0001193125-12-519304.txt : 20130102
0001193125-12-519304.hdr.sgml : 20130101
20121231173420
ACCESSION NUMBER: 0001193125-12-519304
CONFORMED SUBMISSION TYPE: N-6
PUBLIC DOCUMENT COUNT: 38
FILED AS OF DATE: 20130102
DATE AS OF CHANGE: 20121231
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Variable Account II of AGL of Delaware
CENTRAL INDEX KEY: 0000803466
IRS NUMBER: 251118523
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-185761
FILM NUMBER: 121294062
BUSINESS ADDRESS:
STREET 1: 405 KING STREET
CITY: WILMINGTON
STATE: DE
ZIP: 19801
BUSINESS PHONE: 713-831-8470
MAIL ADDRESS:
STREET 1: 405 KING STREET, 4TH FLOOR
CITY: WILMINGTON
STATE: DE
ZIP: 19801
FORMER COMPANY:
FORMER CONFORMED NAME: VARIABLE ACCOUNT II AIG LIFE INSURANCE CO
DATE OF NAME CHANGE: 19950314
FORMER COMPANY:
FORMER CONFORMED NAME: AIG LIFE INSURANCE CO VARIABLE ACCOUNT II /NY/
DATE OF NAME CHANGE: 19940725
FORMER COMPANY:
FORMER CONFORMED NAME: AIG VARIABLE LIFE ACCOUNT I /NY
DATE OF NAME CHANGE: 19871111
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Variable Account II of AGL of Delaware
CENTRAL INDEX KEY: 0000803466
IRS NUMBER: 251118523
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-04867
FILM NUMBER: 121294063
BUSINESS ADDRESS:
STREET 1: 405 KING STREET
CITY: WILMINGTON
STATE: DE
ZIP: 19801
BUSINESS PHONE: 713-831-8470
MAIL ADDRESS:
STREET 1: 405 KING STREET, 4TH FLOOR
CITY: WILMINGTON
STATE: DE
ZIP: 19801
FORMER COMPANY:
FORMER CONFORMED NAME: VARIABLE ACCOUNT II AIG LIFE INSURANCE CO
DATE OF NAME CHANGE: 19950314
FORMER COMPANY:
FORMER CONFORMED NAME: AIG LIFE INSURANCE CO VARIABLE ACCOUNT II /NY/
DATE OF NAME CHANGE: 19940725
FORMER COMPANY:
FORMER CONFORMED NAME: AIG VARIABLE LIFE ACCOUNT I /NY
DATE OF NAME CHANGE: 19871111
0000803466
S000000579
VARIABLE ACCOUNT II OF AGL OF DELAWARE
C000124599
AGL Executive Advantage VUL
N-6
1
d419443dn6.txt
INITIAL REGISTRATION (FORM N-6) AGL EXECUTIVE ADVANTAGE VUL
Registration Nos. 333-
------------
811-04867
As filed with the Securities and Exchange Commission on December 31, 2012
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [1] [X]
SEPARATE ACCOUNT II OF
AMERICAN GENERAL LIFE INSURANCE COMPANY
(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)
(800) 871-2000
(Depositor's Telephone Number, including Area Code)
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
(Name of Guarantor)
175 Water Street, 18/th/ Floor
New York, New York 10038
(212) 770-7000
(Guarantor's Telephone Number, including Area Code)
Manda Ghaferi, Esq.
AIG Life and Retirement
1999 Avenue of the Stars
Los Angeles, California 90067-6121
(Name and Address of Agent for Service for Depositor, Registrant and Guarantor)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 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.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file
another amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
No filing fee is due because an indefinite amount of securities is deemed to
have been registered in reliance on Section 24(f) of the Investment Company Act
of 1940.
================================================================================
EXECUTIVE ADVANTAGE(R)
GROUP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (the
"Policies") issued by AMERICAN GENERAL LIFE INSURANCE COMPANY through its
Separate Account II
THIS PROSPECTUS IS DATED
JANUARY 2, 2013
American General Life Insurance Company ("AGL") is offering life insurance
coverage under the Executive Advantage(R) group flexible premium variable
universal life policy (the "Policy"). The Policy provides insurance protection
for individuals within groups under corporate owned or sponsored arrangements.
Corporate owned arrangements are those where an employer (or trust established
by an employer) purchases life insurance coverage on their employees. The
employer or trust is the BENEFICIARY. Sponsored arrangements are those
instances where an employer, a financial institution or association allows us
to sell insurance policies to its employees, depositors or members. The
description of the Policy in this prospectus is fully applicable to your
certificate and the word "Policy" includes any such certificate.
For information on how to contact AGL, please see page 5.
The Index of Special Words and Phrases on page 53 will define many of the words
and phrases that we use. All of the words and phrases listed in the Index will
be underlined and written in BOLD the first time they appear in this prospectus.
This prospectus generally describes only the variable portions of the Policy.
Please read this prospectus carefully and keep it for future reference.
The GUARANTEED ACCOUNT is part of our general account. You can use AGL's
Separate Account II ("SEPARATE ACCOUNT") to invest in the Executive Advantage
variable investment options. Currently, the Executive Advantage variable
investment options each purchase shares of a corresponding Fund of:
.. AIM Variable Insurance Funds (Invesco Variable Insurance Funds) ("Invesco
V.I.")
.. AllianceBernstein Variable Products Series Fund, Inc. ("AllianceBernstein
VPS")
.. American Century(R) Variable Portfolios, Inc. ("American Century(R) VP")
.. BlackRock Variable Series Funds, Inc. ("BlackRock")
.. Fidelity(R) Variable Insurance Products ("Fidelity(R) VIP")
.. Franklin Templeton Variable Insurance Products Trust ("Franklin Templeton
VIP")
.. Goldman Sachs Variable Insurance Trust ("Goldman Sachs VIT")
.. JPMorgan Insurance Trust ("JPMorgan IT")
.. Neuberger Berman Advisers Management Trust ("Neuberger Berman AMT")
.. PIMCO Variable Insurance Trust ("PIMCO VIT")
.. The Universal Institutional Funds, Inc. ("UIF")
.. VALIC Company I ("VALIC Co. I")
.. Vanguard(R) Variable Insurance Fund ("Vanguard VIF")
See "Variable Investment Options" on page 19 for a complete list of the
variable investment options and the respective advisers and sub-advisers of the
corresponding Funds. You should also read the prospectuses of the Funds
underlying variable investment options that may interest you. You can request
free copies from your AGL representative or from our ADMINISTRATIVE CENTER
shown on page 5 of this prospectus.
BUYING THIS POLICY MIGHT NOT BE A GOOD WAY OF REPLACING YOUR EXISTING INSURANCE
OR ADDING MORE INSURANCE IF YOU ALREADY OWN A FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY. YOU MAY WISH TO CONSULT WITH YOUR INSURANCE
REPRESENTATIVE OR FINANCIAL ADVISER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE POLICIES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
SIMILAR AGENCY. THEY ARE NOT A DEPOSIT OR OTHER OBLIGATION OF, NOR ARE THEY
GUARANTEED OR ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION. AN INVESTMENT IN
A VARIABLE UNIVERSAL LIFE INSURANCE POLICY IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
THE POLICIES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT OFFER
THE POLICIES IN ANY JURISDICTION WHERE THEY CANNOT BE LAWFULLY SOLD. YOU SHOULD
RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, OR ON SALES
MATERIALS WE HAVE APPROVED OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
TABLE OF CONTENTS
THE MERGER................................................................. 6
POLICY BENEFITS/RISKS SUMMARY.............................................. 6
POLICY BENEFITS............................................................ 6
DEATH BENEFIT........................................................... 6
DEATH BENEFIT PROCEEDS................................................ 6
DEATH BENEFIT OPTIONS................................................. 6
FULL SURRENDERS, PARTIAL SURRENDERS, TRANSFERS, AND POLICY LOANS........ 7
FULL SURRENDERS....................................................... 7
PARTIAL SURRENDERS.................................................... 7
TRANSFERS............................................................. 7
LOANS................................................................. 7
PREMIUMS................................................................ 7
FLEXIBILITY OF PREMIUMS............................................... 7
FREE LOOK............................................................. 8
THE POLICY.............................................................. 8
OWNERSHIP RIGHTS...................................................... 8
SEPARATE ACCOUNT...................................................... 8
GUARANTEED ACCOUNT.................................................... 8
ACCOUNT VALUE......................................................... 8
PAYMENT OPTIONS....................................................... 8
TAX BENEFITS.......................................................... 8
SUPPLEMENTAL BENEFITS AND RIDERS........................................ 8
POLICY RISKS............................................................... 9
INVESTMENT RISK......................................................... 9
RISK OF LAPSE........................................................... 9
TAX RISKS............................................................... 9
PARTIAL SURRENDER AND FULL SURRENDER RISKS.............................. 10
POLICY LOAN RISKS....................................................... 10
PORTFOLIO RISKS............................................................ 10
TABLES OF CHARGES.......................................................... 11
GENERAL INFORMATION........................................................ 16
AMERICAN GENERAL LIFE INSURANCE COMPANY................................. 16
THE SEPARATE ACCOUNT.................................................... 17
GUARANTEE OF INSURANCE OBLIGATIONS...................................... 17
ADDITIONAL INFORMATION.................................................. 18
COMMUNICATION WITH AGL.................................................. 18
ADMINISTRATIVE CENTER................................................. 18
GENERAL............................................................... 18
APPLYING FOR A POLICY................................................... 18
OUR AGE REQUIREMENT FOR THE INSURED................................... 18
THE MINIMUM FACE AMOUNT............................................... 18
WE REQUIRE A MINIMUM INITIAL PREMIUM.................................. 18
WHEN YOUR COVERAGE WILL BE EFFECTIVE.................................. 18
GENERAL............................................................... 19
VARIABLE INVESTMENT OPTIONS............................................. 19
GUARANTEED INVESTMENT OPTION............................................ 21
GUARANTEED ACCOUNT VALUE................................................ 22
VOTING PRIVILEGES....................................................... 22
ILLUSTRATIONS........................................................... 23
2
POLICY FEATURES............................................................... 23
DEATH BENEFITS............................................................. 23
YOUR FACE AMOUNT OF INSURANCE............................................ 23
YOUR DEATH BENEFIT....................................................... 24
LIFE INSURANCE PROCEEDS.................................................. 24
PAYMENT OF LIFE INSURANCE PROCEEDS....................................... 24
AMOUNT OF LIFE INSURANCE PROCEEDS........................................ 24
TAX QUALIFICATION OPTIONS.................................................. 25
CHANGES IN DEATH BENEFIT OPTIONS........................................... 25
HOW TO REQUEST A CHANGE.................................................. 25
TAX CONSEQUENCES OF CHANGES IN INSURANCE COVERAGE........................ 26
PREMIUM PAYMENTS........................................................... 26
RESTRICTIONS ON PREMIUM.................................................. 26
MINIMUM INITIAL PREMIUM.................................................. 26
PLANNED PERIODIC PREMIUM................................................. 26
ADDITIONAL PREMIUM....................................................... 26
EFFECT OF PREMIUM PAYMENTS............................................... 26
GRACE PERIOD............................................................. 27
PREMIUM ALLOCATIONS...................................................... 27
ALLOCATION RULES......................................................... 27
CREDITING PREMIUM........................................................ 27
FUTURE PREMIUM PAYMENTS.................................................. 28
PREMIUM PAYMENTS AND TRANSACTION REQUESTS IN GOOD ORDER.................... 28
DETERMINING THE ACCOUNT VALUE.............................................. 28
ACCOUNT VALUE IN THE SUBACCOUNTS........................................... 29
ACCUMULATION UNIT VALUES................................................. 29
NET INVESTMENT FACTOR.................................................... 29
GUARANTEED ACCOUNT VALUE................................................. 29
NET ACCOUNT VALUE........................................................ 30
CASH SURRENDER VALUE..................................................... 30
NET CASH SURRENDER VALUE................................................. 30
TRANSFERS.................................................................. 30
MINIMUM AMOUNT OF TRANSFER............................................... 30
FORM OF TRANSFER REQUEST................................................. 30
TRANSFERS FROM THE GUARANTEED ACCOUNT.................................... 30
DATE WE PROCESS YOUR TRANSFER REQUEST.................................... 30
NUMBER OF PERMITTED TRANSFERS/TRANSFER CHARGE............................ 31
DOLLAR COST AVERAGING...................................................... 31
PROCESSING YOUR AUTOMATIC DOLLAR COST AVERAGING TRANSFERS................ 31
MARKET TIMING.............................................................. 32
RESTRICTIONS INITIATED BY THE FUNDS AND INFORMATION SHARING OBLIGATIONS.... 33
CHANGING THE FACE AMOUNT OF INSURANCE...................................... 33
CHANGES IN FACE AMOUNT................................................... 33
INCREASES IN FACE AMOUNT................................................. 33
DECREASES IN FACE AMOUNT................................................. 34
CONSEQUENCES OF A CHANGE IN FACE AMOUNT.................................. 34
EFFECTIVE DATE OF POLICY AND RELATED TRANSACTIONS.......................... 34
VALUATION DATES, TIMES, AND PERIODS...................................... 34
FUND PRICING............................................................. 34
DATE OF RECEIPT.......................................................... 34
COMMENCEMENT OF INSURANCE COVERAGE....................................... 34
3
ISSUE DATE; POLICY MONTHS AND YEARS................................... 34
MONTHLY DEDUCTION DAYS................................................ 35
COMMENCEMENT OF INVESTMENT PERFORMANCE................................ 35
EFFECTIVE DATE OF OTHER PREMIUM PAYMENTS AND REQUESTS THAT YOU MAKE... 35
REPORTS TO POLICY OWNERS................................................ 35
POLICY TRANSACTIONS........................................................ 36
WITHDRAWING POLICY INVESTMENTS.......................................... 36
FULL SURRENDER........................................................ 36
PARTIAL SURRENDER..................................................... 36
LOANS................................................................. 36
MAXIMUM LOAN AMOUNT................................................... 37
INTEREST.............................................................. 37
LOAN ACCOUNT.......................................................... 37
EFFECT OF A LOAN...................................................... 37
OUTSTANDING LOAN...................................................... 37
LOAN REPAYMENT........................................................ 37
MATURITY OF YOUR POLICY................................................. 38
TAX CONSIDERATIONS...................................................... 38
POLICY PAYMENTS............................................................ 38
PAYMENT OPTIONS......................................................... 38
CHANGE OF PAYMENT OPTION.............................................. 38
TAX IMPACT............................................................ 38
THE BENEFICIARY......................................................... 38
ASSIGNMENT OF A POLICY.................................................. 38
PAYMENT OF PROCEEDS..................................................... 39
GENERAL............................................................... 39
DELAY OF GUARANTEED ACCOUNT OPTION PROCEEDS........................... 39
DELAY FOR CHECK CLEARANCE............................................. 39
DELAY OF SEPARATE ACCOUNT PROCEEDS.................................... 39
DELAY TO CHALLENGE COVERAGE........................................... 39
DELAY REQUIRED UNDER APPLICABLE LAW................................... 40
ADDITIONAL RIGHTS THAT WE HAVE............................................. 40
VARIATIONS IN POLICY OR INVESTMENT OPTION TERMS AND CONDITIONS............. 40
UNDERWRITING AND PREMIUM CLASSES...................................... 40
POLICIES PURCHASED THROUGH INTERNAL ROLLOVERS......................... 40
STATE LAW REQUIREMENTS................................................ 40
EXPENSES OR RISKS..................................................... 41
UNDERLYING INVESTMENTS................................................ 41
CHARGES UNDER THE POLICY................................................... 41
DEDUCTIONS FROM PREMIUM................................................. 41
MONTHLY DEDUCTION FROM ACCOUNT VALUE.................................. 41
ADMINISTRATIVE CHARGE................................................. 42
COST OF INSURANCE CHARGE.............................................. 42
DEDUCTIONS AND MONEY MARKET SUBACCOUNT.................................. 42
NET AMOUNT AT RISK...................................................... 42
RATE CLASSES FOR INSUREDS............................................. 42
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS..... 43
DEDUCTION FROM SEPARATE ACCOUNT ASSETS.................................. 43
DEDUCTIONS UPON POLICY TRANSACTIONS..................................... 44
TRANSFER CHARGE....................................................... 44
SURRENDER CHARGE...................................................... 44
4
SURRENDER CHARGE CALCULATION....................................... 44
SURRENDER CHARGE BASED ON AN INCREASE OR DECREASE IN FACE AMOUNT... 45
PARTIAL SURRENDER CHARGE........................................... 45
PARTIAL SURRENDER CHARGE DUE TO DECREASE IN FACE AMOUNT............ 45
PARTIAL SURRENDER PROCESSING FEE................................... 45
DISCOUNT PURCHASE PROGRAMS......................................... 45
OTHER POLICY PROVISIONS................................................. 46
RIGHT TO EXCHANGE.................................................... 46
MORE ABOUT POLICY CHARGES............................................ 46
PURPOSE OF OUR CHARGES............................................. 46
GENERAL............................................................ 47
ACCOUNT VALUE........................................................ 47
YOUR ACCOUNT VALUE................................................. 47
YOUR INVESTMENT OPTIONS............................................ 47
THE GUARANTEED ACCOUNT............................................. 47
POLICY LAPSE AND REINSTATEMENT.......................................... 47
REINSTATEMENT........................................................ 47
FEDERAL INCOME TAX CONSIDERATIONS....................................... 48
TAX STATUS OF THE POLICY............................................. 48
AGL.................................................................. 48
DIVERSIFICATION AND INVESTOR CONTROL................................. 48
TAX TREATMENT OF THE POLICY.......................................... 49
TAX TREATMENT OF POLICY BENEFITS IN GENERAL.......................... 50
PRE-DEATH DISTRIBUTION............................................... 50
POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.............. 50
MODIFIED ENDOWMENT CONTRACTS......................................... 50
INTEREST ON LOANS.................................................... 51
POLICY EXCHANGES AND MODIFICATIONS................................... 51
WITHHOLDING.......................................................... 51
CONTRACTS ISSUED IN CONNECTION WITH TAX QUALIFIED PENSION PLANS...... 51
POSSIBLE CHARGE FOR AGL'S TAXES...................................... 51
LEGAL PROCEEDINGS....................................................... 52
REGISTRATION STATEMENTS................................................. 52
INDEX OF SPECIAL WORDS AND PHRASES...................................... 53
APPENDIX A.............................................................. 55
CONTACT INFORMATION: HERE IS HOW YOU CAN CONTACT US ABOUT THE AGL EXECUTIVE
ADVANTAGE POLICIES:
ADMINISTRATIVE CENTER: HOME OFFICE:
---------------------- -------------------------------------
American General Life Insurance American General Life Insurance
Company Company
405 King Street, 4th Floor 2727-A Allen Parkway
Wilmington, Delaware 19801 Houston, Texas 77019
1-302-575-5245 1-713-831-3443
5
THE MERGER
Effective December 31, 2012, American General Life Insurance Company of
Delaware ("AGLD"), an affiliate of AGL, merged with and into AGL ("Merger").
Before the Merger, the Policies were issued by AGLD. Upon the Merger, all
Policy obligations that had been those of AGLD became obligations of AGL. In
this prospectus, the word "we" refers to AGL.
The Merger did not affect the terms of, or the rights and obligations
under your Policy, other than to reflect the change to the company that
provides your Policy benefits from AGLD to AGL. You will receive a Policy
endorsement from AGL that reflects the change from AGLD to AGL. The Merger also
did not result in any adverse tax consequences for any Policy Owners.
Until we update all the forms to reflect the AGLD merger into AGL, we may
provide you with forms, statements or reports that still reflect AGLD as the
issuer. You may also contact AGL. You can contact AGL at its Administrative
Office, 405 King Street, 4th Floor, Wilmington, Delaware 19801 or call us at
1-302-575-5245.
POLICY BENEFITS/RISKS SUMMARY
Any Policies issued January 1, 2009 and thereafter comply with the 2001
Commissioners' Standard Ordinary mortality and morbidity tables ("2001 CSO
tables"). Please see "Tax Treatment of the Policy" on page 49.
This summary describes the Policy's important benefits and risks. The
sections in this prospectus following this summary discuss the Policy's
benefits and other provisions in more detail.
POLICY BENEFITS
You may allocate your ACCOUNT VALUE among the 36 variable investment
options available under the Policy, each of which invests in an underlying fund
(each available portfolio is referred to in this prospectus as a "Fund" and
collectively, the "Funds"), and the Guaranteed Account, which credits a
specified rate of interest. Your Account Value will vary based on the
investment performance of the variable investment options you choose and
interest credited in the Guaranteed Account.
DEATH BENEFIT
.. DEATH BENEFIT PROCEEDS: We pay the death benefit proceeds (reduced by any
outstanding Policy loans and any accrued loan interest) to the
Beneficiary when the INSURED person dies. In your application to buy an
Executive Advantage Policy, you tell us how much life insurance coverage
you want. We call this the "FACE AMOUNT" of insurance.
.. DEATH BENEFIT OPTIONS: You must choose one of the two death benefit
options when you apply for your Policy:
. Level Death Benefit Option or
. Increasing Death Benefit Option
For the Level Death Benefit Option, the death benefit will be the greater
of:
. Face Amount; or
. Account Value on the date of death multiplied by the
appropriate minimum death benefit factor.
6
You should consider this death benefit option if you want to minimize
your cost of insurance.
For the Increasing Death Benefit Option, the death benefit will be the
greater of:
. Face Amount plus the Account Value; or
. Account Value on the date of death multiplied by the
appropriate minimum death benefit factor.
You should consider this death benefit option if you want your death
benefit to increase with your Account Value.
Federal tax law may require us to increase the death benefit under any of
the above death benefit options. See "Tax Qualification Options" on page 25.
FULL SURRENDERS, PARTIAL SURRENDERS, TRANSFERS, AND POLICY LOANS
.. FULL SURRENDERS: At any time while the Policy is in force, you may
surrender your Policy in full. If you do, we will pay you the Account
Value, less any Policy loans and any accrued loan interest, and less any
surrender charge that then applies. We call this amount your NET CASH
SURRENDER VALUE. A surrender charge may apply. See "Surrender Charge" on
page 44. You cannot reinstate a surrendered Policy. A full surrender may
have adverse tax consequences.
.. PARTIAL SURRENDERS: We will not allow a partial surrender during the
first Policy year or during the first 12 months following an increase in
Face Amount. You may make two partial surrenders per year. A partial
surrender must be at least $500 but may not exceed 90% of your Policy's
Net Cash Surrender Value. We may deduct the applicable surrender charge
on a partial surrender. Currently, we do not assess a processing charge
for partial surrenders. A partial surrender may have adverse tax
consequences.
.. TRANSFERS: Within certain limits, you may make transfers among the
variable investment options and the Guaranteed Account. You may make up
to twelve transfers of Account Value among the variable investment
options in each Policy year without charge. We currently assess a $25
charge for each transfer after the 12th transfer in a Policy year. There
are special limits on transfers involving the Guaranteed Account.
.. LOANS: You may take a loan from your Policy at any time after the first
Policy year. The maximum loan amount you may take is 90% of your Policy's
Net Cash Surrender Value. We charge you interest daily on any OUTSTANDING
LOAN at a declared annual rate not in excess of 8%. The maximum net cost
(the difference between the rate of interest charged on loans and the
amount we credit on the equivalent amount held in the LOAN ACCOUNT) of a
loan is 2% per year. You may increase your risk of lapse if you take a
loan. Loans may have adverse tax consequences.
PREMIUMS
.. FLEXIBILITY OF PREMIUMS: After you pay the initial premium, you can pay
subsequent premiums at any time (prior to the Policy's maturity) and in
any amount less than the maximum amount allowed under tax laws (but not
less than $50). You can select a premium payment plan to pay planned
periodic premiums annually. You are not required to pay premiums
according to the plan. Under certain circumstances, we may limit the
amount of a premium payment or reject a premium payment.
7
.. FREE LOOK: When you receive your Policy, the free look period begins. You
may return your Policy during this period and receive a refund of the
premiums paid.
The free look period generally expires the later of:
. 10 days after you receive the Policy, or
. 45 days after you sign Part I of the application.
THE POLICY
.. OWNERSHIP RIGHTS: While the Insured person is living, you, as the OWNER
of the Policy, may exercise all of the rights and options described in
the Policy. These rights include selecting and changing the Beneficiary,
changing the Owner, and assigning the Policy.
.. SEPARATE ACCOUNT: You may direct the money in your Policy to any of the
available variable investment options of the Separate Account. Each
variable investment option invests exclusively in one of the Funds listed
in this prospectus. The value of your investment in a variable investment
option depends on the investment results of the related Fund. We do not
guarantee any minimum cash value for amounts allocated to the variable
investment options. If the Fund investments go down, the value of a
Policy can decline.
.. GUARANTEED ACCOUNT: You may place amounts in the Guaranteed Account where
it earns interest at the rate of 4% annually. We may declare higher rates
of interest, but are not obligated to do so.
.. ACCOUNT VALUE: Account Value varies from day to day, depending on the
investment performance of the variable investment options you choose,
interest we credit to the Guaranteed Account, charges we deduct, and any
other transactions (e.g., transfers, partial surrenders and loans).
.. PAYMENT OPTIONS: There are several ways of receiving proceeds under the
death benefit, surrender, and maturity provisions of the Policy, other
than in a lump sum. More detailed information concerning these payment
options is available on request from our Administrative Center. See
"Payment Options" on page 38.
.. TAX BENEFITS: The Policy is designed to afford the tax treatment normally
accorded life insurance contracts under federal tax law. Generally, under
federal tax law, the death benefit under a qualifying life insurance
Policy is excludable from the gross income of the Beneficiary until there
is a distribution. In addition, this means that under a qualifying life
insurance Policy, cash value accumulates on a tax deferred basis and
transfers of cash value among the available investment options under the
Policy may be made tax free. Under a qualifying life insurance Policy
that is not a modified endowment contract ("MEC"), the proceeds from
Policy loans would not be taxed. If the Policy is not a MEC,
distributions after the 15th Policy year generally will be treated first
as a return of basis or investment in the contract and then as taxable
income. Moreover, loans will generally not be treated as distributions.
Finally, neither distributions nor loans from a Policy that is not a MEC
are subject to the 10% penalty tax.
SUPPLEMENTAL BENEFITS AND RIDERS
We offer no supplemental benefits or riders with this Policy.
8
POLICY RISKS
INVESTMENT RISK
The Policy is not suitable as a short-term investment. We designed the
Policy to meet long-term financial goals. In the Policy's early years, if the
total charges exceed total premiums paid or if your investment choices perform
poorly, your Policy may not have any CASH SURRENDER VALUE. Any applicable
surrender charge may be large enough in the Policy's early years so that if you
fully surrender your Policy you may receive no Cash Surrender Value. If you
take multiple partial surrenders, your Account Value may not cover required
charges and your Policy would lapse.
If you invest your Account Value in one or more variable investment
options, then you will be subject to the risk that the investment performance
of the variable investment options will be unfavorable. You will also be
subject to the risk that the Account Value will decrease because of the
unfavorable performance and the resulting higher insurance charges. You could
lose everything you invest. You will also be subject to the risk that the
investment performance of the variable investment options you choose may be
less favorable than that of other variable investment options, and in order to
keep the Policy in force may be required to pay more premiums than originally
planned. WE DO NOT GUARANTEE A MINIMUM ACCOUNT VALUE.
If you allocate NET PREMIUMS to the Guaranteed Account, then we credit
your Account Value (in the Guaranteed Account) with a declared rate of
interest, but you assume the risk that the rate may decrease, although it will
never be lower than a guaranteed minimum annual effective rate of 4%.
RISK OF LAPSE
If your Net Cash Surrender Value is not enough to pay the charges deducted
against Account Value each month, your Policy may enter a 61-day GRACE PERIOD.
We will notify you that the Policy will lapse (terminate without value) at the
end of the Grace Period unless you make a sufficient payment. Your Policy may
also lapse if outstanding Policy loans plus any accrued interest payable
exceeds the Cash Surrender Value.
If we do not receive a sufficient premium before the end of the Grace
Period, the Policy will terminate without value. We will send you a written
notice within 30 days of the beginning of any Grace Period. The notice will
state that you have 61 days from the due date of the premium to pay the
necessary charges to avoid lapse of the Policy. If the Insured dies during the
Grace Period, we will still pay the LIFE INSURANCE PROCEEDS to the Beneficiary.
The amount we pay will reflect a reduction for the unpaid monthly deductions
due on or before the date of the Insured's death.
TAX RISKS
We anticipate that the Policy should generally qualify as a life insurance
contract under federal tax law. However, due to limited guidance under the
federal tax law, there is some uncertainty about the application of the federal
tax law to the Policy, particularly if you pay the full amount of premiums
permitted under the Policy. Please consult a tax adviser about these
consequences.
Depending on the total amount of premiums you pay, the Policy may be
treated as a MEC under federal tax laws. If a Policy is treated as a MEC, then
surrenders, partial surrenders, and loans under the Policy will be taxable as
ordinary income to the extent there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on surrenders, partial surrenders, and loans
taken before you reach age 59 1/2.
9
You should consult a qualified tax adviser for assistance in all
Policy-related tax matters. See "Federal Income Tax Considerations" on page 48.
PARTIAL SURRENDER AND FULL SURRENDER RISKS
The surrender charge under the Policy applies for the first 14 Policy
years (and for a maximum of the first 14 Policy years after any increase in the
Policy's Face Amount) in the event you surrender the Policy or decrease the
Face Amount. The surrender charge may be considerable. Any Outstanding Loan
balance reduces the amount available to you upon a partial or full surrender.
It is possible that you will receive no Net Cash Surrender Value if you
surrender your Policy in the first few Policy years. You should purchase the
Policy only if you have the financial ability to keep it in force for a
substantial period of time. You should not purchase the Policy if you intend to
surrender all or part of the Account Value in the near future. We designed the
Policy to help meet long-term financial goals.
A partial surrender or full surrender may have adverse tax consequences.
POLICY LOAN RISKS
A Policy loan, whether or not repaid, will affect Account Value over time
because we subtract the amount of the loan from the variable investment options
and/or Guaranteed Account as collateral, and this loan collateral does not
participate in the investment performance of the variable investment options or
receive any excess interest credited to the Guaranteed Account.
We reduce the amount we pay on the Insured person's death by the amount of
any Policy loan and your Policy may lapse (terminate without value) if
outstanding Policy loans plus any accrued interest payable reduce the Net Cash
Surrender Value to zero.
If you surrender the Policy or allow it to lapse while a Policy loan
remains outstanding, the amount of the loan, to the extent it has not
previously been taxed, is treated as a distribution from the Policy and may be
subject to federal income taxation.
PORTFOLIO RISKS
A discussion of the risks of each Fund may be found in its prospectus.
Please refer to the Funds' prospectuses for more information. You may request a
copy of any or all of the Fund prospectuses by contacting us at the
Administrative Center shown on page 5 of this prospectus.
There is no assurance that any of the Funds will achieve its stated
investment objective.
10
TABLES OF CHARGES
The following tables describe the fees and expenses that are payable, when
buying, owning and surrendering a Policy. No Policy Owner will be charged more
than the amount we show under the "Maximum Guaranteed Charge" columns.
AGL may also make available to Policy Owners other universal life
insurance policies with different features and different charges. Please ask
your AGL representative about our other policies.
The following tables describe the transaction fees and expenses that are
payable, at the time that you (1) buy a Policy, (2) surrender a Policy during
the first 14 Policy years and the first 14 Policy years following an increase
in the Policy's Face Amount, (3) change a Policy's Face Amount, or (4) transfer
Account Value between investment options.
TRANSACTION FEES
-----------------------------------------------------------------------------------------------------
MAXIMUM
CHARGE WHEN CHARGE IS DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
----------------------------- ----------------------- ----------------------- -----------------------
STATUTORY PREMIUM TAX CHARGE Upon receipt of each 3.5%/1/ of each premium 3.5%/1/ of each premium
premium payment payment payment
DAC TAX CHARGE Upon receipt of each 1.0% 0%
premium payment
PREMIUM EXPENSE CHARGE Upon receipt of each 9.0% of the amount of 9.0% of the amount of
premium payment each premium payment each premium payment
-----------------
/1/ Statutory premium tax rates vary by state. For example, the highest
premium tax rate, 3.5%, is in the state of Nevada, while the lowest premium tax
rate, 0.5%, is in the state of Illinois. Certain local jurisdictions may assess
additional premium taxes.
11
TRANSACTION FEES
---------------------------------------------------------------------------------------------------------------
WHEN CHARGE IS
CHARGE DEDUCTED MAXIMUM GUARANTEED CHARGE CURRENT CHARGE
---------------------------------------- ------------------------- ------------------------- ---------------
SURRENDER CHARGE
Maximum Charge/1/ Upon a partial surrender $48 per $1,000 of Face $0 per $1,000
or a full surrender of Amount of Face Amount
your Policy/2/
Minimum Charge/3/ Upon a partial surrender $13 per $1,000 of Face $0 per $1,000
or a full surrender of Amount of Face Amount
your Policy/2/
Example Charge - for the first Upon a partial surrender $26 per $1,000 of Face $0 per $1,000
Policy year - for a 45 year old male, or a full surrender of Amount of Face Amount
nonsmoker with a Face Amount your Policy/2/
of $100,000
-----------------
/1/ The Maximum Charge for both the maximum guaranteed charge and the
current charge occurs during the Insured person's first Policy year. The
Maximum Charge is for a male, smoker, age 55 at the Policy's ISSUE DATE, with a
Face Amount of $100,000.
/2/ The Policies have a Surrender Charge that applies for a maximum of the
first 14 Policy years and for a maximum of the first 14 Policy years following
an increase in the Policy's Face Amount. The Surrender Charge attributable to
an increase in the Policy's Face Amount applies only to the increase in Face
Amount. The Surrender Charge will vary based on the Insured person's sex, age,
risk class, Policy year and Face Amount. The Surrender Charges shown in the
table may not be typical of the charges you will pay. Page 3B of your Policy
will indicate the guaranteed Surrender Charges applicable to your Policy. More
detailed information concerning your Surrender Charge is available free of
charge on request from our Administrative Center shown under "Contact
Information" on page 5 of this prospectus.
/3/ The Minimum Charge for both the maximum guaranteed charge and the
current charge occurs during the Insured person's first Policy year. The
Minimum Charge is for a female, nonsmoker, age 18 at the Policy's Issue Date,
with a Face Amount of $100,000.
12
TRANSACTION FEES
----------------------------------------------------------------------------------------------------------
MAXIMUM
CHARGE WHEN CHARGE IS DEDUCTED GUARANTEED CHARGE CURRENT CHARGE
--------------------------------- --------------------------- ------------------ -------------------------
PARTIAL SURRENDER PROCESSING FEE Upon a partial surrender The lesser of $25 $0
of your Policy or 2.0% of the
amount of the
partial surrender
TRANSFER FEE Upon a transfer of $25 for each $25 for each transfer/1/
Account Value transfer/1/
POLICY OWNER ADDITIONAL Upon each request for a $25 $0
ILLUSTRATION CHARGE Policy illustration after
the first in a Policy year
FLAT MONTHLY CHARGE Monthly, at the $10 $7
beginning of each
Policy Month
FIRST YEAR ADMINISTRATIVE CHARGE Monthly, at the $25 $0
beginning of each
Policy month during the
first Policy year
FACE AMOUNT INCREASE CHARGE Monthly, at the $25 $0
beginning of each
Policy month for the 12
months immediately
following the effective
date of the increase
-----------------
/1/ The first 12 transfers in a Policy year are free of charge.
13
The next table describes the fees and expenses that you will pay
periodically during the time that you own the Policy, not including Fund fees
and expenses.
PERIODIC CHARGES
(OTHER THAN FUND FEES AND EXPENSES)
-----------------------------------------------------------------------------------------
MAXIMUM
WHEN CHARGE IS GUARANTEED
CHARGE DEDUCTED CHARGE CURRENT CHARGE
--------------------------- ------------------------- ----------------- -----------------
COST OF INSURANCE
CHARGE/1/
Maximum Charge/2/ Monthly, at the beginning $83.33 per $1,000 $20.72 per $1,000
of each Policy month of Net Amount at of Net Amount at
Risk/3/ Risk
Minimum Charge/4/ Monthly, at the beginning $0.08 per $1,000 $0.02 per $1,000
of each Policy month of Net Amount at of Net Amount at
Risk Risk
Example Charge for Monthly, at the beginning $0.29 per $1,000 $0.05 per $1,000
the first Policy year - of each Policy month of Net Amount at of Net Amount at
for a 45 year old Risk Risk
male, nonsmoker,
medically
underwritten with a
Face Amount of
$100,000
MORTALITY AND EXPENSE
RISK CHARGE
Policy years 1-4/5/ Daily annual effective annual effective
rate of 1.0% of rate of 0.65% of
Account Value Account Value
invested in the invested in the
variable variable
investment investment
options options
POLICY LOAN INTEREST Annually (on your Policy 8.0% of the 8.0% of the
CHARGE anniversary) Outstanding Loan Outstanding Loan
balance balance
-----------------
/1/ The Cost of Insurance Charge will vary based on the Insured Person's
sex, age, risk class, Policy year and Face Amount. The Cost of Insurance
Charges shown in the table may not be typical of the charges you will pay.
Page 3C of your Policy will indicate the guaranteed Cost of Insurance Charge
applicable to your Policy. More detailed information concerning your Cost of
Insurance Charge is available on request from our Administrative Center shown
under "Contact Information" on page 5 of this prospectus. Also see
"Illustrations" on page 23 of this prospectus.
/2/ The Maximum Charge for both of the maximum guaranteed charge and the
current charge occurs during the 12 months following the policy year in which
the insured person attains age 99. The policy anniversary on which the insured
person attains 100 is the Policy's maximum maturity date. The Maximum Charge is
for a guaranteed issue male, smoker, age 70 at the Policy's Issue Date, with a
Face Amount of $100,000.
/3/ The Net Amount at Risk is the difference between the current death
benefit under your Policy divided by 1.0032737 and your Account Value under the
Policy.
/4/ The Minimum Charge for both the maximum guaranteed charge and the
current charge occurs in Policy year 1. The Minimum Charge is for a medically
underwritten female, nonsmoker, age 18 at the Policy's Issue Date, with a Face
Amount of $100,000.
/5/ After the 4th Policy year, the maximum Mortality and Expense Charge
will be as follows:
Policy years 5-20 annual effective rate of 1.00% (guaranteed) and
0.20% (current)
Policy years 21+ annual effective rate of 1.00% (guaranteed) and
0.15% (current)
14
The next table describes the Fund fees and expenses that you will pay
periodically during the time that you own the Policy. The table shows the
maximum and minimum Total Annual Fund Operating Expenses before contractual
waiver or reimbursement for any of the Funds for the fiscal year ended
December 31, 2011. Current and future expenses for the Funds may be higher or
lower than those shown.
ANNUAL FUND FEES AND EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM THE FUND ASSETS)
------------------------------------------------------------------------------------
CHARGE MAXIMUM MINIMUM
-------------------------------------------------------------------- ------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES FOR ALL OF THE FUNDS (EXPENSES
THAT ARE DEDUCTED FROM PORTFOLIO ASSETS INCLUDE MANAGEMENT FEES,
DISTRIBUTION (12B-1) FEES, AND OTHER EXPENSES)/1/ 1.61% 0.10%
Details concerning each Fund's specific fees and expenses are contained in the
Funds' prospectuses.
1 Currently 6 of the Funds have contractual reimbursements or fee
waivers. These reimbursements or waivers expire on April 30, 2013.
The impact of contractual reimbursements or fee waivers is as follows:
CHARGE MAXIMUM MINIMUM
------ ------- -------
Total Annual Fund Operating Expenses
for all of the Funds After Contractual
Reimbursement or Fee Waiver 1.60% 0.10%
15
GENERAL INFORMATION
AMERICAN GENERAL LIFE INSURANCE COMPANY
We are American General Life Insurance Company ("AGL"). AGL is a stock
life insurance company organized under the laws of Texas. AGL's home office is
2727-A Allen Parkway, Houston, Texas 77019-2191. AGL is a 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.
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 Policy 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 General Life Companies, www.americangeneral.com, is the marketing
name for a group of affiliated domestic life insurers, including AGL.
AIG is a leading international insurance organization serving customers in
more than 130 countries. AIG companies serve commercial, institutional, and
individual customers through one of the most extensive worldwide
property-casualty networks of any insurer. In addition, AIG companies are
leading providers of life insurance and retirement services in the United
States. AIG common stock is listed on the New York Stock Exchange and the Tokyo
Stock Exchange.
On September 22, 2008, AIG entered into a revolving credit facility
("FRBNY Credit Facility") with the Federal Reserve Bank of New York ("NY Fed").
On January 14, 2011, AIG completed a series of integrated transactions (the
"Recapitalization") to recapitalize AIG. In the Recapitalization, AIG repaid
the NY Fed approximately $21 billion in cash, representing complete repayment
of all amounts owing under the FRBNY Credit Facility, and the facility was
terminated. As a result of the Recapitalization, AIG was controlled by the
Department of Treasury. As of December 14, 2012, the Department of Treasury
sold its remaining shares of AIG Common Stock.
The transactions described above do not alter our obligations to you. 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.
We may occasionally publish in advertisements, sales literature and
reports the ratings and other information assigned to the company by one or
more independent rating organizations such as A.M. Best Company, Moody's, and
Standard & Poor's. The purpose of the ratings is to reflect the rating
organization's opinion of our financial strength and our ability to meet our
contractual obligations to Policy Owners and should not be considered as
bearing on the investment performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our life insurance or
annuity products or to hold or sell these products, and the ratings do not
comment on the suitability of such products for a particular investor. There
can be no assurance that any rating will remain in effect for any given period
of time or that any rating will not be lowered or withdrawn entirely by a
rating organization if, in such organization's judgment, future circumstances
so warrant. The ratings do not reflect the investment
16
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
THE SEPARATE ACCOUNT
We established the Separate Account as a separate investment account on
June 5, 1986. Before December 31, 2012, Separate Account II ("Separate
Account") was a separate account of AGLD, named Variable Account II and
originally established under Delaware law on June 5, 1986. On December 31,
2012, and in conjunction with the merger of AGL and AGLD, the Separate Account
was transferred to and became a separate account of AGL under Texas law. It may
be used to support the policy and other variable life insurance policies, and
used for other permitted purposes. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the federal
securities laws.
We own the assets in the Separate Account. The Separate Account is divided
into subaccounts. The Separate Account may include other subaccounts which are
not available under the Policy.
The assets in the Separate Account may not be used to pay any liabilities
of AGL other than those arising from the Policies, and AGL is obligated to pay
all amounts due the Policy Owners under the Policies.
GUARANTEE OF INSURANCE OBLIGATIONS
Insurance policy obligations under all policies issued by AGLD prior to
December 29, 2006 at 4:00 p.m. Eastern time are guaranteed (the "Guarantee") by
National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), an
affiliate of AGL.
As of December 29, 2006 at 4:00 p.m. Eastern time (the "Point of
Termination"), the Guarantee was terminated for prospectively issued policies.
The Guarantee will not cover any Policies with a date of issue later than the
Point of Termination. The Guarantee will continue to cover Policies with an
Issue Date earlier than the Point of Termination until all insurance
obligations under such Policies are satisfied in full. Insurance obligations
include, without limitation, Account Value invested in any available fixed
investment option, death benefits, and income options. The Guarantee does not
guarantee variable Account Value or the investment performance of the variable
investment options available under the policies. The Guarantee provides that
individual policy owners can enforce the Guarantee directly.
Guarantees for policies issued prior to the Merger will continue after the
Merger. As a result, the Merger of AGLD into AGL will not impact the insurance
obligations under the Guarantee.
National Union is a stock property-casualty insurance company incorporated
under the laws of the Commonwealth of Pennsylvania on February 14, 1901.
National Union's principal executive office is located at 175 Water Street,
18th Floor, New York, New York 10038. National Union 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. National Union, an affiliate of AGL, is an indirect
wholly owned subsidiary of American International Group.
17
ADDITIONAL INFORMATION
We have filed a Statement of Additional Information (the "SAI") with the
SEC which includes more information about your Policy. The back cover page of
this prospectus describes how you can obtain a copy of the SAI.
COMMUNICATION WITH AGL
When we refer to "you," we mean the person who is authorized to take any
action with respect to a Policy. Generally, this is the Owner named in the
Policy. Where a Policy has more than one Owner, each Owner generally must join
in any requested action, except for transfers and changes in the allocation of
future premiums or changes among the investment options.
ADMINISTRATIVE CENTER. The Administrative Center provides service to all
Policy Owners. For applicants, your AGL representative will tell you if you
should use an address other than the Administrative Center address. All premium
payments, requests, directions and other communications should be directed to
the appropriate location. See AGL's addresses under "Contact Information" on
page 5 of this prospectus.
GENERAL. It is your responsibility to carefully review all documents you
receive from us and immediately notify the Administrative Center of any
potential inaccuracies. We will follow up on all inquiries. Depending on the
facts and circumstances, we may retroactively adjust your Policy, provided you
notify us of your concern within 30 days of receiving the transaction
confirmation, statement or other document. Any other adjustments we deem
warranted are made as of the time we receive notice of the potential error. If
you fail to notify the Administrative Center of any potential mistakes or
inaccuracies within 30 days of receiving any document, we will deem you to have
ratified the transaction.
APPLYING FOR A POLICY
To purchase a Policy, you must complete an application and submit it to
us. You must specify certain information in the application, including the Face
Amount and the death benefit option. We may also require information to
determine if the Insured is an acceptable risk to us. We may require a medical
examination of the Insured and ask for additional information.
OUR AGE REQUIREMENT FOR THE INSURED. You may apply for a Policy to cover a
person who is at least 18 but no more than 70 years of age.
THE MINIMUM FACE AMOUNT. The Face Amount must be at least $50,000, for
each Insured.
WE REQUIRE A MINIMUM INITIAL PREMIUM. We require that you pay a minimum
initial premium before we will issue the Policy. You may pay the minimum
initial premium when you submit the application or at a later date.
We will not issue a Policy until we have accepted the application. We
reserve the right to reject an application for any reason or "rate" an Insured
as a substandard risk.
WHEN YOUR COVERAGE WILL BE EFFECTIVE. Your Policy will become effective
after:
. We accept your application;
. We receive an initial premium payment in an amount we determine; and
18
. We have completed our review of your application to our satisfaction.
GENERAL. You should mail checks (or use express delivery, if you wish) for
premium payments and loan repayments directly to the appropriate address shown
on your billing statement. If you do not receive a billing statement, send your
premium directly to the Administrative Center shown under "Contact Information"
on page 5 of this prospectus.
You must make the following requests in writing:
. transfer of Account Value;
. loan;
. full surrender;
. partial surrender;
. change of Beneficiary or contingent Beneficiary;
. change of allocation percentages for premium payments;
. change of allocation percentages for Policy deductions;
. loan repayments or loan interest payments;
. change of death benefit option or manner of death benefit
payment;
. change in Face Amount;
. addition or cancellation of, or other action with respect to,
election of a payment option for Policy proceeds; and
. tax withholding elections.
You should mail these requests (or use express delivery, if you wish) to
the Administrative Center address shown under "Contact Information" on page 5
of this prospectus. You should also communicate notice of the Insured person's
death, and related documentation, to our Administrative Center address.
We have special forms which should be used for loans, assignments, partial
and full surrenders, changes of Owner or Beneficiary, and all other contractual
changes. You will be asked to return your Policy when you request a full
surrender. You may obtain these forms from our Administrative Center or from
your AGL representative. Each communication must include your name, Policy
number and, if you are not the Insured person, that person's name. We cannot
process any requested action that does not include all required information.
VARIABLE INVESTMENT OPTIONS
We divided the Separate Account into variable investment options, each of
which invests in shares of a corresponding Fund. Currently, you may invest
premium payments in variable investment options investing in the Funds listed
in the following table. One or more of the Funds may sell its shares to other
funds. The name of each Fund describes its type (for example, money market
fund, growth fund, equity fund, etc.) except for the Funds with footnotes next
to their names. For these Funds, whose name does not describe its type, we
provide the information immediately following the table. The text of the
footnotes follows the table. Fund sub-advisers are shown in parentheses.
INVESTMENT ADVISER (SUB-ADVISER, IF
VARIABLE INVESTMENT OPTIONS APPLICABLE)
--------------------------- -------------------------------------
AllianceBernstein VPS Growth and Income AllianceBernstein L.P.
Portfolio - Class A
AllianceBernstein VPS Growth Portfolio - AllianceBernstein L.P.
Class A
AllianceBernstein VPS Large Cap Growth AllianceBernstein L.P.
Portfolio - Class A
American Century(R) VP Income & Growth American Century Investment
Fund - Class I Management, Inc.
19
INVESTMENT ADVISER (SUB-ADVISER, IF
VARIABLE INVESTMENT OPTIONS APPLICABLE)
--------------------------- --------------------------------------
American Century(R) VP International American Century Investment
Fund - Class I Management, Inc.
BlackRock Basic Value V.I. Fund - BlackRock Advisors, LLC (BlackRock
Class I Shares/1/ Investment Management, LLC)
BlackRock Capital Appreciation V.I. Fund BlackRock Advisors, LLC (BlackRock
- Class I Shares Investment Management, LLC)
BlackRock U.S. Government Bond V.I. Fund BlackRock Advisors, LLC (BlackRock
- Class I Shares/2/ Financial Management, Inc.)
BlackRock Value Opportunities V.I. Fund BlackRock Advisors, LLC (BlackRock
- Class I Shares/3/ Investment Management, LLC)
Fidelity(R) VIP Balanced Portfolio - Fidelity Management & Research
Initial Class Company ("FMR")
(FMR Co., Inc.)
(Fidelity Investments Money
Management, Inc.)
(Other affiliates of FMR)
Fidelity(R) VIP Contrafund(R) Portfolio FMR
- Initial Class/4/ (FMR Co., Inc.)
(Other affiliates of FMR)
Fidelity(R) VIP Index 500 Portfolio - FMR
Initial Class (FMR Co., Inc.)
(Geode Capital Management, LLC)
Fidelity(R) VIP Money Market Portfolio - FMR
Initial Class (Fidelity Investments Money
Management, Inc.)
(Other affiliates of FMR)
Franklin Templeton VIP Templeton Templeton Asset Management Ltd.
Developing Markets Securities Fund -
Class 2/5/
Franklin Templeton VIP Templeton Foreign Templeton Investment Counsel, LLC
Securities Fund - Class 2/6/
Franklin Templeton VIP Templeton Growth Templeton Global Advisors Limited
Securities Fund - Class 2 (Templeton Asset Management Ltd.)
Goldman Sachs VIT Strategic Goldman Sachs Asset Management
International Equity Fund - International
Institutional Shares/7/
Goldman Sachs VIT Structured U.S. Equity Goldman Sachs Asset Management, L.P.
Fund - Institutional Shares/8/
Invesco V.I. High Yield Fund - Series I Invesco Advisers, Inc.
Shares
Invesco Van Kampen V.I. Mid Cap Value Invesco Advisers, Inc.
Fund - Series I Shares
JPMorgan IT Small Cap Core Portfolio - J.P. Morgan Investment Management Inc.
Class 1 Shares
Neuberger Berman AMT Large Cap Value Neuberger Berman Management LLC
Portfolio - Class I Shares/9/ (Neuberger Berman LLC)
PIMCO VIT High Yield Portfolio - Pacific Investment Management Company
Administrative Class LLC
PIMCO VIT Long-Term U.S. Government Pacific Investment Management Company
Portfolio - Administrative Class LLC
PIMCO VIT Real Return Portfolio - Pacific Investment Management Company
Administrative Class/10/ LLC
PIMCO VIT Short-Term Portfolio - Pacific Investment Management Company
Administrative Class LLC
PIMCO VIT Total Return Portfolio - Pacific Investment Management Company
Administrative Class LLC
UIF Core Plus Fixed Income Portfolio - Morgan Stanley Investment Management
Class I Shares Inc.
UIF Emerging Markets Equity Portfolio - Morgan Stanley Investment Management
Class I Shares Inc.
(Morgan Stanley Investment Management
Limited)
(Morgan Stanley Investment Management
Company)
UIF Mid Cap Growth Portfolio - Class I Morgan Stanley Investment Management
Shares Inc.
VALIC Co. I International Equities VALIC* (PineBridge Investments LLC)
Fund/11/
VALIC Co. I Mid Cap Index Fund VALIC* (SunAmerica Asset Management
Corp.)
VALIC Co. I Small Cap Index Fund/12/ VALIC* (SunAmerica Asset Management
Corp.)
Vanguard** VIF Total Bond Market Index The Vanguard Group, Inc.
Portfolio
Vanguard** VIF Total Stock Market Index The Vanguard Group, Inc.
Portfolio
--------
20
/1/ The Fund type for BlackRock Basic Value V.I. Fund - Class I Shares is
capital appreciation and secondarily, income.
/2/ The Fund type for BlackRock U.S. Government Bond V.I. Fund - Class I
Shares is maximizing total return, consistent with income generation
and prudent investment management.
/3/ The Fund type for BlackRock Value Opportunities V.I. Fund - Class I
Shares is long-term growth of capital.
/4/ The Fund type for Fidelity(R) VIP Contrafund(R) Portfolio - Initial
Class is long-term capital appreciation.
/5/ The Fund type for Franklin Templeton VIP Templeton Developing Markets
Securities Fund - Class 2 is long-term capital appreciation.
/6/ The Fund type for Franklin Templeton VIP Templeton Foreign Securities
Fund - Class 2 is long-term capital growth.
/7/ The Fund type for Goldman Sachs VIT Strategic International Equity
Fund - Institutional Shares is long-term growth of capital.
/8/ The Fund type for Goldman Sachs VIT Structured U.S. Equity Fund -
Institutional Shares is long-term growth of capital and dividend
income.
/9/ The Fund type for Neuberger Berman AMT Large Cap Value Portfolio is
large cap value.
/10/ The Fund type for PIMCO VIT Real Return Portfolio - Administrative
Class is maximum real return.
/11/ The Fund type for VALIC Co. I International Equities Fund is
long-term growth of capital through investments primarily in a
diversified portfolio of equity and equity-related securities of
foreign issuers.
/12/ The Fund type for VALIC Co. I. Small Cap Index Fund is growth of
capital through investment primarily in a diversified portfolio of
common stocks that, as a group, the sub-adviser believes may provide
investment results closely corresponding to the performance of the
Russell 2000(R) Index.
* "VALIC" means The Variable Annuity Life Insurance Company.
** "Vanguard" is a trademark of The Vanguard Group, Inc.
From time to time, certain Fund 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 Fund's prior name.
YOU CAN LEARN MORE ABOUT THE FUNDS, THEIR INVESTMENT POLICIES, RISKS,
EXPENSES AND ALL OTHER ASPECTS OF THEIR OPERATIONS BY READING THEIR
PROSPECTUSES. You should carefully read the Funds' prospectuses before you
select any variable investment option. We do not guarantee that any Fund will
achieve its objective. In addition, no single Fund or investment option, by
itself, constitutes a balanced investment plan.
We have entered into various services agreements with most of the advisers
or administrators for the Funds. We receive payments for the administrative
services we perform such as proxy mailing and tabulation, mailing of fund
related information and responding to Policy Owners' inquiries about the Funds.
Currently, these payments range from 0.15% to 0.35% of the daily market value
of the assets invested in the underlying Fund as of a certain date, usually
paid at the end of each calendar quarter. From time to time some of these
arrangements may be renegotiated so that we receive a greater payment than
previously paid depending on our determination that the expenses that we are
incurring are greater than we anticipated. If the expenses we incur are less
than we anticipate, we may make a profit from some of these arrangements. These
payments do not result in any additional charges under the Policies that are
not described under "Charges Under the Policy" on page 41.
We also receive what is referred to as "12b-1 fees" from some of the Funds
themselves. These fees are designed to help pay for our direct and indirect
distribution costs for the Policies. These fees are generally equal to 0.25% of
the daily market value of the assets invested in the underlying Fund.
GUARANTEED INVESTMENT OPTION
Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part
of your Account Value to the Loan Account which is part of the Guaranteed
Account.
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We may treat each allocation and transfer separately for purposes of
crediting interest and making deductions from the Guaranteed Account.
All of your Account Value held in the Guaranteed Account will earn
interest at a rate we determine in our sole discretion. This rate will never be
less than 4% per year compounded annually. The Loan Account portion of your
Account Value may earn a different interest rate than the remaining portion of
your Account Value in the Guaranteed Account.
We will deduct any transfers, partial surrenders or any Policy expenses
from the Guaranteed Account and your variable investment options on a pro rata
basis, unless you provide other directions. No portion of the Loan Account may
be used for this purpose.
If we must pay any part of the proceeds for a loan, partial surrender or
full surrender from the Guaranteed Account, we may defer the payment for up to
six months from the date we receive the written request. If we defer payment
from the Guaranteed Account for 30 days or more, we will pay interest on the
amount we deferred at a rate of 4% per year, compounded annually, until we make
payment.
You may transfer Account Value into the Guaranteed Investment Option at
any time. However, there are restrictions on the amount you may transfer out of
the Guaranteed Investment Option in a Policy year. Please see "Transfers from
the Guaranteed Account" on page 30.
GUARANTEED ACCOUNT VALUE
On any VALUATION DATE, the Guaranteed Account portion of your Policy
Account Value equals:
. the total of all Net Premium, allocated to the Guaranteed Account,
plus
. any amounts transferred to the Guaranteed Account, plus
. interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
. the amount of any transfers from the Guaranteed Account, less
. the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, less
. the allocated portion of the monthly deduction deducted from the
Guaranteed Account, plus
. the amount of the Loan Account.
If you take a loan, we transfer the amount of the loan to the Loan Account
held in the Guaranteed Account. The value of your Loan Account includes
transfers to and from the Loan Account as you take and repay loans and interest
credited on the Loan Account.
VOTING PRIVILEGES
We are the legal owner of the Funds' shares held in the Separate Account.
However, you may be asked to instruct us how to vote the Fund shares held in
the various Funds that are attributable to your Policy at meetings of
shareholders of the Funds. The number of votes for which you may give directions
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will be determined as of the record date for the meeting. The number of votes
that you may direct related to a particular Fund is equal to (a) your Account
Value invested in that Fund divided by (b) the net asset value of one share of
that Fund. Fractional votes will be recognized.
We will vote all shares of each Fund that we hold of record, including any
shares we own on our own behalf, in the same proportions as those shares for
which we have received instructions from Owners participating in that Fund
through the Separate Account. Even if Policy Owners participating in that Fund
choose not to provide voting instructions, we will vote the Fund's shares in
the same proportions as the voting instructions which we actually receive. As a
result, the instructions of a small number of Policy Owners could determine the
outcome of matters subject to shareholder vote.
If you are asked to give us voting instructions, we will send you the
proxy material and a form for providing such instructions. Should we determine
that we are no longer required to send the Owner such materials, we will vote
the shares as we determine in our sole discretion.
In certain cases, we may disregard instructions relating to changes in a
Fund's investment manager or its investment policies. We will advise you if we
do and explain the reasons in our next report to Policy Owners. AGL reserves
the right to modify these procedures in any manner that the laws in effect from
time to time allow.
ILLUSTRATIONS
We may provide you with illustrations for your Policy's death benefit,
Account Value, and Net Cash Surrender Value based on hypothetical rates of
return. Hypothetical illustrations also assume costs of insurance for a
hypothetical person. These illustrations are illustrative only and should not
be considered a representation of past or future performance. Your actual rates
of return and actual charges may be higher or lower than these illustrations.
The actual return on your Account Value will depend on factors such as the
amounts you allocate to particular investment options, the amounts deducted for
the Policy's fees and charges, the variable investment options' fees and
charges, and your Policy loan and partial surrender history.
Before you purchase the Policy, we will provide you with what we refer to
as a personalized illustration. A personalized illustration shows future
benefits under the Policy based upon (1) the proposed Insured person's age and
rate class and (2) your selection of a death benefit option, Face Amount,
planned periodic premiums and proposed investment options.
After you purchase the Policy and upon your request, we will provide a
similar personalized illustration that takes into account your Policy's actual
values and features as of the date the illustration is prepared. We reserve the
right to charge a $25 fee for personalized illustrations prepared after the
Policy is issued if you request us to do so more than once each year. We do not
currently charge for additional personalized illustrations.
POLICY FEATURES
DEATH BENEFITS
YOUR FACE AMOUNT OF INSURANCE. In your application to buy an Executive
Advantage Policy, you tell us how much life insurance coverage you want. We
call this the "Face Amount" of insurance.
Investment performance affects the amount of your Policy's Account Value.
We deduct all charges from your Account Value. The amount of the monthly
charges may differ from month to month.
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However, as long as all applicable charges are paid on a timely basis each
month, the Face Amount of insurance payable under your Policy is unaffected by
investment performance. See "Monthly Deduction From Account Value" on page 41.
YOUR DEATH BENEFIT. You must choose one of the two death benefit options
at the time we issue your Policy.
. Level Death Benefit Option; or
. Increasing Death Benefit Option.
For the Level Death Benefit Option, the death benefit will be the
greater of:
. Face Amount; or
. Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
You should consider this death benefit option if you want to minimize your
cost of insurance.
For the Increasing Death Benefit Option, the death benefit will be the
greater of:
. Face Amount plus the Account Value; or
. Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
You should consider this death benefit option if you want your death
benefit to increase with your Account Value.
LIFE INSURANCE PROCEEDS. During the Policy term, we will pay the Life
Insurance Proceeds to the Beneficiary after the Insured's death. To make
payment, we must receive at our Administrative Center:
. satisfactory proof of the Insured's death; and
. the Policy.
PAYMENT OF LIFE INSURANCE PROCEEDS. We will pay the Life Insurance
Proceeds generally within seven days after we receive the information we
require. We will pay the Life Insurance Proceeds to the Beneficiary in one lump
sum or, if elected, under a payment option. Payment of the Life Insurance
Proceeds may also be affected by other provisions of the Policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
AMOUNT OF LIFE INSURANCE PROCEEDS. We will determine the Life Insurance
Proceeds as of the date of the Insured's death. The Life Insurance Proceeds
will equal:
. the amount of the death benefit determined according to the death
benefit option selected; minus
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. the Outstanding Loan, if any, and accrued loan interest; minus
. any overdue monthly deductions if the Insured dies during a Grace
Period.
TAX QUALIFICATION OPTIONS
Section 7702 of the CODE provides alternative testing procedures for
meeting the definition of life insurance. Each Policy must qualify under one of
these two tests and you may select the test we use for ensuring your Policy
meets the definition of life insurance.
Under both tests under Section 7702, there is a minimum death benefit
required at all times. This is equal to the Account Value multiplied by the
appropriate minimum death benefit factor. These factors depend on the tax
qualification option and may be based on the ATTAINED AGE, sex and rate class
of the Insured. A table of the applicable factors is located in the Policy.
The two tax qualification options are:
. Guideline Premium/Cash Value Corridor Test.
. Cash Value Accumulation Test.
You must elect one of these tests when you apply for a Policy. After we
issue your Policy, the choice may not be changed.
CHANGES IN DEATH BENEFIT OPTIONS
If you have selected the Level Death Benefit Option you may change to the
Increasing Death Benefit Option. You may also change from the Increasing Death
Benefit Option to the Level Death Benefit Option.
HOW TO REQUEST A CHANGE. You may change your death benefit option by
providing your agent with a written request or by writing us at our
Administrative Center. We may require that you submit satisfactory evidence of
insurability to us.
If you request a change from the Level Death Benefit Option to the
Increasing Death Benefit Option, we will decrease the Face Amount by an amount
equal to your Account Value on the date the change takes effect. However, we
reserve the right to decline to make such a change if it would reduce the Face
Amount below the minimum Face Amount.
If you request a change from the Increasing Death Benefit Option to the
Level Death Benefit Option, we will increase the Face Amount by an amount equal
to your Account Value on the date the change takes effect. Such decreases and
increases in the Face Amount are made so that the Life Insurance Proceeds
remain the same on the date the change takes effect.
Once approved, we will issue new Policy information pages and attach a
copy of your application for change. We reserve the right to decline to make
any changes that we determine would cause the Policy to fail to qualify as life
insurance under our interpretation of the Code.
The change will take effect on the next MONTHLY ANNIVERSARY that coincides
with or next follows the date we approve your request.
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TAX CONSEQUENCES OF CHANGES IN INSURANCE COVERAGE. Please read "Federal
Income Tax Considerations" starting on page 48 of this prospectus to learn
about possible tax consequences of changing your insurance coverage under your
Policy.
PREMIUM PAYMENTS
The Policy allows you to select the timing and amount of premium payments
within limits. Send premium payments to our Administrative Center.
RESTRICTIONS ON PREMIUM. We may not accept any premium payment:
. If it is less than $50;
. If the premium would cause the Policy to fail to qualify as a life
insurance contract as defined in Section 7702 of the Code, we will
refund any portion of any premium that causes the Policy to fail. In
addition, we will monitor the Policy and will attempt to notify you
on a timely basis if your Policy is in jeopardy of becoming a
modified endowment contract under the Code; or
. If the premium would increase the amount of our risk under your
Policy by an amount greater than that premium amount. In such cases,
we may require satisfactory evidence of insurability before accepting
that premium.
MINIMUM INITIAL PREMIUM. We will calculate the minimum initial premium.
The amount is based on a number of factors, including the age, sex, and
underwriting class of the proposed Insured and the desired Face Amount.
PLANNED PERIODIC PREMIUM. When you apply for a Policy, you select a plan
for paying annual level premiums. We will establish a minimum amount that may
be used as the planned periodic premium. We may recalculate this minimum amount
if the Face Amount of the Policy is increased or decreased.
You are not required to pay premiums in accordance with this plan. Rather,
you can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely.
At any time you can change the amount and frequency of the planned
periodic premium by sending a written notice to our Administrative Center.
ADDITIONAL PREMIUM. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code.
Depending on the Account Value at the time of an increase in the Face
Amount and the amount of the increase requested, an additional premium may be
needed to prevent your Policy from terminating.
EFFECT OF PREMIUM PAYMENTS. In general, paying all planned periodic
premiums may not prevent your Policy from lapsing. In addition, if you fail to
pay any planned periodic premium, your Policy will not necessarily lapse.
Your Policy will lapse only when the Net Cash Surrender Value on a Monthly
Anniversary is less than the amount of that date's monthly deduction. This
could happen if the Net Cash Surrender Value has decreased because:
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. of the negative return or insufficient return earned by one or more
of the subaccounts you selected; or
. of any combination of the following -- you have Outstanding Loans,
you have taken partial surrenders, we have deducted Policy expenses,
or you have made insufficient premium payments to offset the monthly
deduction.
