852,698

Net assets at end of period

$

11,925,238

$

2,447,000

$

20,488,721

$

12,405,166

$

1,415,977

Beginning units

 

382,920

 

67,659

 

626,106

 

394,964

 

83,350

Units issued

 

23,527

 

1,246

 

10,425

 

23,820

 

1,062

Units redeemed

 

(76,386)

 

(7,206)

 

(78,755)

 

(79,012)

 

(11,363)

Ending units

 

330,061

 

61,699

 

557,776

 

339,772

 

73,049

The accompanying Notes to Financial Statements are an integral part of this statement.

11

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SST SA Multi-

 

SST SA Multi-

 

SST SA

 

 

 

 

 

 

Managed

 

Managed

 

Wellington

 

SAST SA AB

 

SAST SA AB

 

 

Small Cap

 

Small Cap

 

Real Return

 

Growth

 

Growth

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 2

 

Class 3

 

Class 3

 

Class 1

 

Class 2

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

13,670

$

-

$

17,687

$

9

$

-

Mortality and expense risk and administrative charges

 

(243,684)

 

(147,705)

 

(87,731)

 

(16,209)

 

(459,406)

Net investment income (loss)

 

(230,014)

 

(147,705)

 

(70,044)

 

(16,200)

 

(459,406)

Net realized gain (loss)

 

681,740

 

544,729

 

(51,866)

 

11,484

 

419,620

Capital gain distribution from mutual funds

 

1,243,135

 

774,494

 

-

 

73,096

 

1,818,367

Change in unrealized appreciation (depreciation) of investments

 

1,335,677

 

758,348

 

338,804

 

253,172

 

6,258,876

Increase (decrease) in net assets from operations

 

3,030,538

 

1,929,866

 

216,894

 

321,552

 

8,037,457

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

8,812

 

61,666

 

29,808

 

1,360

 

17,857

Payments for contract benefits or terminations

 

(1,281,035)

 

(1,435,606)

 

(793,531)

 

(20,913)

 

(1,980,801)

Transfers between sub-accounts (including fixed account), net

 

(192,942)

 

(181,938)

 

519,131

 

(52,837)

 

(1,183,591)

Contract maintenance charges

 

(18,045)

 

(17,851)

 

(25,870)

 

(164)

 

(13,541)

Adjustments to net assets allocated to contracts in payout period

 

963

 

(4,800)

 

132

 

1

 

75

Increase (decrease) in net assets from contract transactions

 

(1,482,247)

 

(1,578,529)

 

(270,330)

 

(72,553)

 

(3,160,001)

Increase (decrease) in net assets

 

1,548,291

 

351,337

 

(53,436)

 

248,999

 

4,877,456

Net assets at beginning of period

 

14,061,815

 

9,183,171

 

5,742,062

 

989,993

 

25,690,672

Net assets at end of period

$

15,610,106

$

9,534,508

$

5,688,626

$

1,238,992

$

30,568,128

Beginning units

 

771,744

 

504,366

 

518,892

 

110,726

 

2,875,869

Units issued

 

17,936

 

13,585

 

54,235

 

130

 

19,585

Units redeemed

 

(89,762)

 

(89,738)

 

(78,740)

 

(6,664)

 

(314,035)

Ending units

 

699,918

 

428,213

 

494,387

 

104,192

 

2,581,419

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

4,554

$

-

$

199,751

$

-

$

-

Mortality and expense risk and administrative charges

 

(284,748)

 

(176,599)

 

(103,584)

 

(2,912)

 

(86,602)

Net investment income (loss)

 

(280,194)

 

(176,599)

 

96,167

 

(2,912)

 

(86,602)

Net realized gain (loss)

 

1,620,773

 

991,101

 

(77,464)

 

(1,284)

 

(30,941)

Capital gain distribution from mutual funds

 

1,193,320

 

792,641

 

-

 

-

 

-

Change in unrealized appreciation (depreciation) of investments

 

(4,532,577)

 

(2,904,482)

 

(137,834)

 

(62,085)

 

(1,565,978)

Increase (decrease) in net assets from operations

 

(1,998,678)

 

(1,297,339)

 

(119,131)

 

(66,281)

 

(1,683,521)

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

12,073

 

201,205

 

45,533

 

257

 

2,211

Payments for contract benefits or terminations

 

(2,318,326)

 

(1,731,223)

 

(983,487)

 

(12,592)

 

(264,686)

Transfers between sub-accounts (including fixed account), net

 

(269,512)

 

(153,238)

 

(422,956)

 

1,067,525

 

27,632,406

Contract maintenance charges

 

(20,986)

 

(21,798)

 

(29,712)

 

(35)

 

(2,962)

Adjustments to net assets allocated to contracts in payout period

 

990

 

6,249

 

14

 

1,119

 

7,224

Increase (decrease) in net assets from contract transactions

 

(2,595,761)

 

(1,698,805)

 

(1,390,608)

 

1,056,274

 

27,374,193

Increase (decrease) in net assets

 

(4,594,439)

 

(2,996,144)

 

(1,509,739)

 

989,993

 

25,690,672

Net assets at beginning of period

 

18,656,254

 

12,179,315

 

7,251,801

 

-

 

-

Net assets at end of period

$

14,061,815

$

9,183,171

$

5,742,062

$

989,993

$

25,690,672

Beginning units

 

888,950

 

581,093

 

644,099

 

-

 

-

Units issued

 

34,557

 

40,798

 

21,662

 

112,235

 

2,969,831

Units redeemed

 

(151,763)

 

(117,525)

 

(146,869)

 

(1,509)

 

(93,962)

Ending units

 

771,744

 

504,366

 

518,892

 

110,726

 

2,875,869

The accompanying Notes to Financial Statements are an integral part of this statement.

12

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

 

 

 

 

 

 

SAST SA

 

 

 

 

 

 

SAST SA

 

 

 

American

 

 

 

 

 

 

American

 

SAST SA

 

Funds

 

SAST SA

 

 

SAST SA AB

 

Funds Global

 

American

 

Growth-

 

DFA Ultra

 

 

Growth

 

Growth

 

Funds Growth

 

Income

 

Short Bond

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

 

Class 3

 

Class 3

 

Class 3

 

Class 3

 

Class 1

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

52,597

$

-

$

-

$

9,355

Mortality and expense risk and administrative charges

 

(280,855)

 

(102,666)

 

(64,976)

 

(92,185)

 

(9,164)

Net investment income (loss)

 

(280,855)

 

(50,069)

 

(64,976)

 

(92,185)

 

191

Net realized gain (loss)

 

357,985

 

(424,737)

 

(190,736)

 

(207,865)

 

7,317

Capital gain distribution from mutual funds

 

1,159,501

 

762,530

 

19,173

 

28,549

 

-

Change in unrealized appreciation (depreciation) of investments

 

3,966,160

 

1,630,895

 

1,320,828

 

1,587,997

 

(1,180)

Increase (decrease) in net assets from operations

 

5,202,791

 

1,918,619

 

1,084,289

 

1,316,496

 

6,328

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

49,431

 

34,023

 

15,298

 

51,788

 

-

Payments for contract benefits or terminations

 

(2,460,104)

 

(747,054)

 

(675,909)

 

(508,552)

 

(222,574)

Transfers between sub-accounts (including fixed account), net

 

(782,210)

 

(481,584)

 

(411,244)

 

(64,945)

 

(173,961)

Contract maintenance charges

 

(43,175)

 

(50,307)

 

(26,827)

 

(36,259)

 

(276)

Adjustments to net assets allocated to contracts in payout period

 

364

 

(985)

 

(521)

 

(390)

 

-

Increase (decrease) in net assets from contract transactions

 

(3,235,694)

 

(1,245,907)

 

(1,099,203)

 

(558,358)

 

(396,811)

Increase (decrease) in net assets

 

1,967,097

 

672,712

 

(14,914)

 

758,138

 

(390,483)

Net assets at beginning of period

 

17,187,027

 

6,204,935

 

4,263,044

 

5,717,995

 

859,292

Net assets at end of period

$

19,154,124

$

6,877,647

$

4,248,130

$

6,476,133

$

468,809

Beginning units

 

1,924,007

 

333,144

 

201,590

 

299,220

 

88,876

Units issued

 

7,580

 

10,589

 

10,086

 

14,678

 

50

Units redeemed

 

(313,740)

 

(65,796)

 

(55,076)

 

(40,364)

 

(40,845)

Ending units

 

1,617,847

 

277,937

 

156,600

 

273,534

 

48,081

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

-

$

81,030

$

43,706

$

165,508

$

5,346

Mortality and expense risk and administrative charges

 

(56,385)

 

(112,239)

 

(74,105)

 

(94,427)

 

(7,510)

Net investment income (loss)

 

(56,385)

 

(31,209)

 

(30,399)

 

71,081

 

(2,164)

Net realized gain (loss)

 

(52,851)

 

(72,387)

 

(14,087)

 

78,277

 

380

Capital gain distribution from mutual funds

 

-

 

1,429,453

 

1,362,425

 

1,403,551

 

-

Change in unrealized appreciation (depreciation) of investments

 

(1,088,351)

 

(2,018,338)

 

(1,393,562)

 

(1,731,334)

 

2,343

Increase (decrease) in net assets from operations

 

(1,197,587)

 

(692,481)

 

(75,623)

 

(178,425)

 

559

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

2,812

 

122,141

 

315,481

 

237,212

 

-

Payments for contract benefits or terminations

 

(537,338)

 

(1,388,800)

 

(573,648)

 

(1,221,646)

 

(167,556)

Transfers between sub-accounts (including fixed account), net

 

18,926,926

 

207,132

 

42,437

 

436,716

 

403,376

Contract maintenance charges

 

(8,456)

 

(52,062)

 

(29,253)

 

(37,629)

 

(279)

Adjustments to net assets allocated to contracts in payout period

 

670

 

8

 

4

 

6

 

-

Increase (decrease) in net assets from contract transactions

 

18,384,614

 

(1,111,581)

 

(244,979)

 

(585,341)

 

235,541

Increase (decrease) in net assets

 

17,187,027

 

(1,804,062)

 

(320,602)

 

(763,766)

 

236,100

Net assets at beginning of period

 

-

 

8,008,997

 

4,583,646

 

6,481,761

 

623,192

Net assets at end of period

$

17,187,027

$

6,204,935

$

4,263,044

$

5,717,995

$

859,292

Beginning units

 

-

 

384,621

 

212,779

 

327,810

 

64,537

Units issued

 

2,037,531

 

31,820

 

30,586

 

51,239

 

41,804

Units redeemed

 

(113,524)

 

(83,297)

 

(41,775)

 

(79,829)

 

(17,465)

Ending units

 

1,924,007

 

333,144

 

201,590

 

299,220

 

88,876

The accompanying Notes to Financial Statements are an integral part of this statement.

13

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

SAST SA

 

SAST SA

 

SAST SA

 

SAST SA

 

T Rowe Price

 

 

DFA Ultra

 

DFA Ultra

 

VCP Dynamic

 

VCP Dynamic

 

Blue Chip

 

 

Short Bond

 

Short Bond

 

Allocation

 

Strategy

 

Growth

 

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio

 

Portfolio II

 

 

Class 2

 

Class 3

 

Class 3

 

Class 3

 

Class

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

80,859

$

200,814

$

-

$

-

$

-

Mortality and expense risk and administrative charges

 

(71,539)

 

(149,320)

 

(827,348)

 

(754,069)

 

(70,663)

Net investment income (loss)

 

9,320

 

51,494

 

(827,348)

 

(754,069)

 

(70,663)

Net realized gain (loss)

 

19,589

 

346,076

 

387,771

 

568,183

 

407,137

Capital gain distribution from mutual funds

 

-

 

-

 

2,013,969

 

1,550,760

 

134,193

Change in unrealized appreciation (depreciation) of investments

 

(4,596)

 

(354,457)

 

7,452,160

 

6,524,324

 

638,134

Increase (decrease) in net assets from operations

 

24,313

 

43,113

 

9,026,552

 

7,889,198

 

1,108,801

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

75,598

 

211,850

 

7,235

 

7,236

 

642,992

Payments for contract benefits or terminations

 

(1,731,701)

 

(4,799,383)

 

(5,586,207)

 

(5,700,588)

 

(460,666)

Transfers between sub-accounts (including fixed account), net

 

1,606,456

 

5,834,757

 

(397,648)

 

(303,426)

 

(295,840)

Contract maintenance charges

 

(8,201)

 

(107,372)

 

(1,002,778)

 

(911,878)

 

(25,474)

Adjustments to net assets allocated to contracts in payout period

 

-

 

(17)

 

-

 

-

 

(2,178)

Increase (decrease) in net assets from contract transactions

 

(57,848)

 

1,139,835

 

(6,979,398)

 

(6,908,656)

 

(141,166)

Increase (decrease) in net assets

 

(33,535)

 

1,182,948

 

2,047,154

 

980,542

 

967,635

Net assets at beginning of period

 

4,461,405

 

9,651,786

 

51,156,131

 

47,416,740

 

4,120,370

Net assets at end of period

$

4,427,870

$

10,834,734

$

53,203,285

$

48,397,282

$

5,088,005

Beginning units

 

467,350

 

1,012,678

 

3,942,761

 

3,727,853

 

171,022

Units issued

 

192,471

 

696,155

 

58,186

 

70,226

 

33,479

Units redeemed

 

(198,651)

 

(577,236)

 

(541,339)

 

(562,250)

 

(39,732)

Ending units

 

461,170

 

1,131,597

 

3,459,608

 

3,235,829

 

164,769

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

From operations:

 

 

 

 

 

 

 

 

 

 

Dividends

$

46,855

$

78,358

$

2,057,204

$

1,987,073

$

-

Mortality and expense risk and administrative charges

 

(76,705)

 

(146,629)

 

(907,771)

 

(841,589)

 

(72,805)

Net investment income (loss)

 

(29,850)

 

(68,271)

 

1,149,433

 

1,145,484

 

(72,805)

Net realized gain (loss)

 

7,280

 

17,858

 

1,326,689

 

1,488,175

 

720,663

Capital gain distribution from mutual funds

 

-

 

-

 

6,198,289

 

4,648,715

 

142,569

Change in unrealized appreciation (depreciation) of investments

 

9,536

 

20,440

 

(13,308,566)

 

(11,809,479)

 

(748,929)

Increase (decrease) in net assets from operations

 

(13,034)

 

(29,973)

 

(4,634,155)

 

(4,527,105)

 

41,498

From contract transactions:

 

 

 

 

 

 

 

 

 

 

Payments received from contract owners

 

56,528

 

341,263

 

13,340

 

1,884

 

104,529

Payments for contract benefits or terminations

 

(2,958,228)

 

(4,715,327)

 

(6,449,153)

 

(6,507,562)

 

(1,286,815)

Transfers between sub-accounts (including fixed account), net

 

2,074,136

 

3,971,631

 

3,589,549

 

3,177,474

 

321,953

Contract maintenance charges

 

(10,388)

 

(105,751)

 

(1,002,135)

 

(924,954)

 

(26,476)

Adjustments to net assets allocated to contracts in payout period

 

-

 

(151)

 

-

 

-

 

2,287

Increase (decrease) in net assets from contract transactions

 

(837,952)

 

(508,335)

 

(3,848,399)

 

(4,253,158)

 

(884,522)

Increase (decrease) in net assets

 

(850,986)

 

(538,308)

 

(8,482,554)

 

(8,780,263)

 

(843,024)

Net assets at beginning of period

 

5,312,391

 

10,190,094

 

59,638,685

 

56,197,003

 

4,963,394

Net assets at end of period

$

4,461,405

$

9,651,786

$

51,156,131

$

47,416,740

$

4,120,370

Beginning units

 

555,595

 

1,065,572

 

4,217,085

 

4,037,872

 

206,772

Units issued

 

350,579

 

670,905

 

297,760

 

287,373

 

34,037

Units redeemed

 

(438,824)

 

(723,799)

 

(572,084)

 

(597,392)

 

(69,787)

Ending units

 

467,350

 

1,012,678

 

3,942,761

 

3,727,853

 

171,022

The accompanying Notes to Financial Statements are an integral part of this statement.

14

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

 

 

T Rowe Price

 

 

Equity Income

 

 

Portfolio II

 

 

Class

For the Year Ended December 31, 2019

 

 

From operations:

 

 

Dividends

$

114,421

Mortality and expense risk and administrative charges

 

(85,648)

Net investment income (loss)

 

28,773

Net realized gain (loss)

 

10,312

Capital gain distribution from mutual funds

 

329,634

Change in unrealized appreciation (depreciation) of investments

 

820,767

Increase (decrease) in net assets from operations

 

1,189,486

From contract transactions:

 

 

Payments received from contract owners

 

84,418

Payments for contract benefits or terminations

 

(840,611)

Transfers between sub-accounts (including fixed account), net

 

(149,537)

Contract maintenance charges

 

(54,351)

Adjustments to net assets allocated to contracts in payout period

 

(314)

Increase (decrease) in net assets from contract transactions

 

(960,395)

Increase (decrease) in net assets

 

229,091

Net assets at beginning of period

 

5,298,397

Net assets at end of period

$

5,527,488

Beginning units

 

357,963

Units issued

 

22,980

Units redeemed

 

(80,228)

Ending units

 

300,715

For the Year Ended December 31, 2018

 

 

From operations:

 

 

Dividends

$

111,178

Mortality and expense risk and administrative charges

 

(99,791)

Net investment income (loss)

 

11,387

Net realized gain (loss)

 

363,295

Capital gain distribution from mutual funds

 

523,211

Change in unrealized appreciation (depreciation) of investments

 

(1,535,233)

Increase (decrease) in net assets from operations

 

(637,340)

From contract transactions:

 

 

Payments received from contract owners

 

48,787

Payments for contract benefits or terminations

 

(1,195,758)

Transfers between sub-accounts (including fixed account), net

 

(20,229)

Contract maintenance charges

 

(57,379)

Adjustments to net assets allocated to contracts in payout period

 

9

Increase (decrease) in net assets from contract transactions

 

(1,224,570)

Increase (decrease) in net assets

 

(1,861,910)

Net assets at beginning of period

 

7,160,307

Net assets at end of period

$

5,298,397

Beginning units

 

430,178

Units issued

 

22,580

Units redeemed

 

(94,795)

Ending units

 

357,963

The accompanying Notes to Financial Statements are an integral part of this statement.

15

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

1.Organization

Variable Annuity Account Five (the Separate Account) is a segregated investment account established by American General Life Insurance Company (the Company) to receive and invest premium payments from variable annuity contracts issued by the Company. The Company is a wholly owned subsidiary of AGC Life Insurance Company, an indirect, wholly owned subsidiary of American International Group, Inc. (AIG).

The Separate Account includes the following variable annuity products:

Seasons

Seasons Elite

Seasons Advantage

Seasons Preferred Solutions

Seasons Advisor

Seasons Select

Seasons Advisor II

Seasons Select II

Seasons Advisor III

Seasons Triple Elite

The Separate Account contracts are sold through the Company's affiliated broker-dealers, independent broker-dealers, full-service securities firms, and financial institutions. The distributor of the Separate Account is AIG Capital Services, Inc., an affiliate of the Company. No underwriting fees are paid in connection with the distribution of these contracts.

The Separate Account is registered with the Securities and Exchange Commission as a Unit Investment Trust under the Investment Company Act of 1940, as amended. The Separate Account consists of various sub-accounts. Each sub- account invests all its investible assets in a corresponding eligible mutual fund, which is registered under the 1940 Act as an open-ended management investment company. The names in bold in the table below are the diversified, open- ended management investment companies and the names below them are the names of the sub- accounts/corresponding eligible mutual funds. Collectively, all of the mutual funds are referred to as "Funds" throughout these financial statements.

For each sub-account, the financial statements are comprised of a Statement of Assets and Liabilities, including a Schedule of Portfolio Investments, as of December 31, 2019 and related Statements of Operations and Changes in Net Assets for each of the two years in the period then ended, all periods to reflect a full twelve month period, except as noted below.

Fidelity Variable Insurance Products (Fidelity VIP)

 

Fidelity VIP Contrafund Portfolio Service Class 2

Fidelity VIP Mid Cap Portfolio Service Class 2

Fidelity VIP Equity-Income Portfolio Service Class 2

Fidelity VIP Overseas Portfolio Service Class 2

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

 

Seasons Series Trust (SST)(a)(b)

 

SST Balanced Growth Strategy Class 1

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

SST Balanced Growth Strategy Class 2

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

SST Balanced Growth Strategy Class 3

SST SA Multi-Managed International Equity Portfolio Class 1

SST Conservative Growth Strategy Class 1

SST SA Multi-Managed International Equity Portfolio Class 2

SST Conservative Growth Strategy Class 2

SST SA Multi-Managed International Equity Portfolio Class 3

SST Conservative Growth Strategy Class 3

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

SST Growth Strategy Class 1

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

SST Growth Strategy Class 2

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

SST Growth Strategy Class 3

SST SA Multi-Managed Large Cap Value Portfolio Class 1

SST Moderate Growth Strategy Class 1

SST SA Multi-Managed Large Cap Value Portfolio Class 2

SST Moderate Growth Strategy Class 2

SST SA Multi-Managed Large Cap Value Portfolio Class 3

SST Moderate Growth Strategy Class 3

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

SST SA Allocation Balanced Portfolio Class 3

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

SST SA Allocation Growth Portfolio Class 3

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

SST SA Allocation Moderate Growth Portfolio Class 3

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

SST SA Allocation Moderate Portfolio Class 3

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

16

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Seasons Series Trust (SST)(a)(b)

 

SST SA Columbia Focused Growth Portfolio Class 1(c)

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

SST SA Columbia Focused Growth Portfolio Class 2(c)

SST SA Multi-Managed Small Cap Portfolio Class 1

SST SA Columbia Focused Growth Portfolio Class 3(c)

SST SA Multi-Managed Small Cap Portfolio Class 2

SST SA Columbia Focused Value Portfolio Class 2

SST SA Multi-Managed Small Cap Portfolio Class 3

SST SA Columbia Focused Value Portfolio Class 3

SST SA Wellington Real Return Portfolio Class 3

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

 

SunAmerica Series Trust (SAST)(a)

 

SAST SA AB Growth Portfolio Class 1

SAST SA DFA Ultra Short Bond Portfolio Class 1

SAST SA AB Growth Portfolio Class 2

SAST SA DFA Ultra Short Bond Portfolio Class 2

SAST SA AB Growth Portfolio Class 3

SAST SA DFA Ultra Short Bond Portfolio Class 3

SAST SA American Funds Global Growth Portfolio Class 3

SAST SA VCP Dynamic Allocation Portfolio Class 3

SAST SA American Funds Growth Portfolio Class 3

SAST SA VCP Dynamic Strategy Portfolio Class 3

SAST SA American Funds Growth-Income Portfolio Class 3

 

T. Rowe Price Equity Series, Inc. (T. Rowe Price)

 

T Rowe Price Blue Chip Growth Portfolio II Class

T Rowe Price Equity Income Portfolio II Class

(a)These are affiliated investment companies. SunAmerica Asset Management Corp., an affiliate of the Company, serves as the investment advisor to Seasons Series Trust and SunAmerica Series Trust.

(b)Consists of multi-managed variable investment strategies (Seasons Strategies), Select Portfolios, Focused Portfolios and Managed Allocation Portfolios each with a distinct investment objective. The Seasons Strategies are comprised of Growth, Moderate Growth, Balanced Growth, and Conservative Growth. Each strategy invests in the shares of a designated multi-managed portfolio as well as in the shares of the two other portfolios of the Seasons Trust. Each of the Select Portfolios, Managed Allocation Portfolios and Focused Portfolios is invested solely in the shares of designated portfolio of Seasons Series Trust.

(c)The SST SA Columbia Focused Growth Portfolio, in operation for the period January 1, 2018 to October 22, 2018 (cessation of operations) merged into the SAST SA AB Growth Portfolio.

In addition to the sub-accounts above, a contract owner may allocate contract funds to a fixed account, which is part of the Company's General Account and not included in these financial statements. Contract owners should refer to the product prospectus for the available Funds and fixed account.

The assets of the Separate Account are segregated from the Company's assets. The operations of the Separate Account are part of the Company. Net premiums from the contracts are allocated to the sub-accounts and invested in the Funds in accordance with contract owner instructions and are recorded as contract transactions in the Statements of Operations and Changes in Net Assets.

2.Summary of Significant Accounting Policy

The financial statements of the Separate Account have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). The following is a summary of significant accounting policies consistently followed by the Separate Account in the preparation of its financial statements.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires the application of accounting policies that often involve a significant degree of judgment. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from assumptions used, the financial statements of the Separate Account could be materially affected.

Investments: Investments in mutual funds are valued at their closing net asset value per share as determined by the respective mutual funds, which generally value their securities at fair value. Purchases and sales of shares of the Funds are made at the net asset values of such Funds. Transactions are recorded on a trade date basis. Realized gains and losses on the sales of investments are recognized at the date of sale and are determined on a first-in, first-out basis. Dividends and capital gain distributions from the Funds are recorded on the ex-dividend date and reinvested upon receipt.

17

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Reserves for Annuity Contracts in Payout: Net assets allocated to contracts in the payout period are based on industry standard mortality tables depending on the calendar year of annuitization as well as other assumptions, including provisions for the risk of adverse deviation from assumptions.

An assumed interest rate of 3.50 percent is used in determining annuity payments for all products.

At each reporting period, the assumptions must be evaluated based on current experience, and the reserves must be adjusted accordingly. To the extent additional reserves are established due to mortality risk experience, the Company makes payments to the Separate Account. If there are excess reserves remaining at the time annuity payments cease, the assets supporting those reserves are transferred from the Separate Account to the General Account. Transfers between the General Account and the Separate Account, if any, are disclosed as adjustments to net assets allocated to contracts in payout period in the Statements of Operations and Changes in Net Assets. Annuity benefit payments are recorded as payments for contract benefits or terminations in the Statements of Operations and Changes in Net Assets.

Accumulation Unit: This is the basic valuation unit used to calculate the contract owner's interest. Such units are valued daily to reflect investment performance and the prorated daily deduction for expense charges.

Income Taxes: The operations of the Separate Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provision of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent that the earnings are credited under the contracts. As a result, no charge is currently made to the Separate Account for federal income taxes. The Separate Account is not treated as a regulated investment company under the Code. The Company will periodically review changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts.

3.Fair Value Measurements

Assets recorded at fair value in the Separate Account's Statement of Assets and Liabilities are measured and classified in a hierarchy for disclosure purposes consisting of three "levels" based on the observability of valuation inputs:

∙Level 1— Fair value measurements based on quoted prices (unadjusted) in active markets that the Separate Account has the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. The Separate Account does not adjust the quoted price for such instruments.

∙Level 2— Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

∙Level 3— Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair value positions in Level 3. The circumstances in which there is little, if any, market activity for the asset or liability. Therefore, the Separate Account makes certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The Separate Account assets measured at fair value as of December 31, 2019 consist of investments in registered mutual funds that generally trade daily and are measured at fair value using quoted prices in active markets for identical assets, which are classified as Level 1 throughout the year. As such, no transfers between fair value hierarchy levels occurred during the year. See the Schedule of Portfolio Investments for the table presenting information about assets measured at fair value on a recurring basis at December 31, 2019, and respective hierarchy levels.

18

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4.Expenses

Expense charges are applied against the current value of the Separate Account and are paid as follows:

Separate Account Annual Charges: Deductions for the mortality and expense risk charges and distribution charges are calculated daily, at an annual rate, on the actual prior day's net asset value of the underlying Funds comprising the sub-accounts attributable to the contract owners and are paid to the Company. The mortality risk charge represents compensation to the Company for the mortality risks assumed under the contract, which is the obligation to provide payments during the payout period for the life of the contract and to provide the standard death benefit. The expense risk charge represents compensation to the Company for assuming the risk that the current contract administration charges will be insufficient to cover the cost of administering the contract in the future. The distribution expense charge covers all expenses associated with the distribution of the contract. These charges are included on the mortality and expense risk and administrative charges line in the Statements of Operations and Changes in Net Assets.

The exact rate depends on the particular product issued and the death benefits elected for each product. Expense charges for each product are as follows:

Products

Separate Account Annual Charges*

Seasons

1.40%

Seasons Advantage

1.65%, 1.90% or 2.30%

Seasons Advisor

1.40% or 1.65%

Seasons Advisor II

1.55%, 1.70% or 1.95%

Seasons Advisor III

1.65%, 1.85%, or 2.30%

Seasons Elite

1.55%, 1.75%, 2.00% or 2.20%

Seasons Preferred Solutions

1.15%, 1.40%, 1.55%, 1.65%, 1.80% or 2.05%

Seasons Select

1.40% or 1.52%

Seasons Select II

1.40%, 1.55%, 1.65%, 1.80% or 2.05%

Seasons Triple Elite

1.55%, 1.70% or 1.95%

*The distribution charge is deducted at an annual rate of 0.15 percent of the net asset value of each portfolio and is included in the respective separate account annual charge rate.

Contract Maintenance Charge: During the accumulation phase, an annual contract maintenance charge is assessed by the Company on the contract anniversary. In the event of a full surrender, a contract maintenance charge is assessed at the date of surrender and deducted from the withdrawal proceeds. The contract maintenance charge represents a reimbursement of administrative expenses incurred by the Company related to the establishment and maintenance of the record keeping function for the sub-accounts. These charges are included as part of the contract maintenance charges line in the Statements of Operations and Changes in Net Assets.

The contract maintenance charge ranges from $30 to $35 for certain contracts. No contract maintenance charge is assessed under the Seasons Advisor and Seasons Advisor II contracts.

Withdrawal Charge: A withdrawal charge is applicable to certain contract withdrawals pursuant to the contract and is payable to the Company. The withdrawal charges are included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

Withdrawal charges may be assessed for withdrawals in excess of the free withdrawal amount as defined in the contracts. Withdrawal amounts in excess of the free withdrawal amount are assessed withdrawal charges based on tables of charges applicable to specific contracts.

The maximum withdrawal charge of 9 percent is assessed on amount withdrawn in excess of free withdrawals. There are no withdrawal charges under the Seasons Advisor, Seasons Advisor II and Seasons Advisor III contracts.

19

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Transfer Fee: A transfer fee may be assessed on each transfer of funds in excess of the maximum transactions allowed within a contract year depending on the contract provision. The transfer fee is included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

A transfer fee of $25 ($10 in Pennsylvania and Texas) is assessed on each transfer in excess of the maximum transactions allowed for the product.

Premium Tax Charge: Certain states charge taxes on purchase payments up to a maximum of 3.50 percent. Some states assess premium taxes at the time of purchase payments, while some other states assess premium taxes when annuity payments begin or upon surrender. There are certain states that do not assess premium taxes. If the law of the state requires premium taxes to be paid when purchase payments are made, the Company will deduct the tax from such payments prior to depositing the payments into the Separate Account. Otherwise, such tax will be deducted from the account value when annuity payments begin. Premium taxes are included as part of the payments received from contract owners line in the Statements of Operations and Changes in Net Assets.

The Company currently deducts premium taxes upon annuitization; however, it reserves the right to deduct premium taxes upon receipt of a purchase payment or upon surrender of the contract.

Income Protector Fee: The optional Income Protector Program provides a guaranteed fixed minimum retirement income upon annuitization. The fee is calculated as a percentage of the income benefit base, as defined in the prospectus, and is deducted annually from the contract value. The income benefit base is calculated using the contract value on the effective date of the enrollment in the program and then each subsequent contract anniversary, adjusted for the applicable growth rates, purchase payments, proportional withdrawals, fees, and charges. The income protector fee is included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

The fee for Income Protector Program is 0.10 percent and is offered under the Seasons Select, Seasons Select II and Seasons Triple Elite contracts.

MarketLock, Marketlock for Two, MarketLock for Life Plus, MarketLock Income Plus, MarketLock for Life and Seasons Income Rewards Fee: These optional features provide a guaranteed withdrawal stream by locking in market gains during an applicable evaluation period.

∙MarketLock, MarketLock for Two and Season Income Rewards

The annual fee is calculated as a percentage of the maximum anniversary value benefit base and deducted quarterly from the contract value. The maximum anniversary value benefit base is calculated as the greater of eligible purchase payments received during the first two years, adjusted for withdrawals, or the maximum anniversary date contract value occurring in the first ten contract years, adjusted for withdrawals. The annual fee is included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

The withdrawal benefit base for Seasons Income Rewards is calculated as eligible purchase payments adjusted for withdrawals received during the first 90 days.

∙MarketLock for Life, MarketLock for Life Plus and MarketLock Income Plus

The annual fee is calculated as a percentage of the income base and deducted quarterly from the contract value. The income base is calculated as the greater of purchase payments made in the first contract year and purchase payments made in contract years 2-5, capped at 100 percent of purchase payments made in the first year plus a bonus, if eligible, or the highest anniversary date contract value less purchase payments in years 2-5 over the first year purchase payments. The annual fee is included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

20

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The annual fees for the optional features discussed above are as follows (Note: If Extension of the evaluation period is elected, an additional 0.10% - 0.25% is added to the Annual Fee):

Optional Features

Products Offered

Annual Fees

MarketLock

Seasons Advantage

0.65%

 

Seasons Elite

 

 

Season Preferred Solution

 

 

Seasons Select II

 

 

Seasons Triple Elite

 

MarketLock for Two

Seasons Elite

0.40% prior to the first withdrawal

 

Season Preferred Solution

0.80% after the first withdrawal

 

Seasons Select II

 

 

Seasons Triple Elite

 

Season Income Rewards

Seasons Elite

0.65% in years zero to seven

 

Season Preferred Solution

0.45% in years eight to ten

 

Seasons Select II

 

 

Seasons Triple Elite

 

MarketLock for Life

Seasons Advantage

0.70% for one covered person

 

Seasons Elite

0.95% for two covered persons

 

Season Preferred Solution

 

 

Seasons Select II

 

MarketLock for Life Plus

Seasons Advantage

0.65% to 0.95% for one covered person

 

Seasons Advisor III

0.90% to 1.25% for two covered persons

 

Seasons Elite

 

 

Season Preferred Solution

 

 

Seasons Select II

 

MarketLock Income Plus

Seasons Advantage

0.95% to 1.10% for one covered person

 

Seasons Advisor III

1.20% to 1.35% for two covered persons

 

Seasons Elite

 

 

Season Preferred Solution

 

 

Seasons Select II

 

Seasons Promise Fee: The optional Seasons Promise Program provides a guaranteed minimum contract value at the end of ten full contract years. The fee is calculated as a percentage of the contract value minus purchase payments received after the 90th day from the date of contract issuance and deducted quarterly from the contract value during the first ten full contract years. This optional feature is included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets.

The fee for the Season Promise Program ranges from 0.25 percent to 0.65 percent. This optional feature is offered under the offered under the Seasons Select II, Seasons Triple Elite, Seasons Preferred Solution, and Seasons Elite contracts.

21

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.Purchases and Sales of Investments

For the year ended December 31, 2019, the aggregate cost of purchases and proceeds from the sales of investments were:

Sub-accounts

 

Cost of Purchases

 

Proceeds from Sales

Fidelity VIP Contrafund Portfolio Service Class 2

$

698,291

$

1,062,122

Fidelity VIP Equity-Income Portfolio Service Class 2

 

610,308

 

1,264,449

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

 

2,135,549

 

2,974,112

Fidelity VIP Mid Cap Portfolio Service Class 2

 

1,369,486

 

1,781,251

Fidelity VIP Overseas Portfolio Service Class 2

 

418,301

 

1,239,990

SST Balanced Growth Strategy Class 1

 

376,691

 

1,956,732

SST Balanced Growth Strategy Class 2

 

2,189,139

 

9,031,190

SST Balanced Growth Strategy Class 3

 

2,033,550

 

4,160,165

SST Conservative Growth Strategy Class 1

 

326,743

 

1,491,979

SST Conservative Growth Strategy Class 2

 

872,238

 

7,254,508

SST Conservative Growth Strategy Class 3

 

1,766,528

 

5,760,371

SST Growth Strategy Class 1

 

191,647

 

2,475,062

SST Growth Strategy Class 2

 

328,359

 

5,611,346

SST Growth Strategy Class 3

 

908,214

 

6,428,128

SST Moderate Growth Strategy Class 1

 

195,520

 

2,043,788

SST Moderate Growth Strategy Class 2

 

330,591

 

9,200,629

SST Moderate Growth Strategy Class 3

 

2,493,977

 

9,519,820

SST SA Allocation Balanced Portfolio Class 3

 

3,623,208

 

11,658,516

SST SA Allocation Growth Portfolio Class 3

 

1,205,731

 

5,784,784

SST SA Allocation Moderate Growth Portfolio Class 3

 

14,399,599

 

37,298,011

SST SA Allocation Moderate Portfolio Class 3

 

4,645,652

 

17,396,139

SST SA Columbia Focused Value Portfolio Class 2

 

673,339

 

1,554,603

SST SA Columbia Focused Value Portfolio Class 3

 

266,678

 

1,410,791

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

 

139,998

 

296,413

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

 

2,290,258

 

3,332,320

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

 

1,123,138

 

2,469,760

SST SA Multi-Managed International Equity Portfolio Class 1

 

136,028

 

175,898

SST SA Multi-Managed International Equity Portfolio Class 2

 

2,496,659

 

2,248,815

SST SA Multi-Managed International Equity Portfolio Class 3

 

1,529,794

 

2,121,457

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

 

554,847

 

843,956

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

 

4,385,963

 

5,209,971

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

 

2,107,635

 

3,535,000

SST SA Multi-Managed Large Cap Value Portfolio Class 1

 

283,816

 

284,374

SST SA Multi-Managed Large Cap Value Portfolio Class 2

 

2,151,735

 

3,957,620

SST SA Multi-Managed Large Cap Value Portfolio Class 3

 

1,100,361

 

2,475,935

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

 

296,550

 

1,089,336

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

 

2,568,774

 

3,223,146

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

 

1,694,539

 

2,764,962

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

 

175,148

 

363,792

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

 

1,717,125

 

3,190,042

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

 

1,035,530

 

2,323,886

SST SA Multi-Managed Small Cap Portfolio Class 1

 

117,118

 

278,108

SST SA Multi-Managed Small Cap Portfolio Class 2

 

1,520,966

 

1,990,091

SST SA Multi-Managed Small Cap Portfolio Class 3

 

937,736

 

1,889,476

SST SA Wellington Real Return Portfolio Class 3

 

600,690

 

941,065

SAST SA AB Growth Portfolio Class 1

 

73,107

 

88,765

SAST SA AB Growth Portfolio Class 2

 

1,958,631

 

3,759,673

SAST SA AB Growth Portfolio Class 3

 

1,211,830

 

3,568,879

SAST SA American Funds Global Growth Portfolio Class 3

 

956,839

 

1,490,284

SAST SA American Funds Growth Portfolio Class 3

 

216,921

 

1,361,927

SAST SA American Funds Growth-Income Portfolio Class 3

 

290,013

 

912,007

SAST SA DFA Ultra Short Bond Portfolio Class 1

 

9,802

 

406,423

SAST SA DFA Ultra Short Bond Portfolio Class 2

 

1,876,219

 

1,924,747

SAST SA DFA Ultra Short Bond Portfolio Class 3

 

6,639,381

 

5,448,052

SAST SA VCP Dynamic Allocation Portfolio Class 3

 

2,590,933

 

8,383,710

SAST SA VCP Dynamic Strategy Portfolio Class 3

 

2,222,939

 

8,334,904

T Rowe Price Blue Chip Growth Portfolio II Class

 

1,078,423

 

1,156,061

T Rowe Price Equity Income Portfolio II Class

 

748,430

 

1,350,419

22

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6.Financial Highlights

The summary of unit values and units outstanding for sub-accounts, investment income ratios, total return and expense ratios, excluding expenses of the underlying mutual funds, for each of the five years in the period ended December 31, 2019, follows:

 

 

December 31, 2019

 

 

For the Year Ended December 31, 2019

 

 

 

 

 

 

 

 

Investment

Expense

Total

 

 

 

Unit Value ($)(a)

 

Net

 

Income

Ratio (%)(d)

Return (%)(e)

Sub-accounts

Units

 

Lowest

Highest

Assets ($)(b)

 

Ratio (%)(c)

Lowest

Highest

Lowest

Highest

Fidelity VIP Contrafund Portfolio Service Class 2

203,195

20.05

22.26

 

4,329,353

0.22

1.15

2.05

28.61

29.77

Fidelity VIP Equity-Income Portfolio Service Class 2

303,031

16.73

18.49

 

5,342,026

1.81

1.15

2.00

24.59

25.65

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,087,878

12.87

14.22

 

14,802,985

2.50

1.15

2.00

7.24

8.15

Fidelity VIP Mid Cap Portfolio Service Class 2

398,613

18.42

20.41

 

7,746,296

0.68

1.15

2.00

20.73

21.76

Fidelity VIP Overseas Portfolio Service Class 2

422,628

10.88

12.01

 

4,845,911

1.48

1.15

2.00

24.98

26.04

SST Balanced Growth Strategy Class 1

397,254

 

 

35.91

 

14,263,596

0.00

 

1.40

 

17.32

SST Balanced Growth Strategy Class 2

1,587,164

31.65

34.87

 

53,379,206

0.00

1.40

1.95

16.49

17.13

SST Balanced Growth Strategy Class 3

942,290

30.89

35.49

 

31,542,725

0.00

1.15

2.00

16.30

17.29

SST Conservative Growth Strategy Class 1

262,586

 

 

31.91

 

8,379,544

0.00

 

1.40

 

15.03

SST Conservative Growth Strategy Class 2

1,326,540

28.34

30.99

 

39,595,617

0.00

1.40

1.95

14.19

14.82

SST Conservative Growth Strategy Class 3

783,353

27.46

31.48

 

23,546,604

0.00

1.15

1.95

14.15

15.07

SST Growth Strategy Class 1

430,601

 

 

43.31

 

18,649,898

0.00

 

1.40

 

21.16

SST Growth Strategy Class 2

847,780

38.43

42.07

 

34,369,371

0.00

1.40

1.95

20.32

20.98

SST Growth Strategy Class 3

1,013,807

37.71

42.74

 

41,102,008

0.00

1.15

2.00

20.12

21.14

SST Moderate Growth Strategy Class 1

418,757

38.53

39.49

 

16,537,515

0.00

1.40

1.52

19.23

19.37

SST Moderate Growth Strategy Class 2

1,946,786

34.73

38.37

 

71,851,287

0.00

1.40

1.95

18.61

19.26

SST Moderate Growth Strategy Class 3

1,532,948

33.95

39.03

 

56,672,019

0.00

1.15

2.00

18.42

19.43

SST SA Allocation Balanced Portfolio Class 3

3,865,674

15.53

17.55

 

64,468,447

1.52

1.15

2.00

13.73

14.70

SST SA Allocation Growth Portfolio Class 3

2,124,881

17.77

20.03

 

40,245,141

0.01

1.15

2.00

21.06

22.09

SST SA Allocation Moderate Growth Portfolio Class 3

12,771,477

16.35

18.62

 

225,319,262

1.37

1.15

2.05

18.16

19.23

SST SA Allocation Moderate Portfolio Class 3

5,102,218

16.27

18.37

 

88,580,612

1.42

1.15

2.00

16.39

17.39

SST SA Columbia Focused Value Portfolio Class 2

424,548

31.33

34.80

 

14,293,889

0.47

1.40

1.95

24.13

24.81

SST SA Columbia Focused Value Portfolio Class 3

266,799

30.61

35.38

 

8,919,778

0.43

1.15

2.00

23.94

24.99

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

106,455

16.58

17.20

 

1,831,181

3.05

1.40

1.52

8.03

8.16

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

1,228,843

14.78

16.72

 

19,633,362

2.90

1.40

1.95

7.39

7.98

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

704,960

14.38

16.97

 

11,230,809

2.73

1.15

2.00

7.16

8.08

SST SA Multi-Managed International Equity Portfolio Class 1

89,560

12.06

13.22

 

1,182,164

3.13

1.40

1.52

20.79

20.93

SST SA Multi-Managed International Equity Portfolio Class 2

1,502,705

11.70

12.84

 

18,552,075

3.02

1.40

1.95

20.15

20.81

SST SA Multi-Managed International Equity Portfolio Class 3

1,003,912

11.46

13.06

 

12,371,089

2.84

1.15

2.00

20.02

21.04

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

157,857

24.18

27.35

 

4,314,816

0.47

1.40

1.52

28.57

28.73

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

1,253,575

24.09

26.55

 

32,017,854

0.32

1.40

1.95

27.79

28.49

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

627,058

23.60

26.92

 

15,971,193

0.20

1.15

2.00

27.59

28.68

SST SA Multi-Managed Large Cap Value Portfolio Class 1

121,297

28.91

30.85

 

3,733,593

2.51

1.40

1.52

26.80

26.95

SST SA Multi-Managed Large Cap Value Portfolio Class 2

868,176

26.49

29.98

 

24,836,337

2.27

1.40

1.95

26.08

26.77

SST SA Multi-Managed Large Cap Value Portfolio Class 3

434,388

25.95

30.48

 

12,444,747

2.15

1.15

2.00

25.87

26.95

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

57,524

46.32

51.54

 

2,963,297

0.00

1.40

1.52

34.11

34.27

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

474,141

45.67

50.08

 

22,821,877

0.00

1.40

1.95

33.38

34.11

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

278,587

44.66

50.95

 

13,448,281

0.00

1.15

2.00

33.07

34.20

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

54,515

47.23

49.04

 

2,673,085

1.37

1.40

1.52

23.49

23.64

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

497,216

40.79

47.67

 

22,488,113

1.18

1.40

1.95

22.74

23.42

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

294,060

39.75

48.38

 

13,211,390

1.05

1.15

2.00

22.59

23.64

SST SA Multi-Managed Small Cap Portfolio Class 1

61,404

22.42

23.83

 

1,460,894

0.25

1.40

1.52

22.62

22.77

SST SA Multi-Managed Small Cap Portfolio Class 2

699,918

21.06

23.16

 

15,610,106

0.09

1.40

1.95

21.96

22.63

SST SA Multi-Managed Small Cap Portfolio Class 3

428,213

20.51

23.51

 

9,534,508

0.00

1.15

2.05

21.72

22.82

SST SA Wellington Real Return Portfolio Class 3

494,387

10.63

12.19

 

5,688,626

0.31

1.15

2.05

3.39

4.33

SAST SA AB Growth Portfolio Class 1

104,192

 

 

11.89

 

1,238,992

0.00

 

1.40

 

33.00

SAST SA AB Growth Portfolio Class 2

2,581,419

11.79

11.87

 

30,568,128

0.00

1.40

1.95

32.07

32.80

SAST SA AB Growth Portfolio Class 3

1,617,847

11.76

11.89

 

19,154,124

0.00

1.15

2.05

31.82

33.01

SAST SA American Funds Global Growth Portfolio Class 3

277,937

23.39

25.99

 

6,877,647

0.80

1.15

2.00

32.26

33.39

SAST SA American Funds Growth Portfolio Class 3

156,600

25.28

28.54

 

4,248,130

0.00

1.15

2.05

27.75

28.90

SAST SA American Funds Growth-Income Portfolio Class 3

273,534

21.97

24.77

 

6,476,133

0.00

1.15

2.05

23.20

24.31

SAST SA DFA Ultra Short Bond Portfolio Class 1

48,081

 

 

9.75

 

468,809

1.41

 

1.40

 

0.85

SAST SA DFA Ultra Short Bond Portfolio Class 2

461,170

9.43

9.68

 

4,427,870

1.82

1.40

1.95

0.18

0.73

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,131,597

9.35

9.74

 

10,834,734

1.96

1.15

2.00

-0.03

0.83

SAST SA VCP Dynamic Allocation Portfolio Class 3

3,459,608

14.92

15.87

 

53,203,285

0.00

1.15

2.00

18.01

19.02

SAST SA VCP Dynamic Strategy Portfolio Class 3

3,235,829

14.51

15.40

 

48,397,282

0.00

1.15

2.00

17.04

18.04

T Rowe Price Blue Chip Growth Portfolio II Class

164,769

29.04

32.04

 

5,088,005

0.00

1.15

2.00

27.01

28.10

T Rowe Price Equity Income Portfolio II Class

300,715

17.28

19.28

 

5,527,488

2.11

1.15

2.05

23.49

24.60

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

December 31, 2018

 

 

For the Year Ended December 31, 2018

 

 

 

 

 

 

 

 

Investment

Expense

Total

 

 

 

Unit Value ($)(a)

 

Net

 

Income

Ratio (%)(d)

Return (%)(e)

Sub-accounts

Units

 

Lowest

Highest

Assets ($)(b)

 

Ratio (%)(c)

Lowest

Highest

Lowest

Highest

Fidelity VIP Contrafund Portfolio Service Class 2

246,482

15.59

17.15

 

4,060,678

0.43

1.15

2.05

-8.55

-7.71

Fidelity VIP Equity-Income Portfolio Service Class 2

367,481

13.43

14.71

 

5,175,034

2.01

1.15

2.00

-10.36

-9.59

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,160,837

12.00

13.15

 

14,667,060

2.24

1.15

2.00

-2.76

-1.93

Fidelity VIP Mid Cap Portfolio Service Class 2

467,464

15.26

16.76

 

7,488,036

0.40

1.15

2.00

-16.47

-15.75

Fidelity VIP Overseas Portfolio Service Class 2

518,402

8.70

9.53

 

4,732,312

1.30

1.15

2.00

-16.75

-16.03

SST Balanced Growth Strategy Class 1

437,198

29.89

30.61

 

13,380,409

0.00

1.40

1.52

-4.56

-4.45

SST Balanced Growth Strategy Class 2

1,771,282

27.17

29.77

 

50,940,870

0.00

1.40

1.95

-5.12

-4.59

SST Balanced Growth Strategy Class 3

995,103

26.56

30.25

 

28,498,313

0.00

1.15

2.00

-5.24

-4.43

SST Conservative Growth Strategy Class 1

296,749

 

 

27.74

 

8,232,579

0.00

 

1.40

 

-4.38

SST Conservative Growth Strategy Class 2

1,527,536

24.82

26.99

 

39,772,208

0.00

1.40

1.95

-5.05

-4.52

SST Conservative Growth Strategy Class 3

911,489

24.05

27.35

 

23,879,275

0.00

1.15

1.95

-5.17

-4.40

SST Growth Strategy Class 1

480,623

 

 

35.75

 

17,180,799

0.00

 

1.40

 

-5.85

SST Growth Strategy Class 2

971,320

31.94

34.77

 

32,599,327

0.00

1.40

1.95

-6.50

-5.98

SST Growth Strategy Class 3

1,142,178

31.39

35.28

 

38,376,995

0.00

1.15

2.00

-6.65

-5.85

SST Moderate Growth Strategy Class 1

462,026

32.31

33.08

 

15,285,561

0.00

1.40

1.52

-5.75

-5.64

SST Moderate Growth Strategy Class 2

2,168,567

29.28

32.17

 

67,275,297

0.00

1.40

1.95

-6.34

-5.82

SST Moderate Growth Strategy Class 3

1,711,611

28.67

32.68

 

53,117,203

0.00

1.15

2.00

-6.48

-5.68

SST SA Allocation Balanced Portfolio Class 3

4,449,453

13.65

15.30

 

64,953,452

4.28

1.15

2.00

-5.86

-5.05

SST SA Allocation Growth Portfolio Class 3

2,414,824

14.68

16.41

 

37,630,596

3.09

1.15

2.00

-9.05

-8.27

SST SA Allocation Moderate Growth Portfolio Class 3

14,621,643

13.84

15.62

 

217,119,370

4.00

1.15

2.05

-7.85

-7.01

SST SA Allocation Moderate Portfolio Class 3

6,031,494

13.98

15.65

 

89,608,359

3.98

1.15

2.00

-6.85

-6.05

SST SA Columbia Focused Growth Portfolio Class 1

-

16.03

17.38

 

-

0.00

1.40

1.52

9.85

9.95

SST SA Columbia Focused Growth Portfolio Class 2

-

15.47

16.93

 

-

0.00

1.40

1.95

9.36

9.84

SST SA Columbia Focused Growth Portfolio Class 3

-

14.94

17.18

 

-

0.00

1.15

2.05

9.12

9.91

SST SA Columbia Focused Value Portfolio Class 2

455,312

25.24

27.88

 

12,312,795

3.60

1.40

1.95

-13.76

-13.28

SST SA Columbia Focused Value Portfolio Class 3

305,705

24.69

28.30

 

8,204,507

3.04

1.15

2.00

-13.89

-13.16

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

118,037

15.34

15.91

 

1,877,251

2.56

1.40

1.52

-2.61

-2.49

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

1,311,904

13.76

15.49

 

19,454,517

2.21

1.40

1.95

-3.14

-2.60

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

800,309

13.42

15.70

 

11,846,784

2.24

1.15

2.00

-3.25

-2.42

SST SA Multi-Managed International Equity Portfolio Class 1

102,240

9.98

10.93

 

1,116,218

2.76

1.40

1.52

-15.48

-15.38

SST SA Multi-Managed International Equity Portfolio Class 2

1,631,397

9.74

10.63

 

16,707,397

2.46

1.40

1.95

-16.07

-15.60

SST SA Multi-Managed International Equity Portfolio Class 3

1,155,602

9.55

10.79

 

11,814,331

2.33

1.15

2.00

-16.17

-15.45

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

186,733

18.81

21.24

 

3,965,302

0.64

1.40

1.52

-3.24

-3.13

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

1,436,119

18.85

20.66

 

28,619,474

0.46

1.40

1.95

-3.77

-3.23

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

759,652

18.49

20.92

 

15,110,607

0.38

1.15

2.00

-3.91

-3.09

SST SA Multi-Managed Large Cap Value Portfolio Class 1

129,773

22.80

24.30

 

3,146,990

1.98

1.40

1.52

-11.08

-10.97

SST SA Multi-Managed Large Cap Value Portfolio Class 2

994,768

21.01

23.65

 

22,512,814

1.76

1.40

1.95

-11.61

-11.12

SST SA Multi-Managed Large Cap Value Portfolio Class 3

515,892

20.61

24.01

 

11,683,375

1.66

1.15

2.00

-11.75

-10.99

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

78,512

34.54

38.38

 

3,012,620

0.00

1.40

1.52

-4.98

-4.87

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

535,005

34.24

37.34

 

19,243,732

0.00

1.40

1.95

-5.56

-5.03

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

330,061

33.56

37.97

 

11,925,238

0.00

1.15

2.00

-5.64

-4.83

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

61,699

38.24

39.67

 

2,447,000

0.95

1.40

1.52

-13.18

-13.08

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

557,776

33.23

38.62

 

20,488,721

0.77

1.40

1.95

-13.65

-13.17

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

339,772

32.42

39.13

 

12,405,166

0.64

1.15

2.00

-13.82

-13.08

SST SA Multi-Managed Small Cap Portfolio Class 1

73,049

18.28

19.41

 

1,415,977

0.20

1.40

1.52

-12.88

-12.78

SST SA Multi-Managed Small Cap Portfolio Class 2

771,744

17.27

18.89

 

14,061,815

0.03

1.40

1.95

-13.41

-12.93

SST SA Multi-Managed Small Cap Portfolio Class 3

504,366

16.85

19.14

 

9,183,171

0.00

1.15

2.05

-13.57

-12.79

SST SA Wellington Real Return Portfolio Class 3

518,892

10.28

11.68

 

5,742,062

3.07

1.15

2.05

-2.24

-1.35

SAST SA AB Growth Portfolio Class 1

110,726

 

 

8.94

 

989,993

0.00

1.40

1.52

-10.62

-10.59

SAST SA AB Growth Portfolio Class 2

2,875,869

8.92

8.94

 

25,690,672

0.00

1.40

1.95

-10.76

-10.63

SAST SA AB Growth Portfolio Class 3

1,924,007

8.92

8.94

 

17,187,027

0.00

1.15

2.05

-10.79

-10.59

SAST SA American Funds Global Growth Portfolio Class 3

333,144

17.69

19.48

 

6,204,935

1.14

1.15

2.00

-11.08

-10.32

SAST SA American Funds Growth Portfolio Class 3

201,590

19.79

22.14

 

4,263,044

0.99

1.15

2.05

-2.55

-1.67

SAST SA American Funds Growth-Income Portfolio Class 3

299,220

17.83

19.93

 

5,717,995

2.71

1.15

2.05

-4.05

-3.18

SAST SA DFA Ultra Short Bond Portfolio Class 1

88,876

 

 

9.67

 

859,292

0.72

 

1.40

 

0.13

SAST SA DFA Ultra Short Bond Portfolio Class 2

467,350

9.41

9.61

 

4,461,405

0.96

1.40

1.95

-0.60

-0.05

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,012,678

9.35

9.66

 

9,651,786

0.79

1.15

2.00

-0.78

0.07

SAST SA VCP Dynamic Allocation Portfolio Class 3

3,942,761

12.64

13.34

 

51,156,131

3.71

1.15

2.00

-8.68

-7.89

SAST SA VCP Dynamic Strategy Portfolio Class 3

3,727,853

12.39

13.05

 

47,416,740

3.84

1.15

2.00

-9.03

-8.25

T Rowe Price Blue Chip Growth Portfolio II Class

171,022

22.86

25.01

 

4,120,370

0.00

1.15

2.00

-0.37

0.48

T Rowe Price Equity Income Portfolio II Class

357,963

13.99

15.47

 

5,298,397

1.78

1.15

2.05

-11.54

-10.73

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

December 31, 2017

 

 

For the Year Ended December 31, 2017

 

 

 

 

 

 

 

 

Investment

Expense

Total

 

 

 

Unit Value ($)(a)

 

Net

 

Income

Ratio (%)(d)

Return (%)(e)

Sub-accounts

Units

 

Lowest

Highest

Assets ($)(b)

 

Ratio (%)(c)

Lowest

Highest

Lowest

Highest

Fidelity VIP Contrafund Portfolio Service Class 2

313,702

17.04

18.58

 

5,614,945

0.75

1.15

2.05

19.13

20.20

Fidelity VIP Equity-Income Portfolio Service Class 2

436,588

14.98

16.27

 

6,837,992

1.46

1.15

2.00

10.43

11.37

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,420,330

12.34

13.41

 

18,365,884

2.14

1.15

2.00

1.94

2.81

Fidelity VIP Mid Cap Portfolio Service Class 2

513,321

18.27

19.89

 

9,809,245

0.48

1.15

2.00

18.16

19.16

Fidelity VIP Overseas Portfolio Service Class 2

557,995

10.45

11.35

 

6,094,729

1.15

1.15

2.00

27.42

28.51

SST Balanced Growth Strategy Class 1

499,020

31.32

32.03

 

15,983,415

0.00

1.40

1.52

15.74

15.88

SST Balanced Growth Strategy Class 2

2,054,099

28.63

31.20

 

62,069,000

0.00

1.40

1.95

15.07

15.70

SST Balanced Growth Strategy Class 3

1,164,352

28.03

31.66

 

35,013,751

0.00

1.15

2.00

14.90

15.88

SST Conservative Growth Strategy Class 1

329,267

 

 

29.01

 

9,553,070

0.00

 

1.40

 

12.69

SST Conservative Growth Strategy Class 2

1,729,279

26.14

28.27

 

47,285,607

0.00

1.40

1.95

11.91

12.53

SST Conservative Growth Strategy Class 3

1,035,359

25.61

28.61

 

28,453,180

0.00

1.15

2.00

11.75

12.70

SST Growth Strategy Class 1

526,877

 

 

37.97

 

20,004,341

0.00

 

1.40

 

19.71

SST Growth Strategy Class 2

1,101,426

34.16

36.98

 

39,423,812

0.00

1.40

1.95

18.87

19.53

SST Growth Strategy Class 3

1,349,301

33.63

37.47

 

48,354,025

0.00

1.15

2.00

18.70

19.71

SST Moderate Growth Strategy Class 1

513,353

34.29

35.06

 

17,998,920

0.00

1.40

1.52

17.23

17.37

SST Moderate Growth Strategy Class 2

2,405,711

31.26

34.16

 

79,455,511

0.00

1.40

1.95

16.55

17.19

SST Moderate Growth Strategy Class 3

2,040,974

30.65

34.64

 

67,443,647

0.00

1.15

2.00

16.38

17.37

SST SA Allocation Balanced Portfolio Class 3

5,240,274

14.50

16.11

 

80,812,221

1.50

1.15

2.00

8.35

9.27

SST SA Allocation Growth Portfolio Class 3

3,033,583

16.14

17.88

 

51,772,017

0.94

1.15

2.00

15.50

16.48

SST SA Allocation Moderate Growth Portfolio Class 3

17,492,978

15.02

16.80

 