GRACE PERIOD. In order for insurance coverage to remain in force, the Net
Cash Surrender Value on each Monthly Anniversary must be equal to or greater
than the total monthly deductions for that Monthly Anniversary. If it is not,
you have a Grace Period of 61 days during which the Policy will continue in
force. The Grace Period begins on the Monthly Anniversary that the Net Cash
Surrender Value is less than the total monthly deductions then due. If we do
not receive a sufficient premium before the end of the Grace Period, the Policy
will terminate without value.
We will send you a written notice within 30 days of the beginning of any
Grace Period. The notice will state that a Grace Period of 61 days has begun.
The amount of premium required to prevent your Policy from terminating is
equal to the amount needed to increase the Net Cash Surrender Value
sufficiently to cover total monthly deductions for the next three (3) Monthly
Anniversaries.
If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your Policy lapses with an Outstanding Loan you may have taxable income.
PREMIUM ALLOCATIONS. In the application, you specify the percentage of Net
Premium to be allocated to each subaccount and Guaranteed Account. However,
until the period to examine and cancel expires, we invest this amount in the
Money Market subaccount. On the first business day after the period expires, we
will reallocate your Account Value based on the premium allocation percentages
in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time by sending written notice to our
Administrative Center. The change will apply to all premium received with or
after your notice.
ALLOCATION RULES. Your allocation instructions must meet the following
requirements:
. Each allocation percentage must be a whole number;
. Any allocation to a subaccount must be at least 5%; and
. the sum of your allocations must equal 100%.
CREDITING PREMIUM. Your initial Net Premium will be credited to your
Account Value as of the POLICY DATE. We will credit and invest subsequent Net
Premiums on the date we receive the premium or notice of deposit at our
Administrative Center. We will process premiums at the price next computed
after receipt of premium. Premiums received by 4:00 p.m., Eastern time, on a
Valuation Date will be
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processed as of that day. Premiums received after 4:00 p.m., Eastern time, on a
Valuation Date will be processed as of the next Valuation Date.
If any premium requires us to accept additional risk, we will allocate
this amount to the Money Market subaccount until we complete our underwriting.
When accepted, and at the end of the period to examine and cancel the Policy,
we will allocate it in accordance with your allocation percentages.
FUTURE PREMIUM PAYMENTS. You may at any time change the investment options
in which future premiums you pay will be invested. Your allocation must,
however, be in whole percentages that total 100%.
The Policy allows you to choose how to invest your Account Value. Your
Account Value will increase or decrease based on:
. The returns earned by the subaccounts you select.
. Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Account Value. If
your Account Value is insufficient, your Policy may terminate. If the Net Cash
Surrender Value on a Monthly Anniversary is less than the amount of that date's
monthly deduction, the Policy will be in default and a Grace Period will begin.
PREMIUM PAYMENTS AND TRANSACTION REQUESTS IN GOOD ORDER
We will accept the Policy Owner's instructions to allocate premium
payments to investment options, to make redemptions (including loans) or to
transfer values among the Policy Owner's investment options, contingent upon
the Policy Owner's providing us with instructions in good order. This means
that the Policy Owner's request must be accompanied by sufficient detail to
enable us to allocate, redeem or transfer assets properly.
When we receive a premium payment or transaction request in good order, it
will be treated as described under "Effective date of other premium payments
and requests that you make" on page 35 of this prospectus. If we receive an
instruction that is not in good order, the requested action will not be
completed, and any premium payments that cannot be allocated will be held in a
non-interest bearing account until we receive all necessary information.
We will attempt to obtain Policy Owner guidance on requests not received
in good order for up to five business days following receipt. For instance, one
of our representatives may telephone the Policy Owner to determine the intent
of a request. If a Policy Owner's request is still not in good order after five
business days, we will cancel the request, and return any unallocated premiums
to the Policy Owner along with the date the request was canceled.
DETERMINING THE ACCOUNT VALUE
On the Policy Date, your Account Value is equal to your initial Net
Premium. If the Policy Date and the ISSUE DATE are the same day, the Account
Value is equal to your initial premium, less the premium expenses and monthly
deduction.
On each Valuation Date thereafter, your Account Value is equal to:
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. Your Account Value held in the subaccounts; and
. Your Account Value held in the Guaranteed Account.
Your Account Value will reflect:
. the premiums you pay;
. the returns earned by the subaccounts you select;
. the interest credited on amounts allocated to the Guaranteed Account;
. any loans or partial surrender; and
. the Policy expenses we deduct.
ACCOUNT VALUE IN THE SUBACCOUNTS
We measure your Account Value in the subaccounts by the value of the
subaccounts' accumulation units we credit to your Policy. When you allocate
premiums or transfer part of your Account Value to a subaccount, we credit your
Policy with accumulation units in that subaccount. The number of accumulation
units equals the amount allocated to the subaccount divided by that
subaccount's accumulation unit value for the Valuation Date when the allocation
is effected.
The number of subaccount accumulation units we credit to your Policy will:
. increase when Net Premium is allocated to the subaccount, amounts are
transferred to the subaccount and loan repayments are credited to the
subaccount; or
. decrease when the allocated portion of the monthly deduction is taken
from the subaccount, a loan is taken from the subaccount, an amount
is transferred from the subaccount, or a partial surrender, including
the partial surrender charges, is taken from the subaccount.
ACCUMULATION UNIT VALUES. A subaccount's accumulation unit value varies to
reflect the return of the portfolio and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each subaccount at $10 when the subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
VALUATION PERIOD multiplied by the Net Investment Factor for the current
Valuation Period.
NET INVESTMENT FACTOR. The net investment factor is an index we use to
measure the investment return earned by a subaccount during a Valuation Period.
It is based on the change in net asset value of the portfolio shares held by
the subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and may include the deduction of the daily mortality and
expense risk charge.
GUARANTEED ACCOUNT VALUE. On any Valuation Date, the Guaranteed Account
portion of your Policy Account Value equals:
. the total of all Net Premium, allocated to the Guaranteed Account,
plus
. any amounts transferred to the Guaranteed Account, plus
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. interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
. the amount of any transfers from the Guaranteed Account, less
. the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, less
. the allocated portion of the monthly deduction deducted from the
Guaranteed Account, plus
. the amount of the Loan Account.
If you take a loan, we transfer the amount of the loan to the Loan Account
held in the Guaranteed Account. The value of your Loan Account includes
transfers to and from the Loan Account as you take and repay loans and interest
credited on the Loan Account.
NET ACCOUNT VALUE. The net Account Value on a Valuation Date is the
Account Value less Outstanding Loans on that date.
CASH SURRENDER VALUE. The Cash Surrender Value on a Valuation Date is the
Account Value reduced by any surrender charge that would be assessed if you
surrendered the Policy on that date.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value on a Valuation Date
is the amount you would receive on a surrender of your Policy and is equal to:
. the Cash Surrender Value, less
. the Outstanding Loan on that date.
TRANSFERS
You may transfer Account Value among the subaccounts and to the Guaranteed
Account after the period to examine and cancel. All transfer requests, except
for those made under the dollar cost averaging program, must satisfy the
following requirements:
. MINIMUM AMOUNT OF TRANSFER -- You must transfer at least $250 or, the
balance in the subaccount or the Guaranteed Account, if less;
. FORM OF TRANSFER REQUEST -- You must make a written request unless
you have established prior authorization to make transfers by other
means we make available;
. TRANSFERS FROM THE GUARANTEED ACCOUNT -- The maximum you may transfer
in a Policy year is equal to 25% of your Account Value in the
Guaranteed Account (not including the Loan Account) as of the date
the transfer takes effect.
DATE WE PROCESS YOUR TRANSFER REQUEST. We must receive your transfer
request at our Administrative Center. We process transfers at the price next
computed after we receive your transfer request. Transfer requests received by
4:00 p.m., Eastern time, on a Valuation Date will be processed as of that day.
Transfer requests received after 4:00 p.m., Eastern time, on a Valuation Date
will be processed as of the next Valuation Date.
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NUMBER OF PERMITTED TRANSFERS/TRANSFER CHARGE. We do not currently limit
the number of transfers you may make. However, for each transfer in excess of
12 during a Policy year, we will charge you $25 for each additional transfer.
All transfers processed on the same business day will count as one transfer for
purposes of determining the number of transfers you have made in a Policy year.
Transfers in connection with the dollar cost averaging program will not count
against the 12 free transfers in any Policy year. We reserve the right to
increase or decrease the number of free transfers allowed in any Policy year.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic method of investing at regular
intervals. By investing at regular intervals, the cost of the securities is
averaged over time and perhaps over various market cycles.
If you choose this program, we will make automatic monthly transfers of
your Account Value from the Money Market subaccount into other subaccounts for
a specified dollar amount or a specified number of months (not exceeding
twenty-four months). Unless you tell us otherwise, we will allocate the
transfer as you have specified in your most current premium allocation
instructions. However, no less than 5% may be allocated to any one subaccount.
You must have $2,000 in the Money Market subaccount to elect dollar cost
averaging. We will apply any additional premium payments you make after
electing this program to the Money Market subaccount for purposes of dollar
cost averaging your investment. You may maintain only one dollar cost averaging
instruction with us at a time.
There is currently no charge for this program. Transfers in connection
with dollar cost averaging will not count against your free transfers in a
Policy year. We reserve the right to suspend or modify this program at any time.
PROCESSING YOUR AUTOMATIC DOLLAR COST AVERAGING TRANSFERS. We will begin
to process your automatic transfers:
. On the first Monthly Anniversary following the end of the period to
examine and cancel if you request dollar cost averaging when you
apply for your Policy.
. On the second Monthly Anniversary following receipt of your request
at our Administrative Center if you elect the program after you apply
for the Policy.
We will stop processing automatic transfers if:
. The funds in the Money Market subaccount have been depleted;
. We receive your written request at our Administrative Center to
cancel future transfers;
. We receive notification of death of the Insured; or
. Your Policy goes into the Grace Period.
Dollar cost averaging may lessen the impact of market fluctuations on your
investment. Using dollar cost averaging does not guarantee investment gains or
protect against loss in a declining market.
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MARKET TIMING
The Policies are not designed for professional market timing organizations
or other entities or individuals using programmed and frequent transfers
involving large amounts. Market timing carries risks with it, including:
. dilution in the value of Fund shares underlying investment options of
other Policy Owners;
. interference with the efficient management of the Fund's portfolio;
and
. increased administrative costs.
We have policies and procedures affecting your ability to make exchanges
within your Policy. We use the term "exchange" to mean two things in this
discussion about market timing. An exchange can be your allocation of all or a
portion of a new premium payment to an investment option. An exchange can also
be a transfer of your accumulation value in one investment option (all or a
portion of the value) to another investment option. We are not referring to the
exchange of one life insurance policy for another policy or contract.
We are required to monitor the Policies to determine if a Policy Owner
requests:
. an exchange out of a variable investment option within two calendar
weeks of an earlier exchange into that same variable investment
option; or
. an exchange into a variable investment option within two calendar
weeks of an earlier exchange out of that same variable investment
option; or
. an exchange out of a variable investment option followed by an
exchange into that same variable investment option, more than twice
in any one calendar quarter; or
. an exchange into a variable investment option followed by an exchange
out of that same variable investment option, more than twice in any
one calendar quarter.
If any of the above transactions occurs, we will suspend such Policy
Owner's same day or overnight delivery transfer privileges (including website,
e-mail and facsimile communications) with notice to prevent market timing
efforts that could be harmful to other Policy Owners or beneficiaries. Such
notice of suspension will take the form of either a letter mailed to your last
known address, or a telephone call from our Administrative Center to inform you
that effective immediately, your same day or overnight delivery transfer
privileges have been suspended. A Policy Owner's first violation of this policy
will result in the suspension of Policy transfer privileges for ninety days. A
Policy Owner's subsequent violation of this policy will result in the
suspension of Policy transfer privileges for six months.
In most cases, exchanges into and out of the money market investment
option are not considered market timing; however, we examine all of the above
transactions without regard to any exchange into or out of the money market
investment option. We treat such transactions as if they are exchanges directly
into and out of the same variable investment option. For instance:
(1) if a Policy Owner requests an exchange out of any variable
investment option into the money market investment option, and
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(2) the same Policy Owner, within two calendar weeks requests an
exchange out of the money market investment option back into that
same variable investment option, then
(3) the second transaction above is considered market timing.
Transfers under dollar cost averaging, automatic rebalancing or any other
automatic transfer arrangements to which we have agreed are not affected by
these procedures.
The procedures above will be followed in all circumstances, and we will
treat all Policy Owners the same.
In addition, Policy Owners incur a $25 charge for each transfer in excess
of 12 each Policy year.
RESTRICTIONS INITIATED BY THE FUNDS AND INFORMATION SHARING OBLIGATIONS
The Funds have policies and procedures restricting transfers into the
Fund. For this reason or for any other reason the Fund deems necessary, a Fund
may instruct us to reject a Policy Owner's transfer request. Additionally, a
Fund may instruct us to restrict all purchases or transfers into the Fund by a
particular Policy Owner. We will follow the Fund's instructions. The
availability of transfers from any investment option offered under the Policy
is unaffected by the Fund's policies and procedures.
Please read the Funds' prospectuses and supplements for information about
restrictions that may be initiated by the Funds.
In order to prevent market timing, the Funds have the right to request
information regarding Policy Owner transaction activity. If a Fund requests, we
will provide mutually agreed upon information regarding Policy Owner
transactions in the Fund.
CHANGING THE FACE AMOUNT OF INSURANCE
CHANGES IN FACE AMOUNT. At any time after the first Policy anniversary
while your Policy is in force you may request a change in the Face Amount. We
will not make a change in Face Amount that causes your Policy to fail to
qualify as life insurance under the Code.
INCREASES IN FACE AMOUNT. Any request for an increase:
. Must be for at least $10,000;
. May not be requested in the same Policy year as another request for
an increase; and
. May not be requested after the Insured has Attained Age 65.
A written application must be submitted to our Administrative Center along
with satisfactory evidence of insurability. You must return the Policy so we
can amend it to reflect the increase. The increase in Face Amount will become
effective on the Monthly Anniversary on or next following the date the increase
is approved, and the Account Value will be adjusted to the extent necessary to
reflect a monthly deduction as of the effective date based on the increase in
Face Amount. Increasing the Face Amount may increase the amount of premium you
would need to pay to avoid a lapse of your Policy.
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DECREASES IN FACE AMOUNT. Any request for a decrease:
. Must be at least $5,000;
. Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy; and
. During the first five Policy years, the Face Amount may not be
decreased by more than 10% of the initial Face Amount. If the Face
Amount is decreased during the first 14 Policy years or within 14
Policy years of an increase in Face Amount, a surrender charge may be
applicable.
CONSEQUENCES OF A CHANGE IN FACE AMOUNT. Both increases and decreases in
Face Amount may impact the surrender charge. In addition, an increase or
decrease in Face Amount may impact the status of the Policy as a modified
endowment contract.
EFFECTIVE DATE OF POLICY AND RELATED TRANSACTIONS
VALUATION DATES, TIMES, AND PERIODS. We compute values under a Policy on
each day that the New York Stock Exchange ("NYSE") is open for business. We
call each such day a "valuation date" or a "business day."
We compute Policy values as of the time the NYSE closes on each Valuation
Date, which usually is 4:00 p.m. Eastern time. We call this our "close of
business." We call the time from the close of business on one Valuation Date to
the close of business of the next Valuation Date a "Valuation Period." We are
closed only on those holidays the NYSE is closed.
FUND PRICING. Each Fund produces a price per Fund share following each
close of the NYSE and provides that price to us. We then determine the Fund
value at which you may invest in the particular investment option, which
reflects the change in value of each Fund reduced by the daily charge and any
other charges that are applicable to your Policy.
DATE OF RECEIPT. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in
good order at any of the addresses shown on page 5 of this prospectus. If we
receive it after the close of business on any Valuation Date, however, we
consider that we have received it on the day following that Valuation Date. Any
premium payments we receive after our close of business are held in our general
account until the next business day.
COMMENCEMENT OF INSURANCE COVERAGE. After you apply for a Policy, it can
sometimes take up to several weeks for us to gather and evaluate all the
information we need to determine whether to issue a Policy to you and, if so,
what the Insured person's premium class should be. We will not pay a death
benefit under a Policy unless (a) it has been delivered to and accepted by the
Owner and at least the initial premium has been paid, and (b) at the time of
such delivery and payment, there have been no adverse developments in the
Insured person's health or risk of death.
ISSUE DATE; POLICY MONTHS AND YEARS. We prepare the Policy only after we
approve an application for a Policy and assign an appropriate premium class.
The day we begin to deduct charges will appear on page 3 of your Policy and is
called the "Issue Date." Policy months and years are measured from the Issue
Date. To preserve a younger age at issue for the Insured person, we may assign
an Issue Date to a Policy that is up to 6 months earlier than otherwise would
apply.
34
MONTHLY DEDUCTION DAYS. Each charge that we deduct monthly is assessed
against your Account Value at the close of business on the Issue Date and at
the end of each subsequent Valuation Period that includes the first day of a
Policy month. We call these "monthly deduction days."
COMMENCEMENT OF INVESTMENT PERFORMANCE. We begin to credit an investment
return to the Account Value resulting from your initial premium payment on the
later of (a) the Issue Date, or (b) the date all requirements needed to place
the Policy in force have been reviewed and found to be satisfactory, including
underwriting approval and receipt of the necessary premium. In the case of a
back-dated Policy, we do not credit an investment return to the Account Value
resulting from your initial premium payment until the date stated in (b) above.
EFFECTIVE DATE OF OTHER PREMIUM PAYMENTS AND REQUESTS THAT YOU MAKE.
Premium payments (after the first) and transactions made in response to your
requests and elections are generally effected at the end of the Valuation
Period in which we receive the payment, request or election and based on prices
and values computed as of that same time. Exceptions to this general rule are
as follows:
. Increases you request in the Face Amount of insurance, reinstatements
of a Policy that has lapsed, and changes in death benefit option take
effect on the Policy's monthly deduction day on or next following our
approval of the transaction;
. In most states, we may return premium payments, make a partial
surrender or reduce the death benefit if we determine that such
premiums would cause your Policy to become a modified endowment
contract or to cease to qualify as life insurance under federal
income tax law or exceed the maximum Net Amount at Risk;
. If you exercise the right to return your Policy described on page 8
of this prospectus, your coverage will end when you deliver it to
your AGL representative, or if you mailed it to us, the day it is
postmarked; and
. If you pay a premium at the same time that you make a Policy request
which requires our approval, your payment will be applied when
received rather than following the effective date of the change
requested so long as your Policy is in force and the amount paid will
not cause you to exceed premium limitations under the Code. If we do
not approve your Policy request, your premium payment will still be
accepted in full or in part (we will return to you the portion of
your premium payment that would be in violation of the maximum
premium limitations under the Code). We will not apply this procedure
to premiums you pay in connection with reinstatement requests.
REPORTS TO POLICY OWNERS
You will receive a confirmation within seven days of the transaction of:
. the receipt of any premium;
. any change of allocation of premiums;
. any transfer between subaccounts;
. any loan, interest repayment, or loan repayment;
. any partial surrender;
35
. any return of premium necessary to comply with applicable maximum
receipt of any premium payment;
. any exercise of your right to cancel;
. an exchange of the Policy;
. full surrender of the Policy.
Within 30 days after each Policy anniversary we will send you an annual
statement. The statement will show the Life Insurance Proceeds currently
payable, and the current Account Value, Cash Surrender Value, and the
Outstanding Loan. The statement will also show premiums paid, all charges
deducted during the Policy year, and all transactions. We will also send to you
annual and semi-annual reports of the Separate Account.
POLICY TRANSACTIONS
The transactions we describe below may have different effects on the
Account Value, death benefit, Face Amount or cost of insurance. You should
consider the net effects before requesting a Policy transaction. See "Policy
Features," on page 23. Certain transactions also include charges. For
information regarding other charges, see "Charges Under the Policy" on page 41.
WITHDRAWING POLICY INVESTMENTS
FULL SURRENDER. You may at any time surrender your Policy in full. If you
do, we will pay you the Account Value, less any Policy loans, plus any unearned
loan interest, and less any surrender charge that then applies. We call this
amount your "Net Cash Surrender Value." Because of the surrender charge, it is
unlikely that an Executive Advantage Policy will have any Net Cash Surrender
Value during at least the first year. A full surrender may have adverse tax
consequences.
PARTIAL SURRENDER. You may, at any time after the first Policy year, make
a partial surrender of your Policy's Net Cash Surrender Value. A partial
surrender must be at least $500. We will automatically reduce your Policy's
Account Value by the amount of your withdrawal and any related charge. A
partial surrender may have adverse tax consequences.
You may choose the investment option or options from which money that you
withdraw will be taken. Otherwise, we will allocate the partial surrender in
the same proportions as then apply for deducting monthly charges under your
Policy or, if that is not possible, in proportion to the amount of Account
Value you then have in each investment option.
There is a maximum partial surrender processing fee equal to the lesser of
2% of the amount withdrawn or $25 for each partial surrender you make. This
charge currently is $0.
LOANS. You may request a loan against your Policy at any time after the
first Policy year while the Policy has a Net Cash Surrender Value. We limit the
minimum and maximum amount of loan you may take. If we issued the Policy under
a corporate owned arrangement, unless we agree otherwise, a loan will be
applied pro rata over all Insureds under the Policy.
36
You must submit a written request for a loan to the Administrative Center.
Loans will be processed as of the date we receive the request at our
Administrative Center. Loan proceeds generally will be sent to you within seven
days.
MAXIMUM LOAN AMOUNT. After the first Policy year the maximum loan amount
is 90% of your Net Cash Surrender Value.
INTEREST. We charge interest daily on any Outstanding Loan at a declared
annual rate not in excess of 8%. The maximum net cost (the difference between
the rate of interest we charge on loans and the amount we credit on the
equivalent amount held in the Loan Account) of a loan is 2% per year. Interest
is due and payable at the end of each Policy year while a loan is outstanding.
If interest is not paid when due, the amount of the interest is added to the
loan and becomes part of the Outstanding Loan.
LOAN ACCOUNT. You may direct us to take an amount equal to the loan
proceeds and any amount attributed to unpaid interest from any subaccount or
from the Guaranteed Account. Otherwise, we will withdraw this amount from each
subaccount on a pro rata basis. We transfer this amount to the Loan Account in
the Guaranteed Account.
When a loan is repaid, an amount equal to the repayment will be
transferred from the Loan Account to the subaccounts and Guaranteed Account in
accordance with your allocation percentages in effect at the time of repayment.
EFFECT OF A LOAN. A loan, whether or not repaid, will have a permanent
effect on the Life Insurance Proceeds and Account Value because the investment
results of the subaccounts and current interest rates credited in the
Guaranteed Account will apply only to the non-loaned portion of the Account
Value. The longer the loan is outstanding, the greater this effect is likely to
be. Depending on the investment results of the subaccounts or credited interest
rates for the Guaranteed Account while the loan is outstanding, the effect
could be favorable or unfavorable.
In addition, loans from modified endowment contracts may be treated for
tax purposes as distributions of income.
If the Life Insurance Proceeds become payable while a loan is outstanding,
the Outstanding Loan will be deducted in calculating the Life Insurance
Proceeds.
If the Outstanding Loan exceeds the Cash Surrender Value on any Monthly
Anniversary, the Policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
OUTSTANDING LOAN. The Outstanding Loan on a Valuation Date equals:
. All loans that have not been repaid (including past due unpaid
interest added to the loan), plus
. accrued interest not yet due.
LOAN REPAYMENT. You may repay all or part of your Outstanding Loan at any
time while the Insured is living and the Policy is in force. Loan repayments
must be sent to our Administrative Center and will be credited as of the date
received.
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MATURITY OF YOUR POLICY
If the Insured person is living on the "Maturity Date" shown on page 3 of
your Policy, we will pay you the Net Cash Surrender Value of the Policy, and
the Policy will end.
TAX CONSIDERATIONS
Please refer to "Federal Income Tax Considerations" on page 48 for
information about the possible tax consequences to you when you receive any
loan, surrender, maturity benefit or other funds from your Policy. A Policy
loan may cause the Policy to lapse which may result in adverse tax consequences.
POLICY PAYMENTS
PAYMENT OPTIONS
The Policy offers a wide variety of optional ways of receiving proceeds
payable under the Policy, such as on a surrender or death, other than in a lump
sum. Any agent authorized to sell this Policy can explain these options upon
request.
CHANGE OF PAYMENT OPTION. You may give us written instructions to change
any payment option previously elected at any time while the Policy is in force
and before the start date of the payment option.
TAX IMPACT. If a payment option is chosen, the Policy Owner or the
Beneficiary may have tax consequences. The Policy Owner or the Beneficiary
should consult with a qualified tax adviser before deciding whether to elect
one or more payment options.
THE BENEFICIARY
You name your Beneficiary when you apply for a Policy. The Beneficiary is
entitled to the insurance benefits of the Policy. You may change the
Beneficiary during the lifetime of the Insured person unless your previous
designation of Beneficiary provides otherwise. In this case the previous
Beneficiary must give us permission to change the Beneficiary and then we will
accept your instructions. A new Beneficiary designation is effective as of the
date you sign it, but will not affect any payments we may make before we
receive it. If no Beneficiary is living when the Insured person dies, we will
pay the insurance proceeds to the Owner or the Owner's estate.
ASSIGNMENT OF A POLICY
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason. We will not be bound by an
assignment unless it is received in writing. You must provide us with two
copies of the assignment. We are not responsible for any payment we make or any
action we take before we receive a complete notice of the assignment in good
order. We are also not responsible for the validity of the assignment. An
absolute assignment is a change of ownership. Because there may be unfavorable
tax consequences, including recognition of taxable income and the loss of
income tax-free treatment for any death benefit payable to the Beneficiary, you
should consult a qualified tax adviser before making an assignment.
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PAYMENT OF PROCEEDS
GENERAL. We will pay any death benefit, maturity benefit, Net Cash
Surrender Value or loan proceeds within seven days after we receive the last
required form or request (and any other documents that may be required for
payment of a death benefit). If we do not have information about the desired
manner of payment within 60 days after the date we receive notification of the
Insured person's death, we will pay the proceeds as a single sum, normally
within seven days thereafter.
DELAY OF GUARANTEED ACCOUNT OPTION PROCEEDS. We have the right, however,
to defer payment or transfers of amounts out of our Guaranteed Account option
for up to six months. We will allow interest, at a rate of at least 4% a year,
on any Net Cash Surrender Value payment derived from Our Guaranteed Account
that We defer for 10 days or more after We receive a request for it.
DELAY FOR CHECK CLEARANCE. We reserve the right to defer payment of that
portion of your Account Value that is attributable to a payment made by check
for a reasonable period of time (not to exceed 15 days) to allow the check to
clear the banking system.
DELAY OF SEPARATE ACCOUNT PROCEEDS. We reserve the right to defer
computation of values and payment of any death benefit, loan or other
distribution that comes from that portion of your Account Value that is
allocated to the Separate Account, if:
. the NYSE is closed other than weekend and holiday closings;
. trading on the NYSE is restricted;
. an emergency exists as determined by the SEC or other appropriate
regulatory authority such that disposal of securities or
determination of the Account Value is not reasonably practicable;
. the SEC by order so permits for the protection of investors; or
. we are on notice that this policy is the subject of a court
proceeding, an arbitration, a regulatory matter or other legal
action.
Transfers and allocations of Account Value among the investment options
may also be postponed under these circumstances. If we need to defer
calculation of Separate Account values for any of the foregoing reasons, all
delayed transactions will be processed at the next values that we do compute.
DELAY TO CHALLENGE COVERAGE. We may challenge the validity of your
insurance Policy based on any material misstatements in your application or any
application for a change in coverage. However,
. We cannot challenge the Policy after it has been in effect, during
the Insured person's lifetime, for two years from the date the
Policy was issued or restored after termination. (Some states may
require that we measure this time in another way. Some states may
also require that we calculate the amount we are required to pay in
another way.)
. We cannot challenge any Policy change that requires evidence of
insurability (such as an increase in Face Amount) after the change
has been in effect for two years during the Insured person's
lifetime.
39
DELAY REQUIRED UNDER APPLICABLE LAW. We may be required under applicable
law to block a request for transfer or payment, including a Policy loan
request, under a Policy until we receive instructions from the appropriate
regulator.
ADDITIONAL RIGHTS THAT WE HAVE
We have the right at any time to:
. transfer the entire balance in an investment option in accordance
with any transfer request you make that would reduce your Account
Value for that option to below $500;
. transfer the entire balance in proportion to any other investment
options you then are using, if the Account Value in an investment
option is below $500 for any other reason;
. replace the underlying Fund that any investment option uses with
another fund, subject to SEC and other required regulatory approvals;
. add, delete or limit investment options, combine two or more
investment options, or withdraw assets relating to the Policies from
one investment option and put them into another, subject to SEC and
other required regulatory approvals;
. operate Separate Account under the direction of a committee or
discharge such a committee at any time;
. operate Separate Account, or one or more investment options, in any
other form the law allows, including a form that allows us to make
direct investments. Separate Account may be charged an advisory fee
if its investments are made directly rather than through another
investment company. In that case, we may make any legal investments
we wish; or
. make other changes in the Policy that in our judgment are necessary
or appropriate to ensure that the Policy continues to qualify for
tax treatment as life insurance, or that do not reduce any Net Cash
Surrender Value, death benefit, Account Value, or other accrued
rights or benefits.
VARIATIONS IN POLICY OR INVESTMENT OPTION TERMS AND CONDITIONS
We have the right to make some variations in the terms and conditions of a
Policy or its investment options. Any variations will be made only in
accordance with uniform rules that we establish. We intend to comply with all
applicable laws in making any changes and, if necessary, we will seek Policy
Owner approval and SEC and other regulatory approvals. Here are some of the
potential variations:
UNDERWRITING AND PREMIUM CLASSES. See, "Rate Classes for Insureds" on
page 42.
POLICIES PURCHASED THROUGH "INTERNAL ROLLOVERS." We maintain published
rules that describe the procedures necessary to replace life insurance policies
we have issued. Not all types of other insurance are eligible to be replaced
with a Policy. Our published rules may be changed from time to time, but are
evenly applied to all our customers.
STATE LAW REQUIREMENTS. AGL is subject to the insurance laws and
regulations in every jurisdiction in which the Policies are sold. As a result,
various time periods and other terms and
40
conditions described in this prospectus may vary depending on where you reside.
These variations will be reflected in your Policy and related endorsements.
EXPENSES OR RISKS. AGL may vary the charges and other terms within the
limits of the Policy where special circumstances result in sales,
administrative or other expenses, mortality risks or other risks that are
different from those normally associated with the Policy.
UNDERLYING INVESTMENTS. You will be notified as required by law if there
are any material changes in the underlying investments of an investment option
that you are using.
CHARGES UNDER THE POLICY
Periodically, we will deduct expenses related to your Policy. We will
deduct these:
. from premium, Account Value and from subaccount assets; and
. upon certain transactions.
The amount of these expenses are described in your Policy as either
guaranteed or current. We will never charge more than the guaranteed amount. We
may in our discretion deduct on a current basis less than the guaranteed amount.
DEDUCTIONS FROM PREMIUM
We may deduct a sales charge from each premium to cover costs associated
with the issuance of the Policy as well as administrative services we perform.
This charge will never exceed 9% of the premium.
The sales charge partially compensates us for the expense of selling and
distributing the Policy, printing prospectuses, preparing sales literature and
paying for other promotional activities. Some of these expenses or other
administrative expenses may be assumed by an employer or group sponsor under
some employer-owned, trust-owned, or sponsored arrangements. If so, in our sole
discretion, we may offer the Policy with no sales charge or a reduced sales
charge.
We may deduct a charge for taxes as an explicit percentage of premium
based upon state and local tax rates within the Insured's state of residence.
We may also deduct a charge for federal deferred acquisition cost ("DAC") taxes
as an explicit percentage of premium at a rate not to exceed 1% of premium.
In place of the lump sum deductions described above for sales charges and
taxes, we may offer optional methods of payment at the time you apply for a
Policy.
MONTHLY DEDUCTION FROM ACCOUNT VALUE. On the Policy Date and each Monthly
Anniversary thereafter, we make a deduction from the Account Value. The amount
deducted on the Issue Date is for the Policy Date and any Monthly Anniversaries
that have elapsed since the Policy Date. For this purpose, the Policy Date is
treated as a Monthly Anniversary.
We will deduct charges on each Monthly Anniversary for:
. the administration of your Policy;
41
. the cost of insurance for your Policy; and
. the cost associated with mortality and expense risks.
ADMINISTRATIVE CHARGE. This charge compensates us for administrative
expenses associated with the Policy. These expenses relate to premium billing
and collection, record keeping, processing claims, loans, Policy changes,
reporting and overhead costs, processing applications, establishing Policy
records, and sending regulatory mailings and responding to Policy Owners'
requests. This charge will be no more than $10 per month for all Policy years.
We may reduce this charge. The current charge is $7.00 per month. There may be
an additional monthly administrative charge during the first Policy year and
the 12 months after an increase in Face Amount per Insured. This additional
charge will not exceed $25 a month per Insured.
COST OF INSURANCE CHARGE. This charge compensates us for providing
insurance coverage. The charge depends on a number of factors, such as Attained
Age, sex and rate class of the Insured, and therefore will vary from Policy to
Policy and from month to month. For any Policy the cost of insurance on a
Monthly Anniversary is calculated by multiplying the cost of insurance rate for
the Insured by the Net Amount at Risk under the Policy on that Monthly
Anniversary.
DEDUCTIONS AND MONEY MARKET SUBACCOUNT
During periods of low short-term interest rates, and in part due to deductions
that are assessed as frequently as daily, the yield of the Money Market
subaccount may become extremely low and possibly negative. If the daily
dividends paid by the underlying Fund for the Money Market subaccount are less
than the deductions, the Money Market subaccount's unit value will decrease. In
the case of negative yields, your accumulation value in the Money Market
subaccount will lose value.
NET AMOUNT AT RISK
The Net Amount at Risk is calculated as (a) minus (b) where:
(a) is the current death benefit at the beginning of the Policy month
divided by 1.0032737; and
(b) is the current total Account Value.
However, if the death benefit is a percentage of the Account Value of the
Policy, then the Net Amount at Risk is the death benefit minus the amount in
the Account Value of the Policy at that time.
RATE CLASSES FOR INSUREDS. We currently rate Insureds in one of following
basic rate classifications based on our underwriting:
. nonsmoker
. smoker
. substandard for those involving a higher mortality risk
At our discretion we may offer this Policy on a guaranteed issue basis.
We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial
Face Amount. When an increase in Face
42
Amount is requested, we conduct underwriting before approving the increase
(except as noted below) to determine whether a different rate class will apply
to the increase. If the rate class for the increase has a lower guaranteed cost
of insurance rates than the original rate class, the rate class for the
increase also will be applied to the initial Face Amount. If the rate class for
the increase has a higher guaranteed cost of insurance rates than the original
rate class, the rate class for the increase will apply only to the increase in
Face Amount, and the original rate class will continue to apply to the initial
Face Amount.
If there have been increases in the Face Amount, we may use different cost
of insurance rates for the increased portions of the Face Amount. For purposes
of calculating the cost of insurance charge after the Face Amount has been
increased, the Account Value will be applied to the initial Face Amount first
and then to any subsequent increases in Face Amount. If at the time an increase
is requested, the Account Value exceeds the initial Face Amount (or any
subsequently increased Face Amount) divided by 1.0032737, the excess will then
be applied to the subsequent increase in Face Amount in the sequence of the
increases.
In order to maintain the Policy in compliance with Section 7702 of the
Code, under certain circumstances an increase in Account Value will cause an
automatic increase in the Life Insurance Proceeds. The Attained Age and rate
class for such increase will be the same as that used for the most recent
increase in Face Amount (that has not been eliminated through a subsequent
decrease in Face Amount).
The guaranteed cost of insurance charges at any given time for a
substandard Policy with flat extra charges will be based on the guaranteed
maximum cost of insurance rate for the Policy (including table rating
multiples, if applicable), the current Net Amount at Risk at the time the
deduction is made, plus the actual dollar amount of the flat extra charge.
Our current cost of insurance rates may be less than the guaranteed rates.
Our current cost of insurance rates will be determined based on our
expectations as to future mortality and persistency experience. These rates may
change from time to time. In our discretion, the current charge may be
increased in any amount up to the maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an Insured in
a nonsmoker rate class are generally lower than rates for an Insured of the
same age and sex in a smoker rate class. Cost of insurance rates (whether
guaranteed or current) for an Insured in a nonsmoker or smoker rate class are
generally lower than rates for an Insured of the same age and sex and smoking
status in a substandard rate class.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS-
Mortality tables for the Policy generally distinguish between males and
females. Thus, premiums and benefits under the Policy covering males and
females of the same age will generally differ.
We will, however, issue the Policy based on unisex mortality tables if
required by state law. Employers and employee organizations considering
purchase of a Policy should consult their legal advisers to determine whether
purchase of a Policy based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
DEDUCTION FROM SEPARATE ACCOUNT ASSETS
Mortality and Expense Risk Charge. We deduct a mortality and expense risk
fee from your Account Value in the subaccounts for assuming certain mortality
and expense risks under the Policy.
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This charge does not apply to the amounts you allocate to the Guaranteed
Account. The current charge is at an annual effective rate of 0.65% of net
assets for Policy years one through four, 0.20% for years five through twenty,
and 0.15% thereafter. The guaranteed charge is at an annual effective rate of
1.00% of Separate Account assets. Although, we may increase or decrease the
charge at our sole discretion, it is guaranteed not to exceed an annual
effective rate of 1.00% of your Account Value in the subaccounts for the
duration of your Policy.
The mortality risk we assume is that the Insured under a Policy may die
sooner than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all policies. AGL receives this charge to pay for these
mortality and expense risks.
DEDUCTIONS UPON POLICY TRANSACTIONS
TRANSFER CHARGE. We will charge a $25 transfer charge on any transfer of
Account Value among the subaccounts and the Guaranteed Account in excess of the
12 free transfers permitted each Policy year. If the charge is imposed, we will
deduct it from the amount requested to be transferred before allocation to the
new subaccount(s) and shown in the confirmation of the transaction. AGL
receives this charge to help pay for the expense of making the requested
transfer.
SURRENDER CHARGE. If the Policy is surrendered or there is a decrease in
Face Amount during the first 14 Policy years, we may deduct a surrender charge
based on the initial Face Amount. If a Policy is surrendered or there is a
decrease in Face Amount within 14 years after an increase in Face Amount, we
will deduct a surrender charge based on the increase in Face Amount. The
surrender charge will be deducted before any surrender proceeds are paid. AGL
receives this charge to help recover sales expenses.
SURRENDER CHARGE CALCULATION. In general, the surrender charge is based on
the premiums you pay. The Surrender Charge will be no greater than the product
of (a) times (b) times (c) where:
(a) is equal to the Face Amount divided by $1,000;
(b) is equal to a surrender charge factor per $1,000 based on the
Insured's age, sex and underwriting class; and
(c) is a factor based on the Policy year when the surrender occurs as
described in the following table:
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POLICY YEAR FACTOR
----------- ------
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
A table of the maximum initial surrender charge factors per $1,000 of Face
Amount is shown in Appendix A. We reserve the right to charge less than the
maximum amount, no amount at all, or even a negative amount which would have
the effect of increasing the Policy's Cash Surrender Value.
SURRENDER CHARGE BASED ON AN INCREASE OR DECREASE IN FACE AMOUNT. An
increase in Face Amount of the Policy may result in an additional surrender
charge during the 14 Policy years immediately following the increase. The
additional surrender charge period will begin on the effective date of the
increase. If the Face Amount of the Policy is reduced before the end of the
14th Policy year or within 14 years immediately following a Face Amount
increase, we may also deduct a pro rata share of any applicable surrender
charge from your Account Value. Reductions will first be applied against the
most recent increase in the Face Amount of the Policy. They will then be
applied to prior increases in Face Amount of the Policy in the reverse order in
which such increases took place, and then to the initial Face Amount of the
Policy.
PARTIAL SURRENDER CHARGE. We may deduct a partial surrender charge:
. upon a partial surrender; and
. if you decrease your Policy's Face Amount.
We deduct the partial surrender charge from the subaccounts or the
Guaranteed Account in the same proportion as we deduct the amounts for your
partial surrender.
PARTIAL SURRENDER CHARGE DUE TO DECREASE IN FACE AMOUNT. We deduct an
amount equal to the applicable surrender charge multiplied by a fraction (equal
to the decrease in Face Amount divided by the Face Amount of the Policy prior
to the decrease).
PARTIAL SURRENDER PROCESSING FEE. We reserve the right to deduct an
administrative processing fee upon a partial surrender of up to $25 or 2% of
amount surrendered, whichever is less in order to help pay for the expense of
making a partial surrender. The current charge is $0.
DISCOUNT PURCHASE PROGRAMS. The amount of the surrender charge and other
charges under the Policy may be reduced or eliminated when sales of the Policy
are made to individuals or to groups of individuals in a manner that in our
opinion results in expense savings. For purchases made by our
45
officers, directors and employees, those of an affiliate, or any individual,
firm, or a company that has executed the necessary agreements to sell the
Policy, and members of the immediate families of such officers, directors, and
employees, we may reduce or eliminate the surrender charge. Any variation in
charges under the Policy, including the surrender charge, administrative charge
or mortality and expense risk charge, will reflect differences in costs or
services and will not be unfairly discriminatory.
OTHER POLICY PROVISIONS
RIGHT TO EXCHANGE
You may exchange this Policy to a flexible premium fixed benefit life
insurance Policy on the life of the Insured without evidence of insurability.
This exchange may be made:
. within 24 months after the Issue Date while the Policy is in force;
or
. within 24 months of any increase in Face Amount of the Policy; or
. within 60 days of the effective date of a material change in the
investment Policy of a subaccount, or within 60 days of the
notification of such change, if later. In the event of such a
change, we will notify you and give you information on the options
available.
When an exchange is requested, we accomplish the exchange by transferring
all of the Account Value to the Guaranteed Account. There is no charge for this
transfer. Once this option is exercised, the entire Account Value must remain
in the Guaranteed Account for the remaining life of the new Policy. The Face
Amount in effect at the time of the exchange will remain unchanged. The
effective date, Issue Date and issue age of the Insured will remain unchanged.
The Owner and Beneficiary are the same as were recorded immediately before the
exchange.
MORE ABOUT POLICY CHARGES
PURPOSE OF OUR CHARGES. The charges under the Policy are designed to
cover, in total, our direct and indirect costs of selling, administering and
providing benefits under the Policy. They are also designed, in total, to
compensate us for the risks we assume and services that we provide under the
Policy. These include:
. mortality risks (such as the risk that Insured persons will, on
average, die before we expect, thereby increasing the amount of
claims we must pay);
. sales risks (such as the risk that the number of Policies we sell
and the premiums we receive net of withdrawals, are less than we
expect, thereby depriving us of expected economies of scale);
. regulatory risks (such as the risk that tax or other regulations may
be changed in ways adverse to issuers of variable universal life
insurance policies); and
. expense risks (such as the risk that the costs of administrative
services that the Policy requires us to provide will exceed what we
currently project).
The current monthly insurance charge has been designed primarily to
provide funds out of which we can make payments of death benefits under the
Policy as the Insured person dies.
46
GENERAL. If the charges that we collect from the Policies exceed our total
costs in connection with the Policies, we will earn a profit. Otherwise we will
incur a loss. We reserve the right to increase the charges to the maximum
amounts on Policies issued in the future.
Although the paragraphs above describe the primary purposes for which
charges under the Policies have been designed, these purposes are subject to
considerable change over the life of a Policy. We can retain or use the
revenues from any charge for any purpose.
AGL may also make available to Policy Owners other universal life
insurance policies with different features and different charges. Please ask
your AGL representative about our other policies.
ACCOUNT VALUE
YOUR ACCOUNT VALUE. From each premium payment you make, we deduct the
charges that we describe on page 41 under "Deductions from Premium." We invest
the rest in one or more of the available investment options listed on page 19
of this prospectus, as well as the Guaranteed Account. We call the amount that
is at any time invested under your Policy (including any loan collateral we are
holding for your Policy loans) your "Account Value."
YOUR INVESTMENT OPTIONS. We invest the accumulation value that you have
allocated to any variable investment option in shares of a corresponding Fund.
Over time, your accumulation value in any such investment option will increase
or decrease in accordance with the investment experience of the Fund. Your
accumulation value will also be reduced by Fund charges and certain other
charges that we deduct from your Policy. We describe these charges beginning on
page 41 under "Charges Under the Policy."
You can review other important information about the Funds that you can
choose in the separate prospectuses for those Funds. You can request additional
free copies of these prospectuses from your AGL representative, from our Home
Office or from the Administrative Center (both locations and the telephone
numbers are shown under "Contact Information" on page 5 of this prospectus).
THE GUARANTEED ACCOUNT. The Guaranteed Account is an account within the
general account of the company. Our general account assets are used to support
our insurance and annuity obligations other than those funded by separate
accounts. Subject to applicable law, we have sole discretion over the
investment of the assets of the general account.
We have not registered interests in the Guaranteed Account under the
Securities Act of 1933 or as an investment company under the Investment Company
Act of 1940.
The staff of the SEC has not reviewed our disclosure on the Guaranteed
Account. Our disclosure regarding the Guaranteed Account must comply with
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in a prospectus.
POLICY LAPSE AND REINSTATEMENT
REINSTATEMENT
If the Policy has ended without value, you may reinstate Policy benefits
while the Insured is alive if you:
47
. Request reinstatement of Policy benefits within three years (unless
otherwise specified by state law) from the end of the Grace Period;
. Provide evidence of insurability satisfactory to us;
. Make a payment of an amount sufficient to cover (i) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for
three months, calculated from the effective date of reinstatement;
and (iii) the premium expense charge and any increase in surrender
charges associated with this payment. We will determine the amount of
this required payment as if no interest or investment performance
were credited to or charged against your Account Value; and
. Repay or reinstate any loan which existed on the date the Policy
ended.
The effective date of the reinstatement of Policy benefits will be the
next Monthly Anniversary which coincides with or next follows the date we
approve your request. From the required payment we will deduct the premium
expenses. The Account Value, loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the Policy lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace
Period to the effective date of reinstatement will be deducted from the Account
Value as of the effective date of reinstatement. No other charges will accrue
for this period.
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the current federal income tax law that applies
to life insurance in general. This summary does not cover all situations. This
summary is based upon our understanding of the current federal income tax laws
and current interpretations by the Internal Revenue Service. We cannot predict
whether the Internal Revenue Code (the "Code") will change. The following
discussion of federal income tax treatment is general in nature and is not
intended as tax advice. You should consult with a competent tax adviser to
determine the specific federal tax treatment of your Policy based on your
individual factual situation.
TAX STATUS OF THE POLICY
A Policy has certain tax advantages when it is treated as a "life
insurance contract" under the Code. We believe that the Policy meets the
definition of a life insurance contract under Section 7702 of the Code at
issue. You bear the risk that the Policy may not meet the definition of a life
insurance contract. You should consult your own tax adviser to discuss these
risks.
AGL
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
DIVERSIFICATION AND INVESTOR CONTROL
Under Section 817(h) of the code, the Treasury Department has issued
regulations that implement investment diversification requirements. Our failure
to comply with these regulations would disqualify
48
your Policy as a life insurance policy under Section 7702 of the Code. If this
were to occur, you would be subject to federal income tax on the income under
the Policy for the period of the disqualification and for subsequent periods.
Also, if the insured person died during such period of disqualification or
subsequent periods, a portion of the death benefit proceeds would be taxable to
the beneficiary. Separate Account II, through the Funds, intends to comply with
these requirements. Although we do not have direct control over the investments
or activities of the Funds, we have entered into agreements with them requiring
the Funds to comply with the diversification requirements of the Section 817(h)
Treasury Regulations.
The Treasury Department issued only limited guidance describing the
circumstances in which the ability of a policy owner to direct his or her
investment to particular Funds within Separate Account II may cause the policy
owner, rather than the insurance company, to be treated as the owner of the
assets in the account. Due to the lack of specific guidance on investor
control, there is some uncertainty about when a policy owner is considered the
owner of the assets for tax purposes. If you were considered the owner of the
assets of Separate Account II, income and gains from the account would be
included in your gross income for federal income tax purposes. Under current
law, however, we believe that AGL, and not the owner of a Policy, would be
considered the owner of the assets of Separate Account II. However, we reserve
the right to make changes that we deem necessary to insure that the Policy
qualifies as a life insurance contract.
TAX TREATMENT OF THE POLICY
Section 7702 of the Code sets forth a detailed definition of a life
insurance contract for federal tax purposes. The Treasury Department has not
issued final regulations so that the extent of the official guidance as to how
Section 7702 is to be applied is quite limited. If a Policy were determined not
to be a life insurance contract for purposes of Section 7702, that Policy would
not qualify for the favorable tax treatment normally provided to a life
insurance contract.
With respect to a Policy issued on the basis of a standard rate class, we
believe that such a Policy should meet the Section 7702 definition of a life
insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a
premium class involving higher than standard mortality risk), there is less
certainty, in particular as to how the mortality and other expense requirements
of Section 7702 are to be applied in determining whether such a Policy meets
the definition of a life insurance contract set forth in Section 7702. Thus, it
is not clear that such a Policy would satisfy Section 7702, particularly if you
pay the full amount of premiums permitted under the Policy.
If subsequent guidance issued under Section 7702 leads us to conclude that
a Policy does not (or may not) satisfy Section 7702, we will take appropriate
and necessary steps for the purpose of bringing the Policy into compliance, but
we can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine
such action to be necessary to qualify the Policy as a life insurance contract
under Section 7702.
As of January 1, 2009 all new life insurance policies are required to use
the updated 2001 CSO tables for Internal Revenue Code 7702 and 7702A
compliance. If NO material non-contractual changes are made to the Policy, the
maximum guaranteed cost of insurance rates for this policy will remain based on
the 1980 Commissioners' Standard Ordinary mortality and morbidity tables.
49
TAX TREATMENT OF POLICY BENEFITS IN GENERAL
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should generally be excluded from the taxable gross
income of the Beneficiary. In addition, the increases in a Policy's Account
Value should not be taxed until there has been a distribution from the Policy
such as a surrender, partial surrender or lapse with loan.
PRE-DEATH DISTRIBUTION-
The tax treatment of any distribution you receive before the Insured's
death depends on whether the Policy is classified as a modified endowment
contract.
POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS
. If you surrender the Policy or allow it to lapse, you will not be
taxed except to the extent the amount you receive is in excess of the
premiums you paid less the untaxed portion of any prior withdrawals.
For this purpose, you will be treated as receiving any portion of the
Net Cash Surrender Value used to repay Policy debt. The tax
consequences of a surrender may differ if you take the proceeds under
an income payment settlement option.
. Generally, you will be taxed on a withdrawal to the extent the amount
you receive exceeds the premiums you paid for the Policy less the
untaxed portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if
total withdrawals do not exceed total premiums paid.
. Loans you take against the Policy are ordinarily treated as debt and
are not considered distributions subject to tax.
MODIFIED ENDOWMENT CONTRACTS
. The rules change if the Policy is classified as a modified endowment
contract ("MEC"). The Policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease
in the Face Amount of insurance is made. An increase in the Face
Amount of insurance may also cause the Policy to be classified as a
MEC. The rules on whether a Policy will be treated as a MEC are very
complex and cannot be fully described in this summary. You should
consult a qualified tax adviser to determine whether a Policy
transaction will cause the Policy to be classified as a MEC. We will
monitor your Policy and will attempt to notify you on a timely basis
if your Policy is in jeopardy of becoming a MEC.
. If the Policy is classified as a MEC, then amounts you receive under
the Policy before the Insured's death, including loans and
withdrawals, are included in income to the extent that the cash value
before surrender charges exceeds the premiums paid for the Policy,
increased by the amount of any loans previously included in income,
and reduced by any untaxed amounts previously received other than the
amount of any loans excludable from income. An assignment of a MEC is
taxable in the same way. These rules also apply to pre-death
distributions, including loans, made during the two-year period
before the time that the Policy became a MEC.
50
. Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10% unless the amount is
received on or after age 59 1/2, on account of your becoming disabled
or as a life annuity. It is presently unclear how the penalty tax
provisions apply to the Policies owned by businesses.
. All MECs issued by us to you during the same calendar year are
treated as a single Policy for purposes of applying these rules.
INTEREST ON LOANS
Except in special circumstances, interest paid on a loan under a Policy
which is owned by an individual is treated as personal interest under the Code
and thus will not be tax deductible. In addition, the deduction of interest
that is incurred on any loan under a Policy owned by a taxpayer and covering
the life of any individual who is an officer or employee of or who is
financially interested in the business carried on by that taxpayer may also be
subject to certain restrictions set forth in Section 264 of the Code. Before
taking a loan, you should consult a tax adviser as to the tax consequences of
such a loan. (Also Section 264 of the Code may preclude business owners from
deducting premium payments.)
POLICY EXCHANGES AND MODIFICATIONS
Depending on the circumstances, the exchange of a Policy, a change in the
death benefit option, a loan, a partial surrender, a surrender, a change in
ownership, or an assignment of the Policy may have adverse federal income tax
consequences. In addition, the federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds will depend on the
circumstances of each Owner or Beneficiary. You should consult your own
competent, professional tax advisor if you have any questions.
WITHHOLDING
We are required to withhold federal income taxes on the taxable portion of
any amounts received under the Policy unless you elect to not have any
withholding or in certain other circumstances. You are not permitted to elect
out of withholding if you do not provide a social security number or other
taxpayer identification number on the appropriate forms. Special withholding
rules apply to payments made to non-resident aliens.
You are liable for payment of federal income taxes on the taxable portion
of any amounts received under the Policy. You may be subject to penalties under
the estimated tax rules if your withholding and estimated tax payments are not
sufficient.
CONTRACTS ISSUED IN CONNECTION WITH TAX QUALIFIED PENSION PLANS
Prior to purchase of a Policy in connection with a qualified plan, you
should examine the applicable tax rules relating to such plans and life
insurance thereunder in consultation with a qualified tax adviser.
POSSIBLE CHARGE FOR AGL'S TAXES
At the present time, we do not deduct any charges for any federal, state,
or local income taxes. However, we do currently deduct charges for state and
federal premium based taxes and the federal DAC tax. We reserve the right in
the future to deduct a charge for any such tax or other economic burden
51
resulting from the application of the tax laws that we determine to be properly
attributable to the Separate Account or to the Policy.
LEGAL PROCEEDINGS
The Company has received industry-wide regulatory inquiries, including a
multi-state audit and market conduct examination covering compliance with
unclaimed property laws and a directive from the New York Department of
Financial Services regarding claims settlement practices and other related
state regulatory inquiries. In the three months ended September 30, 2012, the
Company, together with its life insurance company affiliates, worked to resolve
multi-state examinations relating to the handling of unclaimed property and the
use of the Social Security Administration Death Master File ("SSDMF") to
identify death claims that have not been submitted to the Company or its
insurance company affiliates, as the case may be, in the normal course of
business. The final settlement of these examinations was announced on
October 22, 2012. The Company is taking enhanced measures to, among other
things, routinely match policyholder records with the SSDMF to determine if its
insured parties, annuitants, or retained account holders have died and locate
beneficiaries when a claim is payable.
Although the Company has reached final settlement on the multi-state
examinations, it is possible that the settlement remediation requirements
and/or remaining inquiries and other regulatory activity could result in the
payment of additional death claims and additional escheatment of funds deemed
abandoned under state laws. The Company believes that it has adequately
reserved for such claims as of December 31, 2012, but there can be no assurance
that the ultimate cost will not vary, perhaps materially, from its estimate.
In addition, the state of West Virginia has two lawsuits pending against
the Company relating to alleged violations of the West Virginia Uniform
Unclaimed Property Act, in connection with policies issued by the Company and
by American General Life and Accident Insurance Company (which merged into the
Company on December 31, 2012). The State of West Virginia has also filed
similar lawsuits against other insurers.
In addition, the Company invested a total of $490.7 million in WG Trading
Company, L.P. ("WG Trading") in two separate transactions. The Company received
back a total amount of $567.2 million from these investments. In August 2010, a
court-appointed Receiver filed a lawsuit against the Company and other
defendants seeking to recover any funds distributed in excess of the entities'
investments. The Receiver asserts that WG Trading and WG Trading Investors,
L.P. were operated as a "ponzi" scheme.
There are no pending legal proceedings affecting the Separate Account.
Various lawsuits against the Company have arisen in the ordinary course of
business. In addition, various federal, state and 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, market
conduct exams or regulatory inquiries. As of December 31, 2012, the Company
believes it is not likely that contingent liabilities arising from the above
matters will have a material adverse effect on the financial condition of the
Company.
REGISTRATION STATEMENTS
Registration statements under the Securities Act of 1933, as amended,
related to the Policies 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, AGL and its general account, the variable investment options
and the Policy, please refer to the registration statements and exhibits.
52
INDEX OF SPECIAL WORDS AND PHRASES
We have capitalized some special terms we use in this document. We have defined
these terms here.
ACCOUNT VALUE. The total amount in the Separate Account and Guaranteed Account
attributable to your Policy.
ADMINISTRATIVE CENTER. 405 King Street, 4th Floor, Wilmington, Delaware 19801.
ATTAINED AGE. The Insured's age as of the Policy Date plus the number of
completed Policy years since the Policy Date.
BENEFICIARY. The person(s) who is entitled to the Life Insurance Proceeds under
the Policy.
CASH SURRENDER VALUE. Account Value less any applicable surrender charge that
would be deducted upon surrender.
CODE. The Internal Revenue Code of 1986, as amended.
FACE AMOUNT. The amount of insurance specified by the Owner and the base for
calculating the death benefit.
GRACE PERIOD. The period of time beginning on a Monthly Anniversary during
which the Policy will continue in force even though your Net Cash Surrender
Value is less than the total monthly deduction then due.
GUARANTEED ACCOUNT. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our
other separate investment accounts.
INSURED. A person whose life is covered under the Policy. At the time of
application, the Insured must be 70 years of age or younger, unless we agree
otherwise.
ISSUE DATE. The date the Policy is actually issued. It may be later than the
Policy Date.
LIFE INSURANCE PROCEEDS. The amount payable to a Beneficiary if the Insured
dies while coverage under the Policy is in force.
LOAN ACCOUNT. The portion of the Account Value held in the Guaranteed Account
as collateral for loans.
MONTHLY ANNIVERSARY. The same day as the Policy Date for each succeeding month.
If the day of the Monthly Anniversary is the 29th, 30th, or 31st and a month
has no such day, the Monthly Anniversary is deemed to be the last day of that
month.
NET CASH SURRENDER VALUE. The Cash Surrender Value less any Outstanding Loan.
NET PREMIUM. Any premium paid less any expense charges deducted from the
premium payment.
OUTSTANDING LOAN. The total amount of Policy loans, including both principal
and accrued interest.
OWNER. The person who purchased the Policy as shown in the application, unless
later changed.
53
POLICY DATE. The date as of which we have received the initial premium and an
application in good order. If a Policy is issued, life insurance coverage is
effective as of the Policy Date.
VALUATION DATE. Each day the New York Stock Exchange is open for trading.
VALUATION PERIOD. A period commencing with the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on any Valuation Date and
ending as of the close of the New York Stock Exchange on the next succeeding
Valuation Date.
SEPARATE ACCOUNT. Separate Account II, a separate investment account of ours.
54
APPENDIX A
MAXIMUM INITIAL SURRENDER CHARGE
PER $1,000 OF INITIAL SPECIFIED FACE AMOUNT
ISSUE AGE SEX SMOKER STATUS SURRENDER CHARGE
--------- ---- ------------- ----------------
25 Male Nonsmoker $16.00
35 Male Nonsmoker 20.00
45 Male Nonsmoker 26.00
55 Male Nonsmoker 38.00
65 Male Nonsmoker 46.00
75 Male Nonsmoker 44.00
25 Male Smoker 18.00
35 Male Smoker 23.00
45 Male Smoker 32.00
55 Male Smoker 48.00
65 Male Smoker 47.00
75 Male Smoker 46.00
25 Female Nonsmoker 14.00
35 Female Nonsmoker 18.00
45 Female Nonsmoker 23.00
55 Female Nonsmoker 33.00
65 Female Nonsmoker 45.00
75 Female Nonsmoker 44.00
25 Female Smoker 16.00
35 Female Smoker 20.00
45 Female Smoker 26.00
55 Female Smoker 37.00
65 Female Smoker 46.00
75 Female Smoker 44.00
55
THIS DOCUMENT IS NOT PART OF ANY PROSPECTUS
AGLC105775 Rev 03/2012
AMERICAN GENERAL
Life Companies
FACTS WHAT DOES AMERICAN GENERAL LIFE COMPANIES DO WITH YOUR PERSONAL
INFORMATION?
WHY? Financial companies choose how they share your personal information.
Federal law gives consumers the right to limit some but not all
sharing. Federal law also requires us to tell you how we collect,
share, and protect your personal information. Please read this notice
carefully to understand what we do.
WHAT? The types of personal information we collect and share depend on the
product or service you have with us. This information can include:
. Social Security number and Medical Information
. Income and Credit History
. Payment History and Employment Information
When you are NO LONGER our customer, we continue to share your
information as described in this notice.
HOW? All financial companies need to share customers' personal information
to run their everyday business. In the section below, we list the
reasons financial companies can share their customers' personal
information; the reasons American General Life Companies chooses to
share; and whether you can limit this sharing.
Reasons we can share your personal information Does American General Can you limit
Life Companies share? this sharing?
------------------------------------------------------------------------------------------------
FOR OUR EVERYDAY BUSINESS PURPOSES-- such as to
process your transactions, maintain your account(s),
respond to court orders and legal investigations, or Yes No
report to credit bureaus
------------------------------------------------------------------------------------------------
FOR OUR MARKETING PURPOSES-- to offer our products
and services to you Yes No
------------------------------------------------------------------------------------------------
FOR JOINT MARKETING WITH OTHER FINANCIAL COMPANIES Yes No
------------------------------------------------------------------------------------------------
FOR OUR AFFILIATES' EVERYDAY BUSINESS PURPOSES--
information about your transactions and experiences No We don't share
------------------------------------------------------------------------------------------------
FOR OUR AFFILIATES' EVERYDAY BUSINESS PURPOSES--
information about your creditworthiness No We don't share
------------------------------------------------------------------------------------------------
FOR NONAFFILIATES TO MARKET TO YOU No We don't share
------------------------------------------------------------------------------------------------
QUESTIONS? CALL 800-231-3655 OR GO TO WWW.AMERICANGENERAL.COM
THIS DOCUMENT IS NOT PART OF ANY PROSPECTUS
AGLC105775 Rev 03/2012
AMERICAN GENERAL
Life Companies
--------------------------------------------------------------------------------
WHO WE ARE
--------------------------------------------------------------------------------
WHO IS PROVIDING THIS NOTICE? All American General Life Companies
[a complete list is described below]
--------------------------------------------------------------------------------
WHAT WE DO
--------------------------------------------------------------------------------
HOW DOES AMERICAN GENERAL To protect your personal information from
LIFE COMPANIES PROTECT MY unauthorized access and use, we use security
PERSONAL INFORMATION? measures that comply with federal law. These
measures include computer safeguards and secured
files and buildings. We restrict access to
employees, representatives, agents, or selected
third parties who have been trained to handle
nonpublic personal information.
--------------------------------------------------------------------------------
HOW DOES AMERICAN GENERAL We collect your personal information, for
example, when you
LIFE COMPANIES COLLECT MY . apply for insurance or pay insurance premiums
PERSONAL INFORMATION? . file an insurance claim or give us your
income information
. provide employment information
We also collect your personal information from
others, such as credit bureaus, affiliates, or
other companies.
--------------------------------------------------------------------------------
WHY CAN'T I LIMIT ALL SHARING? Federal law gives you the right to limit only
. sharing for affiliates' everyday business
purposes--information about your
creditworthiness
. affiliates from using your information to
market to you
. sharing for nonaffiliates to market to you
State laws and individual companies may give you
additional rights to limit sharing.
--------------------------------------------------------------------------------
DEFINITIONS
--------------------------------------------------------------------------------
AFFILIATES Companies related by common ownership or
control. They can be financial and nonfinancial
companies.
. OUR AFFILIATES INCLUDE THE MEMBER COMPANIES OF
AMERICAN INTERNATIONAL GROUP, INC.
NONAFFILIATES Companies not related by common ownership or
control. They can be financial and nonfinancial
companies.
. AMERICAN GENERAL LIFE COMPANIES DOES NOT SHARE
WITH NONAFFILIATES SO THEY CAN MARKET TO YOU.
JOINT MARKETING A formal agreement between nonaffiliated
financial companies that together market
financial products or services to you.
. OUR JOINT MARKETING PARTNERS INCLUDE COMPANIES
WITH WHICH WE JOINTLY OFFER INSURANCE PRODUCTS,
SUCH AS A BANK.
--------------------------------------------------------------------------------
OTHER IMPORTANT INFORMATION
--------------------------------------------------------------------------------
This Privacy Notice is provided on behalf of the following companies: AGC Life
Insurance Company, AIG Life of Bermuda, Ltd., American General Assurance
Company, American General Equity Services Corporation, American General
Indemnity Company, American General Life and Accident Insurance Company,
American General Life Insurance Company, American General Property Insurance
Company, Delaware American Life Insurance Company, The United States Life
Insurance Company in the City of New York, American General Life Insurance
Company of Delaware.
[GRAPHIC]
For additional information about the Executive Advantage(R) Policies and the
Separate Account, you may request a copy of the Statement of Additional
Information (the "SAI"), dated January 2, 2012. We have filed the SAI with the
SEC and have incorporated it by reference into this prospectus. You may obtain
a free copy of the SAI and the Policy or Fund prospectuses if you write us at
our Administrative Center, which is located at 405 King Street, 4th Floor,
Wilmington, Delaware 19801 or call us at 1-302-575-5245. You may also obtain
the SAI from your AGL representative through which the Policies may be
purchased. Additional information about the Executive Advantage Policies,
including personalized illustrations of death benefits, cash surrender values,
and account values is available without charge to individuals considering
purchasing a Policy, upon request to the same address or phone number printed
above. We may charge current Policy Owners $25 per illustration if they request
more than one personalized illustration in a Policy year.
Information about the Separate Account, including the SAI, can also be reviewed
and copied at the SEC's Office of Investor Education and Advocacy in
Washington, D.C. Inquiries on the operations of the Office of Investor
Education and Advocacy may be made by calling the SEC at 1-202-942-8090.
Reports and other information about the Separate Account are available on the
SEC's Internet site at http://www.sec.gov and copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Office of Investor
Education and Advocacy of the SEC, 100 F Street N.E., Washington, D.C. 20549.