280,617,618

1.36

1.15

2.05

12.82

13.83

SST SA Allocation Moderate Portfolio Class 3

7,322,651

15.01

16.66

 

116,260,671

1.39

1.15

2.00

11.05

11.99

SST SA Columbia Focused Growth Portfolio Class 1

74,146

14.60

15.81

 

1,172,090

0.00

1.40

1.52

33.21

33.37

SST SA Columbia Focused Growth Portfolio Class 2

1,825,820

14.14

15.41

 

27,293,119

0.00

1.40

1.95

32.44

33.17

SST SA Columbia Focused Growth Portfolio Class 3

1,416,121

13.69

15.63

 

21,154,141

0.00

1.15

2.05

32.17

33.36

SST SA Columbia Focused Value Portfolio Class 2

503,892

29.26

32.16

 

15,743,345

1.40

1.40

1.95

19.17

19.83

SST SA Columbia Focused Value Portfolio Class 3

365,006

28.68

32.59

 

11,317,573

1.29

1.15

2.00

18.99

20.01

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

131,132

15.76

16.31

 

2,138,769

2.37

1.40

1.52

2.43

2.55

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

1,686,642

14.20

15.90

 

25,740,102

1.98

1.40

1.95

1.84

2.40

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

994,725

13.87

16.09

 

15,129,499

1.79

1.15

2.00

1.68

2.55

SST SA Multi-Managed International Equity Portfolio Class 1

109,172

11.81

12.92

 

1,408,633

2.09

1.40

1.52

24.83

24.97

SST SA Multi-Managed International Equity Portfolio Class 2

1,870,016

11.60

12.59

 

22,756,422

2.03

1.40

1.95

24.11

24.79

SST SA Multi-Managed International Equity Portfolio Class 3

1,364,519

11.39

12.76

 

16,569,778

1.83

1.15

2.00

23.92

24.97

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

207,694

19.44

21.93

 

4,552,952

0.51

1.40

1.52

25.77

25.92

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

1,723,506

19.59

21.35

 

35,563,445

0.39

1.40

1.95

25.05

25.74

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

881,840

19.25

21.58

 

18,164,704

0.26

1.15

2.00

24.86

25.92

SST SA Multi-Managed Large Cap Value Portfolio Class 1

141,009

25.64

27.30

 

3,841,617

2.14

1.40

1.52

12.59

12.73

SST SA Multi-Managed Large Cap Value Portfolio Class 2

1,142,992

23.77

26.61

 

29,171,388

1.98

1.40

1.95

11.94

12.56

SST SA Multi-Managed Large Cap Value Portfolio Class 3

599,600

23.36

26.97

 

15,300,926

1.84

1.15

2.00

11.78

12.73

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

87,608

36.35

40.35

 

3,533,711

0.00

1.40

1.52

24.41

24.56

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

617,434

36.26

39.32

 

23,446,504

0.00

1.40

1.95

23.69

24.37

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

382,920

35.57

39.90

 

14,598,759

0.00

1.15

2.00

23.51

24.56

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

67,659

44.05

45.63

 

3,086,994

1.28

1.40

1.52

11.21

11.34

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

626,106

38.48

44.48

 

26,548,918

1.11

1.40

1.95

10.57

11.18

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

394,964

37.62

45.01

 

16,618,205

0.98

1.15

2.00

10.40

11.34

SST SA Multi-Managed Small Cap Portfolio Class 1

83,350

20.99

22.25

 

1,852,698

0.35

1.40

1.52

8.84

8.97

SST SA Multi-Managed Small Cap Portfolio Class 2

888,950

19.95

21.69

 

18,656,254

0.23

1.40

1.95

8.21

8.80

SST SA Multi-Managed Small Cap Portfolio Class 3

581,093

19.49

21.95

 

12,179,315

0.14

1.15

2.05

7.99

8.97

SST SA Wellington Real Return Portfolio Class 3

644,099

10.52

11.84

 

7,251,801

1.98

1.15

2.05

-0.13

0.77

SAST SA American Funds Global Growth Portfolio Class 3

384,621

19.89

21.73

 

8,008,997

0.91

1.15

2.00

28.51

29.60

SAST SA American Funds Growth Portfolio Class 3

212,779

20.31

22.51

 

4,583,646

0.47

1.15

2.05

25.35

26.48

SAST SA American Funds Growth-Income Portfolio Class 3

327,810

18.58

20.58

 

6,481,761

1.53

1.15

2.05

19.56

20.64

SAST SA DFA Ultra Short Bond Portfolio Class 1

64,537

 

 

9.66

 

623,192

0.32

 

1.40

 

-0.69

SAST SA DFA Ultra Short Bond Portfolio Class 2

555,595

9.47

9.62

 

5,312,391

0.12

1.40

1.95

-1.38

-0.84

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,065,572

9.43

9.66

 

10,190,094

0.03

1.15

2.00

-1.53

-0.69

SAST SA VCP Dynamic Allocation Portfolio Class 3

4,217,085

13.85

14.48

 

59,638,685

1.11

1.15

2.00

17.58

18.58

SAST SA VCP Dynamic Strategy Portfolio Class 3

4,037,872

13.62

14.22

 

56,197,003

1.08

1.15

2.00

16.02

17.01

T Rowe Price Blue Chip Growth Portfolio II Class

206,772

22.95

24.89

 

4,963,394

0.00

1.15

2.00

33.15

34.28

T Rowe Price Equity Income Portfolio II Class

430,178

15.82

17.33

 

7,160,307

1.49

1.15

2.05

13.39

14.41

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

December 31, 2016

 

 

For the Year Ended December 31, 2016

 

 

 

 

 

 

 

 

Investment

Expense

Total

 

 

 

Unit Value ($)(a)

 

Net

 

Income

Ratio (%)(d)

Return (%)(e)

Sub-accounts

Units

 

Lowest

Highest

Assets ($)(b)

 

Ratio (%)(c)

Lowest

Highest

Lowest

Highest

Fidelity VIP Contrafund Portfolio Service Class 2

372,431

14.31

15.46

 

5,570,052

0.57

1.15

2.05

5.55

6.50

Fidelity VIP Equity-Income Portfolio Service Class 2

499,213

13.56

14.61

 

7,050,717

2.05

1.15

2.00

15.39

16.37

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,578,102

12.11

13.04

 

19,926,292

2.14

1.15

2.00

2.41

3.29

Fidelity VIP Mid Cap Portfolio Service Class 2

619,938

15.46

16.70

 

9,982,570

0.30

1.15

2.00

9.71

10.65

Fidelity VIP Overseas Portfolio Service Class 2

700,048

8.20

8.83

 

5,974,537

1.15

1.15

2.00

-7.14

-6.35

SST Balanced Growth Strategy Class 1

565,659

27.06

27.64

 

15,635,086

0.00

1.40

1.52

2.60

2.72

SST Balanced Growth Strategy Class 2

2,443,583

24.88

26.97

 

63,882,342

0.00

1.40

1.95

2.01

2.57

SST Balanced Growth Strategy Class 3

1,398,070

24.39

27.32

 

36,471,421

0.00

1.15

2.00

1.86

2.72

SST Conservative Growth Strategy Class 1

392,885

 

 

25.75

 

10,115,042

0.00

 

1.40

 

3.21

SST Conservative Growth Strategy Class 2

1,981,285

23.35

25.12

 

48,240,403

0.00

1.40

1.95

2.49

3.05

SST Conservative Growth Strategy Class 3

1,151,663

22.92

25.39

 

28,144,735

0.00

1.15

2.00

2.34

3.21

SST Growth Strategy Class 1

608,800

 

 

31.72

 

19,308,508

0.00

 

1.40

 

3.59

SST Growth Strategy Class 2

1,245,137

28.74

30.94

 

37,404,231

0.00

1.40

1.95

2.86

3.43

SST Growth Strategy Class 3

1,563,175

28.33

31.30

 

47,054,859

0.00

1.15

2.00

2.71

3.58

SST Moderate Growth Strategy Class 1

575,495

29.25

29.87

 

17,191,215

0.00

1.40

1.52

3.87

4.00

SST Moderate Growth Strategy Class 2

2,680,960

26.82

29.15

 

75,706,982

0.00

1.40

1.95

3.27

3.84

SST Moderate Growth Strategy Class 3

2,464,217

26.34

29.52

 

69,533,942

0.00

1.15

2.00

3.12

4.00

SST SA Allocation Balanced Portfolio Class 3

6,346,341

13.22

14.75

 

89,961,332

1.81

1.15

2.05

3.10

4.03

SST SA Allocation Growth Portfolio Class 3

3,655,257

13.97

15.35

 

53,777,276

1.64

1.15

2.00

3.66

4.54

SST SA Allocation Moderate Growth Portfolio Class 3

20,451,173

13.31

14.76

 

289,373,028

1.72

1.15

2.05

3.52

4.45

SST SA Allocation Moderate Portfolio Class 3

8,762,463

13.37

14.87

 

124,708,639

1.75

1.15

2.05

3.44

4.37

SST SA Columbia Focused Growth Portfolio Class 1

80,991

10.96

11.85

 

959,927

0.00

1.40

1.52

-10.26

-10.15

SST SA Columbia Focused Growth Portfolio Class 2

2,071,961

10.68

11.57

 

23,298,797

0.00

1.40

1.95

-10.78

-10.29

SST SA Columbia Focused Growth Portfolio Class 3

1,654,003

10.36

11.72

 

18,602,183

0.00

1.15

2.05

-10.96

-10.15

SST SA Columbia Focused Value Portfolio Class 2

554,590

24.56

26.83

 

14,493,601

1.08

1.40

1.95

16.84

17.49

SST SA Columbia Focused Value Portfolio Class 3

436,046

24.10

27.16

 

11,307,169

1.00

1.15

2.00

16.67

17.66

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

167,289

15.38

15.91

 

2,660,708

1.21

1.40

1.52

1.89

2.01

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

1,929,783

13.95

15.53

 

28,812,783

1.01

1.40

1.95

1.30

1.86

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

1,103,359

13.64

15.69

 

16,362,951

0.89

1.15

2.00

1.15

2.01

SST SA Multi-Managed International Equity Portfolio Class 1

127,067

9.46

10.34

 

1,312,172

1.74

1.40

1.52

-1.59

-1.47

SST SA Multi-Managed International Equity Portfolio Class 2

2,040,046

9.35

10.09

 

19,932,027

1.57

1.40

1.95

-2.16

-1.62

SST SA Multi-Managed International Equity Portfolio Class 3

1,625,705

9.19

10.21

 

15,827,651

1.50

1.15

2.00

-2.30

-1.47

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

230,008

15.46

17.42

 

4,004,211

0.38

1.40

1.52

1.57

1.69

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

1,939,954

15.66

16.98

 

31,919,688

0.27

1.40

1.95

0.98

1.54

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

1,025,261

15.41

17.14

 

16,834,621

0.18

1.15

2.00

0.83

1.69

SST SA Multi-Managed Large Cap Value Portfolio Class 1

152,627

22.77

24.21

 

3,689,245

1.38

1.40

1.52

13.34

13.48

SST SA Multi-Managed Large Cap Value Portfolio Class 2

1,297,424

21.23

23.64

 

29,482,410

1.45

1.40

1.95

12.69

13.31

SST SA Multi-Managed Large Cap Value Portfolio Class 3

685,070

20.90

23.93

 

15,535,600

1.35

1.15

2.00

12.52

13.48

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

96,335

29.22

32.39

 

3,119,642

0.00

1.40

1.52

3.20

3.32

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

689,381

29.31

31.62

 

21,097,448

0.00

1.40

1.95

2.60

3.17

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

452,964

28.80

32.03

 

13,891,095

0.00

1.15

2.00

2.45

3.32

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

77,460

39.61

40.98

 

3,174,191

1.00

1.40

1.52

14.28

14.42

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

710,362

34.80

40.01

 

27,155,432

0.91

1.40

1.95

13.62

14.25

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

462,065

34.07

40.43

 

17,527,395

0.78

1.15

2.00

13.45

14.42

SST SA Multi-Managed Small Cap Portfolio Class 1

90,910

19.28

20.42

 

1,854,652

0.18

1.40

1.52

17.14

17.28

SST SA Multi-Managed Small Cap Portfolio Class 2

1,010,459

18.43

19.94

 

19,544,631

0.06

1.40

1.95

16.46

17.10

SST SA Multi-Managed Small Cap Portfolio Class 3

636,974

18.05

20.14

 

12,295,452

0.00

1.15

2.05

16.23

17.28

SST SA Wellington Real Return Portfolio Class 3

786,951

10.53

11.75

 

8,825,169

0.00

1.15

2.05

1.60

2.52

SAST SA American Funds Global Growth Portfolio Class 3

474,864

15.48

16.76

 

7,650,328

1.67

1.15

2.00

-1.64

-0.80

SAST SA American Funds Growth Portfolio Class 3

232,629

16.20

17.80

 

3,980,527

0.30

1.15

2.05

6.97

7.93

SAST SA American Funds Growth-Income Portfolio Class 3

375,432

15.54

17.06

 

6,175,762

1.37

1.15

2.05

8.96

9.94

SAST SA DFA Ultra Short Bond Portfolio Class 1

77,333

 

 

9.72

 

751,914

0.00

 

1.40

 

-1.48

SAST SA DFA Ultra Short Bond Portfolio Class 2

732,949

9.60

9.70

 

7,081,973

0.00

1.40

1.95

-2.17

-1.63

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,511,970

9.57

9.72

 

14,610,617

0.00

1.15

2.00

-2.31

-1.48

SAST SA VCP Dynamic Allocation Portfolio Class 3

4,365,836

11.78

12.21

 

52,270,457

1.44

1.15

2.00

2.44

3.32

SAST SA VCP Dynamic Strategy Portfolio Class 3

4,154,455

11.74

12.15

 

49,607,982

1.38

1.15

2.00

3.07

3.95

T Rowe Price Blue Chip Growth Portfolio II Class

221,238

17.24

18.54

 

3,966,890

0.00

1.15

2.00

-1.45

-0.61

T Rowe Price Equity Income Portfolio II Class

489,672

13.95

15.15

 

7,151,353

1.98

1.15

2.05

16.45

17.50

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

December 31, 2015

 

 

For the Year Ended December 31, 2015

 

 

 

 

 

 

 

 

Investment

Expense

Total

 

 

 

Unit Value ($)(a)

 

Net

 

Income

Ratio (%)(d)

Return (%)(e)

Sub-accounts

Units

 

Lowest

Highest

Assets ($)(b)

 

Ratio (%)(c)

Lowest

Highest

Lowest

Highest

Fidelity VIP Contrafund Portfolio Service Class 2

454,136

13.56

14.52

 

6,407,492

0.79

1.15

2.30

-1.62

-0.73

Fidelity VIP Equity-Income Portfolio Service Class 2

631,284

11.76

12.56

 

7,693,368

2.94

1.15

2.30

-6.13

-5.33

Fidelity VIP Investment Grade Bond Portfolio Service Class 2

1,727,608

11.82

12.62

 

21,183,718

2.27

1.15

2.30

-2.81

-1.98

Fidelity VIP Mid Cap Portfolio Service Class 2

746,687

14.09

15.09

 

10,907,476

0.24

1.15

2.30

-3.58

-2.75

Fidelity VIP Overseas Portfolio Service Class 2

739,066

8.84

9.43

 

6,763,636

1.15

1.15

2.30

1.25

2.12

SST Balanced Growth Strategy Class 1

677,168

26.37

26.91

 

18,219,909

0.00

1.40

1.52

1.20

1.32

SST Balanced Growth Strategy Class 2

2,814,921

24.39

26.29

 

71,895,892

0.00

1.40

1.95

0.61

1.17

SST Balanced Growth Strategy Class 3

1,738,857

23.95

26.59

 

44,304,286

0.00

1.15

2.30

0.46

1.32

SST Conservative Growth Strategy Class 1

482,386

 

 

24.95

 

12,033,497

0.00

1.40

1.52

0.00

0.35

SST Conservative Growth Strategy Class 2

2,244,274

22.79

24.37

 

53,157,670

0.00

1.40

1.95

-0.35

0.19

SST Conservative Growth Strategy Class 3

1,434,640

22.39

24.60

 

34,140,815

0.00

1.15

2.30

-0.50

0.34

SST Growth Strategy Class 1

771,142

 

 

30.62

 

23,610,521

0.00

1.40

1.52

0.00

2.10

SST Growth Strategy Class 2

1,451,938

27.94

29.92

 

42,239,138

0.00

1.40

1.95

1.38

1.94

SST Growth Strategy Class 3

1,952,402

27.58

30.22

 

56,990,283

0.00

1.15

2.30

1.23

2.10

SST Moderate Growth Strategy Class 1

706,206

28.16

28.72

 

20,284,965

0.00

1.40

1.52

1.25

1.37

SST Moderate Growth Strategy Class 2

3,154,831

25.97

28.07

 

85,997,705

0.00

1.40

1.95

0.66

1.22

SST Moderate Growth Strategy Class 3

2,800,856

25.54

28.38

 

76,244,822

0.00

1.15

2.30

0.51

1.37

SST SA Allocation Balanced Portfolio Class 3

7,455,856

12.82

14.18

 

101,969,741

1.18

1.15

2.30

-3.33

-2.46

SST SA Allocation Growth Portfolio Class 3

4,514,857

13.40

14.69

 

63,728,294

1.29

1.15

2.30

-3.86

-2.99

SST SA Allocation Moderate Growth Portfolio Class 3

23,236,478

12.86

14.13

 

315,913,227

1.30

1.15

2.30

-3.73

-2.86

SST SA Allocation Moderate Portfolio Class 3

9,672,034

12.92

14.25

 

132,410,521

1.19

1.15

2.30

-3.63

-2.76

SST SA Columbia Focused Growth Portfolio Class 1

92,594

12.21

13.19

 

1,221,428

0.00

1.40

1.52

1.87

1.99

SST SA Columbia Focused Growth Portfolio Class 2

2,366,811

11.97

12.90

 

29,747,582

0.00

1.40

1.95

1.28

1.84

SST SA Columbia Focused Growth Portfolio Class 3

1,862,051

11.63

13.04

 

23,403,481

0.00

1.15

2.30

1.08

1.99

SST SA Columbia Focused Value Portfolio Class 2

661,674

21.02

22.84

 

14,722,498

0.74

1.40

1.95

-5.91

-5.40

SST SA Columbia Focused Value Portfolio Class 3

543,408

20.66

23.08

 

12,013,869

0.62

1.15

2.30

-6.06

-5.25

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 1

235,131

15.10

15.59

 

3,665,936

1.89

1.40

1.52

-1.78

-1.67

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 2

2,248,685

13.77

15.25

 

33,048,082

1.63

1.40

1.95

-2.35

-1.81

SST SA Multi-Managed Diversified Fixed Income Portfolio Class 3

1,353,035

13.48

15.38

 

19,728,034

1.52

1.15

2.30

-2.50

-1.66

SST SA Multi-Managed International Equity Portfolio Class 1

147,583

9.62

10.49

 

1,547,060

1.00

1.40

1.52

-4.33

-4.22

SST SA Multi-Managed International Equity Portfolio Class 2

2,391,016

9.55

10.26

 

23,797,914

1.03

1.40

1.95

-4.88

-4.36

SST SA Multi-Managed International Equity Portfolio Class 3

1,885,408

9.33

10.36

 

18,701,535

0.90

1.15

2.30

-5.07

-4.21

SST SA Multi-Managed Large Cap Growth Portfolio Class 1

237,388

15.22

17.13

 

4,064,022

0.50

1.40

1.52

2.99

3.11

SST SA Multi-Managed Large Cap Growth Portfolio Class 2

2,275,371

15.51

16.73

 

36,946,598

0.35

1.40

1.95

2.39

2.96

SST SA Multi-Managed Large Cap Growth Portfolio Class 3

1,275,375

15.29

16.86

 

20,682,436

0.28

1.15

2.30

2.24

3.11

SST SA Multi-Managed Large Cap Value Portfolio Class 1

154,890

20.09

21.34

 

3,299,361

1.24

1.40

1.52

-6.27

-6.16

SST SA Multi-Managed Large Cap Value Portfolio Class 2

1,486,789

18.84

20.86

 

29,883,329

1.07

1.40

1.95

-6.81

-6.30

SST SA Multi-Managed Large Cap Value Portfolio Class 3

852,924

18.57

21.09

 

17,122,907

0.87

1.15

2.30

-6.95

-6.16

SST SA Multi-Managed Mid Cap Growth Portfolio Class 1

105,729

28.31

31.35

 

3,313,875

0.00

1.40

1.52

-1.15

-1.03

SST SA Multi-Managed Mid Cap Growth Portfolio Class 2

801,889

28.57

30.65

 

23,843,770

0.00

1.40

1.95

-1.72

-1.18

SST SA Multi-Managed Mid Cap Growth Portfolio Class 3

535,950

28.11

31.00

 

15,950,205

0.00

1.15

2.30

-1.87

-1.03

SST SA Multi-Managed Mid Cap Value Portfolio Class 1

79,257

34.66

35.82

 

2,838,497

0.54

1.40

1.52

-7.22

-7.11

SST SA Multi-Managed Mid Cap Value Portfolio Class 2

830,394

30.63

35.02

 

27,828,797

0.38

1.40

1.95

-7.76

-7.25

SST SA Multi-Managed Mid Cap Value Portfolio Class 3

568,065

30.03

35.33

 

18,918,168

0.27

1.15

2.30

-7.89

-7.11

SST SA Multi-Managed Small Cap Portfolio Class 1

96,527

16.46

17.41

 

1,679,260

0.36

1.40

1.52

-7.07

-6.96

SST SA Multi-Managed Small Cap Portfolio Class 2

1,154,386

15.83

17.02

 

19,115,305

0.17

1.40

1.95

-7.61

-7.10

SST SA Multi-Managed Small Cap Portfolio Class 3

747,422

15.53

17.17

 

12,340,831

0.00

1.15

2.30

-7.80

-6.96

SST SA Wellington Real Return Portfolio Class 3

1,006,866

10.36

11.46

 

11,048,307

3.33

1.15

2.30

-3.36

-2.48

SAST SA American Funds Global Growth Portfolio Class 3

519,382

15.74

16.90

 

8,470,952

0.90

1.15

2.30

4.55

5.44

SAST SA American Funds Growth Portfolio Class 3

244,627

15.15

16.49

 

3,892,939

0.88

1.15

2.30

4.38

5.32

SAST SA American Funds Growth-Income Portfolio Class 3

437,900

14.27

15.52

 

6,575,503

0.95

1.15

2.30

-0.89

0.01

SAST SA DFA Ultra Short Bond Portfolio Class 1

75,170

-

9.87

 

741,815

0.00

1.10

1.40

-1.31

0.00

SAST SA DFA Ultra Short Bond Portfolio Class 2

737,140

9.81

9.86

 

7,175,143

0.00

1.40

1.95

-1.87

-1.43

SAST SA DFA Ultra Short Bond Portfolio Class 3

1,409,396

9.80

9.87

 

14,060,766

0.00

1.15

2.00

-1.99

-1.31

SAST SA VCP Dynamic Allocation Portfolio Class 3

4,845,153

11.50

11.82

 

56,379,293

0.97

1.15

2.00

-7.03

-6.24

SAST SA VCP Dynamic Strategy Portfolio Class 3

4,519,310

11.39

11.69

 

52,118,863

0.73

1.15

2.00

-7.29

-6.50

T Rowe Price Blue Chip Growth Portfolio II Class

273,182

17.49

18.65

 

4,945,976

0.00

1.15

2.30

8.60

9.53

T Rowe Price Equity Income Portfolio II Class

593,746

11.98

12.89

 

7,414,508

1.59

1.15

2.30

-8.99

-8.17

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)Because the unit values are presented as a range of lowest to highest, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract unit values are not within the ranges presented.

(b)These amounts represent the net asset value before adjustments allocated to the contracts in payout period.

(c)These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the Funds, net of management fees assessed by the portfolio manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the

27

 

VARIABLE ANNUITY ACCOUNT FIVE

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Funds in which the sub-account invests. The average net assets are calculated using the net asset balances at the beginning and end of the year.

(d)These amounts represent the annualized contract expenses of the sub-account, consisting of distribution, mortality and expense charges, for each period indicated. The ratios include only those expenses that result in direct reduction to unit values. Charges made directly to contract owners account through the redemption of units and expenses of the Funds have been excluded. For additional information on charges and deductions, see Note 4.

(e)These amounts represent the total return for the periods indicated, including changes in the value of the Funds, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each of the periods indicated or from the effective date through the end of the reporting period. Because the total return is presented as a range of minimum and maximum values, based on the product grouping representing the minimum and maximum expense ratios, some individual contract total returns are not within the ranges presented.

7.Subsequent Events

Management considered Separate Accounts related events and transactions that occurred after the date of the Statement of Assets and Liabilities, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that required additional disclosures. Management has evaluated events through April 22, 2020, the date the financial statements were issued. While sufficient information is not available to adequately evaluate the short-term or long-term impact to the Company as a result of the economic and market activities associated with the 2020 outbreak of COVID-19 ("Coronavirus"), the current economic volatility and environment may adversely impact net assets for each sub-account.

28

American General Life

Insurance Company

Audited Statutory Financial Statements

At December 31, 2019 and 2018 and

for each of the three years ended December 31, 2019

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

TABLE OF CONTENTS TO AUDITED STATUTORY FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

 

 

Page

STATUTORY FINANCIAL STATEMENTS

 

Independent Auditor's Report

2

Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus at December 31, 2019 and 2018

4

Statutory Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017

6

Statutory Statements of Changes in Capital and Surplus for the Years Ended December 31, 2019, 2018 and

 

 

2017

7

Statutory Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017

8

NOTES TO STATUTORY FINANCIAL STATEMENTS

 

1.

Nature of Operations

9

2.

Summary of Significant Accounting Policies

10

3.

Investments

21

4.

Securities Lending and Repurchase Agreements

29

5.

Restricted Assets

32

6.

Subprime Mortgage Risk Exposure

33

7.

Derivatives

34

8.Information about Financial Instruments with Off-Balance Sheet Risk and

 

Financial Instruments with Concentrations of Credit Risk

36

9.

Fair Value Measurements

37

10.

Aggregate Policy Reserves and Deposit Fund Liabilities

43

11.

Separate Accounts

45

12.

Reserves for Guaranteed Policy Benefits and Enhancements

48

13.

Participating Policy Contracts

48

14.

Premium and Annuity Considerations Deferred and Uncollected

49

15.

Reinsurance

49

16.

Federal Income Taxes

51

17.

Capital and Surplus

56

18.

Retirement Plans and Share-Based and Deferred Compensation Plans

57

19.

Debt

58

20.

Commitments and Contingencies

60

21.

Related Party Transactions

62

22.

Subsequent Events

67

23.Loan-Backed and Structured Security Impairments and Structured Notes

Holdings

68

SUPPLEMENTAL INFORMATION

 

Supplemental Schedule of Assets and Liabilities

73

Supplemental Investment Risks Interrogatories

75

Supplemental Summary Investment Schedule

81

1

 

Report of Independent Auditors

To the Board of Directors and Shareholder of

American General Life Insurance Company

We have audited the accompanying statutory financial statements of American General Life Insurance Company (the "Company"), an indirect, wholly-owned subsidiary of American International Group, Inc., which comprise the statutory statements of admitted assets, liabilities and capital and surplus as of December 31, 2019 and 2018, and the related statutory statements of operations and changes in capital and surplus, and of cash flows for each of the three years in the period ended December 31, 2019.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Texas Department of Insurance. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Note 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Texas Department of Insurance, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the financial statements of the variances between the statutory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles" paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2019 and 2018, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2019.

2

 

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the three years in the period ended December 31, 2019, in accordance with the accounting practices prescribed or permitted by the Texas Department of Insurance described in Note 2.

Other Matter

Our audit was conducted for the purpose of forming an opinion on the statutory-basis financial statements taken as a whole. The Supplemental Schedule of Assets and Liabilities, Supplemental Investment Risks Interrogatories and Supplemental Summary Investment Schedule (collectively, the "supplemental schedules") of the Company as of December 31, 2019 and for the year then ended are presented to comply with the National

Association of Insurance Commissioners' Annual Statement Instructions and Accounting Practices and

Procedures Manual and for purposes of additional analysis and are not a required part of the statutory-basis financial statements. The supplemental schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the statutory-basis financial statements. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the statutory-basis financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the statutory-basis financial statements or to the statutory-basis financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedules are fairly stated, in all material respects, in relation to the statutory-basis financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

April 22, 2020

3

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS

 

 

December 31,

(in millions)

 

2019

 

2018

Admitted assets

 

 

 

 

Cash and investments

 

 

 

 

Bonds

$

98,988

$

94,693

Preferred stock

 

299

 

303

Common stock

 

669

 

312

Cash, cash equivalents and short-term investments

 

446

 

1,547

Mortgage loans

 

21,446

 

18,928

Real estate

 

184

 

197

Contract loans

 

1,264

 

1,307

Derivatives

 

625

 

1,635

Securities lending reinvested collateral assets

 

1,283

 

352

Derivative cash collateral

 

26

 

20

Other invested assets

 

4,934

 

4,364

Total cash and investments

 

130,164

 

123,658

Amounts recoverable from reinsurers

 

366

 

306

Amounts receivable under reinsurance contracts

 

789

 

372

Current federal income tax recoverable

 

68

 

266

Deferred tax asset

 

618

 

517

Due and accrued investment income

 

1,407

 

1,379

Premiums due, deferred and uncollected

 

156

 

142

Receivables from affiliates

 

180

 

363

Other assets

 

1,015

 

164

Separate account assets

 

57,530

 

49,618

Total admitted assets

$

192,293

$

176,785

See accompanying Notes to Statutory Financial Statements.

4

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS (CONTINUED)

 

 

December 31,

(in millions, except per share data)

 

2019

 

2018

Liabilities

 

 

 

 

Policy reserves and contractual liabilities

 

 

 

 

Life and annuity reserves

$

97,632

$

91,355

Liabilities for deposit-type contracts

 

12,038

 

12,012

Accident and health reserves

 

766

 

788

Premiums received in advance

 

12

 

11

Policy and contract claims

 

540

 

573

Policyholder dividends

 

17

 

15

Total policy reserves and contractual liabilities

 

111,005

 

104,754

Payable to affiliates

 

267

 

372

Interest maintenance reserve

 

1,605

 

1,278

Derivatives

 

227

 

209

Payable for securities lending

 

1,452

 

447

Repurchase agreements

 

68

 

119

Collateral for derivatives program

 

356

 

835

Funds held under coinsurance

 

11,253

 

10,863

Accrued expenses and other liabilities

 

1,885

 

1,750

Net transfers from separate accounts due or accrued

 

(1,601)

 

(1,394)

Asset valuation reserve

 

1,957

 

1,583

Separate account liabilities

 

57,530

 

49,618

Total liabilities

 

186,004

 

170,434

Commitments and contingencies (see Note 20)

 

 

 

 

Capital and surplus

 

 

 

 

Common stock, $10 par value; 600,000 shares authorized, issued and outstanding

 

6

 

6

Preferred stock, $100 par value; 8,500 shares authorized, issued and outstanding

 

1

 

1

Gross paid-in and contributed surplus

 

3,510

 

3,510

Unassigned surplus

 

2,772

 

2,834

Total capital and surplus

 

6,289

 

6,351

Total liabilities and capital and surplus

$

192,293

$

176,785

See accompanying Notes to Statutory Financial Statements.

5

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF OPERATIONS

 

 

Years Ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Revenues

 

 

 

 

 

 

Premiums and annuity considerations

$

14,330

$

(10,325)

$

11,031

Net investment income

 

6,103

 

6,243

 

5,881

Amortization of interest maintenance reserve

 

123

 

141

 

128

Reserve adjustments on reinsurance ceded

 

(2,360)

 

17,732

 

(1,160)

Commissions and expense allowances

 

730

 

814

 

798

Separate account fees

 

1,297

 

1,167

 

1,216

Other income

 

429

 

437

 

472

Total revenues

 

20,652

 

16,209

 

18,366

Benefits and expenses

 

 

 

 

 

 

Death benefits

 

547

 

260

 

760

Annuity benefits

 

2,515

 

1,537

 

3,374

Surrender benefits

 

7,303

 

7,119

 

6,452

Other benefits

 

643

 

271

 

565

Change in reserves

 

6,086

 

3,792

 

742

Commissions

 

1,143

 

1,131

 

1,023

General insurance expenses

 

913

 

828

 

969

Net transfers (from) to separate accounts

 

(192)

 

(774)

 

1,306

Other expenses

 

694

 

638

 

592

Total benefits and expenses

 

19,652

 

14,802

 

15,783

Net gain from operations before dividends to policyholders and federal

 

 

 

 

 

 

income taxes

 

1,000

 

1,407

 

2,583

Dividends to policyholders

 

4

 

(13)

 

18

Net gain from operations after dividends to policyholders and before federal

 

 

 

 

 

 

income taxes

 

996

 

1,420

 

2,565

Federal income tax expense

 

760

 

513

 

1,025

Net gain from operations

 

236

 

907

 

1,540

Net realized capital losses, net of tax

 

(144)

 

(342)

 

(928)

Net income

$

92

$

565

$

612

See accompanying Notes to Statutory Financial Statements.

6

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS

 

 

 

 

Gross Paid-

 

 

 

 

 

 

Common &

 

In and

 

 

 

 

(in millions)

 

Preferred

 

Contributed

 

Unassigned

 

Total Capital

 

Stock

 

Surplus

 

Surplus

 

and Surplus

Balance, January 1, 2017

$

7

$

3,688

$

5,306

$

9,001

Net income

 

-

 

-

 

612

 

612

Change in net unrealized capital gains (losses)

 

-

 

-

 

36

 

36

Change in net unrealized foreign exchange capital gains (losses)

 

-

 

-

 

271

 

271

Change in deferred tax

 

-

 

-

 

(1,286)

 

(1,286)

Change in non-admitted assets

 

-

 

-

 

1,001

 

1,001

Change in asset valuation reserve

 

-

 

-

 

19

 

19

Change in surplus from separate accounts

 

-

 

-

 

178

 

178

Other changes in surplus in separate accounts

 

-

 

-

 

(178)

 

(178)

Cumulative effect of changes in accounting principles

 

-

 

-

 

132

 

132

Capital Changes:

 

 

 

 

 

 

 

 

Return of capital

 

-

 

(178)

 

-

 

(178)

Dividends to parent recorded as return of capital

 

-

 

-

 

107

 

107

Dividends to stockholder

 

-

 

-

 

(1,722)

 

(1,722)

Prior period corrections (see Note 2)

 

-

 

-

 

(9)

 

(9)

Balance, December 31, 2017

$

7

$

3,510

$

4,467

$

7,984

Net income

 

-

 

-

 

565

 

565

Change in net unrealized capital gains (losses)

 

-

 

-

 

32

 

32

Change in net unrealized foreign exchange capital gains (losses)

 

-

 

-

 

(256)

 

(256)

Change in deferred tax

 

-

 

-

 

24

 

24

Change in non-admitted assets

 

-

 

-

 

(292)

 

(292)

Change in asset valuation reserve

 

-

 

-

 

(47)

 

(47)

Change in surplus from separate accounts

 

-

 

-

 

74

 

74

Other changes in surplus in separate accounts

 

-

 

-

 

(74)

 

(74)

Capital Changes:

 

 

 

 

 

 

 

 

Dividends to stockholder

 

-

 

-

 

(1,697)

 

(1,697)

Prior period corrections (see Note 2)

 

-

 

-

 

38

 

38

Balance, December 31, 2018

$

7

$

3,510

$

2,834

$

6,351

Net income

 

-

 

-

 

92

 

92

Change in net unrealized capital gains (losses)

 

-

 

-

 

743

 

743

Change in net unrealized foreign exchange capital gains (losses)

 

-

 

-

 

207

 

207

Change in deferred tax

 

-

 

-

 

901

 

901

Change in non-admitted assets

 

-

 

-

 

(510)

 

(510)

Change in liability for reinsurance in unauthorized and certified companies

 

-

 

-

 

(1)

 

(1)

Change in reserve on account of change in valuation basis

 

-

 

-

 

22

 

22

Change in asset valuation reserve

 

-

 

-

 

(374)

 

(374)

Change in surplus from separate accounts

 

-

 

-

 

162

 

162

Other changes in surplus in separate accounts

 

-

 

-

 

(162)

 

(162)

Cumulative effect of changes in accounting principles

 

-

 

-

 

(318)

 

(318)

Change in surplus as a result of reinsurance

 

-

 

-

 

(12)

 

(12)

Dividends to stockholder

 

-

 

-

 

(890)

 

(890)

Prior period corrections (see Note 2)

 

-

 

-

 

(206)

 

(206)

Other changes

 

-

 

-

 

284

 

284

Balance, December 31, 2019

$

7

$

3,510

$

2,772

$

6,289

See accompanying Notes to Statutory Financial Statements.

7

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF CASH FLOWS

 

 

Years Ended December 31,

(in millions)

 

2019

 

2018

 

2017

Cash from operations

$

14,286

 

 

 

 

Premium and annuity considerations, collected, net of reinsurance

$

11,771

$

10,601

Net investment income collected

 

5,563

 

5,468

 

5,143

Other income

 

(65)

 

(1,848)

 

1,148

Total revenue received

 

19,784

 

15,391

 

16,892

Benefits paid

 

11,381

 

9,107

 

11,051

Net transfers to (from) separate accounts

 

17

 

(971)

 

1,450

Commissions and expenses paid

 

3,278

 

2,907

 

2,959

Dividends paid to policyholders

 

2

 

(10)

 

19

Federal income taxes paid

 

681

 

540

 

902

Total benefits and expenses paid

 

15,359

 

11,573

 

16,381

Net cash provided by operations

 

4,425

 

3,818

 

511

Cash from investments

 

 

 

 

 

 

Proceeds from investments sold, matured or repaid:

 

 

 

 

 

 

Bonds

 

20,870

 

18,960

 

23,013

Stocks

 

148

 

10

 

25

Mortgage loans

 

2,040

 

1,594

 

1,727

Real estate

 

38

 

36

 

32

Other invested assets

 

2,245

 

882

 

1,630

Derivatives

 

2,005

 

-

 

-

Securities lending reinvested collateral assets

 

-

 

2,066

 

-

Miscellaneous proceeds

 

100

 

1,235

 

1,281

Total proceeds from investments sold, matured or repaid

 

27,446

 

24,783

 

27,708

Cost of investments acquired:

 

 

 

 

 

 

Bonds

 

24,100

 

19,254

 

21,006

Stocks

 

489

 

325

 

64

Mortgage loans

 

4,459

 

4,157

 

4,136

Real estate

 

35

 

36

 

92

Other invested assets

 

2,500

 

1,343

 

1,714

Securities lending reinvested collateral assets

 

931

 

-

 

279

Miscellaneous purchases

 

9

 

1,309

 

341

Total cost of investments acquired

 

32,523

 

26,424

 

27,632

Net adjustment in contract loans

 

(40)

 

(33)

 

(29)

Net cash (used in) provided by investing activities

 

(5,037)

 

(1,608)

 

105

Cash from financing and miscellaneous sources

 

 

 

 

 

 

Cash provided (applied):

 

 

 

 

 

 

Return of capital

 

-

 

-

 

(178)

Net (withdrawals from) deposits on deposit-type contracts

 

(393)

 

1,983

 

173

Dividends to Parent

 

(890)

 

(1,697)

 

(1,240)

Change in securities lending

 

1,005

 

(2,013)

 

314

Other, net

 

(211)

 

945

 

245

Net cash used in financing and miscellaneous activities

 

(489)

 

(782)

 

(686)

Net increase (decrease) in cash, cash equivalents and short-term investments

 

(1,101)

 

1,428

 

(70)

Cash, cash equivalents and short-term investments at beginning of year

 

1,547

 

119

 

189

Cash, cash equivalents and short-term investments at end of year

$

446

$

1,547

$

119

 

 

 

 

 

 

 

Non-cash activities, excluded from above:

 

 

 

 

 

 

Non-cash transfer from other invested assets to common stocks

$

57

$

-

$

-

Non-cash transfer from common stocks to bonds

 

22

 

-

 

-

Non-cash transfer from other invested assets to mortgage loans

 

5

 

787

 

1,468

Non-cash AIG Global Real Estate transactions

 

-

 

644

 

-

Non-cash Fortitude Re settlement

 

-

 

230

 

-

Non-cash Investment Real Estate sale

 

-

 

128

 

-

Non-cash tax payment

 

-

 

-

 

671

Non-cash dividends reclass

 

-

 

-

 

482

See accompanying Notes to Statutory Financial Statements.

8

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

American General Life Insurance Company (AGL or the Company), including its wholly owned subsidiaries, is a wholly owned subsidiary of AGC Life Insurance Company (AGC Life or the Parent), an indirect, wholly owned subsidiary of American International Group, Inc. (AIG Parent). AIG Parent is a holding company, which through its subsidiaries provides a wide range of property casualty insurance, life insurance, retirement products and other financial services to commercial and individual customers in more than 80 countries and jurisdictions. The term "AIG Parent" means American International Group, Inc. and not any of AIG Parent's consolidated subsidiaries.

The Company is a stock life insurance company domiciled and licensed under the laws of the State of Texas and is subject to regulation by the Texas Department of Insurance (TDI). The Company is also subject to regulation by the states in which it is authorized to transact business. The Company is licensed in 49 states and the District of Columbia.

The Company is a leading provider in the United States of individual term and universal life insurance solutions to middle-income and high-net-worth customers, as well as a leading provider in the United States of fixed and variable annuities. AGL's primary products include term life insurance, universal, variable universal and whole life insurance, accident and health insurance, single- and flexible-premium deferred fixed and variable annuities, fixed index deferred annuities, single-premium immediate and delayed-income annuities, private placement variable annuities, private placement variable universal life, structured settlements, corporate- and bank-owned life insurance, terminal funding annuities, guaranteed investment contracts, funding agreements, stable value wrap products and group benefits. The Company distributes its products through a broad multi-channel distribution network, which includes independent marketing organizations, independent insurance agents and financial advisors, banks, broker dealers, structured settlement brokers and benefit consultants and direct-to-consumer through AIG Direct Insurance Services, Inc. (AIG Direct).

SunAmerica Asset Management LLC (SAAMCo), together with its wholly owned distributor, AIG Capital Services, Inc., and its wholly owned servicing agent, SunAmerica Fund Services, Inc., represent the Company's asset management operations. These companies earn fee income by managing, distributing and administering a diversified family of mutual funds, and variable subaccounts offered within the variable annuity and variable universal life products, and by distributing retail mutual funds and providing professional management of individual, corporate and pension plan portfolios.

In February 2018, the Company and its U.S. life insurance company affiliates, Variable Annuity Life Insurance Company (VALIC) and The United States Life Insurance Company in the City of New York (USL), each executed their respective Modified Coinsurance (ModCo) Agreements (The Agreements) with Fortitude Reinsurance Company, Ltd (FRL), (formerly DSA Reinsurance Company Limited), at the time a wholly owned AIG subsidiary and registered Class 4 and Class E reinsurer in Bermuda. The Agreements were effective as of January 1, 2017 in respect of certain closed blocks of business (including structured settlements and single premium immediate annuities). Please refer to Note 15 – Reinsurance for further details relating to this agreement.

The operations of the Company are influenced by many factors, including general economic conditions, financial condition of AIG Parent, monetary and fiscal policies of the United States federal government and policies of state and other regulatory authorities. The level of sales of the Company's insurance and financial products is influenced by many factors, including general market rates of interest, the strength, weakness and volatility of equity markets and terms and conditions of competing products. The Company is exposed to the risks normally associated with a portfolio of fixed income securities, which include interest rate, option, liquidity and credit risks. The Company controls its exposure to these risks by, among other things, closely monitoring and managing the duration and cash flows of its assets and liabilities, monitoring and limiting prepayments and extension risk in its portfolio, maintaining a large percentage of the Company's portfolio in highly liquid securities, engaging in a disciplined process of underwriting, and reviewing and monitoring credit risk.

The Company is also exposed to market risk, policyholder behavior risk and mortality/longevity risk. Market volatility and other equity market conditions may affect the Company's exposure to risks related to guaranteed death benefits and guaranteed living benefits on variable annuity products, and may reduce fee income on variable product assets held in separate accounts. Such guaranteed benefits are sensitive to equity and interest rate market conditions.

9

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company are presented on the basis of accounting practices prescribed or permitted by the TDI. These accounting practices vary in certain respects from accounting principles generally accepted in the United States of America (U.S. GAAP), as described herein.

The TDI recognizes only statutory accounting practices (SAP) prescribed or permitted by the State of Texas for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Texas Insurance Law. The National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual (NAIC SAP) has been adopted as a component of prescribed or permitted practices by the State of Texas.

The state has adopted certain prescribed accounting practices that differ from those found in the NAIC SAP. In 1984, the Company increased the value of its home office real estate properties to reflect the then current market value in accordance with prescribed guidance.

Effective December 31, 2015 and subsequent reporting periods through September 30, 2019, AGL received approval from the TDI to apply a permitted practice in its financial statements allowing AGL to use the criteria established in Actuarial Guideline 43, instead of the criteria established in Statement of Statutory Accounting Principles ("SSAP") No. 86, "Accounting for Derivative Instruments and Hedging, Income Generation, and Replication (Synthetic Asset) Transactions" to determine if a hedge was effective for certain interest rate swaps that were used to hedge guaranteed minimum withdrawal benefits. Thus, specific interest rate swaps that AGL determined were effective hedges were reported at amortized cost, pursuant to the accounting guidance set forth in SSAP 86.

Effective December 31, 2017, AGL received approval from the TDI expanding the aforementioned permitted practice to also include swaptions in its 2017 Annual Statement and subsequent reporting periods through September 30, 2019. Upon adoption, the effect of the original and expanded permitted practices were respectively reported as changes in accounting principle, consistent with SSAP No. 3, "Accounting Changes and Corrections of Errors".

Upon expiration of the above permitted practices for swaps and swaptions subsequent to September 30, 2019, AGL applied the guidance in SSAP 86 and recognized this change in accounting principle as of the beginning of the year (i.e., January 1, 2019), as required by SSAP 3, which decreased AGL's surplus by approximately $318 million at January 1, 2019. Subsequent to January 1, 2019, application of guidance in SSAP 86 to AGL's hedging instruments (swaps and swaptions) increased AGL's surplus by approximately $0.9 billion, primarily due to the recognition of unrealized gains. AGL intends to begin prospectively accounting for the subject interest rate derivatives that hedge interest rate risk related to guaranteed minimum withdrawal benefits under SSAP 108 guidance effective January 1, 2020. The adoption of SSAP 108 will coincide with the implementation of the related reserve guidance in the NAIC Valuation Manual (VM) subsection 21 (VM 21), Requirements for Principle-Based Reserves for Variable Annuities.

In addition, AGL received a new permitted practice with respect to an excess of loss reinsurance agreement (the "XoL Agreement") for the reporting period ending December 31, 2019 as follows:

Effective December 31, 2019 and subsequent reporting periods through September 30, 2020, AGL received approval from the TDI to apply a permitted practice in its financial statements allowing AGL to recognize an admitted asset related to the notional value of coverage defined in the XoL Agreement. This asset is reported in Other assets in the balance sheet. The XoL Agreement has a 20 year term and provides coverage to AGL for aggregate claims incurred during the agreement term associated with guaranteed minimum withdrawal benefits on certain fixed index annuities exceeding an attachment point defined in the XoL agreement. The permitted practice allows AGL to manage its reserves in a manner more in line with anticipated principle-based reserving requirements under development for fixed index annuities. As a condition for approving the permitted practice, the TDI imposed certain conditions relating to the permitted practice.

The Insurance Commissioner of the State of Texas has the right to permit other specific practices that deviate from prescribed practices.

10

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents a reconciliation of the Company's net income and capital and surplus between NAIC SAP basis and the basis including practices prescribed or permitted by the State of Texas:

 

 

 

December 31,

 

 

(in millions)

SSAP#

2019

 

2018

 

2017

NET INCOME

 

 

 

 

 

 

 

State basis

$

92

$

565

$

612

State permitted practices that increase (decrease) NAIC SAP:

 

 

 

 

 

 

 

Effective interest rate hedges - NII

86

 

-

 

47

 

6

Effective interest rate hedges - RG(L)

 

 

-

 

12

 

(6)

State prescribed practices that increase (decrease) NAIC SAP:

 

 

 

 

 

 

 

Depreciation of home office property

40R

-

 

-

 

-

Net income, NAIC SAP

$

92

$

624

$

612

SURPLUS

 

 

 

 

 

 

 

State basis

$

6,289

$

6,351

$

7,984

State permitted practices that increase (decrease) NAIC SAP:

 

 

 

 

 

 

 

Effective interest rate hedges

86

 

-

 

(403)

 

(430)

XoL reinsurance agreement

4

 

(284)

 

-

 

-

State prescribed practices that increase (decrease) NAIC SAP:

 

 

 

 

 

 

 

Depreciation of home office property

40R

(24)

 

(24)

 

(24)

Statutory capital and surplus, NAIC SAP

$

5,981

$

5,924

$

7,530

In the event AGL had not employed any or all of these permitted and prescribed practices, AGL's risk-based capital (RBC) would not have triggered a regulatory event.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting practices prescribed or permitted by the TDI requires management to make estimates and assumptions that affect the reported amounts in the statutory financial statements and the accompanying notes. It also requires disclosure of contingent assets and liabilities at the date of the statutory financial statements and the reported amounts of revenue and expense during the period. The areas of significant judgments and estimates include the following:

•application of other-than-temporary impairments (OTTI);

•estimates with respect to income taxes, including recoverability of deferred tax assets (DTA);

•fair value measurements of certain financial assets; and

•policy reserves for life, annuity and accident and health insurance contracts, including guarantees.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, the Company's Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus, Statutory Statements of Operations and Statutory Statements of Cash Flows could be materially affected.

Significant Accounting Policies

Bonds not backed by other loans are carried at amortized cost except for those with a NAIC designation of "6" or "6*". Bonds with a NAIC 6 designation are carried at the lower of amortized cost or fair value, with unrealized losses charged directly to unassigned surplus. Bonds that have not been filed and have not received a designation in over one year from the NAIC's Investment Analysis Office (IAO) receive a "6*" designation and are carried at zero, with the unrealized loss charged directly to unassigned surplus. Bonds filed with the IAO which receive a "6*" designation may carry a value greater than zero. Securities are assigned a NAIC 5* designation if the Company certifies that (1) the documentation necessary to permit a full credit analysis does not exist, (2) the issuer or obligor is current on all contracted interest and principal payments and (3) the Company has an actual expectation of ultimate repayment of all

11

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

contracted interest and principal. Securities with NAIC 5* designations are deemed to possess the credit characteristics of securities assigned a NAIC 5 designation. The discount or premium on bonds is amortized using the effective yield method.

Loan-backed and structured securities (LBaSS) include residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), pass-thru securities, lease-backed securities, equipment trust certificates, loan-backed securities issued by special purpose corporations or trusts, and securities where there is not direct recourse to the issuer. LBaSS are carried on a basis consistent with that of bonds not backed by loans. Income recognition for LBaSS is determined using the effective yield method and estimated cash flows. Prepayment assumptions for single-class and multi-class mortgage-backed securities (MBS) and ABS were obtained from an outside vendor or internal estimates. The Company uses independent pricing services and broker quotes in determining the fair value of its LBaSS. The Company uses the retrospective adjustment method to account for the effect of unscheduled payments affecting high credit quality securities, while securities with less than high credit quality and securities for which the collection of all contractual cash flows is not probable are both accounted for using the prospective adjustment method.

RBC charges for LBaSS are based on the final NAIC designations, which are determined with a multi-step approach. The initial designation is used to determine the carrying value of the security. The final NAIC designation is used for reporting and affects RBC. The final NAIC designation is determined in one of three ways. The final NAIC designation for most RMBS and CMBS is determined by financial modeling conducted by BlackRock. RMBS and CMBS that are not financially modeled, primarily due to a lack of publicly available information and most remaining LBaSS are subject to a modified designation based on an NAIC matrix and the Company's statement value for the security. For credit tenant loans, equipment trust certificates, any corporate-like securities rated by the NAIC's IAO, interest only securities, and those securities with an original NAIC designation of 5, 5*, 6 or 6*, the final NAIC designation is based on the IAO or Credit Rating Provider rating and is not subject to a modified designation or financial modeling.

Short sale is the sale of a security which is not owned by the Company at the time of sale. Short sales are normally settled by the delivery of a security borrowed by or on behalf of seller. A short sale as defined in Statement of Statutory Accounting Principle (SSAP) No. 103 "Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" is reported as a contra-asset (negative asset) initially reported at fair value, with changes in fair value recognized as unrealized gains and losses.

Preferred stocks with NAIC designations of "1" through "3" are carried at amortized cost. All other preferred stocks are stated at the lower of cost, amortized cost or fair value, with unrealized capital losses charged directly to unassigned surplus. Provisions made for impairment are recorded as realized capital losses when declines in fair value are determined to be other than temporary.

Unaffiliated common stocks are carried at fair value, with unrealized capital gains and losses credited or charged directly to unassigned surplus. Provisions made for impairment are recorded as realized capital losses when declines in fair value are determined to be other than temporary. For Federal Home Loan Bank (FHLB) capital stock, which is only redeemable at par, the fair value shall be presumed to be par, unless considered other-than-temporarily impaired.

The Company has no investments in insurance subsidiary, controlled, and affiliated (SCA) entities. Investments in non- insurance SCA entities are recorded based on the equity of the investee per audited financial statements prepared pursuant to U.S. GAAP, which is adjusted to a statutory basis of accounting, if applicable. All investments in non- insurance SCA entities for which either audited U.S. GAAP financial statements or audited foreign GAAP basis financial statements that include a footnote reconciling net income and equity on a foreign GAAP basis to U.S. GAAP are not available, are non-admitted as assets. Undistributed equity in earnings of affiliates is included in unassigned surplus as a component of unrealized capital gains or losses. Dividends received from such affiliates are recorded as investment income when declared.

Mortgage and mezzanine real estate loans are carried at unpaid principal balances less allowances for credit losses and plus or minus adjustments for the accretion or amortization of discount or premium. Interest income on performing loans is accrued as earned.

Mortgage loans are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan's effective

12

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

interest rate, ii) the loan's observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance is established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status, debt service coverage, loan-to-value ratio, property occupancy, profile of the borrower and of the major property tenants, and economic trends in the market where the property is located. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance.

Real estate consists of properties occupied by the Company, properties held for the production of income and properties held for sale. Properties occupied by the Company and held for the production of income are carried at depreciated cost, less encumbrances, unless events or circumstances indicate the carrying amount of the asset (amount prior to reduction for encumbrances) may not be recoverable. Properties held for sale are carried at the lower of its depreciated cost or fair value less estimated costs to sell the property and net of encumbrances. Real estate obtained through foreclosure, in satisfaction of a loan, is recorded at the time of foreclosure at the lower of fair value as determined by acceptable appraisal methodologies, or the carrying amount of the related loan. Land is reported at cost.

Cash, cash equivalents and short-term investments include cash on hand and amounts due from banks and highly liquid debt instruments that have original maturities within one year of date of purchase and are carried at amortized cost. Short-term investments include interest-bearing money market funds, investment pools and other investments with original maturities within one year from the date of purchase.

Contract loans are carried at unpaid balances, which include unpaid principal plus accrued interest, including 90 days or more past due. All loan amounts in excess of the contract cash surrender value are considered non-admitted assets.

Derivative instruments used in hedging transactions that meet the criteria of a highly effective hedge are reported in a manner consistent with the hedged asset or liability (hedge accounting). Changes in statement value or cash flow of derivatives that qualify for hedge accounting are recorded consistent with the changes in the statement value or cash flow of the hedged asset or liability. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge (ineffective hedges) are accounted for at fair value and the changes in fair value are recorded as unrealized gains or losses.

Hedge accounting was not used for any derivative instruments in 2019.

Other invested assets principally consist of investments in limited partnerships and limited liability companies. Investments in these assets, except for joint ventures, partnerships and limited liability companies with a minor ownership interest, are reported using the equity method. Under SAP, such investments are generally reported based on audited U.S. GAAP equity of the investee, with subsequent adjustment to a statutory basis of accounting, if applicable.

Joint ventures, partnerships and limited liability companies in which the Company has a minor ownership interest (i.e., less than 10 percent) or lacks control, are generally recorded based on the underlying audited U.S. GAAP equity of the investee, with some prescribed exceptions. SAP allows the use of (a) the U.S. GAAP equity as set forth in the footnote reconciliation of foreign GAAP equity and income to U.S. GAAP within audited foreign GAAP financial statements or (b) the International Financial Reporting Standards (IFRS) basis equity in audited IFRS financial statements as an acceptable basis for the valuation of minor/non-controlled investments. The audited U.S. tax basis equity may also be used in certain circumstances.

All other investments in entities for which audited U.S. GAAP financial statements, or another acceptable audited basis of accounting as described above were not available have been non-admitted as assets. Undistributed accumulated earnings of such entities are included in unassigned surplus as a component of unrealized capital gains or losses. Distributions received that are not in excess of the undistributed accumulated earnings are recognized as investment income. Impairments that are determined to be other than temporary are recognized as realized capital losses.

Securities lending and repurchase agreements: The Company has a securities lending program, which was approved by its Board of Directors and lends securities from its investment portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under the program, securities are lent to financial institutions, and in return the Company receives cash as collateral equal to 102 percent of the fair value of the loaned securities. The cash

13

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

collateral received is invested in short-term investments that may be sold or repledged or partially used for short-term liquidity purposes based on conservative cash flow forecasts. Securities lent by the Company under these transactions may be sold or repledged by the counterparties. The liability for cash collateral received is reported in payable for securities lending in the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus. The Company monitors the fair value of securities loaned and obtains additional collateral as necessary. At the termination of the transactions, the Company and its counterparties are obligated to return the collateral provided and the securities lent, respectively. These transactions are treated as secured financing arrangements.

In addition, the Company is a party to secured financing transactions involving securities sold under agreements to repurchase (repurchase agreements), in which the Company transfers securities in exchange for cash, with an agreement by the Company to repurchase the same or substantially similar securities on agreed upon dates specified in the agreements.

Investment income due and accrued is non-admitted from investment income for bonds and other invested assets when collection of interest is overdue by more than 90 days, or is uncertain, and for mortgage loans when loans are foreclosed, or delinquent in payment for greater than 90 days, or when collection of interest is uncertain.

Net realized capital gains and losses, which are determined by using the specific identification method, are reflected in income net of applicable federal income taxes and transfers to the interest maintenance reserve.

The Company regularly evaluates its investments for other-than-temporary impairment (OTTI) in value. The determination that a security has incurred an OTTI in value and the amount of any loss recognition requires the judgment of the Company's management and a continual review of its investments.

For bonds, other than LBaSS, an OTTI shall be considered to have occurred if it is probable that the Company will not be able to collect all amounts due under the contractual terms in effect at the acquisition date of the debt security. If it is determined an OTTI has occurred, the cost basis of bonds are written down to fair value and the amount of the write- down is recognized as a realized capital loss.

For LBaSS, a non-interest related OTTI resulting from a decline in value due to fundamental credit problems of the issuer is recognized when the projected discounted cash flows for a particular security are less than its amortized cost. When a non-interest related OTTI occurs, the LBaSS is written down to the present value of future cash flows expected to be collected. An OTTI is also deemed to have occurred if the Company intends to sell the LBaSS or does not have the intent and ability to retain the LBaSS until recovery. If the decline is interest-related, the LBaSS is written down to fair value.

In periods subsequent to the recognition of an OTTI loss, the Company generally accretes the difference between the new cost basis and the future cash flows expected to be collected, if applicable, as interest income over the remaining life of the security based on the amount and timing of estimated future cash flows.

Non-admitted assets are excluded from admitted assets and the change in the aggregate amount of such assets is reflected as a separate component of unassigned surplus. Non-admitted assets include all assets specifically designated as non-admitted and assets not designated as admitted, such as a negative IMR, a certain portion of DTAs, prepaid expenses, electronic data processing (EDP) equipment assets, agents' balances or other receivables over 90 days. Non-admitted assets were $3.4 billion and $2.9 billion at December 31, 2019 and 2018, respectively.

Interest maintenance reserve (IMR) is calculated based on methods prescribed by the NAIC and was established to prevent large fluctuations in interest-related investment gains and losses resulting from sales (net of taxes) and interest- related OTTI (net of taxes). An OTTI occurs when the Company, at the reporting date, has the intent to sell an investment or does not have the intent and ability to hold the security before recovery of the cost of the investment. For LBaSS, if the Company recognizes an interest-related OTTI, the non-interest-related OTTI is recorded to the asset valuation reserve, and the interest-related portion to IMR. Such gains and losses are deferred into the IMR and amortized into income using the grouped method over the remaining contractual lives of the securities sold.