Policies issued by:
AMERICAN GENERAL LIFE INSURANCE COMPANY
2727-A Allen Parkway, Houston, Texas 77019
EXECUTIVE ADVANTAGE GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Policy Form Number 11GVULD997 (sex distinct)
Endorsement Form Number 13GVUL08 (sex distinct)
Merger Endorsement Form Number L8204
Not available in the state of New York
DISTRIBUTED BY AMERICAN GENERAL EQUITY SERVICES CORPORATION
Member FINRA
The underwriting risks, financial obligations and support functions associated
with the products issued by American General Life Insurance Company ("AGL") are
its responsibility. AGL is responsible for its own financial condition and
contractual obligations. American General Life Companies,
www.americangeneral.com, is the marketing name for a group of affiliated
domestic life insurers, including AGL. AGL does not solicit business in the
state of New York. The Policies are not available in all states.
(C) 2013. All rights reserved. ICA File No. 811-04867
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT II
EXECUTIVE ADVANTAGE(R)
GROUP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE
POLICIES
ISSUED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
405 KING STREET, 4/TH/ FLOOR, WILMINGTON, DELAWARE 19801
TELEPHONE: 1-302-575-5245
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 2, 2013
This Statement of Additional Information ("SAI") is not a prospectus. It
should read in conjunction with the prospectus for American General Life
Insurance Company Separate Account II (the "Separate Account" or "Separate
Account II") dated January 2, 2013, describing the Executive Advantage group
flexible premium variable universal life insurance policies (the "Policy" or
"Policies"). The description of the Policy or Policies in the related
prospectus is fully applicable to your certificate and the use of the word
"Policy" or "Policies" in this SAI includes such certificate. The prospectus
sets forth information that a prospective investor should know before
investing. For a copy of the prospectus, and any prospectus supplements,
contact American General Life Insurance Company ("AGL" or "Company") at the
address or telephone number given above. Each term used in this SAI that is
defined in the related prospectus has the same meaning as the prospectus'
definition.
TABLE OF CONTENTS
GENERAL INFORMATION................................................... 3
AGL................................................................ 3
Separate Account II................................................ 3
National Union Fire Insurance Company of Pittsburgh, Pa............ 4
SERVICES.............................................................. 4
DISTRIBUTION OF THE POLICIES.......................................... 4
PERFORMANCE INFORMATION............................................... 6
ADDITIONAL INFORMATION ABOUT THE POLICIES............................. 6
Gender neutral policies........................................ 6
Cost of insurance rates........................................ 6
Special purchase plans......................................... 7
Underwriting procedures and cost of insurance charges.......... 7
Certain arrangements........................................... 7
Guaranteed Investment Option....................................... 7
Adjustments to Death Benefit....................................... 8
Suicide........................................................ 8
Wrong age or gender............................................ 8
Death during grace period...................................... 8
ACTUARIAL EXPERT...................................................... 8
MATERIAL CONFLICTS.................................................... 8
FINANCIAL STATEMENTS.................................................. 9
2
GENERAL INFORMATION
AGL
We are American General Life Insurance Company ("AGL "). AGL is a stock life
insurance company organized under the laws of the State of Texas. AGL is a
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.
AIG is a leading international insurance organization serving customers in
more than 130 countries. AIG companies serve commercial, institutional and
individual customers through one of the most extensive worldwide
property-casualty networks of any insurer. In addition, AIG companies are
leading providers of life insurance and retirement services in the United
States. AIG common stock is listed on the New York Stock Exchange and the Tokyo
Stock Exchange.
American General Life Companies, www.americangeneral.com, is the marketing
name for a group of affiliated domestic life insurers, including AGL. The
commitments under the Contracts are AGL's, and AIG has no legal obligation to
back those commitments.
On December 31, 2012, American General Life Insurance Company of Delaware
("AGLD"), an affiliate of AGL, merged with and into AGL. Prior to this date,
the Policies were issued by AGLD.
SEPARATE ACCOUNT II
We hold the Fund shares in which any of your accumulation value is invested
in Separate Account II. Separate Account II is registered as a unit investment
trust with the Securities and Exchange Commission ("SEC") under the Investment
Company Act of 1940. Prior to December 31, 3012, Separate Account II ("Separate
Account") was a separate account of AGLD, created on June 5, 1986. On
December 31, 2012, and in conjunction with the merger of AGL and AGLD, the
Separate Account was transferred to and became a separate account of AGL under
Texas law.
For record keeping and financial reporting purposes, Separate Account II is
divided into 91 separate "divisions," 36 of which are available under the
Policies offered by the Policy prospectus as variable "investment options."
Eight of these 36 divisions and the remaining 55 divisions are offered under
other AGL policies. We hold the Fund shares in which we invest your
accumulation value for an investment option in the division that corresponds to
that investment option. One or more of the Funds may sell its shares to other
funds.
The assets in Separate Account II are our property. The assets in the
Separate Account may not be used to pay any liabilities of AGL other than those
arising from the Policies. AGL is obligated to pay all amounts under the
Policies due the Policy owners. We act as custodian for the Separate Account's
assets.
3
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
All references in this SAI to National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union") apply only to Policies with a date of issue
prior to December 29, 2006 at 4:00 p.m. Eastern time.
National Union is a stock property-casualty insurance company incorporated
under the laws of the Commonwealth of Pennsylvania on February 14, 1901.
National Union's principal executive office is located at 175 Water Street,
18/th/ Floor, New York, New York 10038. National Union 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. National Union is an indirect wholly-owned subsidiary
of AIG and an affiliate of AGL.
SERVICES
AGL and AIG are parties to a service and expense agreement. Under the
service and expense agreement, AIG may provide services to AGL and certain
other life insurance companies under the AIG holding company system at cost.
Those services include data processing systems, customer services, product
development, actuarial, internal auditing, accounting and legal services.
During 2011, 2010 and 2009, AGL paid AIG for these services $0, $1,310,085 and
$1,201,564, respectively.
AGL and American General Life Companies, LLC ("AGLC") were previously
parties to a services agreement. AGL and AGLC (prior to its merger) are both
wholly-owned subsidiaries of AIG and therefore affiliates of one another. AGLC
was a Delaware limited liability company established on August 30, 2002. Prior
to that date, AGLC was a Delaware business trust. Its address was 2727-A Allen
Parkway, Houston, Texas 77019-2191. Under the services agreement, AGLC provided
shared services to AGL and certain other life insurance companies under the AIG
holding company system at cost. Those services include data processing systems,
customer services, product development, actuarial, internal auditing,
accounting and legal services. During 2011, 2010 and 2009, AGL paid AGLC for
these services $71,358,073, $65,099,382 and $60,892,128, respectively.
AGLC was merged into American General Life Insurance Company ("AGL") at the
end of 2011. AGL now provides all services to AGL previously provided by AGLC.
We have not designed the Policies for professional market timing organizations
or other entities or individuals using programmed and frequent transfers
involving large amounts. We currently have no contractual agreements or any
other formal or informal arrangements with any entity or individual permitting
such transfers and receive no compensation for any such contract or arrangement.
DISTRIBUTION OF THE POLICIES
American General Equity Services Corporation ("AGESC"), 2727-A Allen
Parkway, 2-G7, Houston, Texas 77019, a Delaware corporation and an affiliate of
AGL, is the principal underwriter and distributor of the Policies for the
Separate Account under a Distribution Agreement between AGESC and AGL. AGESC
also acts as principal underwriter for AGL's
4
other separate accounts and for the separate accounts of certain AGL
affiliates. AGESC is a registered broker-dealer under the Securities Exchange
Act of 1934, as amended and a member of the Financial Industry Regulatory
Authority ("FINRA"). AGESC, as the principal underwriter and distributor, is
not paid any fees on the Policies.
The Policies are offered on a continuous basis.
We and AGESC have sales agreements with various broker-dealers and banks
under which the Policies will be sold by registered representatives of the
broker-dealers or employees of the banks. These registered representatives and
employees are also required to be authorized under applicable state regulations
as life insurance agents to sell variable universal life insurance. The
broker-dealers are ordinarily required to be registered with the SEC and must
be members of FINRA.
Commissions may be paid based on premiums paid for Policies sold. Other
expense reimbursements, allowances, and overrides may also be paid. Registered
representatives who meet certain productivity and profitability standards may
be eligible for additional compensation. Additional payments may be made for
administrative or other services not directly related to the sale of the
Policies.
We pay compensation directly to broker-dealers and banks for promotion and
sales of the Policies. The compensation may vary with the sales agreement, but
is generally not expected to exceed:
. 24% of premiums paid in the first Policy year up to the Target Premium
and 4% of premiums in excess of the Target Premium;
. 11% of premiums paid in Policy years 2 through 4 up to the Target
Premium and 4% of premiums in excess of the Target Premium;
. 4% of premiums paid in Policy years 5 through 7 up to the Target Premium
and 4% of premiums in excess of the Target Premium;
. 3% of premiums paid in Policy years 8 through 15 up to the Target
Premium and 2% of premiums in excess of the Target Premium;
. 2% of premiums paid beginning in the 16th Policy year up to the Target
Premium and 2% of premiums paid beginning in the 16th Policy year in
excess of the Target Premium;
. Trail commission of 0.20% annual in Policy years 8 through 15, of each
Policy's accumulation value (reduced by any outstanding loans); and
. Trail commission of 0.10% annual beginning in the 16th Policy year, of
each Policy's accumulation value (reduced by any outstanding loans).
Target Premium is the maximum amount of premium to which the first year
commission rate applies.
5
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the divisions of
the Separate Account in advertisements, sales literature, or reports to owners
or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical owner's cash value or death benefit. We also may present the yield
or total return of the division based on a hypothetical investment in a Policy.
The performance information shown may cover various periods of time, including
periods beginning with the commencement of the operations of the division or
the Fund in which it invests. The performance information shown may reflect the
deduction of one or more charges, such as the premium charge, and we generally
expect to exclude costs of insurance charges because of the individual nature
of these charges. We also may present the yield or total return of the
investment option in which a division invests.
We may compare a division's performance to that of other variable universal
life separate accounts or investment products, as well as to generally accepted
indices or analyses, such as those provided by research firms and rating
services. In addition, we may use performance ratings that may be reported
periodically in financial publications, such as Money Magazine, Forbes,
Business Week, Fortune, Financial Planning and The Wall Street Journal. We also
may advertise ratings of AGL's financial strength or claims-paying ability as
determined by firms that analyze and rate insurance companies and by nationally
recognized statistical rating organizations.
ADDITIONAL INFORMATION ABOUT THE POLICIES
The purpose of this section is to provide you with information to help
clarify certain discussion found in the related prospectus. Many topics, such
as Policy sales loads and increases in your Policy's death benefit, have been
fully described in the related prospectus. For any topics that we do not
discuss in this SAI, please see the related prospectus.
Gender neutral policies. Congress and the legislatures of various states
have from time to time considered legislation that would require insurance
rates to be the same for males and females of the same age, premium class and
tobacco user status. In addition, employers and employee organizations should
consider, in consultation with counsel, the impact of Title VII of the Civil
Rights Act of 1964 on the purchase of life insurance policies in connection
with an employment-related insurance or benefit plan. In a 1983 decision, the
United States Supreme Court held that, under Title VII, optional annuity
benefits under a deferred compensation plan could not vary on the basis of
gender. In general, we do not offer the Policies for sale in situations which,
under current law, require gender-neutral premiums or benefits.
Cost of insurance rates. Because of specified amount increases, different
cost of insurance rates may apply to different increments of specified amount
under your Policy. If so, we attribute your accumulation value proportionately
to each increment of specified amount to compute our net amount at risk.
6
Special purchase plans. Special purchase plans provide for variations in, or
elimination of, certain Policy charges, and would be available to a defined
group of individuals. We currently do not provide for or support any special
purchase plans.
Underwriting procedures and cost of insurance charges. Cost of insurance
charges for the Policies will not be the same for all Policy owners. The chief
reason is that the principle of pooling and distribution of mortality risks is
based upon the assumption that each Policy owner pays a cost of insurance
charge related to the insured's mortality risk which is actuarially determined
based upon factors such as age, sex and risk class of the insured and the face
amount size band of the Policy. In the context of life insurance, a uniform
mortality charge (the "cost of insurance charge") for all insureds would
discriminate unfairly in favor of those insureds representing greater mortality
risks to the disadvantage of those representing lesser risks. Accordingly,
although there will be a uniform "public offering price" for all Policy owners,
because premiums are flexible and amounts allocated to the Separate Account
will be subject to some charges that are the same for all owners, there will be
a different "price" for each actuarial category of Policy owners because
different cost of insurance rates will apply. The "price" will also vary based
on net amount at risk. The Policies will be offered and sold pursuant to this
cost of insurance schedule and our underwriting standards and in accordance
with state insurance laws. Such laws prohibit unfair discrimination among
insureds, but recognize that premiums must be based upon factors such as age,
sex, health and occupation. A table showing the maximum cost of insurance
charges will be delivered as part of the Policy.
Our underwriting procedures are designed to treat applicants for Policies in
a uniform manner. Collection of required medical information is conducted in a
confidential manner. We maintain underwriting standards designed to avoid
unfair or inconsistent decisions about which underwriting class should apply to
a particular proposed insured person. In some group or employment- related
situations, we may offer what we call simplified or guaranteed issue
underwriting classes. These underwriting classes provide for brief or no
medical underwriting. Our offer to insure a person under either class results
in cost of insurance charges that are the same for each insured person.
Certain arrangements. Most of the advisers or administrators of the Funds
make certain payments to us, on a quarterly basis, for certain administrative,
Policy, and policy owner support expenses. These amounts will be reasonable for
the services performed and are not designed to result in a profit. These
amounts will not be paid by the Funds or Policy owners.
GUARANTEED INVESTMENT OPTION
Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part
of your Account Value to the Loan Account which is part of the Guaranteed
Account. Unlike the Separate Account, the assets in the Guaranteed Account may
be used to pay any liabilities of AGL in addition to those arising from the
Policies.
We may treat each allocation and transfer separately for purposes of
crediting interest and making deductions from the Guaranteed Account.
All of your Account Value held in the Guaranteed Account will earn interest
at a rate we determine in our sole discretion. This rate will never be less
than 4% per year compounded
7
annually. The Loan Account portion of your Account Value may earn a different
interest rate than the remaining portion of your Account Value in the
Guaranteed Account.
We will deduct any transfers, partial surrenders or any policy expenses from
the Guaranteed Account and your variable investment options on a pro rata
basis, unless you provide other directions. No portion of the Loan Account may
be used for this purpose.
If we must pay any part of the proceeds for a loan, partial surrender or
full surrender from the Guaranteed Account, we may defer the payment for up to
six months from the date we receive the written request. If we defer payment
from the Guaranteed Account for 30 days or more, we will pay interest on the
amount we deferred at a rate of 4% per year, compounded annually, until we make
payment.
ADJUSTMENTS TO DEATH BENEFIT
Suicide. If the insured person commits suicide during the first two Policy
years, we will limit the proceeds payable to the total of all premiums that
have been paid to the time of death minus any outstanding Policy loans (plus
credit for any unearned interest) and any partial surrenders.
A new two-year period begins if you increase the specified amount. You can
increase the specified amount only if the insured person is living at the time
of the increase. In this case, if the insured person commits suicide during the
first two years following the increase, we will refund the monthly insurance
deductions attributable to the increase. The death benefit will then be based
on the specified amount in effect before the increase.
Wrong age or gender. If the age or gender of the insured person was
misstated on your application for a Policy (or for any increase in benefits),
we will adjust any death benefit to be what the monthly insurance charge
deducted for the current month would have purchased based on the correct
information.
Death during grace period. We will deduct from the insurance proceeds any
monthly charges that remain unpaid because the insured person died during a
grace period.
ACTUARIAL EXPERT
Actuarial matters have been examined by Wayne A. Barnard, who is Senior Vice
President and Illustration Actuary of AGL. His opinion on actuarial matters is
filed as an exhibit to the registration statement we have filed with the SEC in
connection with the Policies.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts from
using investment portfolios for both variable universal life and variable
annuity separate accounts. The boards of the Funds, AGL, and other insurance
companies participating in the Funds have this same duty. There may be a
material conflict if:
. state insurance law or federal income tax law changes;
8
. investment management of an investment portfolio changes; or
. voting instructions given by owners of variable universal life insurance
policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). One or more of the investment
portfolios may sell its shares to other investment portfolios. Therefore, there
is a possibility that a material conflict may arise between the interests of
owners in general, or certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment
options. We may take other action to protect Policy owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require us, we may ignore
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in the next semi-annual report to owners.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, located at 1201 Louisiana Street, Suite 2900,
Houston, Texas 77002, serves as the independent registered public accounting
firm for Variable Account II, AGL, the life companies listed below and American
International Group, Inc.
We are required to include additional life companies' financial statements
in the Statement of Additional Information to reflect the effect of the
December 31, 2012 merger of American General Life Insurance Company of Delaware
into American General Life Insurance 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.
9
The following financial statements are included in the Statement of
Additional Information in reliance on the report of PricewaterhouseCoopers LLP,
an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting:
. Audited Financial Statements of Variable Account II of American General
Life Insurance Company of Delaware for the year ended December 31, 2011
. Audited Financial Statements of American General Life Insurance Company
of Delaware for the years ended December 31, 2011, 2010 and 2009
. Audited Statutory Financial Statements of American General Assurance
Company for years ended December 31, 2011 and 2010
. Audited Statutory Financial Statements of American General Life and
Accident Insurance Company for the years ended December 31, 2011 and 2010
. Audited Consolidated Financial Statements of SunAmerica Annuity and Life
Assurance Company for the years ended December 31, 2011, 2010 and 2009
. Audited Statutory Financial Statements of SunAmerica Life Insurance
Company for the years ended December 31, 2011 and 2010
. Audited Consolidated Financial Statements of Western National Life
Insurance Company for the years ended December 31, 2011, 2010 and 2009
. Audited Consolidated Financial Statements of American General Life
Insurance Company for the years ended December 31, 2011, 2010 and 2009
. Audited Statutory Financial Statements of National Union Fire Insurance
Company of Pittsburgh, Pa. for the years ended December 31, 2011 and 2010
The following financial statements are also included in the Statement of
Additional Information:
. Unaudited Pro Forma Condensed Financial Data of American General Life
Insurance Company as of December 31, 2011
The financial statements of the life companies listed above should be
considered only as bearing on the ability of AGL to meet its obligations under
the contracts.
You should only consider the statutory financial statements of National
Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") that we
include in the Statement of Additional Information as bearing on the ability of
National Union, 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 National Union guarantee.
AMERICAN INTERNATIONAL GROUP, INC. FINANCIAL INFORMATION
On March 30, 2011, American International Group, Inc. and AGL entered into
an Unconditional Capital Maintenance Agreement. As a result, the financial
statements of American International Group, Inc. are incorporated by reference
below. American International Group, Inc. does not underwrite any contracts
referenced herein.
10
The following financial statements are incorporated by reference in the
Statement of Additional Information in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting:
. Consolidated Financial Statements and Financial Statement Schedules of
American International Group, Inc.'s Current Report on Form 8-K dated
May 4, 2012 and management's assessment of the effectiveness of internal
control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting)
. American International Group, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2011
The following financial statements are also incorporated by reference in the
Statement of Additional Information in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting:
. Consolidated Financial Statements of AIA Group Limited incorporated by
reference to American International Group, Inc.'s Amendment No. 1 on
Form 10-K/A to its Annual Report on Form 10-K for the year ended
December 31, 2011.
11
AMERICAN GENERAL
Life Companies
Variable Account II
Variable Universal Life Insurance
2011
Annual Report
December 31, 2011
American General Life Insurance Company of Delaware
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
American General Life Insurance Company of Delaware and Policy Owners of
American General Life Insurance Company of Delaware Variable Account II
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of each of the
Sub-Accounts listed in Note 1 of American General Life Insurance Company of
Delaware Variable Account II at December 31, 2011, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and each of their financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the management of American
General Life Insurance Company of Delaware; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investment securities at December 31, 2011 by correspondence
with the mutual fund companies, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
April 25, 2012
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2011
Due from (to)
American General
Investment Life Insurance
securities - at Company of
Sub-accounts fair value Delaware NET ASSETS
------------------------------------------------------------------------------------------------------------------
AllianceBernstein Balanced Wealth Strategy Portfolio - Class A $ 214,804 $ - $ 214,804
AllianceBernstein Global Thematic Growth Portfolio - Class A 1,072,533 - 1,072,533
AllianceBernstein Growth and Income Portfolio - Class A 1,373,571 - 1,373,571
AllianceBernstein Growth Portfolio - Class A 1,513,334 - 1,513,334
AllianceBernstein Intermediate Bond Portfolio - Class A 50,522 - 50,522
AllianceBernstein Large Cap Growth Portfolio - Class A 754,333 - 754,333
AllianceBernstein Money Market Portfolio - Class A 175,790 - 175,790
AllianceBernstein Real Estate Investment Portfolio - Class A 590,417 - 590,417
AllianceBernstein Small Cap Growth Portfolio - Class A 378,816 - 378,816
American Century VP Capital Appreciation Fund - Class I 248,725 - 248,725
American Century VP Income & Growth Fund - Class I 150,357 - 150,357
Anchor Series Trust Asset Allocation Portfolio - Class 1 302,672 - 302,672
Anchor Series Trust Capital Appreciation Portfolio - Class 1 2,431,110 - 2,431,110
Anchor Series Trust Government and Quality Bond Portfolio - Class 1 524,041 - 524,041
Anchor Series Trust Growth Portfolio - Class 1 930,245 - 930,245
Anchor Series Trust Natural Resources Portfolio - Class 1 826,142 - 826,142
BlackRock Basic Value V.I. Fund - Class I - - -
Dreyfus Stock Index Fund, Inc. - Initial Shares 3,304,407 - 3,304,407
Fidelity VIP Asset Manager Portfolio - Initial Class 988,841 - 988,841
Fidelity VIP Contrafund Portfolio - Initial Class 2,025,569 - 2,025,569
Fidelity VIP Growth Portfolio - Initial Class 2,813,320 - 2,813,320
Fidelity VIP High Income Portfolio - Initial Class 456,123 - 456,123
Fidelity VIP Index 500 Portfolio - Initial Class - - -
Fidelity VIP Investment Grade Bond Portfolio - Initial Class 730,922 - 730,922
Fidelity VIP Money Market Portfolio - Initial Class 2,027,826 - 2,027,826
Fidelity VIP Overseas Portfolio - Initial Class 256,912 - 256,912
Franklin Templeton Templeton Foreign Securities Fund - Class 2 - - -
Invesco V.I. Capital Appreciation Fund - Series I 417,913 - 417,913
Invesco V.I. International Growth Fund - Series I 719,412 - 719,412
JPMorgan Insurance Trust Core Bond Portfolio - Class 1 112,059 - 112,059
JPMorgan Insurance Trust U.S. Equity Portfolio - Class 1 113,760 - 113,760
Neuberger Berman AMT Partners Portfolio - Class I 136,989 - 136,989
Neuberger Berman AMT Short Duration Bond Portfolio - Class I 126,374 - 126,374
Oppenheimer Global Securities Fund/VA - Non-Service Shares 462,505 - 462,505
Oppenheimer Main Street Fund/VA - Non-Service Shares 403,982 - 403,982
PIMCO VIT Real Return Portfolio - Administrative Class 141,448 - 141,448
PIMCO VIT Total Return Portfolio - Administrative Class - - -
SunAmerica Aggressive Growth Portfolio - Class 1 1,449,380 - 1,449,380
SunAmerica Alliance Growth Portfolio - Class 1 2,706,174 - 2,706,174
SunAmerica Balanced Portfolio - Class 1 834,869 - 834,869
SunAmerica Blue Chip Growth Portfolio - Class 1 42,147 - 42,147
SunAmerica Capital Growth Portfolio - Class 1 30,062 - 30,062
SunAmerica Cash Management Portfolio - Class 1 1,560,002 - 1,560,002
SunAmerica Corporate Bond Portfolio - Class 1 390,563 - 390,563
SunAmerica Davis Venture Value Portfolio - Class 1 1,514,206 - 1,514,206
SunAmerica "Dogs" of Wall Street Portfolio - Class 1 246,490 - 246,490
SunAmerica Emerging Markets Portfolio - Class 1 828,755 - 828,755
SunAmerica Equity Opportunities Portfolio - Class 1 325,016 - 325,016
SunAmerica Fundamental Growth Portfolio - Class 1 681,516 - 681,516
SunAmerica Global Bond Portfolio - Class 1 487,675 - 487,675
SunAmerica Global Equities Portfolio - Class 1 405,958 - 405,958
SunAmerica Growth Opportunities Portfolio - Class 1 101,146 - 101,146
See accompanying notes.
VA II - 2
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 2011
Due from (to)
American General
Investment Life Insurance
securities - at Company of
Sub-accounts fair value Delaware NET ASSETS
----------------------------------------------------------------------------------------------------------------
SunAmerica Growth-Income Portfolio - Class 1 $ 1,818,041 $ - $ 1,818,041
SunAmerica High-Yield Bond Portfolio - Class 1 228,976 - 228,976
SunAmerica International Diversified Equities Portfolio - Class 1 406,012 - 406,012
SunAmerica International Growth and Income Portfolio - Class 1 553,292 - 553,292
SunAmerica Marsico Focused Growth Portfolio - Class 1 584,998 - 584,998
SunAmerica MFS Massachusetts Investors Trust Portfolio - Class 1 436,244 - 436,244
SunAmerica MFS Total Return Portfolio - Class 1 709,219 - 709,219
SunAmerica Mid-Cap Growth Portfolio - Class 1 1,975,372 - 1,975,372
SunAmerica Real Estate Portfolio - Class 1 452,344 - 452,344
SunAmerica Technology Portfolio - Class 1 80,005 - 80,005
SunAmerica Telecom Utility Portfolio - Class 1 372,382 - 372,382
SunAmerica Total Return Bond Portfolio - Class 1 280,104 - 280,104
UIF Mid Cap Growth Portfolio - Class I Shares 188,220 - 188,220
VALIC Company I International Equities Fund 690,756 - 690,756
VALIC Company I Small Cap Index Fund 148,728 - 148,728
Van Eck VIP Emerging Markets Fund - Initial Class 279,778 - 279,778
Van Eck VIP Global Hard Assets Fund - Initial Class 250,427 - 250,427
Vanguard VIF Total Bond Market Index Portfolio - - -
See accompanying notes.
VA II - 3
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
A B A+B=C D E F C+D+E+F
Mortality and Net change in
expense risk NET Net realized Capital gain unrealized INCREASE
Dividends and INVESTMENT gain (loss) distributions appreciation (DECREASE) IN NET
from mutual administrative INCOME on from mutual (depreciation) ASSETS RESULTING
Sub-accounts funds charges (LOSS) investments funds of investments FROM OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
AllianceBernstein
Balanced Wealth
Strategy
Portfolio - Class
A $ 5,366 $ (1,973) $ 3,393 $ 510 $ - $ (11,690) $ (7,787)
AllianceBernstein
Global Thematic
Growth Portfolio
- Class A 7,791 (11,549) (3,758) (1,971) - (333,170) (338,899)
AllianceBernstein
Growth and Income
Portfolio - Class
A 21,573 (13,152) 8,421 24,015 - 42,063 74,499
AllianceBernstein
Growth Portfolio
- Class A - (14,333) (14,333) 12,824 - 9,756 8,247
AllianceBernstein
Intermediate Bond
Portfolio - Class
A 2,507 (463) 2,044 (72) 191 707 2,870
AllianceBernstein
Large Cap Growth
Portfolio - Class
A 2,725 (6,823) (4,098) 5,410 - (33,723) (32,411)
AllianceBernstein
Money Market
Portfolio - Class
A 16 (1,442) (1,426) - - - (1,426)
AllianceBernstein
Real Estate
Investment
Portfolio - Class
A 8,758 (4,389) 4,369 505 66,063 (23,856) 47,081
AllianceBernstein
Small Cap Growth
Portfolio - Class
A - (3,536) (3,536) 4,068 - 9,895 10,427
American Century VP
Capital
Appreciation Fund
- Class I - (2,072) (2,072) 825 - (18,926) (20,173)
American Century VP
Income & Growth
Fund - Class I 2,412 (1,160) 1,252 3,140 - 375 4,767
Anchor Series Trust
Asset Allocation
Portfolio - Class
1 8,424 (2,327) 6,097 1,483 - (6,786) 794
Anchor Series Trust
Capital
Appreciation
Portfolio - Class
1 - (21,698) (21,698) 40,805 - (220,105) (200,998)
Anchor Series Trust
Government and
Quality Bond
Portfolio - Class
1 14,676 (4,131) 10,545 (9,778) 2,059 30,835 33,661
Anchor Series Trust
Growth Portfolio
- Class 1 7,475 (7,774) (299) (25,296) - (51,552) (77,147)
Anchor Series Trust
Natural Resources
Portfolio - Class
1 6,981 (7,831) (850) (13,658) 248,273 (459,010) (225,245)
BlackRock Basic
Value V.I. Fund -
Class I 291 (258) 33 (5,940) - (10,857) (16,764)
Dreyfus Stock Index
Fund, Inc. -
Initial Shares 62,755 (29,451) 33,304 24,599 22,788 (43,307) 37,384
Fidelity VIP Asset
Manager Portfolio
- Initial Class 20,698 (8,947) 11,751 80 5,025 (52,367) (35,511)
Fidelity VIP
Contrafund
Portfolio -
Initial Class 21,736 (16,098) 5,638 16,467 - (110,113) (88,008)
Fidelity VIP Growth
Portfolio -
Initial Class 10,933 (25,801) (14,868) 14,861 10,119 (28,589) (18,477)
Fidelity VIP High
Income Portfolio
- Initial Class 31,564 (3,931) 27,633 (2,688) - (8,993) 15,952
Fidelity VIP Index
500 Portfolio -
Initial Class - (208) (208) (5,340) 3,550 (6,102) (8,100)
Fidelity VIP
Investment Grade
Bond Portfolio -
Initial Class 23,631 (6,169) 17,462 (6,006) 19,340 13,876 44,672
Fidelity VIP Money
Market Portfolio
- Initial Class 2,301 (17,010) (14,709) - - - (14,709)
Fidelity VIP
Overseas
Portfolio -
Initial Class 4,278 (2,958) 1,320 460 639 (60,524) (58,105)
Franklin Templeton
Templeton Foreign
Securities Fund -
Class 2 3,420 (271) 3,149 (5,193) - (13,684) (15,728)
Invesco V.I.
Capital
Appreciation Fund
- Series I 706 (3,943) (3,237) 1,751 - (38,598) (40,084)
Invesco V.I.
International
Growth Fund -
Series I 13,623 (7,218) 6,405 7,737 - (76,237) (62,095)
JPMorgan Insurance
Trust Core Bond
Portfolio - Class
1 4,895 (725) 4,170 (822) - 2,495 5,843
JPMorgan Insurance
Trust U.S. Equity
Portfolio - Class
1 1,417 (863) 554 886 - (4,139) (2,699)
Neuberger Berman
AMT Partners
Portfolio - Class
I - (1,139) (1,139) 1,758 - (18,734) (18,115)
Neuberger Berman
AMT Short
Duration Bond
Portfolio - Class
I 5,027 (1,019) 4,008 4 - (4,487) (475)
Oppenheimer Global
Securities Fund/
VA - Non-Service
Shares 6,918 (3,980) 2,938 2,887 - (52,617) (46,792)
Oppenheimer Main
Street Fund/VA -
Non-Service Shares 3,351 (3,027) 324 1,894 - (5,553) (3,335)
PIMCO VIT Real
Return Portfolio
- Administrative
Class 38,923 (2,815) 36,108 74,441 4,099 68,671 183,319
PIMCO VIT Total
Return Portfolio
- Administrative
Class 3,870 (316) 3,554 (6,013) 5 9,063 6,609
SunAmerica
Aggressive Growth
Portfolio - Class
1 - (11,264) (11,264) 11,308 - (43,017) (42,973)
SunAmerica Alliance
Growth Portfolio
- Class 1 14,608 (22,551) (7,943) 29,623 - (108,198) (86,518)
SunAmerica Balanced
Portfolio - Class
1 15,273 (6,249) 9,024 2,537 - 730 12,291
SunAmerica Blue
Chip Growth
Portfolio - Class
1 102 (360) (258) 2,176 - (4,229) (2,311)
SunAmerica Capital
Growth Portfolio
- Class 1 - (231) (231) 89 - (488) (630)
SunAmerica Cash
Management
Portfolio - Class
1 - (11,537) (11,537) (981) - (3,297) (15,815)
SunAmerica
Corporate Bond
Portfolio - Class
1 25,319 (2,677) 22,642 182 1,888 (5,516) 19,196
SunAmerica Davis
Venture Value
Portfolio - Class
1 21,500 (12,405) 9,095 8,790 - (103,288) (85,403)
SunAmerica "Dogs"
of Wall Street
Portfolio - Class
1 5,276 (1,707) 3,569 2,715 - 19,856 26,140
SunAmerica Emerging
Markets Portfolio
- Class 1 6,210 (8,167) (1,957) (10,213) - (305,739) (317,909)
SunAmerica Equity
Opportunities
Portfolio - Class
1 1,881 (2,365) (484) 691 - (2,858) (2,651)
SunAmerica
Fundamental
Growth Portfolio
- Class 1 - (5,602) (5,602) 9,625 - (46,111) (42,088)
SunAmerica Global
Bond Portfolio -
Class 1 10,105 (3,274) 6,831 2,878 6,273 3,630 19,612
See accompanying notes.
VA II - 4
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 2011
A B A+B=C D E F C+D+E+F
Mortality and Net change in
expense risk NET Net realized Capital gain unrealized INCREASE
Dividends and INVESTMENT gain (loss) distributions appreciation (DECREASE) IN NET
from mutual administrative INCOME on from mutual (depreciation) ASSETS RESULTING
Sub-accounts funds charges (LOSS) investments funds of investments FROM OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
SunAmerica Global
Equities
Portfolio - Class
1 $ 4,393 $ (3,437) $ 956 $ 2,008 $ - $ (53,625) $ (50,661)
SunAmerica Growth
Opportunities
Portfolio - Class
1 - (752) (752) 498 - (2,216) (2,470)
SunAmerica
Growth-Income
Portfolio - Class
1 17,275 (13,798) 3,477 18,327 - 103,905 125,709
SunAmerica
High-Yield Bond
Portfolio - Class
1 19,479 (1,668) 17,811 356 - (10,438) 7,729
SunAmerica
International
Diversified
Equities
Portfolio - Class
1 10,267 (3,733) 6,534 2,846 - (86,934) (77,554)
SunAmerica
International
Growth and Income
Portfolio - Class
1 19,472 (4,947) 14,525 7,602 - (114,902) (92,775)
SunAmerica Marsico
Focused Growth
Portfolio - Class
1 1,974 (4,523) (2,549) 1,623 - (12,018) (12,944)
SunAmerica MFS
Massachusetts
Investors Trust
Portfolio - Class
1 3,166 (3,440) (274) 2,650 - (14,457) (12,081)
SunAmerica MFS
Total Return
Portfolio - Class
1 19,745 (5,703) 14,042 7,976 - (13,892) 8,126
SunAmerica Mid-Cap
Growth Portfolio
- Class 1 - (16,433) (16,433) 24,783 - (142,510) (134,160)
SunAmerica Real
Estate Portfolio
- Class 1 4,425 (3,528) 897 12,430 - 23,036 36,363
SunAmerica
Technology
Portfolio - Class
1 - (851) (851) (210) - (6,824) (7,885)
SunAmerica Telecom
Utility Portfolio
- Class 1 8,715 (2,738) 5,977 1,851 - 10,809 18,637
SunAmerica Total
Return Bond
Portfolio - Class
1 3,914 (1,252) 2,662 812 3,025 498 6,997
UIF Mid Cap Growth
Portfolio - Class
I Shares 685 (210) 475 239 85 (15,344) (14,545)
VALIC Company I
International
Equities Fund 21,878 (1,221) 20,657 (16,612) - (139,485) (135,440)
VALIC Company I
Small Cap Index
Fund 1,543 (590) 953 (15,987) - (27,908) (42,942)
Van Eck VIP
Emerging Markets
Fund - Initial
Class 3,990 (3,461) 529 (9,471) - (101,097) (110,039)
Van Eck VIP Global
Hard Assets Fund
- Initial Class 3,689 (2,829) 860 632 3,951 (60,857) (55,414)
Vanguard VIF Total
Bond Market Index
Portfolio 5,564 (217) 5,347 (254) 1,511 1,796 8,400
See accompanying notes.
VA II - 5
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
SCHEDULES OF PORTFOLIO INVESTMENTS
DECEMBER 31, 2011
Net Asset Value Value of Shares Cost of Shares
Sub-accounts Shares Per Share at Fair Value Held Level /(1)/
-------------------------------------------------------------------------------------------------------------
AllianceBernstein Balanced Wealth
Strategy Portfolio - Class A 19,707 $ 10.90 $ 214,804 $ 218,688 1
AllianceBernstein Global Thematic
Growth Portfolio - Class A 72,127 14.87 1,072,533 1,326,116 1
AllianceBernstein Growth and Income
Portfolio - Class A 76,098 18.05 1,373,571 1,252,947 1
AllianceBernstein Growth Portfolio -
Class A 74,183 20.40 1,513,334 1,432,583 1
AllianceBernstein Intermediate Bond
Portfolio - Class A 4,029 12.54 50,522 50,194 1
AllianceBernstein Large Cap Growth
Portfolio - Class A 28,084 26.86 754,333 743,619 1
AllianceBernstein Money Market
Portfolio - Class A 175,790 1.00 175,790 175,790 1
AllianceBernstein Real Estate
Investment Portfolio - Class A 50,986 11.58 590,417 598,352 1
AllianceBernstein Small Cap Growth
Portfolio - Class A 22,166 17.09 378,816 347,208 1
American Century VP Capital
Appreciation Fund - Class I 18,814 13.22 248,725 257,766 1
American Century VP Income & Growth
Fund - Class I 24,488 6.14 150,357 140,257 1
Anchor Series Trust Asset Allocation
Portfolio - Class 1 23,235 13.03 302,672 298,952 1
Anchor Series Trust Capital
Appreciation Portfolio - Class 1 71,214 34.14 2,431,110 2,493,172 1
Anchor Series Trust Government and
Quality Bond Portfolio - Class 1 33,655 15.57 524,041 513,484 1
Anchor Series Trust Growth Portfolio -
Class 1 48,185 19.31 930,245 975,382 1
Anchor Series Trust Natural Resources
Portfolio - Class 1 33,880 24.38 826,142 1,186,364 1
Dreyfus Stock Index Fund, Inc. -
Initial Shares 112,090 29.48 3,304,407 3,166,675 1
Fidelity VIP Asset Manager Portfolio -
Initial Class 71,655 13.80 988,841 1,036,455 1
Fidelity VIP Contrafund Portfolio -
Initial Class 87,992 23.02 2,025,569 1,997,041 1
Fidelity VIP Growth Portfolio - Initial
Class 76,262 36.89 2,813,320 2,693,397 1
Fidelity VIP High Income Portfolio -
Initial Class 84,624 5.39 456,123 493,527 1
Fidelity VIP Investment Grade Bond
Portfolio - Initial Class 56,355 12.97 730,922 756,576 1
Fidelity VIP Money Market Portfolio -
Initial Class 2,027,826 1.00 2,027,826 2,027,826 1
Fidelity VIP Overseas Portfolio -
Initial Class 18,849 13.63 256,912 301,135 1
Invesco V.I. Capital Appreciation Fund
- Series I 19,510 21.42 417,913 436,229 1
Invesco V.I. International Growth Fund
- Series I 27,281 26.37 719,412 741,659 1
JPMorgan Insurance Trust Core Bond
Portfolio - Class 1 9,570 11.71 112,059 110,649 1
JPMorgan Insurance Trust U.S. Equity
Portfolio - Class 1 7,474 15.22 113,760 110,690 1
Neuberger Berman AMT Partners Portfolio
- Class I 13,713 9.99 136,989 144,727 1
Neuberger Berman AMT Short Duration
Bond Portfolio - Class I 11,712 10.79 126,374 131,256 1
Oppenheimer Global Securities Fund/VA -
Non-Service Shares 16,843 27.46 462,505 484,468 1
Oppenheimer Main Street Fund/VA -
Non-Service Shares 19,507 20.71 403,982 387,862 1
PIMCO VIT Real Return Portfolio -
Administrative Class 10,140 13.95 141,448 137,376 1
SunAmerica Aggressive Growth Portfolio
- Class 1 149,390 9.70 1,449,380 1,384,646 1
SunAmerica Alliance Growth Portfolio -
Class 1 121,482 22.28 2,706,174 2,649,380 1
SunAmerica Balanced Portfolio - Class 1 57,858 14.43 834,869 804,671 1
SunAmerica Blue Chip Growth Portfolio -
Class 1 6,103 6.91 42,147 42,807 1
SunAmerica Capital Growth Portfolio -
Class 1 3,539 8.49 30,062 29,160 1
SunAmerica Cash Management Portfolio -
Class 1 146,594 10.64 1,560,002 1,563,851 1
SunAmerica Corporate Bond Portfolio -
Class 1 29,374 13.30 390,563 396,407 1
SunAmerica Davis Venture Value
Portfolio - Class 1 69,145 21.90 1,514,206 1,517,705 1
SunAmerica "Dogs" of Wall Street
Portfolio - Class 1 28,953 8.51 246,490 218,606 1
SunAmerica Emerging Markets Portfolio -
Class 1 120,064 6.90 828,755 1,056,155 1
SunAmerica Equity Opportunities
Portfolio - Class 1 28,211 11.52 325,016 311,256 1
SunAmerica Fundamental Growth Portfolio
- Class 1 43,759 15.57 681,516 693,483 1
SunAmerica Global Bond Portfolio -
Class 1 39,114 12.47 487,675 479,554 1
SunAmerica Global Equities Portfolio -
Class 1 32,498 12.49 405,958 433,599 1
SunAmerica Growth Opportunities
Portfolio - Class 1 14,543 6.95 101,146 99,189 1
SunAmerica Growth-Income Portfolio -
Class 1 85,948 21.15 1,818,041 1,603,651 1
SunAmerica High-Yield Bond Portfolio -
Class 1 42,719 5.36 228,976 236,241 1
SunAmerica International Diversified
Equities Portfolio - Class 1 53,607 7.57 406,012 459,670 1
SunAmerica International Growth and
Income Portfolio - Class 1 72,697 7.61 553,292 617,135 1
SunAmerica Marsico Focused Growth
Portfolio - Class 1 64,923 9.01 584,998 571,204 1
SunAmerica MFS Massachusetts Investors
Trust Portfolio - Class 1 32,017 13.63 436,244 426,058 1
See accompanying notes.
VA II - 6
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
SCHEDULES OF PORTFOLIO INVESTMENTS - CONTINUED
DECEMBER 31, 2011
Net Asset Value Value of Shares Cost of Shares
Sub-accounts Shares Per Share at Fair Value Held Level /(1)/
------------ ------- --------------- --------------- -------------- ----------
SunAmerica MFS Total Return Portfolio - Class 1 48,980 $ 14.48 $ 709,219 $ 697,020 1
SunAmerica Mid-Cap Growth Portfolio - Class 1 185,330 10.66 1,975,372 1,986,119 1
SunAmerica Real Estate Portfolio - Class 1 35,925 12.59 452,344 412,281 1
SunAmerica Technology Portfolio - Class 1 29,591 2.70 80,005 82,356 1
SunAmerica Telecom Utility Portfolio - Class 1 33,644 11.07 372,382 347,022 1
SunAmerica Total Return Bond Portfolio - Class 1 31,085 9.01 280,104 280,017 1
UIF Mid Cap Growth Portfolio - Class I Shares 16,775 11.22 188,220 194,888 1
VALIC Company I International Equities Fund 127,681 5.41 690,756 786,245 1
VALIC Company I Small Cap Index Fund 10,936 13.60 148,728 147,727 1
Van Eck VIP Emerging Markets Fund - Initial Class 26,902 10.40 279,778 362,987 1
Van Eck VIP Global Hard Assets Fund - Initial Class 8,144 30.75 250,427 283,189 1
/(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.
See accompanying notes.
VA II - 7
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
--------------------------------------------------------------------------------
AllianceBernstein AllianceBernstein AllianceBernstein
Balanced Wealth Global Thematic Growth and AllianceBernstein
Strategy Portfolio - Growth Portfolio - Income Portfolio - Growth Portfolio -
Class A Class A Class A Class A
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment
income (loss) $ 3,393 $ (3,758) $ 8,421 $ (14,333)
Net realized
gain (loss) on
investments 510 (1,971) 24,015 12,824
Capital gain
distributions
from mutual
funds - - - -
Net change in
unrealized
appreciation
(depreciation)
of investments (11,690) (333,170) 42,063 9,756
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
operations (7,787) (338,899) 74,499 8,247
----------- ------------- ------------- -------------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 31,448 115,742 113,190 127,125
Cost of insurance (29,286) (119,845) (145,665) (158,119)
Policy loans (3,269) (7,669) 8,009 (17,293)
Death benefits - - - -
Withdrawals (716) (87,896) (308,373) (79,628)
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
principal
transactions (1,823) (99,668) (332,839) (127,915)
----------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (9,610) (438,567) (258,340) (119,668)
NET ASSETS:
Beginning of year 224,414 1,511,100 1,631,911 1,633,002
----------- ------------- ------------- -------------
End of year $ 214,804 $ 1,072,533 $ 1,373,571 $ 1,513,334
=========== ============= ============= =============
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment
income (loss) $ 4,743 $ 18,028 $ (13,048) $ (9,572)
Net realized
gain (loss) on
investments 1,169 37,571 (117,980) 77,406
Capital gain
distributions
from mutual
funds - - - -
Net change in
unrealized
appreciation
(depreciation)
of investments 14,543 175,879 311,813 136,290
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
operations 20,455 231,478 180,785 204,124
----------- ------------- ------------- -------------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option (13,809) 100,257 98,974 151,412
Cost of insurance (28,400) (129,606) (168,217) (161,318)
Policy loans (22,515) (8,535) (34,886) (8,671)
Death benefits - (17,459) (2,882) (21,815)
Withdrawals (452) (82,995) (96,465) (130,186)
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
principal
transactions (65,176) (138,338) (203,476) (170,578)
----------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (44,721) 93,140 (22,691) 33,546
NET ASSETS:
Beginning of year 269,135 1,417,960 1,654,602 1,599,456
----------- ------------- ------------- -------------
End of year $ 224,414 $ 1,511,100 $ 1,631,911 $ 1,633,002
=========== ============= ============= =============
See accompanying notes.
VA II - 8
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
----------------------------------------------------------------------------------
AllianceBernstein
AllianceBernstein AllianceBernstein AllianceBernstein Real Estate
Intermediate Bond Large Cap Growth Money Market Investment
Portfolio - Class A Portfolio - Class A Portfolio - Class A Portfolio - Class A
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment
income (loss) $ 2,044 $ (4,098) $ (1,426) $ 4,369
Net realized
gain (loss) on
investments (72) 5,410 - 505
Capital gain
distributions
from mutual
funds 191 - - 66,063
Net change in
unrealized
appreciation
(depreciation)
of investments 707 (33,723) - (23,856)
---------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations 2,870 (32,411) (1,426) 47,081
---------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 2,870 88,950 194,561 19,355
Cost of insurance (5,951) (69,043) (20,617) (27,110)
Policy loans 23 384 (148,517) (5,880)
Death benefits - - - -
Withdrawals (1,672) (55,294) - (24,345)
---------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions (4,730) (35,003) 25,427 (37,980)
---------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (1,860) (67,414) 24,001 9,101
NET ASSETS:
Beginning of year 52,382 821,747 151,789 581,316
---------- ----------- ----------- -----------
End of year $ 50,522 $ 754,333 $ 175,790 $ 590,417
========== =========== =========== ===========
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment
income (loss) $ 2,088 $ (2,628) $ (1,239) $ 3,221
Net realized
gain (loss) on
investments 300 10,846 - (72,283)
Capital gain
distributions
from mutual
funds - - - -
Net change in
unrealized
appreciation
(depreciation)
of investments 1,155 61,732 - 187,521
---------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations 3,543 69,950 (1,239) 118,459
---------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 10,909 89,999 320,857 50,426
Cost of insurance (5,281) (68,798) (22,500) (25,453)
Policy loans 42 (2,441) (166,888) (172)
Death benefits - (1,528) - (301)
Withdrawals - (26,191) - (26,307)
---------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions 5,670 (8,959) 131,469 (1,807)
---------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 9,213 60,991 130,230 116,652
NET ASSETS:
Beginning of year 43,169 760,756 21,559 464,664
---------- ----------- ----------- -----------
End of year $ 52,382 $ 821,747 $ 151,789 $ 581,316
========== =========== =========== ===========
See accompanying notes.
VA II - 9
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-------------------------------------------------------------------------------
American Century American Century Anchor Series
AllianceBernstein VP Capital VP Income & Trust Asset
Small Cap Growth Appreciation Fund - Growth Fund - Allocation
Portfolio - Class A Class I Class I Portfolio - Class 1
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment
income (loss) $ (3,536) $ (2,072) $ 1,252 $ 6,097
Net realized
gain (loss) on
investments 4,068 825 3,140 1,483
Capital gain
distributions
from mutual
funds - - - -
Net change in
unrealized
appreciation
(depreciation)
of investments 9,895 (18,926) 375 (6,786)
----------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations 10,427 (20,173) 4,767 794
----------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 65,631 20,820 13,706 11,694
Cost of insurance (18,029) (13,835) (11,268) (21,151)
Policy loans 2,651 (82) (103) 1,009
Death benefits - - (1,655) -
Withdrawals (28,547) (18,548) (24,398) (4,681)
----------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions 21,706 (11,645) (23,718) (13,129)
----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 32,133 (31,818) (18,951) (12,335)
NET ASSETS:
Beginning of year 346,683 280,543 169,308 315,007
----------- ----------- ----------- -----------
End of year $ 378,816 $ 248,725 $ 150,357 $ 302,672
=========== =========== =========== ===========
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment
income (loss) $ (2,697) $ (1,450) $ 1,277 $ 5,748
Net realized
gain (loss) on
investments 1,346 3,262 (14,738) (22,350)
Capital gain
distributions
from mutual
funds - - - -
Net change in
unrealized
appreciation
(depreciation)
of investments 98,907 61,307 33,612 54,030
----------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations 97,556 63,119 20,151 37,428
----------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 18,632 117,100 8,094 10,867
Cost of insurance (16,656) (11,196) (12,233) (25,801)
Policy loans 9,419 (1,455) (1,261) (3,202)
Death benefits (13,506) - - -
Withdrawals (33,035) (21,710) (10,345) (25,684)
----------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions (35,146) 82,739 (15,745) (43,820)
----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 62,410 145,858 4,406 (6,392)
NET ASSETS:
Beginning of year 284,273 134,685 164,902 321,399
----------- ----------- ----------- -----------
End of year $ 346,683 $ 280,543 $ 169,308 $ 315,007
=========== =========== =========== ===========
See accompanying notes.
VA II - 10
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
----------------------------------------------------------------------------------
Anchor Series Anchor Series Anchor Series
Trust Capital Trust Government Anchor Series Trust Natural
Appreciation and Quality Bond Trust Growth Resources
Portfolio - Class 1 Portfolio - Class 1 Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment
income (loss) $ (21,698) $ 10,545 $ (299) $ (850)
Net realized
gain (loss) on
investments 40,805 (9,778) (25,296) (13,658)
Capital gain
distributions
from mutual
funds - 2,059 - 248,273
Net change in
unrealized
appreciation
(depreciation)
of investments (220,105) 30,835 (51,552) (459,010)
------------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations (200,998) 33,661 (77,147) (225,245)
------------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 25,154 (503) 44,133 68,666
Cost of insurance (199,735) (74,783) (94,819) (74,307)
Policy loans (38,910) 778 (9,806) (1,348)
Death benefits (924) - - (556)
Withdrawals (132,100) (110,772) (42,761) (44,177)
------------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions (346,515) (185,280) (103,253) (51,722)
------------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (547,513) (151,619) (180,400) (276,967)
NET ASSETS:
Beginning of year 2,978,623 675,660 1,110,645 1,103,109
------------- ----------- ----------- -----------
End of year $ 2,431,110 $ 524,041 $ 930,245 $ 826,142
============= =========== =========== ===========
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment
income (loss) $ (16,301) $ 24,901 $ (656) $ 1,674
Net realized
gain (loss) on
investments (36,528) 6,627 (84,415) (128,951)
Capital gain
distributions
from mutual
funds - - - 64,234
Net change in
unrealized
appreciation
(depreciation)
of investments 583,198 (612) 212,375 215,282
------------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
operations 530,369 30,916 127,304 152,239
------------- ----------- ----------- -----------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 230,338 82,754 71,352 121,625
Cost of insurance (189,736) (78,927) (90,855) (76,196)
Policy loans (55,098) (6,741) (9,587) (11,086)
Death benefits (3,127) (9,312) (1,065) (5,321)
Withdrawals (140,495) (79,060) (33,602) (77,037)
------------- ----------- ----------- -----------
Increase (decrease)
in net assets
resulting from
principal
transactions (158,118) (91,286) (63,757) (48,015)
------------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 372,251 (60,370) 63,547 104,224
NET ASSETS:
Beginning of year 2,606,372 736,030 1,047,098 998,885
------------- ----------- ----------- -----------
End of year $ 2,978,623 $ 675,660 $1,110,645 $1,103,109
============= =========== =========== ===========
See accompanying notes.
VA II - 11
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-------------------------------------------------------------------------------
Fidelity VIP
BlackRock Basic Dreyfus Stock Fidelity VIP Asset Contrafund
Value V.I. Fund - Index Fund, Inc. - Manager Portfolio - Portfolio - Initial
Class I Initial Shares Initial Class Class
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment
income (loss) $ 33 $ 33,304 $ 11,751 $ 5,638
Net realized
gain (loss) on
investments (5,940) 24,599 80 16,467
Capital gain
distributions
from mutual
funds - 22,788 5,025 -
Net change in
unrealized
appreciation
(depreciation)
of investments (10,857) (43,307) (52,367) (110,113)
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
operations (16,764) 37,384 (35,511) (88,008)
----------- ------------- ------------- -------------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option (2) 328,842 91,754 134,486
Cost of insurance (2,726) (310,393) (96,515) (165,034)
Policy loans - (74,530) (3,211) (19,537)
Death benefits - (1,746) - (1,923)
Withdrawals (173,774) (147,201) (28,501) (439,706)
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
principal
transactions (176,502) (205,028) (36,473) (491,714)
----------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (193,266) (167,644) (71,984) (579,722)
NET ASSETS:
Beginning of year 193,266 3,472,051 1,060,825 2,605,291
----------- ------------- ------------- -------------
End of year $ - $ 3,304,407 $ 988,841 $ 2,025,569
=========== ============= ============= =============
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment
income (loss) $ 2,579 $ 30,540 $ 8,573 $ 12,307
Net realized
gain (loss) on
investments (1,649) 40,877 (10,603) (421,318)
Capital gain
distributions
from mutual
funds - - 5,155 1,081
Net change in
unrealized
appreciation
(depreciation)
of investments 20,680 347,487 122,406 769,994
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
operations 21,610 418,904 125,531 362,064
----------- ------------- ------------- -------------
PRINCIPAL
TRANSACTIONS:
Net premiums and
transfers from
(to) other
Sub-accounts
or fixed rate
option 2 338,815 119,935 128,275
Cost of insurance (3,347) (327,308) (97,557) (180,930)
Policy loans - 5,019 (14,532) (8,625)
Death benefits - (19,672) - (917)
Withdrawals - (144,007) (63,476) (739,250)
----------- ------------- ------------- -------------
Increase (decrease)
in net assets
resulting from
principal
transactions (3,345) (147,153) (55,630) (801,447)
----------- ------------- ------------- -------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 18,265 271,751 69,901 (439,383)
NET ASSETS:
Beginning of year 175,001 3,200,300 990,924 3,044,674
----------- ------------- ------------- -------------
End of year $ 193,266 $ 3,472,051 $ 1,060,825 $ 2,605,291
=========== ============= ============= =============
See accompanying notes.
VA II - 12
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
----------------------------------------------------------------------------
Fidelity VIP
Fidelity VIP Fidelity VIP High Fidelity VIP Index Investment Grade
Growth Portfolio - Income Portfolio - 500 Portfolio - Bond Portfolio -
Initial Class Initial Class Initial Class Initial Class
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (14,868) $ 27,633 $ (208) $ 17,462
Net realized gain (loss) on investments 14,861 (2,688) (5,340) (6,006)
Capital gain distributions from mutual funds 10,119 - 3,550 19,340
Net change in unrealized appreciation
(depreciation) of investments (28,589) (8,993) (6,102) 13,876
-------------- ----------- ---------- ----------
Increase (decrease) in net assets resulting from
operations (18,477) 15,952 (8,100) 44,672
-------------- ----------- ---------- ----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other
Sub-accounts or fixed rate option 243,006 60,646 (14) 72,059
Cost of insurance (239,568) (45,287) (2,044) (69,220)
Policy loans (4,282) (17,178) - (10,080)
Death benefits (1,831) - - -
Withdrawals (70,279) (30,208) (145,703) (59,207)
-------------- ----------- ---------- ----------
Increase (decrease) in net assets resulting from
principal transactions (72,954) (32,027) (147,761) (66,448)
-------------- ----------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (91,431) (16,075) (155,861) (21,776)
NET ASSETS:
Beginning of year 2,904,751 472,198 155,861 752,698
-------------- ----------- ---------- ----------
End of year $ 2,813,320 $ 456,123 $ - $ 730,922
============== =========== ========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (15,001) $ 30,823 $ 2,536 $ 19,789
Net realized gain (loss) on investments 8,736 (20,908) (1,290) 18,894
Capital gain distributions from mutual funds 8,730 - 2,615 8,387
Net change in unrealized appreciation
(depreciation) of investments 557,497 52,651 16,271 17,285
-------------- ----------- ---------- ----------
Increase (decrease) in net assets resulting from
operations 559,962 62,566 20,132 64,355
-------------- ----------- ---------- ----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other
Sub-accounts or fixed rate option 194,841 46,486 1 22,625
Cost of insurance (230,198) (47,815) (2,503) (108,954)
Policy loans 59,868 (16,555) - (8,072)
Death benefits (3,417) (330) - -
Withdrawals (111,803) (89,997) - (123,027)
-------------- ----------- ---------- ----------
Increase (decrease) in net assets resulting from
principal transactions (90,709) (108,211) (2,502) (217,428)
-------------- ----------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 469,253 (45,645) 17,630 (153,073)
NET ASSETS:
Beginning of year 2,435,498 517,843 138,231 905,771
-------------- ----------- ---------- ----------
End of year $ 2,904,751 $ 472,198 $ 155,861 $ 752,698
============== =========== ========== ==========
See accompanying notes.
VA II - 13
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
---------------------------------------------------------------------------
Franklin Franklin
Templeton Templeton
Fidelity VIP Money Fidelity VIP Templeton Foreign Templeton Global
Market Portfolio - Overseas Portfolio Securities Fund - Asset Allocation
Initial Class - Initial Class Class 2 Fund - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (14,709) $ 1,320 $ 3,149 $ -
Net realized gain (loss) on
investments - 460 (5,193) -
Capital gain distributions from
mutual funds - 639 - -
Net change in unrealized
appreciation (depreciation) of
investments - (60,524) (13,684) -
------------- ----------- ----------- ----------
Increase (decrease) in net assets
resulting from operations (14,709) (58,105) (15,728) -
------------- ----------- ----------- ----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 99,303 21,572 (3) -
Cost of insurance (193,098) (25,376) (2,898) -
Policy loans 31 (1,005) - -
Death benefits - - - -
Withdrawals (204,937) (39,412) (185,063) -
------------- ----------- ----------- ----------
Increase (decrease) in net assets
resulting from principal transactions (298,701) (44,221) (187,964) -
------------- ----------- ----------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (313,410) (102,326) (203,692) -
NET ASSETS:
Beginning of year 2,341,236 359,238 203,692 -
------------- ----------- ----------- ----------
End of year $ 2,027,826 $ 256,912 $ - $ -
============= =========== =========== ==========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (14,089) $ 1,026 $ 3,122 $ 23,859
Net realized gain (loss) on
investments - (75,899) (513) (228,017)
Capital gain distributions from
mutual funds 1,474 625 - 37,082
Net change in unrealized
appreciation (depreciation) of
investments - 124,905 12,714 183,492
------------- ----------- ----------- ----------
Increase (decrease) in net assets
resulting from operations (12,615) 50,657 15,323 16,416
------------- ----------- ----------- ----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 770,246 26,640 3 (453,969)
Cost of insurance (208,331) (32,472) (3,567) (6,163)
Policy loans (11,966) (2,187) - (2,370)
Death benefits (13,092) (9,238) - -
Withdrawals (278,001) (87,992) - (22)
------------- ----------- ----------- ----------
Increase (decrease) in net assets
resulting from principal transactions 258,856 (105,249) (3,564) (462,524)
------------- ----------- ----------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 246,241 (54,592) 11,759 (446,108)
NET ASSETS:
Beginning of year 2,094,995 413,830 191,933 446,108
------------- ----------- ----------- ----------
End of year $ 2,341,236 $ 359,238 $ 203,692 $ -
============= =========== =========== ==========
See accompanying notes.
VA II - 14
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-----------------------------------------------------------------------------
Invesco V.I. JPMorgan JPMorgan
Invesco V.I. Capital International Insurance Trust Insurance Trust
Appreciation Fund - Growth Fund - Core Bond U.S. Equity
Series I Series I Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (3,237) $ 6,405 $ 4,170 $ 554
Net realized gain (loss) on investments 1,751 7,737 (822) 886
Capital gain distributions from mutual funds - - - -
Net change in unrealized appreciation
(depreciation) of investments (38,598) (76,237) 2,495 (4,139)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting from
operations (40,084) (62,095) 5,843 (2,699)
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other
Sub-accounts or fixed rate option 46,384 40,804 35,283 10,000
Cost of insurance (38,092) (62,250) (8,643) (7,467)
Policy loans (3,001) 7,107 40 (2,819)
Death benefits - - (1,490) -
Withdrawals (20,746) (120,720) (15,868) -
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting from
principal transactions (15,455) (135,059) 9,322 (286)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (55,539) (197,154) 15,165 (2,985)
NET ASSETS:
Beginning of year 473,452 916,566 96,894 116,745
----------- ----------- ----------- -----------
End of year $ 417,913 $ 719,412 $ 112,059 $ 113,760
=========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (382) $ 12,777 $ 2,821 $ 155
Net realized gain (loss) on investments 6,903 41,692 2,308 2,902
Capital gain distributions from mutual funds - - - -
Net change in unrealized appreciation
(depreciation) of investments 53,106 48,472 2,699 10,056
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting from
operations 59,627 102,941 7,828 13,113
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other
Sub-accounts or fixed rate option 48,929 91,983 (1,494) 7,459
Cost of insurance (37,395) (66,598) (8,464) (6,833)
Policy loans (400) (10,548) (511) (2,718)
Death benefits (202) (1,366) - -
Withdrawals (21,724) (76,459) (8,107) (5,434)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting from
principal transactions (10,792) (62,988) (18,576) (7,526)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 48,835 39,953 (10,748) 5,587
NET ASSETS:
Beginning of year 424,617 876,613 107,642 111,158
----------- ----------- ----------- -----------
End of year $ 473,452 $ 916,566 $ 96,894 $ 116,745
=========== =========== =========== ===========
See accompanying notes.
VA II - 15
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-------------------------------------------------------------------------
Neuberger
Neuberger Berman AMT Oppenheimer Oppenheimer
Berman AMT Short Duration Global Securities Main Street
Partners Portfolio - Bond Portfolio - Fund/VA - Non- Fund/VA - Non-
Class I Class I Service Shares Service Shares
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (1,139) $ 4,008 $ 2,938 $ 324
Net realized gain (loss) on
investments 1,758 4 2,887 1,894
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments (18,734) (4,487) (52,617) (5,553)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations (18,115) (475) (46,792) (3,335)
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 15,278 7,596 30,448 48,096
Cost of insurance (14,341) (12,625) (43,834) (26,807)
Policy loans (479) (2,341) (7,304) (3,677)
Death benefits - - - (3,408)
Withdrawals (5,439) (13,767) (24,661) (19,044)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions (4,981) (21,137) (45,351) (4,840)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (23,096) (21,612) (92,143) (8,175)
NET ASSETS:
Beginning of year 160,085 147,986 554,648 412,157
----------- ----------- ----------- -----------
End of year $ 136,989 $ 126,374 $ 462,505 $ 403,982
=========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (47) $ 6,709 $ 3,866 $ 1,964
Net realized gain (loss) on
investments 7,395 (1,606) (7,366) (17,779)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 14,143 932 78,985 70,005
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations 21,491 6,035 75,485 54,190
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 24,426 2,925 36,958 (37,264)
Cost of insurance (11,983) (10,483) (37,173) (30,700)
Policy loans (608) 387 (8,518) (2,820)
Death benefits - - (639) (278)
Withdrawals (13,288) (1,623) (39,386) (41,169)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions (1,453) (8,794) (48,758) (112,231)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 20,038 (2,759) 26,727 (58,041)
NET ASSETS:
Beginning of year 140,047 150,745 527,921 470,198
----------- ----------- ----------- -----------
End of year $ 160,085 $ 147,986 $ 554,648 $ 412,157
=========== =========== =========== ===========
See accompanying notes.
VA II - 16
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-------------------------------------------------------------------------------
PIMCO VIT Real PIMCO VIT Total SunAmerica
Return Portfolio - Return Portfolio - Aggressive SunAmerica
Administrative Administrative Growth Portfolio - Alliance Growth
Class Class Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 36,108 $ 3,554 $ (11,264) $ (7,943)
Net realized gain (loss) on
investments 74,441 (6,013) 11,308 29,623
Capital gain distributions from
mutual funds 4,099 5 - -
Net change in unrealized
appreciation (depreciation) of
investments 68,671 9,063 (43,017) (108,198)
------------- ----------- ------------- -------------
Increase (decrease) in net assets
resulting from operations 183,319 6,609 (42,973) (86,518)
------------- ----------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option (11) - 199,608 208,998
Cost of insurance (31,409) (3,233) (132,595) (276,885)
Policy loans - - (4,582) (75,814)
Death benefits - - (919) (3,197)
Withdrawals (2,158,599) (245,632) (96,783) (240,288)
------------- ----------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions (2,190,019) (248,865) (35,271) (387,186)
------------- ----------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,006,700) (242,256) (78,244) (473,704)
NET ASSETS:
Beginning of year 2,148,148 242,256 1,527,624 3,179,878
------------- ----------- ------------- -------------
End of year $ 141,448 $ - $ 1,449,380 $ 2,706,174
============= =========== ============= =============
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ 28,308 $ 5,283 $ (10,070) $ 2,631
Net realized gain (loss) on
investments 25,308 496 27,211 102,275
Capital gain distributions from
mutual funds 18,677 7,142 - -
Net change in unrealized
appreciation (depreciation) of
investments 104,897 5,008 242,771 161,330
------------- ----------- ------------- -------------
Increase (decrease) in net assets
resulting from operations 177,190 17,929 259,912 266,236
------------- ----------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option (42,521) (1) 153,702 408,605
Cost of insurance (43,782) (4,469) (123,092) (279,383)
Policy loans - - (10,518) (94,643)
Death benefits - - - (2,501)
Withdrawals (271,703) - (48,988) (166,895)
------------- ----------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions (358,006) (4,470) (28,896) (134,817)
------------- ----------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (180,816) 13,459 231,016 131,419
NET ASSETS:
Beginning of year 2,328,964 228,797 1,296,608 3,048,459
------------- ----------- ------------- -------------
End of year $ 2,148,148 $ 242,256 $ 1,527,624 $ 3,179,878
============= =========== ============= =============
See accompanying notes.
VA II - 17
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
---------------------------------------------------------------------------------
SunAmerica SunAmerica Blue SunAmerica SunAmerica Cash
Balanced Portfolio Chip Growth Capital Growth Management
- Class 1 Portfolio - Class 1 Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 9,024 $ (258) $ (231) $ (11,537)
Net realized gain (loss) on
investments 2,537 2,176 89 (981)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 730 (4,229) (488) (3,297)
----------- ---------- ---------- -------------
Increase (decrease) in net assets
resulting from operations 12,291 (2,311) (630) (15,815)
----------- ---------- ---------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 81,208 (1,050) 1,717 611,421
Cost of insurance (66,847) (2,178) (1,620) (200,267)
Policy loans (2,728) (2) - (14,970)
Death benefits (2,219) - - -
Withdrawals (12,123) (32,557) - (210,023)
----------- ---------- ---------- -------------
Increase (decrease) in net assets
resulting from principal transactions (2,709) (35,787) 97 186,161
----------- ---------- ---------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,582 (38,098) (533) 170,346
NET ASSETS:
Beginning of year 825,287 80,245 30,595 1,389,656
----------- ---------- ---------- -------------
End of year $ 834,869 $ 42,147 $ 30,062 $ 1,560,002
=========== ========== ========== =============
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ 9,324 $ (325) $ (298) $ (13,158)
Net realized gain (loss) on
investments (5,211) (1,703) 839 (30,344)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 80,903 10,237 536 26,255
----------- ---------- ---------- -------------
Increase (decrease) in net assets
resulting from operations 85,016 8,209 1,077 (17,247)
----------- ---------- ---------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 55,695 6,360 (8,793) 155,023
Cost of insurance (64,229) (2,446) (1,135) (185,774)
Policy loans (21,005) (6) - (20,407)
Death benefits (9,470) - - (189,772)
Withdrawals (115,776) - - (735,595)
----------- ---------- ---------- -------------
Increase (decrease) in net assets
resulting from principal transactions (154,785) 3,908 (9,928) (976,525)
----------- ---------- ---------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (69,769) 12,117 (8,851) (993,772)
NET ASSETS:
Beginning of year 895,056 68,128 39,446 2,383,428
----------- ---------- ---------- -------------
End of year $ 825,287 $ 80,245 $ 30,595 $ 1,389,656
=========== ========== ========== =============
See accompanying notes.
VA II - 18
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
---------------------------------------------------------------------------------
SunAmerica
SunAmerica SunAmerica Davis "Dogs" of Wall SunAmerica
Corporate Bond Venture Value Street Portfolio - Emerging Markets
Portfolio - Class 1 Portfolio - Class 1 Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 22,642 $ 9,095 $ 3,569 $ (1,957)
Net realized gain (loss) on
investments 182 8,790 2,715 (10,213)
Capital gain distributions from
mutual funds 1,888 - - -
Net change in unrealized
appreciation (depreciation) of
investments (5,516) (103,288) 19,856 (305,739)
----------- ------------- ----------- -------------
Increase (decrease) in net assets
resulting from operations 19,196 (85,403) 26,140 (317,909)
----------- ------------- ----------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 73,457 77,069 24,914 8,235
Cost of insurance (22,408) (115,297) (11,333) (76,843)
Policy loans (1,756) (22,629) (1,578) (394)
Death benefits - (721) - (884)
Withdrawals (21,649) (106,509) (8,325) (36,723)
----------- ------------- ----------- -------------
Increase (decrease) in net assets
resulting from principal transactions 27,644 (168,087) 3,678 (106,609)
----------- ------------- ----------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 46,840 (253,490) 29,818 (424,518)
NET ASSETS:
Beginning of year 343,723 1,767,696 216,672 1,253,273
----------- ------------- ----------- -------------
End of year $ 390,563 $ 1,514,206 $ 246,490 $ 828,755
=========== ============= =========== =============
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ 24,079 $ (30) $ 4,113 $ 7,589
Net realized gain (loss) on
investments 18,787 (186,176) (13,151) (207,556)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments (3,181) 361,061 37,462 385,387
----------- ------------- ----------- -------------
Increase (decrease) in net assets
resulting from operations 39,685 174,855 28,424 185,420
----------- ------------- ----------- -------------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option (11,557) 224,603 31,972 87,334
Cost of insurance (22,643) (129,941) (9,077) (79,180)
Policy loans (5,684) (36,854) (9,000) (16,681)
Death benefits - (1,323) - (4,556)
Withdrawals (30,561) (122,078) - (37,997)
----------- ------------- ----------- -------------
Increase (decrease) in net assets
resulting from principal transactions (70,445) (65,593) 13,895 (51,080)
----------- ------------- ----------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (30,760) 109,262 42,319 134,340
NET ASSETS:
Beginning of year 374,483 1,658,434 174,353 1,118,933
----------- ------------- ----------- -------------
End of year $ 343,723 $ 1,767,696 $ 216,672 $ 1,253,273
=========== ============= =========== =============
See accompanying notes.
VA II - 19
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
---------------------------------------------------------------------------------
SunAmerica SunAmerica
Equity Fundamental SunAmerica SunAmerica
Opportunities Growth Portfolio - Global Bond Global Equities
Portfolio - Class 1 Class 1 Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (484) $ (5,602) $ 6,831 $ 956
Net realized gain (loss) on investments 691 9,625 2,878 2,008
Capital gain distributions from mutual
funds - - 6,273 -
Net change in unrealized appreciation
(depreciation) of investments (2,858) (46,111) 3,630 (53,625)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting
from operations (2,651) (42,088) 19,612 (50,661)
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate option 31,801 82,806 94,935 23,666
Cost of insurance (22,410) (112,883) (36,372) (37,222)
Policy loans 166 214 (2,050) (4,614)
Death benefits - - - (718)
Withdrawals (1,848) (77,716) (5,066) (8,106)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting
from principal transactions 7,709 (107,579) 51,447 (26,994)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,058 (149,667) 71,059 (77,655)
NET ASSETS:
Beginning of year 319,958 831,183 416,616 483,613
----------- ----------- ----------- -----------
End of year $ 325,016 $ 681,516 $ 487,675 $ 405,958
=========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (90) $ (5,608) $ 14,971 $ 4,370
Net realized gain (loss) on investments (44,963) 706 2,797 (3,347)
Capital gain distributions from mutual
funds - - 7,972 -
Net change in unrealized appreciation
(depreciation) of investments 88,629 118,802 (2,786) 56,627
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting
from operations 43,576 113,900 22,954 57,650
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate option 30,425 91,025 52,772 41,952
Cost of insurance (22,268) (97,478) (31,306) (37,757)
Policy loans (4,128) (2,553) (3,580) (5,465)
Death benefits (1,043) - (346) -
Withdrawals (5,059) (43,065) (31,636) (14,307)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting
from principal transactions (2,073) (52,071) (14,096) (15,577)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 41,503 61,829 8,858 42,073
NET ASSETS:
Beginning of year 278,455 769,354 407,758 441,540
----------- ----------- ----------- -----------
End of year $ 319,958 $ 831,183 $ 416,616 $ 483,613
=========== =========== =========== ===========
See accompanying notes.
VA II - 20
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-----------------------------------------------------------------------------------
SunAmerica
SunAmerica International
Growth SunAmerica SunAmerica High- Diversified
Opportunities Growth-Income Yield Bond Equities Portfolio -
Portfolio - Class 1 Portfolio - Class 1 Portfolio - Class 1 Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ (752) $ 3,477 $ 17,811 $ 6,534
Net realized gain (loss) on
investments 498 18,327 356 2,846
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments (2,216) 103,905 (10,438) (86,934)
----------- ------------- ----------- -----------
Increase (decrease) in net assets
resulting from operations (2,470) 125,709 7,729 (77,554)
----------- ------------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 13,942 71,938 34,409 (1,916)
Cost of insurance (3,785) (133,535) (14,741) (54,231)
Policy loans - (21,732) (61) 1,345
Death benefits - - - (480)
Withdrawals - (94,380) (13,255) (20,152)
----------- ------------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions 10,157 (177,709) 6,352 (75,434)
----------- ------------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 7,687 (52,000) 14,081 (152,988)
NET ASSETS:
Beginning of year 93,459 1,870,041 214,895 559,000
----------- ------------- ----------- -----------
End of year $ 101,146 $ 1,818,041 $ 228,976 $ 406,012
=========== ============= =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (463) $ 3,911 $ 25,295 $ 16,091
Net realized gain (loss) on
investments (4,732) (45,400) (30,547) 9,961
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 18,169 227,003 41,606 6,237
----------- ------------- ----------- -----------
Increase (decrease) in net assets
resulting from operations 12,974 185,514 36,354 32,289
----------- ------------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 23,908 272,980 440 78,536
Cost of insurance (1,834) (128,250) (14,439) (54,308)
Policy loans - (20,920) (1,313) (4,031)
Death benefits - (533) - (968)
Withdrawals (965) (69,068) (33,981) (49,068)
----------- ------------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions 21,109 54,209 (49,293) (29,839)
----------- ------------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 34,083 239,723 (12,939) 2,450
NET ASSETS:
Beginning of year 59,376 1,630,318 227,834 556,550
----------- ------------- ----------- -----------
End of year $ 93,459 $ 1,870,041 $ 214,895 $ 559,000
=========== ============= =========== ===========
See accompanying notes.
VA II - 21
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
--------------------------------------------------------------------------------
SunAmerica
International SunAmerica SunAmerica MFS
Growth and Marsico Focused Massachusetts SunAmerica MFS
Income Portfolio - Growth Portfolio - Investors Trust Total Return
Class 1 Class 1 Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 14,525 $ (2,549) $ (274) $ 14,042
Net realized gain (loss) on
investments 7,602 1,623 2,650 7,976
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments (114,902) (12,018) (14,457) (13,892)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations (92,775) (12,944) (12,081) 8,126
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 33,548 37,157 30,033 87,205
Cost of insurance (55,794) (38,045) (34,992) (102,188)
Policy loans (1,349) 437 (10,122) (3,988)
Death benefits - - - -
Withdrawals (52,220) (8,528) (2,113) (70,497)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions (75,815) (8,979) (17,194) (89,468)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (168,590) (21,923) (29,275) (81,342)
NET ASSETS:
Beginning of year 721,882 606,921 465,519 790,561
----------- ----------- ----------- -----------
End of year $ 553,292 $ 584,998 $ 436,244 $ 709,219
=========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ 22,751 $ (1,850) $ 930 $ 19,729
Net realized gain (loss) on
investments (84,740) (24,983) 10,826 (71,482)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 100,744 117,253 31,314 130,207
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations 38,755 90,420 43,070 78,454
----------- ----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 45,412 19,013 42,536 1,151
Cost of insurance (61,256) (36,490) (36,646) (94,484)
Policy loans (16,197) (7,670) (26,454) (17,775)
Death benefits - (288) (1,862) -
Withdrawals (36,456) (8,052) (20,493) (46,467)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from principal transactions (68,497) (33,487) (42,919) (157,575)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (29,742) 56,933 151 (79,121)
NET ASSETS:
Beginning of year 751,624 549,988 465,368 869,682
----------- ----------- ----------- -----------
End of year $ 721,882 $ 606,921 $ 465,519 $ 790,561
=========== =========== =========== ===========
See accompanying notes.
VA II - 22
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
---------------------------------------------------------------------------------
SunAmerica Mid- SunAmerica Real SunAmerica SunAmerica
Cap Growth Estate Portfolio - Technology Telecom Utility
Portfolio - Class 1 Class 1 Portfolio - Class 1 Portfolio - Class 1
FOR THE YEAR ENDED
DECEMBER 31, 2011
OPERATIONS:
Net investment income
(loss) $ (16,433) $ 897 $ (851) $ 5,977
Net realized gain (loss)
on investments 24,783 12,430 (210) 1,851
Capital gain distributions
from mutual funds - - - -
Net change in unrealized
appreciation
(depreciation) of
investments (142,510) 23,036 (6,824) 10,809
------------- ----------- ---------- -----------
Increase (decrease) in net
assets resulting from
operations (134,160) 36,363 (7,885) 18,637
------------- ----------- ---------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers
from (to) other
Sub-accounts or fixed
rate option 99,427 (36,349) 1,718 31,305
Cost of insurance (186,143) (35,018) (2,727) (17,192)
Policy loans (13,829) (4,516) 1,478 (122)
Death benefits (2,716) - - (762)
Withdrawals (127,299) (54,670) (27,080) (7,597)
------------- ----------- ---------- -----------
Increase (decrease) in net
assets resulting from
principal transactions (230,560) (130,553) (26,611) 5,632
------------- ----------- ---------- -----------
TOTAL INCREASE (DECREASE) IN
NET ASSETS (364,720) (94,190) (34,496) 24,269
NET ASSETS:
Beginning of year 2,340,092 546,534 114,501 348,113
------------- ----------- ---------- -----------
End of year $ 1,975,372 $ 452,344 $ 80,005 $ 372,382
============= =========== ========== ===========
FOR THE YEAR ENDED
DECEMBER 31, 2010
OPERATIONS:
Net investment income
(loss) $ (14,610) $ 5,365 $ (752) $ 6,714
Net realized gain (loss)
on investments 44,764 (71,875) (1,981) 502
Capital gain distributions
from mutual funds - - - -
Net change in unrealized
appreciation
(depreciation) of
investments 419,311 144,346 21,730 31,073
------------- ----------- ---------- -----------
Increase (decrease) in net
assets resulting from
operations 449,465 77,836 18,997 38,289
------------- ----------- ---------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers
from (to) other
Sub-accounts or fixed
rate option 309,823 114,122 9,346 28,306
Cost of insurance (175,534) (33,321) (2,632) (16,216)
Policy loans (13,213) (6,910) 2,934 (2,175)
Death benefits (284) - - -
Withdrawals (92,590) (10,533) (5,322) (830)
------------- ----------- ---------- -----------
Increase (decrease) in net
assets resulting from
principal transactions 28,202 63,358 4,326 9,085
------------- ----------- ---------- -----------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 477,667 141,194 23,323 47,374
NET ASSETS:
Beginning of year 1,862,425 405,340 91,178 300,739
------------- ----------- ---------- -----------
End of year $ 2,340,092 $ 546,534 $ 114,501 $ 348,113
============= =========== ========== ===========
See accompanying notes.
VA II - 23
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
-------------------------------------------------------------------------
SunAmerica Total UIF Mid Cap VALIC Company I VALIC Company I
Return Bond Growth Portfolio - International Small Cap Index
Portfolio - Class 1 Class I Shares Equities Fund Fund
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 2,662 $ 475 $ 20,657 $ 953
Net realized gain (loss) on
investments 812 239 (16,612) (15,987)
Capital gain distributions from
mutual funds 3,025 85 - -
Net change in unrealized
appreciation (depreciation) of
investments 498 (15,344) (139,485) (27,908)
----------- ----------- ------------- -----------
Increase (decrease) in net assets
resulting from operations 6,997 (14,545) (135,440) (42,942)
----------- ----------- ------------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 194,781 (2) - (2)
Cost of insurance (17,416) (3,402) (17,277) (6,984)
Policy loans 133 - - -
Death benefits - - - -
Withdrawals - - (302,007) (287,829)
----------- ----------- ------------- -----------
Increase (decrease) in net assets
resulting from principal transactions 177,498 (3,404) (319,284) (294,815)
----------- ----------- ------------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 184,495 (17,949) (454,724) (337,757)
NET ASSETS:
Beginning of year 95,609 206,169 1,145,480 486,485
----------- ----------- ------------- -----------
End of year $ 280,104 $ 188,220 $ 690,756 $ 148,728
=========== =========== ============= ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ 1,025 $ (1,306) $ 20,058 $ 2,304
Net realized gain (loss) on
investments 1,943 (12,224) (768,003) (203,282)
Capital gain distributions from
mutual funds - - - -
Net change in unrealized
appreciation (depreciation) of
investments 558 90,632 740,109 298,989
----------- ----------- ------------- -----------
Increase (decrease) in net assets
resulting from operations 3,526 77,102 (7,836) 98,011
----------- ----------- ------------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to)
other Sub-accounts or fixed rate
option 49,354 (13,809) 92,606 (19,664)
Cost of insurance (3,981) (5,334) (28,438) (9,434)
Policy loans (636) - - -
Death benefits - - - -
Withdrawals (9,487) (358,072) (1,496,532) (261,021)
----------- ----------- ------------- -----------
Increase (decrease) in net assets
resulting from principal transactions 35,250 (377,215) (1,432,364) (290,119)
----------- ----------- ------------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 38,776 (300,113) (1,440,200) (192,108)
NET ASSETS:
Beginning of year 56,833 506,282 2,585,680 678,593
----------- ----------- ------------- -----------
End of year $ 95,609 $ 206,169 $ 1,145,480 $ 486,485
=========== =========== ============= ===========
See accompanying notes.
VA II - 24
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Sub-accounts
------------------------------------------------------
Van Eck VIP
Van Eck VIP Global Hard Vanguard VIF
Emerging Markets Assets Fund - Total Bond Market
Fund - Initial Class Initial Class Index Portfolio
FOR THE YEAR ENDED DECEMBER 31, 2011
OPERATIONS:
Net investment income (loss) $ 529 $ 860 $ 5,347
Net realized gain (loss) on investments (9,471) 632 (254)
Capital gain distributions from mutual funds - 3,951 1,511
Net change in unrealized appreciation (depreciation) of
investments (101,097) (60,857) 1,796
----------- ----------- -----------
Increase (decrease) in net assets resulting from operations (110,039) (55,414) 8,400
----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other Sub-accounts
or fixed rate option 21,839 14,591 (1)
Cost of insurance (35,690) (26,739) (2,235)
Policy loans (7,762) (282) -
Death benefits - - -
Withdrawals (17,824) (15,589) (172,724)
----------- ----------- -----------
Increase (decrease) in net assets resulting from principal
transactions (39,437) (28,019) (174,960)
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (149,476) (83,433) (166,560)
NET ASSETS:
Beginning of year 429,254 333,860 166,560
----------- ----------- -----------
End of year $ 279,778 $ 250,427 $ -
=========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010
OPERATIONS:
Net investment income (loss) $ (1,227) $ (1,572) $ 5,502
Net realized gain (loss) on investments (30,845) 12,379 155
Capital gain distributions from mutual funds - - 284
Net change in unrealized appreciation (depreciation) of
investments 118,331 47,349 4,044
----------- ----------- -----------
Increase (decrease) in net assets resulting from operations 86,259 58,156 9,985
----------- ----------- -----------
PRINCIPAL TRANSACTIONS:
Net premiums and transfers from (to) other Sub-accounts
or fixed rate option 69,731 (115,539) (1)
Cost of insurance (32,807) (28,561) (3,129)
Policy loans (8,405) (1,846) -
Death benefits - (20,629) -
Withdrawals (10,712) (13,816) -
----------- ----------- -----------
Increase (decrease) in net assets resulting from principal
transactions 17,807 (180,391) (3,130)
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 104,066 (122,235) 6,855
NET ASSETS:
Beginning of year 325,188 456,095 159,705
----------- ----------- -----------
End of year $ 429,254 $ 333,860 $ 166,560
=========== =========== ===========
See accompanying notes.
VA II - 25
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Variable Account II (the "Account") was established by American General Life
Insurance Company of Delaware (formerly AIG Life Insurance Company) (the
"Company") on June 5, 1986, to fund individual and group flexible premium
variable universal life insurance policies issued by the Company. Effective in
the state of Delaware on December 8, 2009, the Company changed its name from
AIG Life Insurance Company to American General Life Insurance Company of
Delaware. The Executive Advantage(R) policy is currently offered by the
Account. Gallery Life, Gemstone Life, Polaris Life, Polaris Survivorship Life,
and the Variable Universal Life Policy are no longer offered. The Company is an
indirect, wholly-owned subsidiary of American International Group, Inc. The
Account is registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940, as amended.
The Account is divided into "Sub-accounts" that invest in independently managed
mutual fund portfolios ("Funds"). The Funds available to policy owners through
the various Sub-accounts are as follows:
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): (2)
Invesco V.I. Capital Appreciation Fund - Series I (3)
Invesco V.I. High Yield Fund - Series I (1) (12)
Invesco V.I. International Growth Fund - Series I (4)
Invesco Van Kampen V.I. High Yield Fund - Series I (1) (10) (12)
Invesco Van Kampen V.I. Mid Cap Value Fund - Series I (1) (11)
ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ("ALLIANCEBERNSTEIN"):
AllianceBernstein Balanced Wealth Strategy Portfolio - Class A
AllianceBernstein Global Thematic Growth Portfolio - Class A
AllianceBernstein Growth and Income Portfolio - Class A
AllianceBernstein Growth Portfolio - Class A
AllianceBernstein Intermediate Bond Portfolio - Class A
AllianceBernstein International Growth Portfolio - Class A (1)
AllianceBernstein Large Cap Growth Portfolio - Class A
AllianceBernstein Money Market Portfolio - Class A
AllianceBernstein Real Estate Investment Portfolio - Class A
AllianceBernstein Small Cap Growth Portfolio - Class A
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. ("AMERICAN CENTURY VP"):
American Century VP Capital Appreciation Fund - Class I
American Century VP Income & Growth Fund - Class I
American Century VP International Fund - Class I (1)
ANCHOR SERIES TRUST:
Anchor Series Trust Asset Allocation Portfolio - Class 1
Anchor Series Trust Capital Appreciation Portfolio - Class 1
Anchor Series Trust Government and Quality Bond Portfolio - Class 1
Anchor Series Trust Growth Portfolio - Class 1
Anchor Series Trust Natural Resources Portfolio - Class 1
BLACKROCK VARIABLE SERIES FUNDS, INC. ("BLACKROCK"):
BlackRock Basic Value V.I. Fund - Class I
BlackRock Capital Appreciation V.I. Fund - Class I (1) (6)
BlackRock U.S. Government Bond V.I. Fund - Class I (1) (13)
BlackRock Value Opportunities V.I. Fund - Class I (1)
CREDIT SUISSE TRUST ("CREDIT SUISSE"):
Credit Suisse International Equity Flex III Portfolio (1) (14)
Credit Suisse U.S. Equity Flex I Portfolio (1) (15)
DREYFUS STOCK INDEX FUND, INC. - INITIAL SHARES
VA II -26
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION - CONTINUED
FIDELITY(R) VARIABLE INSURANCE PRODUCTS ("FIDELITY(R) VIP"):
Fidelity(R) VIP Asset Manager(SM) Portfolio - Initial Class
Fidelity(R) VIP Balanced Portfolio - Initial Class (1)
Fidelity(R) VIP Contrafund(R) Portfolio - Initial Class
Fidelity(R) VIP Growth Portfolio - Initial Class
Fidelity(R) VIP High Income Portfolio - Initial Class
Fidelity(R) VIP Index 500 Portfolio - Initial Class
Fidelity(R) VIP Investment Grade Bond Portfolio - Initial Class
Fidelity(R) VIP Money Market Portfolio - Initial Class
Fidelity(R) VIP Overseas Portfolio - Initial Class
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST ("FRANKLIN TEMPLETON"):
Franklin Templeton Templeton Developing Markets Securities Fund - Class 2 (1)
Franklin Templeton Templeton Foreign Securities Fund - Class 2
Franklin Templeton Templeton Global Asset Allocation Fund - Class 1 (1) (5)
Franklin Templeton Templeton Growth Securities Fund - Class 2 (1)
GOLDMAN SACHS VARIABLE INSURANCE TRUST ("GOLDMAN SACHS VIT"):
Goldman Sachs VIT Strategic International Equity Fund - Institutional Shares
Goldman Sachs VIT Structured U.S. Equity Fund - Institutional Shares
JPMORGAN INSURANCE TRUST:
JPMorgan Insurance Trust Core Bond Portfolio - Class 1
JPMorgan Insurance Trust Small Cap Core Portfolio - Class 1 (1)
JPMorgan Insurance Trust U.S. Equity Portfolio - Class 1
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST ("NEUBERGER BERMAN AMT"):
Neuberger Berman AMT Partners Portfolio - Class I
Neuberger Berman AMT Short Duration Bond Portfolio - Class I
OPPENHEIMER VARIABLE ACCOUNT FUNDS ("OPPENHEIMER"):
Oppenheimer Global Securities Fund/VA - Non-Service Shares
Oppenheimer Main Street Fund/VA - Non-Service Shares
PIMCO VARIABLE INSURANCE TRUST ("PIMCO VIT"):
PIMCO VIT High Yield Portfolio - Administrative Class (1)
PIMCO VIT Long-Term U.S. Government Portfolio - Administrative Class (1)
PIMCO VIT Real Return Portfolio - Administrative Class
PIMCO VIT Short-Term Portfolio - Administrative Class (1)
PIMCO VIT Total Return Portfolio - Administrative Class
SUNAMERICA SERIES TRUST ("SUNAMERICA"):
SunAmerica "Dogs" of Wall Street Portfolio - Class 1
SunAmerica Aggressive Growth Portfolio - Class 1
SunAmerica Alliance Growth Portfolio - Class 1
SunAmerica Balanced Portfolio - Class 1
SunAmerica Blue Chip Growth Portfolio - Class 1
SunAmerica Capital Growth Portfolio - Class 1
SunAmerica Cash Management Portfolio - Class 1
SunAmerica Corporate Bond Portfolio - Class 1
SunAmerica Davis Venture Value Portfolio - Class 1
SunAmerica Emerging Markets Portfolio - Class 1
SunAmerica Equity Opportunities Portfolio - Class 1
SunAmerica Fundamental Growth Portfolio - Class 1
SunAmerica Global Bond Portfolio - Class 1
SunAmerica Global Equities Portfolio - Class 1
SunAmerica Growth Opportunities Portfolio - Class 1
VA II - 27
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION - CONTINUED
SUNAMERICA SERIES TRUST ("SUNAMERICA"): - CONTINUED
SunAmerica Growth-Income Portfolio - Class 1
SunAmerica High-Yield Bond Portfolio - Class 1
SunAmerica International Diversified Equities Portfolio - Class 1
SunAmerica International Growth and Income Portfolio - Class 1
SunAmerica Marsico Focused Growth Portfolio - Class 1
SunAmerica MFS Massachusetts Investors Trust Portfolio - Class 1
SunAmerica MFS Total Return Portfolio - Class 1
SunAmerica Mid-Cap Growth Portfolio - Class 1
SunAmerica Real Estate Portfolio - Class 1
SunAmerica Technology Portfolio - Class 1
SunAmerica Telecom Utility Portfolio - Class 1
SunAmerica Total Return Bond Portfolio - Class 1
THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ("UIF"):
UIF Core Plus Fixed Income Portfolio - Class I Shares (1)
UIF Emerging Markets Equity Portfolio - Class I Shares (1)
UIF Mid Cap Growth Portfolio - Class I Shares
VALIC COMPANY I:
VALIC Company I International Equities Fund
VALIC Company I Mid Cap Index Fund (1)
VALIC Company I Small Cap Index Fund
VAN ECK VIP TRUST ("VAN ECK"): (7)
Van Eck VIP Emerging Markets Fund - Initial Class (8)
Van Eck VIP Global Hard Assets Fund - Initial Class (9)
VANGUARD(R) VARIABLE INSURANCE FUND ("VANGUARD(R) VIF"):
Vanguard(R) VIF Total Bond Market Index Portfolio
Vanguard(R) VIF Total Stock Market Index Portfolio (1)
(1) Sub-accounts had no activity in current year.
(2) Effective April 30, 2010, AIM Variable Insurance Funds changed its name to
AIM Variable Insurance Funds (Invesco Variable Insurance Funds).
(3) Effective April 30, 2010, AIM V.I. Capital Appreciation Fund - Series I
changed its name to Invesco V.I. Capital Appreciation Fund - Series I.
(4) Effective April 30, 2010, AIM V.I. International Growth Fund - Series I
changed its name to Invesco V.I. International Growth Fund - Series I.
(5) Effective April 30, 2010, Franklin Templeton Templeton Global Asset
Allocation Fund - Class 1 was closed and liquidated.
(6) Effective May 1, 2010, BlackRock Fundamental Growth V.I. Fund - Class I
changed its name to BlackRock Capital Appreciation V.I. Fund - Class I.
(7) Effective May 1, 2010, Van Eck Worldwide Insurance Trust changed its name
to Van Eck VIP Trust.
(8) Effective May 1, 2010, Van Eck Worldwide Emerging Markets Fund - Initial
Class changed its name to Van Eck VIP Emerging Markets Fund - Initial
Class.
(9) Effective May 1, 2010, Van Eck Worldwide Hard Assets Fund - Initial Class
changed its name to Van Eck VIP Global Hard Assets Fund - Initial Class.
(10) Effective June 1, 2010, UIF High Yield Portfolio - Class I Shares was
acquired by Invesco Van Kampen V.I. High Yield Fund - Series I.
(11) Effective June 1, 2010, UIF U.S. Mid Cap Value Portfolio - Class I Shares
was acquired by Invesco Van Kampen V.I. Mid Cap Value Fund - Series I.
(12) Effective April 29, 2011, Invesco Van Kampen V.I. High Yield Fund - Series
I was acquired by Invesco V.I. High Yield Fund - Series I.
VA II - 28
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION - CONTINUED
(13) Effective October 1, 2011, BlackRock Government Income V.I. Fund - Class I
changed its name to BlackRock U.S. Government Bond V.I. Fund - Class I.
(14) Effective October 21, 2011, Credit Suisse International Equity Flex III
Portfolio was closed and liquidated.
(15) Effective October 21, 2011, Credit Suisse U.S. Equity Flex I Portfolio was
closed and liquidated.
SunAmerica Asset Management Corp., an affiliate of the Company, serves as the
investment advisor to Anchor Series Trust and SunAmerica Series Trust.
The Variable Annuity Life Insurance Company, an affiliate of the Company,
serves as the investment advisor to VALIC Company I.
In addition to the Sub-accounts above, policy owners may allocate funds to a
fixed account that is part of the Company's general account. Policy owners
should refer to the appropriate policy prospectus and prospectus supplements
for a complete description of the available Funds and the fixed account.
The assets of the Account are segregated from the Company's other assets. The
operations of the Account are part of the Company.
Net premiums from the policies are allocated to the Sub-accounts and invested
in the funds in accordance with policy owner instructions. The premiums are
recorded as principal transactions in the Statements of Changes in Net Assets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying financial statements of the Account have been prepared in
conformity with accounting principles generally accepted in the United States
of America ("GAAP"). The accounting principals followed by the Account and the
methods of applying those principles are presented below.
USE OF ESTIMATES - The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the reported amounts of income
and expenses during the year. Actual results could differ from those estimates.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
which represent purchases and sales of investments are accounted for on the
trade date at fair value. Realized gains and losses from security transactions
are determined on the basis of first-in first-out. Dividend income and
distributions of capital gains are recorded on the ex-dividend date and
reinvested upon receipt.
POLICY LOANS - When a policy loan is made, the loan amount is transferred to
the Company from the policy owner's selected investment Sub-account(s), and
held as collateral. Interest on this collateral amount is credited to the
policy. Loan repayments are invested in the policy owner's selected investment
Sub-account(s), after they are first used to repay all loans taken from the
declared fixed interest account option.
FEDERAL INCOME TAXES - The Company is taxed as a life insurance company under
the Internal Revenue Code and includes operations of the Account in determining
its federal income tax liability. As a result, the Account is not taxed as a
"Regulated Investment Company" under subchapter M of the Internal Revenue Code.
Under existing federal income tax law, the investment income and capital gains
from sales of investments realized by the Account are not taxable. Therefore,
no federal income tax provision has been made.
ACCUMULATION UNIT - This is a measuring unit used to calculate the policy
owner's interest. Such units are valued on each day that the New York Stock
Exchange ("NYSE") is open for business to reflect investment performance and
the prorated daily deduction for mortality and expense risk charges.
VA II - 29
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the Account balance sheet are
measured and classified in a hierarchy for disclosure purposes consisting of
three "levels" based on the observability of inputs available in the
marketplace used to measure the fair values as discussed below. 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 Account's assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgments. In making the assessment, the Account considers factors specific to
the asset or liability.
Level 1-- Fair value measurements that are quoted prices (unadjusted) in active
markets that the Account has the ability to access for identical assets or
liabilities. Market price data generally is obtained from exchange or dealer
markets. The Account does not adjust the quoted price for such instruments.
Assets and liabilities measured at fair value on a recurring basis and
classified as Level 1 include government and agency securities, actively traded
listed common stocks and derivative contracts, most Account assets and most
mutual funds.
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 liability in active markets, 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. Assets and liabilities
measured at fair value on a recurring basis and classified as Level 2 generally
include certain government securities, most investment-grade and high-yield
corporate bonds, certain asset backed securities, certain listed equities,
state, municipal and provincial obligations, hybrid securities, and derivative
contracts.
Level 3-- Fair value measurements based on valuation techniques that use
significant inputs that are unobservable. These measurements include
circumstances in which there is little, if any, market activity for the asset
or liability. Assets and liabilities measured at fair value on a recurring
basis and classified as Level 3 principally include fixed maturities.
The Account assets measured at fair value as of December 31, 2011 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. See the Schedule of Portfolio
Investments for the table presenting information about assets measured at fair
value on a recurring basis at December 31, 2011, and respective hierarchy
levels. As all assets of the Account are classified as Level 1, no
reconciliation of Level 3 assets and change in unrealized gains (losses) for
Level 3 assets still held as of December 31, 2011, is presented.
NOTE 4 - POLICY CHARGES
DEDUCTIONS FROM PREMIUM PAYMENTS - The deductions from each premium payment are
for state premium taxes and for other expenses associated with selling and
distributing the policy. A summary of premium expense charges for each policy
follows:
---------------------------------------------------------------------------------
POLICIES PREMIUM EXPENSE CHARGES
---------------------------------------------------------------------------------
Variable Universal Life Policy and 5% of each premium payment plus the state
Gallery Life specific premium taxes.
---------------------------------------------------------------------------------
Executive Advantage The maximum charge is 9% of each premium
payment.
---------------------------------------------------------------------------------
Gemstone Life 5% of each premium payment up to the target
premium amount plus 2% of any premium paid
in excess of the target premium amount for
policy years 1-10. 3% of each premium
payment up to the target premium amount plus
2% of any premium paid in excess of the
target premium amount beginning in policy
year 11. The maximum charge is 8% of each
premium payment.
---------------------------------------------------------------------------------
Polaris Life and Polaris Currently 5% for the first 10 policy years
Survivorship Life and 3% thereafter. The maximum charge
allowed is 8% of each premium payment.
---------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK AND ADMINISTRATIVE CHARGES - Deductions for
administrative expenses and mortality and expense risks assumed by the Company
are assessed through the daily unit value calculation and paid to the Company
from the daily net asset value of the Sub-accounts. A summary of the charges by
policy follows:
VA II - 30
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - POLICY CHARGES - CONTINUED
MORTALITY AND EXPENSE RISK AND MORTALITY AND EXPENSE RISK AND
ADMINISTRATIVE CHARGES CURRENT ADMINISTRATIVE CHARGES
POLICIES MINIMUM ANNUAL RATE MAXIMUM ANNUAL RATE
-------------------------------------------------------------------------------------------------
Variable Universal Life Policy and
Gallery Life 0.90% 0.90%
-------------------------------------------------------------------------------------------------
Executive Advantage 0.10% 1.00%
-------------------------------------------------------------------------------------------------
Gemstone Life 0.75% 0.90%
-------------------------------------------------------------------------------------------------
Polaris Life and Polaris
Survivorship Life 0.75% 0.90%
-------------------------------------------------------------------------------------------------
MONTHLY ADMINISTRATIVE AND EXPENSE CHARGES - Monthly administrative charges are
paid to the Company for the administrative services provided under the current
policies. The Company may charge a maximum fee of $15 for the monthly
administrative charge. The Company may deduct an additional monthly expense
charge for expenses associated with acquisition, administrative and
underwriting of your policy. The monthly expense charge is applied against each
$1,000 of base coverage. This charge varies according to the ages, gender and
the premium classes of both of the contingent insurers, as well as the amount
of coverage.
There may be an additional monthly administrative charge during the first
policy year and the 12 months after an increase in face amount per insured.
This charge will not exceed $25 a month per insured. The monthly administrative
and expense charges are paid by redemption of units outstanding. Monthly
administrative and expense charges are included with cost of insurance in the
Statements of Changes in Net Assets under principal transactions.
COST OF INSURANCE CHARGE - Since determination of both the insurance rate and
the Company's net amount at risk depends upon several factors, the cost of
insurance deduction may vary from month to month. Policy accumulation value,
specified amount of insurance and certain characteristics of the insured person
are among the variables included in the calculation for the monthly cost of
insurance deduction. The cost of insurance charges are paid by redemption of
units outstanding. Cost of insurance charges are included in the Statements of
Changes in Net Assets under principal transactions.
OPTIONAL RIDER CHARGES - Monthly charges are deducted if the policy owner
selects additional benefit riders. The charges for any rider selected will vary
by policy within a range based on either the personal characteristics of the
insured person or the specific coverage chosen under the rider. The rider
charges are paid by redemption of units outstanding. Optional rider charges are
included with cost of insurance in the Statements of Changes in Net Assets
under principal transactions.
TRANSFER CHARGES - A transfer charge of $25 may be assessed for each transfer
in excess of twelve each policy year. Transfer requests are subject to the
Company's published rules concerning market timing. A policy owner who violates
these rules will for a period of time (typically six months), have certain
restrictions placed on transfers. The transfer charges are paid by redemption
of units outstanding. Transfer charges are included with net premiums and
transfers from (to) other sub-accounts or fixed rate option in the Statements
of Changes in Net Assets under principal transactions.
SURRENDER CHARGE - A surrender charge may be applicable to certain withdrawal
amounts and is payable to the Company. The amount of the surrender charge is
based on a table of charges and the premiums paid under the policy or the face
amount of the policy (including increases and decreases in the face amount of
the policy). For any partial surrender, the Company may charge a maximum
transaction fee per policy equal to the lesser of 2% of the amount withdrawn or
$25. The surrender and partial withdrawal charges are paid by redemption of
units outstanding. Surrender and partial withdrawal charges are included with
withdrawals in the Statements of Changes in Net Assets under principal
transactions.
POLICY LOAN - A loan may be requested against the policy while the policy has a
net cash surrender value. The daily interest charge on the loan is paid to the
Company for the expenses of administering and providing policy loans. The
interest charge is collected through any loan repayment from the policyholder.
VA II - 31
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2011, the aggregate cost of purchases and
proceeds from the sales of investments were:
Proceeds from
Sub-accounts Cost of Purchases Sales
-------------------------------------------------------------------------------
AllianceBernstein Balanced Wealth Strategy
Portfolio - Class A $ 31,607 $ 30,047
AllianceBernstein Global Thematic Growth
Portfolio - Class A 95,179 198,605
AllianceBernstein Growth and Income Portfolio
- Class A 86,567 410,984
AllianceBernstein Growth Portfolio - Class A 45,011 187,256
AllianceBernstein Intermediate Bond Portfolio
- Class A 4,650 7,145
AllianceBernstein Large Cap Growth Portfolio -
Class A 76,696 115,796
AllianceBernstein Money Market Portfolio -
Class A 193,898 169,897
AllianceBernstein Real Estate Investment
Portfolio - Class A 104,032 71,580
AllianceBernstein Small Cap Growth Portfolio -
Class A 62,839 44,659
American Century VP Capital Appreciation Fund
- Class I 15,239 28,956
American Century VP Income & Growth Fund -
Class I 11,968 34,434
Anchor Series Trust Asset Allocation Portfolio
- Class 1 23,439 30,471
Anchor Series Trust Capital Appreciation
Portfolio - Class 1 187,316 555,528
Anchor Series Trust Government and Quality
Bond Portfolio - Class 1 108,787 281,463
Anchor Series Trust Growth Portfolio - Class 1 62,900 166,457
Anchor Series Trust Natural Resources
Portfolio - Class 1 438,333 242,631
BlackRock Basic Value V.I. Fund - Class I 291 176,759
Dreyfus Stock Index Fund, Inc. - Initial Shares 250,178 399,113
Fidelity VIP Asset Manager Portfolio - Initial
Class 82,385 102,082
Fidelity VIP Contrafund Portfolio - Initial
Class 119,794 605,863
Fidelity VIP Growth Portfolio - Initial Class 131,189 208,892
Fidelity VIP High Income Portfolio - Initial
Class 84,318 88,714
Fidelity VIP Index 500 Portfolio - Initial
Class 3,549 147,957
Fidelity VIP Investment Grade Bond Portfolio -
Initial Class 126,833 156,476
Fidelity VIP Money Market Portfolio - Initial
Class 306,530 619,945
Fidelity VIP Overseas Portfolio - Initial Class 21,853 64,114
Franklin Templeton Templeton Foreign
Securities Fund - Class 2 3,421 188,236
Invesco V.I. Capital Appreciation Fund -
Series I 30,570 49,264
Invesco V.I. International Growth Fund -
Series I 71,524 200,170
JPMorgan Insurance Trust Core Bond Portfolio -
Class 1 45,525 32,033
JPMorgan Insurance Trust U.S. Equity Portfolio
- Class 1 11,460 11,191
Neuberger Berman AMT Partners Portfolio -
Class I 12,657 18,776
Neuberger Berman AMT Short Duration Bond
Portfolio - Class I 12,944 30,073
Oppenheimer Global Securities Fund/VA -
Non-Service Shares 49,491 91,904
Oppenheimer Main Street Fund/VA - Non-Service
Shares 48,761 53,276
PIMCO VIT Real Return Portfolio -
Administrative Class 43,020 2,192,833
PIMCO VIT Total Return Portfolio -
Administrative Class 3,875 249,181
SunAmerica Aggressive Growth Portfolio - Class
1 134,545 181,081
SunAmerica Alliance Growth Portfolio - Class 1 180,120 575,249
SunAmerica Balanced Portfolio - Class 1 59,244 52,932
SunAmerica Blue Chip Growth Portfolio - Class 1 1,551 37,596
SunAmerica Capital Growth Portfolio - Class 1 1,676 1,809
SunAmerica Cash Management Portfolio - Class 1 644,299 469,673
SunAmerica Corporate Bond Portfolio - Class 1 115,089 62,915
SunAmerica Davis Venture Value Portfolio -
Class 1 113,429 272,423
SunAmerica "Dogs" of Wall Street Portfolio -
Class 1 41,178 33,932
SunAmerica Emerging Markets Portfolio - Class 1 56,024 164,590
SunAmerica Equity Opportunities Portfolio -
Class 1 22,882 15,658
SunAmerica Fundamental Growth Portfolio -
Class 1 59,541 172,722
SunAmerica Global Bond Portfolio - Class 1 155,154 90,612
SunAmerica Global Equities Portfolio - Class 1 34,014 60,052
SunAmerica Growth Opportunities Portfolio -
Class 1 19,013 9,608
VA II - 32
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS - CONTINUED
For the year ended December 31, 2011, the aggregate cost of purchases and
proceeds from the sales of investments were:
Proceeds from
Sub-accounts Cost of Purchases Sales
------------------------------------------------------------------------------
SunAmerica Growth-Income Portfolio - Class 1 $ 100,459 $ 274,691
SunAmerica High-Yield Bond Portfolio - Class
1 54,417 30,254
SunAmerica International Diversified
Equities Portfolio - Class 1 50,801 119,703
SunAmerica International Growth and Income
Portfolio - Class 1 68,082 129,372
SunAmerica Marsico Focused Growth Portfolio
- Class 1 26,965 38,491
SunAmerica MFS Massachusetts Investors Trust
Portfolio - Class 1 29,195 46,664
SunAmerica MFS Total Return Portfolio -
Class 1 101,516 176,943
SunAmerica Mid-Cap Growth Portfolio - Class 1 122,618 369,612
SunAmerica Real Estate Portfolio - Class 1 45,722 175,376
SunAmerica Technology Portfolio - Class 1 56,836 84,298
SunAmerica Telecom Utility Portfolio - Class
1 35,515 23,906
SunAmerica Total Return Bond Portfolio -
Class 1 218,275 35,089
UIF Mid Cap Growth Portfolio - Class I Shares 771 3,615
VALIC Company I International Equities Fund 21,878 320,505
VALIC Company I Small Cap Index Fund 1,544 295,405
Van Eck VIP Emerging Markets Fund - Initial
Class 37,564 76,472
Van Eck VIP Global Hard Assets Fund -
Initial Class 36,332 59,539
Vanguard VIF Total Bond Market Index
Portfolio 7,076 175,177
VA II - 33
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - SUMMARY OF CHANGES IN UNITS
Summary of Changes in Units for the year ended December 31, 2011.
Accumulation Units Accumulation Units Net Increase
Sub-accounts Issued Redeemed (Decrease)
--------------------------------------------------------------------------------
1 AllianceBernstein
Balanced Wealth
Strategy Portfolio -
Class A 2,216 (2,706) (490)
2 AllianceBernstein
Balanced Wealth
Strategy Portfolio -
Class A 1,118 (754) 364
3 AllianceBernstein
Global Thematic Growth
Portfolio - Class A 8,238 (13,220) (4,982)
6 AllianceBernstein
Global Thematic Growth
Portfolio - Class A 6,617 (7,741) (1,124)
3 AllianceBernstein
Growth and Income
Portfolio - Class A 5,983 (11,259) (5,276)
5 AllianceBernstein
Growth and Income
Portfolio - Class A - (17,621) (17,621)
3 AllianceBernstein
Growth Portfolio -
Class A 7,617 (13,554) (5,937)
1 AllianceBernstein
Intermediate Bond
Portfolio - Class A 258 (643) (385)
1 AllianceBernstein
Large Cap Growth
Portfolio - Class A 5,758 (6,043) (285)
2 AllianceBernstein
Large Cap Growth
Portfolio - Class A 479 (330) 149
6 AllianceBernstein
Large Cap Growth
Portfolio - Class A 3,469 (7,817) (4,348)
2 AllianceBernstein
Money Market Portfolio
- Class A 15,465 (13,444) 2,021
2 AllianceBernstein Real
Estate Investment
Portfolio - Class A 1 (1) -
6 AllianceBernstein Real
Estate Investment
Portfolio - Class A 1,604 (2,933) (1,329)
1 AllianceBernstein
Small Cap Growth
Portfolio - Class A 4,685 (3,480) 1,205
6 American Century VP
Capital Appreciation
Fund - Class I 1,529 (2,418) (889)
6 American Century VP
Income & Growth Fund -
Class I 1,345 (3,462) (2,117)
4 Anchor Series Trust
Asset Allocation
Portfolio - Class 1 17,937 (18,743) (806)
4 Anchor Series Trust
Capital Appreciation
Portfolio - Class 1 96,052 (110,350) (14,298)
6 Anchor Series Trust
Capital Appreciation
Portfolio - Class 1 5,152 (10,827) (5,675)
4 Anchor Series Trust
Government and Quality
Bond Portfolio - Class
1 39,200 (50,280) (11,080)
4 Anchor Series Trust
Growth Portfolio -
Class 1 54,735 (63,256) (8,521)
6 Anchor Series Trust
Growth Portfolio -
Class 1 2,365 (2,316) 49
4 Anchor Series Trust
Natural Resources
Portfolio - Class 1 10,272 (11,018) (746)
6 Anchor Series Trust
Natural Resources
Portfolio - Class 1 2,965 (3,343) (378)
5 BlackRock Basic Value
V.I. Fund - Class I - (19,913) (19,913)
1 Dreyfus Stock Index
Fund, Inc. - Initial
Shares 13,691 (21,356) (7,665)
6 Dreyfus Stock Index
Fund, Inc. - Initial
Shares 6,993 (8,314) (1,321)
1 Fidelity VIP Asset
Manager Portfolio -
Initial Class 2,724 (4,461) (1,737)
6 Fidelity VIP Asset
Manager Portfolio -
Initial Class 3,030 (2,699) 331
1 Fidelity VIP
Contrafund Portfolio -
Initial Class 4,806 (10,187) (5,381)
5 Fidelity VIP
Contrafund Portfolio -
Initial Class - (23,312) (23,312)
5 Fidelity VIP
Contrafund Portfolio -
Initial Class - (559) (559)
6 Fidelity VIP
Contrafund Portfolio -
Initial Class 5,790 (11,465) (5,675)
1 Fidelity VIP Growth
Portfolio - Initial
Class 11,369 (13,941) (2,572)
6 Fidelity VIP Growth
Portfolio - Initial
Class 4,999 (6,814) (1,815)
1 Fidelity VIP High
Income Portfolio -
Initial Class 2,821 (3,287) (466)
6 Fidelity VIP High
Income Portfolio -
Initial Class 1,478 (2,774) (1,296)
5 Fidelity VIP Index 500
Portfolio - Initial
Class - (13,818) (13,818)
1 Fidelity VIP
Investment Grade Bond
Portfolio - Initial
Class 4,103 (5,307) (1,204)
6 Fidelity VIP
Investment Grade Bond
Portfolio - Initial
Class 1,737 (4,182) (2,445)
1 Fidelity VIP Money
Market Portfolio -
Initial Class 14,365 (28,080) (13,715)
6 Fidelity VIP Money
Market Portfolio -
Initial Class 22,334 (30,113) (7,779)
1 Fidelity VIP Overseas
Portfolio - Initial
Class 1,788 (4,152) (2,364)
5 Franklin Templeton
Templeton Foreign
Securities Fund -
Class 2 1 (21,498) (21,497)
1 Invesco V.I. Capital
Appreciation Fund -
Series I 2,778 (3,650) (872)
6 Invesco V.I. Capital
Appreciation Fund -
Series I 3,055 (3,871) (816)
1 Invesco V.I.
International Growth
Fund - Series I 3,474 (8,368) (4,894)
6 Invesco V.I.
International Growth
Fund - Series I 2,232 (5,080) (2,848)
6 JPMorgan Insurance
Trust Core Bond
Portfolio - Class 1 3,696 (2,984) 712
6 JPMorgan Insurance
Trust U.S. Equity
Portfolio - Class 1 882 (878) 4
6 Neuberger Berman AMT
Partners Portfolio -
Class I 1,535 (1,855) (320)
VA II - 34
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - SUMMARY OF CHANGES IN UNITS - CONTINUED
Summary of Changes in Units for the year ended December 31, 2011.
Accumulation Units Accumulation Units Net Increase
Sub-accounts Issued Redeemed (Decrease)
--------------------------------------------------------------------------------
6 Neuberger Berman AMT
Short Duration Bond
Portfolio - Class I 771 (2,453) (1,682)
6 Oppenheimer Global
Securities Fund/VA -
Non-Service Shares 5,077 (8,687) (3,610)
6 Oppenheimer Main
Street Fund/VA -
Non-Service Shares 6,166 (6,642) (476)
5 PIMCO VIT Real Return
Portfolio -
Administrative Class - (178,326) (178,326)
5 PIMCO VIT Real Return
Portfolio -
Administrative Class - (179) (179)
5 PIMCO VIT Total Return
Portfolio -
Administrative Class - (19,517) (19,517)
4 SunAmerica Aggressive
Growth Portfolio -
Class 1 143,532 (148,943) (5,411)
6 SunAmerica Aggressive
Growth Portfolio -
Class 1 9,119 (7,246) 1,873
4 SunAmerica Alliance
Growth Portfolio -
Class 1 239,225 (280,095) (40,870)
6 SunAmerica Alliance
Growth Portfolio -
Class 1 5,343 (7,826) (2,483)
4 SunAmerica Balanced
Portfolio - Class 1 47,030 (47,173) (143)
6 SunAmerica Balanced
Portfolio - Class 1 3,488 (3,618) (130)
4 SunAmerica Blue Chip
Growth Portfolio -
Class 1 7,549 (12,788) (5,239)
4 SunAmerica Capital
Growth Portfolio -
Class 1 2,054 (2,041) 13
4 SunAmerica Cash
Management Portfolio -
Class 1 139,196 (123,769) 15,427
4 SunAmerica Corporate
Bond Portfolio - Class
1 16,216 (14,946) 1,270
4 SunAmerica Davis
Venture Value
Portfolio - Class 1 66,817 (74,817) (8,000)
4 SunAmerica "Dogs" of
Wall Street Portfolio
- Class 1 17,462 (17,183) 279
4 SunAmerica Emerging
Markets Portfolio -
Class 1 35,610 (39,609) (3,999)
4 SunAmerica Equity
Opportunities
Portfolio - Class 1 26,226 (25,552) 674
4 SunAmerica Fundamental
Growth Portfolio -
Class 1 94,341 (107,888) (13,547)
4 SunAmerica Global Bond
Portfolio - Class 1 15,535 (15,372) 163
6 SunAmerica Global Bond
Portfolio - Class 1 3,795 (1,000) 2,795
4 SunAmerica Global
Equities Portfolio -
Class 1 37,947 (40,479) (2,532)
4 SunAmerica Growth
Opportunities
Portfolio - Class 1 12,592 (10,813) 1,779
4 SunAmerica
Growth-Income
Portfolio - Class 1 85,864 (97,368) (11,504)
6 SunAmerica
Growth-Income
Portfolio - Class 1 6,090 (13,892) (7,802)
4 SunAmerica High-Yield
Bond Portfolio - Class
1 10,995 (10,609) 386
4 SunAmerica
International
Diversified Equities
Portfolio - Class 1 38,250 (45,962) (7,712)
4 SunAmerica
International Growth
and Income Portfolio -
Class 1 54,107 (60,396) (6,289)
6 SunAmerica Marsico
Focused Growth
Portfolio - Class 1 4,124 (4,822) (698)
4 SunAmerica MFS
Massachusetts
Investors Trust
Portfolio - Class 1 44,207 (45,780) (1,573)
4 SunAmerica MFS Total
Return Portfolio -
Class 1 44,941 (50,439) (5,498)
4 SunAmerica Mid-Cap
Growth Portfolio -
Class 1 97,122 (109,424) (12,302)
6 SunAmerica Mid-Cap
Growth Portfolio -
Class 1 12,227 (22,729) (10,502)
4 SunAmerica Real Estate
Portfolio - Class 1 21,381 (26,499) (5,118)
4 SunAmerica Technology
Portfolio - Class 1 42,237 (53,526) (11,289)
4 SunAmerica Telecom
Utility Portfolio -
Class 1 31,662 (31,235) 427
4 SunAmerica Total
Return Bond Portfolio
- Class 1 13,410 (5,038) 8,372
5 UIF Mid Cap Growth
Portfolio - Class I
Shares - (258) (258)
5 VALIC Company I
International Equities
Fund - (39,405) (39,405)
5 VALIC Company I
International Equities
Fund - (1,428) (1,428)
5 VALIC Company I Small
Cap Index Fund - (29,634) (29,634)
5 VALIC Company I Small
Cap Index Fund 1 (227) (226)
1 Van Eck VIP Emerging
Markets Fund - Initial
Class 1,894 (3,629) (1,735)
1 Van Eck VIP Global
Hard Assets Fund -
Initial Class 854 (1,562) (708)
5 Vanguard VIF Total
Bond Market Index
Portfolio - (14,380) (14,380)
VA II - 35
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - SUMMARY OF CHANGES IN UNITS - CONTINUED
Summary of Changes in Units for the year ended December 31, 2010.
Accumulation Units Accumulation Units Net Increase
Sub-accounts Issued Redeemed (Decrease)
--------------------------------------------------------------------------------
1 AllianceBernstein
Balanced Wealth
Strategy Portfolio -
Class A 2,352 (8,714) (6,362)
2 AllianceBernstein
Balanced Wealth
Strategy Portfolio -
Class A 485 (447) 38
3 AllianceBernstein
Global Thematic Growth
Portfolio - Class A 5,338 (11,886) (6,548)
6 AllianceBernstein
Global Thematic Growth
Portfolio - Class A 5,237 (10,222) (4,985)
3 AllianceBernstein
Growth and Income
Portfolio - Class A 5,088 (12,864) (7,776)
5 AllianceBernstein
Growth and Income
Portfolio - Class A - (339) (339)
3 AllianceBernstein
Growth Portfolio -
Class A 8,153 (17,236) (9,083)
1 AllianceBernstein
Intermediate Bond
Portfolio - Class A 930 (454) 476
1 AllianceBernstein
Large Cap Growth
Portfolio - Class A 3,154 (5,259) (2,105)
2 AllianceBernstein
Large Cap Growth
Portfolio - Class A 236 (218) 18
6 AllianceBernstein
Large Cap Growth
Portfolio - Class A 6,612 (4,181) 2,431
2 AllianceBernstein
Money Market Portfolio
- Class A 27,422 (17,112) 10,310
2 AllianceBernstein Real
Estate Investment
Portfolio - Class A - (18) (18)
6 AllianceBernstein Real
Estate Investment
Portfolio - Class A 2,108 (2,141) (33)
1 AllianceBernstein
Small Cap Growth
Portfolio - Class A 2,286 (4,731) (2,445)
6 American Century VP
Capital Appreciation
Fund - Class I 10,299 (2,832) 7,467
6 American Century VP
Income & Growth Fund -
Class I 1,892 (3,548) (1,656)
4 Anchor Series Trust
Asset Allocation
Portfolio - Class 1 1,428 (4,446) (3,018)
4 Anchor Series Trust
Capital Appreciation
Portfolio - Class 1 11,995 (20,548) (8,553)
6 Anchor Series Trust
Capital Appreciation
Portfolio - Class 1 5,646 (8,373) (2,727)
4 Anchor Series Trust
Government and Quality
Bond Portfolio - Class
1 5,742 (11,282) (5,540)
4 Anchor Series Trust
Growth Portfolio -
Class 1 7,737 (8,670) (933)
6 Anchor Series Trust
Growth Portfolio -
Class 1 2,802 (8,463) (5,661)
4 Anchor Series Trust
Natural Resources
Portfolio - Class 1 1,774 (2,862) (1,088)
6 Anchor Series Trust
Natural Resources
Portfolio - Class 1 2,074 (1,791) 283
5 BlackRock Basic Value
V.I. Fund - Class I - (386) (386)
1 Dreyfus Stock Index
Fund, Inc. - Initial
Shares 12,851 (19,032) (6,181)
6 Dreyfus Stock Index
Fund, Inc. - Initial
Shares 7,324 (9,348) (2,024)
1 Fidelity VIP Asset
Manager Portfolio -
Initial Class 2,668 (5,622) (2,954)
6 Fidelity VIP Asset
Manager Portfolio -
Initial Class 4,566 (3,878) 688
1 Fidelity VIP
Contrafund Portfolio -
Initial Class 8,528 (8,230) 298
5 Fidelity VIP
Contrafund Portfolio -
Initial Class 1 (454) (453)
5 Fidelity VIP
Contrafund Portfolio -
Initial Class - (105,688) (105,688)
5 Fidelity VIP
Contrafund Portfolio -
Initial Class 108,964 (74,246) 34,718
6 Fidelity VIP
Contrafund Portfolio -
Initial Class 4,291 (12,415) (8,124)
1 Fidelity VIP Growth
Portfolio - Initial
Class 14,234 (16,469) (2,235)
6 Fidelity VIP Growth
Portfolio - Initial
Class 5,346 (10,365) (5,019)
1 Fidelity VIP High
Income Portfolio -
Initial Class 1,646 (6,833) (5,187)
6 Fidelity VIP High
Income Portfolio -
Initial Class 1,178 (2,453) (1,275)
5 Fidelity VIP Index 500
Portfolio - Initial
Class 1 (250) (249)
5 Fidelity VIP Index 500
Portfolio - Initial
Class - - -
1 Fidelity VIP
Investment Grade Bond
Portfolio - Initial
Class 1,578 (10,807) (9,229)
6 Fidelity VIP
Investment Grade Bond
Portfolio - Initial
Class 1,330 (2,357) (1,027)
1 Fidelity VIP Money
Market Portfolio -
Initial Class 14,910 (13,525) 1,385
6 Fidelity VIP Money
Market Portfolio -
Initial Class 44,742 (24,748) 19,994
1 Fidelity VIP Overseas
Portfolio - Initial
Class 1,905 (7,251) (5,346)
5 Franklin Templeton
Templeton Foreign
Securities Fund -
Class 2 - (418) (418)
6 Franklin Templeton
Templeton Global Asset
Allocation Fund -
Class 1 293 (28,444) (28,151)
1 Invesco V.I. Capital
Appreciation Fund -
Series I 3,701 (4,422) (721)
6 Invesco V.I. Capital
Appreciation Fund -
Series I 2,863 (3,504) (641)
1 Invesco V.I.
International Growth
Fund - Series I 2,305 (6,452) (4,147)
6 Invesco V.I.
International Growth
Fund - Series I 4,333 (3,322) 1,011
VA II - 36
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - SUMMARY OF CHANGES IN UNITS - CONTINUED
Summary of Changes in Units for the year ended December 31, 2010.
Accumulation Units Accumulation Units Net Increase
Sub-accounts Issued Redeemed (Decrease)
--------------------------------------------------------------------------------
6 JPMorgan Insurance
Trust Core Bond
Portfolio - Class 1 1,063 (2,790) (1,727)
6 JPMorgan Insurance
Trust U.S. Equity
Portfolio - Class 1 568 (1,139) (571)
6 Neuberger Berman AMT
Partners Portfolio -
Class I 1,977 (2,027) (50)
6 Neuberger Berman AMT
Short Duration Bond
Portfolio - Class I 506 (1,268) (762)
6 Oppenheimer Global
Securities Fund/VA -
Non-Service Shares 3,245 (7,354) (4,109)
6 Oppenheimer Main
Street Fund/VA -
Non-Service Shares 4,387 (16,539) (12,152)
5 PIMCO VIT Real Return
Portfolio -
Administrative Class - (34,229) (34,229)
5 PIMCO VIT Real Return
Portfolio -
Administrative Class - (3,604) (3,604)
5 PIMCO VIT Real Return
Portfolio -
Administrative Class 34,888 (23,772) 11,116
5 PIMCO VIT Total Return
Portfolio -
Administrative Class - (370) (370)
4 SunAmerica Aggressive
Growth Portfolio -
Class 1 19,684 (20,764) (1,080)
6 SunAmerica Aggressive
Growth Portfolio -
Class 1 4,885 (7,826) (2,941)
4 SunAmerica Alliance
Growth Portfolio -
Class 1 43,878 (59,964) (16,086)
6 SunAmerica Alliance
Growth Portfolio -
Class 1 5,435 (6,695) (1,260)
4 SunAmerica Balanced
Portfolio - Class 1 5,480 (16,566) (11,086)
6 SunAmerica Balanced
Portfolio - Class 1 3,104 (7,996) (4,892)
4 SunAmerica Blue Chip
Growth Portfolio -
Class 1 1,021 (403) 618
4 SunAmerica Capital
Growth Portfolio -
Class 1 546 (2,145) (1,599)
4 SunAmerica Cash
Management Portfolio -
Class 1 13,330 (93,655) (80,325)
4 SunAmerica Corporate
Bond Portfolio - Class
1 1,557 (4,907) (3,350)
4 SunAmerica Davis
Venture Value
Portfolio - Class 1 11,841 (15,453) (3,612)
4 SunAmerica "Dogs" of
Wall Street Portfolio
- Class 1 1,841 (745) 1,096
4 SunAmerica Emerging
Markets Portfolio -
Class 1 3,469 (5,507) (2,038)
4 SunAmerica Equity
Opportunities
Portfolio - Class 1 3,351 (3,664) (313)
4 SunAmerica Fundamental
Growth Portfolio -
Class 1 13,842 (21,901) (8,059)
4 SunAmerica Global Bond
Portfolio - Class 1 2,039 (2,639) (600)
6 SunAmerica Global Bond
Portfolio - Class 1 1,284 (1,466) (182)
4 SunAmerica Global
Equities Portfolio -
Class 1 4,904 (6,532) (1,628)
4 SunAmerica Growth
Opportunities
Portfolio - Class 1 3,848 (558) 3,290
4 SunAmerica
Growth-Income
Portfolio - Class 1 18,603 (17,487) 1,116
6 SunAmerica
Growth-Income
Portfolio - Class 1 15,024 (8,823) 6,201
4 SunAmerica High-Yield
Bond Portfolio - Class
1 903 (3,597) (2,694)
4 SunAmerica
International
Diversified Equities
Portfolio - Class 1 7,557 (11,446) (3,889)
4 SunAmerica
International Growth
and Income Portfolio -
Class 1 7,412 (13,856) (6,444)
6 SunAmerica Marsico
Focused Growth
Portfolio - Class 1 3,792 (6,449) (2,657)
4 SunAmerica MFS
Massachusetts
Investors Trust
Portfolio - Class 1 4,419 (8,757) (4,338)
4 SunAmerica MFS Total
Return Portfolio -
Class 1 8,588 (18,372) (9,784)
4 SunAmerica Mid-Cap
Growth Portfolio -
Class 1 21,065 (17,554) 3,511
6 SunAmerica Mid-Cap
Growth Portfolio -
Class 1 11,857 (14,770) (2,913)
4 SunAmerica Real Estate
Portfolio - Class 1 4,625 (2,001) 2,624
4 SunAmerica Technology
Portfolio - Class 1 5,627 (3,447) 2,180
4 SunAmerica Telecom
Utility Portfolio -
Class 1 2,640 (1,856) 784
4 SunAmerica Total
Return Bond Portfolio
- Class 1 2,418 (660) 1,758
5 UIF Mid Cap Growth
Portfolio - Class I
Shares - (47,743) (47,743)
5 UIF Mid Cap Growth
Portfolio - Class I
Shares 50,308 (34,279) 16,029
5 VALIC Company I
International Equities
Fund - (255,778) (255,778)
5 VALIC Company I
International Equities
Fund - (746) (746)
5 VALIC Company I
International Equities
Fund 278,696 (189,899) 88,797
5 VALIC Company I Small
Cap Index Fund - (47,053) (47,053)
5 VALIC Company I Small
Cap Index Fund - (559) (559)
5 VALIC Company I Small
Cap Index Fund 44,227 (30,136) 14,091
1 Van Eck VIP Emerging
Markets Fund - Initial
Class 2,541 (1,817) 724
VA II - 37
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - SUMMARY OF CHANGES IN UNITS - CONTINUED
Summary of Changes in Units for the year ended December 31, 2010.