Asset valuation reserve (AVR) is used to stabilize surplus from fluctuations in the market value of bonds, stocks, mortgage loans, real estate, limited partnerships and other investments. Changes in the AVR are recorded as direct increases or decreases in surplus.

14

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Separate account assets and liabilities generally represent funds for which the contract holder, rather than the Company, bears the investment risk. Separate account contract holders have no claim against the assets of the general account of the Company, except for certain guaranteed products. Separate account assets are generally reported at fair value. In addition, certain products with fixed guarantees and market-value-adjusted (MVA) fixed annuity contracts in which the assets are generally carried at amortized cost are required by certain states to be carried in a separate account. The operations of the separate accounts are excluded from the Statutory Statements of Operations and Statutory Statements of Cash Flows of the Company. The Company receives fees for assuming mortality and certain expense risks. Such fees are included in separate account fees in the Statutory Statements of Operations. Reserves for variable annuity contracts are provided in accordance with the Variable Annuity Commissioners' Annuity Reserve Valuation Method (VACARVM) under Actuarial Guideline 43 (AG 43). Reserves for variable universal life accounts are provided in accordance with the Commissioners' Reserve Valuation Method (CRVM).

Policy reserves are established according to different methods.

Life, annuity, and health reserves are developed by actuarial methods and are determined based on published tables using specified interest rates, mortality or morbidity assumptions, and valuation methods prescribed or permitted by statutes that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed policy cash values or the amounts required by the TDI.

The Company waives the deduction of deferred fractional premiums on the death of the life and annuity policy insured and returns any premium beyond the date of death. The Company reported additional reserves for surrender values in excess of the corresponding policy reserves.

The Company performs annual cash flow testing in accordance with the Actuarial Opinion and Memorandum Regulation to ensure adequacy of the reserves. Additional reserves are established where the results of cash flow testing under various interest rate scenarios indicate the need for such reserves or where the net premiums exceed the gross premiums on any insurance in force. Total cash flow testing reserves were $233.9 million at December 31, 2019.

A majority of the Company's variable annuity products are issued with a guaranteed minimum death benefit (GMDB) which provides that, upon the death of a contractholder, the contractholder's beneficiary will receive the greater of (1) the contractholder's account value, or (2) a GMDB that varies by product. Depending on the product, the GMDB may equal the principal invested, adjusted for withdrawals; or the greatest contract value, adjusted for withdrawals, at the specified contract anniversaries; or the principal invested, adjusted for withdrawals, accumulated at the specified rate per annum. These benefits have issue age and other restrictions to reduce mortality risk exposure. The Company bears the risk that death claims following a decline in the financial markets may exceed contract holder account balances, and that the fees collected under the contract are insufficient to cover the costs of the benefit to be provided. Death benefits on GMDB policies generally reduce on a proportional basis or on a dollar-for-dollar basis when a partial withdrawal occurs.

Reserves for GMDB benefits are included in the VACARVM reserve. AG 43 requires the Company to perform a stochastic valuation analysis of the total reserves held for all variable annuity contracts with GMDB. These reserves are derived by using the 70 percent Conditional Tail Expectation of the modeled reserves and are based on prudent estimate assumptions. In addition, a deterministic valuation is also performed using assumptions prescribed in AG 43. The greater of these two reserve balances is the AG 43 reserve. However, the Company is currently holding reserves at the C3 Phase II Total Asset Requirement level, which is higher than the AG 43 amount.

Life policies underwritten as substandard are charged extra premiums. Reserves are computed for a substandard policy by adding the reserve for an otherwise identical non-substandard policy plus a factor times the extra premium charge for the year. The factor varies by duration, type of plan, and underwriting. In addition, an extra mortality reserve is reported for ordinary life insurance policies classified as group conversions. Substandard structured settlement annuity reserves are determined by making a constant addition to the mortality rate of the applicable valuation mortality table so that the life expectancy on the adjusted table is equal to the life expectancy determined by the Company's underwriters at issue.

15

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The Company had $97.7 billion of insurance in-force and $1.7 billion of reserves as of December 31, 2019, and $66.3 billion of insurance in-force and $1.5 billion of reserves as of December 31, 2018, for which the gross premiums are less than the net premiums according to the standard of valuation set by the TDI.

Tabular interest, tabular less actual reserves released, and tabular cost have been determined by formula, except for universal life insurance and deferred annuity reserves, which include fund accumulations for which tabular interest has been determined from basic data. For the determination of tabular interest on funds not involving life contingencies, the actual credited interest is used.

Liabilities for deposit-type contracts, which include supplementary contracts without life contingencies and annuities certain, are based on the discounting of future payments at an annual statutory effective rate. Tabular interest on other funds not involving life contingencies is based on the interest rate at which the liability accrues.

Policy and contract claims represent the ultimate net cost of all reported and unreported claims incurred during the year. Reserves for unpaid claims are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary, as experience develops or new information becomes known; such adjustments are included in current operations.

Reserves for future policy benefits to be paid on life and accident and health policies, incurred in the statement period, but not yet reported, were established using historical data from claim lag experience. The data is aggregated from product specific studies performed on the Company's business.

Premiums and annuity considerations and related expenses are recognized over different periods. Life premiums are recognized as income over the premium paying periods of the related policies. Annuity considerations are recognized as revenue when received. Premiums for deposit-type products are credited directly to the respective reserves and are not recorded in the Statutory Statement of Operations. Health premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Acquisition costs such as commissions and other expenses related to the production of new business are charged to the Statutory Statements of Operations as incurred.

Reinsurance premiums and benefits paid or provided are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

Annuity and deposit-type contract surrender benefits are reported on a cash basis, and include annuity benefits, payments under supplementary contracts with life contingencies, surrenders and withdrawals. Withdrawals from deposit-type contracts directly reduce the liability for deposit-type contracts and are not reported in the Statutory Statements of Operations.

General insurance expenses include allocated expenses pursuant to a cost allocation agreement. The Company purchases administrative, accounting, marketing and data processing services from AIG Parent or its subsidiaries and is charged based on estimated levels of usage, transactions or time incurred in providing the respective services. The allocation of costs for investment management services purchased from AIG Parent or its subsidiaries is based on the level of assets under management.

Federal income tax expense (benefit) is recognized and computed on a separate company basis pursuant to a tax sharing agreement with AIG Parent, because the Company is included in the consolidated federal income tax return of its ultimate parent, AIG Parent. To the extent that benefits for net operating losses, foreign tax credits or net capital losses are utilized on a consolidated basis, the Company would recognize tax benefits based upon the amount of those deductions and credits utilized in the consolidated federal income tax return. The federal income tax expense or benefit reflected in the Statutory Statements of Operations represents income taxes provided on income that is currently taxable, but excludes tax on the net realized capital gains or losses.

Income taxes on capital gains or losses reflect differences in the recognition of capital gains or losses on a statutory accounting basis versus a tax accounting basis. The most significant of such differences involve impairments of investments, which are recorded as realized losses in the Statutory Statements of Operations but are not recognized for tax purposes, and the deferral of net capital gains and losses into the IMR for statutory income but not for taxable

16

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

income. Capital gains and losses on certain related-party transactions are recognized for statutory financial reporting purposes but are deferred for income tax reporting purposes until the security is sold to an outside party.

A deferred tax asset (DTA) or deferred tax liability (DTL) is included in the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus, which reflects the expected future tax consequences of temporary differences between the statement values of assets and liabilities for statutory financial reporting purposes and the amounts used for income tax reporting purposes. The change in the net DTA or DTL is reflected in a separate component of unassigned surplus. Net DTA are limited in their admissibility.

Accounting Changes

Effective January 1, 2019, the Company changed the Actuarial Guideline XXXV Type 2 computational method from Commissioners Annuity Reserve Valuation Method with Updated Market Values (CARVM-UMV) to Market Value Reserve Method (MVRM) using Black-Scholes Projection Method as approved by the domiciliary commissioner. The change in the reserving methodology increased unassigned surplus by $22 million.

There were no new accounting standards that were effective during the periods covered by this statement that had a material impact on the operations of the Company.

Correction of Errors

SAP requires that corrections of errors related to prior periods be reported as adjustments to unassigned surplus to the extent that they are not material to prior periods.

In 2019, five out-of-period errors were identified and corrected, which decreased unassigned surplus by $206 million. The most significant of these was an increase in indexed annuity reserves due to an incorrect application of incident rates.

In 2018, six out-of-period errors were identified and corrected, which increased unassigned surplus by $38 million. The most significant of these were in universal life business reflecting a reduction in reserves and adjustments to reinsurance premiums, partially offset by an increase in annuity reserves.

In 2017, certain prior year errors were identified and corrected, which increased reserves and decreased unassigned surplus by $9 million. The most significant of these was an increase in universal life reserves and a decrease in deferred annuity reserves from the correction of the cash values in the policy administration system.

Differences in Statutory Accounting and U.S. GAAP Accounting

The accompanying statutory financial statements have been prepared in accordance with accounting practices prescribed or permitted by the TDI. These accounting practices vary in certain respects from U.S. GAAP. The primary differences between NAIC SAP and U.S. GAAP are as follows.

The objectives of U.S. GAAP differ from the objectives of SAP. U.S. GAAP is designed to measure the entity as a going concern and to produce general purpose financial statements to meet the varying needs of the different users of financial statements. SAP is designed to address the accounting requirements of regulators, who are the primary users of statutory-basis financial statements and whose primary objective is to measure solvency. As a result, U.S. GAAP stresses measurement of earnings and financial condition of a business from period to period, while SAP stresses measurement of the ability of the insurer to pay claims in the future.

Investments. Under SAP, investments in bonds and preferred stocks are generally reported at amortized cost. However, if bonds are designated category "6" and preferred stocks are designated categories "4 – 6" by the NAIC, these investments are reported at the lesser of amortized cost or fair value with a credit or charge to unrealized investment gains or losses. For U.S. GAAP, such fixed-maturity investments are designated at purchase as held-to- maturity, trading, or available-for-sale. Held-to-maturity fixed-maturity investments are reported at amortized cost, and

17

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

the remaining fixed-maturity investments are reported at fair value, with unrealized capital gains and losses reported in operations for those designated as trading and as a component of other comprehensive income for those designated as available-for-sale.

Under SAP, all single- and multi-class MBS or other ABS (e.g., Collateralized Mortgage Obligations (CMO) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium with respect to such securities using either the retrospective or prospective method. For LBaSS subsequent to July 1, 2009, if it is determined that a decline in fair value is other than temporary the cost basis of the security is written down to the discounted estimated future cash flows. Bonds, other than LBaSS, that are other-than-temporarily impaired are written down to fair value. For U.S. GAAP purposes, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, MBS and ABS securities), other than high credit quality securities, would be adjusted using the prospective method when there is a change in estimated future cash flows. If high-credit quality securities must be adjusted, the retrospective method would be used. For all bonds, if it is determined that a decline in fair value is other-than-temporary, the cost basis of the security would be written down to the discounted estimated future cash flows, while the non-credit portion of the impairment would be recorded as an unrealized loss in other comprehensive income.

Under SAP, when it is probable that the insurer will be unable to collect all amounts due according to the contractual terms of the mortgage agreement, valuation allowances are established for temporarily-impaired mortgage loans based on the difference between the unpaid loan balance and the estimated fair value of the underlying real estate, less estimated costs to obtain and sell. The initial valuation allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus rather than as a component of earnings as would be required under U.S. GAAP. If the impairment is other-than-temporary, a direct write down is recognized as a realized loss, and a new cost basis is established. Under U.S. GAAP, valuation allowances would be established when the insurer determines it is probable that it will be unable to collect principal and interest due according to the contractual terms of the loan agreement. Such U.S. GAAP allowances would be based on the difference between the unpaid loan balance and the present value of expected future cash flows discounted at the loan's original effective interest rate or, if foreclosure is probable, on the estimated fair value of the underlying real estate.

Under SAP, joint ventures, partnerships and limited liability companies in which the insurer has a minor ownership interest (i.e., less than 10 percent) or lacks control are generally recorded based on the underlying audited U.S. GAAP basis equity of the investee. Under U.S. GAAP, joint ventures, partnerships and limited liability companies in which the insurer has a significant ownership interest or is deemed to have control are accounted for under the equity method, where that is not the case, such investments are carried at fair value with changes in fair value recognized in earnings in 2018 for equity securities previously designated as available-for-sale and through net income for equity securities measured at fair value at the Company's election. Prior to 2018, equity securities designated as available-for-sale were carried at fair value with changes in fair value recorded through other comprehensive income.

Real Estate. Under SAP, investments in real estate are reported net of related obligations; under U.S. GAAP, investments in real estate are reported on a gross basis. Under SAP, real estate owned and occupied by the insurer is included in investments; under U.S. GAAP, real estate owned and occupied by the insurer is reported as an operating asset, and operating income and expenses include rent for the insurer's occupancy of those properties.

Derivatives. Under SAP, derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value with the changes in fair value recorded as unrealized capital gains or losses. Under U.S. GAAP, such derivative instruments are accounted for at fair value with the changes in fair value recorded as realized capital gains or losses. Under U.S. GAAP, fair value measurement for free standing derivatives incorporate either counterparty's credit risk for derivative assets or the insurer's credit risk for derivative liabilities by determining the explicit cost to protect against credit exposure. This credit exposure evaluation takes into consideration observable credit default swap rates. Under SAP, non-performance risk (own credit-risk) is not reflected in the fair value calculations for derivative liabilities. Under U.S. GAAP, index life insurance features in certain variable universal life contracts and certain guaranteed features of variable annuities are bifurcated and accounted for separately as embedded policy derivatives. Under SAP, embedded derivatives are not bifurcated or accounted for separately from the host contract.

Interest Maintenance Reserve. Under SAP, the insurer is required to maintain an IMR. IMR is calculated based on methods prescribed by the NAIC and was established to prevent large fluctuations in interest-related capital gains and

18

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

losses realized through sales or OTTI. IMR applies to all types of fixed maturity investments, including bonds, preferred stocks, MBS, ABS and mortgage loans. After-tax capital gains or losses realized upon the sale or impairment of such investments resulting from changes in the overall level of interest rates are excluded from current period net income and transferred to the IMR. The transferred after-tax net realized capital gains or losses are then amortized into income over the remaining period to maturity of the divested asset. Realized capital gains and losses are reported net of tax and transfers to the IMR, after net gain from operations. Any negative IMR balance is treated as non-admitted asset. This reserve is not required under U.S. GAAP and pre-tax realized capital gains and losses are reported as component of total revenues, with related taxes included in taxes from operations.

Asset Valuation Reserve. Under SAP, the insurer is required to maintain an AVR, which is computed in accordance with a prescribed formula and represents a provision for possible fluctuations in the value of bonds, equity securities, mortgage loans, real estate, and other invested assets. The level of AVR is based on both the type of investment and its credit rating. Under SAP, AVR is included in total adjusted capital for RBC analysis purposes. Changes to AVR are charged or credited directly to unassigned surplus. This reserve is not required under U.S. GAAP.

Subsidiaries. Under SAP, investments in insurance subsidiaries are recorded based upon the underlying audited statutory equity of a subsidiary with all undistributed earnings or losses shown as an unrealized capital gain or loss in unassigned surplus. Dividends received by the parent company from its subsidiaries are recorded through net investment income. Under U.S. GAAP, subsidiaries' financial statements are combined with the parent company's financial statements through consolidation. All intercompany balances and transactions are eliminated under U.S. GAAP. Dividends received by the parent company from its subsidiaries reduce the parent company's investment in the subsidiaries.

Policy Acquisition Costs and Sales Inducements. Under SAP, policy acquisition costs are expensed when incurred. Under U.S. GAAP, acquisition costs that are incremental and directly related to the successful acquisition of new and renewal of existing insurance and investment-type contracts, are deferred and amortized, generally in proportion to the present value of expected future gross profit margins. For all other insurance contracts, to the extent recoverable from future policy revenues, deferred policy acquisition costs (DAC) are amortized, with interest, over the premium-paying period of the related contracts, using assumptions that are consistent with those used in computing policy benefit reserves. Under SAP, sales inducements are expensed when incurred. Under U.S. GAAP, certain sales inducements on interest-sensitive life insurance contracts and deferred annuities are deferred and amortized over the life of the contract using the same methodology and assumptions used to amortize DAC.

Deferred Premiums. Under SAP, when deferred premiums exist, statutory deferred premiums are held as a statutory asset, while under U.S. GAAP, deferred premiums are held as a contra-liability in the future policy benefits liability.

Non-admitted Assets. Certain assets designated as "non-admitted," principally any negative IMR, agents' balances or unsecured loans or advances to agents, certain DTAs, furniture, equipment and computer software, receivables over 90 days and prepaid expenses, as well as other assets not specifically identified as admitted assets within the NAIC SAP, are excluded from the Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus and are charged directly to unassigned surplus. Under U.S. GAAP, such assets are included in the balance sheet.

Universal Life and Annuity Policies. Under SAP, revenues for universal life and annuity policies containing mortality or morbidity risk considerations consist of the entire premium received, and benefits incurred consist of the total of death benefits paid and the change in policy reserves. Payments received on contracts that do not incorporate any mortality or morbidity risk considerations (deposit-type contracts) are credited directly to an appropriate liability for deposit-type contract account without recognizing premium income. Interest credited to deposit-type contracts is recorded as an expense in the Statutory Statements of Operations as incurred. Payments that represent a return of policyholder balances are recorded as a direct reduction of the liability for deposit-type contracts, rather than a benefit expense. Under U.S. GAAP, premiums received in excess of policy charges are not recognized as premium revenue, and benefits represent the excess of benefits paid over the policy account value and interest credited to the account values.

Benefit Reserves. Under SAP, loading is the difference between the gross and valuation net premium. Valuation net premium is calculated using valuation assumptions which are different for statutory and U.S. GAAP. Statutory valuation assumptions are set by the insurer within limits as defined by statutory law. U.S. GAAP valuation assumptions are set by the insurer based on management's estimates and judgment.

19

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Policyholder funds not involving life contingencies use different valuation assumptions for SAP and U.S. GAAP. Under SAP, prescribed rates of interest related to payout annuities are used in the discounting of expected benefit payments, while under U.S. GAAP, the insurer's best estimates of interest rates are used.

Under SAP, the Commissioners' Reserve Valuation Method is used for the majority of individual insurance reserves. Under U.S. GAAP, individual insurance policyholder liabilities for traditional forms of insurance are generally established using the net level premium method. For interest-sensitive policies, a liability for policyholder account balances is established under U.S. GAAP based on the contract value that has accrued to the benefit of the policyholder. Policy assumptions used in the estimation of policyholder liabilities are generally prescribed under SAP. Under U.S. GAAP, policy assumptions are based upon best estimates as of the date the policy was issued, with provisions for the risk of adverse deviation.

Under SAP, the CARVM is used for the majority of individual deferred annuity reserves, while under U.S. GAAP, individual deferred annuity policyholder liabilities are generally equal to the contract value that has accrued to the benefit of the policyholder, together with liabilities for certain contractual guarantees, if applicable.

Under SAP, reserves for fixed rate deposit-type contracts are based upon their accumulated values, discounted at an annual statutory effective rate, while under U.S. GAAP, reserves for deposit-type contracts are recorded at their accumulated values.

Reinsurance. Under SAP, policy and contract liabilities ceded to reinsurers are reported as reductions of the related reserves rather than as assets as required under U.S. GAAP. Under SAP, a liability for reinsurance balances has been provided for unsecured policy reserves, unearned premiums, and unpaid losses ceded to reinsurers not licensed to assume such business. Changes to these amounts are credited or charged directly to unassigned surplus. Under U.S. GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings. Under SAP, the criteria used to demonstrate risk transfer varies from U.S. GAAP, which may result in transactions that are accounted for as reinsurance for SAP and deposit accounting for U.S. GAAP. Under SAP, the reserve credit permitted for unauthorized reinsurers is less than or equal to the amount of letter of credit or funds held in trust by the reinsurer. Under U.S. GAAP, assumed and ceded reinsurance is reflected on a gross basis in the balance sheet, and certain commissions allowed by reinsurers on ceded business are deferred and amortized on a basis consistent with DAC.

Policyholder Dividend Liabilities. Under SAP, policyholder dividends are recognized when declared. Under U.S. GAAP, policyholder dividends are recognized over the term of the related policies.

Separate Accounts. Under SAP, separate account surplus created through the use of the CRVM, the VACARVM or other reserving methods is reported by the general account as an unsettled transfer from the separate account. The net change on such transfers is included as a part of the net gain from operations in the general account. This is not required under U.S. GAAP.

Separate accounts include certain non-unitized assets which primarily represent MVA fixed options of variable annuity contracts issued in various states. Under SAP, these contracts are accounted for in the separate account financial statements, while under U.S. GAAP, they are accounted for in the general account.

Deferred Income Taxes. Under SAP, statutory DTAs that are more likely than not to be realized are limited to: 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year, plus 2) the lesser of the remaining gross DTA expected to be realized within a maximum three years of the reporting date or a maximum 15 percent of the capital and surplus excluding any net DTA, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of the remaining gross DTA that can be offset against existing gross DTLs. The remaining DTAs are non- admitted. Deferred taxes do not include amounts for state taxes. Under U.S. GAAP, state taxes are included in the computation of deferred taxes, all DTAs are recorded and a valuation allowance is established if it is more likely than not that some portion of the DTA will not be realized. Under SAP, income tax expense is based upon taxes currently payable. Changes in deferred taxes are reported in surplus and subject to admissibility limits. Under U.S. GAAP, changes in deferred taxes are recorded in income tax expense.

Offsetting of Assets and Liabilities. Under SAP, offsetting of assets and liabilities is not permitted when there are master netting agreements unless four requirements for valid right of offset are met. The requirements include 1) each

20

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

of the two parties owes the other determinable amounts, 2) the reporting party has the right to set off the amount owed with the amount owed by the other party, 3) the reporting party intends to set off, and 4) the right of setoff is enforceable. The prohibition against offsetting extends to derivatives and collateral posted against derivative positions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. Under U.S. GAAP, these amounts under master netting arrangements may be offset and presented on a net basis.

3. INVESTMENTS

Bonds and Equity Securities

The following table presents the statement value, gross unrealized gain, gross unrealized loss and the estimated fair value of bonds and equity securities by major security type:

 

 

 

 

Gross

 

Gross

 

 

 

 

Statement

 

Unrealized

 

Unrealized

 

 

(in millions)

 

Value

 

Gains

 

Losses

 

Fair Value

December 31, 2019

 

 

 

 

 

 

 

 

Bonds:

 

 

 

 

 

 

 

 

U.S. government obligations

$

2,389

$

199

$

(3)

$

2,585

All other governments

 

3,044

 

353

 

(20)

 

3,377

States, territories and possessions

 

397

 

49

 

(4)

 

442

Political subdivisions of states, territories and possessions

 

336

 

68

 

-

 

404

Special revenue

 

7,859

 

789

 

(14)

 

8,634

Industrial and miscellaneous

 

81,146

 

8,142

 

(239)

 

89,049

Hybrid securities

 

722

 

227

 

(2)

 

947

Bank loans

 

3,095

 

12

 

(29)

 

3,078

Total bonds

 

98,988

 

9,839

 

(311)

 

108,516

Preferred stock

 

299

 

112

 

-

 

411

Common stock*

 

669

 

-

 

-

 

669

Total equity securities

 

968

 

112

 

-

 

1,080

Total

$

99,956

$

9,951

$

(311)

$

109,596

December 31, 2018

 

 

 

 

 

 

 

 

Bonds:

 

 

 

 

 

 

 

 

U.S. government obligations

$

1,754

$

45

$

(42)

$

1,757

All other government

 

3,046

 

77

 

(144)

 

2,979

States, territories and possessions

 

309

 

22

 

(1)

 

330

Political subdivisions of states, territories and possessions

 

376

 

36

 

(4)

 

408

Special revenue

 

8,642

 

357

 

(135)

 

8,864

Industrial and miscellaneous

 

77,660

 

3,566

 

(1,926)

 

79,300

Hybrid securities

 

785

 

132

 

(19)

 

898

Bank loans

 

2,121

 

8

 

(28)

 

2,101

Total bonds

 

94,693

 

4,243

 

(2,299)

 

96,637

Preferred stock

 

303

 

12

 

(1)

 

314

Common stock*

 

312

 

-

 

-

 

312

Total equity securities

 

615

 

12

 

(1)

 

626

Total

$

95,308

$

4,255

$

(2,300)

$

97,263

*Common stock includes $398 million and $109 million of investments in affiliates at December 31, 2019 and 2018, respectively.

21

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Bonds and Equity Securities in Loss Positions

The following table summarizes the fair value and gross unrealized losses (where fair value is less than amortized cost) on bonds and equity securities, including amounts on NAIC 6 and 6* bonds, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position:

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Unrealized

 

 

 

 

Unrealized

 

 

 

 

Unrealized

(in millions)

 

Fair Value

 

Losses

 

 

Fair Value

 

Losses

 

 

Fair Value

 

Losses

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

$

152

$

(3)

$

12

$

(1)

$

164

$

(4)

All other government

 

77

 

(2)

 

 

105

 

(18)

 

 

182

 

(20)

U.S. States, territories and possessions

 

90

 

(4)

 

 

-

 

-

 

 

90

 

(4)

Political subdivisions of states, territories and possessions

 

8

 

-

 

 

-

 

-

 

 

8

 

-

Special revenue

 

460

 

(13)

 

 

106

 

(1)

 

 

566

 

(14)

Industrial and miscellaneous

 

5,545

 

(123)

 

 

2,418

 

(120)

 

 

7,963

 

(243)

Hybrid securities

 

8

 

-

 

 

24

 

(2)

 

 

32

 

(2)

Bank loans

 

1,594

 

(30)

 

 

-

 

-

 

 

1,594

 

(30)

Total

$

7,934

$

(175)

$

2,665

$

(142)

$

10,599

$

(317)

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

$

317

$

(11)

$

751

$

(31)

$

1,068

$

(42)

All other government

 

1,295

 

(85)

 

 

610

 

(58)

 

 

1,905

 

(143)

U.S States, territories and possessions

 

67

 

(1)

 

 

-

 

-

 

 

67

 

(1)

Political subdivisions of states, territories and possessions

 

85

 

(1)

 

 

34

 

(3)

 

 

119

 

(4)

Special revenue

 

1,698

 

(46)

 

 

2,313

 

(89)

 

 

4,011

 

(135)

Industrial and miscellaneous

 

26,244

 

(1,165)

 

 

9,726

 

(778)

 

 

35,970

 

(1,943)

Hybrid securities

 

174

 

(11)

 

 

58

 

(8)

 

 

232

 

(19)

Bank loans

 

708

 

(28)

 

 

-

 

-

 

 

708

 

(28)

Total bonds

 

30,588

 

(1,348)

 

 

13,492

 

(967)

 

 

44,080

 

(2,315)

Preferred stock

 

95

 

(1)

 

 

5

 

-

 

 

100

 

(1)

Common stock

 

61

 

(14)

 

 

-

 

-

 

 

61

 

(14)

Total equity securities

 

156

 

(15)

 

 

5

 

-

 

 

161

 

(15)

Total

$

30,744

$

(1,363)

$

13,497

$

(967)

$

44,241

$

(2,330)

As of December 31, 2019 and 2018, the number of bonds and equity securities in an unrealized loss position was 1,147 and 3,983, respectively. Bonds comprised 1,134 of the total, of which 310 were in a continuous loss position greater than 12 months at December 31, 2019. Bonds comprised 3,916 of the total, of which 1,397 were in a continuous loss position greater than 12 months at December 31, 2018.

The Company did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2019 and 2018, respectively, because the Company neither intends to sell the securities nor does the Company believe that it is more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, the Company performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data.

22

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Contractual Maturities of Bonds

The following table presents the statement value and fair value of bonds by contractual maturity:

(in millions)

 

Statement Value

 

Fair Value

December 31, 2019

 

 

 

 

Due in one year or less

$

1,898

$

1,918

Due after one year through five years

 

10,130

 

10,440

Due after five years through ten years

 

17,147

 

18,397

Due after ten years

 

42,021

 

47,740

LBaSS

 

27,857

 

30,083

Total

$

99,053

$

108,578

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

Bonds in or near default as to payment of principal or interest had a statement value of $160 million and $154 million at December 31, 2019 and 2018, respectively, which is the fair value. At December 31, 2019 and 2018, the Company had no income excluded from due and accrued for bonds.

At December 31, 2019, the Company's bond portfolio included bonds totaling $6.5 billion not rated investment grade by the NAIC designations (categories 3-6). These bonds accounted for 4 percent of the Company's total assets and 5 percent of invested assets. These below investment grade securities, excluding structured securities, span across 15 industries. At December 31, 2018, the Company's bond portfolio included bonds totaling $6.0 billion not rated investment grade by the NAIC designations (categories 3-6). These bonds accounted for 3 percent of the Company's total assets and 5 percent of invested assets. These below investment grade securities, excluding structured securities, span across 16 industries.

The following table presents the industries that constitute more than 10% of the below investment grade securities:

 

December 31,

 

 

 

2019

 

2018

 

Consumer non-cyclical

19.0

%

16.9

%

Consumer cyclical

16.9

 

17.2

 

Capital Goods

11.3

 

-

 

Energy

10.0

 

12.0

 

LBaSS

The Company determines fair value of LBaSS based on the amount at which a security could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The majority of the Company's ABS, RMBS, CMBS, and collateralized debt obligations (CDO) are priced by approved independent third-party valuation service providers and broker dealer quotations. Small portions of the LBaSS that are not traded in active markets are priced by market standard internal valuation methodologies, which include discounted cash flow methodologies and matrix pricing. The estimated fair values are based on available market information and management's judgments.

The following table presents the statement value and fair value of LBaSS:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

Statement

 

 

 

 

Statement

 

 

(in millions)

 

Value

 

Fair Value

 

 

Value

 

Fair Value

Loan-backed and structured securities

$

27,857

$

30,083

$

30,129

$

31,757

Prepayment assumptions for single class, multi-class mortgage-backed and ABS were obtained from independent third- party valuation service providers or internal estimates. These assumptions are consistent with the current interest rate and economic environment.

23

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

At December 31, 2019 and 2018, the Company had exposure to a variety of LBaSS. These securities could have significant concentrations of credit risk by country, geographical region, property type, servicer or other characteristics. As part of the quarterly surveillance process, the Company takes into account many of these characteristics in making the OTTI assessment.

At December 31, 2019 and 2018, the Company did not have any LBaSS with a recognized OTTI due to the intent to sell or an inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis.

During 2019, 2018 and 2017, the Company recognized total OTTI of $40 million, $47 million and $54 million, respectively, on LBaSS that were still held by the Company. In addition, at December 31, 2019 and 2018, the Company held loan-backed impaired securities (fair value is less than cost or amortized cost) for which an OTTI had not been recognized in earnings as a realized loss. Such impairments include securities with a recognized OTTI for non-interest (credit) related declines that were recognized in earnings, but for which an associated interest-related decline has not been recognized in earnings as a realized capital loss.

The following table summarizes the fair value and aggregate amount of unrealized losses on LBaSS and length of time that individual securities have been in a continuous unrealized loss position:

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Unrealized

 

 

 

 

Unrealized

 

 

 

 

Unrealized

(in millions)

 

Fair Value

 

Losses

 

 

Fair Value

 

Losses

 

 

Fair Value

 

Losses

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LBaSS

$

2,765

$

(34)

$

1,424

$

(41)

$

4,189

$

(75)

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LBaSS

$

6,672

$

(143)

$

3,696

$

(137)

$

10,368

$

(280)

In its OTTI assessment, the Company considers all information relevant to the collectability of the security, including past history, current conditions and reasonable forecasts when developing an estimate of future cash flows. Relevant analyst reports and forecasts for the asset class also receive appropriate consideration. The Company also considers how credit enhancements affect the expected performance of the security. In addition, the Company generally considers its cash and working capital requirements and expected cash flows in relation to its business plans and how such forecasts affect the intent and ability to hold such securities to recovery of their amortized cost.

The Company does not have any LBaSS for which it is not practicable to estimate fair values.

The following table presents the rollforward of non-interest related OTTI for LBaSS:

 

 

December 31,

(in millions)

 

2019

 

2018

Balance, beginning of year

$

1,402

$

1,535

Increases due to:

 

 

 

 

Credit impairment on new securities subject to impairment losses

 

17

 

9

Additional credit impairment on previously impaired investments

 

23

 

38

Reduction due to:

 

 

 

 

Credit impaired securities fully disposed for which there was no prior intent or requirement to sell

 

149

 

180

Balance, end of year

$

1,293

$

1,402

See Note 23 for a list with each LBaSS at a CUSIP level where the present value of cash flows expected to be collected is less than the amortized cost basis during the current year and a list of the Company's structured notes holding at December 31, 2019.

Mortgage Loans

Mortgage loans had outstanding principal balances of $21.6 billion and $19.1 billion at December 31, 2019 and 2018, respectively. Contractual interest rates range from 1.45 percent to 8.50 percent. The mortgage loans at December 31, 2019 had maturity dates ranging from 2020 to 2069.

24

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The Company's mortgage loans are collateralized by a variety of commercial real estate property types located throughout the U.S. and Canada. The commercial mortgage loans are non-recourse to the borrower.

The following tables present the geographic and property-type distribution of the Company's mortgage loan portfolio:

 

December 31,

 

 

 

2019

2018

 

Geographic distribution:

 

 

 

Mid-Atlantic

28.9 %

26.3

%

Foreign

25.3

21.9

 

Pacific

14.5

15.6

 

South Atlantic

10.8

12.6

 

West South Central

6.7

7.4

 

New England

4.8

5.6

 

East North Central

4.4

5.1

 

Mountain

3.4

4.1

 

East South Central

0.7

0.8

 

West North Central

0.5

0.6

 

Total

100.0 %

100.0

%

Property type distribution:

 

 

 

Multi-family

36.6 %

31.1

%

Office

27.6

28.6

 

Retail

11.8

13.9

 

Industrial

9.7

8.1

 

Hotel/Motel

6.2

7.6

 

Other

8.1

10.7

 

Total

100.0 %

100.0 %

At December 31, 2019, there were 267 mortgage loans with outstanding balances of $20 million or more, which loans collectively, aggregated approximately 85 percent of this portfolio.

The following table presents the minimum and maximum lending rates for new mortgage loans during 2019 and 2018:

 

 

Years Ended December 31,

 

 

 

 

2019

 

 

 

2018

 

 

(in millions)

Maximum

Minimum

 

Maximum

 

Minimum

 

Multi-family

6.22 %

2.05 %

5.75

%

2.05

%

Retail

6.36

6.36

5.48

 

3.82

 

Office

4.66

1.75

5.10

 

3.02

 

Hotel

4.89

4.89

4.80

 

3.00

 

Industrial

5.59

1.45

4.53

 

2.11

 

Other

-

-

5.39

 

3.16

 

The Company did not reduce any interest rates during 2019 and 2018.

The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured or guaranteed or purchase money mortgage was 80.0 percent for both 2019 and 2018.

At December 31, 2019, the Company held $197 million in impaired mortgages with $85 million of related allowances for credit losses and $112 million in impaired loans without a related allowance. At December 31, 2018, the Company held $181 million in impaired mortgages with $12 million of related allowances for credit losses and $169 million in impaired loans without a related allowance. The Company's average recorded investment in impaired loans was $178 million and $201 million, at December 31, 2019 and 2018, respectively. The Company recognized interest income of $2 million, $5 million and $3 million, in 2019, 2018 and 2017, respectively.

25

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents a rollforward of the changes in the allowance for losses on mortgage loans receivable:

 

 

 

December 31,

 

 

(in millions)

 

2019

 

2018

 

2017

Balance, beginning of year

$

172

$

129

$

89

Additions (reductions) charged to unrealized capital loss

 

25

 

43

 

53

Direct write-downs charged against allowance

 

-

 

-

 

(13)

Balance, end of year

$

197

$

172

$

129

During 2019, the Company derecognized $1 million mortgage loans and recognized $1 million real estate collateral as a result of foreclosure.

The mortgage loan portfolio has been originated by the Company under strict underwriting standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers generally represent a higher level of risk than do mortgage loans secured by multi-family residences. This greater risk is due to several factors, including the larger size of such loans and the more immediate effects of general economic conditions on these commercial property types. However, due to the Company's strict underwriting standards, the Company believes that it has prudently managed the risk attributable to its mortgage loan portfolio while maintaining attractive yields.

The following table presents the age analysis of mortgage loans:

 

 

 

December 31,

 

(in millions)

 

2019

 

2018

Current

$

21,439

$

18,922

30

- 59 days past due

 

5

 

4

60

- 89 days past due

 

1

 

1

90

- 179 days past due

 

-

 

1

Greater than 180 days past due

 

1

 

-

Total

$

21,446

$

18,928

At December 31, 2019 and 2018, the Company had mortgage loans outstanding under participant or co-lender agreements of $18.5 billion and $15.8 billion, respectively.

The Company had $185 million and $169 million in restructured loans at December 31, 2019 and 2018, respectively.

Troubled Debt Restructuring

The Company held no restructured debt for which impairment was recognized for both December 31, 2019 and 2018. At December 31, 2019 and 2018, the Company had no outstanding commitments to debtors that hold loans with restructured terms.

Real Estate

The following table presents the components of the Company's investment in real estate:

 

 

December 31,

 

(in millions)

 

2019

 

2018

Properties occupied by the Company

$

63

$

53

Properties held for production of income

 

120

 

110

Properties held for sale

 

1

 

34

Total

$

184

$

197

The Company recognized gains of $4 million, $1 million and $13 million on the sale of real estate property in 2019, 2018 and 2017, respectively. The Company did not recognize any impairment write-downs for its investment in real estate during 2019. The Company recognized of $11 million impairment write-downs for its investment in real estate during 2018. The Company did not recognize any impairment write-downs for its investment in real estate during 2017.

26

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Other Invested Assets

The following table presents the components of the Company's other invested assets:

 

 

December 31,

 

(in millions)

 

2019

 

2018

Investments in limited liability companies

$

1,335

$

1,474

Investments in limited partnerships

 

2,407

 

1,877

Other unaffiliated investments

 

1,153

 

1,026

Receivable for securities

 

109

 

138

Initial margin for futures

 

5

 

2

Non-admitted assets

 

(75)

 

(153)

Total

$

4,934

$

4,364

The Company utilizes the look-through approach in valuing its investments in affiliated joint ventures or partnerships that have the characteristics of real estate investments. These affiliated real estate investments had an aggregate value of $928 million at December 31, 2019. The financial statements for the related holding companies are not audited and the Company has limited the value of its investment in these holding companies to the value contained in the audited financial statements of the lower tier entities owned by each of the respective intermediate holding company entities as adjusted by SAP, if applicable. All liabilities, commitments, contingencies, guarantees, or obligations of these holding company entities, which are required to be recorded as liabilities, commitments, contingencies, guarantees or obligations under applicable accounting guidance, are reflected in the Company's determination of the carrying value of the investment in each of the respective holding company entities, if applicable.

The Company recorded impairment write-downs in joint ventures was $62 million, $44 million and $89 million during 2019, 2018 and 2017, respectively.

Net Investment Income

The following table presents the components of net investment income:

 

 

Years ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Bonds

$

4,949

$

4,897

$

4,788

Preferred stocks

 

15

 

13

 

11

Common stocks

 

6

 

5

 

3

Cash and short-term investments

 

58

 

29

 

22

Mortgage loans

 

864

 

798

 

675

Real estate*

 

47

 

50

 

53

Contract loans

 

80

 

82

 

87

Derivatives

 

60

 

210

 

(121)

Investment income from affiliates

 

170

 

165

 

372

Other invested assets

 

110

 

239

 

250

Gross investment income

 

6,359

 

6,488

 

6,140

Investment expenses

 

(256)

 

(245)

 

(259)

Net investment income

$

6,103

$

6,243

$

5,881

* Includes amounts for the occupancy of Company-owned property of $12 million in 2019, and $11 million in both 2018 and 2017.

27

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Net Realized and Unrealized Capital Gains (Losses)

The following table presents the components of Net realized capital gains (losses):

 

 

Years Ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Bonds

$

484

$

(81)

$

109

Preferred stocks

 

4

 

-

 

1

Common stocks

 

(24)

 

-

 

-

Cash and short-term investments

 

2

 

(2)

 

(13)

Mortgage loans

 

(47)

 

(26)

 

6

Real estate

 

4

 

(10)

 

7

Derivatives

 

(210)

 

(330)

 

(1,412)

Other invested assets

 

173

 

28

 

65

Realized capital gains (losses)

 

386

 

(421)

 

(1,237)

Federal income tax (expense) benefit

 

(81)

 

88

 

433

Net gains transferred to IMR

 

(449)

 

(9)

 

(124)

Net realized capital losses

$

(144)

$

(342)

$

(928)

During 2019, 2018 and 2017, the Company recognized $86 million, $192 million and $98 million, respectively, of impairment write-downs in accordance with the impairment policy described in Note 2.

The following table presents the proceeds from sales of bonds and equities and the related gross realized capital gains and gross realized capital losses:

 

 

Years Ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Proceeds

$

11,792

$

8,165

$

7,403

Gross realized capital gains

$

799

$

191

$

330

Gross realized capital losses

 

(194)

 

(176)

 

(87)

Net realized capital gains

$

605

$

15

$

243

The following table presents the net change in unrealized capital gains (losses) of investments (including foreign exchange capital gains (losses):

 

 

Years Ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Bonds

$

97

$

(171)

$

253

Preferred and common stocks

 

55

 

(12)

 

(3)

Mortgage loans

 

147

 

(248)

 

179

Derivatives

 

981

 

88

 

(107)

Other invested assets

 

13

 

(6)

 

32

Other

 

7

 

32

 

(71)

Federal income tax benefit (expense)

 

(350)

 

93

 

24

Net change in unrealized gains (losses) of investments

$

950

$

(224)

$

307

28

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

5* Securities Measured at Aggregate Book Adjusted Carrying Value and Fair Value

The following table presents 5* Securities measured at aggregate book adjusted carrying value (BACV) and aggregate fair value at December 31:

Investment

Number of 5* Securities

 

Aggregate BACV

 

Aggregate Fair Value

 

(in millions)

 

(in millions)

 

 

 

 

 

 

2019

2018

 

2019

 

2018

 

2019

 

2018

Bonds - AC

10

23

$

68

$

296

$

66

$

294

LB&SS - AC

2

2

 

34

 

34

 

35

 

34

Preferred Stock - AC

-

4

 

-

 

5

 

-

 

8

Preferred Stock - FV

-

-

 

-

 

-

 

-

 

-

Total

12

29

$

102

$

336

$

101

$

336

AC-Amortized Cost

FV-Fair Value

4. SECURITIES LENDING AND REPURCHASE AGREEMENTS

Securities Lending

As of December 31, 2019 and 2018, the Company had bonds loaned with a fair value of approximately $1.4 billion and $438 million, respectively, pursuant to the securities lending program.

The following table presents the aggregate fair value of cash collateral received related to the securities lending program and the terms of the contractually obligated collateral positions:

 

 

December 31,

 

(in millions)

 

2019

 

2018

30 days or less

$

295

$

148

31 to 60 days

 

439

 

68

61 to 90 days

 

718

 

231

Subtotal

 

1,452

 

447

Securities collateral received

 

-

 

-

Total collateral received

$

1,452

$

447

The following table presents the aggregate amortized cost and fair value of cash collateral reinvested related to the securities lending program by maturity date:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

Amortized

 

 

 

 

Amortized

 

 

(in millions)

 

Cost

 

Fair Value

 

 

Cost

 

Fair Value

Open positions

$

1,283

$

1,283

$

352

$

352

Subtotal

 

1,283

 

1,283

 

 

352

 

352

Securities collateral received

 

-

 

-

 

 

-

 

-

Total collateral reinvested

$

1,283

$

1,283

$

352

$

352

29

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Repurchase Agreements

At December 31, 2019 and 2018, bonds with a fair value of approximately $153 million and $124 million, respectively, were subject to repurchase agreements to secure amounts borrowed by the Company.

The following table presents the aggregate fair value of cash collateral received related to the repurchase agreement program and the terms of the contractually obligated collateral positions:

 

 

December 31,

 

(in millions)

 

2019

 

2018

Open positions

$

-

$

119

30 days or less

 

29

 

-

31 to 60 days

 

-

 

-

61 to 90 days

 

-

 

-

Greater than 90 days

 

39

 

-

Subtotal

 

68

 

119

Securities collateral received

 

-

 

-

Total collateral received

$

68

$

119

The following table presents the original (flow) and residual maturity for bi-lateral repurchase agreement transactions for the year ended December 31, 2019:

 

 

 

 

FIRST

 

SECOND

 

THIRD

 

FOURTH

(in millions)

 

QUARTER

 

QUARTER

 

QUARTER

 

QUARTER

a. Maximum Amount

 

 

 

 

 

 

 

 

1.

Open - No Maturity

$

119

$

177

$

127

$

145

2.

Overnight

 

20

 

15

 

115

 

80

3.

2 Days to 1 Week

 

-

 

13

 

112

 

74

4.

> 1 Week to 1 Month

 

-

 

112

 

112

 

98

5.

> 1 Month to 3 Months

 

-

 

-

 

-

 

-

6.

> 3 Months to 1 Year

 

-

 

-

 

-

 

-

7.

> 1

Year

 

-

 

-

 

-

 

-

b. Ending Balance

 

 

 

 

 

 

 

 

1.

Open - No Maturity

$

68

$

149

$

79

$

39

2.

Overnight

 

-

 

13

 

-

 

-

3.

2 Days to 1 Week

 

-

 

-

 

-

 

29

4.

> 1

Week to 1 Month

 

-

 

112

 

-

 

-

5.

> 1

Month to 3 Months

 

-

 

-

 

-

 

-

6.

> 3 Months to 1 Year

 

-

 

-

 

-

 

-

7.

> 1

Year

 

-

 

-

 

-

 

-

30

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the Company's liability to return collateral for the year ended December 31, 2019:

 

 

 

FIRST

 

SECOND

 

THIRD

 

FOURTH

(in millions)

 

QUARTER

 

QUARTER

 

QUARTER

 

QUARTER

a. Maximum Amount

 

 

 

 

 

 

 

 

1.

Cash (Collateral - All)

$

140

$

316

$

466

$

398

2.

Securities Collateral (FV)

 

-

 

-

 

-

 

-

b. Ending Balance

 

 

 

 

 

 

 

 

1.

Cash (Collateral - All)

$

68

$

274

$

79

$

68

2.

Securities Collateral (FV)

 

-

 

-

 

-

 

-

The Company requires a minimum of 95 percent of the fair value of securities sold under the repurchase agreements to be maintained as collateral. Cash collateral received is invested in corporate bonds and the offsetting collateral liability for repurchase agreements is included in other liabilities.

The following table presents the aggregate amortized cost and fair value of cash collateral reinvested related to the repurchase agreement program by maturity date:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

Amortized

 

 

 

 

Amortized

 

 

(in millions)

 

Cost

 

Fair Value

 

 

Cost

 

Fair Value

Open positions

$

139

$

153

$

129

$

124

Greater than three years

 

-

 

-

 

 

-

 

-

Subtotal

 

139

 

153

 

 

129

 

124

Securities collateral received

 

-

 

-

 

 

-

 

-

Total collateral reinvested

$

139

$

153

$

129

$

124

The following table presents the fair value of securities under bi-lateral repurchase agreement transactions for the year ended December 31, 2019:

 

 

FIRST

 

 

SECOND

 

THIRD

 

FOURTH

(in millions)

QUARTER

 

 

QUARTER

 

QUARTER

 

QUARTER

a. Maximum Amount

 

 

 

 

 

 

 

 

1.

BACV

$

-

$

-

$

-

$

-

2.

Nonadmitted - Subset of BACV

 

-

 

-

 

-

 

-

3.

Fair Value

 

-

 

-

 

-

 

-

b. Ending Balance

 

 

 

 

 

 

 

 

1.

BACV

$

69

$

240

$

132

$

139

2.

Nonadmitted - Subset of BACV

 

-

 

-

 

-

 

-

3.

Fair Value

 

74

 

255

 

143

 

153

31

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the fair value of securities under bi-lateral repurchase agreement transactions for the year ended December 31, 2019:

 

 

1

 

2

 

 

3

 

4

(in millions)

 

None

 

NAIC 1

 

 

NAIC 2

 

NAIC 3

Ending Balance

 

 

 

 

 

 

 

 

 

a. Bonds - BACV

$

-

$

50

$

65

$

10

b. Bonds - FV

 

 

-

 

57

 

72

 

10

c. LB & SS - BACV

 

-

 

-

 

-

 

-

d. LB & SS - FV

 

-

 

-

 

-

 

-

e. Preferred Stock - BACV

 

-

 

-

 

-

 

-

f. Preferred Stock - FV

 

-

 

-

 

-

 

-

g. Common Stock

 

-

 

-

 

-

 

-

h. Mortgage Loans - BACV

 

-

 

-

 

-

 

-

i. Mortgage Loans - FV

 

-

 

-

 

-

 

-

j. Real Estate

- BACV

 

-

 

-

 

-

 

-

k. Real Estate

- FV

 

-

 

-

 

-

 

-

l. Derivatives -

BACV

 

-

 

-

 

-

 

-

m. Derivatives - FV

 

-

 

-

 

-

 

-

n. Other Invested Assets - BACV

 

-

 

-

 

-

 

-

o. Other Invested Assets - FV

 

-

 

-

 

-

 

-

p. Total Assets - BACV

 

-

 

50

 

65

 

10

q. Total Assets - FV

 

-

 

57

 

72

 

10

 

 

 

 

 

 

 

 

 

 

 

 

5

 

6

 

 

7

 

8

(in millions)

 

NAIC 4

 

NAIC 5

 

 

NAIC 6

 

Non-Admitted

Ending Balance

 

 

 

 

 

 

 

 

 

a. Bonds - BACV

$

14

$

-

$

-

$

-

b. Bonds - FV

 

 

14

 

-

 

-

 

-

c. LB & SS - BACV

 

-

 

-

 

-

 

-

d. LB & SS - FV

 

-

 

-

 

-

 

-

e. Preferred Stock - BACV

 

-

 

-

 

-

 

-

f. Preferred Stock - FV

 

-

 

-

 

-

 

-

g. Common Stock

 

-

 

-

 

-

 

-

h. Mortgage Loans - BACV

 

-

 

-

 

-

 

-

i. Mortgage Loans - FV

 

-

 

-

 

-

 

-

j. Real Estate

- BACV

 

-

 

-

 

-

 

-

k. Real Estate

- FV

 

-

 

-

 

-

 

-

l. Derivatives -

BACV

 

-

 

-

 

-

 

-

m. Derivatives - FV

 

-

 

-

 

-

 

-

n. Other Invested Assets - BACV

 

-

 

-

 

-

 

-

o. Other Invested Assets - FV

 

-

 

-

 

-

 

-

p. Total Assets - BACV

 

14

 

-

 

-

 

-

q. Total Assets - FV

 

14

 

-

 

-

 

-

5. RESTRICTED ASSETS

The Company has restricted assets as detailed below. Assets under restriction are general account assets and are not part of the Separate Accounts.

32

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the carrying value of the Company's restricted assets:

 

 

December 31,

 

(in millions)

 

2019

 

2018

On deposit with states

$

48

$

48

Securities lending

 

1,210

 

425

Collateral held on securities lending

 

1,452

 

447

FHLB stock and collateral pledged

 

3,555

 

3,851

Subject to repurchase agreements

 

139

 

129

Collateral for derivatives

 

912

 

580

Guaranteed interest contracts

 

41

 

44

Other restricted assets

 

104

 

78

Total

$

7,461

$

5,602
 6. SUBPRIME MORTGAGE RISK EXPOSURE

The following features are commonly recognized characteristics of subprime mortgage loans:

•An interest rate above prime to borrowers who do not qualify for prime rate loans;

•Borrowers with low credit ratings (FICO scores);

•Interest-only or negative amortizing loans;

•Unconventionally high initial loan-to-value ratios;

•Low initial payments based on a fixed introductory rate that expires after a short initial period, then adjusts to a variable index rate plus a margin for the remaining term of the loan;

•Borrowers with less than conventional documentation of their income and/or net assets;

•Very high or no limits on how much the payment amount or the interest rate may increase at reset periods, potentially causing a substantial increase in the monthly payment amount; and/or,

•Substantial prepayment penalties and/or prepayment penalties that extend beyond the initial interest rate adjustment period.

Non-agency RMBS can belong to one of several different categories depending on the characteristics of the borrower, the property and the loan used to finance the property. Categorization is a function of FICO score, the type of loan, loan-to-value ratio, and property type and loan documentation.

Generally, subprime loans are made to borrowers with low FICO scores, low levels of equity and reduced income/asset documentation. Due to these characteristics, subprime borrowers pay a substantially higher interest rate than prime borrowers. In addition, they often utilize mortgage products that reduce their monthly payments in the near-term. These include adjustable-rate mortgages with low initial rates or interest-only loans. Borrowers in products like this often experience significant "payment shock" when the teaser payment resets upwards after the initial fixed period.

The primary classification mechanism the Company uses for subprime loans is FICO score. Specifically, a pool with an average FICO at origination less than 650 is considered to be subprime. However, the Company may subjectively adjust this classification based on an assessment of the other parameters mentioned above.

To monitor subprime securities, the Company uses a model with vintage-specific assumptions for delinquency roll rates, loss severities and the timing of losses. As and when needed, these vintage-based assumptions are supplemented with deal-specific information including, but not limited to, geographic distribution, realized loss severities, trigger status and scenario analysis.

The Company has no direct exposure through investments in subprime mortgage loans. The Company's exposure is through other investments, primarily in RMBS, as described above.

33

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents information regarding the Company's investments with subprime exposures:

 

 

 

 

Book

 

 

 

 

 

 

 

 

Adjusted

 

 

 

OTTI

 

 

 

 

Statement

 

 

 

Recognized

(in millions)

 

Actual Cost

 

Value

 

Fair Value

 

to Date

December 31, 2019

 

 

 

 

 

 

 

 

In general account:

 

 

 

 

 

 

 

 

RMBS

$

1,077

$

969

$

1,204

$

(18)

CDOs

 

922

 

918

 

949

 

(10)

CMBS

 

11

 

11

 

11

 

-

Total subprime exposure

$

2,010

$

1,898

$

2,164

$

(28)

December 31, 2018

 

 

 

 

 

 

 

 

In general account:

 

 

 

 

 

 

 

 

RMBS

$

1,210

$

1,167

$

1,390

$

(15)

CDOs

 

911

 

923

 

957

 

(8)

CMBS

 

11

 

11

 

10

 

-

Total subprime exposure

$

2,132

$

2,101

$

2,357

$

(23)

The Company has no underwriting exposure to subprime mortgage risk through mortgage guaranty or financial guaranty insurance coverage.

7. DERIVATIVES

The Company has taken positions in certain derivative financial instruments to mitigate or hedge the impact of changes in interest rates, foreign currencies, equity markets, swap spreads, volatility, correlations and yield curve risk on cash flows from investment income, policyholder liabilities and equity. Financial instruments used by the Company for such purposes include interest rate swaps, interest rate swaptions, cross-currency swaps, futures and futures options on equity indices, and futures and futures options on government securities. The Company does not engage in the use of derivative instruments for speculative purposes and is neither a dealer nor trader in derivative instruments.

All derivative instruments are recognized in the financial statements. The Company has determined that its derivative financial instruments do not qualify for hedge accounting. As a result, derivatives are accounted for at fair value and the changes in the fair value recorded in surplus as unrealized gains or losses, net of deferred taxes. The value of the Company's exchange traded futures contracts relates to the one day lag in the net cash settlement of these contracts.

The Company recognized a net unrealized capital gain of $981 million in 2019, an unrealized capital gain of $88 million in 2018 and an unrealized capital loss of $107 million in 2017, related to derivatives that did not qualify for hedge accounting.

Refer to Note 3 for disclosures related to net realized capital gains (losses).

Swaps, Options, and Futures

Interest rate or cross-currency swap agreements are agreements to exchange with a counterparty, at specified intervals, payments of differing character (for example, variable-rate payments exchanged for fixed-rate payments) or in different currencies, based on an underlying principal balance, notional amount. Generally no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each contractual payment due date, and this net payment is included in the Statutory Statement of Operations.

Options are contracts that grant the purchaser, for a premium payment, the right, but not the obligation, either to purchase or sell a financial instrument at a specified price within a specified period of time. The Company purchases call options on the S&P 500 Index to offset the risk of certain guarantees of specific equity-index annuity and universal life policy values. The Company also purchases put options on the S&P 500 Index to offset volatility risk arising from

34

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

minimum guarantees embedded in variable annuities. The options are carried at fair value, with changes in fair value recognized in unrealized investment gains and losses.

Financial futures are contracts between two parties that commit one party to purchase and the other to sell a particular commodity or financial instrument at a price determined on the final settlement day of the contract. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The Company uses futures contracts on Euro dollar deposits, U.S. Treasury Notes, U.S. Treasury Bonds, the S&P 500 Index, MidCap 400, Russell 2000, MSCI EAFE, foreign government debt securities, and foreign denominated equity indices to offset the risk of certain guarantees on annuity policy values.

Interest Rate Risk

Interest rate derivatives are used to manage interest rate risk associated with certain guarantees of variable annuities and equity indexed annuities and certain bonds. The Company's interest rate hedging derivative instruments include

(1)interest rate swaps and swaptions; (2) listed futures on government securities; and (3) listed futures options on government securities.

Currency Risk

Foreign exchange contracts used by the Company include cross-currency swaps, which are used to reduce risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company holds.

Equity Risk

Equity derivatives are used to mitigate financial risk embedded in certain insurance liabilities.

Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. For over-the-counter (OTC) derivatives, the Company's net credit exposure is determined based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as collateral posted by the counterparty at the balance sheet date. The Company is exposed to credit risk when the net position with a particular counterparty results in an asset that exceeds collateral pledged by that counterparty.

For OTC contracts, the Company generally uses an International Swaps and Derivative Association Master Agreement (ISDA Master Agreement) and Credit Support Annexes with bilateral collateral provisions to reduce counterparty credit exposures. An ISDA Master Agreement is an agreement between two counterparties, which may cover multiple derivative transactions and such ISDA Master Agreement generally provides for the net settlement of all or a specified group of these derivative transactions, as well as transferred collateral, through a single payment, in a single currency, in the event of a default affecting any one derivative transaction or a termination event affecting all or a specified group of the transactions. The Company minimizes the risk that counterparties might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value and may require additional collateral to be posted upon the occurrence of certain events or circumstances. In the unlikely event of a failure to perform by any of the counterparties to these derivative transactions, there would not be a material effect on the Company's admitted assets, liabilities or capital and surplus.

The Company has also entered into exchange-traded options and futures contracts. Under exchange-traded futures contracts, the Company agrees to purchase a specified number of contracts with other parties and to post or receive variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The parties with whom the Company enters into exchange-traded futures are regulated futures commission merchants who are members of a trading exchange. The credit risk of exchange-traded futures is partially mitigated because variation margin is settled daily in cash. Exchange-traded option contracts are not subject to daily margin settlements and

35

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

amounts due to the Company based upon favorable movements in the underlying securities or indices are owed upon exercise.

The following table presents the notional amounts, statement values and fair values of the Company's derivative instruments:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Contract or

 

 

 

 

 

Contract or

 

 

 

 

 

 

Notional

 

Statement

 

 

 

Notional

 

Statement

 

 

(in millions)

 

Amount

 

Value

 

Fair Value

 

Amount

 

Value

 

Fair Value

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

33,189

$

1,170

$

1,170

$

26,901

$

1,360

$

1,080

Foreign exchange contracts

 

3,750

 

438

 

438

 

6,331

 

511

 

511

Equity contracts

 

40,674

 

3,516

 

3,516

 

45,769

 

902

 

902

Credit contracts

 

7,728

 

3

 

3

 

-

 

-

 

-

Derivative assets, gross

 

85,341

 

5,127

 

5,127

 

79,001

 

2,773

 

2,493

Counter party netting*

 

-

 

(4,502)

 

(4,502)

 

-

 

(1,138)

 

(1,399)

Derivative assets, net

$

85,341

$

625

$

625

$

79,001

$

1,635

$

1,094

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

14,079

$

1,227

$

1,227

$

16,121

$

426

$

549

Foreign exchange contracts

 

6,354

 

395

 

395

 

2,328

 

266

 

266

Equity contracts

 

34,406

 

3,100

 

3,100

 

33,886

 

649

 

649

Credit contracts

 

-

 

-

 

-

 

-

 

-

 

-

Other contracts

 

56

 

7

 

7

 

58

 

6

 

6

Derivative liabilities, gross

 

54,895

 

4,729

 

4,729

 

52,393

 

1,347

 

1,470

Counter party netting*

 

-

 

(4,502)

 

(4,502)

 

-

 

(1,138)

 

(1,399)

Derivative liabilities, net

$

54,895

$

227

$

227

$

52,393

$

209

$

71

* Represents netting of derivative exposures covered by a qualifying master netting agreement.

The Company has a right of offset of its derivatives asset and liability positions with various counterparties. The following table presents the effect of the right of offsets:

 

 

December 31, 2019

 

 

December 31, 2018

(in millions)

 

Assets

 

Liabilities

 

 

Assets

 

Liabilities

Gross amount recognized

$

5,127

$

(4,729)

$

2,773

$

(1,347)

Amount offset

 

(4,502)

 

4,502

 

 

(1,138)

 

1,138

Net amount presented in the Statement of Admitted

 

 

 

 

 

 

 

 

 

Assets, Liabilities, and Capital and Surplus

$

625

$

(227)

$

1,635

$

(209)
 8. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK

 

The following table presents the Company's derivative financial instruments with concentrations of credit risk:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

Contract or

 

 

 

Contract or

 

 

 

Notional

Final Maturity

 

 

Notional

Final Maturity

(in millions)

 

Amount

Date

 

 

Amount

Date

Derivative assets:

 

 

 

 

 

 

 

Interest rate contracts

$

33,189

2069

$

26,901

2055

Foreign exchange contracts

 

3,750

2049

 

 

6,331

2056

Equity contracts

 

40,674

2028

 

 

45,769

2028

Credit contracts

 

7,728

2024

 

 

-

 

Derivative liabilities:

 

 

 

 

 

 

 

Interest rate contracts

 

14,079

2055

 

 

16,121

2056

Foreign exchange contracts

 

6,354

2060

 

 

2,328

2051

Equity contracts

 

34,406

2022

 

 

33,886

2022

Credit contracts

 

-

 

 

 

-

 

Other contracts

 

56

2042

 

 

58

2042

 

 

36

 

 

 

 

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The credit exposure to the Company's derivative contracts is limited to the fair value of such contracts that are favorable to the Company at the reporting date.

The credit exposure to the Company's derivative contracts aggregated $725 million and $466 million at December 31, 2019 and 2018, respectively.

9. FAIR VALUE MEASUREMENTS

Fair Value Measurements

The Company carries certain financial instruments at fair value. The Company defines the fair value of a financial instrument as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions.

The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions.

Fair Value Hierarchy

Assets and liabilities recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of three "levels" based on the observability of valuation inputs:

•Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that the Company has the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. The Company does not adjust the quoted price for such instruments.

•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, the Company must make certain assumptions as to the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In those cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Bonds: Fair value is based principally on value from independent third-party valuation service providers, broker quotes and other independent information.

37

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Preferred stocks: Fair value of unaffiliated preferred stocks is based principally on value from independent third-party service providers, broker quotes and other independent information.

Cash, cash equivalents and short term investments: Carrying amount approximate fair value because of the relatively short period of time between origination and expected realization and their limited exposure to credit risk.

Mortgage loans: Fair values are primarily determined by discounting future cash flows to the present at current market rates, using expected prepayment rates.

Contract loans: Carrying amounts, which approximate fair value, are generally equal to unpaid principal amount as of each reporting date. No consideration is given to credit risk because contract loans are effectively collateralized by the cash surrender value of the policies.

Securities lending reinvested collateral assets: Securities lending assets are generally invested in short-term investments and thus carrying amounts approximate fair values because of the relatively short period of time between origination and expected realizations.

Separate account assets: Variable annuity and variable universal life assets are carried at the market value of the underlying securities. Certain separate account assets related to market value adjustment fixed annuity contracts are carried at book value. Fair value is based principally on the value from independent third-party valuation service providers, broker quotes and other independent information.

Policy reserves and contractual liabilities: Fair value for investment contracts (those without significant mortality risk) not accounted for at fair value were estimated for disclosure purposes using discounted cash flow calculations based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. When no similar contracts are being offered, the discount rate is the appropriate swap rates (if available) or current risk-free interest rates consistent with the currency in which cash flows are denominated.

Payable for securities lending: Cash collateral received from the securities lending program is invested in short-term investments and the offsetting liability is included in payable for securities lending. The carrying amount of this liability approximates fair value because of the relatively short period between origination of the liability and expected settlement.

Receivables/payables for securities: Such amounts represent transactions of a short-term nature for which the statement value is considered a reasonable estimate of fair value.

38

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Fair Value Information about Financial Instruments Not Measured at Fair Value

The following table presents the aggregate fair values of the Company's financial instruments not measured at fair value compared to their statement values:

 

 

 

 

Admitted

 

 

 

 

 

 

 

 

Aggregate

 

Assets or

 

 

 

 

 

 

(in millions)

 

Fair Value

 

Liabilities

 

Level 1

 

Level 2

 

Level 3

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Bonds

$

108,500

$

98,976

$

-

$

92,575

$

15,925

Preferred stocks

 

409

 

299

 

5

 

315

 

89

Common stocks

 

143

 

143

 

-

 

143

 

-

Cash, cash equivalents

 

 

 

 

 

 

 

 

 

 

and short-term investments

 

446

 

446

 

(65)

 

511

 

-

Mortgage loans

 

22,526

 

21,446

 

-

 

-

 

22,526

Contract loans

 

1,264

 

1,264

 

-

 

-

 

1,264

Receivables for securities

 

110

 

110

 

-

 

110

 

-

Securities lending reinvested collateral assets

 

1,283

 

1,283

 

-

 

1,283

 

-

Separate account assets

 

8,269

 

7,795

 

-

 

8,269

 

-

Liabilities:

 

 

 

 

 

 

 

 

 

 

Policy reserves and contractual liabilities

 

12,012

 

11,090

 

-

 

239

 

11,773

Payable for securities

 

433

 

433

 

-

 

433

 

-

Payable for securities lending

 

1,452

 

1,452

 

-

 

1,452

 

-

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Bonds

$

96,620

$

94,675

$

35

$

79,744

$

16,841

Preferred stocks

 

240

 

228

 

6

 

220

 

14

Common stocks

 

138

 

138

 

-

 

138

 

-

Cash, cash equivalents

 

 

 

 

 

 

 

 

 

 

and short-term investments

 

1,547

 

1,547

 

1,228

 

319

 

-

Mortgage loans

 

19,182

 

18,928

 

-

 

-

 

19,182

Contract loans

 

1,307

 

1,307

 

-

 

-

 

1,307

Derivatives

 

404

 

807

 

-

 

404

 

-

Receivables for securities

 

138

 

138

 

-

 

138

 

-

Securities lending reinvested collateral assets

 

352

 

352

 

-

 

352

 

-

Separate account assets

 

5,484

 

5,618

 

-

 

5,484

 

-

Liabilities:

 

 

 

 

 

 

 

 

 

 

Policy reserves and contractual liabilities

 

11,843

 

11,191

 

-

 

339

 

11,504

Payable for securities

 

362

 

362

 

-

 

362

 

-

Payable for securities lending

 

447

 

447

 

-

 

447

 

-

Valuation Methodologies of Financial Instruments Measured at Fair Value

Bonds

Bonds with NAIC 6 or 6* designations and preferred stocks with NAIC 4, 5 or 6 designations are carried at the lower of amortized cost or fair value. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Whenever available, the Company obtains quoted prices in active markets for identical assets at the balance sheet date to measure bonds at fair value. Market price data generally is obtained from exchange or dealer markets.

The Company estimates the fair value of securities not traded in active markets, by referring to traded securities with similar attributes, using dealer quotations, a matrix pricing methodology, discounted cash flow analyses or internal valuation models. This methodology considers such factors as the issuer's industry, the security's rating and tenor, its coupon rate, its position in the capital structure of the issuer, yield curves, credit curves, prepayment rates and other relevant factors. For bonds that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used.

39

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Fair values for bonds and preferred stocks based on observable market prices for identical or similar instruments implicitly include the incorporation of counterparty credit risk. Fair values for bonds and preferred stocks based on internal models incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.

Common Stocks (Unaffiliated)

Whenever available, the Company obtains quoted prices in active markets for identical assets at the balance sheet date to measure equity securities at fair value. Market price data is generally obtained from exchanges or dealer markets.

Freestanding Derivatives

Derivative assets and liabilities can be exchange-traded or traded OTC. The Company generally values exchange- traded derivatives, such as futures and options, using quoted prices in active markets for identical derivatives at the balance sheet date.

OTC derivatives are valued using market transactions and other observable market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models can require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.

Certain OTC derivatives trade in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. When the Company does not have corroborating market evidence to support significant model inputs and cannot verify the model using market transactions, the transaction price is initially used as the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model value at inception equals the transaction price. Subsequent to initial recognition, the Company updates valuation inputs when corroborated by evidence such as similar market transactions, independent third-party valuation services and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used.

Separate Account Assets

Separate account assets are comprised primarily of registered and open-ended variable funds that trade daily and are measured at fair value using quoted prices in active markets for identical assets. Certain separate account assets are carried at amortized cost.

40

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Assets and Liabilities Measured at Fair Value

The following table presents information about assets and liabilities measured at fair value:

 

 

 

 

 

 

 

 

 

Counterparty

 

 

 

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Netting*

 

Total

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Assets at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

$

-

$

11

$

1

$

-

$

12

 

 

Total bonds

 

-

 

11

 

1

 

-

 

12

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

72

 

-

 

20

 

-

 

92

 

 

Mutual funds

 

-

 

37

 

-

 

-

 

37

 

 

Parent, subsidiaries and affiliates

 

6

 

-

 

-

 

-

 

6

 

 

Total common stock

 

78

 

37

 

20

 

-

 

135

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

1

 

1,169

 

-

 

-

 

1,170

 

 

Foreign exchange contracts

 

-

 

438

 

-

 

-

 

438

 

 

Equity contracts

 

5

 

3,357

 

154

 

-

 

3,516

 

 

Credit contracts

 

-

 

-

 

3

 

-

 

3

 

 

Counterparty netting

 

-

 

-

 

-

 

(4,502)

 

(4,502)

 

Total derivative assets

 

6

 

4,964

 

157

 

(4,502)

 

625

 

 

Separate account assets

 

47,758

 

1,977

 

-

 

-

 

49,735

 

 

Total assets at fair value

$

47,842

$

6,989

$

178

$

(4,502)

$

50,507

 

 

Liabilities at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

-

$

1,226

$

-

$

-

$

1,226

 

 

Foreign exchange contracts

 

-

 

395

 

-

 

-

 

395

 

 

Equity contracts

 

5

 

3,073

 

23

 

-

 

3,101

 

 

Credit contracts

 

-

 

-

 

-

 

-

 

-

 

 

Other contracts

 

-

 

-

 

7

 

-

 

7

 

 

Counterparty netting

 

-

 

-

 

-

 

(4,502)

 

(4,502)

 

Total derivative liabilities

 

5

 

4,694

 

30

 

(4,502)

 

227

 

 

Total liabilities at fair value

$

5

$

4,694

$

30

$

(4,502)

$

227

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Assets at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds

 

 

 

 

 

 

 

 

 

 

 

 

U.S. special revenue

$

-

$

-

$

1

$

-

$

1

 

 

Industrial and miscellaneous

 

-

 

4

 

13

 

-

 

17

 

 

Total bonds

 

-

 

4

 

14

 

-

 

18

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

-

 

-

 

75

 

-

 

75

 

 

Total preferred stock

 

-

 

-

 

75

 

-

 

75

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

21

 

-

 

3

 

-

 

24

 

 

Mutual funds

 

41

 

-

 

-

 

-

 

41

 

 

Total common stock

 

62

 

-

 

3

 

-

 

65

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

-

 

212

 

-

 

-

 

212

 

 

Foreign exchange contracts

 

-

 

511

 

-

 

-

 

511

 

 

Equity contracts

 

129

 

704

 

69

 

-

 

902

 

 

Counterparty netting

 

-

 

-

 

-

 

(1,138)

 

(1,138)

 

 

Total derivative assets

 

129

 

1,427

 

69

 

(1,138)

 

487

 

 

Separate account assets

 

42,094

 

1,905

 

-

 

-

 

43,999

 

 

Total assets at fair value

$

42,285

$

3,336

$

161

$

(1,138)

$

44,644

 

 

Liabilities at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

3

$

82

$

-

$

-

$

85

 

 

Foreign exchange contracts

 

-

 

266

 

-

 

-

 

266

 

 

Equity contracts

 

9

 

640

 

-

 

-

 

649

 

 

Other contracts

 

-

 

-

 

6

 

-

 

6

 

 

 

 

41

 

 

 

 

 

 

 

 

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

 

 

 

 

 

 

 

 

Counterparty

 

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Netting*

 

Total

Counterparty netting

$

-

$

-

$

-

$

(1,138)

$

(1,138)

Total derivative liabilities

 

12

 

988

 

6

 

(1,138)

 

(132)

Total liabilities at fair value

$

12

$

988

$

6

$

(1,138)

$

(132)

* Represents netting of derivative exposures covered by a qualifying master netting agreement.

Changes in Level 3 Fair Value Measurements

The following tables present changes in Level 3 assets and liabilities measured at fair value and the gains (losses) related to the Level 3 assets and liabilities that remained on the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus:

 

 

 

Preferred

 

Common

 

Derivative

 

Total

 

Derivative

(in millions)

 

Bonds

Stocks

 

Stocks

 

Assets

 

Assets

 

Liabilities

Balance, January 1, 2017

$

160

-

$

-

$

55

$

215

$

5

Total realized/unrealized capital gains or losses:

 

 

 

 

 

 

 

 

 

 

 

Included in net income

 

(5)

-

 

-

 

15

 

10

 

1

Included in surplus

 

17

-

 

-

 

24

 

41

 

-

Purchases, issuances and settlements

 

45

-

 

3

 

(15)

 

33

 

(1)

Transfers into Level 3

 

1

-

 

-

 

-

 

1

 

-

Transfers out of Level 3

 

(216)

-

 

-

 

-

 

(216)

 

-

Balance, December 31, 2017

$

2

-

$

3

$

79

$

84

$

5

Total realized/unrealized capital gains or losses:

 

 

 

 

 

 

 

 

 

 

 

Included in net income

 

(1)

-

 

-

 

13

 

12

 

1

Included in surplus

 

(1)

-

 

6

 

(44)

 

(39)

 

1

Purchases, issuances and settlements

 

12

75

 

1

 

21

 

109

 

(1)

Transfers into Level 3

 

17

-

 

-

 

-

 

17

 

-

Transfers out of Level 3

 

(15)

-

 

(7)

 

-

 

(22)

 

-

Balance, December 31, 2018

$

14

75

$

3

$

69

$

161

$

6

Total realized/unrealized capital gains or losses:

 

 

 

 

 

 

 

 

 

 

 

Included in net income

 

-

-

 

(7)

 

(19)

 

(26)

 

12

Included in surplus

 

(1)

-

 

(1)

 

67

 

65

 

23

Purchases, issuances and settlements

 

(2)

-

 

2

 

40

 

40

 

(11)

Transfers into Level 3

 

15

-

 

23

 

-

 

38

 

-

Transfers out of Level 3

 

(25)

(75)

 

-

 

-

 

(100)

 

-

Balance, December 31, 2019

$

1

-

$

20

$

157

$

178

$

30

Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data or when the asset is no longer carried at fair value. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant inputs becoming observable or when a long-term interest rate significant to a valuation becomes short-term and thus observable. Transfers out of level 3 can also occur due to favorable credit migration resulting in a higher NAIC designation. Securities are generally transferred into Level 3 due to a decrease in market transparency, downward credit migration and an overall increase in price disparity for certain individual security types. The Company's policy is to recognize transfers in and out at the end of the reporting period, consistent with the date of the determination of fair value.

In both 2019 and 2018, there were no transfers between Level 1 and Level 2 securities and transfers between Level 2 and Level 3 securities were less than one million.

Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized capital gains (losses) on instruments held at December 31, 2019 and 2018 may include changes in fair value that were attributable to both observable and unobservable inputs.

Quantitative Information About Level 3 Fair Value Measurements

The Company had no quantitative information about level 3 fair value measurements to report at December 31, 2019.

42

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Gross Basis Fair Value Measurements

The following table presents the Company's derivative assets and liabilities measured at fair value, on a gross basis, before counterparty and cash collateral netting:

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Total

December 31, 2019

 

 

 

 

 

 

 

 

Derivative assets at fair value

$

6

$

4,964

$

157

$

5,127

Derivative liabilities at fair value

 

5

 

4,694

 

30

 

4,729

December 31, 2018

 

 

 

 

 

 

 

 

Derivative assets at fair value

$

129

$

1,427

$

69

$

1,625

Derivative liabilities at fair value

 

12

 

988

 

6

 

1,006

10. AGGREGATE POLICY RESERVES AND DEPOSIT FUND LIABILITIES

The following table presents the Company's reserves by major category:

 

 

Years ended December 31,

(in millions)

 

2019

 

2018

Life insurance

$

38,744

$

37,837

Annuities (excluding supplementary contracts with life contingencies)

 

78,030

 

72,274

Supplementary contracts with life contingencies

 

531

 

517

Accidental death benefits

 

18

 

20

Disability - active lives

 

32

 

34

Disability - disabled lives

 

247

 

255

Excess of AG 43 reserves over basic reserves

 

1,291

 

1,303

Deficiency reserves

 

1,660

 

1,497

Other miscellaneous reserve

 

1,032

 

832

Gross life and annuity reserves

 

121,585

 

114,569

Reinsurance ceded

 

(23,953)

 

(23,214)

Net life and annuity reserves

 

97,632

 

91,355

Accident and health reserves

 

 

 

 

Unearned premium reserves

 

10

 

11

Present value of amounts not yet due on claims

 

230

 

255

Additional contract reserves

 

543

 

544

Gross accident and health reserves

 

783

 

810

Reinsurance ceded

 

(17)

 

(22)

Net accident and health reserves

 

766

 

788

Aggregate policy reserves

$

98,398

$

92,143

43

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the withdrawal characteristics of annuity actuarial reserves and deposit-type contract funds and other liabilities without life contingencies:

A. Individual Annuities:

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

Separate

 

Separate

 

 

 

 

 

 

 

 

 

account with

 

account

 

 

% of

 

(in millions)

 

General account

 

guarantees

 

nonguaranteed

 

Total

Total

 

(1)

Subject to discretionary withdrawal :

 

 

 

 

 

 

 

 

 

 

 

a. With market value adjusted

$

22,754

$

1,698

$

-

$

24,452

24.04

%

 

b. At book value less current surrender

 

 

 

 

 

 

 

 

 

 

 

charge of 5% or more

 

10,062

 

-

 

-

 

10,062

9.89

%

 

c. At fair value

 

-

 

54

 

26,954

 

27,008

26.56

%

 

d. Total with market adjustment or at fair value

 

32,816

 

1,752

 

26,954

 

61,522

60.49

%

 

e. At book value without adjustment

 

 

 

 

 

 

 

 

 

 

 

(minimal or no charge or adjustment)

 

25,741

 

-

 

3

 

25,744

25.32

%

(2)

Not subject to discretionary withdrawal

 

14,365

 

13

 

51

 

14,429

14.19

%

(3)

Total (gross: direct + assumed)

$

72,922

$

1,765

$

27,008

$

101,695

100.00

%

(4)

Reinsurance ceded

 

270

 

-

 

-

 

270

 

 

(5)

Total (net)* (3) - (4)

$

72,652

$

1,765

$

27,008

$

101,425

 

 

(6)

Amount included in A(1)b above that will move

 

 

 

 

 

 

 

 

 

 

 

to A(1)e in the year after statement date:

$

1,530

$

-

$

-

$

1,530

 

 

*Reconciliation of total annuity actuarial reserves and deposit fund liabilities.

B.Group Annuities:

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

Separate

 

Separate

 

 

 

 

 

 

 

 

 

account with

 

account

 

 

% of

 

(in millions)

 

General account

 

guarantees

 

nonguaranteed

 

Total

Total

 

(1)

Subject to discretionary withdrawal :

 

 

 

 

 

 

 

 

 

 

 

a. With market value adjusted

$

195

$

69

$

-

$

264

0.92

%

 

b. At book value less current surrender

 

 

 

 

 

 

 

 

 

 

 

charge of 5% or more

 

69

 

-

 

-

 

69

0.24

%

 

c. At fair value

 

-

 

-

 

18,372

 

18,372

64.00

%

 

d. Total with market adjustment or at fair value

 

264

 

69

 

18,372

 

18,705

65.16

%

 

e. At book value without adjustment

 

 

 

 

 

 

 

 

 

 

 

(minimal or no charge or adjustment)

 

2,980

 

-

 

-

 

2,980

10.38

%

(2)

Not subject to discretionary withdrawal

 

2,394

 

4,629

 

-

 

7,023

24.46

%

(3)

Total (gross: direct + assumed)

$

5,638

$

4,698

$

18,372

$

28,708

100.00

%

(4)

Reinsurance ceded

 

67

 

-

 

-

 

67

 

 

(5)

Total (net)* (3) - (4)

$

5,571

$

4,698

$

18,372

$

28,641

 

 

(6)

Amount included in B(1)b above that will move

 

 

 

 

 

 

 

 

 

 

 

to B(1)e in the year after statement date:

$

18

$

-

$

-

$

18

 

 

C. Deposit-Type Contracts (no life contingencies):

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

Separate

 

Separate

 

 

 

 

 

 

 

 

 

account with

 

account

 

 

% of

 

(in millions)

 

General account

 

guarantees

 

nonguaranteed

 

Total

Total

 

(1)

Subject to discretionary withdrawal :

 

 

 

 

 

 

 

 

 

 

 

a. With market value adjusted

$

-

$

-

$

-

$

-

-

%

 

b. At book value less current surrender

 

 

 

 

 

 

 

 

 

 

 

charge of 5% or more

 

-

 

-

 

-

 

-

-

%

 

c. At fair value

 

-

 

-

 

-

 

-

-

%

 

d. Total with market adjustment or at fair value

 

-

 

-

 

-

 

-

-

%

 

e. At book value without adjustment

 

 

 

 

 

 

 

 

 

 

 

(minimal or no charge or adjustment)

 

641

 

-

 

1

 

642

5.28

%

(2)

Not subject to discretionary withdrawal

 

11,415

 

-

 

101

 

11,516

94.72

%

(3)

Total (gross: direct + assumed)

$

12,056

$

-

$

102

$

12,158

100.00

%

(4)

Reinsurance ceded

 

18

 

-

 

-

 

18

 

 

(5)

Total (net)* (3) - (4)

$

12,038

$

-

$

102

$

12,140

 

 

(6)

Amount included in C(1)b above that will move

 

 

 

 

 

 

 

 

 

 

 

to C(1)e in the year after statement date:

$

-

$

-

$

-

$

-

 

 

* Represents annuity reserves reported in separate accounts liabilities.

44

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Withdrawal characteristics of Life Actuarial Reserves as of December 31, 2019:

 

 

 

December 31, 2019

 

 

 

General Account

 

Separate Account - Nonguaranteed

 

Account

 

 

Account

 

 

(in millions)

value

Cash value

Reserve

value

Cash value

Reserve

ASubject to discretionary withdrawal, surrender values, or policy loans:

(1)

Term policies with cash value

$

1

$

354

$

2,767

$

- $

- $

-

(2)

Universal life

 

6,270

 

6,108

 

6,927

 

-

-

-

(3)

Universal life with secondary guarantees

 

1,760

 

1,444

 

6,405

 

-

-

-

(4)

Indexed universal life

 

628

 

529

 

627

 

-

-

-

(5)

Indexed universal life with secondary

 

817

 

517

 

915

 

-

-

-

(6)

Indexed life

 

-

 

-

 

-

 

-

-

-

(7)

Other permanent cash value life insurance

 

2,116

 

8,658

 

9,970

 

1,802

1,802

1,802

(8)

Variable life

 

-

 

-

 

-

 

-

-

-

(9)

Variable universal life

 

122

 

106

 

126

 

947

947

1,958

(10) Miscellaneous reserves

 

-

 

-

 

-

 

-

-

-

BNot subject to discretionary withdrawal or no cash values

 

(1)

Term policies without cash value

 

XXX

 

XXX

$

11,007

 

XXX

 

XXX

$

-

 

(2)

Accidental death benefits

 

XXX

 

XXX

 

18

 

XXX

 

XXX

 

-

 

(3)

Disability - active lives

 

XXX

 

XXX

 

32

 

XXX

 

XXX

 

-

 

(4)

Disability - disabled lives

 

XXX

 

XXX

 

247

 

XXX

 

XXX

 

-

 

(5)

Miscellaneous reserves

 

XXX

 

XXX

 

2,509

 

XXX

 

XXX

 

-

C Total (gross: direct + assumed)

$

11,714

$

17,716

$

41,550

$

2,749

$

2,749

$

3,760

D

Reinsurance ceded

 

5,841

 

8,657

 

23,598

 

-

 

-

 

-

E

Total (net) (C) - (D)

$

5,873

$

9,059

$

17,952

$

2,749

$

2,749

$

3,760

11. SEPARATE ACCOUNTS

Separate Accounts

The separate accounts held by the Company consist primarily of variable life insurance policies and variable annuities. These contracts generally are non-guaranteed in nature such that the benefit is determined by the performance and/or market value of the investments held in the separate account. The net investment experience of the separate account is credited directly to the policyholder and can be positive or negative.

Certain other separate accounts relate to MVA fixed annuity contracts in which the assets are carried at amortized cost. These policies are required to be held in the Company's separate account by certain states, including Texas.

Certain other separate accounts relate to flexible premium adjustable life insurance and terminal funding annuities in which the assets are carried at amortized cost. These contracts provide the greater of guaranteed interest returns defined in the policy or interest in excess of the guaranteed rate as defined by the Company.

The Company does not engage in securities lending transactions within the separate accounts.

In accordance with the products/transactions recorded within the separate account, some assets are considered legally insulated whereas others are not legally insulated from the general account. The legal insulation of the separate account assets prevents such assets from being generally available to satisfy claims resulting from the general account.

During 2019, AGL established an insulated subaccount CRT-1 of separate account CRT for a reinsurance transaction. Excluding the initial premium and after foreign exchange conversions, the aggregate amount transferred from the subaccount CRT-1 to the general account, was less than $1 million during the fourth quarter of 2019 and on a cumulative basis. A reserve of $0 is maintained at December 31, 2019 in the general account related to subaccount CRT-1. The insulated separate account maintained a reserve of $173 million at December 31, 2019 for this subaccount CRT-1.

45

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents separate account assets by product or transaction:

 

 

December 31, 2019

 

December 31, 2018

 

 

 

 

Separate

 

 

 

Separate

 

 

Legally

 

Accounts Assets

 

Legally

 

Accounts Assets

 

 

Insulated

 

(Not Legally

 

Insulated

 

(Not Legally

(in millions)

 

Assets

 

Insulated)

 

Assets

 

Insulated)

Variable annuities

$

46,380

$

-

$

40,920

$

-

Variable life

 

3,354

 

-

 

3,055

 

-

Bank-owned life insurance - hybrid

 

444

 

-

 

804

 

-

Deferred annuities with MVA features

 

491

 

-

 

225

 

-

Terminal funding

 

4,988

 

-

 

3,175

 

-

Stable value wrap

 

51

 

-

 

-

 

-

Annuities with MVA features

 

-

 

1,616

 

-

 

1,243

Fixed annuities excess interest adjustment features

 

-

 

206

 

-

 

196

Total

$

55,708

$

1,822

$

48,179

$

1,439

Some separate account liabilities are guaranteed by the general account. To compensate the general account for the risks taken, the separate accounts pay risk charges to the general account.

If claims were filed on all contracts, the current total maximum guarantee the general account would provide to the separate account as of December 31, 2019 and 2018 is $5.5 billion and $6.7 billion, respectively.

There was no separate account business seed money at December 31, for both 2019 and 2018.

The following table presents the risk charges paid by the separate accounts and the guarantees paid by the general account:

 

 

Risk Charge

 

Guarantees

 

 

paid by the

 

Paid by the

 

 

Separate

 

General

(in millions)

 

Account

 

Account

2019

$

383

$

35

2018

 

324

 

41

2017

 

292

 

40

2016

 

330

 

52

2015

 

279

 

52

46

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents information regarding the separate accounts:

 

 

 

 

Non-

 

Non-

 

 

 

 

 

 

 

 

indexed

 

indexed

 

Non-

 

 

 

 

 

 

Guarantee

 

Guarantee

 

guaranteed

 

 

 

 

 

 

less than or

 

more than

 

Separate

 

 

(in millions)

 

Indexed

 

equal to 4%

 

4%

 

Accounts

 

Total

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Premiums, considerations or deposits

$

397

$

-

$

16

$

3,693

$

4,106

Reserves for accounts with assets at:

 

 

 

 

 

 

 

 

 

 

Market value

$

-

$

-

$

-

$

48,744

$

48,744

Amortized costs

 

1,258

 

5,178

 

422

 

-

 

6,858

Total reserves

$

1,258

$

5,178

$

422

$

48,744

$

55,602

By withdrawal characteristics:

 

 

 

 

 

 

 

 

 

 

Subject to discretionary withdrawal with MVA

$

1,258

$

3,567

$

422

$

-

$

5,247

At market value

 

-

 

-

 

-

 

48,639

 

48,639

Subtotal

 

1,258

 

3,567

 

422

 

48,639

 

53,886

Not subject to discretionary withdrawal

 

-

 

1,611

 

-

 

105

 

1,716

Total reserves

$

1,258

$

5,178

$

422

$

48,744

$

55,602

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Premiums, considerations or deposits

$

241

$

-

$

43

$

3,090

$

3,374

Reserves for accounts with assets at:

 

 

 

 

 

 

 

 

 

 

Market value

$

-

$

-

$

-

$

42,885

$

42,885

Amortized costs

 

958

 

3,769

 

415

 

-

 

5,142

Total reserves

$

958

$

3,769

$

415

$

42,885

$

48,027

By withdrawal characteristics:

 

 

 

 

 

 

 

 

 

 

Subject to discretionary withdrawal with MVA

$

958

$

2,199

$

415

$

-

$

3,572

At market value

 

-

 

-

 

-

 

42,802

 

42,802

Subtotal

 

958

 

2,199

 

415

 

42,802

 

46,374

Not subject to discretionary withdrawal

 

-

 

1,570

 

-

 

83

 

1,653

Total reserves

$

958

$

3,769

$

415

$

42,885

$

48,027

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Premiums, considerations or deposits

$

185

$

-

$

70

$

4,444

$

4,699

Reserves for accounts with assets at:

 

 

 

 

 

 

 

 

 

 

Market value

$

-

$

-

$

-

$

48,116

$

48,116

Amortized costs

 

739

 

3,096

 

395

 

-

 

4,230

Total reserves

$

739

$

3,096

$

395

$

48,116

$

52,346

By withdrawal characteristics:

 

 

 

 

 

 

 

 

 

 

Subject to discretionary withdrawal with MVA

$

739

$

596

$

395

$

-

$

1,730

At market value

 

-

 

-

 

-

 

48,030

 

48,030

Subtotal

 

739

 

596

 

395

 

48,030

 

49,760

Not subject to discretionary withdrawal

 

-

 

2,500

 

-

 

86

 

2,586

Total reserves

$

739

$

3,096

$

395

$

48,116

$

52,346

Reconciliation of Net Transfers to or from Separate Accounts

The following table presents a reconciliation of the net transfers to (from) separate accounts:

 

 

Years ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Transfers to separate accounts

$

4,106

$

3,373

$

4,699

Transfers from separate accounts

 

(4,298)

 

(4,147)

 

(3,393)

Net transfers from separate accounts

 

(192)

 

(774)

 

1,306

Reconciling adjustments:

 

 

 

 

 

 

Deposit-type contracts

 

-

 

-

 

-

Total reconciling adjustments

 

-

 

-

 

-

Transfers as reported in the Statutory Statements of Operations

$

(192)

$

(774)

$

1,306

47

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

12. RESERVES FOR GUARANTEED POLICY BENEFITS AND ENHANCEMENTS

Variable annuity contracts may include certain contractually guaranteed benefits to the contract holder. These guaranteed features include GMDB that are payable in the event of death, and living benefits that are payable in the event of annuitization, or, in other instances, at specified dates during the accumulation period. Living benefits include guaranteed minimum withdrawal benefits (GMWB) and, to a lesser extent, guaranteed minimum accumulation benefits (GMAB), which are no longer offered. A variable annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder generally can only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e. the features are mutually exclusive. A policyholder cannot purchase more than one living benefit on one contract. The net amount at risk for each feature is calculated irrespective of the existence of other features; as a result, the net amount at risk for each feature is not additive to that of other features.

Reserves for GMDB, GMIB and GMWB were included in the VACARVM reserves. Total reserves in excess of basic reserves were $1.3 billion at December 31, 2019 and 2018. The Company chose to record reserves in excess of AG 43 minimum reserves at both December 31, 2019 and 2018, such that the reserves in both periods equal the C3 Phase II Total Asset Requirement level.

GMDB and GMIB

Depending on the product, the GMDB feature may provide a death benefit of either (a) total deposits made to the contract less any partial withdrawals plus a minimum return or (b) the highest contract value attained, typically on any anniversary date minus any subsequent withdrawals following the contract anniversary. GMIB guarantees a minimum level of periodic income payments upon annuitization. GMDB is the Company's most widely offered benefit; variable annuity contracts may also include GMIB to a lesser extent, which is no longer offered.

The net amount at risk, which represents the guaranteed benefit exposure in excess of the current account value if death claims were filed on all contracts related to GMDB, was $0.9 billion and $2.3 billion at December 31, 2019 and 2018, respectively.

GMWB

Certain of the Company's variable annuity contracts offer optional GMWB. With a GMWB, the contract holder can monetize the excess of the guaranteed amount over the account value of the contract only through a series of withdrawals that do not exceed a specific percentage per year of the guaranteed amount. If, after the series of withdrawals, the account value is exhausted, the contract holder will receive a series of annuity payments equal to the remaining guaranteed amount, and, for lifetime GMWB products, the annuity payments continue as long as the covered person(s) are living.

The net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal payments, in accordance with contract terms, in excess of account value. The net amount at risk related to these guarantees was $281 million and $185 million at December 31, 2019 and 2018, respectively. The Company uses derivative instruments and other financial instruments to mitigate a portion of the exposure that arises from GMWB.

13. PARTICIPATING POLICY CONTRACTS

Participating policy contracts entitle a policyholder to share in earnings through dividend payments. These contracts represented 1.0 percent of gross insurance in-force at December 31, 2019, 2018 and 2017. Policyholder dividends for the years ended December 31, 2019, 2018 and 2017 were $4 million, ($13) million and $18 million, respectively.

48

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

14. PREMIUM AND ANNUITY CONSIDERATION DEFERRED AND UNCOLLECTED

The following table presents the deferred and uncollected insurance premiums and annuity consideration (before deduction for amounts non-admitted):

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

 

Net of

 

 

 

 

Net of

(in millions)

 

Gross

 

Loading

 

 

Gross

 

Loading

Ordinary new business

$

(18)

$

(18)

$

(10)

$

(10)

Ordinary renewal

 

(336)

 

170

 

 

(395)

 

147

Group life

 

1

 

1

 

 

1

 

1

Total

$

(353)

$

153

$

(404)

$

138

15. REINSURANCE

In the ordinary course of business, the Company utilizes internal and third-party reinsurance relationships to manage insurance risks and to facilitate capital management strategies. Long-duration reinsurance is effected principally under yearly renewable term treaties. Pools of highly-rated third party reinsurers are utilized to manage net amounts at risk in excess of retention limits. Reinsurance agreements do not relieve the Company of its direct obligations from its beneficiaries. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer fails to meet the obligations assumed under any reinsurance agreement. In addition, the Company assumes reinsurance from other insurance companies.

Reinsurance premiums assumed in 2019, 2018 and 2017 were $238 million, $26 million and $30 million, respectively. Reinsurance premiums ceded in 2019, 2018 and 2017 were $2.9 billion, $25.2 billion and $2.6 billion, respectively. Additionally, reserves on reinsurance assumed were $1.6 billion at December 31, 2019 and $1.4 billion at both December 31, 2018 and 2017. The reserve credit taken on reinsurance ceded was $24.0 billion, $23.3 billion and $22.3 billion at December 31, 2019, 2018 and 2017, respectively. Amounts payable or recoverable for reinsurance on policy and contract liabilities are not subject to periodic or maximum limits. At December 31, 2019 and 2018, the Company's reinsurance recoverables were $366 million and $306 million, respectively.

The Company does not have any reinsurance agreements in effect under which the reinsurer may unilaterally cancel any reinsurance for reasons other than for nonpayment of premium or other similar credits. The Company has no reinsurance agreements in effect such that the amount of losses paid or accrued through the statement date may result in a payment to the reinsurer of amounts which, in aggregate and allowing for offset of mutual credits from other reinsurance agreements with the same reinsurer, exceed the total revenue collected under the reinsured policies.

The NAIC Model Regulation "Valuation of Life Insurance Policies" (Regulation XXX) requires U.S. life insurers to establish additional statutory reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary guarantees (ULSGs). In addition, NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application of Regulation XXX as to these guarantees, including certain ULSGs. Prior to 2016, the Company managed the capital impact of statutory reserve requirements under Regulation XXX and Guideline AXXX through intercompany reinsurance transactions. Regulation XXX and Guideline AXXX reserves related to new and in-force business (term and universal life) were ceded to the Parent under a coinsurance/modified coinsurance agreement effective January 1, 2011 (the AGC Life Co/Modco Agreement), prior to the recapture of in-force business effective December 31, 2016. New business is still ceded under this treaty.

In 2019, the AGC Life Co/Modco Agreement increased the Company's pre-tax earnings by $520 million, while in 2018, the AGC Life Co/Modco Agreement increased pre-tax earnings by $382 million. In 2017, the AGC Life Co/Modco Agreement increased pre-tax earnings by $289 million.

In February 2018, American General Life Insurance Company and its U.S. life insurance company affiliates, VALIC and The United States Life Insurance Company in the City of New York, each executed their respective Modified Coinsurance (ModCo) Agreements (The Agreements) with Fortitude Reinsurance Company, Ltd (FRL), (formerly DSA Reinsurance Company Limited), at the time a wholly owned AIG subsidiary and registered Class 4 and Class E reinsurer in Bermuda. The Agreements were effective as of January 1, 2017 in respect of certain closed blocks of

49

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

business (including structured settlements and single premium immediate annuities). Fortitude Group Holdings, LLC (Fortitude Holdings) was formed by AIG to act as a holding company for FRL.

The initial consideration represented the book value of ModCo Assets held by the Company on behalf of FRL and was equal to the ModCo Reserves ceded at the effective date. While there was no net impact from the initial accounting as of the effective date, there was a significant offsetting impact on certain individual line items in the Summary of Operations.

Total returns on the ModCo Assets subsequent to the effective date inure to the benefit of FRL and are reported with the ModCo reserve adjustments. The Company did not receive a ceding commission at contract inception.

The Company completed its initial settlement with FRL in June 2018 and settles all payable or receivable balances quarterly. The fourth quarter settlement of $201 million was paid in February 2020.

On November 13, 2018, AIG completed the sale of a 19.9 percent ownership interest in Fortitude Holdings to TC Group Cayman Investment Holdings, L.P. (TCG), an affiliate of The Carlyle Group L.P. Subsequent to this sale, Fortitude Holdings owns 100 percent of the outstanding common shares of FRL and AIG has an 80.1 percent ownership interest in Fortitude Holdings.

On November 25, 2019, AIG entered into a membership interest purchase agreement with Fortitude Holdings, The Carlyle Group L.P. (Carlyle), Carlyle FRL, L.P., an investment fund advised by an affiliate of Carlyle (Carlyle FRL), T&D United Capital Co., Ltd. (T&D) and T&D Holdings, Inc., pursuant to which, subject to the satisfaction or waiver of certain conditions set forth therein, Carlyle FRL will purchase from AIG a 51.6 percent ownership interest in Fortitude Holdings and T&D will purchase from AIG a 25 percent ownership interest in Fortitude Holdings. Upon closing of the Fortitude Sale, AIG will have a 3.5 percent ownership interest in Fortitude Holdings. Additional information about this transaction is set forth in AIG's Parent 10-K for year ending December 31, 2019.

The table below presents the impact of the execution of the ModCo Agreement in February 2018 with an effective date of January 1, 2017, by line item in the Company's statements of assets, liabilities, surplus and other funds and on the summary of operations:

 

 

 

 

 

 

 

 

Balance as of

 

 

 

 

 

 

 

December 31, 2019

Statutory Statements of Assets, Liabilities and Capital and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds withheld

 

 

 

 

 

 

$

199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Reported

 

As of and Year

 

 

 

 

As of and Year

 

at

 

Ended

Increase (Decrease)

 

Initial

 

Ended December

 

December 31,

 

December 31,

(in millions)

 

Accounting

 

31, 2018 and 2017

 

2018

 

2019

Statutory Statement of Operations

 

 

 

 

 

 

 

 

Premiums and annuity considerations

$

(22,152)

$

(602)

$

(22,754)

$

(280)

Commissions and expense allowances

 

-

 

109

 

110

 

52

Reserve adjustments on reinsurance ceded

 

22,152

 

(3,478)

 

18,675

 

(1,549)

Total revenues

 

-

 

(3,971)

 

(3,969)

 

(1,777)

Death benefits

 

-

 

(498)

 

(498)

 

(273)

Annuity benefits

 

-

 

(2,060)

 

(2,059)

 

(1,017)

Surrender benefits

 

-

 

(264)

 

(264)

 

(124)

Other benefits

 

-

 

(498)

 

(498)

 

(284)

Other expenses

 

-

 

(1)

 

(1)

 

-

Total benefits and expenses

 

-

 

(3,321)

 

(3,320)

 

(1,698)

Net gain from operations before dividends to

 

 

 

 

 

 

 

 

policyholders and federal income taxes

 

-

 

(650)

 

(649)

 

(79)

Dividends to policyholders

 

-

 

(25)

 

(25)

 

(12)

Net gain from operations after dividends to

 

 

 

 

 

 

 

 

policyholders and before federal income

$

-

$

(625)

$

(624)

$

(67)

50

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

During 2019, 2018 and 2017, the Company commuted reinsurance treaties with non-affiliated reinsurers, which resulted in increases in the Company's pre-tax earnings of less than a million dollars.

The Company has an annuity Co/Modco agreement with an affiliate, AIG Life of Bermuda, Ltd. (AIGB), in which AIGB reinsures certain deferred annuity contracts issued between 2003 and 2007. The agreement is such that the Company retains and controls assets held in relation to the related reserve. As of December 31, 2019 and 2018, the assets and liabilities resulting from the agreement and recorded in the accompanying financial statements were $6.5 billion and $7.2 billion, respectively. In 2019, the Agreement decreased the Company's pre-tax earnings by $1 million and $1 million and $2 million in 2018 and 2017, respectively.

16. FEDERAL INCOME TAXES

U.S. Tax Reform Overview

On December 22, 2017, the United States enacted Public Law 115-97, known as the Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act reduced the statutory rate of U.S. federal corporate income tax to 21 percent and enacted numerous other changes impacting the Company.

The Tax Act includes provisions for Global Intangible Low-Taxed Income ("GILTI"), under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of foreign corporations and for Base Erosion and Anti-Abuse Tax ("BEAT"), under which taxes are imposed on certain base eroding payments to affiliated foreign companies. While the U.S. tax authorities issued formal guidance, including recently issued proposed and final regulations for BEAT and other provisions of the Tax Act, there are still certain aspects of the Tax Act that remain unclear and subject to substantial uncertainties. Additional guidance is expected in future periods. Such guidance may result in changes to the interpretations and assumptions the Company made and actions the Company may take, which may impact amounts recorded with respect to international provisions of the Tax Act, possibly materially. Consistent with accounting guidance, the Company treats BEAT as a period tax charge in the period the tax is incurred and has made an accounting policy election to treat GILTI taxes in a similar manner. No provision for income tax related to GILTI or BEAT was recorded as of December 31, 2019.

The following table presents the components of the net deferred tax assets and liabilities:

 

 

December 31, 2019

 

 

 

December 31, 2018

 

 

 

 

 

Change

 

 

(in millions)

 

Ordinary

 

Capital

 

Total

 

 

Ordinary

 

Capital

 

Total

 

 

Ordinary

 

Capital

 

Total

Gross DTA

$

2,353

$

1,540

$

3,893

$

1,837

$

1,645

$

3,482

$

516

$

(105)

$

411

Statutory valuation allowance adjustment

 

-

 

-

 

-

 

 

-

 

220

 

220

 

 

-

 

(220)

 

(220)

Adjusted gross DTA

 

2,353

 

1,540

 

3,893

 

 

1,837

 

1,425

 

3,262

 

 

516

 

115

 

631

DTA non-admitted

 

1,348

 

1,540

 

2,888

 

 

928

 

1,425

 

2,353

 

 

420

 

115

 

535

Net admitted DTA

 

1,005

 

-

 

1,005

 

 

909

 

-

 

909

 

 

96

 

-

 

96

DTL

 

387

 

-

 

387

 

 

392

 

-

 

392

 

 

(5)

 

-

 

(5)

Total

$

618

$

-

$

618

$

517

$

-

$

517

$

101

$

- $

101

51

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the ordinary and capital DTA admitted assets as the result of the application of SSAP 101:

 

 

December 31, 2019

 

 

 

December 31, 2018

 

 

 

 

 

Change

 

(in millions)

 

Ordinary

 

Capital

 

Total

 

 

Ordinary

 

Capital

 

Total

 

 

Ordinary

 

Capital

Total

Admission calculation components

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SSAP 101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal income taxes paid in prior

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

years recoverable through loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

carry backs

$

-

$

-

$

-

$

-

$

-

$

-

$

- $

- $

-

Adjusted gross DTA expected to be

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

realized (excluding amount of DTA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from above) after application of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

threshold limitation

 

618

 

-

 

618

 

 

517

 

-

 

517

 

 

101

 

-

101

1. Adjusted gross DTA expected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to be realized following the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reporting date

 

618

 

-

 

618

 

 

517

 

-

 

517

 

 

101

 

-

101

2. Adjusted gross DTA allowed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

per limitation threshold

 

-

 

-

 

1,145

 

 

-

 

-

 

1,114

 

 

-

 

-

31

Adjusted gross DTA (excluding the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amount of DTA from above) offset

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

by gross DTL

 

387

 

-

 

387

 

 

392

 

-

 

392

 

 

(5)

 

-

(5)

DTA admitted as the result of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

application of SSAP 101

$

1,005

$

-

$

1,005

$

909

$

-

$

909

$

96

$

- $

96

The following table presents the ratio percentage and amount of adjusted capital to determine the recovery period and threshold limitation amount:

 

 

Years ended December 31,

($ in millions)

 

2019

 

2018

 

Ratio percentage used to determine recovery period and threshold limitation amount

 

724 %

738

%

Amount of adjusted capital and surplus used to determine recovery period and

 

 

 

 

 

threshold limitation amount

$

7,636

$

7,423

 

The Company has no tax planning strategies used in the determination of adjusted gross DTA's or net admitted DTA's.

The Company's planning strategy does not include the use of reinsurance.

The Company is not aware of any significant DTLs that are not recognized in the statutory financial statements.

52

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following tables present the major components of the current income tax expense and net deferred tax assets (liabilities):

 

 

Years Ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Current income tax expense

 

 

 

 

 

 

Federal

$

760

$

513

$

1,025

Foreign

 

-

 

-

 

-

Subtotal

 

760

 

513

 

1,025

Federal income tax on net capital gains (losses)

 

81

 

(88)

 

(433)

Federal income tax incurred

$

841

$

425

$

592

 

 

 

 

 

 

 

Years Ended December 31,

 

 

(in millions)

 

2019

 

2018

 

Change

Deferred tax assets:

 

 

 

 

 

 

Ordinary:

 

 

 

 

 

 

Policyholder reserves

$

1,068

$

812

$

256

Investments

 

27

 

50

 

(23)

Deferred acquisition costs

 

658

 

366

 

292

Fixed assets

 

377

 

373

 

4

Compensation and benefits accrual

 

48

 

41

 

7

Tax credit carryforward

 

141

 

151

 

(10)

Other (including items less than 5% of total ordinary tax assets)

 

34

 

44

 

(10)

Subtotal

 

2,353

 

1,837

 

516

Statutory valuation allowance adjustment

 

-

 

-

 

-

Non-admitted

 

1,348

 

928

 

420

Admitted ordinary deferred tax assets

 

1,005

 

909

 

96

Capital:

 

 

 

 

 

 

Investments

 

1,540

 

1,645

 

(105)

Subtotal

 

1,540

 

1,645

 

(105)

Statutory valuation allowance adjustment

 

-

 

220

 

(220)

Non-admitted

 

1,540

 

1,425

 

115

Admitted capital deferred tax assets

 

-

 

-

 

-

Admitted deferred tax assets

 

1,005

 

909

 

96

Deferred tax liabilities:

 

 

 

 

 

 

Ordinary:

 

 

 

 

 

 

Deferred and uncollected premium

 

92

 

78

 

14

Policyholder reserves

 

231

 

269

 

(38)

General expense

 

64

 

45

 

19

Subtotal

 

387

 

392

 

(5)

Capital:

 

 

 

 

 

 

Other (including items less than 5% of total capital tax liabilities)

 

-

 

-

 

-

Subtotal

 

-

 

-

 

-

Deferred tax liabilities

 

387

 

392

 

(5)

Net deferred tax assets

$

618

$

517

$

101

53

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The change in net deferred income taxes is comprised of the following (this analysis is exclusive of non- admitted assets as the change in non-admitted assets and the change in net deferred income taxes are reported in separate components of capital and surplus):

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

(in millions)

 

 

 

 

 

 

2019

 

 

 

2018

 

Change

 

Total adjusted deferred tax assets

 

 

 

 

 

$

3,893

$

 

 

 

3,262 $

631

 

Total deferred tax liabilities

 

 

 

 

 

 

387

 

 

 

 

392

 

 

(5)

 

Net adjusted deferred tax assets

 

 

 

 

 

$

3,506

$

 

 

 

2,870

 

 

636

 

Tax effect of unrealized gains (losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Tax effect of unrealized gains (losses) recorded in cumulative effect of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

changes in accounting principle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(85)

 

Change in net deferred income tax

 

 

 

 

 

 

 

 

 

 

 

 

$

901

 

The provision for incurred federal taxes is different from that which would be obtained by applying the

 

 

statutory federal income tax rate to income before income taxes. The following table presents the significant

 

 

items causing this difference:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

December 31, 2017

 

 

 

 

 

Effective

 

 

 

Effective

 

 

 

 

 

 

Effective

 

 

(in millions)

 

Amount

Tax Rate

 

 

Amount

Tax Rate

 

 

 

Amount

Tax Rate

 

 

Income tax expense at applicable rate

$

196

21.0 %

$

208

21.0

%

$

465

35.0

%

 

Change in valuation adjustment

 

(220)

(23.6)

 

 

220

22.2

 

 

 

(366)

(27.6)

 

 

Amortization of interest maintenance reserve

 

71

7.6

 

 

(30)

(3.0)

 

 

 

(43)

(3.3)

 

 

Prior year return true-ups and adjustments

 

(60)

(6.4)

 

 

7

 

0.7

 

 

 

(32)

(2.4)

 

 

Surplus adjustments

 

(44)

(4.6)

 

 

8

 

0.8

 

 

 

(3)

(0.2)

 

 

Dividends received deduction

 

(29)

(3.1)

 

 

(20)

(2.1)

 

 

 

(47)

(3.6)

 

 

Other permanent adjustments

 

12

1.2

 

 

1

 

0.1

 

 

 

9

0.7

 

 

Disregarded entities

 

10

1.1

 

 

20

 

2.1

 

 

 

23

1.8

 

 

Change in non-admitted assets

 

4

0.4

 

 

(13)

(1.3)

 

 

 

(1)

(0.1)

 

 

Impact of Tax Act

 

-

-

 

 

-

 

-

 

 

 

1,836

138.3

 

 

Reinsurance

 

-

-

 

 

-

 

-

 

 

 

37

2.8

 

 

Statutory income tax expense (benefit)

$

(60)

(6.4)%

$

401

40.5

%

$

1,878

141.4

%

 

Federal income taxes incurred

$

841

90.2 %

$

425

42.9

%

$

592

44.6

%

 

Change in net deferred income taxes

 

(901)

(96.6)

 

 

(24)

(2.4)

 

 

 

1,286

96.8

 

 

Statutory income tax expense (benefit)

$

(60)

(6.4)%

$

401

40.5

%

$

1,878

141.4

%

 

At December 31, 2019, the Company had the following foreign tax credits carryforwards:

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Expires

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

2020

 

 

 

 

 

 

 

 

 

 

 

$

 

8

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

25

At December 31, 2019, the Company had no operating loss carryforwards or capital loss carryforwards. At December 31, 2019, the Company had an alternative minimum tax credit of $3 million.

54

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

At December 31, 2019, the Company had the following general business credit carryforwards: (in millions)

Year Expires

 

Amount

2025

$

9

2026

 

9

2027

 

10

2028

 

13

2029

 

19

2030

 

38

2031

 

7

2032

 

8

Total

$

113

At December 31, 2019, the Company had charitable contribution carryforwards less than a million dollars, which expire in 2021.

The following table presents income tax incurred that is available for recoupment in the event of future net losses:

(in millions)

 

 

December 31,

 

Capital

2017

$

198

2018

 

15

2019

 

155

Total

$

368

In general, realization of DTAs depends on a company's ability to generate sufficient taxable income of the appropriate character within the carryforward periods in the jurisdictions in which the net operating losses and deductible temporary differences were incurred. In accordance with the requirements established in SSAP 101, the Company assessed its ability to realize DTAs of $3.9 billion and concluded that no valuation allowance was required at December 31, 2019. Similarly, the Company concluded that a valuation allowance of $220 million was required on the DTAs of $3.5 billion at December 31, 2018.

The Company had no deposits admitted under Internal Revenue Code Section 6603.

The Company joins in the filing of a consolidated federal income tax return with AIG Parent.

The Company has a written agreement with AIG Parent under which each subsidiary agrees to pay AIG Parent an amount equal to the consolidated federal income tax expense multiplied by the ratio that the subsidiary's separate return tax liability bears to the consolidated tax liability, plus one hundred percent of the excess of the subsidiary's separate return tax liability over the allocated consolidated tax liability. AIG Parent agrees to pay each subsidiary for the tax benefits, if any, of net operating losses, net capital losses and tax credits which are not usable by the subsidiary but which are used by other members of the consolidated group.

The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits, excluding interest and penalties:

 

 

Years Ended December 31,

(in millions)

 

2019

 

2018

Gross unrecognized tax benefits at beginning of year

$

17

$

16

Increases in tax position for prior years

 

-

 

1

Decreases in tax position for prior years

 

-

 

-

Gross unrecognized tax benefits at end of year

$

17

$

17

As of December 31, 2019 and 2018, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $17 million and $17 million respectively.

55

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2019 and 2018, the Company had accrued liabilities of $6.5 million and $5.7 million, respectively, for the payment of interest (net of the federal benefit) and penalties. In 2019, 2018 and 2017, the Company recognized expense of less than $1 million interest (net of the federal benefit) and penalties.

The Company regularly evaluates proposed adjustments by taxing authorities. At December 31, 2019, such proposed adjustments would not have resulted in a material change to the Company's financial condition, although it is possible that the effect could be material to the Company's results of operations for an individual reporting period. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next twelve months, based on the information currently available, the Company does not expect any change to be material to its financial condition.

The Company is currently under Internal Revenue Service (IRS) examinations for the taxable years 2007-2013. Although the final outcome of possible issues raised in any future examination are uncertain, the Company believes that the ultimate liability, including interest, will not materially exceed amounts recorded in the financial statements. The Company's taxable years 2001-2019 remain subject to examination by major tax jurisdictions.

The Company is not subject to the repatriation transition tax for the year ended December 31, 2019.

Alternative Minimum Tax Credit

(in thousands)

 

2019

(1)

Gross AMT Credit Recognized as:

 

 

a.

Current year recoverable

$

9

b.

Deferred tax asset (DTA)

 

3

(2)

Beginning balance of AMT credit carryforward

$

6

(3)

Amounts recovered

 

3

(4)

Adjustments

 

-

(5)

Ending Balance of AMT credit carryforward (5=2-3-4)

 

3

(6)

Reduction for sequestration

 

-

(7)

Nonadmitted by reporting entity

 

3

(8)

Reporting entity ending balance (8=5-6-7)

$

-

17. CAPITAL AND SURPLUS

RBC standards are designed to measure the adequacy of an insurer's statutory capital and surplus in relation to the risks inherent in its business. The RBC standards consist of formulas that establish capital requirements relating to asset, insurance, business and interest rate risks. The standards are intended to help identify companies that are under-capitalized, and require specific regulatory actions in the event an insurer's RBC is deficient. The RBC formula develops a risk-adjusted target level of adjusted statutory capital and surplus by applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items and lower factors are applied to less risky items. Thus, the target level of statutory surplus varies not only because of the insurer's size, but also on the risk profile of the insurer's operations. At December 31, 2019, the Company exceeded RBC requirements that would require any regulatory action.

Dividends that the Company may pay to the Parent in any year without prior approval of the TDI are limited by statute. The maximum amount of dividends in a 12-month period, measured retrospectively from the date of payment, which the Company can pay without the Company obtaining the prior approval of the TDI is limited to the greater of: (1) 10 percent of the Company's statutory surplus as regards to policyholders at the preceding December 31; or (2) the preceding year's statutory net gain from operations. Additionally, unless prior approval of the TDI is obtained, dividends can only be paid out of the Company's unassigned surplus. Subject to the TDI requirements, the maximum dividend payout that may be made in 2020 without prior approval of the TDI is $629 million. Dividend payments in excess of positive retained earnings are classified and reported as a return of capital.

56

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Dividends are paid as determined by the Board of Directors and are noncumulative. The following table presents the dividends paid by the Company during 2019, 2018 and 2017:

 

 

 

 

Amount

Date

Type

Cash or Non-cash

 

(in millions)

2019

 

 

 

 

March 28, 2019

Extraordinary

Cash

$

330

June 26, 2019

Extraordinary

Cash

 

330

September 25, 2019

Ordinary

Cash

 

230

2018

 

 

 

 

March 27, 2018

Extraordinary

Cash

$

337

June 26, 2018

Extraordinary

Cash

 

680

September 24, 2018

Extraordinary

Cash

 

680

2017

 

 

 

 

March 30, 2017

Extraordinary

Cash

$

452

March 30, 2017

Extraordinary

Non-Cash

 

482

March 30, 2017

Return of Capital

Cash

 

178

June 29, 2017

Extraordinary

Cash

 

538

September 28,2017

Extraordinary

Cash

 

50

December 26,2017

Extraordinary

Cash

 

200

 

 

 

 

 

The Company's cumulative preferred stock has an $80 dividend rate and is redeemable at $1,000 per share. The holder of this stock, the Parent, is entitled to one vote per share.

18. RETIREMENT PLANS AND SHARE-BASED AND DEFERRED COMPENSATION PLANS

The Company does not directly sponsor any defined benefit or defined contribution plans and does not participate in any multi-employer plans.

Employee Retirement Plan

The Company's employees participate in various AIG Parent-sponsored defined benefit pension and postretirement plans. AIG Parent, as sponsor, is ultimately responsible for the maintenance of these plans in compliance with applicable laws. The Company is not directly liable for obligations under these plans; its obligation results from AIG Parent's allocation of the Company's share of expenses from the plans based on participants' earnings for the pension plans and on estimated claims less contributions from participants for the postretirement plans.

Effective January 1, 2016, the U.S. defined benefit pension plans were frozen. Consequently, these plans are closed to new participants and current participants no longer earn benefits. However, interest credits continue to accrue on the existing cash balance accounts and participants are continuing to accrue years of service for purposes of vesting and early retirement eligibility and subsidies as they continue to be employed by AIG Parent and its subsidiaries.