Accumulation Units Accumulation Units Net Increase
Sub-accounts Issued Redeemed (Decrease)
--------------------------------------------------------------------------------
1 Van Eck VIP Global
Hard Assets Fund -
Initial Class 470 (6,117) (5,647)
5 Vanguard VIF Total
Bond Market Index
Portfolio - (275) (275)
Footnotes
1 Variable Universal Life Policy product.
2 Gallery Life product.
3 Variable Universal Life Policy product or Gallery Life product.
4 Polaris product or Polaris Survivorship product.
5 Executive Advantage product.
6 Gemstone Life product.
VA II - 38
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
---------------------------------- --------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------- --------------------------------------------------------------------
AllianceBernstein Balanced Shares Portfolio -
Class A /(6)/
-------------------------------------------------
2008 - $ - $ - 8.44% to 9.15% 0.90% -15.98%
2007 18,817 13.92 to 19.13 262,373 2.54% to 2.76% 0.90% 2.12%
AllianceBernstein Balanced Wealth Strategy
Portfolio - Class A /(6)/
-------------------------------------------------
2011 19,970 $10.76 $ 214,804 2.44% 0.90% -3.68%
2010 20,096 11.17 224,414 2.76% to 29.72% 0.90% 9.62%
2009 26,420 10.19 269,135 0.77% to 1.22% 0.90% 23.76%
2008 17,357 8.23 142,865 0.00% 0.90% -17.69%
AllianceBernstein Global Bond Portfolio - Class A
/(5)/
-------------------------------------------------
2008 - $ - $ - 22.27% 0.90% 5.10%
2007 3,433 15.13 51,944 2.96% 0.90% 9.36%
AllianceBernstein Global Thematic Growth Portfolio
- Class A
-------------------------------------------------
2011 103,616 $ 5.83 to 14.26 $1,072,533 0.60% 0.75% to 0.90% -23.92% to -23.80%
2010 109,722 7.65 to 18.74 1,511,100 1.53% 0.75% to 0.90% 17.87% to 18.05%
2009 121,255 6.48 to 15.90 1,417,960 0.00% 0.75% to 0.90% 52.11% to 52.34%
2008 131,585 4.25 to 10.45 1,026,747 0.00% 0.75% to 0.90% -47.84% to -47.76%
2007 135,857 8.14 to 20.04 2,085,235 0.00% 0.75% to 0.90% 19.12% to 19.29%
AllianceBernstein Growth and Income Portfolio -
Class A
-------------------------------------------------
2011 45,992 $10.76 to 29.87 $1,373,571 1.44% 0.20% to 0.90% 5.37% to 6.10%
2010 68,889 10.14 to 28.34 1,631,911 0.00% 0.20% to 0.90% 12.08% to 12.87%
2009 77,004 8.99 to 25.29 1,654,602 3.79% to 4.02% 0.20% to 0.90% 19.74% to 20.58%
2008 91,577 7.08 to 21.12 1,683,840 2.10% to 2.90% 0.20% to 0.90% -41.14% to -40.72%
2007 126,262 11.98 to 35.88 3,526,488 1.56% to 2.17% 0.20% to 0.90% 4.17% to 4.91%
AllianceBernstein Growth Portfolio - Class A
-------------------------------------------------
2011 71,793 $21.08 $1,513,334 0.00% 0.90% 0.34%
2010 77,730 21.01 1,633,002 0.26% 0.90% 14.03%
2009 86,813 18.42 1,599,456 0.00% 0.90% 32.04%
2008 104,344 13.95 1,455,971 0.00% 0.90% -42.99%
2007 122,194 24.47 2,990,652 0.00% 0.90% 12.01%
AllianceBernstein High Yield Portfolio - Class
A/ (5)/
-------------------------------------------------
2008 - $ - $ - 0.00% 0.90% -0.79%
AllianceBernstein Intermediate Bond Portfolio -
Class A /(5)/
-------------------------------------------------
2011 4,022 $12.56 $ 50,522 4.87% 0.90% 5.68%
2010 4,407 11.89 52,382 5.27% 0.90% 8.22%
2009 3,931 10.98 43,169 3.46% 0.90% 17.45%
2008 4,855 9.35 45,397 0.00% 0.90% -6.49%
VA II - 39
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
--------------------------------- -------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest/(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------ -------------------------------------------------------------------
AllianceBernstein Large Cap Growth Portfolio -
Class A
------------------------------------------------
2011 73,460 $ 7.83 to 13.54 $ 754,333 0.35% 0.75% to 0.90% -3.91% to -3.77%
2010 77,944 8.14 to 14.09 821,747 0.44% to 0.54% 0.75% to 0.90% 9.11% to 9.28%
2009 77,598 7.45 to 12.91 760,756 0.14% to 0.15% 0.75% to 0.90% 36.29% to 36.49%
2008 84,958 5.46 to 9.47 623,471 0.00% 0.75% to 0.90% -40.20% to -40.11%
2007 93,704 9.11 to 16.50 1,176,244 0.00% 0.20% to 0.90% 12.89% to 13.69%
AllianceBernstein Money Market Portfolio - Class A
------------------------------------------------
2011 14,020 $12.54 $ 175,790 0.01% 0.90% -0.88%
2010 11,999 12.65 151,789 0.02% 0.90% -0.89%
2009 1,689 12.76 21,559 0.25% 0.90% -0.73%
2008 5,760 12.86 74,058 2.79% 0.90% 0.98%
2007 1,827 12.73 23,259 4.30% 0.90% 3.40%
AllianceBernstein Real Estate Investment
Portfolio - Class A
------------------------------------------------
2011 20,278 $27.69 to 29.12 $ 590,417 1.49% 0.75% to 0.90% 8.06% to 8.22%
2010 21,607 25.63 to 26.90 581,316 0.72% to 1.37% 0.75% to 0.90% 25.21% to 25.40%
2009 21,659 20.47 to 21.45 464,664 2.50% to 3.02% 0.75% to 0.90% 28.30% to 28.49%
2008 25,177 15.95 to 16.70 420,331 1.90% to 2.04% 0.75% to 0.90% -36.26% to -36.17%
2007 27,098 25.03 to 26.16 708,671 1.45% to 1.56% 0.75% to 0.90% -15.30% to -15.17%
AllianceBernstein Small Cap Growth Portfolio -
Class A
------------------------------------------------
2011 22,939 $16.51 $ 378,816 0.00% 0.90% 3.53%
2010 21,734 15.95 346,683 0.00% 0.90% 35.68%
2009 24,179 11.76 284,273 0.00% 0.90% 40.49%
2008 29,187 8.37 244,260 0.00% 0.90% -46.03%
2007 30,679 15.51 475,730 0.00% 0.90% 13.05%
AllianceBernstein Utility Income Portfolio -
Class A /(10)/
------------------------------------------------
2009 - $ - $ - 8.66% 0.75% 8.93%
2008 21,061 9.74 205,197 3.16% 0.75% -37.06%
2007 20,016 15.48 309,854 2.12% 0.75% 21.43%
American Century VP Capital Appreciation Fund -
Class I
------------------------------------------------
2011 19,055 $13.05 $ 248,725 0.00% 0.75% -7.20%
2010 19,944 14.07 280,543 0.00% 0.75% 30.31%
2009 12,477 10.79 134,685 0.67% 0.75% 36.05%
2008 10,325 7.93 81,919 0.00% 0.75% -46.59%
2007 12,961 14.85 192,530 0.00% 0.75% 44.71%
American Century VP Income & Growth Fund - Class I
------------------------------------------------
2011 13,892 $10.82 $ 150,357 1.51% 0.75% 2.34%
2010 16,009 10.58 169,308 1.50% 0.75% 13.29%
2009 17,665 9.33 164,902 4.27% 0.75% 17.21%
2008 19,220 7.96 153,066 2.15% 0.75% -35.08%
2007 23,079 12.27 283,091 1.95% 0.75% -0.82%
VA II - 40
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
---------------------------------- -------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest/(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------- -------------------------------------------------------------------
American Century VP International Fund - Class I
-------------------------------------------------
2011 - $11.84 to 15.85 $ - 0.00% 0.20% to 0.65% -12.61% to -12.22%
2010 - 13.49 to 18.14 - 0.00% 0.20% to 0.65% 12.56% to 13.07%
2009 - 11.93 to 16.11 - 0.00% 0.20% to 0.65% 32.90% to 33.50%
2008 - 8.94 to 12.12 - 0.00% 0.20% to 0.65% -45.18% to -44.93%
2007 - 16.23 to 22.12 - 1.44% 0.20% to 0.65% 17.29% to 17.82%
Anchor Series Trust Asset Allocation Portfolio -
Class 1
-------------------------------------------------
2011 18,924 $15.99 $ 302,672 2.73% 0.75% 0.17%
2010 19,730 15.97 315,007 2.53% 0.75% 13.01%
2009 22,748 14.13 321,399 3.48% 0.75% 21.39%
2008 40,448 11.64 470,794 3.42% 0.75% -23.62%
2007 40,886 15.24 623,068 3.05% 0.75% 7.63%
Anchor Series Trust Capital Appreciation Portfolio
- Class 1
-------------------------------------------------
2011 159,681 $12.67 to 17.14 $2,431,110 0.00% 0.75% -7.74%
2010 179,654 13.73 to 18.58 2,978,623 0.12% 0.75% 21.82%
2009 190,935 11.27 to 15.25 2,606,372 0.00% 0.75% 35.74%
2008 245,353 8.30 to 11.24 2,514,877 0.00% 0.75% -40.80%
2007 279,015 14.02 to 18.98 4,883,469 0.34% 0.75% 26.75%
Anchor Series Trust Government and Quality Bond
Portfolio - Class 1
-------------------------------------------------
2011 29,913 $17.52 $ 524,041 2.45% 0.75% 6.29%
2010 40,993 16.48 675,660 4.33% 0.75% 4.20%
2009 46,533 15.82 736,030 4.36% 0.75% 3.49%
2008 58,861 15.28 899,660 4.57% 0.75% 3.56%
2007 49,193 14.76 726,076 3.88% 0.75% 5.49%
Anchor Series Trust Growth Portfolio - Class 1
-------------------------------------------------
2011 79,944 $10.43 to 12.17 $ 930,245 0.73% 0.75% -6.95%
2010 88,416 11.21 to 13.08 1,110,645 0.66% 0.75% 13.29%
2009 95,010 9.89 to 11.55 1,047,098 0.95% 0.75% 37.36%
2008 133,591 7.20 to 8.41 1,084,015 0.79% 0.75% -40.86%
2007 147,537 12.18 to 14.21 2,017,728 0.72% 0.75% 9.37%
Anchor Series Trust Natural Resources Portfolio -
Class 1
-------------------------------------------------
2011 20,363 $35.51 to 44.83 $ 826,142 0.72% 0.75% -20.86%
2010 21,487 44.87 to 56.65 1,103,109 0.85% 0.75% 15.33%
2009 22,292 38.91 to 49.12 998,885 1.48% 0.75% 56.88%
2008 29,464 24.80 to 31.31 846,311 1.18% 0.75% -50.17%
2007 30,812 49.77 to 62.83 1,746,629 1.11% 0.75% 39.15%
BlackRock Basic Value V.I. Fund - Class I
-------------------------------------------------
2011 - $ 9.45 $ - 0.30% 0.20% -2.64%
2010 19,913 9.71 193,266 1.59% 0.20% 12.58%
2009 20,299 8.62 175,001 2.05% 0.20% 30.88%
2008 20,700 6.59 to 10.05 136,361 2.43% 0.20% to 0.65% -37.18% to -34.13%
2007 13,713 15.99 219,289 1.59% 0.65% 1.16%
VA II - 41
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
---------------------------------- -------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest/(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------- -------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. - Initial Shares
-------------------------------------------------
2011 180,429 $10.33 to 24.63 $3,304,407 1.85% 0.75% to 0.90% 0.97% to 1.12%
2010 189,415 10.22 to 24.40 3,472,051 1.73% to 1.76% 0.75% to 0.90% 13.81% to 13.98%
2009 197,620 8.96 to 21.44 3,200,300 1.90% to 1.98% 0.75% to 0.90% 25.20% to 25.39%
2008 227,770 7.15 to 17.12 2,973,977 2.14% to 2.21% 0.75% to 0.90% -37.71% to -37.61%
2007 248,195 11.46 to 27.49 5,333,695 1.66% to 1.72% 0.75% to 0.90% 4.31% to 4.46%
Dreyfus VIF Small Company Stock Portfolio -
Initial Shares /(4)/
-------------------------------------------------
2007 - $ - $ - 0.00% 0.75% to 0.90% 8.62% to 8.67%
Fidelity VIP Asset Manager Portfolio - Initial
Class
-------------------------------------------------
2011 52,446 $13.17 to 23.25 $ 988,841 2.02% 0.75% to 0.90% -3.43% to -3.29%
2010 53,852 13.62 to 24.08 1,060,825 1.66% 0.75% to 0.90% 13.24% to 13.41%
2009 56,118 12.01 to 21.26 990,924 2.31% 0.75% to 0.90% 27.96% to 28.15%
2008 60,288 9.37 to 16.62 849,376 2.69% 0.75% to 0.90% -29.36% to -29.25%
2007 66,707 13.25 to 23.52 1,345,593 5.88% 0.75% to 0.90% 14.46% to 14.64%
Fidelity VIP Contrafund Portfolio - Initial Class
-------------------------------------------------
2011 125,095 $10.38 to 21.61 $2,025,569 0.94% 0.10% to 0.90% -3.40% to -2.62%
2010 160,022 10.66 to 22.37 2,605,291 0.84% to 2.09% 0.10% to 0.90% 16.17% to 25.76%
2009 239,270 9.61 to 19.26 3,044,674 1.32% to 1.47% 0.20% to 0.90% 34.49% to 35.44%
2008 236,440 7.11 to 14.32 2,309,457 1.00% to 1.48% 0.20% to 0.90% -43.03% to -42.63%
2007 182,960 12.42 to 25.13 3,602,358 0.68% to 0.95% 0.20% to 0.90% 16.53% to 17.36%
Fidelity VIP Growth Portfolio - Initial Class
-------------------------------------------------
2011 168,048 $ 8.74 to 21.89 $2,813,320 0.38% 0.75% to 0.90% -0.69% to -0.54%
2010 172,435 8.79 to 22.04 2,904,751 0.27% 0.75% to 0.90% 23.06% to 23.25%
2009 179,689 7.13 to 17.91 2,435,498 0.42% 0.75% to 0.90% 27.14% to 27.33%
2008 196,670 5.60 to 14.09 2,148,511 0.84% 0.75% to 0.90% -47.64% to -47.56%
2007 204,009 10.68 to 26.91 4,380,654 0.83% 0.75% to 0.90% 25.82% to 26.01%
Fidelity VIP High Income Portfolio - Initial Class
-------------------------------------------------
2011 25,590 $17.42 to 18.04 $ 456,123 6.80% 0.75% to 0.90% 3.10% to 3.26%
2010 27,352 16.87 to 17.49 472,198 7.10% 0.75% to 0.90% 12.80% to 12.97%
2009 33,813 14.93 to 15.51 517,843 8.08% 0.75% to 0.90% 42.67% to 42.88%
2008 37,026 10.45 to 10.87 397,433 9.25% 0.75% to 0.90% -25.66% to -25.55%
2007 39,841 14.04 to 14.62 574,892 8.04% 0.75% to 0.90% 1.86% to 2.01%
Fidelity VIP Index 500 Portfolio - Initial Class
-------------------------------------------------
2011 - $11.49 $ - 0.00% 0.20% 1.84%
2010 13,818 11.28 to 15.81 155,861 1.92% 0.20% to 0.65% 14.28% to 14.79%
2009 14,068 9.83 to 13.83 138,231 2.46% 0.20% to 0.65% 25.79% to 26.35%
2008 14,328 7.34 to 11.00 111,419 0.61% 0.20% to 0.65% -37.41% to -37.12%
2007 80,631 11.71 to 17.57 1,004,086 4.13% 0.20% to 0.65% 4.75% to 5.23%
VA II - 42
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
---------------------------------- -------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest/(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------- -------------------------------------------------------------------
Fidelity VIP Investment Grade Bond Portfolio -
Initial Class
-------------------------------------------------
2011 34,988 $17.42 to 22.89 $ 730,922 3.19% 0.75% to 0.90% 6.37% to 6.53%
2010 38,637 16.35 to 21.52 752,698 3.34% 0.75% to 0.90% 6.84% to 7.00%
2009 48,893 15.28 to 20.14 905,771 8.69% 0.75% to 0.90% 14.69% to 14.86%
2008 54,366 13.30 to 17.56 868,177 4.17% 0.75% to 0.90% -4.12% to -3.97%
2007 56,889 13.85 to 18.32 949,487 4.09% 0.75% to 0.90% 3.41% to 3.56%
Fidelity VIP Money Market Portfolio - Initial Class
-------------------------------------------------
2011 158,362 $11.80 to 14.97 $2,027,826 0.11% 0.75% to 0.90% -0.79% to -0.64%
2010 179,856 11.87 to 15.09 2,341,236 0.18% 0.75% to 0.90% -0.66% to -0.51%
2009 158,477 11.93 to 15.19 2,094,995 0.77% 0.75% to 0.90% -0.18% to -0.03%
2008 177,442 11.94 to 15.21 2,375,847 3.02% 0.75% to 0.90% 2.10% to 2.25%
2007 193,843 11.67 to 14.90 2,547,711 5.78% 0.75% to 0.90% 4.26% to 4.42%
Fidelity VIP Overseas Portfolio - Initial Class
-------------------------------------------------
2011 15,981 $16.08 $ 256,912 1.39% 0.90% -17.91%
2010 18,345 19.58 359,238 1.19% 0.90% 12.10%
2009 23,691 17.47 413,830 1.80% 0.90% 25.40%
2008 32,797 13.93 456,874 2.65% 0.90% -44.31%
2007 35,633 25.01 891,301 3.36% 0.90% 16.26%
Franklin Templeton Franklin Money Market Fund -
Class 1/ (7)/
-------------------------------------------------
2008 - $ - $ - 2.44% 0.45% 0.90%
2007 25,178 10.62 to 10.75 267,311 5.79% 0.20% to 0.65% 3.83% to 4.30%
Franklin Templeton Templeton Foreign Securities
Fund - Class 2
-------------------------------------------------
2011 - $ 8.45 $ - 3.36% 0.20% -10.81%
2010 21,497 9.48 203,692 1.77% 0.20% 8.19%
2009 21,915 8.76 191,933 3.07% 0.20% 36.77%
2008 22,350 6.40 to 10.11 143,120 2.43% 0.20% to 0.65% -40.76% to -35.96%
2007 14,304 17.07 244,106 1.98% 0.65% 14.71%
Franklin Templeton Templeton Global Asset
Allocation Fund - Class 1 /(11)/
-------------------------------------------------
2010 - $ - $ - 11.22% 0.75% 3.74%
2009 28,151 15.85 446,108 8.90% 0.75% 21.30%
2008 28,845 13.06 376,848 11.00% 0.75% -25.53%
2007 31,206 17.54 547,451 19.65% 0.75% 9.49%
Invesco V.I. Capital Appreciation Fund - Series I
-------------------------------------------------
2011 47,770 $ 6.92 to 10.03 $ 417,913 0.16% 0.75% to 0.90% -8.73% to -8.60%
2010 49,458 7.57 to 10.99 473,452 0.72% 0.75% to 0.90% 14.45% to 14.63%
2009 50,821 6.61 to 9.60 424,617 0.62% 0.75% to 0.90% 19.99% to 20.17%
2008 54,284 5.50 to 8.00 382,790 0.00% 0.75% to 0.90% -43.01% to -42.92%
2007 60,658 9.63 to 14.04 752,584 0.00% 0.75% to 0.90% 11.00% to 11.17%
VA II - 43
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
--------------------------------- -------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest/(1)/ Lowest to Highest/(2)/ Lowest to Highest/(3)/
------------------------------------------------ -------------------------------------------------------------------
Invesco V.I. International Growth Fund - Series I
------------------------------------------------
2011 43,929 $14.34 to 17.85 $ 719,412 1.67% 0.75% to 0.90% -7.58% to -7.44%
2010 51,671 15.49 to 19.31 916,566 2.24% 0.75% to 0.90% 11.85% to 12.02%
2009 54,806 13.83 to 17.27 876,613 1.41% 0.75% to 0.90% 34.03% to 34.23%
2008 64,578 10.30 to 12.88 771,456 0.50% 0.75% to 0.90% -40.92% to -40.83%
2007 78,045 17.41 to 21.80 1,590,198 0.44% 0.75% to 0.90% 13.69% to 13.86%
Invesco Van Kampen V.I. Mid Cap Value Fund -
Series I
------------------------------------------------
2011 - $12.19 $ - 0.00% 0.45% 0.47%
2010 - 12.13 - 0.00% 0.45% 21.69%
2009 - 9.97 - 0.00% 0.45% 38.58%
2008 - 7.19 - 1.62% 0.45% -41.55%
2007 23,060 12.31 to 22.65 283,772 1.15% 0.20% to 0.65% 7.14% to 7.63%
JPMorgan Bond Portfolio/ (8)/
------------------------------------------------
2009 - $ - $ - 11.94% 0.75% -1.64%
2008 11,176 10.77 120,362 9.07% 0.75% -16.58%
2007 11,652 12.91 150,436 6.87% 0.75% 0.57%
JPMorgan Insurance Trust Core Bond Portfolio -
Class 1 /(8)/
------------------------------------------------
2011 9,163 $12.23 $ 112,059 4.69% 0.75% 6.66%
2010 8,451 11.47 96,894 3.47% 0.75% 8.42%
2009 10,178 10.58 107,642 0.00% 0.75% 5.76%
JPMorgan Insurance Trust U.S. Equity Portfolio -
Class 1 /(9)/
------------------------------------------------
2011 7,784 $14.61 $ 113,760 1.23% 0.75% -2.60%
2010 7,780 15.00 116,745 0.84% 0.75% 12.73%
2009 8,351 13.31 111,158 0.00% 0.75% 33.11%
JPMorgan U.S. Large Cap Core Equity
Portfolio /(9)/
------------------------------------------------
2009 - $ - $ - 4.97% 0.75% -1.30%
2008 10,255 6.78 69,526 1.33% 0.75% -34.47%
2007 10,766 10.35 111,387 1.04% 0.75% 0.90%
Neuberger Berman AMT Partners Portfolio - Class I
------------------------------------------------
2011 11,371 $12.05 $ 136,989 0.00% 0.75% -12.02%
2010 11,691 13.69 160,085 0.70% 0.75% 14.80%
2009 11,741 11.93 140,047 2.17% 0.75% 54.91%
2008 17,886 7.70 137,716 0.65% 0.75% -52.75%
2007 17,450 16.30 284,355 0.72% 0.75% 8.51%
Neuberger Berman AMT Short Duration Bond
Portfolio - Class I
------------------------------------------------
2011 10,151 $12.45 $ 126,374 3.66% 0.75% -0.46%
2010 11,833 12.51 147,986 5.17% 0.75% 4.50%
2009 12,595 11.97 150,745 8.65% 0.75% 12.48%
2008 10,881 10.64 115,782 4.56% 0.75% -14.08%
2007 12,474 12.38 154,465 2.69% 0.75% 3.98%
VA II - 44
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
------------------------------------ -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
--------------------------------------------------- -----------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA - Non-Service
Shares
------------------------------------------------------
2011 39,404 $ 11.74 $ 462,505 1.36% 0.75% -8.97%
2010 43,014 12.89 554,648 1.42% 0.75% 15.10%
2009 47,123 11.20 527,921 2.22% 0.75% 38.73%
2008 53,478 8.08 431,867 1.53% 0.75% -40.64%
2007 53,541 13.60 728,350 1.24% 0.75% 5.52%
Oppenheimer Main Street Fund/VA - Non-Service Shares
------------------------------------------------------
2011 38,139 $ 10.59 $ 403,982 0.82% 0.75% -0.76%
2010 38,615 10.67 412,157 1.15% 0.75% 15.24%
2009 50,767 9.26 470,198 1.87% 0.75% 27.33%
2008 57,343 7.27 417,120 1.62% 0.75% -38.93%
2007 61,059 11.91 727,276 0.96% 0.75% 3.64%
PIMCO VIT Real Return Portfolio - Administrative
Class
------------------------------------------------------
2011 10,937 $ 12.62 to 12.93 $ 141,448 3.40% 0.10% to 0.20% 11.44% to 11.55%
2010 189,442 11.32 to 13.19 2,148,148 1.44% 0.10% to 0.45% 2.89% to 7.89%
2009 216,159 10.50 to 12.26 2,328,964 3.04% 0.20% to 0.45% 17.83% to 18.12%
2008 213,380 8.89 to 11.07 1,937,932 3.69% 0.20% to 0.65% -11.15% to -7.45%
2007 172,055 11.24 to 11.99 2,046,406 4.95% 0.45% to 0.65% 9.91% to 10.13%
PIMCO VIT Total Return Portfolio - Administrative
Class
------------------------------------------------------
2011 - $ 12.83 $ - 3.19% 0.20% 3.40%
2010 19,517 12.41 242,256 2.45% 0.20% 7.89%
2009 19,887 11.50 228,797 5.27% 0.20% 13.81%
2008 20,272 10.11 to 12.13 204,927 4.78% 0.20% to 0.65% 1.09% to 4.32%
2007 38,170 11.31 to 11.65 437,539 5.15% 0.45% to 0.65% 8.03% to 8.25%
SunAmerica Aggressive Growth Portfolio - Class 1
------------------------------------------------------
2011 165,733 $ 7.07 to 9.26 $ 1,449,380 0.00% 0.75% -2.71%
2010 169,271 7.27 to 9.52 1,527,624 0.00% 0.75% 20.26%
2009 173,292 6.04 to 7.91 1,296,608 0.14% 0.75% 39.43%
2008 170,282 4.33 to 5.68 915,539 0.65% 0.75% -52.99%
2007 184,839 9.22 to 12.07 2,114,418 0.63% 0.75% -1.24%
SunAmerica Alliance Growth Portfolio - Class 1
------------------------------------------------------
2011 311,279 $ 8.61 to 8.71 $ 2,706,174 0.50% 0.75% -3.03%
2010 354,632 8.88 to 8.98 3,179,878 0.80% 0.75% 9.42%
2009 371,977 8.11 to 8.21 3,048,459 0.60% 0.75% 39.98%
2008 410,595 5.80 to 5.86 2,404,044 0.16% 0.75% -41.18%
2007 456,661 9.86 to 9.97 4,546,600 0.05% 0.75% 13.74%
SunAmerica Balanced Portfolio - Class 1
------------------------------------------------------
2011 78,163 $ 10.35 to 10.84 $ 834,869 1.84% 0.75% 1.51%
2010 78,436 10.20 to 10.68 825,287 1.81% 0.75% 11.00%
2009 94,413 9.19 to 9.62 895,056 3.00% 0.75% 23.10%
2008 128,726 7.46 to 7.81 994,589 3.34% 0.75% -26.45%
2007 149,012 10.14 to 10.62 1,565,780 2.91% 0.75% 4.61%
VA II - 45
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
-------------------------------------- -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
-------------------------------------------- -----------------------------------------------------------------------
SunAmerica Blue Chip Growth Portfolio -
Class 1
----------------------------------------------------
2011 6,682 $ 6.31 $ 42,147 0.17% 0.75% -6.29%
2010 11,921 6.73 80,245 0.28% 0.75% 11.68%
2009 11,303 6.03 68,128 0.29% 0.75% 35.82%
2008 15,760 4.44 69,944 0.55% 0.75% -39.46%
2007 21,873 7.33 160,346 0.34% 0.75% 13.21%
SunAmerica Capital Growth Portfolio - Class 1
----------------------------------------------------
2011 4,033 $ 7.45 $ 30,062 0.00% 0.75% -2.05%
2010 4,020 7.61 30,595 0.00% 0.75% 8.42%
2009 5,619 7.02 39,446 0.00% 0.75% 42.42%
2008 9,895 4.93 48,772 0.00% 0.75% -45.57%
2007 7,118 9.06 64,465 0.95% 0.75% 12.70%
SunAmerica Cash Management Portfolio - Class
1
----------------------------------------------------
2011 130,453 $ 11.96 $ 1,560,002 0.00% 0.75% -1.02%
2010 115,026 12.08 1,389,656 0.00% 0.75% -0.98%
2009 195,351 12.20 2,383,428 2.53% 0.75% -0.70%
2008 198,311 12.29 2,436,538 2.93% 0.75% 0.42%
2007 193,122 12.23 2,362,757 3.88% 0.75% 3.72%
SunAmerica Corporate Bond Portfolio - Class 1
----------------------------------------------------
2011 18,021 $ 21.67 $ 390,563 6.90% 0.75% 5.62%
2010 16,751 20.52 343,723 7.57% 0.75% 10.14%
2009 20,101 18.63 374,483 6.92% 0.75% 29.99%
2008 15,476 14.33 221,803 4.49% 0.75% -8.47%
2007 18,613 15.66 291,427 3.75% 0.75% 4.68%
SunAmerica Davis Venture Value Portfolio -
Class 1
----------------------------------------------------
2011 72,926 $ 20.76 $ 1,514,206 1.31% 0.75% -4.94%
2010 80,926 21.84 1,767,696 0.71% 0.75% 11.35%
2009 84,538 19.62 1,658,434 1.42% 0.75% 32.51%
2008 116,856 14.80 1,730,056 1.73% 0.75% -38.62%
2007 139,771 24.12 3,371,406 0.89% 0.75% 4.86%
SunAmerica "Dogs" of Wall Street Portfolio -
Class 1
----------------------------------------------------
2011 16,499 $ 14.94 $ 246,490 2.28% 0.75% 11.84%
2010 16,220 13.36 216,672 2.83% 0.75% 15.87%
2009 15,124 11.53 174,353 3.99% 0.75% 19.25%
2008 21,755 9.67 210,320 3.34% 0.75% -27.14%
2007 26,790 13.27 355,467 2.38% 0.75% -2.67%
SunAmerica Emerging Markets Portfolio -
Class 1
----------------------------------------------------
2011 36,557 $ 22.67 $ 828,755 0.60% 0.75% -26.64%
2010 40,556 30.90 1,253,273 1.34% 0.75% 17.63%
2009 42,594 26.27 1,118,933 0.00% 0.75% 75.33%
2008 59,199 14.98 886,971 1.79% 0.75% -56.94%
2007 61,230 34.79 2,130,462 1.99% 0.75% 40.32%
VA II - 46
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
------------------------------------ -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
------------------------------------------ -----------------------------------------------------------------------
SunAmerica Equity Opportunities Portfolio -
Class 1
---------------------------------------------
2011 28,161 $ 11.54 $ 325,016 0.58% 0.75% -0.85%
2010 27,487 11.64 319,958 0.69% 0.75% 16.22%
2009 27,800 10.02 278,455 1.19% 0.75% 31.11%
2008 34,960 7.64 267,085 1.57% 0.75% -38.93%
2007 34,314 12.51 429,288 1.75% 0.75% -0.64%
SunAmerica Fundamental Growth Portfolio -
Class 1
---------------------------------------------
2011 93,966 $ 7.25 $ 681,516 0.00% 0.75% -6.19%
2010 107,513 7.73 831,183 0.00% 0.75% 16.13%
2009 115,572 6.66 769,354 0.00% 0.75% 34.96%
2008 131,731 4.93 649,762 0.00% 0.75% -45.25%
2007 141,156 9.01 1,271,719 0.00% 0.75% 14.28%
SunAmerica Global Bond Portfolio - Class 1
---------------------------------------------
2011 27,259 $ 16.95 to 18.51 $ 487,675 2.23% 0.75% 4.96%
2010 24,301 16.15 to 17.64 416,616 4.40% 0.75% 5.49%
2009 25,083 15.31 to 16.72 407,758 2.81% 0.75% 6.69%
2008 38,928 14.35 to 15.67 592,223 3.58% 0.75% 4.88%
2007 39,853 13.68 to 14.94 574,307 0.57% 0.75% 10.54%
SunAmerica Global Equities Portfolio -
Class 1
---------------------------------------------
2011 42,486 $ 9.56 $ 405,958 0.99% 0.75% -11.05%
2010 45,018 10.74 483,613 1.65% 0.75% 13.49%
2009 46,646 9.47 441,540 2.53% 0.75% 28.43%
2008 58,075 7.37 428,034 2.36% 0.75% -43.81%
2007 58,621 13.12 769,002 1.23% 0.75% 11.03%
SunAmerica Growth Opportunities Portfolio -
Class 1
---------------------------------------------
2011 17,012 $ 5.95 $ 101,146 0.00% 0.75% -3.09%
2010 15,233 6.14 93,459 0.00% 0.75% 23.41%
2009 11,943 4.97 59,376 0.00% 0.75% 17.37%
2008 17,092 4.24 72,397 0.00% 0.75% -36.36%
2007 21,342 6.66 142,042 0.00% 0.75% 20.65%
SunAmerica Growth-Income Portfolio - Class 1
---------------------------------------------
2011 182,086 $ 9.55 to 10.29 $ 1,818,041 0.94% 0.75% 7.53%
2010 201,392 8.88 to 9.57 1,870,041 0.93% 0.75% 10.67%
2009 194,075 8.02 to 8.65 1,630,318 1.38% 0.75% 27.22%
2008 224,461 6.30 to 6.80 1,482,523 1.17% 0.75% -43.33%
2007 247,908 11.13 to 12.00 2,895,990 0.95% 0.75% 10.28%
SunAmerica High-Yield Bond Portfolio -
Class 1
---------------------------------------------
2011 13,465 $ 17.01 $ 228,976 8.78% 0.75% 3.50%
2010 13,079 16.43 214,895 12.36% 0.75% 13.75%
2009 15,773 14.44 227,834 9.48% 0.75% 40.96%
2008 13,854 10.25 141,964 11.73% 0.75% -32.66%
2007 14,869 15.22 226,263 7.32% 0.75% 0.62%
VA II - 47
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
------------------------------------ -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
------------------------------------------ -----------------------------------------------------------------------
SunAmerica International Diversified
Equities Portfolio - Class 1
---------------------------------------------
2011 46,195 $ 8.79 $ 406,012 2.13% 0.75% -15.24%
2010 53,907 10.37 559,000 3.56% 0.75% 7.69%
2009 57,796 9.63 556,550 1.21% 0.75% 28.18%
2008 75,503 7.51 567,220 3.52% 0.75% -39.92%
2007 77,423 12.50 968,063 2.04% 0.75% 14.48%
SunAmerica International Growth and Income
Portfolio - Class 1
---------------------------------------------
2011 54,049 $ 10.24 $ 553,292 3.05% 0.75% -14.44%
2010 60,338 11.96 721,882 3.78% 0.75% 6.30%
2009 66,782 11.25 751,624 0.00% 0.75% 26.80%
2008 73,158 8.88 649,356 2.74% 0.75% -46.31%
2007 89,375 16.53 1,477,656 1.66% 0.75% 6.36%
SunAmerica Marsico Focused Growth Portfolio
- Class 1
---------------------------------------------
2011 46,720 $ 12.52 $ 584,998 0.33% 0.75% -2.17%
2010 47,418 12.80 606,921 0.39% 0.75% 16.53%
2009 50,075 10.98 549,988 0.81% 0.75% 29.73%
2008 55,696 8.47 471,549 0.52% 0.75% -41.26%
2007 57,506 14.41 828,903 0.21% 0.75% 12.80%
SunAmerica MFS Massachusetts Investors
Trust Portfolio - Class 1
---------------------------------------------
2011 40,439 $ 10.79 $ 436,244 0.70% 0.75% -2.64%
2010 42,012 11.08 465,519 0.90% 0.75% 10.36%
2009 46,350 10.04 465,368 1.36% 0.75% 25.79%
2008 44,657 7.98 356,447 1.09% 0.75% -32.94%
2007 52,625 11.90 626,413 1.12% 0.75% 9.74%
SunAmerica MFS Total Return Portfolio -
Class 1
---------------------------------------------
2011 43,060 $ 16.47 $ 709,219 2.63% 0.75% 1.17%
2010 48,558 16.28 790,561 3.18% 0.75% 9.22%
2009 58,342 14.91 869,682 3.54% 0.75% 17.59%
2008 73,915 12.68 936,964 3.38% 0.75% -22.60%
2007 81,599 16.38 1,336,467 2.70% 0.75% 3.46%
SunAmerica Mid-Cap Growth Portfolio - Class
1
---------------------------------------------
2011 218,790 $ 6.80 to 11.23 $ 1,975,372 0.00% 0.75% -6.63%
2010 241,594 7.29 to 12.02 2,340,092 0.00% 0.75% 24.52%
2009 240,995 5.85 to 9.66 1,862,425 0.00% 0.75% 41.36%
2008 281,282 4.14 to 6.83 1,582,403 0.00% 0.75% -43.79%
2007 305,617 7.36 to 12.15 3,086,681 0.26% 0.75% 16.06%
SunAmerica Real Estate Portfolio - Class 1
---------------------------------------------
2011 17,238 $ 26.24 $ 452,344 0.89% 0.75% 7.34%
2010 22,356 24.45 546,534 1.84% 0.75% 19.00%
2009 19,732 20.54 405,340 1.88% 0.75% 28.82%
2008 25,194 15.95 401,775 3.59% 0.75% -44.32%
2007 29,385 28.64 841,550 1.46% 0.75% -14.99%
VA II - 48
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
------------------------------------ -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
------------------------------------------ -----------------------------------------------------------------------
SunAmerica Technology Portfolio - Class 1
---------------------------------------------
2011 32,812 $ 2.44 $ 80,005 0.00% 0.75% -6.09%
2010 44,101 2.60 114,501 0.00% 0.75% 19.37%
2009 41,921 2.17 91,178 0.00% 0.75% 49.28%
2008 65,192 1.46 94,982 0.00% 0.75% -51.50%
2007 55,541 3.00 166,856 0.00% 0.75% 21.02%
SunAmerica Telecom Utility Portfolio -
Class 1
---------------------------------------------
2011 30,494 $ 12.21 $ 372,382 2.42% 0.75% 5.47%
2010 30,067 11.58 348,113 2.76% 0.75% 12.74%
2009 29,283 10.27 300,739 5.27% 0.75% 31.08%
2008 30,913 7.84 242,205 2.67% 0.75% -37.91%
2007 27,255 12.62 343,922 2.83% 0.75% 20.00%
SunAmerica Total Return Bond Portfolio -
Class 1
---------------------------------------------
2011 13,089 $ 21.40 $ 280,104 2.08% 0.75% 5.57%
2010 4,717 20.27 95,609 1.92% 0.75% 5.55%
2009 2,959 19.20 56,833 1.66% 0.75% 10.76%
2008 4,195 17.34 72,733 3.19% 0.75% 4.29%
2007 5,333 16.63 88,672 5.56% 0.75% 4.75%
UIF Core Plus Fixed Income Portfolio -
Class I Shares
---------------------------------------------
2011 - $ 12.20 to 13.50 $ - 0.00% 0.20% to 0.65% 4.96% to 5.44%
2010 - 11.58 to 12.86 - 0.00% 0.20% to 0.65% 6.45% to 6.93%
2009 - 10.83 to 12.08 - 0.00% 0.20% to 0.65% 8.93% to 9.43%
2008 - 9.89 to 11.09 - 0.00% 0.20% to 0.65% -10.79% to -10.38%
2007 - 11.04 to 12.43 - 9.34% 0.20% to 0.65% 4.77% to 5.24%
UIF Mid Cap Growth Portfolio - Class I
Shares
---------------------------------------------
2011 15,771 $ 11.93 $ 188,220 0.35% 0.10% -7.21%
2010 16,029 12.86 to 13.97 206,169 0.00% 0.10% to 0.45% 30.68% to 31.72%
2009 47,743 10.60 506,282 0.00% 0.45% 56.95%
2008 43,869 6.76 296,394 0.64% 0.45% -47.01%
2007 17,827 12.75 227,278 0.00% 0.45% 22.11%
VALIC Company I International Equities Fund
---------------------------------------------
2011 87,369 $ 7.41 to 7.91 $ 690,756 2.38% 0.10% to 0.20% -13.27% to -13.19%
2010 128,202 8.55 to 9.58 1,145,480 0.41% 0.10% to 0.45% 7.98% to 24.39%
2009 295,929 7.90 to 8.87 2,585,680 2.85% 0.20% to 0.45% 29.02% to 29.34%
2008 248,541 6.10 to 11.81 1,677,157 5.02% 0.20% to 0.65% -43.76% to -38.95%
2007 98,155 12.20 to 21.00 1,385,545 2.94% 0.45% to 0.65% 8.06% to 8.28%
VALIC Company I Small Cap Index Fund
---------------------------------------------
2011 13,865 $ 10.58 to 10.73 $ 148,728 0.49% 0.10% to 0.20% -4.50% to -4.40%
2010 43,725 11.08 to 11.22 486,485 0.46% to 1.32% 0.10% to 0.45% 25.98% to 30.13%
2009 77,246 8.77 to 8.79 678,593 1.77% 0.20% to 0.45% 27.65% to 27.97%
2008 71,576 6.86 to 11.00 492,030 2.16% 0.20% to 0.65% -34.90% to -31.44%
2007 36,738 10.56 to 16.89 510,636 1.42% 0.45% to 0.65% -2.53% to -2.33%
VA II - 49
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
A summary of units outstanding, unit values, and net assets for the variable
life policies and the investment income ratios, expense ratios (excluding
expenses of the underlying Sub-accounts) and total returns for each of the five
years in the period ended December 31, 2011 are as follows:
At December 31 For the year ended December 31
---------------------------------- -----------------------------------------------------------------------
Investment Income
Unit Value Ratio Expense Ratio Total Return
Units Lowest to Highest Net Assets Lowest to Highest /(1)/ Lowest to Highest /(2)/ Lowest to Highest /(3)/
---------------------------------------- -----------------------------------------------------------------------
Van Eck VIP Emerging Markets Fund -
Initial Class
-------------------------------------------
2011 13,425 $ 20.84 $ 279,778 1.13% 0.90% -26.40%
2010 15,160 28.32 429,254 0.52% 0.90% 25.70%
2009 14,436 22.53 325,188 0.18% 0.90% 111.27%
2008 18,209 10.66 194,144 0.00% 0.90% -65.10%
2007 21,582 30.55 659,252 0.48% 0.90% 36.38%
Van Eck VIP Global Hard Assets Fund -
Initial Class
-------------------------------------------
2011 6,823 $ 36.71 $ 250,427 1.26% 0.90% -17.20%
2010 7,531 44.33 333,860 0.42% 0.90% 28.08%
2009 13,178 34.61 456,095 0.28% 0.90% 56.12%
2008 17,599 22.17 390,151 0.36% 0.90% -46.61%
2007 20,292 41.52 842,576 0.09% 0.90% 44.05%
Vanguard VIF Total Bond Market Index
Portfolio
-------------------------------------------
2011 - $ 12.44 $ - 6.68% 0.20% 7.44%
2010 14,380 11.58 166,560 3.58% 0.20% 6.29%
2009 14,655 10.90 159,705 4.28% 0.20% 5.73%
2008 14,941 10.31 to 11.98 154,002 4.24% 0.20% to 0.65% 3.07% to 4.55%
2007 12,980 11.46 148,788 3.94% 0.65% 6.29%
/(1)/ These amounts represent the dividends, excluding capital gain
distributions from mutual funds, received by the Sub-account from the
underlying mutual fund, net of management fees assessed by the fund
manager, divided by the average net assets. These ratios exclude those
expenses, such as mortality and expense risk charges, that result in
direct reduction in the unit value. The recognition of investment income
by the Sub-account is affected by the timing of the declaration of
dividends by the underlying fund in which the Sub-accounts invest. In
2011 these amounts represent the aggregate ratio of each underlying fund,
rather than a range as presented in prior years.
/(2)/ These amounts represent the annualized policy expenses of the Account,
consisting primarily of mortality and expense risk charges, for each year
indicated. These ratios include only those expenses that result in a
direct reduction to unit values. Charges made directly to policy owner
accounts through the redemption of units and expenses of the underlying
fund have been excluded.
/(3)/ These amounts represent the total return for the years indicated,
including changes in the value of the underlying Sub-account, and reflect
deductions for those expenses that result in a direct reduction to unit
values. The total return does not include policy charges deducted
directly from account values. For the years ended December 31, 2011,
2010, 2009, 2008, and 2007, a total return was calculated using the
initial unit value for the Sub-account if the Sub-account became an
available investment option during the year and the underlying Fund was
not available at the beginning of the year.
/(4)/ Effective April 30, 2007, Dreyfus VIF Small Company Stock Portfolio -
Initial Shares was closed and liquidated.
/(5)/ Effective April 25, 2008, AllianceBernstein Global Bond Portfolio - Class
A and AllianceBernstein High Yield Portfolio - Class A were acquired by
AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class
A, which subsequently changed its name to AllianceBernstein Intermediate
Bond Portfolio - Class A.
/(6)/ Effective September 26, 2008, AllianceBernstein Balanced Shares - Class A
was acquired by AllianceBernstein Balanced Wealth Strategy Portfolio -
Class A.
/(7)/ Effective April 24, 2009, Franklin Templeton Franklin Money Market Fund -
Class 1 was closed and liquidated.
/(8)/ Effective April 24, 2009, JPMorgan Bond Portfolio was acquired by
JPMorgan Insurance Trust Core Bond Portfolio - Class 1.
VA II - 50
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - FINANCIAL HIGHLIGHTS - CONTINUED
/(9)/ Effective April 24, 2009, JPMorgan U.S. Large Cap Core Equity Portfolio
was acquired by JPMorgan Insurance Trust Diversified Equity Portfolio -
Class 1, which subsequently changed its name to JPMorgan Insurance Trust
U.S. Equity Portfolio - Class 1.
/(10)/Effective September 25, 2009, AllianceBernstein Utility Income Portfolio
- Class A was closed and liquidated.
/(11)/Effective April 30, 2010, Franklin Templeton Templeton Global Asset
Allocation Fund - Class 1 was closed and liquidated.
VA II - 51
AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - OTHER MATTERS
The Company is a subsidiary of American International Group. Information on
American International Group is publicly available in its regulatory filings
with the U.S. Securities and Exchange Commission ("SEC").
VA II - 52
[LOGO]
AMERICAN GENERAL ASSURANCE COMPANY
Audited Statutory Financial Statements
December 31, 2011 and 2010
AMERICAN GENERAL ASSURANCE COMPANY
INDEX TO AUDITED STATUTORY FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
PAGE
Report of Independent Auditors 3
Statutory Financial Statements
Statutory Statements of Admitted Assets, Liabilities and
Capital and Surplus 5 to 6
Statutory Statements of Operations 7
Statutory Statements of Changes in Capital and Surplus 8
Statutory Statements of Cash Flows 9
Notes to Financial Statements - Statutory Basis
1 Nature of Operations 10
2 Summary of Significant Accounting Policies 10
3 Investments 20
4 Fair Value Measurements 25
5 Aggregate Policy Reserves and Deposit Fund
Liabilities 27
6 Premium Deferred and Uncollected 27
7 Reinsurance 28
8 Federal Income Taxes 29
9 Capital and Surplus 33
10 Retirement Plans, Deferred Compensation,
Postemployment Benefits, Compensated Absences and
Other Postretirement Benefit Plans 34
11 Commitments and Contingencies 37
12 Related Party Transactions 38
13 Reconciliation to Annual Statements 39
14 Subsequent Events 39
Supplemental Information
Supplemental Schedule of Assets and Liabilities 41
Supplemental Investment Risks Interrogatories 43
Supplemental Summary Investment Schedule 47
[LOGO]
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
American General Assurance Company
We have audited the accompanying statutory statement of admitted assets,
liabilities and capital and surplus of American General Assurance Company (the
"Company"), an indirect, wholly-owned subsidiary of American International
Group, Inc., as of December 31, 2011 and 2010, and the related statutory
statements of operations, of changes in capital and surplus, and of cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using accounting practices prescribed or permitted by the
Illinois Department of Insurance, which practices differ from 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 and accounting principles generally accepted in the United States of
America are material; they are described in Note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States
of America, the financial position of the Company as of December 31, 2011 and
2010, or the results of its operations or its cash flows for the years then
ended.
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, 2011 and 2010, and the results of its
operations and its cash flows for the years then ended, on the basis of
accounting described in Note 2.
As discussed in Note 2 to the financial statements, in 2010, the Company
received a permitted practice to restate the additional paid-in surplus and
unassigned deficit components of surplus, similar to the statutory basis of
accounting for a quasi-reorganization.
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, TX 77002-5678
T: (713) 356 4000, F: (713) 356 4714, www.pwc.com/us
Our audit was conducted for the purpose of forming an opinion on the basic
statutory basis financial statements taken as a whole. The accompanying
Supplemental Schedule of Assets and Liabilities, Supplemental Summary
Investment Schedule and Supplemental Investment Risk Interrogatories
(collectively, the "Schedules") of the Company as of December 31, 2011 and for
the year then ended are presented for purposes of additional analysis and are
not a required part of the basic statutory basis financial statements. The
effects on the Schedules of the variances between the statutory basis of
accounting and accounting principles generally accepted in the United States of
America are material; they are described in Note 2 of the statutory basis
financial statements. As a consequence, the Schedules do not present fairly, in
conformity with accounting principles generally accepted in the United States
of America, such information of the Company as of December 31, 2011 and for the
year then ended. The Schedules have been subjected to the auditing procedures
applied in the audit of the basic statutory basis financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
basic statutory basis financial statements taken as a whole.
[LOGO]
May 25, 2012
AMERICAN GENERAL ASSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS
DECEMBER 31,
-----------------
2011 2010
-------- --------
(In Thousands)
ADMITTED ASSETS
Cash and investments
Bonds - unaffiliated $144,814 $106,572
Bonds - affiliated - 13,000
Preferred stocks 50 49
Common stocks - affiliated 8,534 8,511
Cash, cash equivalents and short-term investments 8,166 38,014
Contract loans 133 225
Other invested assets 1,099 6,855
-------- --------
Total cash and investments 162,796 173,226
Amounts recoverable from reinsurers 577 242
Amounts receivable under reinsurance contracts 262 1,450
Current federal income tax recoverable 2,078 685
Deferred tax asset 4,815 3,260
Accrued investment income 1,288 1,289
Premiums due, deferred and uncollected 7,822 8,433
Receivable from affiliates - 288
Other assets 805 1,434
-------- --------
Total admitted assets $180,443 $190,307
======== ========
See accompanying notes to statutory financial statements.
5
AMERICAN GENERAL ASSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL AND SURPLUS
(CONTINUED)
DECEMBER 31,
-----------------
2011 2010
-------- --------
(In Thousands)
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy reserves and contractual liabilities:
Life and annuity reserves $ 7,952 $ 7,803
Liabilities for deposit-type contracts 799 721
Accident and health reserves 44,006 43,390
Policy and contract claims 8,418 10,920
-------- --------
Total policy reserves and contractual liabilities 61,175 62,834
Experience rated refund 5,166 6,505
Payable to affiliates 47 181
Accrued expenses 5,155 5,854
Other liabilities 4,007 5,061
Asset valuation reserve 2,391 3,819
-------- --------
Total liabilities 77,941 84,254
-------- --------
Capital and surplus:
Common stock 2,500 2,500
Gross paid-in and contributed surplus 40,084 39,951
Special surplus funds 8,339 11,198
Unassigned surplus 51,579 52,404
-------- --------
Total capital and surplus 102,502 106,053
-------- --------
Total liabilities and capital and surplus $180,443 $190,307
======== ========
See accompanying notes to statutory financial statements.
6
AMERICAN GENERAL ASSURANCE COMPANY
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED
DECEMBER 31,
----------------
2011 2010
------- -------
(In Thousands)
REVENUES
Premiums and annuity considerations $43,389 $53,358
Net investment income 12,713 10,206
Amortization of interest maintenance reserve (963) (936)
Commissions and expense allowances 6,344 8,344
Other income 6 2
------- -------
Total revenues 61,489 70,974
------- -------
BENEFITS AND EXPENSES
Death benefits 8,910 6,987
Surrender benefits 115 24
Other benefits 14,474 16,707
Change in life, annuity, accident and health reserves (1,142) (5,802)
Commissions 20,424 26,977
General insurance expenses 5,968 9,868
Taxes, licenses, and fees 2,000 1,868
Other expenses 10 25
------- -------
Total benefits and expenses 50,759 56,654
------- -------
Net gain from operations before federal income taxes 10,730 14,320
Federal income tax 1,703 4,602
------- -------
Net gain from operations 9,027 9,718
Net realized capital gains 18 2,021
------- -------
Net income $ 9,045 $11,739
======= =======
See accompanying notes to statutory financial statements.
7
AMERICAN GENERAL ASSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
COMMON GROSS PAID-
AND IN AND SPECIAL
PREFERRED CONTRIBUTED SURPLUS UNASSIGNED TOTAL CAPITAL
STOCK SURPLUS FUNDS SURPLUS AND SURPLUS
--------- ----------- ------- ---------- -------------
(In Thousands)
Balance at January 1,
2010 $2,500 $39,909 $19,974 $ 30,584 $ 92,967
Net income 11,739 11,739
Net change in
unrealized
capital losses (241) (241)
Change in deferred
tax (1,101) (1,101)
Change in
non-admitted
assets 1,989 1,989
Change in
liability for
reinsurance in
unauthorized
companies 348 348
Change in asset
valuation reserve 327 327
Impact of SSAP 10R
incremental
deferred tax
assets (17) (17)
Change in
additional
paid-in surplus 42 42
Amortization of
special surplus (8,759) 8,759 -
------ ------- ------- -------- --------
Balance at
December 31, 2010 2,500 39,951 11,198 52,404 106,053
Net income 9,045 9,045
Net change in
unrealized
capital losses (3,292) (3,292)
Change in deferred
tax 2,409 2,409
Change in
non-admitted
assets (2,987) (2,987)
Change in
liability for
reinsurance in
unauthorized
companies (36) (36)
Change in asset
valuation reserve 1,428 1,428
Impact of SSAP 10R
incremental
deferred tax
assets 1,524 1,524
Prior period
corrections (See
Note 2) (1,175) (1,175)
Change in
additional
paid-in surplus 133 133
Dividends to
stockholder (10,600) (10,600)
Amortization of
special surplus (4,383) 4,383 -
------ ------- ------- -------- --------
Balance at
December 31, 2011 $2,500 $40,084 $ 8,339 $ 51,579 $102,502
====== ======= ======= ======== ========
See accompanying notes to statutory financial statements.
8
AMERICAN GENERAL ASSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
YEARS ENDED
DECEMBER 31,
-----------------
2011 2010
-------- -------
(In Thousands)
CASH FROM OPERATIONS
Premium and annuity considerations collected, net of
reinsurance $ 43,843 $58,258
Net investment income 12,442 8,642
Other income 6,350 8,286
-------- -------
Total revenues received 62,635 75,186
-------- -------
Benefits paid 25,477 28,520
Commissions and expenses paid 29,071 40,065
Federal income taxes 3,104 2,907
-------- -------
Total benefits and expenses paid 57,652 71,492
-------- -------
Net cash provided by operations 4,983 3,694
-------- -------
CASH FROM INVESTMENTS
Proceeds provided by investments sold, matured or repaid:
Bonds 23,047 21,502
Stocks - 3,033
Other invested assets 632 -
-------- -------
Total proceeds provided by investments sold, matured or
repaid 23,679 24,535
-------- -------
Cost of investments acquired:
Bonds 47,971 16
Other invested assets - 570
-------- -------
Total cost of investments acquired 47,971 586
Net decrease in contract loans (92) (9)
-------- -------
Net cash (used in) provided by investing activities (24,200) 23,958
-------- -------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Net deposits on deposit-type contract funds 65 720
Dividends paid to stockholder (10,600) -
Other, net (96) (2,876)
-------- -------
Net cash used in financing and miscellaneous activities (10,631) (2,156)
-------- -------
Net (decrease) increase in cash and short-term investments (29,848) 25,496
Cash, cash equivalents and short-term investments at
beginning of year 38,014 12,518
-------- -------
Cash, cash equivalents and short-term investments at end of
year $ 8,166 $38,014
======== =======
See accompanying notes to statutory financial statements.
9
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
American General Assurance Company ("AGAC" or the "Company") is a wholly owned
subsidiary of SunAmerica Financial Group, Inc. ("SAFG"), which in turn is an
indirect, wholly owned subsidiary of American International Group, Inc. ("AIG").
The Company is a stock life insurance company domiciled and licensed under the
laws of the State of Illinois and is subject to regulation by the Illinois
Department of Insurance ("ILDOI"). The Company is also subject to regulation by
the states in which it is authorized to transact business.
The Company currently concentrates the marketing of its group life and health
products on worksites and associations. The group products generally include
life, accidental death & dismemberment, critical illness, dental, vision and
disability income coverage. The Company is licensed in 49 states and the
District of Columbia.
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 insurance 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 insurance and financial products.
The Company is exposed to the risks normally associated with a portfolio of
fixed income securities, namely interest rate, option, liquidity and credit
risks. The Company controls its exposure to these risks by, among other things,
closely monitoring and limiting prepayments and extension risk in its
portfolio; engaging in a disciplined process of underwriting; and reviewing and
monitoring credit risk.
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 ILDOI. 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 ILDOI recognizes only statutory accounting practices prescribed or
permitted by the State of Illinois for determining and reporting the financial
condition and results of operations of an insurance company and for determining
its solvency under the Illinois 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 Illinois. The Commissioner of Insurance has the right
to permit other specific practices that deviate from prescribed practices.
The Company does not employ any prescribed or permitted accounting practices
that differ from NAIC SAP.
Certain classifications and format changes have been made to prior year amounts
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 ILDOI 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 revenues and expenses during the period.
10
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 insurance contracts.
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
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 rating 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 rating in over one year from the NAIC's Security Valuation Office
("SVO") receive a "6*" rating and are carried at zero, with the unrealized loss
charged directly to unassigned surplus. Bonds filed with the SVO 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
contracted interest and principal. Securities with NAIC 5* designations are
deemed to possess the credit characteristics of securities assigned a NAIC 5
designation. If the decline in fair value of a bond is considered to be
other-than-temporary, the cost basis is written down to fair value and the
amount of the write-down is recognized as a realized loss. 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 continued
review of its investments. The discount or premium on bonds is amortized using
the effective yield method.
All residential mortgage-backed securities ("RMBS"), commercial mortgage-backed
securities ("CMBS") and asset-backed securities ("ABS") were defined to be
loan-backed and structured securities ("LBaSS") for 2010. The definition of
LBaSS was expanded in 2011 to include certain securities that were previously
accounted for pursuant to the guidance for bonds, other than LBaSS. The
additional securities included in LBaSS in 2011 includes, but is not limited
to, 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 stated at amortized cost, except for those with a NAIC designation of "6"
or "6*". LBaSS with a NAIC 6 rating are carried at the lower of amortized cost
or fair value, with unrealized losses charged directly to unassigned surplus.
LBaSS that have not been filed and have not received a rating in over one year
from the NAIC's SVO receive a "6*" rating and are carried at zero, with the
unrealized loss charged directly to unassigned surplus. Securities filed with
the SVO 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 contracted interest and principal. Securities with a NAIC 5*
designation are deemed to possess the credit characteristics of securities
assigned a NAIC 5 designation. Provisions made for impairment are recorded as
realized investment losses when declines in fair value are determined to be
other than temporary. 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.
11
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Risk-based capital ("RBC") charges are based on the final NAIC designation. For
LBaSS, NAIC designations are determined with a multi-step approach. The initial
designation is used to determine the statement 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 for 2011. The final NAIC
designation for most RMBS and CMBS is determined by financial modeling
conducted by BlackRock and PIMCO, respectively. 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 rating 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 SVO, interest only securities, and those securities with an original
NAIC designation of 1, 5*, 6, or 6*, the final NAIC designation is based on the
SVO or Acceptable Rating Organization ("ARO") rating and is not subject to a
modified rating or financial modeling.
Preferred Stocks
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 investment losses charged
directly to unassigned surplus. Provisions made for impairment are recorded as
realized investment losses when declines in fair value are determined to be
other than temporary.
Common Stocks
Investments in U.S. domiciled insurance Subsidiary, Controlled, and Affiliated
("SCA") entities are recorded based on the underlying audited statutory equity
of the respective entity's statutory financial statements, adjusted for
unamortized goodwill, if applicable. Undistributed equity in earnings of
affiliates is included in unassigned surplus as a component of unrealized
investment gains or losses. Dividends received from such affiliates are
recorded as investment income when received.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments that have original maturities of three months or
less at date of purchase and are stated at amortized cost, which approximates
fair value. Short-term investments consist of securities that have original
maturities of greater than three months and less than twelve months at date of
purchase and are stated at amortized cost, which approximates fair value.
Contract Loans
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.
Other Invested Assets
Other invested assets principally consist of investments in limited
partnerships and limited liability companies and are accounted for using the
equity method. Investments in these assets, except for joint ventures,
partnerships and limited liability companies with a minor ownership interest,
shall be reported using an equity method as defined in Statement of Statutory
Accounting Principles ("SSAP") No. 97 - "Investments in Subsidiary, Controlled
and Affiliated Entities, A Replacement of SSAP No. 88" ("SSAP 97"). Pursuant to
SSAP 97, such investments are generally reported based on audited U.S. GAAP
equity, 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, were generally recorded based on the underlying audited U.S. GAAP
equity of the investee, with some prescribed exceptions. SSAP No. 48 - "Joint
Ventures, Partnerships and Limited Liability Companies" ("SSAP 48"), allows the
use of (a) the U.S. GAAP basis equity as set forth in the footnote
reconciliation of foreign GAAP equity and income to U.S. GAAP within the
audited foreign GAAP financial
12
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
statements or (b) the International Financial Reporting Standards ("IFRS")
basis equity in the audited IFRS prepared financial statements as an acceptable
basis for the valuation of minor/non-controlled investments. In addition, the
audited U.S. tax basis equity may also be used in certain circumstances.
All investments in other invested assets in which underlying 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 as required
by SSAPs 48 and/or 97. The Company did not have any non-admitted partnership
investments at December 31, 2011 and 2010. Undistributed accumulated earnings
of such entities are included in unassigned surplus as a component of
unrealized investment 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 losses.
Investment Income
Due and accrued income is excluded 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 (Losses)
Realized investment 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 ("IMR").
Bonds Impairments
The Company regularly evaluates its investments for 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.
For LBaSS, a non-interest related (i.e., credit 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 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. When this occurs, the LBaSS is written down to fair value.
In assessing whether a non-interest impairment has occurred for LBaSS, the
Company performs evaluations of expected future cash flows. Certain critical
assumptions are made with respect to the performance of the securities. When
estimating future cash flows, management considers historical performance of
underlying assets and available market information as well as bond-specific
structural considerations, such as credit enhancement and priority of payment
structure of the security. In addition, the process of estimating future cash
flows includes, but is not limited to, the following critical inputs, which
vary by asset class:
. Current delinquency rates;
. Expected default rates and timing of such defaults;
. Loss severity and timing of any such recovery;
. Expected prepayment speeds; and
. Ratings of securities underlying structured products.
In periods subsequent to the recognition of an OTTI loss, the Company generally
accretes the difference between the new cost basis and the 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 future estimated cash flows.
13
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Non-admitted Assets
All assets specifically designated as non-admitted and assets not designated as
admitted, such as a negative IMR, a certain portion of DTAs, prepaid assets,
electronic data processing ("EDP") equipment assets, agents' balances or other
receivables over 90 days, 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 amounted to $7 million and $4 million
at December 31, 2011 and 2010, respectively.
IMR
The 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 interest related OTTI occurs when the Company, at the balance
sheet 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 booked to the asset valuation reserve ("AVR"), 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. The negative IMR balances of $3 million and $4
million were considered non-admitted assets at December 31, 2011 and 2010,
respectively.
AVR
The 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 accounted for as direct increases or
decreases in surplus.
Policy Reserves and Deposit Fund Liabilities
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 ILDOI. The Company does not return unearned premiums when a loss is
incurred. The Company returns unearned premiums upon cancellation of its
policies. Additional reserves are established when the results of cash flow
testing under various interest rate scenarios indicate the need for such
reserves or the future valuation of net premiums exceed the future guaranteed
gross premiums on any insurance in force.
The reserve for future policy benefits includes aggregate actuarial reserves
prepared in accordance with state statutes and administrative regulations. The
reserves are stated after deductions for reinsurance ceded to other companies
primarily on a coinsurance basis. The aggregate reserve for life policies has
been calculated primarily using the Net Level Reserve Method. The 1958
Commissioners Standard Ordinary Mortality and the 1980 Commissioners Extended
Term Mortality Table assuming interest rates of 3 percent to 4.5 percent, have
been principally used in making these reserve computations. The aggregate
reserve for accident and health policies consists primarily of Present Value of
Amounts Not Yet Due on claims using the 1987 Commissioners Group Disability
Table using interest rates from 4.00 percent to 4.50 percent.
For future benefits payable on current waiver of premium claims, disabled life
reserves have been based on the 1970 Kreiger Table, assuming an interest rate
from 3.25 percent to 7.75 percent. For claims reported and unreported to the
Company on which available information is insufficient to establish the tabular
reserve, the Company carries an average claims value based on past experience.
The Company performs annual cash flow testing in accordance with the Actuarial
Opinion and Memorandum Regulation to ensure adequacy of the reserves. No
additional reserves were required in 2011 or 2010 as a result of this analysis.
14
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2011, the Company had Life policy reserves of $664 thousand for
which gross premiums are less than the net premiums according to the standard
calculation set by the State of Illinois.
Policy and Contract Claims
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 analysis.
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.
Premiums and Related Expenses
Life premiums are recognized as income over the premium paying periods of the
related policies. Health premiums are earned ratably over the terms of the
related insurance and reinsurance contracts or policies. Acquisition costs such
as sales commissions and other expenses related to the production of new
business are charged to the statutory statements of operations as incurred.
Reinsurance
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.
Allocated Expenses
Pursuant to a cost allocation agreement, the Company purchases administrative,
investment management, accounting, marketing and data processing services from
AIG or its subsidiaries. The allocation of costs for investment management
services is based on the level of assets under management. The allocation of
costs for other services is based on estimated levels of usage, transactions or
time incurred in providing the respective services.