57

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents information about employee-related costs (expense credits) allocated to the Company:

 

 

Years ended December 31,

 

(in millions)

 

2019

 

2018

 

2017

Defined benefit plans

$

(2)

$

(12)

$

2

Postretirement medical and life insurance plans

 

1

 

1

 

2

Total

$

(1)

$

(11)

$

4

Defined Contribution Plan

AIG Parent sponsors a 401(k) plan which provides for pre-tax salary reduction contributions by its U.S. employees. The Company made matching contributions of 100 percent of the first six percent of participant contributions, subject to IRS- imposed limitations.

Effective January 1, 2016, AIG Parent provides participants in the plan an additional fully vested, non-elective, non- discretionary employer contribution equal to three percent of the participant's annual base compensation for the plan year, paid each pay period regardless of whether the participant currently contributes to the plan, and subject to the IRS-imposed limitations.

The Company's pre-tax expense associated with this plan was $28 million, $27 million and $26 million in 2019, 2018 and 2017, respectively.

Share-based and Deferred Compensation Plans

During 2016 and 2015, certain Company employees were granted performance share units under the AIG Parent 2013 Long Term Incentive Plan that provide them the opportunity to receive shares of AIG Parent common stock based on AIG Parent achieving specified performance goals at the end of a three-year performance period and the employee satisfies service requirements. The Company recognized compensation expense of $27 million, $28 million and $33 million for awards granted in 2019, 2018 and 2017, respectively.

Prior to 2013, some of the Company's officers and key employees were granted restricted stock units and stock appreciation rights that provide for cash settlement linked to the value of AIG Parent common stock if certain requirements were met. The Company recognized less than $1 million of expenses for unsettlement awards in 2019. During 2018 and 2017, the Company did not recognize any expense for unsettled awards.

19. DEBT

The Company is a member of the Federal Home Loan Bank (FHLB) of Dallas. The Company's interest in the stock of FHLB of San Francisco was redeemed on March 24, 2016.

Membership with the FHLB provides the Company with collateralized borrowing opportunities, primarily as an additional source of liquidity or for other uses deemed appropriate by management. The Company's ownership in the FHLB stock is reported as common stock. Pursuant to the membership terms, the Company elected to pledge such stock to the FHLB as collateral for the Company's obligations under agreements entered into with the FHLB.

Cash advances obtained from the FHLB are reported in and accounted for as borrowed money. The Company may periodically obtain cash advances on a same-day basis, up to a limit determined by management and applicable laws. The Company is required to pledge certain mortgage-backed securities, government and agency securities and other qualifying assets to secure advances obtained from the FHLB. To provide adequate collateral for potential advances, the Company has pledged securities to the FHLB in excess of outstanding borrowings. Upon any event of default by the Company, the recovery by the FHLB would generally be limited to the amount of the Company's liability under advances borrowed.

58

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The following table presents the aggregate carrying value of stock held with the FHLB of Dallas and the classification of the stock:

 

 

December 31,

 

(in millions)

 

2019

 

2018

Membership stock - Class B

$

7

$

7

Activity stock

 

129

 

129

Excess stock

 

6

 

2

Total

$

142

$

138

Actual or estimated borrowing capacity as determined by the insurer

$

5,296

$

4,928

The Company did not hold any Class A at December 31, 2019 or 2018.

 

 

 

 

The following table presents the amount of collateral pledged, including FHLB common stock held, to secure advances from the FHLB:

 

 

December 31, 2019

 

 

December 31, 2018

 

 

Amortized

 

 

 

 

Amortized

 

 

(in millions)

 

Cost

 

Fair Value

 

 

Cost

 

Fair Value

Amount pledged

$

3,697

$

3,812

$

3,851

$

3,833

Maximum amount pledged during reporting period

 

3,908

 

3,928

 

 

4,389

 

4,349

The Company's borrowing capacity determined quarterly based upon the borrowing limit imposed by statute in the state of domicile.

The following table presents the outstanding funding agreements and maximum borrowings from the FHLB:

 

 

December 31,

 

(in millions)

 

2019

 

2018

Amount outstanding

$

3,148

$

3,148

Maximum amount borrowed during reporting period

$

3,148

$

3,323

While the funding agreements are presented herein to show all amounts received from FHLB, the funding agreements are treated as deposit-type contracts, consistent with the other funding agreements for which the Company's intent is to earn a spread and not to fund operations. The Company had no debt outstanding with the FHLB at December 31, 2019 or 2018.

The following table reflects the principal amounts of the funding agreements issued to the FHLB:

(in millions)

Funding Agreements

Date Issued

 

Amounts

10-year floating rate

February 15, 2018

$

1,148

10-year floating rate

February 15, 2018

 

1,277

10-year floating rate

February 15, 2018

 

175

10-year floating rate

February 6, 2018

 

87

10-year floating rate

January 25, 2018

 

31

10-year floating rate

January 13, 2017

 

57

10-year floating rate

February 1, 2017

 

67

7-year floating rate

May 24, 2017

 

52

10-year floating rate

June 15, 2016

 

254

59

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

20. COMMITMENTS AND CONTINGENCIES

Commitments

The Company had commitments to provide funding to various limited partnerships totaling $3.1 billion and $2.4 billion at December 31, 2019 and 2018, respectively. The commitments to invest in limited partnerships and other funds may be called at the discretion of each fund, as needed and subject to the provisions of such fund's governing documents, for funding new investments, follow-on investments and/or fees and other expenses of the fund. Of the total commitments at December 31, 2019, $1 billion are currently expected to expire in 2020, and the remainder by 2023 based on the expected life cycle of the related funds and the Company's historical funding trends for such commitments.

At December 31, 2019 and 2018, the Company had $1.8 billion and $1.3 billion, respectively, of outstanding commitments related to various funding obligations associated with its investments in commercial mortgage loans. Of the total current commitments, $388 million are expected to expire in 2020 and the remainder by 2033, based on the expected life cycle of the related loans and the Company's historical funding trends for such commitments.

The Company has various long-term, noncancelable operating leases, primarily for office space and equipment, which expire at various dates over the next several years. At December 31, 2019, the future minimum lease payments under the operating leases are as follows:

(in millions)

2020

$

17

2021

 

17

2022

 

16

2023

 

13

2024

 

7

Remaining years after 2024

 

11

Total

$

81

Rent expense was $18 million, $17 million and $20 million in 2019, 2018 and 2017, respectively.

Contingencies

Legal Matters

Various lawsuits against the Company have arisen in the ordinary course of business. The Company believes it is unlikely that contingent liabilities arising from such lawsuits will have a material adverse effect on the Company's financial position, results of operations or cash flows.

Regulatory Matters

All fifty states and the District of Columbia have laws requiring solvent life insurance companies, through participation in guaranty associations, to pay assessments to protect the interests of policyholders of insolvent life insurance companies. These state insurance guaranty associations generally levy assessments, up to prescribed limits, on member insurers in a particular state based on the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Such assessments are used to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. The Company accrues liabilities for guaranty fund assessments when an assessment is probable and can be reasonably estimated. The Company estimates the liability using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. While the Company cannot predict the amount and

60

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

timing of any future guaranty fund assessments, the Company has established reserves it believes are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings.

The Company accrued $41 million and $40 million for these guarantee fund assessments at December 31, 2019 and 2018, respectively. The Company has recorded receivables of $33 million and $34 million at December 31, 2019 and 2018, respectively, for expected recoveries against the payment of future premium taxes.

During 1997 and 1998, the Company participated in a workers' compensation underwriting pool with a third party insurance company. Both companies share equally in the pool. Collectively, the workers' compensation business is assumed from over 50 ceding companies and retro-ceded to 15 programs. The business covers risks primarily from the 1997 and 1998 underwriting years but also includes risk from the 1996 underwriting year. There were no reinsurance recoverables on claim liabilities and reserves included in these financial statements related to the workers' compensation business at both December 31, 2019 and 2018. While not included in these statutory financial statements, the Company is contingently liable for losses incurred by its 50 percent pool participant should that third party become insolvent or otherwise unable to meet its obligations under the pool agreement.

At December 31, 2019 and 2018, the Company had admitted assets of $156 million and $142 million, respectively, in premiums receivable due from policyholders (or agents). The Company routinely evaluates the collectability of these receivables. Based upon Company experience, the potential for any loss is not believed to be material to the Company's financial condition.

During 2019 and 2018, the Company wrote accident and health insurance premiums that were subject to the risk- sharing provisions of the Affordable Care Act (ACA). However, the Company had no balances for the risk corridors program due to exclusion from the program. There was no financial impact of risk-sharing provisions on assets, liabilities or operations, related to the Permanent ACA Risk Adjustment Program. In addition, there was no financial impact of risk-sharing provisions on assets and liabilities related to the Transitional ACA Reinsurance Program. Under this program, the Company has recorded an insignificant amount in reinsurance recoveries due to ACA Reinsurance payments.

Various federal, state or other regulatory agencies may from time to time review, examine or inquire into the operations, practices and procedures of the Company, such as through financial examinations, subpoenas, investigations, market conduct exams or other regulatory inquiries. Based on the current status of pending regulatory examinations, investigations, and inquiries involving the Company, the Company believes it is not likely that these regulatory examinations, investigations, or inquiries will have a material adverse effect on the financial position, results of operations or cash flows of the Company.

The Company provides products and services that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), or the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). Plans subject to ERISA include certain pension and profit sharing plans and welfare plans, including health, life and disability plans. As a result, the Company's activities are subject to the restrictions imposed by ERISA and the Internal Revenue Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that, fiduciaries may not cause a covered plan to engage in certain prohibited transactions.

The Company and its distributors are subject to laws and regulations regarding the standard of care applicable to sales of its products and the provision of advice to its customers. In recent years, many of these laws and regulations have been revised or reexamined while others have been newly adopted. The Company continues to closely follow these legislative and regulatory activities. Changes in standard of care requirements or new standards issued by governmental authorities, such as the DOL, the SEC, the NAIC or state regulators and/or legislators, may affect the Company's businesses, results of operations and financial condition. While the Company cannot predict the long-term impact of these legislative and regulatory developments on the Company's business, the Company believes its diverse product offerings and distribution relationships position the Company to compete effectively in this evolving marketplace.

The SECURE Act (Setting Every Community Up for a Retirement Enhancement Act) includes a number of provisions aimed at increasing retirement savings, including repealing the maximum age for traditional IRA contributions,

61

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

increasing the age for required minimum distributions from retirement accounts and incentivizing small businesses to start new retirement plans for employees. SECURE Act was signed into law as part of broader federal legislation on December 20, 2019, with many provisions effective January 1, 2020. The Company is evaluating the full impact of the SECURE Act on its businesses and operations and will implement and/or modify processes and procedures, where needed, to comply with this new law.

Business Interruption Insurance Recoveries

The Company recorded $0 and $6 million in 2019 and 2018, respectively, for business interruption insurance recoveries related to the flooding and property damage that occurred at the Company's main administrative office located in Houston, Texas. In August 2017, Hurricane Harvey made landfall in Texas and Louisiana causing widespread flooding and property damage in various southern counties within the region. The recoveries were included within aggregate write-ins for miscellaneous income on the Summary of Operations.

21. RELATED PARTY TRANSACTIONS

Events Related to AIG Parent

AIG Parent formed Fortitude Group Holdings, LLC (Fortitude Holdings) to act as a holding company for Fortitude Re. On November 13, 2018, AIG Parent completed the sale of a 19.9 percent ownership interest in Fortitude Holdings to TC Group Cayman Investment Holdings, L.P. (TCG), an affiliate of The Carlyle Group L.P. (Carlyle) (the Fortitude Re Closing). Fortitude Holdings owns 100 percent of the outstanding common shares of Fortitude Re and AIG Parent has an 80.1 percent ownership interest in Fortitude Holdings. In connection with the sale, AIG Parent agreed to certain investment commitment targets into various Carlyle strategies and to certain minimum investment management fee payments within thirty-six months following the Fortitude Re Closing. AIG Parent also will be required to pay a proportionate amount of an agreed make-whole fee to the extent AIG Parent fails to satisfy such investment commitment targets. In connection with the Fortitude Re Closing, the Company's insurance company subsidiaries, VALIC and USL, have each also entered into an investment management agreement with a Carlyle affiliate pursuant to which such subsidiary retained the Carlyle affiliate to manage certain assets in its general account investment portfolio.

On September 25, 2017, AIG Parent announced organizational changes designed to position AIG Parent a growing, more profitable insurer that is focused on underwriting excellence. In the fourth quarter of 2017, AIG Parent finalized its plan to reorganize its operating model. Commercial Insurance and Consumer Insurance segments transitioned to General Insurance and Life and Retirement, respectively. AIG Parent's core businesses include General Insurance, Life and Retirement and Other Operations. General Insurance consists of two operating segments – North America and International. Life and Retirement consists of four operating segments – Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. Blackboard U.S. Holdings, Inc. (Blackboard), AIG Parent's technology-driven subsidiary, is reported within Other Operations. AIG Parent also reports a Legacy Portfolio consisting of run-off insurance lines and legacy investments, which are considered non-core.

AIG Parent continues to execute initiatives focused on organizational simplification, operational efficiency, and business rationalization. In keeping with AIG's broad and ongoing efforts to transform for long-term competitiveness, AIG Parent recognized restructuring costs of $218 million, $395 million and $413 million of pre-tax restructuring and other costs in 2019, 2018 and 2017, respectively, primarily comprised of employee severance charges.

Additional information on AIG Parent is publicly available in AIG Parent's regulatory filings with the SEC, which can be found at www.sec.gov. Information regarding AIG Parent as described herein is qualified by regulatory filings AIG Parent files from time to time with the SEC.

62

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

Selkirk Transactions

During 2013 and 2014, the Company entered into securitization transactions in which portfolios of the Company's commercial mortgage loans were transferred to special purpose entities, with the Company retaining a significant beneficial interest in the securitized loans. As consideration for the transferred loans, the Company received beneficial interests in certain special purpose entities and cash proceeds from the securitized notes issued to third party investors by other special purpose entities. The transfer was accounted for as a sale and the Company derecognized the commercial mortgage loans transferred. The beneficial interests in loan-backed and structured securities and equity interests received by the Company were initially recognized at fair value as unaffiliated investments, as these securities are non-recourse to the issuer, and interest and principal payments are dependent upon the cash flows from the underlying unaffiliated mortgage loans.

Lighthouse VI

During 2013, the Company, along with an affiliate, executed three transactions in which a portfolio of securities was, in each transaction, transferred into a newly established Common Trust Fund (CTF) in exchange for proportionate interests in all assets within each CTF as evidenced by specific securities controlled by and included within the Company's Representative Security Account (RSA).

In each transaction, a portion of the Company's securities were transferred to the RSA of the affiliate, VALIC, in exchange for other VALIC securities.

During 2015, the Company transferred securities to two separate CTFs, of which 20% were then transferred to the RSA of VALIC. The transfer was accounted for as a sale by the Company to VALIC. The remaining 80% of the securities were transferred to the Company's RSA.

Ambrose

During 2013 and 2014, the Company entered into securitization transactions in which the Company transferred portfolios of high grade corporate securities, and structured securities acquired from AIG, to newly formed special purpose entities (the Ambrose entities). As consideration for the transferred securities, the Company received beneficial interests in tranches of structured securities issued by each Ambrose entity. These structured securities were designed to closely replicate the interest and principal amortization payments of the transferred securities.

The Ambrose entities received capital commitments from a non-U.S. subsidiary of AIG, which are guaranteed by AIG. Pursuant to these capital commitments, the promissor will contribute funds to the respective Ambrose entity upon demand.

These capital commitments received by the Ambrose entities range from $300 million to $400 million per entity.

American Home and National Union Guarantees

The Company has a General Guarantee Agreement with American Home Assurance Company (American Home), an indirect wholly owned subsidiary of AIG Parent. Pursuant to the terms of this agreement, American Home has unconditionally and irrevocably guaranteed insurance policies the Company issued between March 3, 2003 and December 29, 2006.

The Company, as successor-in-interest to American General Life and Accident Insurance Company (AGLA) has a General Guarantee Agreement with American Home. Pursuant to the terms of this agreement, American Home has unconditionally and irrevocably guaranteed policies of insurance issued by AGLA between March 3, 2003 and September 30, 2010.

63

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

The Company, as successor-in-interest to SunAmerica Annuity and Life Assurance Company (SAAL) and SunAmerica Life Insurance Company (SALIC) has a General Guarantee Agreement with American Home. Pursuant to the terms of this agreement, American Home has unconditionally and irrevocably guaranteed policies of insurance issued by SAAL and SALIC between January 4, 1999 and December 29, 2006.

The Company, as successor-in-interest to American General Life Insurance Company of Delaware, formerly known as AIG Life Insurance Company (AIG Life), has a General Guarantee Agreement with National Union Fire Insurance Company of Pittsburg, Pa. (National Union), an indirect wholly owned subsidiary of AIG Parent. Pursuant to the terms of this agreement, National Union has unconditionally and irrevocably guaranteed insurance policies issued by AIG Life between July 13, 1998 and April 30, 2010.

American Home's and National Union's audited statutory financial statements are filed with the SEC in the Company's registration statements for variable products that are subject to the Guarantees.

Cut-Through Agreement

The Company and AIG Life of Bermuda, Ltd. ("AIGB") entered into a Cut-through Agreement in which insureds, their beneficiaries and owners were granted a direct right of action against the Company in the event AIGB becomes insolvent or otherwise cannot or refuses to perform its obligations under certain life insurance policies issued by AIGB. The Cut-through Agreement was approved by the TDI. The amount of the retained liability on AIGB's books related to this agreement was approximately $330,000 at December 31, 2019 and 2018. The Company believes the probability of loss under this agreement is remote. No liability has been recognized in relation to this guarantee due to immateriality.

Affiliate Transactions

During the year ended December 31, 2019, the Company purchased or sold securities, at fair market value, from or to one or more of its affiliates in the ordinary course of business. For additional information regarding purchase and sale transactions involving the Company with an affiliate, please refer to the Company's Annual Registration Statement and monthly amendments filed with the TDI.

In January 2019, AGL and several of its U.S. insurance company affiliates established AIGGRE U.S. Real Estate Fund III, LP ("U.S. Fund III"), a real estate investment fund managed by AIGGRE. At the closing of U.S. Fund III on January 2, 2019, the Company made a capital commitment to the fund of up to $655 million, which represents approximately 43.7% equity interests in the fund. In connection with the closing of U.S. Fund III, the Company contributed to the fund its interests in certain real estate equity investments with an aggregate fair value of approximately $142.5 million and received a cash payment of approximately $39 million. The Company's unfunded capital commitment to U.S. Fund III upon closing of the fund was approximately $551.4 million.

In March 2019, the Company and several of its U.S. insurance company affiliates established AIGGRE Europe Real Estate Fund II, LP ("Europe Fund II), a real estate investment fund managed by AIGGRE. In connection with the closing of Europe Fund II, the Company made a capital commitment to the fund of up to $223.4 million (representing an approximately 48.3% equity interest therein), and contributed to the fund a combination of the Company's interests in certain real estate equity investments (with an aggregate fair value of approximately $6.8 million) and cash (approximately $10.6 million). The Company's unfunded capital commitment to Europe Fund II upon closing of the fund was approximately $206 million.

In 2018, AGLIC Investments Bermuda Limited, a Bermuda corporation ("AGLIC Bermuda") was formed by the Company as an investment subsidiary under Texas Insurance Code Section 823.255. The Company made capital contributions of $297 million and $105 million in 2019 and 2018, respectively.

In 2018, the Company and several of its U.S. insurance company affiliates restructured their respective ownership interests in certain real estate equity investments previously originated by an affiliate, AIG Global Real Estate Investment Corp. (including its investment management affiliates, "AIGGRE"), by contributing such interests to three separate real estate investment funds managed by AIGGRE: AIGGRE U.S. Real Estate Fund I, LP ("U.S. Fund I"),

64

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

AIGGRE U.S. Real Estate Fund II, LP ("U.S. Fund II" and, together with U.S. Fund I, the "U.S. Funds"), and AIGGRE Europe Real Estate Fund I S.C.SP ("Europe Fund I"). The U.S. Funds each closed on November 1, 2018. In connection with the closing of U.S. Fund I, the Company made a capital commitment to the fund of up to $288 million (representing an approximately 24% equity interest therein), and contributed to the fund a combination of the Company's interests in certain real estate equity investments (with an aggregate fair value of approximately $150.8 million) and cash (approximately $41.7 million). In connection with the closing of U.S. Fund II, the Company made a capital commitment to the fund of up to $675 million (representing approximately 25% equity interest therein), and contributed to the fund the Company's interests in certain real estate equity investments with an aggregate fair value of approximately $527.4 million and received a cash payment from the fund of approximately $7.4 million. Further, Europe Fund I closed on November 2, 2018. In connection with the closing of Europe Fund I, the Company made a capital commitment to the fund of up to $189.1 million (representing an approximately 29% equity interest therein) and contributed to the fund the Company's interests in certain real estate equity investments with an aggregate fair value of approximately $143 million and received a cash payment from the fund of approximately $18.9 million.

As a result of these transactions, the Company received equity in the Funds equaling the fair value of the assets transferred. The transfer is accounted for at fair value with any gain deferred until permanence of transfer of risk and rewards can be established. Any loss is recognized immediately, if any. The difference between the carrying value of the assets transferred and consideration received is recorded as a basis difference, which will be admitted subject to applicable limits and amortized over the duration of the Funds.

At December 31, 2019, the Company's unfunded capital commitment to U.S. Fund I, U.S. Fund II, U.S Fund III, Europe Fund I and Europe Fund II were approximately $93.9 million, $104.3 million, $396.9 million, $52.7 million and $249.9 million respectively.

At December 31, 2018, the Company's unfunded capital commitment to U.S. Fund I, U.S. Fund II and Europe Fund I were approximately $94.9 million, $145.5 million and $86 million, respectively.

In February 2018, the Company executed a Modified Coinsurance (ModCo) Agreement with Fortitude Reinsurance Company, Ltd (FRL), (formerly DSA Reinsurance Company Limited), an AIG subsidiary and registered Class 4 and Class E reinsurer in Bermuda. See Note 15 for additional information regarding this reinsurance transaction.

In October 2017, the Company's subsidiary, AIG Home Loan 2, transferred a portfolio of U.S. residential mortgage loans with a carrying value of $410 million to a newly formed special purpose vehicle. The transaction involved securitization of the transferred loans and the special purpose vehicle issued residential mortgage-backed securities. The residential mortgage-backed securities purchased by the Company from the special purpose vehicle are accounted for as non-affiliated securities and are valued and reported in accordance with the designation assigned by the NAIC Securities Valuation Office and SSAP 43 - Revised – Loan-Backed and Structured Securities.

In May 2017, the Company's wholly owned subsidiary, AIG Home Loan 2, LLC, transferred certain residential mortgage loans (RMLs) to the Company as a return of capital distribution. The RMLs were recorded by the Company in the amount of $1.5 billion, which was the loans' adjusted carrying value at the time of transfer. Prior to the transfer, the RMLs were indirectly owned by the Company through its investment in AIG Home Loan 2, LLC, which was reported on Schedule BA. After the transfer, the RMLs are directly owned by the Company and reported as Schedule B assets.

In February 2017, the Company purchased commercial mortgage loans from certain affiliated AIG domestic property casualty insurance companies for initial cash consideration totaling approximately $843 million, based on the outstanding principal balance of each loan, which was ultimately trued up to fair value based on underlying property appraisals and valuations.

In January and February 2017, the Company purchased investment grade private placement bonds from certain affiliated AIG domestic property casualty insurance companies, at fair market value, for cash consideration totaling approximately $425 million.

During 2016, the Company transferred certain hedge fund and private equity investments at fair market value to American Home, in exchange for cash and marketable securities totaling approximately $284 million as part of an

65

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

initiative to improve asset-liability management in AIG Parent's domestic life and property casualty insurance companies.

Financing Agreements

On January 1, 2015, the Company and certain of its affiliates entered into a revolving loan facility with AIG Parent, in which the Company and each such affiliate can borrow monies from AIG Parent subject to certain terms and conditions. Principal amounts borrowed under this facility may be repaid and re-borrowed, in whole or in part, from time to time, without penalty. However, the total aggregate amount of loans borrowed by all borrowers under the facility cannot exceed $500 million. The loan facility also sets forth individual borrowing limits for each borrower, with the Company's maximum borrowing limit being $500 million.

At both December 31, 2019 and 2018, the Company did not have notes payable balance outstanding under this facility.

Investments in Subsidiary, Controlled and Affiliated

The following table presents information regarding the Company's investments in non-insurance SCA entities as of December 31, 2019:

 

 

 

 

 

 

Admitted

 

 

 

Gross

 

Non-admitted

 

Asset

Date of

(in millions)

 

Amount

 

Amount

 

Amount

NAIC Filing

AIG Inc

$

6

$

-

$

6

June 25, 2019

AGLIC INVESTMENTS BERMUDA LTD.

 

392

 

-

 

392

February 6, 2019

AIG Direct - SER B

 

3

 

3

 

-

NA

AIG Direct - SER A

 

3

 

3

 

-

NA

AIG Direct - NON VOTING

 

1

 

1

 

-

NA

UG Corp COM

 

2

 

2

 

-

NA

AIG Home Loan 2, LLC

 

145

 

-

 

145

Not Applicable

SunAmerica Affordable Housing LLC

 

743

 

-

 

743

Not Applicable

SunAmerica Asset Management LLC

 

73

 

73

 

-

Not Applicable

Selkirk No. 1 Investments

 

14

 

-

 

14

Not Applicable

Selkirk No. 3A Investments

 

6

 

-

 

6

Not Applicable

AIGGRE U.S. Real Estate Fund II, LP

 

337

 

-

 

337

Not Applicable

AIGGRE U.S. Real Estate Fund III, LP

 

236

 

-

 

236

Not Applicable

AIGGRE Europe Real Estate Fund I S.C.SP

 

72

 

-

 

72

Not Applicable

AIGGRE U.S. Real Estate Fund I, LP

 

64

 

-

 

64

Not Applicable

AIGGRE Europe Real Estate Fund II LR Feeder, LLC

 

26

 

-

 

26

Not Applicable

Total

$

2,123

$

82

$

2,041

 

Operating Agreements

The Company's short-term investments included investments in a Liquidity Pool, which are funds managed by an affiliate, AIG Capital Management Corporation, in the amount of $446 million and $261 million at December 31, 2019 and 2018, respectively.

Pursuant to service and expense agreements, AIG and affiliates provide, or cause to be provided, administrative, marketing, investment management, accounting, occupancy, and data processing services to the Company. The allocation of costs for services is based generally on estimated levels of usage, transactions or time incurred in providing the respective services. Generally, these agreements provide for the allocation of costs upon either the specific identification basis or a proportional cost allocation basis which management believes to be reasonable. In all cases, billed amounts pursuant to these agreements do not exceed the cost to AIG or the affiliate providing the service. The Company was charged $88 million and $97 million, as part of the cost sharing expenses attributed to the Company but incurred by AIG and affiliates in 2019 and 2018, respectively. The Company is also party to several other service and/or cost sharing agreements with its affiliates. The Company was charged $86 million, $106 million and $114 million

66

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

under such agreements for expenses attributed to the Company but incurred by affiliates in 2019, 2018 and 2017, respectively.

Pursuant to an amended and restated investment advisory agreement, the majority of the Company's invested assets are managed by an affiliate. The investment management fees incurred were $111 million in 2019 and $104 million in 2018 and 2017, respectively.

The majority of the Company's Swap agreements are entered into with an affiliated counterparty, AIG Markets, Inc. (See Note 7).

Other

The Company engages in structured settlement transactions, certain of which involve affiliated property and casualty insurance companies that are subsidiaries of AIG Parent. In a structured settlement arrangement, a property and casualty insurance policy claimant has agreed to settle a casualty insurance claim in exchange for fixed payments over either a fixed determinable period of time or a life contingent period. In such claim settlement arrangements, a casualty insurance claim payment provides the funding for the purchase of a single premium immediate annuity issued by the Company for the ultimate benefit of the claimant. In certain structured settlement arrangements, the affiliated property and casualty insurance company remains contingently liable for the payments to the claimant.

22. SUBSEQUENT EVENTS

Management considers events or transactions that occur after the reporting date, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures. The Company has evaluated subsequent events through April 22, 2020, the date the financial statements were issued.

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The Coronavirus outbreak has resulted in increased economic uncertainty and volatility in both the debt and equity markets. Sufficient information is not available to adequately evaluate the short- term or long-term financial impact to the Company, however these economic conditions may adversely impact the Company's business operations and future financial condition.

67

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

23. LOAN-BACKED AND STRUCTURED SECURITY IMPAIRMENTS AND STRUCTURED NOTES HOLDINGS

LBaSS

The following table presents the LBaSS held by the Company at December 31, 2019 for which it had recognized non-interest related OTTI subsequent to the adoption of SSAP 43R:

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

Amortized Cost

 

Present Value of

 

 

 

 

 

 

Statement

 

 

Before Current

 

Projected Cash

 

Recognized

 

Amortized Cost

 

Fair Value at

Where

CUSIP

 

Period OTTI

 

Flows

 

OTTI

 

After OTTI

 

Time of OTTI

Reported

81744AAA6

$

831

$

821

$

10

$

821

$

823

03/31/2019

05952DAB4

 

3,050

 

3,003

 

47

 

3,003

 

2,985

03/31/2019

92977TAE2

 

2,498

 

2,327

 

171

 

2,327

 

2,467

03/31/2019

93364AAB8

 

4,700

 

4,687

 

13

 

4,687

 

4,695

03/31/2019

36185NG87

 

210

 

205

 

5

 

205

 

176

03/31/2019

12489WQX5

 

14,928

 

14,782

 

146

 

14,782

 

14,559

03/31/2019

68389FHT4

 

4,782

 

4,739

 

43

 

4,739

 

4,735

03/31/2019

04542BGW6

 

562

 

558

 

4

 

558

 

544

03/31/2019

12489WHZ0

 

559

 

555

 

4

 

555

 

552

03/31/2019

81375WAL0

 

657

 

652

 

5

 

652

 

651

03/31/2019

161546HM1

 

10,070

 

9,325

 

745

 

9,325

 

9,474

03/31/2019

93934FGB2

 

4,932

 

4,822

 

110

 

4,822

 

4,924

03/31/2019

125439AA7

 

9,108

 

8,993

 

115

 

8,993

 

8,922

03/31/2019

07384YPN0

 

554

 

489

 

65

 

489

 

499

03/31/2019

92922FEC8

 

1,441

 

1,425

 

16

 

1,425

 

1,432

03/31/2019

07384MG71

 

2,766

 

2,731

 

35

 

2,731

 

2,763

03/31/2019

04541GTN2

 

8,340

 

8,276

 

64

 

8,276

 

8,238

03/31/2019

45254NEJ2

 

655

 

653

 

2

 

653

 

654

03/31/2019

466247CP6

 

2,017

 

1,978

 

39

 

1,978

 

2,016

03/31/2019

45254NJN8

 

334

 

329

 

5

 

329

 

325

03/31/2019

576433QT6

 

2,962

 

2,927

 

35

 

2,927

 

2,949

03/31/2019

5899297K8

 

7,256

 

7,195

 

61

 

7,195

 

7,156

03/31/2019

466247PE7

 

7,015

 

6,861

 

154

 

6,861

 

7,000

03/31/2019

74978AAE0

 

5,211

 

5,091

 

120

 

5,091

 

5,139

03/31/2019

84751PBK4

 

2,554

 

2,524

 

30

 

2,524

 

2,498

03/31/2019

466247DF7

 

1,541

 

1,507

 

34

 

1,507

 

1,539

03/31/2019

04541GTM4

 

2,313

 

2,308

 

5

 

2,308

 

2,306

03/31/2019

126671Z58

 

1,681

 

1,670

 

11

 

1,670

 

1,665

03/31/2019

126673XD9

 

5,442

 

5,314

 

128

 

5,314

 

5,391

03/31/2019

16165TBB8

 

3,676

 

3,535

 

141

 

3,535

 

3,645

03/31/2019

69371VBG1

 

1,593

 

1,589

 

4

 

1,589

 

1,557

03/31/2019

57645TAA5

 

4,638

 

4,623

 

15

 

4,623

 

4,632

03/31/2019

94986DAA0

 

1,779

 

1,741

 

38

 

1,741

 

1,774

03/31/2019

05946X3A9

 

2,581

 

2,441

 

140

 

2,441

 

2,576

03/31/2019

1266714M5

 

3,646

 

3,630

 

16

 

3,630

 

3,622

03/31/2019

576434C36

 

208

 

106

 

102

 

106

 

171

03/31/2019

92990GAA1

 

1,357

 

1,328

 

29

 

1,328

 

1,337

03/31/2019

45670BAL3

 

4,492

 

4,441

 

51

 

4,441

 

4,429

03/31/2019

161546EK8

 

2,370

 

2,358

 

12

 

2,358

 

2,361

03/31/2019

84751PBL2

 

251

 

250

 

1

 

250

 

246

03/31/2019

466247EC3

 

1,036

 

1,013

 

23

 

1,013

 

919

03/31/2019

43739EBC0

 

1,981

 

1,972

 

9

 

1,972

 

1,896

03/31/2019

94984MAB0

 

1,968

 

1,921

 

47

 

1,921

 

1,957

03/31/2019

12559QAG7

 

36,353

 

35,868

 

485

 

35,868

 

36,305

03/31/2019

94980PAL5

 

332

 

327

 

5

 

327

 

317

03/31/2019

 

 

 

 

 

 

68

 

 

 

 

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

Amortized Cost

 

Present Value of

 

 

 

 

 

 

Statement

 

 

Before Current

 

Projected Cash

 

Recognized

 

Amortized Cost

 

Fair Value at

Where

CUSIP

 

Period OTTI

 

Flows

 

OTTI

 

After OTTI

 

Time of OTTI

Reported

949768AU9

$

931

$

918

$

13

$

918

$

853

03/31/2019

949769AJ2

 

496

 

489

 

7

 

489

 

473

03/31/2019

32027NGD7

 

648

 

631

 

17

 

631

 

626

03/31/2019

45254NJP3

 

160

 

157

 

3

 

157

 

154

03/31/2019

46629PAQ1

 

10,000

 

9,506

 

494

 

9,506

 

9,237

03/31/2019

939355AD5

 

24,148

 

23,240

 

908

 

23,240

 

23,067

03/31/2019

94979UAM5

 

152

 

140

 

12

 

140

 

79

03/31/2019

5899296S2

 

424

 

420

 

4

 

420

 

363

03/31/2019

94979XAC1

 

346

 

339

 

7

 

339

 

291

03/31/2019

59020UEZ4

 

1,394

 

1,381

 

13

 

1,381

 

1,180

03/31/2019

94979UAL7

 

1,451

 

1,435

 

16

 

1,435

 

1,240

03/31/2019

466247BW2

 

424

 

419

 

5

 

419

 

355

03/31/2019

25157GBB7

 

18,567

 

18,316

 

251

 

18,316

 

16,232

03/31/2019

073868AA9

 

2,159

 

2,116

 

43

 

2,116

 

2,011

03/31/2019

949808BD0

 

1,861

 

1,840

 

21

 

1,840

 

1,588

03/31/2019

94981XAF0

 

657

 

649

 

8

 

649

 

614

03/31/2019

466247BE2

 

492

 

482

 

10

 

482

 

462

03/31/2019

22546BAH3

 

4,928

 

3,184

 

1,744

 

3,184

 

3,467

03/31/2019

94984GAD9

 

946

 

936

 

10

 

936

 

937

03/31/2019

59020UAY1

 

455

 

411

 

44

 

411

 

401

03/31/2019

31359UPW9

 

656

 

655

 

1

 

655

 

591

03/31/2019

94981VAP2

 

1,348

 

1,318

 

30

 

1,318

 

1,181

03/31/2019

22541QR79

 

2,687

 

2,674

 

13

 

2,674

 

2,395

03/31/2019

5899296T0

 

202

 

199

 

3

 

199

 

176

03/31/2019

12628LAE0

 

4,841

 

4,787

 

54

 

4,787

 

4,419

03/31/2019

94986QAA1

 

26,070

 

25,666

 

404

 

25,666

 

24,191

03/31/2019

36242DYH0

 

665

 

634

 

31

 

634

 

658

03/31/2019

Quarterly Total

$

284,338

$

276,832

$

7,506

$

276,832

$

272,062

 

161546EK8

$

2,355

$

2,344

$

11

$

2,344

$

2,350

06/30/2019

84751PBL2

 

222

 

222

 

-

 

222

 

220

06/30/2019

466247EC3

 

955

 

920

 

35

 

920

 

900

06/30/2019

43739EBC0

 

1,949

 

1,946

 

3

 

1,946

 

1,899

06/30/2019

94984MAB0

 

1,738

 

1,665

 

73

 

1,665

 

1,737

06/30/2019

12559QAG7

 

13,805

 

13,458

 

347

 

13,458

 

13,752

06/30/2019

94980PAL5

 

322

 

314

 

8

 

314

 

317

06/30/2019

949768AU9

 

822

 

803

 

19

 

803

 

781

06/30/2019

949769AJ2

 

478

 

467

 

11

 

467

 

477

06/30/2019

32027NGD7

 

341

 

331

 

10

 

331

 

337

06/30/2019

45254NJP3

 

134

 

132

 

2

 

132

 

134

06/30/2019

46629PAQ1

 

7,743

 

6,313

 

1,430

 

6,313

 

7,512

06/30/2019

939355AD5

 

22,570

 

22,184

 

386

 

22,184

 

22,547

06/30/2019

94979UAM5

 

149

 

89

 

60

 

89

 

58

06/30/2019

46630GBD6

 

10,246

 

9,907

 

339

 

9,907

 

9,776

06/30/2019

36298NBA1

 

4,958

 

4,429

 

529

 

4,429

 

4,810

06/30/2019

74160MGT3

 

129

 

63

 

66

 

63

 

23

06/30/2019

17029RAA9

 

11,552

 

1

 

11,551

 

1

 

1

06/30/2019

74922RAH3

 

8,915

 

6,380

 

2,535

 

6,380

 

8,898

06/30/2019

264407AA5

 

7,118

 

6,448

 

670

 

6,448

 

6,901

06/30/2019

5899296S2

 

406

 

401

 

5

 

401

 

374

06/30/2019

94979XAC1

 

260

 

252

 

8

 

252

 

234

06/30/2019

59020UEZ4

 

1,332

 

1,313

 

19

 

1,313

 

1,163

06/30/2019

94979UAL7

 

1,308

 

1,298

 

10

 

1,298

 

1,141

06/30/2019

466247BW2

 

268

 

262

 

6

 

262

 

233

06/30/2019

 

 

 

 

 

 

69

 

 

 

 

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

Amortized Cost

 

Present Value of

 

 

 

 

 

 

Statement

 

 

Before Current

 

Projected Cash

 

Recognized

 

Amortized Cost

 

Fair Value at

Where

CUSIP

 

Period OTTI

 

Flows

 

OTTI

 

After OTTI

 

Time of OTTI

Reported

25157GBB7

$

17,765

$

17,023

$

742

$

17,023

$

15,606

06/30/2019

073868AA9

 

2,077

 

2,009

 

68

 

2,009

 

1,961

06/30/2019

949808BD0

 

1,774

 

1,735

 

39

 

1,735

 

1,552

06/30/2019

94981XAF0

 

581

 

573

 

8

 

573

 

556

06/30/2019

466247BE2

 

475

 

462

 

13

 

462

 

461

06/30/2019

22546BAH3

 

3,490

 

2,704

 

786

 

2,704

 

3,456

06/30/2019

31359UPW9

 

621

 

618

 

3

 

618

 

520

06/30/2019

05539TAQ8

 

108

 

108

 

-

 

108

 

93

06/30/2019

94981VAP2

 

1,261

 

1,227

 

34

 

1,227

 

1,152

06/30/2019

939336C92

 

745

 

712

 

33

 

712

 

704

06/30/2019

22541QR79

 

2,620

 

2,611

 

9

 

2,611

 

2,407

06/30/2019

5899296T0

 

197

 

194

 

3

 

194

 

163

06/30/2019

12669FTC7

 

2,193

 

1,708

 

485

 

1,708

 

2,050

06/30/2019

466247BF9

 

275

 

269

 

6

 

269

 

270

06/30/2019

362669AS2

 

1,023

 

978

 

45

 

978

 

989

06/30/2019

Quarterly Total

$

135,280

$

114,873

$

20,407

$

114,873

$

118,515

 

12669DPR3

$

401

$

399

$

2

$

399

$

387

09/30/2019

88522NAA1

 

5,853

 

5,794

 

59

 

5,794

 

5,839

09/30/2019

949789AA9

 

715

 

711

 

4

 

711

 

707

09/30/2019

362437AD7

 

5,477

 

3,224

 

2,253

 

3,224

 

5,305

09/30/2019

45660NS22

 

3,815

 

3,704

 

111

 

3,704

 

3,778

09/30/2019

5899295L8

 

389

 

381

 

8

 

381

 

388

09/30/2019

59020UFA8

 

432

 

394

 

38

 

394

 

413

09/30/2019

02150WAB9

 

45

 

43

 

2

 

43

 

44

09/30/2019

5899296S2

 

366

 

362

 

4

 

362

 

347

09/30/2019

94979XAC1

 

225

 

220

 

5

 

220

 

215

09/30/2019

59020UEZ4

 

1,204

 

1,191

 

13

 

1,191

 

1,089

09/30/2019

94979UAL7

 

1,152

 

1,143

 

9

 

1,143

 

1,022

09/30/2019

466247BW2

 

217

 

214

 

3

 

214

 

198

09/30/2019

25157GBB7

 

16,528

 

15,727

 

801

 

15,727

 

15,455

09/30/2019

073868AA9

 

11,789

 

10,174

 

1,615

 

10,174

 

11,697

09/30/2019

949808BD0

 

1,607

 

1,587

 

20

 

1,587

 

1,456

09/30/2019

94981XAF0

 

543

 

535

 

8

 

535

 

529

09/30/2019

466247BE2

 

456

 

445

 

11

 

445

 

456

09/30/2019

94981VAP2

 

1,195

 

1,160

 

35

 

1,160

 

1,132

09/30/2019

22541QR79

 

2,570

 

2,563

 

7

 

2,563

 

2,380

09/30/2019

5899296T0

 

183

 

179

 

4

 

179

 

157

09/30/2019

02149QAA8

 

19,916

 

19,350

 

566

 

19,350

 

19,479

09/30/2019

94986QAA1

 

23,043

 

22,429

 

614

 

22,429

 

21,755

09/30/2019

05948XTP6

 

206

 

201

 

5

 

201

 

183

09/30/2019

36242DYH0

 

582

 

554

 

28

 

554

 

542

09/30/2019

Quarterly Total

$

98,909

$

92,684

$

6,225

$

92,684

$

94,953

 

22546BAH3

$

2,772

$

2,046

$

726

$

2,046

$

2,738

12/31/2019

26545QAQ2

 

4,063

 

3,191

 

872

 

3,191

 

6,172

12/31/2019

126694H27

 

549

 

534

 

15

 

534

 

542

12/31/2019

94984GAD9

 

740

 

738

 

2

 

738

 

736

12/31/2019

59020UAY1

 

331

 

328

 

3

 

328

 

313

12/31/2019

761118MA3

 

3,525

 

3,493

 

32

 

3,493

 

3,404

12/31/2019

45660L6N4

 

5,713

 

5,607

 

106

 

5,607

 

4,958

12/31/2019

31359UPW9

 

553

 

476

 

77

 

476

 

407

12/31/2019

05539TAQ8

 

104

 

104

 

-

 

104

 

92

12/31/2019

07383UGB5

 

4,799

 

4,664

 

135

 

4,664

 

4,784

12/31/2019

94981VAP2

 

1,101

 

1,047

 

54

 

1,047

 

1,093

12/31/2019

 

 

 

 

 

 

70

 

 

 

 

 

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date of

 

 

Amortized Cost

 

Present Value of

 

 

 

 

 

 

Financial

 

 

Before Current

 

Projected Cash

 

 

 

Amortized Cost

 

Fair Value at

Statement

CUSIP

 

Period OTTI

 

Flows

 

Recognized OTTI

 

After OTTI

 

Time of OTTI

Where Reported

161546HD1

$

1,510

$

1,479

 

$

31

$

1,479

$

1,499

12/31/2019

2254W0JD8

 

1,049

 

660

 

 

389

 

660

 

434

12/31/2019

073879CD8

 

1,404

 

1,402

 

 

2

 

1,402

 

1,425

12/31/2019

939336C92

 

676

 

665

 

 

11

 

665

 

654

12/31/2019

22541QR79

 

2,515

 

2,507

 

 

8

 

2,507

 

2,324

12/31/2019

5899296T0

 

176

 

173

 

 

3

 

173

 

155

12/31/2019

12669FTC7

 

1,532

 

1,513

 

 

19

 

1,513

 

1,527

12/31/2019

02149QAA8

 

18,638

 

18,008

 

 

630

 

18,008

 

18,012

12/31/2019

12668BKA0

 

4,206

 

4,054

 

 

152

 

4,054

 

3,993

12/31/2019

12628LAE0

 

4,259

 

4,252

 

 

7

 

4,252

 

3,712

12/31/2019

761118WQ7

 

5,594

 

5,454

 

 

140

 

5,454

 

5,542

12/31/2019

12669GXQ9

 

12,571

 

12,529

 

 

42

 

12,529

 

12,238

12/31/2019

94986QAA1

 

21,296

 

19,585

 

 

1,711

 

19,585

 

19,655

12/31/2019

61749BAF0

 

5,982

 

5,944

 

 

38

 

5,944

 

5,869

12/31/2019

21075WBX2

 

146

 

21

 

 

125

 

21

 

91

12/31/2019

466247BF9

 

263

 

262

 

 

1

 

262

 

263

12/31/2019

05948XTP6

 

205

 

172

 

 

33

 

172

 

179

12/31/2019

362669AS2

 

914

 

827

 

 

87

 

827

 

872

12/31/2019

12667FM77

 

6,865

 

6,777

 

 

88

 

6,777

 

6,836

12/31/2019

36242DYH0

 

555

 

549

 

 

6

 

549

 

542

12/31/2019

69374XBS8

 

196

 

196

 

 

-

 

196

 

187

12/31/2019

69374XBQ2

 

710

 

694

 

 

16

 

694

 

671

12/31/2019

69375BBQ9

 

712

 

706

 

 

6

 

706

 

686

12/31/2019

Quarterly Total

$

116,224

$

110,657

 

$

5,567

$

110,657

$

112,605

 

 

 

 

 

Year-end total

 

$

39,705

 

 

 

 

 

None of the structured notes held by the Company are defined as a Mortgage-Referenced Security by the IAO.

71

 

Supplemental Information

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES

(in millions)

 

December 31, 2019

Investment income earned:

 

 

Government bonds

$

65

Bonds exempt from U.S. tax

 

-

Other bonds (unaffiliated)

 

4,884

Bonds of affiliates

 

-

Preferred stocks (unaffiliated)

 

15

Common stocks (unaffiliated)

 

6

Common stocks of affiliates

 

29

Cash and short-term investments

 

58

Mortgage loans

 

867

Real estate

 

47

Contract loans

 

80

Other invested assets

 

243

Derivative instruments

 

60

Miscellaneous income

 

5

Gross investment income

$

6,359

Real estate owned - book value less encumbrances

$

184

Mortgage loans - book value:

 

 

Commercial mortgages

$

19,952

Residential mortgages

 

1,423

Mezzanine loans

 

193

Affiliated commercial mortgages

 

74

Total mortgage loans

$

21,642

Mortgage loans by standing - book value:

 

 

Good standing

$

21,456

Good standing with restructured terms

 

185

Interest overdue more than 90 days, not in foreclosure

 

1

Total mortgage loans

$

21,642

Partnerships - statement value

$

4,820

Bonds and stocks of parents, subsidiaries and affiliates - statement value:

 

 

Bonds

$

-

Common stocks

 

398

Bonds and short-term investments by class and maturity:

 

 

Bonds and short-term investments by maturity - statement value:

 

 

Due within one year or less

$

7,517

Over 1 year through 5 years

 

22,961

Over 5 years through 10 years

 

24,521

Over 10 years through 20 years

 

14,837

Over 20 years

 

29,713

Total maturity

$

99,549

Bonds and short-term investments by class - statement value:

 

 

Class 1

$

57,832

Class 2

 

35,257

Class 3

 

3,606

Class 4

 

2,313

Class 5

 

381

Class 6

 

160

Total by class

$

99,549

Total bonds and short-term investments publicly traded

$

61,482

Total bonds and short-term investments privately placed

 

38,067

Preferred stocks - statement value

$

299

Common stocks - market value

 

669

Short-term investments - book value

 

511

Options, caps and floors owned - statement value

 

574

Collar, swap and forward agreements open - statement value

 

(171)

Futures contracts open - current value

 

(4)

Cash on deposit

 

(161)

73

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES (Continued)

(in millions)

 

December 31, 2019

Life insurance in-force:

 

 

Industrial

$

780

Ordinary

 

78,316

Group

 

4,298

Amount of accidental death insurance in-force under ordinary policies

 

5,030,743

Life insurance policies with disability provisions in-force:

 

 

Industrial

 

210

Ordinary

 

35,509

Group life

 

35

Supplementary contracts in-force:

 

 

Ordinary - not involving life contingencies:

 

 

Amount on deposit

 

775

Income payable

 

415

Ordinary - involving life contingencies:

 

 

Amount on deposit

 

230

Income payable

 

81

Group - not involving life contingencies:

 

 

Amount on deposit

 

1

Annuities:

 

 

Ordinary:

 

 

Immediate - amount of income payable

$

1,383

Deferred, fully paid - account balance

 

53,881

Deferred, not fully paid - account balance

 

33,594

Group:

 

 

Amount of income payable

 

449

Fully paid - account balance

 

602

Not fully paid - account balance

 

21,278

Accident and health insurance - premiums in-force:

 

 

Other

$

93

Group

 

1

Credit

 

-

Deposit funds and dividend accumulations:

 

 

Deposit funds - account balance

$

6,650

Dividend accumulations - account balance

 

557

Claim payments in 2019:

 

 

Group accident & health:

 

 

2019

$

97

2018

 

466

2017

 

11,021

2016

 

30,182

2015

 

61,211

Prior

 

32,053

Other accident & health:

 

 

2019

 

9,097 

2018

 

(20,139)

2017

 

27,063

2016

 

62,356

2015

 

72,904

Prior

 

80,767

74

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES

DECEMBER 31, 2019

(in millions)

1. The Company's total admitted assets as of December 31, 2019 are $192.3 billion.

The Company's total admitted assets, excluding separate accounts, as of December 31, 2019 are $134.8 billion.

2.Following are the 10 largest exposures to a single issuer/borrower/investment, by investment category, excluding: (i) U.S. Government, U.S. Government agency securities and those U.S. Government money market funds listed in the Appendix to the IAO Practices and Procedures Manual as exempt, (ii) property occupied by the Company, and (iii) policy loans:

 

 

 

 

 

Percentage of

 

 

 

 

 

Total Admitted

 

Issuer

Description of Exposure

 

Amount

Assets

a.

SUNAMERICA AFFORDABLE HOUSING

 

 

 

 

LLC

OTHER INVESTED ASSETS

$

743

0.60%

b.

Senior Direct Lending Program LLC

BONDS

 

717

0.50

c.

Microsoft Corporation

BONDS

 

582

0.40

d.

Duke Energy Corporation

BONDS

 

524

0.40

e.

Comcast Corporation

BONDS

 

519

0.40

f.

AT&T Inc.

BONDS

 

491

0.40

g.

Oracle Corporation

BONDS

 

461

0.30

h.

CVS Health Corporation

BONDS

 

452

0.30

i.

American Electric Power Company, Inc.

BONDS

 

427

0.30

j.

Verizon Communications Inc.

BONDS

 

421

0.30

3. The Company's total admitted assets held in bonds and preferred stocks, by NAIC rating, are:

 

 

Bonds and Short-Term Investments

 

 

Preferred Stocks

 

 

 

 

 

 

 

Percentage of

 

 

 

 

Percentage of

 

 

 

 

 

 

Total Admitted

 

 

 

Total Admitted

 

 

 

NAIC Rating

Amount

Assets

 

NAIC Rating

 

Amount

Assets

 

 

 

NAIC - 1

$

57,832

42.90 %

 

P/RP - 1

$

105

0.10 %

 

 

NAIC - 2

 

35,257

26.20

 

P/RP - 2

 

113

0.10

 

 

 

NAIC - 3

 

3,606

2.70

 

P/RP - 3

 

-

-

 

 

 

NAIC - 4

 

2,313

1.70

 

P/RP - 4

 

-

-

 

 

 

NAIC - 5

 

381

0.30

 

P/RP - 5

 

80

0.10

 

 

 

NAIC - 6

 

160

0.10

 

P/RP - 6

 

-

-

 

 

 

4. Assets held in foreign investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

of Total

 

 

 

 

 

 

 

 

 

 

 

Admitted

 

 

 

 

 

 

 

 

 

 

Amount

Assets

 

 

 

a. Total admitted assets held in foreign investments

 

 

$

24,917

18.50

%

 

 

b. Foreign currency denominated investments

 

 

 

8,321

6.20

 

 

 

c. Insurance liabilities denominated in that same foreign currency

 

-

-

 

 

5. Aggregate foreign investment exposure categorized by NAIC sovereign rating:

 

 

 

 

Percentage

 

 

 

 

of Total

 

 

 

 

Admitted

 

 

 

Amount

Assets

a. Countries rated NAIC - 1

$

21,970

16.30 %

b.

Countries rated NAIC - 2

 

2,147

1.60

c.

Countries rated NAIC - 3 or below

 

800

0.60

75

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED) DECEMBER 31, 2019

(in millions)

6. Two largest foreign investment exposures to a single country, categorized by the country's NAIC sovereign rating:

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

a. Countries rated NAIC - 1

 

 

 

 

 

Country 1: United Kingdom

$

7,551

5.60

%

 

Country 2: Cayman Islands

 

2,500

1.90

 

b. Countries rated NAIC - 2

 

 

 

 

 

Country 1: Mexico

 

500

0.40

 

 

Country 2: Panama

 

342

0.30

 

c. Countries rated NAIC - 3 or below

 

 

 

 

 

Country 1: Turkey

 

121

0.10

 

 

Country 2: South Africa

 

73

0.10

 

7. Aggregate unhedged foreign currency exposure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

Aggregate unhedged foreign currency exposure

$

8,321

6.20

%

8. Aggregate unhedged foreign currency exposure categorized by NAIC sovereign rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

a. Countries rated NAIC - 1

$

8,307

6.20

%

b.

Countries rated NAIC - 2

 

5

-

 

c.

Countries rated NAIC - 3 or below

 

9

-

 

9.Two largest unhedged foreign currency exposures to a single country, categorized by the country's NAIC sovereign rating:

 

 

 

Percentage

 

 

 

 

of Total

 

 

 

 

Admitted

 

 

 

Amount

Assets

 

a. Countries rated NAIC - 1

 

 

 

 

Country 1: United Kingdom

$

4,795

3.60

%

Country 2: Ireland

 

1,144

0.80

 

b. Countries rated NAIC - 2

 

 

 

 

Country 1: Peru

 

3

-

 

Country 2: Mexico

 

2

-

 

c. Countries rated NAIC - 3 or below

 

 

 

 

Country 1: Turkey

 

5

-

 

Country 2: South Africa

 

2

-

 

76

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED) DECEMBER 31, 2019

(in millions)

10. Ten largest non-sovereign (i.e. non-governmental) foreign issues:

 

 

Percentage

 

 

of Total

 

 

Admitted

NAIC Rating

Amount

Assets

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

a. Bailey

LOAN

$

406

0.30

%

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

b. Copenhagen - FloatAGL

LOAN

 

326

0.20

 

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

c.

Project Chapter

LOAN

 

275

0.20

 

d. Usil Finance Designated Activity Company

NAIC 1

 

266

0.20

 

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

e. Berry202

LOAN

 

263

0.20

 

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

f.

Condor20310830

LOAN

 

263

0.20

 

g.

Telefonica, S.A.

NAIC 2

 

245

0.20

 

h. AstraZeneca PLC

NAIC 2

 

236

0.20

 

 

 

COMMERCIAL

 

 

 

 

 

 

MORTGAGE

 

 

 

 

i.

White

LOAN

 

235

0.20

 

j.

Royal Dutch Shell plc

NAIC 1

 

234

0.20

 

11.Assets held in Canadian investments are less than 2.5% of the reporting entity's total admitted assets.

12.Assets held in investments with contractual sales restrictions are less than 2.5 percent of the Company's total admitted assets.

13.The Company's admitted assets held in the ten largest equity interests (including investments in the shares of mutual funds, preferred stocks, publicly traded equity securities, and other equity securities and excluding money market and bond mutual funds listed in the Appendix to the SVO Practices and Procedures Manual as exempt or Class

1) are:

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

a. SUNAMERICA AFFORDABLE HOUSING LLC

$

743

0.60

%

b. AIGGRE U.S. Real Estate Fund II LP

 

337

0.20

 

c.

AIGGRE U.S. Real Estate Fund III LP

 

236

0.20

 

d.

MS Term Facility

 

189

0.10

 

e.

Carlyle Alternative Opportunities Fund L.P.

 

169

0.10

 

f.

Teachers Insurance and Annuity Association of America

 

149

0.10

 

g.

AIG Home Loan 2 LLC

 

145

0.10

 

h.

Think Investments Fund LP

 

144

0.10

 

i.

Federal Home Loan Banks

 

143

0.10

 

j.

Massachusetts Mutual Life Insurance Company

 

135

0.10

 

77

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED) DECEMBER 31, 2019

(in millions)

14. Assets held in nonaffiliated, privately placed equities:

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

Aggregate statement value of investment held in nonaffiliated, privately placed equities:

$

3,228

2.40

%

Largest three investments held in nonaffiliated, privately placed equities:

 

 

 

 

a. MS Term Facility

$

189

0.10

 

b.

Carlyle Alternative Opportunities Fund L.P.

 

169

0.10

 

c.

Think Investments Fund LP

 

144

0.10

 

Ten largest fund managers:

 

 

 

Total

 

 

Non-

 

Fund Manager

 

Invested

 

Diversified

diversified

a. AIG Global Real Estate Investment Corp

$

928

$

- $

928

b. SUNAMERICA INVESTMENT, INC.

 

816

 

-

816

c.

Carlyle Group

 

502

 

502

-

d.

AIG Home Loan

 

145

 

-

145

e.

Think Investments LLC

 

144

 

144

-

f.

Tiger Global Management, LLC

 

102

 

102

-

g.

Pentwater Capital Management LP

 

86

 

86

-

h.

Manikay Partners LLC

 

78

 

78

-

i.

HPS Investment Partners, LLC

 

62

 

62

-

j.

Wellington Hedge Management

 

52

 

52

-

15.Assets held in general partnership interests are less than 2.5 percent of the Company's total admitted assets.

16.Mortgage loans reported in Schedule B, include the following ten largest aggregate mortgage interests. The

aggregate mortgage interest represents the combined value of all mortgages secured by the same property or same group of properties:

 

 

 

 

Percentage

 

 

 

 

 

of Total

 

 

 

 

 

Admitted

 

 

 

 

Amount

Assets

 

a. COMMERCIAL MORTGAGE LOAN, Loan No. 5555094, GBR

$

411

0.30

%

b. COMMERCIAL MORTGAGE LOAN, Loan No. 8002341, NY

 

366

0.30

 

c. COMMERCIAL MORTGAGE LOAN, Loan No. 5555180, DK

 

330

0.20

 

d. COMMERCIAL MORTGAGE LOAN, Loan No. 5555143, GBR

 

277

0.20

 

e. COMMERCIAL MORTGAGE LOAN, Loan No. 5555161, GBR

 

266

0.20

 

f.

COMMERCIAL MORTGAGE LOAN, Loan No. 5555184, GBR

 

265

0.20

 

g.

COMMERCIAL MORTGAGE LOAN, Loan No. 8002507, NY

 

260

0.20

 

h.

COMMERCIAL MORTGAGE LOAN, Loan No. 5555093, IRL

 

238

0.20

 

i.

COMMERCIAL MORTGAGE LOAN, Loan No. 8002711, NJ

 

232

0.20

 

j.

COMMERCIAL MORTGAGE LOAN, Loan No. 5555187, GBR

 

230

0.20

 

78

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED) DECEMBER 31, 2019

(in millions)

Amount and percentage of the reporting entity's total admitted assets held in the following categories of mortgage loans:

 

 

 

 

Percentage of

 

 

 

 

 

Total Admitted

 

 

 

 

Amount

Assets

 

a.

Construction loans

$

1,157

0.90

%

b.

Mortgage loans over 90 days past due

 

-

-

 

c.

Mortgage loans in the process of foreclosure

 

-

-

 

d.

Mortgage loans foreclosed

 

-

-

 

e.

Restructured mortgage loans

 

185

0.10

 

17.Aggregate mortgage loans having the following loan-to-value ratios as determined from the most current appraisal as of the annual statement date:

 

Residential

 

Commercial

 

Agricultural

 

 

Percentage

 

 

Percentage

 

 

Percentage

 

 

of Total

 

 

of Total

 

 

of Total

 

 

Admitted

 

 

Admitted

 

 

Admitted

Loan-to-Value

Amount

Assets

 

Amount

Assets

 

Amount

Assets

a.

above 95%

$

-

- % $

45

- % $

-

- %

b.

91% to 95%

 

1

-

-

-

-

-

c.

81% to 90%

 

135

0.10

180

0.10

-

-

d.

71% to 80%

 

441

0.30

463

0.30

-

-

e.

below 70%

 

845

0.60

19,336

14.30

-

-

18.Assets held in each of the five largest investments in one parcel or group of contiguous parcels of real estate reported in Schedule A are less than 2.5 percent of the Company's total admitted assets.

19.Assets held in mezzanine real estate loans are less than 2.5 percent of the Company's total admitted assets.

20.The Company's total admitted assets subject to the following types of agreements as of the following dates:

 

 

 

 

 

 

 

 

Unaudited At End of Each Quarter

 

 

 

At Year-End

 

 

 

1st Quarter

 

2nd Quarter

 

 

3rd Quarter

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Admitted

 

 

 

 

 

 

 

 

 

 

 

 

Amount

Assets

 

 

 

Amount

 

Amount

 

 

Amount

a.

Securities lending (do not include assets

 

 

 

 

 

 

 

 

 

 

 

 

 

held as collateral for such transactions)

$

1,210

0.90

% $

571

$

912

$

1,155

b.

Repurchase agreements

 

139

0.10

 

 

 

69

 

240

 

 

132

c.

Reverse repurchase agreements

 

-

-

 

 

 

-

 

-

 

 

-

d.

Dollar repurchase agreements

 

-

-

 

 

 

-

 

-

 

 

-

e.

Dollar reverse repurchase agreements

 

-

-

 

 

 

-

 

-

 

 

-

79

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (CONTINUED) DECEMBER 31, 2019

(in millions)

21.The Company's potential exposure to warrants not attached to other financial instruments, options, caps, and floors:

 

Owned

 

Written

 

 

Percentage

 

 

Percentage

 

 

of Total

 

 

of Total

 

 

Admitted

 

 

Admitted

 

Amount

Assets

 

Amount

Assets

a.

Hedging

$

-

- % $

-

- %

b.

Income generation

 

-

-

-

-

c.

Other

 

-

-

-

-

22.The Company's potential exposure (defined as the amount determined in accordance with the NAIC Annual Statement Instructions) for collars, swaps, and forwards as of the following dates:

 

 

 

 

 

 

 

Unaudited At End of Each Quarter

 

 

 

At Year-End

 

 

1st Quarter

 

 

2nd Quarter

 

 

3rd Quarter

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

of Total

 

 

 

 

 

 

 

 

 

 

 

Admitted

 

 

 

 

 

 

 

 

 

 

Amount

Assets

Amount

 

 

Amount

 

 

Amount

a.

Hedging

$

628

0.50 % $

492

$

527

$

595

b.

Income generation

 

-

-

 

 

-

 

 

-

 

 

-

c.

Replications

 

-

-

 

 

-

 

 

-

 

 

-

d.

Other

 

-

-

 

 

-

 

 

-

 

 

-

23.The Company's potential exposure (defined as the amount determined in accordance with the NAIC Annual Statement Instructions) for futures contracts as of the following dates:

 

 

 

 

 

 

 

Unaudited At End of Each Quarter

 

 

 

At Year-End

 

 

1st Quarter

 

 

2nd Quarter

 

 

3rd Quarter

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

of Total

 

 

 

 

 

 

 

 

 

 

 

Admitted

 

 

 

 

 

 

 

 

 

 

Amount

Assets

Amount

 

 

Amount

 

 

Amount

a.

Hedging

$

96

0.10 % $

92

$

121

$

103

b.

Income generation

 

-

-

 

 

-

 

 

-

 

 

-

c.

Replications

 

-

-

 

 

-

 

 

-

 

 

-

d.

Other

 

-

-

 

 

-

 

 

-

 

 

-

80

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

SUPPLEMENTAL SUMMARY INVESTMENT SCHEDULE

DECEMBER 31, 2019

(in millions)

Gross Investment Holdings

Admitted Assets as Reported in the Annual Statement

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

 

 

 

 

 

 

Lending

 

 

 

 

 

 

 

 

 

 

 

 

Reinvested

 

 

 

 

 

 

 

 

 

 

 

 

Collateral

 

Total

 

 

Investment Categories

 

Amount

Percentage

 

 

Amount

 

Amount

 

Amount

Percentage

 

Bonds:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. governments

$

2,389

1.8

% $

2,389

$

- $

2,389

1.8

%

All other governments

 

3,044

2.3

 

 

3,044

 

-

 

3,044

2.3

 

U.S. states, territories and possessions, etc. guaranteed

 

397

0.3

 

 

397

 

-

 

397

0.3

 

U.S. political subdivisions of states, territories,

 

 

 

 

 

 

 

 

 

 

 

 

and possessions, guaranteed

 

336

0.3

 

 

336

 

-

 

336

0.3

 

U.S. special revenue and special assessment

 

 

 

 

 

 

 

 

 

 

 

 

obligations, etc. non-guaranteed

 

7,859

6.0

 

 

7,859

 

-

 

7,859

6.0

 

Industrial and miscellaneous

 

81,146

62.3

 

 

81,146

 

-

 

81,146

62.3

 

Hybrid securities

 

722

0.6

 

 

722

 

-

 

722

0.6

 

Parent, subsidiaries and affiliates

 

-

-

 

 

-

 

-

 

-

-

 

SVO identified funds

 

-

-

 

 

-

 

-

 

-

-

 

Unaffiliated Bank loans

 

3,095

2.4

 

 

3,095

 

-

 

3,095

2.4

 

Total long-term bonds

 

98,988

76.0

 

 

98,988

 

-

 

98,988

76.0

 

Preferred stocks:

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous (Unaffiliated)

 

299

0.2

 

 

299

 

-

 

299

0.2

 

Parent, subsidiaries and affiliates

 

-

-

 

 

-

 

-

 

-

-

 

Total preferred stocks

 

299

0.2

 

 

299

 

-

 

299

0.2

 

Common stocks:

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous Publicly traded (Unaffiliated)

 

92

0.1

 

 

92

 

-

 

92

0.1

 

Industrial and miscellaneous Other (Unaffiliated)

 

143

0.1

 

 

143

 

-

 

143

0.1

 

Parent, subsidiaries and affiliates Publicly traded

 

6

-

 

 

6

 

-

 

6

-

 

Parent, subsidiaries and affiliates Other

 

392

0.3

 

 

392

 

-

 

392

0.3

 

Mutual funds

 

36

-

 

 

36

 

-

 

36

-

 

Unit investment trusts

 

-

-

 

 

-

 

-

 

-

-

 

Closed-end funds

 

-

-

 

 

-

 

-

 

-

-

 

Total common stocks

 

669

0.5

 

 

669

 

-

 

669

0.5

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

Farm mortgages

 

-

-

 

 

-

 

-

 

-

-

 

Residential mortgages

 

1,422

1.1

 

 

1,422

 

-

 

1,422

1.1

 

Commercial mortgages

 

19,849

15.2

 

 

19,849

 

-

 

19,849

15.2

 

Mezzanine real estate loans

 

174

0.1

 

 

174

 

-

 

174

0.1

 

Total mortgage loans

 

21,445

16.4

 

 

21,445

 

-

 

21,445

16.4

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Properties occupied by company

 

63

-

 

 

63

 

-

 

63

-

 

Properties held for production of income

 

121

0.1

 

 

121

 

-

 

121

0.1

 

Properties held for sale

 

1

-

 

 

1

 

-

 

1

-

 

Total real estate

 

185

0.1

 

 

185

 

-

 

185

0.1

 

Cash, cash equivalents and short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

(161)

(0.1)

 

 

(161)

 

767

 

606

0.5

 

Cash equivalents

 

96

0.1

 

 

96

 

516

 

612

0.5

 

Short-term investments

 

511

0.4

 

 

511

 

-

 

511

0.4

 

Total cash, cash equivalents and short-term investments

 

446

0.4

 

 

446

 

1,283

 

1,729

1.4

 

Contract loans

 

1,264

1.0

 

 

1,264

 

-

 

1,264

1.0

 

Derivatives

 

625

0.5

 

 

625

 

-

 

625

0.5

 

Other invested assets

 

4,820

3.8

 

 

4,820

 

-

 

4,820

3.7

 

Receivables for securities

 

109

0.1

 

 

109

 

-

 

109

0.1

 

Securities Lending

 

1,283

1.0

 

 

1,283

 

XXX

 

XXX

XXX

 

Other invested assets

 

31

-

 

 

31

 

-

 

31

-

 

Total invested assets

$

130,164

100.0

% $

130,164

$

1,283

$

130,164

100

%

81

American Home Assurance Company

An AIG Company

NAIC Code: 19380

Statutory Basis Financial Statements

As of December 31, 2019 and 2018

and for the years ended December 31, 2019, 2018 and 2017

 

AMERICAN HOME ASSURANCE COMPANY

Statutory Basis Financial Statements

As of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017

 

TABLE OF CONTENTS

 

 

Report of Independent Auditors

3

 

Statements of Admitted Assets

5

 

Statements of Liabilities, Capital and Surplus

6

 

Statements of Operations and Changes in Capital and Surplus

7

 

Statements of Cash Flows

8

Note 1

Organization and Summary of Significant Statutory Basis Accounting Policies

9

Note 2

Accounting Adjustments to Statutory Basis Financial Statements

22

Note 3

Investments

24

Note 4

Fair Value of Financial Instruments

29

Note 5

Reserves for Losses and Loss Adjustment Expenses

32

Note 6

Related Party Transactions

36

Note 7

Reinsurance

39

Note 8

Income Taxes

42

Note 9

Capital and Surplus and Dividend Restrictions

48

Note 10

Contingencies

49

Note 11

Other Significant Matters

51

Note 12

Subsequent Events

53

 

 

Report of Independent Auditors

To the Board of Directors of American Home Assurance Company:

We have audited the accompanying statutory financial statements of American Home Assurance Company (the "Company"), which comprise the statutory statements of admitted assets and liabilities, capital and surplus as of December 31, 2019 and 2018, and the related statutory statements of operations and changes in capital and surplus, and of cash flows for each of the three years in the period ended December 31, 2019.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles

As described in Note 1B to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the New York State Department of Financial Services, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

The effects on the financial statements of the variances between the statutory basis of accounting described in Notes 1B and 1D and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us

 

 

Adverse Opinion on U.S. Generally Accepted Accounting Principles

In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles" paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2019 and 2018, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2019.

Opinion on Statutory Basis of Accounting

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, capital and surplus of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services described in Note 1B.

Emphasis of Matter

As discussed in Notes 1, 5, 6 and 7 to the financial statements, the Company has entered into significant transactions with certain affiliated entities. Our opinion is not modified with respect to this matter.

PricewaterhouseCoopers LLP

New York, NY

April 17, 2020

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Statements of Admitted Assets

 

December 31,

December 31,

 

 

2019

 

2018

Cash and invested assets:

 

 

 

 

Bonds, primarily at amortized cost (fair value: 2019 - $14,014 ; 2018 - $14,935)

$

13,277

$

14,534

Common stocks, at carrying value (cost: 2019 - $235 ; 2018 - $321)

 

245

 

356

Preferred stocks, at carrying value (cost: 2019 - $17; 2018 - $49)

 

17

 

49

Other invested assets (cost: 2019 - $2,406 ; 2018 - $2,982)

 

2,663

 

3,003

Mortgage loans

 

2,539

 

2,679

Derivative instruments

 

-

 

5

Short-term investments, at amortized cost (approximates fair value)

 

44

 

46

Cash and cash equivalents

 

441

 

230

Receivable for securities sold

 

112

 

104

Total cash and invested assets

$

19,338

$

21,006

Investment income due and accrued

$

146

$

166

Agents' balances or uncollected premiums:

 

 

 

 

Premiums in course of collection

 

1,278

 

941

Premiums and installments booked but deferred and not yet due

 

144

 

241

Accrued retrospective premiums

 

490

 

511

High deductible policy receivables

 

43

 

63

Reinsurance recoverable on paid losses

 

400

 

365

Funds held by or deposited with reinsurers

 

215

 

212

Net deferred tax assets

 

724

 

772

Receivables from parent, subsidiaries and affiliates

 

9

 

284

Other assets

 

223

 

159

Allowance for uncollectible accounts

 

(45)

 

(53)

Total admitted assets

$

22,965

$

24,667

See Notes to Statutory Basis Financial Statements

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5 STATEMENTS OF ADMITTED ASSETS – As of December 31, 2019 and 2018

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s , E x c e p t S h a r e I n f o r m a t i o n )

Statements of Liabilities, Capital and Surplus

 

December 31,

December 31,

 

 

2019

 

2018

Liabilities

 

 

 

 

Reserves for losses and loss adjustment expenses

$

9,732

$

10,935

Unearned premium reserves

 

3,104

 

3,234

Commissions, premium taxes, and other expenses payable

 

135

 

140

Reinsurance payable on paid loss and loss adjustment expenses

 

541

 

249

Current federal taxes payable to parent

 

2

 

9

Funds held by company under reinsurance treaties

 

1,945

 

2,288

Provision for reinsurance

 

16

 

30

Ceded reinsurance premiums payable, net of ceding commissions

 

400

 

337

Collateral deposit liability

 

276

 

369

Payable for securities purchased

 

194

 

112

Payable to parent, subsidiaries and affiliates

 

142

 

565

Derivative instruments

 

9

 

-

Other liabilities

 

474

 

476

Total liabilities

$

16,970

$

18,744

Capital and Surplus

 

 

 

 

Common capital stock, $20 par value, 1,758,158 shares authorized, 1,556,054 shares issued and outstanding

$

31

$

29

Capital in excess of par value

 

6,485

 

6,989

Unassigned surplus (deficit)

 

(1,381)

 

(2,021)

Special surplus funds from reinsurance

 

860

 

926

Total capital and surplus

$

5,995

$

5,923

Total liabilities, capital and surplus

$

22,965

$

24,667

See Notes to Statutory Basis Financial Statements

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6 STATEMENTS OF LIABILITIES, CAPITAL and SURPLUS - As of December 31, 2019 and 2018

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Statements of Operations and Changes in Capital and Surplus

 

 

For the Years Ended December 31,

 

 

2019

 

 

2018

 

2017

Statements of Operations

 

 

 

 

 

 

 

Underwriting income:

 

 

 

 

 

 

 

Premiums earned

$

 

5,369

$

5,009

$

5,170

Underwriting deductions:

 

 

 

 

 

 

 

Losses incurred

 

 

2,920

 

3,945

 

4,400

Loss adjustment expenses

 

 

814

 

315

 

577

Other underwriting expenses

 

 

1,904

 

1,858

 

1,624

Total underwriting deductions

 

 

5,638

 

6,118

 

6,601

Net underwriting loss

 

 

(269)

 

(1,109)

 

(1,431)

Investment gain:

 

 

 

 

 

 

 

Net investment income earned

 

 

825

 

1,027

 

1,058

Net realized capital gain (loss) (net of capital gains tax expense: 2019 - $42 ; 2018

 

 

 

 

 

 

 

- $69; 2017 - $82)

 

 

127

 

(111)

 

(110)

Net investment gain

 

 

952

 

916

 

948

Net loss from agents' or premium balances charged-off

 

 

(1)

 

(3)

 

(19)

Other (expense) income

 

 

(96)

 

(136)

 

39

Net Income (loss) after capital gains taxes and before federal income taxes

 

 

586

 

(332)

 

(463)

Federal and foreign income tax (benefit) expense

 

 

(35)

 

(54)

 

(69)

Net Income (Loss)

$

 

621

$

(278)

$

(394)

Change in Capital and Surplus

 

 

 

 

 

 

 

Capital and surplus, as of December 31, previous year

$

 

5,923

$

6,238

$

6,448

Adjustment to beginning surplus (Note 2)

 

 

21

 

71

 

38

Capital and surplus, as of January 1,

 

 

5,944

 

6,309

 

6,486

Cumulative effect of changes in accounting principles

 

 

(39)

 

-

 

-

Other changes in capital and surplus:

 

 

 

 

 

 

 

Net Income (loss)

 

 

621

 

(278)

 

(394)

Change in net unrealized capital gain (loss) (net of capital gain (loss) tax

 

 

 

 

 

 

 

expense (benefit): 2019 - ($1) ; 2018 - ($50); 2017 - $2

 

 

21

 

(137)

 

204

Change in net deferred income tax

 

 

(143)

 

31

 

(394)

Change in nonadmitted assets

 

 

115

 

(91)

 

410

Change in provision for reinsurance

 

 

13

 

(10)

 

17

(Return of Capital) Capital contribution

 

 

(504)

 

150

 

-

Change in par value of common stock

 

 

2

 

-

 

-

Foreign exchange translation

 

 

(12)

 

(20)

 

(54)

Change in statutory contingency reserve

 

 

(26)

 

(31)

 

(39)

Other surplus adjustments

 

 

3

 

-

 

2

Total changes in capital and surplus

 

 

51

 

(386)

 

(248)

Capital and Surplus, as of December 31,

$

 

5,995

$

5,923

$

6,238

See Notes to Statutory Basis Financial Statements

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7 STATEMENTS OF OPERATIONS and CHANGES IN CAPITAL AND SURPLUS - for the years ending December 31, 2019, 2018 and 2017

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Statements of Cash Flows

 

 

For the Years Ended December 31,

 

 

2019

 

 

2018

 

2017

Cash from Operations:

 

 

 

 

 

 

 

Premiums collected, net of reinsurance

$

 

5,118

$

5,292

$

5,395

Net investment income

 

 

677

 

839

 

920

Miscellaneous income (expense)

 

 

9

 

4

 

(17)

Sub-total

 

 

5,804

 

6,135

 

6,298

Benefit and loss related payments

 

 

4,296

 

4,832

 

7,209

Commission and other expense paid

 

 

2,510

 

2,599

 

3,407

Federal and foreign income taxes recovered

 

 

(8)

 

(1)

 

(98)

Net cash (used in) provided from operations

 

 

(994)

 

(1,295)

 

(4,220)

Cash from Investments:

 

 

 

 

 

 

 

Proceeds from investments sold, matured, or repaid

 

 

 

 

 

 

 

Bonds

 

 

4,296

 

3,990

 

7,709

Stocks

 

 

140

 

339

 

324

Mortgage loans

 

 

293

 

111

 

615

Other investments

 

 

1,374

 

1,790

 

1,591

Total proceeds from investments sold, matured, or repaid

 

 

6,103

 

6,230

 

10,239

Cost of investments acquired:

 

 

 

 

 

 

 

Bonds

 

 

3,637

 

3,766

 

4,278

Stocks

 

 

12

 

56

 

454

Mortgage loans

 

 

164

 

748

 

763

Other investments

 

 

914

 

870

 

853

Total cost of investments acquired

 

 

4,727

 

5,440

 

6,348

Net cash provided from (used in) investing activities

 

 

1,376

 

790

 

3,891

Cash from Financing and Miscellaneous Sources:

 

 

 

 

 

 

 

Capital contributions

 

 

(15)

 

-

 

-

Borrowed fund repaid

 

 

-

 

(65)

 

(180)

Intercompany receipts

 

 

11

 

599

 

577

Net deposit activity on deposit-type contracts and other insurance

 

 

(1)

 

(27)

 

(13)

Collateral deposit liability (payments) receipts

 

 

(93)

 

(24)

 

8

Other (payments) receipt

 

 

(75)

 

60

 

30

Net cash (used in) provided from financing and miscellaneous activities

 

 

(173)

 

543

 

422

Net change in cash, cash equivalents, and short-term investments

 

 

209

 

38

 

93

Cash, cash equivalents, and short-term investments

 

 

 

 

 

 

 

Beginning of year

 

 

276

 

238

 

145

End of year

$

 

485

$

276

$

238

Refer to Note 11D for description of non-cash items.

See Notes to Statutory Basis Financial Statements

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8 STATEMENTS OF CASH FLOW – for the years ended December 31, 2019, 2018 and 2017

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

1.Organization and Summary of Significant Statutory Basis Accounting Policies

A.Basis of Organization and Presentation

Organization

American Home Assurance Company ("the Company" or "American Home") is a direct wholly-owned subsidiary of AIG Property Casualty U.S., Inc. ("AIG PC US"), a Delaware corporation, which is in turn owned by AIG Property Casualty Inc. ("AIG PC"), a Delaware corporation. The Company's ultimate parent is American International Group, Inc. (the "Ultimate Parent" or "AIG"). AIG conducts its property and casualty operations through multiple line companies writing substantially all commercial (casualty, property, specialty and financial liability) and consumer (accident & health and personal lines) insurance both domestically and abroad.

The Company is party to an inter-company pooling agreement (the "Combined Pooling Agreement"), among the twelve companies listed below, collectively named the Combined Pool. Effective January 1, 2017, the Combined Pooling Agreement was amended and restated among the twelve member companies.

The member companies of the Combined Pool, their National Association of Insurance Commissioners ("NAIC") company codes, inter-company pooling participation percentages under the Combined Pooling Agreement and states of domicile are as follows:

 

NAIC

Pool Participation

State of

Company

Company

Percentage

Domicile

National Union *

19445

35%

Pennsylvania

American Home

19380

35%

New York

Lexington

19437

30%

Delaware

APCC

19402

0%

Illinois**

C&I

19410

0%

New York

ISOP

19429

0%

Illinois

New Hampshire

23841

0%

Illinois

Specialty

26883

0%

Illinois

Assurance

40258

0%

Illinois

Granite

23809

0%

Illinois

Illinois National

23817

0%

Illinois

AIU

19399

0%

New York

*Lead Company of the Combined Pool

**Company was redomesticated to Illinois in 2019 from Pennsylvania in 2018.

Refer to Note 6 for additional information on the Combined Pool and the effects of the changes in the intercompany pooling arrangements (the "2017 Pooling Restructure Transaction").

The Company accepts commercial business primarily through a network of independent retail and wholesale brokers and through independent agency networks. In addition, the Company accepts consumer business primarily through agents and brokers, as well as through direct marketing and partner organizations. There were no Managing Agents or Third Party Administrators who placed direct written premium with the Company in an amount exceeding more than 5.0 percent of surplus of the Company for the years ending December 31, 2019, 2018, and 2017.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The Company is diversified in terms of classes of its business, distribution network and geographic locations. The Company has direct written premium concentrations of 5.0 percent or more in the following locations:

State / Location

 

2019

 

2018

 

2017

California

$

90

$

103

$

124

Florida

 

62

 

68

 

86

United Arab Emirates

 

61

 

66

 

71

New York

 

32

 

36

 

65

Texas**

 

24

 

26

 

48

Bermuda*

 

57

 

16

 

5

Thailand*

 

27

 

8

 

8

*Bermuda and Thailand were below 5% in 2018 and 2017

 

 

 

 

 

 

** Texas is below 5% in 2019

 

 

 

 

 

 

Basis of Presentation

The accompanying financial statements of the Company have been prepared in conformity with accounting practices prescribed or permitted by the New York State Department of Financial Services ("NY SAP"). Certain balances relating to prior periods have been reclassified to conform to the current year's presentation.

Additionally, the financial statements include the Company's U.S. operations, its Dubai, Caribbean, Jamaica and Argentina branch operations and its participation in the American International Overseas Association (the "Association").

The Company's financial information as of and for the years ended December 31, 2019, 2018 and 2017 have been presented in accordance with the terms of the Combined Pooling Agreement.

B.Permitted and Prescribed Practices

NY SAP recognizes only statutory accounting practices prescribed or permitted by the New York State Department of Financial Services ("NY DFS") for determining and reporting the financial position and results of operations of an insurance company and for the purpose of determining its solvency under the New York Insurance Code. The NAIC Statutory Accounting Principles included within the Accounting Practices and Procedures Manual ("NAIC SAP") have been adopted as a component of prescribed practices by the NY DFS. The Superintendent of the NY DFS (the "Superintendent") has the right to permit other specific practices that differ from prescribed practices.

NY SAP has prescribed the practice of discounting workers' compensation known case loss reserves on a non-tabular basis. This practice is not prescribed under NAIC SAP.

For the affiliated loss portfolio transfer ("LPT") agreements entered into during 2018, the Company received permitted practices to present the consideration paid in relation to statutory reserves ceded to Fortitude Reinsurance Company Limited ("Fortitude Re") and Eaglestone Reinsurance Company ("Eaglestone") within paid losses rather than as premium written and earned. The classification change has no effect on net income or surplus. Refer to Note 5 for further details.

Accounting practices prescribed by the Insurance Department of the Commonwealth of Pennsylvania ("PA SAP") provide for the availability of certain offsets in the calculation of the Provision for reinsurance, which offsets are not prescribed under NAIC SAP. The Company applied PA SAP with concurrence from the NY DFS to reflect the transfer of collection risk on certain of the Company's asbestos related reinsurance recoverable balances, to an authorized third party reinsurer, as another form of collateral acceptable to the Commissioner with respect to the reinsurance recoverable balance from the original reinsurers.

The Company applied a permitted practice to account for the retroactive aggregate excess of loss reinsurance arrangement entered into with National Indemnity Company ("NICO"), a subsidiary of Berkshire Hathaway, Inc., (the "ADC") as prospective reinsurance. However, any gain associated with the ADC has been reported in a segregated surplus account and does not form part of the Company's Unassigned surplus, subject to the applicable dividend restrictions; such amounts must be restricted in surplus until such time as payments received by NICO exceed premiums paid for the retrocession. For more information, see Note 7.

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10 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The use of the aforementioned permitted and prescribed practices has not affected the Company's ability to comply with the NY DFS's risk based capital ("RBC") and surplus requirements for the 2019, 2018 or 2017 reporting periods.

A reconciliation of the net income (loss) and capital and surplus between NAIC SAP and practices prescribed or permitted by NY SAP is shown below:

December 31,

SSAP #

FS Ref

 

2019

 

2018

 

2017

Net Income (loss), NY SAP

 

 

$

621

$

(278)

$

(394)

State prescribed or permitted practices - addition (charge):

 

 

 

 

 

 

 

 

Change in non-tabular discounting

65

(a)

 

(60)

 

13

 

73

Adverse Development Cover

62R

(a)

 

-

 

-

 

-

Present the consideration received/paid in relation to the loss reserves within

 

 

 

 

 

 

 

 

paid losses

62R

(b)

 

-

 

-

 

-

Net Income (loss) , NAIC SAP

 

 

$

561

$

(265)

$

(321)

Statutory surplus, NY SAP

 

 

$

5,995

$

5,923

$

6,238

State prescribed or permitted practices - addition (charge):

 

 

 

 

 

 

 

 

Non-tabular discounting

65

(a)

 

(133)

 

(73)

 

(86)

Credits for collection risk on certain asbestos reinsurance recoveries

62R

(c)

 

(54)

 

(61)

 

(43)

Adverse Development Cover

62R

(d)

 

(854)

 

(920)

 

(689)

Present the consideration received/paid in relation to the loss reserves within

 

 

 

 

 

 

 

 

paid losses

62R

(b)

 

-

 

-

 

-

Statutory surplus, NAIC SAP

 

 

$

4,954

$

4,869

$

5,420

(a)Impacts Reserves for losses and loss adjustment expenses within the Statements of Liabilities, Capital and Surplus and Losses incurred within the Statements of Operations and Changes in Capital and Surplus.

(b)Impacts Losses incurred and Premiums earned within the Statements of Operations and Changes in Capital and Surplus.

(c)Impacts Provision for reinsurance within the Statements of Liabilities, Capital and Surplus and the change in Provision for reinsurance within the Statements of Operations and Changes in Capital and Surplus.

(d)Impacts Special surplus funds from reinsurance within the Statements of Liabilities, Capital and Surplus. Although the application of prospective reinsurance treatment to the ADC results in no overall changes to surplus, the permitted practice applied results in any gain being restricted and reported in segregated surplus and does not form part of the Company's Unassigned surplus.

C.Use of Estimates in the Preparation of the Financial Statements

The preparation of statutory financial statements in accordance with NY SAP requires the application of accounting policies that often involve a significant degree of judgment. The Company's accounting policies that are most dependent on the application of estimates and assumptions are considered critical accounting estimates and are related to the determination of:

∙Reserves for losses and loss adjustment expenses ("LAE") including estimates and recoverability of the related reinsurance assets;

∙Legal contingencies;;

∙Other than temporary impairment ("OTTI") losses on investments;

∙Fair value of certain financial assets, impacting those investments measured at fair value in the Statements of Admitted Assets and Liabilities, Capital and Surplus, as well as unrealized gains (losses) included in Capital and Surplus; and

∙Income tax assets and liabilities, including the recoverability and admissibility of net deferred tax assets and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset.

These accounting estimates require the use of assumptions, including some that are highly uncertain at the time of estimation. It is reasonably possible that actual experience may materially differ from the assumptions used and therefore the Company's statutory financial condition, results of operations and cash flows could be materially affected.

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11 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

D. Accounting Policy Differences

NAIC SAP is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America ("US GAAP"). NAIC SAP varies from US GAAP in certain significant respects, including:

Transactions

NAIC SAP Treatment

US GAAP Treatment

 

 

 

Policy Acquisition Costs

Costs are immediately expensed and are included in

Costs directly related to the successful acquisition of

Principally brokerage commissions and

Other Underwriting Expenses, except for reinsurance

new or renewal insurance contracts are deferred and

premium taxes arising from the issuance

ceding commissions received in excess of the cost to

amortized over the term of the related insurance

of insurance contracts.

acquire business which are recognized as a deferred

coverage.

 

liability and amortized over the period of the

 

 

reinsurance agreement.

 

 

 

 

Unearned Premiums, Unpaid Losses

Presented net of reinsurance recoverable.

Presented gross of reinsurance with corresponding

and Loss Expense Liabilities

 

reinsurance recoverable assets for ceded unearned

 

 

premiums and reinsurance recoverable on unpaid

 

 

losses.

 

 

 

Retroactive reinsurance contracts

Gains and losses are recognized in earnings

Gains are deferred and amortized over the settlement

 

immediately and surplus is segregated to the extent

period of the ceded claim recoveries. Losses are

 

pretax gains are recognized. Certain retroactive

immediately recognized in the Statements of

 

affiliate or related party reinsurance contracts are

Operations.

 

accounted for as prospective reinsurance if there is no

 

 

gain in surplus as a result of the transaction.

 

 

 

 

Investments in Bonds held as:

Investment grade securities (rated by NAIC as class 1

All available for sale investments are carried at fair

1) available for sale

or 2) are carried at amortized cost. Non- investment

value with changes in fair value, net of applicable

2) fair value option

grade securities (NAIC rated 3 to 6) are carried at the

taxes, reported in accumulated other comprehensive

 

lower of amortized cost or fair value.

income within shareholder's equity.

 

 

Fair value option investments are carried at fair value

 

 

with changes in fair value, net of applicable projected

 

 

income taxes, reported in Net Investment Income.

Investments in Equity Securities

Carried at fair value with unrealized gains and losses

All equity securities that do not follow the equity

 

reported, net of applicable taxes, in the Statements of

method of accounting, are measured at fair value with

 

Changes in Capital and Surplus.

changes in fair value recognized in earnings.

 

 

 

Investments in Limited Partnerships,

Carried at the underlying US GAAP equity with

If aggregate interests allow the holding entity to

Hedge Funds and Private Equity

results from the investment's operations recorded, net

exercise more than significant influence (typically

Interests

of applicable taxes, as unrealized gains (losses)

more than 3%), the investment is recorded as an

 

directly in the Statements of Changes in Capital and

equity method investment wherein the Company's

 

Surplus.

pro rata share of income or loss for the period, is

 

 

recorded as net investment income and adjusted

 

 

against the carrying value of the asset. Similar equity

 

 

method investments in investment company entities

 

 

(eg: hedge funds) is adjusted for the Company's pro

 

 

rata share of income or loss for the period which is

 

 

based on the Net Asset Value ("NAV") with changes

 

 

in value recorded to Net Investment Income.

 

 

Where the aggregate interests do not allow the entity

 

 

to exercise significant influence (typically less than

 

 

3%), the investment is recorded at as equity

 

 

investment fair valued through net investment

 

 

income. Similar equity investment in investment

 

 

companies (eg: hedge funds) are recorded at NAV

 

 

with changes in value recorded to Net Investment

 

 

Income.

 

 

 

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12 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Transactions

NAIC SAP Treatment

US GAAP Treatment

 

 

 

Investments in Subsidiary, Controlled

Subsidiaries are not consolidated.

Consolidation is required when there is a

and Affiliated Entities (SCAs)

 

determination that the affiliated entity is a variable

 

 

interest entity ("VIE") and the reporting entity has a

 

 

variable interest and the power to direct the activities

 

 

of the VIE. The VIE assessment would consider

 

 

various factors including limited partnership (LP)

 

 

status and inherent rights of equity investors.

 

The equity investment in SCAs are accounted for

 

 

under the equity method and recorded as Common

Investments in SCAs that are voting interest entities

 

stock investments. Dividends are recorded within Net

(VOE) with majority voting rights are generally

 

Investment Income.

consolidated.

 

 

Investments in SCAs where the holding entity

 

 

exercises significant influence (generally ownership

 

 

of>3% voting interests for LPs and similar entities

 

 

and between 20 percent and 50 percent for other

 

 

entities) are recorded at equity value. The change in

 

 

equity is included within operating income.

Statement of Cash Flows

Statutory Statements of Cash Flows must be

The Statements of Cash Flows can be presented using

 

presented using the direct method. Changes in cash,

the direct or indirect methods, however are typically

 

cash equivalents, and short-term investments and

presented using the indirect method. Presentation is

 

certain sources of cash are excluded from operational

limited to changes in cash and cash equivalents

 

cash flows.

(short-term investments are excluded).

 

 

 

Deferred Federal Income Taxes

Deferred income taxes are established for the

The provision for deferred income taxes is recorded

 

temporary differences between tax and book assets

as a component of income tax expense, as a

 

and liabilities, subject to limitations on admissibility

component of the Statements of Operations, except

 

of tax assets.

for changes associated with items that are included

 

 

within other comprehensive income where such items

 

Changes in deferred income taxes are recorded within

are recorded net of applicable income taxes.

 

capital and surplus and have no impact on the

 

 

Statements of Operations.

 

 

 

 

Statutory Adjustments

Certain asset balances designated as nonadmitted,

All assets and liabilities are included in the financial

(applied to certain assets including

such as some intangible assets and certain

statements. Provisions for uncollectible receivables

goodwill, furniture and equipment,

investments in affiliated entities are excluded from

are established as valuation allowances and are

deferred taxes in excess of limitations,

the Statements of Admitted Assets and are reflected as

recognized as expense within the Statements of

prepaid expenses, overdue receivable

deductions from capital and surplus.

Operations.

balances and unsecured reinsurance

 

 

amounts)

 

 

 

 

 

The effects on the financial statements of the variances between NAIC SAP and US GAAP, although not reasonably determinable, are presumed to be material.

E.Significant Statutory Accounting Policies

Premiums

Premiums for insurance and reinsurance contracts are recorded as gross premiums written as of the effective date of the policy. Premiums are earned primarily on a pro-rata basis over the term of the related insurance coverage. Premiums collected prior to the effective date of the policy are recorded as advance premiums, reported as a liability and not considered income until due. Extended reporting endorsements are reflected as premiums written and are earned on a pro-rata basis over the stated term of the endorsement unless the term of the endorsement is indefinite in which case premiums are fully earned at inception of the endorsement along with the recognition of associated loss and LAE.

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13 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Unearned premium reserves are established on an individual policy basis, reflecting the terms and conditions of the coverage being provided. Unearned premium reserves represent the portion of premiums written relating to the unexpired terms of coverage as of the date of the financial statements. For policies with coverage periods equal to or greater than thirteen months and generally not subject to cancellation or modification by the Company, premiums are earned using a prescribed percentage of completion method. Additional unearned premium reserves for policies exceeding thirteen months are established as greater of three prescribed tests.

Reinsurance premiums are typically earned over the same period as the underlying policies, or risks, covered by the contracts. As a result, the earnings pattern of a reinsurance contract generally written for a 12-month term may extend up to 24 months, reflecting the inception dates of the underlying attaching policies throughout the 12-month period of the reinsurance contract. Reinsurance premiums ceded are recognized as a reduction in revenues over the period reinsurance coverage is provided.

Insurance premiums billed and outstanding for 90 days or more are nonadmitted and charged against Unassigned surplus.

Premiums for retrospectively rated contracts are initially recorded based on the expected loss experience and are earned on a pro-rata basis over the term of the related insurance coverage. Additional or returned premium is recorded if the estimated loss experience differs from the initial estimate and is immediately recognized in earned premium. The Company records accrued retrospectively rated premiums as written premiums. Adjustments to premiums for changes in the level of exposure to insurance risk are generally determined based upon audits conducted after the policy expiration date.

Gross written premiums net of ceded written premiums ("Net written premiums") that were subject to retrospective rating features as of December 31, 2019, 2018 and 2017 were as follows:

Years ended December 31,

 

2019

 

2018

 

2017

Net written premiums subject to retrospectively rated contracts

$

91

$

93

$

105

Percentage of total net written premiums

 

1.7%

 

1.9%

 

2.1%

As of December 31, 2019 and 2018, the admitted portion of accrued premiums related to the Company's retrospectively rated contracts were $490 and $511, respectively, which will be billed in future periods based primarily on the payment of the underlying expected losses and LAE. Unsecured amounts associated with these accrued retrospective premiums were $41 and $60 as of December 31, 2019 and 2018, respectively. Ten percent of the amount of accrued retrospective premiums receivable not offset by retrospective return premiums or other liabilities to the same party, other than loss and LAE reserves, or collateral (collectively referred to as the unsecured amount) have been nonadmitted in the amount of $6 and $10 as of December 31, 2019 and 2018, respectively.

High Deductible

The Company establishes loss reserves for high deductible policies net of the insured's contractual deductible (such deductibles are referred to as "reserve credits"). The Company establishes a nonadmitted asset for ten percent of paid losses recoverable in excess of collateral held on an individual insured basis, or for one hundred percent of paid losses recoverable where no collateral is held and amounts are outstanding for more than ninety days. Additionally, the Company establishes an allowance for doubtful accounts for such paid losses recoverable in excess of collateral and after nonadmitted assets. Similarly, the Company does not recognize reserve credit offsets to its estimate of loss reserves where such credits are deemed uncollectible, as the Company ultimately bears credit risk on the underlying policies' insurance obligations.

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14 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following table shows the counterparty exposure on unpaid claims and billed recoverable on paid claims for high deductibles by line of business as of December 31, 2019 and 2018:

 

 

 

 

Reserve Credits on

 

Recoverable on Paid

 

 

December 31, 2019

 

Gross Loss Reserves

 

Unpaid Claims

 

Claims

 

Total

Allied Lines

$

423

$

423

$

7

$

430

General Liabilities

 

481

 

481

 

6

 

487

Workers Compensation

 

3,352

 

3,352

 

35

 

3,387

Total

$

4,256

$

4,256

$

48

$

4,304

As of December 31, 2019, both on-balance sheet and off-balance sheet collateral pledged to the Company related to deductible and paid recoverables was $150 and $3,013, respectively. Unsecured high deductible amounts related to unpaid claims and for paid recoverables for 2019 were $1,142, or 27% of the total high deductible. Additionally, as of December 31, 2019, the Company had recoverables on paid claims greater than 90 days overdue of $23, of which $6 have been nonadmitted.

 

 

 

 

Reserve Credits on

 

Recoverable on Paid

 

 

December 31, 2018

 

Gross Loss Reserves

 

Unpaid Claims

 

Claims

 

Total

Allied Lines

$

390

$

390

$

10

$

400

General Liabilities

 

464

 

464

 

9

 

473

Workers Compensation

 

3,419

 

3,419

 

51

 

3,470

Total

$

4,273

$

4,273

$

70

$

4,343

As of December 31, 2018, both on-balance sheet and off-balance sheet collateral pledged to the Company related to deductible and paid recoverables was $206 and $3,068, respectively. Unsecured high deductible amounts related to unpaid claims and for paid recoverables for 2018 were $1,069, or 25% of the total high deductible. Additionally, as of December 31, 2018, the Company had recoverables on paid claims greater than 90 days overdue of $72, of which $7 have been nonadmitted.

The following table shows the deductible amounts for the highest ten unsecured high deductible policies as of December 31, 2019 and 2018:

Counterparty*

 

Unsecured High Deductible Amounts

December 31,

 

2019

 

2018

Counterparty 1

$

142

$

129

Counterparty 2

 

89

 

103

Counterparty 3

 

86

 

75

Counterparty 4

 

74

 

55

Counterparty 5

 

69

 

54

Counterparty 6

 

54

 

54

Counterparty 7

 

51

 

48

Counterparty 8

 

35

 

48

Counterparty 9

 

22

 

21

Counterparty 10

 

21

 

20

*Actual counterparty is not named and may vary year over year. Additionally, a group of entities under common control is regarded as a single counterparty.

Deposit Accounting

Direct insurance transactions where management determines there is insufficient insurance risk transfer are recorded as deposits unless the policy was issued (i) in respect of the insured's requirement for evidence of coverage pursuant to applicable statutes (insurance statutes or otherwise), contractual terms or normal business practices, (ii) in respect of an excess insurer's requirement for an underlying primary insurance policy in lieu of self-insurance, or (iii) in compliance with filed forms, rates and/or rating plans.

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15 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Assumed and ceded reinsurance contracts which do not transfer a sufficient amount of insurance risk are recorded as deposits with the net consideration paid or received recognized as a deposit asset or liability, respectively. Deposit assets are admitted if (i) the assuming company is licensed, accredited or qualified by the PA DOI, or (ii) the collateral (i.e., funds withheld, letters of credit or trusts) provided by the reinsurer meets all the requirements of the NY SAP, as applicable. The deposit asset or liability is adjusted by calculating the effective yield on the deposit to reflect the actual payments made or received to date and expected future payments with a corresponding credit or charge to Other income (expense) in the Statements of Operations.

Deposit assets are recorded to Other assets within the Statements of Admitted Assets, refer to Note 11A. Deposit liabilities are recorded to Other liabilities within the Statements of Liabilities, Capital and Surplus, refer to Note 11B.

Premium Deficiency

The Company periodically reviews its expected ultimate losses with respect to its unearned premium reserves. A premium deficiency loss and related liability is established if the unearned premium reserves and related future investment income are collectively not sufficient to cover the expected ultimate loss projection. For purposes of premium deficiency tests, contracts are grouped in a manner consistent with how policies are marketed, serviced, and measured for the profitability of such contracts. As of December 31, 2019 and 2018, the Company did not incur any premium deficiency losses.

Retroactive Reinsurance

Reinsurance transactions involving the transfer of loss and LAE reserves associated with loss events that occurred prior to the effective date of the transfer are recorded as retroactive reinsurance and reported separately from Reserves for losses and loss adjustment expenses in the Statements of Liabilities, Capital and Surplus. Initial pre-tax gains or losses are recorded in Retroactive reinsurance gain within the Statements of Operations and Changes in Capital and Surplus with surplus gains recorded as Special surplus funds from reinsurance which is a component of Capital and Surplus that is restricted from dividend payment. Amounts recorded in Special surplus funds from reinsurance are considered to be earned surplus (i.e., transferred to Unassigned surplus) only when, and to the extent that, cash recoveries from the assuming entity exceed the consideration paid by the ceding entity. Special surplus funds from retroactive reinsurance are maintained separately for each respective retroactive reinsurance agreement; Special surplus funds from retroactive reinsurance account write-in entry on the balance sheet is adjusted, upward or downward, to reflect any subsequent increase or reduction in reserves ceded. The reduction in the special surplus funds is limited to the lesser of amounts recovered by the Company in excess of consideration paid or the surplus gain in relation to such agreement.

To the extent that the transfer of loss and LAE reserves associated with loss events that occurred prior to the effective date of the transfer is between affiliated entities and neither entity records a gain or loss in surplus, the transaction qualifies as an exception in the NAIC SAP accounting guidance and is accounted for as prospective reinsurance.

Insurance Related Acquisition Costs

Commissions, premium taxes, and certain underwriting costs are expensed as incurred and are included in Other underwriting expenses. The Company records an unearned ceding commission accrual equal to the excess of the ceding commissions received from reinsurers compared to the anticipated acquisition cost of the business ceded. This amount is amortized as an increase to income over the effective period of the reinsurance agreement in proportion to the amount of insurance coverage provided.

Provisions for Allowances and Unauthorized or Overdue Reinsurance

The recoverability of certain assets, including insurance receivables with counterparties, is reviewed periodically by management. A minimum reserve, as required under the NAIC Annual Statement Instructions for Property and Casualty Companies for Schedule F–Provision for Overdue Reinsurance for uncollectible reinsurance is recorded with an additional reserve required if an entity's experience indicates that a higher amount should be provided. The minimum reserve is recorded as a liability and the change between years is recorded as a gain or loss directly to Unassigned fund (surplus) in the Statement of Liabilities, Capital and Surplus. Any reserve over the minimum amount is recorded on the statement of operations by reversing the accounts previously utilized to establish the reinsurance recoverable. Various factors are taken into consideration when assessing the recoverability of these asset balances including: the age of the related amounts due and the nature of the unpaid balance; disputed balances, historical recovery rates and any significant decline in the credit standing of the counterparty. PA SAP is applied in the determination of the Company's Provision for reinsurance with concurrence from the NY DFS.

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16 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Reserves for Losses and Loss Adjustment Expenses

Reserves for case incurred but not reported ("IBNR") and LAE losses are determined on the basis of actuarial specialists' evaluations and other estimates, including historical loss experience. The methods of making such estimates and for establishing the resulting reserves are reviewed and updated based on available information, and any resulting adjustments are recorded in the current period. Accordingly, newly established reserves for losses and LAE, or subsequent changes, are charged to income as incurred. In the event of loss recoveries through reinsurance agreements, loss and LAE reserves are reported net of reinsurance amounts recoverable for unpaid losses and LAE. Losses and LAE ceded through reinsurance are netted against losses and LAE incurred. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsurance policy based upon the terms of the underlying contract. See Note 5 for further discussion of policies and methodologies for estimating the liabilities and losses.

Workers' compensation reserves are discounted in accordance with NY DFS statutes; see Note 5 for further details.

Salvage and subrogation recoverables are estimated using past experience adjusted for current trends, and any other factors that would modify past experience. Estimated salvage and subrogation recoveries (net of associated expenses) are deducted from the liability for unpaid claims or losses.

Structured Settlements

In the ordinary course of business, the Company enters into structured settlements to settle certain claims. Structured settlements involve the purchase of an annuity by the Company, generally from life insurers, to fund future claim obligations. In the event the life insurers providing the annuity do not meet their obligations, the Company would, in certain cases, become liable for the payments of benefits. As of December 31, 2019 there were no incurred losses, there has been no default by any of the participating life insurers and the Company has not reduced its loss reserves for any annuities purchased where it is both the owner and the payee. Management believes that based on the financial strength of the life insurers involved (mostly affiliates) the likelihood of the Company becoming liable, or incurring an incremental loss, is remote.

The estimated loss reserves eliminated by such structured settlement annuities and the unrecorded loss contingencies as of December 31, 2019 and 2018 were $1,303 and $1,328, respectively.

As of December 31, 2019, the Company had annuities with aggregate statement values in excess of one percent of its policyholders' surplus with life insurer affiliates as follows:

Life Insurance Company

State of Domicile

Licensed in

 

Statement Value

New York

 

 

 

 

 

 

 

 

 

 

American General Life Insurance Company of Texas

Texas

No

$

154

American General Life Insurance Company of Delaware

Delaware

No

 

266

The United State Life Insurance Company in the City of New York

New York

Yes

 

830

Fair Value of Financial Instruments

The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions.

Assets and liabilities recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of three 'levels' based upon the observability of inputs available in the marketplace as discussed below:

∙Level 1: Fair value measurements that are based upon quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. The quoted price for such instruments is not subject to adjustment.

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17 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

∙Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

∙Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions as to the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company's policy is to recognize transfers in and out at the end of the reporting period, consistent with the date of the determination of fair value (See Note 4 for the balance and activity of financial instruments). The valuation methods and assumptions used in estimating the fair values of financial instruments are as follows:

∙The fair values of bonds, mortgage loans, unaffiliated common stocks and preferred stocks are based on fair values that reflect the price at which a security would sell in an arm's length transaction between a willing buyer and seller. As such, sources of valuation include third party pricing sources, stock exchanges, brokers or custodians or the NAIC Capital Markets and Investment Analysis Office ("NAIC IAO").

∙The fair value of derivatives is determined using quoted prices in active markets and other market evidence whenever possible, including market-based updates, broker or dealer quotations or alternative pricing sources.

∙The carrying value of all other financial instruments approximates fair value due to the short term nature.

Cash Equivalents and Short Term Investments

Cash equivalents are short-term, highly liquid investments, with original maturities of three months or less, that are both; (a) readily convertible to known amounts of cash; and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Highly liquid debt securities with maturities of greater than three months but less than twelve months from the date of purchase are classified as short-term investments. Short-term investments are carried at amortized cost which approximates fair value.

Bonds and Loan Backed and Structured Securities

Bonds include any securities representing a creditor relationship, whereby there is a fixed schedule for one or more future payments such as US government agency securities, municipal securities, corporate and convertible bonds, and fixed income instruments. Loan-backed and structured securities ("LBaSS") include residential mortgage-backed securities ("RMBS"), commercial mortgage-backed securities ("CMBS"), and asset- backed securities ("ABS"), pass-through securities, lease-backed securities, equipment trust certificates, loan-backed securities issued by special purpose corporations or trusts, and securities where there is not direct recourse to the issuer.

Bonds and LBaSS with an NAIC IAO designation of "1" or "2" (considered to be investment grade) are carried at amortized cost. Bonds and LBaSS with an NAIC designation of "3", "4", "5", "5*", "6" or "6*" (considered to be non-investment grade) are carried at the lower of amortized cost or fair value. LBaSS fair values are primarily determined using independent pricing services and broker quotes. Bonds and LBaSS that have not been filed and have not received a designation in over a year, from the NAIC IAO, are assigned a 6* designation and carried at zero, with unrealized losses charged to surplus. Bond and LBaSS securities that have been filed and received a 6* designation can carry a value greater than zero. Bond and LBaSS securities are assigned a 5* designation when the following conditions are met: a) the documentation required for a full credit analysis did not exist, b) the issuer/obligor has made all contractual interest and principal payments, and c) an expectation of repayment of interest and principal exists. Amortization of premium or discount on bonds and LBaSS is calculated using the effective yield method.

Additionally, mortgage-backed securities ("MBS") and ABS prepayment assumptions are obtained from an outside vendor or internal estimates. The retrospective adjustment method is used to account for the effect of unscheduled payments affecting high credit quality securities, while securities with less than high credit quality and securities for which the collection of all contractual cash flows is not probable are both accounted for using the prospective adjustment method.

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18 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Mortgage Loans

Mortgage loans on real estate are carried at unpaid principal balances, net of unamortized premiums, discounts and impairments. Pre-payments of principal are recorded as a reduction in the mortgage loan balance. If a mortgage loan provides for a prepayment penalty or acceleration fee in the event the loan is liquidated prior to its scheduled termination date, such fees is reported as investment income when received. Interest income includes interest collected, the change in interest income due and accrued, the change in unearned interest income as well as amortization of premiums, discounts, and deferred fees and recorded as earned in investment income in the statement of operations.

Impaired loans are identified by management as loans in which it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The Company accrues income on impaired loans to the extent it is deemed collectible and the loan continues to perform under its original or restructured contractual terms. Non-performing loan interest income that is delinquent more than 90 days is generally recognized on a cash basis.

Mortgage loans are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan's effective interest rate, ii) the loan's observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status, debt service coverage, loan-to-value ratio, property occupancy, profile of the borrower and of the major property tenants, and economic trends in the market where the property is located. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance.

Internal credit risk ratings are assigned based on the consideration of risk factors including past due status, debt service coverage, loan-to-value ratio or the ratio of the loan balance to the estimated value of the property, property occupancy, profile of the borrower and of the major property tenants, economic trends in the market where the property is located, and condition of the property.

Preferred Stocks

Perpetual preferred stocks with an NAIC rating of "P1" or "P2", having characteristics of equity securities are carried at fair value. Redeemable preferred stocks with an NAIC rating of "RP1" or "RP2", which have characteristics of debt securities, are carried at book value. All preferred stocks with an NAIC rating of "3" through "6" are carried at the lower of book or fair value.

Unaffiliated Common Stock Securities

Unaffiliated common stock investments are carried at fair value with changes in fair value recorded as unrealized gains (losses) in Unassigned surplus, or as realized losses in the event a decline in value is determined to be other than temporary. For FHLB capital stock, which is only redeemable at par, the fair value shall be presumed to be par, unless considered other-than-temporarily impaired.

Investments in subsidiaries and affiliated companies

Investments in non-publicly traded affiliates are recorded based on the underlying equity of the respective entity's financial statements as presented on a basis consistent with the nature of the affiliates' operations (including any nonadmitted amounts). The Company's share of undistributed earnings and losses of affiliates is recorded as unrealized gains (losses) in Unassigned surplus.

Investments in joint ventures, partnerships and limited liability companies

Other invested assets include joint ventures and partnerships and are accounted for under the equity method, based on the most recent financial statements of the entity. Changes in carrying value are recorded as unrealized gains (losses). Additionally, other invested assets include investments in collateralized loans that are recorded at the lower of amortized cost and the fair value of the underlying collateral. Changes in carrying value resulting from adjustments where the fair value is less than amortized cost are recorded as unrealized gains (losses) in Unassigned surplus, while changes resulting from amortization are recorded as Net investment income.

Derivatives

Derivative financial instruments are accounted for at fair value using quoted prices in active markets and other market evidence whenever possible, including market-based inputs to valuation models, broker or dealer quotations or alternative pricing sources, reduced by the amount of collateral held or posted by the Company with respect to the derivative position. Changes in carrying value are recorded as unrealized gains (losses) in Unassigned surplus.

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19 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Net investment income and gain/loss

Investment income is recorded as earned and includes interest, dividends and earnings from subsidiaries, loans and joint ventures. Realized gains or losses on the disposition or impairment of investments are determined on the basis of specific identification.

Investment income due and accrued is assessed for collectability. The Company records a valuation allowance on investment income receivable when it is probable that an amount is uncollectible by recording a charge against investment income in the period such determination is made. Any amounts receivable over 90 days past due, or 180 days past due for mortgage loans, that do not have a valuation allowance are nonadmitted by the Company.

Evaluating Investments for Other-Than-Temporary Impairment

If a bond is determined to have an OTTI in value the cost basis is written down to fair value as its new cost basis, with the corresponding charge to Net realized capital gains (losses) as a realized loss.

For bonds, other than loan-backed and structured securities, an OTTI shall be considered to have occurred if it is probable that the Company will not be able to collect all amounts due under the original contractual terms.

For loan-backed and structured securities, an OTTI shall be considered to have occurred if the fair value of a security is below its amortized cost and management intends to sell or does not have the ability and intent to retain the security until recovery of the amortized cost (i.e., intent based impairment). When assessing the intent to sell a security, management evaluates relevant facts and circumstances including, but not limited to, decisions to rebalance the investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing.

In general, a security is considered a candidate for OTTI evaluation if it meets any of the following criteria:

∙The Company may not realize a full recovery on their investment based on lack of ability or intent to hold a security to recovery;

∙Fundamental credit risk of the issuer exists; and/or

∙Other qualitative/quantitative factors exist indicating an OTTI has occurred.

When a credit-related OTTI is present, the amount of OTTI recognized as a realized capital loss is equal to the difference between the investment's amortized cost basis and the present value of cash flows expected to be collected regardless of management's ability or intent to hold the security.

Common and preferred stock investments whose fair value is less than their carrying value or is at a significant discount to acquisition value are considered to be potentially impaired. For securities with unrealized losses, an analysis is performed. Factors include:

∙If management intends to sell a security that is in an unrealized loss position then an OTTI loss is considered to have occurred;

∙If the investments are trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended period of time based on facts and circumstances of the investment; or

∙If a discrete credit event occurs resulting in: (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under bankruptcy law or any similar laws intended for court supervised reorganization of insolvent enterprises; or, (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or

∙If there are other factors precluding a full recovery of the investment.

Limited partnership investments whose fair value is less than its book value with a significant unrealized loss are considered candidates for OTTI. OTTI factors that are periodically considered include:

∙If an order of liquidation or other fundamental credit issues with the partnership exists;

∙If there is a significant reduction in scheduled cash flow activities between the Company and the partnership or fund during the year;

∙If there is an intent to sell, or the Company may be required to sell, the investment prior to the recovery of cost of the investment; or

∙If other qualitative/quantitative factors indicating an OTTI exist based on facts and circumstances of the investment.

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20 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Equities in Pools & Associations

The Company accounts for its participation in the business pooled via the Association (see Note 6) and its deposit in the Association by recording the Company's share of:

∙direct and assumed premium as gross premium,

∙underwriting and net investment income results in the Statements of Operations and Changes in Capital and Surplus,

∙insurance and reinsurance balances in the Statements of Admitted Assets,

∙all other non-insurance assets and liabilities held by the Association, all of which are on its members' behalf, as Equities in Underwriting Pools and Associations in the Statements of Admitted Assets, and

∙cashflows in the Statements of Cash Flows.

Foreign Currency Translation

Foreign currency denominated assets and liabilities are translated into U.S. dollars using rates of exchange prevailing at the period end date. Revenues, expenses, gains, losses and surplus adjustments, of non-U.S. operations are translated into U.S. dollars based on weighted average exchange rate for the period. All gains or losses due to translation adjustments recorded as unrealized gains (losses) within Unassigned surplus in the Statements of Liabilities, Capital and Surplus. All realized gains and losses due to exchange differences between settlement date and transaction date resulting from foreign currency transactions, not in support of foreign insurance operations, are included in Net realized capital gains (losses) in the Statements of Operations and Changes in Capital and Surplus.

Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans

The Company's employees participate in various AIG-sponsored defined benefit pension and postretirement plans. AIG, as sponsor, is ultimately responsible for the maintenance of these plans in compliance with applicable laws. The Company is not directly liable for obligations under these plans. AIG charges the Company and its insurance company affiliates pursuant to intercompany expense sharing agreements; the expenses are then shared by the pool participants in accordance with the pooling agreement.

The Company incurred employee related costs related to defined benefit and defined contribution plans during 2019, 2018 and 2017 of $7, $5 and $10, respectively.

Income Taxes

The Company files a consolidated U.S. federal income tax return with AIG. AIG has more than 300 subsidiaries which form part of this tax return. A complete listing of the participating subsidiaries is included in Note 8.

The Company is allocated U.S. federal income taxes based upon a tax sharing agreement (the "Tax Sharing Agreement") with AIG, effective January 1, 2018, and approved by the Company's Board of Directors. This agreement provides that the Company shall incur tax results that would have been paid or received by such company if it had filed a separate federal income tax return, with limited exceptions.

Additionally, while the agreement described above governs the current and deferred income tax recorded in the income tax provision, the amount of cash that will be paid or received for U.S. federal income taxes may at times be different. The terms of this agreement are based on principles consistent with the allocation of income tax expense or benefit on a separate company basis, except that:

∙The sections of the Internal Revenue Code relating to the Base Erosion Anti-abuse Tax ("BEAT") are applied, but only if the AIG consolidated group is subject to BEAT in the Consolidated Tax Liability, and;

∙The impact of Deferred Intercompany Transactions (as defined in Treas. Reg. §1.1502-13(b)(1), if the "intercompany items" from such transaction, as defined in Treas. Reg. §1.1502-13(b)(2), have not been taken into account pursuant to the "matching rule" of Treas. Reg. §1.1502-13(c)), are excluded from current taxation, provided however, that the Company records the appropriate deferred tax asset and/or deferred tax liability related to the gain or loss and includes such gain or loss in its separate return tax liability in the subsequent tax year when the deferred tax liability or deferred tax asset becomes current.