Income Taxes
The Company is included in the consolidated federal income tax return of its
ultimate parent, AIG. Under the tax sharing agreement with AIG, taxes are
recognized and computed on a separate company basis. 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 book 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 book income but not for
taxable 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 net DTA or deferred tax liabilities ("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 and DTL is reflected in a separate component of
unassigned surplus. Net DTA are limited to their admissible amount according to
a prescribed formula.
15
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CORRECTION OF ERRORS
SSAP No. 3, "Accounting Changes and Corrections of Errors" requires that
corrections of errors related to prior periods be reported as adjustments to
unassigned surplus.
During 2011, the Company corrected the long term disability and life reserves
as a result of errors in calculations. These out-of-period errors corrected
change in life, annuity, accident and health reserves, resulting in a $1.2
million decrease to surplus.
These errors are immaterial to the 2011 statutory financial statements taken as
a whole.
ACCOUNTING CHANGES
SSAP 5R
SSAP No. 5, "Liabilities, Contingencies and Impairments of Assets" ("SSAP 5")
was revised ("SSAP 5R") effective January 1, 2011 to adopt Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 460,
Guarantees, with modifications. These revisions require entities to record a
liability it has undertaken in issuing a guarantee even if the likelihood of
having to make a payment under the guarantee is remote. These changes did not
have a material impact on the Company's statutory financial statements.
SSAP 35R
SSAP No. 35, "Guaranty Fund and Other Assessments" ("SSAP 35") was revised
("SSAP 35R") effective January 1, 2011 to adopt the GAAP guidance in ASC 405-30
"Insurance-Related Assessments" (Statement of Position 97-3 "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments") with some
modifications. The revised SSAP modifies the requirement for recognizing
liabilities for insurance related assessments. Under the new guidance the
liability is not recognized until the event obligating the entity to pay a
probable or imposed assessment has occurred. This impacts prospective-premium
based guaranty fund assessments as the event that obligates the entity is the
writing of, or becoming obligated to write or renew the premiums on which
future assessments are to be based. These revisions primarily affect property
and casualty companies and did not have a material impact on the Company's
statutory financial statements.
SSAP 43R
SSAP No. 43R, "Loan-backed and Structured Securities" ("SSAP 43R") was revised
effective January 1, 2011 to require that gains and losses be bifurcated
between the IMR and the AVR based on management's analysis, regardless of
whether the gain or loss occurs due to a sale or a loss occurs due to OTTI.
In addition, revisions to the definition of LBaSS has expanded the population
of investments that are classified as LBaSS, including but not limited to
pass-through securities, lease-backed securities, equipment trust certificates
and credit tenant loans. These changes did not have a material impact on the
Company's statutory financial statements.
SSAP 10R
SSAPs No. 10R, "Income Taxes - Revised, A Temporary Replacement of SSAP No. 10"
("SSAP 10R"), modifies two components of the admission calculation that may be
utilized by certain reporting entities subject to RBC requirements that meet
certain RBC thresholds: a) an up to three year reversal period for temporary
differences instead of one year and b) 15 percent capital and surplus limit
instead of 10 percent. Gross DTA are also subject to reduction by a valuation
allowance if it is more likely than not that some portion or all of the gross
DTA will not be realized. This guidance was originally temporarily effective
for annual 2009 and interim and annual 2010 statutory financial statements.
Subsequent adopted revisions extended the SSAP 10R sunset clause through 2011
and incorporated additional disclosures for tax-planning strategies. The
increased amount in admitted DTA is separately reported in the statutory
statement of changes in capital and surplus and the capital and surplus section
of the statutory statement of admitted assets, liabilities and capital and
surplus. See Note 8 for further detail.
16
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SSAP 101
Effective January 1, 2012, SSAP No. 101, "Income Taxes" ("SSAP 101") states
that 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 that corresponds with the Internal Revenue
Code tax loss carryback provisions but not to exceed three years 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
three years of the balance sheet date or 15 percent of the capital and surplus
excluding any net DTA, EDP equipment and operating software and any net
positive goodwill, provided the Company's end of year RBC is greater than 300
percent, plus 3) the amount of the remaining gross DTA that can be offset
against existing gross DTL taking into account the tax character of the DTA and
DTL and the reversal pattern of the temporary differences.
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 ILDOI.
These accounting practices vary in certain respects from U.S. GAAP. The primary
differences between NAIC SAP and U.S. GAAP are as follows.
Under NAIC SAP, investments in insurance subsidiaries are recorded based upon
the underlying statutory equity of a subsidiary with all undistributed earnings
or losses shown as an unrealized 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 the
consolidation accounting. 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.
Under NAIC SAP, certain assets designated as "non-admitted," principally a
negative IMR, certain DTA, receivables, computer software, agents' debit
balances, receivables over 90 days, and prepaid expenses, are excluded from the
accompanying statutory statements of admitted assets, liabilities, and capital
and surplus and are charged directly to unassigned surplus.
Under NAIC SAP, the policy acquisition costs that vary with and are primarily
related to the acquisition of new business are expensed when incurred. Under
U.S. GAAP, acquisition costs related to interest-sensitive life insurance
contracts, investment contracts, and participating life insurance contracts, to
the extent recoverable from future gross profits, 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 are amortized over
the premium-paying period of the related contracts using assumptions that are
consistent with those used in computing policy benefit reserves.
Under NAIC SAP, when deferred premiums exist, statutory deferred premiums are
held as a statutory asset and under U.S. GAAP, deferred premiums are held as a
contra-liability in the future policy benefits liability.
Under NAIC 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 NAIC SAP, policy and contractual liabilities ceded to reinsurers have
been reported as reductions of the related reserves, rather than as assets as
required under U.S. GAAP.
Under NAIC 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 Company within limits as defined by statutory law. U.S. GAAP
valuation assumptions are set by the Company based on management's estimates
and judgments.
17
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Under NAIC SAP, the Commissioner's 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 NAIC 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 NAIC SAP, reserves for 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.
Under NAIC SAP, SSAP 10R modifies two components of the admission calculation
that may be utilized by certain reporting entities subject to RBC requirements
that meet certain RBC thresholds: a) an up to three year reversal period for
temporary differences instead of one year and b) 15 percent capital and surplus
limit instead of 10 percent. Gross DTA are also subject to reduction by a
valuation allowance if it is more likely than not that some portion or all of
the gross DTA will not be realized. This guidance was originally temporarily
effective for annual 2009 and interim and annual 2010 financial statements.
Subsequent adopted revisions extended the SSAP 10R sunset clause through 2011
and incorporated additional disclosures for tax-planning strategies.
Under NAIC 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 the remaining fixed-maturity investments are
reported at fair value, with unrealized 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 NAIC SAP, all single-class and multi-class MBS or other ABS (e.g.,
collateralized mortgage obligations ("CMO"), MBS and ABS) 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. LBaSS that were other-than
temporarily impaired prior to October 1, 2008 were written down to fair value.
Bonds and other than LBaSS that were other-than temporarily impaired were
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 fixed maturity securities, 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-interest portion of the impairment would be recorded as an
unrealized loss in other comprehensive income.
Under NAIC SAP, 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, were generally recorded based on the underlying audited U.S.
GAAP equity of the investee. Under U.S. GAAP, joint ventures, partnerships and
limited liability companies are carried at equity or cost depending on the
equity ownership position and equity in earnings of partnerships carried at
equity is recorded as investment income.
Under NAIC SAP, the AVR 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. Changes to
the AVR are charged or credited directly to unassigned surplus.
Under NAIC SAP, the Company reports an IMR which represents the net accumulated
unamortized realized capital gains and losses attributable to changes in the
general level of interest rates on sales of fixed income investments,
principally bonds and mortgage loans. Such gains or losses are amortized into
income on a straight-line basis over the remaining period to maturity based on
groupings of individual securities sold in five-year bands. Realized gains
18
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and losses are reported net of tax and transfers to the IMR, below net gain
from operations. Under U.S. GAAP, pretax realized gains and losses are reported
as a component of total revenues, with related taxes included in taxes from
operations.
The Company ceded its credit life and credit accident and health business
effective December 31, 2006 under an indemnity coinsurance agreement. Under
NAIC SAP, the Company recorded a reserve credit for the ceded reserves, and the
reinsurance transaction resulted in a deferred gain recorded directly to
special surplus funds. These deferred gains will be amortized into unassigned
surplus as the Company is relieved of its legal liability to the policyholders
and the reinsured reserves reduce. On a U.S. GAAP basis, the Company recorded
an operating loss on the transaction, primarily due to premium deficiency loss
recognition on the ceded business.
A reconciliation of the Company's statutory net income to U.S. GAAP net income
and statutory capital and surplus to U.S. GAAP shareholder's equity for the
years ended December 31, 2011 and 2010 is as follows:
NET INCOME (LOSS) CAPITAL AND SURPLUS
---------------- ------------------
2011 2010 2011 2010
------- ------- -------- --------
(In Thousands)
As reported on a statutory basis $ 9,045 $11,739 $102,502 $106,053
Unrealized gains (losses) on
invested assets - - 9,252 2,340
Deferred acquisition costs and costs
of insurance purchased (719) (1,345) 449 1,168
Reserves (2,821) 223 (3,962) (2,317)
Premiums receivable (24) (50) 27 -
IMR 963 936 - -
Investment income/valuation
differences (74) (1,171) (861) (791)
Income taxes (926) (2,274) (2,768) 4,545
AVR - - 2,391 3,819
Non-admitted assets - - 4,743 797
Earnings of consolidated subsidiaries - - (1,305) (1,282)
Other (161) (81) 2,395 2,571
------- ------- -------- --------
Total adjustments (3,762) (3,762) 10,361 10,850
------- ------- -------- --------
As reported on a U.S. GAAP basis $ 5,283 $ 7,977 $112,863 $116,903
======= ======= ======== ========
19
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
BONDS AND STOCKS
The statement value, gross unrealized gain, gross unrealized loss and the
estimated fair value of bonds and preferred stocks by major security type at
December 31, 2011 are as follows:
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED ESTIMATED
VALUE GAIN LOSS FAIR VALUE
DECEMBER 31, 2011 --------- ---------- ---------- ----------
(In Thousands)
Bonds:
U.S. Government obligations $ 8,000 $ 2,157 $ - $ 10,157
Special revenue 22,517 1,136 - 23,653
Industrial and miscellaneous 104,312 9,059 (3,950) 109,421
Hybrid securities 9,985 806 (822) 9,969
-------- ------- ------- --------
Total Bonds 144,814 13,158 (4,772) 153,200
Preferred Stocks 50 5 - 55
-------- ------- ------- --------
Total Bonds and Preferred Stocks $144,864 $13,163 $(4,772) $153,255
======== ======= ======= ========
The statement value, gross unrealized gain, gross unrealized loss and the
estimated fair value of bonds and preferred stocks by major security type at
December 31, 2010 are as follows:
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED ESTIMATED
VALUE GAIN LOSS FAIR VALUE
DECEMBER 31, 2010 --------- ---------- ---------- ----------
(In Thousands)
Bonds:
U.S. Government obligations $ 7,992 $ 990 $ - $ 8,982
Special revenue 1,836 37 - 1,873
Industrial and miscellaneous 86,759 5,909 (6,188) 86,480
Hybrid securities 9,985 889 (88) 10,786
Parent, subsidiaries, and
affiliates 13,000 - - 13,000
-------- ------ ------- --------
Total Bonds 119,572 7,825 (6,276) 121,121
Preferred Stocks 49 1 (1) 49
-------- ------ ------- --------
Total Bonds and Preferred Stocks $119,621 $7,826 $(6,277) $121,170
======== ====== ======= ========
At December 31, 2011 and 2010, bonds carried at amortized cost of $8 million
were on deposit with regulatory authorities in accordance with statutory
requirements.
At December 31, 2011 and 2010, cost of affiliated common stocks held was
$7 million.
20
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Company's gross unrealized losses, including
amounts on NAIC 6 and 6* bonds, and fair value on investment securities
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, at December 31, 2011 and
2010 as follows:
LESS THAN 12 MONTHS
12 MONTHS OR MORE TOTAL
------------------- ------------------- -------------------
(In Thousands)
ESTIMATED ESTIMATED ESTIMATED
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
DECEMBER 31, VALUE LOSSES VALUE LOSSES VALUE LOSSES
2011 --------- ---------- --------- ---------- --------- ----------
Bonds:
Industrial &
Miscellaneous $4,683 $(124) $23,974 $(3,826) $28,657 $(3,950)
Hybrid
securities 2,923 (572) 2,250 (250) 5,173 (822)
------ ----- ------- ------- ------- -------
Total $7,606 $(696) $26,224 $(4,076) $33,830 $(4,772)
====== ===== ======= ======= ======= =======
As of December 31, 2011, the Company held 13 individual bond securities that
were in an unrealized loss position, of which 7 individual investments were in
an unrealized loss position continuously for 12 months or more.
LESS THAN 12 MONTHS
12 MONTHS OR MORE TOTAL
------------------- ------------------- -------------------
(In Thousands)
ESTIMATED ESTIMATED ESTIMATED
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
DECEMBER 31, VALUE LOSSES VALUE LOSSES VALUE LOSSES
2010 --------- ---------- --------- ---------- --------- ----------
Bonds:
U.S.
Government $107 $ - $ - $ - $ 107 $ -
Industrial &
Miscellaneous - - 28,006 (6,188) 28,006 (6,188)
Hybrid
securities - - 2,413 (88) 2,413 (88)
Equity
securities:
Preferred
stocks 41 (1) - - 41 (1)
---- --- ------- ------- ------- -------
Total $148 $(1) $30,419 $(6,276) $30,567 $(6,277)
==== === ======= ======= ======= =======
As of December 31, 2010, the Company held 11 individual bond securities that
were in an unrealized loss position, of which 9 individual investments were in
an unrealized loss position continuously for 12 months or more.
At December 31, 2011, the statement value and estimated fair value of bonds by
expected maturity are shown below. Expected maturities may differ from
contractual maturities because certain borrowers have the right to call or
repay obligations with or without call or prepayment penalties.
ESTIMATED
STATEMENT FAIR
VALUE VALUE
DECEMBER 31, 2011 --------- ---------
(In Thousands)
Due in one year or less $ 2,615 $ 2,617
Due after one year through five years 25,375 26,503
Due after five years through ten years 27,553 29,392
Due after ten years 30,903 38,719
LBaSS 58,368 55,969
-------- --------
Total $144,814 $153,200
======== ========
Bonds in or near default as to payment of principal or interest had an
immaterial statement value at December 31, 2011 and 2010. The total amount
excluded from due and accrued investment income for bonds was $486 thousand and
$424 thousand at December 31, 2011 and 2010, respectively.
21
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2011, the Company's bond portfolio included $9 million of bonds
not rated investment grade by the NAIC guidelines (categories 3-6). These bonds
accounted for 4.7 percent of the Company's total assets and 5.2 percent of
invested assets. The holdings of below investment grade bonds are well
diversified and of satisfactory quality based on the Company's investment
policies and credit standards.
At December 31, 2011, the Company had no individual investments that exceeded
10 percent of the Company's total capital and surplus. At December 31, 2010 the
Company's investments included two investments that exceeded 10 percent of the
Company's total capital and surplus. One investment was a short-term money
market investment of $38 million, the other was an affiliated bond of
$13 million.
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
commercial pricing vendors and broker dealer quotations. A small portion 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 fair value and statement value of the Company's LBaSS as of December 31,
2011 and 2010 were as follows:
ESTIMATED STATEMENT
FAIR VALUE VALUE
DECEMBER 31, 2011 ---------- ---------
(In Thousands)
LBaSS $55,969 $58,368
ESTIMATED STATEMENT
FAIR VALUE VALUE
DECEMBER 31, 2010 ---------- ---------
(In Thousands)
LBaSS $20,128 $25,557
Prepayment assumptions for single class, multi-class MBS and ABS were obtained
from independent third party services or internal estimates. These assumptions
are consistent with the current interest rate and economic environment.
At December 31, 2011 and 2010, the Company had exposure to a variety of LBaSS
including, but not limited to, RMBS, CMBS and CDO. These securities could have
significant concentrations of credit risk by country, geographical region,
property type, servicer or other characteristics. As part of its quarterly
surveillance process, the Company takes into account many of these
characteristics in making its assessment of OTTI.
At December 31, 2011 and 2010, the Company did not have any securities within
the scope of SSAP 43R 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.
22
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2011, the Company held the following LBaSS for which it had
recognized non-interest related OTTI subsequent to the adoption of SSAP 43R:
BOOK/ADJUSTED DATE OF
CARRYING VALUE FINANCIAL
AMORTIZED COST PRESENT VALUE OF AMORTIZED COST STATEMENT
BEFORE CURRENT PROJECTED RECOGNIZED AFTER CURRENT FAIR VALUE AT WHERE
CUSIP PERIOD OTTI CASH FLOWS OTTI OTTI TIME OF OTTI REPORTED
----- -------------- ---------------- ---------- -------------- ------------- ---------
(In Thousands)
466247KF9 $ 154 $ 114 $40 $ 114 $ 113 4Q09
466247KE2 601 566 35 566 269 1Q10
466247KF9 112 61 51 61 114 1Q10
466247KE2 537 524 13 524 271 3Q10
126694LE6 2,916 2,908 8 2,908 2,446 4Q10
126694LE6 2,852 2,814 38 2,814 2,458 1Q11
466247KE2 472 461 11 461 435 1Q11
466247KE2 441 439 2 439 379 2Q11
466247KE2 419 371 48 371 387 3Q11
126694LE6 2,732 2,693 39 2,693 2,455 3Q11
126694LE6 2,614 2,604 10 2,604 2,368 4Q11
The aggregate amount of unrealized losses and fair values for such securities,
segregated between those securities that have been in a continuous unrealized
loss position for less than 12 months and greater than 12 months, respectively,
were as follows:
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
DECEMBER 31, 2011 -------------------- -------------------- --------------------
(In Thousands)
ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
---------- ---------- ---------- ---------- ---------- ----------
LBaSS $4,445 $(627) $23,573 $(3,727) $28,018 $(4,354)
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
DECEMBER 31, 2010 -------------------- -------------------- --------------------
(In Thousands)
ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
---------- ---------- ---------- ---------- ---------- ----------
LBaSS $ - $ (23) $20,644 $(5,550) $20,644 $(5,573)
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 also considers
its cash and working capital requirements and generally considers 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 in accordance with SSAP No. 100, "Fair Value Measurements".
23
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table presents a roll-forward of the non-interest related OTTI
for LBaSS for the years ended December 31, 2011 and 2010 is as follows:
2011 2010
---- ----
(In Thousands)
Opening Balance $189 $ 56
Increases due to:
Credit impairments on new securities subject to
impairment losses - 42
Additional credit impairment on previously impaired
investments 148 91
Reduction due to:
Credit impaired securities fully disposed for which
there was no prior intent or requirement to sell 42 -
---- ----
Ending Balance $295 $189
==== ====
OTHER INVESTED ASSETS
The following pertains to other invested assets at December 31, 2011 and 2010,
respectively:
2011 2010
------ ------
(In Thousands)
Investments in limited partnerships $1,099 $6,855
The Company recorded no impairment write-downs in joint ventures and
partnerships in 2011 or 2010.
INVESTMENT INCOME
Major categories of net investment income are as follows:
YEARS ENDED
DECEMBER 31,
----------------
2011 2010
------- -------
(In Thousands)
Bonds $ 8,371 $10,301
Preferred stocks 3 3
Common stocks - 16
Contract loans 10 12
Short-term investments and cash 30 64
Other invested assets 4,605 11
------- -------
Gross investment income 13,019 10,407
Investment expenses (306) (201)
------- -------
Net investment income $12,713 $10,206
======= =======
24
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CAPITAL GAINS AND LOSSES
The net realized capital gains (losses) for 2011 and 2010 are summarized below:
YEARS ENDED
DECEMBER 31,
-------------
2011 2010
---- ------
(In Thousands)
Bonds $24 $ 471
Preferred & common stocks - 1,541
--- ------
Gross realized gains 24 2,012
Federal income tax expense (9) (39)
Net losses transferred to IMR 3 48
--- ------
Net realized capital gains $18 $2,021
=== ======
Proceeds from sales of bonds and preferred stocks, excluding maturities, and
related gross realized capital gains and losses are as follows:
2011 2010
---- ------
(In Thousands)
Proceeds $355 $8,683
Gross realized gains $ 30 $ 457
Gross realized losses - (71)
---- ------
Total realized capital gains $ 30 $ 386
==== ======
Change in unrealized appreciation (depreciation) of investments for 2011 and
2010 are summarized below:
YEARS ENDED
DECEMBER 31,
----------------
2011 2010
------- -------
(In Thousands)
Bonds $ 23 $ (23)
Preferred & common stocks 24 (1,631)
Other invested assets (5,124) 1,413
Federal income tax benefit 1,785 -
------- -------
Net change in unrealized losses of investments $(3,292) $ (241)
======= =======
4. FAIR VALUE MEASUREMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets and liabilities or the value of anticipated
future business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
25
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts for which the
financial instruments could be exchanged in a current or future market
transaction.
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 pricing
services, broker quotes and other independent information.
Preferred stocks: Fair value is based principally on value from independent
pricing services, broker quotes and other independent information.
Common stocks (affiliated): Fair value of affiliated common stock is based on
value from independent pricing services and broker quotes, when applicable.
When those do not apply, the value is determined using the equity method of
accounting based on the audited GAAP equity of the entity, excluding
non-admitted amount.
Contract loans: The fair values of policy loans were not estimated as the
Company believes it would have to expend excessive costs for the benefits
derived.
Other invested assets: Fair value of limited partnerships is accounted for by
using the equity method of accounting based upon the fair value of the net
assets of the partnerships as determined by the general partners, and
approximated statement value
Cash and short-term investments: Statement values approximate fair values
because of the relatively short period of time between origination and expected
realization.
Policyholder contract deposits: Fair value for policyholder contract deposits
associated with 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. Where no similar contracts are being offered,
the discount rate is the appropriate tenor swap rates (if available) or current
risk-free interest rates consistent with the currency in which cash flows are
denominated.
The estimated fair values of the Company's financial instruments compared to
their statement values at December 31, 2011 and 2010 were as follows:
2011 2010
------------------- -------------------
ESTIMATED ESTIMATED
FAIR STATEMENT FAIR STATEMENT
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(In Thousands)
Assets:
Bonds $153,200 $144,814 $121,121 $119,572
Preferred stocks 55 50 49 49
Contract loans 133 133 225 225
Other invested assets 1,099 1,099 6,855 6,855
Cash and short-term investments 8,166 8,166 38,014 38,014
Liabilities:
Policyholder contract deposits 799 799 721 721
26
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company had no assets and liabilities that are carried at fair value for
the years ended December 31, 2011 and 2010.
5. AGGREGATE POLICY RESERVES AND DEPOSIT FUND LIABILITIES
The following is a summary by major category for the reserves at December 31,
2011 and 2010:
2011 2010
-------- --------
(In Thousands)
Life insurance $ 28,046 $ 43,201
Disability - disabled lives 3,315 3,247
Excess valuation of net premium over gross premium 664 770
Other 13 15
-------- --------
Subtotal 32,038 47,233
Reinsurance ceded (24,086) (39,430)
-------- --------
Total life and annuity reserves 7,952 7,803
-------- --------
Accident and health
Unearned premium reserves 13,365 12,649
Present value of amounts not yet due on claims 56,075 63,920
-------- --------
Subtotal 69,440 76,569
Reinsurance ceded (25,434) (33,179)
-------- --------
Total accident and health reserves 44,006 43,390
-------- --------
Total aggregate policy reserves $ 51,958 $ 51,193
======== ========
6. PREMIUM DEFERRED AND UNCOLLECTED
Deferred and uncollected insurance premiums (before deduction for amounts
non-admitted) as of December 31, 2011 and 2010 were as follows:
GROSS NET OF
REINSURANCE NET OF LOADING
DECEMBER 31, 2011 ------------ --------------
(In Thousands)
Ordinary Renewal $ - $ -
Group Life 3,515 3,515
------ ------
Total $3,515 $3,515
====== ======
GROSS NET OF
REINSURANCE NET OF LOADING
DECEMBER 31, 2010 ------------ --------------
(In Thousands)
Ordinary Renewal $ (1) $ (1)
Group Life 2,794 2,794
------ ------
Total $2,793 $2,793
====== ======
27
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Third-Party Administrators ("TPA")
In 2011 the TPAs with direct premiums written of more than 5 percent of surplus
were as follows (In Thousands):
NAME AND ADDRESS OF TPA
WITH PREMIUMS OF MORE EXCLUSIVE BUSINESS
THAN 5 PERCENT OF SURPLUS FEI # CONTRACT WRITTEN AUTHORITY* PREMIUM
------------------------- ---------- --------- ---------- ---------- -------
American Insurance Admin,
Inc. 31-1258935 No Group Life P $ 9,883
3070 Riverside Drive
Columbus, OH 43221
Direct Response Ins.
Admin. Serv. 41-1430210 No Group A&H P 6,932
7930 Century Blvd.
Chanhassen, MN 53317
Affinity Insurance Services 36-3442411 No Group Life P 6,596
159 E. County Line Rd.
Hatboro, PA 19040
-------
Total direct premiums of TPA's with more than 5 percent of
surplus 23,411
Total direct premiums of TPA's with less than 5 percent of
surplus 15,167
-------
Grand total of direct
premiums for TPA's $38,578
=======
* P = Premium Collection
7. REINSURANCE
The Company is routinely involved in reinsurance transactions covering all
lines of business. Reinsurance involves having other insurance companies agree
to accept certain risks from the Company (called "ceded reinsurance") or having
the Company accept risks from other insurance companies (called "assumed
reinsurance"). The primary purpose of ceded reinsurance is to protect the
insurance company from potential losses in excess of what it is prepared to
accept. Reinsurance may be on an individual policy basis or for a defined group
of policies. Ceded reinsurance is treated as the liability of the Company that
accepted the risk ("the reinsurer"); however, if the reinsurer could not meet
its obligations, the Company would reassume the liability. The Company
diversifies its risk of reinsurance loss by using a number of reinsurers that
have strong claims-paying ability ratings.
Reinsurance premiums assumed for the years ended December 31, 2011 and 2010
were $0.3 million. Reinsurance premiums ceded for the years ended December 31,
2011 and 2010 was $24 million. No reserves on reinsurance assumed were held at
December 31, 2011 and 2010. The reserve credit taken on reinsurance ceded was
$50 million and $73 million at December 31, 2011 and 2010, respectively.
Amounts payable or recoverable for reinsurance on policy and contract
liabilities are not subject to periodic or maximum limits. At December 31, 2011
and 2010, the Company's reinsurance recoverable were $1 million and $2 million,
respectively.
Some of the financial institutions to which the Company marketed its credit
life and credit accident and health business established captive reinsurers
that assume a portion of the risks underwritten by the Company through quota
share agreements. Since these reinsurers are unauthorized, the Company requires
them to maintain trust accounts to secure any outstanding reinsurance
recoverables. However, the Company remains obligated for ceded amounts if the
reinsurers do not meet their obligations.
On December 31, 2006, the Company effectively exited the credit life and credit
accident and health business entering into a 100 percent indemnity coinsurance
agreement, under which Monumental Life Insurance Company, a member of the AEGON
group, assumed certain specified in-force business. The Company retains all
credit
28
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
insurance liabilities related to claims arising from losses incurred up to the
December 31, 2006 effective date. The Company no longer issues new business for
credit insurance.
For employer group life business, the Company limits its exposure to $500
thousand on any one person per policy. For employer long term disability
("LTD"), the Company reinsures risks in excess of $6 thousand of monthly
disability income.
8. FEDERAL INCOME TAXES
The components of DTA and DTL and the calculation of the admitted DTA, for the
current and prior periods, are as follows (In Thousands):
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
------------------------- ------------------------- -------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- ------- -------- ------- ------- -------- ------- -------
Gross DTA $ 4,827 $ 6,595 $11,422 $3,406 $ 5,832 $ 9,238 $ 1,421 $ 763 $ 2,184
Valuation Allowance - - - - (5,832) (5,832) - 5,832 5,832
------- ------- ------- ------ ------- ------- ------- ------- -------
Adjusted Gross DTA 4,827 6,595 11,422 3,406 - 3,406 1,421 6,595 8,016
DTL (1,990) (307) (2,297) - - - (1,990) (307) (2,297)
------- ------- ------- ------ ------- ------- ------- ------- -------
Subtotal - Net DTA 2,837 6,288 9,125 3,406 - 3,406 (569) 6,288 5,719
DTA Nonadmitted - (4,310) (4,310) (146) - (146) 146 (4,310) (4,164)
------- ------- ------- ------ ------- ------- ------- ------- -------
Net Admitted DTA $ 2,837 $ 1,978 $ 4,815 $3,260 $ - $ 3,260 $ (423) $ 1,978 $ 1,555
======= ======= ======= ====== ======= ======= ======= ======= =======
The Company has met the necessary RBC levels to be able to admit the increased
amount of DTA under SSAP 10R, and an election has been made to admit DTA
pursuant to SSAP 10R, which is the same election made for the prior year.
The Company recorded an increase in admitted adjusted gross DTA as the result
of its election to employ the provisions of paragraph 10.e. as follows (In
Thousands):
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
----------------------- ----------------------- -----------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- ------ -------- ------- ------ -------- ------- ------
Increase in Admitted - 10.e.i. $1,959 $ - $1,959 $1,754 $- $1,754 $205 $ - $ 205
Increase in Admitted - 10.e.ii. - 1,319 1,319 - - - - 1,319 1,319
Increase in Admitted - 10.e.iii. - - - - - - - - -
------ ------ ------ ------ -- ------ ---- ------ ------
$1,959 $1,319 $3,278 $1,754 $- $1,754 $205 $1,319 $1,524
====== ====== ====== ====== == ====== ==== ====== ======
Components of the admissibility calculation are as follows (In Thousands):
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
------------------------- ------------------------ ------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- -------- -------- ------- ------- -------- ------- -------
SSAP 10R, paragraphs 10.a., 10.b., and 10.c.:
(a) Paragraph 10.a. $ 1,022 $ 265 $ 1,287 $ 1,506 $- $ 1,506 $ (484) $ 265 $ (219)
(b) Paragraph 10.b. - 395 395 - - - - 395 395
(c) Paragraph 10.b.i. - 395 395 - - - - 395 395
(d) Paragraph 10.b.ii. 9,612 395 10,007 9,978 - 9,978 (366) 395 29
(e) Paragraph 10.c. 1,990 307 2,297 - - - 1,990 307 2,297
------- ------ -------- ------- -- ------- ------- ------ -------
(f) Total (a + b + e) $ 3,012 $ 967 $ 3,979 $ 1,506 $- $ 1,506 $ 1,506 $ 967 $ 2,473
======= ====== ======== ======= == ======= ======= ====== =======
SSAP 10R, paragraph 10.e.:
(g) Paragraph 10.e.i. $ 2,981 $ 265 $ 3,246 $ 3,260 $- $ 3,260 $ (279) $ 265 $ (14)
(h) Paragraph 10.e.ii. - 1,714 1,714 - - - - 1,714 1,714
(i) Paragraph 10.e.ii.a. - 1,714 1,714 - - - - 1,714 1,714
(j) Paragraph 10.e.ii.b. 13,297 1,714 15,011 14,967 - 14,967 (1,670) 1,714 44
(k) Paragraph 10.e.iii. 1,846 307 2,153 0 - - 1,846 307 2,153
------- ------ -------- ------- -- ------- ------- ------ -------
(l) Total (g + h + k) $ 4,827 $2,286 $ 7,113 $ 3,260 $- $ 3,260 $ 1,567 $2,286 $ 3,853
======= ====== ======== ======= == ======= ======= ====== =======
SSAP 10R, paragraph 10.d.:
Total Adjusted Capital $101,759 $108,118 $(6,359)
Authorized Control Level 3,834 4,794 (960)
29
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table shows the percent of adjusted gross DTA and net admitted
DTA that are due to tax-planning strategies:
DECEMBER 31, 2011
---------------------
Ordinary Capital Total
-------- ------- -----
Adjusted Gross DTA 0% 0% 0%
Net Admitted Adjusted Gross DTA 0% 0% 0%
The following table provides the Company's admitted DTA, admitted assets,
statutory surplus, and total adjusted capital in the RBC calculation with the
DTA calculated under SSAP 10R, paragraphs 10(a) to (c), and the increased
balances resulting from application of SSAP 10R, paragraph 10.e., as of
December 31, 2011 and 2010 (In Thousands):
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
------------------------- ------------------------- -------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- -------- -------- ------- -------- -------- ------- --------
SSAP 10R, paragraph 10.a. -
10.c.:
Admitted Net DTA $1,022 $ 660 $ 1,682 $1,506 $- $ 1,506 $(484) $ 660 $ 176
Admitted Assets Before DTA - - 175,628 - - 186,892 - - (11,264)
Adjusted Statutory Surplus - - 100,070 - - 99,779 - - 291
Total Adjusted Capital from
DTA - - 1,682 - - 1,506 - - 176
Increased balances due to
SSAP 10R, paragraph 10.e.:
Admitted Net DTA $1,815 $1,319 $ 3,134 $1,754 $- $ 1,754 $ 61 $1,319 $ 1,380
Admitted Assets Before DTA - - 175,628 - - 186,892 - - (11,264)
Statutory Surplus - - 3,134 - - 1,754 - - 1,380
The Company is not aware of any significant DTL that are not recognized in the
statutory financial statements.
Current tax and change in deferred tax (In Thousands):
DECEMBER 31,
---------------------
2011 2010 CHANGE
------ ------ -------
Current income taxes:
Federal income tax on the net gains from
operations $1,703 $4,602 $(2,899)
Federal income tax on net realized capital gains
(losses) 9 39 (30)
Utilization of capital loss carryforwards - - -
------ ------ -------
Federal income taxes incurred $1,712 $4,641 $(2,929)
====== ====== =======
30
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
DTA: -------------------------
2011 2010 CHANGE
------- ------- -------
Ordinary
Policyholder reserves $ 3,157 $ 1,476 $ 1,681
Deferred acquisition costs 1,477 1,738 (261)
Other 193 193 -
------- ------- -------
Subtotal 4,827 3,407 1,420
Statutory valuation allowance adjustment - - -
Nonadmitted - (147) 147
------- ------- -------
Admitted ordinary DTA 4,827 3,260 1,567
------- ------- -------
Capital
Investments 6,595 7,781 (1,186)
Unrealized gains (losses) - (1,979) 1,979
Net capital loss carry-forward - 30 (30)
------- ------- -------
Subtotal 6,595 5,832 763
Statutory valuation allowance adjustment - (5,832) 5,832
Nonadmitted (4,310) - (4,310)
------- ------- -------
Admitted capital DTA 2,285 - 2,285
------- ------- -------
Admitted DTA 7,112 3,260 3,852
------- ------- -------
DECEMBER 31,
DTL: -------------------------
2011 2010 CHANGE
------- ------- -------
Ordinary
Accrued Income 1,990 - 1,990
------- ------- -------
Subtotal 1,990 - 1,990
Capital
Investments 113 - 113
Unrealized gains (losses) 194 - 194
------- ------- -------
Subtotal 307 - 307
------- ------- -------
Admitted DTL 2,297 - 2,297
------- ------- -------
Net DTA $ 4,815 $ 3,260 $ 1,555
======= ======= =======
31
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO 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) (In Thousands):
DECEMBER 31,
2011 2010 CHANGE
------- ------ -------
Total adjusted DTA $11,422 $9,238 $ 2,184
Total DTL 2,297 - 2,297
------- ------ -------
Net adjusted DTL $ 9,125 $9,238 (113)
======= ======
Tax effect of unrealized gains (losses) (1,786)
-------
Change in deferred income tax for reconciliation below (1,899)
Change in valuation allowance on gross DTA 5,832
Impact of SSAP 10R in surplus (1,524)
-------
Change in net deferred income tax $ 2,409
=======
Reconciliation: 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 significant items causing this difference are
as follows ($ In Thousands):
DECEMBER 31, 2011 DECEMBER 31, 2010
EFFECTIVE TAX EFFECTIVE TAX
AMOUNT RATE AMOUNT RATE
------ ------------- ------ -------------
Income tax expense (benefit) at
applicable rate $3,764 35.00% $5,067 35.00%
Amortization of interest
maintenance reserve 337 3.14% 328 2.27%
Prior year return corrections - 0.00% 2,737 18.90%
Surplus adjustments (412) -3.83% - 0.00%
Other permanent adjustments (78) -0.73% (468) -3.23%
Valuation Allowance on unrealized
gains (losses) - 0.00% (828) -5.72%
------ ----- ------ -----
Total Statutory Income Tax
Benefit / Expense $3,611 33.58% $6,836 47.22%
====== ===== ====== =====
Federal income taxes incurred $1,712 15.92% $4,641 32.06%
Change in net deferred income taxes 1,899 17.66% 2,195 15.16%
------ ----- ------ -----
Total statutory income taxes $3,611 33.58% $6,836 47.22%
====== ===== ====== =====
Operating Loss and Tax Credit Carryforward:
At December 31, 2011, the Company had no foreign tax credit carryforwards.
At December 31, 2011, the Company had no operating loss carryforwards.
At December 31, 2011, the Company had no capital loss carryforwards.
The Company had no deposits admitted under Internal Revenue Code section 6603.
The following is income tax incurred for 2010 and 2011 that is available for
recoupment in the event of future net losses (In Thousands):
Ordinary Capital Total
-------- ------- ------
2010 $3,956 $ - $3,956
2011 1,472 265 1,737
------ ---- ------
Total $5,428 $265 $5,693
====== ==== ======
32
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company will join in the filing of a consolidated federal income tax return
with AIG. The Company has a written agreement with AIG under which each
subsidiary agrees to pay AIG 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 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 Internal Revenue Service is currently examining the Company's tax returns
for the taxable years 2003 to 2006. Although the final outcome of any issues
raised in the examination is 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 to 2011 remain
subject to examination by major tax jurisdictions.
9. 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, which 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, 2011, the Company exceeded RBC requirements that
would require any regulatory action.
The Company is subject to Illinois law that imposes restrictions on shareholder
dividends. The maximum amount of dividends that can be paid by Illinois
domiciled companies without prior approval of the Illinois Insurance
Commissioner ("IIC") is limited to the greater of: (1) 10 percent of surplus as
regards policyholders as of December 31, 2011; or (2) the net income of such
insurer for the period ending December 31, 2011. The maximum amount of
dividends that can be paid to the SAFG in the year 2012 without consent of the
IIC is $10 million, which represents 10 percent of the Company's surplus as of
December 31, 2011.
The Company paid an ordinary cash dividend of $11 million to SAFG, the
Company's immediate parent, on June 28, 2011. There were no dividends paid in
2010.
The Company has 2,000,000 shares of capital stock authorized, issued and
outstanding as of December 31, 2011, each with a par value of $1.25.
The Company receives an allocation of its proportionate share of variable
compensation expense from AIG. AIG forgave the Company's obligation associated
with the variable compensation expense allocation in 2011 and 2010. The Company
recorded the forgiveness of these obligations as capital contributions in the
amount of $133 thousand and $42 thousand for the years ending December 31, 2011
and 2010, respectively, in accordance with paragraph 7 of SSAP No. 72, "Surplus
and Quasi-reorganizations" ("SSAP 72"). These transactions did not involve an
exchange of funds and had no net impact on the Company's surplus.
33
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RETIREMENT PLANS, DEFERRED COMPENSATION, POSTEMPLOYMENT BENEFITS,
COMPENSATED ABSENCES AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company does not directly sponsor any defined benefit or defined
contribution and does not participate in any multi-employer plans.
EMPLOYEE RETIREMENT PLAN
Employees of AIG, its subsidiaries and certain affiliated companies, including
employees in foreign countries, are generally covered under various funded and
insured pension plans. Eligibility for participation in the various plans is
based on either completion of a specified period of continuous service or date
of hire, subject to age limitation.
The AIG Retirement Plan ("AIG U.S. Plan") is a qualified, non-contributory
defined benefit retirement plan which is subject to the provisions of the
Employee Retirement Income Security Act ("ERISA") of 1974. All employees of AIG
and most of its subsidiaries and affiliates who are regularly employed in the
U.S., including certain U.S. citizens employed abroad on a U.S. dollar payroll,
and who have attained age 21 and completed twelve months of continuous service
are eligible to participate in this plan. An employee with 5 or more years of
service is entitled to pension benefits beginning at normal retirement at age
65. Benefits are based upon a percentage of average final compensation
multiplied by years of credited service limited to 44 years of credited
service. The average final compensation is subject to certain limitations. The
employees may elect certain options with respect to their receipt of their
pension benefits including a joint and survivor annuity. An employee with 10 or
more years of service may retire early from age 55 to 64. An early retirement
factor is applied resulting in a reduced benefit. If an employee terminates
with less than 5 years of service, such employee forfeits his or her right to
receive any accumulated pension benefits.
The Company is jointly and severally responsible with AIG and other
participating companies for funding obligations for the AIG U.S. Plan, ERISA
qualified defined contribution plans and ERISA plans issued by other AIG
subsidiaries (the "ERISA Plans"). If the ERISA Plans do not have adequate funds
to pay obligations due participants, the Pension Benefit Guaranty Corporation
or Department of Labor could seek payment of such amounts from the members of
the AIG ERISA control group, including the Company. Accordingly, the Company is
contingently liable for such obligations. The Company believes that the
likelihood of payment under any of these plans is remote. Accordingly, the
Company has not established any liability for such contingencies.
Annual funding requirements are determined based on the "traditional unit
credit" cost method. The objective under this method is to fund each
participant's benefit under the plan as it accrues. Thus, the total pension to
which each participant is expected to become entitled at retirement is broken
down into units, each associated with a year of past or future credited service.
Effective April 1, 2012, the AIG U.S. Plan and AIG Excess plans were converted
from final average pay to cash balance formulas comprised of pay credits based
on 6 percent of a plan participant's annual compensation (subject to Internal
Revenue Service ("IRS") limitations for the qualified plan) and annual interest
credits. However, employees satisfying certain age and service requirements
remain covered under the final average pay formula in the respective plans.
The following table sets forth the funded status of the AIG U.S. Plan, valued
in accordance with SSAP No. 89, "Accounting for Pensions":
2011 2010
---------- ----------
(In Thousands)
Fair value of plan assets $3,432,515 $3,424,553
Less projected benefit obligation 4,219,931 3,574,840
---------- ----------
Funded status $ (787,416) $ (150,287)
========== ==========
34
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The weighted average assumptions that were used to determine its pension
benefit obligations as of December 31, 2011 and 2010 are set forth in the table
below:
2011 2010
----------------- -----------------
Discount rate 4.62% 5.50%
Rate of compensation increase (average) 4.00% 4.00%
Measurement date December 31, 2011 December 31, 2010
In 2011 and 2010, AIG allocated defined benefit expenses to the Company and its
affiliates. The Company's allocated share of net expense for the AIG U.S. Plan
was approximately $177 thousand and $198 thousand for 2011 and 2010,
respectively.
The American General Corporation ("AGC") retirement plan was merged into the
AIG U.S. Plan effective January 1, 2002. Benefits for AGC participants were
changed effective January 1, 2003 to be substantially similar to the AIG U.S.
Plan's benefits subject to grandfathering requirements.
SAFG employees began participation and accruing benefits in the AIG U.S. Plan
commencing January 1, 2003. Vesting in the AIG plan begins on the later of
January 1, 1999 or date of hire for SAFG employees.
The 2010 AIG U.S. Plan information reflects the impact of divestitures of A. I.
Credit Corp P & C segment ("AI Credit P&C"), AIG Global Asset Management
Holdings Corp. et al ("Bridge"), American Life Insurance Company et al
("ALICO") and American General Finance et al ("AGF") during 2010.
AIG also sponsors several unfunded nonqualified defined benefit plans for
certain employees, including key executives, designed to supplement pension
benefits provided by AIG's other retirement plans. These include the AIG Excess
Retirement Income Plan, which provides a benefit equal to the reduction in
benefits payable to certain employees under the AIG U.S. Plan as a result of
federal tax limitations on compensation and benefits payable, and the
Supplemental Executive Retirement Plan ("SERP"), which provides additional
retirement benefits to designated executives. The results in this footnote do
not include the nonqualified plans.
POST-RETIREMENT BENEFIT PLANS
AIG's U.S. postretirement medical and life insurance benefits are based upon
the employee electing immediate retirement and having a minimum of 10 years of
service. Retirees and their dependents that were 65 years old by May 1, 1989
participate in the medical plan at no cost. Employees who retired after May 1,
1989 or prior to January 1, 1993 pay the active employee premium if under age
65 and 50 percent of the active employee premium if over age 65. Retiree
contributions are subject to adjustment annually. Other cost sharing features
of the medical plan include deductibles, coinsurance and Medicare coordination
and a lifetime maximum benefit of $5 million. The maximum life insurance
benefit prior to age 70 is $33 thousand, with a maximum $25 thousand thereafter.
Effective January 1, 1993 both plans' provisions were amended: employees who
retire after January 1, 1993 are required to pay the actual cost of the medical
insurance benefit premium reduced by a credit which is based upon years of
service at retirement. The life insurance benefit varies by age at retirement
from $5 thousand for retirement at age 55 through 59 and $10 thousand for
retirement at ages 60 through 64 and $15 thousand from retirement at ages 65
and over.
AIG's U.S. postretirement medical and life insurance benefits obligations,
valued in accordance with SSAP No. 14, "Postretirement Benefits Other Than
Pensions", as of December 31, 2011 and 2010 were $202 million. These
obligations are not funded currently. The Company's allocated share of other
postretirement benefit plan expenses were $8 thousand and $24 thousand for the
years ended December 31, 2011 and 2010, respectively.
Amounts for four Puerto Rico postretirement medical plans have also been
included in the 2011 and 2010 figures.
The 2010 postretirement medical plan information reflects the impact of
divestiture of AI Credit P&C, Bridge, ALICO and AGF during 2010.
35
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective April 1, 2012, the Company subsidy for the retiree medical plan will
only be provided to employees whose combination of age and credited service is
equal to or greater than 65 points, who are at least age 55, and have at least
5 years of credited service as of March 31, 2012. The retiree plan will only
provide access to coverage for all other retirees, but the Company subsidy will
no longer be available to them.
As sponsor of the AIG U.S. Plan and other benefit plans, AIG is ultimately
responsible for the maintenance of these plans in compliance with law. The
Company is not directly liable for obligations under the plan; its direct
obligations result from AIG's allocation of its share of expenses from the
plans. Such allocation is based on the Company's payroll.
OTHER
Some of the Company's officers and key employees receive share-based
compensation pursuant to awards granted under the AIG 2010 Stock Incentive
Plan, including share-based cash settled awards, such as the Stock Salary and
Troubled Asset Relief Program Restricted Stock Unit Awards, and several other
legacy AIG-sponsored employee compensation plans, that are linked to AIG common
stock. Share-based cash settled awards are recorded as liabilities until the
final payout is made or the award is replaced with a stock-settled award.
Unlike stock-settled awards, which have a fixed grant-date fair value (unless
the award is subsequently modified), the fair value of unsettled or unvested
liability awards is remeasured at the end of each reporting period based on the
change in fair value of one share of AIG common stock. Legacy plans for which
awards were still outstanding at December 31, 2011 include the AIG 1999 Stock
Option Plan, as amended, AIG 2002 Stock Incentive Plan, as amended under which
AIG has issued time-vested restricted stock units and performance restricted
stock units and the AIG 2007 Stock Incentive Plan, as amended. During 2011 and
2010, AIG allocated to the Company compensation expense totaling $11 thousand
and $41 thousand, respectively, related to stock options and restricted stock
units granted under these plans.
In December 2009, AIG established the Long Term Incentive Plan under which
management employees were offered the opportunity to receive additional
compensation in the form of cash and stock appreciation rights if certain
performance metrics are met. During 2011 and 2010, AIG allocated to the Company
$168 thousand and $542 thousand, respectively, for expenses incurred under this
plan.
In addition to several small defined contribution plans, AIG sponsors a
voluntary savings plan for U.S. employees (the "AIG Incentive Savings Plan")
which provides for salary reduction contributions by employees and matching
U.S. contributions by AIG of up to 7 percent of annual salary depending on the
employees' years of service and subject to certain compensation limits. The
Company's allocated pre-tax expense associated with this plan was, $108
thousand and $132 thousand in 2011 and 2010, respectively. Effective January 1,
2012, the AIG Incentive Savings Plan was amended to change the company matching
contribution to 100 percent of the first 6 percent of participant contributions
and to allow all employees to contribute up the annual IRS contribution maximum
of $17 thousand.
POST-EMPLOYMENT BENEFITS AND COMPENSATED ABSENCES
AIG provides certain benefits to inactive employees who are not retirees.
Certain of these benefits are insured and expensed currently; other expenses
are provided for currently. Such expenses include LTD benefits, medical and
life insurance continuation and Consolidated Omnibus Budget Reconciliation Act
medical subsidies. The costs of these plans are borne by AIG and its
subsidiaries.
IMPACT OF MEDICARE MODERNIZATION ACT ON POSTRETIREMENT BENEFITS
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The postretirement medical plan
benefits provided by the plan are actuarially equivalent to Medicare Part D
under the 2003 Medicare Act and eligible for the federal subsidy. Effective
January 1, 2007, this subsidy is passed on to the participants through reduced
contributions. The expected amount of subsidy that AIG will receive for 2011 is
$3 million.
36
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company had commitments to provide funding to various limited partnerships
totaling $2 million at December 31, 2011 and 2010. The commitments to invest in
limited partnerships and other funds are 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, 2011, $2 million are
currently expected to expire by 2012, based on the expected life cycle of the
related fund, and the Company's historical funding trends for such commitments.
CONTINGENCY LIABILITIES
The Company leases office space and equipment under lease agreements that
expire at various times over the next several years. Rental expenses and future
minimum payments for leases having initial or remaining non-cancelable lease
terms in excess of one year are immaterial.
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 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 $1 million for these guarantee fund assessments at December 31, 2011,
and 2010. The Company has recorded receivables of $1 million at December 31,
2011 and 2010, for expected recoveries against the payment of future premium
taxes.
The Company has received industry-wide regulatory inquiries, including a
multi-state audit covering compliance with unclaimed property laws and a
directive from the New York Insurance Department (the "New York Directive")
regarding claims settlement practices. In particular, the above referenced
multi-state audit seeks to require insurers to use the Social Security
Administration Death Master File ("SSDMF") to identify potential deceased
insured notwithstanding that the payee has not presented the Company with a
valid claim, to determine whether a death claim is payable, and to take
appropriate action. The multi-state audit covers certain policies in force at
any time since 1992. The New York Directive generally requires a similar review
and action although the time frame under review is different.
Although the Company has enhanced its claims practices to include use of the
SSDMF, it is possible that the inquiries, audits and other regulatory activity
could result in the payment of additional death claims, additional escheatment
of funds deemed abandoned under state laws, administrative penalties and
interest. The Company believes that it has adequately reserved for such claims
as of December 31, 2011, but there can be no assurance that the ultimate cost
will not vary, perhaps materially, from its estimate. Additionally, state
regulators are considering a variety of proposals that would require life
insurance companies to take additional steps to identify unreported deceased
policyholders. The Company recorded zero reserves in conjunction with the use
of SSDMF.
Various federal, state and 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, market conduct exams or
regulatory inquiries. Based on the current status of pending regulatory
examinations and inquiries involving the Company, the Company believes it is
not likely that these regulatory examinations or inquiries will have a material
effect on the financial position, results of operations or cash flows of the
Company.
37
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company is party to various lawsuits and proceedings arising in the
ordinary course of business. These lawsuits and proceedings include certain
class action claims and claims filed by individuals who have excluded
themselves from settlement of class action lawsuits relating to life insurance
pricing and sales practices. In addition, many of these proceedings are pending
in jurisdictions that permit damage awards disproportionate to the actual
economics damages alleged to have been incurred. Based upon information
presently available, the company believes that the total amount that will
ultimately be paid, if any, arising from these lawsuits and proceedings will
not have a material adverse effect on the Company's results of operations, cash
flows and financial position. However, it should be noted that the frequency of
large damage awards, including large punitive damage awards, that bear little
or no relation to actual economics damages incurred by plaintiffs in some
jurisdictions continues to create the potential for an unpredictable judgment
in any given suit.
12. RELATED PARTY TRANSACTIONS
GUARANTEE AND SUPPORT AGREEMENTS WITH AFFILIATES
On March 30, 2011, AIG and the Company entered into an unconditional Capital
Maintenance Agreement ("CMA"). Among other things, the CMA provides that AIG
would maintain the Company's total adjusted capital (as defined under
applicable insurance laws) at or above a certain specified minimum percentage
of the Company's projected company action level RBC (as defined under
applicable insurance laws). The CMA also provides that if the Company's total
adjusted capital is in excess of a certain specified minimum percentage of the
Company's company action level RBC (as reflected in the Company's quarterly or
annual statutory financial statement), subject to board and regulatory
approval(s), the Company would declare and pay ordinary dividends to its equity
holders in an amount in excess of that required to maintain the specified
minimum percentage.
OPERATING AGREEMENTS
The Company's short-term investments included investments in the Liquidity
Pool, funds managed by an affiliate, AIG Capital Management Corporation, in the
amount of $9 million at December 31, 2011 and $38 million at December 31, 2010.
The Company is party to several cost sharing agreements with its affiliates.
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. For the years ended December 31, 2011 and
2010, the Company was charged $6 million and $10 million, respectively, for
expenses attributed to the Company but incurred by affiliates.
OTHER
The Company paid an ordinary dividend to SAFG and receives an allocation of its
proportionate share of variable compensation expense from AIG. Please refer to
Note 9, Capital and Surplus.
Effective September 15, 2011, a $13 million senior promissory note with SAFG,
the Company's immediate parent, matured.
Interest earned in connection with investments in parent, subsidiaries and
affiliated companies totaled $511 thousand and $724 thousand during 2011 and
2010, respectively.
38
AMERICAN GENERAL ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. RECONCILIATION TO ANNUAL STATEMENTS
There were no adjustments made to the 2011 net income and total capital and
surplus as reported in the annual statement.
The following chart summarizes the adjustments made to the 2010 net income and
total capital and surplus as reported in the annual statement:
2010
-----------------------
TOTAL CAPITAL
NET INCOME AND SURPLUS
---------- -------------
(In Thousands)
As reported in the annual statement $12,388 $106,053
Prior year return tax true-up - 649
Federal income tax (649) (649)
------- --------
As reported in the accompanying Statutory Financial
Statements $11,739 $106,053
======= ========
14. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 25, 2012, the date the
financial statements were issued.
INSURANCE COMPANY MERGER
On December 31, 2012, the Company intends to merge with and into American
General Life Insurance Company ("AGL"), with AGL being the surviving company,
to implement a more efficient legal entity structure, while continuing to
market products and services under currently existing brands. AGL is also an
indirect, wholly owned subsidiary of AIG. The merger transaction is subject to
receipt of all required regulatory approvals, including the approvals of
certain state insurance departments.
39
SUPPLEMENTAL INFORMATION
40
American General Assurance Company
Supplemental Schedule of Assets and Liabilities
December 31, 2011
(In Thousands)
Investment income earned:
Government bonds $ 437
Other bonds (unaffiliated) 7,423
Bonds of affiliates 511
Preferred stocks (unaffiliated) 3
Contract loans 10
Cash/short-term investments 30
Other invested assets 4,605
--------
Gross investment income $ 13,019
========
Other long term assets - statement value $ 1,099
========
Collateral Loans $ 133
========
Bonds and stocks of parents, subsidiaries and affiliates -
statement value:
Common stocks $ 8,534
========
Bonds and short-term investments by class and maturity:
Bonds and short-term investments by maturity - statement value:
Due within one year or less $ 17,031
Over 1 year through 5 years 48,587
Over 5 years through 10 years 48,288
Over 10 years through 20 years 25,524
Over 20 years 14,346
--------
Total maturity $153,776
========
Bonds and short-term investments by class - statement value:
Class 1 $ 90,748
Class 2 54,495
Class 3 6,733
Class 4 1,778
Class 5 22
Class 6 -
--------
Total by class $153,776
========
Total bonds and short-term investments publicly traded $114,054
========
Total bonds and short-term investments privately placed $ 39,722
========
41
American General Assurance Company
Supplemental Schedule of Assets and Liabilities (Continued)
December 31, 2011
(In Thousands)
Preferred stocks - statement value $ 50
==========
Common stocks - market value $ 8,534
==========
Short-term investments - book value $ 8,962
==========
Cash on deposit $ (796)
==========
Life insurance in-force:
Ordinary $ 209,028
==========
Credit life $1,264,534
==========
Group life $5,950,942
==========
Amount of accidental death insurance in-force under ordinary
policies $ 886
==========
Life insurance policies with disability provisions in-force:
Ordinary $ 454
==========
Group life $4,596,720
==========
Group - Not Involving Life Contingencies - Amount of Deposit $ 799
==========
Accident and health insurance - premiums in-force:
Group $ 23,045
==========
Credit $ 40,497
==========
Claim payments in 2011:
Group accident & health:
2011 $ 5,117
==========
2010 $ 4,598
==========
2009 $ 1,467
==========
2008 $ 836
==========
2007 $ 649
==========
Prior $ 1,849
==========
Credit accident & health:
2011 $ -
==========
2010 $ -
==========
2009 $ -
==========
2008 $ -
==========
2007 $ -
==========
Prior $ 1,953
==========
42
American General Assurance Company
Supplemental Investment Risks Interrogatories
December 31, 2011
(In Thousands)
1. The Company's total admitted assets as of December 31, 2011 are $180,443
thousand.
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 SVO Practices and Procedures Manual
as exempt, (ii) property occupied by the Company, and (iii) policy loans:
Percentage of
Descrition of Total Admitted
Issuer Exposure Amount Assets
------ ------------------ ------ --------------
a. MERRILL LYNCH MTG TR Bonds $9,706 5.38%
b. AIG LIQUIDITY POOL Short Term 8,962 4.97%
c. AMERN GEN INDEMNITY CO COM Common-Affiliated 8,534 4.73%
d. SPIRIT MASTR FDG LLC Bonds 6,733 3.73%
e. CA WTR SVC CO Bonds 5,000 2.77%
f. CLARION LION PPTYS FD HLDGS LP Bonds 5,000 2.77%
g. LAFA YETTE SQ CDO LTD Bonds 4,954 2.75%
h. HLTHCARE REIT INC Bonds 3,995 2.21%
i. COBANK ACB Bonds 3,991 2.21%
j. ABBEY NATL PLC Bonds 3,495 1.94%
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 $90,748 50.29% P/RP - 1 $ - 0.00%
NAIC - 2 54,495 30.20% P/RP - 2 43 0.02%
NAIC - 3 6,733 3.73% P/RP - 3 7 0.00%
NAIC - 4 1,778 0.99% P/RP - 4 - 0.00%
NAIC - 5 22 0.01% P/RP - 5 - 0.00%
NAIC - 6 - 0.00% P/RP - 6 - 0.00%
43
American General Assurance Company
Supplemental Investment Risks Interrogatories (Continued)
December 31, 2011
(In Thousands)
4. Assets held in foreign investments:
Percentage of
Total Admitted
Amount Assets
------- --------------
a. Total admitted assets held in foreign investments $15,462 8.57%
b. Foreign currency denominated investments - 0.00%
c. Insurance liabilities denominated in that same
foreign currency - 0.00%
5. Aggregate foreign investment exposure categorized by NAIC sovereign rating:
Percentage of
Total Admitted
Amount Assets
------- --------------
a. Countries rated NAIC - 1 $15,462 8.57%
b. Countries rated NAIC - 2 - 0.00%
c. Countries rated NAIC - 3 or below - 0.00%
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: Cayman Islands $4,954 2.75%
Country 2: Bermuda 3,814 2.11%
b. Countries rated NAIC - 2
Country 1: - 0.00%
Country 2: - 0.00%
c. Countries rated NAIC - 3 or below
Country 1: - 0.00%
Country 2: - 0.00%
44
American General Assurance Company
Supplemental Investment Risks Interrogatories (Continued)
December 31, 2011
(In Thousands)
7. The Company had no unhedged foreign currency exposure.
8. The Company had no unhedged foreign currency exposure.
9. The Company had no unhedged foreign currency exposure.
10.Ten largest non-sovereign (i.e. non-governmental) foreign issues:
Percentage of
Total Admitted
NAIC Amount Assets
---- ------ --------------
a. LAFA YETTE SQ CDO LTD 1 $4,954 2.75%
b. ABBEY NATL PLC 1 3,495 1.94%
c. BK BUTTERFIELD & SON LTD 2 3,000 1.66%
d. SUNCORP METWAY LTD 1 1,999 1.11%
e. INVERSIONES CMPC SA 2 1,000 0.55%
f. INGERSOLL RAND CO LTD 2 814 0.45%
g. ST GEORGE BANK LTD 1 200 0.11%
h. AMERICAN GEN CBO LTD 6 - 0.00%
i. TIM HELLAS II TELECOM SA 6 - 0.00%
11. Assets held in Canadian investments and unhedged Canadian currency exposure
are less than 2.5 percent of the Company's total admitted assets.
12. The company has no admitted assets held in investments with contractual
sales restrictions..
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
Investment Category / Issuer Amount Assets
---------------------------- ------ --------------
a. AMERN GEN INDEMNITY CO COM $8,534 4.73%
b. CORTEC GROUP FUND III, LP 668 0.37%
c. CROSSROADS CORNERSTONE PRIVATE EQUITY XV, LP 431 0.24%
d. PECO ENERGY CO 46 0.03%
e. UNION ELEC CO 9 0.01%
45
American General Assurance Company
Supplemental Investment Risks Interrogatories (Continued)
December 31, 2011
(In Thousands)
14. Assets held in nonaffiliated, privately placed equities are less than 2.5
percent of the Company's total admitted assets.
15.Assets held in general partnership interests are less than 2.5 percent of
the Company's total admitted assets.
16.The Company has no mortgage loans at December 31, 2011.
17.The Company has no mortgage loans at December 31, 2011.
18.The Company has no real estate at December 31, 2011.
19.The Company has no mezzanine real estate loans at December 31, 2011.
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 $- 0.00% $- $- $-
b. Repurchase agreements - 0.00% - - -
c. Reverse repurchase agreements - 0.00% - - -
d. Dollar repurchase agreements - 0.00% - - -
e. Dollar reverse repurchase agreements - 0.00% - - -
21. The company has no unattached warrants, options caps and floors at
December 31, 2011
22. The Company has no exposure for collars, swaps and forwards at December 31,
2011.
23. The Company has no exposure for futures contracts at December 31, 2011.
46
American General Assurance Company
Supplemental Summary Investment Schedule
December 31, 2011
(In Thousands)
Admitted Assets as
Gross Investment Reported in the
Holdings* Annual Statement
------------------ ------------------
Investment Categories Amount Percentage Amount Percentage
--------------------- -------- ---------- -------- ----------
Bonds:
U.S. treasury securities $ 2,697 1.7% $ 2,697 1.7%
U.S. government agency
obligations
(excluding mortgage-backed
securities):
Issued by U.S.
government sponsored
agencies 5,298 3.3% 5,298 3.3%
Securities issued by
states, territories, and
possessions and their
political subdivisions
in the U.S.:
Industrial development
and similar
obligations 4,645 2.9% 4,645 2.9%
Mortgage-backed securities
(including residential
and commercial MBS):
Pass-through
securities:
Issued or
guaranteed by GNMA 5 0.0% 5 0.0%
Issued or
guaranteed by
FNMA and FHLMC 17,872 11.0% 17,872 11.0%
CMOs and REMICs:
All other 14,247 8.8% 14,247 8.8%
Other debt and other fixed
income securities
(excluding short-term):
Unaffiliated domestic
securities (includes
credit tenant loans
and hybrid
securities ) 81,206 49.8% 81,206 49.8%
Unaffiliated non-U.S.
securities
(including Canada) 18,844 11.5% 18,844 11.5%
Equity interests:
Preferred stocks:
Unaffiliated 50 0.0% 50 0.0%
Other equity
securities:
Affiliated 8,534 5.2% 8,534 5.2%
Contract loans 133 0.1% 133 0.1%
Cash, cash equivalents and
short-term investments 8,166 5.0% 8,166 5.0%
Other invested assets 1,099 0.7% 1,099 0.7%
-------- ----- -------- -----
Total invested assets $162,796 100.0% $162,796 100.0%
======== ===== ======== =====
* Gross investment holdings as valued in compliance with NAIC SAP
47
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF AMERICAN INTERNATIONAL GROUP, INC.)
STATUTORY FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
DECEMBER 31, 2011 AND 2010
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
INDEX
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
PAGE(S)
REPORT OF INDEPENDENT AUDITORS 1-2
STATUTORY-BASIS FINANCIAL STATEMENTS
Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus 3
Statutory Statements of Operations 4
Statutory Statements of Changes in Capital and Surplus 5
Statutory Statements of Cash Flows 6
Notes to Statutory Financial Statements 7-76
1. Nature of Operations 7
2. Summary of Significant Accounting Policies 7-24
3. Investments 25-40
4. Derivative Financial Instruments 40-42
5. Information about Financial Instruments with Off-Balance Sheet Risk 43
6. Fair Value Measurements 43-50
7. Aggregate Policy Reserves and Deposit Fund Liabilities 51-52
8. Premium and Annuity Considerations Deferred and Uncollected 53
9. Reinsurance 54-56
10. Unpaid Claims 57
11. Federal Income Taxes 58-63
12. Capital and Surplus 64
13. Retirement Plans, Deferred Compensation, Postemployment Benefits, Compensated Absences and Other Postretirement
Benefit Plans 64-68
14. Debt 68-69
15. Commitments and Contingencies 69-70
16. Leases 70
17. Related Party Transactions 71-73
18. Reconciliation to Annual Statement 74
19. Subsequent Events 74-75
SUPPLEMENTAL SCHEDULES
Supplemental Schedule of Assets and Liabilities 77-80
Supplemental Schedule of Investment Risks Interrogatories 81-88
Supplemental Summary Investment Schedule 89-90
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
American General Life and Accident Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital and surplus of American General Life and Accident
Insurance Company (the "Company"), an indirect, wholly-owned subsidiary of
American International Group, Inc., as of December 31, 2011 and 2010, and the
related statutory statements of operations, changes in capital and surplus, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using accounting practices prescribed or permitted by the
Tennessee Department of Commerce and Insurance, which practices differ from
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 and accounting principles generally accepted in the United
States of America are material; they are described in Note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States
of America, the financial position of the Company as of December 31, 2011 and
2010, or the results of its operations or its cash flows for the years then
ended.
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, 2011 and 2010, and the results of its
operations and its cash flows for the years then ended, on the basis of
accounting described in Note 2.
As discussed in Note 2 to the financial statements, in 2010, the Company
changed its method of accounting for its investment in Maiden Lane II LLC.
As discussed in Note 2 to the financial statements, in 2010, the Company
received a permitted practice to restate the additional paid-in surplus and
unassigned deficit components of surplus, similar to the statutory basis of
accounting for a quasi-reorganization.
Our audit was conducted for the purpose of forming an opinion on the basic
statutory basis financial statements taken as a whole. The accompanying
Supplemental Schedule of Assets and Liabilities, Supplemental Schedule of
Investment Risks Interrogatories and Supplemental Summary Investment Schedule
(collectively, the "Schedules") of the Company as of December 31, 2011 and for
the year then ended are presented for purposes of additional analysis and are
not a required part of the basic statutory basis financial statements. The
effects on the Schedules of the variances between the statutory basis of
accounting and accounting principles generally accepted in the United States of
America are material; they are described in Note 2 of the statutory basis
financial statements. As a consequence, the Schedules do not present fairly, in
conformity with accounting principles generally accepted in the United States
of America, such information of the Company as of December 31, 2011 and for the
year then ended. The Schedules have been subjected to the auditing procedures
applied in the audit of the basic statutory basis financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
basic statutory basis financial statements taken as a whole.
LOGO
May 25, 2012
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES, AND CAPITAL AND SURPLUS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
(in thousands of dollars, except share data)
2011 2010
---------- ----------
ADMITTED ASSETS
Cash and invested assets
Bonds $7,484,180 $7,059,506
Preferred stocks 25,917 26,084
Common stocks 35,340 29,967
Mortgage loans 956,180 986,740
Real estate 41,927 40,340
Contract loans 416,567 427,988
Short-term investments 53,957 534,549
Other invested assets 248,297 250,670
Cash (9,310) (18,959)
---------- ----------
Total cash and invested assets 9,253,055 9,336,885
Deferred and uncollected premiums, less loading (2011 - $4,193; 2010 - $4,536) 18,556 12,715
Reinsurance balances recoverable 13,976 17,919
Current federal income tax recoverable and interest 5,429 --
Accrued investment income 127,690 130,848
Net deferred tax assets 124,253 130,910
Other assets 7,443 7,508
---------- ----------
Total admitted assets $9,550,402 $9,636,785
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities
Policy reserves and contractual liabilities
Life and annuity reserves $8,141,059 $8,118,233
Accident and health reserves 119,052 119,347
Policyholders' funds 88,011 90,610
Policy and contract claims 192,352 87,794
---------- ----------
Total policy reserves and contractual liabilities 8,540,474 8,415,984
Interest Maintenance Reserve 44,008 25,662
Accrued expenses 54,592 46,267
Payable to Parent, subsidiaries and affiliates 18,442 156,933
Current federal income tax payable -- 14,462
Reinsurance balances payable 9,589 10,660
Asset valuation reserve 127,416 9,401
Derivative instruments 2,440 5,836
Other liabilities 124,141 110,828
---------- ----------
Total liabilities 8,921,103 8,796,033
---------- ----------
Capital and surplus
Common stock, $5 par value; 15,422,400 shares authorized; 15,120,777 shares issued and outstanding 75,604 75,604
Paid-in surplus 422,896 592,334
Special surplus funds 70,855 92,548
Unassigned surplus 59,944 80,266
---------- ----------
Total capital and surplus 629,299 840,752
---------- ----------
Total liabilities and capital and surplus $9,550,402 $9,636,785
========== ==========
The accompanying notes are an integral part of these statutory financial
statements.
3
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
STATUTORY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
(in thousands of dollars)
2011 2010
---------- ----------
PREMIUMS AND OTHER REVENUES
Life and annuity premiums $ 755,607 $ 733,527
Accident and health premiums 65,475 72,371
Net investment income 628,271 682,125
Amortization of the interest maintenance reserve 6,378 (1,165)
Commissions and expense allowances on reinsurance ceded 8,130 13,921
Reserve adjustments on reinsurance ceded (29,052) (5,314)
Other income 446 856
---------- ----------
Total premiums and other revenues 1,435,255 1,496,321
---------- ----------
BENEFITS AND EXPENSES
Death benefits 493,902 385,223
Annuity benefits 35,070 36,617
Surrender benefits 255,112 245,565
Payments from funds left at interest 20,373 19,336
Accident and health benefits 51,428 59,297
Increase in life, annuity, and accident and health reserves 22,531 28,868
Commissions 155,586 148,527
General expenses 185,696 185,929
Insurance taxes, licenses and fees 31,580 30,205
---------- ----------
Total benefits and expenses 1,251,278 1,139,567
---------- ----------
Income from operations before dividends to policyholders, federal income taxes and net realized capital
losses 183,977 356,754
Dividends to policyholders 1,049 1,216
---------- ----------
Income from operations before federal income taxes and net realized capital losses 182,928 355,538
Federal income tax expense 9,134 68,471
---------- ----------
Net income from operations before net realized capital losses 173,794 287,067
Net realized capital losses after taxes and transfers to IMR 5,392 44,489
---------- ----------
Net income $ 168,402 $ 242,578
========== ==========
The accompanying notes are an integral part of these statutory financial
statements.
4
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
YEARS ENDED DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
SPECIAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS SURPLUS CAPITAL AND
STOCK SURPLUS FUNDS (DEFICIT) SURPLUS
(in thousands of dollars) ------- ---------- -------- ---------- -----------
BALANCES AT JANUARY 1, 2010 $75,604 $1,231,661 $ 76,040 $(683,345) $ 699,960
Net income -- -- -- 242,578 242,578
Change in net deferred income tax -- -- -- (46,433) (46,433)
Change in net unrealized capital gains and losses -- -- -- (17,677) (17,677)
Change in net unrealized foreign exchange capital gain -- -- -- 597 597
Decrease in nonadmitted assets -- -- -- 79,892 79,892
Increase in liability for unauthorized reinsurance -- -- -- (6) (6)
Decrease in asset valuation reserve -- -- -- 10,903 10,903
Cumulative effect of changes in accounting principle (AVR related to
MLII - see Note 2) 9,601 9,601
Decrease in surplus as a result of reinsurance -- -- -- (5,465) (5,465)
TN permitted practice - quasi-reorganization (see Note 2) -- (564,621) -- 564,621 --
Impact of SSAP 10R incremental deferred tax assets -- -- 16,508 -- 16,508
Dividend to parent recorded as return of capital (see Notes 2 and 17) -- (75,000) -- -- (75,000)
Dividend to parent -- -- -- (75,000) (75,000)
Capital contribution -- 294 -- -- 294
------- ---------- -------- --------- ---------
BALANCES AT DECEMBER 31, 2010 $75,604 $ 592,334 $ 92,548 $ 80,266 $ 840,752
Net income -- -- -- 168,402 168,402
Change in net deferred income tax -- -- -- 26,788 26,788
Change in net unrealized capital gains and losses -- -- -- 180,215 180,215
Change in net unrealized foreign exchange capital gain -- -- -- (480) (480)
Increase in nonadmitted assets -- -- -- (22,339) (22,339)
Increase in liability for unauthorized reinsurance -- -- -- (6) (6)
Increase in asset valuation reserve -- -- -- (118,015) (118,015)
Decrease in surplus as a result of reinsurance -- -- -- (565) (565)
Impact of SSAP 10R incremental deferred tax assets -- -- (21,693) -- (21,693)
Dividend to parent recorded as return of capital (see Notes 2 and 17) -- (170,503) -- -- (170,503)
Dividend to parent -- -- -- (260,397) (260,397)
Capital contribution -- 1,065 -- 1,065
Impact of correction of overpayment of net reinsurance premiums 6,075 6,075
------- ---------- -------- --------- ---------
BALANCES AT DECEMBER 31, 2011 $75,604 $ 422,896 $ 70,855 $ 59,944 $ 629,299
======= ========== ======== ========= =========
The accompanying notes are an integral part of these statutory financial
statements.
5
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
2011 2010
(in thousands of dollars) ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected, net of reinsurance $ 814,155 $ 789,423
Net investment income received 574,148 609,969
Commissions and expense allowances received on reinsurance ceded (20,922) 8,819
Miscellaneous income 446 856
Benefits paid (748,462) (752,915)
Insurance expenses paid (366,435) (329,517)
Dividends to policyholders (1,157) (936)
Federal income taxes paid (26,416) (98,202)
----------- ----------
Net cash provided by operating activities 225,357 227,497
----------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Proceeds from sales, maturities or repayments of investments
Bonds 856,408 987,429
Preferred stocks 1,313 35,377
Common stocks 22,500 780
Mortgage loans 34,186 49,708
Real estate 10,457 --
Other invested assets 11,917 8,660
Miscellaneous proceeds 11,045 3,030
----------- ----------
Total investment proceeds 947,826 1,084,984
----------- ----------
Cost of investments acquired
Bonds (1,022,036) (703,977)
Preferred stocks (1,106) (2,009)
Common stocks (27,332) (2,652)
Mortgage loans -- (27,801)
Real estate (24) (212)
Other invested assets (5,594) (143,106)
Miscellaneous Applications (11,342) --
----------- ----------
Total cost of investments acquired (1,067,434) (879,757)
----------- ----------
Net decrease in contract loans 11,448 4,791
----------- ----------
Net cash (used in) from investing activities (108,160) 210,018
----------- ----------
CASH FLOWS FROM FINANCING AND MISCELLANEOUS ACTIVITIES
Capital contribution 1,065 294
Dividends to parent (260,397) (75,000)
Other, net (328,808) 54,536
----------- ----------
Net cash used in financing and miscellaneous activities (588,140) (20,170)
----------- ----------
Net (decrease) increase in cash and short-term investments (470,943) 417,345
CASH AND SHORT-TERM INVESTMENTS
Beginning of year 515,590 98,245
----------- ----------
End of year $ 44,647 $ 515,590
=========== ==========
The accompanying notes are an integral part of these statutory financial
statements.
6
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
American General Life Insurance Company ("AGLA" or the "Company") is a
wholly owned subsidiary of AGC Life Insurance Company (the "Parent
Company"). The Parent Company is a wholly owned subsidiary of SunAmerica
Financial Group, Inc. ("SAFG"), which in turn is a wholly owned subsidiary
of American International Group, Inc. ("AIG"). The Company's primary
business is the sale of individual life, health and annuity insurance
products, including universal life products, primarily through a career
agency system. The Company sells and services products in 48 states and
Washington, D.C. in which it is licensed. The Company directly owns 100% of
one property and casualty insurance company, American General Property
Insurance Company ("AGPIC"). However, property and casualty insurance
operations are not a significant component of the operations 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 insurance 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 insurance
products.
The Company is exposed to the risks normally associated with a portfolio of
fixed income securities, namely interest rate, option, liquidity and credit
risks. Continuing volatility in the credit markets may result in additional
other-than-temporary impairments ("OTTI") relating to the Company's fixed
income investments. The Company controls its exposure to these risks by,
among other things, closely monitoring and limiting prepayments and
extension risk in its portfolio; maintaining a percentage of its portfolio
in liquid securities; engaging in a disciplined process of underwriting; and
reviewing and monitoring credit risk. Although management expects to be able
to achieve its plans, no assurance can be given that one or more of the
risks described above will not result in material adverse effects on the
Company's financial position, results of operations or statutory capital and
surplus.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Tennessee Department of
Commerce and Insurance ("TDCI"). These accounting practices vary in certain
respects from accounting principles generally accepted in the United States
of America ("U.S. U.S. GAAP") as described herein.
The TDCI recognizes only statutory accounting practices prescribed or
permitted by the state of Tennessee for determining and reporting the
financial condition and results of operations of an insurance company and
for determining its solvency under Tennessee 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 Tennessee. The state has the right to
permit other specific practices that deviate from prescribed practices.
7
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
A reconciliation of the Company's net income and capital and surplus between
NAIC SAP and practices prescribed or permitted by the State of Tennessee is
shown below:
2011 2010
(in thousands of dollars) -------- --------
Net Income, Tennessee Basis $168,402 $242,578
State Permitted Practice: Quasi-reorganization -- --
-------- --------
Net Income, NAIC SAP $168,402 $242,578
======== ========
Statutory Capital and Surplus, Tennessee Basis $629,299 $840,752
State Prescribed Practice that decreases NAIC SAP: Receivable from parent 9,003 $ --
-------- --------
Statutory Capital and Surplus, NAIC SAP $638,302 $840,752
======== ========
In 2010, the Company received permission from the TDCI to restate the gross
paid-in and contributed surplus and the unassigned funds components of its
surplus, similar to the restatement of surplus balances that occurs pursuant
to the prescribed accounting guidance for a quasi-reorganization. Unassigned
funds were restated to $0 as of September 30, 2010 after consideration of
the third quarter 2010 extraordinary dividend of $75 million and the
permitted restatement adjustment that reclassified a portion of the
contributions received from AIG that offset the Company's losses on certain
securities as a result of the Company's participation in the AIG Securities
Lending Program. In conjunction with the restatement adjustment, the Company
also recognized a corresponding decrease in gross paid in and contributed
surplus of $565 million. The permitted practice had no impact on either the
Company's net income or total capital and surplus. In addition, there was no
impact on the Company's risk-based capital ("RBC") results.
Additionally, the TDCI approved the Company's request to pay an
extraordinary dividend of $75 million to the Parent Company during the
fourth quarter 2010, pursuant to the Department's standard dividend approval
process. Accordingly, the dividend was recorded as a reduction of unassigned
funds.
In 2011, the Company received permission from the TDCI to record dividend
payments of $143 million as a return of capital according to the previously
permitted practice in 2010, which when combined with prior returns of
capital, completely offset AIG's securities lending related contributions.
In addition, the TDCI also allowed a dividend payment of $27 million to be
recorded from additional paid in capital instead of unassigned surplus in
order to maintain a $0 balance for unassigned funds as of September 30,
2011. The permitted practice had no impact on the Company's net income,
total capital and surplus or RBC results.
Certain classifications and format changes have been made to prior year
amounts to conform to the current period presentation.
8
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with accounting
practices prescribed or permitted by the TDCI 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 revenues and expenses during the
period. The areas of significant judgments and estimates include the
following:
. application of 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, 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
Statements of Admitted Assets, Liabilities and Capital and Surplus,
Statements of Operations and Statutory Statements of Cash Flows could be
materially affected.
SIGNIFICANT ACCOUNTING POLICIES
Bonds
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 rating 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 rating in over one year from the NAIC's Securities
Valuation Office ("SVO") receive a "6*" rating and are carried at zero, with
the unrealized loss charged directly to unassigned surplus. Bonds filed with
the SVO 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 contractual interest
and principal payments and (3) the Company has an actual expectation of
ultimate repayment of all contracted interest and principal. Securities with
NAIC 5* designations are deemed to possess the credit characteristics of
securities assigned a NAIC 5 designation. If the decline in fair value of a
bond is considered to be other than temporary, the cost basis is written
down to fair value and the amount of the write-down is recognized as a
realized loss. 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 continued review of its investments. The discount
or premium on bonds is amortized using the effective yield method. Bonds
issued by SAFG are nonadmitted to the extent that such investments are not
approved by the TDCI.
9
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
All residential mortgage-backed securities ("RMBS"), commercial
mortgage-backed securities ("CMBS") and asset-backed securities ("ABS") were
defined to be loan-backed and structured securities ("LBaSS") for 2010. The
definition of LBaSS was expanded in 2011 to include
certain securities that were previously accounted for pursuant to the
guidance for bonds, other than LBaSS. The additional securities included in
LBaSS in 2011 includes, but is not limited to, 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 stated at amortized cost, except for those with a NAIC designation
of "6" or "6*". LBaSS with a NAIC 6 rating are carried at the lower of
amortized cost or fair value, with unrealized losses charged directly to
unassigned surplus. LBaSS that have not been filed and have not received a
rating in over one year from the SVO receive a "6*" rating and are carried
at zero, with the unrealized loss charged directly to unassigned surplus.
Securities filed with the SVO 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 contracted interest and principal.
Securities with a NAIC 5* designation are deemed to possess the credit
characteristics of securities assigned a NAIC 5 designation. Provisions made
for impairment are recorded as realized investment losses when declines in
fair value are determined to be other-than-temporary. 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 and asset-backed securities 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 are based on the final NAIC designation. For LBaSS, NAIC
designations 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 for 2011. The final NAIC
designation for most RMBS and CMBS is determined by financial modeling
conducted by BlackRock and PIMCO, respectively. 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 rating based
on an NAIC matrix and the Company's carrying value for the security. For
credit tenant loans, equipment trust certificates, any corporate-like
securities rated by the SVO, interest only securities, and those securities
with an original NAIC designation of 1, 5*, 6, or 6*, the final NAIC
designation is based on the SVO or Acceptable Rating Organization ("ARO")
rating and is not subject to a modified rating or financial modeling.
10
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Preferred Stocks
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 investment losses charged
directly to unassigned surplus. Provisions made for impairment are recorded
as realized investment losses when declines in fair value are determined to
be other than temporary.
Common Stocks
Unaffiliated common stocks are carried at fair value, with unrealized
investment gains and losses credited or charged directly to unassigned
surplus. Provisions made for impairment are recorded as realized investment
losses when declines in fair value are determined to be other-than-temporary.
Investments in U.S. domiciled insurance subsidiary, controlled, and
affiliated ("SCA") entities are recorded based on the underlying audited
statutory equity of the respective entity's financial statements, adjusted
for unamortized goodwill, if applicable. Investments in foreign insurance
SCA entities are recorded at audited U.S. GAAP adjusted to a statutory basis
of accounting, if applicable. All investments in non-insurance SCA entities
in which audited U.S. GAAP financial statements are not available, or
audited foreign generally accepted accounting principles ("U.S. GAAP") basis
financial statements that include a footnote that reconciles net income and
equity on a foreign U.S. GAAP basis to U.S. GAAP are not available, have
been non-admitted as assets as required by Statement of Statutory Accounting
Principles No. 97, "Investments in Subsidiary, Controlled and Affiliated
Entities, A Replacement of SSAP No. 88" ("SSAP 97"). Undistributed equity in
earnings of affiliates is included in unassigned surplus as a component of
unrealized investment gains or losses. Dividends received from such
affiliates are recorded as investment income when received.
The Company's insurance subsidiary, AGPIC, is reported based on the
Company's ownership interest in the equity in the underlying statutory basis
of AGPIC's net admitted assets. The net change in the Company's interest in
AGPIC's equity is included in the net unrealized capital gains or losses
component of unassigned surplus.
The Company's non-insurance subsidiary, American General Bancassurance
("AGBA"), is reported based on the Company's ownership interest in the
equity in the underlying U.S. GAAP basis of AGBA. Since AGBA did not obtain
audited U.S. GAAP basis financial statements, it was nonadmitted for
statutory reporting.
Mortgage Loans
Mortgage and mezzanine real estate loans are carried at amortized unpaid
balances less any allowance for loan loss.
Interest income on loans is calculated using the effective interest method
on the daily balance of the principal amount outstanding. Loan origination
fees and costs, other than points, are expensed as incurred.
11
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Loans are monitored, identified, evaluated, segmented and reserved based on
certain risk factors, including past due status, debt service coverage rate,
loan-to-value or the ratio of the loan balance to the estimated value of the
property, property occupancy, profile of the borrower and major property
tenants, economic trends in the market where the collateral property is
located and condition of the collateral property.
A loan is identified as impaired when it is probable that interest and
principal payments will not be collected according to the contractual terms
of the loan agreement. The measurement of impaired loans is generally
determined based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, if collateral
dependent, the fair value of the collateral supported by an internal cash
flow analysis, third party broker opinion of value or a third party
appraisal report. The allowance amount is calculated as the excess of book
value of the individual loan over the fair value of its collateral less
estimated costs to sell and obtain. Impairment amounts are established as a
valuation allowance against the amortized unpaid balances with a
corresponding charge to unrealized gain or loss. Interest income on such
impaired loans is recognized when cash is received.
There are two components of allowance for loan loss: 1) specific loan loss
allowance that is determined for individual loans that are specifically
identified as impaired ("specific loan loss allowance") and 2) a general
reserve for loans with similar risk characteristics that is determined using
the current loan-to-value as adjusted, as necessary, to reflect the impact
of current conditions ("segment loan loss allowance").
A specific loan loss allowance is determined based on the fair value of the
collateral supported by an internal cash flow analysis, third party broker
opinion of value or a third party appraisal report. The allowance amount is
calculated as the excess of book value of the individual loan over the fair
value of its collateral, net of a sales cost estimate.
The Company segregates pools of loans with higher risk profiles from the
mortgage loan portfolio to determine a segment loan loss allowance, using
factors such as risk rating, vintage, maturity date, debt service coverage
ratio, loan to value and type of loan. The Company reviews and revises these
key assumptions on a quarterly basis based on an analysis of market
conditions. The appraised value of the aggregate collateral of the loans
with higher risk profile is then reduced by a percentage, which is based on
current market conditions. To the extent that the reduced aggregate
appraised value of the collateral of the loans with higher risk profiles are
lower than their book value, an allowance is recorded. Loans with specific
loan loss allowance are excluded from the segment loan loss allowance.
Temporary impairments of specific loans or pools of loans with higher risk
profiles, or any charges thereof, are recognized by adjusting a
corresponding specific or segment valuation allowance, with a corresponding
charge or credit to unrealized investment gains or losses. OTTI are recorded
as realized investment losses, with a related direct write-down to mortgage
loans, resulting in a new cost basis for the investment. Interest income on
impaired loans is recognized upon receipt.
12
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Real Estate
Land is reported at cost. 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 carrying amount or fair value less estimated
costs to sell the property less encumbrances.
Contract Loans
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 policy cash surrender value are considered
non-admitted assets.
Cash and Short-term Investments
Cash includes cash on hand, and non-interest bearing demand deposits.
Short-term investments consist of securities that have original maturities
of greater than three months and less than twelve months at date of purchase
and are stated at amortized cost, which approximates fair value.
Derivative Financial Instruments
All derivative instruments are recognized in the financial statements.
Derivative instruments used in hedging transactions that meet the criteria
of a highly effective hedge are reported as other invested assets or
derivative instruments in the Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus in a manner consistent with the hedged
asset or liability ("hedge accounting"). Changes in carrying value or cash
flow of derivatives that qualify for hedge accounting are recorded
consistently with how the changes in the carrying value or cash flow of the
hedged asset or liability are recorded. 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 2011 or 2010.
Other Invested Assets
Other invested assets principally consist of investments in limited
partnerships and limited liability companies and are accounted for using the
equity method. Investments in these assets, except for joint ventures,
partnerships and limited liability companies with a minor ownership
interest, shall be reported using an equity method as defined in SSAP 97.
Pursuant to SSAP 97, such investments are generally reported based on
audited U.S. U.S. GAAP equity, 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%) or lacks
control, are generally recorded based on the underlying audited U.S. U.S.
GAAP equity of the investee, with some prescribed exceptions.
13
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
SSAP No. 48 "Joint Ventures, Partnerships and Limited Liability Companies,"
("SSAP 48") allows the use of (a) the U.S. GAAP basis equity as set forth in
the footnote reconciliation of foreign U.S. GAAP equity and income to U.S.
GAAP within the audited foreign U.S. GAAP financial statements or (b) the
International Financial Reporting Standards ("IFRS") basis equity in the
audited IFRS prepared financials statements as an acceptable basis for the
valuation of minor/non-controlled investments. In addition, the audited U.S.
tax basis equity may also be used in certain circumstances.
All investments in other invested assets in which underlying audited U.S.
GAAP financial statements, or another acceptable audited basis of accounting
as described above were not available have been nonadmitted as assets as
required by SSAPs 48 and/or 97. The Company had $14.8 million and $11.4
million in non-admitted partnership investments at December 31, 2011 and
2010, respectively. Undistributed accumulated earnings of such entities are
included in unassigned surplus as a component of unrealized investment 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 losses.
Investment Income
Due and accrued income is excluded from investment income for bonds 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 interest is uncollectible.
Net Realized Capital Gaines (Losses)
Realized investment gains and losses, which are determined using the
specific identification method, are reflected in income net of applicable
federal income taxes and transfers to the Interest Maintenance Reserve
("IMR").
Bond Impairments
The Company regularly evaluates its investments for OTTI. 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.
For LBaSS, a non-interest related (i.e., credit 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 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. When this occurs, the LBaSS is written down
to fair value.
14
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
In assessing whether a non-interest related impairment has occurred for
LBaSS, the Company performs evaluations of expected future cash flows.
Certain critical assumptions are made with respect to the performance of the
securities. When estimating future cash flows, management considers
historical performance of underlying assets and available market information
as well as bond-specific structural considerations, such as credit
enhancement and priority of payment structure of the security. In addition,
the process of estimating future cash flows includes, but is not limited to,
the following critical inputs, which vary by asset class:
. Current delinquency rates;
. Expected default rates and timing of such defaults;
. Loss severity and timing of any such recovery;
. Expected prepayment speeds; and
. Ratings of securities underlying structured products.
In periods subsequent to the recognition of an OTTI loss, the Company
generally accretes the difference between the new cost basis and the 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 future
estimated cash flows.
Non-admitted Assets
All assets specifically designated as non-admitted and assets not designated
as admitted, such as negative IMR, a certain portion of DTA, prepaid assets,
agents' balances or other receivables over 90 days, leasehold improvements
and purchased or internally developed software, are excluded from the
Statutory Statement of Admitted Assets, Liabilities and Capital and Surplus
and the amount of such assets is reflected as a separate component of
unassigned surplus. Non-admitted assets amounted to $341.5 million and
$319.1 million at December 31, 2011 and 2010, respectively, including DTA.
The admitted value of the Company's EDP equipment and operating software is
limited to 3% of capital and surplus, adjusted to exclude any EDP equipment
and operating system software, net deferred tax assets and net positive
goodwill. The admitted portion is reported at cost, less accumulated
depreciation of $26.4 million and $27.0 million at December 31, 2011 and
2010, respectively. EDP equipment and operating software is depreciated
using the straight line method over the lesser of its useful life or three
years. Non-operating software is depreciated using the straight line method
over the lesser of its useful life or five years and is nonadmitted. Other
furniture and equipment is depreciated using the straight line method over
its estimated useful life and is non-admitted. EDP depreciation expense
charged to operations in 2011 and 2010 was $1.3 million and $1.0 million,
respectively.
Interest Maintenance Reserve ("IMR")
The 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 interest related OTTI occurs when the Company, at
the balance sheet 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
15
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
recognizes an interest related OTTI, the non-interest related OTTI is booked
to Asset Valuation Reserve ("AVR"), 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.
AVR
The 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 accounted for as direct increases
or decreases in surplus.
Policy Reserves and Deposit Fund Liabilities
Life, annuity, accident 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 TDCI. Liabilities for deposit
funds and other contract liabilities without life contingencies equal either
the present value of future payments discounted at the appropriate interest
rate or the fund value, if greater.
The Company waives deduction of deferred fractional premiums on the death of
life and annuity policy insureds and returns any premium beyond the date of
death. Surrender values on policies do not exceed the corresponding benefit
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.
For ordinary policies issued with temporary extra premiums, reserves are
based on standard mortality rates with an additional unearned premium
reserve based on the gross extra premium. For ordinary policies issued with
permanent extra premiums, reserves are based on appropriate multiples of
standard rates of mortality. Extra premiums are charged for substandard
lives under life policies. Mean reserves are determined by computing the
regular mean reserves for the plan and holding, in addition, a factor times
the extra premium charge for the year. The factor varies by duration and
type of plan and is based on appropriate multiples of standard rates of
mortality.
For industrial policies, reserves for rated policies are based on
substandard mortality tables.
As of December 31, 2011 and 2010, the Company had $15.0 billion and $14.1
billion of insurance in force, respectively, for which gross premiums are
less than the net valuation premiums according to the standard of valuation
set by the State of Tennessee. Reserves to cover the gross premium
deficiencies were $158.4 million and $150.9 million as of December 31, 2011
and 2010, respectively.
The tabular interest, tabular less actual reserve released and tabular cost
have each been determined by formula as prescribed by the State of Tennessee
for all business with the exception of flexible-premium universal life. For
these products, this information is from the basic data for the calculation
of policy reserves for flexible-premium universal life.
16
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Tabular interest on funds not involving life contingencies is calculated
from the basic records used to determine fund liabilities.
Liabilities related to policyholder funds left on deposit with the Company
are equal to fund balances without deduction of any applicable surrender
charges.
Policy and Contract Claims
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
analysis. 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.
Premiums, Annuity Considerations and Related Expenses
Life premiums are recognized as income over the premium paying periods of
the related policies. Annuity considerations are recognized as revenue when
received. Accident and health premiums are reflected as premium revenue when
written and are earned pro rata over the terms of the policies. The unearned
portion of accident and health premiums is reflected as a liability, the
change in which is included with benefits paid or provided. Expenses
incurred in connection with acquiring new insurance business, including
acquisition costs such as sales commissions, are charged to the Statutory
Statements of Operations as incurred.
Reinsurance
Reinsurance premiums and benefits paid or provided are accounted for on
basis consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
Allocated Expenses
Pursuant to a cost allocation agreement, the Company purchases
administrative, investment management, accounting, marketing and data
processing services from AIG or its subsidiaries. The allocation of such
costs for investment management services is based on the level of assets
under management. The allocation of costs for other services is based on
estimated levels of usage, transactions or time incurred in providing the
respective services.
Income Taxes
The Company is included in the consolidated federal income tax return of
AIG. Under the tax sharing agreement with AIG, taxes are recognized and
computed on a separate company basis. 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 Statement of Operations
17
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
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 book 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 Statement of Operations but are not recognized for tax purposes,
and the deferral of net capital gains and losses into the IMR for statutory
book income but not for taxable 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 net DTA or deferred tax liability ("DTL") is included in the statutory
statement of admitted assets, liabilities and capital and surplus, which
reflect the expected future tax consequences of temporary differences
between the carrying values of assets and liabilities for statutory
financial reporting purposes and the amounts used for income tax reporting
purposes. The change in the net DTAs and DTLs is reflected as a separate
component of unassigned surplus. Net DTAs are limited to their admissible
amount according to SSAP No. 10R, Income Taxes - Revised, a Temporary
Replacement of SSAP No. 10" ("SSAP 10R").
ACCOUNTING CHANGES
SSAP 5R
Statement of Statutory Accounting Principle No. 5, "Liabilities,
Contingencies and Impairments of Assets" ("SSAP 5") was revised ("SSAP 5R")
effective January 1, 2011 to adopt Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") 460, Guarantees, with
modifications. These revisions require entities to recognize at inception, a
liability it has undertaken in issuing a guarantee, even if the likelihood
of having to make a payment under the guarantee is remote. These changes did
not have a material impact on the Company's financial statements.
SSAP 10R
SSAP No. 10R, "Income Taxes - Revised, A Temporary Replacement of SSAP
No. 10",modifies two components of the admission calculation that may be
utilized by certain reporting entities subject to RBC requirements that meet
certain RBC thresholds: a) an up to three year reversal period for temporary
differences instead of one year and b) 15 percent capital and surplus limit
instead of 10 percent. Gross deferred tax assets ("DTAs") are also subject
to reduction by a valuation allowance if it is more likely than not that
some portion or all of the gross DTA will not be realized. This guidance was
originally temporarily effective for annual 2009 and interim and annual 2010
financial statements. Subsequent adopted revisions extended the SSAP No. 10R
sunset clause through 2011 and incorporated additional disclosures for
tax-planning strategies. The increased amount in admitted DTA is separately
reported in the special surplus funds or the Statutory Statements of
Admitted Assets, Liabilities and Capital and Surplus and in the incremental
DTA line of Statutory Statements of Changes in Capital and Surplus. Refer to
Note 9, Federal Income Taxes for further detail.
18
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
SSAP 35R
Statement of Statutory Accounting Principle No. 35, "Guaranty Fund and Other
Assessments" ("SSAP 35") was revised ("SSAP 35R") effective January 1, 2011
to adopt the U.S. GAAP guidance in ASC 405-30 (SOP 97-3) with some
modifications. The revised SSAP modifies the requirement for recognizing
liabilities for insurance related assessments. Under the new guidance the
liability is not recognized until the event obligating the entity to pay a
probable or imposed assessment has occurred. This impacts prospective
premium based guaranty fund assessments as the event that obligates the
entity is the writing of, or becoming obligated to write or renew the
premiums on which future assessments are to be based. These revisions
primarily affect property and casualty companies and did not have a material
impact on the Company's financial statements.
SSAP 43R
Statement of Statutory Accounting Principle No. 43R, "Loan-backed and
Structured Securities" ("SSAP 43R") was revised effective January 1, 2011 to
require that gains and losses be bifurcated between the IMR and the AVR
based on management's analysis, regardless of whether the gain or loss
occurs due to a sale, or a loss occurs due to OTTI.
In addition, revisions to the definition of LBaSS has expanded the
population of investments that are classified as LBaSS, including but not
limited to pass-through securities, lease-backed securities, equipment trust
certificates and credit tenant loans. These changes did not have a material
impact on the Company's financial statements.
SSAP 100
The Company adopted SSAP No. 100, "Fair Value Measurements" ("SSAP 100"),
effective for reporting periods ending December 31, 2010. SSAP 100 defines
fair value, establishes a framework for measuring fair value and expands
disclosure requirements regarding fair value measurements but does not
change existing guidance about whether an asset or liability is carried at
fair value. SSAP 100 also clarifies that consideration of non-performance
risk (own credit-risk) should not be reflected in the fair value calculation
for liabilities (including derivative liabilities) at subsequent
measurement. The adoption of SSAP 100 did not have a material impact on the
Company's financial statements.
SSAP 101
Effective January 1, 2012, SSAP No. 101, "Income Taxes, A Replacement of
SSAP No. 10R and SSAP No.10" ("SSAP 101"), states that 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 that corresponds with the Internal Revenue Code tax loss
carryback provisions but not to exceed three years 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
three years of the balance sheet date or 15 percent of the capital and
surplus excluding any net DTA, EDP equipment and operating software and any
net positive goodwill provided the Company's end of year RBC is greater than
300 percent, plus (3) the amount of the remaining gross DTA that can be
offset against existing gross DTLs taking into account the tax character of
the DTAs and DTLs and the reversal pattern of the temporary differences. The
Company does not
19
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
expect that these changes will have a material impact on the company's
statutory financial statements.
CORRECTION OF ERRORS
SSAP 3, requires that corrections of errors related to prior periods be
reported as pretax adjustments to unassigned surplus.
During 2011, the Company discovered that certain policies that had lapsed or
terminated on the Company's policy administration system were not always
appropriately updated on the reinsurance administration system resulting in
over payments of reinsurance premiums over a period of years. The amount of
the overpayment was recorded as an increase to uncollected premium and an
increase in surplus of $6.1 million. The Company has contacted the
reinsurers and deems the amounts to be appropriately recorded as collectible.
DIFFERENCES IN STATUTORY ACCOUNTING AND U.S. GAAP ACCOUNTING
The accompanying financial statements have been prepared in accordance with
accounting practices prescribed or permitted by the TDCI. These accounting
practices vary in certain respects from U.S. GAAP. The primary differences
between NAIC SAP and U.S. GAAP are as follows:
Under NAIC SAP, investments in insurance subsidiaries are recorded based
upon the underlying statutory equity of a subsidiary with all undistributed
earnings or losses shown as an unrealized 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 the consolidation accounting. 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.
Under NAIC SAP, the Company's non-insurance subsidiary, AGBA, is reported
based on the Company's ownership interest in the equity in the underlying
U.S. GAAP basis of AGBA. Since AGBA did not obtain audited U.S. GAAP basis
financial statements, it was non-admitted for statutory reporting.
Under NAIC SAP, certain assets designated as "non-admitted", principally
certain DTAs, invested assets for which U.S. GAAP basis audited financial
statements are not available and other assets not specifically identified as
an admitted asset within NAIC SAP, are excluded from the accompanying
Statutory Statements of Admitted Assets, Liabilities, and Capital and
Surplus and are charged directly to unassigned surplus. Under U.S. GAAP,
such assets, less applicable allowance accounts, are included as assets on
the balance sheet.
Under NAIC SAP, the policy acquisition costs that vary with and are
primarily related to the acquisition of new business are expensed when
incurred. Under U.S. GAAP, acquisition costs related to interest-sensitive
life insurance contracts, investment contracts, traditional life insurance
contracts and certain long duration accident and health insurance, to the
extent recoverable from future gross profits, 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 are amortized over
the premium-paying
20
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
period of the related contracts using assumptions that are consistent with
those used in computing policy benefit reserves.
Under NAIC SAP, sales inducements are expensed when incurred. Under U.S.
GAAP, sales inducements on interest-sensitive life insurance contracts and
deferred annuities, to the extent recoverable from future gross profits, are
deferred and amortized, generally in proportion to the present value of
expected future gross profit margins.
Under NAIC SAP, when deferred premiums exist, statutory deferred premiums
are held as a statutory asset and under U.S. GAAP, deferred premiums are
held as a contra-liability in the future policy benefits liability.
Under NAIC SAP, a liability for reinsurance balances has been provided for
unsecured policy reserves, unearned premium and unpaid losses ceded to
reinsurers not authorized to assume such business. Changes to those 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 NAIC SAP, certain reinsurance contracts meeting risk transfer
requirements under statutory-basis accounting practices have been accounted
for using reinsurance accounting whereas such contracts would be accounted
for using deposit accounting under U.S. GAAP.
Under NAIC SAP, policy and contract liabilities ceded to reinsurers have
been reported as reductions of the related reserves, rather than as assets
as would be required under U.S. GAAP.
Under NAIC 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 Company within limits as defined by statutory
law. U.S. GAAP valuation assumptions are set by the Company based on
management's estimates and judgment.
Policyholder funds payout annuities not involving life contingencies use
different valuation assumptions for NAIC SAP and U.S. GAAP. Under NAIC SAP,
prescribed rates of interest are used in the discounting of benefit
payments; under U.S. GAAP, company best estimates of interest rates are used.
Under NAIC SAP, the Commissioner's 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 NAIC
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 NAIC SAP, the CRVM as amended by Actuarial Guideline 43 is used for
the majority of individual deferred annuity reserves; under U.S. GAAP,
individual deferred annuity policyholder
21
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
liabilities are generally equal to the contract value that has accrued to
the benefit of the policyholder, together with liabilities for certain
guarantees under variable annuity contracts.
Under NAIC 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 carry backs for existing temporary
difference that reverse by the end of the subsequent calendar year, plus 2)
the lesser of the remaining gross DTA expected to be realized within one
year of the balance sheet date or 10 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. For calendar years 2011 and 2010, these
limitations have been expanded, at the election of the Company, to include
existing temporary differences that reverse by the end of the subsequent
three calendar years and 15 percent of the capital and surplus, as adjusted
above. The Company has made the election for the calendar years 2011 and
2010. 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 NAIC 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.
Under NAIC 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
investments are reported at amortized cost, and the remaining fixed-maturity
investments are reported at fair value, with unrealized 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 NAIC SAP, all single-class and multi-class MBS or other ABS (e.g.,
collateralized mortgage obligations ("CMO"), MBS and ABS) 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. LBaSS that were other-than
temporarily impaired prior to October 1, 2008 were written down to fair
value. Bonds and other than LBaSS that were other-than temporarily impaired
were 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 fixed
maturity securities, 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-interest
portion of the impairment would be recorded as an unrealized loss in other
comprehensive income.
22
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Under NAIC SAP, when it is probable that the Company 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 being included 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 Company 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 NAIC 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 NAIC SAP, real estate owned and occupied by the Company
is included in investments; under U.S. GAAP, real estate owned and occupied
by the Company is reported as an operating asset, and operating income and
expenses include rent for the Company's occupancy of those properties.
Under NAIC 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
gains or losses. Under U.S. GAAP, 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 realized 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 Company'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 U.S. GAAP, indexed life
insurance features in certain variable universal life contracts are
bifurcated and accounted for separately as embedded policy derivatives.
Under NAIC SAP, non-performance risk (own credit-risk) was not reflected in
the fair value calculations for derivative liabilities.
Under NAIC SAP, 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, were generally recorded based on the underlying
audited U.S. GAAP equity of the investee. Under U.S. GAAP, joint ventures,
partnerships and limited liability companies are carried at equity or cost
depending on the equity ownership position and equity in earnings of
partnerships carried at equity is recorded as investment income.
Under NAIC SAP, AVR 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.
Changes to the AVR are charged or credited directly to unassigned surplus.
This is not required under U.S. GAAP.
Under NAIC SAP, the Company reports an IMR which represents the net
accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity based on
23
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
groupings of individual securities sold in five-year bands. Realized gains
and losses are reported net of tax and transfers to the IMR, below net gain
from operations.
Under NAIC SAP, policyholder dividends are recognized when declared rather
than over the term of the related policies as required under U.S. GAAP.
Under NAIC SAP, revenues for universal life and annuity policies with
mortality or morbidity risk consist of the entire premium received, and
benefits incurred with respect to such policies represent the total of death
benefits and surrender values paid and the change in policy reserves.
Premiums received for annuity policies without mortality or morbidity risk
are recorded using deposit accounting, and they are credited directly to an
appropriate policy reserve account without recognizing premium income.
Interest credited to deposit-type contracts is recorded as an expense in the
Statutory Statements of Operations when earned. 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 would not be
recognized as premium revenue, and benefits would represent the excess of
benefits paid over the policy account value and interest credited to the
account values.
A reconciliation of the Company's statutory net income to U.S. GAAP net
income and statutory capital and surplus to U.S. GAAP shareholders' equity
for the years ended December 31, 2011 and 2010 is as follows:
Net Income Capital and Surplus
(in thousands of dollars) ------------------ ----------------------
2011 2010 2011 2010
-------- -------- ---------- ----------
As reported on a statutory basis $168,402 $242,578 $ 629,299 $ 840,752
Unrealized gains (losses) on debt and equity securities -- -- 1,261,724 819,842
Deferred acquisition costs and costs of insurance purchased (23,845) (82,193) 1,008,309 1,203,222
Basis difference in invested assets -- -- (39,671) 49,406
Change in carrying value of other affiliates -- -- 30,323 30,161
Income taxes (66,431) (14,927) (740,690) (576,792)
Due, deferred and advanced premiums -- -- (1,640) (1,057)
Benefit reserves and other life reserve adjustments 13,699 18,492 680,556 707,169
AVR -- -- 127,416 9,401
IMR 31,659 1,165 44,008 25,662
Investment income differences (16,313) 10,980 -- --
Non-admitted assets -- -- 341,468 319,129
Other 37,805 29,430 (25,002) (17,745)
-------- -------- ---------- ----------
Total adjustments (23,426) (37,053) 2,686,801 2,568,398
-------- -------- ---------- ----------
On a US GAAP basis $144,976 $205,525 $3,316,100 $3,409,150
======== ======== ========== ==========
24
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
3. INVESTMENTS
BONDS AND STOCKS
The statement value gross unrealized gain, gross unrealized loss and the
estimated fair value of bonds and preferred stocks by major security type at
December 31, 2011 and 2010 are as follows:
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
(in thousands of dollars) ---------- ---------- ---------- ----------
AT DECEMBER 31, 2011
Bonds:
US government $ 11,765 $ 2,098 $ -- $ 13,863
All other governments 100,573 30,612 -- 131,185
States, territories and possessions 18,029 2,410 -- 20,439
Special revenue 746,131 138,625 -- 884,756
Political subdivisions of states, territories and possessions 53,061 7,483 (16) 60,528
Industrial and miscellaneous 6,391,951 1,086,662 (91,728) 7,386,885
Hybrid 162,670 6,861 (6,214) 163,317
---------- ---------- -------- ----------
Total bonds 7,484,180 1,274,751 (97,958) 8,660,973
Preferred stocks 25,917 7,772 (69) 33,620
---------- ---------- -------- ----------
Total Bonds and Preferred Stocks $7,510,097 $1,282,523 $(98,027) $8,694,593
========== ========== ======== ==========
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
(in thousands of dollars) ---------- ---------- ---------- ----------
AT DECEMBER 31, 2010
Bonds:
US government $ 12,027 $ 630 $ (87) $ 12,570
All other governments 17,702 4,087 -- 21,789
States, territories and possessions 13,365 127 (100) 13,392
Special revenue 537,105 53,868 (4,313) 586,660
Political subdivisions of states, territories and possessions 41,566 176 (1,509) 40,233
Industrial and miscellaneous 6,229,877 675,675 (78,190) 6,827,362
Hybrid 207,864 9,153 (6,660) 210,357
Parent, subsidiaries and affiliates -- 173,000 -- 173,000
---------- ---------- -------- ----------
Total bonds 7,059,506 916,716 (90,859) 7,885,363
Preferred stocks 26,084 2,792 (296) 28,580
---------- ---------- -------- ----------
Total Bonds and Preferred Stocks $7,085,590 $ 919,508 $(91,155) $7,913,943
========== ========== ======== ==========
25
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
At December 31, 2011 and 2010 bonds carried at amortized cost of $6.4
million and $6.4 million, respectively, were on deposit with regulatory
authorities in accordance with statutory requirements. The Company's fully
owned subsidiary, AGPIC, carried $5.1 million and $5.0 million in special
deposits with regulatory authorities as of December 31, 2011 and 2010,
respectively.
The following items pertain to common stocks at December 31:
2011 2010
------- -------
(in thousands of dollars)
Cost of unaffiliated common stocks $14,584 $ 8,946
Cost of affiliated common stocks 10,360 10,360
------- -------
Total cost of common stocks $24,944 $19,306
======= =======
The following tables summarize the Company's gross unrealized losses,
including amounts on NAIC 6 and 6* bonds, and fair value on investments,
aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at
December 31, 2011 and 2010 as follows:
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
------------------ ------------------ ------------------
GROSS GROSS GROSS
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
(in thousands of dollars) VALUE LOSSES VALUE LOSSES VALUE LOSSES
AT DECEMBER 31, 2011
Political subdivisions of states, territories and possessions $ 1,984 $ (16) $ -- $ -- $ 1,984 $ (16)
Special revenue -- -- -- -- -- --
Industrial and miscellaneous 559,161 (49,537) 185,278 (42,555) 744,439 (92,092)
Hybrid 23,853 (3,521) 44,667 (2,693) 68,520 (6,214)
-------- -------- -------- -------- -------- --------
Total bonds 584,998 (53,074) 229,945 (45,248) 814,943 (98,322)
Common stock 29 (8) -- -- 29 (8)
Preferred stock 33 -- 931 (69) 964 (69)
-------- -------- -------- -------- -------- --------
Total temporarily impaired securities $585,060 $(53,082) $230,876 $(45,317) $815,936 $(98,399)
======== ======== ======== ======== ======== ========
26
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
------------------ ------------------ --------------------
GROSS GROSS GROSS
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
(in thousands of dollars) VALUE LOSSES VALUE LOSSES VALUE LOSSES
AT DECEMBER 31, 2010
U.S. Governments $ 3,438 $ (87) $ -- $ -- $ 3,438 $ (87)
States, territories and possessions 3,732 (100) -- -- 3,732 (100)
Political subdivisions of states, territories and possessions 30,257 (1,508) -- -- 30,257 (1,508)
Special revenue 95,826 (4,313) -- -- 95,826 (4,313)
Industrial and miscellaneous 391,161 (15,452) 419,661 (63,104) 810,822 (78,556)
Hybrid 62,582 (2,478) 42,544 (4,182) 105,126 (6,660)
-------- -------- -------- -------- ---------- --------
Total bonds 586,996 (23,938) 462,205 (67,286) 1,049,201 (91,224)
Common stock 2,066 (261) 32 (2,533) 2,098 (2,794)
Preferred stock 955 (61) 965 (235) 1,920 (296)
-------- -------- -------- -------- ---------- --------
Total temporarily impaired securities $590,017 $(24,260) $463,202 $(70,054) $1,053,219 $(94,314)
======== ======== ======== ======== ========== ========
The determination that a security has incurred an other-than-temporary
decline in value and the amount of any loss recognition requires the
judgment of the Company's management and a continual review of its
investments. As of December 31, 2011 and 2010, all of the unrealized losses
in the table shown above were considered to be temporary based on the
results of this review.
As of December 31, 2011, the Company held 161 individual bond securities
that were in an unrealized loss position, of which 38 individual investments
were in an unrealized loss position continuously for 12 months or more.
A summary of the statement value and fair value of the Company's investments
in bonds at December 31, 2011 and 2010, by expected maturity, is as follows:
2011 2010
--------------------- ---------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
(in thousands of dollars) ---------- ---------- ---------- ----------
YEARS TO MATURITY
One or less $ 243,055 $ 253,131 $ 22,712 $ 196,534
After one through five 397,154 425,695 655,781 709,586
After five through ten 1,080,090 1,203,756 1,184,399 1,303,524
After ten 3,966,260 4,768,049 4,381,905 4,797,914
Mortgage-backed securities 1,797,621 2,010,342 814,709 877,805
---------- ---------- ---------- ----------
$7,484,180 $8,660,973 $7,059,506 $7,885,363
========== ========== ========== ==========
27
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The expected maturities in the foregoing table may differ from contractual
maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
Bonds in or near default as to payment of principal or interest had a
carrying value of $11.4 million and $22.4 million at December 31, 2011 and
2010, respectively, which is the fair value.
At December 31, 2011 and 2010, the Company held unrated or
less-than-investment grade corporate bonds of $617.7 million and $444.9
million, respectively, with an aggregate fair value of $607.1 million and
$451.4 million, respectively. Those holdings amounted to 8.3% and 6.3% of
the Company's investments in bonds at December 31, 2011 and 2010,
respectively, and 6.5% and 4.6% of the Company's total admitted assets at
December 31, 2011 and 2010, respectively. The Company performs periodic
evaluations of the relative credit standing of the issuers of the bonds that
it holds as investments.
LBASS
The Company determines fair value of LBaSS 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 ("CDOs") are priced by
approved commercial pricing vendors and broker dealer quotations. A small
portion 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 fair values are based on
available market information and management's judgments.
The fair value and carrying value of the Company's LBaSS as of December 31,
2011 and 2010 were as follows:
2011 2010
(in thousands of dollars) ------------------------- -------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------- ---------- -------------- ----------
Loan-backed and Structured Securities $1,797,621 $2,010,342 $814,708 $877,805
Prepayment assumptions for single class, multi-class MBS and ABS were
obtained from independent third party services or internal estimates. These
assumptions are consistent with the current interest rate and economic
environment.
At December 31, 2011 and 2010 the Company had exposure to a variety of LBaSS
including, but not limited to, RMBS, CMBS and CDOs. These securities could
have significant concentrations of credit risk by country, geographical
region, property type, servicer or other characteristics. As part of its
quarterly surveillance process, the Company takes into account many of these
characteristics in making its assessment of OTTI.
At December 31, 2011 and 2010, the Company did not have any securities
within the scope of SSAP 43R 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.
At December 31, 2011 the Company held the following LBaSS for which it had
recognized credit-related OTTI:
28
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
BOOK/ADJUSTED PRESENT DATE OF
CARRYING VALUE VALUE OF FINANCIAL
AMORTIZED COST PROJECTED AMORTIZED FAIR VALUE STATEMENT
BEFORE CURRENT CASH RECOGNIZED COST AFTER- AT TIME OF WHERE
CUSIP PERIOD OTTI FLOWS OTTI OTTI OTTI REPORTED
----- -------------- ---------- ---------- ----------- ---------- ---------
03927NAC7 517,040 497,500 19,540 497,500 750,000 4Q09
03927NAE3 298,654 278,700 19,954 278,700 300,000 4Q09
03927NAF0 159,873 136,650 23,223 136,650 135,000 4Q09
059469AE6 4,291,354 4,094,860 196,494 4,094,860 2,031,870 4Q09
07388VAN8 721,267 598,500 122,767 598,500 242,151 4Q09
12543TBA2 11,586,390 11,102,279 484,111 11,102,279 5,666,771 4Q09
12544TAF1 14,845,460 13,964,405 881,055 13,964,405 9,520,755 4Q09
12545AAP9 6,323,659 5,840,053 483,605 5,840,053 2,010,100 4Q09
16163HAU5 4,426,862 4,269,025 157,837 4,269,025 1,799,037 4Q09
173104AJ9 1,406,481 1,052,319 354,162 1,052,319 1,330,830 4Q09
173104AK6 216,586 159,300 57,286 159,300 432,667 4Q09
36170VAF6 2,407,059 708,000 1,699,059 708,000 300,000 4Q09
36170VAG4 10,047 0 10,047 0 275,000 4Q09
46631QBB7 1,690,043 1,634,684 55,360 1,634,684 534,192 4Q09
69573WAE1 11,323 11,075 247 11,075 12,396 4Q09
36318JAE9 6,249,963 837,979 5,411,984 837,979 3,531,250 4Q09
---------- ---------- --------- ---------- ----------
Quarterly Total 55,162,061 45,185,329 9,976,731 45,185,329 28,872,019
---------- ---------- --------- ---------- ----------
059511AU9 5,156,577 1,909,046 3,247,530 1,909,046 867,859 1Q10
07388VAN8 598,687 389,408 209,279 389,408 242,493 1Q10
36170VAF6 715,539 69,266 646,273 69,266 300,000 1Q10
46631QBB7 1,637,734 1,295,666 342,067 1,295,666 539,664 1Q10
173104AJ9 1,049,333 770,283 279,050 770,283 1,376,980 1Q10
173104AK6 158,819 151,337 7,482 151,337 448,204 1Q10
---------- ---------- --------- ---------- ----------
Quarterly Total 9,316,689 4,585,006 4,731,681 4,585,006 3,775,200
---------- ---------- --------- ---------- ----------
03927NAC7 353,750 210,366 143,384 210,366 209,560 2Q10
03927NAD5 309,727 144,720 165,007 144,720 143,820 2Q10
03927NAE3 282,109 78,226 203,883 78,226 78,225 2Q10
03927NAF0 138,789 34,791 103,998 34,791 210,000 2Q10
059511AM7 3,945,741 374,371 3,571,370 374,371 602,696 2Q10
059511AU9 1,927,083 505,918 1,421,165 505,918 903,403 2Q10
07388VAN8 392,492 61,066 331,426 61,066 245,313 2Q10
173104AK6 152,454 151,644 810 151,644 475,382 2Q10
36170VAF6 69,713 18,799 50,914 18,799 2,888 2Q10
46631QBB7 1,308,104 385,661 922,443 385,661 552,020 2Q10
---------- ---------- --------- ---------- ----------
29
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Quarterly Total 8,879,962 1,965,562 6,914,400 1,965,562 3,423,307
---------- ---------- --------- ---------- ----------
BOOK/ADJUSTED
CARRYING
VALUE DATE OF
AMORTIZED PRESENT FINANCIAL
COST BEFORE VALUE OF AMORTIZED FAIR VALUE STATEMENT
CURRENT PROJECTED RECOGNIZED COST AFTER- AT TIME OF WHERE
CUSIP PERIOD OTTI CASH FLOWS OTTI OTTI OTTI REPORTED
----- ------------- ---------- ---------- ----------- ---------- ---------
059469AE6 4,101,383 3,941,270 160,113 3,941,270 3,397,380 3Q10
05946XP64 4,949,700 4,875,895 73,805 4,875,895 4,203,680 3Q10
05946XY56 7,195,045 7,145,101 49,945 7,145,101 4,857,712 3Q10
059511AM7 377,036 241,591 135,445 241,591 628,730 3Q10
059511AU9 509,337 285,943 223,394 285,943 240,395 3Q10
05952FAM5 4,006,580 3,906,883 99,697 3,906,883 3,220,006 3Q10
12543TBA2 12,136,946 11,542,633 594,313 11,542,633 7,705,072 3Q10
12545AAP9 6,530,779 6,204,966 325,813 6,204,966 3,377,569 3Q10
173104AJ9 788,199 780,445 7,753 780,445 780,445 3Q10
173104AK6 152,587 131,100 21,488 131,100 171,804 3Q10
46631QBB7 388,190 303,983 84,206 303,983 301,230 3Q10
---------- ---------- --------- ---------- ----------
Quarterly Total 41,135,782 39,359,810 1,775,972 39,359,810 28,884,023
---------- ---------- --------- ---------- ----------
03927NAC7 90,574 42,272 48,302 42,272 42,272 4Q10
059469AE6 3,937,322 3,933,705 3,617 3,933,705 3,471,925 4Q10
059511AM7 184,009 97,338 86,671 97,338 635,360 4Q10
059511AU9 167,022 78,269 88,753 78,269 433,703 4Q10
05952FAM5 3,978,418 3,926,584 51,834 3,926,584 3,202,492 4Q10
12543TBA2 11,987,283 11,594,601 392,682 11,594,601 8,184,285 4Q10
12667F4G7 15,800,132 14,852,094 948,038 14,852,094 13,549,383 4Q10
173104AJ9 786,401 720,773 65,628 720,773 1,518,140 4Q10
173104AK6 133,040 120,767 12,273 120,767 167,151 4Q10
46631QBB7 211,675 68,194 143,481 68,194 548,496 4Q10
---------- ---------- --------- ---------- ----------
Quarterly Total 37,275,876 35,434,597 1,841,279 35,434,597 31,753,207
---------- ---------- --------- ---------- ----------
059469AE6 3,928,756 3,781,420 147,336 3,781,420 3,600,930 1Q 11
05946XP64 4,716,051 4,416,837 299,214 4,416,837 4,692,431 1Q 11
05946XY56 7,164,350 6,767,837 396,513 6,767,837 6,679,920 1Q 11
12544TAF1 14,069,000 13,754,585 314,415 13,754,585 13,754,585 1Q 11
12667F4G7 14,971,945 14,047,506 924,438 14,047,506 11,456,791 1Q 11
16163HAE1 4,190,081 4,174,800 15,281 4,174,800 4,185,105 1Q 11
16163HAU5 4,318,343 4,132,420 185,923 4,132,420 4,480,060 1Q 11
---------- ---------- --------- ---------- ----------
30
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Quarterly Total 53,358,526 51,075,405 2,283,120 51,075,405 48,849,822
---------- ---------- --------- ---------- ----------
059469AE6 3,778,004 3,704,860 73,144 3,704,860 3,434,080 2Q 11
05946XP64 4,313,213 4,283,327 29,886 4,283,327 4,572,120 2Q 11
05946XY56 6,776,642 6,724,915 51,727 6,724,915 6,617,534 2Q 11
05952FAM5 3,958,710 3,950,895 7,815 3,950,895 4,555,160 2Q 11
12543TBA2 11,959,078 10,473,797 1,485,281 10,473,797 10,473,671 2Q 11
12544TAF1 13,785,246 13,592,313 192,934 13,592,313 13,592,313 2Q 11
12667F4G7 14,308,870 14,158,016 150,854 14,158,016 12,949,186 2Q 11
16163HAE1 4,175,070 4,108,915 66,155 4,108,915 4,142,375 2Q 11
16163HAU5 4,146,577 4,089,090 57,487 4,089,090 4,089,000 2Q 11
86359LTG4 26,041,509 25,792,718 248,791 25,792,718 20,360,447 2Q 11
---------- ---------- --------- ---------- ----------
Quarterly Total 93,242,919 90,878,846 2,364,074 90,878,846 84,785,886
---------- ---------- --------- ---------- ----------
31
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
BOOK/ADJUSTED
CARRYING
VALUE DATE OF
AMORTIZED PRESENT FINANCIAL
COST BEFORE VALUE OF AMORTIZED FAIR VALUE STATEMENT
CURRENT PROJECTED RECOGNIZED COST AFTER- AT TIME OF WHERE
CUSIP PERIOD OTTI CASH FLOWS OTTI OTTI OTTI REPORTED
----- ------------- ----------- ---------- ----------- ----------- ---------
059469AE6 3,702,035 3,644,965 57,070 3,644,965 3,207,830 3Q 11
05946XP64 4,157,051 4,148,758 8,293 4,148,758 4,148,758 3Q 11
05946XY56 6,734,082 6,659,622 74,460 6,659,622 6,621,833 3Q 11
12543TBA2 10,777,813 9,615,472 1,162,341 9,615,472 11,233,028 3Q 11
12544TAF1 13,623,551 13,303,323 320,229 13,303,323 13,914,014 3Q 11
12545AAP9 5,913,443 5,879,393 34,050 5,879,393 6,628,485 3Q 11
12667F4G7 14,519,243 12,422,138 2,097,105 12,422,138 12,369,340 3Q 11
16163HAE1 4,109,006 4,057,000 52,006 4,057,000 4,049,360 3Q 11
16163HAU5 4,103,748 4,024,615 79,133 4,024,615 4,024,500 3Q 11
45660LW96 16,677,587 16,000,399 677,188 16,000,399 13,601,494 3Q 11
74160MGV8 81,230 64,879 16,351 64,879 196,505 3Q 11
86359LTG4 25,716,964 24,486,757 1,230,207 24,486,757 19,568,959 3Q 11
94983GAD0 25,802,935 24,194,965 1,607,970 24,194,965 23,727,285 3Q 11
94986CAA2 10,198,994 9,535,798 663,196 9,535,798 10,290,820 3Q 11
----------- ----------- --------- ----------- -----------
Quarterly Total 146,117,682 138,038,084 8,079,599 138,038,084 133,582,211
----------- ----------- --------- ----------- -----------
05946XY56 6,667,561 6,661,687 5,873 6,661,687 6,635,751 4Q 11
16163HAE1 4,056,136 4,014,830 41,306 4,014,830 3,985,400 4Q 11
45660LW96 15,805,274 15,308,130 497,143 15,308,130 10,842,223 4Q 11
61749CAD3 9,656,224 9,398,154 258,069 9,398,154 8,933,358 4Q 11
94983GAD0 23,407,460 22,586,869 820,591 22,586,869 20,457,073 4Q 11
94986CAA2 9,450,296 9,334,052 116,244 9,334,052 8,808,963 4Q 11
----------- ----------- --------- ----------- -----------
Quarterly Total 69,042,951 67,303,722 1,739,226 67,303,722 59,662,768
----------- ----------- --------- ----------- -----------
For the years ended December 31, 2011 and 2010, the Company recognized total
OTTI of $14.4 million and $15.3 million, respectively, for LBaSS that were
still held by the Company at December 31, 2011 and 2010. In addition, at
December 31, 2011 and 2010, the Company held impaired securities (fair value
is less than cost or amortized cost) for which an interest related portion
of OTTI had not been recognized in earnings as a realized loss. Such
impairments include securities with a recognized OTTI for non-interest
related declines that were recognized in earnings, but for which an
associated interest related decline has not been recognized in earnings as a
realized loss. The aggregate amount of unrealized losses and fair values for
such securities, segregated between those securities that have been in a
continuous unrealized loss position for less than 12 months and greater than
12 months, respectively, were as follows:
32
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
December 31, 2011 December 31, 2010
(in thousands of dollars) ------------------ ------------------
Fair Unrealized Fair Unrealized
Value Losses Value Losses
-------- ---------- -------- ----------
Less Than 12 months $238,923 $(23,365) $ 46,263 $ (3,332)
12 months or more 126,231 (21,019) 111,235 (34,257)
-------- -------- -------- --------
Total $365,154 $(44,384) $157,498 $(37,589)
======== ======== ======== ========
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 also considers its cash and working capital requirements and
generally considers 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 in accordance with SSAP 100.
The following table presents a rollforward of the credit related OTTI for
LBaSS for the year ended December 31, 2011 and 2010:
12/31/2011 12/31/2010
(in thousands of dollars) ---------- ----------
Opening Balance $25,345 $10,023
Increases due to:
Credit impairments on new securities subject to impairment losses 6,310 8,156
Additional credit impairment on previously impaired investments 8,156 7,166
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or
requirement to sell 105 --
------- -------
Ending Balance $39,706 $25,345
======= =======
MORTGAGE LOANS
Mortgage loans had outstanding principal balances of $966.4 million and
$1,008.6 million at December 31, 2011 and 2010, respectively. Contractual
interest rates range from 5.13% to 9.50%. The weighted average contractual
interest rate on these mortgage loans at December 31, 2011 was approximately
6.53% with maturity dates ranging from 2012 to 2040.
33
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States.
Substantially all of the commercial mortgage loans are non-recourse to the
borrower.
The mortgage loan portfolio was distributed as follows at December 31, 2011
and 2010:
GEOGRAPHIC PROPERTY TYPE
DISTRIBUTION DISTRIBUTION
------------ ------------
2011 2010 2011 2010
----- ----- ----- -----
E. North Central 4.5% 4.5% Office 30.6% 31.5%
E. South Central 4.1% 4.1% Retail 20.6% 20.3%
Mid-Atlantic 33.6% 32.9% Industrial 16.0% 16.0%
Mountain 3.7% 3.6% Hotel 9.8% 9.5%
New England 4.5% 4.5% Multi-Family 19.8% 19.5%
Pacific 24.9% 24.6% Mobile Homes 3.2% 3.1%
South Atlantic 12.9% 14.0%
W. North Central 3.7% 3.7%
W. South Central 8.0% 8.2%
----- ----- ----- -----
Total 100.0% 100.0% Total 100.0% 100.0%
===== ===== ===== =====
The total allowance for credit losses at December 31, 2011 and 2010 was
$10.2 million and $21.8 million, respectively.
The Company held no mortgage loan with interest more than 180 days past due
at December 31, 2011 or 2010. There were no taxes, assessments or any other
amounts advanced by the Company on mortgage loans outstanding during 2011 or
2010. There was one restructured loan with a carrying value of $4.1 million
at December 31, 2011. The Company held no restructured loans at December 31,
2010. At December 31, 2011 and 2010, there were no impaired mortgage loans
with or without a related allowance. The Company recognizes interest income
from any impaired loans upon receipt.
The activity for the allowance for credit losses during 2011 and 2010 is as
follows:
2011 2010
(in thousands of dollars) ------- -------
Balance at beginning of period $21,834 $ 4,518
Allowance charged to unrealized capital loss (4,449) 17,316
Direct write-downs charged against the allowances (7,150) --
------- -------
Balance at end of period $10,235 $21,834
======= =======
34
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
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 multifamily 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 Company did not reduce the interest rates for any of its outstanding
mortgage loans during 2011 or 2010.
The maximum and minimum lending rates for new mortgage loans made during
2011 and 2010 were as follows:
2011 2010
--------------- --------------
MAXIMUM MINIMUM MAXIMUM MINIMUM
------- ------- ------- -------
Multifamily N/A N/A 5.8% 5.8%
Hotel/Motel N/A N/A 6.0% 6.0%
The maximum percentage of any one loan to the value of security at the time
of the loan, exclusive of insured, guaranteed or purchase money mortgage,
was 80% during 2011 and 2010.
REAL ESTATE
The components of the Company's real estate are as follows:
2011 2010
(in thousands of dollars) ------- -------
Properties Occupied by the Company $36,278 $38,582
Properties Held for the production of income 978 2,808
Properties Held for sale 4,671 --
------- -------
Total $41,927 $41,390
======= =======
The Company recognized no impairment write-down of real estate investments
in either 2011 or 2010.