The Company has an enforceable right to recoup federal income taxes in the event of future net losses that it may incur or to recoup its net losses carried forward as an offset to future net income subject to federal income taxes.

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21 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Under the Tax Sharing Agreement, income tax liabilities related to uncertain tax positions and tax authority audit adjustments ("TAAAs") shall remain with the Company for which the income tax liabilities relate. Furthermore, if and when such income tax liabilities are realized or determined to no longer be necessary, the responsibility for any additional income tax liabilities, benefits or rights to any refunds due, remains with the Company.

In accordance with Circular Letter 1979-33 issued by the NY DFS, AIG shall establish and maintain an escrow account for amounts where the Company's separate return liability exceeds the AIG consolidated tax liability. As of December 31, 2019, the Company's separate return liability did not exceed the AIG consolidated tax liability and therefore no amounts were maintained in escrow.

Deferred Taxes

The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized ("adjusted gross deferred tax asset"). The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires management to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it would be to support a conclusion that a valuation allowance is not needed.

The Company's framework for assessing the recoverability of deferred tax assets requires it to consider all available evidence, including:

∙the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;

∙the sustainability of recent operating profitability of our subsidiaries;

∙the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;

∙the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing taxable temporary differences; and

∙prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset.

The adjusted gross deferred tax asset is then assessed for statutory admissibility. The reversing amount eligible for loss carryback or the amount expected to be realized in three years is admissible, subject to the defined surplus limitation. The remaining adjusted gross deferred tax asset can be admitted to the extent of offsetting deferred tax liabilities.

2.Accounting Adjustments to Statutory Basis Financial Statements

A. Change in Accounting Principles

2019 Changes

In 2019, the Company revised its accounting policy of investments in hedge funds accounted for as equity method investments. These investments will no longer be accounted for using a one month lag. The cumulative impact on the Company's surplus as of December 31, 2018 was a decrease of $39 and is reflected as a Cumulative effect of changes in accounting principles within surplus.

In 2019, there were no significant changes or modifications in the Statements of Statutory Accounting Principles ("SSAP").

2018 and 2017 Changes

In 2018 and 2017, there were no significant changes or modifications in the Statements of Statutory Accounting Principles ("SSAP").

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22 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

B.Adjustments to Surplus

During 2019, 2018 and 2017 the Company identified corrections that resulted in after-tax statutory adjustments to beginning capital and surplus of $21, $72 and $38, respectively. In accordance with SSAP No. 3, Accounting Changes and Corrections of Errors ("SSAP 3"), the corrections of errors have been reported in the 2019, 2018 and 2017 statutory financial statements as adjustments to Unassigned surplus. The impact of the 2019 corrections would have decreased the 2018 and 2017 pre-tax income by $1 and $2, respectively. Management has concluded that the effects of these errors on the previously issued financial statements were immaterial based on a quantitative and qualitative analysis. The impact to surplus, assets and liabilities as of January 1, 2019, 2018 and 2017 is presented in the following tables:

 

Policyholders'

Total Admitted

 

 

2019 Adjustments

 

Surplus

 

Assets

Total Liabilities

Balance at December 31, 2018

$

5,923

$

24,667

$

18,744

Adjustments to beginning Capital and Surplus:

 

 

 

 

 

 

Asset corrections

 

-

 

-

 

-

Liability corrections

 

9

 

-

 

(9)

Income tax corrections

 

12

 

12

 

-

Total adjustments to beginning Capital and Surplus

 

21

 

12

 

(9)

Balance at January 1, 2019 as adjusted

$

5,944

$

24,679

$

18,735

An explanation for each of the adjustments for prior period corrections is described below:

Liability corrections – The decrease in total liabilities is primarily the result of a) Premium overstatement and b) foreign exchange translation correction on Japan Yen business.

Income tax corrections – The increase in the tax assets is primarily the result of a) corrections to prior period balances for adjustments to the current and deferred tax assets and liabilities and b) the tax effect of the corresponding change in asset realization and liability corrections.

 

Policyholders'

Total Admitted

 

 

2018 Adjustments

 

Surplus

 

Assets

Total Liabilities

Balance at December 31, 2017

$

6,238

$

25,638

$

19,400

Adjustments to beginning Capital and Surplus:

 

 

 

 

 

 

Asset corrections

 

56

 

56

 

-

Liability corrections

 

6

 

-

 

(6)

Income tax corrections

 

10

 

10

 

-

Total adjustments to beginning Capital and Surplus

 

72

 

66

 

(6)

Balance at January 1, 2018 as adjusted

$

6,310

$

25,704

$

19,394

An explanation for each of the adjustments for prior period corrections is described below:

Asset corrections – The increase in net admitted assets is primarily the result of a) an understatement in the carrying value of an investment impacting 2017 financials; b) deposit accounting not recorded within contract terms.

Liability corrections – The decrease in total liabilities is primarily the result of a) a net decrease in unearned premium reserves on multi-year direct policies; partially offset by b) an increase due to an over-cession of premiums and losses on a specific program.

Income tax corrections – The increase in the tax assets is primarily the result of a) corrections to prior period balances for adjustments to the current and deferred tax assets and liabilities and b) the tax effect of the corresponding change in asset realization and liability corrections.

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23 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

 

Policyholders'

Total Admitted

 

 

2017 Adjustments

 

Surplus

 

Assets

Total Liabilities

Balance at December 31, 2016

$

6,448

$

29,684

$

23,236

Adjustments to beginning Capital and Surplus:

 

 

 

 

 

 

Asset corrections

 

27

 

27

 

-

Liability corrections

 

3

 

-

 

(3)

Income tax corrections

 

8

 

8

 

-

Total adjustments to beginning Capital and Surplus

 

38

 

35

 

(3)

Balance at January 1, 2017 as adjusted

$

6,486

$

29,719

$

23,233

An explanation for each of the adjustments for prior period corrections is described below:

Asset corrections - The increase in net admitted assets is primarily the result of the recording of real estate step up gains.

Liability corrections – The decrease in total liabilities is primarily the result of a) a decrease due to an over-accrual of insurance taxes, licenses and fees; partially offset by b) an increase resulting from the understatement of losses; c) an increase due to understatement of interest expense on environmental funds held and d) an increase for direct business which was being accounted for as Deposit Accounting in error.

Income tax corrections – The increase in the tax assets is primarily the result of a) corrections to prior period balances for adjustments to the current and deferred tax assets and liabilities and b) the tax effect of the corresponding change in asset realization and liability corrections.

3.Investments

A.Bond Investments

The reconciliations from carrying value to fair value of the Company's bond investments as of December 31, 2019 and 2018 are outlined in the tables below:

 

 

 

 

Gross

 

Gross

 

 

 

 

Carrying

 

Unrealized

 

Unrealized

 

Fair

December 31, 2019

 

Value

 

Gains

 

Losses

 

Value

U.S. governments

$

267

$

3

$

-

$

270

All other governments

 

116

 

2

 

(2)

 

116

States, territories and possessions

 

361

 

34

 

-

 

395

Political subdivisions of states, territories and possessions

 

298

 

9

 

-

 

307

Special revenue and special assessment obligations and all

 

 

 

 

 

 

 

 

non-guaranteed obligations of agencies and authorities

 

 

 

 

 

 

 

 

and their political subdivisions

 

2,492

 

97

 

(2)

 

2,586

Industrial and miscellaneous

 

9,743

 

614

 

(17)

 

10,340

Total

$

13,277

$

759

$

(21)

$

14,014

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24 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

 

 

 

 

Gross

 

Gross

 

 

 

 

Carrying

 

Unrealized

 

Unrealized

 

Fair

December 31, 2018

 

Value

 

Gains

 

Losses

 

Value

U.S. governments

$

57

$

1

$

-

$

58

All other governments

 

258

 

1

 

(4)

 

255

States, territories and possessions

 

432

 

20

 

(3)

 

449

Political subdivisions of states, territories and possessions

 

382

 

13

 

(1)

 

394

Special revenue and special assessment obligations and all

 

 

 

 

 

 

 

 

non-guaranteed obligations of agencies and authorities

 

 

 

 

 

 

 

 

and their political subdivisions

 

2,636

 

53

 

(27)

 

2,662

Industrial and miscellaneous

 

10,769

 

461

 

(113)

 

11,117

Total

$

14,534

$

549

$

(148)

$

14,935

The carrying values and fair values of bonds at December 31, 2019, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

 

 

Carrying

 

Fair

December 31, 2019

 

Value

 

Value

Due in one year or less

$

388

$

390

Due after one year through five years

 

2,317

 

2,385

Due after five years through ten years

 

1,529

 

1,598

Due after ten years

 

1,535

 

1,654

Structured securities

 

7,552

 

8,031

Total

$

13,321

$

14,058

B.Mortgage Loan Investments

The minimum and maximum lending rates for mortgage loans during 2019 were:

 

Minimum

Maximum

Category

Lending Rate %

Lending Rate %

Office

1.8%

6.6%

Industrial

1.5%

1.5%

Multi-Family

2.8%

6.0%

Residential

2.8%

4.8%

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25 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured or guaranteed or purchase money mortgages was 80 percent. The Company's mortgage loan portfolio is current as to payments of principal and interest, for both periods presented. There were no significant amounts of nonperforming mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the periods presented. The Company did not have any advanced amounts for taxes or assessments. The following table details an analysis of mortgage loans as of December 31, 2019 and 2018:

 

 

 

 

 

 

Residential

 

 

Commercial

 

 

 

 

 

 

 

Farm

 

 

Insured

 

 

All Other

 

Insured

 

All Other

 

Mezzanine

 

Total

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

$

 

-

$

 

-

$

398

$

-

$

2,066

$

73

$

2,537

30

- 59 days past due

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

60

- 89 days past due

 

 

-

 

 

-

 

1

 

-

 

-

 

-

 

1

90

- 179 days past due

 

 

-

 

 

-

 

1

 

-

 

-

 

-

 

1

Greater than 180 days past due

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

Total

$

 

-

$

 

-

$

400

$

-

$

2,066

$

73

$

2,539

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

$

 

-

$

 

-

$

486

$

-

$

2,191

$

-

$

2,677

30

- 59 days past due

 

 

-

 

 

-

 

2

 

-

 

-

 

-

 

2

60

- 89 days past due

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

90

- 179 days past due

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

Greater than 180 days past due

 

 

-

 

 

-

 

-

 

-

 

-

 

-

 

-

Total

$

 

-

$

 

-

$

488

$

-

$

2,191

$

-

$

2,679

C.Loan-Backed and Structured Securities

The Company did not record any non-credit OTTI losses during 2019, 2018, and 2017 for LBaSS.

As of December 31, 2019, 2018, and 2017, the Company held LBaSS for which it recognized $13, $43 and $19, respectively, of credit-related OTTI based on the present value of projected cash flows being less than the amortized cost of the securities.

The following table shows the aggregate unrealized losses and related fair value relating to those securities for which an OTTI has not been recognized as of the reporting date and the length of time that the securities have been in a continuous unrealized loss position:

Years Ended December 31,

 

2019

 

 

2018

Aggregate unrealized losses:

 

 

 

 

 

Less than 12 Months

$

 

9

$

36

12 Months or longer

$

 

10

$

41

Aggregate related fair value of securities with unrealized losses:

 

 

 

 

 

Less than 12 Months

$

 

1,013

$

1,723

12 Months or longer

$

 

511

$

1,376

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

D.Unrealized losses

The fair value of the Company's bonds and stocks that had gross unrealized losses (where fair value is less than amortized cost) as of December 31,

2019 and 2018 are set forth in the tables below:

December 31, 2019

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

Description of Securities

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

U.S. governments

$

22

$

-

$

-

$

-

$

22

$

-

All other governments

 

13

 

(7)

 

7

 

(6)

 

20

 

(13)

States, territories and possessions

 

-

 

-

 

-

 

-

 

-

 

-

Political subdivisions of states,

 

 

 

 

 

 

 

 

 

 

 

 

territories and possessions

 

4

 

-

 

-

 

-

 

4

 

-

Special revenue and special assessment

 

 

 

 

 

 

 

 

 

 

 

 

obligations and all non-guaranteed

 

 

 

 

 

 

 

 

 

 

 

 

obligations of agencies and authorities

 

 

 

 

 

 

 

 

 

 

 

 

and their political subdivisions

 

126

 

(1)

 

149

 

(1)

 

275

 

(2)

Industrial and miscellaneous

 

1,289

 

(25)

 

444

 

(17)

 

1,733

 

(42)

Total bonds

$

1,454

$

(33)

$

600

$

(24)

$

2,054

$

(57)

Affiliated

 

-

 

-

 

-

 

-

 

-

 

-

Non-affiliated

 

26

 

-

 

-

 

-

 

26

 

-

Total common stocks

$

26

$

-

$

-

$

-

$

26

$

-

Total bonds and stocks

$

1,480

$

(33)

$

600

$

(24)

$

2,080

$

(57)

 

 

 

 

 

 

 

 

December 31, 2018

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

Description of Securities

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

U.S. governments

$

13

$

- $

22

$

- $

35

$

-

All other governments

 

67

 

(3)

 

124

 

(4)

 

191

 

(7)

States, territories and possessions

 

51

 

(3)

 

44

 

(1)

 

95

 

(4)

Political subdivisions of states,

 

 

 

 

 

 

 

 

 

 

 

 

territories and possessions

 

49

 

(1)

 

52

 

(1)

 

101

 

(2)

Special revenue and special assessment

 

 

 

 

 

 

 

 

 

 

 

 

obligations and all non-guaranteed

 

 

 

 

 

 

 

 

 

 

 

 

obligations of agencies and authorities

 

 

 

 

 

 

 

 

 

 

 

 

and their political subdivisions

 

264

 

(3)

 

723

 

(24)

 

987

 

(27)

Industrial and miscellaneous

 

3,360

 

(99)

 

1,825

 

(67)

 

5,185

 

(166)

Total bonds

$

3,804

$

(109)

$

2,790

$

(97)

$

6,594

$

(206)

Affiliated

 

-

 

-

 

10

 

(5)

 

10

 

(5)

Non-affiliated

 

9

 

(1)

 

-

 

-

 

9

 

(1)

Total common stocks

$

9

$

(1)

$

10

$

(5)

$

19

$

(6)

Total bonds and stocks

$

3,813

$

(110)

$

2,800

$

(102)

$

6,613

$

(212)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

E.Realized Gains Losses

Proceeds from sales and associated gross realized gains (losses) for the years ended December 31, 2019, 2018 and 2017 were as follows:

Years ended December 31

 

2019

 

 

 

2018

 

 

 

2017

 

 

 

 

 

 

Equity

 

 

 

Equity

 

 

 

Equity

 

 

Bonds

 

Securities

 

Bonds

 

Securities

 

Bonds

 

Securities

Proceeds from sales

$

2,020

$

108

$

1,924

$

339

$

5,648

$

59

Gross realized gains

 

88

 

8

 

14

 

21

 

79

 

5

Gross realized losses

 

(17)

 

-

 

(27)

 

-

 

(69)

 

-

F.Derivative Financial Instruments

The Company holds currency as well as interest rate derivative financial instruments in the form of currency swaps, interest rate swaps, and currency forwards and futures to manage risk from currency exchange rate fluctuations, and the impact of such fluctuations to surplus and cash flows on investments or loss reserves. While not accounted for under hedge accounting, the currency derivatives are economic hedges of the Company's exposure to fluctuations in the value of receipts on certain investments held by the Company denominated in foreign currencies (primarily GBP and EUR), or of the Company's exposure to fluctuations in recorded amounts of loss reserves denominated in foreign currencies (primarily JPY). Additionally, interest rate derivatives were entered into to manage risk from fluctuating interest rates in the market, and the impact of such fluctuations to surplus and cash flows on investments or loss reserves. The interest rate derivatives are cash flow hedges of the company's exposure to fluctuations in LIBOR/EURIBOR rates on investments in collateralized loan obligations.

Market Risk

The Company is exposed under these types of contracts to fluctuations in value of the swaps and forwards and variability of cash flows due to changes in interest rates and exchange rates.

Credit Risk

The current credit exposure of the Company's derivative contracts is limited to the fair value of such contracts. Credit risk is managed by entering into transactions with creditworthy counterparties and obtaining collateral.

Cash Requirements

The Company is subject to collateral requirements on its currency and interest rate derivative contracts. Additionally, the Company is required to make currency exchanges on fixed dates and fixed amounts or fixed exchange rates, or make a payment in the amount of foreign currency physically received on certain foreign denominated investments. For interest rate swaps, the Company is required to make payments based on a floating rate (LIBOR/EURIBOR) on a fixed payment date.

The Company has determined that the currency and interest rate derivatives do not qualify for hedge accounting under the criteria set forth in SSAP No. 86, Accounting for Derivative Instruments and Hedging Transactions ("SSAP 86"). As a result, the Company's currency and interest rate contracts are accounted for at fair value and the changes in fair value are recorded as unrealized gains (losses) within the Statements of Operations and Changes in Capital and Surplus until the contract expires, paid down or is redeemed early. In the event a contract is fully redeemed before its expiration, the related unrealized amounts will be recognized in Net realized capital gains (losses). Furthermore, if the contract has periodic payments or fully matures, any related unrealized amounts are recognized in Net investment income earned.

The Company did not apply hedge accounting to any of its derivatives for any period in these financial statements. The following tables summarize the outstanding notional amounts, the fair values and the realized and unrealized gains or losses of the derivative financial instruments held by the Company for the years ended December 31, 2019 and 2018.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

 

 

December 31, 2019

 

Year ended December 31, 2019

 

 

Outstanding

 

 

 

Realized capital

 

Unrealized capital

Derivative Financial Instrument

 

Notional Amount

 

Fair Value

 

gains/ (losses)

 

gains / (losses)

Swaps

$

2,075

$

(9)

$

-

$

(13)

Forwards

 

54

 

-

 

-

 

-

Total

$

2,129

$

(9)

$

-

$

(13)

 

 

 

 

 

 

 

December 31, 2018

 

Year ended December 31, 2018

 

 

Outstanding

 

 

 

Realized Capital

 

Unrealized capital

Derivative Financial Instrument

 

Notional Amount

 

Fair Value

 

gains/(losses)

 

gains / losses

Swaps

$

1,334

$

5

$

(2)

$

25

Forwards

 

-

 

-

 

-

 

(1)

Total

$

1,334

$

5

$

(2)

$

24

G.Other Invested Assets

During 2019, 2018, and 2017, the Company recorded OTTI losses on investments in joint ventures and partnerships of $48, $91, and $81, respectively.

H. Investment Income

The Company did not have any accrued investment income receivables over 90 days past due as of December 31, 2019 and 2018. Investment expenses of $30, $36 and $42 were included in Net investment income earned for the years ended December 31, 2019, 2018 and 2017, respectively.

I.Restricted Assets

The Company had securities deposited with regulatory authorities, as required by law, with a carrying value of $1,604 and $1,676 as of December 31, 2019 and 2018, respectively.

4.Fair Value of Financial Instruments

The following tables present information about financial instruments carried at fair value on a recurring basis and indicate the level of the fair value measurement as of December 31, 2019 and 2018:

December 31, 2019

 

Level 1

 

Level 2

 

Level 3

 

Total

Bonds

$

-

$

227

$

139

$

366

Common stocks

 

14

 

-

 

37

 

51

Mutual funds

 

-

 

-

 

2

 

2

Derivative assets

 

-

 

29

 

-

 

29

Derivative liabilities

 

-

 

(37)

 

-

 

(37)

Total

$

14

$

219

$

178

$

411

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

December 31, 2018

 

Level 1

 

Level 2

 

Level 3

 

Total

Bonds

$

-

$

578

$

96

$

674

Common stocks

 

111

 

-

 

25

 

136

Mutual funds

 

2

 

-

 

-

 

2

Derivative assets

 

-

 

22

 

-

 

22

Derivative liabilities

 

-

 

(17)

 

-

 

(17)

Total

$

113

$

583

$

121

$

817

A.Fair Value Measurements in Level 3 of the Fair Value Hierarchy

The following tables show the balance and activity of financial instruments classified as level 3 in the fair value hierarchy for the years ended December 31, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

Purchases,

 

 

 

 

Beginning

 

 

 

 

 

Total Gains

 

Total Gains

 

Sales,

 

 

 

 

Balance at

 

 

 

 

 

(Losses)

 

(Losses)

 

Issuances,

 

Balance at

 

 

January 1,

 

Transfers into

 

Transfers out

 

included in

 

Included in

 

Settlements,

 

December 31,

 

 

2019

 

Level 3

 

of Level 3

 

Net Income

 

Surplus

 

Net

 

2019

Bonds

$

96

$

203

$

(67)

$

(3)

$

10

$

(100)

$

139

Common stocks

 

25

 

-

 

-

 

(2)

 

-

 

14

 

37

Mutual Funds

 

-

 

1

 

-

 

-

 

1

 

-

 

2

Total

$

121

$

204

$

(67)

$

(5)

$

11

$

(86)

$

178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases,

 

 

 

 

Beginning

 

 

 

 

 

Total Gains

 

Total Gains

 

Sales,

 

 

 

 

Balance at

 

 

 

 

 

(Losses)

 

(Losses)

 

Issuances,

 

Balance at

 

 

January 1,

 

Transfers into

 

Transfers out

 

included in

 

included in

 

Settlements,

 

December 31,

 

 

2018

 

Level 3

 

of Level 3

 

Net Income

 

Surplus

 

Net

 

2018

Bonds

$

65

$

98

$

(141)

$

(13)

$

(2)

$

89

$

96

Common Stocks

 

22

 

1

 

(26)

 

15

 

(2)

 

15

 

25

Total

$

87

$

99

$

(167)

$

2

$

(4)

$

104

$

121

Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data or when the asset is no longer carried at fair value. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant inputs becoming observable or when a long-term interest rate significant to a valuation becomes short-term and this observable. Transfers out of Level 3 can also occur due to favorable credit migration resulting in a higher NAIC designation. Securities are generally transferred into Level 3 due to a decrease in market transparency, downward credit migration and an overall increase in price disparity for certain individual security types. The Company's policy is to recognize transfers in and out at the end of the reporting period, consistent with the date of the determination of fair value.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments may not be reasonably available to the Company, balances shown below may not equal total amounts reported for such Level 3 assets.

 

Fair Value at December 31,

 

 

 

 

2019

Valuation Technique

Unobservable Input

Range (Weighted Average)

 

 

 

Assets:

 

 

 

 

 

Bonds

$

91

Discounted cash flow

Yield

3.18%-3.4% (3.29%)

B.Fair Value of all Financial Instruments

The table below details the fair value of all financial instruments except for those accounted for under the equity method as of December 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Not

 

 

Aggregate

 

Admitted

 

 

 

 

 

 

 

Practicable

December 31, 2019

 

Fair Value

 

Assets

 

Level 1

 

Level 2

 

Level 3

(Carry Value)

Bonds

$

14,014

$

13,277

$

2

$

10,277

$

3,735

$

-

Cash equivalents and short term investments

 

342

 

342

 

280

 

61

 

-

 

-

Common stock

 

61

 

61

 

14

 

9

 

37

 

-

Derivative assets

 

29

 

29

 

-

 

29

 

-

 

-

Derivative liabilities

 

(37)

 

(37)

 

-

 

(37)

 

-

 

-

Mortgage loans

 

2,615

 

2,539

 

-

 

-

 

2,615

 

-

Mutual funds

 

2

 

2

 

-

 

-

 

2

 

-

Preferred stock

 

71

 

17

 

-

 

71

 

-

 

-

Total

$

17,097

$

16,230

$

296

$

10,410

$

6,389

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not

 

 

Aggregate

 

Admitted

 

 

 

 

 

 

 

Practicable

December 31, 2018

 

Fair Value

 

Assets

 

Level 1

 

Level 2

 

Level 3

(Carry Value)

Bonds

$

14,935

$

14,534

$

- $

10,809

$

4,126

$

-

Cash equivalents and short term investments

 

191

 

191

 

134

 

57

 

-

 

-

Common stock

 

145

 

145

 

111

 

9

 

25

 

-

Derivative assets

 

22

 

22

 

-

 

22

 

-

 

-

Derivative liabilities

 

(17)

 

(17)

 

-

 

(17)

 

-

 

-

Mortgage loans

 

2,673

 

2,679

 

-

 

-

 

2,673

 

-

Mutual funds

 

2

 

2

 

2

 

-

 

-

 

-

Preferred stock

 

50

 

49

 

-

 

50

 

-

 

-

Total

$

18,001

$

17,605

$

247

$

10,930

$

6,824

$

-

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

5.Reserves for Losses and Loss Adjustment Expenses

A roll forward of the Company's net reserves for losses and LAE as of December 31, 2019, 2018 and 2017, is set forth in the table below:

December 31,

 

2019

 

2018

 

2017

Reserves for losses and LAE, end of prior year

$

10,935

$

12,115

$

12,210

Incurred losses and LAE related to:

 

 

 

 

 

 

Current accident year

 

3,772

 

4,000

 

4,700

Prior accident year

 

(39)

 

260

 

277

Total incurred losses and LAE

$

3,733

$

4,260

$

4,977

Paid losses and LAE related to:

 

 

 

 

 

 

Current accident year

 

(1,214)

 

(1,182)

 

(1,140)

Prior accident year

 

(3,722)

 

(4,258)

 

(3,932)

Total paid losses and LAE

 

(4,936)

 

(5,440)

 

(5,072)

Reserves for losses and LAE, end of current year

$

9,732

$

10,935

$

12,115

During 2019, after applying the impact of the ADC, the Company reported net favorable incurred loss and LAE of approximately $39. This favorable incurred includes $37 favorable due to changes in discount. This results in a favorable prior year development ("PYD") of $2.

The favorable prior year development is generally a result of the following:

∙Favorable development on 2017 Hurricanes and 2017 California Wildfires subrogation recoverables in Commercial Property and Personal Lines;

∙Favorable development on Workers Compensation, both guaranteed cost business and large deductible and Defense Base Act business (covering government contractors serving at military bases overseas) where the Company reacted to favorable loss trends in recent accident years.

During 2018, after applying the impact of the ADC, the Company reported net unfavorable prior year development on loss and LAE reserves of approximately $260, which includes a decrease in loss reserve discount on prior accident years of $24. Under the ADC, 80 percent of the reserve risk on substantially all of the Company's commercial long-tail exposures for accident years 2015 and prior is ceded to NICO. Excluding the impact of the ADC, the Company recognized unfavorable prior year loss reserve development of $491.

The 2018 unfavorable prior year development is generally a result of the following:

∙Unfavorable prior year development in excess casualty, driven by the combination of construction defect and construction wrap claims from accident years 2015 and prior where we reacted to significant increases in severity and longer claim reporting patterns, as well as higher than expected loss severity in accident years 2016 and 2017, which led to an increase in estimates for these accident years;

∙Unfavorable prior year development in financial lines, primarily from directors & officers (D&O) and employment practices liability (EPLI) policies covering corporate and national insureds as well as private and not-for-profit insureds. This development was predominantly in accident years 2014-2017 and resulted largely from increases in severity as the frequency of class action lawsuits increased in those years; and

∙Unfavorable prior year development in personal lines reflecting an increase in estimates in respect of the California Wildfires and Hurricane Irma.

During 2017, after applying the impact of the ADC, the Company reported net unfavorable prior year development on loss and LAE reserves of approximately $277, which includes a decrease in loss reserve discount on prior accident years of $45. Under the ADC, 80 percent of the reserve risk on substantially all of the Company's commercial long-tail exposures for accident years 2015 and prior is ceded to NICO. Excluding the impact of the ADC, the Company recognized unfavorable prior loss reserve development of $452.

The 2017 unfavorable prior year development is generally a result of the following:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

∙Unfavorable prior year development in excess casualty and primarily general liability products within Other Liability – Occurrence line of business, driven primarily by increases in underlying severity and greater than expected loss experience in accident year 2016 as well as increased development from claims related to construction defects and construction wrap business (largely from accident years 2006 and prior);

∙Unfavorable prior year development in excess casualty and directors and officers ("D&O") within Other Liability - Claims-Made line of business, covering privately owned and not-for-profit insureds. The D&O development was predominantly in accident year 2016 and resulted largely from increases in bankruptcy-related claims and fiduciary liability claims for large educational institutions; and

∙Unfavorable prior year development primarily driven by commercial auto business in the program business unit. A significant portion of this development came from accident year 2016 with much of it related to programs that have been terminated over the past year.

The Company's reserves for losses and LAE have been reduced for anticipated salvage and subrogation of $310, $249 and $252 for the years ended December 31, 2019, 2018 and 2017, respectively. The Company paid $13, $9 and $32 in the reporting period to settle 148, 204 and 233 claims related to extra contractual obligations or bad faith claims stemming from lawsuits for the years ended December 31, 2019, 2018 and 2017, respectively.

A.Asbestos/Environmental Reserves

The Company has indemnity claims asserting injuries from toxic waste, hazardous substances, asbestos and other environmental pollutants and alleged damages to cover the clean-up costs of hazardous waste dump sites (environmental claims). Estimation of environmental claims loss reserves is a difficult process, as these claims, which emanate from policies written in 1986 and prior years, cannot be estimated by conventional reserving techniques. Environmental claims development is affected by factors such as inconsistent court resolutions, the broadening of the intent of policies and scope of coverage and increasing number of new claims. The Company and other industry members have and will continue to litigate the broadening judicial interpretation of policy coverage and the liability issues. If the courts continue in the future to expand the intent of the policies and the scope of the coverage, as they have in the past, additional liabilities would emerge for amounts in excess of reserves held. This emergence cannot now be reasonably estimated, but could have a material impact on the Company's future operating results or financial position.

The Company has exposure to asbestos and/or environmental losses and LAE costs arising from pre-1986 general liability, product liability, commercial multi-peril and excess liability insurance or reinsurance policies as noted below:

 

 

 

Asbestos Losses

 

 

 

Environmental Losses

 

December 31,

 

2019

 

2018

 

2017

 

2019

 

2018

 

2017

Direct

 

 

 

 

 

 

 

 

 

 

 

 

Loss and LAE reserves, beginning of year

$

727

$

797

$

838

$

285

$

215

$

255

Incurred losses and LAE

 

54

 

(17)

 

2

 

51

 

97

 

1

Calendar year paid losses and LAE

 

(47)

 

(53)

 

(43)

 

(29)

 

(27)

 

(41)

Loss and LAE Reserves, end of year

$

734

$

727

$

797

$

307

$

285

$

215

Assumed reinsurance

 

 

 

 

 

 

 

 

 

 

 

 

Loss and LAE reserves, beginning of year

$

316

$

258

$

249

$

17

$

19

$

15

Incurred losses and LAE

 

4

 

76

 

27

 

2

 

(1)

 

6

Calendar year paid losses and LAE

 

(15)

 

(18)

 

(18)

 

(1)

 

(1)

 

(2)

Loss and LAE Reserves, end of year

$

305

$

316

$

258

$

18

$

17

$

19

Net of reinsurance

 

 

 

 

 

 

 

 

 

 

 

 

Loss and LAE reserves, beginning of year

$

1

$

1

$

1

$

-

$

-

$

-

Incurred losses and LAE

 

-

 

-

 

-

 

-

 

-

 

-

Calendar year paid losses and LAE

 

-

 

-

 

-

 

-

 

-

 

-

Loss and LAE Reserves, end of year

$

1

$

1

$

1

$

-

$

-

$

-

The Company estimates the full impact of the asbestos and environmental exposure by establishing case basis reserves on all known losses and establishes bulk reserves for IBNR losses and LAE based on management's judgment after reviewing all the available loss, exposure, and other information.

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33 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

A me r ica n Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Included in the above table are loss and LAE - IBNR and bulk reserves arising from pre-1986 general liability, product liability, commercial multi- peril and excess liability insurance or reinsurance policies as noted below:

Asbestos

 

Loss Reserves

 

 

LAE Reserves

 

December 31,

 

2019

 

2018

 

2019

 

2018

Direct basis:

$

364

$

350

$

40

$

39

Assumed reinsurance basis:

 

116

 

125

 

13

 

14

Net of ceded reinsurance basis:

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

Environmental

 

Loss Reserves

 

 

LAE Reserves

 

December 31,

 

2019

 

2018

 

2019

 

2018

Direct basis:

$

133

$

112

$

57

$

48

Assumed reinsurance basis:

 

6

 

5

 

2

 

2

Net of ceded reinsurance basis:

 

-

 

-

 

-

 

-

B.Loss Portfolio Transfer

On February 12, 2018, the Company and certain AIG affiliated insurers (collectively, the "Reinsureds" (as cedants), each of which is a member of the Combined Pool) commuted certain loss portfolio reinsurance agreements with Eaglestone (as reinsurer). The commuted reinsurance agreements with Eaglestone related to environmental impairment liability and related exposures, pre-1986 environmental, public entity, occupational accident exposures, miscellaneous run-off general liability and workers' compensation exposures, and selected physicians and surgeons professional liability policies. The commutation settlement was equal to the statutory balances as of the January 1, 2017 effective date.

On the same date, the Reinsureds (as cedants), Eaglestone (as original reinsurer), and Fortitude Re (as replacement reinsurer), a partially owned AIG subsidiary and registered Class 4 and Class E reinsurer in Bermuda, entered into a novation agreement whereby obligations of excess workers' compensation business previously ceded by the Reinsureds to Eaglestone were transferred to Fortitude Re. The novation consideration was equal to the total statutory reserves ceded to Eaglestone as of the January 1, 2017 effective date.

Further, and also on the same date, a book of assumed reinsurance business of the Reinsureds, which was previously embedded in one of the LPTs that was commuted, was ceded back to Eaglestone as a separate LPT ("Re-ceded Portfolio") on a fund transferred basis with settlement equal to the statutory balances as of the January 1, 2017 effective date, resulting in no gain in surplus to the Reinsureds.

Finally, the Reinsureds (as cedants) ceded substantially all commuted business as detailed above through various LPT reinsurance agreements to Fortitude Re (as replacement reinsurer). Additionally, at the same time, the Reinsureds also ceded to Fortitude Re additional business related to certain excess workers' compensation (accident years 2011 and 2012), certain pollution legal liability, buffer trucking, some healthcare primary and excess product coverages businesses. The consideration for the above reinsurance agreements is equal to the statutory book value of the ceded liabilities as of the January 1, 2017 effective date, resulting in no gain in surplus to the Reinsureds. The consideration was settled on a funds withheld basis. Interest on the funds withheld is determined by the total return of a certain earmarked portfolio of assets owned by the Reinsureds.

The recording of these transactions by the Reinsureds in the first quarter of 2018 required the reversal of interest expense on funds held due to Eaglestone on the commuted portfolios and the recognition of interest expense due to Fortitude Re on the commuted portfolios and the new cessions, in order to record the effect of the transaction as of the stated effective date of January 1, 2017.

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34 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

A reconciliation of change in reserves and corresponding consideration (paid) received for the above transactions between Eaglestone, Fortitude Re and the Reinsureds for the effective date of January 1, 2017 are shown below:

 

 

 

 

 

 

LPTs

 

 

 

 

 

 

 

 

 

(Previously

 

 

 

 

 

 

 

 

 

commuted

 

 

 

 

 

 

 

 

 

business and

 

 

 

 

 

 

 

 

 

2016 Exit

Re-ceded

 

 

Company

 

Novation

 

Commutation

 

Portfolio)

Portfolio

 

Total

Reserves

 

 

 

 

 

 

 

 

 

 

Eaglestone Reinsurance Company

$

(1,577)

$

(2,895)

$

-

$

41

$

(4,431)

Fortitude Reinsurance Company

 

1,577

 

-

 

4,013

 

-

 

5,590

Combined Pool Companies:

 

 

 

 

 

 

 

 

 

 

National Union Fire Ins. Co. of Pittsburgh, Pa.

-

 

1,013

 

(1,405)

 

(14)

 

(406)

American Home Assurance Company

 

-

 

1,013

 

(1,405)

 

(14)

 

(406)

Lexington Insurance Company

 

-

 

869

 

(1,203)

 

(13)

 

(347)

Total Combined Pool

 

-

 

2,895

 

(4,013)

 

(41)

 

(1,159)

Consideration (Paid) Received as Funds Held, Cash and Securities

 

 

 

 

 

 

 

Eaglestone Reinsurance Company

 

(1,734)

 

(2,895)

 

-

 

41

 

(4,588)

Fortitude Reinsurance Company

 

1,734

 

-

 

4,013

 

-

 

5,747

Combined Pool Companies:

 

 

 

 

 

 

 

 

 

 

National Union Fire Ins. Co. of Pittsburgh, Pa.

-

 

1,013

 

(1,405)

 

(14)

 

(406)

American Home Assurance Company

 

-

 

1,013

 

(1,405)

 

(14)

 

(406)

Lexington Insurance Company

 

-

 

869

 

(1,203)

 

(13)

 

(347)

Total Combined Pool

 

-

 

2,895

 

(4,013)

 

(41)

 

(1,159)

The below table presents the reserves as of December 31, 2017 that were transferred during 2018 between Eaglestone, Fortitude Re and the Reinsureds for the above transactions:

 

 

 

 

 

 

LPTs

 

 

 

 

 

 

 

 

 

(Previously

 

 

 

 

 

 

 

 

 

commuted

 

 

 

 

 

 

 

 

 

business and

 

 

 

 

 

 

 

 

 

2016 Exit

Re-ceded

 

Total Change in

Company

 

Novation

 

Commutation

 

Portfolio)

Portfolio

 

Reserves

Eaglestone Reinsurance Company

$

(1,477)

$

(2,567)

$

-

$

32

$

(4,012)

Fortitude Reinsurance Company

 

1,477

 

-

 

3,442

 

-

 

4,919

Combined Pool Companies:

 

 

 

 

 

 

 

 

 

 

National Union Fire Ins. Co. of Pittsburgh, Pa.

-

 

898

 

(1,205)

 

(11)

 

(318)

American Home Assurance Company

 

-

 

898

 

(1,205)

 

(11)

 

(318)

Lexington Insurance Company

 

-

 

771

 

(1,032)

 

(10)

 

(271)

Total Combined Pool

 

-

 

2,567

 

(3,442)

 

(32)

 

(907)

C.Discounting of Liabilities for Unpaid Losses or Unpaid Loss Adjustment Expenses

The Company discounts its workers' compensation (both tabular and non-tabular) reserves.

The calculation of the Company's tabular discount is based upon the mortality table used in the 2007 US Decennial Life Table, and applying a 3.5 percent interest rate. Only case basis reserves are subject to tabular discounting. The December 31, 2019 and 2018 liabilities include $570 and $569 of such discounted reserves, respectively.

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35 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Tabular Reserve Discount

The table below presents the amount of tabular discount applied to the Company's reserves as of December 31, 2019, 2018 and 2017.

Lines of Business

 

2019

 

2018

 

2017

Workers' Compensation

 

 

 

 

 

 

Case Reserves

 

 

$

 

$

 

$

124

135

134

As of December 31, 2019, 2018 and 2017, the tabular case reserve discount is presented net of the ceded discount related to the ADC of $203, $184, and $162, respectively.

Non-Tabular Discount

The Company's non-tabular workers' compensation case reserves are discounted using the Company's own payout pattern and a 5 percent interest rate, as prescribed by NY SAP. The table below presents the amount of non-tabular discount applied to the Company's reserves as of December 31, 2019, 2018 and 2017.

Lines of Business

 

2019

 

2018

 

2017

Workers' Compensation

 

 

 

 

 

 

Case Reserves

$

133

$

73

$

86

As of December 31, 2019, 2018 and 2017, the non-tabular case reserve discount is presented net of the ceded discount related to the ADC of $142, $193, and $187, respectively.

6.Related Party Transactions

A.Combined Pooling Agreement 2017 Pooling Restructure Transaction

In 2017, the Combined Pooling Agreement was amended and restated among the twelve member companies. In order to rebalance the capital accounts of the companies in the Combined Pool, certain participants of the Combined Pool made distributions or received contributions of capital during March 2017. The change in the Combined Pooling Agreement had no effect on the Company's reported assets, liabilities, surplus, operations or cash flow, as the Company's participation in the pool remained the same.

B.American International Overseas Association

AIG formed the Association, a Bermuda exempted limited partnership, in 1976, as the pooling mechanism for AIG's international general insurance operations. At the time of forming the Association, the member companies thereto entered into an Inter-Reinsurance Agreement ("IRA") to govern the business pooled in the Association. Immediately prior to June 1, 2019, the participation percentages for the Association pool members companies are set forth in the table below:

 

NAIC Co.

Participation

Member Company

Code

Percent

Combined Pool Member companies, as follows:

 

 

National Union

19445

78%

New Hampshire

23841

12%

American Home

19380

10%

Effective June 1, 2019, the IRA was commuted. Notwithstanding the commutation, all of the business at issue continues to be pooled in accordance with the Combined Pooling Agreement referenced in Note 6A.

Therefore, the commutation has no net impact to the member companies of the Combined Pool. However, the commutation, together with associated operational changes, has resulted in an increase in direct underwriting activity being reported by certain member companies of the Combined Pool.

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36 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

C.Significant Transactions

The following table summarizes transactions (excluding reinsurance and cost allocation transactions) that occurred during 2019, 2018 and 2017 between the Company and affiliated companies in which the value exceeded one-half of one percent of the Company's admitted assets as of December 31, 2019, 2018 and 2017:

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

Assets Received by

 

Assets Transferred by

 

 

 

 

 

the Company

 

the Company

Date of

 

 

 

Statement

 

 

 

 

Transaction Explanation of Transaction

 

Name of Affiliate

 

Value

Description

Statement Value

Description

01/30/19

Purchase of securities

 

National Union

$

154

Securities

$

154

Cash

02/13/19

Return of Capital

 

AIG PC US

 

-

-

 

486

Securities

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

Assets Received by

 

Assets Transferred by

 

 

 

 

 

the Company

 

the Company

Date of

 

 

 

Statement

 

 

 

 

Transaction Explanation of Transaction

 

Name of Affiliate

 

Value

Description

Statement Value

Description

12/31/18

Capital Contribution

(a)

AIG PC US

$

150

Receivables

$

-

-

 

 

 

 

 

 

 

 

(a) Refer to Note 11 and 12 for more details.

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

Assets Received by

 

Assets Transferred by

 

 

 

 

 

the Company

 

the Company

Date of

 

 

 

Statement

 

 

 

 

Transaction Explanation of Transaction

 

Name of Affiliate

 

Value

Description

Statement Value

Description

01/19/17

Purchase of securities

 

AIG, Inc.

$

264

Securities

$

264

Cash

10/31/17

Purchase and sale of

 

Lexington

 

343

Securities

 

359

Securities

 

securities

 

 

 

 

 

 

 

 

10/31/17

Purchase of securities

 

Lexington

 

16

Cash

 

-

-

10/31/17

Purchase and sale of

 

National Union

 

499

Securities

 

507

Securities

 

securities

 

 

 

 

 

 

 

 

10/31/17

Purchase of securities

 

National Union

 

9

Cash

 

-

-

 

 

 

 

 

 

 

 

 

 

Share Repurchase

On January 23, 2019, NY DFS approved American Home's plan to distribute an amount of up to approximately $504 to its immediate parent, an increase in the par value of its common stock from $17 per share to $20 per share and a decrease in the minimum number of directors from 13 to

7.The distribution was accomplished via a share repurchase agreement with the per share repurchase price equal to the American Home's statutory book value per share calculated as of September 30, 2018.

On February 14, 2019, American Home repurchased 139,000 shares of its issued and outstanding common stock, resulting in a distribution to its immediate parent of $502 and a reduction in its common capital stock and gross paid in and contributed surplus of $2 and $500, respectively. On that same date, American Home filed an amendment to its charter with DFS to increase the par value of the American Home's common stock from $17 to $20 per share. The increase to the par value resulted in an increase of $5 to the American Home's common capital stock and a reduction to its gross paid in and contributed surplus of the same amount, post share repurchase.

AIG Global Real Estate Investment Corp. ("AIGGRE") Restructure

In 2018, the Company and several of its U.S. insurance company affiliates restructured their respective ownership interests in certain real estate equity investments previously originated by an affiliate, AIGGRE (including its investment management affiliates), by contributing such interests to three separate real estate investment funds managed by AIGGRE – AIGGRE U.S. Real Estate Fund I, LP ("U.S. Fund I"), AIGGRE U.S. Real Estate Fund II, LP ("U.S. Fund II" and, together with U.S. Fund I, the "U.S. Funds"), and AIGGRE Europe Real Estate Fund I S.C.SP ("Europe Fund I"). The U.S. Funds each closed on November 1, 2018.

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37 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

In connection with the closing of U.S. Fund I, the Company made a capital commitment to the fund of up to $276 (representing an approximately 23% equity interest therein), and contributed the Company's interests in certain real estate equity investments (with an aggregate fair value of approximately $209) and received a cash payment from the fund of approximately $24.

In connection with the closing of U.S. Fund II, the Company made a capital commitment to the fund of up to $621 (representing approximately 23% equity interest therein), and contributed to the fund the Company's interests in certain real estate equity investments (with an aggregate fair value of approximately $702) and received a cash payment from the fund of approximately $224.

Further, Europe Fund I closed on November 2, 2018. In connection with the closing of Europe Fund I, the Company made a capital commitment to the fund of up to $52 (representing an approximately 8% equity interest therein), and contributed cash to the fund (approximately $34).

In 2019, the Company and several of its U.S. insurance company affiliates established AIGGRE US Real Estate Fund III LP (U.S. Fund III), a real estate investment fund managed AIGGRE. At the closing of U.S. Fund III, on January 2, 2019, the Company made a capital commitment to the fund of up to $146 (representing an approximately 9.73% equity interest therein). In connection with the closing of U.S. Fund III, the Company contributed cash (approximately $23).

AIGGRE Europe Real Estate Fund II S.C.SP ("Europe II Fund") closed on March 8, 2019. In connection with the closing of Europe II Fund, the Company made a capital commitment to the fund of $43 (representing an approximate 7% equity interest therein), and contributed cash to the fund (approximately $4).

At December 31, 2018, the Company's unfunded capital commitment to U.S. Fund I, U.S. Fund II, and Europe Fund I, after certain additional capital was called, was approximately $91, $134, and $24, respectively.

At December 31, 2019, the Company's unfunded capital commitment to U.S. Fund I, U.S. Fund II, U.S. Fund III, Europe Fund I, and Europe Fund II, after certain additional capital was called, was approximately $91, $99, $97, $16, and $38, respectively.

The AIGGRE investments are presented as Other invested assets on the Statement of Admitted Assets.

D.Amounts Due to or from Related Parties

At December 31, 2019 and 2018, the Company reported the following receivables/payables balances from/to its Ultimate Parent, subsidiaries and affiliates (excluding reinsurance transactions). Intercompany agreements have defined settlement terms and related receivables are reported as nonadmitted if balances due remain outstanding more than ninety days past the due date as specified in the agreement.

As of December 31,

 

2019

 

2018

Balances with AIG PC US

$

-

$

150

Balances with other affiliates

 

9

 

134

Receivable from parent, subsidiaries and affiliates

$

9

$

284

Balances with National Union

$

117

$

524

Balances with other member pool companies

 

17

 

25

Balances with other affiliates

 

8

 

16

Payable to parent, subsidiaries and affiliates

$

142

$

565

Current federal and foreign income taxes (payable) recoverable under the Tax Sharing Agreement at December 31, 2019 and 2018 were $(2) and $(9), respectively.

The Company did not change its methods of establishing terms regarding any transactions with its affiliates during the years ended December 31, 2019 or 2018.

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38 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

E.Guarantees or Contingencies for Related Parties

The Company has issued guarantees whereby it unconditionally and irrevocably guarantees all present and future obligations and liabilities arising from the policies of insurance issued by certain insurers who, as of the guarantee issue date, were members of the AIG holding company group. The guarantees were provided in order to secure or maintain the guaranteed companies' rating status issued by certain rating agencies, as disclosed in Note 10.

F.Management, Service Contract and Cost Sharing Arrangements

As an affiliated company of AIG, the Company utilizes centralized services from AIG and its affiliates. The Company is allocated a charge for these services, based on the amount of incremental expense associated with operating the Company as a separate legal entity. The amount of expense allocated to the Company each period was determined based on an analysis of services provided to the Company.

The following table summarizes fees incurred related to affiliates that exceeded one-half of one percent of the Company's admitted assets during 2019, 2018 and 2017:

Affiliates

 

2019

 

2018

 

2017

AIG Claims Inc.

$

172

$

192

$

201

AIG PC Global Services, Inc.*

 

124

 

66

 

46

Total

$

296

$

258

$

247

*AIG PC Global Services, Inc. was below one-half of one percent in 2018 and 2017.

In 2019, 2018 and 2017 management service costs included severance expenses pertaining to an AIG-wide initiative to centralize work streams into lower cost locations and create a more streamlined organization.

G.Borrowed Money

The Company (among other affiliates) is a borrower under a Loan Agreement, with AIG, as lender, pursuant to which the Company may borrow funds from AIG from time to time (the "Loan Facility"). The aggregate amount of all loans that may be outstanding under the Loan Facility at a given time is $500. As of December 31, 2019 and 2018, the Company had no outstanding liability pursuant to this Loan Facility.

Significant debt terms and covenants include the following:

∙The Company must preserve and maintain its legal existence while maintaining all rights, privileges and franchises necessary to the normal conduct of its business;

∙The Company must take, or cause to be taken, all other actions reasonably necessary or desirable to preserve and defend the rights of the Lender to payment hereunder, and to assure to the Lender the benefits hereof, and;

∙The Company must not merge with or into or consolidate with any other person, sell, transfer or dispose of all or substantially all of its assets or undergo any change in the control of its voting stock unless (a) such merger or consolidation is with or into a wholly-owned subsidiary of Lender, (b) such sale or transfer is to a wholly-owned subsidiary of the Lender or (c) The Company receives the prior written authorization from the Lender.

There have been no violations of the terms and covenants associated with the debt issuance.

Refer to Note 11 E regarding funds borrowed from FHLB.

7.Reinsurance

In the ordinary course of business, the Company may use both treaty and facultative reinsurance to minimize its net loss exposure to a) any single catastrophic loss event; b) an accumulation of losses from a number of smaller events; or c) provide greater risk diversification. Based on the terms of the reinsurance contracts, a portion of expected IBNR losses will be recoverable in accordance with terms of the reinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR. Ceded amounts related to paid and unpaid losses and loss expenses with respect to these reinsurance agreements are generally substantially collateralized. The Company remains liable to the extent that the reinsurers do not meet their obligation under the reinsurance contracts after any collateral is exhausted, and as such, the financial condition of the reinsurers is regularly evaluated and monitored for concentration of credit risk. In addition, the Company assumes reinsurance from other insurance companies.

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39 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following table presents direct, assumed reinsurance and ceded reinsurance written and earned premiums for the years ended December 31, 2019, 2018 and 2017:

Years Ended December 31,

 

 

2019

 

 

 

2018

 

 

2017

 

 

 

 

Written

 

Earned

 

Written

 

Earned

 

Written

 

Earned

Direct premiums

$

508

$

631

$

482

$

672

$

682

$

592

Reinsurance premiums assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates

 

8,252

 

8,162

 

7,221

 

7,322

 

7,243

 

7,527

Non-affiliates

 

105

 

100

 

147

 

192

 

298

 

276

Gross premiums

 

8,865

 

8,893

 

7,850

 

8,186

 

8,223

 

8,395

Reinsurance premiums ceded:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates

 

1,482

 

1,490

 

1,063

 

1,268

 

1,264

 

1,205

Non-affiliates

 

2,181

 

2,034

 

1,803

 

1,909

 

1,928

 

2,020

Net premiums

$

5,202

$

5,369

$

4,984

$

5,009

$

5,031

$

5,170

As of December 31, 2019 and 2018, and for the years then ended, the Company's unearned premium reserves, paid losses and LAE, and reserves for losses and LAE (including IBNR), have been reduced for reinsurance ceded as follows:

 

Unearned Premium

 

Paid Losses and

 

Reserves for Losses

 

 

Reserves

 

LAE

 

and LAE

 

 

 

 

 

 

 

December 31, 2019:

 

 

 

 

 

 

Affiliates

$

781

$

63

$

8,519

Non-affiliates

 

648

 

337

 

8,374

Total

$

1,429

$

400

$

16,893

December 31, 2018:

 

 

 

 

 

 

Affiliates

$

759

$

51

$

9,034

Non-affiliates

 

501

 

314

 

8,567

Total

$

1,260

$

365

$

17,601

A.Reinsurance Return Commission

The maximum amount of return commission which would have been due to reinsurers if all of the Company's reinsurance had been cancelled as of December 31, 2019 and 2018 with the return of the unearned premium reserve is as follows:

 

 

Assumed Reinsurance

 

 

 

Ceded Reinsurance

 

 

 

Net

 

 

 

Premium Reserve Commission Equity

 

Premium Reserve Commission Equity

 

Premium Reserve Commission Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates

$

4,172

$

978

 

$

781

$

163

 

$

3,391

$

815

All Other

 

122

 

29

 

 

648

 

135

 

 

(526)

 

(106)

Total

$

4,294

$

1,007

 

$

1,429

$

298

 

$

2,865

$

709

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates

$

4,007

$

825

$

759

$

123

$

3,248

$

702

All Other

 

117

 

24

 

 

501

 

81

 

 

(384)

 

(57)

Total

$

4,124

$

849

$

1,260

$

204

$

2,864

$

645

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

B.Unsecured Reinsurance Recoverable

The aggregate unsecured reinsurance balances (comprising recoverables for paid and unpaid losses and LAE and unearned premium reserves) in excess of three percent of policyholders' surplus at December 31, 2019 and 2018 with respect to an individual reinsurer, and each of such reinsurer's related group members having an unsecured aggregate reinsurance balance with the company, are as follows:

Reinsurer

 

2019

 

2018

Affiliates:

 

 

 

 

Combined Pool*

$

7,080

$

7,321

Eaglestone

 

605

 

645

Other affiliates

 

8

 

16

Total affiliates

$

7,693

$

7,982

Berkshire Hathaway Group

 

81

 

1,062

Swiss Reinsurance Group

 

467

 

439

Total Non-affiliates

 

548

 

1,501

Total affiliates and non-affiliates

$

8,241

$

9,483

*Includes intercompany pooling impact of $634 related to Unearned Premium Reserve, $6,248 related to Reserves for Losses and LAE and $6 related to Paid losses and LAE as of and for the year ended December 31, 2019, and $577, $6,486, and $13, respectively, as of and for the year ended December 31, 2018.

C.Reinsurance Recoverable in Dispute

At December 31, 2019 and 2018, the aggregate of all disputed items did not exceed ten percent of capital and surplus and there were no amounts in dispute for any single reinsurer that exceeded five percent of capital and surplus. The total reinsurance recoverable balances in dispute are $37 and $46 as of December 31, 2019 and 2018, respectively.

D.Retroactive Reinsurance

On January 20, 2017, the Combined Pool entered into an adverse development reinsurance agreement with NICO under which the Combined Pool ceded to NICO eighty percent of its reserve risk above an attachment point on substantially all of its U.S. Commercial long-tail exposures for accident years 2015 and prior. Under this agreement, the Combined Pool ceded to NICO eighty percent of net paid losses on subject business on or after January 1, 2016 in excess of $25,000 of net paid losses, up to an aggregate limit of $25,000. At NICO's 80 percent share, NICO's limit of liability under the contract is $20,000. The Combined Pool paid consideration of approximately $10,188 in February 2017, including interest at 4 percent per annum from January 1, 2016 through date of payment. American Home's share of the consideration paid was $3,566. NICO placed the consideration received into a collateral trust account as security for NICO's claim payment obligations, and Berkshire Hathaway Inc. has provided a parental guarantee to secure NICO's obligations under the agreement.

American Home accounted for this transaction as prospective reinsurance, except that the surplus gain associated with the ADC has been reported in a segregated surplus account and does not form a part of the Company's Unassigned funds.

The total surplus gain recognized by the Combined Pool as of December 31, 2019, 2018 and 2017 was $2,176, $1,984 and $1,426, respectively. American Home's share of this gain as of December 31, 2019, 2018 and 2017 was $854, $920 and $689, respectively. The surplus gain is presented as segregated surplus and subject to the applicable dividend restrictions. This amount must be restricted in surplus until such time as the actual retroactive reinsurance recovered from NICO exceeds the consideration paid for the cession.

E.Reinsurance Agreements Qualifying for Reinsurer Aggregation

In 2011, the Combined Pool companies entered into a loss portfolio transfer reinsurance agreement with Eaglestone, an affiliate, which provides coverage up to a limit of $5,000 for the Pool's net asbestos exposures. Effective the same date, Eaglestone retroceded the majority of this exposure to NICO, an unaffiliated company. NICO provides coverage up to a limit of $3,500 for subject business covered under the agreement. NICO administers claims and pursues amounts recoverable from the Combined Pool companies' reinsurers with respect to paid losses and loss adjustment expenses. To the extent that the prior reinsurers pay, the amounts are collected and retained by NICO. NICO maintains funds in trust for the benefit of Eaglestone under the contract; as of December 31, 2019 and 2018 the amount in trust was $4,326 and $3,291, respectively. The amount of the unexhausted limit under the NICO agreement as of December 31, 2019 and 2018 was $1,201 and $1,198, respectively. The Company has accounted for its cession to Eaglestone as prospective reinsurance.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

8.Income Taxes

U.S. TAX REFORM OVERVIEW

On December 22, 2017, the United States enacted Public Law 115-97, known as the Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act reduced the statutory rate of U.S. federal corporate income tax to 21 percent and enacted numerous other changes impacting the Company.

The Tax Act includes provisions for Global Intangible Low-Taxed Income ("GILTI"), under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of foreign corporations and for Base Erosion and Anti-Abuse Tax ("BEAT"), under which taxes are imposed on certain base eroding payments to affiliated foreign companies. While the U.S. tax authorities issued formal guidance, including recently issued proposed and final regulations for BEAT and other provisions of the Tax Act, there are still certain aspects of the Tax Act that remain unclear and subject to substantial uncertainties. Additional guidance is expected in future periods. Such guidance may result in changes to the interpretations and assumptions the Company made and actions the Company may take, which may impact amounts recorded with respect to international provisions of the Tax Act, possibly materially. Consistent with accounting guidance, the Company treats BEAT as a period tax charge in the period the tax is incurred and have made an accounting policy election to treat GILTI taxes in a similar manner.

No provision for income tax related to GILTI or BEAT was recorded as of December 31, 2019.

The components of the Company's net deferred tax assets/liabilities ("DTA"/"DTL") as of December 31, 2019 and 2018 are as follows:

 

 

 

 

 

 

12/31/2019

 

 

 

 

 

 

12/31/2018

 

 

 

 

 

Change

 

 

 

 

Ordinary

 

 

Capital

 

 

Total

 

Ordinary

 

Capital

 

Total

 

Ordinary

 

Capital

 

Total

Gross DTA

$

892

 

$

241

 

$

1,133

$

1,028

$

227

$

1,255

$

(136)

$

14

$

(122)

 

 

 

Statutory Valuation Allowance

 

13

 

 

 

53

 

 

 

66

 

-

 

57

 

57

 

13

 

(4)

 

9

Adjusted Gross DTA

 

879

 

 

 

188

 

 

 

1,067

 

1,028

 

170

 

1,198

 

(149)

 

18

 

(131)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonadmitted DTA

 

31

 

 

 

-

 

 

 

31

 

127

 

-

 

127

 

(96)

 

-

 

(96)

Subtotal Admitted DTA

 

848

 

-

 

188

 

-

 

1,036

-

901

-

170

-

1,071

-

(53)

-

18

-

(35)

 

 

 

 

 

 

DTL

 

123

 

 

 

188

 

 

 

311

 

129

 

170

 

299

 

(6)

 

18

 

12

Net Admitted DTA/(DTL)

$

725

 

$

-

 

$

725

$

772

$

-

$

772

$

(47)

$

-

$

(47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019, the Company recorded gross deferred tax assets ("DTA") of $1,133. A valuation allowance of $13 was established on deferred tax assets related to foreign tax credits and $53 on net capital deferred tax assets, as it is management's belief that they will not be utilized in the foreseeable future. Tax planning strategies had no impact on the determination of the net admitted DTA.

The following table shows the summary of the calculation for the net admitted DTA as of December 31, 2019 and 2018:

 

 

 

12/31/2019

 

 

 

12/31/2018

 

 

 

 

 

Change

 

 

 

 

Ordinary

Capital

Total

 

Ordinary

 

Capital

 

Total

 

Ordinary

 

Capital

 

Total

Adjusted gross DTAs realizable within 36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

months or 15 percent of statutory surplus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(the lesser of 1 and 2 below)

 

725

-

725

 

772

 

-

 

772

 

(47)

 

-

 

(47)

1. Adjusted gross DTAs realizable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

within 36 months

 

725

-

725

 

774

 

-

 

774

 

(49)

 

-

 

(49)

2. 15 percent of statutory surplus

 

NA

NA

790

 

NA

 

NA

 

772

 

NA

 

NA

 

18

Adjusted gross DTAs that can be offset

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

against DTLs

 

123

188

311

 

129

 

170

 

299

 

(6)

 

18

 

12

Total DTA admitted as the result of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

application of SSAP 101

$

848

188

1,036

$

901

$

170

$

1,071

$

(53)

$

18

$

(35)

 

2019

 

 

2018

Ratio percentage used to determine recovery period and threshold limitation amount

 

413%

 

388%

Amount of adjusted capital and surplus used to determine recovery period and threshold limitation in (2) above.

$

5,271

$

5,151

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following table shows the components of the current income tax expense (benefit) for the periods listed:

For the years ended December 31,

 

2019

 

2018

 

Change

Federal income tax

$

(42)

$

(63)

$

21

Foreign income tax

 

7

 

9

 

(2)

Subtotal

 

(35)

 

(54)

 

19

Federal income tax on net capital gains

 

42

 

69

 

(27)

Federal and foreign income taxes incurred

$

7

$

15

$

(8)

The following table shows the components of the DTA split between ordinary and capital DTA as of December 31, 2019 and 2018:

 

2019

 

 

2018

 

Change

Ordinary

 

 

 

 

 

 

Discounting of unpaid losses

$

128

$

151

$

(23)

Nonadmitted assets

 

15

 

19

 

(4)

Unearned premium reserve

 

147

 

158

 

(11)

Bad debt expense

 

9

 

11

 

(2)

Net operating loss carry forward

 

406

 

501

 

(95)

Foreign tax credit carry forward

 

80

 

79

 

1

Investments

 

26

 

26

 

-

Mortgage Contingency Reserve

 

34

 

29

 

5

Intangible Assets

 

13

 

14

 

(1)

Other temporary differences

 

34

 

40

 

(6)

Subtotal

 

892

 

1,028

 

(136)

Statutory valuation allowance adjustment

 

13

 

-

 

13

Nonadmitted

 

31

 

127

 

(96)

Admitted ordinary deferred tax assets

$

848

$

901

$

(53)

Capital

 

 

 

 

 

 

Investments

$

228

$

211

$

17

Net capital loss carry forward

 

-

 

1

 

(1)

Unrealized capital losses

 

13

 

15

 

(2)

Subtotal

 

241

 

227

 

14

Statutory valuation allowance

 

53

 

57

 

(4)

Admitted capital deferred tax assets

 

188

 

170

 

18

Admitted deferred tax assets

$

1,036

$

1,071

$

(35)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following table shows the components of the DTL split between ordinary and capital DTL as of December 31, 2019 and 2018:

 

2019

 

 

2018

 

Change

Ordinary

 

 

 

 

 

 

Investments

$

80

$

72

$

8

Tax Act adjustment to discounting of unpaid losses

 

32

 

47

 

(15)

Section 481(a) adjustment

 

-

 

3

 

(3)

Other temporary differences

 

12

 

7

 

5

Subtotal

 

124

 

129

 

(5)

Capital

 

 

 

 

 

 

Investments

$

128

$

108

$

20

Unrealized capital gains (losses)

 

59

 

61

 

(2)

Other temporary differences

 

1

 

1

 

-

Subtotal

 

188

 

170

 

18

Deferred tax liabilities

 

312

 

299

 

13

Net deferred tax assets/liabilities

$

724

$

772

$

(48)

The change in net deferred tax assets is comprised of the following:

 

2019

 

 

2018

 

Change

Adjusted gross deferred tax assets

$

1,067

$

1,198

$

(131)

Total deferred tax liabilities

 

(312)

 

(299)

 

(13)

Net deferred tax assets/ (liabilities)

 

755

 

899

 

(144)

Tax effect of unrealized gains (losses)

 

 

 

 

 

1

Total change in net deferred tax

 

 

 

 

$

(145)

Change in deferred tax - current year

 

 

 

 

 

(146)

Change in deferred tax - current year - other surplus items

 

 

 

 

 

3

Change in deferred tax - current year - total

 

 

 

 

 

(143)

Change in deferred tax – prior period correction

 

 

 

 

 

(2)

Total change in deferred tax - current year

 

 

 

 

$

(145)

The following table shows the components of opening surplus adjustments on current and deferred taxes for the year ended December 31, 2019:

 

 

Current

 

Deferred

 

 

Total

SSAP 3 impact:

 

 

 

 

 

 

SSAP 3 - general items

$

15

$

(12)

$

3

SSAP 3

- statutory valuation allowance

 

-

 

10

 

10

Subtotal SSAP 3

 

15

 

(2)

 

13

SSAP 3

- unrealized gain/loss

 

-

 

-

 

-

SSAP 3

- adjusted tax assets and liabilities

 

15

 

(2)

 

13

SSAP 3

- nonadmitted impact

 

-

 

(1)

 

(1)

Total SSAP 3 impact

$

15

$

(3)

$

12

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The provision for federal and foreign income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The following table presents a reconciliation of such differences in arriving at total taxes related to the Company for the years ended December 31, 2019, 2018 and 2017:

 

 

 

2019

 

 

Description

 

 

Amount

Tax Effect

Net Income (Loss) Before Federal Income Taxes

 

 

 

 

 

and Capital Gains Taxes

 

$

628

$

132

Book to Tax Adjustments:

 

 

 

 

 

Tax Exempt Income, net of proration

 

 

(18)

 

(4)

Stock Options And Other Compensation

 

 

10

 

2

Change in Nonadmitted Assets

 

 

18

 

4

Change in Tax Position

 

 

-

 

-

Statutory Valuation Allowance

 

 

-

 

19

Return to Provision

 

 

-

 

(2)

Reversal of Book/Tax Difference on Share

 

 

 

 

 

Distribution

 

 

(26)

 

(5)

Change in contingency reserve

 

 

-

 

-

Impact of Tax Act

 

 

 

 

-

Real Estate Redemption

 

 

-

 

-

Other

 

 

(14)

 

4

Total Book to Tax Adjustments

 

 

(30)

 

18

Total Income Tax

 

$

598

$

150

Federal and Foreign Income Taxes Incurred

 

 

-

 

(35)

Federal Income Tax on Net Capital Gains

 

 

-

 

42

Change in Net Deferred Income Taxes

 

 

-

 

143

Total Income Tax

 

$

-

$

150

Operating loss and tax credit carry-forwards

2018

 

Amount

Tax Effect

 

 

 

 

$

(263)

$

(55)

(34)(7)

-

-

28

6

-

-

-40

-(1)

 

-

 

-

 

(31)

 

(7)

 

-

 

-

 

-

 

-

 

36

 

8

 

(1)

 

39

$

(264)

$

(16)

 

-

 

(54)

 

-

 

69

 

-

 

(31)

$

-

$

(16)

2017

 

Amount

Tax Effect

 

 

 

 

$

(380)

$

(133)

(71)(25)

-

-

46

16

-

2

-(5)

-(3)

 

-

 

-

 

(39)

 

(14)

 

-

 

588

 

(72)

 

(25)

 

6

 

6

 

(130)

 

540

$

(510)

$

407

-(69)

-82

-394

$

- $

407

At December 31, 2019 the Company had net operating loss carry forwards expiring through the year 2038 of: At December 31, 2019 the Company had foreign tax credits expiring through the year 2029 of:

$

1,932

$

80

There were no deposits reported as admitted assets under Section 6603 of the Internal Revenue Service (IRS) Code as of December 31, 2019. The Company does not believe that the liability related to any federal or foreign tax loss contingencies will significantly change within the next 12 months. A reasonable estimate of such change cannot be made at this time.

As of December 31, 2019, there was a $15 receivable related to tax return errors and omissions and a $18 liability related to uncertain tax positions.

The U.S is the only major tax jurisdiction of the Company. The statute of limitations for all tax years prior to 2000 has expired for the consolidated federal income tax return. The Company is currently under examination for the tax years 2000 through 2013 and open to examination through 2018.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following table lists those companies that form part of the 2019 AIG consolidated federal income tax return:

Company

Company

Company

Company

Company

 

 

 

 

 

A.I. Credit Consumer

A.I. Credit Corp.

AGC Life Insurance

AGC Life Insurance

AGLIC Investments

Discount Company

 

Company

Company

Bermuda Limited

AH SLP 1094 San Lucas,

AH SubGP 1000

AH SubGP 1007 Highland

AH SubGP 1020

AH SubGP 1045

LLC

Woodwind Lakes, LLC

Meadow, LLC

Collingham, LLC

Montgomery, LLC

AH SubGP 1098 Green

AH SubGP 1158 Flat Iron,

AH SubGP 1210

AH SubGP 1211 Mision

AH SubGP 1212 Painted

Pines, LLC

LLC

Geronimo, LLC

Del Valle, LLC

Desert, LLC

AH SubGP 1248 North

AH SubGP 1263 West

AH SubGP 1384

AH SubGP 1433 Magnolia,

AH SubGP 1450 Timber,

Vista, LLC

Virginia, LLC

Woodglen, LLC

LLC

LLC

AH SubGP 1470 Palmetto,

AH SubGP 1480 Eastmont

AH SubGP 1535 Hunter's

AH SubGP 1548 Walnut,

AH SubGP 1551 Spanish

LLC

Senior, LLC

Run, LLC

LLC

Creek, LLC

AH SubGP 1597

AH SubGP 1600 Rainer,

AH SubGP 1631

AH SubGP 1694 Sonoma,

AH SubGP 245 Garland,

Broadmoor, LLC

LLC

Broadway, LLC

LLC

LLC

AH SubGP 479 Sunrise,

AH SubGP 516

AH SubGP 716 Villas of

AH SubGP 785 Mayfield,

AH SubGP 787 North

LLC

Merrilltown, LLC

Mission Bend, LLC

LLC

Knoll, LLC

AH SubGP 835

AH SubGP 842 Huebner,

AH SubGP 911 Mainland,

AH SubGP 929

AH SubGP 936 Emmaus,

Whispering, LLC

LLC

LLC

Collinwood, LLC

LLC

AH SubGP 997 Maxey,

AH SubGP Crestview

AH SubGP GAG Gandolf,

AH SubGP MDL, LLC

AIG Aerospace

LLC

Duplexes, LLC

LLC

 

Adjustment Services, Inc.

AIG Aerospace Insurance

AIG Asset Management

AIG Assurance Company

AIG BG Holdings LLC

AIG Capital Corporation

Services, Inc.

(U.S.), LLC

 

 

 

AIG Capital Services, Inc.

AIG Century

AIG Claims, Inc.

AIG Claims, Inc.

AIG Claims, Inc.

 

Verwaltungsgesellschaft

 

 

 

 

mbH

 

 

 

AIG Commercial

AIG Commercial

AIG Consumer Finance

AIG Credit (Europe)

AIG Credit Corp.

Equipment Finance Canada

Equipment Finance, Inc.

Group, Inc.

Corporation

 

Branch

 

 

 

 

AIG Direct Insurance

AIG Employee Services,

AIG Europe Holdings

AIG FCOE, Inc.

AIG Federal Savings Bank

Services, Inc.

Inc.

Limited

 

 

AIG Financial Advisor

AIG Financial Products

AIG Fund Services, Inc.

AIG G5, Inc.

AIG Global Asset

Services, Inc.

Corp.

 

 

Management Holdings

 

 

 

 

Corp.

AIG Global Capital

AIG Global Real Estate

AIG GLOBAL REAL

AIG Global Real Estate

AIG Insurance

Markets Securities, LLC

Investment Corp.

ESTATE INVESTMENT

Investment de Mexico,

Management Services, Inc.

 

 

CORP. [RUSS

 

 

AIG International Inc.

AIG Kirkwood, Inc.

AIG Life Holdings, Inc.

AIG Life of Bermuda, Ltd.

AIG Life of Bermuda, Ltd.

AIG Markets, Inc.

AIG Matched Funding

AIG MEA Investments and

AIG Mortgage Capital,

AIG North America, Inc.

 

Corp.

Services, LLC

LLC

 

AIG PC Global Services

AIG PC Global Services,

AIG Procurement Services,

AIG Property Casualty

AIG Property Casualty

Inc.

Inc. United Kingdom

Inc.

Company

Europe Financing Ltd.

AIG Property Casualty

AIG Property Casualty

AIG Property Casualty,

AIG Realty, Inc.

AIG Securities Lending

International, LLC

U.S., Inc.

Inc.

 

Corp.

AIG Shared Services

AIG Shared Services

AIG Shared Services

AIG Shared Services

AIG Specialty Insurance

 

Corporation

Corporation - Management

Corporation (Philippines)

Company

AIG Spring Ridge I, Inc.

AIG Technologies, Inc.

AIG Technologies, Inc.

AIG Travel Assist, Inc.

AIG TRAVEL EMEA

 

 

(U.K. branch)

 

LIMITED

AIG TRAVEL EUROPE

AIG Travel, Inc.

AIG UNITED

AIG United Guaranty,

AIG Warranty Services of

LIMITED

 

GUARANTY AGENZIA

Sociedad Limitada

Florida, Inc.

 

 

DI ASSICURAZIONE

 

 

AIG Warranty Services,

AIG WarrantyGuard, Inc.

AIG.COM, Inc.

AIG-FP Capital

AIG-FP Matched Funding

Inc.

 

 

Preservation Corp.

Corp.

AIG-FP Pinestead

AIGGRE Dakota Springs

AIGGRE DC Ballpark

AIGGRE Europe Real

AIGGRE Europe Real

Holdings Corp.

Investor LLC

Investor, LLC

Estate Fund I

Estate Fund I GP S.a r.l.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Company

Company

Company

Company

Company

 

 

 

 

 

AIGGRE Hill7 Investor

AIGGRE Livermore

AIGGRE Market Street II

AIGGRE North Getty

AIGGRE TX Hotel Frisco

LLC

Longfellow Investor LLC

LLC

Investor LLC

Owner, LLC

AIGGRE TX Hotel Las

AIGGRE TX Hotel Plano

AIGGRE TX Hotel San

AIGGRE U.S. Real Estate

AIGGRE U.S. Real Estate

Colinas Owner, LLC

Owner, LLC

Antonio Owner, LLC

Fund I

Fund I

AIGGRE U.S. Real Estate

AIGGRE U.S. Real Estate

AIGGRE U.S. Real Estate

AIGGRE VISTA, LLC

AIGT Inc. Hong Kong

Fund II

Fund II

Fund III

 

Branch

AIU Insurance Company

Akita, Inc.

Alabaster Capital LLC

AlphaCat Capital Inc.

AM Holdings LLC

American Athletic Club,

American General Annuity

American General

American General

American General

Inc.

Service Corporation

Assignment

Assignment Corporation

Insurance Agency, Inc.

American General Life Ins.

American General Life

American General Life

American General Life

American General Realty

Co. Non-Insulated

Insurance Co. - Insulat

Insurance Company

Services Company, LLC

 

American Home Assurance

American International

American International

American International

American International

Company

Facilities Management

Group, Inc.

Realty Corporation

Reinsurance

Applewood Funding Corp.

Arthur J. Glatfelter

Barnegat Funding Corp.

Blackboard Customer Care

Blackboard Insurance

 

Agency, Inc.

 

Insurance Services

Company

Blackboard Services, LLC

Blackboard Specialty

Blackboard U.S. Holdings,

CAP Investor 1, LLC

CAP Investor 10, LLC

 

Insurance Company

Inc.

 

 

CAP Investor 2, LLC

CAP Investor 4, LLC

CAP Investor 5, LLC

CAP Investor 8, LLC

Charleston Bay SAHP

 

 

 

 

Corp.

Commerce and Industry

Connective Mortgage

Covenant Credit Partners,

Crop Risk Services, Inc.

Crossings SAHP Corp.

Insurance Company

Advisory Company

LLC

 

 

Curzon Funding Limited

Curzon Funding LLC

Curzon Street Funding

Design Professionals

DIL/SAHP Corp.

 

 

Limited

Association

 

DSA P&C Solutions, Inc.

Eaglestone Reinsurance

EASTCHEAP

Eastgreen, Inc.

First Principles Capital

 

Company

INVESTMENTS

 

Management, LLC

 

 

(CAYMAN) LIMITED

 

 

Flamebright Investment

Forest SAHP Corp.

Fortitude Group Holdings,

Fortitude Group Services,

Fortitude Life & Annuity

Limited

 

LLC

Inc.

Solutions, Inc.

Fortitude Reinsurance

Foundry Insurance

GIG of Missouri, Inc.

GIG Reinsurance

Glatfelter Claims

Company, Ltd.

Agency, Inc.

 

Company, Ltd.

Management, Inc.

Glatfelter Properties, LLC

Glatfelter Underwriting

Global Loss Prevention,

Global Loss Prevention,

Grand Savannah SAHP

 

Services, Inc.

Inc.

Inc. [Canada]

Corp.

Granite State Insurance

Health Direct, Inc.

HOSPITAL PLAN

HPIS LIMITED

Illinois National Insurance

Company

 

INSURANCE SERVICES

 

Co.

Integrated Manufacturing

Knickerbocker Corporation

LBMA Equipment

Lexington Insurance

Livetravel, Inc.

Companies, Inc.

 

Services, Inc.

Company

 

LSTREET I, LLC

LSTREET II, LLC

MG Reinsurance Limited

MIP Mezzanine, LLC

MIP PE Holdings, LLC

Morefar Marketing, Inc.

Mt. Mansfield Company,

National Union Fire

National Union Fire

New Hampshire Insurance

 

Inc.

Insurance

Insurance Company

Company

Pearce & Pearce, Inc.

Pine Street Real Estate

Prairie SAHP Corp.

Privilege Coventry

Privilege Coventry S.a r.l.

 

Holdings Corp.

 

Holdings S.a r.l.

 

Raptor Funding Corp.

Rialto Melbourne Investor

Risk Specialists Companies

Rokland Limited

SA Affordable Housing,

 

LLC

 

 

LLC

SA Investment Group, Inc.

SAAHP GP Corp.

SAFG Retirement

SAHP GA III - SC LLC

SAI Deferred

 

 

Services, Inc.

 

Compensation Holdings,

 

 

 

 

Inc.

SCSP Corp.

Service Net Solutions of

Service Net Warranty, LLC

SLP Housing GPDNAC,

SNW Insurance Agency,

 

Florida, LLC

 

LLC

LLC

Spruce Peak Realty, LLC

Stowe Mountain Holdings,

Stratford Insurance

SubGen NT, Inc.

SunAmerica Affordable

 

Inc.

Company

 

Housing Partners, Inc.

SunAmerica Asset

SunAmerica Fund Assets

SunAmerica Fund Assets

SunAmerica Fund Assets

SunAmerica Fund Assets

Management, LLC

104, LLC

110, LLC

112, LLC

119, LLC

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

Company

Company

Company

Company

Company

SunAmerica Fund Assets

SunAmerica Fund Assets

SunAmerica Fund Assets,

SunAmerica Life

SunAmerica Retirement

150, LLC

163, LLC

LLC

Reinsurance Company

Markets, Inc.

Susquehanna Agents

The Glatfelter Agency, Inc.

The Insurance Company of

The United States Life

The United States Life

Alliance, LLC

 

the

Insurance

Insurance Company

The Variable Annuity Life

The Variable Annuity Life

The Variable Annuity Life

Travel Guard Americas

Travel Guard Americas,

- Insulated

- Non-Insulated

Insurance Company

LLC Sucursal Mexico

LLC

Travel Guard Americas,

Travel Guard Group, Inc.

Tudor Insurance Company

U G Corporation

VALIC Financial

LLC [Argentina]

 

 

 

Advisors, Inc.

VALIC Retirement

Validus America, Inc.

Validus Re Americas (New

Validus Reaseguros, Inc.

Validus Services, Inc.

Services Company

 

Jersey), Inc.

 

 

Validus Specialty

Validus Specialty, LLC

Volunteer Firemen's

Webatuck Corp.

Westco Claims

Underwriting Services, Inc.

 

Insurance Services, Inc.

 

Management Services, Inc.

Westco Insurance

Western World Insurance

Western World Insurance

X2 & X20 Holdings S.a r.l.

 

Managers, Inc.

Company

Group, Inc.

 

 

9.Capital and Surplus and Dividend Restrictions

A.Dividend Restrictions

Under New York law, the Company may pay cash dividends only from Unassigned surplus determined on a statutory basis.

New York domiciled companies are restricted (on the basis of the lower of 10 percent of statutory earned surplus as defined in NY Insurance Law section 4105, adjusted for special surplus items, as of the last statement on file with the Superintendent, or 100 percent of adjusted net investment income for the preceding thirty-six month period ended as of the last statement on file with the Superintendent) as to the amount of ordinary dividends they may declare or pay in any twelve-month period without the prior approval of the NY DFS. The maximum dividend amount the Company can pay in 2020, as of December 31, 2019 is $0.

Other than the limitations above, there are no restrictions placed on the portion of Company profits that may be paid as ordinary dividends to the stockholders.

The Company did not pay any dividends in 2019 and 2018.

B.Capital & Surplus

Changes in balances of special surplus funds are due to adjustments in the amounts of reserves transferred under retroactive reinsurance agreements and when cash recoveries exceed the consideration paid.

The portion of Unassigned surplus at December 31, 2019 and 2018 represented or reduced by each item below is as follows:

 

 

 

 

As Adjusted*

 

 

Years Ended December 31,

 

2019

 

2018

 

2018

Unrealized gains and losses (net of taxes)

$

130

$

109

$

148

Nonadmitted asset values

 

(102)

 

(217)

 

(216)

Provision for reinsurance

 

(16)

 

(30)

 

(30)

* As Adjusted includes SSAP 3 prior year adjustments

 

 

 

 

 

 

The Company exceeded minimum RBC requirements at both December 31, 2019 and 2018.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

10. Contingencies

A.Legal Proceedings

In the normal course of business, AIG and its subsidiaries are, like others in the insurance and financial services industries in general, subject to regulatory and government investigations and actions, and litigation and other forms of dispute resolution in a large number of proceedings pending in various domestic and foreign jurisdictions. Certain of these matters involve potentially significant risk of loss due to potential for significant jury awards and settlements, punitive damages or other penalties. Many of these matters are also highly complex and seek recovery on behalf of a class or similarly large number of plaintiffs. It is therefore inherently difficult to predict the size or scope of potential future losses arising from these matters. In AIG's insurance and reinsurance operations, litigation and arbitration concerning the scope of coverage under insurance and reinsurance contracts, and litigation and arbitration in which its subsidiaries defend or indemnify their insureds under insurance contracts, are generally considered in the establishment of loss reserves. Separate and apart from the foregoing matters involving insurance and reinsurance coverage, AIG, its subsidiaries and their respective officers and directors are subject to a variety of additional types of legal proceedings brought by holders of AIG securities, customers, employees and others, alleging, among other things, breach of contractual or fiduciary duties, bad faith and violations of federal and state statutes and regulations. With respect to these other categories of matters not arising out of claims for insurance or reinsurance coverage, the Company establishes reserves for loss contingencies when it is probable that a loss will be incurred and the amount of the loss can be reasonably estimated. In many instances, the Company is unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential future losses arising from legal proceedings may exceed the amount of liabilities that has been recorded in its financial statements covering these matters. While such potential future charges could be material, based on information currently known to management, management does not believe, other than may be discussed below, that any such charges are likely to have a material adverse effect on the Company's financial position or results of operation.

Additionally, from time to time, various regulatory and governmental agencies review the transactions and practices of AIG and its subsidiaries in connection with industry-wide and other inquiries into, among other matters, the business practices of current and former operating insurance subsidiaries. The Company has cooperated, and will continue to cooperate, in producing documents and other information in response to such requests.

B.Leases

Lease expenses are allocated to the Company based upon the percentage of space occupied with the final share of cost based upon its percentage participation in the Combined Pool.

C.Other Commitments

As part of its hedge fund, private equity and real estate equity portfolio investments, as of December 31, 2019, the Company may be called upon for additional capital investments of up to $894.

At December 31, 2019 the Company had $247 of outstanding commitments related to various funding obligations associated with investments in commercial and residential mortgage loans.

D.Guarantees

The Company has issued guarantees whereby it unconditionally and irrevocably guaranteed all present and future obligations and liabilities arising from the policies of insurance issued by certain insurers who, as of the guarantee issue date, were members of the AIG holding company group. The guarantees were provided in order to secure or maintain the guaranteed companies' rating status issued by certain rating agencies. The Company would be required to perform under the guarantee in the event that a guaranteed entity failed to make payments due under policies of insurance issued during the period of the guarantee. The Company has not been required to perform under any of the guarantees. The Company remains contingently liable for all policyholder obligations associated with insurance policies issued by the guaranteed entity during the period in which the guarantee was in force.

Each guaranteed entity has reported total assets in excess of its liabilities and the majority have invested assets in excess of their direct (prior to reinsurance) policyholder liabilities. Additionally, the Company is party to an agreement with AIG whereby AIG has agreed to make any payments due under the guarantees in the Company's place and stead. Furthermore, for any former affiliate that has been sold, the purchaser has provided the Company with hold harmless agreements relative to the guarantee of the divested affiliate. Accordingly, management believes that the likelihood of payment under any of the guarantees is remote.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

The following schedule sets forth the effective and termination dates (agreements with guarantees in run off), of each guarantee, the amount of direct policyholder obligations guaranteed, the invested assets and policyholder surplus for each guaranteed entity as of December 31, 2019:

 

 

Date Issued

Date

 

Policyholder

 

Invested

 

Estimated

 

Policyholders'

 

 

Terminated

 

Obligations @

 

Assets @

 

Loss @

 

Surplus

Guaranteed Company

 

 

 

 

12/31/2019

 

12/31/2019

 

12/31/2019

 

12/31/2019

21st Century Advantage Insurance

 

 

 

 

 

 

 

 

 

 

 

Company (f/k/a AIG Advantage Insurance

 

 

 

 

 

 

 

 

 

 

 

Company )

 

12/15/1997

8/31/2009

$

-

$

21

$

-

$

22

21st Century North America Insurance

 

 

 

 

 

 

 

 

 

 

 

Company (f/k/a American International

 

 

 

 

 

 

 

 

 

 

 

Insurance Company )

 

11/5/1997

8/31/2009

 

10

 

600

 

-

 

599

21st Century Pinnacle Insurance Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(f/k/a American International Insurance

 

 

 

 

 

 

 

 

 

 

 

Company of New Jersey)

 

12/15/1997

8/31/2009

 

1

 

19

 

-

 

20

AIG Edison Life Insurance Company (f/k/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GE Edison Life Insurance Company)

 

8/29/2003

3/31/2011

 

7,073

 

92,212

 

-

 

2,045

American General Life and Accident

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance Company

3/3/2003

9/30/2010

 

1,464

 

187,639

 

-

 

6,289

 

 

 

 

 

American General Life Insurance Company

*

 

 

 

 

3/3/2003

12/29/2006

 

7,723

 

187,639

 

-

 

6,289

American International Assurance

**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company (Australia) Limited

11/1/2002

10/31/2010

 

443

 

1,799

 

-

 

574

 

 

 

 

 

Chartis Europe, S.A. (f/k/a AIG Europe,

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S.A.)

9/15/1998

12/31/2012

 

4,143

 

6,947

 

-

 

1,849

 

 

 

 

 

AIG Seguros Mexico, S.A. de C.V. (f/k/a

 

 

 

 

 

 

 

 

 

 

 

AIG Mexico Seguros Interamericana, S.A.

*

 

 

 

 

 

 

 

 

 

 

de C.V.)

 

12/15/1997

3/31/2015

 

94

 

108

 

-

 

115

Chartis UK (f/k/a Landmark Insurance

*

 

 

 

 

 

 

 

 

 

 

Company, Limited (UK))

3/2/1998

11/30/2007

 

192

 

5,977

 

-

 

2,400

 

 

 

 

 

Farmers Insurance Hawaii (f/k/a AIG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hawaii Insurance Company, Inc.)

 

11/5/1997

8/31/2009

 

-

 

26

 

-

 

25

Lloyd's Syndicate (1414) Ascot (Ascot

 

 

 

 

 

 

 

 

 

 

 

Underwriting Holdings Ltd.)

 

1/20/2005

10/31/2007

 

7

 

719

 

-

 

61

SunAmerica Annuity and Life Assurance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company (Anchor National Life Insurance

 

 

 

 

 

 

 

 

 

 

 

Company)

 

1/4/1999

12/29/2006

 

729

 

187,639

 

-

 

6,289

SunAmerica Life Insurance Company

 

 

 

 

 

 

1/4/1999

12/29/2006

 

2,102

 

187,639

 

-

 

6,289

The United States Life Insurance Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in the City of New York

 

3/3/2003

4/30/2010

 

3,298

 

28,885

 

-

 

1,571

The Variable Annuity Life Insurance

 

 

 

 

 

 

 

 

 

 

 

Company

 

3/3/2003

12/29/2006

 

4,268

 

84,752

 

-

 

2,600

Total

 

 

 

$

31,547

$

972,621

$

-

$

37,037

* Current affiliates

**AIA was formerly as subsidiary of AIG, Inc. In previous years AIA provided the direct policyholder obligations as of each year end. However, starting in 2014 AIA declined to provide financial information related to these guarantees. The financial information reflects amounts as of December 31, 2012, at which time the guaranteed entities had invested assets in excess of direct policyholder obligations and were in a positive surplus position. Such amounts continue to remain the Company's best estimate given available financial information. The guaranteed policyholder obligations will decline as the policies expire.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

E.Joint and Several Liabilities

AIUI and the Company are jointly and severally obligated to the policyholders of their Japan branches, in connection with transfers of the business of those Japan branches to Japan-domiciled affiliates in 2013 and 2014, respectively. Under the terms of the transfer agreement, the Japan affiliates have agreed to be responsible for 100% of the obligations associated with such policies, and management expects such companies to satisfy their obligation. The Company carries no reserves with respect to such liabilities. The Japanese affiliates carried $13 and $20 of loss reserves in respect of such policies as of December 31, 2019 and 2018, respectively. As of December 31, 2019, if the Japan affiliates were to fail to satisfy their obligations, the Company's share of the aggregate exposure under the pooling agreement is $8.

Each Pool member is also jointly and severally obligated to the other Pool members, in proportion to their pool share, in the event any other Pool member fails.

11. Other Significant Matters

A.Other Assets

As of December 31, 2019 and 2018, other admitted assets as reported in the accompanying Statements of Admitted Assets were comprised of the following balances:

Other admitted assets

 

2019

 

2018

Deposit accounting assets

 

10

 

11

Equities in underwriting pools and associations

 

43

 

(11)

Guaranty funds receivable on deposit

 

9

 

9

Loss funds on deposit

 

74

 

72

Other assets

 

87

 

78

Total other admitted assets

$

223

$

159

B.Other Liabilities

As of December 31, 2019 and 2018, other liabilities as reported in the accompanying Statements of Liabilities, Capital and Surplus were comprised of the following balances:

Other liabilities

 

2019

 

2018

Accrued retrospective premiums

$

15

$

24

Deferred commission earnings

 

36

 

44

Paid loss clearing contra liability (loss reserve offset for paid claims)

 

(25)

 

(36)

Other accrued liabilities

 

152

 

221

Escrow Deposit Liability

 

132

 

83

Retroactive reinsurance reserves - ceded

 

(27)

 

(29)

Statutory contingency reserve

 

162

 

137

Escrow funds (NICO)

 

29

 

32

Total other liabilities

$

474

$

476

C.Other (Expense) Income

For the years ended December 31, 2019, 2018 and 2017, other (expense) income as reported in the accompanying Statements of Operations and Changes in Capital and Surplus were comprised of the following balances:

Other (expense)income

 

2019

 

2018

 

2017

Fee income on deposit programs

$

2

$

1

$

4

Gain on sale of medical stop-loss business

 

-

 

-

 

91

Interest expense on reinsurance program

 

(111)

 

(148)

 

(54)

Other income(expense)

 

13

 

11

 

(2)

Total other(expense) income

$

(96)

$

(136)

$

39

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

D.Non- Cash items

For the years ended December 31, 2019, 2018 and 2017, the amounts reported in the Statements of Cash Flow are net of the following non-cash items:

Non-cash transactions

 

2019

 

2018

 

2017

Capital contribution from parent:

 

 

 

 

 

 

Return of Capital

 

(486)

 

-

 

-

Receivable

 

-

 

150

 

-

Funds Held:

 

 

 

 

 

 

Premiums collected

 

(36)

 

(62)

 

(313)

Benefit and loss related payments

 

195

 

(15)

 

229

Interest

 

(107)

 

(146)

 

(60)

Commissions

 

52

 

23

 

114

Funds Held

 

104

 

200

 

30

Intercompany Pooling Settlement:

 

 

 

 

 

 

Securities received

 

875

 

1,244

 

972

Securities transferred

 

(1,267)

 

(1,662)

 

(1,337)

Benefit and loss related payments

$

(670)

$

(268)

$

(365)

E.Federal Home Loan Bank ("FHLB") Agreements

The Company is a member of the FHLB of New York. Such membership requires ownership of stock in the FHLB. The Company owned an aggregate of $9 and $9 of stock in the FHLB at December 31, 2019 and 2018, respectively.

Through its membership, the Company has conducted business activity (borrowings) with the FHLB. The Company utilizes the FHLB facility to supplement liquidity or for other uses deemed appropriate by management. The outstanding borrowings are being used primarily for interest rate risk management purposes in connection with certain reinsurance arrangements, and the balances are expected to decline as underlying premiums are collected. The Company is required to pledge certain mortgage-backed securities, government and agency securities and other qualifying assets to secure advances obtained from the FHLB. The FHLB applies a haircut to collateral pledged to determine the amount of borrowing capacity it will provide to its member. As of December 31, 2019, the Company had an actual borrowing capacity of $1,167 based on qualified pledged collateral. At December 31, 2019, the Company had borrowings of $0 from the FHLB.

F.Insurance-Linked Securities

As of December 31, 2019 and 2018, the Company was not a ceding insurer in catastrophe bond reinsurance transactions in force.

G.Sale of Medical Stop-loss and Organ Transplant Business

On October 15, 2017, the Pool sold its medical stop-loss and organ transplant business and renewal rights to Tokio Marine HCC Life Insurance Company. The sale of the renewal rights resulted in a gain of $91 for the Company. In addition to the sale of the renewal rights, the Pool entered into a 100 percent quota share reinsurance agreement to cede the in-force liabilities of these businesses as of the transaction date, which resulted in a gain of $6.5 for the Company.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

 

American Home Assurance Company

Statutory Basis Financial Statements

( D o l l a r s i n M i l l i o n s )

12. Subsequent Events

Subsequent events have been considered through April 17, 2020 for these Financial Statements issued on April 17, 2020.

Type I – Recognized Subsequent Events:

None.

Type II – Nonrecognized Subsequent Events:

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The Coronavirus outbreak has resulted in increased economic uncertainty and volatility in both the debt and equity markets. Sufficient information is not available to adequately evaluate the short-term or long-term financial impact to the Company, however these economic conditions may adversely impact the Company's business operations and future financial condition.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

53 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2019 and 2018 and for years ended December 31, 2019, 2018 and 2017.

Part C — Other Information
Item 24.     Financial Statements and Exhibits
(a)   Financial Statements
The following financial statements are included in Part B of this Registration Statement:
• The Audited Financial Statements of Variable Annuity Account Five of American General Life Insurance Company as of December 31, 2019 and for each of the two years in the period ended December 31, 2019.
• The Audited Statutory Financial Statements of American General Life Insurance Company as of December 31, 2019 and December 31, 2018 and for each of the three years in the period ended December 31, 2019.
• The Audited Statutory Financial Statements of American Home Assurance Company as of December 31, 2019 and December 31, 2018 and for each of the three years in the period ended December 31, 2019.
(b)   Exhibits
Exhibit
Number 		Description Location
(1) Resolutions Establishing Separate Account Incorporated by reference to Pre-Effective Amendment No. 1 and Amendment No. 1, File Nos. 333-08859 and 811-07727, filed on March 11, 1997, Accession No. 0000912057-97-008516.
(2) Custody Agreements Not Applicable
(3)(a) Distribution Agreement Incorporated by reference to Post-Effective Amendment No. 20 and Amendment No. 20, File Nos. 333-185762 and 811-03859, filed on April 25, 2019, Accession No. 0001193125-19-119309.
(3)(b) Selling Agreement Incorporated by reference to Initial Registration Statement, File Nos. 333-25473 and 811-03859, filed on April 18, 1997, Accession No. 0000950148-97-000989.
(4)(a) Variable Annuity Contract Incorporated by reference to Post-Effective Amendment No. 9, File No. 333-08877, filed on September 25, 2000, Accession No. 0000912057-00-042501.
(4)(b) Endorsement Incorporated by reference to Post-Effective Amendment No. 2 and Amendment No. 3, File Nos. 333-08859 and 811-07727, filed on July 27, 1998, Accession No. 0001047469-98-028410.
(4)(c) Endorsement Incorporated by reference to Post-Effective Amendment No. 9, File No. 333-08877, filed on September 25, 2000, Accession No. 0000912057-00-042501.
(4)(d) Guaranteed Minimum Account Value Endorsement Incorporated by reference to Post-Effective Amendment No. 10 and Amendment No. 12, File Nos. 333-58234 and 811-03859, filed on April 16, 2004, Accession No. 0000950148-04-000752.
(4)(e) Guaranteed Minimum Withdrawal Benefit Endorsement Incorporated by reference to Post-Effective Amendment No. 25 and Amendment No. 26, File Nos. 333-08859 and 811-07727, filed on May 21, 2004, Accession No. 0000950148-04-000953.
(4)(f) Death Benefit Endorsement Incorporated by reference Post-Effective Amendment No. 26 and Amendment No. 27, File Nos. 333-08859 and 811-07727, filed on July 20, 2004, Accession No. 0000950129-04-005000.
(4)(g) Purchase Payment Accumulation Optional Death Benefit Endorsement Incorporated by reference Post-Effective Amendment No. 26 and Amendment No. 27, File Nos. 333-08859 and 811-07727, filed on July 20, 2004, Accession No. 0000950129-04-005000.
(4)(h) Maximum Anniversary Value Optional Death Benefit Endorsement Incorporated by reference Post-Effective Amendment No. 26 and Amendment No. 27, File Nos. 333-08859 and 811-07727, filed on July 20, 2004, Accession No. 0000950129-04-005000.

 

Exhibit
Number 		Description Location
(4)(i) Nursing Home Waiver Endorsement Incorporated by reference Post-Effective Amendment No. 26 and Amendment No. 27, File Nos. 333-08859 and 811-07727, filed on July 20, 2004, Accession No. 0000950129-04-005000.
(4)(j) Optional Guaranteed Minimum Withdrawal Benefit Maximum Anniversary Value Endorsement Incorporated by reference to Post-Effective Amendment No. 20 and Amendment No. 22, File Nos. 333-58234 and 811-03859, filed on September 20, 2005, Accession No. 0000950129-05-009343.
(4)(k) Optional Guaranteed Minimum Withdrawal Benefit Maximum Anniversary Value Endorsement Incorporated by reference to Post-Effective Amendment No. 32 and Amendment No. 33, File Nos. 333-08859 and 811-07727, filed on May 1, 2006, Accession No. 0000950129-06-004661.
(4)(l) Optional Guaranteed Minimum Withdrawal Benefit For One Life/For Two Lives Endorsement Incorporated by reference to Post-Effective Amendment No. 32 and Amendment No. 33, File Nos. 333-08859 and 811-07727, filed on May 1, 2006, Accession No. 0000950129-06-004661.
(4)(m) Form of Extended Legacy Program Guide Incorporated by reference to Post-Effective Amendment No. 17 and Amendment No. 18, File Nos. 333-137867 and 811-03859, filed on April 27, 2011, Accession No. 0000950123-11-040070.
(4)(n) Merger Endorsement Incorporated by reference to Initial Registration Statement, File Nos. 333-185762 and 811-03859, filed on January 2, 2013, Accession No. 0000950123-12-014430.
(4)(o) AGL Optional Guaranteed Minimum Withdrawal Benefit Maximum Anniversary Value Extension Endorsement (ASE-6217E (8/13)) Incorporated by reference to Post-Effective Amendment No. 6 and Amendment No. 6, File Nos. 333-185778 and 811-03859, filed on April 29, 2016, Accession No. 0001193125-16-568418.
(4)(p) AGL Optional Guaranteed Minimum Withdrawal Benefit For Two Live Extension Endorsement (AGE-6218E (9/15)) Incorporated by reference to Post-Effective Amendment No. 6 and Amendment No. 6, File Nos. 333-185778 and 811-03859, filed on April 29, 2016, Accession No. 0001193125-16-568418.
(4)(q) AGL Extended Legacy Program Guide (EXTLEGGEN.8 Rev. 7.15) Incorporated by reference to Post-Effective Amendment No. 7 and Amendment No. 7, File Nos. 333-185762 and 811-03859, filed on April 29, 2016, Accession No. 0001193125-16-568243.
(5)(a) Application for Contract Incorporated by reference to Pre-Effective Amendment No. 1 and Amendment No. 1, File Nos. 333-08859 and 811-07727, filed on March 11, 1997, Accession No. 0000912057-97-008516.
(5)(b) Application for Contract Incorporated by reference to Post-Effective Amendment No. 9, File No. 333-08877, filed on September 25, 2000, Accession No. 0000912057-00-042501.
(5)(c) Participant Enrollment Form Incorporated by reference to Post-Effective Amendment No. 2 and Amendment No. 3, File Nos. 333-08859 and 811-07727, filed on July 27, 1998, Accession No. 0001047469-98-028410.
(6) Corporate Documents of Depositor  
(6)(a) Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective December 31, 1991(P) Incorporated by reference to Initial Registration Statement, File No. 033-43390 of American General Life Insurance Company Separate Account D, filed on October 16, 1991.
(6)(b) Amendment to the Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective July 13, 1995 Incorporated by reference to Pre-Effective Amendment No. 3 to Form S-6 Registration Statement, File No. 333-53909, of American General Life Insurance Company Separate Account VL-R, filed on August 19, 1998, Accession No. 0000899243-98-001661.

 

Exhibit
Number 		Description Location
(6)(c) By-Laws of American General Life Insurance Company, restated as of June 8, 2005 Incorporated by reference to Post-Effective Amendment No. 11 and Amendment No. 46, File Nos. 333-43264 and 811-08561, of American General Life Insurance Company Separate Account VL-R, filed on August 12, 2005, Accession No. 0001193125-05-165474.
(7) Reinsurance Contract Not Applicable
(8) Material Contracts  
(8)(a) American Funds Insurance Series and SunAmerica Series Trust Master-Feeder Fund Participation Agreement Incorporated by reference to Post-Effective Amendment No. 2 and Amendment No. 3, File Nos. 333-137892 and 811-03892, filed on April 26, 2007, Accession No. 0000950148-07-000101.
(8)(b) Fidelity Variable Insurance Products Trust Fund Participation Agreement Incorporated by reference to Post-Effective Amendment No. 37 and Amendment No. 38, File Nos. 333-08859 and 811-07727, filed on August 27, 2008, Accession No. 0000950137-08-011159.
(8)(c) T. Rowe Price Equity Series, Inc. Fund Participation Agreement Incorporated by reference to Post-Effective Amendment No. 37 and Amendment No. 38, File Nos. 333-08859 and 811-07727, filed on August 27, 2008, Accession No. 0000950137-08-011159.
(8)(d) Seasons Series Trust Fund Participation Agreement Incorporated by reference to Post-Effective Amendment No. 4 and Amendment No. 5, File Nos. 333-172003 and 811-03859, filed on July 13, 2012, Accession No. 000950123-12-010016.
(8)(e) SunAmerica Series Trust Fund Participation Agreement Incorporated by reference to Post-Effective Amendment No. 4 and Amendment No. 5, File Nos. 333-172003 and 811-03859, filed on July 13, 2012, Accession No. 000950123-12-010016.
(8)(f) Letters of Consent to the Assignment of the Fund Participation Agreement Incorporated by reference to Initial Registration Statement, File Nos. 333-185762 and 811-03859, filed on January 2, 2013, Accession No. 0000950123-12-014430.
(9)(a) Opinion of Counsel and Consent of Depositor Incorporated by reference to Initial Registration Statement, File Nos. 333-185804 and 811-07727, filed on January 2, 2013, Accession No. 0000950123-12-014471.
(9)(b) Opinion of Counsel and Consent of Sullivan & Cromwell LLP, Counsel to American Home Assurance Company Incorporated by reference to Post-Effective Amendment No. 18 and Amendment No. 22, File Nos. 333-67685 and 811-07727, filed on October 21, 2005, Accession No. 0000950134-05-019473.
(10) Consent Filed Herewith
(11) Financial Statements Omitted from Item 23 Not Applicable
(12) Initial Capitalization Agreement Not Applicable
(13) Other  
(13)(a) Power of Attorney  
(13)(a)(i) American General Life Insurance Company Directors Filed Herewith
(13)(a)(ii) American Home Assurance Company Directors Filed Herewith
(13)(b) General Guarantee Agreement by American Home Assurance Company Incorporated by reference to Post-Effective Amendments No. 30 and Amendment No. 31, File Nos. 333-08859 and 811-07727, filed on August 29, 2005, Accession No. 0000950129-05-008797.
(13)(c) Notice of Termination of Guarantee as Published in the Wall Street Journal on November 24, 2006 Incorporated by reference to Post-Effective Amendment No. 16 and Amendment No. 17, File Nos. 333-66106 and 811-07727, filed on December 12, 2006, Accession No. 0000950124-06-007496.

 

Exhibit
Number 		Description Location
(13)(d) Notice of Termination of Support Agreement Incorporated by reference to Post-Effective Amendment No. 17 and Amendment No. 18, File Nos. 333-137867 and 811-03859, filed on April 27, 2011, Accession No. 0000950123-11-040070.
(13)(e) Amended and Restated Unconditional Capital Maintenance Agreement between American International Group, Inc. and American General Life Insurance Company Incorporated by reference to Post-Effective Amendment No. 3 and Amendment No. 3, File Nos. 333-185778 and 811-03859 filed on April 30, 2014, Accession No. 0000950123-14-004617.
(13)(f) Agreement and Plan of Merger Incorporated by reference to Initial Registration Statement, File Nos. 333-185762 and 811-03859, filed on January 2, 2013, Accession No. 0000950123-12-014430.
(13)(g) CMA Termination Agreement Incorporated by reference to Post-Effective Amendment No. 5 and Amendment No. 5, File Nos. 333-185804 and 811-07727, filed on April 30, 2015, Accession No. 0001193125-15-161285.

 

Item 25.     Directors and Officers of the Depositor
The directors and principal officers of the American General Life Insurance Company are set forth below. The business address of each officer and director is 2919 Allen Parkway, Houston, Texas 77019, unless otherwise noted.
Names, Positions and Offices Held with Depositor  
KEVIN T. HOGAN (1) Director, Chairman, Chief Executive Officer, and President
KATHERINE A. ANDERSON Director, Senior Vice President and Chief Risk Officer
THOMAS J. DIEMER Director, Executive Vice President and Chief Financial Officer
TERRI N. FIEDLER Director, Senior Vice President and Chief Distribution Officer
MICHAEL P. HARWOOD Director, Senior Vice President, Chief Actuary and Corporate Illustration Actuary
JONATHAN J. NOVAK (2) Director and Chief Executive Officer, Institutional Markets
TODD P. SOLASH (3) Director and Chief Executive Officer, Individual Retirement
ADAM C. WINSLOW (4) Director and Chief Executive Officer, Life Insurance
James Bracken (1) Executive Vice President, Head of Legacy Portfolio
Evelyn Curran Executive Vice President
Gabriel A. Lopez (3) Senior Vice President, Individual Retirement Operations
Bryan A. Pinsky (3) Senior Vice President, Individual Retirement Products
Sabyasachi Ray (1) Senior Vice President and Chief Operating Officer
Christine A. Nixon (3) Senior Vice President
Christopher V. Muchmore (3) Senior Vice President, Market Risk Management
Kyle L. Jennings Senior Vice President and Chief Compliance Officer
William C. Kolbert (5) Senior Vice President and Business Information Officer
Sai P. Raman (5) Senior Vice President, Institutional Markets
Timothy M. Heslin (6) Senior Vice President and Chief Life Product and Underwriting Officer
CRAIG A. ANDERSON Senior Vice President and Life Controller
Justin J.W. Caulfield (1) Vice President and Treasurer
Mallary L. Reznik (3) Vice President, General Counsel and Assistant Secretary
Julie Cotton Hearne Vice President and Secretary
Mark A. Peterson (6) Vice President, Distribution
Leo W. Grace Vice President, Product Filing
Tracey E. Harris Vice President, Product Filing
Christina M. Haley (3) Vice President, Product Filing
Mary M. Newitt (3) Vice President, Product Filing
Daniel R. Cricks Vice President and Tax Officer
Stephen G. Lunanuova (7) Vice President and Tax Officer
Barbara J. Moore Vice President and Tax Officer
T. Clay Spires Vice President and Tax Officer
Michael E. Treske (3) Vice President, Distribution
Frank Kophamel Vice President and Appointed Actuary
Michelle D. Campion (8) Vice President
Jeffrey S. Flinn Vice President
Jennifer N. Miller (8) Vice President
Manda Ghaferi (3) Vice President
Stewart R. Polakov (3) Vice President
Thomas A. Musante (8) Vice President
William L. Mask Vice President
Edward P. Voit (9) Vice President
Amanda K. Ouslander Anti-Money Laundering and Economic Sanctions Compliance Officer
Lisa K. Gerhart Vice President and Assistant Life Controller
Jennifer A. Roth (3) Vice President, 38a-1 Compliance Officer
David J. Kumatz (6) Assistant Secretary
Virginia N. Puzon (3) Assistant Secretary
Rosemary Foster Assistant Secretary

 

Names, Positions and Offices Held with Depositor  
Marjorie D. Washington Assistant Secretary
Grace D. Harvey Illustration Actuary
Laszlo Kulin (7) Investment Tax Officer
Alireza Vaseghi (1) Managing Director and Chief Operating Officer, Institutional Markets
Melissa H. Cozart Privacy Officer
(1) 175 Water Street, New York, NY 10038
(2) 10880 Wilshire Blvd. Suite 1101, Los Angeles, CA 90024
(3) 21650 Oxnard Street, Woodland Hills, CA 91367
(4) 58 Fenchurch Street, London, United Kingdom, EC3M 4AB
(5) 50 Danbury Road, Wilton, CT 06897
(6) 340 Seven Springs Way, Brentwood, TN, 32027
(7) 80 Pine Street, New York, NY 10005
(8) 777 S. Figueroa Street, Los Angeles, CA 90017
(9) 301 Grant Street, Pittsburgh, PA, 15219
Item 26.     Persons Controlled By or Under Common Control with Depositor or Registrant
The Registrant is a separate account of American General Life Insurance Company (“Depositor”). The Depositor is an indirect, wholly owned subsidiary of American International Group, Inc. An organizational chart for American International Group, Inc. can be found as Exhibit 21 in American International Group, Inc.’s Form 10-K, SEC File No. 001-08787, Accession No. 0001104659-20-023889, filed on February 21, 2020. Exhibit 21 is incorporated herein by reference.
Item 27.     Number of Contract Owners
As of March 30, 2020, the number of Seasons Select II contracts funded by Variable Annuity Account Five was 7,155 of which 4,137 were qualified contracts and 3,018 were non-qualified contracts.
Item 28.     Indemnification
Insofar as indemnification for liability arising under the Securities Act of 1933 (“Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has 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.
American General Life Insurance Company
To the full extent authorized by law, the corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether criminal or civil, by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or serves or served in any capacity in any other corporation at the request of the corporation. Nothing contained herein shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law.
Item 29.     Principal Underwriter
(a)   AIG Capital Services, Inc. acts as distributor for the following investment companies:

 

American General Life Insurance Company
Variable Separate Account
Variable Annuity Account One
Variable Annuity Account Two
Variable Annuity Account Four
Variable Annuity Account Five
Variable Annuity Account Seven
Variable Annuity Account Nine
Separate Account A
Separate Account D
Separate Account I
Separate Account II
Separate Account VA-1
Separate Account VA-2
Separate Account VL-R
Separate Account VUL
Separate Account VUL-2
AG Separate Account A
The United States Life Insurance Company in the City of New York
FS Variable Separate Account
FS Variable Annuity Account One
FS Variable Annuity Account Two
FS Variable Annuity Account Five
Separate Account USL VA-R
Separate Account USL VL-R
Separate Account USL A
Separate Account USL B
The Variable Annuity Life Insurance Company
Separate Account A
(b)   Directors, Officers and principal place of business:
Officer/Directors*   Position
Terri N. Fiedler(1)   Director, Senior Vice President and Chief Distribution Officer
James T. Nichols(2)   Director, President and Chief Executive Officer
Todd P. Solash   Director
Frank Curran(2)   Vice President, Chief Financial Officer, Chief Operating Officer, Controller and Treasurer
Michael Fortey(1)   Chief Compliance Officer
John Thomas Genoy(2)   Vice President
Mallary Loren Reznik   Vice President
Daniel R. Cricks(1)   Vice President, Tax Officer
Thomas Clayton Spires(1)   Vice President, Tax Officer
Julie A. Cotton Hearne(1)   Vice President and Secretary
Rosemary Foster(1)   Assistant Secretary
Virginia N. Puzon   Assistant Secretary
*  Unless otherwise indicated, the principal business address of AIG Capital Services, Inc. and of each of the above individuals is 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367-4997.
(1)  Principal business address 2919 Allen Parkway, Houston, TX 77019
(2) Principal business address 160 Greene Street, Jersey City, NJ 07311
(c) AIG Capital Services, Inc. retains no compensation or commissions from the Registrant.

 

Item 30.     Location of Accounts and Records
All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-1 through 31a-3 thereunder, are maintained and in the custody of American General Life Insurance Company at its principal executive office located at 2727-A Allen Parkway, Houston, Texas 77019-2191 or at American General Life Insurance Company’s Annuity Service Center located at P.O. Box 15570, Amarillo, Texas 79105-5570.
Item 31.     Management Services
Not Applicable.
Item 32.     Undertakings
General Representations
The Registrant hereby represents that it is relying on the No-Action Letter issued by the Division of Investment Management to the American Council of Life Insurance dated November 28, 1988 (Commission Ref. No. IP-6-88). Registrant has complied with conditions one through four on the No-Action Letter.
Depositor represents that the fees and charges to be deducted under the Contracts described in the prospectus contained in this Registration Statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Depositor in accordance with Section 26(f)(2)(A) of the Investment Company Act of 1940.
Undertakings of the Registrant
Registrant undertakes to: (a) file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity Contracts may be accepted; (b) include either (1) as part of any application to purchase a contract offered by the prospectus forming a part of the Registration Statement, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the prospectus that the Applicant can remove to send for a Statement of Additional Information; and (c) deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request.
Undertakings of the Depositor Regarding Guarantor
During any time there are insurance obligations outstanding and covered by the guarantee issued by American Home Assurance Company (“American Home Guarantee Period”), filed as an exhibit to this Registration Statement (the “American Home Guarantee”), the Depositor hereby undertakes to provide notice to policy owners covered by the American Home Guarantee promptly after the happening of significant events related to the American Home Guarantee.
These significant events include: (i) termination of the American Home Guarantee that has a material adverse effect on the policy owner’s rights under the American Home Guarantee; (ii) a default under the American Home Guarantee that has a material adverse effect on the policy owner’s rights under the American Home Guarantee; or (iii) the insolvency of American Home Assurance Company (“American Home”).
Depositor hereby undertakes during the American Home Guarantee Period to cause Registrant to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the current annual audited statutory financial statements of American Home in the Registration Statement are updated to be as of a date not more than 16 months prior to the effective date of this Registration Statement, and to cause Registrant to include as an exhibit to this Registration Statement the consent of the independent auditors of American Home regarding such financial statements.
During the American Home Guarantee Period, the Depositor hereby undertakes to include in the prospectus to policy owners, an offer to supply the Statement of Additional Information which shall contain the annual audited statutory financial statements of American Home, free of charge upon a policy owner’s request.
As of December 29, 2006 at 4:00 p.m. Eastern Time (the “Point of Termination”), the American Home Guarantee was terminated for prospectively issued Contracts. The American Home Guarantee will not cover any Contracts with an issue date later than the Point of Termination. The American Home Guarantee will continue to cover Contracts with a date of issue earlier than the Point of Termination until all insurance obligations under such contracts are satisfied in full.
Effective as of 11:59 p.m. Eastern time, on December 31, 2012, SunAmerica Annuity and Life Assurance Company, an affiliate of American General Life Insurance Company, merged with and into American General Life Insurance Company. Texas law provides for the continuation of guarantees for contracts and certificates issued prior to a merger. Therefore, the American Home Guarantee will continue to cover Contracts with a date of issue earlier than the Point of Termination.

 

SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account Five, certifies that it meets the requirements of the Securities Act of 1933 Rule 485(b) for effectiveness of this amended Registration Statement and has caused this amended Registration Statement to be signed on its behalf, in the City of Houston, and State of Texas on this 24th day of April, 2020.
Variable Annuity Account Five
(Registrant)
BY:  AMERICAN GENERAL LIFE INSURANCE COMPANY
        (On behalf of the Registrant and itself)
BY:  /s/  CRAIG A. ANDERSON
        CRAIG A. ANDERSON
        SENIOR VICE PRESIDENT AND LIFE CONTROLLER
As required by the Securities Act of 1933, this Registration Statement has been signed below by the following persons, on behalf of the Registrant and Depositor, in the capacities and on the dates indicated.
Signature   Title   Date
*KEVIN T. HOGAN
KEVIN T. HOGAN 		  Director, Chairman, Chief Executive Officer, and President   April 24, 2020
 
*KATHERINE A. ANDERSON
KATHERINE A. ANDERSON 		  Director, Senior Vice President and Chief Risk Officer   April 24, 2020
 
*THOMAS J. DIEMER
THOMAS J. DIEMER 		  Director, Executive Vice President and Chief Financial Officer   April 24, 2020
 
*TERRI N. FIEDLER
TERRI N. FIEDLER 		  Director, Senior Vice President and Chief Distribution Officer   April 24, 2020
 
*MICHAEL P. HARWOOD
MICHAEL P. HARWOOD 		  Director, Senior Vice President, Chief Actuary and Corporate Illustration Actuary   April 24, 2020
 
*JONATHAN J. NOVAK
JONATHAN J. NOVAK 		  Director and Chief Executive Officer, Institutional Markets   April 24, 2020
 
*TODD P. SOLASH
TODD P. SOLASH 		  Director and Chief Executive Officer, Individual Retirement   April 24, 2020
 
*ADAM C. WINSLOW
ADAM C. WINSLOW 		  Director and Chief Executive Officer, Life Insurance   April 24, 2020
 
/s/  CRAIG A. ANDERSON
CRAIG A. ANDERSON 		  Senior Vice President and Life Controller   April 24, 2020
 
/s/  MANDA GHAFERI
*MANDA GHAFERI 		  Attorney-in-Fact   April 24, 2020

 

SIGNATURES
American Home Assurance Company has caused this amended Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of New York, and State of New York on the April 24, 2020.
AMERICAN HOME ASSURANCE COMPANY
BY:  /s/   BRIAN GREENSPAN
        BRIAN GREENSPAN
        SENIOR VICE PRESIDENT AND STATUTORY CONTROLLER
This amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature   Title   Date
*DAVID H. MCELROY
DAVID H. MCELROY 		  Director, President, Chief Executive Officer, and Chairman of the Board of Directors   April 24, 2020
 
*ALEXANDER R. BAUGH
ALEXANDER R. BAUGH 		  Director and Executive Vice President   April 24, 2020
 
*THOMAS A. BOLT
THOMAS A. BOLT 		  Director and Executive Vice President   April 24, 2020
 
*ELIAS F. HABAYEB
ELIAS F. HABAYEB 		  Director, Chief Financial Officer and Executive Vice President   April 24, 2020
 
*BARBARA LUCK
BARBARA LUCK 		  Director   April 24, 2020
 
*KENNETH RIEGLER
KENNETH RIEGLER 		  Director and Senior Vice President   April 24, 2020
 
*ANTHONY VIDOVICH
ANTHONY VIDOVICH 		  Director and Executive Vice President   April 24, 2020
 
*BY: /s/  BRIAN GREENSPAN
BRIAN GREENSPAN
ATTORNEY-IN-FACT
(Exhibit to the Registration Statement) 		      April 24, 2020