35
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
OTHER INVESTED ASSETS
THE FOLLOWING PERTAINS TO OTHER INVESTED ASSETS AT DECEMBER 31, 2011 AND
2010:
2011 2010
(in thousands of dollars) -------- --------
Investment in Limited Liability Companies $ 17,364 $ 4,569
Investments in limited partnerships 215,404 238,479
Other unaffiliated investments 2,432 2,430
Receivable for securities 27,925 16,609
Less:
Non-admitted assets (14,828) (11,417)
-------- --------
Total $248,297 $250,670
======== ========
36
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Net investment income earned for the years ended December 31, 2011 and 2010
consists of the following:
2011 2010
-------- --------
Investment Income:
Bonds (unaffiliated) $525,597 $560,344
Bonds of affiliates 6,799 9,636
Preferred stocks (unaffiliated) 1,838 1,825
Common stocks (unaffiliated) 1,314 2,332
Common stocks (affiliated) -- 2,000
Mortgage loans 61,374 62,749
Real estate 7,228 7,591
Contract loans 31,185 31,689
Cash and short-term investments 336 481
Derivative instruments (523) (185)
Other invested assets 9,816 15,360
Other 366 155
-------- --------
Total investment income 645,330 693,977
Investment Expenses (17,059) (11,852)
-------- --------
Net investment income $628,271 $682,125
======== ========
Due and accrued income on bonds is excluded from investment income when
amounts are over 90 days past due and had not previously been written off
and charged against investment income. The total amount excluded from due
and accrued investment income was $22.2 million and $17.0 million at
December 31, 2011 and 2010, respectively.
37
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
CAPITAL GAINS AND LOSSES
Realized capital gains and losses are reported net of federal income taxes
and amounts transferred to the IMR as follows:
YEARS ENDED
DECEMBER 31,
2011 2010
(in thousands of dollars) -------- --------
Realized gains (losses) on investments:
Bonds $ 27,015 $ 38,412
Preferred and Common Stock 845 (172)
Securities Lending Collateral -- 4,691
Real Estate 8,627 --
Other Invested Assets -- (4,836)
Derivatives 6 (1,661)
Mortgage Loans (7,150) --
Other 399 (1,016)
-------- --------
Realized capital gains (losses), pretax 29,742 35,418
Less: Realized capital losses transferred to IMR (24,725) (55,812)
-------- --------
5,017 (20,394)
Federal income tax benefit (expense) on realized capital gains/losses (10,409) (24,095)
-------- --------
Net realized capital losses $ (5,392) $(44,489)
======== ========
Proceeds from sales of bonds and preferred stocks, excluding maturities, and
related gross realized capital gains and losses are as follows:
2011 2010
(in thousands of dollars) -------- --------
Proceeds $350,191 $591,248
-------- --------
Gross realized gains 42,422 55,964
Gross realized losses (680) (2,302)
-------- --------
Total realized capital gains $ 41,742 $ 53,662
======== ========
During the years ended December 31, 2011 and 2010, the Company recognized
$22.6 million and $23.2 million respectively, of impairment write-downs in
accordance with the impairment policy described in Note 2.
The net changes in unrealized capital gains and losses, including the impact
of foreign currency, for the years ended December 31, 2011 and 2010 are as
follows:
38
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
2011 2010
(in thousands of dollars) -------- --------
Change in unrealized gains (losses) of investments:
Bonds $172,601 $ 1,112
Common stocks (unaffiliated) (106) (200)
Common stocks (affiliated) (163) (2,018)
Mortgage loans 11,599 (17,317)
Derivative instruments 3,375 (858)
Other invested assets (3,857) 2,201
-------- --------
Net change in unrealized capital gains (losses) of investments $183,449 $(17,080)
======== ========
MAIDEN LANE II ("ML II")
At December 31, 2011 and 2010, the investment in ML II was classified and
accounted for as bonds (LBaSS), pursuant to an SVO action of the NAIC. See
Note 2 for additional information. The Company reported the following
amounts for ML II in LBaSS:
(in thousands of dollars) LBASS LBASS
PAR VALUE STATEMENT VALUE STATEMENT VALUE
DECEMBER 31, 2011 DECEMBER 31, 2011 DECEMBER 31, 2010
----------------- ----------------- -----------------
ML II $133,056 $58,166 $42,957
39
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
SUBPRIME MORTGAGE RISK EXPOSURE
The Company has no direct exposure through investments in subprime mortgage
loans. The Company's direct exposure through other investments is primarily
in RMBS.
The following table provides information on the Company's investments with
subprime exposure in RMBS as of December 31, 2011:
BOOK/
(in thousands of dollars) ADJUSTED OTTI
ACTUAL CARRYING FAIR RECOGNIZED
COST VALUE VALUE TO DATE
DECEMBER 31, 2011 ------ -------- ------ ----------
RMBS $5,358 $5,562 $5,321 $--
Collaterized debt obligations -- -- -- --
------ ------ ------ ---
Total subprime exposure $5,358 $5,562 $5,321 $--
====== ====== ====== ===
The following table provides information on the Company's investments with
subprime exposure in RMBS as of December 31, 2010:
BOOK/
(in thousands of dollars) ADJUSTED OTTI
ACTUAL CARRYING FAIR RECOGNIZED
COST VALUE VALUE TO DATE
DECEMBER 31, 2010 ------ -------- ----- ----------
RMBS $-- $-- $ -- $--
Collaterized debt obligations -- -- 982 --
--- --- ---- ---
Total subprime exposure $-- $-- $982 $--
=== === ==== ===
4. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has taken positions in certain derivative financial instruments
in order to mitigate or hedge the impact of changes in interest rates,
foreign currencies and equity markets on cash flows from investment income,
policyholder liabilities and equity. Financial instruments used by the
Company for such purposes include cross-currency swaps and call options. 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, all of the Company's derivatives
are accounted for at fair value and the changes in the fair
40
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
value recorded in surplus as unrealized gains or losses, net of deferred
taxes. The Company's exchange traded contracts have no recorded value as
they are net cash settled daily.
SWAPS AND OPTIONS
The Company has entered into an interest rate/cross-currency swap agreement
as a hedge for invested assets denominated in a foreign currency, to
mitigate the impact of changes in interest rates and foreign currency values
on cash flows.
Interest rate/cross-currency swap agreements ("Swap Agreements") are
agreements to exchange with a counterparty, at specified intervals, interest
rate 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 interest 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, Dow Jones Eurostoxx
50 the Hang Seng Index and the Nikkei 225 Index to hedge certain guarantees
of specific equity-indexed universal life policy values.
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
The Company's components of market risk on invested assets and policyholder
liabilities include interest rate, foreign currency exchange rates, swap
spreads, volatility, correlation, equity and yield curve risk. The Company
controls these exposures to market risk by taking offsetting positions in
the derivative financial instruments as described above.
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. The credit exposure of Swap Agreements is represented by the
fair value of contracts with a positive fair value at the reporting date.
The credit exposure of the put options is represented by any negative
difference in fair value and strike price of the underlying securities.
There is minimal credit risk of futures since the variation margin is
settled daily in cash.
The Company generally uses International Swaps and Derivatives Association
Master Agreements and Credit Support Annexes with bilateral collateral
provisions to reduce
41
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
counterparty credit exposures. 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 and
capital and surplus.
The table below summarizes the Company's derivatives included in the
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
at December 31, 2011 and 2010:
(in thousands of dollars) Net Derivative
Derivative Assets Derivative Liabilities Assets/(Liabilities)
------------------- ---------------------- ------------------
Notional Estimated Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------- ---------- -------- ---------- -------- ----------
DECEMBER 31, 2011
Foreign currency swaps/ Interest rate swaps $245 $24 $52,930 $2,464 $52,685 $(2,440)
---- --- ------- ------ ------- -------
Total $245 $24 $52,930 $2,464 $52,685 $(2,440)
==== === ======= ====== ======= =======
Net Derivative
Derivative Assets Derivative Liabilities Assets/(Liabilities)
------------------- ---------------------- ------------------
Notional Estimated Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------- ---------- -------- ---------- -------- ----------
DECEMBER 31, 2010
Foreign currency swaps/ Interest rate swaps $ -- $-- $52,793 $5,836 $52,793 $(5,836)
---- --- ------- ------ ------- -------
Total $ -- $-- $52,793 $5,836 $52,793 $(5,836)
==== === ======= ====== ======= =======
42
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
5. INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The table below summarizes the notional amount of the Company's financial
instruments with off-balance sheet risk at December 31, 2011 and 2010:
(in thousands of dollars)
Contract / Final
Notional Amount Maturity Date
--------------- -------------
DECEMBER 31, 2011
Derivative hedging assets:
Foreign currency swaps / Interest rate swaps / options $52,793 2022
Derivative hedging liabilities:
Foreign currency swaps / Interest rate swaps / options $ 109 2012
Total $52,684
Contract / Final
Notional Amount Maturity Date
--------------- -------------
DECEMBER 31, 2010
Derivative hedging assets:
Foreign currency swaps / Interest rate swaps / options $52,793 2022
Derivative hedging liabilities:
Foreign currency swaps / Interest rate swaps / options
-------
Total $52,793
=======
The Company is exposed to potential credit loss in the event of
nonperformance by counterparties, but it does not expect any counterparties
to fail to meet their obligations given their high credit ratings. 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
$2.6 million and $0.8 million at December 31, 2011 and 2010, respectively.
The Company has entered into such agreements with investment-grade-rated
brokerage firms and non-performance by counterparties is not anticipated,
however, collateral is held or pledged in the form of cash.
6. FAIR VALUE MEASUREMENTS
THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value disclosures are limited to reasonable estimates of
the fair value of only the Company's financial instruments. The disclosures
do not address the value of the Company's recognized and unrecognized
non-financial assets and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
43
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses and
potential taxes are not included. The estimated fair value amounts were
determined using available market information, current pricing information
and various valuation methodologies. If quoted market prices were not
readily available for a financial instrument, management determined an
estimated fair value. Accordingly, the estimates may not be indicative of
the amounts for which the financial instruments could be exchanged in a
current or future market transaction.
The following methods and assumptions are used by the Company to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate the value:
Bonds: Fair value is based principally on value from independent pricing
services, broker quotes and other independent information, excluding
non-admitted affiliated bond of $173 million at December 31, 2010.
Common (unaffiliated) and Preferred stocks: Fair value is based principally
on value from independent pricing services, broker quotes and other
independent information.
Mortgage Loans: Fair values are primarily determined by discounting cash
flows to the present at current market rates using expected prepayment rates.
Contract Loans: The fair values of policy loans were estimated using
discounted cash flow analyses, using interest rates currently being offered
for similar loans as stated in the policy provisions. Loans with similar
characteristics are aggregated for purposes of the calculations.
Other Invested Assets: Fair value of limited partnerships accounted for by
using the equity method of accounting is based upon the fair value of the
net assets of the partnerships as determined by the general partners, and
approximates carrying value, excluding non-admitted amount.
Cash and Short Term Investments: Carrying values approximate fair values
because of the relatively short period of time between origination and
expected realization.
Accrued investment income: Carrying value approximates fair value because of
the relatively short period of time between origination and expected
realization.
Policyholder contract deposits: Fair value for policyholder contract
deposits associated with 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. Where no
similar contracts are being offered, the discount rate is the appropriate
tenor swap rates (if available) or current risk-free interest rates
consistent with the currency in which cash flows are denominated.
Derivative liabilities: Such amounts can be exchange-traded or traded OTC.
The Company generally values exchange-traded derivatives, if any, using
quoted prices in active markets for identical derivatives at the balance
sheet date.
44
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Receivables/payables for securities: Such amounts represent transactions of
a short-term nature for which the carrying value is considered a reasonable
estimate of fair value.
The estimated fair values of the Company's financial instruments compared to
their statement values at December 31 were as follows:
2011 2010
------------------------- ------------------------
ESTIMATED STATEMENT ESTIMATED STATEMENT
FAIR VALUE VALUE FAIR VALUE VALUE
----------- ---------- ----------- ----------
(in thousands of dollars)
Assets:
Cash overdraft $ (9,310) $ (9,310) $ (18,959) $ (18,959)
Short-term investments 53,957 53,957 534,549 534,549
Bonds 8,660,973 7,484,180 7,712,363 7,059,506
Preferred stocks 33,620 25,917 28,580 26,084
Common stocks 35,571 35,340 29,967 29,967
Mortgage loans 1,051,682 956,180 1,014,593 986,740
Contract loans 695,318 416,567 613,141 427,988
Other invested assets 235,619 220,372 234,268 234,062
----------- ---------- ----------- ----------
Total $10,757,430 $9,183,203 $10,148,502 $9,279,937
=========== ========== =========== ==========
Liabilities:
Policyholder contract deposits $ 40,429 $ 40,429 $ 42,419 $ 42,419
Derivative liabilities 2,440 2,440 5,836 5,836
Payable for securities 24,236 24,236 8,520 8,520
----------- ---------- ----------- ----------
$ 67,105 $ 67,105 $ 56,775 $ 56,775
=========== ========== =========== ==========
FAIR VALUE MEASUREMENTS
The fair value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between willing, able and knowledgeable market participants at
the measurement date. The fair value of an asset is the amount at which that
asset could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale. The fair value
of a liability is the amount at which that liability could be incurred or
settled in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.
The degree of judgment used in measuring the fair value of financial
instruments generally correlates with the level of pricing observability.
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 traded in other-than-active markets
or that do not have quoted prices have less observability and are measured
at fair value using valuation models or other pricing techniques that
require more judgment. An active market is one in which transactions for the
asset or liability being valued occurs with sufficient frequency and volume
to provide pricing information on an ongoing basis. An other-than-active
market is one in which
45
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
there are few transactions, the prices are not current, price quotations
vary substantially either over time or among market makers, or in which
little information is released publicly for the asset or liability being
valued. 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 and general market conditions.
FAIR VALUE HIERARCHY
The Company's financial assets and liabilities measured at fair value have
been classified, for disclosure purposes, based on a hierarchy defined by
SSAP 100. The hierarchy consists of three "levels" based on observability of
inputs in the marketplace used to measure fair values as discussed below:
Level 1 - Fair value measurements that are 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 assets or liabilities,
either directly or indirectly. Level 2 inputs include quoted prices for
similar assets and liability in active markets, 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. These measurements include
circumstances in which there is little, if any, market activity for the
assets or liabilities. 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 assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment. In making the
assessment, the Company considers factors specific to the assets or
liabilities.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
The following is a description of the valuation methodologies used for
instruments carried at fair value:
Bonds & Preferred Stocks
Bonds with NAIC 6 or 6* ratings and preferred stocks with NAIC 4, 5 or 6
ratings 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 at fair value. Market price data generally is
obtained from exchange or dealer markets.
46
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
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.
ML II
ML II is valued using a discounted cash flow methodology that uses the
estimated future cash flows of the ML II assets. These discount rates are
calibrated to the changes in the estimated asset values for the underlying
assets commensurate with the Company's interest in the capital structure of
the entity. Estimated cash flows and discount rates used in the valuation
are validated, to the extent possible, using market observable information
forsecurities with similar asset pools, structure and terms.
As a result of the announcement on March 31, 2011 by the New York Fed of its
plan to begin selling the assets in the ML II portfolio over time through a
competitive sales process, the Company modified its methodology for
estimating the fair value of its interest in ML II to incorporate the
assumption of the current liquidation, which (i) uses the estimated fair
value of the ML II assets and (ii) allocates the estimated asset fair value
according to the ML II waterfall.
As of December 31, 2011, the Company expected to receive cash flows
(undiscounted) in excess of the Company's initial investment, and any
accrued interest, in the ML II interest after repayment of the first
priority obligations owed to the New York Fed. The fair value of the
Company's interest in ML II is most affected by the liquidation proceeds
realized by the New York Fed from the sale of the collateral securities.
At December 31, 2010, the fair value methodology used assumed that the
underlying collateral in ML II would continue to be held and generate cash
flows into the foreseeable future and did not assume a current liquidation
of the assets underlying the ML II interests. Other methodologies employed
or assumptions made in determining fair value for these investments could
result in amounts that differ significantly from the amounts reported.
Incorporation of Credit Risk in Fair Value Measurements
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.
47
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Common Stocks (Unaffiliated)
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 marketable equity securities at fair value.
Market price data generally is obtained from exchange or dealer markets.
Derivative Assets and Liabilities
Derivative assets and liabilities can be exchange-traded or traded OTC. The
Company generally values exchange-traded derivatives, if any, using quoted
prices in active markets for identical derivatives at the balance sheet date.
OTC derivatives are valued using market transactions and other market
evidence whenever possible, including market-based inputs to models, model
calibration to market clearing transactions, broker 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 to 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, third-party pricing 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.
48
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The following table provides information as of December 31, 2011 and 2010
about the Company's financial assets and liabilities measured at fair value.
DECEMBER 31, 2011
(in thousands of dollars)
Level 1 Level 2 Level 3 Total
------- ------- ------- -------
ASSETS
Bonds $ -- $ -- $ 9,656 $ 9,656
Common Stocks 44 19 14,653 14,716
------ ------ ------- -------
TOTAL ASSETS $ 44 $ 19 $24,309 $24,372
====== ====== ======= =======
LIABILITIES
Derivatives $ -- 2,440 -- $ 2,440
------ ------ ------- -------
TOTAL LIABILITIES $ -- $2,440 $ -- $ 2,440
====== ====== ======= =======
DECEMBER 31, 2010
(in thousands of dollars)
Level 1 Level 2 Level 3 Total
------- ------- ------- -------
ASSETS
Bonds $ -- $ 183 $ 9,096 $ 9,279
Preferred Stocks -- -- 1,106 1,106
Common Stocks 8,634 81 469 9,184
------ ------ ------- -------
TOTAL ASSETS $8,634 $ 264 $10,671 $19,569
====== ====== ======= =======
LIABILITIES
Derivatives $ -- 5,836 -- $ 5,836
------ ------ ------- -------
TOTAL LIABILITIES $ -- $5,836 $ -- $ 5,836
====== ====== ======= =======
At December 31, 2011 and 2010, Level 3 assets were 0.3% and 0.1% of total
assets, respectively.
The following tables present changes during the years ended December 31,
2011 and 2010 in Level 3 assets and liabilities measured at fair value, and
the gains and losses recorded during the years ended December 31, 2011 and
2010, respectively, related to the Level 3 assets that remained on the
statutory statements of admitted assets, liabilities and capital and surplus.
49
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
(in thousands of dollars)
Preferred Common Total
Bonds Stocks Stocks Assets
------- --------- ------- --------
Balance at January 1, 2011 $ 9,096 $ 1,106 $ 469 $ 10,671
Total gains or losses (realized/unrealized)
Included in net income (833) -- 351 (482)
Included in surplus 539 4,423 (15) 4,947
Purchases, issuances and settlements 808 1,106 13,737 15,651
Transfers into Level 3 9,729 -- 111 9,840
Transfers out of Level 3 (9,683) (6,635) -- (16,318)
------- -------- ------- --------
Balance at December 31, 2011 $ 9,656 $ 0 $14,653 $ 24,309
======= ======== ======= ========
Total losses included in income attributable to instruments held at
December 31, 2011 $ (811) $ -- $ -- $ (811)
======= ======== ======= ========
Preferred Common Total
Bonds Stocks Stocks Assets
------- --------- ------- --------
Balance at January 1, 2010 $ 2,874 $ 33,466 $ 987 $ 37,327
Total gains or losses (realized/unrealized)
Included in net income (1,717) -- (134) (1,851)
Included in surplus 466 -- (303) 163
Purchases, issuances and settlements 7,450 1,106 -- 8,556
Transfers into Level 3 42 -- -- 42
Transfers out of Level 3 (19) (33,466) (81) (33,566)
------- -------- ------- --------
Balance at December 31, 2010 $ 9,096 $ 1,106 $ 469 $ 10,671
======= ======== ======= ========
Total losses included in income attributable to instruments held at
December 31, 2010 $(1,233) $ -- $ (133) $ (1,366)
======= ======== ======= ========
Bonds of $9.7 million were transferred into Level 3 and carried at fair
value due to a change in NAIC rating from 1 to 6. Common stock of $0.1
million was transferred into Level 3 due to a lack of observable market
data. Bonds of $0.8 million and preferred stocks of $6.6 million transferred
out of Level 3 with an NAIC 6 rating that was carried at a value lower than
fair value. Bonds of $8.9 million transferred out of Level 3 with an NAIC 1
rating that was carried at a value higher than fair value.
Both observable and nonobservable inputs may be used to determine the fair
values of positions classified in Level 3 in the tables above. As a result,
the unrealized gains (losses) on instruments held at December 31, 2011 and
2010 may include changes in fair value that were attributable to both
observable (e.g., changes in market interest rates) and unobservable inputs
(e.g., changes in unobservable long-dated volatilities).
50
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The Company's derivative assets and liabilities measured on a gross basis,
before counterparty and cash collateral netting were as follows:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ------- ------- ------
DECEMBER 31, 2011
(in thousands of dollars)
Derivative liabilities at fair value $-- $2,440 $-- $2,440
DECEMBER 31, 2010
(in thousands of dollars)
Derivative liabilities at fair value $-- $5,836 $-- $5,836
7. AGGREGATE POLICY RESERVES AND DEPOSIT FUND LIABILITIES
The following is a summary by major category for the reserves at
December 31, 2011 and 2010:
2011 2010
(in thousands of dollars) ---------- ----------
Life insurance $6,627,628 $6,618,845
Annuities (exluding supplementary contracts with life contingencies) 1,207,329 1,198,720
Supplementary contract with life contingencies 2,897 3,290
Accidental death benefits 26,845 27,874
Disability - active lives 35,303 36,244
Disability - disabled lives 159,891 159,376
Miscellaneous reserves 158,364 150,947
---------- ----------
8,218,257 8,195,296
Reinsurance ceded (77,198) (77,063)
---------- ----------
Total life and annuity reserves 8,141,059 8,118,233
---------- ----------
Accident and health:
Unearned premium reserves 3,913 4,675
Additional contract reserves 116,332 116,502
Present value of amounts not yet due on claims 2,041 2,225
---------- ----------
122,286 123,402
Reinsurance ceded (3,234) (4,055)
---------- ----------
Total accident and health reserves 119,052 119,347
---------- ----------
Total aggregate policy reserves $8,260,111 $8,237,580
========== ==========
51
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The withdrawal characteristics of annuity actuarial reserves and
deposit-type contract funds and other liabilities without life contingencies
as of December 31, 2011 and 2010 are as follows:
AMOUNT PERCENT
DECEMBER 31, 2011 ---------- -------
(in thousands of dollars)
Subject to discretionary withdrawal:
With market value adjustment $ 588,977 46%
At book value less current surrender charge of 5% or more 38,189 3
---------- ---
Total with adjustments or at market value 627,166 49
At book value without adjustment (with minimal or no charge or adjustment) 391,444 30
Not subject to discretionary withdrawal 273,289 21
---------- ---
Total annuity reserves and deposit fund liabilities - before reinsurance 1,291,899 100%
===
Less: Reinsurance ceded 43,212
----------
Net annuity reserves and deposit fund liabilities $1,248,687
==========
AMOUNT PERCENT
DECEMBER 31, 2010 ---------- -------
(in thousands of dollars)
Subject to discretionary withdrawal:
With market value adjustment $ 557,638 43%
At book value less current surrender charge of 5% or more 48,009 4
---------- ---
Total with adjustments or at market value 605,647 47
At book value without adjustment (with minimal or no charge or adjustment) 391,369 30
Not subject to discretionary withdrawal 288,870 23
---------- ---
Total annuity reserves and deposit fund liabilities - before reinsurance 1,285,886 100%
===
Less: Reinsurance ceded 41,791
Net annuity reserves and deposit fund liabilities $1,244,095
==========
52
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
8. PREMIUM AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED
Deferred and uncollected life insurance premiums and annuity considerations
(before deduction for amounts non-admitted) as of December 31, 2011 and 2010
were as follows:
(in thousands of dollars)
AT DECEMBER 31, 2011 Less
Experience Tennessee Net of
Type Gross Refund Reclass Gross Loading Loading
-------------------- ------- ---------- --------- ------- ------- -------
Industrial Life $ 106 $ -- $ -- $ 106 $ 51 $ 55
Ordinary Life New Business 1,333 1,333 690 643
Ordinary Life Renewal 19,021 8,923 9,491 19,589 3,452 16,137
Group Life 4 4 4
Individual Annuity 4 4 4
------- ------ ------ ------- ------ -------
Total $20,468 $8,923 $9,491 $21,036 $4,193 $16,843
======= ====== ====== ======= ====== =======
(in thousands of dollars)
AT DECEMBER 31, 2010 Less
Experience Tennessee Net of
Type Gross Refund Reclass Gross Loading Loading
-------------------- ------ ---------- --------- ------- ------- -------
Industrial Life $ 111 $ -- $ -- $ 111 $ 53 $ 58
Ordinary Life New Business 1,203 1,203 594 609
Ordinary Life Renewal 5,975 2,843 10,591 13,723 3,889 9,834
Group Life 4 4 4
Individual Annuity 2 2 2
------ ------ ------- ------- ------ -------
Total $7,295 $2,843 $10,591 $15,043 $4,536 $10,507
====== ====== ======= ======= ====== =======
53
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
9. REINSURANCE
The Company is routinely involved in reinsurance transactions covering all
lines of business. Reinsurance involves having other insurance companies
agree to accept certain risks from the Company (called "ceded reinsurance")
or having the Company accept risks from other insurance companies (called
"assumed reinsurance"). The primary purpose of ceded reinsurance is to
protect the insurance company from potential losses in excess of what it is
prepared to accept. Reinsurance may be on an individual policy basis or for
a defined group of policies. Ceded reinsurance is treated as the liability
of the Company that accepted the risk ("the reinsurer"); however, if the
reinsurer could not meet its obligations, the Company would reassume the
liability.
Certain premiums and benefits are assumed from and ceded to other affiliated
and nonaffiliated insurance companies under various reinsurance agreements.
The ceded reinsurance agreements provide the Company with increased capacity
to write larger risks and maintain its exposure to loss within its capital
resources. The following is a summary of the effects of reinsurance activity
on certain items in the accompanying financial statements for the years
ended December 31, 2011 and 2010:
54
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
2011 2010
(in thousands of dollars) ------- -------
CEDED
Premiums and annuity considerations
Affiliates $ 1,297 $ 745
Nonaffiliates 15,446 44,292
------- -------
$16,743 $45,037
======= =======
Benefits paid or provided
Affiliates $ 895 $ 1,884
Nonaffiliates 37,030 44,011
------- -------
$37,925 $45,895
======= =======
Policy and contract liabilities at year end
Affiliates $ 781 $ 1,208
Nonaffiliates 82,959 83,809
------- -------
$83,740 $85,017
======= =======
ASSUMED
Premiums and annuity considerations
Affiliates $ -- $ --
Nonaffiliates 96 121
------- -------
$ 96 $ 121
======= =======
Benefits paid or provided
Affiliates $ -- $ --
Nonaffiliates 1,044 1,174
------- -------
$ 1,044 $ 1,174
======= =======
Policy and contract liabilities at year end
Affiliates
Nonaffiliates 17,711 18,362
------- -------
$17,711 $18,362
======= =======
Effective December 31, 1995, the Company entered into a reinsurance
agreement under which it began ceding ordinary life insurance to Atlantic
International Reinsurance, Ltd. ("AIR"). Effective October 1, 1996, this
agreement was amended to include certain whole life policies. Effective
April 1, 1999, this agreement was recaptured by the Company. A new agreement
ceding the business recaptured from AIR was entered into with a Sun Life
entity, Sun Life of Canada Reinsurance ("Barbados"), Ltd., using the same
terms as the AIR agreement. Barbados was later purchased and renamed Clarica
Insurance ("Barbados"), Ltd. In late 2002, Clarica was sold back to Sun Life
and renamed Sun Life Reinsurance Companies Limited. Effective October 1,
1999, the agreement with Clarica was closed with respect to new business.
Effective December 31, 2005, this block of business was recaptured from Sun
Life and ceded to RGA Reinsurance Company ("RGA").
Effective October 1, 1999, the Company entered into a reinsurance agreement
under which it began ceding ordinary life insurance to Manulife Reinsurance
Limited ("Manulife"). Effective
55
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
December 31, 2005, Manulife assigned its rights under the agreement to RGA,
under an Assignment and Novation Agreement.
Under the agreement with RGA, premiums of $7.2 million and $29.5 million and
benefits of $15.3 million and $14.9 million were ceded in 2011 and 2010,
respectively. As of December 31, 2011 and 2010, benefits reserves ceded were
$30.8 million and $31.8 million, respectively.
The liability for unsecured reserves ceded to unauthorized reinsurers who do
not meet regulatory standards was $0.1 million and $0.1 million at
December 31, 2011 and 2010, respectively. Amounts payable or recoverable for
reinsurance on policy and contract liabilities are not subject to periodic
or maximum limits.
Effective January 1, 2010, the Company commuted a coinsurance agreement with
the Standard Security Life Insurance Company of New York, which coinsured a
block of individual life and annuity business. The following amounts
constitute the terminal consideration of this agreement:
Policy Loans $ 11,751
Reserve on Life Policies 153,692
Reserve on Annuities 755
--------
Consideration Paid to the Company $166,198
========
Effective January 1, 2010, the Company commuted four coinsurance agreements
with Swiss Re Life and Health America Incorporated, one dated July 17, 1970,
two dated May 1, 1972, and one dated November 1, 1972, reinsuring disability
income individual accident and health business. The following amounts
constitute the terminal consideration for these agreements:
Premiums $(82,168)
Claims 337,400
Reserve 148,301
--------
Consideration Paid to the Company $403,533
========
Effective July 1, 2010, the Company commuted four coinsurance agreements
with Lincoln National Life Insurance Company, dated January 1,
1969, April 1, 1970, June 1, 1977, and January 1, 1973, reinsuring
disability income individual accident and health business. The following
amounts constitute the terminal consideration of these agreements:
Claims $545,378
Reserve 83,131
--------
Consideration Paid to the Company $628,509
========
In 2011 and 2010, the Company did not enter into or engage in any agreement
that reinsures policies or contracts that were in-force or had existing
reserves as of the effective date of such agreements.
The Company remains obligated for amounts ceded in the event reinsurers do
not meet their obligations.
56
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
10.UNPAID CLAIMS
The following table provides a reconciliation of the beginning and ending
balances of unpaid accident and health claim liabilities, net of reinsurance
recoverable for the years ended December 31, 2011 and 2010:
2011 2010
(in thousands of dollars) ------- -------
Unpaid claim liabilities, at beginning of year $26,872 $29,252
Add: Provision for claims, net of reinsurance, occurring in
Current year 44,642 52,786
Prior years (6,635) (6,722)
------- -------
Net incurred losses during the current year 38,007 46,064
Deduct: Payments for claims, net of reinsurance, occurring in
Current year 28,144 32,850
Prior years 14,020 15,594
------- -------
Net claim payments during the current year 42,164 48,444
------- -------
Unpaid claim liabilities, at end of year $22,715 $26,872
======= =======
The estimated cost of claims and claim adjustment expenses attributable to
insured accident and health events of prior years has decreased by $6.6
million and $6.7 million for the years ended December 31, 2011 and 2010,
respectively. These decreases are a result of re-estimation of unpaid claims
and claim adjustment expenses, principally in the Guaranteed Renewable line
of business.
57
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
11.FEDERAL INCOME TAXES
The components of deferred tax assets ("DTA") and deferred tax liabilities
("DTL") and the calculation of the admitted DTA, for the current and prior
periods, are as follows:
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
(in thousands of dollars) ------------------------------- ------------------------------- ---------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
--------- --------- --------- --------- --------- --------- -------- -------- --------
Gross Deferred Tax
assets $ 417,954 $ 327,540 $ 745,494 $ 412,168 $ 348,014 $ 760,182 $ 5,786 $(20,474) $(14,688)
Valuation Allowance -- (291,200) (291,200) (27,829) (317,014) (344,843) 27,829 25,814 53,643
--------- --------- --------- --------- --------- --------- ------- -------- --------
Adjusted Gross Deferred
Tax Assets 417,954 36,340 454,294 384,339 31,000 415,339 33,615 5,340 38,955
Deferred Tax Liabilities (13,076) (28,970) (42,046) (4,471) -- (4,471) (8,605) (28,970) (37,575)
--------- --------- --------- --------- --------- --------- ------- -------- --------
Subtotal - Net Deferred
Tax Assets 404,878 7,370 412,248 379,868 31,000 410,868 25,010 (23,630) 1,380
Deferred Tax Assets
Nonadmitted (287,995) (287,995) (279,958) -- (279,958) (8,037) -- (8,037)
--------- --------- --------- --------- --------- --------- ------- -------- --------
Net Admitted Deferred
Tax Assets $ 116,883 $ 7,370 $ 124,253 $ 99,910 $ 31,000 $ 130,910 $16,973 $(23,630) $ (6,657)
========= ========= ========= ========= ========= ========= ======= ======== ========
The Company has met the necessary RBC levels to be able to admit the
increased amount of deferred tax assets under SSAP No. 10R, and an election
has been made to admit DTAs pursuant to SSAP No. 10R, which is the same
election made for the prior year.
The Company recorded an increase in admitted adjusted gross deferred tax
assets as the result of its election to employ the provisions of paragraph
10.e. as follows:
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
(in thousands of dollars) ------------------------ ------------------------ ----------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- ------- -------- ------- ------- -------- -------- --------
Increase in Admitted - 10.e.i. $49,994 $ -- $49,994 $71,548 $14,095 $85,643 $(21,554) $(14,095) $(35,649)
Increase in Admitted - 10.e.ii. 17,125 3,736 20,861 -- 6,905 6,905 17,125 (3,169) 13,956
Increase in Admitted - 10.e.iii. -- 1 1 -- -- -- -- 1 1
------- ------ ------- ------- ------- ------- -------- -------- --------
$67,119 $3,736 $70,855 $71,548 $21,000 $92,548 $ (4,429) $(17,264) $(21,693)
======= ====== ======= ======= ======= ======= ======== ======== ========
58
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Components of the admissibility calculation are as follows:
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
(in thousands of dollars) -------------------------- ------------------------ -------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- ------- -------- ------- ------- -------- ------- -------
SSAP 10R, paragraphs 10.a., 10.b., and 10.c.:
(a) Paragraph 10.a. 49,764 0 49,764 28,362 10,000 38,362 21,402 (10,000) 11,402
(b) Paragraph 10.b. 0 3,634 3,634 0 0 0 0 3,634 3,634
(c) Paragraph 10.b.i. 42,206 3,634 45,840 0 0 0 42,206 3,634 45,840
(d) Paragraph 10.b.ii. 0 3,634 3,634 0 60,546 60,546 0 0 (56,912)
(e) Paragraph 10.c. 13,076 28,970 42,046 4,471 0 4,471 8,605 28,970 37,575
------- ------ ------- ------- ------ ------- ------ ------- -------
(f) Total (a + b + e) 62,840 32,604 95,444 32,833 10,000 42,833 30,007 22,604 52,611
======= ====== ======= ======= ====== ======= ====== ======= =======
SSAP 10R, paragraph 10.e.:
(g) Paragraph 10.e.i. 99,758 0 99,758 99,910 24,095 124,005 (152) (24,095) (24,247)
(h) Paragraph 10.e.ii. 17,125 7,370 24,495 0 6,905 6,905 17,125 465 17,590
(i) Paragraph 10.e.ii.a. 17,125 10,902 28,027 0 6,905 6,905 17,125 3,997 21,122
(j) Paragraph 10.e.ii.b. 57,858 7,370 65,228 0 90,819 90,819 0 0 (25,591)
(k) Paragraph 10.e.iii. 13,076 28,971 42,047 4,471 0 4,471 8,605 28,971 37,576
------- ------ ------- ------- ------ ------- ------ ------- -------
(l) Total (g + h + k) 129,959 36,341 166,300 104,381 31,000 135,381 25,578 5,341 30,919
======= ====== ======= ======= ====== ======= ====== ======= =======
SSAP 10R, paragraph 10.d.:
Total Adjusted Capital 757,254 850,747 (93,493)
Authorized Control Level 88,804 87,359 1,445
The following table shows the percent of adjusted gross DTAs and net
admitted DTAs that are due to tax-planning strategies:
DECEMBER 31, 2011
---------------------
Ordinary Capital Total
-------- ------- -----
(a)Adjusted Gross DTAs 0% 0% 0%
(b)Net Admitted Adjusted Gross DTAs 0% 0% 0%
The following table provides the Company's admitted deferred tax assets,
admitted assets, statutory surplus, and total adjusted capital in the RBC
calculation with the DTA calculated under SSAP No. 10R, paragraphs 10(a) to
(c), and the increased balances resulting from application of SSAP No. 10R,
paragraph 10.e., as of December 31, 2011 and 2010: (in thousands)
DECEMBER 31, 2011 DECEMBER 31, 2010 CHANGE
-------------------------- -------------------------- --------------------------
Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total
-------- ------- --------- -------- ------- --------- -------- ------- --------
SSAP 10R, paragraph 10.a. - 10.c.:
Admitted Net Deferred Tax Assets 49,764 3,634 53,398 28,362 10,000 38,362 21,402 (6,366) 15,036
Admitted Assets Before DTAs 9,426,643 9,506,057 (79,414)
Adjusted Statutory Surplus 458,404 607,014 (148,610)
Total Adjusted Capital from DTAs 53,398 38,362 15,036
Increased balances due to SSAP 10R, paragraph 10.e.:
Admitted Net Deferred Tax Assets 67,119 3,737 70,856 71,548 21,000 92,548 (4,429) (17,263) (21,692)
Admitted Assets Before DTAs 0 0 0
Statutory Surplus 70,856 92,548 (21,692)
The Company is not aware of any significant deferred tax liabilities that
are not recognized in the financial statements.
59
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Current tax and change in deferred tax: (in thousands)
DECEMBER 31,
---------------------------
2011 2010 CHANGE
Current income taxes: -------- -------- -------
Federal income tax on the net gains from operations 9,134 92,566 (83,432)
Federal income tax on net realized capital gains (losses) 10,409 0 10,409
Utilization of capital loss carryforwards 0 0 0
Other 0
-------- -------- -------
Federal income taxes incurred 19,543 92,566 (73,023)
======== ======== =======
DECEMBER 31,
Deferred tax assets: ---------------------------
2011 2010 CHANGE
-------- -------- -------
Ordinary
Policyholder reserves 256,744 256,520 224
Deferred acquisition costs 110,203 111,742 (1,539)
Nonadmitted asset 0 0 0
Tax credit carryforward 28,220 27,829 391
Other 22,787 16,077 6,710
-------- -------- -------
Subtotal 417,954 412,168 5,786
Statutory valuation allowance adjustment 0 (27,829) 27,829
Nonadmitted (287,995) (279,958) (8,037)
-------- -------- -------
Admitted ordinary deferred tax assets 129,959 104,381 25,578
-------- -------- -------
Capital
Investments 36,003 36,239 (236)
Unrealized gains (losses) 337 4,051 (3,714)
Net capital loss carry-forward 291,200 307,724 (16,524)
Non-admitted asset 0 0 0
Other 0 0 0
-------- -------- -------
Subtotal 327,540 348,014 (20,474)
Statutory valuation allowance adjustment (291,200) (317,014) 25,814
Nonadmitted 0 0
-------- -------- -------
Admitted capital deferred tax assets 36,340 31,000 5,340
-------- -------- -------
Admitted deferred tax assets 166,299 135,381 30,918
-------- -------- -------
Deferred tax liabilities:
Ordinary
Investments 0 0
Fixed assets 6,550 0 6,550
Other 6,526 4,471 2,055
-------- -------- -------
Subtotal 13,076 4,471 8,605
Capital
Investments 28,970 0 28,970
Other 0 0 0
-------- -------- -------
Subtotal 28,970 0 28,970
-------- -------- -------
Admitted deferred tax liabilities 42,046 4,471 37,575
-------- -------- -------
Net deferred assets/liabilities 124,253 130,910 (6,657)
======== ======== =======
60
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
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): (in thousands)
DECEMBER 31,
2011 2010 CHANGE
------- ------- -------
Total adjusted deferred tax assets 745,494 760,182 (14,688)
Total deferred tax liabilities 42,046 4,471 37,575
------- ------- -------
Net adjusted deferred tax asset (liability) 703,448 755,711 (52,263)
======= =======
Tax effect of unrealized gains (losses) 3,714
-------
Change in deferred income tax for reconciliation below (48,549)
Change in valuation allowance on gross deferred tax assets 53,643
Impact of SSAP 10R incremental DTA 21,693
-------
Change in net deferred income tax 26,787
=======
Reconciliation: 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 significant items causing this
difference are as follows: (in thousands)
DECEMBER 31, 2011 DECEMBER 31, 2010
---------------- ----------------
EFFECTIVE TAX EFFECTIVE TAX
AMOUNT RATE AMOUNT RATE
------ ---- ------- ----
Income tax expense (benefit) at applicable rate 74,435 35.0% 136,835 35.0%
Tax Exempt interest (141) -0.1% (984) -0.3%
Change in Nonadmitted Assets (4,904) -2.3% 3,101 0.8%
Other (1,298) -0.6% (7,730) -2.0%
------ ---- ------- ----
Total Statutory Income Tax Benefit / Expense 68,092 32.0% 131,222 33.5%
====== ==== ======= ====
Federal income taxes incurred 19,543 9.2% 92,566 23.6%
Change in net deferred income taxes 48,549 22.8% 38,656 9.9%
------ ---- ------- ----
Total statutory income taxes 68,092 32.0% 131,222 33.5%
====== ==== ======= ====
61
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Operating Loss and Tax Credit Carryforward:
At December 31, 2011, the Company had the following general business
credit carry forwards:
Amount Year Expires
(in thousands) ------- ------------
2007 $26,448 2027
2008 874 2028
2009 498 2029
2010 90 2030
-------
$27,910
=======
At December 31, 2011, the Company had no operating loss carryforwards.
At December 31, 2011, the Company had the following capital loss
carryforwards:
Amount Year Expires
(in thousands) -------- ------------
2008 $832,000 2013
2009 -- 2014
2010 -- 2015
--------
$832,000
========
At December 31, 2011, the Company had the following foreign tax credit
carryforwards:
Amount Year Expires
(in thousands) ------ ------------
2008 $ 3 2018
2009 6 2019
2010 301 2020
----
$310
====
At December 31, 2011, the Company had no deposits admitted under IRC
section 6603.
The following is income tax incurred for 2009, 2010 and 2011 that is
available for recoupment in the event of future net losses:
Ordinary Capital Total
(in thousands) -------- ------- --------
2009 $99,758 $-- $ 99,758
2010 0 0 0
2011 0 0 0
------- --- --------
Total $99,758 $-- $ 99,758
======= === ========
In general, realization of DTAs depends on a company's ability to generate
sufficient taxable income of the appropriate character within the carry
forward periods in the jurisdictions in which the net operating losses and
deductible temporary differences were incurred. In accordance with the
requirements established in SSAP 10R, the Company assessed its ability to
realize the DTAs of $745 million and concluded that a valuation allowance of
$291 million was required at December 31, 2011. Similarly, a valuation
allowance of $345 million was required on the DTAs of $760 million at
December 31, 2010.
62
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The Company will join in the filing of a consolidated federal income tax
return with AIG. The Company has a written agreement with AIG under which
each subsidiary agrees to pay AIG 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 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.
In July 2006, the FASB issued an accounting interpretation that provides
guidance for accounting for uncertainty in income tax positions. This
interpretation is not applicable to statutory financial statements. However,
disclosures similar to those required by this interpretation have been
required by the NAIC.
A reconciliation of the beginning and ending balances of the total amounts
of gross unrecognized tax benefits is as follows (in thousands):
12/31/2011 12/31/2010
---------- ----------
Gross unrecognized tax benefits, at beginning of year $ 17,384 $16,401
Increases in tax positions for prior years -- --
Decreases in tax positions for prior years (17,384) (2,948)
Increase in tax positions for current years -- 3,931
Lapse in statute of limitations -- --
Settlements -- --
-------- -------
Total Statutory Income Tax Benefit / Expense $ -- $17,384
======== =======
At December 31, 2011 and 2010, the Company's unrecognized tax benefits,
excluding interest and penalties, were $0 and $17.4 million, respectively.
As of December 31, 2011 and 2010, the amounts of unrecognized tax benefits
that, if recognized, would favorably affect the effective tax rate were $0
and $3.9 million, respectively.
Interest and penalties related to unrecognized tax benefits are recognized
in income tax expenses. At December 31, 2011 and 2010, the Company had
accrued $1.7 million and $0.6 million, respectively, for the payment of
interest (net of federal benefit) and $0 penalties. For the year ended
December 31, 2011, the Company recognized an expense of $1.0 million of
interest (net of federal benefit) and $0 penalties in the statement of
operations.
63
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
12.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 as a result of the insurer's size, but
also on the risk profile of the insurer's operations. At December 31, 2011,
the Company exceeded RBC requirements that would require any regulatory
action.
The maximum amount of dividends that can be paid by Tennessee domiciled life
insurance companies without prior approval of the Tennessee Insurance
Commissioner in a 12 month period, measured retrospectively from the date of
payment, is the greater of (1) ten percent (10%) of surplus of December 31,
2011; or (2) the net gain from operations of such insurer as of December 31,
2011, provided unassigned surplus exceeds zero following payment of such
dividends.
The maximum dividend payout that may be made without prior approval in 2012
is $56.4 million provided that dividends are to be paid from unassigned
funds. The Company may pay a dividend or make a distribution not from
unassigned funds if the Commissioner's approval is first received. At
December 31, 2011 the Company's unassigned funds was $56.4 million.
Dividends are paid as determined by the Board of Directors and are
noncumulative.
Dividends of $430.9 million and $150.0 million were paid in 2011 and 2010,
respectively.
As noted in Note 2, Summary of Significant Accounting Policies, in 2010, the
Company received permission from the TDCI to restate the gross paid-in and
contributed surplus and the unassigned funds components of its surplus. The
effective date was September 30, 2010. This restatement resulted in an
increase in unassigned funds in an amount equal to the contributions
received from AIG ($564.6 million) to offset the Company's losses incurred
as a result of their participation in the Securities Lending Program and a
corresponding decrease in gross paid in and contributed surplus of $564.6
million.
The Company included an incremental DTA of $70.9 million and $92.5 million
in special surplus funds at December 31, 2011 and 2010, respectively, in
accordance with SSAP 10R.
13.RETIREMENT PLANS, DEFERRED COMPENSATION, POST EMPLOYMENT BENEFITS,
COMPENSATED ABSENCES AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company does not directly sponsor any defined benefit or defined
contribution plans and does not participate in any multi-employer plans.
64
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
EMPLOYEE RETIREMENT PLAN
Employees of AIG, its subsidiaries and certain affiliated companies,
including employees in foreign countries, are generally covered under
various funded and insured pension plans. Eligibility for participation in
the various plans is based on either completion of a specified period of
continuous service or date of hire, subject to age limitation.
The AIG Retirement Plan ("AIG U.S. Plan") is a qualified, non-contributory
defined benefit retirement plan which is subject to the provisions of the
Employee Retirement Income Security Act ("ERISA") of 1974. All employees of
AIG and most of its subsidiaries and affiliates who are regularly employed
in the United States, including certain U.S. citizens employed abroad on a
U.S. dollar payroll, and who have attained age 21 and completed twelve
months of continuous service are eligible to participate in this plan. An
employee with 5 or more years of service is entitled to pension benefits
beginning at normal retirement at age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. The average final
compensation is subject to certain limitations. The employees may elect
certain options with respect to their receipt of their pension benefits
including a joint and survivor annuity. An employee with 10 or more years of
service may retire early from age 55 to 64. An early retirement factor is
applied resulting in a reduced benefit. If an employee terminates with less
than five years of service, such employee forfeits his or her right to
receive any accumulated pension benefits.
The Company is jointly and severally responsible with AIG and other
participating companies for funding obligations for the AIG U.S. Plan, ERISA
qualified defined contribution plans and ERISA plans issued by other AIG
subsidiaries (the "ERISA Plans"). If the ERISA Plans do not have adequate
funds to pay obligations due participants, the Pension Benefit Guaranty
Corporation or Department of Labor could seek payment of such amounts from
the members of the AIG ERISA control group, including the Company.
Accordingly, the Company is contingently liable for such obligations. The
Company believes that the likelihood of payment under any of these plans is
remote. Accordingly, the Company has not established any liability for such
contingencies.
Annual funding requirements are determined based on the "traditional unit
credit" cost method. The objective under this method is to fund each
participant's benefit under the plan as it accrues. Thus, the total pension
to which each participant is expected to become entitled at retirement is
broken down into units, each associated with a year of past or future
credited service.
Effective April 1, 2012, the AIG U.S. Plan and AIG Excess plans will be
converted from final average pay to cash balance formulas comprised of pay
credits based on 6% of a plan participant's annual compensation (subject to
IRS limitations for the qualified plan) and annual interest credits and
other changes of an immaterial nature. The vesting requirement is reduced to
3 years of credited service. Employees satisfying certain age and service
requirements remain covered under the final average pay formula in the
respective plans.
65
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The following table sets forth the funded status of the AIG U.S. Plan,
valued in accordance with SSAP No. 89, "Accounting for Pensions" ("SSAP 89").
(in thousands of dollars)
As of December 31, 2011 2010
------------------------- ---------- ----------
Fair Value of plan assets $3,432,515 $3,424,553
Less projected benefit `obligation 4,219,931 3,574,840
---------- ----------
Funded status $ (787,416) $ (150,287)
========== ==========
The weighted average assumptions that were used to determine its pension
benefit obligations as of December 31, 2011 and 2010 are set forth in the
table below:
As of December 31,
2011 2010
----------------- -----------------
Discount rate 4.62% 5.50%
Rate of compensation increase (average) 4.00% 4.00%
Measurement date December 31, 2011 December 31, 2010
In 2011 and 2010, AIG allocated defined benefit expenses to the Company and
its affiliates. The Company's allocated share of net expense for the AIG
U.S. Plan was $0 and $0 for 2011 and 2010, respectively.
The American General Corporation ("AGC") retirement plan was merged into the
AIG U.S. Plan effective January 1, 2002. Benefits for AGC participants were
changed effective January 1, 2003 to be substantially similar to the AIG
U.S. Plan's benefits subject to grandfathering requirements.
SAFG employees began participation and accruing benefits in the AIG U.S.
Plan commencing January 1, 2003. Vesting in the AIG plan begins on the later
of January 1, 1999 or date of hire for SAFG employees.
The 2010 AIG U.S. Plan information reflects the impact of divestitures of A.
I. Credit Corp P & C segment ("AI Credit P&C"), AIG Global Asset Management
Holdings Corp. et al ("Bridge"), American Life Insurance Company et al
("ALICO") and American General Finance et al ("AGF") during 2010.
AIG also sponsors several unfunded nonqualified defined benefit plans for
certain employees, including key executives, designed to supplement pension
benefits provided by AIG's other retirement plans. These include the AIG
Excess Retirement Income Plan, which provides a benefit equal to the
reduction in benefits payable to certain employees under the AIG U.S. Plan
as a result of federal tax limitations on compensation and benefits payable,
and the Supplemental Executive Retirement Plan ("SERP"), which provides
additional retirement benefits to designated executives. The results in this
footnote do not include the nonqualified plans.
POSTRETIREMENT BENEFIT PLANS
AIG's U.S. postretirement medical and life insurance benefits are based upon
the employee electing immediate retirement and having a minimum of 10 years
of service. Retirees and their
66
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
dependents that were 65 years old by May 1, 1989 participate in the medical
plan at no cost. Employees who retired after May 1, 1989 or prior to
January 1, 1993 pay the active employee premium if under age 65 and 50
percent of the active employee premium if over age 65. Retiree contributions
are subject to adjustment annually. Other cost sharing features of the
medical plan include deductibles, coinsurance and Medicare coordination. The
maximum life insurance benefit prior to age 70 is $32,500, with a maximum
$25,000 thereafter.
Effective January 1, 1993 both plans' provisions were amended: employees who
retire after January 1, 1993 are required to pay the actual cost of the
medical insurance benefit premium reduced by a credit which is based upon
years of service at retirement. The life insurance benefit varies by age at
retirement from $5,000 for retirement at age 55 through 59 and $10,000 for
retirement at ages 60 through 64 and $15,000 from retirement at ages 65 and
over.
AIG's U.S. postretirement medical and life insurance benefits obligations,
valued in accordance with SSAP No. 14, "Postretirement Benefits Other Than
Pensions", as of December 31, 2011 and 2010 were $ 202.0 million and $202.4
million, respectively. These obligations are not funded currently. The
Company's allocated share of other postretirement benefit plan expenses were
$1.7 million and $2.1 million for the years ended December 31, 2011 and
2010, respectively.
Amounts for four Puerto Rico postretirement medical plans have also been
included in the 2011 and 2010 figures.
Effective April 1, 2012, the Company subsidy for the retiree medical plan
will only be provided to employees whose combination of age and credited
service is equal to or greater than 65 points, who are at least age 55, and
have at least 5 years of credited service as of March 31, 2012 and other
changes of an immaterial nature. The retiree plan will only provide access
to coverage for all other retirees, but the Company subsidy will no longer
be available to them.
As sponsor of the AIG U.S. Plan and other postretirement and defined
contribution benefit plans, AIG is ultimately responsible for the conduct of
these plans. The Company is not directly liable for obligations under the
plan; its direct obligations result from AIG's allocation of its share of
expenses from the plans. Such allocation is based on the Company's payroll.
OTHER
Some of the Company's officers and key employees receive share-based
compensation pursuant to awards granted under the AIG 2010 Stock Incentive
Plan including share based cash settled awards such as the Stock Salary and
TARP RSU ("Troubled Asset Relief Program Restricted Stock Unit") Awards and
several other legacy AIG sponsored employee compensation plans, which are
linked to AIG common stock. Share-based cash settled awards are recorded as
liabilities until the final payout is made or the award is replaced with a
stock settled award. Unlike stock settled awards, which have a fixed grant
date fair value (unless the award is subsequently modified), the fair value
of unsettled or unvested liability awards are remeasured at the end of each
reporting period based on the change in fair value of one share of AIG
common stock. Legacy plans for which awards were still outstanding at
December 31, 2011 include the AIG 1999 Stock Option Plan, as amended, AIG
2002 Stock Incentive Plan, as amended under which AIG has issued time-vested
restricted stock units and performance restricted stock units and the AIG
2007 Stock Incentive Plan, as amended. During 2011 and 2010, AIG allocated
to the
67
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
Company compensation expense totaling $0.1 million and $0.3 million,
respectively, related to stock options and restricted stock units granted
under these plans.
In December 2009, AIG established the Long Term Incentive Plan under which
management employees were offered the opportunity to receive additional
compensation in the form of cash and stock appreciation rights ("SARs") if
certain performance metrics are met. During 2011 and 2010, AIG allocated
$1.5 million and $4.1 million, respectively, to the Company for expenses
incurred under this plan.
In addition to several small defined contribution plans, AIG sponsors a
voluntary savings plan for U.S. employees (the "AIG Incentive Savings
Plan"), which provides for salary reduction contributions by employees and
matching U.S. contributions by AIG of up to seven percent of annual salary
depending on the employees' years of service and subject to certain
compensation limits. The Company's allocated pre-tax expense associated with
this plan was $2.6 million and $2.4 million in 2011 and 2010, respectively.
Effective January 1, 2012, the plan was amended to change the company
matching contribution to 100% of the first six percent of participant
contributions and to allow all employees to contribute up to the annual IRS
contribution maximum of $17,000 and other changes of an immaterial nature.
AIG also sponsors a voluntary savings plan for the Company's agents and
managers (American General "Agents' and Managers' Thrift Plan"), which
provides for salary reduction contributions by agents and managers of up to
3% of pay and matching contributions by AIG of $1 for each $3 contributed by
the employee. The Company's pre-tax expense associated with the Agents' and
Managers' Thrift Plan was $0.6 million and $0.6 million in 2011 and 2010,
respectively.
POST-EMPLOYMENT BENEFITS AND COMPENSATED ABSENCES
AIG provides certain benefits to inactive employees who are not retirees.
Certain of these benefits are insured and expensed currently; other expenses
are provided for currently. Such expenses include long-term disability
benefits, medical and life insurance continuation and Consolidated Omnibus
Budget Reconciliation Act ("COBRA") medical subsidies. The costs of these
plans are borne by AIG and its participating subsidiaries.
IMPACT OF MEDICARE MODERNIZATION ACT ON POST RETIREMENT BENEFITS
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The postretirement medical
plan benefits provided by the plan are actuarially equivalent to Medicare
Part D under the 2003 Medicare Act and eligible for the federal subsidy.
Effective January 1, 2007, this subsidy is passed on to the participants
through reduced contributions. The expected amount of subsidy that AIG will
receive for 2011 is $3.1 million.
14.DEBT
ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
In 2011, the Company became a member of the Federal Home Loan Bank ("FHLB")
of Cincinnati. Membership with the FHLB provides the Company with
collateralized borrowing
68
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
opportunities, primarily as an additional source of contingent liquidity. At
December 31, 2011, the statement value of the Company's ownership in the
FHLB of Cincinnati was $14.3 million, which was reported as common
stock. When a cash advance is obtained, the Company is required to pledge
certain MBS, government and agency securities, other qualifying assets and
its ownership interest in the FHLB of Cincinnati to secure advances obtained
from the FHLB. Upon any event of default by the Company, the FHLB of
Cincinnati's recovery would generally be limited to the amount of the
Company's liability under advances borrowed.
15.COMMITMENTS AND CONTINGENCIES
COMMITMENTS TO FUND PARTNERSHIPS INVESTMENTS
At December 31, 2011, the Company had $35.8 million of unfunded commitments
for its investments in limited partnerships. These capital commitments can
be called by the partnership during the commitment period (on average five
years) to fund working capital needs or purchase new investments. Once the
commitment period expires; the Company is under no obligation to fund the
remaining unfunded commitment but may elect to do so. At December 31, 2011,
the Company had $0.7 million of outstanding commitments related to various
funding obligations associated with its investments in mortgage loans with a
commitment period of less than one year.
LEGAL, REGULATORY AND OTHER MATTERS
All fifty states 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 and
annuity 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 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 $1.6 million and $1.8 million for these guaranty fund
assessments at December 31, 2011 and 2010, respectively.
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, market conduct exams or
other regulatory inquiries. Based on the current status of pending
regulatory examinations and inquiries involving the Company, the Company
believes it is not likely that these regulatory examinations or inquiries
will have a material adverse effect on the Statement of Assets, Liabilities,
Surplus and Other Funds, the Summary of Operations or Cash Flow of the
Company. Various lawsuits against the Company have arisen in the ordinary
69
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
course of business. Except as discussed above, the Company believes it is
not likely that contingent liabilities arising from litigation, income taxes
and other matters will have a material adverse effect on the Statement of
Assets, Liabilities, Surplus and Other Funds, the Summary of Operations or
Cash Flow of the Company.
ESCHEATMENT/DEATH CLAIMS
The Company has received industry-wide regulatory inquiries, including a
multi-state audit covering compliance with unclaimed property laws regarding
claims settlement practices. In particular, the above referenced multi-state
audit seeks to require insurers to use the Social Security Administration
Death Master File ("SSDMF") to identify potential deceased insureds
notwithstanding that the payee has not presented the Company with a valid
claim, to determine whether a death claim is payable, and to take
appropriate action. The multi-state audit covers certain policies in force
at any time since 1992.
The Company recorded an increase of approximately $105 million in the
estimated reserves for incurred but not reported death claims in 2011 in
conjunction with the use of the SSDMF to identify potential claims not yet
presented to the Company. Although the Company has enhanced its claims
practices to include use of the SSDMF, it is possible that the inquiries,
audits and other regulatory activity could result in the payment of
additional death claims, additional escheatment of funds deemed abandoned
under state laws, administrative penalties and interest The Company believes
that it has adequately reserved for such claims as of December 31, 2011, but
there can be no assurance that the ultimate cost will not vary, perhaps
materially, from its estimate. Additionally, state regulators are
considering a variety of proposals that would require life insurance
companies to take additional steps to identify unreported deceased
policyholders.
16.LEASES
The Company leases local offices under various noncancelable operating lease
agreements that expire through May 31, 2017. Rental expense for 2011 and
2010 was approximately $8.5 million and $9.2 million, respectively.
The future minimum lease payments are as follows:
(in thousands of dollars)
YEAR PAYMENT
---- -------
2012 $ 6,625
2013 4,039
2014 2,175
2015 1,349
2016 704
Thereafter 55
-------
Total $14,947
=======
70
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
17.RELATED PARTY TRANSACTIONS
GUARANTEE AND SUPPORT AGREEMENTS WITH AFFILIATES
On March 30, 2011, AIG and the Company entered into an unconditional Capital
Maintenance Agreement ("CMA"). Among other things, the CMA provides that AIG
would maintain the Company's total adjusted capital (as defined under
applicable insurance laws) at or above a certain specified minimum
percentage of the Company's projected company action level RBC (as defined
under applicable insurance laws). The CMA also provides that if the
Company's total adjusted capital is in excess of a certain specified minimum
percentage of the Company's company action level RBC (as reflected in the
Company's quarterly or annual statutory financial statement), subject to
board and regulatory approval(s), the Company would declare and pay ordinary
dividends to its equity holders in an amount in excess of that required to
maintain the specified minimum percentage.
OPERATING AGREEMENTS
The Company is party to several cost sharing agreements with its
affiliates. 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. For the years
ended December 31, 2011 and 2010, the Company was charged $29.2 million and
$23.2 million, respectively, for expenses attributed to the Company but
incurred by affiliates.
The Company's short-term investments included an investment in the AIG
Liquidity Pool in the amount of $6.6 million at December 31, 2011 and $519.7
million at December 31, 2010; and an investment in the AIG Operating Pool in
the amount of $47.3 million at December 31, 2011 and $14.9 million at
December 31, 2010. An affiliate, AIG Asset Management, serves as the
independent advisor for these funds.
SUPPORT AGREEMENTS
The Company's insurance obligations for policies issued on or before
September 30, 2010 are guaranteed by American Home Assurance Company
("American Home"), a subsidiary of AIG and an affiliate of the Company. This
guarantee is unconditional and irrevocable as to outstanding obligations,
and the Company's policy and contract holders have the right to enforce the
guarantee directly against American Home. American Home files its audited
statutory financial statement with the New York State Insurance Department,
where such reports are available to the public. The Company has no
guarantees or contingencies for related parties.
DIVIDENDS AND CAPITAL CONTRIBUTIONS
The Company paid common stock dividends in cash to the Parent Company
totaling $430.9 million and $150.0 million during the years ended
December 31, 2011 and 2010, respectively.
See Notes 2 and 12 for information on capital contributions and affiliate
transactions related to the Company's securities lending activities.
71
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
The Company receives an allocation of its proportionate share of variable
compensation expense from AIG. AIG forgave the Company's obligation
associated with the variable compensation expense allocation for 2011 and
2010 and recorded the forgiveness of this obligation as a capital
contribution in the amounts of $1.1 million and $.3 million, respectively,
in accordance with paragraph 7 of SSAP No. 72, "Surplus and
Quasi-reorganizations". These transactions did not involve an exchange of
cash and had no net impact on surplus.
AGBA did not obtain an audit for 2010, therefore the Company non-admitted
its investment in AGBA in accordance with the requirements of SSAP 97. The
Company received cash dividends from AGBA of $0 million and $2.0 million in
2011 and 2010, respectively.
OTHER
The Company owns mortgages with a carrying value of approximately $27.0
million on certain properties that are owned by an affiliate, AIG Global
Real Estate Investment Corporation.
At December 31, 2011, the Company reported receivables from parent,
subsidiaries and affiliates of $9.0 million and payables to parent,
subsidiaries and affiliates of $18.4 million. The $9.0 million receivable
from parent was nonadmitted in accordance with Tennessee statute. At
December 31, 2010, the Company reported receivables from parent,
subsidiaries and affiliates of $.2 million and payables to parent,
subsidiaries and affiliates of $157.0 million. Amounts due from or to
parent, subsidiaries and affiliates are generally settled within 30 days. At
December 31, 2011, the Company reported a Federal Income Tax receivable in
the amount of $5.4 million fromAIG in accordance with its current
intercompany tax sharing agreement. In addition, at December 31, 2010, the
Company reported a federal income tax payable in the amount of $14.5 million
to AIG.
The Company held a senior promissory note of $173.0 million issued by
American General Corporation. In the normal course of business the note
matured on September 15, 2011 and payment was received in full along with
interest of $9.6 million.
The Company purchased a bond with a book value of $10 million from
affiliate, AIG Matched Investment Program ("AMIP"), on August 19, 2011.
The Company purchased a bond with a book value of $3.0 million from
affiliate, Western National Life Insurance Company, on June 24, 2010. On
September 29, 2010, the Company purchased a bond from affiliate, AIG Matched
Investment Program ("AMIP"), with a book value of $5 million. On
December 31, 2010, the Company purchased hedge fund partnerships from
SunAmerica Life Insurance Company ("SALIC"), an affiliate, with a book value
of $140.3 million.
EVENTS RELATED TO AIG
On January 14, 2011, AIG completed a series of integrated transactions to
recapitalize AIG (the "Recapitalization") with the U.S. Department of the
Treasury (the "Department of the Treasury"), the Federal Reserve Bank of New
York (the "New York Fed"), and the AIG Credit Facility Trust, a trust
established for the sole benefit of the United States Treasury (the
"Trust"). As part of the Recapitalization, AIG repaid to the New York Fed
approximately $21 billion in cash, representing
72
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
complete repayment of all amounts owing under AIG's revolving credit
facility with the New York Fed (the "New York Fed credit facility"), and the
New York Fed credit facility was terminated. As a result of the
Recapitalization, the Department of the Treasury became AIG's majority
shareholder with ownership of approximately 92 percent of outstanding AIG
common stock at that time.
On May 27, 2011, AIG and the Department of the Treasury, as the selling
shareholder, completed a registered public offering of AIG common stock. AIG
issued and sold 100 million shares of AIG Common Stock for aggregate net
proceeds of approximately $2.9 billion and the Department of the Treasury
sold 200 million shares of AIG common stock. AIG did not receive any of the
proceeds from the sale of the shares of AIG common stock by the Department
of the Treasury. As a result of the sale of AIG common stock in this
offering, the ownership by the Department of the Treasury was reduced from
approximately 92 percent to approximately 77 percent of the AIG Common Stock
outstanding after the completion of the offering.
Additional information on AIG is publicly available in its regulatory
filings with the SEC. Information regarding AIG as described in these
footnotes is qualified by regulatory filings AIG files from time to time
with the SEC.
73
AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
--------------------------------------------------------------------------------
18.RECONCILIATION TO ANNUAL STATEMENT
The following is a reconciliation of amounts previously reported to state
regulatory authorities for the 2011 and 2010 Annual Statements, and as
reported for the accompanying statutory financial statement: